LECTURE 17
THE POLITICAL ECONOMY OF CANADIAN FEDERALISM
 

This lecture builds on Topic X in the printed Guide. Please read that material first.  

Click here for a RealAudio/PowerPoint presentation on this topic.
  
 

Canadian Federalism
  • US and Australian trend toward increasing centralization
  • Canadian trend toward decentralization
  • early judicial decisions after 1867 favoured provincial power
  • Laurier reverses Macdonald's centralism in election victory of 1896
  • interuptions in trend during World War I and World War II
Federalism is a device to reconcile unity with diversity 

Canadian federation has been regarded as a model of such arrangements because it has worked despite enormous challenges. 

But unliked some federal states which have tended to become more centralized over time, Canada has not ... a trend present from the beginning and continuing in the present. 
 

 

The Rowell-Sirois Commission
  • influence of Depression experience
  • proposed centralization of economic management and social welfare from provinces to federal level
  • proposed reorganization of taxing functions to 
    • support federal assumption of new spending priorities
    • enhance redistributive measures to provide national standards from coast to coast.
Decentralization of political power in Canada has defied the dictates of practice (recall the analysis of the  Rowell-Sirois commission) and theory (recall the Keynesian case for a strong central government to manage the economy.)  

The whole of the post-World War II experience with economic management and federal-provincial relations can be seen as a struggle to cope with this fundamental discordance between the need for unity and the desire for regional self-determination. 
 

The Green Book Proposals
  • federal initiative to restructure peacetime arrangements to reflect
  • recommendations of Rowell-Sirois
  • successful wartime experience with centralized direction and control of the economy
  • the general tenor of Keynesian macro-economic thinking of the time
  • thwarted by reassertion of provincial claims 
The failure of the federal government to obtain consent from the provinces at the end of World War II to centralized economic decision-making necessary for national macro-economic management. 

But, the reassertion of provincial rights was accompanied by the development of provincial economic and social management bureaucracies largely patterned on the interventionist Keynesian model.  

The best early example was the provincial planning office set up by the socialist governments in Saskatchewan in the 1940s and '50s.  

In the 1960s a much larger provincial policy administration was built in Quebec to implement the agenda of the Quiet Revolution. 

  
 

Co-operative Federalism
  • The ad hoc compromise:
  • 1957 official adoption of "equalization" payments (now embodied in Constitution)
  • national infrastructure 
    • St. Lawrence Seaway
    • Trans-Canada Highway
    • communications networks
  • social programs
    • family allowances
    • unemployment insurance
    • hospital and medical insurance
    • education
    • pensions
  • regional economic development
During the quarter century following the War, a new and very complicated set of arrangements were negotiated by teams of experts fielded by the federal and 10 provincial governments to get around the constitutional dilemma which had made the interwar period so difficult for policy makers in Canada. 

Despite its complexity the system worked surprisingly  well: 

-  the economy expanded and Canadians experienced unprecedented prosperity 
- massive public works of national importance were completed 
- national cultural institutions were brought into being 
- the educational system was enormously expanded and access to education made available throughout the country 
- a national health care system was established which was regarded by many as a model (and which has been unattainable in the US despite continuing efforts there.) 
- income redistribution to reduce inequities was successfully implemented, despite objections from those who thought it had been excessive and those who thought it inadequate. 

Yet the forces of disunity in the country became stronger, it would seem, rather than weaker. 

  

French-Canadian Separatism
  • Quiet Revolution
  • 1968 Parti Québécois led by Rene Levesque 
  • 1980 Referendum on "sovereinty-association"
  • 60% "Non"
  • Marc Johnson 1985-87
  • Jacques Parizeau 1988-96
  • Lucien Bouchard 1996-2001
The reassertion of provincial rights following World War II took many forms, but its impact was most apparent in the case of Quebec where it became associated with: 
- the collapse of the traditional established power structure in the province 
- the emergence of a new francophone intellectual and business elite.  
- the Parti Quebecois dedicated to removing Quebec from the Canadian federation, or something less than that depending on what is to be believed 

  

Western Alienation
  • historical legacy
    • central Canadian "imperialism"
      • tariff policy
      • freight rates
      • resource ownership
  • 1970s conflict between Alberta and Ottawa over energy exports 
    • 1980 National Energy Policy
  • 1990s conflict between BC and Ottawa 
    • lumber trade
    • the "salmon war" with the US
Western Canada shared fully in the post-World War II boom with rising per capita incomes, expanding employment opportunities, improvements in housing, transportation and communication.  

Many of the traditional shortcomings of western life were being overcome with these developments, the sense of isolation, and cultural deprivation once associated with the region. 

Yet there was at the same time a growing sense of western alienation. 

Some possible causes: 
- conflicts over resource development projects such as the Columbia River in BC in the 1950s 
- the oil and gas pricing issue in Alberta in the 1970s 
- fisheries policies in BC in the 1980s and 90s 
- differences relating to multiculturalism, the accommodation of Quebec in the federal union .... 
 

 

Repatriation
  • Constitution Act of 1982
  • entrenchment of equalization payments
  • amending formula
  • 7 of 10 provinces with at least 50% of population
  • Quebec's exclusion
Development of a national debate over constitutional reform provides a forum in which regional and other special interest groups could compete for advantage...a classic demonstration of "rent-seeking" behaviour? 

The tedious negotiations ongoing since the end of the war between the federal government and the provinces over affecting constitutional change in the country reached an impasse in the early 1980s.  

The Prime Minister, Pierre-Elliot Trudeau, proceeded to repatriate the Constitution to Canada despite the refusal of Quebec to agree.  

The British North America Act, renamed the Constitution Act, became subject to amendment in Canada, on condition that 7 of the 10 provinces having 50 per cent of the population approved any proposed changes.  

Some existing Canadian statutes were enshrined in the new Act, including equalization payments by Ottawa to the provinces, and the Charter of Rights and Freedoms.


 

The Meech Lake Accord
  • 1985 Liberals defeat Parti Quebecois in Quebec
  • constitutional negotiation
    • distinct society
    • nominate Senators and Supreme Court judges
    • agreement reached June 3, 1987
Efforts by the federal government to make the repatriated constitution acceptable to Quebec lead to the Meech Lake Accord, signed in April 1987, and approved by the Quebec National Assembly in June of that year.  

- provided for recognition of Quebec as a "distinct society" within the Canadian federation 
- provincial  participation in the appointment of members of the Senate and Supreme Court judges. 
- required ratification by all the provincial legislatures and the Canadian Parliament within a period of 3 years. 

The ensuing national debate over the agreement brought forward new demands from interest groups now apparently empowered to seek improvement in their own situation by virtue of the Charter of Rights entrenched in the existing constitution. 

Meech was defeated when two provinces, Manitoba and New Brunswick withheld ratification and another, Newfoundland, withdrew the ratification it had already granted. 

  

The Charlottetown Accord
  • "Improving on Meech Lake"
    • equal provincial representation in Senate
    • redistribution of seats in House of Commons
      • Quebec guaranteed 25% in perpetuity
  • the 1992 national referendum
    • a political insurrection?
    • rejection of "elite" leadership?
    • constitutional impasse
      • rent-seeking
The failure of Meech precipitated a hardening of Quebec's position, with new demands set out in the Allaire Report, adopted by the Quebec Liberal party in 1991, including exclusive provincial jurisdiction over: 
- social affairs 
- culture 
- health 
- family policy 
- manpower policy 
- communications 
- the environment 
- agriculture 
- public security. 

Extensive public hearings leading to a meeting of federal and provincial ministers at Charlottetown in August, 1992, which produced a new agreement incorporating most of the Meech Lake provisions plus new measures to ensure that Quebec's representation in the federal legislature would be protected. 

Two referendums were held on Oct.26, 1992, one in Quebec and one in the rest of Canada on a simple question: "Do you agree that the Constitution of Canada should be renewed on the basis of the agreement reached on August 28, 1992?"  

Result:  54 % outside Quebec said "No", 56.6% in Quebec also said "No". 

  

Rent-seeking
  • an economic analysis of constitutional reform
  • winners and losers
  • elite accommodation
  • the economics of "nationalism"
  • "pulling together or pulling apart?"
  • recalling Arrow's "impossibility theorem"
Having the Charter of Rights and Freedoms incorporated in the Canadian constitution implies that any change in the  constitution would result in there being some winners and some losers.  

While many of these gains and losses would be symbolic, others could be substantial…for example, the distribution of resource rents, the redistributional effects of taxation and social programs.... 

Note that we have almost come full circle in the course ... it is time to begin thinking of going back to the methodology with which we began and, in particular, to the survey of "public choice" and the economic theory of democracy. 

  

Globalization?
  • Multinationalism and the decline of the nation state?
  • The paradox of growing ethnic nationalism and the disorganization of nation states
  • irrelevance of national boundaries?
    • globalization and the rise of trans-national political movements
    • feminism, native-ism …

     

  • The Canadian case
    • NAFTA as the defeat of the national policy by continentalism
    • disintegration of the east-west nexus
      • trade
      • culture
    • declining role of the federal authority
      • the decline of social spending
    • irrelevance of political separation of Quebec, the west, the Maritimes?
Has the process of constitutional reform and the issue of how Canadians are going to address the future development of the country become irrelevant? 

Has "globalization" and the loss of confidence in the possibility of controlling economic forces (domestically and internationally) meant that national governments, however constituted, no longer matter? 

Is the next step in Canada's development likely to involve some new type of larger union? 
- NAFTA 
- declining importance of inter-provincial trade  
  
 

The United States of North America?
  • Canada, a nation created in defiance of
  • geography?
  • culture?
  • Manifest Destiny
  • the logic of American continental expansion
Was Canada  created in defiance of geography? 
If so, its past must have been largely a function of culture i.e. 
- the development of political and other institutions capable of generating the objectives which market and policy instruments would be directed to achieving 
- but the ongoing constitutional debate suggests that these institutions may have become inadequate to the task and that remaking them may be impossible 
- even worse, changes taking place in the larger international context, may mean that it doesn't matter. 
 
 

The future United States of North America?

 

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