Balancing Act Jim Flaherty

Home , Alberta Liberal Party, Jim Coutts, Jim Flaherty, Stephen Poloz

www.policymagazine.ca March – April 2014 11 Canadian Politics and Public Policy

$6.95 September/OctoberVolumeMarch/April 2 – Issue20132014 2 2

R-D-S-P-e-c-t.

That’s how BMO spells respect.

If you or someone you know has a disability, the BMO® Registered Disability Savings Plan (RDSP) can help, by providing long-term financial security. Eligible individuals can receive benefits of up to $3,500* per year in Canada Disability Savings Grants and $1,000** per year in Canada Disability Savings Bonds. Invest for a brighter future, today.

To learn more visit bmo.com/rdsp or call 1-800-665-7700 to speak to a BMO investment professional.

®Registered trade-marks of Bank of Montreal, used under licence. RDSPs are offered by BMO Investments Inc., a financial services firm and separate legal entity from Bank of Montreal. *Annual contribution of $1500 and based on family income or income of beneficiary if over age of majority. Policy**Based on family income or income of beneficiary if over age of majority. 3

pain is My LIFE

My MEDICINE is my hope

I was born with a condition known as neurofibromatosis that has caused tumours to grow on my brain. Battling these tumours has left me with pain throughout my entire body. It’s all I have

My name is ever known, it’s my life, and it’s exhausting. I try to lead a normal Steven Croucher life - going to school, playing sports, just like any other 19 year I’m 19 years old I’m from Montreal old. But the pain means I have to work harder to focus, I get tired, and I live with constant neuropathic pain and I need more sleep. My medicine is really good — but it could be better. For now I’m waiting, hoping that someday someone will discover a new medicine to stop the pain for good.

www.canadapharma.org/hope

Canada’s Research-Based Pharmaceutical Companies Making Canada Better 2 In This Issue

3 From the Editor: Balancing Act

Canadian Politics and Public Policy

EDITOR L. Ian MacDonald [email protected]

ASSOCIATE EDITOR Lisa Van Dusen [email protected]

CONTRIBUTING WRITERS Thomas S. Axworthy Andrew Balfour Brian Bohunicky Derek H. Burney Catherine Cano Finance Minister Jim Flaherty and Prime Minister Stephen Harper on budget day. PMO photo Margaret Clarke Celine Cooper COVER PACKAGE Fen Osler Hampson Q&A: A Conversation with Jim Flaherty Daniel Gagnier 5 Patrick Gossage 9 Kevin Lynch and Karen Miske Brad Lavigne Budget 2014: Through a Telescope, not a Microscope Kevin Lynch 15 Douglas Porter Jeremy Kinsman Ottawa’s Deficit: Making a Mogul out of a Mountain Velma McColl 19 Chrystia Freeland Geoff Norquay Not good enough: Crisis Aversion as Economic Policy Zach Paikin 22 Peggy Nash Robin V. Sears A Balancing Act on the Backs of Canadians Gil Troy 25 Robin V. Sears WEB DESIGN First Nations Education: Anatomy of a Breakthrough Nicolas Landry Jack Hughes [email protected] 28 The Harper Rosetta Stone GRAPHIC DESIGN Margaret E. Clarke, David B. Nicholas, Herb Emery and Carolyn Dudley AND PRODUCTION 30 Opportunity and Success for Youth and Adults With Monica Thomas Autism Spectrum Disorder [email protected] Policy DOSSIER Policy Policy is published six times annually 33 Geoff Norquay by LPAC Ltd. The contents are T rudeau’s Senate Gambit: Shock and Awe in the Name of copyrighted, but may be reproduced Less Democracy with permission and attribution in 35 Adam Dodek print, and viewed free of charge at Amending the Constitution: The Real Question Before the the Policy home page at Supreme Court www.policymagazine.ca. Printed and distributed by St. Joseph FEATURES Communications, 1165 Kenaston Street, Ottawa, Ontario, K1A 1A4 38 Thomas S. Axworthy Special thanks Jim Coutts, an Appreciation: First in Class of Political Advisers to our advertisers. 42 Michael Coates Foreign Investment: Another Year of Surprises

Policy 3

From the Editor / L. Ian MacDonald Balancing Act

elcome to our cover the- ment is balancing the books on the youth as productive members of our matic on the 2014 budget, backs of Canadians. “Jobs, prosperity society and economy. W a balanced one in all but and long-term growth were all put on name. If the $3 billion contingency hold,” she writes “for the sake of one n a Policy Dossier we look at the reserve were set aside, the Conserva- artificial goal—budgetary balance.” hot-button issue of Senate reform. tive government would be in a $100 Freeland writes: “There’s one impor- I Geoff Norquay looks at Justin million surplus at the end of this fis- tant takeaway from the 2014 bud- Trudeau’s gambit of expelling Liberal cal year, and is forecasting a $6.4 bil- get—the Conservative government senators from caucus, even though lion surplus, including the reserve, has no big ideas for the Canadian the Liberal Party’s constitution ex- in 2015. Which happens to be an economy, and doesn’t believe we plicitly states that senators are au- election year. need them.” tomatically members of caucus and ex-officio delegates to conventions “I think there will be some difficult Looking at the Canada Job Grant, like the one in Montreal in February. decisions next year because differ- the centrepiece of the Harper govern- Norquay finds Trudeau’s move bold ent people have different ideas about ment’s labour market strategy, Jack but high-handed. what should be done with the excess Hughes sees it as an object lesson in money,” Finance Minister Jim Fla- the PM’s belief about the division And the University of Ottawa’s Adam herty told Policy in an extensive Q&A of powers between Ottawa and the Dodek, a leading constitutional law- at his Parliament Hill office. Also provinces. He sees the Job Grant as yer, examines Stephen Harper’s ref- asked about his health, an issue over “the Harper Rosetta Stone”. erence of the Senate reform issue to the last year, Flaherty said he was the Supreme Court of Canada. “It is Robin Sears looks at the break- feeling “much better”. about how, and perhaps if, we can through between Stephen Harper amend our Constitution.” Kevin Lynch and Karen Miske of and Assembly of First Nations Chief BMO Financial Group examine the Shawn Atleo resulting in the First In our Features section we offer two budget “through a telescope, not a Nations education agreement, fund- articles. In the first one, Tom Axwor- microscope”. In other words, they ed at $1.9 billion in the budget just thy offers a touching and true tribute took a longer view; that budgets days after it was announced on Feb- to Jim Coutts, his close colleague and matter, even boring budgets, in how ruary 7. It came together under other predecessor as principal secretary to they address macro-economic and First Nations chiefs in Ottawa while Prime Minister Pierre Trudeau from global financial issues. Douglas Por- Atleo was out of town—attending 1975-81. On any list of outstanding ter, chief economist of BMO Capital Nelson Mandela’s state funeral in heads of PMO, Coutts is very near Markets, provides a fiscal framework Africa as a member of the Canadian the top. A True Grit, in every sense readout on the budget, and a look delegation that also included four of the term. ahead to budgetary balance and sur- former prime ministers. plus next year. And Mike Coates looks at the issue of Margaret Clarke and her University foreign investment in Canada, and Critiques are important in any dis- of Calgary colleagues (Herb Emery, notes it was down significantly in cussion of budgets, and we are de- David Nicholas and Carolyn Dud- 2013. He attributes the investor chill lighted to offer two opposition takes ley) consider the budget initiative partly to the government’s wariness from NDP Finance Critic Peggy Nash for vocational training for youth of state owned enterprises (SOEs), in- and Chrystia Freeland, the new Lib- on the Austistic Spectrum Disorder vesting in the Canadian energy sec- eral MP from Toronto Centre and (ASD) That’s one Canadian in 88, tor, particularly the oil sands. He also one of Justin Trudeau’s senior eco- and their families. While it’s not a cites national security as a politically nomic advisers. lot of money, it’s an important rec- useful if nebulous filter for unwanted Nash writes that the Harper govern- ognition that there’s a place for ASD foreign acquisitions.

March/April 2014 B:8.75” T:8.5” S:7.5” B:11.25” S:10” T:11”

The weld — A spark. A connection. Designed to assemble. To manufacture. To build. Cars, boats, buildings, cities, economies, livelihoods. The weld. Simple. Yet so essential.

The Northern Gateway Education and Training program is helping to provide the skills needed for pipeline and other construction jobs. At the end of 2013, the program had already impacted the lives of over 1,800 people in British Columbia and Alberta. This is just one of the ways we are working to meet the Joint Review Panel’s 209 Conditions. We’re doing all this hard work because we’re committed to building a safer, better project.

Find out more at gatewayfacts.ca

Working in partnership with B.C. and Alberta First Nations and Métis Communities, and leading energy companies in Canada.

1 Round U4360 POLICY MAG_V2.indd

Job Description: Mechanical Specifications: Contact:

Client: ENBRIDGE Bleed: 8.75” x 11.25” Colours: 4C Acct. Mgr: ROB DIX Producer: Kim Burchiel Docket #: 111-EGCNGU4360 Trim: 8.5” x 11” Start Date: 2-21-2014 4:47 PM Crea. Dir: None Studio: Letizia A Project: NORTHERN GATEWAY PRINT Live: 7.5” x 10” Revision Date: 2-22-2014 10:13 AM Art Dir: Judy John Proofreader: None Ad #: U4360 File built at 100% 1” = 1” Print Scale: None Writer: None

Publication: Policy Mag Comments: None

Leo Burnett 175 Bloor Street E. North Tower, 13th Floor Toronto, ON M4W 3R9 (416) 925-5997 5

Policy Editor L. Ian MacDonald with Finance Minister Jim Flaherty in his Parliament Hill office. Flaherty said his 10th budget in eight years was very close to achieving balance. Policy photo, Kathleen Perchaluk

Policy: You said on budget day that Q&A: A Conversation if this was a boring budget, you took that as a compliment and you quoted Bill Davis who had four terms and 14 With Jim Flaherty boring years in office, that “boring is good.” To paraphrase Michael Doug- las from Wall Street, perhaps boring is good, boring works. On February 13, two days after the budget, Finance Finance Minister Jim Flaherty: Minister Jim Flaherty sat for a Q&A in his Centre Block This is a budget that gets us very close office with Policy Editor L. Ian MacDonald. Flaherty to the goal of balancing the books. talked about the economic benefits of a lower dollar, the Policy: You said, almost there. “We’re federal-provincial puzzle of the Canada Job Grant and almost there.” Is it possible you’re actually there? If you take out the con- what keeps him up at night. “This year we had very tingency reserve you’d have a surplus few people knocking on our doors looking for money,” he of $100 million if all goes according to said of the budget process. “I think we did a good job in plan. downplaying expectations.” Jim Flaherty: That’s true but $100 million in a budget of $270 or $280 billion is miniscule. You never know what’s going to happen. The past year we’ve had the flooding in Alberta and

March/April 2014 6 Lac-Mégantic in Quebec. You never I think there’ll be some difficult discussions next year because know when we will need extra mil- different people have different priorities about what ought to lions of dollars to help out. be done with the excess money. It will have been a long time since there has been excess money, surplus money and so Policy: The current deficit, then and including the contingency reserve is everyone has pet projects that they’d like to see done. 0.1 per cent of GDP. That’s a round- My natural inclination is to reduce the public debt but I’m only ing number isn’t it, in Ottawa terms? one voice on that. So can you make the argument that we are at balance and that you’re sort of saving the good news for next year? Jim Flaherty: You can make the Policy: You’re looking at projected Arizona don’t like it very much but I argument. On paper we’re not quite growth of 2.3 per cent in this current don’t think it stops them from going. there. year as opposed to 1.8 per cent last year; 2.7 per cent US growth as com- It obviously makes our exports Policy: How do you see that surplus pared to 1.9 per cent. You’ve also often cheaper to Americans and being allocated next year? It’s an elec- said: “We are not an island.” So what most of our exports go to tion year. You’re looking at a $6.4 bil- still keeps you up at night? the United States, about 75 lion surplus, again including the con- Jim Flaherty: Europe. The Europe- per cent. Business people tingency reserve. an banking system has still not been like it. I know in the business Jim Flaherty: I think there’ll be some cleansed. They still have not in Europe community it’s viewed as an difficult discussions next year because created a single banking regulator al- advantage. Canadian tourists different people have different priori- though it’s something to which they agreed, it must be four years ago now. going to Florida and Arizona ties about what ought to be done with don’t like it very much but I the excess money. It will have been a There’s little or no growth in Europe so don’t think it stops them from long time since there has been excess that’s a concern and then the emerg- money, surplus money and so every- ing economies, which are softening going. one has pet projects that they’d like from the reduced demand in Europe to see done. My natural inclination is and less so in the United States. We re- to reduce the public debt but I’m only ally need to look to the Americans now one voice on that. to move the economy forward. Policy: You could still go to Fort Lauderdale. Policy: It’s not only a discussion to be Policy: What about the dollar? I know had in cabinet and caucus about what you said on budget day that you’re not Jim Flaherty: (Laughs) I think so. to put in the window for an election, supposed to talk about the dollar and Policy: Speaking of central bankers, but there are interest groups lined up every time you talk about it you get you have been quite outspoken that down to Wellington Street from your into trouble but you did say in that the US Federal Reserve, the Fed, that office who’ll be knocking at your door, CTV interview at the beginning of the their tapering of quantitative eas- not to mention the provinces. When year, I’m paraphrasing you now, that ing, third round, QE III, is overdue. you get into a surplus it’s a different we could still travel to the US with the It’s unusual for a finance minister of conversation, isn’t it, about how you dollar somewhere in the 90’s. one country to comment on the cen- allocate the excess money? The Governor of the Bank, Mr. Poloz, tral bank of another. What were your Jim Flaherty: That’s a good point. in a remarkable statement, said that thoughts on the previous chair of the This year we had very few people growth in the US economy was “the Fed, Ben Bernanke, pumping cheap knocking on our doors looking for cake” and that a lower dollar was “the liquidity into the economy that way, money. I think we did a good job in icing on the cake.” Here you have the the $85 billion a month buy back of downplaying expectations. Governor of the Bank essentially talk- bonds? ing down the dollar. How do you see a Jim Flaherty: I think it’s legitimate There’s little or no growth in lower value dollar driving our exports for those of us who are G7 and G20 and other manufacturing activity, par- finance ministers to comment when a Europe so that’s a concern and ticularly in Ontario? then the emerging economies country like the US acts in such a way Jim Flaherty: It obviously makes that it affects all of us and all our peo- which are softening from the ple and all our economies, which that reduced demand in Europe our exports cheaper to Americans and most of our exports go to the United spending did. and less so in the United States, about 75 per cent. Business peo- States. We really need to ple like it. I know in the business com- Policy: Did you have that conversa- look to the Americans now to munity it’s viewed as an advantage. tion with Tim Geithner when he was move the economy forward. Canadian tourists going to Florida and head of the US Treasury?

Policy 7 governmental services. In fact it’s men- tioned in the budget that these negotiations have a deadline.

Policy: To walk through some of the particular initiatives in the budget, the First Nations Control of First Nations Education Act, which is an awkwardly but aptly named title of this bill--$1.9 billion over a seven-year period but most of it front-end loaded over the first three years. How do you see the imperatives and the importance of First Nations education, because on reserve schools there’s a dropout rate of 62 per cent. There’s blame enough in that to go around isn’t there? If you look at Canada going down the road ahead, we are going to be short of people and we’re going to be short of workers and the largest group of young people we have who are underemployed are Aboriginal young people.

Asked how the predicted surplus will be allocated in the 2015 election year budget, Flaherty said there would be “difficult” discussions in cabinet and the Conservative caucus.Policy photo, Kathleen Perchaluk

Jim Flaherty: If you look at Canada Jim Flaherty: Oh, yes. you see the jobs, the job opportunities going down the road ahead, we are rolling out, the Canada Job Grant? going to be short of people and we’re going to be short of workers and the Policy: To come to the jobs and op- Jim Flaherty: I’m afraid it’s going largest group of young people we have portunities part of the budget. There’s to be somewhat uneven because from a lot in the title and in your speech what I’m hearing from the minis- who are underemployed are Aboriginal which reads as if you wrote part of ters who are directly engaged in this, young people. You’re right. They drop it yourself, you’re quoting Thomas they’re having significant progressout of school, the majority of them. D’Arcy McGee, your favourite Father of with some provinces and very little They do not have school boards. They Confederation, that “we are in the rap- progress with others. do not have uniform standards. In that ids and must go on,” as well as quot- sense they don’t have the organizational skill that is in the non-Aborigi- ing Sir John A. Macdonald, your “other Policy: So how does that roll out? nal schools, so the idea for a long time favourite Father of Confederation” and You’re talking about going ahead on has been to have three or four school even the first finance minister John the first of April provided Employment boards for Aboriginal persons in Can- Rose, from the first budget speech in Minister Kenney can reach some kind ada with standards. Basically, import 1868. This looks to me as if it comes of agreement with some provinces. the provincial standards of the particu- from your own reading, not from of- How would you provide these Job lar province to the schools and have ficials and staff. Grant opportunities for provinces that opt out, say Quebec? qualified teachers, of course, and make Jim Flaherty: Some of it, yes. sure that testing is done and young Jim Flaherty: Then we would work people learn. So, we hope this is going Policy: Do you see jobs as part of the directly with employers and not with in the right direction. road to balance, creating jobs and op- the provincial government and match employers directly with the people portunities as a work in progress and Policy: The Canada Excellence ini- who want training and jobs. what about the conversation with the tiative, the $1.5 billion for university provinces? At your news conference on research, Canada is a world leader budget day you spoke about billions of Policy: The service window would be in publicly funded R&D but we still dollars being sent to the provinces with Services Canada? have a private sector research deficit a lack of accountability. Is that how Jim Flaherty: We’d use our own don’t we?

March/April 2014 8 Jim Flaherty: Yes, that’s true. I think the universities and the colleges are key to that. We’re seeing more small and medium-sized businesses now invest in Policy: What can we do about that in research in community colleges because it’s less expensive and terms of moral suasion? it’s closer to home. Jim Flaherty: I think moral suasion is something we can do. It needs to be in industry’s best interest to invest in research. I think the universities and the cations for the Canada Students Loan Jim Flaherty: It’s an increasing colleges are key to that. We’re seeing Program, right? problem in numbers. It’s a waste of more small and medium-sized busi- Jim Flaherty: We made apprentices human potential because we had our nesses now invest in research in com- eligible for interest free loans. We’ve special panel last year that looked at munity colleges because it’s less expen- taken out the automobile from all of this, more broadly at persons with dis- sive and it’s closer to home. This new the loans for all students. abilities including persons with autism proposal that was in the budget was came back and said there are hundreds something that some of the research- It’s a waste of human of thousands of Canadians who can’t based universities, the strongest uni- potential because we had our work who are labeled with some sort of versities in Canada, came forward with disability. We need them. and raised with me. Initially, it was an special panel last year that idea that they would have a special looked at this, more broadly Policy: I know you’re tired of being pool of money that they would share at persons with disabilities asked how you’re feeling, but how are in order to promote excellence in spe- including persons with autism you feeling? cific fields. Obviously that would not came back and said there are Jim Flaherty: I’m tired after the bud- be acceptable to all universities in Can- hundreds of thousands of get, but I’m much better than I was. ada. So now the funds will be shared. Canadians who can’t work who are labeled with some Policy: That raises a question of, if I Policy: Talk about the Canada Ap- sort of disability. We need can put it this way, where’s the bal- prentice loan a little bit, because you ance between a patient’s right to pri- can spend five years in a technical col- them. vacy and the public’s right to know, lege. It’s like getting a degree, isn’t it, because you are the minister of finance nowadays? If you want to work on the and your words move markets. Your GM assembly line just next door to health, what are your reflections on your riding you need a diploma from Humber College in your riding to work that? Is there a balance there? there, don’t you? Policy: There’s this $888 million ini- Jim Flaherty: I think one gives up Jim Flaherty: Well, you need com- tiative over four years for persons with a certain amount of privacy being in puter skills, that’s for sure. About 50 disabilities which you say that the prov- public life but it’s a question of de- per cent of apprentices do not com- inces are going to match. Is that a done gree. I could give you examples where plete their Red Seal apprenticeships. deal with them in terms of extending I think the line has been crossed, par- the Labour Market Agreement? ticularly in Ottawa. Policy: Red Seal being the high end Jim Flaherty: I didn’t negotiate the apprenticeships, right, the accredited Labour Market Agreement myself but I ones? understand from the ministers that yes Jim Flaherty: The ones we would that was a relatively easy negotiation normally think of like carpentry, elec- compared to the other one on the Job trician, and so forth. Not completing Grant. their apprenticeships limits their trans- ferability around Canada, which isn’t Policy: If we could talk a little bit good for a country that is changing a about the initiative on autism and the lot. So we want to encourage them to $11.4 million for the Sinneave Founda- finish their apprenticeship. It means tion for vocational training for autistic they have to take some time away from children. If you read the budget papers, work and most of them are working as it’s not a lot of money but there are apprentices and making decent money two pages and nine mentions in those and don’t really want to leave work in two pages on autistic spectrum disor- order to do some more school work. der (ASD). And full disclosure, as you know I have a four-year-old daughter Policy: This is why you’ve probably who has Asperger’s Syndrome and in taken the value of their cars out of the ASD community this is regarded as the process of evaluating their appli- a huge breakthrough.

Policy 99

Finance Minister Jim Flaherty delivers the 2014 budget, to a standing ovation from his Conservative colleagues on February 11. “We’re almost there,” he said in terms of balancing the budget. But larger macro-economic issues remain for Canada. PMO photo Budget 2014: Through a Telescope, not a Microscope Kevin Lynch and Karen Miske ow should we look at budgets—through a microscope, H a telescope, or both? The perspective matters greatly because budgets typically have their structural impacts well beyond the short term, All government budgets matter. And in a federal system, it whereas media punditry and political is the totality of federal and provincial budgets that should calculation around budgets appear to be increasingly focused on the present. matter most to citizens and markets. The more these bud- Short-termism has come to dominate gets are aligned, both fiscally and economically, the greater so much of our lives, including bud- the leverage and impact they have on our economic and so- gets. Yet, the future is hiding in plain sight, shaped by the evident and dis- cial future. As all governments look to a challenging global ruptive trends in the world around environment, will this be the season of greater budget cohe- us—increasing globalization, a more volatile and uncertain global econo- sion in Canada? my, the demographics of aging, the unrelenting information revolution, the disruption of innovation, and the unbreakable link between productivity growth and rising living standards. We need to view budgets more through the lens of how well they are preparing us for this future, through the tele-

March/April 2014 10 scope, and not just through the micro- Short-termism has come to dominate so much of our lives, scope of how they are responding to including budgets. Yet, the future is hiding in plain sight, the immediate. shaped by the evident and disruptive trends in the world he centrepiece of the 2014 fed- around us. eral budget is its fiscal narra- tive. The fiscal books will re- There is much emphasis on “good orities and pressures. It may be for fis- T management” initiatives and “con- cal affordability reasons, it may be for turn to balance in 2015-16 after seven consecutive years of deficits and an sumer-friendly” actions in the 2014 productivity and efficiency reasons, increase in federal debt of over $160 budget that, while not unimportant, or it might be for ideological reasons. billion. The budget projects a debt-to- will have limited impact on the lon- What Chart 1a shows rather clearly is GDP ratio that peaked at roughly 33 ger term challenges of Canada’s poor that the size of the federal government per cent of GDP in 2013 and 2014 (up productivity performance, our weak today, at 13.5 per cent of GDP, is well from a low of 28 per cent in 2008) and innovation performance, our under- below its average size of 16.1 per cent investment in capital, research and then begins a slow decline dictated by over the 1980-2000 period, although it training in a knowledge intensive glob- the pace of nominal income growth is still above the size of the federal gov- absent major new government initia- al economy, and our over-reliance on the US market, particularly in energy, ernment before the massive stimulus tives. Compared to other G7 countries, spending introduced in the 2009 bud- and in the aftermath of the financial in a world where emerging markets are get. We do not have a size of govern- crisis, the ensuing recession and the driving growth and demand. ment problem judged by any historical weak global recovery, this is an impres- benchmark. sive budgetary achievement. ur focus in this analysis will A strong fiscal balance sheet is both a be more telescopic than mi- means and an end. In a volatile and O croscopic, looking at how the The size of the federal uncertain global environment, having budget is preparing Canada for these inescapable longer term trends we government today, at 13.5 per a relatively low debt-to-GDP ratio pro- cent of GDP, is well below its vides an element of “fiscal insurance”. need to deal with. The structural issues Clearly, the value of this insurance is we will examine more closely are: the average size of 16.1 per cent higher if a declining debt-to-GDP at size and tax-take of government, the over the 1980-2000 period, the federal level is not partially offset evolution of federal debt on both a although it is still above the by rising debt ratios at the provincial gross and net basis and associated debt size of the federal government government level. A healthy balance servicing costs, the degree of harmony between federal and provincial fiscal before the massive stimulus sheet also provides the fiscal means to spending introduced in the deal with longer term economic and frameworks, and the extent to which social priorities, and in particular, the the budget is tackling Canada’s declin- 2009 budget. We do not have under-appreciated impacts of a slowing potential growth challenge. a size of government problem ing rate of potential growth in Canada Concerns about the size of government judged by any historical and all it implies for our future. can arise because of quite different pri- benchmark.

CHART 1A: Size of Government (program spending, % of GDP)

18.0 1980-2000 Average = 16.1 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2000-1 2001-2 2002-3 2004-5 2005-6 2006-7 2007-8 2008-9 2003-4 2010-11 2011-12 One time spend 2009-10 2012-13 2013-14(E) 2014-15(E) 2015-16(E)

Sources: 2013 Fiscal Rererence Tables, Economic Action Plan 2014

Policy 11 What about on affordability grounds? efficiency or productivity of governing how companies like Google serve Clearly, deficits are neither always bad, ment. Just as Canada has a substantial customers. and the global recession of 2008-09 is “productivity deficit” in the business a recent case in point, nor are they al- sector, with distressingly little prog- hile much of the budget ways good, and Canada’s own experi- ress in well over a decade, there is no commentary has been on ence in the 1980s and early 1990s is a reason to think that the government W when, and with what con- stellar example. Deficit sustainability sector cannot be more productive as fidence, the budget will move back can never be judged independently of well. The state of government produc- into the black, there has been less dis- the stock of debt, which has unfortu- tivity is even harder to measure than cussion of the longer term issue of the nately skyrocketed over the past seven the private sector, and what is difficult significant rise we have experienced years. Part of the rise in the deficit was to measure is challenging to manage. in federal debt, both gross and net, its government stimulus spending, part implications for debt servicing costs was the automatic stabilizers, part was The state of government when interest rates return to more a cyclical decline in tax revenues, and productivity is even harder normal levels, and whether we should part was a structural decline in tax rev- to measure than the private have a longer term target for debt-to- enues. Spending reductions were inevi- sector, and what is difficult to GDP to provide guidance to markets table and needed to rein in the deficit. measure is challenging and tax-payers. Given the structural decline in reve- to manage. Debt levels matter both absolutely nues, from cuts in the GST, reductions and relatively. Relative debt levels af- in corporate tax rates, numerous new fect how rating agencies view coun- tax expenditures and lower potential tries, and how investors and markets output, it does raise the longer term is- evaluate country risks in a volatile and sue of the size and sustainability of the Too often the default option is across- changing global economy. As Chart 2a federal tax take. the-board cost cutting that, as numer- indicates, gross federal debt is consid- A glance at Chart 1b suggests that the ous examples in the private sector in erably higher than net debt, and both federal tax take in Canada, at 14.1 per many countries have amply demon- have risen from their pre-financial cent of GDP today, is substantially be- strated, is likely to reduce long term crisis lows. Compared to the United States, Canadian federal debt levels low its average of 17.1 per cent over productivity growth while raising compare favourably but much of the the 1980-2000 period and quite a bit short-term efficiency levels. Despite credit is due to poor US fiscal and debt lower than it was before the recession the many challenges, the government policies for the better part of a decade and the structural tax cuts. The trend sector, both federal and provincial, and to the legacy of excellent fiscal in the tax take has been downward, seems ripe for a concerted productiv- and debt policies in Canada reaching not upward, for some time. ity initiative that draws on many of the back to the late 1990s. While Canada Independent of the size of govern- “big data” and “data analytics” tech- compares well to G7 countries, Canada ment is the important issue of the nology revolutions that are transform- does not stand out as clearly against a

CHART 1B: Tax-Take of Government (revenue, % of GDP)

18.020.0 1980-20001980-2000 AverageAverage == 17.1%16.1 16.018.0 16.0 14.0 14.0 12.0 12.0 10.0 10.0 8.08.0 6.06.0 4.04.0 2.02.0 0.00.0 (E) 2000-1 2003-4 2004-5 2005-6 2006-7 2007-8 2008-9 2001-2 2002-3 2000-1 2001-2 2002-3 2004-5 2005-6 2006-7 2007-8 2008-9 2003-4 2012-13 2010-11 2011-12 2009-10 2010-11 2011-12 2009-10 2012-13 2013-1 4 (E) 2014-1 5 (E)

One time spend 2015-1 6 2013-14(E) 2014-15(E) 2015-16(E)

Note: Budgetary revenues and program expenses in 2011-12 have been adjusted to reflect the new accounting standard for tax revenues issued by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants Sources: 2013 Fiscal Rererence Tables, Economic Action Plan 2014

March/April 2014 12 number of like countries such as Aus- fore we take too much comfort from rope and Japan unwind. Comparing tralia, Denmark, Norway, Sweden and today’s debt servicing ratios, we need short term interest rates (90-day T-Bill Finland. to remember that interest rates are at yield) today, at 0.88 per cent, with the record low levels and they will eventu- 15-year average (1992-2007) before the ebt levels matter because they ally return to normal levels as global onset of the financial crisis, at 4.27 per- are indicative of the country’s recovery strengthens and quantitative cent, shows the scope for upward pres- D ability to absorb shocks when easing (QE) programs in the US, Eu- sure on debt servicing costs. they occur and to make national in- The effectiveness of the federal gov- vestments when they are needed. Here, At the structural level, ernment’s fiscal and economic strate- as Chart 2b shows, federal debt servic- governments in Canada gies depends, in part, on the degree of ing costs consume just over 11 per cent have made distressingly little federal-provincial harmonization. At of federal revenues today, compared to the structural level, governments in the 38 per cent in the mid-1990s that progress in strengthening the Canada have made distressingly little helped trigger the extraordinary, and economic union at a time when progress in strengthening the econom- successful, deficit elimination policies globalization is connecting ic union at a time when globalization introduced in the 1995 budget. But be- markets all around us. is connecting markets all around us.

CHART 2A: Federal Debt (Gross and Net) (% of GDP)

70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 2000-1 2001-2 2002-3 2004-5 2005-6 2006-7 2007-8 2008-9 2003-4 2010-11 2010-11 2011-12 2009-10 2009-10 2012-13

Net Debt Gross Debt 2013-14(E) 2014-15(E) 2015-16(E)

Sources: Fiscal Reference Tables, 2013, Annual Financial Reports of the Government of Canada 2000-2012, Economic Action Plans 2013-2014, Department of Finance Canada CHART 2B: Debt Servicing (% of Revenue)

25.0% 7.0% 6.0% 20.0% 5.0% 15.0% 4.0%

10.0% 3.0%

% OF REVENUE 2.0% 5.0%

1.0% AVERAGE BANK RATE 0.0% 0.0% 2000-1 2001-2 2002-3 2004-5 2005-6 2006-7 2007-8 2008-9 2003-4 2010-11 2011-12 2009-10 2012-13 2013-14

Debt Servicing Cost (% of Revenue) Average bank rate 2014-15(E) 2015-16(E)

Sources: 2013 Fiscal Rererence Tables, Economic Action Plan 2014; Bank of Canada

Policy 13 Attempts stretching back well over a cial deficit and debt strategies be with British Columbia are flirting with sur- decade to establish a national securi- the 2014 federal budget. While time pluses this year; though BC is relying ties regulator are a case in point of the will tell as the remaining provinces heavily on LNG exports for its long- triumph of parochialism over building roll out their budgets, there is every term fiscal health, and these have yet a bigger and stronger Canadian securi- reason to be concerned. The collec- to materialize. ties market to take on global competi- tive net debt of the provinces and ter- tors. The need for, but absence of, a ritories in 2012-13 was 28 per cent of As important as spending policies national strategy for energy diversifica- GDP, about 85 per cent of the federal and tax parameters are to the suc- tion and energy transportation infra- net debt. Ontario is currently running cess of governments’ fiscal policies, structure if we are to pivot successfully a deficit of $11.7 billion, and the gov- economic growth matters greatly to the growing energy markets in Asia ernment is only aspiring to balance because it is what drives the income is another example of lack of coordi- its books by 2017-18. Quebec has in- bases that governments tax and the nation that risks constraining our fu- dicated intentions to balance its books economic conditions that influence ture growth and income prospects for by 2015-16 but is still running deficits social safety net spending. So, look- decades. of $2.5 billion. The Atlantic provinces ing ahead over the next decade, how On the provincial fiscal front, the issue have large deficits and vague reduc- is the economic growth potential of is really how aligned will the provin- tion plans. Alberta, Saskatchewan and Canada shaping up?

CHART 3: World Economic Forum’s Global Competitiveness Rankings 2009-10 2012-13 2013-14 2000-1 2001-2 2002-3 2003-4 2004-5 2005-6 2006-7 2007-8 2008-9 0 2010-11 2011-12

20 Competitiveness Ranking Innovation Ranking 25

Source: World Economic Forum CHART 4: Spending on Research and Development in Canada (% of GDP)

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 BERD Government Financed GERD

Source: OECD.stat. Extracted Jan 22, 2014

March/April 2014 14 Managing economic growth is extraor- What this all adds up to is declining productivity growth. dinarily difficult in practice, but it is Combine this with the impacts of our aging demographics, relatively simple in concept. As the Nobel Prize winner Paul Krugman has which are leading to slowing labour force growth in Canada, famously stated, “productivity is not and you have the recipe for a slowing rate of potential everything, but in the long run it is growth over the next decade, lower than anything we have almost everything.” Not surprisingly, experienced over the last half century. therefore, longer-term potential growth is dictated by productivity growth and labour force growth (plus terms-of- is driven by innovation and produc- ments have flat-lined in real dollars in trade shifts). Neither is good news for tivity, Canada’s innovation ranking the short term; government spending Canada looking to the longer term. today is 25th and on an apparent de- in research and development as a share clining trend. of the economy looks ready to decline, In a world where and this will have unintended longer Now you might query the validity of competitiveness in higher term consequences. this particular innovation index, but a cost economies is driven by cross check with the OECD on spend- What this all adds up to is declining innovation and productivity, ing on research and development productivity growth. Combine this Canada’s innovation ranking across all OECD countries in Chart 4 with the impacts of our aging demo- today is 25th and on an validates the problem. Private sector graphics, which are leading to slow- apparent declining trend. spending on research and develop- ing labour force growth in Canada, ment in Canada has been on a declin- and you have the recipe for a slowing ing trajectory for a decade, and we now rate of potential growth over the next rank 22nd among OECD countries for decade, lower than anything we have hy should we worry? Chart our business research and develop- experienced over the last half century. 3 presents the World Eco- ment effort. This will have both an economic and W nomic Forum’s Global fiscal wallop. Competitiveness Index rankings for We do see a bright spot with govern- Chart 5 sets out the inescapable alge- Canada over the last 15 years. By the ment-financed research and develop- bra. Real GDP growth averaged 2.7 per early 2000s, Canada had slipped to ment in universities and government cent from 1982-to-2000; it has declined around 14-15th place and, except for labs, which were prioritized by the to 2.2 per cent over the 2000-to-2015 a blip during the global financial crisis public sector in the late 1990s after the period, driven by weaker productivity where we moved up as others moved restoration of fiscal balance. And this growth; and, over the next 10 years, down with failing banking systems, budget introduces an intriguing new it will be hard pressed to grow even 2 there has been little change in a de- research vehicle, the Canada First Re- per cent on average, held down by pro- cade. Part of the reason is evident in search Excellence Fund, with $1.5 bil- ductivity growth under 1 per cent an- the WEF’s Innovation Index rankings lion over 10 years but still undefined nually and labour force growth in the for Canada — in a world where com- objectives and parameters. Notwith- same range. petitiveness in higher cost economies standing, government research invest- Looking at the budget through a telescope not a microscope reveals a num- CHART 5: Potential Growth in Canada (%) ber of longer term risks to our future well-being that deserve more attention by both the public and private sectors in Canada. What this argues 3.0 for is a greater policy focus on raising Canada’s declining potential growth 2.5 in both federal and provincial budgets, 2.0 an orientation commensurate with the long term economic risks inherent in 1.5 a business-as-usual approach. Budgets 1.0 have to shift to a greater structural and longer-term orientation if we are to 0.5 avoid the perils of short termism.

0 Contributing Writer Kevin Lynch, Vice 1982-2000 2000-2015 2015-2025 Chairman of BMO Financial Group, is a Average Productivity Growth Average Real GDP Growth former Clerk of the Privy Council. Average Labour Force Growth Karen Miske is Senior Adviser, office of the Vice Chairman, BMO Financial Group. Source: StatsCanada Note: Productivity growth is for 2000-2012, Real GDP forecast 2013-15, Labour Force forecast 2014-15

Policy 15

Prime Minister Stephen Harper and Finance Minister Jim Flaherty going over a final draft of the 2014 budget, which came very close to being in balance, with a surplus of $6.4 billion forecast for 2015—an election year. PMO Flickr photo Ottawa’s Deficit: Making a Mogul out of a Mountain

Douglas Porter he finish line is clearly within sight for Canada’s long quest to T return to balanced budgets after a seven-year deficit detour. Ot- The headline from the 2014 budget was really more about tawa’s measured pace of restraint continues with the 2014 fiscal plan, 2015: that we are one budget away from balance. Oth- but the emphasis looks set to change erwise, the Conservative government tabled what Finance in 2015. The budget was a self-pro- claimed “stay-the-course” affair—with Minister Jim Flaherty happily admitted was a boring bud- little in terms of major new measures get, but it included a range of measures aimed at labour from a macroeconomic standpoint. Much of the document’s 419 page- enhancement, infrastructure and pocketbooks, all as a pre- heft was devoted to renewed support lude to next year. for skills training, infrastructure and the consumer. All told, the deficit trajectory is again running better than expected, with a $2.9 billion shortfall now forecast for this coming fiscal year before a $6.4 billion surplus is expected in FY15/16— and that continues to include $3 billion per year in wiggle room should the economy underperform. In other words, if the economy performs as ex-

March/April 2014 16 pected, we could be looking at a bal- stays on track and that spending re- projected to grow at a 4.7 per cent anced budget this coming fiscal year mains largely under control (Chart average annual rate over the next five (Chart 1). The FY13/14 shortfall was 2). Program spending will dip slightly years, a bit faster than nominal GDP also trimmed to $16.6 billion from (0.5 per cent) in the coming fiscal year growth, which is not out of line with November’s $17.9 billion projection. after an estimated 2 per cent rise in historic norms. The challenge after hitting the FY13/14. Even with planned restraint Digging into the details, there were a measures and next year’s drop, pro- fiscal goals will be ensuring few noteworthy measures announced gram spending still rises at a 2.7 per in this year’s budget, but they are not the recovery stays on track and cent annualized clip over the next surprising and come at minimal net that spending remains largely five years, or a bit above inflation. As fiscal cost. Here is a quick recap of the under control. a share of GDP, program spending is largest new initiatives: expected to drop to pre-recession levels of just below 13 per cent by mid- Consumers-First Agenda— decade from 13.5 per cent in FY13/14 Minding the (Price) Gap: The challenge after hitting the fiscal and the recent peak of 16 per cent. Arguably the most surprising element goals will be ensuring the recovery Starting from FY13/14, revenues are in this year’s budget was the proposed step to address the Canada/US price CHART 1: Surplus in Reach (C$ blns) gap. Instead of broadening last year’s tariff cuts, Ottawa has instead chosen to legislate against “unjustified” coun- 40 try price differences, providing the Competition Bureau with powers to forecast address the issue. While we will await 20 the legislation before passing judge- ment, this is a surprising tack for a variety of reasons. First, with the Ca- 0 nadian dollar sagging 10 per cent in a year, the price gap has already largely vanished as a widespread issue. Sec- -20 e ond, the price gap is fundamentally an issue between consumers and business, and not primarily a public policy -40 issue. Finally, it is highly questionable how effective legislation could possi- bly be in helping reduce the price gap. -60 98/99 03/04 08/09 13/14 18/19 eyond that tidbit, Ottawa also e = estimate unveiled a grab-bag of proposals to help consumers. The gov- Source: Federal Budget B ernment proposes capping whole- CHART 2: Spending Restraint sale domestic wireless roaming rates. They will also seek to make credit card charges more transparent. Finally, the 20 government will provide $305 million over five years to enhance broadband access in rural areas (some 280,000 15 households). A handful of other very small-ticket items net out to a fiscal cost of $18 million in this com- 10 ing fiscal year, and $138 million in FY15/16—everything from tax treat- forecast ment of charitable contributions, food 5 inspection, adoption expense credits e and continued funding for Own the Podium. 0 YEAR OVER % CHANGE Measures to Support Jobs and the Economy: -5 05/06 10/11 15/16 This budget is titled “The Road to Bal- e = estimate ance: Creating Jobs and Opportunities”, and contains an array of minor mea- Source: Federal Budget

Policy 17 sures to support the economy. But the The days of Ottawa having to borrow from capital markets to measures are very much aimed at the finance its deficit, above and beyond refinancing requirements, microeconomic level, not the macro are over. side. Net new spending totals $730 million in FY14/15, rising to just over $1 billion in FY15/16. Top billing goes Spending Restraint smokers, this tax increase works out to to addressing the nation’s skills short- Ongoing: roughly 2 cents/cigarette. age, though the fiscal cost is relatively The cost of the aforementioned mea- Debt Management Strategy: small. This is done through the roll- sures is more than paid for by two ma- out of the Canada Job Grant in 2014, All Downhill from Here… jor measures: public-sector compensa- For Debt/GDP with employers required to contrib- tion costs and an excise duty increase ute, on average, one-third of training on tobacco. First, the operating bud- The days of Ottawa having to borrow costs of up to $15,000. Note that in ju- get freeze continues through FY15/16 from capital markets to finance its risdictions where agreements are not as previously announced, and goes a deficit, above and beyond refinanc- secured by April, the program will be few steps further this year with mea- ing requirements, are over. Mortgage- run directly through Service Canada. sures to contain long-term compen- backed securities purchased under the Ottawa is also creating a Canada Ap- sation costs. The biggest savings will Insured Mortgage Purchase Program prentice Loan (which will build on come from changes to the Public Ser- (IMPP) in 2008 and 2009 began to mature last October, all but elimi- the student loans program) which will vice Health Care Plan—the govern- nating the need for net new borrow- create access to over $100 million in ment will shift from funding 75 per cent of retiree benefit costs to a split- ings this year and next, and then the funding for prospective skilled trades. cost formula, as well as increasing the emergence of surpluses in the follow- number of years to become eligible ing years will take care of the rest. Net eanwhile, the more mean- for the plan. This will generate sav- new bond issuance will continue next ingful fiscal impact comes ings down the road, but accounting year, however, as the government from investments in areas adjustments (i.e., a lower future liabil- takes advantage of historically low in- M terest rates. Gross marketable bond is- like the Windsor-Detroit crossing ity) will reduce the deficit by roughly suance will total $95 billion, up from ($497 million over the coming two $1.5 billion per year over the next two $88 billion in FY13/14. After account- years) and the auto sector ($500 mil- years. Some National Defence funding ing for maturities, buybacks and other lion). Additional targeted measures will be shifted to future years, averag- adjustments, the net increase in bonds include an extension of the Mineral ing just over $700 million per year. will be $23 billion in FY14/15, versus Exploration Tax Credit for junior min- The excise duty on tobacco will be just $5 billion this year (with the stock ers for an additional year; continued raised by roughly 23 per cent, which of bonds ending next fiscal year at al- support for forestry; and a removal of will generate a noteworthy $685 mil- most $500 billion). The government the duty on equipment used in Cana- lion in FY14/15, making it one of the is now considering issuing bonds with dian offshore drilling. biggest-ticket items in this budget. For a maturity of 50 years in the coming year (last year they looked at 40-year bonds). The stock of treasury bills, CHART 3: Federal Debt (% of GDP) which will absorb the impact of IMPP flows and net new bond issuance, is projected to drop from $152 billion to 70 around $130 billion.

eflecting the above, Ottawa is 60 projecting net new borrowing R requirements of a grand total forecast of $1 billion in the coming fiscal year. 50 In turn, total federal debt/GDP is projected to begin declining in FY14/15 to 32.0% (or in absolute dollar terms, 40 the year after). The debt ratio is projected to drop consistently further to 25.5% by FY18/19, or below the pre- recession low of 28.2% (Chart 3). 30 Economic Assumptions Look Reasonable: 20 83/84 93/94 03/04 13/14 Ottawa based the economic assumptions on the latest private sector con- Source: Federal Budget

March/April 2014 18 TABLE 1: Fiscal Outlook (C$ blns, except where noted) sensus, as has been the convention for more than a decade (Table 2). We are right in line with the average on real Estimate — Forecast — 13/14 14/15 15/16 16/17 GDP growth at 2.3 per cent this year and 2.5 per cent in 2015. Given that Revenues 264 276.3 293.3 306.8 fiscal restraint will remain in force in Expenditures 280.5 279.2 286.9 298.7 many provinces and, to a lesser extent, Program Spending 251.2 250.2 256.9 266.5 in Ottawa, the growth assumptions may even be seen as a tad optimistic, Public Debt Charges 29.3 29 30 32.1 but we can’t quibble since the budget Budget Balance (16.6) (2.9) 6.4 8.1 forecast is effectively our forecast. To Federal Debt 616 618.9 612.4 604.3 factor in additional risks, the government has based its projections on a As a percent of GDP: nominal GDP undershoot of $20 bil- Budget Balance -0.9 -0.1 0.3 0.4 lion (equal to about 1.1 per cent of GDP), which translates into $3 billion Federal Debt 33 32 30.3 28.6 per year in fiscal wiggle room. Three- Source: Federal Budget Note: totals may not add due to rounding ( ) = deficit month interest rates are expected to average 1.0 per cent this year and 1.5 per cent next year, only slightly above TABLE 2: Economic Assumptions (%) our call of 0.9 per cent and 1.1 per cent. BMO Capital — Ottawa — Markets The bottom line on the fiscal front is 2013 2014 2015 2014 2015 that Ottawa can achieve its target— GDP Growth policy is mildly restrictive and achiev- able, there is a degree of prudence, and Real 1.7 2.3 2.5 2.3 2.5 the starting point is slightly better than Nominal 3.2 3.9 4.5 3.9 4.5 expected. Now we await the real budget show, in 2015. Yields 3-month T-Bill 1 1 1.5 0.9 1.1 Douglas Porter is Chief Economist of BMO Capital Markets. 10-year GoC 2.3 3 3.5 2.8 3.7 [email protected]

Policy 1919

Chrystia Freeland discusses the economy with Larry Summers, former US treasury secretary and economic adviser to President Barack Obama, at the Liberal policy convention in Montreal on February 20. LPC photo, Radey Barrack

Not Good Enough: Crisis Aversion as Economic Policy

Chrystia Freeland

Canada became the envy of the world after the 2008 fi- here’s one important take- nancial catastrophe because we had been smart enough away from the 2014 budget— T the Conservative government to avoid a banking crisis and therefore were better able to has no big ideas for the Canadian weather the economic meltdown. But deeper, structural economy, and it doesn’t believe we need them. This is a budget of tweaks problems in our economy are now surfacing, especially in at the margin, spiced with a few treats relation to just under half of Canadians who consider them- designed to help in the 2015 election. That’s why Andrew Coyne, one of our selves middle class. The first step toward serious recovery country’s smartest small ‘c’ conserva- is to recognize that we face a profound problem—and one tives, dismissed the budget as being entirely about small-bore politics and that balancing the budget alone won’t fix. The lack of that devoid of broader vision. recognition is the most glaring absence in the 2014 budget. “A government that was of a mind to do big things, especially big conservative things, could find ample room

March/April 2014 20 within the existing spending and reve- rising just 14 per cent, after adjusting a very good thing, is not an adequate nue envelopes,” Coyne argues. “If Jim for inflation, over the past three de- economic agenda for a country. And, Flaherty has not done these things, it cades. Unemployment is 7 per cent, in our case, our comparative might in is not because he can’t, but because he and youth unemployment a daunting the wake of the crisis has masked our won’t.” 13.9 per cent. Growth is anemic—just deeper, structural economic problems. 1.7 per cent last year, lower than it Coyne is right. There’s a reason this We’ve been an example of Erasmus’s was in 2012. government feels it is okay to keep great line that in the land of the blind, Canadian economic policy in neu- the one-eyed man is king; we’ve mis- tral. After years of assuring Canadi- The OECD predicts that by taken the fact that we didn’t endure ans that we have the best economy in next year, Canada’s economic a domestic financial crisis for actual the world, Canada’s leaders seem to growth will be below-average, economic strength. Now that the have come to believe their own rheto- just 16th out of a peer group countries that did suffer from the fi- ric. You hear these assertions in the of 30 countries. Canadians nancial crisis are finally healing, our House of Commons every day. Here are getting by in this weak own underlying weaknesses—and our was the prime minister speaking on failure to address them—are becom- February 5: “Canadians and economic economy by borrowing—the ing more starkly apparent. experts around the world, including average Canadian now owes What we are discovering—as manifest the OECD and the IMF, recognize that $1.64 for every dollar she in weak growth and employment and Canada has gone through the reces- earns. high consumer debt—is that the Cana- sion and come out of the recession dian economy is suffering from three with among the strongest growth and big structural problems. Two are par- employment rates and records in the ticularly Canadian, one is confronting developed world.” all of the developed world—and none The government has already lowered of them was an urgent concern of our How nice to think that we its target for this year from its own fall minimalist 2014 budget. forecast. The OECD predicts that by own the podium not only next year, Canada’s economic growth The big, global problem is stagnant when it comes to curling, free- will be below-average, just 16th out of middle class wages and feeble middle style skiing and hockey, but a peer group of 30 countries. Canadi- class job creation, especially of full- also in economic performance. ans are getting by in this weak econo- time positions. This is a long-term And the government isn’t my by borrowing—the average Cana- trend and it is happening, with vary- dian now owes $1.64 for every dollar ing degrees of acuteness, in all of the above playing to this medal- she earns, a consumer debt bubble as industrialized world. The combined counting national pride. big as the one that was inflated in the forces of the technology revolution United States before the financial cri- and globalization are hollowing out sis, and hugely contributed to it. middle class jobs, driving down the wages in those that remain and mak- So what’s happening? How can our ing them less secure. economy be the best in the world, This is a flattering story for all Cana- while our middle class is being dians. How nice to think that we own squeezed and our growth is beginning The combined forces of the the podium not only when it comes to seriously lag the rest of the devel- technology revolution and to curling, free-style skiing and hock- oped world? The main cause of this cognitive dissonance is the financial globalization are hollowing ey, but also in economic performance. out middle class jobs, driving And the government isn’t above play- crisis. In the 1990s and the beginning ing to this medal-counting national of the 21st century, Canadian leaders down the wages in those that pride. wisely chose to buck the global trend remain and making them less of banking deregulation. Thanks to secure. those decisions, in 2008 Canada be- hen challenged in question came an international economic su- period about Canada’s rel perstar—the only G7 country that W ative economic perfor- didn’t need to bail out its financial mance, Finance Minister Jim Fla- sector. or anyone who believes a pros- herty last month suggested the ques- perous middle class is the bed- tion itself was unpatriotic: “It is odging that economic bullet rock not just of our economy disappointing to hear the opposition F gave Canada a tremendous but of our democracy, this structural cheering against Canada’s economic boost relative to its peers shift is our urgent and essential chal- performance.” D over the past six years. But, as Larry lenge. No one, anywhere in the world, The problem is that the talking point Summers, former economic adviser has come up with the definitive solu- about Canada’s global out-perfor- to the Obama White House, and for- tion. But the first step to shoring up mance doesn’t square with the real mer secretary of the treasury said at our middle class is to recognize that lives of middle class Canadians. Me- the Liberal Party convention in Feb- we face a deep and profound prob- dian family incomes are stagnating, ruary, avoiding financial crises, while lem—and one that balancing the bud-

Policy 21 get alone won’t fix. The lack of that Our energy arrogance has put us at risk of losing our recognition is the most glaring ab- international social license to export our resources. We are sence in the 2014 budget. even, as I know from campaigning in my own riding of Our two other big economic problems Toronto Centre, losing the support of many Canadians. are specific to us. One is weak productivity and export competitiveness. As the IMF pointed out in its Febru- ary report on the Canadian economy, “Canada’s exports have barely recov- ur final major challenge is of many Canadians. This is a grave ered from the Great Recession and securing export markets, and economic danger, and it is one which are well below the levels reached after O the infrastructure to reach is entirely self-inflicted. Only a sin- earlier recessions.” The IMF attributes them, for our natural resources. This cere and long-term commitment to this weakness in part to “low produc- isn’t chiefly a job for the budget—it is becoming the world’s most environ- tivity growth”. a matter of foreign and environmen- mentally friendly producer of natural tal and energy policy. But it is such resources can solve this problem and What’s particularly worrying about a bedrock for our economy, and an that is a challenge we cannot take up the IMF’s assessment is its observa- area in which we are failing, that it is soon enough. tion that over the past few years, even important to note. For too long, our Our two other big economic prob- as we have been congratulating our- implicit assumption has been that the lems are massive and structural. There selves on avoiding the financial crisis, world needed our resources so much are no simple or quick solutions. But our export capacity has been eroding. that we needn’t bother complying here’s one thing we know for cer- As the IMF warns: “On the domestic with, or even being fully aware of, in- tain—these are problems we can’t fix front, the long period of low produc- ternational concerns about how they if we don’t try. And today, we aren’t tivity growth and strong Canadian are extracted. That was morally wrong even trying. dollar may have left a deeper dent -- protecting the environment is an Chrystia Freeland, the new Liberal MP in Canada’s exports potential (espe- obligation and a concern for Canadi- for Toronto Centre, is a former editor cially in the traditional manufactur- ans, not just Californians. Blue - Pantone P 100-16 C with the Globe and Mail, managing ing base), limiting the economy’s Grey - Pantone P 179-4 C But it was worse than a crime, it was director of consumer news at Thomson- ability to benefit from the projected a mistake. Our energy arrogance has Reuters in New York, and the author of strengthening in external demand.” put us at risk of losing our interna- the 2012 New York Times bestselling Again, these are big structural prob- tional social license to export our re- Plutocrats: The Rise of the New lems, and we need an ambitious eco- sources. We are even, as I know from Global Super-Rich and the Fall of nomic agenda, not just tweaking at campaigning in my own riding of Everyone Else. the margins, to address them. Toronto Centre, losing the support [email protected]

March/April 2014 22

NDP Finance Critic Peggy Nash in the House of Commons. She writes that “Jobs, prosperity and long-term economic growth were all put on hold for the sake of one artificial goal— budgetary balance in 2015.” House of Commons photo

onservatives promised it A Balancing Act on the would be a do-nothing bud- C get, and they certainly kept their word. On budget day 2014, Fi- Backs of Canadians nance Minister Jim Flaherty stuck to his script—driving home the same Peggy Nash carefully crafted lines he’d been du- tifully repeating for weeks. It was a marvel of consistency that lasted just under 18 hours. For weeks, for months, indeed for NDP Finance Critic Peggy Nash says Budget 2014 wasn’t over two years, Conservatives had all bad news. The Conservatives took action on a few issues insistedthat they were focused on a proposed by the NDP, including closing the funding gap for singular goal—income splitting. They would balance the budget by 2015 First Nations schools and expanding access to rural broad- and create the fiscal space necessary band. But these initiatives were too little, too late, Nash to remake Canada’s tax code in their own image—an image resembling claims, in a budget defined by what was left out, and by its more “Leave it to Beaver” than “Mod- status as a pre-election tactical tool. ern Family”. Over the last three budget cycles, no effort has been spared to set the stage for this year’s budget—and with it, the

Policy 23 next pre-electoral one. Flaherty’s last Statistics Canada reports that our current account trade deficit three budgets hit our economy hard and household debt are at record highs. The IMF has warned with stifling austerity measures and harmful cuts to infrastructure proj- that Conservative policies have done “structural damage” to our ects. Jobs, prosperity and long-term economy and downgraded its economic projections for Canada. economic growth were all put on hold all for the sake of one artificial goal— budgetary balance. that promise would be kept, no matter so important one day that it justified Flaherty’s last three budgets the cost. harsh austerity was gone the next. hit our economy hard with Yes, the Conservatives’ income splitting plan would give literally no help e live in an age of unpar- stifling austerity measures and alleled innovation and harmful cuts to infrastructure to a staggering 86 per cent of Cana- dian families. Yes, it would increase W technology. With the right projects. Jobs, prosperity and inequality, rather than reduce it. And, choices, we can rise to meet any chal- long-term economic growth yes, what little benefits it brings to lenge and seize any opportunity. But were all put on hold all for the Canadians would be overwhelmingly to do that, we have to start by taking sake of one artificial goal— skewed towards the wealthiest 1 per an honest look at where we stand and budgetary balance. cent. But this was a promise made by at the road ahead. the prime minister. Whatever needed Last month, the Governor of the Bank to be done, would be. The PM’s plan of Canada, Stephen Poloz, told Ca- for income splitting was that impor- nadians that our economy will very Today, there are still nearly 300,000 tant. Right up until it wasn’t. likely continue to struggle for at least more Canadians unemployed than another two years. This was a promise made by before the 2008 recession. The unem- Governor Poloz suggested that our ployment rate still hovers around 7 per the prime minister. Whatever economy is caught between a rock cent, and double that for youth. Our needed to be done, would and hard place. The Harper govern- economy continues to underperform. be. The PM’s plan for income ment has presided over largest expan- Statistics Canada reports that our cur- splitting was that important. sion of household debt in Canadian rent account trade deficit and house- Right up until it wasn’t. history—166 per cent of disposable hold debt are at record highs. The IMF income. So, even with inflation low, has warned that Conservative policies Poloz warned, there may be little the have done “structural damage” to our Bank can do to stimulate our econo- economy and downgraded its econom- my and create jobs without further ic projections for Canada. And even stoking household debt. the Conference Board of Canada has Governor Poloz suggested identified the growing inequality as a Yet, the day—the morning—after Fla- pressing issue facing our economy. herty delivered his budget, he sudden- that our economy is caught ly said it was merely an “idea” to be between a rock and hard But it hasn’t just been our economy “looked at”. that’s suffered. Conservatives have cut place. The Harper government vital services that Canadians rely on Surely, the finance minister must has presided over largest as well. Thirty-six billion dollars re- have been speaking out of turn. The expansion of household debt moved from health care over the next Conservatives wouldn’t spend weeks in Canadian history—166 per ten years. The retirement age for Old justifying the need to deny help to struggling Canadian families, only to cent of disposable income. So, Age Security raised to 67—despite the even with inflation low, Poloz Parliamentary Budget Officer confirm- throw their own justification out the ing that the cut was unnecessary to door. But that’s exactly what they did. warned, there may be little achieve fiscal sustainability. In the hours that followed, minis- the Bank can do to stimulate Cutting public services to Canadians: ter after minister—and finally, un- our economy and create undermining food inspection, rail der questioning by NDP Leader Tom jobs without further stoking safety, veterans benefits and home Mulcair, the prime minister himself— household debt. mail delivery—just to name a few of made it abundantly clear. this government’s austerity measures. For three years, Canadians had been With monetary policy in a virtual Balancing the budget is a laudable told to accept cuts, accept austerity, straightjacket, the role of fiscal policy goal, but it is self-defeating when it accept stagnation and unemployment has become that much more impor- comes at the expense of prosperity and lagging economic growth. They tant. There’s a common sense role for and growth. Yet, through it all, Ste- were told that the prime minister government to play, making produc- phen Harper and Flaherty were clear: would make life more affordable— tivity enhancing investments in infra- this year’s budget was about next except, it turns out, that plan would structure, education and innovation. year’s budget. They had made a prom- leave the vast majority of Canadians Government fiscal policy can foster ise to the Conservative Party base and behind. So they hesitated. A priority a climate that promotes competi-

March/April 2014 24 tion and encourages investment and backwards—and not just where small to these programs.” growth while at the same time pro- business is concerned. In 2012, in Davos, Switzerland, he an- tecting consumers and creating high- While last fall’s speech from the nounced that he would slash Old Age quality, middle-class jobs—in every throne promised to put consumers region and in every sector. Security, that he would raise the re- first, the Conservatives’ new budget tirement age for OAS to 67. A year lat- Canada is one of the most entrepre- falls far short. er, his finance minister scuttled plans neurial countries in the world. Even Conservatives have promised regula- proposed by the provinces to expand during the recession, Canadian small tions to create greater homegrown CPP. All this, while millions of Ca- businesses thrived and multiplied, but competition and rein in high wireless nadians are desperate to find a better under the Conservatives, the number costs. They’ve promised to ban unfair way to save and invest for their future. of medium-sized businesses has actu- pay-pay billing practices. But Canadi- ally shrunk. A decade of across-the- ans have heard these promises before, It’s true that Budget 2014 wasn’t all board tax breaks for the largest corpo- and we’re still waiting for action. bad news. Conservatives have taken rations has failed to spur investment, action on a few issues proposed by the job creation and economic growth. Harper’s own throne speech promised NDP—moving towards closing the to rein in basic banking fees. Yet in funding gap for First Nations schools That’s why, in the lead up to this February, Conservatives defeated an and expanding access to rural broad- year’s budget, New Democrats called NDP motion to cap ATM fees at 50 band. We’re always happy when other for targeted tax cuts that encourage cents—40 per cent higher than the investment in clean technology and estimate cost of a transaction. Conser- parties steal good NDP ideas. But these help manufacturers retool for the 21st vatives have rejected other common initiatives are few and far between— century. That’s why we called for Con- sense measures to protect consumers too little, too late. servatives to restore the $5.8 billion in like requiring banks offer at least one local infrastructure funding cancelled Canadians deserve a government “no-frills” credit card with an interest that’s on their side—each and ev- in 2013. And that’s why we’d called rate capped at prime plus 5 per cent for doubling the $1,000 hiring credit ery day. They deserve leaders that and cracking down on the abusive are focused on them, not on cynical for small business and adding an addi- practices of payday lenders. Again, no political games. And that’s exactly tion credit for businesses that hire and action. train young people. what New Democrats are offering: a In the last two years, Conservatives government that will build a fairer, et, rather than focus on helping have broken faith not only with their greener, more prosperous Canada— small businesses expand and own promises, but with Canadian se- not just for some of us, but for each Y manage their growth, the Con- niors as well. and every one of us. servatives’ budget will actually elimi- Stephen Harper campaigned on a nate the existing small business hir- promise to not only protect public Peggy Nash, MP for the Toronto riding ing credit introduced three years ago. pensions like Old Age Security and of Parkdale High Park, is finance critic Not only have Conservatives failed the Canada Pension Plan, but also to for the Official Opposition. to move forward, but they’re moving protect “all projected future increases [email protected]

Canadian Politics and Public Policy

June – July 2013 www.policymagazine.ca September – October 2013 www.policymagazine.ca November – December 2013 www.policymagazine.ca April – May 2013 www.policymagazine.ca 1 www.policymagazine.ca January – February 2014 1 1 1 1 Canadian Politics and Public Policy Canadian Politics and Public Policy Canadian Politics and Public Policy Canadian Politics and Public Policy Canadian Politics and Public Policy

The Great Parliament: Canada-US Relations No More Alison Canadian Stephen The New Honest John Justin Trudeau Redford Energy Puzzle Harper Session Broker Baird

April/May 2013 Volume 1 – Issue 1 $6.95 VolumeJune/July 1 – 2013 Issue 2 June/July 2013 $6.95 Volume 1 – Issue 3 $6.95 September/OctoberVolume 1 – Issue2013 4 $6.95 September/OctoberJanuary/FebruaryVolume 2 – Issue20132014 1

PolicyMagazineJune-July-PressReady.indd 1 13-05-30 12:17 PM Subscribe to the print and online editions of Policy at policymagazine.ca

Policy 25

Prime Minister Stephen Harper and Assembly of First Nations Chief Shawn Atleo at the signing of the First Nations education agreement in Standoff, Alberta on February 7. Four days later, the $1.9 billion in funding for the accord was in the federal budget. PMO photo First Nations Education: Anatomy of a Breakthrough Robin V. Sears

History is often written in moments of unforeseen oppor- utsiders often mutter grump- ily about politicians’ waste tunity, blessed serendipity and politically harmonic con- O of time and money lavished vergence. When Stephen Harper and Shawn Atleo jointly on grand state occasions. Summits, announced a new, long-sought deal between the federal glamfests like Davos, state funerals and weddings are sneered at as self-indul- government and First Nations on education February 7, gent extravagances merely feeding the it wasn’t simply the predictable product of bureaucratic vanity of leaders and their entourages. slogging. There was an element of chance involved, best And many are. illustrated in an astonishing message Atleo received while Those “in the life” know that they can also be essential venues for break- attending Nelson Mandela’s funeral with the Canadian through discussions. Long dinners, delegation. with no agendas or staff present and even chance corridor encounters can sometimes offer unique opportunities for discreet intelligence sharing and mood testing. The funeral of Nelson Mandela was one of those. The Canadian delegation to the elabo-

March/April 2014 26

Aboriginal Affairs Minister Bernard Valcourt, Grand Chief Charles Wesealhead, Prime Minister Harper and AFN Chief Atleo at the announcement of the historic First Nations education accord. PMO photo rate ceremonies honouring the life of had moved much. Indeed, on the edu- seized of the file, and was applying his the hero of South African liberation cation file, the government had issued remarkable deal-making skill. His de- was an unusual group—prime minis- a provocative and certain-to-be-reject- parture in the spring left an enormous ters, premiers and governors-general— ed draft bill only a month earlier. It hole in the PMO. Neither his replace- some who rarely spoke to each other, had been curtly dismissed by Atleo ment as chief of staff, nor Ray Novak’s and others who were barely on speak- in an open letter to Aboriginal Affairs hyper-partisan deputy, Jenni Byrne, ing terms. But the emotion of the oc- Minister Bernard Valcourt. had much knowledge of, or interest, casion, the shared pride at Canada’s in First Nation issues. “Nothing our The paralysis—the same players play- role in defeating apartheid, meant the base cares about,” was the sneer one ing their usual roles over and over closing dinner for the Canadian del- often heard from hardline Tory staff- again—seemed to be impossible to egation was a night of laughter and ers, whenever the government’s fail- break. Many angry chiefs refused to shared stories. ure to deliver on promises to the First grant any trust to the government’s Nations community was raised. Brian Mulroney had just finished one education plans, their faith having of his hilarious tales of being “hand- been broken too many times to recall. tleo and his supporters had to bagged” by Maggie Thatcher over his The department officials used this fight a constant two-front war support for Mandela, when Assembly distrust to defend their inaction. Suc- on education reform. They of First Nations National Chief Shawn cessive bureaucrats had warned keen A attempted to keep their coalition of Atleo’s BlackBerry buzzed with an as- new ministers of the risk of moving supportive chiefs united in the face of tonishing message. on education without “First Nations little or no progress, on the one hand, Atleo had taken the bold, but not unanimity.” while keeping up pressure on the bu- uncontroversial, decision to miss his In their continuing parody of a Yes, reaucrats on the other. The endless ex- own organization’s annual assem- Minister sketch they would describe cuses of the officials as to why no deal bly in order to attend the funeral. He any new initiative as, “Courageous, was possible were at times insulting. A had long revered Mandela, and saw Minister! But do you really want to final gambit was the bizarre demand in the South African liberation story risk igniting a civil war among First that First Nations signal their public important lessons for Canadian First Nations, and huge attacks on your support for the draft legislation with- Nations. Some of his supporters were government by all the usual suspects, out any financial commitment. “The worried what use his internal oppo- if you support one faction….” The loss money to implement we can discuss nents might make of his absence. of control over hundreds of millions immediately after,” the bureaucrats of dollars in funding, and many hun- promised. hose opponents had been rais- dreds of gatekeepers’ jobs, was surprising their rhetoric about the A very dim used car dealer would ingly never cited as a more powerful failure of Atleo’s government not attempt such an obvious T motive for their resistance. bait-and- switch. negotiation efforts. None of the dos- siers that Prime Minister Harper had The weeks following the January 2013 Atleo decided that they had to “re- promised action on in their January summit had looked more positive. The move the excuses” being employed 2013 summit, nearly a year earlier, PM’s chief of staff, Nigel Wright, was by the department and to force a clear

Policy 27 choice on the government. He would This was the message that erupted on later. The funding is now fully com- do it by taking forward a clear list of Atleo’s BlackBerry, late at night, thou- mitted. Within weeks, the grinding demands reflecting what First Nations sands of miles away. He immediately work of negotiating local level gover- leaders were saying across the country recognized the importance of the de- nance structures and funding mecha- and pointing a clear path forward, and cision and the power of this occasion nisms, one by one, will begin. Then an alternative to conflict, encouraging to help secure a path forward. Atleo re- negotiations over curriculum and hir- the AFN to stand united for kids and ported to the Canadian delegation dining will need to be undertaken. Only for change. ner at Mandela’s memorial in South then will students be invited to cross Africa what had just been agreed to in Then, Nelson Mandela died. the threshold to a new era in First Na- Canada, and was greeted with smiles tions education. With the backing of his national exec- and applause. Prime Minister Harper utive, the decision to attend the funer- was, as is his wont, more reserved. Lat- And then, of course, the scrutiny about al and honour Mandela was taken and er he committed to Atleo his willing- how well the reserve schools are run, Atleo left the all-important assembly ness to give the issue one last push. how quickly they can improve gradu- trusting that dialogue and discussion ation rates, will turn an intense spot- and leadership among chiefs would Atleo reported to the light on First Nations educators. The prevail. It turned out to be an inspired Canadian delegation dinner dropout rate of 62 per cent in reserve decision. With Atleo thousands of at Mandela’s memorial in schools speaks for itself, and all stake- miles away, both his critics and his South Africa what had just holders can share the blame. Their friends could have an open discussion been agreed to in Canada, success is far from guaranteed. The list about the merits or miscalculation of of those who would like them to fail his strategy on education, without and was greeted with is not short. The Quebec Assembly of having to resort to oratorical excess. smiles and applause. Prime Chiefs has threatened legal action. And they did, for nearly three hours. Minister Harper was, as is his However, as a result of the serendipity It was among the most honest and wont, more reserved. Later of timing, an unplanned absence, and politics-free discussions on one of the he committed to Atleo his the courage of two leaders, a poisonous most powerfully emotive subjects in willingness to give the issue stalemate may have been broken. Lat- the First Nations world. Veterans of the one last push. er, those who struggled so hard on all residential schools battles, aging chiefs sides, behind the scenes, to make the who had led the fight for “Indian con- breakthrough real will have their day trol and history in Indian education,” Each returned home, determined to in the sun. If the first steps taken in 40 years earlier, young chiefs angry at make a serious push for an early an- this school-building process do recre- the rising cost in suicide and dropout nouncement of a way forward. Need- ate trust, the stage may be set to tackle rates as a result of the 15-year stalemate less to say, the previously hostile bu- the even more vexed Gordian knots on funding and curriculum control on reaucrats’ political antennae signaled a surrounding treaty implementation their reserves, lined up at the mikes. fateful shift in the political winds. They and land claims resolution. Out of the cathartic debate emerged a climbed on board, claiming to have fa- clear resolution. voured the ultimate deal all along. As a result of the serendipity Valcourt, in a surprising mid-course of timing, an unplanned here was a sense in the room absence, and the courage that the moment had to be correction, responded to Atleo’s open seized. Atleo and Harper’s terms letter with one of his own. This time, of two leaders, a poisonous T more temperate and conciliatory with would be up in 18 months. The gov- stalemate may have been ernment was going into a pre-election a hint of further concessions. broken. Later, those who period. If no deal could be made in the struggled so hard on all sides, next year, it would probably be many he final details were put into behind the scenes, to make more years before they arrived at this the joint announcement by the place again. T prime minister and the nation- the breakthrough real will al chief only hours before they stood have their day in the sun. The resolution demanded a “child-cen- before a First Nations reserve audi- tered” education solution. It called for a “culturally grounded” curriculum. It ence in Alberta on February 7. There, demanded statutory guarantees of “sus- they declared that they had broken tainable funding” from Ottawa. But it the stalemate on the linked issues of Many fingers are now crossed that this was also deliberately free of the usual governance and control and the finan- education agreement may begin the desk-pounding rhetoric of convention cial paralysis surrounding a guarantee healing process and “our restoration resolutions. It also committed the AFN of high-quality, culturally sensitive to the path of respect and partnership” chiefs to “working together” and “to schools for Canada’s indigenous peo- between Canada’s first peoples and press Canada to respond” to both the ples. It was an emotional scene, made its governments, a journey to which demonstrated need and Canada’s long more poignant by an angry demon- Shawn Atleo, in his own words, has de- unmet obligations to provide First Na- strator denouncing Atleo as a sell-out. voted his career. tions children with decent schools. Now, the hard work begins. The $1.9 Contributing Writer Robin V. Sears is But even more improbably, it was ad- billion First Nations education initia- a principal of the Earnscliffe Strategy opted unanimously. tive was part of the budget, four days Group. [email protected]

March/April 2014 28

Prime Minister Harper announces in PEI in May 2013. The Job Grant reflects his sense of the division of powers between Ottawa and the provinces. PMO photo The Harper Rosetta Stone Jack Hughes

When the Canada Job Grant he evolution of the Canada Job is still a vehicle through which eligible was announced, there were Grant, from the centrepiece of businesses can access up to $15,000 in T Economic Action Plan 2013 to skills-training funding for their employ- many who believed—and a modified version briefly referenced in ees. As originally conceived, however, even some who hoped—the Economic Action Plan 2014, is a story the funding for the grant was to come that offers invaluable insight into Prime from matching contributions of up to federal government was try- Minister Stephen Harper’s philosophy $5,000 from an interested private sector ing to pick a fight with the of government. employer, the federal government and provinces. Above all, the To that end, the grant can be used as the relevant province or territory—in Canada Job Grant is an ob- a political Rosetta Stone—a key to un- that order. derstanding the PM’s views on both the To access matching funds, an employ- ject lesson in Stephen Harp- division of powers between the federal er had to first “show their commit- er’s beliefs about the divi- and provincial governments and the ment” by pledging to make a financial sion of powers between the proper division of responsibilities be- investment. If the business in ques- tween the public and private sectors. tion qualified, the federal government federal and provincial gov- The existence of such a tool is relevant would then make a matching contri- ernments and about the di- because there are still those who con- bution. The appropriate province or sider Harper to be an enigma. More territory would, in turn, provide the vision of responsibilities be- improbably, despite his having been in “final third”. office for more than eight years, there tween the public and private In that first iteration, therefore, the sectors. is even a small but dedicated band of grant could be characterized as a public- skeptics who continue to search for his private partnership in which the federal, “hidden agenda”. To them, or to any- provincial and territorial governments one who genuinely wants to have a bet- would collectively harness their respec- ter understanding of Stephen Harper’s tive resources to “achieve [their] shared brand of conservative ideology, the objectives of creating jobs and econom- Canada Job Grant is a telling example ic growth.” While Finance Minister Jim of what he is attempting to do and Flaherty readily acknowledged the final what he hopes to achieve. details were still to be negotiated with In certain respects, the Canada Job the provinces and territories, it was im- Grant remains unchanged from the ini- mediately apparent those negotiations tiative first outlined in Budget 2013. It would be complicated by the fact that

Policy 29 the federal government had not con- place. Moreover, he has established a training. Large companies, in particular, sulted in advance. This was not an ac- foundation for the grant on the bed- are seen as too quick to avail themselves cidental oversight. The decision to en- rock of a logical premise: In many vital of various stopgap measures which were gage the provinces and territories after sectors of the economy there are severe cheaper, easier and faster. the fact was arguably the first indication skills gaps that will only be exacerbated that the Harper government was pre- by looming demographic trends. The onsequently, while the grant pared to act unilaterally. Just how far it gaps are themselves proof that existing was initially promoted on the was willing to go down that path would programs just aren’t working. C basis of the flexibility it would only become clear in the months that In both tone and content, therefore, the provide to both employees and their em- followed. Harper government has tried to down- ployers, we now know the federal gov- play any differences with the provinces ernment’s primary goal was to force the rime Minister Harper has, at and territories. While some of them private sector to the table. times, described the provinces have launched a series of salvos at their In this respect, the government’s mes- as “lower forms of govern- P federal counterparts, there has been no saging has been far from subtle. As ment”—by which he does not neces- return fire. Arguably the most striking sarily mean “lesser forms of govern- Kenney candidly confided to journal- example of how little the provincial ists “[the] idea behind the grant…is ac- ment”. For lack of a better description, attacks have changed the federal nar- it might be accurate to say he is a strict tually to leverage an increase in private rative is the language used to describe sector funding.” constructionist with respect to the con- the grant in the texts of both the 2013 stitutional division of powers. At his and 2014 budgets. In both documents, Lest anyone miss his message, Ken- core, it is clear that Harper believes the the federal government pledges to work ney buttressed the point by noting: federal government should play a lead- closely with the provinces and territo- “[the] Canadian private sector spends ing role when it comes to national is- ries to implement the grant through the less than virtually any other developed sues and priorities. It is also clear that renewal of Labour Market Agreements. country’s private sector on skills devel- in this, as in all things, he believes that None of the language found in the 2014 opment and jobs training.” Transla- there should only ever be one leader at version even hints at the strong opposition: It’s time for the private sector to a time. tion from the provinces, apart perhaps pull its own weight. In the case of the Canada Job Grant, from the somewhat cryptic note that if In that sense, the Canada Job Grant is the fact that the provincial/territorial joint efforts fail the federal government perhaps the natural extension of the governments weren’t consulted in ad- will simply deliver the grant themselves. Harper government’s foundational be- vance, and the ease with which the fed- What lessons can we infer from all this? lief that the public sector should not in- eral government subsequently agreed to First, while Harper has a bias for smaller tervene in or interfere with the private cover its share of the funding, suggest and less interventionist government, sector unless it is absolutely necessary that their consent and participation was he will act unilaterally and decisively to do so. Harper, Kenney and Flaherty never viewed as essential. in an area where he believes he has the all seem to share a genuine personal After the program was announced, authority to impose a solution to what conviction that the private sector is far there were many who believed—and he perceives as being a national prob- better and more efficient at identifying even some who hoped—the federal lem. Second, on important and conten- skills gaps as well as devising solutions government was trying to pick a fight tious issues the prime minister and his for how to fill them. By that logic, gov- with the provinces. To them, the grant government will disagree without being ernments should follow or, better still, was either an attempt to encroach on disagreeable. Unlike some of his recent get out of the way entirely. an area of provincial jurisdiction or a predecessors, the PM will prevent policy disputes and political disagreements Just as the real Rosetta Stone was a key clever way of diverting transfer pay- to understanding ancient Egyptian hi- ments. Yet, in stark contrast to the at- with the provinces from becoming constitutional crises. eroglyphics, the Canada Job Grant can tempts by some provincial officials to be a key to understanding Stephen generate a public backlash against the While the Canada Job Grant is the most Harper’s views about both the public federal position, the posture adopted by recent example of this last point, it is and private sectors. Yet, just like the real the Harper government belies any sense not the only example Harper has ne- Rosetta Stone, the Canada Job Grant is that they are trying to force a battle gotiated agreements with the provinc- missing key pieces. over jurisdiction. es on a number of issues, from health At the time of writing, Minister Ken- Since his new portfolio was created last care funding to agricultural support ney is continuing to negotiate—having summer, Employment Minister Jason programs—all without convening first just acceded to two requests made by Kenney has deftly handled the negotia- ministers conferences. the provinces and territories. Whatever tions with the provinces and territories In the same way that the Canada Job the outcome, the Grant has already suc- by publicly positioning himself as the Grant offers us a perspective on the ceeded in one respect: It has shown reasonable man. He has been quick to PM’s views of the respective roles of Canadians, cynics and supporters alike, make tactical concessions, while not the federal, provincial and territorial what our head of government thinks of compromising the government’s core governments, it also provides us with a government. strategic objective. He has freely ac- perspective on how he views the proper knowledged that the original plan may roles of the public and private sectors. It Jack Hughes is a vice president at not have been perfect, while solidifying is no secret that Harper and his cabinet Hill+Knowlton Strategies Canada, and is the impression that the federal govern- have long believed that business—writ the leader of the company’s Procurement + ment’s heart (and head) is in the right large—has not done enough on skills Trade group. [email protected]

March/April 2014 30

Workers with ASD on the job at a bakery and catering co-op in Toronto, where they are shareholders in the business. Photo courtesy of Kelly Brothers Productions and the Sinneave Family Foundation—from the documentary Autism Grows Up. Opportunity and Success FOR YOUTH AND ADULTS WITH AUTISM SPECTRUM DISORDER

Margaret E. Clarke, David B. Nicholas,

Herb Emery and Carolyn Dudley he February budget speech of Finance Minister Jim Flaherty T was remarkable for Canadians affected by Autism Spectrum Disorder for two reasons. First, ASD was specifi- Canadians with Autism Spectrum Disorder (ASD) will cally identified as a condition that was benefit from the vocational initiatives announced by to be supported by the commitment of the Harper government in the 2014 budget. Underem- $26.4 million over four years to support increased employment and labour ployment, unemployment, family financial burden and force participation of affected individ- poor adult quality of life are a reality for many living uals. Second, the announced funding was for adults with ASD, where much with ASD. CommunityWorks Canada is an innova- of the policy focus on ASD to date in tive concept for supporting youth with ASD (12 to 24 Canada has been on early intervention years of age) and their communities for increased voca- for children. Prior to this announcement, there has been a “support cliff” tional opportunity. Employment policy initiatives along for persons with ASD who transitioned with quality housing options and caregiver supports from adolescence to adulthood. could highlight Canada as an international leader ad- It is perhaps not surprising that ASD has been prominently addressed, as dressing solutions for those with neurodevelopmental it is now the most commonly diag- conditions like ASD. nosed neurodevelopmental condition

Policy 31 in children. Prevalence rates indicate ASD is one of society’s most costly neurodevelopmental that one in 88 children is now diag- conditions. Research shows that families experience added nosed on the spectrum. financial burden due to the loss of employment ASD is one of society’s most costly opportunities for the individual living with ASD, the loss of neurodevelopmental conditions. Re- search shows that families experience parental employment opportunities due to caregiver time added financial burden due to the loss redirected for support, and the added costs associated with of employment opportunities for the having a disability. individual living with ASD, the loss of parental employment opportunities at the University of Calgary, Univer- who have the skills to obtain viable due to caregiver time redirected for sity of Alberta, University of Toronto, employment and secure jobs that may support, and the added costs associ- University of British Columbia, and elevate them out of a life of poverty ated with having a disability, such as Dalhousie University, as well as lead- and engage the employment sector to speech therapists, occupational thera- ers in ASD organizations. The figure realize the vast potential contribution pists, psychologists and special equip- outlines elements contributing to vo- of persons with disability in the Cana- ment or other resources. Many indi- dian labour market. viduals living with ASD need lifelong cational success for individuals with support and incur extensive costs to ASD: (i) individual preparation and CommunityWorks Canada, a partner- obtain needed support. The value of support, (ii) pro-employment policy ship between the Sinneave Family caregiver time for a high needs indi- and programming, (iii) engagement Foundation and Autism Speaks Cana- vidual are at least $158,000 per year, and supports for employers, and (iv) da, offers a model of community-based amounting to $5.5 million over a life- community capacity and a commit- employment engagement for youth time, above the costs to support a neu- ment to inclusive employment. Based and young adults with ASD age 12 to rotypical individual. on emerging evidence, these factors 24 years. Participants are exposed to nurture positive outcomes for employ- and supported in the workplace at an ees with ASD and favourable “bottom early age, along with an integrated pro- ome of the high economic bur- line” outcomes for employers. As these gram of focused training, community den associated with ASD arises elements are increasingly integrated in engagement and nurturing relation- from poor labour market oppor- S the Canadian marketplace, we antici- ships. Individuals with ASD are paired tunities. Canadians with ASD, along pate that increased job stability can be with neurotypical peer mentors who with other neurodevelopmental con- achieved for persons with ASD. mutually learn, practice and apply job ditions, have extremely low labour skills. Within community placements, force participation rates at around 44 participants are coached and supported per cent, and employment rates of n the 2014 budget the government in workplace strategies that ultimately around 35 per cent. Even when these is committing to support two com foster employment success. Outcomes individuals have employment they are plementary initiatives—Ready, I from a pilot in the US have shown Willing and Able ($15 million over unlikely to work full time. Canadians multiple gains for participants in work with physical disabilities fare much three years) and CommunityWorks Canada ($11.4 million over four related skills such as problem solving, better in the Canadian labour market task focus and social interaction. even though they are typically much years). These programs align with the older. findings and recommendations of the Two ingredients to successful em- Federal Panel on Labour Market Op- ployment for persons with ASD have Preliminary findings from a review of portunities for Persons with Disabili- emerged. First, early vocational expo- vocational services for persons with ties. These initiatives can assist those sure offers opportunity for skill devel- ASD suggest that parents often shoul- der the burden to create and maintain vocational opportunities for their adult FIGURE 1: Elements Contributing to Vocational Success in ASD children. Participants identified employment barriers in the form of negative societal attitudes in the workplace, PRO-EMPLOYMENT POLICY AND PROGRAMMING lack of effective supports and difficulty ➜ Service availability with workplace transitions. Negative ➜ Service access EMPLOYMENT workplace experiences can lower confi- ➜ Information navigation ACCESS dence in one’s employment ability and ➜ Coordination pose barriers to successful employment INDIVIDUAL SUPPORT EMPLOYMENT in the present and future. ➜ Employment preparation: jobs skills, life skills ENGAGEMENT ➜ Engagement in job opportunities With effective policy interventions, ➜ Job access – fit labour market outcomes can be im- ➜ Job retention support EMPLOYMENT RETENTION proved. Numerous examples from COMMUNITY/WORKPLACE CAPACITY coast to coast illustrate that when vo- ➜ Organizational/employer capacity enhancement EMPLOYMENT cational capacity, access and support ➜ Workplace accommodations are in place, employment opportunity (e.g., sensory, environmental ADVANCEMENT and stability can be nurtured. Figure 1 ➜ Associated supports (e.g., mental health, reflects findings emerging from a na- housing, transportation, etc) tional study by Canadian researchers

March/April 2014

COMMUNITYWORKS CANADA READY, WILLING AND ABLE ➜ Capacity building ➜ Focused on employer ➜ Preparation for employment demand side ➜ Peer mentorship ➜ Employee and employer ➜ Community building preparedness and support ➜ “Roadmap” preparation for present and future success in “Ready, Willing and Able” 32 opment, practice and determination the initiative are outlined in Table 1. by ASD through social engagement, of optimal job “fit”’ as well as com- meaningful contribution, engagement munity awareness of the contribution TABLE 1 and acceptance. Initiatives like these of persons with ASD. The experience KEY PROGRAM COMPONENTS offer hope for improved life condi- of working in the community reflects tions. Enhancing vocational supports youth access to various work settings Relationship with an individual vicariously also has the potential to such as food banks, libraries, food ser- with ASD and a peer in a series of lessen financial burden on the Cana- vices, offices, etc. Beyond structured job preparation opportunities dian tax base, support families, and opportunities for work, training and Participation in two volunteer importantly promote better quality of practice gained by the individual with placements life for individuals with ASD and other ASD and peer, additional benefits are developmental disabilities. anticipated that reflect employer, co- Summer co-op placement in varied worker and community awareness, settings—libraries, food banks, Vocational supports are a good start, ideally promoting a deeper ‘welcom- social enterprises, etc. but a comprehensive plan to address ing’ via relationship building and the unmet needs of this growing demo- Curriculum ‘toolkit’ development greater realization of strengths and graphic is still needed. Quality housing with technology supports to contributions. models, caregiver supports, accessible maximize independence Second, vocational success entails health and mental health resources, the integration of services such as Regional adaptation for region- along with vocational opportunities, job coaching, life skills development sensitive application addressed together, will begin to form and employer training. This training, Education and development a strategy with significant impact. To support, nurturing and community in schools and community that end, the 2014 budget is an impor- capacity offered by CommunityWorks organizations tant step forward, but still lacks a more Canada has demonstrated substantial aggressive approach to addressing the impact, with anticipated outcomes of Engagement of participants, peer growing needs of aging Canadians and heightened labour market inclusion mentors and university/college individuals with neurodevelopmental student coaches conditions who need a broad range of The opportunity to work will Facilitator and mentor training lifelong support. provide meaning, purpose Monitoring of program initiation Canada could be an international lead- and structure for Canadians er in policy that addresses the needs of affected by ASD through social Program evaluation those with neurodevelopmental con- engagement, meaningful Capacity development within and ditions, if the vision for vocational op- contribution, engagement across regions portunity is coupled with other needed and acceptance.PRO-EMPLOYMENT Initiatives like POLICY initiatives. Addressing the spectrum of AND PROGRAMMINGCommunityWorks Canada comple- challenges and needs makes sense for these offer hope for improved➜ Service availability ments the “Ready, Willing and Able” the Canadian economy and the health life conditions. ➜ Service access EMPLOYMENT and well-being of individuals and fam- ➜ Information navigationprogram that isACCESS being led by the Cana- ➜ Coordinationdian Association for Community Liv- ilies. To that end, the introduction of CommunityWorks Canada and Ready, INDIVIDUAL SUPPORTing (CACL) and the Canadian Autism for people with ASD. Participating EMPLOYMENT ➜ Employment preparation: jobs skills, lifeSpectrum skills DisordersENGAGEMENT Alliance (CASDA). Willing and Able constitute important sites across Canada➜ Engagement will be supported in job opportunities Where CommunityWorks Canada pre- steps forward. in capacity enhancement within➜ their Job access pares – fityouth forEMPLOYMENT employment success respective community, and➜ Jobextensive retention support Margaret Clarke is a professor in in adulthood, RETENTIONReady, Willing and Able the Department of Pediatrics at the evaluation is COMMUNITY/WORKPLACEplanned for ongoing pro CAPACITY- offers preparatory and developmental University of Calgary and Senior Vice gram➜ Organizational/employer improvement. capacity enhancementsteps in moving toward employment EMPLOYMENT President of the Sinneave Family ➜ Workplace accommodations(see Figure 2). Based on projections(e.g., sensory,for scalability environmental ADVANCEMENT Foundation. and impact,➜ Associated we anticipate supports (e.g., that mentalapprox health,- [email protected] imately 1,200 youthhousing, with transportation, ASD will etc) he opportunity to work will benefit each year once the initiative is provide meaning, purpose and David Nicholas is an associate professor scaled to capacity. Key components of T structure for Canadians affected at the University of Calgary, specializing on issues of transition into adulthood and vocational strategies for individuals FIGURE 2: Relationship between CommunityWorks Canada and Ready, living with ASD. [email protected] Willing and Able Herb Emery is a professor of economics, and Director of Health Policy, School COMMUNITYWORKS CANADA READY, WILLING AND ABLE of Public Policy, University of Calgary. ➜ Capacity building ➜ Focused on employer [email protected] ➜ Preparation for employment demand side ➜ Peer mentorship ➜ Employee and employer Carolyn Dudley is a research associate at ➜ Community building preparedness and support the School of Public Policy, University of ➜ “Roadmap” preparation for present and future Calgary with a research focus on lifespan success in “Ready, Willing and Able” needs for individuals living with ASD. [email protected]

Policy 33

Trudeau’s Senate Gambit: Shock and Awe in the Name of Less Democracy Geoff Norquay

Liberal Leader Justin Trudeau works a crowd in Edmonton. Geoff Norquay writes that his Senate gambit, expelling Liberal senators from caucus, was a bold move, if a high-handed one. Photo, Adam Scotti

Justin Trudeau’s decision to arly on the morning of Janu- prime minister put it in question pe- expel Liberal senators from ary 29, Liberal leader Justin riod, “I see the change announced to- E Trudeau dropped a bomb on Ot- day is that unelected Liberal Senators his caucus was a politically tawa, especially on his Liberal Senate become unelected Senators who hap- astute coup de theatre popu- colleagues. By expelling them from the pen to be Liberal!” Liberal national caucus and making Quibbles and jokes aside, Trudeau’s lar among Canadians. But them sit as independents, Trudeau said gambit was still pretty smart politics. as much as it staked out he was striking a blow “to end patron- The reason is that before January 29, Senate reform ground for age and partisanship in the Senate.” he was neatly wedged between Op- What Trudeau gained in “shock and position Leader Tom Mulcair and Ste- Trudeau between Stephen awe” value and in showing dynamic phen Harper, with very little to say on Harper and Tom Mulcair, it leadership was initially diminished by the Senate. his bewildered senators, who faced the As leader of the NDP, Mulcair inherit- was not an act of democrat- media struggling to explain who they ed his party’s decades-long call to abol- ic reform. Trudeau’s model now were, what they would henceforth ish the Senate, and has used it to great for appointing senators will be called and how they would operate success as the endless Senate scandals in future in the upper chamber. have virtually destroyed what little do nothing to make the dis- The Liberal senators righted their boat public standing the upper house re- tained in the country. Harper’s hands graced upper chamber more quickly and decisively. Within a day, remain tied by his delay in launching they had formed the “Senate Liberal democratic. his reference to the Supreme Court on Caucus,” been recognized by a coop- Senate reform. No matter how much erative Senate Speaker Noel Kinsella, he would like to lead the national de- assigned all of the leadership jobs, bate on the Senate’s future, regardless along with their former pay and perks, of what radical reforms he would like and promised to carry on as the Offi- to advance, he cannot disrespect the cial Opposition in the Senate. Supreme Court by speaking out before So much for radical change. As the it has provided its advice.

March/April 2014

34 o by going with his Senate shock- The place where partisanship is the most corrosive is the House, er, Mr. Trudeau instantly carved not the Senate. On many occasions over the years, Liberal and out a substantive middle ground S Conservative Senators have come together to produce some on a difficult and complicated subject. It also had the added advantage of serious, thoughtful, independent and non-partisan studies of appealing to those many voters who challenging topics. One has to think long and hard for similar long to see something—anything— examples in the House. done about the Senate. An early poll by Angus Reid found 53 per cent of Canadians either strongly or somewhat approving of the Trudeau move. nfortunately, Harper was under of Canada selection process is More doubtful is Trudeau’s claim that able to make the sale to the any guide, our future Senate will be the principal problem with the Senate U provinces; Alberta remains populated by totally worthy Cana- is excessive partisanship. Actually, the the only province to use the elector- dians: former deputy ministers and place where partisanship is the most al approach to identifying Senators- corrosive is the House, not the Sen- in-waiting. So after three years of no generals, art gallery and symphony ate. On many occasions over the years, appointments, and with the Liberal pooh-bas, social planning gurus and Liberal and Conservative Senators majority in the Senate threatening his community organizers, distinguished have come together to produce some legislative program during his early environmental campaigners, former serious, thoughtful, independent and minority years, the prime minister re- bank executive-vice presidents retired non-partisan studies of challenging luctantly capitulated and began mak- university presidents. Senator David topics. One has to think long and hard ing appointments. Suzuki, come on down. for similar examples in the House. While it is far from perfect, the Alber- By far the weakest link in Trudeau’s ta province-wide election approach, f course, the pièce de résistance proposals is his new “non-partisan” combined with prime ministerial ap- of Trudeau’s appointment pro- method of appointing Senators: pointment, is still much more demo- O cess is that these new senators, That is why I am also announc- cratic than the current appointment chosen under his plan by the commit- ing today that if I am elected process elsewhere in the country. It’s tee of experts and worthies, will have prime minister, I will put in a half-way house between direct elec- the right to overturn and/or amend tion and wholesale electoral reform, place an open, transparent and legislation created by the people’s rep- non-partisan appointment pro- which would bring the constitution resentatives—the folks in the Com- cess for Senators. This process into play, and which all would agree mons—those who were actually elect- will be developed working with is to be discouraged. That, plus Sen- experts and informed by other ate term limits, is what Prime Minister ed by the people. The appointed will non-partisan appointment pro- Harper has been trying to achieve, but trump the elected. How in the name cesses, such as that of the Su- it is useful to note that he has been of anything that makes sense does this preme Court justices and Order fought at every step of the way on this build confidence in the Senate as a of Canada recipients. point by the Liberals in the Senate. democratic institution? All would agree that the current Senate Now that we see the Liberal alterna- The real issue here is accountability. appointment process is far from dem- tive plan for Senate appointments, or It’s a simple but powerful doctrine. It ocratic. About the only positive thing at least Trudeau’s plan, it is clearly a that can be said about it is that at the serious disappointment. Instead of holds that those who exercise politi- very least, appointments are made by an appointment process that is one cal power on the people’s behalf dean individual who actually gets his or step removed from democracy, the rive their legitimacy at the ballot box; her job through the electoral process, Trudeau vision is that it will be two that those who would exercise that namely the prime minister. steps removed. As a result, Trudeau’s judgment should submit themselves When he was first elected, Stephen Senate selection alternative takes the occasionally for an accounting to the Harper thought he had a better idea Liberals completely out of the game as people who put them there. It’s called about Senate appointments. He far as the democratization discussion democracy. vowed he would not make them un- is concerned. Contributing Writer Geoff Norquay is til he convinced a sufficient number hy have senators elected, a principal of the Earnscliffe Strategy of provinces to adopt the “Meech when we can have them model” of province-wide elections for Group. He served as senior adviser for chosen by the Order Of prospective Senators, who he would W social policy to Prime Minister Brian Canada committee of “experts” and then appoint when the next vacancy Mulroney and more recently as director “worthy Canadians” who themselves in each province came up. This model of communications for Stephen Harper will all magically become candidates had the huge advantage of conferring for consideration? This is a throwback in the Office of Leader of the Opposition. at least some electoral and democratic to the days of Trudeau-père and the [email protected] blessings on the appointment process, without the dreaded opening of the “philosopher-king” utopia. An abridged version of this article Constitution. But not to worry, because if the Or appeared on iPolitics.

Policy 35

The Supreme Court of Canada. where the justices have heard arguments in the Harper government’s reference on the Senate. Adam Dodek writes of the degree of difficulty in amending the Constitution.Policy photo Amending the Constitution: THE REAL QUESTION BEFORE THE SUPREME COURT

Adam Dodek

To the extent that Canadians think about the patriation or three days last November, the Supreme Court heard argu- of the Constitution in 1982, they tend to think about the F ments from lawyers for the fed- Canadian Charter of Rights and Freedoms. But the Char- eral and provincial governments about which constitutional amendment rules ter was not what made the deal between the provinces (ex- apply for reforming the Senate. In the cept Quebec) and the federal government. For most of the Senate reference, the Supreme Court provinces, the Charter was the cost of the deal; the deal will determine the relevant amending procedure for potential reforms includ- was about the amending formula.The real issue before the ing: Creating fixed terms for senators; Supreme Court in the Senate reference is how rigid those establishing “consultative elections” for senators; repealing the require- amendment procedures are. ments that senators must own $4,000 in property in the province for which they are appointed; and abolishing the Senate. A decision is not expected for months, perhaps not until next fall. The Senate reference is about much more than whether Stephen Harper

March/April 2014 36 can proceed with his plans to impose Since patriation over 30 years ago, it has proven difficult, if not term limits and institute “consultative impossible, to amend the Constitution. The failed attempts of elections” for the Senate. It is about how, and perhaps if, we can amend Meech Lake and Charlottetown serve as a powerful deterrent our Constitution. to those who would ponder the possibility embarking on constitutional change. Since those efforts failed, no one has When it comes to amending the Ca- nadian Constitution, there is a para- dared to try. dox: it is remarkably easy to amend some matters and remarkably difficult olic Schools would be a simple ma- terrent to those who would ponder the to amend others. jority vote in the Ontario Legislative possibility embarking on constitution- This is because there are actually five Assembly and a request to the federal al change. Since those efforts failed, no different amendment procedures in government to introduce a resolution one has dared to try. in the House of Commons to do the the Constitution: (1) the general proce- It wasn’t supposed to be this way. The same. (And some political courage). dure also known as the “7/50 formula” enactment of the Constitution Act, because it requires the consent of Par- 1982 was simply supposed to be the liament and two-thirds of the provinc- olitically, Canadians don’t re completion of the first round of con- es (i.e. 7) having at least fifty percent of ally think of the above items as stitutional reform. It is now largely the population; (2) federal unilateral, P constitutional amendments. forgotten that the 1970s was a decade i.e. Parliament acting alone; (3) pro- We consider constitutional amend- of almost continuous frenetic consti- vincial unilateral, i.e. a province acting ment not in strict legal terms but in tutional negotiations that culminated alone to amend its own constitution; political terms as changes to the basic in patriation and the enactment of (4) Parliament plus affected provinces structures of our parliamentary de- the Charter of Rights and Freedoms in on certain matters; and (5) unanimity mocracy: the House of Commons, the 1982. After patriation, it was antici- of Parliament and the legislatures of Senate, the monarchy, the governor pated that other issues such as Senate all the 10 provinces. The territories are general, the Supreme Court, the Char- reform, aboriginal rights and constitu- completely shut out from the formal ter and so on. tional entrenchment of the Supreme amendment procedures. For many of these big-ticket items, Court would soon be addressed. Some of these are relatively easy. the default procedure is the general When the federal government is able amending formula or “7/50”. The nusually for a constitution, to amend the Constitution alone, all Constitution also prescribes specific the Constitution Act, 1982 it- that is required is ordinary legislation items that may only be amended by self entrenched a framework using the general procedure. Impor- U passed through Parliament. The most for continuing negotiations leading to amended provision of the Constitu- tantly for the Senate reference, these potential constitutional amendments. tion has always been the provision include “the powers of the Senate and relating to the distribution of seats in the method of selecting Senators” and Section 37 required the prime minis- the House of Commons: section 51 of “the number of members by which a ter to convene a constitutional con- the Constitution Act, 1867. This provi- province is entitled to be represented ference within one year of the new sion has been amended six times since in the Senate and the residence quali- Constitution coming into force. It Confederation, including twice since fications of Senators”. required that aboriginal rights be on 1982. Similarly, provinces can make the agenda and that aboriginal lead- Additionally, amendments to the ers be invited to participate in these changes to their own affairs (with the Constitution relating to the following exception of the office of the lieuten- discussions. It also required the prime require unanimity of the federal gov- minister to include representatives of ant governor). Thus, if any province ernment and all the provinces: (a) the wanted to create its own Senate, it the territories in discussions that di- office of the Queen, the governor gen- rectly affected them. That conference would be free to do so (Quebec abol- eral and the lieutenant governor of a ished its upper chamber in 1968). was held in March, 1983 and nothing province; (b) the right of a province to came of it. Similarly, provisions that require only a number of members in the House of bilateral agreement between a prov- Commons not less than the number Section 38 then required the PM to ince and the federal government, such of Senators by which the province is convene two additional constitution- as education, have not proven dif- entitled to be represented when the al conferences, one within three years ficult to amend. When then-Ontario Constitution Act, 1982 came into of April 17, 1982 and the second with- PC leader John Tory challenged the force; (c) the use of English or French in five years after that date. Again, ab- unfairness of Ontario’s policy of fund- in certain circumstances; (d) the com- original issues were required to be on ing Catholic schools but not other position of the Supreme Court of the agenda for these conferences and religious schools, some responded by Canada; and (e) an amendment to the aboriginal leaders and territorial lead- claiming that Ontario’s hands were amending formula. ers were required to be invited to participate in these discussions. Nothing tied because any change would re- On this basis, since patriation over 30 came of these conferences, either. quire a “constitutional amendment”. years ago, it has proven difficult, if not These were meant to be scare quotes impossible, to amend the Constitution. Finally, section 49 required that the but in reality all that would be re- The failed attempts of Meech Lake and prime minister convene a constitu- quired to end public funding of Cath- Charlottetown serve as a powerful de- tional conference within 15 years to

Policy 37 review the constitutional amendment In arguing that it does not need the consent of the provinces provisions. A first ministers’ confer- to proceed with its proposed reforms to the Senate of term ence was duly held in June 1996. Again, no progress was made. limits and consultative elections, the federal government has argued for a strict textual interpretation of the amendment In constitutional terms, these provi- provisions. Most provinces asserted that the 7/50 formula sions are now “spent”, an apt term to describe the used up political energy of should apply to such reforms. constitutional amendment. They are now nothing but constitutional fossils. have to choose between pursuing his made the deal between the provinces As Paul Wells has explained in his asserted goal of Senate reform and (except Quebec) and the federal gov- book The Longer I’m Prime Minister: maintaining his disdain for negotiat- ernment. For most of the provinces, Stephen Harper and Canada, 2006-, Ste- ing with the first ministers as a group. the Charter was the cost of the deal. phen Harper has convened exactly To these provinces, the deal was about zero first ministers’ conferences over Further, if the Supreme Court rules that unanimity is required to abolish the amending formula. The real is- the past eight years. The interesting sue before the Supreme Court in the question will be whether he will be the Senate, it will essentially kill any Senate reference is how rigid those able to maintain his perfect record if momentum for abolition and shelter amendment procedures are. the Supreme Court does not rule in the Senate from discussion over its de- the federal government’s favour in the mise for the foreseeable future. Will we ever amend our Constitu- Senate Reference. tion again? The federal government In arguing that it does not need the et much more is at stake in the didn’t ask the Supreme Court that consent of the provinces to proceed Senate reference than just re question, but it may get the answer with its proposed reforms to the Sen- Y forming the Senate. The rules nonetheless. ate of term limits and consultative that the Supreme Court lays down in Adam Dodek is a founding member of elections, the federal government has the Senate reference will apply to all the University of Ottawa’s Public Law argued for a strict textual interpreta- future constitutional amendments. Group and the author of The Canadian tion of the amendment provisions. To the extent that Canadians think Constitution published by Dundurn. He Most provinces asserted that the 7/50 about patriation of the Constitution is Vice-Dean Research and an Associate formula should apply to such reforms. in 1982, they tend to think about the Professor in the University of Ottawa’s If the Supreme Court rules that 7/50 Canadian Charter of Rights and Free- Faculty of Law, Common Law Section. applies, Prime Minister Harper will doms. But the Charter was not what [email protected]

Policy delivers Canada's decision makers

For our advertising rates, print and online, go to www.policymagazine.ca

June – July 2013 www.policymagazine.ca September – October 2013 www.policymagazine.ca April – May 2013 www.policymagazine.ca www.policymagazine.ca January – February 2014 www.policymagazine.ca March – April 2014 1 1 1 1 1 Canadian Politics and Public Policy Canadian Politics and Public Policy Canadian Politics and Public Policy Canadian Politics and Public Policy Canadian Politics and Public Policy

The Great Parliament: No More Alison Canadian Stephen The New Honest John Jim Justin Trudeau Redford Energy Puzzle Harper Session Broker Baird Flaherty Balancing Act

April/May 2013 June/July 2013 Volume 1 – Issue 1 $6.95 Volume 1 – Issue 2 $6.95 VolumeJune/July 1 – 2013 Issue 3 $6.95 September/OctoberJanuary/FebruaryVolume 2 – Issue20132014 1 $6.95 September/OctoberVolumeMarch/April 2 – Issue20132014 2

PolicyMagazineJune-July-PressReady.indd 1 13-05-30 12:17 PM

March/April 2014 38

Jim Coutts with Sen Joyce Fairbairn and Pierre Trudeau at the Senate speaker’s dining room, on the former prime minister’s 75th birthday in 1994. Back row: Speaker of the Senate Roméo Leblanc, (soon-to-be-named governor general), Tom Axworthy, Sen. Keith Davey and Dominic Leblanc. Photo, Jean-Marc Carisse Jim Coutts, an Appreciation FIRST IN CLASS OF POLITICAL ADVISERS

Thomas S. Axworthy

Unlike their American coun- n January 1941, Wendell Willkie, well be sitting here where I am now terparts, political advisers the recently defeated Republi- as president of the United States,” I can presidential candidate, visited Roosevelt replied. “And when you are, and chiefs of staff to Ca- the White House to offer his support you’ll be looking at that door over nadian prime ministers are for President Franklin D. Roosevelt’s there and knowing that practically ev- not widely known, but they foreign policy of assistance to Great erybody who walks through it wants Britain. In the course of their con- something out of you. You’ll learn are critical to the operation versation, Roosevelt advised Willkie what a lonely job this is, and you’ll of our political system. Jim to speak to his aide, Harry Hopkins, discover the need for somebody like Coutts, one of the best of who was then in secret negotiations Harry Hopkins, who asks for nothing with Winston Churchill. Willkie, who except to serve you.” that political class, passed was no fan of the controversial presi- Great leaders are still human beings. away recently. The lessons dential assistant, asked, “Why do you In describing the loneliness of high from his brilliant career are keep Hopkins so close to you? You office, Roosevelt was reflecting on the surely realize that people distrust him highlighted by one of his fact that power attracts a court, and and resent his influence.” a court has many interests, not all of closest colleagues. Roosevelt responded succinctly, in them aligned with the public good or what has become a classic descrip- even the good of the leader. To find tion of the reciprocal bond between someone who will give you the truth, leaders and staff: “Someday you may even if it hurts, who has your best

Policy 39 interests at heart, who is reliable and To find someone who will give you the truth, even if it hurts, skilled, is a rare gem in the usual polit- who has your best interests at heart, who is reliable and ical minefields. One such gem was Jim skilled, is a rare gem in the usual political minefields. One such Coutts, a senior adviser to both Lester B. Pearson and Pierre Elliott Trudeau. gem was Jim Coutts, a senior adviser to both Lester B. Pearson and Pierre Elliott Trudeau. olitical advisers are generally not well known in Canada. most senior advisers, Coutts, Ivan talent. He was a campaign manager at The anecdote about Willkie and P Head and Joyce Fairbairn were from age 15 for the local Liberal candidate. Roosevelt, in contrast, comes from a Alberta, where Liberal Party hopes go He became a Liberal prime minister at Pulitzer Prize winning biography of to die). Jim loved southwest Alberta— the University of Alberta model parlia- Harry Hopkins by Robert Sherwood. especially the Porcupine Hills: “When ment, and president of the Young Lib- President Kennedy’s senior adviser, you grow up someplace, part of you eral Federation. In 1962, he ran as the Ted Sorensen, wrote a memoir of his stays there and part of the place goes federal candidate in MacLeod. Judy time in the White House, as did Karl with you wherever you are,” he said, Lamarsh, campaigning for Liberals Rove, the senior adviser to George in describing his restoration of his W. Bush. Political advisers have long across the county, was optimistic in grandfather’s homestead east of Nan- reporting to Paul Martin, Sr. “If Coutts been recognized in the United States ton. “Home pain,” he wrote, “it is as a critical component of a presi- wins MacLeod,” the seasoned pro rea- more than home-sickness—it is the soned, “we’re going to win them all.” dent’s success or failure. profound and lasting longing in the He didn’t, but in 1963, Coutts became stranger to be home. Fortunately, I Not so in Canada. J.R. Mallory, a dis- campaign chair for Alberta in the have now been able to return home.” tinguished McGill professor, wrote in election that produced Pearson’s first 1967 that political advisers were “an Jim attended the University of Al- minority government. He was on his unreformed part of the public service berta, receiving a BA and law degree way. ... which have hitherto escaped the at- there (Joe Clark was one of his class- tention of scholars,” and by and large mates), and practised law in Calgary. As president of the Young the situation has not changed much Before his recent death, he gifted his Liberals, Coutts met Keith in the subsequent half century. homestead property and a significant Davey, the new national Yet the career of Jim Coutts illustrates portion of his art collection to the director of the Liberal the critical importance of that class of University of Lethbridge, which has since launched the Coutts Centre for Party, and the two formed men and women who, in the words a friendship that would of Mallory, “are political rather than Western Canadian Heritage. bureaucratic in their functions, ap- spark the Liberals for the pointed rather than elected, and who t was in Nanton, too, that Jim be- next quarter century. It was operate in an area which strict consti- gan his lifelong romance with the Davey who first suggested to tutional theory does not recognize as I Liberal Party. He liked to race his Pearson that Coutts would existing.” bicycle down the streets of his home- make a superior appointments town, and one day in 1952, at age 14, secretary. At age 25, Jim was The career of Jim Coutts as he was riding past a small gather- illustrates the critical ing, he stopped and was invited to get in the PMO, the man just importance of that class of off his bike and meet the leader of the outside the prime minister’s men and women who, in Alberta Liberal Party, J. Harper Prowse. inner sanctum. the words of J.R. Mallory, As Coutts told the story, Prowse spoke about the mission of Liberals to stand “are political rather than for the “little guy,” and Coutts was bureaucratic in their enthralled. functions, appointed rather As president of the Young Liberals, This accidental meeting changed Jim’s than elected, and who life. He never wavered in his belief Coutts met Keith Davey, the new na- operate in an area which strict that the mission of the Liberal Party tional director of the Liberal Party, constitutional theory does not was “to help the little guy.” In 1984, and the two formed a friendship that recognize as existing.” in his book A Canada that Works for would spark the Liberals for the next Everyone, his thesis continued to be quarter century. It was Davey who “Canadians must feel our system is first suggested to Pearson that Coutts fair in ensuring that the new wealth would make a superior appointments that is created is shared and that it is secretary. At age 25, Jim was in the Born in High River, Alberta, and raised partly used to help pay for the adjust- PMO, the man just outside the prime in Nanton, 80 kilometers south of Cal- ments that so many citizens will have minister’s inner sanctum. gary, Coutts remained a proud Alber- to make during changing times.” Coutts loved Lester B. Pearson. His tan his entire life, (it always surprised Coutts also discovered that the Liberal passion for politics originated in the observers that three of Pierre Trudeau’s Party (at least in Alberta) was open to Alberta of the 1950s, but the Pearson-

March/April 2014 40 polling results plummeting, Liberal Party drums still beat out the message, “Don’t worry, Coutts has a plan.” And he always did.

Coutts was perfect for the campaign plane – he kept his own spirits high by constantly winning at backgammon, while keeping Trudeau’s spirits high with wit, Liberal Party folklore and local information. After the success of that campaign, it surprised no one when Trudeau asked Coutts to become principal secretary in 1975.

Barely escaping electoral defeat in 1972, Pierre Trudeau brought back Keith Davey as his senior election strategist. As he had done in recom- mending Coutts to Mike Pearson, Dav- Jim Coutts and Pierre Trudeau at a private party at the Opposition Leader’s South Block office on ey recommended Coutts to Trudeau. December 22, 1979. There was more than holiday spirit in the air. Coutts had just the previous week orchestrated the fall of the Conservative minority government on its budget, and persuaded Trudeau In the 1974 election, Coutts was the to change his mind about retiring and to lead them in the campaign that would result in a Liberal “inside” man on the election plane restoration. Photo, Jean-Marc Carisse while Davey ran the campaign on the ground. It was the campaign plane led Liberal Party was his model of One of the secrets of his that cemented the Trudeau-Coutts re- what modern liberalism should be— success with Trudeau was that lationship. Outsiders have a hard time progressive, civilized, and fun. In his understanding the dynamics of the initial stint in Ottawa, Coutts met ev- however bad the news, Coutts also had a strategy to cope. In camaraderie (or tension) that builds eryone, and his talent for friendships in the pressure cooker atmosphere of a grew. Long before the word “network- the late 1970s, even with the campaign plane. You move daily from ing” took on its current meaning, economy in the doldrums and place to place with bad food, no sleep, Coutts’ range of contacts in business, polling results plummeting, and worries about luggage. While for- government and the arts was aston- Liberal Party drums still beat getting the names of the candidates ishing. If he didn’t have the answer, out the message, “Don’t and well-wishers who cling to the en- he knew exactly who to call. Prime worry, Coutts has a plan.” And tourage, the leader still has to project Minister Pearson, in turn, reciprocat- an animated spirit. Coutts was perfect ed Coutts’ affection: in 1964, when a he always did. for the campaign plane—he kept his film about Pearson’s office had a lot own spirits high by constantly win- on Coutts, but few favourable frames ning at backgammon, while keeping on the prime minister, the PM let it training and consulting experience Trudeau’s spirits high with wit, Liberal go with a laugh, saying “it looks as became a central facet of his operat- Party folklore and local information. though my grandson is running the ing style. The Harvard Business School After the success of that campaign, it country.” teaches you that the right strategy surprised no one when Trudeau asked and tactics can untangle any puzzle. Coutts to become principal secretary outts went to the Harvard When faced with a problem, Coutts in 1975. Business School after three would analyze it, find the central Jim’s qualifications as chief of staff C years with Pearson, then factor, then think through a way to were many: he was unflappable in joined the McKinsey Consulting firm overcome (or go around) the sticking dealing with a sometimes-irascible in New York, finally returning to To- point. One of the secrets of his success prime minister who, in addition to ronto, where he started the Canada with Trudeau was that however bad the normal stresses of the office, had Consulting Company with five part- the news, Coutts also had a strategy to face the agony of a disintegrating ners. I rarely heard Jim speak about his to cope. In the late 1970s, even with marriage. He always told the prime training as a lawyer, but his Harvard the economy in the doldrums and minister the truth about a situation

Policy 41 (the difference between a counselor Coutts had me prepare two speeches for the planned and a courtier) but his advice always December 17 press conference – a short one on why Trudeau carried with it a conviction that the problem could be solved. was not running, and a longer one outlining the themes of the campaign. That morning, Coutts saw Trudeau again, and He knew that one of the jobs of an it was not until I saw Trudeau pull out the three pages rather aide was to take the heat from the media and the party rather than having than one, that I knew Coutts had succeeded. the inevitable anger of disappointed hopes aimed at the leader. He was cu- rious about the world, open to new influences and people, and always scind his resignation, and take the ing a strategy of diets and treatment, fun to be with. With a twinkle in his party into the election the budget de- and squeezing out several more good eye, for example, he once called me feat had precipitated. With the critical years before he finally succumbed on into his office and said that he had de- assistance of Allan MacEachen, this, December 31, 2013. cided that I should get to know Pierre too, was achieved. Then the Davey- Trudeau better. “You tell him the bad Coutts election team had to run a suc- polls,” he said, “and I’ll tell him the cessful campaign. Perhaps hardest of Leaders get the fame, but our good.” all, Coutts had to persuade Trudeau parties only endure because to stand again. Two months past I saw a lot of Trudeau in the ensuing of believers who trust that months. Most of all, he had a deep his 60th birthday, Trudeau was not they can change the direction understanding of the political cycle. If scheming to return, but had already of the country. Jim Coutts was the situation was bad, it would even- begun to plan the next phase of his life after his withdrawal from politics. such a believer and as such, tually improve. If the situation was became a legend to all those rosy, watch out, it would inevitably On December 16, 1979, Trudeau told decline. Roll with the punches and us he would go for a walk that night lucky enough to know him. have a plan for every contingency: to think things over. Coutts had me that was the Coutts modus operandi. prepare two speeches for the planned December 17 press conference—a If the situation was bad, it short one on why Trudeau was not would eventually improve. running, and a longer one outlining the themes of the campaign. That few months before Jim’s pass- If the situation was rosy, morning, Coutts saw Trudeau again, ing, I was speaking for a for- watch out, it would inevitably and it was not until I saw Trudeau pull A mer student who was contest- decline. Roll with the punches out the three pages rather than one, ing an Ontario Liberal Party nomina- and have a plan for every that I knew Coutts had succeeded. tion for a nearly unwinnable provin- contingency: that was the Thanks to Jim Coutts, Allan cial seat—hardly a high profile event. Coutts modus operandi. MacEachen and Keith Davey, Pierre But to my surprise, there in the back Trudeau had been given the rarest row, where he liked to sit, was Jim gift in politics—a second chance. He Coutts, sizing up the crowd and taking made good on that chance, winning the temperature of the Liberal Party. I in 1980, then repatriating the consti- introduced the prospective candidate ll of these talents were on dis- tution and establishing the Charter of to Coutts, who immediately outlined a Rights and Freedoms. play in the fall of 1979 when five-point plan on how best to win the A Coutts orchestrated both the After this virtuoso performance (think seat. Vintage Coutts! Leaders get the comeback of the Liberal Party and what might have happened to the fame, but our parties only endure be- the restoration of Pierre Trudeau. The Harper minority government in 2008 1979 election had been lost in May, cause of believers who trust that they if Coutts had been on hand), it is can change the direction of the coun- and Trudeau had resigned as leader one of life’s ironies that Coutts sub- try. Jim Coutts was such a believer and in November. But on December 11, sequently failed to get elected to the 1979, when Conservative Finance House of Commons in 1981 and 1984. as such, became a legend to all those Minister John Crosbie produced an He retired from any formal role with lucky enough to know him. unpopular budget in a minority Par- the Liberal Party and devoted his life Thomas S. Axworthy is a Senior liament, Coutts saw his opportunity. to establishing a successful business, First, he had to persuade the Liberal Distinguished Fellow at the Munk School Canada Investment Capital Ltd., and of Global Affairs and a Senior Fellow caucus to vote against the budget, working philanthropically with Pear- at Massey College. He was was senior which they did. son College, the Nature Conservancy, On December 13, 1979, the Clark and the University of Lethbridge. policy adviser to Prime Minister Pierre government was defeated, 139 votes After he discovered he was afflicted Trudeau under Jim Coutts, and later to 133. Next, the Liberal caucus and with prostate cancer, he responded principal secretary to the prime minister the party’s national executive had to in typical Coutts fashion, reading all from 1981-84. be persuaded to ask Trudeau to re- he could about the problem, creat- [email protected]

March/April 2014 4242

Foreign Investment: Another Year of Surprises

Michael Coates

The former Nexen headquarters in Calgary, which once had the company’s name on the building. That ended when it was acquired by CNOOC, the Chinese National Overseas Oil Corporation, which has kept all the promises it made to Investment Canada in the takeover, but is also keeping a discreet presence. Shutterstock photo

While Canada finished in t’s been just over a year since only democratic country trying to rec- second place, after Hong Prime Minister Stephen Harper oncile the need to develop Chinese I revised Canada’s foreign invest- trade and investment relationships Kong, among the best plac- ment policy with new rules governing with the politics of working with a re- es in the world to do busi- state-owned enterprises (SOEs) and gime where the rule of law is second- ness, our foreign invest- higher review threshold limits. Shortly ary to party policy. after those changes were announced, I Although Canadian officials are loath ment climate isn’t simple. wrote an article in which I concluded to admit this publicly, most will pri- Canada’s investment policy that “each new [foreign] acquisition vately acknowledge it is investment incorporates a wariness of will likely write a new chapter in [the] from China that motivated the cre- unpredictable evolution of Canada’s ation of new guidelines that restrict state owned enterprises and investment policy.” Indeed, this con- SOE investment in the oil sands. Ac- an increasing reliance on tinues to be the case. cording to the Bank of Montreal, the national security test There have been three major devel- Chinese SOEs currently account for to deter unwanted foreign opments over the past year that have ownership of 10 per cent of the total driven a further evolution in Canada’s reserves in the oil sands, with other acquisitions. investment policy: the decline in Chi- SOEs accounting for an additional two nese investment since the CNOOC per cent. Some critics of the new SOE Limited-Nexen transaction; the use of guidelines have publicly expressed concern that restricting SOE enterpris- the national security test to screen out es has resulted in a cooling off of po- or deter unwanted investors; and a fur- tential Chinese investment. Former in- ther adjustment to Canada’s foreign dustry minister Jim Prentice, now vice investment review thresholds. chairman of CIBC, said in a speech last The growth of Chinese foreign invest- fall that it is “troubling… that investment is raising public policy concerns ment by Chinese SOEs in Canada’s oil around the globe. Canada is not the and gas sector, which between 2005

Policy 43 and 2012 totaled some $33 billion, Canada is not the only democratic country trying to has now essentially stopped.” He add- reconcile the need to develop Chinese trade and investment ed that large SOEs have emerged as a dominant form of international capi- relationships with the politics of working with a regime where tal, especially in the energy sector, and the rule of law is secondary to party policy. Canada should not be intimidated by their presence. Prentice’s views may not be shared ployment and operational undertak- Minister James Moore’s statement on unanimously in Canada’s business ings to the federal government when it the matter, the government was con- community. In implementing the new acquired Stelco, closed most operations cerned about the national security im- SOE guidelines, the government was within a year, settled a messy lawsuit plications of a foreign buyer operating responding to vocal domestic con- with the government, and announced a national fibre network that provides cerns raised by industry, academia, last fall that it was permanently closing critical telecommunications services NGOs and in the media. It is a little its Canadian operations. to the Government of Canada. known fact that there was a powerful lobby of Canadian oil interests who eanwhile, the Chinese gov- Foreign investment in the oil encouraged the federal government to ernment appears to be let the Nexen-CNOOC deal proceed, M aware of growing barriers and gas and mining sectors but only if restrictions on further SOE to outbound investment by SOEs and is down significantly, both in investment were implemented. Some is moving to address them. Reforms the number of transactions in Canadian industry claimed to be adopted in November mean China is and their value. According very concerned about what they saw countering any perceptions of capital to PWC’s Capital Markets as the capital cost advantages SOEs cost advantages by tacking additional have over the private sector. Others taxes onto SOE profits. By 2020, Chi- Flash published in October said that keeping SOE investment out nese SOEs will be expected to hand 2013, there were $8 billion in makes it easier for Canadian compa- over 30 per cent of their profits as divi- transactions for the first nine nies to acquire properties. dends to the central government. Pri- months of 2013, versus $66 This debate is being replicated else- vate-sector business will also be given billion for the same period greater opportunity to invest in SOEs where. In 2012, US President Barack in 2012. Obama blocked Chinese interests and do business in areas dominated from acquiring four wind farm proj- by them. ects in northern Oregon near a Navy Moreover, the impact of the Canadi- base where the US military flies un- an government’s SOE guidelines may manned drones and electronic-warfare have been overstated, at least with re- Soon after that, the government also planes on training missions. In Aus- spect to activity in 2013. The past year made it clear that it was not comfort- tralia, there has been much public was not exactly a buoyant time for able with a possible sale of BlackBerry debate over Chinese investment in M&A activity anyway—although one to the Chinese computer-maker Leno- agricultural properties. Indeed, The could argue that the SOE guidelines vo or any other state-influenced ac- Economist noted last year that, since have compounded this problem. For- quirer. In comments issued a day after the 2008 global financial crisis, all eign investment in the oil and gas and Lenovo signed a non-disclosure deal to countries seem to be putting up bar- mining sectors is down significantly, examine BlackBerry’s books, the prime riers to trade and foreign investment. both in the number of transactions minister invoked the national security But it is Canada, the United States, and and their value. According to PWC’s test when he said that BlackBerry is “a Australia who seem to have the great- Capital Markets Flash published in very important player in the IT sector est concerns about China. October 2013, there were $8 billion in and the advanced information-tech- One voice of reason in this debate has transactions for the first nine months nology and communications sector…. been that of Kevin Lynch, former Clerk of 2013, versus $66 billion for the So it would be very important that any same period in 2012, while the value of the Privy Council and current vice transactions involving BlackBerry in of transactions across all of Canadian chair of BMO Financial Group. Lynch the future not lead to any concerns industry was off by six per cent. points out that it is not the ownership about security in that particular area of capital that the government should In an effort, perhaps, to divert from of the economy.” What is noteworthy be primarily concerned with but the the public domain some of the dis- here is that the government opined on behaviour of capital. For example, to cussion about controversial proposed a potential investor before it even had date, CNOOC has kept every promise acquisitions, the government started the opportunity to submit an applica- it made to the Canadian government, using “national security” in earnest as tion. The upside for the government including obtaining a listing on the a screening mechanism for foreign in- and the aspiring investor, however, TSX despite being very thinly traded. vestment in 2013. In a much-discussed was that both were able to avoid a po- CNOOC felt strongly that it should case last fall, the government formally tentially embarrassing and protracted operate in the same regulatory envi- rejected the acquisition of the All- public debate. ronment as other publicly traded com- stream Division of Manitoba Telecom panies in Canada. Contrast this with Services Inc. by the Egyptian invest- The continued use of national security another recent foreign investor, US ment group Accelero Capital Hold- as a screen of foreign investment has Steel, which after making explicit em- ings. From what we can decipher from the added benefit of not requiring the

March/April 2014 44 government to provide any specific $1.5-billion threshold level that even economy become predominantly state reasons for its concerns. In this regard, remotely has national security implica- owned by a foreign country…. I don’t the Canadian government has clearly tions, the government can still invoke think that’s good for the Canadian taken note of how the Committee the national security test to screen out economy. It’s not the kind of model on Foreign Investment in the United unwanted investors, as there are no we’re seeking.” States (CFIUS) is able to effectively threshold limits attached to that. bury potentially controversial acquisitions under the rubric of national se- he recent controversies sur- Companies and governments curity. Expect to see more of this—or, rounding foreign investment rather to “not see” more of this. now feel compelled to T have proved embarrassing for increase the types of both the government and prospec- hile most commenta- tive investors. It is very difficult for the undertakings they are tors were focused on the government to say that it is open to making to demonstrate their W restrictions on foreign investment if it is creating new rules commitment to the Canadian investment, 2013 ended with an im- to thwart it. As Prentice pointed out in economy, and indeed to portant liberalization of the threshold his speech last fall, it is awkward for in- level at which all investments by non- vestors to come into a country know- society. In some cases, these SOEs are reviewed. The federal governing that they may well encounter “an commitments go far beyond ment restated its openness to foreign embarrassing confrontation” with the capital and employment investment in the speech from the government and be the source of a guarantees for the company throne, and it is clear now that it was major public debate. they wish to acquire. the effect of looming provisions of the The current Investment Canada re- Comprehensive Economic and Trade Undertakings now commonly view process, with its legislated time- Agreement (CETA) between Canada include obtaining a listing tables, can turn a foreign investment and the EU on other free-trade agree- on the TSX, establishing ments that underpinned this. into a “competition” that media love to cover. Companies and governments regional headquarters or As part of CETA, Canada agreed to in- now feel compelled to increase the world product mandates, crease the foreign ownership threshold types of undertakings they are making and making philanthropic limits for all European transactions to to demonstrate their commitment to donations. C$1.5 billion over the two years after the Canadian economy, and indeed to the agreement comes into effect. Due society. In some cases, these commit- to grandfathering provisions in all of ments go far beyond capital and em- our major free-trade agreements such ployment guarantees for the company Looking at the policy changes overall, as NAFTA, our other favoured trading they wish to acquire. Undertakings it is apparent that any foreign transac- relationships will automatically be now commonly include obtaining a tion of significant size will continue to granted the same privileges. Signifi- listing on the TSX, establishing re- carry a high level of political risk if it cantly, however, SOE thresholds are gional headquarters or world product becomes part of public discourse. This not affected and remain fixed at $344 mandates, and making philanthropic is particularly true if the transaction is million. donations—all in an attempt to pass by a SOE, and even more so if it is a Chinese SOE. We can also expect the Based on country of origin, the practi- a public litmus test about the benefits continued use of the national security cal implication of this policy change of foreign ownership. The contracted test to screen out unwelcome inves- is that, within a few years, the vast duration of all of these undertakings is majority of foreign investments will also lengthening. None of this is help- tors owing to the lack of justification be executed without a review. For ful in demonstrating that Canada wel- required by the government. example, at the end of the summer, comes foreign investment. There is unlikely to be any deviation American-owned Louisiana-PacificBy the end of 2013, the prime minister from this tactical approach to policy completed a billion-dollar transaction was continuing to defend the govern- making as long as the current govern- with B.C.’s Ainsworth Lumber, yet this ment’s foreign investment policies by ment is in power. The prime minis- relatively small and uncontroversial saying it would be “foolish to provide ter is clear: he wants flexibility in the transaction is already well past a typi- absolute clarity” when it comes to in- rules. The question remains, however, cal review period as the government vestment guidelines. Clearer rules may as to whether there is enough predict- awaits competition regulatory rulings provide less risk to investors, but the ability in the rules to entice foreign in- in Canada and the United States. Two government believes it is more politi- vestment. years from now, this sort of laborious cally vulnerable if transactions like the Investment Canada review process for PotashCorp or CNOOC deals capture Michael Coates is Chairman and CEO a similar-sized transaction could be a the attention of the public. Moreover, of Hill+Knowlton Strategies Canada. thing of the past. the prime minister’s continued res- He is also a director of Candu Inc. The government appears to have come ervations about SOEs were clearly ar- He can be reached at to the conclusion that it is only inter- ticulated in November when he said [email protected]. ested in reviewing very large transac- “…we would welcome foreign direct tions that will attract public interest, investment of all kinds…. but I don’t unless they are proposed by SOEs. Even think as Canadians we would want so, if there is a transaction below the to see entire sectors of the Canadian

Policy How Building Alberta will help build Canada’s future.

The Government of Alberta’s Building Alberta Plan demonstrates our commitment to what Albertans told us matters most. Along with investing in families and communities, and living within our means, we’re working to open new markets for Alberta’s resources– which will fuel economic opportunities for the entire country. We’re already leading the creation of the Canadian Energy Strategy to develop our resources and move them to market. And we will continue to support the proposed Energy East pipeline to Quebec and New Brunswick, and the proposed Keystone XL pipeline expansion to the United States. We’re also putting new rules in place to ensure that resource development is innovative, responsible and sustainable, with a clear vision of what Canada’s energy future can - and must - be. Our Building Alberta Plan sets the stage for a stronger and more prosperous future for all Canadians – a future we can build together.

Learn more at BuildingAlbertaPlan.ca ABB Ad-Policy Magazine.pdf 1 5/22/13 2:27 PM

CMY