Gwyn Morgan is the retired founding CEO of Encana Corp.
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It now seems clear that what's been labelled the worst financial crisis since the Great Depression will be far less painful than predicted. Economic data from around the globe indicate the worst may be over. But the big question is: how long and grinding will the recovery period turn out to be? The answer will be dramatically determined by the actions of governments.
Root causes of this economic meltdown include U.S. government policies that encouraged and supported hundreds of billions of dollars in mortgage loans to people who should never have qualified in the first place, as well as unaccountable Wall Street investment bankers who packaged and sold these allegedly creditworthy loans to unsuspecting investors. Some blame is also attributed to the failure of both American and European bank regulators.
Then there is the political left that says the crisis is proof that free-market capitalism is a failure and applauds the biggest economic intervention by governments around the world since the Second World War. Enormous stimulus programs, bailouts or de facto nationalization of failing businesses, huge deficit spending and knee-jerk regulatory responses seem to have reversed all the hard-earned lessons of the past. There is good reason to believe that unless governments withdraw from intrusion into business ownership and reverse their spending spiral, the so-called green shoots of recovery may wither into a second and even more disastrous global downturn.
Preston Manning's Sept. 14 commentary in The Globe and Mail headlined "How to Recover from the Recovery" captured this dangerous situation well: "Rapid expansion of the money supply can lead to a tsunami of inflation. Government ownership of businesses can lead to unhealthy dependencies, unfair competition ... and serious conflicts of interest." Pointing out that it took from 1984 to 1998 to balance the books in Ottawa, Mr. Manning stated: "Heavy deficit spending leads to increased public debt, increased interest payments, and the necessity of cutting services and/or raising taxes."
Assessing the Recession and Navigating the Recovery is the subject of a series of articles currently being published in the C2C-Canada's Journal of Ideas, an online forum posted at c2cjournal.ca.
Here are a few highlights:
Niels Veldhuis and Charles Lammam point out that the Canadian economy is recovering despite the fact that most of the stimulus money hasn't been spent. Rather than rolling out the stimulus money, they believe government should get set to reduce the size of government. They back this up by pointing to historical evidence that the economy does best when governments' share of the economy is smaller. After peaking at 53 per cent of GDP in 1992, cuts to federal and provincial spending reduced government's share of GDP to 39 per cent in 2007. Yet capital investments and productivity gains by individuals and businesses drove economic growth above all other G7 countries, providing 15 prosperous years.
Continuing the theme of how governments can extract themselves from this massive intervention, William Robson writes: "Further out, one possible impact looms large: a steep increase in the power and cost of government that shrinks the freedom and resources of citizens." Skill substitutes for power in any craft. A smart small government can do more good than a clumsy large one. It was victories by smaller-government advocates that enabled Canada to enter the downturn with lower public debt and balanced budgets.
Brian Lee Crowley provides an excerpt from his new book Fearful Symmetry: The Fall and Rise of Canada's Founding Values. He points out that only two short and mild U.S. recessions occurred in the 25 years before the current downturn, and during that period global real GDP growth averaged a robust 3.4 per cent a year. "The so-called capitalist greed that motivated business people and ambitious workers helped hundreds of millions climb out of grinding poverty."
Paul Beaudry points out that, contrary to popular impression, Franklin Roosevelt's New Deal did not bring America out of the Great Depression, but rather "led to dramatic destructions of wealth, the cartelization of many industries, and high unemployment" that was only ended by the Second World War.
The C2C series is required reading for anyone who worries that the medicine will prove to be more damaging than the illness. It was only a year ago when the failure of Lehman Brothers exploded an American mortgage fiasco into a global economic meltdown.
And it's staggering how, over that brief period, so many of the hard lessons learned from past big government folly about the importance of balanced public budgets, governments staying out of the business of business, free trade and free markets were suddenly thrown from the parapets in defence against a dreaded depression. For those with short memories, it's time for a refresher course.