Governments around the world need to make tough, unpopular decisions to fix the world's economic problems and get their own fiscal houses in order, says the head of Toronto-Dominion Bank.
But as those problems become more entrenched, attempting to address them in an era of heavily polarized politics and an "us-versus-them" mentality will only make things more difficult, TD chief executive officer Ed Clark said.
"The challenge is to have a real debate without turning it into a divisive debate, which in itself produces negative outcomes," Mr. Clark said in a speech prepared for an event Wednesday night in Toronto, where he was named Ivey Business Leader of the Year by the alumni association for the University of Western Ontario's business school.
Mr. Clark, CEO of Canada's second largest bank, used the opportunity to discuss his views on how pressing the world's economic problems are, not just in the United States and Europe, but potentially in Canada as well. After decades of growth that helped fuel social programs, countries around the world now face the reality of not being able to deliver on those same promises.
This has led to sacred policies – such as Social Security in the U.S. and health care in Canada – which have become too politically sensitive for governments to discuss, even though the mathematic reality suggests such programs will be impossible to fund in the future at present levels, Mr. Clark said. Without a frank debate that is not motivated by the kind of divisive politics seen recently in the United States, those problems will only fester, he said.
At some point, it may be the responsibility of the public to push governments to come to the table and make hard choices, and to give politicians the public support necessary to look at fixing such problems, rather than avoiding the tough issues, he added.
"In simple terms, in too many countries in the Western world, promises have been made that cannot be kept. Promises around health care, pensions and support systems, which seemed affordable at the time," Mr. Clark said, noting that the growth associated with the baby boom generation helped fuel such programs. Changing demographics make it no longer possible.
"Long-term structural forces make that no longer true – even if the world were not facing the current economic prospects. This predicament stems from a growth in government programs and commitments made in a world of growing resources and growing choices."
In an interview before the speech, Mr. Clark said the ability to finance pension plans in a low interest-rate environment will be difficult.
"We've come out of [the economic crisis] saying, 'Aren't we good, we did all right here, we didn't get hit by all the bullets that everyone else has.' Yes, but that doesn't mean that some of the bullets still aren't flying around," he said.
"Once you start to live in a world of 1 or 2 per cent interest rates, you run [that] through pension plans – defined contribution plans – and you change retirement incomes of people pretty dramatically."
While Canada is better off than the U.S. and Europe, these are issues that all governments must start coming to terms with now.
"We should not assume we can avoid a crisis of potential broken promises in the future," Mr. Clark said. "The same demographic trends that helped grow incomes and government revenues are beginning to work in reverse in Canada too. We have long-term structural imbalances between government revenues and expenses."
Grant Robertson