Trudeau’s Liberal Ideals Now Face a Fundamental Challenge

(Bloomberg) -- Justin Trudeau’s transformation from social reformer to crisis manager was going well until now.

The spread of Covid-19 is slowing in Canada. A generous and early fiscal response won him praise and a bump in his approval rating. Senior aides were likening the Liberal government’s success to having a strong start to a hockey game.

Statistics Canada’s revelation Friday that one in four workers have either lost their jobs or seen their hours sharply cut since the virus hit likely quashed any sense of satisfaction. The spike in unemployment not only underscores the scale of the economic calamity for the country, but also how Trudeau’s major test still lies ahead.

While the crisis has shown he’s perfectly capable of unleashing stimulus, the prime minister’s legacy will hinge more on whether he can pull the nation out of this hole. That’s a trickier task for a leader whose cachet has been more about social change than economic planning.

“Trudeau’s agenda is on hold,” said Eugene Lang, a former official in previous Liberal governments who now teaches at Queen’s University in Kingston, Ontario. “Getting through this crisis and unwinding the policies are going to take the rest of the mandate.”

Trudeau, 48, had hoped to use his re-election last fall to cement the most left-leaning agenda his centrist Liberals had produced in at least a generation: feminist, labor friendly, open to immigration, tackling income disparities and social inequality, assertive on climate change and indigenous rights, and fervently internationalist.

After he took the Liberals from third place to power in 2015, the prime minister became a global icon. He achieved political rock-star status and drew crowds wherever he traveled -- a rarity for a leader of a country that infrequently stars on the world stage. But it’s not clear how well that playbook will serve him in crafting a cohesive economic recovery plan.

Public interest in some of Trudeau’s lofty initiatives could wane as Canadians turn their attention to finding jobs and staying healthy. Sticking too close to an activist script in the face of economic hardship would open the prime minister to criticism his Liberals are big-city elites more focused on global causes than the interests of working people. Keeping millions of Canadians on income support, possibly for years, will be costly, as will what’s likely to be more spending on healthcare as the pandemic subsides.

The pressure will be to do it all -- focus on the immediate economic needs while sticking to campaign promises -- but soaring deficits will force the Liberals to make some difficult calls. Trudeau’s decision last week to forgo appointing the first woman ever to lead the central bank might have been one of those.

Right now, aides acknowledge, there’s not much of a plan beyond keeping millions of Canadians and businesses solvent.

The stimulus has been substantial, with direct spending approaching C$150 billion ($107 billion) or 6.5% of gross domestic product. Other liquidity measures, including tax deferrals and loans to business, take the tally beyond C$300 billion. The focus is on speed, meaning officials aren’t fretting too much about eligibility and abuse of the system. The government’s mantra -- perfection is the enemy of the good -- already delivered more than C$29 billion in income support to households since last month.

Trudeau -- who, as in non-crisis times, is relying on a core group of advisers to design and manage the policy response -- is winning kudos for being quick to adapt to worsening conditions, putting together new programs in record time and showing humility when mistakes are made. The government revamped its first take on a wage-support plan that business uniformly criticized as paltry. An initial 10% subsidy only to small firms was redrawn into a 75% subsidy for all businesses.

“What is surprising is the fact that he is not panicking. The part I think shows the most leadership is the fact that he is not pretending to say he has all the answers,” said Jerry Dias, president of Unifor, the country’s largest private sector union.

But as Friday’s jarring jobless numbers show, Trudeau doesn’t have the luxury of time to find longer-term solutions.

The outlook is grim and he’s governing without a majority in parliament. Canada’s economy had been running out of steam even before the crisis and by the time he leaves office, the prime minister could end up overseeing the largest ever increase in national debt amid the slowest economic expansion since the 1930s.

Trudeau remains dedicated to fulfilling his campaign promises once the crisis subsides, a senior government official said, speaking about internal discussions on condition of anonymity. There will be an emphasis on investing in public services and clean energy, the aide said, likening those efforts to the second and third periods of a hockey game.

Asked at a daily briefing Thursday about how he’d balance big-ticket pledges like a national prescription drug plan with simply keeping the lights on, Trudeau acknowledged priorities have shifted. “There’s going to be time to talk about long-term plans as we get through this,” he told reporters outside his residence. “Right now, our focus is on getting Canadians through this.”

Middle Ground

His aides stress Trudeau will continue to target a sweet spot between immediate economic needs and broader social policy goals. But that was likely easier to do before the crisis. Paradoxically the development of the wage subsidy illustrates a path forward.

Business leaders bemoan how Canada could have been spared hundreds of thousands of lost jobs had the government brought them into the design process earlier on. To some, that’s just another example of how Trudeau’s administration can be dismissive of their demands in consultations many dismiss as simply box-ticking exercises.

At the same time, Trudeau did change course. The wage subsidy is now by far the most expensive part of the stimulus plan and increases to immigration targets were put on pause after the pandemic closed borders. Both examples are a testament to his willingness to adapt, and consistent with how the Liberals have governed throughout his tenure as prime minister.

Progressive politics are close to Trudeau’s heart, but his team typically defaults to an “economy first” pragmatism when the chips are down. The government’s deft handling of tough trade negotiations with Donald Trump’s administration and its purchase of a crude-oil pipeline -- despite opposition from environmental groups wooed by Liberal climate promises -- were also both existential issues the prime minister survived.

Bringing Canada’s economy out of the induced coma of pandemic shutdowns will be Trudeau’s biggest test. “How they handle this crisis will be the defining political moment,” Lang said. “I don’t see a more significant policy. This is it.”

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