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Former finance minister surveys the twisty road to recovery

Michael Wilson


Michael Wilson became 39th finance minister of Canada when Brian Mulroney's Conservatives formed the government in 1984. He later served as minister of trade and industry and Canada's ambassador to Washington and is now chairman of Barclays Capital Canada. After sitting through three days of thinkers' talk at this year's Couchiching Conference examining the aftermath of the global financial crisis, he spoke to with The Globe and Mail.

Q: The premiers left their meeting last week divided. Some want the federal stimulus to continue, notably Ontario's Dalton McGuinty, who wanted Ottawa to play a continuing role in funding job-training programs, and the premiers of British Columbia and Alberta who are saying it's time for the private sector to lead us into the recovery. If you're the federal finance minister and you're hearing those conflicting views, what do you do?

A: In the way you've asked the question, you've focused on training. Training I don't see as a traditional, typical stimulus weapon. If you have training programs, those are things that extend over a longer period of time than the normal stimulus package. There may be some acceleration of that because of the increase in unemployment that would ramp up a little in a stimulus program. But the typical stimulus program that we've seen a lot of around here - roads, bridges, buildings and things like that - is basically replacing private-sector demand. A training program would not replace private-sector demand; it's preparing people for a change in job. I think if people are concerned about that, and see a likelihood of a higher level of unemployment or higher level of transition between one set of jobs or another, then maybe the training programs have to be ramped up. But it's not just for the next 12 months.

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Q: On a broader stage, are we at a point where the federal government can say, "Okay: With the stimulus, we can say that we've done this bridge replacement for the private sector, is now the time for the private sector take over and lead us?"

A: That is effectively what the federal government and some of the other provinces are saying - that 2011 should be the end of it. Private-sector demand in many parts of Canada has been picking up. Where you see the difference is [in]the attitude of the premiers. Dalton McGuinty represents a province with a bigger problem, particularly in the manufacturing sector. And it's the province probably that's most sensitive to the level of economic activity in the U.S. because so much of manufacturing is totally integrated with the U.S. and the U.S. economy is still suffering. They have an unemployment rate of 9.5 per cent. Ours is 8 per cent.

Q: Is the recovery sufficiently gelled that the government can make a decision?

A: I don't think you can make a general comment on that. I don't know what's in Jim Flaherty's mind or Stephen Harper's mind on this. But they may be looking at policies which might address the specific issues of the province of Ontario as opposed to the one-size-fits-all across the country. There's an overriding consideration here. When I became finance minister, the deficit was 8.6 per cent of GDP. I'll have that number written on my forehead for the rest of my life. We got that to the 3.25 range. I was very fortunate that I became trade and industry minister and Don Mazankowski became finance minister [by the time]we were hit by a significant recession that drove the number back up again to close to 7 per cent. The point that I'm making is that we did a lot to get that 8.6 down to 3.25, but it bounced back up pretty fast and it took the economic growth globally in the Nineties plus good fiscal policy by the Liberals in cutting spending on top of the spending cuts that we had made to get that down to a balanced position. And a country like Canada, a middle-ranked country, can't get too far away from a balanced position or you run into that very, very difficult challenge of getting it back to the balanced position. We saw it with Greece, we saw it with Mexico in 1995; if the markets turn on a country, you are in real trouble, because what that does is hit the currency, interest rates go up to protect the currency, the market wants interest rates up because they want out of the country and they're going to be selling the currency, and that makes a much more difficult problem because of the impact of that on economic activity. And if you don't have growth in your economy, it makes it much, much more difficult to get a deficit under control. Because I come from a financial background, I was always concerned when I was minister that the markets would turn on us.

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