Does the PM have any effect on the economy?
“We’re better off with Harper,” runs the tagline on the latest Conservative TV ad. As slogans go, it’s not particularly memorable or even novel — the Conservatives have used it before, in 2008, as I suspect have other campaigns over the years.
And the supporting claims are not exactly bold. You’d expect to find there were “more Canadians working today than at any time in (our) history,” the same as you’d expect to find there were more Canadians, period. That is no more than what is implied by normal growth over the long run: At any given time, you are at the highest point reached to date.
For that matter, what does “better off ” mean? Better off than we were before Stephen Harper became prime minister? That’s arguable: Inflation is lower, but unemployment is higher; surpluses were replaced by deficits, but the debt-to-GDP ratio is lower; and so on.
Still, throw in rising median incomes and record household net worth, and on balance you could make a strong case that we’re better off than we were. But so what? The question is not “are we better off ?” but “what’s Harper got to do with it?” Or rather, “how much does any prime minister have to do with it?”
As much as prime ministers like to take credit for the good economic times, or their opponents to blame them for the bad, the degree to which any government is responsible for the state of the economy at any particular moment is distinctly limited.
In an open economy like Canada’s, of course, domestic conditions are hugely dependent on the state of the world economy. Harper can no more be blamed for the global financial crisis of 2008 than he can be credited with the recovery that followed. To the extent that domestic policy matters in the short term, moreover, it is mostly to do with monetary policy, which the government does not directly control (though it is ultimately responsible for it).
Governments certainly have the capacity to do a great deal of harm, and often have — closing our borders to trade, say, as in the 1930s, or letting deficits get out of control, as in the ’70s and ’80s. So I suppose congratulations are in order for any government that merely avoids messing things up. More seriously, between the Harper government and the Bank of Canada, policymakers in this country handled the 2008 crisis remarkably well.
As far as making a positive economic contribution, however, governments are mostly confined to the longer term. This has less to do with the macroeconomic levers of monetary and fiscal policy than with tax, trade and industrial policy, the sorts of things that go into how productively the economy makes use of available resources in the long run.
The Harper government has made some useful reforms here, cutting corporate tax rates and negotiating several important free trade agreements (though all are as yet unratified). But the benefits of these, in any one year, are small and often hard to measure. It is their cumulative effect over many years that counts — by which time most of today’s politicians will have left office.
And yet the evidence is that it is the short-term state of the economy, the thing over which governments have the least control, that decides elections. Whatever personal contributions Pierre Trudeau or Brian Mulroney might have made to the odium in which they were held by the time each left office, it was the recessions that beset the country in their final years that dictated their departures — and doomed their successors.
Conversely, the public has shown itself most unwilling to dump a government in relatively good times, whatever its other faults. As I’ve noted previously, you have to go back to 1957 to find a majority government that was defeated when unemployment was below seven per cent. Recent provincial elections offer further proof of this reluctance.
That doesn’t mean it can’t happen. Voters tend to be forward-looking, and comparative. If they stick with incumbents, it is less out of gratitude for past achievements than a sense they are best placed to handle the challenges ahead. To make the “better off ” line work for them in 2015, then, the Conservatives have to convince Canadians not just that they are better off than they were, but that they will be better off in the future — or more precisely, that they would be better off with Harper than with the other party leaders.
The problem this presents for the government is twofold. One, not only is the economy growing rather more slowly than has been the norm historically — employment, in particular, has all but stalled — but this slow growth is likely to continue: in part owing to the lingering aftershocks of the financial crisis, in part to the population aging, as more people leave the labour force than enter it.
That’s hardly the government’s fault: That would be true no matter who was in power. But that’s the second point: No matter who is in power, the outcomes are likely to be much the same, at least in the short run. On policy, both opposition parties have largely embraced the balanced budget-low inflation-free trade orthodoxy that was once the preserve of the Conservatives. The Liberals, in particular, are seeking to minimize the distance between themselves and the Conservatives on the economy, hoping to make the election more about tone and style of government.
That still leaves basic managerial competency, an obvious question mark for the untested Liberal leader, Justin Trudeau. But for all the Conservative efforts to hammer away on this point, the polls indicate the public is withholding judgment.
Other things being equal, in short, the economy ought to favour the Conservatives in 2015. But other things are not necessarily equal. It will all come down to the campaign.