At the first of four national conferences to launch a national dialogue on Canada’s role and place in North America, AIMS President Brian Lee Crowley was invited to talk about how continental integration is affecting Canada’s regional policy. In his presentation, he spoke about how the 1989 Free Trade Agreement repudiated Sir John A. Macdonald’s old National Policy and its assumption of an east-west economy defying the southward tug of the business giant on the other side of the border. Abandoning the National Policy also implied, whether Canadians realised it or not, the end of the political underpinnings of our massive transfer system for the less-developed parts of the country. As Ontario and Alberta become increasingly restive in their role as bankrollers of these transfers, the transfer recipients need to concentrate their efforts on reducing dependence, and increasing trade with the US must clearly be part of any strategy that can hope to succeed.
An abridged version of this talk appeared as an op-ed piece in the Sunday Calgary Herald on 15 September 2002.
This conference was part of a new effort by Canada’s public policy community to encourage Canadians to reflect on Canada’s future within the continent. BorderLines is organised by many organisations, including Canada West Foundation, the Dominion Institute, the Institute for Research on Public Policy, the Munk Centre at U of T, the Woodrow Wilson Center, etc. AIMS President Brian Lee Crowley is a member of the Advisory Committee. Further information is available at www.borderlines.ca
Borderlines: Canada in North America Conference
Calgary, 13 September 2002
Speaking Notes for
Brian Lee Crowley, President, AIMS
Ladies and Gentlemen,
Thank you for the kind invitation to be here to speak on the regional dimension of continental integration.
Sometimes the most powerful effects of major change, such as growing continental integration, are the most subtle. Like a heavily-laden freight train, they seem hardly to be moving at all on leaving the station, but as they gather momentum they become an irresistible juggernaut in the long haul.
The move to free trade is having just such subtle but increasingly irresistible influence on what we have called “regional policy” over the last 40 years. Much of that policy, at least in its current form, will have to go, largely as a consequence of the competitive pressures arising from continental integration. Given the monumental failure of these programs to close the prosperity gap between the rich and the less-developed provinces, this is no bad thing. Indeed, I hope that it will spur us to come up with a renewal of these programs to bring their actual effects into line with our good intentions as Canadians.
But before we get to whether the coming changes are good or bad, let’s look at what the effects are. I would like to tell you a little story that will take us to the heart of the matter.
When former federal cabinet minister Eric Kierans was still a member of the Jean Lesage government in Quebec, he attended a first ministers meeting in Toronto. A proposal was on the table to create a new federal transfer program, the effect of which would have been to take millions of dollars out of the wealthy provinces and distribute it to the poorer ones. No province would foot a higher bill than Ontario, yet then-premier John Robarts looked on benignly and supported the proposal.
His curiosity piqued, Kierans cornered Robarts in the corridor and asked him why he looked with such equanimity on a proposal that would cost his province dear.
Robarts’ response spoke volumes about the political understandings which underpinned all the transfer programs that emerged from those febrile times.
Ontario had no quarrel with these programs, he said, because the money came right back to Ontario in the form of the purchase of goods and services. The transfers were simply a way of ensuring that people in the regions had the money to buy Ontario’s products.
Whatever the economic merits of this view, as a picture of the political economy of the Canada of the day, it had a certain logic. Canada had been created as an act of political will, in defiance of natural economic ties. Those ties had led Canadians in every region to look chiefly south. Politics, in the form of Sir John A. Macdonald’s National Policy, had contrived to make that much more difficult, throwing up a tariff wall at the border and investing massively in east-west infrastructure.
But embracing continental free trade was a conscious decision to repudiate the National Policy and to revive the north-south links that had played second fiddle to the nation-building efforts of Canada’s first century.
The consequences for regional policy are not far to seek. Free trade means that those transfer dollars are no longer shepherded back to Ontario, but may in fact be used to purchase goods and services from Ontario’s competitors in Boston, New York or Chicago. The old political understanding is breaking down.
That is one reason why Ontario and Alberta are increasingly restive in their role as the bankrollers of federal transfers. But there are two other reasons that must not be forgotten.
The first is that by and large our transfer programs to poorer provinces have failed. The poorer provinces are hardly any closer to closing the prosperity gap with the wealthier provinces than they were 30 years ago. And while the programs, such as equalization, are often justified on the grounds that they protect the equality of Canadians in their access to provincial services, that is less and less convincing. Programs such as employment insurance, equalization, and regional development initiatives aimed at accelerating convergence and minimizing the economic disparity gap have created a reliance on the generosity of the federal government and also obstructed long-term skills training and enhancement. Former New Brunswick premier Frank McKenna, in his 1997 farewell speech, observed that dependency has become a narcotic to which we have become addicted.
And the cost of these programmes has been staggering. As we like to say at my Institute, if we had placed the net federal transfers into Atlantic Canada alone into US 90-day T-bills over the last 40 years, the money in that account would total over $1-trillion, enough to pay off the entire national debt, plus at least half of medicare’s unfunded liability. For that, we have bought a rate of convergence between that region and the national economy one half of what theory and practice in other places would have led us to expect if we had done absolutely nothing at all.
Moreover, our American trading partners have neither equalization nor regional development programs. Many in Canada smugly assert that US defence spending plays that role, but the figures do not bear this out. And in the absence of many of these inter-regional transfers, the gap between rich and poor regions in the US narrows faster than in Canada.
The final reason the political underpinnings of regional programs are giving way in an era of continental integration is taxes. In an effort to boost continental competitiveness, both Ontario and Alberta have chosen a low tax strategy, stimulating investment and entrepreneurial effort. Yet the total tax load in these provinces remains significantly higher than it would be were they not paying the freight on Canada’s poorly designed regional programs.
Expect these provinces to become ever more vocal in their opposition to such an unproductive extra tax burden and the competitive disadvantage it imposes vis-à-vis our US partners. And with this handwriting on the wall, expect the less well-off provinces to begin to look for more effective ways to build their local economies and reform the transfer programs that now discourage such efforts.
And a major building block of that strategy will clearly involve a deepening and broadening of the relationship with our neighbours in the United States. The fact that the pipeline bringing offshore natural gas to market from Nova Scotia was built, not to Montreal, which would have been automatic 20 years ago, but to Boston, is emblematic of the changes in behaviour and mentality that are beginning to take hold. The next stage, and one that my Institute has already begun to take in hand, is to do an inventory of the infrastructure and institutional links that need to be built for the region on the US Canada border between the Atlantic and Lake Ontario, to finally end its isolation and dispersal of economic strength caused by the disruptive effects of the border. For all these reasons, expect this new region of Atlantica to be at the forefront of defining a new degree of cross-border co-operation at the regional level.