The Poverty of Ontario’s Liberals: The 2008 Budget

The 2008 Ontario budget is a particularly revealing political statement. Until now, the McGuinty Liberals have had a comparatively stable economy to contend with. Year after year since 2003, they have been able to very modestly expand public spending. How times change. The crisis within the manufacturing sector has deepened and now threatens to spill over into other sectors from tourism to construction. March 25th, budget day, was an opportunity for decisive action, to break with the constraints of convention and experiment. This was not to be the case, and instead, feeling very much like we returned to the days of Bill Davis, the McGuinty government opted for ad hoc, partial and incoherent measures.

The Ghost of the Common Sense Revolution

Ontario’s fifth Liberal budget since ascending to government in 2003 steadily continues along the trajectory set in their first budget. The daily sparring match between Ontario’s Liberals and the Harper Conservatives would lead one to conclude that indeed the Common Sense Revolution (CSR) is vanquished in Ontario and relegated to the federal scene. The reality is that Ontario’s Common Sense Revolution of 1995 to 2003 still haunts McGuinty’s cabinet table. It isn’t a matter that the McGuinty Liberals share the crude and aggressive view of what ails Ontario but rather they remain cowed by this legacy and in a fundamental sense do share with the CSR the view that progress will come from the top down and ultimately salvation is an individual responsibility. To be fair, federal Tory finance minister Flaherty’s demand that Ontario cut its general corporate tax rate from 14 to 10 per cent was not heeded. Such a move would have cost Ontario $2.3 to $3.5-billion in revenue. While Flaherty is keen to see all governments follow his path of permanently incapacitating themselves through deep tax cuts, the McGuinty government is not yet prepared to go down that path, at least to the same extent. However, one of Flaherty’s key demands, that the capital tax on businesses be eliminated has in fact already been legislated in Ontario and will come into effect in 2010. Moreover, this budget includes various business oriented tax cuts which will cost the Ontario treasury $750-million. This business tax cut is nearly 300 per cent larger than the “anti-poverty” proposals made in this budget which total some $267-million. Indeed, the essence of the Common Sense Revolution lingers.

Return to the Training Trap

The signature piece of Budget 2008 is the $1.5-billion “Skills to Jobs Action Plan.” This set of programs is intended to address the crisis in Ontario’s manufacturing and forestry industries in particular by providing workers with opportunities to re-train for new occupations. One component of this package will help approximately 20,000 laid off workers head back to school for a two year program by providing as much as $30,000 per student per year depending on individual circumstances. In addition, apprenticeship training will be expanded to allow for an additional 32,500 new apprentices by 2011. The problem is not the principle behind these initiatives but rather their inadequacy given that more than 200,000 jobs have been lost in these sectors and the stark reality that the Ontario economy is not generating sufficient numbers of high-quality jobs to replace them. The question will soon arise, as it did in the early 1990s, training for what? This further expresses the consistent Third Way policy theme of the McGuinty Liberals that investments in human capital – skills, knowledge, education, training – is our route to global competitiveness. The problem is that capitalism seeks to locate production where the factors of production, in particular people, are the cheapest. Eastern Europe and India, too, have their share of highly skilled workers who work at a fraction of the cost. The other aspect of this policy is that it papers over the real problem. Sweden, for example, has used active labour market policies such as training as a means to simply hide its unemployed.

For Want of an Industrial Strategy

Back in the late 1980s, the Liberal government of David Peterson established a new forum within the Ontario state – the Premier’s Council – as a mechanism to obtain alternative policy advice. The multi-partite Council had a neo-corporatist structure consisting of representatives from labour, business, government, and universities. This Council produced a rather sophisticated industrial strategy which envisioned a significant degree of provincial state activity in working with capital in building a high-wage economy in Ontario. Both elements of the governing Liberal party and the senior public service balked at the general thrust of these proposals. The Council further set the stage for the Ontario Training and Adjustment Board (OTAB) which coordinated the delivery of skills development and training as Ontario went through the massive restructuring of the 1980s. Moreover, OTAB was governed by a multipartite board which included labour and other social groups. Under the Rae NDP the number of Premier’s Council was expanded to encompass social and economic policy more broadly. These were rather robust proposals which while by no means seeking a rupture with capitalism, did seek to avoid the aggressive flexibilization strategies of Reagan and Thatcher which assaulted unions, the working class and the poor. This was the post-Keynesian strategy of “progressive competitiveness,” anchored in leveraging high-skilled, high value-added production as a means to good jobs at good wages, while simultaneously giving greater sway to liberalized markets nationally and locally and globalized markets internationally. It failed as an alternative to neoliberalism, simply becoming one of the varieties by which neoliberalism multiplied across Canadian jurisdictions and internationally across conservative and social democratic regimes alike.

The legacy of progressive competitiveness has been only ever so partially retrieved by the McGuinty Liberals. What now passes for industrial policy is a regime of tax supported bribes and a modest infrastructure development program. It is not that these are not necessary in the moment but that they are precisely that – momentary. These are all short-term and inadequate responses which beg for more investment, more planning, and more coordination. Budget 2008 presents even less of an alternative to neoliberalism than what the Peterson-Rae governments experimented with in the 1990s.

As noted above, the budget proposes $750-million in tax cuts for business. In addition, there is an unfocussed, scatter-gun dolloping of funds in sectors as diverse as agriculture, festivals, interactive digital media, artistic and cultural industries, veterinary research, and wine production. All in all a rather incoherent allocation of expenditures which has all the hallmarks of Ontario’s tradition of using state resources as an instrument of local and regional elite patronage. Let’s be clear. These initiatives do have merit. But they lack serious co-ordination and coherence to be much more than one-off and short term band-aids.

The Poverty Agenda: Addressing Symptoms but Not the Cause

If Budget 2008’s poverty reduction proposals are any harbinger of where this much touted initiative is heading, then we have a great deal to be concerned with. Of course, the dental care proposal is a good start, as is the nutrition program. But $100 million for social housing is a debacle in the midst of a long-term affordable housing crisis. A major housing development program would generate employment and provide affordable housing to those who need it. Again, this is not a plan for the long-term but rather a gesture. The 2 per cent increase in social assistance rates proposed here will do nothing to reduce poverty. In fact, it goes some way to institutionalizing poverty. And indeed the minimum wage rises to $8.75/hour. A full $1.25 short of what poverty activists and unions have demanded. But more importantly, and insidiously, the McGuinty poverty reduction strategy seeks to define poverty into the most manageable morsels.

The 40 per cent of Ontario workers who have seen their incomes decline over the past decade is simply too big of a problem to even attempt to grapple with. The days of dreaming big are certainly over in the world of neoliberalism. But any serious anti-poverty strategy must come to grips with those who are in a precarious place. They may not be the impoverished of today but are merely one lay-off, one accident, or one illness away from joining those in the bottom decile. This is despite a more than 60% growth in Ontario’s GDP (Armine Yalnizyan, Ontario’s Growing Gap, 2007, 5 and 12). It must be further said, that this broad-based stagnation has also occurred at a time of steadily declining unemployment. Again, we must, if honest, return to the fact that working is not working for significant numbers of Ontario workers and dealing with symptoms will ultimately enter into a crisis of its own. As economist Armine Yalnizyan observes in a study of polarization in Ontario: “As inequality grows, those who can afford to pay will drive the prices of all the basics – the housing market, the education market, the market for caring services, (nannies, home care, and health services). The result could be a shift in focus from public solutions to private solutions and, perhaps unwittingly, driving costs up for everyone, whether they can afford to pay or not” (22).

The Impoverishment of Liberalism

Looking forward, the cracks in the foundations cannot be papered over with largely ad hoc and insufficient measures to address the most palpable symptoms of the current economic downturn. The Ontario Liberals indeed have more progressive options but these compose the path not taken. The legacy of the Common Sense Revolution has left Ontario underfunded. And this has not been addressed by nearly 5 years of Liberal majority government. Ontario loses $16 billion every year in tax revenues as a result of the enduring fiscal policy of Harris and Eves. In addition, the Canadian Centre for Policy Alternatives has suggested that Ontario move to fill in the fiscal void left by the tax cuts of the Federal government (Pre-Budget Fiscal Update, 7). The growing gap between the rich and the “rest of us,” as economist Hugh Mackenzie puts it, can only be addressed if Ontario moves to restore a progressive income tax regime. Left as it is, the top 1 per cent of income earners will continue to “enjoy” disproportionate tax savings.

The federal Tories have been campaigning, in their war of words and demands that Ontario cut corporate taxes, to lay the blame for Canada’s deteriorating economy on the reluctance of Ontario’s Liberals to cut corporate taxes. As we’ve seen, cutting corporate taxes has been a consistent theme of the McGuinty Liberals. It is just that their approach is slower. Both the federal Tories and the Ontario Liberals have contributed to structuring fiscal incapacity into the very fabric of Canadian fiscal policy and federal-provincial relations. Both governments continue to actively disable their respective states, and thus the ability to deliver public services, through an ongoing policy of tax cuts. How they differ is a matter of degree and intensity but the tendency is the same. Moreover, both governments lack the planning and coordinative capacities, and deliberately so, that would contribute to an ability to effectively deploy public resources toward mitigating the real problems confronting working Canadians and communities. Hiding our unemployed, defining poverty out of existence rather than actually dealing with it, and handing out uncoordinated pots of money with no strategic objective will get Ontario no where.

A real industrial strategy is necessary which looks forward not to next year or the year after that but 25 years. The potential fiscal resources are there for a sustained program of public investment in key sectors such as public transit, social housing, environmental technologies, and sustainable and value added resource extraction and development. This would require, of course, a revitalized and militant labour movement anchored in a new socialist politics. That the NDP is no longer capable of either putting forward such an agenda or being that kind of political agency was again revealed the tepid responses by leader Howard Hampton and the NDP caucus to the budget, even outshining the dismal performance of the fall election.

But, perhaps, we can all rest easy after all and be assured that the cracks in the foundations of Ontario’s economy will soon be under repair. In a small passage of the budget, the beginning of a new development strategy was announced. None other than Richard Florida, grand popularizer of Clintonism (America’s “Third Way”), has been handed the job of studying Ontario’s workforce and making recommendations to improve Ontario competitiveness. Together with Roger Martin, dean of the University of Toronto’s Rotman School of Management and the Institute for Competitiveness and Prosperity, they will compose what will no doubt be a “breakthrough strategy” for Ontario in how to sustain capitalist prosperity in a world of global competition, continual innovation, pulsing urban creativity, and the like.

Rather than stress about the dismal state of manufacturing jobs, the intensification of work, declining living standards, global warming, we should all stroll through Toronto’s Kensington Market, latte in hand, and discuss Ontario’s economic future. For Florida, it is the “creative class” which makes history and the economy hum (and for Rotman we could add the MBA grads). As British urbanist Jamie Peck put it, Florida’s vision works well within “neoliberal development agendas, framed around interurban competition, gentrification, middle-class consumption and place marketing” (“Struggling with the Creative Class,” International Journal of Urban and Regional Research, December 2005, 740). Hold on, wasn’t it one slice of the “creative class,” the financial engineers, the mathematical wizards of derivatives, those sophisticated MBA holders, who got us into this mess? Expect more of the same. •

Bryan Evans is Full Professor in the Department of Politics and Public Administration, Toronto Metropolitan University.