The true dimensions of the economic crisis of the last year is becoming clear as we see western countries set out their budgets for the coming year. Yesterday both Ireland and Britain set out what the future means given the events of the past 12 months. Ireland was once the economic miracle known as the Green Tiger. For years it pursued an aggressive economic agenda that included deep tax cuts, virgorous monetarism, radical deregulation of banks and other large economic players, and the pursuit of a knowledge based, high tech economy. It cut its university tuition fees to zero and invested heavily in technological industries. For over a decade it was credited with having achieved an economic miracle. Alas it all came apart as a result of its deep policy flaws. Many neo-conservative economists, now cowering in academic and university think tanks in shock as their deeply ideological agenda lies in ruins, once held Ireland up as a model. Yesterday, the Finance Minister in Ireland admitted that things are bad. The media report ’savage cuts to save the ailing Tiger’. Economic growth will fall 7.5% this year, compared to 4.5% for the UK. The budget deficit will run to 14%, an unheard of level anywhere a few short months ago. There will be huge cuts in public sector pay and benefit entitlements. The public debt is exploding and the currency is hovering on the brink of collapse. The banking sector is in crisis and with it this once proud nation. While the Finance Minister promises better for the future in typical political double talk, there is genuine fear that the country may be headed to become a second Iceland, which is wallowing in economic disaster. Both countries remind us of the havoc economic and financial advisors created with their aggressive rush over the years to push small countries to become laboratories for untested and dangerous economic ideas. Anyone familiar with the role of these people can see the horrific damage that results when ideology rather than knowledge and facts drive the agenda. It is hard to believe that a single group could wreck so much havoc with so little sense of responsibility or intelligence. Ireland and Iceland are two examples of the dangers of getting caught up in the unsubstantiated claims and beliefs of unaccountable experts taken over by beliefs rather than science. It is doubtful whether the economic profession’s credibility can ever be restored. Just as in eastern Europe and Russia where Marxists economist did the same thing years ago, few who pushed the disastrously mistaken ideas that became the mainstream of prevailing economic beliefs have expressed any remorse or acknowledged how wrong they were. Perhaps a life-long banishment to Iceland and Ireland would be in order in the absence of some contrition for the bill of good the poor citizens of those countries were sold.

Britain experienced some of the same ill affects of bad advice from a ill educated economics profession. However Britain will be experiencing only a 4.5% drop in GDP this year, which is much more manageable. Britain has also under more robust and informed political control and thus averted some of the most disastrous of the affects of economic mismanagement. And the British government has announced that its budget measures will be more in keeping with the traditions of sensible economics. Revenue measures will see increases in income, payroll and sales taxes, a punishing claw back of bank bonuses over $40,000 (thank goodness some government has stepped up to plate and put a stop to these economy wrecking practices that contributed so much to the mismanagement of bank finances and the necessity of huge bail outs of backs), and cuts in spending while at the same time increasing pensions, child and disability benefits, and free school lunches. Government borrowing will increase a modest 3 billion pounds. This will be a budget of sensible ideas and sound management. As proof, the currency markets have responded positively, and the stock market has provided a vote of approval.

With an election coming in the next few months the right wing press has nevertheless but as expected gone ballistic. Not for it any learning form the past mistakes. Fortunately Prime Minister Gordon Brown has responded with a calm determination to avoid the excesses of the past. Indeed Brown has been the key sane voice at the top of governments in the west. He was the world leader in calling for a coordinated economic rescue package that has prevented world wide disaster. He was the one who insisted the bank crisis had to be aggressively dealt with. And he is perhaps the only leader who is prepared to risk telling the truth on taxes – namely that countries must pay their way over the longer hall, and that the promise of free lunches through big tax cuts for the well off is just more of the ideologically extreme pandering to the special interest making up the wealthy, largely business class (such as we have and continue to practice in BC and Canada, and which is still promoted by many economists including some of my own colleagues. Oh my, how hard it is to see the truth when taken with blind ideologies).

The sad thing about Britain is that the Prime Ministers’ honesty and economic competence will likely go unrewarded in the soon to be held election. The large right wing press is going ballistic about the higher taxes and increase in basic benefits. A perfectly manageable public debt is being painted as the height of mismanagement. It is mostly politics. But there is still a yearning to return to the bad old days when economists and much of the media largely shilled for disastrous policies that led to certain destruction. It is discouraging to see. Perhaps the Prime Minister will prevail in getting this basic message across about responsible economic management, but it is hard to be optimistic. Ideologically driven ideas and interests die slowly if ever, perhaps because there is still a hope that that will serve the interests of those who got rich under the old discredited policy regimes. Special interests never give up. Time will tell whether they will prevail in the face of all that is so obvious about past failings. The British election will be a good test.

Many Canadian’s pine for the halcyon days of Lester Pearson and the diplomatic heavy hitting of the 1950’s and 60’s.  These were in many people’s minds the glory days for Canada in the world, when we stood for and led the world as advocates for multi-nationalism,  peace-keeping and third world development.  Alas, the 1970’s were largely a disappointment as Canada shifted its emphasis to trade rather than diplomacy under the cool rationalism of Trudeau, who accepted that Canada was destined to be an also ran in a world where size and power determined a country’s place in the world councils.  We had to look after ourselves and trade was what mattered.

Mulroney largely followed, but unlike Trudeau, concentrated almost solely on the United States and its large market for trade goods.  The rest of the world was almost irrelevant.  However Mulroney does deserve recognition for what might be called a turn toward opportunistic initiatives that permit Canada selectively to step forward and rise above its place as a small player on world issues.  This was most notably done by assuming a leadership role in opposing South African apartheid, to Canada’s honour and continuing credit.  He stood apart from both Reagan and Margaret Thatcher on this issue long before they saw how the wind was blowing and gave a tremendous boost to international efforts to end the inglorious rule of white supremacists.  Canada stood tall at the time as a principled and forward looking nation, in keeping with its earlier reputation, although action was pretty much limited to this one important issue.

The 1990’s saw Canada shift to a much greater emphasis on multi-nationalism, with a focus largely on economic matters, with some considerable success.  A major accomplishment was the increased emphasis on and increasing respect for Canada at the summit of industrialized countries, the G8.  The key industrialized nations more and more came to terms with the fact that with globalization, they needed to work together to set the agenda and oversee strategic directions and crisis interventions.  It was by no means clear that Canada should or would have any significant role in this august body, which was to be kept small and manageable. To Canada’s credit, Chretien and his foreign policy advisors recognized the potential importance of international cooperation and opportunistically saw this forum as a place where Canada could rise above its small state status and, as Canadian diplomats love to say, “punch above its weight class”.  And they succeeded to some considerable degree.  But while the G8 is still a prestigious forum, as can be seen by the splash being made about its meeting in Canada next year, as the present decade progressed more and more questions have been raised about its relevance given the absence of a number of world economic heavy hitters, including China, India, Korea and Australasia.

In many respects the last five years of this decade have seen Canada shift its international focus to Afghanistan and fighting al Queda.  I have argued elsewhere that his was the right thing to do, but that it has been executed in completely the wrong way.  Canada has earned its stripes it is true but largely through fruitless fire-fights and wild west pursuits of Taliban insurgents, which have done little if anything to put Afghanistan back on its feet and to keep the loyalty of the Afghan people.  My arguments are not simply a matter of convenient hind sight – I have been making them right from the time that Canada first committed forces to Kandahar. * Now it appears that the Afghanistan effort is pretty much lost and Canada will have gained little from this brief opportunistic attempt to be a tall poppy in the world community.  It could have been otherwise but Canadian diplomats and politicians failed by not having the courage to separate themselves from the failing American strategy.  Canada was in a perfect position to take the lead in developing a new strategy that could have saved the day in Afghanistan, but unfortunately did not have the diplomatic talent and courage needed.  It is rather sad to see Chris Alexander, a key actor in this failure, attempting to become a political celebrity back in Canada today.

With the G8 becoming obsolete and Afghanistan looking hopeless, we see the Prime Minister turning his attention to the possibilities for the larger G20 Leaders Summit.  This shifts the focus of Canada back onto economics.  It is clear to all that the G8 has to expand or be restructured to include the emerging economic powers not now in the G8.  A continuing worry has been whether Canada can retain a seat at the table in any new elite forum of world leaders. If a modified G8 or some new slightly expanded G10 were created there would really be no place for Canada, given the need to include the new economic powers. Until 2008, the G20 was a Finance Ministers forum.  The first Leaders Summit was held that year, with follow up meetings in London in April 2009 and in Pittsburgh in September 2009. Obama will signal at the Pittsburgh meeting that the G20 Leaders Summit will replace the G8 for all intents and purposes.   That could be a big disappointment for Canada, given all the hype about Canada hosting it in 2010.  But if the G20 takes hold as the pre-eminent world leaders forum and Canada is a leading part of it on a continuing basis, that would under the circumstances be a win for Canada.

Harper has been doing a good job of keeping Canada in the game.  He has the good luck of being the host of the 2010 G8 meetings based on the established rotation.  He is using that soap box to promote the G20, with Canada as a full member and a key leader in its further development.  He has also used his position as G8 chair to work to set up and announce a G20 Leaders Summit in Canada in 2010, with Canada co-chairing with South Korea.  Clearly Harper has successfully worked to establish himself as a key leader in the transition.  He is quite obviously opportunistically using his position as this year’s chair of the G8 to give it a respectful burial and to push the transition to the G20 under Canada’s leadership.  With the disastrous international fall out of the recession, it is likely that the real international power and muscle for the next while will be directed at economic issues and problems.  One key forum will assume the central place in international efforts, and the G20 looks to be the best bet.  Harper is not letting the opportunity pass him by.  And he appears to be succeeding with full honours.  Perhaps even voters will notice.

*  Doug McArthur, “Don’t leave Afghanistan in American hands.” Inroads 20 Winter/Spring 2007: 42-52.   (http://www.inroadsjournal.ca/archives/inroads_20/Inroads_20_afghanistan_nepal.pdf p. 42).  Simon Fraser University Professor McArthur puts the common criticism of insufficient efforts in governance and development into a Canadian context.  He suggests Canada’s relatively large contribution in Afghanistan puts it in a position of leadership.  Canadian efforts to reform development assistance and governance structures could lead others, particularly the US, to follow. (http://pom.peacebuild.ca/Afghanistanopinions.shtml accessed September 25, 2009)

Stephen Harper can be forgiven for breathing easier as he enters the summer months of BBQ’ing and picknicking with friendly crowds at Conservative events.  He has just returned from a G8 meeting recognized by other world leaders as a serious voice in shaping the the economic recovery and addressing global warming.  By all reports his emphasis on small steps and measurable, recognizable results was embraced by the other leaders as typically Canadian and a big factor in Canada’s success in avoiding the worst of the recession.   There was considerable appreciation of his focus on carefully planned and attainable results, recognized as having served this country well.  Even the unfriendly Canadian media couldn’t help but recognize the extent to which others listened and approved.

Much of what was agreed upon at the G8 will serve him well at home as the kind of careful, practical non-ideological program that Canadians want.  Fiscal management and deficit reduction, banking and credit reform, global warming policy, and international aid are all issues that he left the summit well-positioned to gain the approval of Canadians.  Eight months ago, such a possibility was unthinkable. Harper had virtually no credibility at home on these issues. Ignatieff was in a perfect position in the New Year to move into a commanding lead that Harper would have no chance of overcoming.  That quite the opposite has happened is clear from recent polls. Instead of racing ahead, Ignatieff has in fact slipped back from a comfortable lead of six or seven points to a virtual tie today. Ignatieff will never have the conditions that he had to earlier to put paid to Harper’s chances.  The stars are aligning in Harper’s favour.  If he manages to stick with his new found program and  avoids the temptation to engage in overly partisan maneuvers he should be able to look forward to a long stay in a refurbished official residence paid for by taxpayers once intent on punishing him severely.