Freeman

ARTICLE

Conflict In Canada

NOVEMBER 01, 1981 by HANS SENNHOLZ

Dr. Sennholz heeds the Department of Economics at Grove City College in Pennsylvania. He’s s noted writer and lecturer on economic, political and monetary affairs.

If you are troubled by the social and economic conditions in the United States, you may find comfort in the thought that things might be worse. They are worse by far in most parts of the world, which are torn by conflict and strife and lingering in poverty and despair. Even our Cana dian neighbors to the North are suffering from irritations and aggravations that not only are creating serious social and economic problems but also are casting doubt on the political future of Canada.

The people are chafing from rampant inflation, confiscatory taxation, soaring interest rates, and the worst recession since 1962. Ontario, the home for 90 per cent of Canada’s automotive industry and wealthy heartland of Canada, is suffering the harshest impact of the recession. A host of corporations have collapsed, leaving investors impoverished and workers facing a grim future. Western Canada is coping with its own brand of economic disaster. A serious drought is hurting the grain farmers, causing feed prices to soar and the cattle industry to suffer painful losses. But above all, the West is locked in a bitter political struggle with Ottawa about energy production which both levels of government, the federal as well as the provincial, are anxious to tax at ever-higher rates. It’s an ugly political fight about redistribution of income and property by political force.

Canada is a federal parliamentary state and member of the British Commonwealth of Nations. It came into existence as a federal union of British North America at a conference of political leaders in Quebec in October 1864. The British Parliament legalized the federation by the British North American Act of 1867, making it a subordinate and allied kingdom of the British crown as of July 1, 1867. In 1931, the Statute of Westminster declared Canada to be a partner nation with Great Britain, equal in status, and bound together only by a common crown.

For Peaceful Cooperation

The founding fathers of the Canadian federation acted in the belief that the establishment of a federal union would assure peaceful cooperation and association. A few powers were given to the union government, the rest remained with the provincial governments or with the people. The plan of government was modeled not so much on that of the United States, which was believed to be flawed as evidenced by the outbreak of the Civil War, as on that of the British empire as it was organized during the middle of the 19th century. The imperial government retained a supreme and overriding authority, but the colonies had wide powers of self-government.

The federal system was a political product of the philosophy of individual freedom and economic laissez-faire. It functioned rather well wherever government did not interfere with the daily lives of its citizens. The federal powers were limited to the preservation of order and peace, establishment of a small military force, a unifying judicial system, and the imposition of fiscal customs duties. In every other respect the Canadian people were free to run their own affairs.

This peaceful equilibrium of political powers was upset in Canada, as it was in all other federal unions, by the advent of economic interventionism and socialism. Central planning and redistribution by political force brought a simultaneous expansion of the jurisdiction of the fed eral government, generating a bitter political conflict about provincial rights and central power.

The absence of interprovincial trade barriers limits the power of provincial governments to conduct interventionistic policies. It makes it very difficult, if not impossible, on a provincial level to raise goods prices and production costs or otherwise hamper economic activity. Eco nomic regulation and control are enacted uniformly on a national basis, which prevents the flight of capital from one province to another and permits government to protect the regulated industries from foreign competition through protective tariffs and many other import restrictions.

In constitutional law, Canada may still be classified as a federation, but in reality it is becoming a unitary state with Ottawa as a capital in the true sense of the word. The provinces, like the states in the U.S. or the cantons in Switzerland, are becoming mere administrative agencies of the central government.

This transformation of the Canadian federal system began in earnest after World War II. To avoid a post-war depression the federal government, without much opposition, instituted a number of social security measures, such as unemployment insurance and family allowance. It introduced a system of federal payments to all provinces to enable even the poorest to maintain a minimum level of social services. It embarked upon economic redistribution and established what is commonly called the “welfare state.” But regulation and redistribution by their very nature create economic, social, and political conflict not only between the victims and beneficiaries, but also between the various groups of beneficiaries themselves. They give rise to endless power struggles that divide society into pressure groups and social classes, jeopardizing peaceful cooperation.

Autonomy for Quebec

Until the 1970s it would have been unthinkable to most Canadians that separatist movements would threaten the cohesion of the Canadian federation. But on November 15, 1976, the people of Quebec democratically elected a separatist government with a strong majority of 71 seats in the Quebec National Assembly of 110. It elected a Parti Québécois administration with its political platform favoring independence for Quebec and economic association with the rest of Canada. The election shattered the traditional image of peace and brought into the open the great tensions and conflicts that are rocking the political structure of the country.

Canada is not merely a union of ten provinces, but also the home of two major linguistic and cultural groups, an English-speaking community and a French-speaking community. According to the 1976 census, 61.1 per cent of the Canadian population declared English to be their mother tongue, and 26 per cent French, of whom some 80 per cent live in the province of Quebec com prising some 88 per cent of the Quebecan population.

From the very beginning in 1867, the Quebec government has spoken and acted consistently on behalf of the French-speaking minority in Canada. There were a few inner tensions in the province, no causes of conflict that strained the relationship with other provinces. But since the end of World War II and the beginning of the socio-economic transformation from a free economic order to a system of central command and control, a vibrant form of French nationalism began to dominate political life in Quebec.

With dependable regularity the Quebec administrations, regardless of political party, have taken strong nationalistic stands against Federal encroachments. They have fought tenaciously against every federal effort to pre-empt functions and policies that were assigned to the provinces by the British North America Act. They are insisting now on a division of responsibilities, a sharing of powers between governments, in order to permit the French population to preserve its cultural identity.

Numerous political slogans reflect the thrust of their demands: “Maitre chez-nous” (Master in our own house), “Quebec d’abord” (Quebec first), ‘TAutonomie Provinciale” (Provincial autonomy), or “Souveraineté culturelle” (Cultural sovereignty), and so on. In short, French Canadians do not care to entrust their economic, social and cultural lives to a government in which their representatives are in the minority and which is subject to the aspirations and ambitions of English-speaking majorities.

Is Quebec separation likely or possible? The answer depends entirely on the economic order that will evolve in the coming years. If the majority of the Canadian people continue to opt for ever more government intervention, which in the end leads to all-round Ottawa control over the economic lives of the people, that is, to socialism, the polarization of opinion will intensify until, in the end, an eventual Quebec separation becomes a distinct possibility. Linguistic and cultural nationalism will prevail over the confederation that no longer confederates, but commands, divides, and redistributes by majority vote.

A Power Struggle

It is unfortunate that the Parti Québécois as well as the other parties in Quebec fail to consider individual freedom as an alternative to federal regimentation. They are not opposing the command system per se; on the contrary, they are in full agreement with the basic principles of the welfare-transfer order and frequently favor yet more government intervention as, for instance, the expropriation and nationalization of important industries. The altercation between Quebec and Ottawa does not deal with the basic principles of the social and political order, but merely with the allocation of political power. Who is to be in charge of the transfer system, Ottawa or Quebec? The government representing the English-speaking majority in Ottawa or the government representing the political majority in French Quebec? In final analysis, the dispute reveals a feud over the administration of social and economic power wielded by the transfer state.

This awareness, together with the fear of losing billions of dollars of federal equalization grants and oil price subsidies, may have caused the issue of separation to wane since 1976. As time went on the Quebecan government made no overt moves toward separation, but submitted the question to a referendum on May 20, 1980. On the proposal presented by the Parti Québécois of enacting their own laws, imposing their own taxes, and establishing relations with foreign countries, while forming an economic union with the rest of Canada, 59.6 per cent of the Quebec electorate voted “No.” Even among the French-speaking people, a small majority voted “No” to separation. For the moment, the union has survived the divisive forces that are gnawing at its foundation in the East.

Hostility in the West

In the West the conflict about central power and provincial rights is going from bad to worse. Western Canadians always have been suspicious of federal regulation that tends to benefit the more populous provinces, Ontario and Quebec. When Eastern Canada is calling the tunes of the transfer order the West is expected to pay the piper. At least, that’s how the people in the West are looking upon Ottawa. In Alberta, the westernmost of the three Prairie provinces, the confrontation has led Premier Peter Lougheed to speak of “a declaration of war” by Ottawa.

Since 1947, when oil was first discovered in the Leduc Field, Alberta’s production of crude oil and natural gas has transformed this frontier pastoral province to a burgeoning industrial center. The rise in energy prices by OPEC since 1973 then magnified the value of Alberta’s energy production, causing the center of economic gravity and prosperity to shift westward. Canadian population and investment capital are leaving the old industrial centers in the East and seeking employment and return in Alberta. With just 2 million people, or 8 per cent of Canada’s population, Alberta is generating 12 per cent of the country’s GNP, growing larger every year. The neighboring province of Saskatchewan is enjoying a similar petrodollar boom although it has smaller deposits of primarily heavy oil. So does British Columbia, which has considerable reserves of natural gas.

Before 1973 those provinces benefited from a federal two-price system that protected and promoted domestic exploration by forcing all of Canada west of Kingston, Ontario, to use domestic oil at a price as much as $1 higher per barrel than imported crude. As the price of crude oil soared after 1973 and Canadian crude became cheaper than foreign oil, the government of Alberta was anxious to have domestic oil priced at world market levels. But the federal government proceeded to hold it down for all of Canada in order to give Canadian industry an international advantage at the expense of oil producers.

Oil exported to the U.S. was subjected to a federal tax that brought U.S. costs up to OPEC levels, and provided the federal revenue to subsidize the importation of foreign oil in the Canadian East so that there would be one low price for all of Canada. In fact, the federal government is extracting and then distributing its “fair share” of what it calls the “windfall” in Alberta’s oil profits. Toward that end it is even refusing to allow oil companies to treat royalty payments made to provincial government as business costs when they are calculating federal tax obligations.

Conflicting Interests

When the U.S. was considering a pipeline through Canada to bring Alaskan natural gas to industrial markets, Alberta producers offered to sell some gas on short-term contracts. But the National Energy Board in Ottawa refused to issue the export permits. In an effort to preserve resources for Canadian use and to create new markets in Ontario and Quebec it restricted the exportation and thereby depressed the price of natural gas for Canadians, again at the expense of producers.

Such policies obviously are generating serious economic and political conflicts that are shaking the foundation of the Canadian federation. The provincial governments that represent the population victimized by these crude schemes of federal intervention are fighting back in the political arena, in federal courts, the halls of Parliament, and wherever they can thwart the federal machine. But unfortunately they rarely, if ever, argue for individual freedom and the private property order. They themselves would like to be in the driver’s seat of the provincial economy. Like the oil sheiks of Arabia they like to plan and develop, invest and build, promote and encourage, tax and spend as they see fit for the economic well-being and greater future of their subjects.

With billion dollar royalties rolling into the provincial coffers they are financing “social improvements” of long-term benefit, such as low-cost medical insurance and service, in vestments that “establish a solid economic base,” favors and subsidies for research and development, the construction and direct ownership of petrochemical plants and facilities, the purchase of Pacific Western Airlines, and so forth and so on. In short, they are pursuing the very system of radical government intervention they are fighting so vigorously when conducted in Ottawa. The friends of individual freedom are waiting in vain in the Provincial capitals for the dawn of another day.

Will Canada survive this bitter battle about the petrodollars on the prairie? It probably will. The politicians in Ottawa, Victoria, Edmonton, Regina, Winnipeg, and so on sooner or later will arrive at a compromise that permits them all to take a little more from the producers. After all, contemporary politics is the most practical of the arts by which property rights are sacrificed to the demands of the majority.

The Constitutional Dilemma

It may well be that Canada has entered the stormiest period in its history. Many ascribe the blaze of discord to the lack of a Canadian constitution. The British North America Act of 1867, which established the Canadian confederation and gave the country its basic governmental structure, is decried as alien and outmoded. Therefore, the federal and provincial governments are struggling to reach agreement on a formula that would revoke the BNA Act and permit Canadians to write their own constitution. Without such an agreement the Trudeau administration is prepared to act unilaterally, that is, on the strength of its parliamentary majority without the approval of the provinces. The provinces, on the other hand, are provoked and exasperated about what they consider a blatant federal power grab.

The federal drive for repeal of the British North America Act and its replacement by a “Canada Act” is, of course, merely another aspect of the continuous power struggle. The forces of centralization are anxious to remove the few remaining obstacles to their power over the national economy. With Pierre Trudeau it is also a personal matter: unilateral adoption of his proposals of a constitution would be a bold stroke that would assure him a place in Canada’s history. At least, that’s what his followers in Ontario and Quebec want us to believe. To his numerous detractors he is just like so many other rulers around the globe who, in their moment of power and glory, busy themselves with rewriting their countries’ constitutions.

A Formula for Socialism

The Trudeau constitutional changes, as submitted to Parliament on October 6, 1980, offer a basic charter of human rights carefully formulated to perpetuate the transfer state. It would guarantee the freedom to move about in the country for individuals, but not for their property. It would confirm the key central government role in the equalization of provincial wealth, and adopt an amending formula for the constitution that would safeguard the eminent positions of Quebec and Ontario. It would give new controls over natural resources to the central government and redirect energy tax revenues to Ottawa. It would grant language rights to English- and French-speaking people, but not to other linguistic groups, and force Quebec and Manitoba to practice official bilingualism. And finally, all fundamental freedoms would be made subject to “generally accepted” community standards and conditions.

To the Canadian people the Trudeau proposals are presented as a sincere attempt at creating a “renewed federalism.” To the student of government they merely reflect the ongoing transformation of an old political structure that was built on individual freedom and the private property order to a modern structure more consistent with the economic command system as it evolved during the past 30 to 40 years. All modern states are endeavoring to replace their federal constitutions with unitary structures. Consistently socialistic states are brushing aside all vestiges of federalism.

The basic charter of human rights as submitted to Parliament must be viewed in the same light. A government that seeks control over the production process needs working control over all factors of production: land, capital and labor. It cannot tolerate for long individual freedoms that would jeopardize or obstruct control over economic production. Therefore, it must subject all individual rights to “generally accepted” standards of which government itself is the final interpreter and arbiter. The constitutional freedoms, in final analysis, become duties and obligations the violations of which are severely punished by government.

Can Canada survive its constitutional dilemma? The answer depends entirely on the power and strength of the political forces that are locked in the constitutional struggle. Ideological conviction together with political passion are the great movers of social change. When men’s passions are strongest they may accomplish a great deal, but they also may commit their greatest blunders.

Facing the Eighties

To no one’s surprise, the political upheaval is leaving its mark on the Canadian economy. The Canadian dollar is losing ground against its U.S. counterpart, now selling at 81¢ in Canadian money markets. Although the Canadian central bank is intervening frequently to support its ailing currency, it continues to fall amidst rumors of a large southward flow of funds and sizeable commercial liquidations. Analysts are pointing to the huge Canadian government deficit which may exceed $12 billion in 1981. By comparison, a similar deficit in the U.S., with a population ten times larger than that of Canada, would amount to $120 billion.

Canada’s inflation rate now surpasses 12 per cent, according to Ottawa statistics, and its international payment account deficit is estimated to exceed $6 billion. The official bank rate of the Bank of Canada now stands at 19.89 per cent and is expected to go even higher. The eco nomic trend is very bearish, and it is difficult to foresee a change of trend.

Canada is enmeshed in a deep recession with declining economic output, falling purchasing power of wages and levels of living, and rising unemployment. The capital markets, which attracted many billions of dollars of U.S. venture and exploration capital during the 1950s and 1960s, are depleted and exhausted by huge federal deficits. The political hostility toward capital returns and business profits is chasing liquid American as well as Canadian capital across the border.

Moreover, in an effort to achieve “Canadian control,” i.e., government control, over the petroleum industry, the federal government is restricting foreign ventures and purchasing foreign-owned oil companies through its own $5 billion oil company, Petro-Canada. The pur chases obviously aggravate the drain of capital from Canada and compound the problems of deficit financing. The government of Alberta, which is strenuously opposing the Ottawa policies, has in retaliation curtailed Alberta’s production of oil and prohibited further work on new oil sand development.

The Power of Example

Canadians are looking to the future; the present does not satisfy them. There is always the possibility that another political party, in particular, Joe Clark’s Conservative Party, may return to power, which could lead to some decentralization of Canadian federal power along with a withdrawal of federal influence over business. Social transfer programs constructed by liberal government may someday be curtailed, which would reduce the horrendous deficits and alleviate the ravaging inflation. After all, hope springs eternal in the human breast.

Canadians are probably reluctant to admit that there is transcendent power in the example set by their only neighbor, the U.S. An American example may, in the end, be more forcible than political precept. This is why the trends and policies of the U.S. during the 1980s may have a significant bearing on the future of Canada. If the U.S. succeeds in solving its economic and social problems, which in many respects are similar to the Canadian issues, the light that will shine in the U.S. will radiate immediately across the border. If it is demonstrably true that, in November 1980, the American people embarked upon a new road to economic expansion and prosperity, our Canadian neighbors will not be far behind. But if, in the coming years, the American exam- pie proves to be merely another road in the same old direction, the destination, which is all-round government control, will be the same in Canada as in the U.S.

The world is a scene of changes. In the coming years there will be countless changes in human affairs because our thoughts and works will change. By suffering much we may yet come to see our faults and follies.

ASSOCIATED ISSUE

November 1981

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