My word of the week must be “buzzkill.” My previous post was about a personal buzzkill; this one is about a buzzkill for the Justin Trudeau Government and the Liberal Party of Canada.
A maxim of parliamentary government, using a football metaphor, is that there should be no daylight between the prime minister and the finance minister. When a finance minister resigns and soon afterwards writes a book critical of the government, as Bill Morneau and co-author John Reynolds just did, there is enormous daylight. The Trudeau Government has publicly ignored the book and moved on. However, Morneau’s views may find their way into the forthcoming budget, without any credit given to him. I will explain.
According to Morneau, the Trudeau Government has committed two egregious fiscal errors. First its budget process between 2015 and 2020 did not use the traditional top-down fiscal framework, in which the PM and Finance Minister decide on a target deficit (or surplus) and, after predicting revenues, determine the total amount of money available for departments to spend. Then the PM and Finance Minister would set priorities to determine how the departments divide up the money. Rather, what actually happened was that departments negotiated their budgets with the finance minister, with the frequently used recourse of an appeal to the PM if they weren’t satisfied. The deficit was not determined at the start of the process, but was the result of these negotiations. This process created substantial daylight between the PM and finance minister.
The second egregious error was the management of support payments during the pandemic. Morneau, based on his department’s analysis, recommended appropriate levels of payments for various groups such as laid-off workers, businesses, seniors, and students. In every instance and without any discussion with Morneau, Prime Minister Trudeau announced substantially higher payment levels. Morneau writes (p. 243) “The team at finance was expecting to function as part of a group dedicated to dealing with the crisis in a responsible manner. Instead, our experience was as spectators to a drama where ‘enough’ lost out to ‘more,’ based not on need but on political expediency.” The consequence was that the deficit during the pandemic years and federal debt thereafter were far higher than Morneau felt they needed to be.
Charisma without Collegiality
Former Saskatchewan Premier Allan Blakeney, with whom I co-authored Political Management in Canada, argues that a government must have both a charismatic leader and a bean-counter. Morneau readily acknowledged Trudeau’s charisma and his own bean-counter background (as the CEO of a pension management firm) and personality. An important question is how the charismatic leader should relate to the finance minister and other cabinet colleagues. Morneau recounts that Trudeau never met with him one-on-one, was always accompanied by PMO staffers on the rare occasions when they did meet, and often communicated with him through PMO staff. This personal distancing contributed to the daylight between Trudeau and Morneau.
I find this claim thought-provoking because it raises many questions Morneau didn’t answer. Was Trudeau’s relationship with other ministers as distant as his relationship with Morneau? Did Trudeau use other opportunities such as cabinet retreats or travel together to build rapport with other ministers? Did Trudeau run meetings of the full cabinet, or committees he attended, in a way that would build collegiality with other ministers? The answers to these questions will only emerge in the fullness of time, when Trudeau leaves office and he and his ministers write their memoirs, or when researchers study the Trudeau Government.
If Morneau is essentially correct in his assessment of Justin Trudeau’s management style, I’ll advance a hypothesis why it might be that way. Pierre Trudeau was widely regarded as the smartest man in any room. He read his ministers’ briefs carefully and questioned ministers assiduously. This built a sort of professor to graduate student rapport. Justin Trudeau is well aware of his father’s management style and has neither the intellectual prowess nor inclination to emulate it. He is more concerned with explaining his policies to the public and is willing to leave the details of policy development to trusted political staff in the Prime Minister’s Office.
The Productivity Puzzle
While the criticism of Justin Trudeau has attracted most of the attention, most of Morneau’s book is about the issues a finance minister normally deals with: taxes, pensions, infrastructure, and economic policy. Morneau’s major concern is that the Canadian economy is not growing as rapidly as those of similar nations. Morneau cites (on pp. 291 – 293) mediocre long-run trends in the growth of real GDP, real output per hour worked (a measure of labour productivity), and capital formation per worker, the latter two of which are correlated with real wages. (“Real” in this context means adjusted for inflation.) These trends do not bode well for the long-run prosperity of Canadians.
I am old enough to remember that the strongest argument made by the proponents of the Free Trade Agreement between Canada and the US (the eventual precursor of NAFTA) is that it would expand markets for Canadian firms, allow them to achieve economies of scale, and thereby increase Canadian labour productivity. The FTA has been in place since 1989 and there is ample evidence Canadian firms are operating at a larger scale (for example the expansion of the major Canadian banks into the US). So why is our productivity still lagging?
I learned in graduate school in economics that the measurement of productivity is complicated and the study of productivity differences within and across industries and nations is still more complicated. And we must also recognize, as discussed by Paul Krugman in a recent column about productivity growth in the US, that GDP is a market-based measure of prosperity and an imperfect indicator of the ultimate goal of societal well-being.
Influencing the Forthcoming Budget
No one associated with the Trudeau Government is going to take Bill Morneau out to lunch in Ottawa. And his swipe at Pierre Poilievre (p. 75) “who seemed to view the House of Commons not as a site for hard-nosed debating but as a gladiatorial arena where encounters were measured by the amount of blood spilled and the number of personal insults hurled” ensures that Conservatives won’t be taking him out to lunch either.
Nevertheless, I predict Morneau’s book will have some influence on the upcoming federal budget. His critique of the Trudeau Government’s budget process will draw attention to the budget’s decisions and forecasts in terms of the deficit, federal debt, the ratio of federal debt to GDP, and the sustainability of federal finances. We may see a fiscal framework that makes fewer optimistic assumptions than in previous years and that sets out a faster path to a small but sustainable deficit.
Morneau calls for a productivity commission to research why Canada’s productivity is lagging comparable nations and make recommendations for policy changes. In effect, he is recommending another Macdonald Commission, but with an indefinite mandate. The Trudeau Government has rarely used royal commissions as policy instruments but for a policy problem of such complexity, it might be warranted.
Morneau’s book is evidence of the polarization of Canadian politics. While not nearly as extreme as polarization in the US, our Conservative Party has moved to the right and our Liberal Party moved left, especially now with its confidence and supply agreement with the NDP. In the past, the Progressive Conservative Party had its “red Tory” wing and the Liberal Party its “blue Liberal” wing, both of which combined fiscal conservativism with progressive social policy. Just as the influence of red Tories in the Harper-Scheer-O’Toole-Poilievre Conservative Party has eroded, Morneau’s resignation suggests blue Liberal views may not have much purchase in Justin Trudeau’s Liberal Party.
The issues that Morneau writes about don’t have easy solutions. It is to his credit that he has thought hard about them, both as finance minister and afterwards. His book deserves the attention of students of public policy and, more broadly, thoughtful citizens.