Canadian Economy Becomes the Issue

IF 1992 was Canada's year of constitutional reckoning, then 1993 promises to be a year of political reckoning, as seeds of voter unhappiness sown this year bloom at the ballot box in the next.

The year's dominant event was the Oct. 26 national referendum on a compromise plan to remake the nation's Constitution. The long runup to the vote tried the patience of many Canadians, who felt politicians betrayed them by neglecting the economy during their push for constitutional reform.

In 1993, a federal election year in which the economy appears likely to be every bit as central as it was in the US in 1992, the already unpopular government of Prime Minister Brian Mulroney could become the victim of this public discontent.

"They [politicians] haven't shown any concern for making the economy better," Toronto college student Ana Sarmiento said just days after she voted against the measure that would have changed the Constitution to include native self-government, greater Quebec autonomy, and a reformed Senate. "They say they'll focus on the economy now. Yeah, well, promises, promises."

Sarcasm is perhaps understandable given that Canada's economy, while it grew about 1 percent, also saw unemployment rise from 11 percent in April to 11.8 percent in early December. In Toronto, the nation's largest city, unemployment has risen above 12 percent.

Since Ms. Sarmiento and 7.5 million other Canadians dumped the Charlottetown Accord - which was endorsed by the prime minister and provincial premiers - politicians of all stripes have gone mum on constitutional matters and have embraced the same emphasis United States President-elect Clinton used in his ride to victory: "The economy, stupid."

(Adjustment in Quebec's economy, Page 8.)

"All the [constitutional] issues that have burned us up for the last couple of years are now in the deep freeze," says Irene Ip, a budget policy analyst at the C. D. Howe Research Institute. "The really big burning issue for the general public is unemployment."

"Everybody's scrambling to be Bill Clinton's clone," says Maude Barlow, president of the Council of Canadians, an activist anti-trade group. "There's a lot of talk about investing in infrastructure, everyone from [Liberal Party leader] Jean Chretien to Brian Mulroney. Even the business community is saying: `Wouldn't it be nice to have a business revival based on a more compassionate agenda?' "

But any such economic tuneup will not be easy, and surging provincial and federal debt loads are the key reason. Debt has risen as the poor economy dampened government tax revenues, pushing up deficits. Statistics Canada last month reported combined federal and provincial debt at $573 billion (Canadian; US$454 billion) or about 83 percent of national economic output, a number Ms. Ip calls "alarming." She says she expects this figure to reach 86 percent by March.

At this level Canada cannot spend more borrowed money to boost the economy without raising interest rates to calm worried investors. But higher interest rates would cool the economy further and risk a sustained attack on the value of the nation's currency by global money traders, economists say.

The good news is that Canadians have improved industrial productivity, and this improvement over time "hopefully leads to job expansion," Ip says. "But in the meantime those people weeded out are left with nothing."

And nothing is what many politicians may be left with, too, after the coming federal elections. Right now the prevailing wisdom is that Prime Minister Mulroney and his Conservative government will fall to a Liberal majority, or a Liberal-New Democratic Party coalition, when elections are held in the spring or fall. There is a distinct possibility of a fragmented House of Commons with five parities: Liberal, NDP, Conservative, Reform, and Bloc Qucois.

"If America turned out Bush with only 8 percent unemployment, then I think Canadians with 11 percent are quite prepared to do that to their government here," says Philip Resnick, a political scientist at the University of British Columbia in Vancouver. "There is a pervasive feeling that we are in big economic trouble.... These are not good times for incumbents."

There is wide speculation that Mulroney will step aside in January or February to make way for a new Progressive Conservative Party leader. If he does, it will be in part because his popularity rating remains at historically low levels. A recent Environics poll pegged Mulroney and Tory approval both at just 15 percent. That is up slightly from the alltime low of just 12 percent favoring Mulroney in March polls.

"It's really, really dreadful - it's so low they've only got their family members voting for them," says Donna Dasko, vice president of Environics. "We've never seen a comeback from this far back."

The economy would have to turn around very fast and dramatically before there is an improvement in support, she says. Many other analysts say Mulroney's only hope for reelection is for the US economy to grow so fast it pulls its largest trading partner, Canada, decisively out of the doldrums. But US economists predict only about 2.8 percent growth for the US, not enough to make a dramatic difference.

Despite a deep freeze on constitutional issues, some major elements of the Charlottetown deal will likely go forward in 1993, analysts say, but only on the provincial and administrative level. These include native self-government and the redistribution of responsibilities to provinces. But there will likely be little high-profile discussion or negotiation.

"Economic renewal is the only thing Canadians have on their minds," Ms. Dasko says. "There's nothing else that even comes close."