NDP Swings to the Right under Roy Romanow

The CCF-NDP began as a broad popular movement of people and organizations who wanted to see the development of a more egalitarian and democratic society. They were elected with a strong majority in 1944, and down through 1964 they were able to introduce a progressive taxation regime, expand democratic and human rights, introduce a range of social policies, expand public utilities across the province, and introduce legislation to try to defend the family farm.

Political right demonstrated against Medicare

They were replaced by the “free market”  Liberal Party between 1964 and 1971. But little changed in the province. In the election of 1971, the NDP again swept back into office under the leadership of Allan Blakeney. This new NDP government engaged in “province building,” introducing policies which began to transform the ownership and control of the natural resource sector of the economy. Resource royalties were raised significantly, capturing more of the economic rent for the people of the province. A number of Crown corporations were created, demonstrating that the people of Saskatchewan were fully capable of running their own affairs.

From 1982 to 1991 Grant Devine’s Progressive Conservative Party formed the government. They reversed the course, implementing a neoliberal strategy modeled after that of Margaret Thatcher’s Conservative government in Great Britain and Ronald Reagan’s Republican administration in the United States. Devine’s government began to privatize most of the Crown corporations in the natural resources sector. But when they moved to split the natural gas sector from the Saskatchewan Power Corporation and privatize it, the general public rose in opposition. The Saskatchewan Coalition for Social Justice took a strong public stand against the Devine government, organizing actions and demonstrations, which boosted support for the NDP. The October 1991 election returned the NDP to government, backed by a majority of the voters.

The NDP Makes a Great U-Turn under Roy Romanow
The general public, and those who voted for the NDP, expected the new government to return to the progressive social democratic tradition of the Saskatchewan NDP. But the new leader, Roy Romanow and his key cabinet associates, had a very different agenda. It involved a radical departure from the policies of previous CCF-NDP governments.

First, the NDP government contracted with Westmount Research Consultants to poll the general public on attitudes on policy options. The results released in November 1991 were clear: the public expected a real change in direction from the Devine years. The top priorities were seen to be job creation and combating hunger and poverty. The majority opposed cutting public services. There was no concern expressed about the budget deficit or the provincial debt.

As former finance minister Janice McKinnon reports in her memoire, something had to be done to “curb the appetite” for new programs and spending.. The Romanow government was planning a “very tough 1992 budget,” and the public had to be warned. John Penner, the new Minister of Energy and Mines, proclaimed that there would be no increase in resource royalties and no attempt to take back public control of the privatized Crown corporations, a flat repudiation of NDP policy and campaign promises.

The Romanow government appointed the Financial Management Review Commission, headed by Donald E. Gass, an accountant with Deloitte and Touche. By employing accounting techniques never used before in an assessment of a government’s fiscal condition, Gass came up with a total accumulated debt of $8.9 billion, including Crown corporations, twice the estimate set by the Devine government. The report concluded that the economy of Saskatchewan “can no longer support the public sector infrastructure that we have built to serve the quality of life and standard of living we have come to expect.” This was just what the Romanow government wanted. The report was praised by all the prominent business organizations and the Fraser Institute.

2013: Can the USA and Canada Break Out from Economic Stagnation?

This is the time of year when mainstream economists (and a few political economists) make their annual predictions on what is in store for the upcoming year. Last year was the first time that I took the plunge, and I did much better than the mainstream economists. Last year's predictions are on my home page: 2012: The Year the Canadian Housing Bubble Will Burst.

2012 in summary:
(1) There would be very modest growth in the USA – no real recovery from the recession.
(2) Europe would fall into a double dip recession.
(3) The U.S. housing market, deflating, would finally reach a bottom.
(4) The Canadian housing market bubble would begin its deflation process.
(5) The housing market in Regina would not start to deflate due to the steady influx of population. But I added: “This would change if the oil and potash industries were to follow the general decline now evident in world commodity prices.” This happened, and house sales in Regina dipped during the last four months of the year.
Not bad, eh? Five out of five. 

What can we expect in 2013?
Here is what I believe will most likely happen:

(1) The slow recovery in the USA will continue, with the housing sector starting to make a comeback. Most of the standard economic and financial indicators are trending up. However, mainstream economists are nevertheless predicting that real economic growth will be less than 2%. This seems a reasonable assumption.

A successful ten year “grand design” between the President and the Republicans in Congress for increasing taxes and cutting the budget deficit will once again be on the political agenda in late February. Such an agreement is very unlikely and would significantly reduce the federal government’s fiscal stimulus. However, some kind of an agreement must be reached. President Obama’s proposal of additional tax increases plus a $4 billion reduction in federal spending over ten years, if approved, might well tip the country back into recession; at the very least it would reduce growth rates to less than one percent, given the general weakness in the world economy.

(2) The European Union is in a general double dip recession. Even Germany is heading that way. With governments deeply committed to austerity programs, it is highly unlikely that this will change. The political leaders in the EU are primarily focused on preventing the failure of big banks. Political unrest will continue as unemployment and underemployment continues to increase. No solutions are in sight. A collapse in Spain would be a disaster for the EU zone. Non-mainstream political parties and movements will see an increase in their public support.

(3) Japan has now been passed by China as the second largest world economy. The new government is pledging to end the long period of deflation. But how? The value of housing has steadily declined by since the peak in 1989; concerned home owners have been paying down their debt and refusing to spend.  Zero interest rates and quantitative easing have not succeeded in stimulating the economy. John Maynard Keynes called this a “liquidity trap.” Massive public spending and government debt have also failed. Economic growth rates have been only 1%, and Japan has now slipped in another recession. Chronic stagnation continues. Is this the future for mature capitalism?

(4) In Canada, the government of Stephen Harper has been able to escape the worst of the economic decline in the industrialized world. This is primarily due (in my opinion) to their relative success in maintaining the housing market bubble. But this is starting to deflate, as it must. The price of an average house in Canada is now twice that in the United States, with median household incomes about the same. This is a ridiculous situation and cannot persist. House prices must return to their long term average, between two and three times median household income. Across Canada the average price of a house is now five times median household income. This is not a good time to buy a house. In a few years the baby boomers will start downsizing and prices should continue to decline.

Sask potash mines have excess capacity, excess production and face falling prices.

(5) The Canadian economy has also benefitted from the major increase in household debt. The average household debt is now 165% of household income, even higher than in the USA just before the housing crash. If the housing market continues to decline, as projected, it is most likely that households will start to pay down their debts. This is what has happened in the United States. A decline in consumer spending, which seems to me to be most likely, would adversely impact economic growth, which is already quite weak. I cannot foresee any improvement in the rate of Canada’s economic growth in 2013.

Making Sense Out of the Current Economic Crisis

Act Up in Saskatchewan

For several months now the mainstream media, political leaders and business commentators have focused on the “Fiscal Cliff” in the United States. President Barrack Obama and the Republicans in the U.S. Congress have been at loggerheads over how to deal with the very large federal budget deficits of the past five years. Another interim agreement was reached last night, and the stock markets have responded positively.

But it is easy to discover that nothing has really changed. The U.S. politicians have bought two months of peace; by the end of February they will once again have to face the reality of the enormous budget deficit and the fact that the United States Congress has legislated an upper limit to the debt that the federal government may undertake. The debt ceiling of $16.4 trillion was reached on New Year’s eve.

How can we make sense out of this economic and financial mess? It is difficult in that mainstream economists are committed to abstract models of the free market, focus on the current situation, and ignore the patterns of history. The mass media, owned and controlled by very large corporations, reflects this free market political perspective. 

Understanding the economic crisis
We can gain some insight into the current crisis by looking at key fundamentals which are deemed important by political economists. For those of us outside mainstream economics, they provide a basis for understanding what is currently happening.

(1) The advanced industrialized capitalist centres (often called The Triad of Japan, the European Union and the United States) are in a prolonged state of economic stagnation. From the 1960s through the period 2000-12, they have all experienced a steady decline in the rate of economic growth, increasing levels of unemployment and underemployment, and financial instability. The data on this is very clear. If in doubt, look at the World Bank figures.

(2) Manufacturing has steadily declined in all three centres, with transnational corporations shifting their manufacturing to low wage countries. Profits for these corporations have increased significantly as labour costs were radically cut. They now have a “surplus” of capital with limited options for investments which would earn an acceptable return. On a world wide basis, there is excess capacity in most manufacturing sectors. 

(3) With the steady decline in manufacturing, the three centres have all seen a significant rise in the share of their gross domestic product in the Finance, Insurance and Real Estate (FIRE) sector of the ecomony. But this sector does not create the same level of employment as the manufacturing sector, nor the same general level of income for workers.

(4) Various Keynesian fiscal and monetary policies have been implemented by governments and central banks to try to offset the stagnation of the private sector of the economy. Governments have borrowed heavily in order to increase government spending, including social services. Industrial developments are subsidized. The U.S. government is now spending $700 billion per year on the military. All of the Triad have greatly increased government debt. Since 2007, central banks have heavily subsidized the private finance industry.

(5) With the collapse of the high tech bubble in 2000-1, central bankers began to panic. In the United States, the Federal Reserve, under Allan Greenspan, began pouring money into the housing market. Mortgage rules were liberalized in order to encourage renters to buy houses. It was hoped that the construction industry would replace the failed dot.com industry as the new source of economic growth. But new speculative bubbles arose in the housing and finance sectors. These began to rapidly deflate in 2007, resulting in The Great Recession. 

(6) The other major stimulus to the economy has been the expansion of personal debt. Home mortgages, home equity loans, student loans, and credit card debt have balooned since the 1980s, and more dramatically since the financial crisis of 2001. In the USA, household debt rose from 50% of GDP in 1980 to 98% in 2007.