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Drummond's "One Percent" Report

Shock Doctrine Economics for Ontario

by Geordie Gwalgen Dent


Toronto - The Drummond Report, an economic report commissioned by the Ontario Provincial government, is a set of "1% solutions, that benefit the 1%", according to opponents claiming it suggests a return to 1990's-style federal economic policy.

Issued by Don Drummond, a former assistant deputy minister for the federal department of finance in the 1990's and the former Chief economist for the Toronto-Dominion Bank, the report proposes a sweeping array of public service cuts and economic changes to the Ontario budget.

No tax increases or government owned business projects are recommended.  Instead 2.4% across-the-board cuts to most sectors and targeted cuts to kindergarten, tuition rebates and public sector wages are proposed.

Allowing slot machines, increasing privatization of services and opening more Liquor Control Board of Ontario (stores) are suggested as means of increasing revenues.

The Canadian Center for Policy Alternatives (CCPA), a progressive think-tank, quickly held an information session shortly after the release of the report with a number of presenters noting the right-wing nature of the report and Drummond's finance background.

Does Drummond's banking background colour his suggestions for the budget?

"No," says Armine Yalnizyan, a Senior Economist for the CCPA.  "Drummond’s background working in [the federal] finance department during the 1990’s coloured his findings."  

Drummond worked for the finance department during the Paul Martin budgets of the 1990's.  His department, under David Dodge, was the architect of the major public service cuts in those budgets.   Yalnizyan thinks the Drummond report echo's the same economic strategy used at that time.  "It’s the same language," she says.   "The language around cost recovery is the same, the same ideas...essentially the same shock doctrine ideas," referencing Naomi Klein's book on strategies for instituting right-wing economic policy.

Yalnizyan notes that Drummond's suggestion that the Province is projected to have a $30.2 billion deficit is in line with this strategy.  "In the fall, the provincial government and the parties all agreed there would be $0 deficit in 5 years.  Two weeks before the Drummond report, the conference board said there would be a $16 billion deficit in 5 years."

Toby Sanger, a senior economist for CUPE, points out that even if the deficit numbers are true,  the 'crisis' talk around Ontario's deficit is misleading.  Ontario's current Debt/GDP ratio is already set to decline at current levels meaning the need for cuts or deficit reduction is not dire.

Even still, Yalnizyan is skeptical at the deficit size. "Somehow everyone got it wrong and Drummond got it right?  No one is looking at how he got there.

"You get a big number and it permits you to do stuff."

"Stuff" indeed.  Erin Weir, writing in The Progressive Economics Forum notes a number of positive elements of the report including fighting corporate tax avoidance and eliminating tax breaks for mining companies.

However in his post entitled Drummond: the Good, the Bad and the Ugly, he notes a number of problematic elements.   

Several recommendations take away universal programs and replace them with means-tested programs.

Drummond recommends following a 2010 report (in which he is listed as an advisor) from the Mowat Center recommending that Employment Insurance by replaced with a loan-payback scheme.  He also suggests user fee introductions for kids using busses in rural areas along with a reduction in funding for textbooks and supplies for schools.

The biggest example would be cutting free drug support for the elderly and moving to a means-tested system.

What's worse is that the cuts proposed will likely have a negative impact on the economy.  
 
From Nouriel Roubini to the IMF, many mainstream and alternative economists are noting that austerity plans are going to cause economic declines due to zapping domestic purchasing power.  56% of Ontario's economy comes from domestic consumption while half of it's exports go to other provinces.  

Yalnizyan thinks that any outcome on the overall economy is going to depend heavily on what kind of job losses are promoted as part of the cuts.  If Ontario Premier McGuinty and Prime Minister Harper follow the job cutting agenda of Rob Ford - Ford recently cut over 1,100 jobs - "that will be extremely damaging to the the biggest hub of economic activitiy in the country: Toronto," she said.  

"You can’t slow down the GTA economy without it having a major effect somewhere else," she said, predicting a feedback loop on other parts of the Canada economy.  "Something is going to give… it's not going to be corporate profits but it will be economic growth and quality of life.  It will put a lot more pressure on women to provide for the loss of service through unpaid work."

It should be noted that similar concerns were raised by the CCPA in 2006-2007 around tax cuts.  At the time, the CCPA warned that the federal cuts could plunge the country into massive deficits if the country faced a recession.  

One year later, that's exactly what happened.

Did the CCPA receive recognition from governments and other think-tanks for getting it right back then?

"You can't be serious," said Yalnizyan.  

"No....no recognition."

Geordie Gwalgen Dent is a contributing member of the Toronto Media Co-op


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