For many Canadians, a desire for change influenced their final voting decision in the federal election. Through focus groups and polls, the Liberals realized before the campaign even started that capturing the ‘change’ vote was crucial for winning seats. In recognizing this, credit to the Liberals for correctly reading the mood and accounting for it in their strategic campaign planning.
With their majority win last week, it is now evident that what the Liberals did to communicate to Canadians an identity of change, worked. Whether canoeing in Calgary’s Bow River, boxing in Montreal, or mountain climbing in Vancouver: these activities were all carefully staged ploys to exude qualities in Trudeau starkly different to the prosecutorial Tom Mulcair and cold Stephen Harper.
However, despite Trudeau’s advantageous public image, communicating policy worth voting for remained his most important challenge for staging a Liberal victory.
Upon this realization, two pivotal decisions were made by the Liberals on how their policy platform would differ from the platforms of the Conservatives and the New Democrats. First was the promise to raise taxes on Canada’s wealthy while reducing taxes on the middle-class.
Then came the second promise.
Deficits! Public investment! Spending Canada to economic growth! In contrast to the promises made by the Conservatives and the NDP (surprisingly) to balance the budget, the Liberals went the other way. The decision to make this promise was a big gamble, as it stood in stark contrast to a prevailing view among Western leaders that fiscal austerity was the surest way to economic recovery.
After the election and a majority win, a Liberal campaign official was quoted as saying “the infrastructure deficit plan was the ultimate way to show we were able to bring about change right away.”
The National Post reported, “[the] Liberals believed the deficit pledge essentially won them the battle for change voters, helping them eventually overtake the NDP among those eager to see Harper’s back.”
So there it was! With a simple promise to run a (modest) federal deficit and invest in Canada’s infrastructure, hurricane winds caught Liberal sails.
But where did this idea come from? Given its magnitude, where did the campaign team led by Gerald Butts, get the idea to counter an argument of fiscal prudence so dominant in Western economies? Granted, with a devastatingly low expectation for Trudeau’s campaign from the outset, one could argue the party had to take risks. But still, where did the seeds for such an idea originate?
The answer to that question can be traced back to an influential American academic: Harvard professor of economics Larry Summers.
On Summers’ influence, the National Post’s Terence Corcoran reported, “within the Liberal camp, the idea that Canada needs a fresh blast of government spending on infrastructure and some deficit spending has been top of mind since the party brought in global economic heavyweight Lawrence Summers — former U.S. Treasury Secretary — to provide policy guidance for a new Trudeau economic plan.”
Summers, it turns out, is one the world’s leading critics of government fiscal austerity. The Summers argument of ‘secular stagnation’, according to J. Bradford Delong of the Milken Institute Review, “is that the global economy — or, at least, the North Atlantic chunk of it — will be stuck for a generation or more in a situation in which, if investors have realistically low expectations, central banks reduce interest rates to accommodate those expectations and governments follow sensible fiscal policies, the private financial markets will lack sufficient appetite for risk to support a level of investment demand compatible with full employment.”
In other words, to Summers, the combination of pervasive low interest rates and prudent fiscal policy, (the plan of choice for a number of nations since the 2008 financial crisis) will result not in attaining full employment and a healthy economy, but rather, the opposite.
Summers himself has said that “in an era of extraordinarily low interest rates and slow growth, it is becoming increasingly clear that progressives do best when they reject austerity and embrace public investment.”
This policy stands in stark contrast to the supply-side economic policy (largely emphasizing the skills of the workforce, companies’ capacity for innovation, and structural tax reform) that finds greater favour among political parties such the US Republican Party and the Canadian Conservatives.
As John Ibbitson reported in the Globe and Mail, “at a speech in Davos, Switzerland, in 2012, Mr. Harper offered a rebuttal to Mr. Summers’s way of thinking by warning political leaders against falling ‘into the trap too much sovereign debt, too much general willingness to have standards and benefits beyond our ability or even willingness to pay for them.’”
As it stands now, Larry Summers’ ideas of deficit induced public investment have found favour in our country’s new majority government. And If it was Summers’ ideology that led to Trudeau making his big campaign bet, it would seem obvious that henceforth, when Summers speaks, Trudeau listens and Trudeau acts.
How then, could Summers’ ideas further influence Canadian public policy? What impact will there be for Canadian industry at large? For the oil and gas industry? What trickle down effects can Albertans expect from Larry Summers style federal fiscal policy?
These are hard questions to answer, for their answers rely on future government decisions.
But, there are clues.
According to Delong, Summers thinks that “full employment requires finding something expensive to invest in, and fighting global warming [to Summers] is the most useful thing that is likely to be expensive enough to make a difference.”
Delong further notes that what naturally follows for Summers, is a strong advocacy for “carbon taxes to accelerate the phasing out of [certain] fossil fuels, [needing] to be much more than offset by spending to accelerate the buildup of renewable energy sources and other carbon-sparing energy technologies.” For Summers, it must be true then, that Canada’s regulatory framework for the oil and gas industry fails to align with his vision for correcting what he views as secular stagnation.
If Trudeau and his team buy into more of what Summers is preaching, one could make the argument that under the facade of change, increased regulation, and taxation from the federal government will come the way of Canada’s energy sector.
Will Canadians, and Albertans see a federal carbon pricing scheme? Trudeau, before he was elected, vowed to pursue a national carbon pricing plan to combat climate change, proposing a model in which Ottawa would set national targets and enforce principles but allow provinces to design their own systems. The implications of such policy certainly will have an effect on how attractive further investment in Canada’s energy sector will remain. Other implications, while there are many, include the potential for aggressive policy toward the phasing out of coal fired power, and federally mandated lower GHG emissions standards. With a Liberal majority, following through on their promise of change (in whatever form) is entirely feasible.
For the first time in a long while, Alberta and the oil and gas industry do not have a Conservative party to work with provincially or federally. The newly elected governments campaigned on change, and now both have a majority mandate. It will be interesting to see how ‘change’ plays out for the energy sector that in the wake of a global commodity price rout, could use a little help.