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Jeffrey Simpson (Brigitte Bouvier For The Globe and Mail)

Jeffrey Simpson

(Brigitte Bouvier For The Globe and Mail)

JEFFREY SIMPSON

The lingering gloom of recession Add to ...

Four years after financial collapse brought recession, Western economies are still suffering: reduced or no growth, higher unemployment, deficits and swollen debt.

Politically, the recession has upset some systems and paralyzed others, hollowed out the political centre and encouraged street demonstrations in some countries to protest against elites, established ways and existing institutions.

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How recession played out politically varied from country to country, and it was by no means the only factor in upsetting the political order. In some cases, as in southern Europe and to a lesser extent in Canada, it contributed to new political dynamics. In others, such as the United States, it accentuated trends already evident.

Economically, the recession enfeebled the state, creating new deficits and debt, and imposed burdens of joblessness, defaulted mortgages and widespread uncertainty on millions of people. Politically, the recession forced a debate about the role of the state, with many governments and financial markets demanding that it shrink, but those who depend on its protection or help demanding that it remain intact or get bigger.

The debate has been around les acquis sociaux, social benefits that are seen to be a right of citizenship but which critics insist can no longer be afforded: low university fees (Quebec), defined-benefit pension plans, retirement at 60 years of age, complete health-care coverage, unemployment benefits and public-sector advantages unknown in the private sector.

The debate has been a polarizing one, with conservatives and social democrats in Canada and Europe pulling in opposition directions. Recession is one (among many) reasons for the rise of the NDP as the bulwark party to protect (and even expand) the state in Canada, and for the election of the Socialist president of France. Elsewhere, the recession caused the electorate to turn to conservatives, as in Spain, or, as in Italy, to technocrats untainted by corruption.

In the United States, the fiscal burden of the recession has not yet been faced at the federal level, although it has punished state governments across the country. The recession has further radicalized the Republican Party, since as the state has grown courtesy of measures taken against the recession, so has the fury of conservatives who wanted the state scaled back even before the recession and now want a full-scale assault on it. Hence the Tea Party that is picking off Republicans not deemed conservative enough to satisfy the extreme right wing’s lust to slash government.

If we know anything about previous recessions rooted in financial collapse, it is that their negative effects last a very long time. So sharp are the bank losses and mortgage foreclosures, so dramatic the upsurge in deficits, so fast the accumulation of new debt, so delayed the return to pre-recession economic growth rates that getting back to normality can take a decade or more.

We are now four years removed from the recession’s start, and still some countries are flat on their backs. Britain has re-entered recession, with two quarters of negative growth; France is hovering dangerously close to following.

The debt burdens of southern Europe are stupendous. In the case of Greece they are quite likely unsupportable. In the United States, where modest growth has resumed, the deficit/debt problem deepens by the hour and will get even worse when the last of the Obama stimulus measures expires.

In Canada, every provincial government except Saskatchewan remains in deficit, with Ontario shouldering a $15-billion shortfall this year and deficits extending to 2017-2018. Ottawa will not return to a balanced budget until 2015-2016.

Citizens can justifiably get angry with the financial sector in the United States and parts of Western Europe, where their practices and hubris led to the crisis. When people see the salaries that Wall Street continues to pay its top executives, they have every right to want to take to the streets.

Wall Street, and to a lesser extent Bay Street (and, more widely, corporate Canada) doesn’t get it: The salaries of senior executives at a time of economic stress border on the obscene.

The gap between the rich and the less fortunate has widened almost everywhere, especially in the United States but also in Canada, sharpening post-recession political polarization. The economic effects of recession will be with us for some time. So will the volatility and sharper divisions of politics.

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