Two economic questions need answers. Now that even Prime Minister Harper is using the word "recession" to describe Canada’s economic situation, there is an obvious follow-up: what needs to be done about it?

Canada has gone from what Finance Minister Flaherty said in February of this year was a strong economic situation, to a recession watch. So what happened?

Taking the second question first, Canadian economic growth slipped below zero in the first quarter of the year, bounced back slightly in the second quarter, and will finish the year stagnating. This is attributable to lower overall spending in Canada, since spending determines output. The Conservative government knew the economy was slipping. That is why Harper forced an election, even if he had to break his own law establishing an election date fixed in advance, in order to do it. The PM wanted to face the electorate, before facing the recession.

What is worrisome is the immediate outlook. All of Europe is slipping into recession, the U.S. economy is undergoing a major crisis, and prices for nearly all categories of Canadian commodities are falling simultaneously. Canada cannot look to foreigners to bail out the domestic economy.

Canadian business has been making record profits. But businesses do not spend just because they have money. Businesses only spend because they anticipate making a profit from the expenditure.

Many Canadian families have borrowed to carry on, and build their households, as they try to improve their quality of life. Taking into account price increases, wages and salaries have stagnated for about 30 years. The outlook for private pensions is bleak, and public pensions are puny. Faced with uncertainty, Canadian families will try to pay down debt, and everybody will look to cut current expenditures. Business knows this, and will not be investing.

Taken together, spending by foreigners, businesses, households, and governments is what drives economic activity. Since the foreign, business and household sectors are not going to deliver, that leaves government as the only actor capable of dealing with recession. Should governments act timidly, recession will turn into depression.

The Conservatives are not going to come up with an economic recovery package by themselves. It is important that civil society organizations take the lead in proposing a course of action, and that opposition parties create space for broadening, and deepening debate on economic alternatives.

Central banks the world over have signalled their willingness to act as lenders of last resort. The Canadian government needs to signal its willingness to act as employer of last resort, ready to invest in job creation throughout Canada. It is of utmost importance, as well, to re-establish the federal social safety net, by reducing waiting time for Employment Insurance benefits, lengthening eligibility periods for benefits, and doubling access to the EI program, so that it covers at least 80 per cent of the current workforce, not the less than 40 per cent, as at present.

The federal government should convene a series of investment "tables" to promote a long-term structural shift away from dependency on foreign ownership, commodity production, and branch plant manufacturing, and towards a green future. Initially all levels of government should take part in joint planning of infrastructure investment. The federal government should be prepared to guarantee provincial borrowing for long-term investment.

Establishing sectoral roundtables to plan business and public investments is an important objective. Currently government hand out tax breaks to business without requiring anything in return. How much more sense it would make to require that businesses undertake job creation before having access to the public treasury. Governments need to understand that these sectoral tables must include labour and community groups, and not just business and government.

Important elements of the Canadian economy are virtually invisible. The social economy, made up of not-for-profit business, non-governmental and voluntary organizations, including arts, recreation and activist groups, constitutes a reservoir of talent and capabilities. Chronically under-funded, and marginalized, this sector has good genes, and a social economy strategy could prove to be an important adjunct to traditional public investment measures.

Finally, the economic debate around what to do to avoid a depression needs to be joined. A group of economists led by Louis-Philippe Rochon and Mario Seccareccia recently set out the terms for re-defining public finance. The NDP needs to take the lead in breaking with the balanced budget orthodoxy discredited by the great depression. Though it is poorly appreciated, the dynamic of parliamentary politics invites the government to adopt policies proposed by the opposition, if only to steal their ammunition in preparation for battles to come.

The Conservatives saw the recession coming. If they do not act boldly, conditions will worsen, and the public will send them packing.

Duncan Cameron

Duncan Cameron

Born in Victoria B.C. in 1944, Duncan now lives in Vancouver. Following graduation from the University of Alberta he joined the Department of Finance (Ottawa) in 1966 and was financial advisor to the...