The Minister of Finance, Paul Martin, announced that Canada had a record a surplus of $2. 9 billion, their promises of tax relief have been executed and the unemployment rates has fallen to 7. 5 per cent, its lowest level in more than nine years (Finance Canada). The costs of this good news are the budget cut of the federal government on social welfare programs in recently years. Hospital rejected to accept new patients. Toronto High Schools was shut down. Homeless people sleep outdoors. Is the monetary policy that Mike Harris exercising harms the people?
The aim of this article is to look at historical reason of Canada being a welfare state and being changed to a more capitalistic society. The era of Keynesian Welfare State (KWS) and contemporary Neo Liberalism and the effects of Mike Harris” government policy will be discussed In 1878, McDonald national policy was introduced. McDonald introduced a set of import tariffs to protect the domestic market. This policy became the diving force of Canadian economy until 1930″s with the problems of the great depression, world economic crisis and government deficit.
In 1936, John Maynard Keynes published his book “The General Theory of Employment, Interest and Money”. He argued that a depression was a short run phenomenon because of a lack of demand. If the government could inject money to the private sector, the private sector would be better off and spending money and the government could collect tax. It has been called as demand-management policy. The crises were solved by the breakout of the Second World War (WWII) in 1937. After WWII, many governments (including Canada, UK and US) pursued Keynesian demand-management policy.
On the level of production, in 1940″s, Henry Ford decided to bring a new method of production, assembly line production, with a 5 dollars day policy. His idea was to create a new type of workers who could afford to own cars and to avoid alienation of workers. Ford also brought along many workers” benefits such as consultants to make the workers concentrating on their jobs. This concept, Fordism, became a system that there was a matching of mass production with mass consumption. Fordism also led to the recognition of collective bargaining power.
Unions were established to bargain for their rate of wages and everyone automatically became a union member. The power of unions was continually growing up while word output grew at an unprecedented rate of 3. 9 per cent annually during the golden age (1950-1973) (Held 164). On the level of finance, the Bretton Woods agreement was also signed during KWS period in 1944. The core of Bretton Wood System (BWS) was the agreement of International Monetary Fund (IMF). ”
The purpose of IMF is to promote international monetary cooperation, exchange stability… o provide temporary financial assistance to countries under adequate safeguards to help ease balance of payments adjustment” (IMF). With the BWS, capital outflows were strictly controlled. For nearly three decades, governments were relatively free from the constant treat of capital withdrawal as today. Away from the treat enabled them to “be far more responsive to demands from the electorate – demands that usually involved policies aimed at achieving full employment and developing social programs. ” (Howlett 540).
In Canada, government introduced new social and welfare programs, for example, unemployment insurance, family allowance, Canada assistant plan and health care program. Post-secondary education was funded. By the demand management policy, the fund to welfare programs would be automatically adjusted with the number of unemployment. These were the origin of our existed social welfare program. Capital controls also created stable currency values that helped to promote World Trade. After1945, the size of government sharply increased as new government institution and new programs were added.
The government grows and the government expenditure made up to around 40% of Gross Domestic Product (GDP). Any major decision made by the government would have a great influence to the market. On the other hand, business corporations lost their influence to government as they had during the era of National policy. On the level of trade, the primary international trade agency, General Agreement on Tariffs and Trade (GATT) was formed for tariff negotiations in 1947.
The aims of GATT were “Raising standards of living, ensuring full employment and a large and steadily growing olume of real income and effective demand, developing the full use of the resources of the world and expanding the production and exchange of goods, Being desirous of contributing to these objectives by… the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international commerce” GATT formed the framework for seven rounds of global tariff reduction negotiations. During the golden age, the Canadian experienced a low unemployment rate, low inflation rate and small deficit on government.
However, with the increasing activities between nations, KWS started to face new problems. Firstly, the rise of the Eurocurrency market in the 1960s placed increasing strain on the BWS. US dollars became under the pressure the inflation and a growing trade deficit and finally on 15 August 1971 President Nixon shocked the world financial market by announcing that the dollar was no longer to freely convertible into gold, effectively signally the end of fixed change rates. This action increased the pressure on BWS.
By 1973, the BWS had collapsed. Secondly, the collapse of Bretton Woods was compound in 1973 by the decision of the Organization of Petroleum Exporting Countries (OPEC) to quadruple the price of oil, effecting a huge transfer of funds from oil-importing countries to oil-exporting countries. Oil-exporting countries were left with a large surplus to invest on international money market. The banks lent increasingly to developing countries. In the process both the intensity and the extensity of global flows were transformed. (202).
Thirdly, the rate of growth is declined as Fordism reached its maximum marginal value of production. The rise of the price of oil also played a role in the declining marginal value. In 1970″s, the economy experienced a stagflation that there were both high inflation and high unemployment rate existed. There was an increasing deficit because of decreasing tax revenues and increasing expenses on welfare programs as the function of automatic stabilizer. Since Keynesian provided no explanation and solution to stagflation, monetarism helped to explained it.
Milton Friedman was a monetarist and he argued that “any attempt to manage the level of demand in a Keynesian way would simply be destabilizing and make things worse. The role of government is simply to use its monetary policy to control inflation and supply-side policies to make market work better and reduce unemployment” In 1975, the bank of Canada officially adopted monetary policy. On the level of production, Multinational Corporations (MNCs) have grown there has been a significant transnationalization of production expressed in the emergence of global production and distribution networks.
The North American Free Trade Agreement (NAFTA) encourage the development of three major market: Canada, Mexico, US such that “MNCs have been induced to locate production insides each of these blocs” (David 243). Since Mexico have little regulations toward employment”s welfare, environmental protection and US has been the major investor of Canadian manufacture sector, Canada has to deregulate many laws in order to attract US and other foreign investments to continue investing on Canada. In 1989, the trade relationship between Canada and US have moved forward, culminating in the establishment of…
Canadian – American Free Trade Agreement (FTA) (Howlett 540). In worldwide, many production sites were shift to the Third World Countries where had no unions or little power on unions and no regulations on working condition and environment protection. On the level of finance, during the 1970″s and 1980″s the national capital controls became less and less effective because of grow of Euromarket and the collapse of BWS. One of the aims of World Bank, which is founded in1944, is to “Promoting reforms to create a stable macroeconomic environment, conducive to investment and long-term planning” (World Bank).
World Bank provide nearly $30 billion in loans annually to its client countries, therefore we can see the political and economic influences it has on these countries. IMF also plays an important role on providing financial help to its client countries. However, the rules accompany the agreement on the loan may not a good news to the people. One of the rules is to decrease deficits of the government and the most efficient way to decrease deficits is to cut social welfare programs. Reducing the subsidy to certain industries will lead to lose of jobs.
An argument which come up lately is that US government argues that the health programs in Canada is a form of subsidy to industries because in US, workers need to buy health insurance and hence increasing the cost of production. This is violating the agreement of FTA. This kind of rule is seriously hurting the benefits of the workers in Canada. Knight noted that “ceilings on interest rates reduce the efficiency of financial intermediation and the signals for profitable investment” (Knight 17), but not for the benefit of working class.
If the interest rate is high, the working class have to pay more interest on their mortgage payment. On the level of trade, the formation of Business Council on National Issues in 1976 has a long-term effect on Canadian policy making. Since most of the members of BCNI are large corporation, they have the power to influence government policies though business action. It had helped to solve the Albert oil crisis and the establishment of NAFTA. When the politics are making decision that will effect business realm, they will concern the reaction of those investment companies, but they do not spend so much concern on unions. 0 per cent of Canada-U. S. trade is concentrated in the hands of just 200 companies.
A survey of the employment practices of companies belonging to BCNI shows that 37 members of this powerful group that lobbied so hard for the FTA and NAFTA have reduced their payroll by a total of 215,414 employee between 1988 and 1994 (Dillion, 95). Social programs cut over the last seven years, big business has successfully campaigned for less government regulation and for the weakening of social programs in “the name of leveling the playing field number” (Dillion, 96). we are to stop the headlong race to the bottom for our economic, social and environmental affairs as well as the erosion of our culture”said Dillion (98).
Now, we are not racing for our public goods. If we continue to allow corporation lobbies to influence our government decision making, our existing public goods will be disappeared too. Though 1980″s to 1990″s, many government programs were cut, industries like communications were deregulated, and many government services and corporations were privatized at both the federal and provincial levels.
According to McQuaig, even though governments were powerless to bring down unemployment by using the key levers of monetary and fiscal policy, they were able to reduce it by taking away crucial social support systems, thereby making the worker feel more desperate to work. ” (McQuaig 37) This is the policy that Mike Harris” government doing right now. During 1995 to 1996, these two year, Federal Government cut her health expenditure from 9024 millions to 1077 millions, education expenditure from 6254 millions to 3355 millions (drop nearly 45 per cent), transportation and communication expenditure from 5192 millions to 3306 millions.
Only General-purpose transfers expenditure was increased from 10429 millions to 23834 millions dramatically (Statistics Canada). By 1998/99 the liberals will have cut $7 billion in social transfers to the province (Red book, p. 74). When the government cut the budgets on welfare and on the other hand cut the tax together, the victims will be the lower class family. Cutting the education funds presents students have to pay more tuition fees and increase the burden of their family. Cutting the health expenses lead to hospital refuse to accept new patients and hurt the people who need medical attention.
Since the government does not provide low rent housing, many families, not a single person, cannot afford to live in a decent home and need to live outdoor with the danger and harsh weather nearby. Only 34. 9 per cent of unemployment workers received UI benefit (Godin). Federal government also sets new rules that people who are receiving UI need to do volute works but they ignore the fact that some people need to take care the children and cannot go to work. People also need to pass drug test to be eligible for receiving UI.
Privatizing public corporations such as hydro will eventually lead to increase the fees and thus in add burden to the poor. Ontario sells Highway 407 to private company and about half years later the fees are increased. “Canadians values have moved away from the socially responsible and pragmatically interventionist liberalism that had for decades been their dominant characteristics” (Pratt). It is true that Canadian economy is benefit from these changes and brings our economy away from the crisis of the deep depression.
However, we will lose the public good that have been existed in our society for nearly 50 years if our society approach the format of capitalism. Although adopting monetary policy hurts the benefit of the workers, it is clear that we cannot go back to the period of KWS. Howlett noted, “Keynesianism also includes the concept of market failures and economic efficiency” (Howlett 540). If we can find a balance between Keynesianism and Neo-Liberalism, we can still have the benefits of our welfare and economic efficiency.
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