In the 1960s, the federal government nationalized 18 per cent of Canada's GDP - to express, without euphemism, the share of the country's GDP that the government spent. As it happens, this was the same percentage it spent in 2009, the worst year of the Great Recession. In an oddball way, this documents the cool-hand restraint of Prime Minister Stephen Harper and his adroit Finance Minister, Jim Flaherty.
Working in a minority Parliament, with populist mobs demanding vast increases in spending, they nationalized too much GDP. Yet, they managed to keep spending at the same relative level as John Diefenbaker and Lester Pearson did back in the good old days - far below the level Canada's most profligate prime minister, Pierre Trudeau, did in the statist 1970s and 1980s (when the government took as much as 23 per cent of GDP).
Mr. Harper and Mr. Flaherty should not have humoured the opposition as enthusiastically as they did. It will take another four years, or more, to get the federal share of GDP back to its pre-recession level. Nevertheless, it's obvious that a Liberal government (whether dependent on the NDP or not) would have spent much more. Contrast pre-recession spending of the Conservatives with pre-recession spending of the Liberals. In 2006-2008, the Conservatives nationalized (on average) 15.1 per cent of GDP a year. In 2002-2005, the Liberals nationalized (on average) 15.9 per cent. The difference (on average): 0.8 of a percentage point a year.
This may not seem important. But it's in fractions of percentage points that limited government wages continuous war with big government. And 0.8 per cent of $1.3-trillion in GDP isn't insignificant: It's $10-billion. From this perspective, the minority Conservative government, in its three pre-recession budgets, denationalized $30-billion of GDP.
When it commandeered only 14.9 per cent of GDP in 2008, the Harper government achieved this country's best one-year fiscal victory (total expenditures as a percentage of GDP) in 50 years. Compare this percentage with 2004 when Liberal Paul Martin (in his first budget as prime minister) nationalized 16.3 per cent of GDP. The consequence of this 1.4 percentage-point difference was the confiscation, in a single year, of an extra $14-billion of GDP - a hidden tax increase.
In elections, political promises are usually proxies for different degrees of bigger government. Liberal Leader Michael Ignatieff's promise to increase federal aid for university students shouts bigger government. How so? He will pay for this spending with higher corporate taxes, instead of using the revenue to reduce the deficit.
It's not that Liberal governments will always nationalize more of the country's wealth. As finance minister, Mr. Martin mostly did not. And it's not so much that Conservative governments will always denationalize. As prime minister, Brian Mulroney mostly did not. By their actions shall we know them. No politician ever "cuts spending" in absolute terms - except, in this country, twice: Mr. Martin in 1996 and 1997 (by $12-billion) and again in 2005 (by $1-billion). This means that governments restrain themselves only by occasionally expropriating fractionally smaller shares of a country's increase in wealth.
There is, thus, one existential question for voters to ask in 2011: Which of the federal parties will denationalize more of Canada's GDP than all the others? Virtue is its own reward, of course; but it can pay off handsomely, too: Many economists agree that a country's rate of growth decreases significantly as government commandeers more of its GDP.
In one landmark study of 23 OECD countries more than a decade ago, three U.S. economists (James Gwartney, Robert Lawson and Randy Holcombe) calculated that economic growth occurs four times faster in countries with low government spending (relative to GDP). For every 10 percentage-point increase in government spending, they said, the rate of growth slows by 1 percentage point - annually, forever.
In 1990, for example, Canada's provincial governments spent 15 per cent of Canada's GDP. In 2009, they spent 25 per cent - a precise increase of 10 percentage points, implying (as calculated by these three economists) an annual GDP loss of $13-billion a year, $130-billion a decade. In pursuit of government restraint, we will find little help in the provinces. Judged by their pre-recession record, Mr. Harper and Mr. Flaherty appear ready to limit the growth of government, even if only bit by fractional bit.