Canadian Economist Says Country's Debt First Priority

CANADIAN economist Judy Maxwell is known for being a straight shooter.

Tossing darts as well as bestowing laurels during her years as chairman of the Economic Council of Canada from 1985 to 1992, Ms. Maxwell gained a national reputation for fair-mindedness.

Introducing groundbreaking studies on immigration, competitiveness, education, and poverty among others, her Economic Council - the equivalent of the Council of Economic advisors in the United States - became a catalyst for national policy debate. But last year the government-funded agency was eliminated during budget cutbacks.

Maxwell is now associate director of the School of Policy Studies at Queen's University. In a recent Monitor interview, she shared her views on a few of Canada's big themes:

What should Canada's top priorities be?

At the top of the list, first of all, is controlling the deficit-debt situation. Second is reconciling the economic agenda with the social objectives of the country. The conservative government for the last eight years has really been courageous in trying to push Canada into the modern era, to acknowledge the openness of the global economic system.... The problems we have now reflect a failure to balance the economic and social agendas.

Would you cite an example?

The decisions to do the [1989 US-Canada] Free Trade Agreement, and get serious about deficit reduction, and reform the sales tax - all of those things might have been digestible. But then to add in a tough monetary policy to fight inflation at the same time made the others very difficult to achieve. It was basically biting off more than any system could absorb.

How would you describe the debt problem?

We're in a situation where the inexorable geometric progression of the interest on the interest on the interest is something we really have to worry about. The ratio of debt to GDP is higher in this country [than in the US] and is rising much more quickly....Canada is pretty much up against its taxing limits...[the US] is not.

Would a strong US economy force a strong Canadian recovery too?

If anything the two economies are more hooked together than they ever were.... But we have a number of important sectors [mining, steel, paper] that are in long-term decline.... The US went through a very difficult restructuring in the rust belt. In effect we're going through the equivalent of that 10 years later.

What effect do you expect NAFTA to have?

It will be very much smaller in terms of its initial effect simply because trade between Mexico and Canada is small now.... The jobs that were going to migrate to Mexico have already gone.... The real question is what are the Mexicans going to buy from us.

What steps should the business take?

The Canadian business community has been very slow to adapt to the changing world marketplace.... There's still a strong tendency ... to expect the government to fix their problems.

How can government policy be reconciled with the social agenda?

One of things I'd like to guard against, is an abrupt two-year program to get the budget into surplus, because then you would end up creating dramatic hardship for a large variety of people.... But just replacing their incomes while they sit around doesn't make any sense at all.... They should be in training, active counseling, getting good advice on how to find work.

What has the government done right?

Much of the agenda was courageous.... But the government was never really courageous about the deficit. The best opportunity was right at the very beginning, in the first budget in 1985.... They kept having to nibble away at the problem and never dealt the deathblow.

What kind of advice would you give the next prime minister?

My advice is that you can't defer the deficit problem much longer without taking a big risk. And secondly, whatever party is in power, it has to show a better balance between people issues and economic reforms that are so market oriented. When people get damaged by economic restructuring we tend to throw money at the problem rather than trying to retool those people so they can be effective and be employed again.