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Canadian Political Economy and the Great Recession of 2008-2009: The Politics of Coping with Economic Crisis

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Abstract:

The emerging comparative political economy literature on the Great Recession of 2008–09 has offered useful leverage to analyze the causes of and responses to the Great Recession of 2008–09. In particular, important analytical insights have emerged in three areas of inquiry. First, cross-national differences in the severity and duration of the crisis illustrate the utility of studying the Great Recession as an endogenous crisis—that is, a consequence of past national policy choices. Second, cross-temporal studies of economic recessions reveal that the dominance of market liberalism led governments to cope with the Great Recession using policy instruments that were different from those employed in reaction to previous recessions. Third, government partisanship and electoral politics, as country studies illustrate, affected not only economic policies in the run up to the recession, but also influenced the profile of counter-cyclical programs and of post-stimulus austerity measures. So far, these research endeavors have devoted much more attention to the crisis experiences of great economic powers and Eurozone countries. The purpose of this study is to incorporate the study of Canada in the above inquiry areas.

The paper makes three arguments. First, the downside of the recent Canadian business cycle—specifically, its macroeconomic and financial characteristics—were shaped to a large extent by prior economic policies. Since the mid-1980s, Canada has followed a growth policy strategy that has hitched the country’s economy to the American economy. Consequently, the American recession precipitated a slump in Canadian exports by a magnitude unseen in previous recession cycles, triggering an immediate nosedive in business investments and rise in the unemployment rate. Furthermore, the absence of a systemic banking crisis but presence of pockets of financial instability in the latest business cycle was attributed to policy practices in Canada’s financial system. The partial deregulation of the home mortgage market and occurrence of regulatory oversight lapses of the fast growing asset-backed commercial paper (ABCP) market in the run-up to the recession introduced vulnerabilities in the country’s financial system. These unsettling dynamics, however, failed to destabilize the system as a result of the palliative effects of the preexisting banking regulatory regime.

Second, the crisis response of the governments of Canada and of other rich OECD countries corroborates a key aspect of the ascent of the market liberal paradigm that began some thirty years ago. The recent counter-cyclical policies were designed with the objective of curtailing the growth of the public sector while employing incentive-based instruments to achieve market-led recoveries. At the same time public expenditures increased because of automatic stabilizers and stimulus spending, public officials in Ottawa and other capitals were aiming to contain their costs. With fiscal austerity on their minds, governments announced one-time, short-term stimulus packages and hemmed in social welfare expansion. Further, preference was given to pro-growth instruments such as tax expenditures, tax cuts, and public infrastructure investments in order to catalyze a private sector led recovery.

Finally, I argue that the direction and substance of Prime Minister Stephen Harper’s economic policies during the period from 2006 to 2012 were shaped by both partisan and electoral politics. In contrast to previous cycles of economic crisis in which partisanship worked in a predictable fashion in Canada, the influence of partisan politics on economic policies pursued before, during, and immediately after the Great Recession varied. The policy effects of partisanship are evident leading up to and in the wake of the Great Recession, but milder during the crisis. I attribute the latter to the influence of electoral politics which tends to blur partisan distinctions.

Most Common Document Word Stems:

canada (125), govern (113), recess (84), market (84), canadian (67), polici (64), econom (64), stimulus (63), crisi (62), financi (56), polit (55), countri (54), 2012 (50), 2008 (50), c (49), 2009 (48), bank (46), billion (44), tax (43), 2 (41), great (39),

Author's Keywords:

Canada, Great Recession, Crisis Management
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Name: SASE Annual Conference
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MLA Citation:

Bernard Jr., Prosper. "Canadian Political Economy and the Great Recession of 2008-2009: The Politics of Coping with Economic Crisis" Paper presented at the annual meeting of the SASE Annual Conference, Northwestern University and the University of Chicago, Chicago, IL USA, Jul 10, 2014 <Not Available>. 2014-12-09 <http://citation.allacademic.com/meta/p729253_index.html>

APA Citation:

Bernard Jr., P. , 2014-07-10 "Canadian Political Economy and the Great Recession of 2008-2009: The Politics of Coping with Economic Crisis" Paper presented at the annual meeting of the SASE Annual Conference, Northwestern University and the University of Chicago, Chicago, IL USA Online <APPLICATION/PDF>. 2014-12-09 from http://citation.allacademic.com/meta/p729253_index.html

Publication Type: Conference Paper/Unpublished Manuscript
Review Method: Peer Reviewed
Abstract: The emerging comparative political economy literature on the Great Recession of 2008–09 has offered useful leverage to analyze the causes of and responses to the Great Recession of 2008–09. In particular, important analytical insights have emerged in three areas of inquiry. First, cross-national differences in the severity and duration of the crisis illustrate the utility of studying the Great Recession as an endogenous crisis—that is, a consequence of past national policy choices. Second, cross-temporal studies of economic recessions reveal that the dominance of market liberalism led governments to cope with the Great Recession using policy instruments that were different from those employed in reaction to previous recessions. Third, government partisanship and electoral politics, as country studies illustrate, affected not only economic policies in the run up to the recession, but also influenced the profile of counter-cyclical programs and of post-stimulus austerity measures. So far, these research endeavors have devoted much more attention to the crisis experiences of great economic powers and Eurozone countries. The purpose of this study is to incorporate the study of Canada in the above inquiry areas.

The paper makes three arguments. First, the downside of the recent Canadian business cycle—specifically, its macroeconomic and financial characteristics—were shaped to a large extent by prior economic policies. Since the mid-1980s, Canada has followed a growth policy strategy that has hitched the country’s economy to the American economy. Consequently, the American recession precipitated a slump in Canadian exports by a magnitude unseen in previous recession cycles, triggering an immediate nosedive in business investments and rise in the unemployment rate. Furthermore, the absence of a systemic banking crisis but presence of pockets of financial instability in the latest business cycle was attributed to policy practices in Canada’s financial system. The partial deregulation of the home mortgage market and occurrence of regulatory oversight lapses of the fast growing asset-backed commercial paper (ABCP) market in the run-up to the recession introduced vulnerabilities in the country’s financial system. These unsettling dynamics, however, failed to destabilize the system as a result of the palliative effects of the preexisting banking regulatory regime.

Second, the crisis response of the governments of Canada and of other rich OECD countries corroborates a key aspect of the ascent of the market liberal paradigm that began some thirty years ago. The recent counter-cyclical policies were designed with the objective of curtailing the growth of the public sector while employing incentive-based instruments to achieve market-led recoveries. At the same time public expenditures increased because of automatic stabilizers and stimulus spending, public officials in Ottawa and other capitals were aiming to contain their costs. With fiscal austerity on their minds, governments announced one-time, short-term stimulus packages and hemmed in social welfare expansion. Further, preference was given to pro-growth instruments such as tax expenditures, tax cuts, and public infrastructure investments in order to catalyze a private sector led recovery.

Finally, I argue that the direction and substance of Prime Minister Stephen Harper’s economic policies during the period from 2006 to 2012 were shaped by both partisan and electoral politics. In contrast to previous cycles of economic crisis in which partisanship worked in a predictable fashion in Canada, the influence of partisan politics on economic policies pursued before, during, and immediately after the Great Recession varied. The policy effects of partisanship are evident leading up to and in the wake of the Great Recession, but milder during the crisis. I attribute the latter to the influence of electoral politics which tends to blur partisan distinctions.


Similar Titles:
Great Recession or the Great Aggression?: Canadian Labour Weighs the Costs of Economic Integration in North America

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