The Recession's Repeat Performance

Ontario's shaky economy is looking a lot like it did in 1994. The difference? Back then, we had a much better social safety net.

With poverty rising and political control shifting, the economic instability of 2010 is reminiscent of the recession of 1994. Back then, though, we had a secure safety net of social services to cushion the landing.

There is one parallel between 2010 and the Clinton era. In political terms, this election year is shaping up to be a lot like 1994, when the Republicans wrested control of both houses of Congress from the Democrats. It was the first GOP majority in the House in 50 years.

Bloomberg Business Week, Sept. 6, 2010

The toughest part of a recession is that bad and uncertain times tend to stick around for a few years before things significantly improve. The politicians in power during a recession have trouble holding onto their mandates in the next election, and the public gets in an ornery mood about taxes, deficits, and how their money is spent. Candidates that pledge to spend less and root out waste get elected regardless of their credentials for power, and there is a noticeable turn to the right. The poor better watch out: the big cuts may be coming again.

While the American media has drawn plenty of parallels between the current recession and the tough times in 1994, such comparisons are only beginning to emerge in Ontario. The canary down the mineshaft for the Ontario provincial election is the poll that showed Rob Ford in the lead in Toronto’s mayoral race. As expected, Ford’s message is hard hitting and unequivocal. He plans to root out waste and mismanagement and reduce or hold taxes where they are Unfortunately, the solution to what is perceived as “bad government” is never better government, but rather less government. For example, Ford plans to attack poverty by getting poor people on welfare out of public housing.

At the provincial level, McGuinty is also behind in the polls to Hudak. This shouldn’t be much of a shock; the only premier to pull off the electoral hat trick of three consecutive majorities was the incomparable Leslie Frost in the 1950s. Frost did not face the brick wall of a fixed term election and had just enough time to wait out the unexpected recession of 1957 for the economy to recover. McGuinty may not have long enough to celebrate the unambiguous but gossamer signs of the return of better times.

But is 2010 really a reenactment of 1994?

Let’s start with characterizations of the recessions that were prevalent in 1992 and 2009 – they look pretty much the same:

The U.S. economy remains almost comatose ... The current slump already ranks as the longest period of sustained weakness since the Great Depression … Once-in-a-lifetime dislocations … will take years to work out. Among them: the job drought, the debt hangover, the defense-industry contraction, the [banking] collapse, the real estate depression, the health-care cost explosion, and the runaway federal deficit.

Time magazine, Sept. 1992

There’s no sign Canada is close to pulling out of an alarming economic nosedive that began last fall, resulting in the worst quarterly contraction in nearly two decades. Economic activity from October to December fell 3.4 per cent on an annualized basis; the biggest drop since the severe recession of 1991 … Possibly more alarming was that Canada's gross domestic product was a full percentage point lower in December than in November, which was worse than October, indicating the slide was accelerating. What is really troubling is the feeling of being in free fall… Where is the bottom? It's not here yet.

Toronto Star, March 2009

Does this mean it’s time to prepare for another big hit on social services, like the 21.6 per cent cut to social assistance in 1995? Perhaps, but it’s important that we all realize that some things have changed this time round.

The first thing that’s different is the incentive for low income people to work. During the last recession, welfare rates were 70 per cent of minimum wage – now they stand at 35 per cent.

During the last recession, there were 200,000 single mothers receiving social assistance when our national population was 11 million. Now there are 80,000 single mothers on assistance and our population is 13.5 million.

In 1994, almost 14 per cent of Ontario’s population received social assistance. In 2010, after the largest recession since the Great Depression, this percentage stands at 6.5 per cent of population – only slightly above the post-war average. If welfare rates had been indexed like Old Age Security and CPP, the single social assistance rate would now stand at $904 a month. But the maximum amount paid is now $585 a month. It would take a 54 per cent increase in rates to get them to where they were in real terms in 1994.

In 1994, there was no workfare or community participation for people receiving public assistance. In 2010, it is the rule. The poorest of the poor felt the effects of the last recession but – unlike the rest of us – never recovered, as social programs got tighter and benefits decreased.

In 1994, programs were cut after decades of improvement. If programs are cut in 2011, this will take place after almost two decades of persistent decline.

We can unequivocally say that 2010 is already a lot worse than 1994, even if things just stay the way they are. And if there are more cuts in 2011?

Then the unthinkable is upon us.