Canadian economic growth is about two percentage points higher under Liberal governments. At least, that's what my colleagues Stephen Ferris and Marcel Voia found in their recent article in the Canadian Journal of Economics (earlier ungated version here).
This is a large impact. For example, if the economy was growing at 1 percent under a Conservative government, switching to a Liberal government would increase the predicted GDP growth rate to around 3 percent.
The question is: why?
Perhaps the Liberals are just lucky. After all, Conservative Prime Minister R.B. Bennett had the misfortune govern from 1930 to 35, and have his name immortalized in the Bennett Buggy, that enduring image of depression-era poverty. But Ferris and Voia's study is based on data from 1870 to 2005. A 135 year run of luck?
Perhaps the Liberals pursue sound policies that increase economic growth. Think, for example, of Finance Minister Paul Martin's taming of the federal deficit, the Employment Insurance reforms of the 1990s, or Medicare.
On the other hand, Stephen Ferris reports in another paper that "the election of a Liberal party government, a decrease in the degree of political competition, and to a lesser extent, the election of a minority government all positively influence the expansiveness of Canadian monetary policy." Perhaps Liberal governments are more concerned with increasing employment, whereas Conservative governments place more weight on controlling inflation.
An alternative explanation of the correlation between Liberal governance and economic growth is that other parties, e.g. the Progressive Conservatives, pursue growth-decreasing policies. The North American Free Trade Agreement and the Goods and Services Tax are obvious candidates. One statement of this hypothesis is: "The Tories do the dirty work and the Liberals reap the benefits."
Perhaps the correlation between Liberal governance and economic growth arises from changes in voting behaviour over the business cycle.
One hypothesis begins with the observation that the Liberals are Canada's natural governing party – they have been in office more often, and for longer, than any other political party. Temporary interruptions to their rule, for example, the election of R.B. Bennett, occur when something goes seriously wrong. This means that other parties end up governing in challenging times:
A second hypothesis is that Liberals pursue pro-poor policies and Conservatives don't. This means that Liberals will tend to be elected when people are feeling poor, that is, at the bottom of the business cycle, whereas Conservatives will tend to be elected at the top. But when you're at the top, the only place to go is down…
Hypothesis 2 fits the last two decades fairly well.
My final, scraping-the-bottom-of-the-barrel explanation is demographic. There is an old (though somewhat controversial) hypothesis in political science that people's political preferences become more conservative as they age. There is a hypothesis in economics that population aging is associated with economic stagnation. So perhaps the Liberals get elected when the population is relatively young and the economy is robust,whereas Conservatives are more likely to be elected when the population is older.
I honestly don't know what the right explanation is. What do you think?
Worthwhile Canadian Initiative 
Frances – I would have thought the parallel with federal/provincial differences would be with federal/state policies in the US. The Congress vs President doesn’t exist in our parliamentary system – this would mean the correlation is with the executive branch but not with the legislative. As to contrarian tendencies at any level, if there was something systematic about it, we’d still see these other levels being associated with our variables of interest, but with the opposite sign, right? And here there is no such association. So maybe it could point to what voters see as the main locus of power (federal governments, executive branch) versus institutions that they see merely as mitigating or reinforcing forces, which would kind of cancel out on average? Just a thought.
Yvan:
Again in the spirit of respectful debate, you’re falling for Frances assumption that party positions are static. They are actually very dynamic.
Furthermore the concept of government redistribution of wealth wasn’t part of the conversation in the 19th Century except for Marx. In Canada the question was whether to increase democratic government, including Responsible Government and a universal franchise. That question then morphed into development, a goal that was accomplished with railways and tariffs. In the 19th Century the Republicans, the British Tories and the Canadian Tories all supported high tariffs to favour domestic agriculture and industry. Remember at this time the Republican power base was the Northeast. Liberals and Democrats in all three countries were in favour of free trade (no protective tariffs, just low tariffs for revenue). This favoured small tradesmen and basic industries like Lumber.
In Canada there was also a very strong language/religion bias where the Tories had a power base in Protestant English Canada. Quebec was up for grabs, and first went Tory, then Liberal. Nothing to do with economics.
The political spectrum started to turn in the early 20th Century when the British Liberals tabled the “People’s Budget” in 1911 and began the Welfare State in the UK.
Conservatives/Republicans were all for protective high tariffs until the Great Depression when that failed as a strategy for both economic prosperity. The advent of the Income Tax in all three countries is what enabled the Conservatives/Republicans and Democrats/Liberals/Labour to assume their present ideological stances. This was only reinforced with the advent of the Welfare State, a concept made possible by the Income Tax.
It’s also good to remember that the Canadian Liberals are survivors. The British Liberal Party was reduced to third-party status by Labour in the 1920’s. They only returned to power with the present Tory/Lib Dem coalition in the UK. The Canadian Liberals were scared stiff of the same fate and adapted by adopting the Welfare State as their own.
Your thesis assumes conditions that were simply not present in the 19th century and were in flux in the period between WWI and WWII.
It may hold after WWII but that says that conditions and political discussion were different before WWII. They were.
Sometimes a correlation is just a random coincidence. I say it’s just a number, it has no foundation in history and no basis in fact or policy. History first, then the number.
Determinant – I’m not even sure we’re having a debate here. It seems to me we’re just moving in completely different spaces.
First, I really have no clue why you think I’m assuming as much about party positions. In fact, I could say that all I’m assuming is that the words Liberal and Conservative themselves have a semantic link, in the mind of the median non-scientific voter, with the parties’ respective average spending propensities. The label itself could well be the simplest, most obvious element of a rhetoric which is supposed to make both parties appear as a real alternative to the other. That’s really all I’m saying. What the real actions ex-post will be is not really relevant though, except if you could make the case that some other part of the rhetoric that had a lot more traction on votes implied that Liberals were perceived, as counter-intuitive as it may seem, to be more conservative with government resource consumption than Conservatives themselves. Note again that what counts for my “thesis” is what people expect, not what actually happens.
Second, as I think I’ve said before, every dollar a government spends is a dollar re-distributed. Otherwise there would be no need for government activities in the first place. And if no-redistribution is to be taking place, then pubic servants will have no paychecks. And as far as I know, the tax collector has not historically been viewed in the best of light, in any society. This is all I’m assuming here again, along with some self-interested voting. When people see an advantage in such redistribution (aka level of government activity), they tolerate more of it.
Third, on methods, correlation and things having no economic content. Well, what is at stake here is the part of the voting decision that has to do with economics, and whether this has traction on the vote or not. Whether there are unrelated determinants of that decision is… unrelated, right? So from the perspective of a correlation with an economic variable, all these differences between the parties are simply orthogonal/irrelevant/random. We’re not interested in what is unrelated but in what is related. Random coincidences happen, sure, but when the coincidence is compatible with a coherent theory, I’d say the onus is on the person claiming this is an accident to suggest an explanation of why this accident could happen. For example, what sort of coincidence between non-economic policies, actual or expected on the one hand, and economic cycles on the other, could be at the source of this correlation, or else which outliers are driving this result, which actually appears in multiple countries over different time spans?
Finally, my own reference to the post WWII Welfare state only had to do with the fact that the justifying rhetoric for re-distribution from then on took the specific form of explicit income redistribution through monetary transfers to the poor or unemployed. But that has nothing to do with my attempt at explaining the observed correlation, so I don’t know why we should further re-hash it.
This being said, I don’t want to give the impression that history is irrelevant in my view, but it’s not what is special about each individual event that is at stake when a correlation presents itself between them, it’s the common ground that we are attempting to understand. The historian may see many distinguishing features from one event to another, but surely he/she must also need some structural assumptions, trends, general features of some kind in order to give some background to these singular things. And this is what we should be looking for, right?
Can a slip ever be so Freudian? You know what kind of servant…
Yvan, am enjoying your comments on this thread.
My pleasure. Maybe I’d have done nicely in an economics department, that’s if I had not flunked my macro core at Western in the summer of 95. So I’ll never know. But hey, I don’t have to handle all them grant proposal red tape sour grapes, do I…
I think growth is simply more important to liberals who see it bringing prosperity, while preserving the status quo is most important to conservatives who view change as loss. Their most important issues are not economic but social and reactionary, and preserving the social order.
In postwar Britain the story runs the other way round – it is the Tories who typically see higher growth (and lack of data spares Labour 2009 and 2010). Lets look at per capita postwar British growth in real terms(I’ll give the election year to the outgoing party)…
Atlee (Labour, 1945-1951): 1.1%
Churchill/Eden/MacMillan/Home (Tory, 1951-1964): 2.5%
Wilson (Labour ,1964-1970): 2%
Heath (Tory, 1970-1974): 2.7%
Wilson/Callahan (Labour, 1974-1979): 2.7%
Thatcher/Major (Tory, 1979-1997): 2.1%
Blair/Brown (Labour, 1997-2008): 1.9%
In Australia as well, the right-leaning Liberal party has the better record of per capita growth since 1960
Menzies/others (Liberal/Country, 1960-1972): 2.5%
Whitlam (Labour, 1972-1975): 0.44%
Fraser (Liberal, 1975-1983): 0.92%
Hawke/Keating (Labour, 1983-1993): 1.4%
Howard (Liberal, 1993-2007): 2.2%
(and Loss, that view does not square well with the past 30 years, which often featured the left fighting to preserve the welfare state, while radical reformers were on the right).
A-ha! Now that is a challenge! Many thoughts here: make sure we’re looking at the data the same way in the different countries, make sure we control for similar factors – for example, the Canadian study controls for US growth i.e. main trading partner or proxy for something else? – and eventually, maybe look at some specific items of economic rhetoric pre-election and/or policy post-election to see if something else than the conventional right-left split could be driving all of this.
One thing that comes to my mind is how North American main parties may not have been as closely associated with the working class, as opposed to the capitalist elite, in the way Labour parties have been? That would be more like having the NDP in power here and Ralph Nader as president south of the border, right? So maybe causality could run in the other direction after all? Governments may have no clue what is good policy, yet some parties may have good recipes for disaster?
Another possibility, so that my preferred hypothesis may remain relevant, could be related to higher rates of unionization in the UK and Australia at least prior to the 90s. The more unions are seen as the mechanism of choice for re-distributing wealth, the less likely that politics may influence the relevant expectations. This still can’t account for the reversal though (that is if such reversal remained once controlling for other relevant factors). And what if rich capitalists were in fact seen as big bad wolves there by the median voter? Could he/she feel that a Tory government could only be trusted in good times – otherwise the transfers may very well go from the middle of the income distribution to the top?
Sure keeps the whole matter completely wide open.
In Canada the Liberal vote is more likely to be female, urban, young. In Britain I don’t think the Labour party has nearly such a strong lock on the female vote as, say, the Democrats do in the US, and also there’s lots of older Labour supporters. So the British experience to some extent fits underlying demographic/interests type stories.
On Australia: clearly more research is needed – perhaps a walking tour of the south Australian coast to really assess the situation…
But Frances – how do demographics/interests explain changes – or more to the point how can long-term change in demographic variables affect short-term voting and economic patterns?