The downward pressure on the Canadian dollar was predictable, if not inevitable, once U.S. President Ronald Reagan sent his proposed budget to Congress.
That budget, with its projections of monumental deficits through 1990, gave the clearest possible signals to speculators and investors around the world. Even if Congress tinkered with the budget, they knew that the American dollar and interest rates would both stay high.
In these circumstances, the Canadian dollar was going to fall. No matter what the Opposition says in Parliament – and neither party has a realistic alternative policy – the Government had to sanction a managed decline in the value of the Canadian currency with a small increase in interest rates.
Yet the current surge of the U.S. dollar alone does not explain our falling dollar. After all, the dollar began falling a number of years ago now, its fall a reflection of certain bitter realities.
Foremost among these were Canada’s poor productivity record, its own burgeoning public debt and a stubborn refusal to restructure our industry.
Put simply, successive governments have been misapplying public funds to prop up losing or declining industries. The result of these political decisions has been a systematic and huge application of scarce resources to unproductive activities. Inevitably, these mis-investments took their toll on Canada’s economic standing. But no party will say these things for fear of losing votes.
Look about Canada and see a landscape littered with industries protected by government regardless of their international competitive positions. The car industry is assisted by restraints on Japanese imports. So are the textile and footwear industries.
Megaprojects mock the bold promises of their inventors and drain away taxpayers’ money – Northeast coal in British Columbia, Expo ’86 in Vancouver, Mirabel airport, Via Rail, the Olympic Stadium, the post office sorting complex in Montreal. The list runs on.
Uncompetitive industries – business being at once government’s sharpest critic and most insistent supplicant – demand their tithe of taxpayers.
There are too many fishermen or fish processing plants on the east and west coasts. Canadair and de Havilland continue to be sinkholes for public money. We are stockpiling heavy water in Nova Scotia for Candu reactors which nobody wants to buy. We’re reinstating passenger rail routes which will resume losing vast sums of money. We put more money into a losing oil-based petrochemicals plant in Montreal. We pour money into money- losing steel mills in Nova Scotia.
Unemployment insurance has become a social welfare program. In Newfoundland, make-work projects are designed to give people just enough working weeks to qualify for unemployment insurance.
The examples of misallocating public funds could run on and on. In every case, the reasons behind the allocations are political and social. Either no alternative employment exists or governments, having lost huge sums already, don’t mind dropping a little more cash to buy political peace.
This kind of economic behavior has been the Canadian way for decades. In the 1970s, when the terms of international trade turned against us and our productivity weaknesses became more glaring, governments intensified the subsidies and protection.
In this way, governments (usually Liberal) tried to cushion social distress. The approach also brought political gains. But it delayed structural adjustments in our economy, a sustained attack on weak productivity and a more intelligent national debate on the role and capabilities of government.