How Fear and Anger Are Warping Western Politics and What Canada Can Do in Response

MARCH 2019

FACING THE POPULIST MOMENT How fear and anger are warping Western politics and what Canada can do in response

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insidepolicyinsidepolicy [march].indd [march].indd 2 2 14-04-0114-04-01 10:00 10:00 AM AM From the editors Contents

opulism has been acutely felt in a number of countries – from 4 Public needs to know pipelines are the best way to go Joseph Quesnel Pthe UK’s turn towards Brexit to the election of Donald Trump in the United States to the rise of right-wing populist governments 5 The problem with the carbon tax across Europe and beyond. Philip Cross Canada has so far not felt the sting of populist discontent, but 6 Rethinking how to deal with populism and it is certainly not immune from these forces. As Sean Speer writes its discontent in our cover story, a proportionate political and policy response to Sean Speer these disruptive public sentiments will require drawing from both 10 Past stimulus threatens long-term economic growth sides of our ideological spectrum. and political stability Both Linda Nazareth and Philip Cross point to the prospect Philip Cross of a global economic slowdown that will likely only increase the 11 A recession could be different this time for workers urgency of such a response. Cross also raises the less-than-stellar and unemployment track record of central banks in maintaining financial stabili- Linda Nazareth ty. Canada’s economy is furthermore hampered by inefficient 12 Is Ottawa’s Pharmacare announcement based on carbon taxes and legal/regulatory uncertainty around pipelines, ideology or evidence? as noted by Cross and Joseph Quesnel. Sean Speer Indigenous communities are particularly concerned about the 14 Pan-Canadian pharmaceutical alliance lacks environmental assessment process for natural resource projects, transparency and accountability which are important to their own livelihoods – a point also raised Nigel Rawson by Quesnel. 17 Indigenous people are upset with the Liberal According to Nigel Rawson, the government’s proposals government’s Bill C-69, too on pharmacare do little to fix the problem of transparency and Joseph Quesnel accountability in the current system. It also raises the prospect 18 Central bankers can blame themselves for undermining that Ottawa is moving in the direction of a national pharmacare their political “independence” scheme. If that is pursued, Speer foresees new problems for Philip Cross policy-makers. 20 More needs to be done to counter foreign interference Marcus Kolga argues that more needs to be done to safeguard Marcus Kolga our election system from interference. Kolga and Josh Gold also 21 Why Canada’s left is wrong on Venezuela describe the dangers posed by Russian disinformation. Yet, as Kaveh Shahrooz Kaveh Shahrooz notes, we must also be on guard against other The price of Chinese money laundering countries, such as Iran. 23 Arthur J. Cockfield China poses a particularly acute challenge to Canada, especially when it comes to our telecommunications network. For that 25 Huawei, a risk that Canadians cannot afford reason, Christian Leuprecht and David Skillicorn recommend Ivy Li banning Huawei from our future 5G network. Ivy Li also outlines 27 Why banning Huawei is just the initial step for Canada the dangers that Huawei poses to Canadian citizens who have ties to defend itself to China. Christian Leuprecht and David Skillicorn We need to be honest with our mistakes in dealing with China 29 Canada must develop a backbone in its dealings – from our appeasing attitude that is examined by Charles Burton with China to what Arthur Cockfield describes as our willful blindness to Charles Burton Chinese money laundering. 30 Foreign influence from Iran in Canada is a real concern We should also reassess how we approach other countries. As Kaveh Shahrooz Shahrooz notes, the left’s failure to be honest about the nature of 31 How the Kremlin distorts the past to divide us the Maduro regime in Venezuela is a good case in point. Marcus Kolga

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 3 PIPELINE PROJECTS Public needs to know pipelines are the best way to go

Ottawa should reduce legal and regulatory uncertainty over pipelines projects. iStock

Joseph Quesnel Pipelines are by far the safest means he issue of increased pipeline capacity Twas front and centre on Parliament of transporting crude oil. Hill in February, as protesters with a truck convoy originating from the West converged on Ottawa recently to push legislators to can exported to foreign markets and get the are safe overall. According to informed end delays on critical pipeline projects. best price for oil and gas producers. observers, Canada is said to have one of the Provincial politicians – in response to Oil and gas producers are increasingly safest transportation systems in the world. federal inaction on pipelines – are acting on forced to transport their product through Also, given the recent decision to phase their own. less efficient, and ultimately less safe, means out older rail cars that are more prone to Just recently, Alberta Premier Rachel of transport. accidents, transporting by rail will become Notley announced the province will spend Unfortunately for everyone, however, even safer over time. $3.7-billion to move landlocked Alberta oil major pipeline projects such as Northern But, if you had to choose, pipelines are to market by rail. Alberta intends to ship Gateway, Energy East and Keystone XL by far the safest means of transporting crude about 120,000 barrels of oil per day by were either killed or seriously hampered. oil and other flammable liquids. Right now, 2020 through agreements with Canada’s Ongoing pipeline projects such as the Canada has more than 840,000 kilometers two major railways, Canadian Pacific and Trans-Mountain pipeline expansion also of pipelines that cross interprovincial and Canadian National. remain stalled. international borders, with very little major To be fair to Premier Notley, this is Investing in rail is a stop-gap measure incident. In terms of annual frequency not the government’s preferred course of for producers. Unfortunately, it is also the of accidents, data from the Transporta- action. She clarified, rightly, that the best costlier route, with oil by rail costing three tion Safety Board of Canada (TSB) – the long-term solution is to invest in new times more than pipeline. pipeline capacity to coastal ports so that it To be quite clear, both rail and pipelines Continued on page 32

4 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute CARBON TAXES The problem with the carbon tax

North America has always been difficult terrain to cultivate support for consumption taxes.

Philip Cross support because of the appeal of making more efficient itself is highly dubious in the rich pay more. practice. A tax on carbon emissions was pposition to a carbon tax has There is no national sales or value-added supposed to be offset by lower income Omushroomed in a short period of tax in the US, reflecting a hostility to taxes. This almost never occurred because time, suggesting it needed little water to indirect taxes that dates back to the Boston the administration of carbon taxes was left sprout and grow. This would not be surpris- Tea Party and the American Revolution. to cash-strapped provincial governments, ing to carbon tax advocates if they had been In Canada, the GST has always been which used them in a tax grab to bolster more rooted in the importance of local unpopular. The Harper government was their own sagging finances. Rising overall circumstances in gaining public acceptance elected in 2006 on the promise of reducing provincial tax levels prevent advocates of new policy regimes. North America has the GST, and polls show most Canadians from relabelling carbon levies as a price on always been difficult terrain to cultivate would follow BC’s 2011 referendum in pollution and not a tax. support for consumption taxes, of which voting against it if given the chance. The greater efficiency of a carbon tax the carbon tax is the latest variant, while Economists argue that taxes on regime also is contingent on governments it has long been fertile ground for their consumption are more efficient than removing all other vestiges of command opponents. income taxes. However, they have not and control regulation of carbon emissions, Proponents of a carbon tax ignored a made the case persuasively with most North ranging from mandatory standards for fundamental difference between the tax Americans. Until they do, they are going vehicle gas mileage to closing coal-fired power regimes in North America and Europe. to face a wall of public skepticism and plants. No government is remotely willing to European nations prefer consumption taxes resistance. Pointing to Europe as an example renounce such regulations simply to satisfy such as value-added taxes (the counterpart to Canada’s Goods and Service Tax, or GST) to income taxes. North America relies Opposition to a carbon tax has much more on income taxes while resisting mushroomed in a short period. consumption taxes, despite the endorse- ment of the latter by most economists. The enmity of Europeans to direct taxes of the greater efficiency of consumption academic requirements for more efficiency. has its historical roots in authoritarian rulers taxes is hardly convincing to a public that Nor has any government taken steps to who used such taxes to fund unpopular associates Europe with bloated bureaucracy, extend carbon taxes to a tariff on carbon wars. Given this background, it was easier low productivity, high unemployment and imports; without that, we are imposing a for governments in Europe to sell consump- widespread tax evasion. carbon tax on our exporters, putting them tion taxes to the public, although persistent- Economists have ignored the public’s at a competitive advantage, while allowing ly weak incomes appear to be undermining basic perception that while consump- carbon imports to enter without a penalty. support for a carbon tax to judge by France’s tion taxes may be more efficient, they The result is a hodgepodge of carbon recent ‘gilets jaunes’ protests. are inherently unfair since they lack the taxes, extensive regulations and subsidies, In North America, income taxes were progressivity of the income tax system. and high levels of income tax which have introduced to finance the First World War, If proponents of a carbon tax had been not lowered carbon emissions or improved and then raised substantially to bankroll the more in tune with the skepticism of North tax efficiency even as they hampered the Second World War and the Cold War. All Americans to indirect taxes, they would competitiveness of Canadian industry these wars had broad public support, and have framed their arguments to address against US firms. so income taxes were at least grudgingly concerns about equity rather than an accepted. The pronounced progressivity of exclusive focus on efficiency. Philip Cross is a Munk senior fellow at MLI. This the income tax system encouraged public The proposition that a carbon tax is article first appeared in theHill Times.

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 5 COVER FEATURE Rethinking how to deal with populism and its discontent A proportionate political and policy response to populism will require that we draw from both sides of our ideological spectrum. iStock

Sean Speer tensions between efficiency and equity, ery and possibly worse. But the idea that the freedom and equality, and Liberal and present populist moment can be principally n this article, I wanted to speak about Conservative (or Democrat and Republi- explained by a combination of crudeness Isome of the most important questions can) that we’re accustomed to. and racism is, in my view, a cop-out. It’s a facing our societies. We aren’t merely talking about dodge by intellectual and political leaders. Why are large shares of our populations competing political preferences between It’s an attempt to persuade ourselves that turning to new and disruptive political the 40-yard lines of public debate. There’s our basic assumptions are right, and the vehicles? What does it say about our current something more profound going on. Our public is wrong. political and policy frameworks? And what basic frameworks are under strain. A mix of more redistribution and can and should we do about it? Some of these disruptive public better communications isn’t an adequate These questions transcend ideology and sentiments are no doubt unjustified. They answer to what ails our politics no matter partisanship. They’re bigger than the typical reflect the forces of ignorance, demagogu- how much we tell ourselves. It behooves

6 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute those of us who believe in liberal democra- Or at least I was. The past 36 months about the growing relationship between cy – on the Left and the Right – to think have caused me to undergo an ongoing education and labour market outcomes. more fundamentally about how to make process of introspection. I’m still a Those without post-secondary education our economies, societies, and politics more conservative. In fact, in some ways, I have tend to be in jobs that are most prone to inclusive and responsive. become more conservative. But, in others, trade-induced dislocation and automation Our answers will differ based on our I’ve started to think more fundamentally and ultimately face the highest levels of priors and preferences. That’s both healthy about what the rise of populism tells us precarity. and inevitable. But this ought to be a shared about conservatism and a renewed agenda It is intuitive, isn’t? We just have to project. Too much is at stake. of inclusion and responsiveness. look around us. General Motors’s lay-offs I just referred to our differing priors. Let me start with mine. I think it’s useful – both for the purposes of being transparent There are increasingly few industries and recognizing potential blind spots. or professions where those without I have a technocratic mind. I’m pre- disposed to thinking about these issues post-secondary education can through a lens of government and public earn a good living. policy. In so doing, I can neglect the role of norms, institutions, and other societal factors. I grew up in an entrepreneur- It’s been a complicated journey. It has in Oshawa is merely the most recent and ial household and tend to think about led me in new and different directions. regrettable example. these issues through the lens of economic And it’s far from over. But this exercise of We’re going through a process of utilitarianism. In so doing, I can neglect self-analysis is now guiding my thinking “skills-biased” change whereby developed non-economic forces such as loneliness or about politics and policy. economies are paying larger returns for an individual’s search for belonging and cognitive skills and educational credentials meaning. I can also as a result overempha- Why populism? and have less demand for more routinized size the role of personal responsibility and I started by asking: why populism? or basic skills. The result is that there are underemphasize the existence of structural I recognize that there are competing increasingly few industries or professions barriers in our society. interpretations of contemporary populism. where those without post-secondary I believe in the efficacy of markets, Some argue it’s principally a manifestation of education can earn a good living and have the role of incentives, and the benefits of economic anxieties. Others argue it’s driven economic security. dynamism. But I can also underestimate primarily by cultural anxieties, including The rising wage gap between those the threat of corporate concentration, “status threat” by majority populations. with post-secondary education and those the short-term costs of growth maximiza- This is a nuanced and evolving without it – more than 55 percent in tion, and the individual and community empirical question. Harvard economist Ontario ($55,216 versus $85,645) – is downsides of what Joseph Schumpeter Dani Rodrik (who one might argue has evidence of this trend. called “creative destruction.” been the most proactive and serious thinker It’s no surprise therefore that I’m a temperamental conservative, on these questions) spoke at the University high-income Canadians tend to be highly which means that I’m skeptical of radical- of Toronto late last year and argued that the educated. Two-thirds of the top-1 percent ism and utopianism. Economic, social, and two are inextricable. of earners have a university degree (versus political progress generally comes in the He’s, of course, right. But, at the risk 20.9 percent of those above 15-years old form of incrementalism rather than a big of simplifying it, I tend to err on the side without post-secondary education). And bang, which invariably leads to inadvertent of the former explanation. Remember this is hardly unique to Canada. Research consequences. The risk, of course, is that educational attainment is the best determi- by the bipartisan Hamilton Project in the my resistance to change can cause me to fall nant of Trump voters. That is to say, the United States finds that workers with a victim to a status quo bias. single best predictor of Trump voters is that college education are now the majority in I could go on. But I think you get the they didn’t go to college. The same goes for the top two income quintiles. picture – I’m a pretty orthodox conservative Leave voters in the United Kingdom. Education has thus become the thinker. This is consistent with research greatest source of differing outcomes

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 7 and opportunities in today’s economy. manifested itself not just in our economy The key here is the following: Economic It has increasingly come to trump more but also in our culture and politics should opportunity is increasingly bifurcated based conventional determinants of wealth and hardly be surprising. The consequences have on one’s education levels and geography. opportunity such as race or family structure. been well-documented on the Left and the It’s important to emphasize that this is Right. We have observed growing evidence unique in modern history. The economics What does it mean? of wage stagnation, financial insecurity, and of credentialism and geography have never The upshot is that we have an economy that place-based dislocation. been stronger. will continue to pay higher returns to those In turn we’ve observed increasingly with certain credentials and skills but that destructive behaviour among working- What can we do about it? undervalues physical strength, hard work, class populations and a growing turn to It, of course, leads to the question: what can and other aptitudes that were more market- non-conventional politics. These trends are, we do about it? The progressive predisposition to redistribution may be well-intended. But I would submit that it’s an incomplete agenda. Not only will it fail to fundamentally address populist demands, which are more about broad-based work and opportunity than state-supported consumption, according to research by a group of Yale scholars. It can also come to harm the economic dynamism that’s at the root of modern society. I don’t think this tension can be underemphasized. Analysis by Paul Krugman and others defending Alexandria

iStock Ocasio-Cortez’s proposal for a 70-percent tax rate for high-income earners fails to address the efficiency trade-offs of such high marginal tax rates. Their analysis is predominantly concerned with the revenue able in the past. The winners in this new intake. But such analysis fails to account economy fall into the former camp; the los- Globalization for the effects on entrepreneurialism, ers into the latter. innovation, and so on. The result might be The twin trends of globalization and and technology higher levels of equality but the costs in the technology have disrupted or threatened have disrupted or form of less dynamism could be significant. traditional sources of middle-class At its core, this article is about the opportunity, including manufacturing threatened inherent tension between economic security employment. traditional sources and economic dynamism. How we respond One proof-point: a recent Ball State to this question will, in my view, determine University study found that the US manufac- of middle-class our politics for the years to come. turing sector, if it kept 2000-levels of opportunity. There are some empirical consider- productivity and applied them to 2010-levels ations to bring to bear, including the of production, would have required 20.9 benefits and costs of high marginal tax million manufacturing workers rather 12.1 rates, for example. But fundamentally this million workers. That’s nearly the equivalent in my view, and the view of various other is a normative question where both the Left of the productivity-driven destruction of centre-right thinkers including Charles and the Right have something to offer. every job in New York City. Murray, Ed Glaeser, and Nick Eberstadt, A proportionate political and policy That this scale of disruption has inextricably linked. response will require that we draw from

8 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute both sides of our ideological spectrum. The the empirical argument is weak? And, Fifth, more localism would help Left’s emphasis on institutional barriers to for how long will the losers be prepared to expand political responsiveness and social mobility and the role of public policy to accept a policy that’s focused on their accountability. Yet some organizations are to break them down will be an essential consumption and not the inherent needs skeptical of localism due to bad experienc- component. So too is the Right’s thinking to be productive? es and concern that certain communities about the role of families, the dignity of Third, inequality seems to be a motivat- and group will be excluded. How can we work, and the limits of state action. This ing force in our politics. How do we define advance an inclusive vision of the Catholic cannot be an all-or-nothing proposition. inequality? Should we care about it? Why? idea of subsidiarity? What is the role Does it even respond to a public demand of government to facilitate such an A constructive response to populism or do people want work and opportu- approach? I want to conclude with some of the key nity (e.g., Paul Bloom’s argument)? There Lastly: if you accept my premise that issues that I think we must confront in the seems to be a false assumption that greater the redistribution of welfare gains resulting coming weeks and months to arrest the redistribution will solve the problem. I from a dynamic economy are a necessary trend towards unrooted populism on the disagree. People rightly want fairness but yet insufficient response to growing public Left and the Right. that’s different than equality. And there sentiments about economic security, what My comments aren’t about tinkering are ultimately bigger trade-offs between more structural changes are we prepared on the margins. They reflect a growing view dynamism and security here than people to accept? Are we willing to absorb welfare that we require more fundamental changes are prepared to concede. losses to provide more employment to our economy, society, and politics, which is an odd conclusion for a conservative. But, as I mentioned in my introduction, my thinking is still being refined on this issue. Are we willing to absorb welfare losses In this vein, I’m afraid that you’ll need to provide more employment to settle with a series of questions rather than answers. security for certain workers? First, the current episode of globaliza- What are the policy implications? tion (including what Dani Rodrik has called “hyper-globalization”) has harmed certain industries, regions, and people in western countries. Yet it has also contributed to Fourth, Canada has achieved security for certain workers? What are the most significant reduction in poverty world-leading rates for educational the policy implications? Will the public in human history. How should we judge a attainment. Nearly 60 percent of those actually support an agenda that may policy framework that increases domestic between the ages of 25 and 64 now have produce less dynamism, less wealth, fewer inequality but lowers global inequality? Are a post-secondary degree. This amount choices, and higher prices? we prepared to trade-off lower inequality will grow even higher due to demograph- These, in my view, are the fundamental inside our borders even if it involves less ics, improved post-secondary access, and questions that we must confront. Especially income and wealth in the developing world? the possibility for further “nudges” to the final one. How do we think about this tension? target low-income and other marginalized I’m afraid that I don’t have answers. I’m Second, redistributive tools can help voices. But recognizing that a consider- still on a journey. But we all need to start to to distribute welfare gains stemming able portion of the population will never reason through them. We’re at a crossroads. from globalization from the so-called attain post-secondary education (PSE), It’s exciting, dynamic, serious, and unsure. “winners” to the so-called “losers” in the what should policy-makers do to respond The best we can do is ask people of good form of higher tax rates and accompany- to their needs and interests? What does a faith to engage and participate. This is ing cash transfers. Is this a sustainable pathway to a non-PSE future look like? democracy at its best. strategy? How can we properly measure How should we reconceptualize public the efficiency-equity trade-off? Are higher funding to support the two-thirds who go Sean Speer is a Munk Senior Fellow at MLI. This tax rates on high-income earners justified to university or college and the 35 percent article is based on Sean Speer’s keynote remarks for the merely as a political initiative – even if who don’t? Democracy Xchange Conference on January 27, 2019.

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 9 ECONOMIC SLOWDOWN Past stimulus threatens long-term economic growth and political stability

The slowdown in the global economy has only reinforced the public perception that the system is “rigged.”

tax cuts is wearing off in the US. Canada is The failure to restore satisfactory Philip Cross tottering on the brink of recession, despite growth risks fanning populist critiques the benefit of continued growth in the US. about whether the extraordinary stimulus he global economy is clearly slowing China is experiencing slower growth as both was worth the long-term costs which are Tdown, leading organizations such exports to the large industrial nations slow becoming more evident. The stimulus as the IMF and the OECD to recently and as its trade war with the US continues. itself was unprecedented. Most central downgrade forecast growth for 2019. Italy For a decade now, western nations have banks in the advanced market economies has already returned to recession, its third in adopted extraordinary monetary and fiscal lowered interest rates to near or even the past decade. The UK is not far behind stimulus without restoring growth to its below zero. Then they tried quantitative as an agreement on Brexit flounders. Real long-term trend. Europe is following Japan easing, engaging in a vast expansion of GDP in Germany has fallen over the last in becoming mired in chronic slow growth. their balance sheet to lower interest rate two quarters and France was slowing amid Three times Canada has managed to raise its spreads and bid up the price of assets. growing ‘yellow vest’ protests late in 2018. growth to 4 percent, only to see growth slip Meanwhile, governments reinforced The temporary stimulus from last year’s back to 1 percent or less each time. monetary stimulus with massive fiscal stimulus. In the case of US and the UK, this pushed government borrowing to

The failure to restore satisfactory growth risks fanning populist critiques.

levels normally associated with major wars when national survival was at stake, but government debt levels have risen across Europe and North America. It is arguable that these extraordinary monetary and fiscal measures were necessary and effective in minimizing the damage from the Great Financial Crisis. However, the problem is that these measures were only intended for short-term use at the depths of a crisis. Instead, most countries maintain this stimulus 10 years later, greatly amplifying the distortions they introduce into financial markets and reducing potential long-term growth.

Continued on page 33

10 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute ECONOMIC SLOWDOWN A recession could be different this time for workers and unemployment

An economic slowdown could be a real possibility in the near future.

Linda Nazareth

hat if you had a recession and Wworkers got hit hard but the unemployment rate hardly changed at all? Strange as it sounds, it is a real possibility. Given the transitions we are seeing in terms of jobs, the next recession could play out very differently than past ones. That is something worth thinking about as we face a year of economic uncertainty. What we do know is that a decade or two from now, we will get the work done in a different way. Full-time workers, part-time workers, remote workers, gig workers, robots and cobots – or collabora- tive robots – will all likely be in the mix, iStock but in altered proportions to what they are now. While the general feeling is that there number of people seeking work) was 0.8 usual train of thought, requires hiring them is plenty of time to plan for that reality, a percent in Canada, about half the pace as and giving them benefits. The recession recession could test that assumption. the 1.6 percent seen in 1998. The fact that of a decade ago might have moved many To be sure, we are already seeing a labour supply is growing slowly has given companies away from that model, but transition to tech and away from tradition- workers an advantage that they might not the situation of the past years was slowly al work models, but to date those shifts have had otherwise. moving them back. If pushed to the wall have been cushioned by a couple of things. But maybe we should not be looking by a recession, however, huge changes may For one, over the past few years North at unemployment rates. Once upon a time, be worth implementing, whether that America has pretty much been on top of you could count who was working and who means gig-ifying the work force in earnest the business cycle when it comes to hiring. was not, and it was a reasonable measure of or investing heavily in technology. It took some time, but we ended 2018 economic health. Now, we have millenni- So let’s talk about that threat of with some of the lowest unemployment als who are on contracts when they want recession, because, well, everyone else is. rates seen in decades in both Canada and to be permanent employees, baby boomers For sure, politicians and central bankers the United States. driving Ubers rather than in full-time could be all-powerful and all-knowing. If While those very low unemployment work, and an abundance of workers so, no worries at all, we may have killed rates reflect a strong demand for workers, unhappy with both their compensation the business cycle once and for all and they also illustrate that those workers are in and their jobs. Those people could already recessions may well be a thing of the relatively scarce supply. Owing in part to tell you that the economic statistics do not past. If you are a tiny bit more skeptical an aging work force, the supply of workers tell you everything. than that (as are, apparently, the financial has been expanding slowly compared with On balance, traditional employers markets), a slowdown of some kind could previous decades. In 2018, labour force have mostly stuck with a full-time worker growth (which measures the increase in the model. Getting the best workers, goes the Continued on page 33

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 11 PHARMACARE Is Ottawa’s Pharmacare announcement based on ideology or evidence? When it comes to pharmacare, policy-makers should focus on a targeted solution for those who don’t have drug insurance.

Sean Speer And it is worth emphasizing that even using the panel’s 20-percent figure, he release of an interim report by The current mix of policy-makers should not neglect that Tthe Trudeau government’s Advisory private and public the current mix of private and public Council on the Implementation of Nation- insurance is providing coverage to 80 al Pharmacare provides us new insight insurance is providing percent of the population. Various into the independent panel’s thinking, the coverage to 80 percent polls tell us that the vast majority probable focus and tone of its eventual of this group is generally satisfied with the recommendations, and the government’s of the population. access and costs of prescription drugs. possible policy response. The point is even the panel concedes that The short report pulls on different we have a targeted problem rather than a large threads and arguments to arrive at the Who are they? Why do they not have one. It seems to me that the policy-making conclusion that Canada needs a new national insurance? What should be done to try to process ought to start from this premise. drug agency and a national drug formulary. expand insurance coverage to them? The case for this direction bounces between We know a bit about them. Canada’s spending on prescription the panel’s concerns about broad-based A large share is neither poor nor old. drugs is unsustainable – and insurance coverage, the cost of drugs, Otherwise they would likely be covered nationalizing it will reduce costs and the usual laments about the so-called by provincial programs that target The panel warns that Canada’s overall “patchwork” of policy and preferences in a low-income people or seniors, such as spending on drugs – including both by federal country. An emphasis on “evidence- Ontario’s Trillium Drug Program. public and private insurance plans – is un- based” decision-making seems to conceal They do not receive insurance coverage sustainable and requires reform. The basic an ideological commitment to nationaliz- through an employer. This presumably idea here is not just that we have an access ing drug insurance in Canada irrespective means that they work for small firms or are problem for vulnerable groups but that of the ultimate argument. involved in non-traditional employment aggregate spending on prescription drugs The interim report contains a few circumstances such as the “gig economy,” must be constrained. relevant assumptions, observations, and non-profit work, or self-employment. This amounts to a second and different directional intentions. It is worth address- MLI research estimates that 2.8 million argument. The problem is now defined as ing them in sequence. (or roughly 80 percent) of the non-insured being principally about cost rather than cohort falls into the latter category. access or coverage. Twenty percent of Canadians are These characteristics mean that this It may be understandable that uninsured or under-insured cohort is generally working-age and governments are concerned about drug MLI research has found that approximately earning income that exceeds the phase-out costs. They are the fastest-growing health- 10 percent of the population are insured. thresholds for public programs. It does care expenditures for the provinces and Presumably the other half are reflected in the not mean that policy-makers should not territories and we know that overall health- panel’s characterization of “under-insured.” be concerned about them. But it might care costs are contributing to long-term fiscal Notwithstanding these differences, it change how we think about the role of sustainability challenges for virtually every is relevant for the panel and federal policy- government and public policy. While this sub-national government in the country. makers to concern themselves with this 10 is a unique cohort, it is not necessarily a But it not obvious that (1) we should be to 20 percent. No one would dispute that. vulnerable one. concerned about drug costs more general-

12 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute ly, especially in relation to the benefits Arguably. But these benefits come at the tion of the panel’s preliminary recommen- that prescription drugs and pharmaceu- price of less choice, poorer access, and dations for a new national drug agency and tical innovation provides or (2) having an obstacle to the trend of personalized national drug formulary similarly point to it. government assume responsibilities for medicine. The panel should more transpar- We will have a clearer picture when the panel these costs will produce better outcomes – ent about these trade-offs with Canadians. releases it final report and accompanying including with respect to overall cost. recommendations in June. On (1), the fact is that Canada is a A national drug agency would act as Past MLI analysis has argued for a different wealthy society and research shows that a steward of national pharmacare approach, one that sees a role for public policy wealthy societies consume more health care. Past MLI research has examined the role to support those without insurance in a way It does not mean that there is no room for of the federal government in health care that is rooted in federalism. efficiencies. But the idea that there is an over the past 150 or so years and the les- We should be clear: this does not inherent problem with a society spending a sons from past experiences with health-care diminish the need for a policy solution or lot on prescription drugs is not self-evident. reform. Our analysis shows that overly am- even a role for the federal government. We Especially since we need to judge those costs bitious plans for federal coordination and a just believe that the ultimate response ought relative to the benefits that patients derive. “uniform national experience” more often to be focused and decentralized as opposed This point is excluded from the interim report. than not impede meaningful reform than to broad-based and centralized. As for (2), it is similarly unclear that a enable it. This should come as no surprise. Policy-makers in particular should focus government-centric model will be cheaper and more efficient unless, of course, drug coverage under a national formulary is The panel (and government) are moving in the considerably narrower than most people receive under their private coverage. direction of a national pharmacare scheme. This point cannot be overlooked: the underlying assumption that a public model Ottawa has no unique expertise or on a targeted solution for the small yet real would be less costly than the status quo perspective on these issues. Why would share of the population that presently does (which is one of the panel’s key arguments) a panel chaired by a former provincial not have drug insurance. This should come requires that the government would engage Health Minister assume that uploading in the form of a combination of a redesign of in a form of rationing whereby its formulary these responsibilities would produce better the Medical Expense Tax Credit at the federal will necessarily be narrower than under outcomes? The panel provides no rationale level (which is a creative policy proposal private plans. for such an assumption. that MLI has advanced for the past several “Controlling cost” is a euphemism for There is also the basic point that these months) and possible expansions of provincial narrowing choice and the responsiveness of issues are complicated and not prone to programming similar to the OHIP+ model. the overall health-care system in the name of simple solutions. Progress will need to involve These incremental would make progress minimizing public costs. National pharmacare a process of trial and error, dissemination of on the 20-percent problem that the panel proponents are free to make this argument. best practices, and ongoing adjustment and has rightly identified in its interim report. But they ought to be more transparent about refinement. Centralizing the reform agenda in A new national bureaucracy and it rather than hide behind “an appropriate the name of a “uniform national experience” accompanying formulary risks disrupt- group of experts” who will decide which drugs short-circuits bottom-up experimentation ing the parts of the current model that are covered and which are not. and risks the top-down diffusion of bad ideas are working and in turn producing new The inevitable (and even deliber- and harmful reforms. The right approach problems that may be larger than the one ate) outcome is that some people will no here is to “let a thousand flowers bloom” that policy-makers are facing now. This longer have access to the medicines that rather than a new national drug agency. would be a big mistake that is more a they currently use due to the government’s Where do we go from here? The interim reflection of ideology than evidence. judgment about costs. report’s focus and tone (and the Minister of The Advisory Council and the It is the same impulse and mechanisms Health’s participation in its release) is a sign government have roughly four months to get that lead to long wait times and poorer that the panel (and government) are moving it right. Let’s hope they do. access to medical technologies in our in the direction of a national pharmacare hospitals. Cheaper? Yes. More equitable? scheme. The recent federal budget’s affirma- Sean Speer is a Munk senior fellow at MLI.

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 13 AFFORDABILITY OF PRESCRIPTION DRUGS iStock Pan-Canadian pharmaceutical alliance lacks transparency and accountability

Negotiations to limit drug prices should not limit patients’ access to innovative drugs.

Nigel Rawson The pCPA was established in August cal manufacturers, little information is 2010 by the premiers of all provinces publicly available about the pCPA. The he Trudeau government is concerned and territories except Quebec, with the only regular information released by the Tabout the affordability of prescription objectives of increasing access to drug pCPA is monthly active and completed drugs. One of the tools used to contain options, achieving lower drug costs negotiation lists; for example, 46 negotia- drug costs is the pan-Canadian Pharma- and consistent pricing, and improving tions were active and nine were complet- ceutical Alliance (pCPA), which negotiates consistency of coverage criteria across ed in December 2018. Otherwise, its prices for medicines with pharmaceutical Canada. Five years elapsed before the procedures and actions lack transparency. manufacturers on behalf of the federal, pCPA became a formalized entity with a We do know that once the Canadian provincial and territorial governments’ permanent government-funded staff and Agency for Drugs and Technologies in drug plans. But we know little about the office. The Quebec and federal government Health (CADTH) and/or the Institut pCPA’s processes, practices and governance drug plans joined in 2016. national d’excellence en santé et en services because the organization is shrouded under Apart from some brief material sociaux release a final recommendation the cloak of the Council of the Federation. around its policy directions regarding about whether a medicine should or should Canadians need to know how the pCPA new and subsequent entry biologic drugs not be reimbursed by public drug plans, impacts both the costs of drugs and their and guidelines about how negotiations the pCPA decides whether a negotiation access to them. should be approached by pharmaceuti- about the drug’s pricing will take place.

14 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute If the pCPA proceeds with a negotia- support business planning. by rare disorders with the objective of tion, governments must decide whether Pharmaceutical companies are, developing recommendations for actions they want to join it. For new brand-name however, denied access to the confidential to remove these barriers. This provides an drugs, all governments tend to participate information shared between CADTH and opportunity to gain greater insight into but they are not obliged to do so. the pCPA. As a result, the pCPA has an the workings of the pCPA. Government participation in a negotia- important advantage if negotiations have In its brief, the pCPA identified three tion indicates that, should an agreement begun. A 2017 analysis of recommenda- key challenges that it sees as important to be reached between the lead province and tions for rare disorder drugs indicated its work. These are: the manufacturer, both parties will sign that an objective of the CADTH-pCPA • Evidence limitations – the evidence a letter-of-intent that implies the drug integration is to ensure that a negative available about a drug’s efficacy, safety and will be listed in any subsequent Product recommendation results in no pCPA cost-effectiveness at the time of negotia- Licensing Agreement (PLA) with an negotiation, while a positive one sets up tions is often considered by the pCPA to agreed price and reimbursement listing factors for inclusion in the negotiation be inadequate with which to make drug criteria. The drug plans are, however, – usually the need for a sizeable price coverage decisions. not mandated to list a medicine that has reduction. • High drug pricing – extremely high been successfully negotiated. As a result, Although little information is available prices threaten drug program affordability, an agreement does not guarantee listing about its governance, the pCPA is clearly sustainability and subsequently patients’ in all participating plans. Using the basis only accountable to the federal, provincial access to these drugs. of the letter-of-intent terms, manufactur- and territorial governments. While • Gaps in national alignment and ers must negotiate individual PLAs with individual negotiations are understand- coordination of processes.

The panel (and government) are moving in the direction of a national pharmacare scheme.

each jurisdiction, which may introduce ably confidential, the lack of transparency Manufacturers of costly drugs for additional criteria or coverage limitations about issues surrounding negotiations is rare disorders are expected by the pCPA based on the individual government’s concerning because the pCPA is an agency to “provide adequate evidence around assessment of its needs and resources, as a of Canadian governments. As such, the their drug products’ safety and efficacy to condition of funding. pCPA receives public funding but, because support coverage decisions.” Pharmaceu- Since May 2016, pCPA representatives no apparent parliamentary oversight of it tical manufacturers’ evidence about are observers in meetings of CADTH’s exists, the organization is protected from the safety and efficacy of a medicine is expert health technology assessment the usual means of government account- designed to satisfy the regulatory require- committees and their advisory groups. ability such as freedom of information ments of the United States and Europe They receive confidential and redacted requests, whistleblowing, Auditor General because their populations represent the information from CADTH’s recommen- of Canada reviews, and ombudsman or two largest world markets. The same dation evaluations prior to the pCPA integrity commissioner inquiries and evidence is normally used in the company’s deciding whether and how negotia- investigations. submission for regulatory approval from tions with manufacturers will proceed. In December 2018, the pCPA Health Canada. According to CADTH, the purpose of this submitted a brief to the House of Commons Data about efficacy and safety are not connection is to provide an opportunity Standing Committee on Health (HESA), developed to satisfy the needs of a public for the pCPA to receive relevant informa- which is undertaking a study of barriers to drug insurance price negotiating organization on drugs reviewed by CADTH and to access to treatments for Canadians affected tion in a small market like Canada. The

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 15 pCPA’s expectation is unlikely to be Canadian taxpayers – $50 million from were taken. While its accountability is to achieved. Rather, it is more probable that the federal government and at least $3 its funders, the pCPA’s support from the a manufacturer whose regulatory evidence million from the provinces and territories public purse should require it to have a does not find favour with the pCPA, which over the past two years for an office of just degree of accountability to all Canadians, usually leads to a demand for a sizeable 10 people. especially patients. price reduction as the starting point of The question arises as to where this A comprehensive annual account of negotiation or a decision not to negotiate, money is going? I am not aware of any other issues confronted by the pCPA and how will delay bringing its drug to Canada or government program with this number of it dealt with them, together with details will avoid the Canadian market. employees and an annual budget of this of its income and expenditure, would be In its HESA brief, the pCPA raises scale that has no requirement to provide a valuable step forward. More broadly, concern about high prices for drugs for publicly available reports on its finances. since the federal government claims to rare disorders. The development of a new In contrast, for example, the Patented be focused on both the affordability of drug has been estimated to cost over $2.8 Medicine Prices Review Board had a prescription drugs and their accessibil- billion. If the drug is only likely to be used budget of just over $11 million in 2017-18 ity, the pCPA should demonstrate to by a few hundred patients worldwide, a and 60 full-time equivalent positions, Canadians that its negotiations to contain high price is necessary not only to recoup which are reported publicly. the costs of new drugs are not limiting its development expenses but to provide investment for future drug developments and reward the company’s investors. In addition, if a company knows that, when The pCPA’s role is not to propose national it enters a pCPA negotiation, it is likely to pharmaceutical policy but to negotiate prices. be faced with a demand for a major price reduction, there may be a tendency to maximize the starting list price. The pCPA states that its requirement The pCPA’s HESA brief concludes patients’ access to innovative drugs that for manufacturers to justify their extreme- with a request for the federal government could extend their lives or improve their ly high prices has yet to be fulfilled – a to provide funding for expensive drugs quality of life. The pCPA receives a remarkable complaint from an organiza- for rare disorders and to implement the generous amount of taxpayer’s money, but tion whose own transparency is sorely proposed Patented Medicine Prices Review its inadequate transparency and account- lacking. The pCPA’s emphasis on drug Board economic tests. The pCPA is, thus, ability continue to be of concern. cost-containment is demonstrated by its encouraging the federal government to The recent proposals put forward by support for a national regulatory approach implement policies that further underval- the Advisory Council on the Implemen- to price control through the Patented ue innovation and that would signifi- tation of National Pharmacare would Medicine Prices Review Board. In its cantly decrease Canada’s attractiveness integrate the pCPA, together with the submission to the reform consultation as a jurisdiction to which pharmaceuti- PMPRB and the Canadian Agency for process of the Board, the pCPA strongly cal manufacturers want to bring their Drugs and Technologies in Health, into a recommended that the United States be new medicines. The pCPA’s role is not to national drug agency but would not resolve replaced as a comparator by New Zealand, propose national pharmaceutical policy the lack of transparency and accountabil- Australia, South Korea or Brazil, countries but to negotiate prices. ity unless a plan to change the current where drug prices are strictly contained. The pCPA and its government owners approach is introduced. Given the federal The pCPA claims that its negotiations should be focused on improving the government’s inclination towards obfusca- have led to estimated annualized savings transparency and accountability of the tion, the outlook is not encouraging. of $1.98 billion. This is likely to be a organization. Transparency and account- theoretical amount based on reductions ability are fundamental principles of Nigel Rawson is a pharmacoepidemiologist, a between opening and final prices achieved good governance, which require a process pharmaceutical policy researcher, president of Eastlake in negotiations for both brand-name and to report, explain and answer for the Research Group and the author of Drug Safety: generic drugs. Set against this “saving” consequences of decisions so that all Problems, Pitfalls and Solutions in Identifying and is the significant cost of the pCPA to stakeholders can see how and why they Evaluating Risk.

16 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute BILL C-69 Indigenous people are upset with the Liberal government’s Bill C-69, too

Bill C-69 would impact the immediate livelihoods of Indigenous communities.

Joseph Quesnel

ndigenous communities are still upset Iwith the government’s Bill C-69, legislation intended to speed up and streamline the large project assessment process in Canada but which may end up frustrating the process further. Earlier in the year, a convoy of more than 30 trucks met in northern Alberta to support pipelines and oppose Bill C-69. The event was billed by CBC News as the first Indigenous-led rally in support of energy resources. The event was organized by the Region One Aboriginal Business Associa- tion (ROABA), a group that promotes the

interests of Indigenous-owned businesses in iStock northern Alberta. The Senate energy committee studying has said that the majority of tribal leadership conventional oil and natural gas activity. the bill has decided to take the bill on the of Treaty 7 (the treaty area covering southern In procurement alone, oil sands road for more public consultations. That Alberta) is against Bill C-69. companies spent $3.3 billion on procure- is likely the best decision for First Nations What kind of havoc is Buffalo alluding ment deals from Indigenous-owned and indeed all Canadians, as these major to? Well, First Nations and Métis communi- companies. In terms of clear social impact, projects – especially critical oil pipelines to ties – especially the communities located in oilsands producers put $48.6 million get Alberta oil to foreign markets – are in proximity to the oil sands region in Alberta into Indigenous community investments. the national interests of Canada. – have much invested in oil and gas. They These funds allow First Nations and Métis Indigenous communities also know contract with the oil companies to provide communities to set their own priorities and only too well what is at stake, economically services, they enjoy procurement arrange- control their own destiny. and socially, for their people. ROABA is ments with them, and they provide young Finally, CAPP estimates that six percent not the only Indigenous organization that Indigenous workers to energy projects. of apprentices working in Canada are supports pipelines and opposes Bill C-69. The Canadian Association of Petroleum Indigenous people working in industry- “The Indian Resource Council (IRC) Producers (CAPP) has assembled some recent related trades. is urging all Senators to take a stand and data (as recently as 2017) on Indigenous For Indigenous communities and oppose Bill C-69,” said IRC President and involvement in the oil and gas sector. businesses, Bill C-69 is not just an interest- CEO, Stephen Buffalo, a member of the CAPP said that almost 12,000 workers in ing academic or policy question, it would Samson Cree Nation. “Bill C-69 would the oil and gas sector in Canada identified impact their immediate livelihoods. wreak havoc on Indigenous economic as Indigenous. They also found that $55 Bill C-69 does engage Indigenous development in many parts of Canada.” million in payments were made by various Also, on the ground level, Chief Roy Fox partners to Indigenous governments from Continued on page 33

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 17 CENTRAL BANKS Central bankers can blame themselves for undermining their political “independence”

There is nothing sacrosanct about the guarantees of central bank independence.

Philip Cross

he sniping at Bank of England TGovernor Mark Carney from the UK’s Tory backbenchers over his fearmonger- ing about the perils of Brexit and President Donald Trump’s threat to replace Jerome Powell as chair of the Federal Reserve Board for raising interest rates have both renewed concerns about preserving the independence of central banks from political influence. Of course, central bank independence would not be necessary if monetary policy were guided by mechanical rules and fixed formulas instead of the discretion currently exercised by central bankers. But rules have been out of favour since the early 1980s when they were revived to stop political meddling and decisively brake inflation. Trump is hardly the first American president to pressure the Fed to lower interest rates, a time-honoured practice used

by presidents Truman, Johnson and Nixon. commons wikimedia Ongoing political pressure for easy money Central bankers: (top left clockwise) Alan Greenspan, Chair of the Federal Reserve of the US helped fuel rampant inflation in the 1970s. (1987-2006); Ben Bernanke, Chair of the Federal Reserve of the US (2006-2014); Mario Draghi, The move in the 1980s and 1990s to insulate President of the European Central Bank since 2011; Mark Carney, Governor of the Bank of Canada (2007-2013) and Governor of the Bank of England since 2013. central banks from politics was one of the many responses deployed to fight inflation. Central bank independence eventually away. This is especially the case if central housing markets going back to the late gained widespread acceptance among parties banks fail to deliver the financial stabili- 1990s. The serial stoking of asset-price of all stripes, partly because independence by ty, low inflation and improved economic inflation by central banks whose indepen- itself helps lower inflationary expectations performance that were the promised dence was premised on low inflation and and, therefore, interest rates. benefits of their independence. financial stability recalls former Norway However, there is nothing sacrosanct Since gaining independence, the track Bank Governor Hermod Skånland’s about the guarantees of central bank record of central banks has been uneven at observation in 1988, on the effect of independence. It is not written in any best. While consumer price inflation has soaring oil prices, that “We carefully constitution. The political system that stayed low, central banks have encouraged plotted a course and then immediately granted this independence can also take it “rational bubble riding” in financial and headed in a different direction.”

18 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute A corollary of central bankers being urged Spain and Italy in 2011 not just to governor and the modesty of his successor, free from political interference is that lower their deficits but specified that they Stephen Poloz). It began with Greenspan central bankers also must refrain from must do so using spending cuts and tax in the 1990s – even though Greenspan’s involvement in political debates. After hikes. It even quietly encouraged Italy to “maestro” reputation lies in tatters today. all, if central banks expect to be insulated invoke Article 77 of its constitution to ram Next, Fed chairman Ben Bernanke was from politics, they cannot willingly enter through emergency measures (ignoring the credited with staving off a depression during the political arena without expecting criticism from Italian courts of the article’s the global financial crisis, although the crisis consequences. In his recent book about overuse). Italy’s then-prime minister Silvio itself revealed systemic problems with both central banking, Unelected Power, Paul Berlusconi accepted the terms but later the Fed’s bank supervision and persistently Tucker, a former deputy governor of the said the ECB’s instructions “made us look low interest rates. The ECB’s Mario Draghi Bank of England, points out that if banks like an occupied government.” was hailed as the saviour of the euro after his 2012 promise to do “whatever it takes” to preserve the currency, but the euro’s future nevertheless remains dubious. By accepting accolades that they are the infallible high priests of global monetary activism, central bankers invite the public to hold them to impossibly high

Stephen Poloz, Governor of the standards. When they fail to live up to Bank of Canada (left), with those standards, as they often do, they can Jerome Powell, Chair of the US only invite questions about whether they Federal Reserve at the Meeting of Finance Ministers and Central Bank deserve the independence they demand. Governors, G20, December 2018. Malaysia’s former central bank governor, (wikimedia commons) Jaffar Hussein, once said “Good bankers, like good tea, are best appreciated when they are in hot water.” Today, the water temperature Central bankers made their job harder by surrounding central banks continues to rise welcoming the media’s cult of celebrity. rapidly. If public suspicions are confirmed that the lengthy recent stretch of ultra-low interest rates and quantitative easing have want independence, “reciprocally, they And Alan Greenspan, when he was US only set the stage for rising debt and serious should not participate in party politics, Fed chairman, openly lobbied the Clinton inflation, it would seem inevitable and even in the private recesses of their minds.” administration to cut the federal budget justifiable that politicians will demand more On this score, they have failed deficit, demonstrating how the tables had direct input into monetary policy. miserably. Central bankers in recent years turned from the days when presidents More than independence is at stake. have routinely intruded into politics. Most were the ones pressuring the Fed, to the Central bankers risk losing credibility in notably, Carney, while governor of the point where the Fed was dictating policy claiming that exercising their discretion- Bank of Canada, dabbled with the idea of to presidents. Today, the extraordinary ary judgment is superior to the centuries- running for the leadership of the federal policies of zero or even negative interest old wisdom that governments will always Liberal party. He further revealed political rates and quantitative easing clearly have try inflating away large debt loads unless biases in public pronouncements on large political and distributional impacts, they’re checked by hard-and-fast rules everything from the voluntary long-form yet these policies were adopted with almost governing money. Their curtain will have census to the risks of climate change (both none of the public debate that would have been pulled back, revealing the banking subjects important to the left-wing circles buttressed their legitimacy. wizards frantically fidgeting with the dials Carney seeks to command). Central bankers made their job harder on debt and inflation time bombs. The European Central Bank (ECB), by welcoming the media’s cult of celebrity considered by many to be the least political- (note the contrasting demeanour between Philip Cross is a Munk senior fellow at MLI. This ly accountable central bank in the world, Carney’s preening style as Bank of Canada article first appeared in theFinancial Post.

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 19 FOREIGN INTERFERENCE More needs to be done to counter foreign interference

Effective coordination and a transparently non-partisan implementation strategy are still needed to protect our democracy.

targeting of critics of Russian President Vladimir Putin’s regime – MPs, candidates, ethnic groups, NGOs and other prominent activists – will likely escalate, as Russia seeks to discredit them and their positions. Measures announced by the Liberal government to address threats of foreign interference and disinformation targeting Canadian democracy and elections set a very good foundation for defending Canadian democracy against malign foreign interference. But the ambitious whole-of-government strategy will require complex, high-level coordination in which some vulnerabilities yet exist. Regulations and specific details about how to curb the spread of disinformation on social media, for instance, are missing from the plan. These platforms have demonstrated a lack of commitment Marcus Kolga to counter attempts by foreign actors to spread propaganda. Canada could follow or Western nations, the threat of Russia has plenty Germany’s example by regulating social Fforeign interference doesn’t just mean media and holding them legally accountable bad actors working to affect the outcome of incentive to for the removal of fake accounts and news. of an election, but also the systematic influence our Adjusting platform and search algorithms undermining of our democracy by sowing to minimize the promotion of disinforma- discord and breaking down trust in our national debate. tion from known sources is also required. institutions, media and society. And with One of the most important features a federal election looming, Canada needs of the government strategy is funding to know that it is a target for the kind of Canadian Magnitsky human-rights for digital-media literacy awareness in attacks we’ve already seen in Europe and the sanctions legislation. efforts to promote critical thinking when United States in recent years. While the Kremlin may not have an consuming news from various social- For instance, Russia has plenty obvious champion in the coming federal media platforms. Encouraging Canadians of incentive to influence our national election, attempts to amplify narratives to diversify their media consumption and debate, especially on issues such as the that threaten to divide Canadians, such to do so through a critical lens will help disintegration of the NATO alliance, as those which promote anti-immigration build a healthy media environment that is eroding Canadian support for Ukraini- and anti-globalism on both the right and an sovereignty in Crimea and repealing left, will intensify. Similarly, the ongoing Continued on page 34

20 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute VENEZUELA Why Canada’s left is wrong on Venezuela By supporting the Maduro regime in Venezuela, Canada’s left has collectively failed an important moral and political test.

Kaveh Shahrooz

n action can be moral, even if it has ADonald Trump’s support. That may be an obvious point. But, when it comes to Venezuela, it is seemingly lost on Canada’s left-wing politicians and activists. Mass protests against the socialist government of Nicolás Maduro have rocked cities across Venezuela. Tired of a government that has devastated their country through gross mismanagement, corruption, election-rigging, and human rights abuses – leading to over two million people fleeing Venezuela since 2014 – Venezuelans have risen up and commons wikimedia are demanding an end to Maduro’s Above: Venezuelan opposition leader Juan Guaido addresses a rally in Caracas, February dictatorship. 2019; left: Venezuelan President Nicolás Maduro. Their uprising received crucial international support on January 23 when the US, Canada, and several Latin American states And yet Canada’s left appears to recognized opposition leader Juan Guaido, the have collectively failed this moral and democratically elected head of that country’s political test. National Assembly, as the interim president. Chiming in early, NDP MP Niki The European parliament followed shortly Ashton accused Trudeau of standing thereafter. Many others have since extended “with Trump’s regime change agenda” and the same recognition to Guaido. demanded that Canada not “support an Given their regular lip service to agenda of economic or military coups.” standing with the weak and disenfran- Her party’s leader, Jagmeet Singh, echoed chised, one would expect Canada’s federal that view, stating that “Canada should NDP labour unions, and progressive not simply follow the US’s foreign policy.” intelligentsia to support Trudeau’s position. (Singh has since confused matters by The Venezuela protests provided an easy refusing to indicate whom he recognizes opportunity to side with vulnerable protest- as Venezuela’s president, which puts him commons wikimedia ers battling what Human Rights Watch at odds with his own party, which backs has called “a devastating human rights, Maduro.) Maduro was “duly elected by the people humanitarian, political, and economic crisis Elsewhere on the left, the Canadian of Venezuela” and rejected “any attempt by their government has created.” Union of Public Employees claimed the Canadian government to interfere” in

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 21 Venezuela’s affairs. The Canadian Labour in the streets of Caracas and elsewhere. In Congress did the same. And Naomi Klein, this patronizing worldview, these protest- the high priestess of the Canadian left, ers have no personal or political agency and tweeted that support for Guaido constitut- are misinformed about who is oppressing ed “supporting a coup.” them. They apparently need Ms. Ashton These views are consistent with the left’s and Ms. Klein to tell them that they are decades-long infatuation with Venezuela’s merely the playthings of the imperialist so-called “Bolivarian Revolution.” Noam West. Chomsky, for example, was breathless in Finally, consider the argument that praising Hugo Chavez. Filmmaker Oliver Canada would be maintaining indepen- Stone went so far as to make a propaganda dence in its foreign policy by continuing film celebrating Chavez’s legacy. And the to recognize Maduro. What the argument UK’s Labour Party leader Jeremy Corbyn leaves out is that doing so would only refused to criticize Maduro even when place our foreign policy in line with Venezuela’s security forces killed democracy that of China, Iran, Turkey, and Syria. protesters in 2017. Given Russian support of Maduro, why But looking past the slogans, one is it any more independent for Canada immediately sees the problems with the to toe Moscow’s line? There is no neutral left’s position. position on this issue; Canada either First, consider their use of the word stands with the democracies, or the “coup.” Is it a coup when hundreds of dictatorships. thousands take to the streets peacefully The left is admittedly right about one

to demand their rights? Can it rightfully commons wikimedia thing – there is a significant inconsisten- be called a coup when the protesters are cy between Canada’s talk about human looking to oust an illegitimate leader who Demonstrators against the Maduro regime rights in places like Venezuela and our protest in Québec City, February 2019. was chosen in elections widely viewed as selling of arms to dictatorships like Saudi rigged by his own citizens and the interna- Arabia. But from this legitimate premise, tional community? And it is surely an hereafter adopt the same approach with Canada’s left derives precisely the wrong unusual coup when the military vows to respect to US allies (or even the US itself.) conclusion. Rather than encouraging uphold the existing structure. The truth is But that debate, which would need to Trudeau to apply to Saudi Arabia the there is no coup. What is playing out in consider matters of domestic Venezuelan same standards he is applying to Venezue- Venezuela is much closer to a popular law and precedents in international law, is la, they call on him to ignore the human revolution, something ostensibly supported a complex one; far more complex than the rights crisis in Venezuela, much as he does by the left. current “coup” sloganeering of the left. with the Saudis. The Venezuelan regime may soon crumble, hopefully to be replaced by Think about what the comments by a democracy. If that comes to pass, its Niki Ashton and others leave out: support for a decaying dictatorship will be a dark stain on the history of Canada’s the people of Venezuela. left. And in allowing their legitimate opposition to Trump cloud their judgment on this issue, they will have no There is, of course, a legitimate debate Secondly, think about what the one to blame but themselves. to be had about the wisdom of the US’s comments by Niki Ashton and others leave adoption of a recognition strategy that lacks out: the people of Venezuela. Focused Kaveh Shahrooz is a lawyer and a human rights a solid basis in the Venezuelan constitution. entirely on the narrative of a US-orchestrat- activist. He is a former senior policy adviser on human Reasonable people may, for example, disagree ed coup, Ms. Ashton and her allies miss the rights to Global Affairs Canada and is a senior fellow on whether non-democratic countries can hundreds of thousands risking their lives at MLI.

22 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute CANADA-CHINA RELATIONS The price of Chinese money laundering

Chinese money laundering shows the extent to which an autocratic state, awash with cash, dumps its problems on countries like Canada.

Arthur J. Cockfield

anada-China political relations Ccontinue their downward spiral following the arrest of Huawei executive Meng Wanzhou in Vancouver, with the apparent retaliatory detention and mistreatment of two Canadians jailed in China, the sudden retrial and death sentence of Canadian Robert Schellenberg, the chastising of Prime Minister Trudeau for daring to express concern over this sentence, and threatened “repercussions” if the Canadian government bans Huawei from developing Canada’s 5G network. As a result, Canadians are increasingly asking themselves what sort of government they are dealing with. Depocas | via iStock Renée A glimpse into Chinese money laundering helps us understand the struggles within an authoritarian state What began as a trickle twenty years awash with cash, and how it dumps some ago has now become a tidal wave of its problems on countries like Canada. International money laundering, which is of capital outflows. a criminal offence in Canada and China, occurs when individuals ‘clean up’ or half around 2016. Most of this money that prohibits purchasing more than launder proceeds from crime by investing comes from wealthy Chinese individu- US $50,000 in foreign currency per in foreign assets so that the dirty monies als who secretly store away overseas their year. With this restriction, it could take enter the conventional financial system. legally-earned money. What began as a years or decades to move enough money More broadly, international money trickle twenty years ago has now become a to purchase, say, a Vancouver single- laundering also takes place when a person tidal wave of capital outflows with stories family home. To dodge this law, Chinese transfers legally-earned money across a of middle-class Chinese now opening bank citizens have developed a dizzying array of border without disclosure to their home accounts in Canada and the United States. techniques, including having the money government. In part the amount of money moving smuggled to Hong Kong or Macau then What do we know about Chinese offshore can be tied to the incredible converted to US dollars, having family money laundering? economic growth that has raised Chinese and friends help move smaller amounts of First, this money laundering occurs on household incomes for thirty years. money (a strategy known as ‘ants moving a massive scale. According to the New York In many situations, these individu- their house’), and using underground Times, $1 trillion left China in a year and a als are violating Chinese domestic law banks based in China.

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 23 The problem is that individuals who counter the capital outflows, President Xi did so by buying Vancouver real estate. move their monies offshore do not trust has implemented a series of anti-corruption An additional $1.7 billion was laundered their own country. They fear that China’s reforms, including tightening up the between 2013 and 2017 by pumping money economy could tank or the yuan may banking laws to make it harder to transfer into casino earnings. These Vancouver be devalued against overseas currencies, monies abroad and installing video cameras mobsters make and move so much dirty wiping away most of their savings. Or on ATMs. money they make Tony Soprano look like a worse, the Chinese government may Yet there are reasons to be skeptical that two-bit crook (TV producers: please contact unfairly take their money if these individu- such measures will affect the interests of my agent Michael Levine at Westwood als fall into disfavor or under the whims of powerful Chinese elites. Chinese journalists Creative Artists). some corrupt official. People from all over working with the ICIJ created a separate In theory, the Chinese government is the illiberal world engage in similar capital searchable online database to facilitate supposed to be helping reduce the flows of flight activities to protect themselves or identifying offshore corporations and illicit drugs coming to Canada. In reality, the their families – although on a lesser scale other business entities used by the Chinese Chinese government is doing little to nothing

Chinese money laundering paints a troublesome picture of a country where citizens often do not trust their government.

compared to these unprecedented flows to transfer monies and assets offshore. to help – in part due to yet another political coming out of China. In response, the government of China conflict, whereby the Canadian government Second, Chinese money launder- censored this site so that the residents of last year refused to allow additional Chinese ing is suspected to go all the way to the China cannot access it. law enforcement officers to be based in top of the power echelons of the Chinese Moreover, a Chinese academic and Vancouver to pursue high-profile individuals Communist Party (CCP). In a 2014 activist, Xu Zhiyong, who inspired a ‘New who have fled China. Senator Vern White, a report by the International Consortium Citizens’ Movement’ to increase financial former police officer, has called for punitive for Investigative Journalists (ICIJ), a data transparency of Chinese political elites, was trade sanctions against China until their leak from a Singaporean offshore financial convicted of “gathering a crowd to disrupt government acts to stem the production service provider revealed a little less than public order” and sentenced to four years and sale of fentanyl from state-regulated 22,000 secret offshore accounts held by in jail. factories. Chinese citizens (I was a legal consultant Censoring the ICIJ website and jailing In short, Chinese money laundering working on this leak). Many of the individ- dissidents does not fill one with confidence paints a troublesome picture of a country uals identified within this leak as well as that President Xi’s anti-corruption where citizens often do not trust their the Panama Papers were family members campaign is designed to stop top-level government and where organized crime of the rulers of the CCP, including the tiny money laundering. benefits from cleaning up illicit proceeds group of seven men within the Politburo Finally, Chinese money laundering is from a drug that is killing thousands of Standing Committee who run China. tied to Canada’s number one public health Canadians. It is very much in keeping with For instance, the data leaks showed that crisis, namely the over 4000 fentanyl the unflattering portrait that the CCP has Chinese President Xi Jinping’s son-in-law overdose deaths per year. According to now shown the world following Meng Deng Jiagui maintained companies based Canadian law enforcement, most of this Wanzhou’s arrest, which should remind in secretive tax havens (although the usage fentanyl is manufactured by, and shipped Canadians of the true face of this rising of such companies may have been legal). from, China-based factories through online power. The problem with the capital outflows sales to Canadian drug users and traffickers. is that they drain China of tax revenues To launder these illegal sales within British Arthur J. Cockfield is a professor at Queen’s University and reduce economic growth as resources Columbia alone, organized crime linked faculty of law. A shorter version of this article appeared are deployed abroad, and not at home. To to China cleaned up $1 billion alone; they in the Globe and Mail.

24 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute HUAWEI AND CANADA Renée Depocas | via iStock Renée Huawei, a risk that Canadians cannot afford

Huawei’s involvement in Canada’s 5G network would pose a threat to our privacy and to the fundamentals of our democracy.

Ivy Li more than its military expenditure, and it plans to roll out a nationwide high-tech op intelligence and national securi- social credit system by 2020 to monitor and Tty experts from Canada, the US to shape each citizen’s behaviour. and Australia, as well as prominent US According to Article 7 of the 2017 politicians have given stern warnings Chinese National Intelligence Law: to our government about the Chinese All organizations and citizens shall, in telecommunications giant Huawei. accordance with the law, support, cooperate The US-China Economic and Security with, and collaborate in national intelligence Review Commission raises the possibil- work, and guard the secrecy of national intelli- ity of Beijing forcing Huawei to “modify fundamentals of our democracy if Huawei gence work they are aware of. The state will products to perform below expecta- equipment is used in our 5G networks. protect individuals and organizations that tions or fail, facilitate state or corporate To truly grasp the extent of these risks, support, cooperate with, and collaborate in espionage, or otherwise compromise the we need to look at Huawei in the context national intelligence work. confidentiality, integrity, or availability” of the Chinese Communist Party (CCP). It means there are no true privately of networks that used them. The CCP is a dictatorship that controls 1.4 controlled companies, the way we know it, While most expert warnings focus on billion people, or 18 percent of the world in China. threats to national security, intellectual population. It is so afraid of its own citizens The founder of Huawei, Ren Zhengfei, property and commerce, there are equally that it spent 6.1 percent of total government was a People’s Liberation Army engineer serious implications to our privacy and the spending on ‘domestic security’ in 2017, for two decades. Canada’s former National

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 25 Security Advisor Richard Fadden said from Huawei equipment are only applicable This would bring irreversible damage to our publicly that he believes Huawei is acting as to 4G and LTE. It means our government democracy and freedom of speech. an agent of the Chinese state. The detentions won’t be able to protect Canadians from of Canadians Michael Kovrig and Michael the following harms if Huawei is in our 5G: 3. We will not be trusted by our allies. Spavor by China to retaliate against Canada’s Canada will become the weak link of the Five arrest of Meng Wanzhou, Chief Financial 1. We will be giving CCP the power to Eyes. It will affect the willingness of our allies Officer of Huawei and the eldest daughter spy on our daily lives on Canadian soil. in sharing intelligence and sensitive security of Ren Zhengfei, clearly indicate the close 5G is considered the foundation for real- information with us, further weakening the ties between Beijing and Meng and the izing the full potential of the “Internet of security of Canadian citizens. importance of Huawei to the ruling CCP. Things” (IoT) because it could be 100 times The court case faced by Meng Wanzhou is a crude reminder that China is under the control of a brutal dictatorship without rule We will be giving CCP an immense of law and with no respect for human rights. power to control Canadians who have Our extradition process is well defined. Meng enjoys all of her rights in our legal business or family ties to China. system since her arrest. The US government has provided evidence for Meng’s alleged crime. She has access to the Chinese Inside China, Huawei is working with faster than 4G in connectivity, has very low consulate and a lawyer of her choice. Her the Public Security Bureau in Xinjiang latency, and ubiquitous coverage. When 5G bail hearing and the bail rulings were open on their infamous Orwellian surveillance is fully rolled out, it will be in our phones, to public and media scrutiny. system, assisting the Chinese government computers, office devices, home appliances, In contrast, no evidence of a crime was in their cultural genocide and gross cars, neighbourhoods, shopping malls, given by the Chinese government in the human rights violations of the Uyghur public services, government agencies, and arrests of Kovrig and Spavor. Their access people. In addition, surveillance technol- more. No Canadian who wants a “normal” to Canadian consulate is limited to once ogy, techniques and experience that the life could opt out from the 5G system. If a month. Their locations of detention are tech companies and the government have Huawei equipment is used in Canada’s 5G unknown. Kovrig is not allowed to sleep developed and perfected domestically are networks, we will be stuck in our everyday with light off and what happens to Spavor being exported internationally to strength- lives with the CCP. We will be giving an au- is unclear. Both of them have no access to en other authoritarian regimes and to thoritarian regime the power to keep track lawyers. undermine “the global development of free of our government and our daily lives, to This is a wake-up call to all of us. If we and open societies.” spy on what we have said and done in our keep being lured by the evasive “Chinese The criminal charges Meng faces from own country. market” and choose not to stand up to the US government and the investigations China’s human rights violation, it will come by media reveal how Huawei likely operates 2. We will be giving CCP an immense back to haunt us. After all, with our export outside China – committing bank frauds power to control Canadians who have to China at only 4.3 percent and a trading and using front companies to cover up business or family ties to China. deficit at US $36.5 billion, we must rethink illegal activities. In sum, Huawei is not a A large number of Canadians have family our China strategy. company that would shy away from helping ties or business dealings in China. Fearful A company that is bound by the law dictatorial governments to suppress citizens for the safety of their loved ones or repri- to serve the CCP is a risk that Canadians or to use questionable business practices. sal on their businesses have already induced cannot afford. With so much at stake, it is widespread self-censorship among them. essential that we be cautious. The dire consequences for every If Huawei is in our 5G, just knowing that Canadian if Huawei equipment is there is a possibility of being closely moni- Ivy Li is a core member of the Vancouver Friends of used in our 5G networks tored in daily life by the Chinese authoritar- Hong Kong (VFHK), a former board member of the Scott Jones, head of our Cyber Security Cen- ian regime would be enough to cause many Toronto Association for Democracy in China (TADC), tre, who once said Huawei would not be a more Canadians to alter their behaviours and former chair of a community group in Toronto threat has now admitted that our safeguards and silence many more dissenting voices. called Design for Democracy (D for D).

26 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute HUAWEI AND CANADA Why banning Huawei is just the initial step for Canada to defend itself Banning Huawei from participating in 5G might not deter digital exploitation by China, but it would deprive it of a key advantage. Renée Depocas | via iStock Renée

Christian Leuprecht the global communications infrastructure David Skillicorn enables. The importance of cyberspace to this or the 21st century, communications Huawei had already century is why Huawei has been in the F(the Internet and its successors) and leveraged intellectual news. Quick to realize the importance of data will be as vital as oil and electric- cyber capabilities, China has been strategic ity were for the 20th century. Communica- property theft to in enabling Huawei to compensate for the tion networks are the basis of business and leapfrog technological greater wealth and skill of the US and other industry, and increasingly, of social and Western rivals. political life. milestones. Thirty years ago, Huawei had already Countries are developing and leveraged intellectual property theft to deploying a growing range of capabili- leapfrog technological milestones: early ties to leverage the cyber domain for their the kind of damage that has up to now versions of Huawei’s switches are said to national interest using such techniques as required more typical weapons. be complete replicas of those developed theft of intellectual property, influencing Sovereignty thus depends on the by Nortel and Cisco, down to the pages of other nations’ internal politics, conduct- extent to which a country is able to their operating manuals. ing cyber-espionage, and even developing exploit or defend national networks and Network switches have an unavoidable cyber weapons that can be used to inflict assert control over the connectivity that inside track – they necessarily see all of the

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 27 traffic that passes through them. Even when and two of Canada’s three large telcos are critical infrastructure systems – electrical that traffic is encrypted, as most traffic on lobbying aggressively against a ban. Along grids and oil pipelines – in North America the Internet now is, switches can analyse the with the regulatory chill from its 2012 and elsewhere, probing their configura- patterns of flow; this so-called meta-data is foreign investor protection agreement with tions and possible weaknesses to incorpo- key intelligence. China, that explains why Canada has been rate into their attack sets. They can also slow some traffic, divert tepid about cyber defence and readiness Banning Huawei is but one in an array it somewhere (perhaps temporarily so measures that impose limits on equipment of defensive measures that are necessary to that it can be analysed), or even cut it off and service providers. raise the state of Canada’s cyber readiness: completely. Can countries in the West trust Since 2013, the Canadian Security it will not deter digital exploitation by that Huawei network switches cannot, in Review Program has led to (1) excluding China, nor does it protect from unrelated

China refuses to extend reciprocity and has long barred non-Chinese companies from Chinese network infrastructure.

the worst case, be controlled by Huawei, designated equipment in sensitive areas vulnerability such as poorly constructed and ultimately by the Chinese government? of Canadian networks, (2) mandato- or designed network infrastructure; but it The UK government set up a joint ry assurance testing in independent does deprive China of a key advantage. organization between its signal intelli- third-party laboratories for designated Expanding the ban on Huawei gence organization, GCHQ, and Huawei equipment before use in less sensitive areas equipment and services would have been to see if they could reach a workable level of Canadian networks, and (3) restrict- straightforward if it had been made in of trust in Huawei’s equipment. Their ing outsourced managed services across concert with our allies. The ongoing US latest report suggests this has proven government networks and other Canadian push for NATO consensus on Huawei is impossible. Even if a switch could be critical networks. Were selective exclusion proving elusive, in part because of the way proven to be harmless, all switches must to be expanded, someone else will have the US is perceived to be instrumental- be able to update their software, usually to provide the infrastructure instead. The izing the issue for political and economic over the Internet itself; something that’s array of potential suppliers is small to ends. Absent a common allied front to innocuous today can readily turn into a begin with, which will drive up cost. counter China’s United Front, Canada’s vulnerability tomorrow. On the other hand, there is also a decision is much more difficult, although In this context, Huawei’s repeated cost to doing business with Huawei. it is the right thing to do. Slow-rolling the claim that no Trojan Horse has been found Cyber manipulation poses an existen- decision so as not to strain the relationship in its systems is meaningless. Australia, the tial threat. That is why China refuses to gives China unprecedented leverage and US, Japan, Germany, France, Poland and extend reciprocity and has long barred effectively amounts to abrogating Canadian the Czech Republic have concluded that non-Chinese companies from Chinese sovereignty under duress of extortion. The Huawei parts put their next-generation network infrastructure. The recent Review integrity of Canada’s sovereign democratic communications infrastructure at risk. of the 2018 National Defense Strategy decision-making processes and institutions On the one hand, there will be a cost to by the United States National Defense is not discretionary. banning Huawei equipment: less competi- Strategy Commission found that the US tion, higher prices and perhaps a slower is likely to lose a war against China or Christian Leuprecht is Class of 1965 professor in build-out of 5G infrastructure. Deutsche Russia: a pre-emptive cyberattack by an leadership at the Royal Military College and Queen’s Telekom has not raised objections to adversary on, say, critical infrastructure University, and a Munk senior fellow at MLI. David Huawei – even though one of the US would effectively paralyze the US, and Skillicorn is professor in the School of Computing at indictments is for alleged Huawei espionage its ability to retaliate. We know that the Queen’s University. This article first appeared in the of Deutsche Telecom’s US subsidiary – Chinese government has been mapping National Post.

28 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute CANADA-CHINA RELATIONS Canada must develop a backbone in its dealings with China

The years of appeasing China’s Communist regime, in the hope of obtaining economic favour, has led us to this horrendous mess.

Charles Burton

hina’s spurious excuse for suspending Csome Canadian canola imports recently makes it clear that Ottawa needs to get serious about asserting Canada’s interests in diplomatic engagement with this rising Prime Minister Justin global power. Trudeau and John McCallum, former Beijing absurdly claimed that our Canadian ambassador $2-billion-a-year canola shipments are to China, participate riddled with weeds that evidently do not in the third Canada- China Annual Leaders’ even grow in Western Canada. Dialogue in Singapore, This isn’t about canola. China is resolved November 2018. to intimidate and coerce Canada, and wants (Adam Scotti, PMO) us to realize this beyond any doubt. Tragically, this diplomatic shambles will take “all necessary measures to resolutely Canada allow Huawei equipment to run our is partly of our own making, given the safeguard the legitimate rights and interests telecommunications networks even though horrendous possibility that Michael Kovrig of Chinese enterprises and citizens.” China fiercely restricts foreign components and Michael Spavor, both detained since The thing is, China no longer wants in its telecom systems. Dec. 10, could end up in a Chinese prison to comply with the Westphalian system of Canada must change the channel, for life, or even face a death penalty on equal sovereign countries that underlies a immediately. The current dynamic is bogus charges of espionage – all occasioned rules-based international order, and that is poisonous to future Canada-China by Huawei chief financial officer Meng hard for Ottawa to accept. Mr. Trudeau was relations, and damages our credibility with Wanzhou’s extradition case. seriously misled when he thought China our allies, including the United States. Beijing bungled things, too, first by would accede to international standards on We made a good start by removing John assuming Ms. Meng could land in Canada environmental, gender and labour rights McCallum as ambassador, who seemed to and not be detained under our extradi- to get a trade deal with a Group of Seven believe that defending Chinese interests tion treaty with the United States, then by country, but none of his incompetent in Canada was as important as represent- misjudging the ability of Prime Minister advisers suffered any consequences for the ing Canadian interests in China. We Justin Trudeau (who they assumed was ensuing fiasco. need someone who actually understands a charter member of their Canadian Ottawa’s feckless appeal to Beijing’s non-democratic kleptocratic regimes, pro-China club) to overrule Canada’s moral decency over the Chinese fentanyl someone who is fluent in a Chinese judicial process. manufacturers, whose product kills language to reach beyond the Foreign Now, China wants to abate any loss of thousands of Canadians, was met with a Ministry gatekeepers and engage directly face with a succession of get-tough measures Chinese demand to allow a police liaison with China’s power-holders. Would we send that exterminate any goodwill remaining in officer to be installed in China’s Vancouver an ambassador to Washington to engage the avaricious hearts of Canada’s business consulate – a request that was rejected over Congress who could not speak English? elite and their political friends. China’s national-security concerns. This impudence Foreign Minister recently said that Beijing squares with Beijing’s insistence that Continued on page 34

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 29 FOREIGN INTERFERENCE Foreign influence from Iran in Canada is a real concern

Canada’s democracy is under threat from a variety of rogue state-sponsored actors.

Kaveh Shahrooz

re Canada’s security services and Apoliticians doing enough to keep Canadians safe from hostile foreign influence campaigns? In recent months, increased attention has been placed with respect to Russian disinformation and the threat posed by China. But what about Iran? Two alarming recent stories suggest that Iran may quietly be attempting to sow discord in Canada. And that our security forces have been caught flat-footed. Depocas Renée The first warning came from CBC/ Radio-Canada, which analysed nearly 10 Assembly is “acting as a facilitator organiza- to spread propaganda or gather intelli- million tweets sent by troll accounts, some tion” to support Iran’s Ahlul Bayt World gence on diaspora members. originating in Iran. While not definitive- Assembly (ABWA), a group over which What, then, should our policy-makers ly linked to the regime, Twitter says the Tehran exerts “a high degree of influence.” and politicians do in light of the emerging accounts were involved in “an attempt- ABWA is said to be closely connected to picture of Iran’s efforts to establish bases ed influence campaign we identified as the Iran-backed Lebanese Hezbollah. in Canada? potentially located within Iran.” At the centre is the charity’s founder, Mr. The first is to take seriously the These tweets focused on issues that Syed Hosseini-Nassab, an Iranian cleric now long-standing allegations by diaspora hold no obvious interest to Iran: the based in Toronto and formerly stationed Iranians that they are monitored, debate over Canadian pipelines as well in Germany. According to Global News, threatened, and attacked by those seeming- as Canadian immigration and refugees. German authorities believed Mr. Hosseini- ly tied to Iran’s government. It has long So why were they sent? The most likely Nassab’s previous Islamic organization was been rumoured that certain local religious explanation is that they were designed to “subordinate to the government of Iran in figures, journalists, business people, and amplify divisions in Canadian society and the dissemination of Islamic revolution- organizations are agents of the Iranian spread animosity and chaos. ary ideology and pro-regime propaganda regime. Those rumours may not be true in The second alarm was sounded by throughout Germany.” The CRA appears many cases, but the more credible among Global News, which recently obtained a CRA worried about him conducting similar them should be investigated. letter revoking the charitable designation of activities in Canada. The RCMP and CSIS should also the Islamic Shia Assembly of Canada. The Compounding the worry is that follow the money trail. With documented astonishing basis for the CRA’s action – Mr. Hosseini-Nassab has been active instances of Iranian embezzlers bringing being litigated before federal courts – was the in Toronto’s Muslim community, even vast fortunes to Canada, funds may flow allegation that the Assembly “facilitate[d] the founding a mosque. In light of recent into this country to be laundered or put spread of the Iranian revolutionary ideology reports, the RCMP and CSIS should assess to nefarious uses. Once again, networks in Canada.” whether these community connections According to the CRA, the Shia have been exploited by the Iranian regime Continued on page 35

30 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute RUSSIAN DISINFORMATION How the Kremlin distorts the past to divide us

Putin’s weaponization of the history of fascism and Nazism for propaganda purposes must be rejected.

Marcus Kolga Josh Gold

he crimes of all totalitarian regimes Tthat engage in genocide, repression, corruption and the abuse of human rights should be condemned in the strongest terms possible – none more so, of course, than the Holocaust. Grounded in the importance of this Canadian soldiers memory and message, we must be aware guarding the first German of and reject any attempts to cynically prisoners to be captured in Normandy, June 6, 1944. take advantage of historical issues by (Library and Archives Canada / those who seek to divide our communities PA-136280) Copyright expired within Canada and to influence Canada’s foreign policy towards NATO and nations crimes and injustices that Nazi symbols in Central and Eastern Europe. Marcus represent. Kolga’s recent work for the Macdonald- In some European states, events Laurier Institute has shone light on Kremlin Of related concern is continue to be organized that commemo- attempts to do just that. Yet in his recent rate Nazi collaborators. These must be blog on the topic for the Ottawa Citizen, the very real rise of carefully yet firmly condemned, without David Pugliese attempts to characterize this right- and left-wing allowing them to be co-opted as weapons of as a kind of Holocaust denial. the Kremlin’s information warfare. Distortion of historical narratives and extremism and Of related concern is the very real the use of “fascist” labels were cynically intolerance in Europe. rise of right- and left-wing extremism and employed as an instrument of Soviet intolerance in Europe, which represents a propaganda throughout the Cold War. serious threat to the existing international Anyone who resisted or criticized the Soviet propagandists threatens to pit communities rules-based order. Many of these movements regime or its policies in the West was at against each other and fulfils Putin’s goal of are directly supported by the Putin regime, risk of being branded a “fascist” in efforts undermining the cohesion of our society. including France’s National Rally and Italy’s to discredit them. Such tactics weren’t Even domestic critics of Putin are Northern League. only limited to human rights and political branded as “fascists,” as was seen at a 2009 As well, the Kremlin is itself a serial activists; many Canadian ethnic groups pro-Putin, “Nashi” youth indoctrination abuser of human rights and free speech. In who fled the Soviet Union were so labelled, camp, where the effigies of assassinated Russia, public advocacy for LGBTQ rights in efforts to marginalize their voices and Russian pro-democracy opposition leader has been outlawed and in the Russian their impact on national debates. Boris Nemtsov and legendary human rights republic of Chechnya, LGBTQ community This old Soviet tactic has been revived advocate Lyudmila Alexeyeva were topped members are being rounded up and placed and used by the Vladimir Putin regime since with Nazi berets and set on wooden pikes. in concentration camps. Anti-Semitism is the early 2000s. In Canada, such cynical Such derisive mocking, like the prolific use rampant in pro-Kremlin media; the Ukraini- weaponization of history by pro-Kremlin of the “fascist” label, minimizes the heinous an pro-EU revolution in 2014 is frequently

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 31 characterized by Russian propagandists as chapter in human history. de-legitimizing “Canadian institutions “Zionist” in their efforts to discredit it. But it’s something else entirely when and sometimes Canadian policies” and Any attempts to use history and complex historical experiences are cynical- establishing “some kind of equivalence.” these victims to drive wedges between ly used out of context to undermine a Rather than historical clarity, such Canadian communities or to erode trust government’s current policies. This was clearly efforts have a more nefarious purpose in in Canada’s trans-Atlantic relations should on display when the Kremlin launched a mind. We must guard against Kremlin be viewed with skepticism. The actions of smear campaign targeting Canadian Foreign attempts to manipulate such sensitive fringe far-right groups should be strongly Minister Chrystia Freeland for her strong historical issues for political purposes. condemned, but they are the actions of a positions on Russia, using her grandfather Pugliese is right: Many people in Eastern few, not entire nations, and should not be who worked as an editor for a newspaper in European countries did collaborate with the used as justification to terminate Canada’s Nazi-occupied Poland, just as it is with the Nazis in the perpetration of egregious crimes. participation in NATO’s Enhanced Forward Kremlin’s frequent references to Ukrainian But showing how the Kremlin co-opts and Presence in Latvia or Operation Unifier in or Latvian collaborators. Hand-picked facts twists this history cannot and should not be Ukraine, as some writers have suggested. are not enough; understanding the bigger equated with “whitewashing” Nazism. It’s one thing to build a historical picture, especially in the context of Russian record to determine whether some individ- disinformation efforts, is critical. Marcus Kolga is a human-rights activist and expert on uals or groups collaborated or worked with As Russian-born University of Toronto Russian disinformation. He is a senior fellow at MLI. the Nazi regime. As difficult as it may be scholar Seva Gunitsky notes, when the Josh Gold, a member of both the Jewish and Estonian for some nations to come to terms with Kremlin dredges up the past, it’s less communities in Canada, has worked at the NATO their pasts, such studies are a necessary about educating “Canadians about the Cooperative Cyber Defence Centre of Excellence. This part in uncovering the truth of a dark complexity of the history” and more about article first appeared in theOttawa Citizen.

Pipelines are best (Quesnel) Continued from page 4 spills are very small and most occur in The correct government policy response facilities, not in the main pipelines, so there to this issue is to reduce legal and regulatory government agency responsible for federal- are containment mechanisms to minimize uncertainty surrounding pipeline projects ly-regulated oil and gas pipelines as well as damage. and for the federal government to assert railways – shows that pipelines are safer. The data for provincially-regulated its authority over interprovincial pipelines. The TSB’s annual report to Parliament pipelines and railways reveal similar trends. The duty to consult Indigenous communi- for 2017-2018 also recognized the This is interesting given that environ- ties affected by these projects needs to be challenge of transporting more crude mentalists spend so much time, resources clarified and streamlined. Outside environ- oil by rail when it stated: “The volume and money on campaigns to stop pipelines, mental groups should be prevented from of flammable liquids transported by rail but the effect might actually make the needlessly prolonging the assessment across North America is expected to environment less safe. It is also estimated process. For example, legislators studying remain significant, creating an elevated that transporting oil by rail produces up to Bill C-69 need to get the impact assessment risk that must be mitigated effectively.” 77 percent more greenhouse gas emissions process right by providing certainty and So, as long as pipeline capacity than transporting oil by pipeline. clarity to investors. remains stalled, more oil and gas will be Energy reporter James Conca in Of course, the public does not need to transported via rail, thereby increasing Forbes.com argued persuasively that the needlessly fear transporting oil by rail and this elevated risk. calls to shut pipelines and to implement government and industry will continually In terms of confidential reports filed by moratoriums on new pipeline construction improve rail safety, but by far the public transportation employees and the Canadian is precisely the opposite of what we need should know that pipelines are the best way public over safety concerns, the TSB right now. He wrote, “We really should to go. received 44 rail-related reports, but none be replacing old pipelines and building for pipelines in 2017-18. new ones, reducing the stress on each line. Joseph Quesnel is a program manager at MLI’s Data by the Fraser Institute from 2015 Particularly good is to supersize them – Aboriginal Canada and the Natural Resource Economy also revealed the majority of pipeline oil build bigger pipelines over old ones.” project. This article first appeared in theHill Times.

32 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute Past stimulus (Cross) chronically slow growth lies behind many easier to deal with permanent employees Continued from page 10 of the specific threats to orthodox economic rather than co-ordinating a series of gig Canada provides a good example policies, notably rising protectionism workers. of how stimulative measures can be and opposition to globalization. It is not But economic challenges could change exhausted in one cyclical downturn and surprising that people elect leaders with the math on that pretty quickly. not replenished before the next arrives. In policies hostile to global trade or vote for If a recession causes workers to response to the oil price crash, the Bank Brexit when the track record of slow growth be replaced by robots, of course the of Canada in early 2015 surprised markets clashes with the promise of the extraordi- unemployment rate will spike up and we by lowering interest rates, accelerating the nary stimulus. For many people the false will get calls for new economic policies. loonie’s devaluation. Lower interest rates promise of globalization or the perceived If, however, a recession results in work sparked the surge in Vancouver house injustice of policies such as quantitative getting done in new ways, we may never prices and accelerated Toronto’s. Today easing (which boosted asset prices benefit- see the unemployment rate change at all – Canada’s housing sector is constrained ing the rich the most) reinforces the public even though the realities for workers will by regulations introduced to curb these perception that the system is “rigged.” be very different. housing price bubbles, meaning housing will not provide the offset to weakness in Philip Cross is a Munk senior fellow at MLI. Linda Nazareth is a senior fellow at MLI. This article the oilpatch that it did in 2015. first appeared in theGlobe and Mail. The trade-off between the short-term benefits of stimulus and their long-term Different recession (Nazareth) costs can take decades to become Continued from page 11 Bill C-69 (Quesnel) apparent. Throughout the 1990s, Continued from page 17 Canada’s low exchange rate encouraged be a real possibility in the near future. the expansion of manufacturing, notably So how will it play out for workers? We partners earlier in the project-planning in the lowest-paying sectors, such as have seen hints of it before. Sometimes it phase, but there is potential for mischief in clothing, textiles and furniture. For a has happened in a fairly subtle way. When the process. For starters, the bill adds new few years this paid off and the share of recessions of the 1980s and 1990s hit, criteria beyond traditional local environ- manufacturing in GDP rose during administrative jobs may not have been lost mental indicators, including new consider- the 1990s. However, after the loonie in huge numbers, but there was not much ations of climate change, gender, and health began appreciating and China joined hiring in those categories either. Instead, impacts. These areas are harder to define and the WTO, manufacturing underwent a companies continued to invest in areas such measure, so there is potential for frustration painful restructuring, with the lowest- as word processing and voice mail that over and even litigation. Also, mentioning the paying sectors virtually disappearing. time replaced some job categories. A similar United Nations Declaration on the Rights of Canada’s pension system reflects shift happened in manufacturing, where Indigenous Peoples (UNDRIP) in the bill’s the long-term distortions of easy money machines and robotics have replaced jobs main preamble may please Indigenous policies. Sustained low interest rates have over the past decades. Sometimes the shifts academics and environmental activists, but been the primary reason defined benefit are more overt, however. When the most it adds uncertainty to the process because pension plans have disappeared in the recent oil downturn hit Western Canada a UNDRIP includes controversial provisions private sector. Obviously, this puts the few years ago, energy companies made big that imply Indigenous communities long-term retirement plans of private investments technology in order to get the have a veto over resource projects. This is sector workers at risk. Less visibly, public job done with fewer people, permanently important because preambles in legisla- sector pension plans responded by shifting changing the need for workers. tion are used in courts and in interpreting risk to governments and ultimately the This time around, the shift may not statutes. taxpayer. This increases the possible just be to technology. Technology now Also, changes to the “standing test” exposure of governments to higher deficits allows companies to slice and dice job for public participation in the assessment in the future. tasks, perhaps just hiring someone to process are concerning resource companies There is a risk beyond the simple do a series of assignments, rather than and Indigenous partners as well. During failure of stimulative policies to boost bringing them on full time. For the most the hearings on the bill, Alberta Senator growth. Growing public frustration with part though, larger companies find it Patti LaBoucane-Benson of the Indepen-

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 33 dent Senators Group (ISG) – an Alberta campaign. The task force will alert other fail to do so, the stakes are high: Foreign and Métis herself – said it best: “However, by senior officials, as well as a “critical election domestic disinformation actors can seize on removing the standing test for participa- incident protocol group,” which is tasked these uncertainties in their efforts to break tion, I wonder if the Indigenous voices with deciding when to inform the public down trust in our system. for projects and against projects might be of attempts to directly interfere with our The granting of high-level security drowned out by the lack of a standing test elections. clearances for representatives from each so that anybody can participate. I wonder But an “early warning” system that federal party is a good first step too, but it is if the ability for resources and money to speaks to the broader public is needed, vitally important that federal party represen- be put into the environmental side might too. Canada should consider following the tatives also meet with each other on a drown out the Indigenous nations that are European Union model, where alerts and scheduled basis, like in the German system, for projects, and oil and gas money might weekly digests of disinformation campaigns in order to maintain ongoing understanding drown out the voices of the people who are published on an official website called and to reinforce overall trust, both during might be opposed to projects.” “EU vs Disinfo” to “forecast, address and and beyond the writ period. Many industry observers have respond to pro-Kremlin disinformation.” The government’s strategies are a been spotlighting the growing evidence By working with our allies in NATO and welcome start. But their success and our that foreign-funded environmental the G7, as well as civil-society groups and democracy depend on effective coordina- foundations are seeking to undermine activists in Canada, such pre-emptive tion and a transparently non-partisan our economic interests and keep oil and systems can be developed to alert Canadians implementation strategy – as well as gas in the ground. First Nations and Métis to current disinformation and other forms of additional measures to keep Canadians communities are rightfully concerned that cyberattacks. alert to all attempts to interfere with our this more open standing test in Bill C-69 democratic processes. would allow foreign-funded environmen- talists to hold up and prolong assessment Marcus Kolga is a human-rights activist and an expert hearings. Raising awareness in Russian disinformation. He is a senior fellow at MLI. Indigenous communities are tired of This article first appeared in theGlobe and Mail. managing poverty and they want prosperity of NGOs that like any other Canadian community. Bill represent foreign C-69 risks frustrating this by creating more Standing up to China (Burton) Continued from page 29 hurdles to projects that directly help these interests...must communities. For the sake of these parties, also be a core Ottawa missed a huge opportunity Bill C-69 needs to be fixed. when it learned that China was blatant- government ly violating the Vienna Convention on Joseph Quesnel is a program manager at MLI’s priority. Diplomatic Relations by pressing Michael Aboriginal Canada and the Natural Resource Economy Kovrig, under severe duress. Mr. Kovrig project. would have been party to confiden- Raising awareness of NGOs that tial files as part of the Five Eyes intelli- represent foreign interests, as well as their gence consortium when he had served as Foreign interference (Kolga) domestic supporters, must also be a core a Canadian diplomat. We should have Continued from page 20 government priority, so that Canadian immediately expelled some of the large resistant to the threat of foreign disinfor- media, policy-makers and the public can cohort of Chinese security agents operating mation. It’s an uphill battle, but we need make informed choices on important semi-openly in Canada. to start somewhere. issues. But again, by our own design, CSIS is The government’s proposed national Finally, the government response weak and misinformed on China. The best task force, made up of Canada’s major includes advising federal political parties we could do was a pathetic exhortation to law-enforcement and intelligence about security protocols and disinforma- “please cease and desist.” This only inspired agencies, should also provide the effective tion, but this will require significant involve- Beijing to play harder at saving face over monitoring and analysis that is required ment in order to build trust and eliminate their failure to repatriate Ms. Meng safely for an effective counter-disinformation any doubt about partisan intent. And if they away from tough US questions about

34 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute Huawei’s relationship with China’s intelli- who are unwelcome in Canada. Why are foreign troll and bot accounts, including gence apparatus. there no Chinese names on it? those linked to Iran. Particular attention Canadian law-enforcement agencies Canada’s years of appeasing China’s ought to be paid to accounts that seek have established that the fentanyl that is Communist regime, in the hope of to affect Canadian decision-makers and killing Canadians is almost entirely from obtaining economic favour, has led us to media or operate solely to sow discord. southern China factories, sent here via this horrendous mess. We must regain Collaborating with companies like Twitter shipping containers or in the mail. Surely Canadian self-respect in our relations would allow our government to leverage we must have the spine to initiate slow, with China, by honest reassessment and a existing expertise. thorough inspections of all Chinese mail reboot to get it right. Canada’s democracy is under threat from and shipments into Canada, until Beijing a variety of rogue state-sponsored actors, takes serious, verifiable measures to address Charles Burton is an associate professor of political including from Iran. They operate both this scourge on our national well-being. science at Brock University and a former counsellor at in the largely-unregulated world of social We also need to stop laundering, through the Canadian embassy in Beijing. He is also a senior media as well as through front organiza- Canadian casinos and urban real estate, the fellow at MLI. This article first appeared in theGlobe tions and “charities.” Their goal is to create corrupt earnings by persons associated with and Mail. conflict in Canadian public life, gather senior levels of China’s Communist Party. intelligence, and intimidate opponents. We have laws that address this sort of thing, Iranian interference (Shahrooz) For years, these activities were hidden we need to enforce them. Continued from page 30 from view. But now that they have been And we can no longer stand idly by as revealed, it is time for our authorities China detains a million or more Uyghurs in the diaspora may be best placed to give to act. in its cultural genocide “re-education” useful leads to the authorities. internment camps. We have a Magnitsky Finally, Canada’s cybersecurity experts Kaveh Shahrooz, a lawyer and a human rights activist, law list of gross violators of human rights should focus on identifying and combating is a senior fellow at MLI.

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