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So Much For Socialism (Int'l Edition)


International -- Intl' Business: CANADA

SO MUCH FOR SOCIALISM (int'l edition)

Canadian businessman Bill Ross is on a political crusade. The president of Form & Build Inc., a 30-person masonry-supply business in London, Ont., Ross is leading a group of 850 small-business owners determined to defeat Ontario Premier Robert Rae in June 8 provincial elections. "It's the most important election we'll ever have," Ross argues. "Everything Rae has done has been antibusiness."

Such anger is contagious in Canada's wealthiest province. "The public is mad as hell," says Angus Reid, a leading Canadian pollster. Ontario's voters have soured on Rae, whom they blame for lavish spending, high taxes, and a dismal job market. Riding this discontent, both of Rae's major rivals promise balanced budgets, tax relief, and welfare reform. In a province that accounts for more than half of Canada's trade with the U.S., Ontario's political debate is echoing the revolution across the border.

Since 1990, when Rae's New Democratic Party won with less than 40% of the vote, Ontario has plunged into deep trouble. Unemployment is 8.7%, up from 5.3% five years ago. Huge deficits have doubled Ontario's debt load, and Standard & Poor's Corp. has downgraded its rating three times since 1990, to the current AA-. With its $72 billion in debt, "Ontario is the world's largest nonsovereign borrower," says Brian Neysmith, President of Canadian Bond Rating Service.

SCRAPPING WITH LABOR. Rae can hardly be blamed for everything that has gone wrong. As he took office in 1990, Ontario was plunging into its worst recession of the postwar era. Canadian manufacturers--most of them centered in Ontario--were frantically restructuring to compete in the expanded market created by the 1989 free-trade agreement with the U.S. By 1992, some 300,000 Ontario jobs had been wiped out. "We were hit with a sledgehammer," says Ruth Getter, chief economist at Toronto-Dominion Bank. Now, even though Ontario will grow more than 4% this year, "unemployment is still very high" by historical standards, Getter adds, since companies are so much leaner.

Business argues Rae's fiscal policies have compounded these problems. The former Rhodes Scholar poured money into North America's most generous welfare program. In his nearly five years in power, the welfare rolls have roughly doubled, to 1.3 million. The program, inherited from earlier governments, pays far more generous benefits than other Canadian provinces. That helped spending soar to $5 billion, 21/2 times higher than at the end of the 1990 fiscal year. To pay for it, Rae imposed the largest tax increases in Ontario history, jacking the marginal income tax rate to 53%, from 48%. Even so, Ontario ran such huge deficits that Rae added an average of $730 million a month to the province's debt load.

Business leaders are also incensed by Rae's labor policies, probably the most pro-union in North America. One key measure made it far easier for unions to organize companies, while banning the use of replacement workers. Ironically, Rae has still managed to alienate many of the union leaders who helped elect him. Canada's largest labor organization--the Canadian Labor Congress--and the huge Canadian Union of Public Employees have broken with him, after opposing Rae's 1993 decision to cut government workers' wages by 5%.

DRACONIAN ATTACK. Rae argues that the wage cuts were necessary to keep the deficit from spiraling even further out of control. He also warns that the deeper spending cuts advocated by his opponents would "create a more punitive and mean-spirited society." That hasn't seemed to convince many voters. Rae's NDP could end up with fewer than 10 seats in the 130-seat Parliament, predicts pollster Reid.

The climate has helped the Progressive Conservatives, led by Mike Harris, a burly former golf pro. Although the Liberal Party, under Lyn McLeod, a 53-year-old clinical psychologist, also renounces Rae's socialist agenda and promises to balance the budget, Harris is espousing a far more dramatic shift to the right. His platform includes a 30% income tax cut, a 20% reduction in government spending apart from health care, and a draconian attack on welfare, including a tough "workfare" program.

That might slow the growth of Ontario's debt. But with the province facing a possible economic slowdown next year, whoever is elected will face a daunting challenge. The voters may get rid of Bob Rae, but his legacy will haunt Ontario for years to come.

FIXING ONTARIO

Both the Liberal and Progressive Conservative parties promise to make a sharp break with Socialist Premier Bob Rae's policies

DEFICIT SPENDING To balance the budget, both parties call for $3 billion to $4 billion in spending cuts

HIGH TAXES Conservatives promise to cut income tax rates by 30% over three years; Liberals propose a 5% cut

WELFARE Liberals would encourage, and Conservatives would force, recipients to work or enter retraining programsBy William C. Symonds in Toronto


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