With the hotly contested Canadian and American elections behind us, the nation’s attention turns to finding appropriate public policy responses to the current financial crisis. Every decade or so, governments in Canada are faced with an unanticipated turn of event that calls for a rapid and sure-footed response. For example, in recent years, we have had to deal with the aftermath of September 11th, a devastating ice storm, the flooding of the Red River, the crash of the high tech sector, SARS, and threats to our food supply chain (listeria).
In each of these instances, governments have been very effective in mobilizing their resources to provide a response and a level of comfort to Canadians. However, the current financial crisis might be the most challenging crisis of all of the past 100 years for a number of different reasons.
First, at this point, it is still not certain what actually triggered the collapse of the financial markets so remedies will be hard to prescribe. Second, it is clear that the crisis is a global one and not confined within our borders. As a result, it will take a coordinated, multi-country response to return things to a more stable condition. Third, the nature of the problems is more psychological than tangible so the required policy responses are particularly complex and sensitive to public reaction. Fourth, this crisis was, in part, precipitated by an over dependence on computer models that few people understood and, more important, kept the traders very distant from their customers and the marketplace. This means that it might prove impossible to link the chain of events that has brought us to this current state.
Finally, this crisis was fuelled by greed that was the result of huge financial payoffs for a few thousand traders who enjoyed immunity from risk by cleverly dispersing the risk among millions of investors with the promise of “riskless risk.” The deconstruction of the financial instruments into small untraceable units will also make it difficult for governments to hold corporations to account for the outcomes of their actions.
At this early point in the recovery process, all levels of government have an important role to play in restoring confidence in the country’s financial institutions. Just what policy instruments will restore confidence is one of the most difficult tasks for our prime minister, premiers and large city mayors to consider. Clearly, the heaviest burden falls on the shoulder of the prime minister who has barely finished the election period where style trumped substance for six weeks.
Given the severity of the current situation, the public service will be asked to play a crucial role in the economic recovery. Unlike the U.S. government that goes outside the public service for policy advice and for the expertise to manage the financial bailout process, our governments are likely going to count on the skills of public officials. Time will be short since the newly elected government will be under great pressure to develop policy options very quickly for a disaffected and nervous public made up of homeowners, consumers and investors.
At a minimum, here is a list of actions that our governments can undertake in the short term that will prepare it for the time when the full impact of the financial crisis is known.
First, treasury officials must look very carefully at the current fiscal situation and give some consideration to a review of program spending in order to free up resources for a possible infusion of cash into the domestic financial services sector. The possibility of incurring a deficit in the next few years is very real and the government must be clear to Canadians about the likelihood of such an occurrence. Prudent financial management is more important than stubborn adherence to balanced budgets.
Second, since massive deregulation in the financial services sector was one of the acknowledged determinants of the financial meltdown, a careful review of the current regulatory framework might be useful to determine if there are any obvious exposures in the system.
Third, public policy will be more, not less, important for the next few years so the various recruiting efforts currently underway to attract new talent to meet the current and future needs should continue, especially in those areas where there are known talent gaps.
Fourth, this is an opportune time to look for organizational changes that might lead to the creation of new agencies or advisory committees that will be designed to work within a tight time frame.
Fifth, over the years, Canadian public policy has relied on job creation and public infrastructure projects to create employment in difficult times. Large city mayors have been pleading for needed resources to rebuild their social housing infrastructure, so this might be a good time for this kind of investment.
Last, it should now be apparent that global institutions such as the G7 and the International Monetary Fund do not have the legitimacy to bring the key players to the table to broker an end to the global financial crisis. Since Canada has built a worldwide reputation for good governance, this is a propitious time for our political leadership to invest some political capital and participate on the world stage by using our “middle power” weight to propose a workable governance structure.
This action plan is only a starting point. It will require leadership and a steady hand to negotiate the difficult days ahead so, at this very delicate juncture, it is important that our governments do not engage in grandstanding and finger pointing as a way to earn cheap political points with their political opponents. The election is over. It is time to govern.
David Zussman holds the Jarislowsky Chair in Public Sector Management in the Graduate School of Public and International Affairs and the Telfer School of Management at the University of Ottawa (firstname.lastname@example.org).