Are we capable of governing ourselves? A hard look at our financial crisis
We once gave up elections in exchange for debt relief. Now we need to exchange our thinking
Newfoundland and Labrador is one of many provinces that sought financial support from the federal government since the COVID-19 recession began in March. The Bank of Canada has been buying bonds from most provinces.
In Newfoundland and Labrador this was necessary in order for the provincial government to continue to make payroll. At present we have a net debt-to-GDP (gross domestic product) ratio of 57 per cent, the highest among the provinces. Incorporating other debt, that ratio rises to 85 per cent. That is largely unprecedented for a modern subnational jurisdiction.
This latest financial crisis has raised the question among commentators as to whether Newfoundland and Labrador is capable of governing itself and managing our own finances?
Debt is without a doubt a global problem right now. Within Canada, this has been fostered by lending institutions and investors' assumptions about federalism.
Provinces can accumulate a lot of debt at low interest rates because the people who buy provincial bonds assume that federal government will "rescue" the province or, at the very least, manage a debt crisis in a way that protects the interests of creditors.
Debt is a tool of neoliberalism
Journalist Fareed Zakaria has noted that even though the global GDP is $90 trillion annually, global public and private debt is $260 trillion. Within the global context, over-reliance on debt as a financial strategy is quite common.
Political economist Mark Blyth has argued that our global financial system has been broken since at least 2008.
Blyth maintains that only the top 10 per cent of income earners have seen any real wage growth between 1970 and 2016, at 27 per cent. If you are in the top .001 per cent, that is where the real wage growth has been happening, at 77 per cent. For the rest of us, wages simply have not kept pace with the cost of living.
The narrative during the 2008-09 financial crisis was that Canada fared better than most countries because of the regulation of our banks. However, by the end of 2017, according to former Bank of Canada governor Stephen Poloz, "the average Canadian [owed] approximately $1.70 for every dollar of income he or she [earned] per year, after taxes."
Furthermore, most nations have dealt with the realities of globalization by making subnational jurisdictions responsible for maintaining the programs that are rights of citizenship. In Canada, provincial governments have been made responsible for the most expensive public programs, those being health care and education.
The combination of the federal retreat from services and low wages has made it difficult for provincial governments to tax sufficiently to cover program costs.
One of the reasons that the 2016 provincial budget was so unpopular was that taxpayers simply did not have any spending power left to deal with the consumption taxes and fees.
The 1934 crisis is frequently held up as the best example of how we are incapable of governing ourselves. It resulted in the suspension of responsible government and the loss of our independence as a dominion.
Following the First World War and investments in the Newfoundland railroad, the dominion found itself $35 million in debt. By 1932 that had risen to $97 million. That would amount to $1.9 billion today. Our debt today is $22.9 billion.
Newfoundland's debt doubled from 1920 to 1930. Approximately 95 per cent of it was held by Canadian bankers and investors.
The United Kingdom pushed Canadian banks to cover Newfoundland's debts throughout the 1930s, which was a period of economic fragility. Easy borrowing in the 1920s, followed by the Great Depression in the 1930s led to a debt spiral for many nations. That too was a crisis that was global in nature.
Britain claimed to be concerned for its own credit rating and that those of other dominions would be at risk if Newfoundland defaulted on its debts. However, the United Kingdom had defaulted on its own First World War debts to the United States.
A study published by the International Monetary Fund has determined that governments in Australia, New Zealand, and Canada selectively defaulted on domestic obligations. Debt and Entanglements Between the Wars (2019) details how the dominions were treated differently by the United Kingdom in dealing with their debts. For example, the U.K. "suspended principal and interest payments on the Australian government's war debt, following the Lausanne Conference in 1932."
Newfoundland was far from the only jurisdiction that struggled with debt during that period. We were, however, the only jurisdiction that had to give up our legislature and elections in exchange for debt relief.
Certainly, the imperial narratives of Newfoundland that emerged in the Amulree Commission report, which led to Commission of Government, have been unhelpful to Newfoundland and Labrador in building our confidence as a polity.
However, there were also imperial approaches to governance and economics that emerged during our early history that continue to be part of our culture.
Neocolonialism and the 'resource curse'
A body of research dating back to the 1980s would support that it is actually our resource wealth that has held us back.
Let's talk about the concept of the resource curse.
Wikipedia's entry tells us it's a "paradox that countries with an abundance of natural resources (such as fossil fuels and certain minerals), tend to have less economic growth, less democracy, and worse development outcomes than countries with fewer natural resources … Most experts believe the resource curse is not universal or inevitable." Some jurisdictions with an abundance of natural resources have fared well economically.
Arguably, our biggest problem continues to be that our political class has seen natural resource development as an easy solution to our complex economic problems. They like resource royalties because it gives them a lot of control over the money and economy.
This too is a neocolonial way of thinking. Arguably, it gives large corporations control over our government that empire used to have.
This is the yoke of imperialism that is most in need of breaking, if we as a province are ever going to manage our own affairs effectively.
- A prior version of this column did not accurately identify some of its references.Sep 22, 2020 7:38 AM NT