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Former Governor of the Bank of Canada David Dodge. (Sean Kilpatrick/ Globe and Mail)
Former Governor of the Bank of Canada David Dodge. (Sean Kilpatrick/ Globe and Mail)

ROB Magazine

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The plot goes like this. A gang of outsiders have taken over a quiet town. It's not that this town couldn't do with a shakeup. But the gang is mean. The approach of its leaders is to seek and destroy. Their methods offend many long-time residents who recall a time when they believe there was decorum; and, at the same time, the streets were a livelier place. But the town's establishment is powerless to push back against the gang which, it must be said, is more disciplined and committed than its opponents.

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But there is one man who is different. He has an air about him that is so authentic that one could imagine his image being exploited to sell both university tuitions and John Deere tractors. This man is wise and is known to be pretty tough himself. He goes about his business almost as if nothing has changed. This appears to put the gang off its game. Its members give him a wide berth in the streets. For many residents, this man inspires hope that the gang could at long last be held to account.

What's unclear is how this movie might end.

David Dodge was a professor, a civil servant and the seventh head of the Bank of Canada over a working life that began in 1968 and formally ended on Jan. 31, 2008, when he turned over the governor's corner office to Mark Carney.

And that should have been that. Retired Canadian central bank governors are supposed to be seen at academic conferences, if anywhere-and not heard in the media criticizing the government's economic assumptions or policy choices. And certainly not elevating eyebrows across the nation by likening Ottawa's plan for economic recovery to "pissing money down a rathole."

"Up until now, it hasn't been the case for former governors to get involved in politics," says Bruce Muirhead, a historian at the University of Waterloo and biographer of Louis Rasminsky, Canada's third central bank governor, who held the post between 1961 and 1973.

Rasminsky, who died in 1998, had a hand in some of the seminal events of his time. He was deeply involved in the negotiations that led to the creation of the International Monetary Fund and World Bank after the Second World War, and he led the central bank into the modern age. Yet after he retired, he "pretty much disappears" from the historical record, says Muirhead.

That's essentially true, too, of the governors who came between Rasminsky and Dodge's appointment in 2001: Gerald Bouey, John Crow and Gordon Thiessen.

Dodge, who will turn 67 in June, is challenging the notion that to be a retired central banker is to live a monk's life. This is, after all, the man who brought monetary policy to the masses by delivering an unprecedented 96 speeches over his seven-year term.

When he left the Bank of Canada, Dodge promised to keep quiet about policy for six months. He kept that pledge, although in May-the fourth month-he was in the papers again, talking about his appointment as chancellor of Queen's University in Kingston, where he earned his undergraduate degree, met his wife, Christiane, and taught after getting his PhD from Princeton University.

In September, Dodge accepted a job as a senior adviser with the law firm Bennett Jones LLP, and a couple of months later was named chairman of the board of directors of the C.D. Howe Institute, the Toronto-based economic think tank.

And in March, 2009, Dodge signed on to help the world's biggest banks avoid another financial meltdown. With governments around the world contemplating tougher regulations, the Institute of International Finance, a global bank lobby that includes Bank of Nova Scotia CEO Rick Waugh on its board, appointed Dodge and former Banque de France governor and International Monetary Fund managing director Jacques de Larosière to lead the new Market Monitoring Group.

Dodge also accepted a request from Alberta Premier Ed Stelmach in July, 2009, to join his economic advisory council. Finally, in March of this year, Waugh revealed that Scotiabank intended to nominate Dodge to its board of directors.

In all, Dodge has given more than a dozen interviews and speeches since his re-emergence, commenting pointedly on everything from pensions to the need to overhaul the IMF to the likelihood that governments will have to raise taxes in order to balance their budgets.

It must be said that Dodge picks his spots: He declined to be interviewed for this story, saying through his assistant that he was too busy to commit to a lengthy interview.

One of the things he was doing was preparing the lecture he gave at Queen's University in Kingston on March 4, which happened to be the same day Finance Minister Jim Flaherty tabled his 2010 budget. Undaunted by the possibility he might steal some of the Finance Minister's thunder, Dodge made fiscal policy the subject of his talk.

Without dramatic policy changes, both the federal and Ontario governments are at risk of being trapped in a cycle where their debt is rising faster than revenue, he said. That was not a new line for Dodge, but this time he offered suggestions on what could be done to get budgets back into surplus, some of them "radical," including restoring the Goods and Services Tax to 7% and allowing patients to pay private providers for health care.

"David has always been different," says John Curtis, a former government economist who has known Dodge since 1971. "David is an innovator. What he is doing now is his innovating."



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But the public square into which Dodge was so happy to wander as head of the central bank has become a much quieter place, and not only because Prime Minister Stephen Harper shuttered Parliament for much of the winter. To question government policy too vigorously or too loudly in Harper's Ottawa is to risk a rhetorical drive-by shooting by the Prime Minister's Office.

The government's response to whistle-blower Richard Colvin's revelation that Canadian soldiers transferred detainees to Afghanistan's military knowing they faced torture was to attack the diplomat's credibility. No apology came, even after the evidence grew so compelling that Chief of Defence Staff Walter Natynczyk conceded in December that abuse had occurred.

Linda Keen, whom Harper once labelled a Liberal partisan, was fired as head of the Nuclear Safety Commission in January, 2008, after she refused to back the reopening of a nuclear reactor in Chalk River, Ontario, because Atomic Energy of Canada Ltd. had not performed required safety upgrades.

Nor are private citizens safe.

At a conference hosted by Toronto-Dominion Bank in Orlando on Feb. 4, chief executive officer Ed Clark said that he thought what the government "ought to be doing is now very quickly getting back and tightening fiscal conditions and eliminating that deficit." He also had a thought on how that could be done. "And frankly, it will astound you, but there's a group called the Canadian Council of Chief Executives and we had a meeting two weeks ago, and almost every single person said raise my taxes, get this deficit done," he said.

The PMO responded by circulating an e-mail to Conservatives entitled "Millionaire Ignatieff Economic Czar Calls for Higher Taxes." The missive found its way into the Toronto Star and other newspapers. The title was apparently an allusion to a meeting Clark and others reportedly had last spring with Liberal leader Michael Ignatieff at Stornaway. The e-mail informed Conservatives that Clark "lectured Canadians from sunny Florida" and pointed out that he earned

$11 million in 2009. "He can afford higher taxes. Can you?" Scott Clark, a former deputy minister of finance who was also reported to be at that meeting with Ignatieff, was singled out for similar treatment.

All told, the PMO's tactics have created a chill in Ottawa that is quite distinct from the city's typically sodden winters.

Ignatieff told reporters in February that at least a few people had declined to attend the policy forums his party hosted while Parliament was out because they were afraid of running afoul of the PMO. John Manley, the Chrétien-era cabinet minister who chaired Harper's study on the Afghanistan war, says debate in the capital has become "so inanely partisan, it doesn't even pass for debate most of the time." Wendy Dobson, a former associate deputy minister at the Finance Department who is now a professor at the University of Toronto's Rotman School of Management, says the PMO appears to be operating with a "bunker mentality."

But Dodge can't be so easily dismissed as the people on the PMO's hit list.

Dodge, too, was in attendance at that meeting with Ignatieff, leading to speculation that the Liberal leader had ambitions of recruiting him as a potential finance minister. Yet the PMO so far has restrained itself from roughing up Dodge, even though he, too, has been critical of Ottawa.

Since the Bank of Canada operates at a distance from partisan politics, Dodge benefits from an air of neutrality that he might not have enjoyed had he retired as the deputy minister of finance who implemented Prime Minister Jean Chrétien and Finance Minister Paul Martin's policies.

His tenure as Bank of Canada governor coincided with average annual economic growth of 2.6%, making it one of the more prosperous periods in recent Canadian history. In the aftermath of a recession, Dodge is associated with the good times.

But perhaps the thing that protects Dodge most is that, unlike former civil servants and politicians who have gone on to become corporate hired guns, he doesn't appear to have come back for personal gain.

The ironic thing about the information age is that for all the easily accessible facts and ideas, there are fewer and fewer voices who are universally trusted. Yet Dodge could be one. Curtis says his friend of almost 40 years is first and foremost a teacher.

In interviews, Dodge has a tendency to answer questions with a one-word question of his own. Here's Dodge in an interview with Business News Network in February, responding to a suggestion that China's moves to tighten bank lending were related to stronger household consumption: "Very little of that lending was lending to households, right? That was lending to enterprises, whether state-owned or quasi-state-owned or private, right? And lending to local authorities and lending to railways and so on. Let's be very careful."

Dodge's method isn't to tell, but to help you understand. He doesn't insist he's correct, but he challenges you to think hard about why he's not.

"I think it's better to have a Dodge out there, improving understanding of economics and public policy in general, rather than have government people who just have to give press releases," says Curtis, who is now a distinguished fellow at the Waterloo, Ontario-based Centre for International Governance Innovation.

By re-engaging, Dodge is "filling a vacuum in the public discourse," says Dobson. "If you've got someone who has some star power and is able to talk in a balanced way and hold people's attention, I say, bring it on and let's have more of it."





It's not rigorous enough to be considered a convention or widely accepted enough to be called a matter of etiquette. But there does exist in Ottawa a notion that current decision makers should be given the benefit of the doubt by those who came before them.

"Any of us who are 'formers,' you need to tread a bit carefully when you are dealing with what your successors are doing, because you don't have all the information," says Manley, who is now president of the Canadian Council of Chief Executives. "There is a view, and Finance has always had that view, that the economy is so important that no one else should even dabble in it," concurs Curtis.

In March of last year, Dodge tested that sensitivity. In a wide-ranging interview with The Globe and Mail, Dodge was asked about the prospects for Canada's economy. These were the darkest days of the recession and forecasts were a sensitive subject in Ottawa. Both Carney and Flaherty were facing considerable criticism for taking too rosy a view of the future.

The Globe's question concerned the rebound and whether it would come once banks dealt with all the toxic assets on their balance sheets. The answer, after a preamble, was "anybody would be dreaming in Technicolor to think that you're going to get through this by the end of the third quarter of this year, and that the financial system is going to be all resolved." Later in the interview, Dodge was pretty clear about Flaherty's assertion that he could balance the budget: "They're not going to do that. It's totally unrealistic."

Flaherty's political opponents and the more pessimistic economists on Bay Street had a field day with Dodge's remarks, and the story was the talk of Ottawa for days. The government was less than thrilled, although officials would only say so privately. "When you leave as governor, you should back off," said one insider. "The government's feeling is that a governor should be quiet for a year or two. There's a kind of code of conduct that Dodge didn't follow."

But at what point does demanding respect for Canada's professional policy makers and the cabinet it serves become a pretense to snuff out debate?

Even Kevin Page, the Finance veteran whom Harper installed in 2008 as the first head of the new Parliamentary Budget Office, is routinely dismissed each time one of his reports on the state of the country's finances contrasts with the government's message.

When he was in government, Toronto-Dominion's Clark was known as "Red Ed" for his leading role in designing the National Energy Program. He was promptly fired by Brian Mulroney when the Progressive Conservatives swept to power in 1984.

But Dodge's politics and philosophy are more difficult to define, making it harder to say his criticisms are simply those of a partisan.

Curtis locates his friend's philosophy at dead centre. Bill Robson, president of the C.D. Howe Institute, says Dodge's positions are "anchored in empirical work and pragmatics." Ideology means less to him than what his experience suggests will work. "He's a market-oriented person, but he's a strong believer in the need for public policy in a number of areas and he doesn't shy away from conclusions that are quite strong about what the role of government should be," says Robson.

At Finance, Dodge was every bit as much the advocate for Conservative Michael Wilson's Goods and Services Tax as he was for Liberal Paul Martin's deficit-reduction strategy. As central bank governor, Dodge, along with many of his peers around the world, experimented in the early part of the decade with keeping the benchmark borrowing rate lower for longer than had been the custom, seeing if the rules of inflation had changed, says David Laidler, an economics professor emeritus at the University of Western Ontario in London. But Dodge still showed relative caution, lifting Canada's benchmark rate sooner than Alan Greenspan at the U.S. Federal Reserve, perhaps saving Canada from some of the excesses that went on south of the border, says Laidler.

Not only can he not be dismissed as a knee-jerk free marketer or a knee-jerk dirigiste, but Dodge also has the benefit of often being on the right side of history.

Chrétien and Martin get much of the credit for restoring Canada's finances, but they were initially reluctant to make dramatic spending cuts. It was only after more than a year of steady prodding from Dodge that they made the leap in 1995, says Glen Hodgson, who worked as Dodge's executive assistant at Finance in 1992-'93.

Dodge identified the risk in Canada Mortgage and Housing's decision in 2006 to insure mortgages for 40 years and with no down payments. That was well before the U.S. subprime mortgage meltdown flagged the threat of loose housing policy and before Flaherty tightened the rules in 2008.

Also in 2006, Dodge gave back-to-back speeches in New York and at Princeton University explaining how the combination of debt-fuelled consumption in the United States and China's reliance on exports was a disaster waiting to happen, and how the International Monetary Fund should be overhauled to restore balance to the global economy. The U.S. consumption frenzy and China's massive purchases of U.S. debt to control the value of its exchange rate are now considered factors that brought on the financial crisis. And the IMF's board of directors agreed in Istanbul in October that the institution must become a more vigorous arbiter of what is going on in the global economy.

"David's track record is pretty good in terms of pointing to the big hairy issues," says Hodgson, who is now the chief economist at the Conference Board of Canada in Ottawa. "Now, if you are a current deputy minister, that might make your life more complicated. But you know, we're in a country where we haven't had enough informed debate about some of the big issues."





Read everything that's been written about Dodge over his career and you are left with a bit of a caricature: the voice, a gravelly drawl so distinctive that few who share anecdotes about him can resist invoking Krusty the Clown when recounting Dodge's dialogue; the trademark pipe jutting from his mouth as he strolls Ottawa's Sparks Street; the professorial manner; the uncanny ability to make conversations about monetary and fiscal policy sound like they are taking place over a couple of beers after a day of bringing in hay or fencing a new pasture. (Indeed, Dodge is a gentleman farmer, raising beef cattle on a farm outside Ottawa.)

This caricature is part of his power. His opinions stick because people feel they know him and can trust him. He served at the Bank of Canada at a time when central bankers, led by Greenspan, became rock stars, and paparazzi of financial news agencies and cable business channels emerged to hang off their every word. But unlike Greenspan, Dodge isn't trying to sell a book or defending himself from charges that he caused the deepest global recession since the Second World War.

That's not to say that Dodge is infallible.

In an article published in The Globe in January, 2001, Dodge, who was about to begin his tenure as Bank of Canada governor, had this to say about his time in Finance: "I guess I was always willing to take the risk that 5% of the time I would screw up in order to provide the information and get it out and get the debate out. And there were some screw-ups. So that's life, right? If they didn't like it, they could always fire me."

If Dodge has screwed up in the past year, it was in that "Technicolor" interview. Dodge suggested the central bank was too reliant on its economic models, and had failed to adjust for the cataclysmic events that had just crushed global economic growth. "Any economic model, if you don't tweak it, will in fact produce for you a fairly sharp rebound based on historic data," Dodge said. That sounds a lot like a former boss second-guessing the skills of the current one-and there is a particular code against that because maintaining the confidence of markets is key to any central bank's work, says Laidler, who was an adviser at the Bank of Canada for a year when Thiessen was governor.

But slips of those kinds are a big part of Dodge's appeal. Call them honest mistakes. Curtis says Dodge will never write a memoir about his time in government and at the central bank because he would never divulge the gossipy details and private discussions that people would want to read. "He never tried to play politician," adds Manley. "In other words, he would give us the facts and the politicians had to make the decisions about what to do about it."

Now, Dodge has returned to give all of us the facts. It's up to us to decide what to do with them.





THE WIT AND WISDOM OF DAVID DODGE

On white-collar crime in Canada "This is a very common refrain that we hear when we visit markets in New York or in Boston or in London or in Europe, a perception that somehow, this is kind of a little bit more of a Wild West up here in terms of the degree in which rules and regulations are enforced and that perception doesn't really help us when we go and try to raise money on foreign markets." (December, 2004)

On taxing income trusts "Better late than never. In...the majority of Canadian businesses, where innovation and new investment are critical, then the income trust is not an appropriate form of organization." (February, 2007)

On the collapse of global credit markets "What we had was a financial system where leverage increased quite substantially while credit controls declined. Financial instruments were introduced and nobody had any idea about the risks." (September, 2008)

On the Harper government's approach to economic recovery "Successful investment, rather than pissing money down a rathole, really means that you are in for a period of three or four years for that to work.… The period of recovery is not going to be quick." (March, 2009)

Of the Fraser Institute's suggestion that Canada Mortgage and Housing Corp. be privatized "I haven't read their report, but if that's what it said, that's nonsense." (February, 2009)

On the U.S. deficit "The Americans are not yet sufficiently afraid. If you think back to where we were in '92-'93, it was scary times here and the Canadian public was the great ally of federal and provincial finance ministers because everybody understood you couldn't quite keep going. The debate on that issue in the United States has not really reached that level of fear, if you will, hence one shouldn't be surprised the politicians at the moment can't quite get themselves to the point where they could deal with it." (February, 2009)

On the auto-industry crisis "We've said for a long time that we had overcapacity in the automobile industry, and this is clearly going to cause a shrinkage of capacity. …Sure, we're going to lose some firms. That's what recessions are all about. They clean out the dinosaurs." (March, 2009)

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