’S CHOICE — NATION-BUILDER OR CEO

Buzz Hargrove

Paul Martin famously balanced Canada’s books in the 1990s. Slaying the deficit dragon became the foundation of his credibility and bolstered his claims to be prime minister. But balancing the books doesn’t constitute nation-building, says Buzz Hargrove of the . He asks whether Martin can turn his demonstrated leadership skills to proposing “a national project,” addressing social and economic issues that “could be resolved by a focused national effort of the sort that vanquished the deficit. But in conducting Canada-US relations, Hargrove advises Martin to eschew any “big idea” or “grand bargain” between the two countries. Americans, he writes, “would appreciate a pragmatic, incremental approach to resolving outstanding issues.” Martin must also take a hard look at Canada’s economic infrastructure, and the deteriorating position of key industries such as the automotive sector, and a renewed reliance on energy exports that risk making Canada, once again, a hewer of wood and drawer of water.

Paul Martin a notoirement rétabli l’équilibre budgétaire du pays dans les années 1990, légitimant son ambition de diriger le Canada une fois terrassé le dragon du déficit public. Équilibrer un budget et bâtir une nation sont toutefois deux choses bien différentes, affirme Buzz Hargrove, du Syndicat des travailleurs de l’automobile. Malgré d’incontestables qualités de leader, M. Martin saura-t-il définir un « projet de société » qui s’attaque aux problèmes économiques et sociaux avec la même détermination affichée pour enrayer le déficit ? Pour ce qui est des relations canado-américaines toutefois, mieux vaudrait éviter les trop grands projets, note Hargrove. Les Américains préfèrent une « approche concrète et progressive des questions à résoudre entre nos deux pays ». Paul Martin doit enfin s’attaquer franchement à l’infrastructure économique du pays, au déclin d’importants secteurs comme celui de l’automobile ainsi qu’à notre dépendance accrue envers les exportations d’énergie, qui risque de nous ramener à un simple rôle de porteur d’eau.

he 21st , Paul Martin, thing less than a sweeping Martin majority would be a stun- ascends to the highest office in the land amidst a ning surprise. T remarkable and enviable conjuncture of circum- A leader with a dream, armed with such formidable stances, some, but not all, of his own making. Martin’s political assets, could remake this country. The question is, political position will seem unassailable, at least until well what is Martin’s dream? He enjoys an unparalleled capacity after the next election, giving him an unprecedented degree to lead. But where is he going to take us? of freedom to put his personal stamp on Canadian politics Will he seek to “manage” the country, solving problems and policy. What Martin makes of this potential, however, and resolving irritants, building on his reputation as a pru- depends on the choices he makes. dent fiscal manager, acting like Canada’s CEO? This As Martin takes office, Canada’s economic and fiscal sit- approach would certainly win plaudits from the business uation is relatively healthy, certainly in comparison to our community, which so strongly endorsed the deficit-cutting southern neighbour. He will benefit from the presence of tone of his tenure as finance minister, and which worries new Liberal premiers in and , creating the about any effort by Ottawa to play a more active social and potential for a renewed practice of federalism. He will quick- economic role. But this tack would ultimately represent a ly send the nation to the polls in an election in which any- huge lost opportunity.

74 OPTIONS POLITIQUES DÉCEMBRE 2003 – JANVIER 2004 Paul Martin’s choice — nation-builder or CEO

Martin can and should think much tive well-being. The Bush administra- nationhood — should be sacrificed in the bigger. I believe he is personally commit- tion has demonstrated a tendency to interests of easier trade. If anything, ted to leaving behind something more reckless unilateralism in many areas: Canadians have gone in the opposite substantial from his tenure as prime military issues, foreign affairs, and direction in recent years, coming to bet- minister than just balanced books. After environmental policy, to name just the ter appreciate the value of our sovereign- all, any government can balance its obvious ones. For the mouse sleeping ty as we chose different paths from the books, if it backs away from enough of next to this particular elephant, it US on issues ranging from Iraq to gun its programs and activities. The bigger would be very easy to get squashed. control to Kyoto to health care. challenge is for government to balance Martin has already made a priority of It would be a major mistake for its books while meeting its responsibility addressing and improving Canada-US Martin to underestimate the power of to ensure the social and economic secu- relations. Let’s hope he does it in a way Canadians’ underlying pride in their rity of its citizenry. I hope that he uses that enhances our sovereignty and our independence and sovereignty. Instead the opportunity presented by his leader- capacity to do things the Canadian of throwing our national eggs into a US ship to help construct a more balanced, way, rather than compromising them. basket that presently looks somewhat tat- fairer, and more sustainable Canada. Martin must start by rejecting the tered, a more complex but promising There is much that he could do, if he vision that has been recently enunciated direction would be to address our bilater- seizes this opportunity to use his office, by Canada’s business elites to form a al issues (like chronic traffic congestion at and his current popularity, to lead “grand bargain” or partnership with the the border) incrementally and pragmati- change, as opposed to simply managing Americans, one that would trade harmo- cally, on the basis of equality and mutual the status quo. He could be a respect. This will involve both nation-builder, not just a CEO. This is a tricky, dangerous time for trust-building and hard bargain- Martin presents a very com- Canada’s relationship with our ing. Martin can remember that plex political figure. His back- southern neighbour, a relationship the Americans have as much at ground in business, and his stake in our bilateral economic record as finance minister, indi- which, like it or not, is vitally relationship as we do: $300 bil- cate a predisposition toward the important to our collective well- lion worth of US goods and serv- private sector, market forces, and being. The Bush administration has ices are sold in Canada each year, free trade. On the other hand, he demonstrated a tendency to reckless and American companies own speaks passionately, and I over $200 billion in direct invest- believe sincerely, about the need unilateralism in many areas. For the ment here. I actually believe the for a stronger and more inclu- mouse sleeping next to this Americans would appreciate a sive social vision, both within particular elephant, it would be very pragmatic, incremental approach Canada and internationally. easy to get squashed. to resolving our outstanding Which direction he takes as PM issues, over any politically elusive will depend in part on the relative abil- nization in certain important policy areas and explosive “grand bargain.” ity of competing constituencies within (like security, immigration and refugee Canada to enunciate and advocate their policy, and perhaps military and com- anadians will certainly reward respective visions and demands. Martin mercial policy) in return for easier access C Martin if he shows that he can is too seasoned a politician to ignore to the US market for Canadian exports. manage our relationship with our these political winds. But ultimately, the This “big idea,” as it is sometimes termed, neighbour in a way that protects our direction of government in the Martin is a non-starter on both sides of the bor- economic interests while respecting our era will also depend on Martin’s person- der. The Americans aren’t particularly sovereignty. Canadians will also reward al convictions and decisions. The choic- interested: they will never fully open him if he places our international rela- es will be his own. their border, even for Canadians, without tions in a broader, humanitarian, and being able to directly regulate entry con- global context. For this, he will have to artin has a long list of policy files trols around the broader continental put his government’s money where its M to address as he takes his new perimeter. The risks, including the politi- mouth is. Canada still vastly underper- office. Here are some of the key ones cal risks, of a security breach for US lead- forms our stated goal of dedicating 0.7 which, in my view, would allow Martin ers are far too great for them to take this percent of GDP to international aid and to leave behind a stronger, fairer Canada. chance. The vast majority of Canadians, development, and the responsibility for First, Canada-US relations. This is too, are offended by the notion that our this failure is partly Martin’s (since inter- a tricky, dangerous time for Canada’s ability to determine our own approaches national aid was one of the hardest-hit relationship with our southern neigh- to these issues — many of which, like our portfolios during the era of Martin’s bour, a relationship which, like it or welcoming attitude to immigrants and budget-cutting). Canadians strongly not, is vitally important to our collec- refugees, are crucial to our sense of support initiatives where we can put our

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own stamp on efforts to alleviate suffer- demonstrated global success have also regression and avoid ending up once ing in the world, like the proposal to entered painful decline. Industries like again as a nation of hewers of wood and provide low-cost AIDS drugs to Africa. automotive products, aerospace, and drawers of water. This will require a Martin will need to follow through, telecommunications equipment have clear reversal of the recent hands-off despite predictable opposition from seen orders evaporate, plants close, policy stance which has dominated business vested interests, to make sure and trade surpluses disappear. Ottawa since the mid-1990s. This we fulfill our potential to make a bigger difference in It would be a major mistake for Martin to underestimate the the world than our size alone power of Canadians’ underlying pride in their independence would suggest. and sovereignty. Instead of throwing our national eggs into a Second, Canada’s eco- US basket that presently looks somewhat tattered, a more nomic structure. Paul Martin obviously understands the complex but promising direction would be to address our importance of a strong eco- bilateral issues incrementally and pragmatically, on the basis nomic foundation for the of equality and mutual respect. This will involve both trust- overall fiscal and social building and hard bargaining. development prospects of the nation. Once we dig beneath the What’s left to backstop Canada’s stance — according to which govern- government’s shallow, self-congratula- performance in global markets? ment should limit its actions to con- tory bumph about Canada’s restored Regrettably, our most dynamic export structing a competitive business economic “fundamentals,” however, it industry in recent years has been the environment, rather than trying to sup- turns out that we have much to worry energy sector. Energy exports have more port particular industries, no matter about in this regard. In particular, dur- than doubled since 1999, even as our how valuable those industries may be ing this decade Canada has experienced exports of high-value manufactured — itself reflected fiscal constraints more a powerful and worrisome reversion in goods have declined. We are now the than genuine ideological commitment. its economic and industrial structure. largest single supplier of oil to the US, It has clearly failed, as amply evidenced This is a long-term economic challenge and the US now purchases over half of by the widespread decline in our key that will require the Martin government all the primary energy produced in high-value export industries, and our to go far beyond the current infatuation Canada. Huge new investments in corresponding failure to grow successful with broad “fundamentals,” like low export-oriented megaprojects, (like exports in new high-value industries. inflation and balanced budgets. Rather, Arctic gas, Alberta oil sands, and east Martin’s experience in business, and it must learn to once again play a more coast oil, will cement this new-old role his family’s roots in Windsor, may allow active role in supporting and stimulat- for Canada’s economy as a continental him to be more pragmatic, and less puri- ing the specific, strategic industries energy storehouse. tanical, in his approach to industrial which will be crucial to Canada’s long- development issues. An important case term trade and productivity success. artin’s successor as finance minis- study will be provided by Ottawa’s The once-booming high-tech sec- M ter, John Manley, has boasted of response to the crisis in Canada’s auto tor has been shrinking rapidly since Canada becoming a “northern industrial sector, which until recently was the bursting of the dot.com bubble in tiger.” His colleague, Industry Minister Canada’s biggest export earner, but 2000. At the same time, unfortunately, Allan Rock, launched a broad “innova- which will soon become a net importer in the handful of higher-value export tion agenda” to stimulate Canadian tech- the absence of policies to quickly restore industries in which Canada once nological capacities. In practice, however, Canada’s lustre as a pre-eminent site for we are quickly becoming a northern auto investment. Until recently, both GROWTH IN EXPORTS SINCE 1999 Saudi Arabia, not a northern tiger. And the federal and Ontario governments

120 broad, diffuse technology-support poli- stood on the sidelines as the industry

100 cies are not going to make enough of a declined, repeating tired platitudes

80 difference in the strategic, intensely com- about how government shouldn’t “pick

60 petitive high-value sectors where we winners.” The new Ontario government, need to defend and expand Canada’s his- however, is committed to more actively 40 torically modest industrial success. support the industry. Martin has indicat- 20 Canada will need to resuscitate its ed that he, too, appreciates that Canada Percent change exports Percent 0 ability to actively promote investment, must do whatever is necessary to protect -20 Energy Other Basic Auto Other employment, and exports in key indus- its share of the auto industry, and its primary industrial high- goods goods value tries, especially high-value manufactur- valuable fiscal and employment spin- Source: Statistics Canada; first 6 months at annual rate. ing, to stem the tide of our structural offs. The new Martin cabinet will need to

76 OPTIONS POLITIQUES DÉCEMBRE 2003 – JANVIER 2004 Paul Martin’s choice — nation-builder or CEO

ing combination of economic stagna- tion and very high interest rates that were characteristic of the era. As global growth picked up later in the 1990s, and interest rates fell, especially in Canada, every major industrialized economy managed to balance its books. So there’s nothing especially unique or admirable about Canada’s achievement in this regard. True, we did it faster and more painfully than most others, with a greater, and in my view unnecessary, reliance on socially destructive cuts in public programs, like our unemploy- ment insurance system. I’m not sure that’s anything to boast about. Today, too, Canada is unique: the only G7 economy to run a surplus. I’m not sure that is worth celebrating, either. Ottawa is piling up billions of dollars in surplus tax revenues every year, helped along by a budget-making process that is more manipulative and politicized than any in recent Canadian history, with predictably phony eco- nomic estimates and fishy accounting. Meanwhile, millions of Canadians can- not trust the water that comes out of their taps, so badly tattered has our CP Photo public infrastructure become. We clear- Paul Martin is surrounded by reporters during a scrum on Parliament Hill. He has a ly need to rethink our priorities. Our choice between managing the country’s issues as Canada’s CEO, and proposing a defin- single-minded focus on avoiding ing vision for Canada in the new century. deficits, no matter what the costs or the context, and the habit of finance min- move quickly with fiscal and other practical appreciation of the realities of isters manipulating budgets so they can measures to stem the industry’s decline. the business world to his new job. Let’s announce “unexpectedly large” sur- And those actions should be a hope his economic policies learn from pluses, now interfere with our collective template for corresponding parallel that experience. need to use the mechanisms and actions — concrete, hands-on meas- resources of government to provide ures — to nurture Canadian excellence he third thing to consider is the essential services and public security. in other high-value, global industries, T fiscal balance. Balancing Ottawa’s Martin balanced the books. Now including aerospace, electronics and books was Mr. Martin’s greatest let’s see his government restore a biotech. For too long, Ottawa’s eco- achievement as finance minister, and broader and more meaningful sense of nomic mandarins have pretended that has been the crucial source of his polit- “balance” to Canada’s fiscal affairs. free trade with the US is the only ical credibility since then. However, Let’s see him establish a fiscal regime industrial development policy we the federal budget has now been bal- that is truly sustainable, not just need. The evidence is mounting, how- anced for six years. Canadians might because it avoids deficits, but because ever, that free trade alone is producing be forgiven, therefore, for asking it meets the needs of Canadians for a profound and costly regression in our “What have you done for me lately?” balanced and secure life. industrial status; we need other tools, There was never really any question trade rules and incentives to ensure that the federal government would ince Ottawa eliminated its deficit that we get the industries, the exports eliminate its deficit. Obviously, the huge S in 1998, federal tax revenues have and the jobs we need to support a high and chronic deficits of the early 1990s been cut by two full percentage points standard of living in a globalized econ- were unsustainable by any measure, and as a share of our GDP. Federal program omy. Martin can surely bring a more they resulted mostly from the devastat- spending, however, has not increased

POLICY OPTIONS 77 DECEMBER 2003 – JANUARY 2004 Buzz Hargrove

AUTOMOTIVE PRODUCTS TRADE DATA both audiences. Ottawa’s fiscal situation carry it. But like many Canadians, I is not nearly as tight as Finance Canada respect and admire the leadership Export Import Balance officials pretend. But it is certainly skills that Martin demonstrated in ($ billions) ($ billions) ($ billions) tighter than it has been in recent years, conducting that campaign. thanks mostly to Martin’s own expen- Can’t we do the same thing today: 1999 92.7 75.9 16.8 sive tax cuts implemented beginning set a national goal, and collectively steel 2000 92.7 77.4 15.2 with his 2000 budget. If Martin is seri- ourselves to attain it? And can’t Martin 2001 87.1 72.6 14.5 2002 90.7 81.4 9.3 ous about investing in the social and demonstrate the same political and 2003 88.5 79.7 8.9 “human capital” infrastructure that will leadership capacities in determinedly be crucial to our prosperity in coming helping us reach those goals? Canada is Source: Statistics Canada; 2003 data first half at years, he needs to quickly abandon the a great country. Yet there are so many annual rate. notion of further tax cuts. repugnant and inexcusable features of The results of the recent Ontario our society that could be resolved by a ANNUAL GOVERNMENT REVENUE election should give the new PM cause focused national effort of the sort that FLOWS DUE TO THE AUTO INDUSTRY for sober second thought. The former vanquished the deficit: child poverty, Conservative government yet again environmental degradation, aboriginal focused its platform on further tax cuts, squalor, homelessness. Martin enters Income taxes paid by despite Ontarians’ worries about the his new post with an incredible inven- auto assembly and parts workers $2 billion crumbling status of their schools, their tory of popularity and credibility. If he health care system and their water sup- set his, and our, minds to it, he could GST and PST collected on new auto sales $7 billion ply. The opposition Liberals promised a lead the country in truly conquering freeze on taxes, and to invest all addi- one or more of these collective chal- Corporate income tax tional funds in badly-needed social re- lenges. Martin speaks often about his paid by automakers $250 million investments. The Tories were trounced concerns over these and other problems Tariffs collected on auto and the Liberals swept to victory. The facing our country. But when it comes imports $400 million whole election was a referendum on tax to making their solution a priority of Source: Canadian Auto Workers, Getting Back in Gear. cuts, and the citizens of Canada’s most his government, and allocating the nec- populous province indicated resound- essary resources and leadership that at all as a share of GDP. That doesn’t ingly that cuts are not the priority. would be required to make it happen sound especially “balanced” to me, Martin should heed this lesson clearly, (including leadership to overcome the especially since most of the burden in lest he suffer a similar fate somewhere predictable complaints from vested balancing the budget in the first place down the road. business interests), we’re not yet sure if was borne by program spending cut- Mr. Martin is willing. backs. It also blatantly contradicts the nd fourth, does Paul Martin have We were the first G7 country to bal- Liberals’ repeated promise to spend 50 A a national project, what the ance the budget. Why couldn’t we be percent of future surpluses on social French call a projet de société? Love him the first G7 economy to eliminate programs. Tax cuts have captured the or hate him, Paul Martin proved his homelessness? It’s a daunting challenge, lion’s share of the fiscal room that has mettle as a great politician by the man- to be sure. It would require attention, opened up since the deficit dragon was ner in which he handled the deficit focus and resources. But clearly it could slain. Again, this wins plaudits for reduction exercise in the mid-1990s. be done. As prime minister, Martin will Ottawa from the business lobbyists He set a national goal. He warned that enjoy a virtually unparalleled opportu- and high-income constituencies who sacrifices loomed; there was no free nity to do some truly great things. I pocket the majority of those tax sav- lunch. He famously promised to meet hope that he makes the most of this ings. But cutting taxes is no way to his targets, “come hell or high water.” opportunity and leaves behind a build a nation. He deployed the resources of govern- Canada that is genuinely and markedly Martin has indicated, in his speech ment in a focused manner toward better — not just a Canada with bal- to the Montreal Board of Trade and attaining that target. In so doing, he anced budgets and strong economic other venues, that further tax cuts will mobilized Canadians behind him in “fundamentals.” There’s nothing more be a priority of his administration. At that effort and won their approval fundamental than the quality of life the same time, he has also spoken of the when the goal was accomplished far experienced by the masses of need for strategic investments in crucial ahead of his own schedule. I don’t Canadians. Let’s see if Martin’s choices social priorities, such as early childhood agree with the manner in which the improve that quality of life, or not. education, aboriginal poverty, and deficit was eliminated: it placed far too advanced education. He can’t have it much of the burden on those Buzz Hargrove is President of the both ways; he can’t continue to please Canadians who could least afford to Canadian Auto Workers.

78 OPTIONS POLITIQUES DÉCEMBRE 2003 – JANVIER 2004