Canada is feeling very good about itself and its new government, especially now in the immediate afterglow of this week's warm Washington welcome for the Prime Minister and his family. The state dinner Thursday was the first for a visiting Canadian leader in almost two decades and the media embrace was over the top. "Justin Trudeau," asked the Christian Science Monitor in a lengthy cover story, "is he Canada's J.F.K.?"
But the honeymoon may end in a hurry if the economic challenges Canada faces both at home and abroad are not faced up to, realistically and promptly. The optimism that Mr. Trudeau and his team generate is hard to find anywhere else. Witness what happened when G20 finance ministers met in China recently for the very first time, supposedly in a collective bid to rescue the world from the economic doldrums.
And how did they fare? Not very well, according to David Loevinger, a former China specialist at the U.S. Treasury Department. "Investor hopes of co-ordinated policy actions," he said afterward, "proved to be pure fantasy."
Canada has taken 150 years to consolidate itself as a coast-to-coast country, a journey made far from the world's troubled places, under the protection first of Great Britain and then the United States. Its growing capacity for mutual accommodation brought Canada through its growing pains and made it one of the world's most successful countries – a fully-fledged young-adult nation.
This independent Canada now enters a world whose disturbances are no longer thousands of miles away but impinge on the everyday life of its citizens. So, less than 18 months after it finally emerged from almost 40 years of existential crisis focused on Quebec, Canada must now must face a world it could not have been expecting. It is a world that is fast-moving and prone to extremes ad anomalies – the oil price collapse, the Chinese stock-market selloff and the Republican Party in utter disarray even as it enjoys the biggest majority in both houses of the U.S. Congress it has had in 85 years.
What is really going on? We need a better fix on the problem, which begins very close to home.
Across the great divide
Despite the world's political troubles and weak economic climate, Americans have by far the world's best economy. Yet their domestic politics are dysfunctional. Just as tribalism and populism are making the world more difficult to lead (as well as more dangerous), they (along with nativism) make it increasingly difficult to bring the U.S. together. More and more observers are seeing a rise in authoritarianism in the American population. Even after the dust from the presidential election in November settles, a political honeymoon is unlikely.
As well as battling each other, both major parties are increasingly divided within themselves. In fact, the challenge for the Republicans is existential.
The primary reason isn't even the parties or the political leaders; it's Americans themselves. John Kasich, the Republican governor of Ohio who placed an unexpected second in the New Hampshire primary, has some idea of what has gone missing. "Slow down," he tells his audiences, and "take time to listen" to what others have to say.
But his is a lonely adult voice at odds both with his party's angry, hyperpolarized base and with a country that is evermore divided.
Not that divisions are unique to the United States. The ruling British Conservative Party is seriously split over staying in the European Union. Anti-immigration feelings and parties have gained strength in Europe and could create an identity crisis for the European Union, alongside a British exit, if not a threat to its very existence. The big question is: Will the centre hold?
A brave new world
The hardest post-9/11 lesson for the West is that the world does not revolve around it, despite what Francis Fukuyama, usually a smart political scientist, naively concluded in The End of History, his nineties paean to the American way.
There have been so many opportunities for young Western people that a sense of entitlement has understandably emerged; they expect to be able to do what they want. The reality is those who get what they want must usually play a big role themselves. Now more opportunities are opening for people from other nations, and the major danger in the U.S. and Europe comes from people – and politicians – who refuse to accept that.
Meanwhile, the West faces some new key political challenges: security and identity issues, But even the economics landscape has changed, with two big serious changes at work.
First, oil – one of the world's most important prices – is currently affecting financial markets and the real economy. Not only have oil prices collapsed (for some time) but so has the supply-demand structure. Saudi Arabia no longer acts as a swing producer and the OPEC cartel no longer has pricing power. Demand growth is slow, and excess supply will be difficult to run down. Any price improvement will immediately bring more U.S. shale oil back into the market.
Second, central banks are now out of fashion: The change started for me after 1985, when monetary policy in Japan proved no substitute for needed structured change. Now financial markets are losing confidence in central banks. In fact, in his excellent new book, The Only Game in Town, Mohamed A. El-Erian, chair of the U.S. President's Global Development Council says that overreach on the part of central bankers is the primary source of the current instability. The former chief executive officer of the U.S. investment manager PIMCO (he now advises parent company Allianz) ees another major collapse within the next three years if reliance on central banks is not reduced. Canada seems about to move that way. It will be hard to do.
The banks became a problem
That overreach came from global imbalances that emerged in the 1990s and culminated in the post-Lehman crises. By the nineties, the world was back in the thirties, with inadequate consumer demand and more savings than available investment opportunities. This lasted as long as Americans used foreign savings to consume more than they earned, much as Canada has done since 2010-11. (This happens when a country like China wants to earn more than it wants to spend, which required the U.S. to spend more than it could earn – possible because China was willing and able to lend it the money because of its export surpluses.)
Now the world is back to the nineties, but with a more prudent U.S. consumer.
Two central questions: How do we get more global consumer demand and more global investment opportunities? If things go badly, two big issues will emerge: how to reduce inequality without undermining savings and incentives, so consumers have more money to spend; and how to use long-term public investments in big transit and communication and large-scale university-centred scientific research infrastructure. These will provoke political challenges – something the United States in its present mindset would find hard to handle.
One way to look at what is going on and our best way forward is the reality and metaphor of journeys. Humans have always been driven to move on – initially for food, but then for dreams of glory and power, as well as for better ways to live. One could say Adam and Eve were the world's first refugees – pushed out of their Garden of Eden home by God himself. We are all immigrants who move from one place to another; from accustomed lands and families to places where other languages are spoken and different cultural ways are the norm. By choice or necessity, virtually everyone chooses or feels forced to move on from where they are in every kind of way. It can be very unsettling and provocative.
The challenge of this pervasive mobility in almost every aspect of life is that we all find ourselves in spaces where we are not yet comfortable – a version of the Tower of Babel. Who can know the way ahead in this uncharted world of changing geographies, sophisticated technologies, and political upheavals to engender the genuine trust necessary to lead? Science and mutual accommodation are likely to be at the heart of what we will need.
Every individual, society, and country is always on a journey. We are all explorers of possibilities, confronted by limits that require creative solutions. Even the greatest of these explorations – geographical, scientific, intellectual, cultural, or spiritual – must proceed one step at a time. Journeys go best when purpose, strength, boldness (when needed) and determination are present. Canada's mutual accommodation ways, along with freedom, science and compassion for others, are the four best ways that humans have found over history to go about things. The more an individual, group, society, or country can move on all four fronts together, the stronger each will be – the only bearable path forward.
What it all means
Canada has a massive array of strengths to work with. It has reached an independent adulthood that can help at home and abroad – and be useful to the rest of the world.
We need to understand and see these strengths well and also what the outside world requires. The 21st century will be dominated by two massive sets of forces:
- the huge numbers of desperate people with not enough safe places to go; and
- the proliferation of every kind of ways forward, with vastly different ideas about where and how to go and too fast a pace for necessary balance and stability.
So far, Canada has found ways to provide safe places, accommodate different ideas, take multiple ways forward and achieve longer-term balance and stability.
The Trudeau government is listening and seeking guidance. But it also faces a severe challenge with the domestic economy that would be easier to get wrong than get right even without all the campaign promises it made.
Family therapists note that the shocks and setbacks we undergo are often external but also can come from within. As well, some, such as adolescence, are paradigm shifts, and others, while painful, are less pivotal.
If, however, you are being shocked simultaneously inside and outside, as well as experiencing paradigm shifts, as Canada now is, you have to ask what you must do as well as what you want to do.
By year's end, the Trudeau government will almost certainly recognize that this is where it's at – and its immediate priorities have to be the economy, security, refugees and the indigenous people.
Together, these are more difficult than those most governments have to face. They demand two major sets of decisions:
- Apart from what the government campaigned on and wants to do, what else must it take on in the current economic and political circumstances?
- Given what those “no choice” items will demand in terms of money and political capital, and stamina, how many promises can the government delay or cut back, without paying an unacceptable political price?
Next year will be primarily about how the federal government answers these questions, and what comes at it from an increasingly unsettled world.
No white knights
The prospect of help coming any time soon from anywhere other than the United States is unlikely. So, rather than wait, Canada must do what it can for itself, and the best outcome right now is to keep things from getting worse. This means improving its overall policy and business performance, but it is unlikely that very much of what needs to be done can be done in this month's budget or even nthe rest of the year. The required shift away from monetary policy and growth-driving structural change are both too big and too bold to really get going until next year.
Meanwhile, the government has a lot to absorb about the world in which it must govern and how its aspirations can be made to fit the economic limits it faces. The previous government did not comprehend what was happening in the rest of the world, and so it missed the economic-policy boat.
Above all, the Trudeau government should not allow its domestic inspirations to get in the way of what Canada must urgently do, both at home and abroad, to cope with an economic world that is still becoming harder, even as it struggles to leave the post-Lehman crises behind it.
Or as David Loevinger, the former U.S. Treasury analyst, put it after the G20's meeting in Shanghai: "It's every country for themselves" – an approach that has real limits for today's world.
William A. Macdonald has an extensive record of public service. To spark discussion of the nation's future, the Toronto-based president of W.A. Macdonald Associates Inc., and associate William R.K. Innes have created The Canadian Narrative Project, with the help of Trent University. To see more, visit http://www.canadiandifference.ca