Greg Albo is a member of the Socialist Project group in Canada, a professor of political economy at York University in Toronto, and a co-editor of the Socialist Register. He spoke to Solidarity about the "Canadian model" of cuts seen in Lib-Dem and Tory circles as a model of how to deal with government financial problems.
The Liberal government of Jean Chrétien elected in Canada in 1993 made big cuts. That they were costless is a myth now being put around in discussions among the OECD and G20 governments.
The social cost was huge. A big chunk of federal spending in Canada is intertwined with spending at other levels of government, particularly the provinces, through income transfers. The federal government cut a lot of its obligations to fund the welfare state, notably around health, higher education and welfare, and dumped more of the expenses onto the provinces. This, in turn, set off another series of cuts and offloads of expenses and responsibilities onto municipalities. In other words, the deficit cutting was far from painless, but displaced from one level of government to another, and from there onto the poor and workers.
Another strategy was to radically restricted unemployment insurance. The taxes to pay for unemployment insurance were kept at the same level, but benefits to laid-off workers were cut, moving Canada toward one of the least generous schemes in the OECD. So, a huge amount of government revenue was maintained while now only one-half of unemployed workers get benefits.
Third, the Liberals also completely eliminated any ambitions they had about further social spending. They had pledged from the late 1980s on to fund a national child care system. On coming into government, they eliminated those plans, so Canada today still has no national child care programme.
Finally, the economic recovery through the late 1990s, and particularly the so-called Clinton boom, raised growth levels and government revenues. Strikingly, many economists think the economic recovery and the lowering of interest rates alone would have eliminated the deficit. The cuts and the austerity were much more about power and neoliberalism than economic necessity.
Other dimensions of the Liberal deficit strategy also need to be noted. For example, the Liberals focused on eliminating the budget deficit by expenditure cuts and not by raising taxes. In fact, they cut taxes at the same time, and they did so in a way that shifted the tax burden onto average working-class people.
They cut corporate taxes. They shifted away from progressive income taxes and moved towards value-added taxes and taxes on payrolls.
Overall, wages were held back. In particular, public sector wages had a decade of austerity from the mid-1990s to the mid-2000s.
With the tax shifts, the cuts in transfers, and the holding back of wages, income inequalities increased a lot. Notably, the incomes of the top 20 percent of earners went up, especially the top one percent earning income from capitalist enterprises, and the bottom 80 percent went down, especially the bottom 20 percent dependent on income transfers from governments.
With the federal government cutting back fiscal transfers to the provinces, a whole set of programmes were hit by restraint – notably, welfare rates, funds for higher education and support for hospitals and healthcare.
The provinces then dumped expenditures and responsibilities onto the cities. So cities in Canada have now been in a spiral of major fiscal problems for the last two decades. For example, there is now a shortfall of the order of $200 billion in spending on infrastructure maintenance in Canada at the city level. Much of the road, sewer, school and other public infrastructure is crumbling.
With the off-load of responsibilities, almost all building of public housing has stopped, with backlogs of tens of thousands waiting for public housing.
With the shifting of the deficit onto the provinces, a lot of the conflicts over the austerity packages ended up being concentrated at that level. But there were a lot of differences in what the cuts programme meant at the provincial level.
The Atlantic provinces, for example, get a lot of "equalisation payments" from the federal government, and those were relatively maintained, so those provinces went through less of a fiscal crisis and only modest cutbacks.
The Prairie provinces were going through a commodities boom, particularly following the developments in the oil market, so there revenues remained relatively flush and they could handle the fiscal cuts too.
The impact was concentrated in British Columbia, Quebec, and Ontario. All three provinces saw major public sector turmoil and strikes, in different ways.
In BC the action was concentrated in the hospitals, later joined by wider walk-outs in the public sector.
In Quebec there was major strike action. The provincial government there compensated for the federal cutbacks by going further into debt, and keeping tax rates at higher levels than other provinces.
The major political conflict was in Ontario, the largest province population-wise and economically. It was also where unemployment and poverty were shooting up as Ontario was suffering from some of the same decline in manufacturing as the north-east US states.
In 1995, two years after the cuts began at federal level, Ontario elected a Thatcherite provincial government under the leadership of the Conservative Mike Harris after a failed "Third Way" social democratic government.
Harris perfected the idea of meeting the fiscal problems that were being offloaded into the provinces by dumping a huge number of obligations onto the cities.
Cities had to assume responsibility for transit, airport, libraries, policing, water and sewage - a whole range of things. They had to increase municipal taxes or cut back on what was provided.
Second, Harris also cut welfare rates by over 20% and then froze the rates so that effectively there was annual erosion of the payments through inflation.
Third, Harris introduced a range of anti-union legislation.
That set up major conflicts with the trade union movement in the province. An alliance was formed between private and public sector unions in fighting the cuts, building on an axis of dissent to the prior attempt of the social democratic government to roll back public sector contracts.
The labour movement moved towards a series of one-day local general strikes and a range of other labour turmoil for about three years. The local general strikes shut down city after city. They were extremely successful on a city-by-city basis, in every way, politically, industrially, culturally. Effectively, the strikes were community-labour actions, as each city built a huge network of community groups behind the walkout. The question was then whether you could build on that.
Over those three years, the Ontario government just kept saying no, and aggressively pushed ahed with its neoliberal agenda and waging ‘class struggle from above’. The labour movement faced a decision whether or not to deepen the strike movement and move to the next political level. And at that point the unions lost momentum. The provincial government sustained its course.
This was partly because, at the political level, there was no support for deepening the general strikes from the social democrats [the New Democratic Party, the union-affiliated party in Canada]. The strike movement suffered political isolation at the level of parliamentary representation.
Then slowly, one by one, a range of the NGOs and social movements which had supported the strikes peeled off. The private-sector industrial unions were riding the wave of a relative boom in the late 1990s, and had better bargaining conditions for themselves, and slowly retracted support for the general strike movement.
The movement was narrowed down to the public sector unions, and they were then divided among themselves, the blue-collar component against the white-collar component.
The last of the local general strikes was the biggest one, in Toronto. But that is when the unions were faced with the choice of deepening the movement or pulling back. They pulled back.
The NDP gave nominal support to the strikes, but didn't really mobilise, and didn't try to take a leadership role. The NDP had been in power in Ontario in 1990-5, and had already tried to legislate public-sector cutbacks.
The whole experience further sharpened the differences between some of the unions and the NDP. That happened especially with the auto workers.
The auto workers were critically important for the alliance between private and public sector unions, and at that time they were probably the most progressive union in the province, alongside the postal workers.
The auto workers started distancing themselves more and more from the NDP on specific issues, and eventually, in 2006, they split from the NDP altogether.
In the mid-2000s, Canadian Auto Workers president Buzz Hargrove gave tactical support to the Liberal Party in elections, and then eventually, once Hargrove was kicked out of the NDP, he gave full CAW support to Ontario's Liberal government in the elections three years ago.
The experience also shifted some of the teachers' unions. Through long internal battles they had been pushed away from business unionism and were becoming more and more active as part of the left of the broader union movement. They were critically important in some of the days of action in the 1990s. Afterwards they moved back towards the Liberals and towards business unionism.
The differences between the levels of government in Canada, federal and provincial, complicate how the party question plays out. But essentially the political defeat which came when the unions decided not to push the days of action further amounted to the complete consolidation of neo-liberalism in Canada.
The Liberals did stop the reign of cuts in Ontario when they won the provincial election there in 2003, but still, it was the Liberals who initiated the cuts at the federal level, and they did nothing to reverse the previous cuts.
Clearly in Britain you are going to face a very determined ruling class swinging behind a fiscal-cuts approach to deal with the deficit. They will try to avoid reversing any of the tax cuts imposed by neo-liberalism, and they will maintain full support for the financialisation and internationalisation of capital.
Of course the centre and right support that policy. What was striking in Canada was the social democratic party did not attempt to break from neo-liberalism.
The Labour Party will face the same dilemma, and it's hard to see on what basis the Labour Party will lead a movement to oppose the neo-liberal strategy now.
You're then left with the unions and other movements attempting to defeat the austerity drive. From the Canadian experience, three levels seem critical.
One is to find a way to hold together an alliance between private-sector and public-sector unions. Private-sector unions have to come in behind defence of the public sector.
Secondly, there will have to be huge mobilisations of wide alliances at the local level between unions and all kinds of community groups.
Thirdly, it is very hard to see how this can be sustained from specific action to a longer-term strategy without developing some political strategy that isn't limited to either the broad alliances or the unions.
That was the critical thing that was absent in Canada. There was no political leadership independent of social democracy, or independent of the union leaders, that could keep pushing for political action and provide a political analysis.