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March 2009
The Obama effect?
Where has the hope and optimism engendered by the Obama campaign for the presidency gone? Have economic realities crushed it? Maybe not...
By Richard Woodbury & Ken Partridge
Just a few short weeks ago a single word seemed to united countries around the globe: hope. Barrack Obama had just been sworn in as president of the United States with the best wishes of both leaders and citizens from countries on either end of the political spectrum. The announcement his first state visit would be to this country only added fuel to the fire.
Now, much of that enthusiasm and hope has turned a little sour on the tongue. The economic situation continues to worsen and Obama’s answer to the problem, his $800 billion plus stimulus package, is load with protectionist measures that could easily drag Canada deeper into recession.
However, hope isn’t dead. A quick survey of some key business people in Halifax shows it continues to thrive despite the economic storm.
“I think there’s every reason to be optimistic,” says Dianne Kelderman, CEO of the Nova Scotia Co-operative Council. “Let’s be clear, Nova Scotia and indeed Canada isn’t experiencing the recession to the same extent as other global economies, particularly the United States. We haven’t had the housing market hit, or the collapse of our financial markets.”
Kelderman, who was recently appointed to the Premier’s Economic Advisory Panel, acknowledges we aren’t immune to what’s happening around us and that there are challenges, but stresses we’re well positioned to ride things out.
“Our banking sector is solid, we have a low dollar, petroleum is down to $100 a barrel, GST cuts are providing $20 billion a year alone in stimulus activity on an ongoing basis and the federal government has announced a major new stimulus package that will see investments in community infrastructure and tax break measures. This should all result in more money in people's pockets.
“If consumers continue to spend and have confidence, and if government has confidence, shows leadership and invests strategically in the right things (infrastructure that will have future benefits and economic impacts long after the recession is over), then I think we’re on the right track – beginning in 2009 – to turn the economy around.”
Dr. J. Colin Dodds, president and vice chancellor at Saint Mary’s University, agrees – although he does add a cautionary note.
“Like the Bank of Canada, I’m fairly optimistic the Canadian economy will bottom out by the end of this year,” Dodds says. “However, as this recession is now global, our recovery is also a function of the economies we trade with most. Given our export dependence on the U.S., our prospects are tied to how soon it rebounds, although the growing trend of protectionism with the ‘Made in the U.S.A.’ mantra now being voiced in the U.S. is adding another risk. Additionally, our resource sector did well with the boom economies of China in particular and their growth has slowed.”
Dodds points to the easing of the credit crunch as being crucial to recovers, saying, “For Halifax, there’s still a quiet confidence among many business leaders provided the access to bank credit is fully restored.”
Where Dodds continues to have concerns, both locally and across Canada too, is with the erosion of consumer confidence. He is counting on the new federal budget to provide a boost with that confidence and calls on the media to stop repeating doomsday predictions.
If Dodds and Kelderman are right, the economy should start to turn around by the end of the year, or maybe even sooner, says Stephen Lund, president and CEO of Nova Scotia Business Incorporated.
“There’s an extremely wide range of viewpoints out there – and surely one will prove to be right – but I believe we will see some light at the end of the tunnel in 2009,” Lund says. “What we’re hearing from our Nova Scotia companies and our clients around the world is that the next two quarters will be difficult. However, a timely, worldwide movement to stimulate the economy will likely bring some stabilization in the fourth quarter. When that happens, I believe Nova Scotia will be in a good spot. Our companies will be better positioned to compete globally and our strongest assets – good people and reasonable costs – will continue to attract international investment.”
The is a consistent theme that emerges in all the expressions of optimism about the economy, and that is Canada’s structural and fiscal strength heading into the recession. As Jean-Paul Deveau, president of Acadian Seaplants Limited, points out, reports of layoffs and stock market declines hide much of what’s right with our system.
“Although we’re in the middle of a global downturn and there are sectors of the Canadian economy having serious issues, we shouldn’t lose sight there are many others continuing to do quite well. Structurally, the Canadian economy is in better shape than that of the United States. In particular, Nova Scotia businesses have faced many challenges in the past and in some ways are better equipped to deal with this downturn,” Deveau says.
“The fiscal stimulus programs proposed by the Canadian and U.S. governments will mitigate the depth and duration of the downturn. Still, it all depends on when consumer demand picks up in the United States. Once it does, this will have a positive impact on the economies of Canada and Nova Scotia.”
However, despite all this optimism to the contrary, not everyone is convinced the recession will be so short lived. Rick Nason, associate professor of Finance at Dalhousie University and a partner in RSD Solutions, is much more sceptical when asked if there’s hope Halifax will start to pull out of this decline by the end of 2009.
“Probably not. The key word in the question is hope. I foresee a lot of storm clouds still weighing heavy on the financial markets. I think we still haven’t fully paid for the sins of excess credit availability over the last 20 years. There are three cures:
1. Another big write-down in the financial markets as individuals, corporations, regions and countries restructure their still sizeable debts and expectations.
2. A generic boredom with hearing about the crisis eventually incites everyone to get on with their lives (and their spending) despite economic conditions.
3. Hope. While I’m not foolish enough to believe hope is the cure-all for everything, I do believe it was everyone’s overly optimistic expectations that got us into the current mess and it’s likely through hope and optimism – and a bit of realistic hard work – that we’ll get out... but probably not in 2009.”
Ron Colman, executive director of GPI Atlantic, is equally convinced the recession will be much deeper.
“2009 will likely see the recession deepen. That's because the current economic 'stimulus' solutions not only offer no way out of a problem that’s profoundly structural, but actually worsen the problem,” Colman contends.
“We got into this mess largely because of debt-fuelled growth, with its concomitant over-production and over-consumption. Yet the solution being offered is more debt-fuelled growth – this time through governments going deeper into debt as they inject billions of dollars into the economy.
“It's time we looked at more imaginative solutions to the deeper problem. The economy was over-heated. So let it cool and let it shrink a bit. Let's produce and consume a bit less for a while. Instead of reducing production through knee-jerk layoffs that create massive pain for the newly unemployed, let's reduce work hours for the overworked and full-time employed, share the work and income cuts equitably, avoid layoffs and improve our quality of life by giving us more free time.”
Colman believes that until we go beyond the present narrow growth and stimulus paradigm, we’re condemned to boom and bust cycles that raise unrealistic expectations and then cruelly dashes hopes. He sees the recession as an opportunity to restructure the economy in ways that value and account properly for natural, human, social and financial wealth.
Larry Hughes, PhD, is no economist and he says economy could go either way in 2009, but he sees something else underlying the current economic turmoil that needs to be addressed now if we’re to avoid another economic meltdown in the not too distant future.
“In either case, we must prepare for a future where access to reliable supplies of affordable energy is no longer assured,” says Hughes, a professor at Dalhousie University and head of its Energy Research Group. “This will require a thorough review of our present and potential future energy supplies and services. It will also mean significant reductions in per-capita energy consumption, the replacement of existing insecure energy supplies and the restriction of new demand to supplies that are both secure and environmentally benign.
“When the recession does end and world energy demand resumes its growth, the lack of investment in the energy sector (caused by the current recession) will result in energy price increases and energy shortages, delaying the recovery in many countries. Jurisdictions that understand the importance of energy security and adopt energy policies that embrace the four Rs (review, reduce, replace and restrict) will be better prepared for the recovery, new environmental regulations and any future economic downturns.”
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