Last Tuesday, Jim Flaherty announced he is stepping down as Canada’s finance minister. He will serve out the remainder of his term as a member of parliament but will not seek re-election.
Flaherty has received praise from supporters and critics alike for his time as the nation’s top economic policy maker. However, Radhika Desai, a political studies professor at the U of M, disagrees with the accolades.
“The main reasons why Canada fared better than most other countries is that we were experiencing a resource boom, and we didn’t have a crisis in the housing market – both of which were things the government inherited. He was essentially dealt a lucky hand,” said Desai.
The strength and stability of Canada’s housing market did indeed prove critical, as it, along with the resource sector, has been the driver of economic growth throughout the financial crisis and after.
Canada’s strong housing market has generally been attributed to the country’s more conservative attitude towards financial liberalization and aversion to risk among the country’s financial institutions.
Desai argued that Canada was under similar pressures to adopt U.S.-style financial innovations, including the use of sub-prime lending, but simply was lucky in that it was a slow adopter of these risky practices.
A report by the Federal Reserve Bank of Cleveland following the financial crisis came to the same conclusion.
“Perhaps the simplest story is that Canada was ‘lucky’ to be a late adopter of U.S. innovations rather than an innovator in mortgage finance,” stated the report.
Others have pointed to Flaherty’s handling of the financial crisis, and the undertaking of the fiscal stimulus in 2008, as an example of sound policies. Desai also took issue with this.
“Canada was late in enacting stimulus, and every developed country was doing the same, so to hold him up as a great leader within the G7 is a bit of a stretch,” she said.
She went on to say that Canada probably lost out on potential long-term growth opportunities during the boom years, and is now facing weaker long-term growth.
“The country could have taken advantage of our good fortune, and undertaken some initiatives in creating long-term growth with investments in infrastructure, creating jobs and the like. Instead we’ve fritted away our relatively good fortune with the resource boom on tax cuts.”
Flaherty is one of Canada’s longest-serving finance ministers, occupying the post since the Conservatives were elected in 2006. He intends to pursue opportunities in the private sector.