We should all wish Milei well as he struggles to reform a very damaged economy. Pictured: Argentinian President Javier Milei. Photo Credit: Javier Milei/X.
Javier Milei has been President of Argentina for less than a year yet has already distinguished himself by moving very quickly to slash the country’s government size and cost. An economist by profession, Milei is known for his free market economic leanings, libertarian views and flamboyant personality. He is attracting considerable international attention for his quick and dramatic policy changes. Milei appears to relish the international attention, as he attended the World Economic Forum (WEF) meeting in Davos earlier this year and sang the praises of capitalism and freedom to the global government authoritarians in attendance who appear determined to undermine free market economies with excessive red tape and regulatory burdens.
Prior to his foray into politics, Milei was a professor of economics and an economic advisor to a number of private financial corporations. He also appeared regularly on Argentinian television, interviewed as an economic expert. His election as president was largely attributed to Argentinians being fed up with big spending governments, rampant inflation and mismanagement of the economy.
In his 11 months in office to date, Milei has managed to reduce inflation from 25.5 per cent per month (!) to 3.5 per cent monthly and has radically reduced the size of government, with the result that government finances are now actually roughly in balance to date this year compared with a significant deficit at the end of 2023. This drastic change has, however, put the Argentinian economy into recession, with predictions national GDP could shrink by about three per cent in 2024. Some foreign investment has begun to flow back into the country, but investors are still nervous that these reforms will not endure and Argentinians’ historical weakness for socialist governments could return as the economic pain of rapid change hits home despite the progress that is being made.
Milei has also become a symbol for major change away from big government in other countries and his progress is being closely watched. In the U.S., the recent re-election of Donald Trump and his subsequent appointment of Elon Musk and Vivek Ramaswamy to the brand-new Department of Government Efficiency (with the entertaining acronym D.O.G.E.) has greatly raised the profile of this issue of government growth and inefficiency. It can’t help but put pressure on Canada as well as efficiency gains in the U.S. – whose federal government is already much more efficient than Canada’s – will just make Canada look that much worse and economically uncompetitive.
Most government cost-cutting exercises founder on the reality that a typical political party lasts in government for four to ten years, while bureaucracy is forever. Bureaucrats knows that as long as they hunker down, rag the puck and don’t attract negative attention, they’ll likely outlast any government looking to cut their ranks.
In Canada, the most successful government reduction exercise in recent memory is that of the Chrétien government in the mid-1990s. That administration cut the size of government by about 15 per cent in terms of employment and about $30 billion in spending. To accomplish this, they dumped a lot of spending responsibilities for health and education on to the provinces, cleaned out the $57-billion EI surplus and raided a public sector pension fund, but did manage to ultimately balance the budget. They also did not undertake this exercise voluntarily, but only because foreign investors were breathing down their government’s neck to fix Canada’s serious fiscal mess. For most regimes, significant government downsizing efforts only happen when they are forced by financial and economic realities that leave the regime in power with no choice, and the Chrétien instance was not an exception.
People can debate what is the right size for government, but there is no question that when public sector growth consistently outstrips the growth in the private sector that pays for government, we have a serious problem. This has been the case in Canada for the last few years with massive expansion of the federal government in terms of employment and cost, and growth in a number of provincial governments as well. Between 2019 and 2023, the proportion of Canadians working for the public sector expanded by 13 per cent, which was almost four times more than the growth in private sector employment. This is a recipe for disaster for any economy.
Furthermore, the last bastion of union strength is government, as union membership in the private sector continues to shrink as unions have been unable to cope with increasingly competitive marketplaces. As unions in government have no effective market competition to keep their demands in check, they continue to increase their demands and costs imposed on the productive private sector. It is no accident that recent incidents of labour unrest in Canada have taken place in government or quasi-government workplaces such as ports, rail transportation and the postal service. The dominance of unions in government merely worsens the impact of increased government size as union demands impose ever-larger costs on the productive private sector and taxpayers in general.
The international trend toward smaller government is good news. We should all wish Milei well as he struggles to reform a very damaged economy in a short period of time. Success in the US with the D.O.G.E. initiative will be especially relevant for Canada, as it will provide a sharp contrast to our current Liberal government’s propensity to expand the federal public sector to an absurd degree, while the quality of our public services declines. We shouldn’t cry for Argentina, but we may want to bemoan our current Canadian bloated government mess.
She has published numerous articles in journals, magazines & other media on issues such as free trade, finance, entrepreneurship & women business owners. Ms. Swift is a past President of the Empire Club of Canada, a former Director of the CD Howe Institute, the Canadian Youth Business Foundation, SOS Children’s Villages, past President of the International Small Business Congress and current Director of the Fraser Institute. She was cited in 2003 & 2012 as one of the most powerful women in Canada by the Women’s Executive Network & is a recipient of the Queen’s Silver & Gold Jubilee medals.
