D6

W.E. (Bill) Belliveau

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What planet do Canada's Minister of Finance Jim Flaherty and Prime Minister Harper live on?

In a speech, just one week ago to about 1,000 chief executives of companies from the 20 Pacific Rim countries that make up Asia-Pacific Economic Co-operation (APEC), Harper called on governments to increase spending, maintain open trading relationships and support financial institutions and struggling industry sectors.

A week earlier he agreed with members of the G20 to stimulate the Canadian economy.

Speaking at the APEC summit in Lima last week, Prime Minister Harper said "The world is entering an economic period unlike and potentially as dangerous as anything we have faced since 1929 and the world must avoid repeating history by recognizing the Great Depression was caused by bad government policies.

"Let us remember what led to the Great Depression. It was not caused by a stock market crash. That was only the beginning. Governments of the time made a number of serious mistakes, including attempting to balance the books at all costs, raising taxes and cutting spending at a time when a fiscal stimulus was 'absolutely essential'," said Mr. Harper.

The prime minister said policymakers erred in allowing their banking sector to contract. They let deflation take hold, attempted to balance government budgets when fiscal stimulus was needed, and closed doors to trade in an effort to protect jobs within their own boundaries.

This week, Mr. Harper's Minister of Finance, Jim Flaherty, flipped that notion on its head. In his "economic and fiscal update" the minister announced that he will tighten his belt by cutting spending to avoid deficits and ignoring the need for fiscal stimulus measures.

Flaherty's moves are exactly opposite to what many economists recommend in times of recession. In most developed countries, governments are ramping up spending with multi-billion programs from infrastructure-spending to food stamps for the poor.

Earlier this week, former U.S. President Bill Clinton, speaking in Moncton, said that public spending and public policies can and should address declining global economies. He said the U.S. government should spend hard cash on modernizing rail networks, electricity grids, putting medical records online and conducting a "sweeping overhaul" of broadband so rural communities can gain Internet access."

He talked about the auto industry and its impact on the Canadian economy. "The biggest short-term threat to Canada in the current economic crisis is the large numbers of people in this Country who are working directly or indirectly for the auto companies," Clinton said. Canadian and U.S. governments need a co-ordinated strategy to get the three struggling auto giants, GM, Ford and Chrysler out of the red.

They are asking for U.S. $25 billion in emergency financial assistance from the American government to bail them out of their financial difficulties. In Canada, they are asking for as much as $6.5 billion worth of loan guarantees.

Finance Minister Flaherty's economic update offers nothing for the auto industry. Instead, he promises a $15 billion restraint program that includes: a three year suspension of the right to strike for civil servants (saving $5.1 billion), a $10 billion sale of government assets in a down (buyers) market, elimination of $27 million in election funding for political parties and a cap on the "equalization" program.

Clinton suggested that governments should encourage automakers to launch fuel-efficient cars and give consumers up to $10,000 in tax credits to buy electric cars for the first three years until prices come down. "Think of what it would do if the U.S. and Canada could beat Japan and Korea to the global electric car market at competitive prices," he said.

With other countries moving quickly to offer specific relief packages, and economists like Sherry Cooper from BMO Nesbitt Burns calling on Ottawa to implement a stimulus package as soon as possible, the Conservatives appear not to have a plan and more significantly, to be speaking out of both sides of their mouths.

The classic way for a government to stimulate a flagging economy is to pump money into infrastructure. Road-building and government-funded construction can create jobs through one-time projects that increase spending on local materials and provide the country with something it actually needs, without creating a long-term spending problem. That's the way Ottawa should go, economists say.

In its Throne Speech a few weeks ago, the government promised infrastructure spending to pump money into the economy. It would appear that Minister Flaherty has forgotten that promise. As a result, we may be facing another election or the possibility of a coalition government led by the Liberals and the NDP. Former Prime Minister Jean Chrétien and former NDP Leader Ed Broadbent are already discussing the terms.

We should know more on Monday, if not today.

* W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. His column appears on this page every Saturday. He can be contacted at bill.bellstrategic@nb.aibn.com