The Changing Nature of Quebec-Canada recognized in the recent Council of the Relations: From the 1980 Referendum Federation provision for the province’s opting to the Summit of the Canadas out with compensation for pharmacare) as well as the division of powers themselves are also on by the table. Adding to this menu is the reality that the forthcoming Throne Speech will focus on Thomas J. Courchene health, children and cities–arguably all of which fall under provincial jurisdiction. Accordingly, Jarislowsky-Deutsch Professor of Economic the essay concludes with an assessment of the and Financial Policy potential implications of this forthcoming Queen’s University and Senior Scholar, “Summit of the Canadas.” Institute for Research on Public Policy, Montreal I: Introduction What a difference a few months can make for policy analysts! All appeared quiet on the ABSTRACT Quebec front in the time frame of the fall 2003 This paper traces the economic and political Institute of Intergovernmental Relations evolution of Quebec-Canada relations from the Conference Quebec and Canada in the New 1980 Referendum through to the July 2004 Century: New Dynamics – New Opportunities. Council of the Federation (COF) meeting at The Charest Liberals were at the helm and the Niagara-on-the Lake. The underlying thesis is forces of sovereignty seemed safely at bay. that Quebec’s traditional demands for acquiring From the post-federal-election perspective greater powers within the federation have now (August 2004), however, the environment is given way to demands for acquiring greater markedly different. Charest’s confrontation access to revenues in order to be able to fully with the unions and civil society has not gone exercise its existing constitutional powers. What well. More importantly, the Bloc Québécois has triggered this rather dramatic shift is the captured an astounding 54 seats and 49% of the advent of globalization and the knowledge- popular vote in Quebec in the June 28, 2004 based era (KBE), both of which have served to election. And this was in spite of the fact that, redefine what meaningful sovereignty is all in the days running up to the vote, Pierre about in the 21st century. In short, sovereignty is Pettigrew and Stephane Dion warned Quebecers now about how societies live, and work and that a vote for the BQ was, in effect, a vote for play, which in turn means that on the policy sovereignty. PQ leader Bernard Landry as much front it is all about education, skills, health, as confirmed this by suggesting the likelihood of cities and citizens generally. In Canada, these a third Referendum in 2009 (i.e. after the PQ is are largely provincial powers. This being the presumed to have regained power). Moreover, case, it is hardly surprising that Quebec’s with the Paul Martin Liberals reduced to a rallying cry is focussed on restoring vertical minority position in the House of Commons, the fiscal balance in the federation. Bloc Québécois holds the balance of power in the sense that under some realistic scenarios it With the resurgence of the Bloc Québécois to could bring the government down and 54 seats and 49% of the popular vote in the June precipitate an election. Hence, here too election, uncertainty is again on the horizon. uncertainty is now the order of the day. As I Partly because of this, but more because of the concluded in an earlier assessment of Quebec- way in which Quebec-Canada relations were Canada relations (1990), the lights at Canada’s evolving in any event, the September First constitutional crossroads are not flashing green, Ministers’ Meeting is emerging as one of the nor are they flashing red. Rather, they remain watershed moments in our history. Much more Forever Amber. than the future of medicare is at stake, since the issues relating to vertical fiscal balance, In order to reflect on the changing (current equalization, Quebec’s distinctive status (as and longer-term) nature of Quebec-Canada

Working Paper 2004(2) ©IIGR, Queen’s University, IRPP, Montreal Thomas J. Courchene, The Changing Nature of Quebec-Canada Relations relations in the 21st century, the analytical mast over l’Assemblée nationale was storyline on both the political and economic unfortunate, to be sure, but Quebec’s non- fronts must begin much earlier. Accordingly signatory status was only to be expected from a Part II focusses selectively on Quebec-Canada sovereignist government, or so the storyline political relations in the 1980-1995 (or inter- presumably went. In any event, the Charter took referenda) era, dealing in turn with Charter hold almost immediately with Canadians, even federalism, the Meech and Charlottetown in Quebec, so much so that the cleavages in the Accords and the 1995 Referendum. Part III federation shifted from being territorially-based presents a similar highlighting of political to being rights-based – Charter interests vs. milestones under the Chrétien era, focussing on vested interests, as it were. Indeed, the Quebec’s relations with the provinces under the traditional territorial interests/cleavages arguably rubric of pan-Canadian provincialism and then shifted from the provinces to the First Nations on Quebec-Ottawa relations in terms of the (and aboriginals more generally), with the Clarity Act and the sponsorship scandal. Charter intriguingly serving as catalyst. Attention then shifts in Part IV to Quebec- Canada economics relations dealing in turn with Roughly coincident (and obviously related) the implications flowing from NAFTA, the was the emergence, initially in Alberta, of a new knowledge-based economy (KBE), Global City philosophy of Canadian federalism, the so-called Regions, and “hourglass federalism” (or the symmetric or triple-E federalism. At the most federal invasion of provincial jurisdiction). Part general level, this meant equal powers for all V (Quebec-Canada Dynamics in Century 21) provinces, equal-per-capita representation in the pulls together some of the observations and House of Commons and equal provincial implications that arise from integrating the representation in the Senate. The related and political and economic strands of the analysis in more familiar version is the “triple-E Senate” – order to briefly document and assess the equal (by province), elected and effective. The evolving nature of Quebec’s political, economic argument for symmetrical federalism (or the and constitutional relationship with the rest of notion that all provinces are equal and must be Canada. What emerges from this composite is so treated) is a peculiar one coming from the critical importance for Quebec and indeed Alberta, since this province is the principal for all of Canada of the forthcoming First beneficiary of the most lucrative asymmetry in Ministers’ Meeting (FMM) on health care in the federation, namely crown ownership of sub- September of 2004. Accordingly, the final surface resource rights. Admittedly, this arose section of the essay (Quebec and the Summit of because Ottawa initially withheld sub-surface the Canadas) outlines the range of issues that are rights from Alberta, but it is an asymmetry at stake in the FMM and how they might be nonetheless. The larger puzzle is why the most resolved. fiscally powerful province would be the lead advocate for a Triple-E Senate, when the result II: Quebec-Canada Political Relations in the would surely be to curtail the powers of the Inter-Referenda Period (1980-1995) provinces and their premiers.

A. Charter Federalism Meanwhile, the second coming of Robert In the wake of the 60-40 victory for the Bourassa (1985) saw Quebec embrace “le virage federalist forces in the 1980 Quebec vers les marchés.” Importantly, this shift toward Referendum, Trudeau launched the 1980-82 markets reflected a societal realization that constitutional round which culminated with the Quebec’s future would and should ultimately lie patriation of the Constitution Act, 1867, and the in North American economic space, rather than enactment of the Constitution Act 1982 replete in Canadian economic space. Some of this was with the enshrinement of the Canadian Charter no doubt a response to the symbolic alienation of Rights and Freedoms. That flags flew at half- emanating from the constitutional patriation

Working Paper 2004(2) ©IIGR, Queen’s University, IRPP, Montreal 2 Thomas J. Courchene, The Changing Nature of Quebec-Canada Relations process. More was due to the realization that Charter, some provinces simply exercised their with the “economic capital” of Canada shifting equality or symmetrical right to effectively veto west (in light of energy price hikes) it made far the asymmetrical Accord. While it was no doubt more sense for Quebecers to turn to the markets of enormous comfort to Canadians that the that were much closer and much bigger, namely tumultuous St. Jean Baptiste parade took place the US northeast, rather than somehow under Robert Bourassa’s watch, the demise of leapfrogging Ontario to compete in western Meech not only triggered dramatic political Canadian markets. The most tangible result of changes but, as well, set the sovereignty clock this societal shift was that Quebec in effect gave ticking inevitably toward a second referendum. Canada the FTA in the 1988 federal election by delivering a “super majority” of its seats (63 of By way of elaboration, in the month or so 75) to the Mulroney Tories. A simple majority prior to the formal collapse of Meech, federal of Quebec seats would have sunk the FTA. Environment Minister Lucien Bouchard, joined by five other Quebec Tory MPs, bolted the B. The Meech Lake and Charlottetown Mulroney government to sit as independents. Accords1 Initially committed to not forming a formal The next highlighted milestone en route to party, all this changed after La Fête: within two the 1995 Referendum is the 1987-1990 Meech months none other than current BQ leader Gilles Lake Accord and ratification process. Designed Duceppe became the first elected Bloc to bring Quebec back into the Canadian Québécois MP (winning a by-election in the constitutional family, the Accord, among other Montreal riding of Laurier-Sainte-Marie), even measures, explicitly recognized the “distinct though the BQ’s formal founding convention society” nature of Quebec. The 1987 first was not held until June 1991. And in the 1993 ministers’ unanimous endorsement of Quebec’s federal election, Bouchard led his 54-seat Bloc five principles for assenting to the Constitution Québécois to the status of Her Majesty’s Loyal gradually eroded over the three-year ratification Opposition. period. Part of this was the result of the election of new premiers (Wells in Newfoundland, Premier Robert Bourassa’s response to the McKenna in New Brunswick and Filmon in collapse of Meech was to launch two Manitoba) who were, by definition, not commissions on the future of Quebec. One of signatories of the Accord. And in the case of these was an internal Quebec Liberal Party Wells and McKenna, they actively campaigned assessment that produced the Allaire Report against Meech in their respective elections. (after its Chair Jean Allaire) which, among other Considerable responsibility for this erosion of things, spelled out twenty-two powers that ought support must also rest with Bourassa himself and to be transferred to the provinces and, in his decision in 1989 to resort to the particular, to Quebec. Ironically, the Allaire Notwithstanding Clause to promote French on Report served as the vehicle for the rise of Mario commercial signs. Arguably, however, the Dumont, initially as the leader of the Liberal larger reason for the underlying malaise on the youth wing and, later, as the head of the ADQ. part of non-Quebec Canada was that special The second and more important response was status for Quebec was offside with “Charter the bi-partisan Bélanger-Campeau Commission, federalism,” as elaborated earlier. The ultimate charged with conducting cross-province irony here is that Meech Lake was effectively hearings and research and then to report on the hoist on its own petard. The essence of the future of Quebec. Beyond providing a Accord was asymmetric treatment for Quebec legitimate venue for keeping sovereignty issues (the distinct-society clause) embedded within a front and centre in Quebec, the Bélanger- symmetric (i.e., unanimity) ratification formula. Campeau Commission provided a valuable On the eve of La Fête de la St. Jean and platform for commissioners Lucien Bouchard presumably drawing inspiration from the and to a lesser degree Jacques Parizeau and

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Mario Dumont to enhance their profile among Mulroney’s last stand, and in 1993 the Tory Quebecers. convention elected Kim Campbell as leader and Prime Minister. Earlier (1990), Jean Chrétien Post Meech, the Mulroney Tories were also had replaced John Turner as Liberal leader. In active on the constitutional file, striking both the the November, 1993 federal election, the 1984- Spicer Commission to take the pulse of ordinary 1993 Mulroney coalition evaporated completely, Canadians on renewing federalism, and the more with the Kim Campbell Tories losing all but two formal Beaudoin-Dobbie joint Senate-House seats, including that of the leader. Chrétien’s Constitutional Committee. What finally resulted Liberals emerged as victorious, but faced over from all of this was the Charlottetown Accord – 100 opposition members from parties that had a cobbling together of a myriad of concessions not won any seats in the 1988 election. Lucien designed to elicit support from Canadians in all Bouchard’s Bloc Québécois became the official walks of life for an omnibus package that opposition on the basis of the 54 (of 75) seats it included numerous measures that privileged won in Quebec. Preston Manning’s Reform Quebec (e.g. a commitment that Quebec would Party converted its opposition to the have a guarantee of 25 percent of the House of Charlottetown Accord, inter alia, into 52 seats Commons seats and of three Supreme Court in Western Canada. Justices), but that also included much of the content of Meech, several key concessions to On the Quebec front, the PQ returned to First Nations, and a collection of other measures power in the 1994 election. Although the running the gamut from regional policy to the popular vote was a virtual dead heat, Jacques Bank of Canada. Complicating this already Parizeau and the PQ won a comfortable majority complex Charlottetown process was the fact that of seats over Daniel Johnson and the PLQ several provinces had, post-Meech, enacted (Liberals). In spite of the fact that the PQ share legislation requiring a referendum on all future of the popular vote was considerably less than constitutional proposals. More complicating what was expected, Parizeau nonetheless still, the Bélanger-Campeau Commission had committed the province to a second referendum essentially committed Quebec to another on sovereignty (eventually scheduled for referendum on sovereignty by October of 1992. October 30, 1995). Canada was again in play! Ottawa reacted by calling a national referendum on the Charlottetown Accord for October 26, The pace of events then escalated 1992. This was an important strategic initiative dramatically. Already viewed as having since it allowed Bourassa to substitute the eclipsed Parizeau as the champion of Quebec national referendum on Charlottetown for the independence, Bouchard’s status among Bélanger-Campeau commitment to hold a Quebecers reached divine-like proportions in the Quebec referendum on sovereignty. In the wake of his miraculous recovery from event, fully 60% of Quebecers voted against the necrotizing fasciitis in the fall of 1994, so much Charlottetown Accord. Thankfully, the Accord so that Parizeau invited him to be co-chair of the was also rejected in several other provinces (and “yes” side. Among Bouchard’s first moves was even in Ontario, if one were to require the “yes” to bring Mario Dumont on board, thereby votes to be a majority of total votes cast, uniting the PQ, BQ and ADQ under the including the spoiled ballots). While the defeat sovereignist mantle. Their June 12, 1995 signed of Charlottetown did succeed in deferring the agreement endorsed the following approach to second sovereignty referendum, this deferral the Referendum question: was not to be for long. The sovereignty question was to be put in C. The 1995 Referendum conjunction with an offer of a political and On the political front, there was a wholesale economic partnership with Canada that changing of the guard. Charlottetown was would follow a Yes vote. Ottawa would

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have a year to decide. If no agreement could revitalization of the Annual Premiers’ be reached, Quebec would move to full Conferences (APCs). Under the aegis of the independence (Martin, 1997, 280). APC (and in response to Paul Martin’s request), the Ministerial Council on Social Policy Even with this conciliatory question the Renewal and Reform released its Report To Parizeau-Bouchard Yes forces were trailing Premiers which, inter alia, embodied 15 badly a month prior to the referendum. Then principles to underpin social Canada. This came the master stroke: Parizeau stepped aside document was endorsed by the premiers at the and handed over control of the Yes forces to 1996 Jasper APC along with a further request Lucien Bouchard. As all Canadians recall, it (perhaps influenced by my 1996 ACCESS was only the eleventh-hour, 100,000-strong Parc paper) that the Ministerial Council design du Canada rally that, arguably, saved the day. provincial and/or provincial-territorial The “Yes” side lost by the slimmest of margins mechanisms and processes in order to develop – 49.4% to 50.6%. Following Parizeau’s and promote adherence to national principles “money and the ethnic vote” comment on the and standards. The resulting mechanisms (both referendum results, Lucien Bouchard resigned provincial-territorial and provincial- territorial- his seat in the House of Commons and was federal) were presented at the 1997 St. Andrews shortly thereafter acclaimed premier of Quebec. APC and further honed for, and ratified by, the This was only half of what Bouchard had long 1998 Saskatoon APC. desired – the Quebec he was now in charge of was still in Canada and independence was, for By this time it became clear that the initiative the immediate future, a spent force. and momentum for social policy reform had shifted to the provinces. Indeed, a year earlier, the 1997 federal budget took a page out of the III: Canada-Quebec Political Relations in the Report To Premiers and introduced the Canada Chrétien Era Child Tax Benefit (CCTB). The CCTB was an exercise in creative federal-provincial co- A. Pan-Canadian Provincialism determination. Ottawa sharply increased The combination of a) Paul Martin’s massive refundable child tax benefits to low income cuts to provincial transfers in his 1995 budget families via the federal income tax system. For and his accompanying request that the provinces their part the provinces were allowed to reduce help design Canada’s social policy principles in their payments for children in welfare-receiving the CHST era, b) the emergence post-NAFTA of families by a similar amount, provided that these a north-south trading axis, and c) the perception monies were re-directed to other programs if not the reality that Ottawa had bungled the relating to child support in low-income families. Referendum interacted to spawn a very With this model in mind, shortly after the innovative and exciting period in Canadian summer 1998 Saskatoon APC the federal federalism, namely pan-Canadian government joined with the provinces to provincialism. The underlying reality, fully formalize this creative federal-provincial co- recognized by the provinces, was that Ottawa determination in the form of the 1999 was both fiscally able and politically more-than- Framework To Improve the Social Union for willing to invade provincial jurisdictions if the Canadians, generally referred to as SUFA provinces did not adopt a pan-Canadian (Social Union Framework Agreement). Among approach to their collective actions. This might SUFA’s provisions are the following: not prevent federal intrusions, but it would at • a set of social policy principles, most least make them politically more difficult. The adapted from A Report To Premiers; instrument chosen by the provinces for • mutual recognition of occupational addressing these pan-Canadian policy spillovers qualifications across provinces; and for advancing provincial interests was the

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• creative ways to allow the exercise of the Quebec is not a signatory, it is the province most federal spending power in areas of likely to take advantage of any flexibility in exclusive provincial jurisdiction provided future SUFA-influenced accords. (More on this that a majority of provinces were on side later). and that provinces would have a role in both policy design and implementation By way of a further aside with respect to flexibility; and SUFA, the view of the Canadian policy • a dispute avoidance and resolution community is, as I interpret it, that SUFA has procedure that would allow for third-party been ineffective and/or irrelevant. To a degree, fact-finding (which could apply to the this criticism rings true. Part of the reason for Canada Health Act). this is that, post-SUFA, Ottawa’s fiscal position has improved dramatically, both in absolute All in all, a flexible intergovernmental and co- terms and relative to the provinces. Hence, determinational process designed to allow the unlike the time frame when SUFA was signed, federation to accommodate external and internal the federal government is now fiscally able to pressures for change. drive home agreements with the provinces without involving the constraints of the SUFA Nonetheless, readers will have recognized process. But there are attendant costs to this. that what is missing from this overview of For example, both the 2000 and 2003 federal- SUFA and pan-Canadian provincialism more provincial health accords were viewed by generally is that Quebec was not a formal party Ottawa as “buying” new health-care programs to any of this. One could argue that this would (home care, etc.). However, the provinces follow directly from the fact that the PQ was in viewed the additional funds as unconditional power in Quebec. For example, just prior to his transfers. In my view, buying leverage with the defeat at the hands of Jacques Parizeau, Premier provinces will henceforth require the flexibility Daniel Johnson was a signator to the Agreement of SUFA-informed accords, rather than Ottawa- on Internal Trade (AIT) in 1994. However, driven agreements. there is more at play here than whether Quebec is governed by the PLQ or the PQ, since all Two remaining initiatives relating to pan- Quebec parties lined up against SUFA. One Canadian provincialism merit highlight. The obvious substantive reason for this was that first of these is the 1998 Calgary Declaration. SUFA formally recognized the existence of the Although only a page long, this is a remarkable federal spending power in areas of exclusive document because it reveals the extent to which provincial jurisdiction (although it must be noted the provinces other than Quebec were anxious to that Quebec’s long-standing desire to curb or back away from the earlier “symmetrical eliminate the federal spending power in federalism” philosophy. It is especially fitting provincial jurisdiction necessarily requires a that the declaration was signed in Calgary, the recognition of its existence in the first place). hotbed of the symmetry rhetoric. Two of the The larger issue is that Quebec is not about to principles are especially significant: enter an agreement with Ottawa that would • “In Canada’s federal system, where impinge upon those policy areas that Quebec respect for diversity and equality deems to fall under its exclusive jurisdiction. underlies unity, the unique character of The issues surrounding the AIT are quite Quebec society, including its French- different, relating as they do to reciprocal speaking majority, its culture and its responsibilities among and between equal tradition of civil law, is fundamental to constitutional players. In any event, SUFA the wellbeing of Canada. Consequently, represents a valuable instrument in an era where the legislature and Government of Quebec federal-provincial policy externalities and have a role to protect and develop the spillovers are ubiquitous. And even though

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unique character of Quebec society within range of provincial policy responsibilities, Canada.” running the gamut from overseeing aspects of • If any future constitutional amendment the Canada Health Act to monitoring the confers powers on one province, these interprovincial economic and social unions. powers must be available to all provinces.” Overall, therefore, the post-1995- Referendum period has coincided with the In tandem, these provisions not only formally recognition by the provinces that unless they get recognize the specificity of Quebec but endorse their collective act together and internalize some future Ottawa-Quebec deals provided they are of the resulting externalities, Ottawa would step offered to other provinces as well. This is a in and do this coordination for them, and in the recognition of de facto asymmetry and, to a process erode some of their powers. While this degree, de jure asymmetry as well. Since the collective decision by the provinces makes Calgary Declaration was about Quebec, only the eminent sense in its own right, it is also the case nine other provinces were signatories. And to that this new pan-Canadian role for the add to its significance, the Declaration was provinces is not independent of the manner in passed in all nine of the provincial legislatures, which the new global order is providing often with considerable fanfare. incentives for Ottawa to occupy areas of exclusive provincial jurisdiction. Prior to The final and, arguably, the most important focussing on this emerging relationship between exercise in pan-Canadian provincialism is the federalism and the new global order, the analysis recent all-province agreement to embrace turns to the manner in which the Chrétien Premier Charest’s proposal for a Council of the Liberals approached the Quebec issue in the Federation (henceforth COF). Cynics may post-1995-Referendum period. claim that this is the other provinces’ way of thanking Jean Charest for wresting power from B. The Clarity Act and Sponsorship the PQ. However, it should be clear from the While the provinces were practising pan- above analysis that the COF represents the Canadianism (the APCs and the Council of the obvious final step in the process that began with Federation) and even accommodating Quebec the revitalization of the APCs. Not surprisingly, (the Calgary Declaration), Ottawa was engaged therefore, the other provinces eagerly embraced in “combative” federalism, as reflected for the Quebec proposal. (As an aside, Quebec example in Stephane Dion’s letter-writing nationalists can embrace the Council and yet not campaign against Bouchard and the separatists be party to SUFA because the former represents in the editorial pages of Le Devoir and La coordination among equals whereas SUFA Presse, (e.g., if Canada is divisible, so is included the fiscally-dominant national Quebec), and culminating in June 2000 with the jurisdiction as a party to an agreement about Clarity Act. As prelude to this legislation, policies in provincial jurisdictions). To be sure, Ottawa submitted a reference to the Supreme the issue foremost in the minds of the premiers Court of Canada, the ruling on which can be when they created the Council was to utilize it as paraphrased as follows – Quebec does not have a vehicle for pressing Ottawa on the fiscal the right to secede unilaterally from Canada, but imbalance issue, one of the driving forces of the rest of Canada has an obligation to negotiate which was the report of Quebec’s Séguin Quebec’s separation if a clear majority of Commission (named after Yves Séguin, now Quebecers have voted in favour of separation. Quebec’s finance minister) on the vertical fiscal Ottawa responded to this ruling by elaborating, imbalance in the federation. Important as this inter alia, on the meaning of “unilaterally” and issue is to the provinces, the Council will “clear majority” and incorporating all of this nonetheless also be drawn into many other “clarification” into the Clarity Act. As coordination and monitoring roles across a wide indicated, the focus in the Act is on whether the

Working Paper 2004(2) ©IIGR, Queen’s University, IRPP, Montreal 7 Thomas J. Courchene, The Changing Nature of Quebec-Canada Relations referendum question is clear and whether there outside of Canada, at least for the critical is a clear majority, along with the manner in transition period which could be quite lengthy. which the rest of Canada would go about Arguably, this was also part of the underlying negotiating with Quebec, should the occasion environment which contributed to ensuring that arise. Not only does Jean Chrétien view the Clarity Act would not precipitate an upsurge in Clarity Act as one of his proudest achievements support for sovereignty. (www.canadianlawsite.com/clarity-act.htm), but there is a widespread view that the fact that the However, as will be elaborated in Part IV, passage of the Clarity Act provoked so little there were and are other and more fundamental concern among Quebecers was an important part factors at work – north-south integration and the of the reason why Lucien Bouchard stepped advent of the knowledge-based economy – both down as premier. More generally, the tough of which are serving to alter Quebec’s economic position that the Liberals took toward Quebec and political role within Canada. And as will has come to be viewed as largely responsible for also be elaborated, the Clarity Act may well be the erosion of support for sovereignty and for viewed by Quebecers in the foreseeable future as the victory of Jean Charest over Bernard Landry a convenient “blueprint” for separation. But this in the 2003 Quebec election. is getting way ahead of the analytical storyline.

While the passing of the Clarity Act did The other Canada-Quebec political indeed coincide with the decline in support for development selected for highlight is the independence, correlation is not the same as Sponsorship Program and the consequent causation. In particular, my admittedly-not- resurgence of the Bloc Québécois in the 2004 widely-accepted view is that the underlying federal election. If the Clarity Act was the stick economic realities also played an important in Ottawa’s post-Referendum approach to role. Toward this end, note that during the 1995 Quebec, the Sponsorship Program was intended Referendum, Lucien Bouchard and company to be the proverbial carrot – currying Quebec were able to get away with the claim that there favour by raising the flag and lowering the would be no economic cost to separation. Some (accountability) standard, as it were. This would of this had to do with the fact that, as of 1995, it have been serious enough on its own, but Paul was far from clear that Ottawa would be able to Martin attempted to take the high road here, not get its own fiscal house in order, and in any only accepting no responsibility for, let alone event if it did so it was only because it was knowledge of , the affair but also associating it transferring its deficit to Quebec and the other with the Chrétien wing of the Liberal Party and provinces via dramatic CHST cuts. Moreover, inadvertently or otherwise embarrassing the presumably out of concern that the Referendum Québécois political class. Moreover, it was process was running off the rails, Paul Martin somewhat ironical that, despite the Sponsorship asserted that independence would cost Quebec scandal, Chrétien was probably held in higher one million jobs, a sufficiently outrageous claim regard in Quebec than at any time in his long which served to transfer the cost-of-separation career, due in large measure to his standing up to issue from the realm of economics to the George Bush and keeping Canadian troops out political or rhetorical realm. Post-referendum, of Iraq. In any event, rather than making the however, the evidence was clear – Quebec’s expected gains in Quebec, the Martin Liberals economy did plummet, especially in relation to fell to 21 seats, with Gilles Duceppe and the Ontario. As the Quebec economy gradually Bloc winning 54 seats and 49% of the popular recovered, and as Ottawa tidied up its fiscal vote in Quebec. Arguably more importantly, the house (and indeed became the fiscal virtuoso of Bloc denied the Liberal-NDP tandem a majority the G7), it became progressively more difficult coalition and, in this sense, the Bloc holds the to make any sort of case to the effect that balance of power in the House of Commons. Quebec would be better off economically

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While it is obviously the case that the Bloc signal the emergence of North American region garnered the protest votes of a goodly number of states (1998). federalist and nationalist voters, the fact remains that we are once again, and surely unexpectedly, Several important implications flow from this in unchartered political waters. The Parti development. First, Quebec’s economic future Québécois is already talking about re-taking is clearly in NAFTA economic space, not L’Assemblée nationale, perhaps with Duceppe Canadian economic space. Compared to the at the helm, and holding yet another referendum province’s trade dependence on the rest of by decade’s end. Canada in 1995, let alone 1980, the economic costs of further loosening economic ties with the As a companion to the above overview of rest of Canada are now much reduced. (By way Quebec-Canada political relations, the analysis of maintaining perspective, the later analysis now turns to a similar overview of Quebec- will also argue that the benefits of independence Canada economic relations, thereby setting the are also reduced). stage for an overall political-economy assessment of Quebec-Canada relations in the Second, as north-south trade integration 21st century. heightens, all provinces will become increasingly tolerant of Quebec’s nationalist IV: Quebec-Canada Economic Relations vision of its role in the federation, since they too will want greater degrees of policy freedom. A. Quebec and NAFTA The best example here is that the “Alberta With the FTA and NAFTA serving as Advantage” slogan (which promises that this catalysts, all provinces’ trade has shifted sharply province will have the lowest tax rates in north-south, relative to east-west. In Quebec’s NAFTA, let alone in Canada) is giving way in case, in 1989 (the first year of the FTA) exports some Alberta quarters to a “firewall” vision of to its sister provinces exceeded its exports to the Alberta-Canada relations. In a sense, therefore, US-- 21.2% of GDP for east-west exports (or the earlier-noted, post-Charter focus on exports to the rest of Canada) and 16.0% of symmetry as a philosophical goal of Canadian GDP for north-south exports (or exports to the federalism has been trumped by the USA). By 2001, however, this had changed provincial/regional realities of North American dramatically. Quebec’s north-south exports trade integration. Phrased differently, this may increased to 33.6% of its GDP while its exports be the international (NAFTA) economic reality to the rest of Canada fell to 19.4%. Indeed, as of underpinning the domestic politics of the 1998 2001, all provinces except Manitoba exported Calgary Declaration. more to the US than they did to the rest of Canada. The third implication is more troublesome. The provinces have become so dependent on In effect, Canada has become a series of NAFTA trade they can effectively be held north-south, cross-border economies rather than hostage to interruptions in their access to the US a single east-west national economy. And market. And because provincial policies can because Canada’s provinces/regions tend to and do differ widely, these border interruptions differ industrially more from each other than may affect the individual provinces differently from their cross-border counterparts, the (e.g. softwood lumber affects B.C. and New provinces’ attempt to enhance their prospects in Brunswick quite differently), which in turn North America will tend to result rather severely complicates national policy. Arguably, naturally in an enhanced degree of policy the Council of the Federation (COF) could play decentralization and operational asymmetry. It a most useful role in aggregating provincial was this reality that led Colin Telmer and I to interests in such situations. Ottawa should welcome having this pan-provincial body make

Working Paper 2004(2) ©IIGR, Queen’s University, IRPP, Montreal 9 Thomas J. Courchene, The Changing Nature of Quebec-Canada Relations the initial attempt to wrestle with issues that an exciting development in its own right since it frequently play very differently, if not in a zero- puts citizens and their human capital sum manner, across the various provinces. development centre-stage in terms of both economic and social policy, it is also Fourth, it would seem to follow from the fundamental to the evolution of Quebec-Canada above observations that many provinces would relations since the constitutional powers needed eagerly trade off some of their power in the to pursue a citizen-first policy are largely Ottawa corridors for more influence in provincial powers. Indeed, this was the core of Washington. This is reflected in the several my message (1991) to the Bélager-Campeau proposals for broadening and deepening Commission, namely that in light of the fact that NAFTA. Relatedly, most of the provinces many of the policy levers traditionally participate in Canada-US associations of heads associated with national sovereignty are now of government. Indeed, Quebec is a member of being incorporated in trade agreements (tariffs, two of these – with New England Governors and trade policy and aspects of regulatory policy) or Maritime Premiers and with Ontario and the driven by global best practice (monetary policy), Great Lakes Governors. Others have Memoranda of Understandings (MOUs) with “... citizens will increasingly view their cross-border states – the Alberta-Montana “sovereignty” as the ability to have some MOU, for example. Arguably, along the lines of influence on how they live and work and Wolfe (2003), Blank (2002) and my own work play. One can argue whether or not the level (2003b), these represent attempts to broaden and of government to deliver this is the provincial deepen NAFTA from the bottom up, as it were – government or the local government but, to “democratize” North American integration by under our federal system, it is clearly not the bringing the states and provinces more fully into national government. Indeed, will there be the operations of NAFTA. much left of sovereignty in the millennium other than “distinct societies?” (The North American trade integration is only one Community of the Canadas, 1991, 11). of the forces that is forging new Quebec-Canada and Quebec-North America economic linkages. I then added that after a further decade of north- Attention now turns to two other forces – the south integration, the rest of Canada would be advent of the KBE and the associated rise of profoundly indifferent in terms of Quebec’s global city regions. choice of policy instruments, an assertion that has resonance with the later Calgary B: Quebec and the Knowledge-Based Declaration. Economy (KBE) The advent of the knowledge-information In more general terms, the central implication revolution will privilege human capital in much arising from the KBE in terms of achieving the same way that the Industrial Revolution meaningful sovereignty in the information era is privileged physical capital. Indeed, knowledge that the KBE significantly increases the role of and human capital are now at the forefront in those powers that lie in provincial jurisdiction. terms of the core policy objectives – (Note that this is not the same as saying that the competitiveness and wealth creation; achieving KBE enhances the powers of the provinces, as acceptable income distribution; and enhancing the subsequent analysis makes clear). While it living standards. In terms of the latter Lester would not be correct to say that Quebec is now Thurow (1993) is eminently quotable: “If capital indifferent about acquiring new powers (e.g. the is borrowable, raw materials are buyable and province would obviously like greater room to technology is copyable, what are you left with if manoeuvre in terms of negotiating trade and you want to run a high-wage economy? Only cultural agreements), the fact is that under the skills, there isn’t anything else.” While this is KBE sovereignty will be more about exercising

Working Paper 2004(2) ©IIGR, Queen’s University, IRPP, Montreal 10 Thomas J. Courchene, The Changing Nature of Quebec-Canada Relations existing provincial powers than acquiring federalism. Intriguingly, the provinces, despite further powers. Moreover, the interaction their constitutional supremacy over cities, find between language and culture on the one hand themselves in a dilemma of sorts. Either they and human capital development on the other is cater to the demands of the cities for greater sufficiently close that Quebec will be able to autonomy, financial flexibility and infrastructure play a larger role in the human capital (rights that many international GCRs already development of its citizens than will be the case have) or the cities will band together and for any other province. In other words, language pressure the federal government to satisfy these provides an environment within which Quebec demands. Actually, there is, in principle at least, will have more room to “policy determine” its a third option, namely that the GCRs can aspire KBE future. Or in terms of sovereignty, the to become “city provinces,” like the city-Länder emergence of the KBE allows Quebec to move of Germany (Berlin, Bremen and Hamburg). toward a fuller nationhood within the Canadian The power of the GCRs is such that they will state. play a more important political, economic and even jurisdictional role in the Canadian From this follows an even more important federation, the only issue is how they will play corollary: the key to Quebec’s future in the this role and how this will impact on the various Canadian state lies in gaining access to provinces. revenues sufficient to make use of its existing powers. Hence, Quebec’s rallying call has, Up to this point, the lens for viewing the appropriately, shifted from “more powers” to implications of the KBE has been a provincial “more access to revenues.” Small wonder then lens. But Ottawa is much more than a spectator that restoring fiscal balance in the federation is in all of this. Indeed, it is actively engaged in Quebec’s foremost priority. And for somewhat finding ways that it, too, can get access to the similar reasons (see below), this is also the policy levers that deal with cities and citizens. number one priority of the other nine provinces Enter “hourglass federalism.” as well. D: KBE Intergovernmental Relations: C: Global City Regions (GCRs) Hourglass Federalism Global city regions (Toronto, Montreal, It did not take the federal government long to Vancouver, Calgary/Edmonton ...) are emerging realize that nation-building and electoral as the dynamic economic motors of the saleability in the KBE is not about old-style knowledge/information era (Courchene, 2000). resource-intensive mega projects but, rather, has This is so in large part because these GCRs are everything to do with citizens’ issues – home to dense concentrations of knowledge and education, health, training and the like. Indeed, human capital networks (health, bio-sciences, R and as already noted, with knowledge at the and D, universities, corporate services, cultural, cutting edge of competitiveness, investment in etc.). Following Harris (2002), Canada’s future education/skills and human capital generally in terms of productivity growth and living holds the key to competitiveness and cohesion standards will depend on how well our GCRs alike, both of which are of obvious interest to will fare against US and international GCRs. central governments of all nation states, federal or unitary. And since the performance of The complicating issue here is the following. Canada’s cities, especially the GCRs, will On the one hand, cities are constitutionless – determine productivity growth and living they are the creatures of the provinces. On the standards, this too comes into Ottawa’s sights. other hand, with their economic and political star in ascendancy the GCRs want to become Cast in this light, it is clear that politically, more fully and more formally integrated into the economically and electorally these policy areas system of intergovernmental relations and fiscal are far too important to be rendered off-limits to

Working Paper 2004(2) ©IIGR, Queen’s University, IRPP, Montreal 11 Thomas J. Courchene, The Changing Nature of Quebec-Canada Relations

Ottawa by whatever the Constitution may or jurisdictions. While this is an important may not say. So the operational objective for observation it is somewhat aside from the issue Ottawa becomes one of finding convenient at hand. avenues and processes by which it can interact directly with cities and citizens. Not only did Intriguingly, the provinces are well and truly Ottawa find a way to do this, but it did so in trapped by hourglass federalism. As medicare such a manner that cities and citizens alike budgets inexorably approach 50% of program welcomed the federal intervention. spending the provinces will have to dip deeper and broader into existing spending levels of In a recent article (2004), I have called this other policy areas. There would appear to be hourglass federalism, namely Ottawa’s use of only three ways for the provinces to extricate the spending power and other measures to themselves from this dilemma. One way is to privilege cities and citizens, leaving the upload aspects of medicare to Ottawa. A second provinces increasingly as the squeezed middle of is to download medicare to citizens (via the division-of-powers hourglass. privatization/de-listing or by imposing dedicated taxes/premiums, with Ontario doing both in its Hourglass federalism evolved in the 2004 budget). The third is for Ottawa to address following manner. First, to make room for these the vertical fiscal balance in the federation (i.e., new areas on the policy agenda, Ottawa to provide the provinces with funds sufficient to transferred aspects of last-paradigm’s nation maintain medicare at sustainable levels, building (forestry, mining, tourism, fishing and consistent with addressing their other energy) to the provinces. Second, Ottawa got its expenditure responsibilities). fiscal house in order in large measure by downloading its deficit to the provinces. The Enter the July 2004 APC/Council of the key initiatives here were the massive CHST cuts Federation in Niagara-on-the-Lake. In a move contained in Paul Martin’s 1995 budget. Third, described by Ralph Klein as a “brilliant while these cuts were viewed by most analysts strategy” and one that caught all Canadians by as cuts to health transfers, they had precisely the surprise, the premiers unanimously proposed to opposite effect. Since health was at the very top upload (i.e. to turn over responsibility for) of all the provinces’ priority list, it simply could pharmacare to the federal government. At one not be cut. What happened in all provinces is level this makes eminent sense since Ottawa that funds were directed from here, there and controls drug patent laws (e.g., the length of everywhere to sustain, indeed increase, health- time before a generic version of a drug can come care spending. Fourth, the result is that on the market) and it is Ottawa that oversees medicare is accounting for over 40% of program drug testing/drug approvals, all of which have a spending for many provinces and still rising, major influence on the cost of drugs and, while spending on most other areas is declining. therefore, complicate provincial responsibility Fifth, this has opened the way for Ottawa to go for prescription drugs. Moreover, Prime around the provinces and to deal directly with Minister Martin campaigned for a national these cash-starved areas, whether relating to pharmacare program as the next major step in citizens (millennium fellowships, Canada the evolution of medicare so that at another level Research Chairs, the Canada Child Tax Benefit, this provides a way for Martin to create such a early child development, etc.) or to cities (the national program. The APC/COF proposal will GST exemption and the promise of a share of feed into the long-anticipated FMM (first the federal sales tax). In passing, it is ministers’ meeting) on health care scheduled for appropriate to note that Canadians may well be September 13-15, 2004. very happy with hourglass federalism, i.e. with the federal government playing a more active However, this FMM will have an impact well role in a variety of areas falling under provincial beyond the financial evolution of medicare

Working Paper 2004(2) ©IIGR, Queen’s University, IRPP, Montreal 12 Thomas J. Courchene, The Changing Nature of Quebec-Canada Relations because many of the economic, political and essence of the “Quebec issue” in the 21st century jurisdictional issues highlighted in the above has become one of enabling the province to analysis will also feed into this health care become a full nation within the framework of summit. Indeed, so much is at stake here that the Canadian state. the FMM promises to be one of the signal societal events in terms of determining the However, allowing Quebec to become a full evolution of Quebec-Canada relations. As such, nation within Canada was a non-starter in the a brief assessment of the role of the FMM in the inter-referenda (1980-1995) era. The key context of the above analysis will constitute the difference today is that the rest of Canada has concluding section of the paper. As prelude to also undergone complex transformative change. this exercise in societal real politik, the Fundamental to this transformation has been the following section draws out some analytical dramatic relative shift from a domestic, east- observations arising from marrying the west trading axis to a cross-border, north-south foregoing Quebec-Canada economic and trading axis, with the consequent policy political inquiries with an eye toward suggesting decentralization and asymmetry across the new opportunities or dynamics for Quebec- provinces. And along the way this provincial Canada relations. policy asymmetry, best exemplified by the “Alberta Advantage,” paved the way for the V: Quebec-Canada Dynamics in Century 21 Calgary Declaration and SUFA and the The quarter century following the first associated increased tolerance and even formal Quebec Referendum has been both politically recognition of the ability of Quebec (and other tumultuous and societally transformative for provinces) to tailor their powers to the needs/ Canada and Quebec alike. In terms of the most aspirations of their citizens. fundamental issue, namely Quebec sovereignty, the associated political tumult has been indelibly This coming together of provincial interests etched into the consciousness of all Canadians. led to the creation of the Council of the But the transformation of the sovereignty issue Federation (COF) as the overarching institution over time has been far-reaching. At the level of embodying pan-Canadian provincialism. vox populi the following oversimplification Among its first initiatives, and certainly its first nonetheless carries much truth. In the 1980 priority, was to forge a common front around the Referendum, Quebecers may have had the issue of VFI (vertical fiscal imbalance). That political will to assume nation-state status but VFI should be the rallying cry for the 21st the underlying economics were not on side. In century Quebec is rather obvious, given the the current time frame, the economics of an earlier assertion that the key to KBE nationhood independent Quebec within NAFTA economic rests, by and large, with Quebec’s existing space are clearly more feasible but the benefits powers and given also the requisite corollary associated with statehood are now deemed to that Quebec needs to have access to adequate have diminished. Phrased differently, under the revenues in order to exercise these powers. For former paradigm states created nations, as it reasons of political and fiscal autonomy (as were. In the knowledge/human-capital era distinct from “nationhood”), the other provinces nations can thrive within states – Catalonia is have also fully endorsed the VFI thrust. probably the best example of such a “stateless nation.” Facilitating this transformation in Unfortunately for the provinces, Ottawa has Quebec’s case is the two-fold reality: a) Canada undergone its own transformation. With many is a very decentralized federation in terms of the of its erstwhile nation-building policy levers constitutional powers of sub-national circumscribed by international agreements governments2 and b) these are more or less the (tariffs, trade policy and NAFTA) or by powers that are linked to “nationhood” in the international best practice (inflation targeting by information era. Arguably, therefore, the the Bank of Canada), it too has discovered that

Working Paper 2004(2) ©IIGR, Queen’s University, IRPP, Montreal 13 Thomas J. Courchene, The Changing Nature of Quebec-Canada Relations the key to electability and nation-building in the generation” to “buy changes” and to “deliver KBE is to become a player in the provincial- real, measurable progress” by: powers game. The form that this has taken has • Ensuring stable, predictable long-term been referred to above as hourglass federalism – funding ($3 billion over the next 2 years fiscally starving the provinces in the sense that plus automatic increases in the future); they have to divert discretionary spending from • Implementing a National Waiting Times everywhere to feed the voracious appetite of Reduction Strategy – the “Five in Five” medicare, so much so that citizens and cities are plan ($4 billion); welcoming of any and all federal spending • Reforming primary care; initiatives directed toward them. Not only is • Creating a National Home Care Program hourglass federalism another name for VFI, but ($2 billion over 5 years); it is VFI with a purpose, as it were, so that • Developing a national strategy for Ottawa will not willingly unwind it. This is prescription drug care by 2006; and clear from Martin’s medicare proposal which • Respecting the Canada Health Act. admittedly does move Ottawa’s share of medicare funding toward the provincial target of By way of elaboration, the “five in five” plan is 25%, but does so in a manner that would commit to reduce waiting times based on national targets the provinces to embark on several new and over the next five years in five key areas – costly initiatives, i.e. in a manner that does not cancer, heart, diagnostic imaging, joint let the provinces escape from hourglass replacement and sight restoration. Since all of federalism. these five areas are under the provinces’ jurisdiction, the suggested $4 billion price tag is What is clear from this brief résumé of the presumably the federal government’s best guess earlier analysis is that to an intriguing degree the as to what it will cost to induce the provinces to political, ideological, fiscal, and address these five waiting periods. jurisdictional/constitutional factors likely to play determining roles in the evolution of Quebec are B. The Council of the Federation (COF) being funnelled into the September FMM on Proposals health care. And other provinces are bringing The COF agenda for the FMM includes some of their own issues to the bargaining table, pharmacare, opting out for Quebec, VFI, and e.g. regional/equalization issues. While equalization. recognized as a defining moment for Paul Martin’s minority government, the reality is that Pharmacare the FMM is about competing visions of Canada The surprise proposal from the COF was, as and as such may well turn out to be one of the already noted, the unanimous recommendation defining moments for the evolution of Canada. to transfer responsibility for pharmacare to the Elaborating on just what is likely to be at stake federal government, in part a response to Paul in the FMM and how it may influence the future Martin’s call for a “national strategy” for of Quebec-Canada relations is the subject of the pharmacare (bullet 5 above). In the words of the final part of this essay. COF Press Release (http://www.scics.gc.ca/cinfo04/850098004_e.ht ml): VI: Quebec and the Summit of the Canadas The federal government already plays a A. The Federal Proposal significant role in the management of Drawing from St-Hilaire and Lazar (2004, pharmaceutical drugs in Canada – it is 118), Prime Minister Martin’s proposal for the responsible for the approval of drugs for use September FMM is to “fix medicare for a in Canada and for deciding which drugs are

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available by prescription and which over-the- the 25% share should be maintained through counter. It is responsible for the Patents Act time; 3) these funds are to be unconditional; and and for the drug plans for Aboriginal 4) the premiers added in the recent COF press peoples, the military, and the RCMP. release “that any new initiatives agreed to at the upcoming FMM will require additional ongoing Currently, the provinces are spending in the federal dollars [i.e., additional to the 25%, TJC] range of $7 billion while “full coverage” is to cover the costs associated with these estimated to be in the $12 billion range. Note initiatives” (Press Release, op. cit., emphasis that Martin’s proposals did not include a price added). tag for his prescription drug care strategy for 2006. Indeed, the cost of pharmacare probably This COF position on health care financing is exceeds the total value of annual transfer in dramatic contrast with Paul Martin’s electoral increases contained in the Martin proposals. platform proposals outlined above. Martin is willing to increase cash transfers toward the Quebec’s opting out 25% share, but this is tied to a series of Often overlooked in the press coverage of the additional requirements (decreasing waiting COF meeting in Niagara-on-the-Lake, but lists, reforming primary care) and new initiatives central to the analysis in the present paper, is (home care, pharmacare). St-Hilaire and Lazar that the provinces have agreed that Quebec can (2004,122) note that the provinces will not opt out of the pharmacare plan with likely be willing to take on the attendant cost compensation. Again in the words of the Press risks and pressures with the federal proposal: Release: “It is understood that Quebec will maintain its own program and will receive a The idea that provinces should embark on comparable compensation for the program put in new national health care programs with the place by the federal government.” This is a federal government only offering the remarkable concession, one that builds upon the equivalent of seed money and no guarantee spirit and the letter of the 1998 Calgary of sharing uncertain future costs, as the Declaration (and also resurrects one of the federal plan proposes, is simply beyond principles of the Meech Lake Accord). Indeed, reason. Quebec’s recent experience with $5 it fits squarely in the venerable tradition (pre- day care and pharmacare certainly illustrates Charter) of “opting out” facilitating a “win-win both the fiscal and political risks involved. solution” – Quebec is allowed to opt out and advance its “nationhood” agenda, while the rest It is easy to see why this COF proposal is of the provinces can work with Ottawa to design appealing to the provinces. They escape from a mutually acceptable national program which the straightjacket of hourglass federalism by would not have been possible without Quebec’s passing pharmacare upward and they will opting out. Earlier examples are the CPP/QPP receive an unconditional 25% share of the compromise and Quebec’s opting for its own medicare costs. It is equally easy to see why this separate personal income tax (PIT) system package may not appeal to Ottawa. thereby allowing Ottawa and the other provinces to develop a shared PIT which is decentralized yet harmonized. Equalization While VFI has top priority for the provinces, VFI (vertical fiscal imbalance) and Health Care the equalization-receiving provinces have rallied On the larger issue of funding medicare, the all provinces to push for also ameliorating provincial position has remained unchanged for horizontal fiscal imbalance (HFI) across the some time now: 1) Ottawa should increase its provinces. As the COF Press Release noted, share of funding under the Canada Health equalization entitlements to the recipient Transfer to 25% of total health care spending; 2) provinces have been reduced by $3.7 billion

Working Paper 2004(2) ©IIGR, Queen’s University, IRPP, Montreal 15 Thomas J. Courchene, The Changing Nature of Quebec-Canada Relations over the last 3 years. The issue in the context of pressure from Jack Layton and the NDP to health care funding is that an infusion of disallow the spread of private delivery of any additional federal transfers allocated on an equal sort. Martin could also argue that, given the per capita basis (as has characterized recent importance of medicare in the campaign, transfer increases) is deemed to be inadequate Canadians gave the Liberals a mandate to ensure for the have-not provinces without some transformative change along the lines of his corresponding provision for offsetting the platform plank as elaborated above. However, decline in formal equalization payments. the political reality is such that the only way to Accordingly, the COF recommends that “as an ensure that Alberta and Quebec among others immediate measure, total Equalization Program would swear off all privatization would be for funding should be restored to the 2000-01 level. Ottawa to fully address the VFI issue with Because Quebec receives the lion’s share of unconditional transfers, which is hardly Martin’s aggregate equalization payments, this can also position. be viewed as an issue near and dear to this province. However, linking HFI with VFI will D. Further Quebec Issues obviously serve to further complicate the No doubt there are a variety of other issues September FMM, especially in light of the fact that will be raised by the provinces and Ottawa that the equalization program is already reeling at the September summit. Since the focus here under a series of long-standing issues is this essay is on Quebec, there are two further (Courchene, 2004a), let alone the HFI issues that this province will bring to the table. challenges associated with the price of oil at The first relates to the recommendations of over $45 per barrel at the time of writing. Quebec’s Séguin Commission, namely that Hopefully, the HFI issue can be recognized by Ottawa convert its cash transfers to tax point all parties, but then be split off from the transfers and, in particular, that it transfer the September FMM to be dealt with in a GST to the provinces. This is unlikely to fly subsequent meeting. (although it might find support from other provinces), but it will nonetheless be part of the C. Private Delivery and the Canada Health Quebec position. However, were pharmacare to Act be transferred to Ottawa, Quebec might have All parties endorse the Canada Health Act, more success arguing that its opting out with although they do not all embrace the same compensation should take the form of tax interpretation of its principles. One controversial transfers rather than cash transfers. issue has to do with interpreting the “public administration” tenet. The 2002 Senate Report’s The second derives from Quebec’s long- interpretation and that by Kirby and Keon standing view that it will not allow the federal (2004a, 2004b), which I carried into my own government to regulate, legislate or otherwise work (2003a), is that “public administration” dictate in areas of Quebec’s constitutional has to do with public funding but then ought to jurisdiction. This is what Quebec nationhood be agnostic as to whether the delivery of within the Canadian state is all about. services is by the public or private or third sectors. Alberta goes at least this far and Quebec has been here for a while. Indeed, in a rare return to the policy limelight, former E. Analysis Premier Lucien Bouchard suggested recently While the politics, process and policy that private clinics make le gros bon sens (plain associated with the FMM are probably in the common sense), which may put him beyond the nature of a seamless web, it seems appropriate to Kirby/Keon camp and into a parallel private deal with each separately, at least initially. system in some delivery areas (Yakabuski, 2004). On the other hand, Martin will be under Politics

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The view of many in the chattering classes than that required to address the 25% Romanow seems to be that none of the federal parties target. The NDP and a goodly number of wants to face the voters for a while so that Canadians will attempt not only to hold the Liberal minority government is unlikely to be Liberals to their campaign proposal but perhaps brought down as a result of the outcome, or non- as well to embrace the COF proposal that outcome as the case may be, of the FMM. This Ottawa launch a national prescription-drug reasoning seems faulty on two fronts. First, a program. But Martin’s proposal seems to fall Parliamentary defeat of the Martin government way short of what the provinces will settle for in the immediate aftermath of the FMM, and what the Conservatives and BQ will denying him confidence on the Throne speech support. might not trigger an election. Rather the Governor General could, arguably, invite All in all, a daunting challenge. Stephen Harper to try to form a government. In other words, while Canadians may well want Process minority government to work and may well be My comment on process is contained in a willing to punish those parties that pull the single word – SUFA. If Prime Minister Martin electoral plug, this is quite different from saying wants to play in areas of exclusive provincial that Canadians want a Liberal minority jurisdiction, then SUFA or a SUFA-equivalent government. Hence, Paul Martin will need to approach is the agreed-upon process. SUFA ensure that the outcome of the FMM finds some involves, inter alia, federal-provincial co- resonance with either or both the Conservatives determination in terms of program design, or the BQ. provincial flexibility in terms of implementation, and combined federal-provincial monitoring and The second point is that the politics oversight. Moreover, SUFA is arguably flexible enveloping the FMM obviously transcends enough to accommodate the opting-out-with- federal politics. Given the perspective of this compensation for Quebec (as embodied in the essay, the politics of Canada-Quebec relations COF pharmacare proposal). will also be in play. The combination of the Sponsorship scandal (including the downplaying As already noted, the 2000 and 2003 health of the Chrétien wing of the Liberal Party) and accords were viewed by Ottawa as buying the resurgence of the BQ (including its potential “change,” whereas the provinces simply balance-of-power role in the Commons) has left presumed the transfers to be unconditional the federalist forces in Quebec in a very weak independent of the “accord.” This will happen position. In this environment, it would be in 2004 as well if the federal government does foolhardy on Ottawa’s part (i.e. on the part of not work through a SUFA or SUFA-equivalent the federalist parties in the House of Commons) process. to leave Charest high and dry in terms of the outcome of the FMM. His position in Quebec While process and a flair for the political are will be weakened considerably unless he necessary ingredients for a successful FMM, emerges from the summit with meaningful substance and policy must be centre-stage. progress on the VFI front and with minimal infringement on Quebec’s ability to legislate on Policy the medicare front. An appropriate launch point for an analysis of the range of choices facing the first ministers What thus emerges as most problematic on is to focus on that which is “new” to federal- the political front is how the Liberals can meet provincial health care meetings, namely the COF their electoral commitment of buying new proposal with respect to pharmacare. Earlier, programs and commitments from the provinces this proposal was viewed as a masterstroke on with an increase in transfers that is arguably less the part of the provinces since it allows them to

Working Paper 2004(2) ©IIGR, Queen’s University, IRPP, Montreal 17 Thomas J. Courchene, The Changing Nature of Quebec-Canada Relations escape from the hourglass-federalism later date). Finally, the long-standing straightjacket. Yet this proposal should, in jurisdictional quagmire surrounding medicare principle, also be eagerly welcomed by Ottawa would be rationalized by dividing up the policy because it presents the federal government with area. the right to deal directly with Canadians in ways that heretofore it could not do, it also The specific example is not intended to serve expands the scope of Canadian medicare in ways as a preferred outcome. Rather it is meant to in which the Liberals themselves called for in suggest that throwing pharmacare into the their election platform, and it increases the hopper substantially increases the degrees of degrees of freedom that Ottawa has in policy freedom. Consider some other options: negotiating with the provinces. • Ottawa takes over pharmacare for the Ottawa’s initial reaction to the COF elderly; pharamacare proposal appears to be one of • Ottawa takes over pharamacare for the backing away from rather than embracing it. elderly and the children; Even accepting that the cost side might pose • Ottawa takes over either one of the problems for Ottawa, this decision summarily above two but does so in the context of discards several creative options. Consider, income-tested, catastrophic coverage, initially, the following option: run through the federal personal income tax system; • Ottawa accepts responsibility for • Ottawa takes over pharmacare but only pharmacare, commencing with a on a catastrophic basis; takeover of a standardized version of existing provincial programs; All of these options could be combined with • it maintains existing funding levels for the status quo in terms of existing CHA transfers the rest of the system; and (as in the original example).The focus on the • it agrees to index the existing transfers elderly and the children is deliberate because (either to inflation or to the growth of Ottawa now plays the key role in terms of their medicare expenditures) in turn for a income support (e.g., OAS/GIS for the elderly SUFA-type agreement to get joint input and the CCTB for the children), so that into standards, etc., where this joint responsibility for some version of pharmacare input into standards would now include would not constitute a huge departure in terms pharmacare. of the federal mission.

While this would not address the letter of the If, however, Ottawa rejects the creative COF Liberal proposal, it would nonetheless score pharmacare proposal, then forging a package high points in an important number of key areas acceptable to the provinces becomes much more – it expands medicare into an important area; it difficult, because the formal Liberal proposal takes a huge medicare cost-driver off the would certainly not be acceptable to the four provinces’ books; by maintaining the existing largest provinces and perhaps not to the level of transfers (indexed), it satisfactorily remaining six either. The earlier quotation from addresses the VFI; and it offers scope for some St-Hilaire indicates why this is so. From the mutually-agreeable commitments on issues like provinces vantage point, the minimum waiting lists, etc. It seems that Alberta and acceptable package (absent the pharmacare Quebec (and arguably the BQ and option) would seem to be a move to a 25% Conservatives respectively) would be on side, unconditional funding share. Buying new and most of the rest of the provinces could provincial programs/commitments would be probably be finessed with an equalization possible only with additional transfers (i.e., commitment (which would be negotiated at a

Working Paper 2004(2) ©IIGR, Queen’s University, IRPP, Montreal 18 Thomas J. Courchene, The Changing Nature of Quebec-Canada Relations beyond the 25% share), and again run through complication here is that Paul Martin has already some SUFA-like process. indicated that the three priorities in the fall Speech from the Throne will be medicare, early One major disadvantage of this latter strategy childhood development and cities. All are is that it continues to increase the magnitude of viewed by Quebec as under its jurisdiction and federal transfers that are directed to areas of essential to its future in Canada. provincial jurisdiction. Even with a SUFA agreement in place it will become progressively These, then, are the opportunities and easier for the provinces to harbour the view of a constraints that comprise the new dynamics in vertical fiscal balance, since one (not the only) Quebec-Canada relations. The good news is that definition of an increasing VFI is increasing Quebec appears nearer than ever to assuming the federal spending/transfers directed to areas of mantle of a 21st century nation within the exclusive provincial jurisdiction. The advantage framework of the Canadian state. Yet, were this of the various pharmacare options is that aspects avenue for whatever reason to become blocked, of prescription drugs would in effect henceforth Quebec may well revert back to seeking its come under federal jurisdiction. future as its own nation state. In this sense, and also because medicare, vertical and horizontal Two final observations are in order. The first fiscal balance, and the division of powers are all is that Ottawa could stand its ground and drive in play, the September 2004 FMM is indeed a home a take-it-or-leave-it deal, based on some Summit of the Canadas. version of its initial proposal. From a fiscal standpoint, the provinces would probably take the offer but, led by Alberta they would embark on a privatization process. The second focusses on the other extreme. If one adds up all of Martin’s commitments, they may well overextend Ottawa’s fiscal capacity. Since deficits are presumably out of the question, tax hikes are not beyond the pale as a way to finesse this fiscal dilemma.

By way of a few concluding comments it is appropriate to return to the theme of Quebec- Canada relations. The thesis of this essay is that Quebec’s demands have shifted from acquiring greater powers to acquiring greater revenues (preferably taxes) so as to be able to exercise fully its existing powers. Far and away the most exciting recent development in this area has been the formal recognition of Quebec’s “distinct society” priority in the context of the COF pharmacare proposal. (Presumably this same opting-out-with-compensation provision will apply to any provincial consensus relating to how Ottawa would transfer additional revenues to the cities.) The very existence of this provincial acceptance of Quebec’s specificity makes it progressively more difficult for Ottawa not to follow suit. Yet the obvious

Working Paper 2004(2) ©IIGR, Queen’s University, IRPP, Montreal 19 Thomas J. Courchene, The Changing Nature of Quebec-Canada Relations

Endnotes NAFTA at 10: A Canadian Perspective on

North American Integration,” North This paper is adapted from a presentation at a American Journal of Economics and Finance conference entitled “Quebec and Canada in the 14, 263-85. New Century: New Dynamics, New

Opportunities,” hosted in October-November Courchene, Thomas J. (2000) “Responding to 2003 by the Institute for Intergovernmental the NAFTA Challenge: Ontario as a North Relations. American Region State and Toronto as a Global City Region” in A. Scott (ed), Global 1. Aspects of this section draw from Lawrence City Regions: Trends, Theory, Policy (New Martin (1997). York: Oxford University Press), 158-192. 2. It is also the case that Canada probably ranks as the more centralized federation in terms of Courchene, Thomas J. (1996) ACCESS: A the influence of the provinces in the Convention on the Canadian Economics and operations of the central governments. Social Systems (Toronto: Ministry of Indeed, it is the provinces lack of influence at Intergovernmental Affairs, Government of the centre that contributes to the need for Ontario). Reprinted by the Institute for regional/provincial interests to be exercised Intergovernmental Relations as part of the by the provinces. Council of the Federation Series, 2003).

Courchene, Thomas J. (1991) “La communauté des Canadas,” published in Les avis des References spécialistes invités B répondre aux huit questions posées par la Commission, Error! Main Document Only.Blank, Stephen background document number 4 to the (2002) “The United States and Canada: The Commission sur l’avenir politique et Emerging Architecture of North America,” A constitutionnel du Québec (Bélanger- submission to the Carnegie Endowment for Campeau Commission), (Quebec International Peace for the National Government of Quebec), pp. 199-238. Also Commission on America and the New World published as The Community of the Canadas, (April 10), (New York: Americas Society). Reflections/Reflexions 8 (Queens University: Institute of Intergovernmental Relations). Courchene, Thomas J. (2004) “Hourglass Federalism,” Policy Options (April), 12-17. Courchene, Thomas J. (1990) Forever Amber: The Legacy of the 1980s and the Ongoing Courchene, Thomas J. (2004a) Confiscatory Constitutional Impasse Equalization: The Intriguing Case of Reflections/Reflexions 6 (Queen’s Saskatchewan’s Vanishing Energy Revenues, University: Institute of Intergovernmental Choices, vol. 10, no. 2 (March) (Montreal: Relations). Institute for Research on Public Policy). Courchene, Thomas J. with Colin R. Telmer Courchene, Thomas J. (2003a) Medicare As A (1998) From Heartland to North American Moral Enterprise: The Romanow and Kirby Region State: The Social, Fiscal and Federal Perspectives, Policy Matters vol. 4, No. 1 Evolution of Ontario (Toronto: Centre for (Montreal: Institute for Research on Public Public Management, Rotman School of Policy). Business, University of Toronto).

Courchene, Thomas J. (2003b) “FTA at 15, Harris, Richard G. (2003) “Old Growth and New

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Economy Cycles: Rethinking Canadian Question that Bouchard Dared to Ask,” Economic Paradigms” in Thomas J. Report on Business, The Globe and Mail Courchene and Donald J. Savoie (eds.) The (August 11), B.2. Art of the State: Governance in a World Without Frontiers (Montreal: Institute for Research on Public Policy), 31-68.

Kirby, Michael and Wilbert Keon (2004a) Why Competition is Essential in the Delivery of Publicly Funded Health Care Services, Policy Matters/Enjeux publics, vol. 5, no. 8 (Montreal: Institute for Research on Public Policy)

Kirby, Michael and Wilbert Keon (2004b) “Why Competition is Essential in the Delivery of Publicly Funded Health Care Services,” Policy Options/Options politiques, (September), (Montreal: Institute for Research on Public Policy), 103-110.

Martin, Lawrence (1997) The Antagonist: Lucien Bouchard and the Politics of Delusion (Toronto: Penguin Books, for Viking).

Standing Senate Committee on Social Affairs, Science and Technology (2002) Recommendations for Reform, Volume 6: The Federal Role (Ottawa: Queen’s Printer for Canada)

St-Hilaire, France and Harvey Lazar (2004) “A Fix For a Generation?” Policy Options/Options politiques, (September), (Montreal: Institute for Research on Public Policy), 118-123.

Thurow, Lester (1993) “Six Revolutions, Six Economic Challenges,” The Toronto Star (January 28), A21.

Wolfe, Robert (2003) “See You in Washington? Institutions for North American Integration,” Choices 9, no. 4 (Montreal: Institute for Research on Public Policy).

Yakabuski, Konrad (2004) “The Common Sense

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