Challenging Perceptions: Twenty-five Years of Influential Ideas A Retrospective Table of Contents Preface 4 The First Half-Decade: 1974-1979 8 Entering the Eighties: 1980-84 16 Here to Stay—the Second Decade Begins: 1985-1989 32 Extending our Influence and Getting Stronger in Nineties: 1990-94 49 Prologue to the Millennium: 1995-99 64 The Next Twenty-five Years 79 The Fraser Institute 1974 •1999 Photo credits: Annabel Addington Lorena Baran Jennifer Beauchamp Andre Beneteau Randall Cosco Chris & Mona Helcermanas-Benge Kristin McCahon Joanne McRobb John Raybould Vanessa Schneider Werner Weitzel Gary Wildman Brian Willer Layout & Design: Kim Clarke, Good Impressions Printing Ltd. Research and Editorial Content: George Graham Kristin McCahon Michael Walker Suzanne Walters Advertising Coordinator: Sherry Stein Preface There was a time in Canada when people believed of the government’s debt occasioned by the inflation. that central planning activities undertaken by There was a time in Canada when many also believed government were the key to economic growth and that some services of a commercial kind could be development. It was thought that government was a most efficiently produced by the government, or by better agent of economic change and development monopolies controlled by the government. Crown because it was thought not to be subject to the same Corporations were popular in the economic frailties as the private marketplace. Because landscape and governments, particularly at the government had no need to earn a profit it was also provincial level, were busily engaged in acquiring thought public services could be provided more new Crown Corporations, mostly by taking over cheaply, and that extensive public ownership of the private sector assets. economy would lead to greater well-being for Canadians. In some provinces, the notion of the superiority of the public sector as an agent of economic development Moreover, governments weren’t subject to the same got to the point where there were musings about financial constraints as ordinary businesses and whether private property really was a desirable feature households. Whereas businesses were subject to the of twentieth century economic organization. uncertainties of economic cycles and limitations on the availability of capital for risky projects, govern- At the national level, Prime Minister Pierre Elliot ments could use the borrowing capacity of the nation Trudeau, reflecting the ethos of the times, mused to undertake economic projects that faint-hearted about the great imperfections of the marketplace, and businesses would not, or could not, undertake. upon the requirement for a greater involvement of government in the economic future of the nation. According to the then prevailing view, deficits in the public sector were, unlike their private sector With the benefit of hindsight, many people who counterparts, a virtue enabling the government to disagreed with the Prime Minister’s views have encourage economic development which otherwise thought to blame him for many of the policy would not take place. At the root of this idea was the misadventures that ensued. It is important to public policy suggestion of John Maynard Keynes remember, however, that usually the political process that, as an antidote to the Great Depression of the reflects a consensus view. So, for example, it was not 1930s, governments should run deficits. In fact, Prime Minister Trudeau, but his political opponent, Keynes also noted that governments should run Conservative Robert Stanfield, who campaigned in surpluses at an appropriate time to cool off an over- the election of 1974 on a program to impose controls heating economy. In effect, the government should on the setting of wages and prices in Canada. This run unbalanced budgets over the economic cycle in policy emerged from the perceived ineptitude of the order to lean against the prevailing economic wind. competitive market economy in making these As a theoretical construct, this approach was, without decisions, and the presumed role of greed in the doubt, correct. inflationary process. But neither Keynes nor his followers reckoned on the The problem in those earlier times, as indeed today, is foibles of the political process. Deficits mean not that some particular political figure came to spending more than a government collects in taxes, power and led the country astray. Indeed, political whereas surpluses mean spending less than they leaders usually give shape and representation to a pre- collect in taxes. Deficits are more politically popular existing general agreement. There was a time when than surpluses, at least in the initial phase of reliance the consensus view in Canada supported all of the upon them. In Canada, the cult of deficit finance foregoing notions about the role of government, and developed to the point that the federal Department of its superiority as a wellspring of economic growth. It Finance issued a report noting that during was a consensus reflected in the universities, in the inflationary times, running a deficit was the media and in the technical and popular literature of appropriate counterpart to the reduction in the value the day. No one was surprised when in his Christmas 4 The Fraser Institute 1974 •1999 message of 1974, the Prime Minister announced that priorities established by corporate capitalism are the marketplace was not a reliable economic insti- to hand. They include extensive public control tution and would increasingly have to be replaced by over investment and nationalization of the government action in order to sustain the economic commanding heights of the economy, such as the well-being of Canadians. key resource industries, finance and credit, and industries strategic to planning our economy. As noted, this view drew its intellectual support from Within that program, workers’ participation in the ideas of John Maynard Keynes and the embellish- all institutions promises to release creative ments of these ideas which had been provided by energies, promote decentralization, and restore twenty-five years of academic “scribblers,” as Keynes human and social priorities.” called them. Popular writers like John Kenneth Galbraith saw to the widespread distribution of these The sentiments articulated in these objectives were ideas and, because of the enormous powers of soon reflected in the policies of the government of persuasion he possessed, played a central role in British Columbia. Many of the people who were making these ideas the consensus view. engaged in economic activity in the province of British Columbia became quite concerned that this In effect, The Fraser Institute was founded as a ideology could have such sway in the province reaction to this growing intellectual consensus and its because of what it implied about the future manifestation in the policies of government. There development of the British Columbia economy. were two separate strands to these errant policy developments, one which had its origins in Ottawa, T. Patrick Boyle, a senior industrial executive with and the other in British Columbia. world-wide experience, and then Vice-President, Financial Planning, at MacMillan Bloedel, became In 1972, British Columbia elected its first New uneasy with the implications for the future of the Democratic Party government, the leader of which, province. Boyle was more conscious than most along with five Cabinet Ministers, had in 1969 signed people in the business community about the a document subsequently called “The Waffle Manifesto disadvantages to the community of the set of ideas For an Independent Socialist Canada.” The content of that lay behind the unfolding policy program of the this document is interesting because of the government of British Columbia. His colleague, crystallization of ideas which it contains about the Csaba Hajdu, a refugee from the Russian invasion of source of economic development, the role of Hungary, and an economist with a deep government, and the economic well-being of citizens. understanding of the long term implications of the While it was written as a political document, we cite ideas suggested in the Waffle Manifesto worked with it here, not to focus on the political aspects, but rather Boyle to think about how to deal with this issue. to highlight the sort of intellectual ethos from which Meantime, in Ottawa, Michael Walker, working as an the document had sprung, and the understanding in-house consultant with the Department of Finance, about technical economic issues that it implied. and having just come from a four-year stint at the Bank of Canada, saw the same sorts of policies being discussed and developed in the Ottawa context. “Capitalism must be replaced by socialism, by Walker found particularly alarming the fact that there national planning of investment, and by the seemed to be a consensus view developing around public ownership of the means of production in the Prime Minister’s notion that the market was dead the interests of the Canadian people as a and would have to be replaced by the more active whole...Socialism is a process and a program. involvement of government if economic development The process is the raising of socialist and growth were to be sustained. Since Csaba Hajdu consciousness, the building of a mass base of and Michael Walker had shared an office as graduate socialists, and a strategy to make visible the students at the University of Western Ontario, they limits of liberal capitalism. While the program were in touch during much of this time. must evolve out of the process, its leading features seem clear. Relevant instruments for During one of these meetings the subject turned to bringing the Canadian economy under Canadian the issue of the structure of economic policy and ownership and control and for altering the what it implied for the future. Both realized that they 5 The Fraser Institute 1974 •1999 shared a similar dread for the country and for the specific purposes and program of which would be deterioration of the economic well-being of determined by discussion.