Contents      .......        November 1996

Editor's Notes
This Issue's Authors

Cover stories :
Plate Tectonics and Canadian Unity
Nation-Building or Nation-Killing? Two Views of Quebec's Future
Canada Clock Turned Back
Quebec Nationalism Versus the Internet

Also Featuring :
The Fiscal State of the Nation
Taxpayer Funding of Acute Care Hospitals
November Questions and Answers
Welfare, Policies, and Economics
Student Profile: Avril Allen
A Tale of Feast and Famine
Wrapped in Red Tape
A Dialogue About Business
System of "Parole" for Maintenance Enforcement Clients
Student Essay: Hiding Behind the Union Label
Discrimination is So Petty

Editor's Notes

You might think that because Quebec sovereignty is discussed only infrequently on the evening news that this issue has died. We in ROC-the part of Canada outside Quebec-hope the issue has somehow magically gone away. Maybe Quebecers will forget that there was a referendum recently, and the results were as close as they were. Maybe Quebec's economic picture is too gloomy for that province to ever seriously consider sovereignty. Maybe Quebecers will suddenly decide that a united nation is a better nation for everyone.

This issue of Fraser Forum demonstrates that the issue has indeed not gone away. Many Quebecers are still ardent sovereigntists, and, as invited Institute speaker Professor Daniel Turp illustrates, are still working doggedly towards their vision of a new, independent Quebec. Meanwhile, the native people of Northern Quebec want their voices heard. They very clearly do not want to be part of a Quebec separate from Canada. Another Institute speaker, Inuit leader Zebedee Nungak, articulates this position equally forcefully.

Both talks are reprinted in this issue. I think you'll find the two visions very revealing. We are obviously a long way from solving the "Quebec problem."

This Issue's Authors

Joel Emes has his Masters in Economics from Simon Fraser University. He is a research economist at The Fraser Institute.

Gordon Gibson is The Fraser Institute's Senior Fellow in Canadian Studies. He has served both as an MLA and as leader of the B.C. Liberal Party (1975-79). He is a columnist and Institute author.

William McArthur, M.D., is a Visiting Fellow in Health Policy at The Fraser Institute. He is a practising physician in Vancouver, and was B.C.'s first Chief Coroner.

Fazil Mihlar is Policy Analyst at The Fraser Institute. He received a B.A. in Economics from Simon Fraser University, and an M.A in Public Administration from Carleton University.

Lydia Miljan is Director of the National Media Archive, a division of The Fraser Institute. She earned an M.A. in Communications from the University of Calgary. She researches and writes On Balance.

Kate Morrison is Co-ordinator of the National Media Archive. She has a B.A. (Honours) in Economics and Communications from Simon Fraser University.

John Robson is a freelance writer based in Ottawa. He has his Ph.D. in History from the University of Texas at Austin. He has written several Critical Issues Bulletins and many articles in Fraser Forum.

Rico Sabatini has an M.A. in Sociology. He is the author of the recent Fraser Institute book Welfare-No Fair: A Critical Analysis of Ontario's Welfare System (1985-1994).

Christopher Sarlo teaches economics at Nipissing University in North Bay, Ontario. He is the author of Poverty in Canada, published by The Fraser Institute.

Karen Selick practices law in Belleville, Ontario, and is a columnist for Canadian Lawyer. You can reach her at kselick@connect.reach.net.

Michael Walker is Executive Director of The Fraser Institute. He received his Ph.D. in Economics from the University of Western Ontario. He has written, edited, or co-authored dozens of Fraser Institute publications.

Mark Weller is the Manager of Information Systems at The Fraser Institute. He has a B.A. in International Relations from the University of British Columbia.

Plate Tectonics and Canadian Unity

Gordon Gibson

Plate tectonics and the evolution of the Canadian constitution have a lot in common. They both move on a geological time scale, and produce wrenching adjustments when movement does occur.

In both cases, there is immense resistance to change, which means that pressures really have to build before anything happens. That pretty well guarantees that we will continue to lurch through our constitutional development, just as earthquakes will continue to signal modifications in the earth's crust. It's too bad-there is nothing we can do about earthquakes with current technology, but you would think we'd be smart enough to provide for smoother transitions in our own affairs.

The theory of continental drift has been well popularized. Enormous "plates" of solid crust float on the viscous mantle of the earth, bearing the continents and sea floors. These plates are in constant slow motion, driven by subterranean forces beyond our ken. Where they grind and press against each other, mountains may rise or rifts appear over the millennia, with the occasional stress releasing shock of earthquakes and vulcanism. Now, on the shorter time scale of mere mortals, look at how our constitution has evolved.

It all started in 1864, as previously separate colonial islands began to move towards each other. As with continental movement, there were enduring underlying forces. Four in particular are notable: the economics of free trade ("reciprocity"), the political relationship with the United States, just ending its terrible Civil War, technology, then symbolized by the railways, and French Canadian nationalism, which was making the old colony of Canada ungovernable.

These forces built until they were sufficient to overcome the institutional inertia of the colonial governments and the British government. And so, with the shock of the great political earthquake of 1867, a new Canadian constitutional continent was created, made up of several provincial plates. (Two of these, Ontario and Quebec, were new, based on the split of the old plate previously called Canada.)

The constitutional continent was added to in a series of quakes over the next 50 years, as the P.E.I., Manitoba, and B.C. plates were added. Then the Rupertsland plate split into Alberta and Saskatchewan, and with the exception of a minor collision-to-come with Newfoundland on the Atlantic coast, the constitutional continent was complete. But it continued to change in other ways.

Ongoing decisions of the British Privy Council dramatically altered the balance of power between the central continent and the provincial plates, raising the latter in importance. Then in 1931, the Statute of Westminster severed an old legal bridge to Britain, as we gained control of our foreign policy.

The economic forces of the Great Depression changed the tilt of the continent again, with the constitutional amendment giving Ottawa power over Unemployment Insurance. The unstoppable drift from the mother plate was made evident in another lurch in 1949, when appeals to the Privy Council were ended, and the Supreme Court really did become supreme.

The social and economic forces unleashed by the Second World War shifted more power to the centre, with the constitutional amendments of 1952 and 1964 which gave Ottawa authority over old age pensions. And then began a long period of geological peace and quiet. There was a slow and continuous drift to the centre driven by the use of the federal spending power, but no more constitutional quakes for quite a while. But deep in the fluid political core of Canada, pressures were building.

These pressures were of two sorts. One was regional in nature-a growing demand for more local control, as the new economic force of globalization and the new technology of computation and communications gave both a reason for and a method of decentralizing decision making. The other was the enduring force of nationalism, much escalated in its French Canadian manifestation, and reawakened in the many (much smaller and more diffuse) aboriginal varieties.

After false alarms (the Victoria Conference of 1970) the earth moved again in 1982, with the patriation of the Canadian constitution, and the Charter of Rights and Freedoms, a significant shift in power among governments, the courts, and individuals. But the major stresses, French Canadian nationalism and the decentralist pressures of economics and technology, had not been addressed. Those forces continued to build, unrelieved by the new false alarms referred to as Meech Lake and Charlottetown.

Which brings us to today. We can be quite sure of another major constitutional shift, based on the power of the underlying pressures. It is quite certain that the economic and technological factors are not going to go away. Globalization and technology continue to reduce the effective size of the larger world, leading citizens to look for more control over their local environment through local, not national, politics, the local variety being inherently more controllable and responsive on the average. "Rebalancing," as it is now called, will indeed involve upward and downward devolution, but the net balance will unquestionably be decentralist in nature, including considerable privatization.

At the same time, the pressures of French Canadian nationalism are at historically peak levels, moving in cycles as always, but with absolutely no sign of secular abatement. Regional and ethnically based "nationalisms" of other kinds continue to build across the country, particularly in the west and in northern Quebec.

The only question that remains is whether the next constitutional shift, which is likely to be the largest since 1867, is going to be planned or unplanned. Will it come about in one violent jump, triggered most likely by a "Yes" vote in Quebec, or will it come through a series of negotiated smaller steps? The question matters, because as is so often the case, different routes will lead to different destinations.

To put it in the starkest of terms: a planned and negotiated Canada would still exist in a recognizable shape. But if change happens by way of constitutional earthquake-and it is the Big One-then all bets are off, and in addition to a new island of Quebec, there will be a new island plate of some size-to-be-determined floating free on the Pacific Coast.

Nation-Building or Nation-Killing? Two Views of Quebec's Future

The Fraser Institute's Canada Clock shows that there is a smaller probability of Canada breaking up than there was when the setting was last made in June of this year. For now, it seems, our home and native land is somewhat more secure.

Perhaps. But, the panel of experts which we assembled last year to monitor the situation now place a higher probability on the Canada-splits-up outcome. This is disturbing because this panel has been selected from amongst people who have been observing the constitutional situation in Canada for a very long time. They have learned to discount the short-term ups and downs in public opinion and to focus on the fundamental determinants. They are telling us that nothing has changed to improve our chances of preserving Canada.

During the past number of months we have had many visitors to the Fraser Institute who have shared with us their views about our constitutional dilemma. Two of these visitors came from the province of Quebec and have very different views about the future.

Daniel Turp is certainly the most influential of the young members of the Parti Quebecois. In his views we capture the essence of those whose dream involves the dissolution of Canada as we know it.

Zebedee Nungak is an aboriginal leader respected in Quebec and the rest of Canada for his equally strongly held but very different views about the future of Canada and Quebec. We offer their papers and their discussion with our luncheon guests as one more piece of information that will help us all see what must be done to save Canada.

Drawing a Line in the Tundra: Why Inuit of Quebec Will Not Be Part of an Independent Quebec

Zebedee NungakZebedee Nungak was born in 1951. He went to Ottawa in 1963 and later became the first secretary-treasurer of the Northern Quebec Inuit Association in which capacity he helped negotiate the James Bay and Northern Quebec Agreement. He has been active as an Inuit leader for 20 years, representing his people at the First Ministers' Conference on Aboriginal Rights, and chairing the Inuit Justice Task Force in the early 1990s. Recently Mr. Nungak became President of the Makivik Corporation, which is leading negotiations with the governments of Quebec and Canada regarding the creation of a Nunavik Assembly. He spoke to a Fraser Institute Round Table audience in Vancouver on June 13, 1996.Note

It is a pleasure for me to have accepted The Fraser Institute's invitation to speak.

Having mastered English, a foreign language to me in my youth, I have used my facility in it to wrestle with the issues my great-grandfather and his contemporaries were never given the opportunity to address in their time. And I will speak to more of this later when I get around to a bit of the historical context of my speech. I am immensely proud of my identity as an Inuk-an Eskimo-and the fact that my own language is one of the few Aboriginal languages in Canada that is vibrantly healthy. It is the language of the Inuit of Nunavik, and with dialectic variations is spoken in the polar world, stretching from Arctic Alaska through Arctic Canada to Greenland.

Now why am I here at the Fraser Institute in Vancouver, when I ought to be out hunting and fishing, out on the land as is the main preoccupation of my people at this time?

In the two referendums that have been held in Quebec we have found it necessary to defend our rights and place in Canada in the face of the sovereigntists in Quebec trying to extract Quebec out of Canada. We have delineated our own position and elaborated our own rights. We have done it very publicly, very proudly, and very honourably. But before I describe this any further, let me first reiterate some dates in history and some political earthquakes which have affected my people.

Note that history for us did not start in the year 1534 when Jacques Cartier landed on the shores of the St. Lawrence River. It did not start in 1608 when Samuel de Champlain came over to colonize what was then called New France. And it did not even begin in 1670 when King Charles the Second issued a proclamation identifying a vast territory known as Rupertsland-all the land mass with rivers draining into the Hudson and James Bays.

The first political earthquake, then, was the stroke of a pen determining for my ancestors their political status, without anybody seeking their consent. So we were Rupertslandians or Rupertslanders for the next 200 years until 1870 when the infant Dominion of Canada got Rupertsland as a transfer, along with the territory called the Northwest Territories. At that time my ancestors became Northwest Territorians-again involuntarily. Nobody sought the leadership of our people-the consent that we believe would have only been decent of the powers that were doing these things to obtain.

The next political earthquake happened in 1912 when the Federal Parliament enacted the Quebec Boundaries Extensions Act and declared my homeland Quebec! Now put yourself in my great-grandfather's sealskin boots. He woke up one morning in 1912 a newly minted citizen of la belle province. He and his contemporaries were never asked or even informed-not so much as a notice telling him that he was now a resident of this jurisdiction. And it is in my great-grand- father's memory that I so vigorously articulate in English the Inuit position as to where we stand.

Since 1912 we have been involuntary Quebeckers, but the government of Quebec took 52 years to wake up to its territorial gain and it was only in 1963 that we saw finally our first functionaire from the government of Quebec, a man who swaggered into town like the new sheriff, demonstrating to anyone who would listen that he was the new boss in town.

From about the mid-'60s to the mid-'70s, we had two levels of government-the federal and the provincial-overgoverning us and our territory, with us having absolutely no say or influence in how government conducted its services and its activities towards our people and our territory. Even the names of our communities were bandied about from English to French until 1975, when we signed for the first time an agreement where we voluntarily defined the power relationship between ourselves and the two levels of government.

So this is a brief description of the strokes of pens that determined the political status of our territory, without our knowledge or consent. Stroked into Quebec, we were stranded as an Arctic territory in a non-Arctic jurisdiction-a misfortune of history that now has us standing up to those who would have us extract Quebec out of Canada.

During the last October referendum, the sovereigntist leadership did not bother to campaign in Nunavik. They did not bother to articulate for us as a people living in a distinct territory what was in it for us if we accepted and embraced Quebec sovereignty. The sovereigntist leadership dismissed our own referendum process in which we held a referendum in this territory independent of the one that was held in Quebec. They attempted to characterize our own referendum as of no consequence. But that did not stop us from holding it anyway, because we believed, as we did in 1980, that ours is a very strategic piece of geography and we ought to demonstrate where we stand and why we stand there, not only to the sovereigntists but to the country as a whole.

This has important implications for the sovereigntists because one of their mantras is the so-called "territorial integrity" of Quebec as it is today. One of the misconceptions that I would like to point out is about how Quebec has behaved and continues to behave, in regard to its position and the sovereigntist leadership's effort to extract this jurisdiction out of Canada. The sovereigntist leadership treats Quebec as one large homogenous, hegemonic unit-a distinct society, a principal homeland of the French language and culture. But it is not that.

When I'm standing on the edge of Hudson's Strait and I'm looking out across the Dig's Islands where Henry Hudson and his crew stopped over in the 1600s to get some water and myrrh eggs, I don't feel it, I don't sense it, I don't see it, because this territory is Inuit territory. And we are not partakers in this homogenous, hegemonic unit called Quebec. Those of us living on the top two-thirds of the land mass, and if I might add, the southern portion inland from the James Bay coast where our colleagues the Cree Indians live, have a lot of trouble associating ourselves with what has been described to death as a "distinct society." The one thing we fear more than living in an independent Quebec, is a distinct-society Quebec where we are "outdistincted" by the overwhelming majority, with all due respect to the French majority.

It is such a misconception that Canada is a country built on the basis of two nations-French and English-two solitudes-French and English. I often have to say to that, "Hello! We're here!" We're neither French nor English. This is our home and native land, and we do not believe that we should be bandied about from jurisdiction to jurisdiction as we have been in the past, with absolutely no regard for how we feel, where we want to be, how we want to define our own relationship to the governments.

Now while I've covered some misconceptions, I would like to make it clear that our beef is not just with the sovereigntists, their leadership, and their desire to extract Quebec out of Canada. If we have a beef with the sovereigntists, we're not beefless towards the Federal government who, in the aftermath of the referendum, has conducted itself towards aboriginal people as though we are unwanted orphans foisted on a reluctant uncle who knows he has a fiduciary obligation to tend to our rights and our place in the country but is scratching his head and doesn't quite know what to do about it all. I'm saying this having been involved from 1983 to 1987 in the First Ministers' Conferences on the constitution on Aboriginal Affairs. We as Aboriginal people have communicated to the government of Canada since the referendum our longing to be included, to participate, to have a place made for us in the country, to finally have our crack at 1867, when the country was carved up without any regard to how we saw ourselves in its political equation.

Recently I and other Aboriginal leaders met with intergovernmental affairs minister Mr. Stéphen Dion and three federal ministers. I can only describe the meeting as a pacifier, designed to hold our hand, soothe us, and tell us that non-derogation clauses are adequate to protect our place in the country. This to us, who have tasted what goes on, simply doesn't cut it. No one seems to want our positive participation in nation-building despite claims of wanting to correct the mistakes of the past, to make Canada complete. There is fear of the concept of a third solitude.

I've often said to federal ministers and to the Prime Minister that Canada is going to have us one way or the other, so it might as well start the process of including us now. So far we have not seen a reflection of ourselves in the federal government's initiatives on Canadian unity. We don't see our place in Canada being given its due. We are constantly told to wait our turn, that there will be a day, someday in the vague future, when the country will make room for its aboriginal people, as a bona fide part of its political and constitutional structure. We are told to try to live happily ever after, and be content with the status quo; we have made it very clear in many forums that this is not what we are willing to do.

I would just like to dwell a little bit on the James Bay and Northern Quebec Agreement. This deal, which I helped negotiate, was the first that people living in our territories, along with the Crees, willingly established with the governments of Quebec and Canada. We did it on the basis of a united Quebec and a united Canada. We negotiated with a Liberal government in Quebec City, and a Liberal government in Ottawa.

Recently I've been surprised to hear Robert Bourassa, premier of Quebec at the time this was negotiated, making statements to the effect that the Cree and Inuit forever signed their rights away in 1975, and that the status of the Cree and Inuit territories in Quebec should be taken for granted as part of the permanent territorial integrity of Quebec. This is simply untrue. We signed that agreement under very specific terms. We made sure that once the agreement was signed, it was placed in the legislatures of both Canada and Quebec, so that it would not be subject to unilateral arbitrary changes, which we've had enough of in our history.

The moment the equation under which we signed that agreement is altered or changed in any way, either by a unilateral declaration of independence or some attainment of sovereignty by the government of Quebec, nothing is sacred any more. The terms under which we signed that agreement defining a relationship between ourselves and the two governments goes right out the window. I have to make that very clear to everybody.

In the debate that has been triggered by the referendum and the causes of separatism I have often been asked by journalists and others if the northern Quebec people in Nunavik have any desire to join Nunavut. And I have to admit that the hangover from the referendum, the debate that has dragged on and on since, has forced us to think out loud about exactly such a thing. It would be the most natural thing in the world to rejoin our relatives in Nunavut, and work on building it, and at the same time get rid of this never-ending uncertainty about the political status of Quebec and where we as the Inuit of Quebec fit into it. We are seriously exploring this option.

Another option is to declare Nunavik a territory in its own right, one politically attached to Canada, come what may. Of course, certain legal and constitutional issues must be addressed in either eventuality. Something else that we have been considering in the aftermath of the referendum is for the Cree Indians, either unilaterally or in conjunction with us, to do just what we are talking about.

Mr. Parizeau has described the separatism issue as a never-ending visit to the dentist. We ask ourselves, is this our lot in life? To make never-ending visits to the dentist? When can we consider our teeth healthy? Do we get pushed and shoved into this quagmire every time the separatists hold a referendum? The fact that we've held our own referendum twice, and the prospect of having to have our own referenda yet again is directly proportional to the number of future referenda the Quebec government will conduct. In our referenda we have consistently "drawn a line in the tundra" across the 55th parallel. We are constantly forced to be on the alert, to defend what we have- those hard-won rights that we have attained-and it is something that we don't do for the fun of it.

Having thought out loud about our three options: joining Nunavut; establishing our own territory and insisting that Canada connects it politically to Canada; or having a variation of it with the Cree Indians; we see the sovereigntist leadership huffing and puffing about territorial integrity. They are trying to attain international recognition, and are biting at anybody who questions the prospects that I've talked about. But just because they are displeased, is that any reason to stop talking about our options or stop pursuing them? No. We have made our stand plentifully clear. We are not interested in living in an independent Quebec. We are determined never again to have our political status determined by somebody else without our consent. We have articulated our position without asking permission from Canada to do so. We have not done it by pleading with the sovereigntists to stop their projected ambition to extract Quebec from Canada.

The Inuit living in my territory-about 8,000 people-are few in number, so the sovereigntists try to describe this as insignificant. But not only are we aboriginal to this territory, we are treading on a lot of geography. And we are resisting any effort to marginalize or describe as insignificant our place in this debate. We have stood up and we have been counted, and we will do so again if necessity dictates it.

Questions for Zebedee Nungak

Q: You said that in your three-way negotiations with the governments of Quebec and Canada, that you didn't see your place in Canada being given its due. Assuming we can work out a solution, can you describe for us what the eventual place in Canada of Nunavik would be?

A: We were engaged in a tri-partite negotiating process up to last June with the governments of Quebec and Canada to give birth to a Nunavik government. We were attempting to define a form of government for that territory, a form of government that we have been talking about for over 20 years, a public, non-ethnic form of government that would be the recipient of jurisdictions from both the federal and provincial levels. Seventy-five percent of the work has been done. We have an idea of what this creature would look like. We have a catalogue of its jurisdictions and its responsibilities. We have a sense of how it would be financed by block-funding and revenue sharing. Unfortunately, this process hit the brick wall of the referendum season, and has been waylaid and broadsided by its aftermath, and is right now stagnating.

To answer your question, we eventually have to define a relationship that will forever place this territory, its people, and its governance in the hands of those who live there, with the agreement of the governments of Canada and Quebec. Our world is complicated by the fact that one of the governments we are dealing with happens to be sovereigntist, and has an ambition to take this territory out of Canada. It may be a blessing in disguise that the efforts to agree on a self-governing entity for the territory is now stagnating. Until we see how aggressive the government of Canada is willing to become to defend the rights of the aboriginal people who happen to be stranded within the boundaries of Quebec, I can't really answer that question. As I said, the federal government has not been exactly galloping to our rescue since the referendum, and we cannot force it or bulldoze it or manhandle it to do something it is not going to do. So the federal authorities are largely in charge of establishing political stability for us in the territory.

Q: Do you predict any tensions or stress for Canada with the creation of a territory associated with ethnicity, that is, could we see an aboriginal separatist movement? And second, how do you envision aboriginal participation at the federal and provincial levels. Specifically, should there be reserved seats in Parliament for Aboriginal representatives?

A: First, yes, I do foresee tension or aboriginal separatism growing out of, or resulting from, the aspirations of Nunavik. I'm not a prophet or a seer, and I don't have a crystal ball. But I can say that doing what we have to do to defend ourselves is in many ways very fluid. I can't give a rigid answer and say "yes there will be an aboriginal separatist movement and you had damn well better prepare for that too!" because we're having a crack at trying to convince the government of Canada to accommodate our place and our rights and to defend us from having our relationship with the federal crown simply snipped by a pair of scissors called Quebec sovereignty. But we can't have this be the preoccupation of our lives forever. At some point we're going to have to decide whether we want to be a part of Nunavut and absolutely insist on it. Whether or not you want to describe it as aboriginal separatism is another thing. The Nunavut territory is a non-ethnic public form of government. Non-Inuit, non- aboriginals who live and reside in that territory will have a vote, and will have a right to run for election based on residency, as we still have the ambition to do in the Nunavik region. So strictly on an ethnic aboriginal basis, when I'm asked if there will be a separatist movement, I say that we'd like to avoid it if at all possible. And therefore we want to convince Canada to bend the rules to do what they have to do to make a place for us.

In answer to the second question, how do we see ourselves and the involvement in the federal and provincial process, we'd like to be full participants. How exactly the mechanics of full participation would be threshed out, I can't describe for you. The country will exclude aboriginal people in defining vetoes, distinct societies, and other initiatives to the exclusion of aboriginal people at its peril. We are a large piece of unfinished business in the country's constitutional, legal, and political structure. We will diligently pursue being included as full participants. We won't accept "we'll get around to you when we damn well feel like it"; we are a third solitude in addition to the two you've reserved for yourselves.

Q: What do you propose that we should do to support your position?

A: You can express your concern to your MPs, the people to whom you relate, the people whom you elect, the people with whom you have connections, the people over whom you have some influence. (I lack influence in that I am living in an obscure village in this territory. I don't even have a Member of Parliament to whom I can relate as the two of them who represent my territory are Bloc Quebecois MPs.) Express your support of us to the people upon whom you depend to represent you in the legislatures-provincial or federal. That would go a long way towards helping me and my people fight this battle.

Quebec's Agenda for Sovereignty and Partnership

Daniel TurpDaniel Turp is Professor, Faculty of Law, Université de Montréal, and since 1994 has been President of the Bloc Québécois Policy Committee. He was the Bloc Québécois candidate for the federal by-election in the riding of Papineau-St. Michel earlier this year. He spoke to a Fraser Institute Round Table Luncheon audience in Vancouver on March 27, 1996.Note

Although Lucien Bouchard put the emphasis on good governance in his inaugural address before the National Assembly in Quebec, the agenda for sovereignty and partnership is a living agenda. In itself, the result of the referendum of October 30th keeps the agenda alive. Although 49.42 percent voted in favour of authorizing the National Assembly to proclaim the sovereignty of Quebec and propose a formal economic and political partnership with Canada, the results of the referendum, which have been accepted by the sovereignty forces, are not the only, and even the most important factor, in keeping the idea of sovereignty and partnership alive and well.

The first proposals of the Chrétien government to reform the Canadian federal system have played a key role in allowing the sovereignty and partnership proposal to keep its momentum. The proposals put forward by Jean Chrétien in November 1995, relating to distinct society, the veto, and the devolution of control over manpower and training, have come under heavy criticism in Quebec, as well as in some provincial governments and legislatures.

Quebeckers do not consider these proposals satisfactory, and the Bloc Québécois, the Parti Québécois, and the Action démocratique du Quebec have rejected them as insufficient measures to deal with Quebec's fundamental claims. Additional proposals for federal renewal are apparently in the making, but federal ministers, including the Minister of Intergovernmental Affairs Stéphane Dion, seem to have been busier intimidating Quebeckers and Quebec with a "Plan B" relating to the terms of secession, than in presenting proposals for an authentic renewal of the Canadian federation which could satisfy the aspirations and claims of Quebeckers.

Whatever stems from these proposals for federal reform, sovereignty and partnership appear to remain a competing choice for Quebeckers. Quebeckers will have the choice in the next general election to vote for a government that favours sovereignty and proposes to hold a referendum on such an option. Thus, the political status of Quebec could be once again an issue for a referendum ballot, and the sovereignty and partnership proposal could be the govern-ment's favoured proposal.

For the leaders of the sovereigntist movement, for a growing number of Quebeckers, and for myself, sovereignty continues to be viewed as the best solution on an agenda for change, while partnership is seen as the key element on the agenda for continuity. Let me thus make a few general observations on the sovereignty component of the proposal to which I am committed, but focus more on the partnership element of the agenda.

Sovereignty: the agenda for change

For about half of Quebeckers, sovereignty is considered the only plausible means for achieving change and obtaining the powers required to pursue Quebec's economic, social, and cultural development. Constitutional remedies have proven to be unsuccessful and there is a growing belief that such remedies have been exhausted. This explains the constant increase in the number of those willing to entertain sovereignty as the future political status for Quebec and as the only real instrument for change.

In the wake of the demise of the Meech Lake Accord and the context of an emerging consensus in Quebec on the sovereignty option, a clear definition of sovereignty was agreed upon by the members of the Bélanger-Campeau Commission. Sovereignty was hence viewed as the "exclusive capacity, through its democratic institutions, to adopt laws, levy taxes within its territory and act on the international scene in order to conclude all manner of agreements or treaties with other independent States, and participate in various international organizations."

Giving such content to the notion of sovereignty was useful and revealed an intention to inform the people of the real implications of sovereignty. This definition became a common reference and was espoused by the new government of the Parti Québécois in 1994 when it set in motion the process which led to the 1995 referendum in introducing the Draft Bill on the Sovereignty of Quebec and in creating regional and national commissions on the future of Quebec to hear the "thoughts and expectations" of citizens about the draft legislation. This definition was again mentioned in the explanatory notes of the Draft Bill and additional annotations made it clear that "[w]hen becoming a sovereign country, Quebec will cease to be part of Canada ...[and] will become an independent nation like France, the United States of America and the other members of the United Nations."

This bill helped clarify the meaning and scope of sovereignty. Although some ambiguities might have resulted from the links between sovereignty and partnership and the confusion orchestrated by our federalist opponents, the leaders of the main sovereigntist parties endeavoured to dissipate any confusion by making it clear during the 1995 referendum campaign that sovereignty did entail Quebec becoming a newly independent state. To them, achieving sovereignty did not imply gaining more powers within the federal system, but to accede to the status equal to that of those other approximately 191 entities that qualify themselves as states in accordance with well established principles of international law.

Sovereignty was not thus envisaged, in strategic terms, as a threat to induce some additional degree of decentralization and autonomy within the federal system, as a "knife under the throat of the rest of Canada" as Léon Dion, the father of Minister Dion, once put it. Sovereignty was either a goal to be achieved or, at the very least, a means for producing a change that would inevitably lead to the creation of an internationally-recognized state. These clear statements of the sovereigntist leaders succeeded in dissipating most of the confusion, as polls demonstrated that more and more Quebeckers clearly understood the meaning and underlying consequences of sovereignty. The argument that Quebeckers did not understand the true meaning of sovereignty and were not aware that it implied the creation of a new country is simply inadmissible, especially in the light of the remarks made by the prime minister of Canada himself in his message to the nation on October 25th.

According to Mr. Chrétien, voting "Yes" in the referendum would have led to a "final and irrevocable" decision by Quebeckers to sever links with Canada.

The concept of sovereignty has evolved as a notion and it seems to accommodate itself with the creation, or in the case at hand, the maintenance of links with other sovereign states. For historical reasons, but also for motives linked with the contemporary trends in favour of economic and even political association, sovereignty-seeking peoples have not refused to consider the prospect of exercising some jurisdictions in common with other states. Quebeckers have come up with innovative proposals to bind, albeit in a different format, their future with other Canadians, and have recently given a new meaning to the notion of association with Canada in proposing to establish an economic and political partnership.

Partnership: the agenda for continuity

While the thrust for change is led by the claim and articulation of the sovereignty agenda, Quebeckers clearly want to ensure a considerable measure of continuity in their relationship with Canada. Many sovereignty promoters have an authentic, and in many cases, an emotional attachment to Canada. This attachment stems from a shared common history and destiny with the other peoples of Canada, from 128 years of federal experience, and from the networks of personal, professional, and political links that have been woven by the citizens of Quebec and Canada. Quebeckers can remind other Canadians that the Canadian experience is their experience, nurtured through their leaders, symbols, and a great deal of commitment, to the economic, social, and cultural successes of such an experience. This state of mind should be conducive to a special relationship with the rest of Canada even in the case where Quebec does achieve sovereignty.

The Canadian experience has not been able to meet the Quebec challenge, and it should be replaced by a new experience, an experience in economic and political partnership. Since the creation of the contemporary sovereignty movement, economic association with Canada has been an integral part of the sovereigntist discourse. A reading of the founding manifesto of the Parti Québécois, Option-Québec, shows the importance of the association leitmotif of this discourse. This fundamental component of the political project of the sovereigntists is not seen as contradicting this project. It is, on the contrary, something that sovereignty can render possible, as it has been proven with the experience of the European Communities oft-cited in the original literature of the sovereigntist movement.

In the particular case of Quebec and Canada, there are compelling reasons to opt for the maintenance of an economic partnership. A close examination of the economic data shows, among other things, that something like $60 billion in trade and services are exchanged between Canada and Quebec and that half a million jobs depended on such trade. The economy of Ontario is largely dependent on Quebec as a trading partner: at least 250,000 Ontarian jobs, as well as a trade surplus of more than $2 billion, could be in jeopardy if an economic partnership is not maintained after Quebec's accession to sovereignty. Neither should one neglect the importance of trade between Western Canada and Quebec; it amounted to $14 billion in 1990. Quebec's imports to the West totalled more than $5 billion. Almost half of the trade with Western Canada is with British Columbia; the $2 billion in exports from British Columbia to Quebec represent nearly 20,000 jobs.

The Tripartite Agreement between the Parti Québécois, the Bloc Québécois, and the Action Démocratique du Québec on June 12, 1995 which was later incorporated in the Bill on the Future of Quebec, gave a prominent place to a proposal for economic partnership. Invoking the significant trade volume between Quebec and Canada as well as the extent of their economic integration, the Tripartite Agreement clearly opted for a partnership that would take the form of an economic and monetary union. The partnership would thus have the authority to act in the areas of customs union, free movement of goods, individuals, services and capital, as well as in matters of monetary policy and labour mobility. Furthermore, agreements in other matters of an economic nature could be negotiated, in areas such as international trade, transportation, financial institutions, and fiscal and budgetary policies.

This proposal was clearly made to assure the continuity in the trade relations of Quebec and of Canada. Most economic actors realized that it was in every party's interest to maintain the Canadian economic space and not upset the patterns of trade between Quebec and Canada. Polls had revealed, and continue to do so, that a majority of Canadians are willing to negotiate a treaty for economic association with a sovereign Quebec.

The sovereigntist forces (specifically the Bloc Québécois) went beyond the proposal of economic partnership and included in their offer elements of political partnership aimed at ensuring a certain degree of political continuity in the Quebec-Canada relationship. The Tripartite Agreement itself suggested that the partnership treaty would create joint "political" institutions that would be required to administer the new economic and political partnership. But, in looking at the list of areas where jurisdiction is given to the partnership, one can also sense the will to initiate a political partnership as well. The best example of this will is the reference to citizenship among. Although it is difficult to assess the real meaning of this reference to citizenship, it could entail the existence of a citizenship of the partnership, analogous to the citizenship of the European Union, or that, with regard to citizenship, the partnership could set the rules to determine what rights and obligations are to be recognized to those people who retain the respective citizenships of Quebec and Canada. Other examples of political partnership are the areas of international representation and defence policy, where joint participation in peace-keeping operations or a coordinated participation in NATO and NORAD is envisaged.

The matters that could be qualified as political are thus few and this explains the reluctance to enter into a more ambitious political partnership. If the making of a political union is rather difficult in an aggregate process such as the process under way within the European Union, this difficulty can also be understood in the context of the disaggregation of a state and the unwillingness of the seceding entity to rebuild a political union which has justified to some extent its drive towards sovereignty. It is thus understandable for example that one discards a proposal to elect the members of a Parliamentary assembly through universal suffrage and to give such an assembly legislative power when the cause of many of Quebec's past grievances is its minority status within the House of Commons and the abuse of legislative power by the Canadian Parliament as a whole.

Here, the agenda for continuity reaches its limits. If the economic partnership is desirable and it makes little sense not to maintain the free flow of goods, services, capital, and persons, the political partnership proposal deserves to be initially modest in its outlook. But for many Quebeckers, a limited form of political partnership is also desirable and could progressively lead into more advanced forms of political union. One can point to the experience of European integration to show that political union needs time to emerge and that it can only be accomplished at a progressive and slow pace. Such could also be the case of Quebec and Canada, if the latter showed some willingness to enter into negotiations to rebuild, not only on economic grounds, but on some modest political basis, a partnership with Quebec.

For many Quebeckers-I believe a majority-Canadian federalism has reached the limits of its potential. The 1995 referendum has probably created, as we say in French, a point de non-retour, which will most probably be confirmed by the inability of the rest of Canada to offer a valid federalist counter-proposal to Quebec before the 1997 Constitutional Conference that is to be convened in accordance with the Constitution Act of 1982. Some structural impediments are entrenched in the federal body politic, such as the notion of the equality of provinces, and make it impossible to accommodate Quebec's past and present demands for more powers within the confines of the federal system. Although one can acknowledge the existence of some enlightened proposals for reforming federalism in Canada, such as proposals of binational or partnership federalism, these proposals seem to be non-starters in the political circles in the rest of Canada.

In a sense, Quebeckers might have resisted the temptation to vote "Yes" on October 30th 1995 because they wanted the rest of Canada to get ready for a serious and meaningful negotiation on the proposal of economic and political partnership put forward by the government of Quebec at the request of the Quebec people. It is my wish, and the wish of many Quebeckers, that the proposal for an economic and political partnership with Canada be revisited and refined, and that the governments of Canada and their leaders look into the partnership proposal with an open mind and a critical eye. Negotiations could even be held on those foundations even before a new referendum is called by the government of Quebec.

Such a path would be much healthier than a discourse using threats to the territorial integrity and the economic stability of Quebec, and would be much healthier than emphasizing the illegality of Quebec's eventual accession to sovereignty, or the need for a higher vote hurdle.

Sovereigntists do not want to destroy Canada. Their intention is to invent a new country with its own distinctiveness, ambitions, and struggles. But we are also committed to building new bridges with a neighbour, a country with which we would like to enter into a friendly, peaceful, and novel form of union, which could be labelled, for the sake of history and continuity, a new Canadian Union.

Questions for Daniel Turp

Q: The Fraser Institute has for some time been trying to find a solution to the issue of "distinct society." Most of the people in Canada feel that 'distinct society' status means a special status for Quebec, and a status which sets Quebec apart from the other provinces, and this they don't believe is fair.

Gordon Gibson has proposed a very innovative approach to distinct society-to give constitutional recognition to Quebec as a distinct society, but to provide also that, in the event that this clause should ever be used constitutionally to interpret the laws of Canada in a way that conveyed any advantage, that this constitutional interpretation itself would be open to every province. In other words, there would be distinct society status, but that distinct society status would not provide any economic advantage. What is your view is of this proposal? Do you think it has any merit as a way of dealing with this conflict between distinctness on the one hand, and unfairness, which is widely perceived by Canadians, on the other?

A: I have very strong views on "distinct society," but they are probably not the ones you think I should have. The concept is simply moot. The concept was created by Monsieur Bourassa and Monsieur Remillard in the mid-'80s to provide Quebec with some leverage to gain more powers, and to allow for a new distribution of powers. When that was seen and discovered, the procedure was started to dilute the meaning of distinct society, to limit it to the process of interpreting the constitution but with no real change to the distribution of powers. I think any attempt to reuse the notion of distinct society will not be met with great success in Quebec. In Quebec I think only Daniel Johnson now believes that distinct society is something that is important and should be recognized in the constitution.

I think efforts to have the notion of distinct society reintegrated in the constitution or used in a different way will certainly not satisfy Quebeckers or the Quebec government, because it just tries to avoid the issue of a new distribution of powers or more powers. So efforts to relive and rethink the distinct society clause seem to me the efforts of those who have some interest in maintaining a debate that I think is moot.

Q: What are your views on partition in the way in which they have been discussed with regard to Quebec?

A: I tend to agree with both Stéphane Dion and Pierre Pettigrew, who are against partition. I also believe, like Lucien Robillard and Daniel Johnson, that this debate is futile; people in the rest of Canada should spend more time finding out what kind of proposals should be put to Quebec before it goes to a referendum. In Quebec I believe that we can find a solution which respects the individual and collective rights of the English-speaking minority, and those of the aboriginal peoples of Quebec within Quebec. I don't believe anyone should meddle with borders. That is, I don't think people in Newfoundland and Labrador or British Columbia would like to debate the issue of breaking up British Columbia or Newfoundland and Labrador. The accession of sovereignty of the former republics of the USSR, of Yugoslavia, and of Czechoslovakia has been done within the confines of their existing borders; and I don't think we should change the borders of newly created countries.

Q: Do you think that Quebec should issue its own bonds and retire Quebec's portion of the Canada debt? Bernard Landry mentioned at some point in the discussions that Quebec should take its fair share of the debt. However, he also believed that Quebec should not permit servicing Canada's debt to materially affect the standard of living within the province of Quebec. Given that, what are your views are with regard to the division of Canada's debt?

A: First, what must be said and repeated clearly, is that Quebec, if it's sovereign, must, and I think will agree, to paying its fair share of the debt. I want everyone to understand that this is the position, and will be the position of the government of Quebec when it has to deal with that issue. Of course there'll be negotiations, including negotiations on what constitutes "fair share." If we can't agree, we'll appoint arbitrators, and we'll try to find someone who could chair this tribunal and bring forward a swift and fair distribution. It has to be done quickly, because the stability of both our economies requires it.

As regards servicing the debt, the modalities of doing so must not penalize Canada or Quebec. I hope Canada recognizes that the modalities must not penalize Quebec in this period where bad decisions could create instability.

Q: It seems to me that we already have some form of partnership with Quebec. It's a province. Quebec is one of the provinces which form a partnership called "Canada." If Quebec can't make this partnership work, what makes you think you can make any other form of partnership work?

A: You're imputing to Quebec the fault that this partnership does not work, and a lot of people in Quebec don't believe that it's Quebec's fault that this federal partnership does not work. Quebeckers have attempted to change the nature of the federal partnership since 1960. Most Quebeckers, federalists and sovereigntists, believe that Canada and the federal government, more than the provinces, has not been able to accommodate those changes to the federal partnership. So, I guess we have to look at something else. That's my point: if something doesn't work for one partner, a partner which considers itself important, then it must try something new, something innovative.

We have exhausted our constitutional remedies and we should look together at a very innovative formula for a Canadian union. If the Europeans could call their model of bringing sovereign states together a "European Union," why could we not call ours a Canadian Union? Why don't we be imaginative, innovative, rather than starting another debate on distinct society and what it means, and how the constitution should be interpreted in the light of distinct society?

Q: I remember Montreal and Quebec in the glory days of the '60s. What has happened to Montreal particularly, which has deteriorated beyond belief? What, and who, is responsible?

A: Well, don't overemphasize Montreal's deterioration. It's still a great city, a beautiful city. It's very culturally attractive. But I agree, there is something amiss with Montreal. There is a relative decline about it, a deterioration of its social climate and to some extent its economic climate. But Monsieur Bouchard has decided to do something about it.

He's appointed the best minister in Quebec's cabinet, Serge Menard, to be the Minister of State of the Metropolis. But, what are the reasons for the decline? Some will say political instability, some will say it's the policies of the federal government. Well, there's a lack of funding by the federal government in the area of research and development, and there are many other federal government policies that have not helped Montreal, although they probably helped Toronto a lot, if not Vancouver. Regardless, all kinds of factors explain a relative decline, but we're doing something about it; and you'll see Montreal in the way you, or some of you, liked to see it in the '60s. Maybe we'll have to have another Expo!

Q: We have very little confidence in the ability of governments to induce economic development. Most economic commentators suggest that the rest of Canada will be better off economically in the long run without Quebec because of the transfers that are going currently into Quebec (although there will be short-term problems, given that Quebec has "just destroyed Canada.") Now, in the aftermath, do you think there will be good will in the rest of Canada at an emotional level to offer Quebec a partnership? Why should we?

A: The short answer to this is because there's mutual economic interests, and no one will want to put jobs or financial markets in jeopardy. Changing trade patterns is not that easy, and I think they shouldn't be made difficult. So the economic association component I think is something that is seen as very desirable by most Canadians, and certainly by a great majority of Quebeckers, including Quebec's business leaders. Leaders will come to realize that they just can't continue to say that there shouldn't be economic association, and they should show the good will that the people and business leaders are already showing.

But political partnership is another thing, and maybe the emotions will lead Canadians to want a modest form of political partnership or no political partnership at all. It is my hope that there is some form of political partnership because the extent and the degree of the economic integration between Quebec and Canada, if there's an economic and monetary union, justifies a certain dose of political partnership. Europeans are realizing this in their process of building an economic and monetary union. Lastly, I'm convinced that there's a lot of people of good will in Canada who believe that there should be a partnership with Quebec. I understand that the good will cannot be shown before a "yes" decision by Quebeckers. The more good will you show, then the more Quebeckers might want to vote "yes." So I understand the strategy behind the lack of good will on these issues.

Q: Why do Quebeckers find the equality of provinces such a disturbing notion?

A: Well, for historical reasons, to begin with. This is one of the reasons which suggests that there's an evolving notion of what Canada is-and in fact not just evolving but a very different notion of what Canada is or has become. In Quebec, there is still the belief that Canada is a country of two nations. There may be, if you consider those who are open and sympathetic to aboriginal nations, two nations, and all the 60 or so aboriginal nations. It is still a belief in Quebec that there is a Quebec nation and a Canadian or rest-of-Canada nation, and not a uniform nation. A lot of people do not like it when we say English Canada, and I understand that. For Francophones in the rest of Canada I understand they don't like that, but there's this idea of the two founding peoples, which is clearly entrenched within the Quebec frame of mind. When you use the equality of provinces idea to negate that, you're creating a great conflict.

Q: Do you think that there is a deal to which Quebeckers would assent and to which sovereigntists like yourself would assent that would leave Canada as a single country? Can you imagine such a deal?

A: I think a lot of Quebeckers can imagine such a deal. That's what they're saying again and again. The ultimate solution for Quebeckers is renewed federalism, more devolution of powers to Quebec, and that's the solution they prefer. They prefer it to sovereignty; and they've always been saying that. It has never changed. I don't know one poll that has said that the best solution, according to Quebeckers, is sovereignty in partnership; but as long as you don't have a proposal that satisfies the claims of Quebec, the sovereignty in partnership agenda will be there and the proposal will be alive. We're now at a really important point, because I think Quebeckers now will choose sovereignty and partnership next time around. They have a very good and competent premier who will govern Quebec very well, and he is going to put the sovereignty and partnership proposal to them, unless there's some kind of miracle. Even if there is, Quebeckers will pressure their government to do something about the offer of federal renewal.

If Monsieur Chrétien had learned something, or sensed what had happened on October 30th, he wouldn't have come up with the proposals he did in November 1995. He probably wouldn't have appointed Stéphane Dion as his Minister of Intergovernmental Affairs if he had had a sense of what was happening or what has happened in Quebec in the past 20 to 30 years.

So, we'll see. We live in a democracy. I'm very proud of the Quebec and Canadian democracy. What's important is that the people of Quebec decide their political future through a referendum process. They have done that two or three times, and they will have to do it a fourth time, because there's no solution yet.

Q: When are we going to put this issue to bed? If the sovereignty issue was so clear, why wasn't the referendum question clear? Are we going to have referendum after referendum after referendum until you get a question for which you can get 51 percent of the vote? Or what is the determinate referendum here? If you have to hold a referendum in 18 months time and it again fails, would you then give up or is it going to be the "neverendum"?

A: Well, referenda on this issue are only organized when a government is elected with a mandate to organize a referendum. So, Quebeckers will be invited to elect a new government in a year or two, or maybe three, and if that government proposes that it wants to hold another referendum, it will be very legitimate for that government to do so to try to find a solution to the issue of Quebec's future political status.

That's the name of the game. That's the rule of democracy. We elect governments to do something, and among those things, in Quebec's and Canada's history, is to consult people on their futures. I hope that at some point in the future in Quebec we vote "yes" to something. We've always voted "no." In the '80s it was "no," in 1992 it was "no," 1995 was "no." It's not very constructive for society to say "no" to itself so often, and spending so much time on these constitutional debates is not really very challenging. I'd like, even as a constitutional and international lawyer, to do something else. I'd like to write a constitution for Quebec-the first draft of which I have already completed. I'd like to do something in the area of economics, social rights, and then policies. That would be time better invested.

But, you just cannot avoid the issue, like some people are suggesting. Just put your head in the sand and forget about the constitution, or forget about sovereignty. This is a fundamental existential issue. It has to be solved. A lot of other problems stem from the fact that we haven't resolved the constitutional problems and the status of Quebec in Canada. I'm looking forward to when we have a referendum and we have a "yes" vote on something. I do admit I would like a "yes" on sovereignty and partnership, but it could be a "yes" vote on something else. It depends upon who's going to be elected in the next provincial election in Quebec City.

Canada Clock Turned Back

Gordon Gibson

The Fraser Institute recently updated the setting of its Canada Clock, which measures the probability of Canada surviving in its present form. The clock was last set in June 1996.

Based on the latest results of three leading indicators, the minute hand has been moved to 8 minutes to midnight. This is a slight improvement from the June setting of 11:55 p.m., a position chosen to indicate a 50/50 survival probability for the nation. This suggests the danger has lessened somewhat over the past four months, and the probability of Canada surviving in its present form is now a bit better than 50 percent.

Still, the danger remains high, and the signals mixed. The 19-member panel of experts have become slightly more pessimistic since the June setting, but the other two indicators have improved.

Indicator 1: Panel of Experts

The individuals on the panel independently assess the probability of national survival, and the results are averaged. The October 1996 assessment of the probability of Canada surviving with its present boundaries intact was 53.6 percent, down half a point from the result in June. There were larger shifts in the probabilities of the other two outcomes: "Canada separates but the Rest of Canada (ROC) holds together" (29%, up from 24.3%), and "Canada fragments into several pieces" (17.4%, down from 21.3%).

Many panellists commented that the cross-currents in the unity wars have largely cancelled out. Such hopeful signs as the Group of 22's workThe Group of 22 is composed of 22 well-known Canadians who have focused their efforts on keeping Canada together.Note, the Business Council on National Issues meetings, and Tom Courchene's paper, "A Convention on the Canadian Economic and Social Systems" presented by the government of Ontario to the First Ministers' Conference this summer, have not been met with a significant "Plan A" response from Ottawa, i.e., positive reasons for keeping the country united. Rather, the "Plan B" signals from Ottawa-a catalogue of the dangers of attempting separation-have been stronger.

Indicator 2: Leger and Leger Poll

The regular Leger and Leger poll of Quebec opinion on the sovereignty option is conducted regularly for The Globe and Mail and Le Journal de Montréal. Historically, this poll has proven reasonably accurate. The last poll published before the referendum came within .2 percent of the actual results.

The Leger numbers for the "Yes" side have dropped since the June setting by over five percentage points, from 54.9 percent to 48.8 percent. This indicates still that a referendum could be won by either side, but the shift must be considered material. An actual campaign would vary the trends, and over the past few months the federalist side has been more active than the PQ government, which has insisted that a referendum is not a near-term priority.

Indicator 3: Fraser Institute Survey of Senior Investment Managers in Canada

The third indicator is based on a regular survey of Canadian senior investment managers with over $150 billion under management. In the latest result, released at the end of September 1996, 61 percent of the managers thought it was "very likely, likely, or somewhat likely" that Quebec will separate within the next five years. This is a decline of 5 percentage points from the May result of 66 percent.

Using a weighting of 50 percent for the panel of experts and 25 percent for the other two indicators, The Fraser Institute makes its own assessment of the likelihood of national disintegration. Based on the marginal deterioration of the experts' forecast, and the material improvement in the other two indicators, the clock has moved another three minutes away from midnight.

That said, every indicator points to continuing and substantial danger.

Canada Clock panel of experts

The Canada Clock panel of experts includes the following Canadians:

   Atlantic region

       •       John Crosbie, Chancellor of Memorial University and former Minister of Justice, Government of Canada

       •       Donald Savoie, prominent writer on constitutional matters and professor at the University of Moncton

   Quebec

       •      Lise Bissonnette, editor of Le Devoir

       •      Andre Burelle, author of Le Mal Canadien and former constitutional advisor to the federal government

       •      Claude Castonguay, former chair of the Laurentian Bank, senator and Quebec cabinet minister

       •      Marcel Côté, senior partner of the consultancy firm SECOR and former advisor to the federal government

       •       Jean-Luc Migué, professor at l'Ecole nationale d'administration publique

   Ontario

       •       Mike Duffy, senior television journalist on the Canadian unity file

       •       Tom Courchene, professor at Queen's University and Canada's ranking social policy expert

       •      Roy Green, prominent Ontario open-line host

       •       Gordon Roberston, former Clerk of the Privy Council

       •      Ronald Watts, professor at Queen's University and dean of Canada's constitutional experts

       •       Robert Young, professor at the University of Western Ontario

   Prairie region

       •      Lloyd Barber, former president of the University of Saskatchewan

       •       Catherine Ford, senior political columnist at the Calgary Herald

       •      Peter McCormick, professor at the University of Lethbridge and member of Premier Klein's constitutional advisory council

       •       Peter Warren, Manitoba's senior open-line host

    British Columbia

       •      Rafe Mair, B.C.'s most prominent open-line host

       •      John Richards, professor at Simon Fraser University and expert on unity issues

Quebec Nationalism Versus the Internet

Mark Weller

In discussing national unity, it is sometimes important to step back from the debate and consider how the dispute fits into the grand scheme of things.

By the early part of the twentieth century, information technology will have developed to the point where worldwide communications will be an integral part of the lives of most Canadians. Television viewers will select what movies they wish to watch and have them downloaded on demand to their televisions. Movie-quality images of friends from the other side of the earth will be available via communications satellites that will beam digital messages around the world. Complex documents, programs, and multimedia will be available to anyone, anywhere, with the click of a button. This is the emerging world of the Internet.

So what effect will this information revolution have on Canadian society?

First, the notion that Canadians are cut off from one another will begin to diminish. Although we will still be separated geologically, in terms of the exchange of information and data, the ability for rapid and inexpensive communication will shrink the country.

Second, the interdependence of national economies will be increased. At the moment, the amount of business conducted on the Internet is small, but soon it will be much greater. As commerce increases in cyberspace, each nation will grow increasingly dependent on it as a means of doing business-particularly in an international context. Already one can log on and order anything from hardcover books to foam insulation on the World Wide Web. This sort of trans-national commerce will allow individuals to shop the globe for bargains, with a corresponding psychological effect. People will increasingly view themselves as citizens of the world, and not only a nation-state.

Many computer experts have in fact suggested that the Internet, combined with increased international trade, is already beginning to erode the importance of the nation state. In fact, some have argued that by the middle of the next century, loyalty to one's country of birth may resemble the loyalty one has for their alma mater, or for their local football team. Nationalism, in an age of pronounced international interdependence, will wane.

So what of Canadian unity, and in particular, the Quebec question? Although separatist politicians have sometimes remarked that demographics are on their side, an important qualification must be made. True, young people in Quebec are more sover-eigntist than their parents are, but they are also more internationalist. Whether Quebec leaves Canada or not, it is still part of the emerging international marketplace. Quebeckers I have spoken to, sovereigntist or otherwise, feel there would be no border of any kind between Canada and an independent Quebec. No toll booths, no new area codes, and, I might add, no disruption of Internet service.

At their base, these two images of the future are not compatible. Either Quebec shuts itself off from the rest of the world (as seems to have been the dream of xenophobic nationalists), or the people of Quebec will toss off their inhibitions and become part of the emerging global economy. In my view, the forces of change will require Quebec to choose the latter, but in any case, whether Quebec stays in Canada or goes, the declining role of the nation state may render the entire discussion moot within 40 years.

The Fiscal State of the Nation

Michael Walker   This article is an excerpt from a presentation by Michael Walker to the House of Commons Standing Committee on Finance.Note

Finance Minister Paul Martin has delivered his annual update on the state of the nation's finances so it is an appropriate time for us all to take stock. Personally, I see no reason to change the view I expressed following the last budget, namely, that the 1996-97 budget will be recorded by historians as the turning point in Canada's fiscal fortunes. It will be so regarded partly because of the dividend from a correct monetary policy, partly because of federal budget performance, but even more importantly because of the terrible fiscal conduct of the other members of the G7. It would be unfortunate if, as they say in the stock market, we were to mistake a bull market for our own brilliance.

Moreover, there are a number of cautionary notes to be sounded even as we revel in our new-found fiscal propriety. I would like to strike three.

First, the reduction in federal deficit levels has been accomplished largely by revenue accretion, shifting spending to other levels of government and, let's not forget, the lower debt costs coming from the much lower interest rates which were former Bank of Canada Governor John Crow's contribution. In consequence, tax burdens on the Canadian economy, and payroll taxes in particular, remain the most significant barrier to economic acceleration and job growth.

Second, while the federal government's 1996 fiscal performance stands favourably amongst the G7-what I call the Gruesome Seven-comparison with the provinces is less flattering. In The Fraser Institute's Budget Performance Index, the federal government still scores worse than any other jurisdiction in its taxing record and is second worst on the deficit, scoring 11 and 22 out of 100 in each category. In the case of the spending index, which takes into account transfers to other levels of government and interest costs, the federal score is third best-a distinct improvement. Overall, the federal government scores third lowest on the Budget Performance Index, indicating that, in comparison with its provincial counterparts, the federal government is under-achieving.

The third point is that budget balance simply means that current expenditures are being financed by current taxes, a necessary but not sufficient goal for which to strive. The objective must be to actually reduce the share of the economy that is going through the public sector. From 30 percent of the economy in 1966, the government sector has grown to 50 percent. At the same time, the average growth rate of the economy has dwindled. The reasons for this are catalogued in a recent Fraser Institute book entitled Economic Freedom of the World: 1975-1995, a synopsis of which appeared in a cover story in The Economist magazine of January 13, 1996, and subsequently in major financial papers in 40 countries. The central point of the study is that the more choices that are made by government, the fewer there are to be made by the private sector. The rub is that, as Mr. Chrétien and Mr. Martin note, all job creation and all growth must emanate from the private sector.

The clear message is that the size of government must be reduced if we are to grow and produce the jobs that are the missing ingredient in our economic recovery. This will not be accomplished by cutting transfers to other levels of government, as this does not affect the overall size of government but only which level of government does the spending. Further deep cuts in spending and taxation are required to return the government sector to the 35 percent of GDP range which is compatible with renewed economic growth and employment opportunities for our children.

Mr. Martin has ruled out the expedient of a tax cut at this time. He was quite right in doing so as long as no new spending cuts have been proposed. Budget balance must be a component of the government's strategy. However, tax cuts matched by equal spending cuts are essential if we are to get the growth and jobs dividend from the restraint program.

Another reason for cutting back the size of government is Canada's Chief Actuary's reports showing the unfunded liability, or accumulated, unfunded promises to pay which have been made under the Canada Pension Plan, the Old Age Security, and the health care system. In order to deliver on all these promises, taxes will have to rise by as much as 60 percent of their current level. That is not going to happen-it would be unsustainable-but our population is going to age, and we need to start now creating the tax room to accommodate the demands which these programs will make of future taxpayers.

Taxpayer Funding of Acute Care Hospitals

Bill McArthur, M.D.

In 1994, acute care hospitalsAcute care hospitals are those which provide urgent, short stay, general and specialist, medical and surgical care, as opposed to other facilities which provide services such as chronic care, extended care, and rehabilitation.Note in Canada consumed 46.5 percent of taxpayer spending on health care, and this represented 3.4 percent of GDP.Health Canada, Policy and Consultation Branch, National Health Expenditures in Canada 1975-1994, Summary Report, January 1996, p. 12.Note This is troubling since many countries with high quality health care spend a much lower proportion of taxpayer money on acute care hospitals. Examples of these countries include New Zealand (2.6% of GDP), The Netherlands (2.1%), Australia (2.2%) and the U.K. (1.8%). An argument exists that a key to improving productivity in hospitals would be the incorporation of a viable private sector component of the type being developed in the U.K., New Zealand, and some European countries. This is probably inevitable in Canada, but in the meantime there is an urgent requirement to improve the performance of existing public sector hospitals.

Productivity and efficiency

In spite of the high costs, the productivity and efficiency of Canadian acute care hospitals falls below that observed by many of our OECD counterparts. Hospital waiting lists are increasing and accessibility to acute care is diminishing.Cynthia Ramsay and Michael Walker, "Waiting Your Turn: Hospital Waiting Lists in Canada" (6th edition), The Fraser Institute, October 1996.Note As table 1 shows, Canada has fewer beds per 1,000 population than most OECD countries. Thus, the claim that the overall high cost of our hospitals is a result of having too many acute care beds is hard to accept. The average length of stay (ALOS) is longer in Canada than countries such as Australia, France, Sweden, the U.K., and the U.S. Hospitals in these countries provide appropriate treatment with much shorter hospital stays, indicating that the management of the Canadian system may be less efficient. Canadian staffing levels are high, and total staff-per-bed and nurses-per-bed ratios exceed levels in many countries. For example, Japan has a much lower staff-to-bed ratio than Canada, and provides acute care at less than half the cost in terms of percent of GDP.OECD Health Data, Electronic Version #3.6, released May 1995.Note

Deficiencies in the Canadian hospital sector have been well documented. The 1994 report prepared for the deputy ministers of health indicates that from one-half to two-thirds of patients in acute care do not have a medical reason to be there."When Less is Better: Using Canada's Hospitals Efficiently," paper written for the Conference of Federal/Provincial/ Territorial Ministers of Health, June 1994.Note This conclusion is based on a variety of studies conducted in Canada, and is supported by research conducted in other jurisdictions.Ibid. This document contains 117 references related to hospital utilization.Note This suggests that in a more efficient system, the present bed-to-population ratio might be sufficient to meet the needs for hospital treatment. Overall, the Canadian acute care hospital system is expensive, inefficient, and overstaffed, when compared with our partners in the OECD. It is apparent that the hospital sector, which consumes almost half of taxpayer spending on health care, must become a prime target for improving productivity and efficiency.

Click here to view Table 1: Average Length of Stay, Beds per Capita, Hospital Staff per Bed, Nurses per Bed (OECD 1991)

Underlying factors

The unsatisfactory performance of Canada's publicly funded acute care hospital sector stems from three causes. First, the way in which hospitals are financed creates few incentives for efficiency, but many incentives for inefficiency. Second, the structure of the Canadian hospital system, and the lack of a private sector component, virtually eliminates competition. This precludes the productivity and efficiency that competition brings to other service sector industries. Third, labour costs in hospitals are disproportionately high compared with private sector costs for comparable work.The second issue of structure of the Canadian hospital system will be covered in a forthcoming issue of Fraser Forum; the topic of labour costs was covered in William McArthur, Cynthia Ramsay, and Michael Walker, eds., Healthy Incentives (The Fraser Institute, 1996), p. 153.Note These underlying problems need to be addressed if we are to increase efficiency and decrease costs.

Potential solutions: the funding issue

The matter of hospital funding needs to be addressed without delay, and this can be achieved within the constraints of the Canada Health Act. Publicly financed hospitals are usually funded in one of two ways. Overall, or global funding is generally used in Canada; the alternative is population-based funding of the type seen in the U.K. and New Zealand.

Global funding

Global funding is a system where hospitals are funded sufficiently for them to fulfil their overall mission or task. The finances allocated for a particular year are based upon an assessment of the adequacy of the previous year's funding. Each hospital attempts to justify as much funding as possible, while the purchaser (government), attempts to negotiate the lowest expenditure practical. In general, these negotiations do not take into account the usual market place factors of number, type, and quality of services provided. The failure to incorporate normal marketplace decision making into the process creates some perverse incentives. For example, it would seem apparent that one way to improve efficiency and reduce hospital costs would be to provide the best possible treatment in the shortest possible time, thereby minimizing individual patient stays, and increasing bed utilization. However, admitting and discharging patients is very labour intensive, and since 75 to 80 percent of hospital costs are labour costs, increasing the frequency of patient turnover is expensive. Thus, global funding, which does not consider improved productivity, creates a perverse incentive to slow the turnaround of patients, thereby increasing overall costs. Most hospitals in Canada are funded on a global basis which explains, in part, why many of them are so inefficient and expensive to run.



Population-based funding

An alternative to global funding is one in which the funds allocated to a hospital are dependent on the number of people served. Capitated or population-based funding is based on the concept that each hospital services a geographic catchment area and only people from that area are entitled to treatment. Portability for those travelling or requiring treatment outside their catchment area can be achieved by arranging for patient billing to be transferred between areas. In this system, the hospitals provide service to everyone in the designated area, and historic information provides an accurate estimate of the funds required to do this. This form of payment indirectly compensates hospitals for service to individual patients, and also provides a basis for measuring the cost of each service in each hospital. The availability of this type of information facilitates meaningful comparisons between hospitals, and in so doing establishes an environment that stimulates competition between the various facilities. Competition creates the incentive to be more efficient and more productive than the competitor which leads to improved allocation and use of resources, a factor which will benefit the patient in terms of improvements in the quantity, quality, and cost of service available.

Conclusion

The inefficiencies of the taxpayer-funded Canadian acute care hospital sector must be remedied so that all available public funds are dedicated to providing the greatest quantity of high quality care for those in the greatest need. Current global funding mechanisms are fostering inefficiencies in the acute care sector, and should be replaced with population-based funding. This modest step will not resolve all of the problems in Canadian hospitals, but it is an important beginning.

November Questions and Answers

Joel Emes

Q: What proportion of the total tax bill do the provincial sales and the goods and services taxes represent? How does this proportion compare internationally over time?

A: In 1994, the provincial sales tax and the federal goods and services tax comprised 15.5 percent of total tax revenue (5.6 percent of the Gross Domestic Product) in Canada. Between 1965 and 1994 the proportion of general sales tax-to-total tax revenue fell 2.3 percentage points. Over the same time period, general sales taxes-to-GDP rose from 4.6 to 5.6 percent and total tax-to-GDP has risen nearly 40 percent. Table 1 presents general sales tax collections for several OECD member countries. The OECD definition of general sales tax includes value added taxes, sales taxes, and other general taxes on goods and services.

Click here to view Table 1: An International Comparison of General Sales Tax Collection, 1965 and 1994

Q: How much of the price of a litre of gasoline is tax? How do Canadian gas taxes and prices compare internationally?

A: On average, 28 of every 52 cents, or 54 percent of the price paid per litre of gasoline is collected as tax in Canada. Table 2 displays the total price of gasoline and the proportion paid in tax in Canada and six other countries. The lowest proportion of tax and the lowest price is in the United States; the highest proportion of tax and highest price are in France.

Click here to view Table 2: International Comparison of Gasoline Taxes and Prices

November Graph

Joel Emes

This month's graph shows how the gross national savings rate of several OECD countries has changed from 1980 to 1994. Only Japan and New Zealand saved more in 1994 than they did in 1980. Canada's savings rate has fallen from 22.9 percent of nominal Gross Domestic Product to 16 percent (a drop of 6.9 percentage points). Other countries' decreases were: Italy (5.9 percentage points), France (4.6), U.K. (4.2), Sweden (4.1), U.S.A. (3.6), and Germany (1.4). Some of the countries not on the graph saved more in 1994 than in 1980 but the trend to lower savings rates also shows up in the overall OECD average, which fell from 22.4 percent to 19.3 percent* Due to gaps in the data, the 1994 column for "OECD Average" is from 1992. Source: OECD Economic Outlook 59, June 1996.* (3.1 percentage points).

Click here to view Gross National Saving as a Percent of Nominal GDP

Welfare, Policies, and Economics

Rico Sabatini

Critics of government cutbacks, especially in the field of social programs, and welfare in particular, complain that welfare lines will only be reduced when jobs are created. These critics, usually consisting of welfare advocates, labour unions, social activists, and some media members, argue that efforts to reduce government expenditures by reducing welfare benefit levels or restricting eligibility criteria will only have minimal success. They argue that this is because the principle reason people apply for and remain on assistance is because there are no, or at least few jobs available. According to this argument, welfare roles increase in times of economic downturn or recession, and decrease when the economy improves. No other factors are significant in examining the reasons why people apply for assistance. The argument assumes that virtually all requests for assistance are legitimate and that welfare is pursued as the very last resort.

It is true that there are many legitimate claims for assistance. And it is also true that governments need to devote more energy to establishing an economic climate that encourages job creation. But what can't be ignored is the fact that welfare policies themselves also play a significant role in the promotion of welfare use and dependency. The impact of welfare policies may, in fact, play a more significant role in determining welfare use in an area than the local economy.

In Ontario, for example, the number of social assistance recipients increased throughout the 1980s even though the unemployment rate was decreasing. Furthermore, compare the number of recipients in Ontario in 1983 and 1994 when the unemployment rate was 10.3 percent and 9.6 percent respectively. In 1983 there were 247,200 active social assistance cases. In 1994, with a slightly lower unemployment rate, there were 682,800 cases.

As a result of changes in Ontario's welfare system which reduced benefit levels and restricted eligibility criteria, the number of people receiving assistance dropped by over 200,000 from July 1995, to December 1996. These reductions occurred when Ontario's economy had not changed. Alberta has also experienced the same phenomenon of decreasing welfare rolls while its economy remained virtually unchanged. Between March 1993 (94,087 cases) and August 1995 (52,861 cases), the welfare caseload in that province (excluding disabled recipients) was reduced by 44 percent, representing some 42,000 cases.

Such a significant reduction in welfare caseloads suggests that some people do not use welfare as a last resort; it suggests that the dynamics of welfare use need to be more carefully investigated. Generous welfare policies may themselves be a reason for an increased demand on the welfare system placed by individuals and families who may have other options.

We should not be surprised if people choose welfare as a first option when the benefits paid approach what an individual or family would receive, either working or in some other supportive living arrangement such as living in the parental home or living with a spouse.

Parents of dependent children who decide neither to work nor to live with a partner who will support them, find it attractive to choose welfare as an alternative. Similarly, young people who wish to leave suitable parental homes to be assisted by the state may also find welfare to be a suitable option. The ease and generosity with which the state makes welfare available has a measurable effect on the number of people relying on it.

What the state allows in terms of welfare policies, and the benefits paid, is a more accurate indicator of the number of people who will choose welfare than the status of the economy.

Apart from the fact that the claim that welfare rolls will not be reduced unless jobs are created is simply erroneous, this claim sends the wrong message. It sends the wrong message to governments: that they should accept the necessity of the deficit because no amount of tinkering will improve the welfare system. It sends the wrong message to taxpayers who must, in resignation, support a system which, some assert, can't be made more effective because there are no jobs. Finally, this argument sends the wrong message to recipients who hear that their efforts to obtain employment are useless because, after all, there are no jobs.

The experience of Alberta and Ontario indicates that even in the absence of jobs, welfare caseloads can be reduced in a manner that gives consideration both to the need of recipients for support and the need of taxpayers for assurance that tax dollars are spent to help people in need. We should not adopt a "slash and burn" approach, but rather should incorporate a comprehensive review of cases to alleviate some of the demands on the system by identifying people who could explore alternatives to welfare. Such alternatives could include returning to school, or taking further training; similarly, support could come from a spouse or a parent, or could be a return to work, where it is available.

[Rico Sabatini is the author of Welfare-No Fair, published by The Fraser Institute earlier this year. Copies are available from the Institute for $19.95 plus GST, and shipping and handling.]

Student Profile: Avril Allen

Avril Allen became involved with The Fraser Institute after attending a Fraser Institute Seminar on Public Policy Issues in January 1993 and the Institute's Student Leaders' Colloquium later that same year. Since then, she has attended and volunteered at numerous Fraser Institute events, and spent this summer as an intern in the National Media Archive documenting television coverage of Supreme Court decisions.

A law student at the University of Toronto, 23-year-old Avril has spent her previous summers in a variety of settings including Multiculturalism and Citizenship Canada, the Canadian Association of Career Educators and Employers, an MP's office, and at Citizens for a Sound Economy, an American free market advocacy group. Avril has a Political Science degree from the University of Calgary and wrote her honours thesis on litigation by women's groups under the Canadian Charter of Rights and Freedoms. She hopes to work as a civil litigator and write about trends in the law which have implications for public policy.

A Tale of Feast and Famine

Karen Selick

The year is 2006. Canadians, having been told for decades that free universal health insurance is a right, a necessity, a sacred trust and the thing that makes Canada a better country than the United States, decide to take the idea one step further.

The Free Lunch Party is elected on a platform promising free, universal nourishment insurance. Their program, called the Food Assurance Trust of Canada (FAT Canada for short), guarantees equal access to food for all Canadians. Food is, after all, as much a necessity as medical care, and far too important to be left to the vicissitudes of the marketplace.

Grocery shoppers no longer need cash, chequebooks or debit cards. They simply present their FAT Canada cards at the checkout counter and their bills go to the government for payment.

An early controversy arose over whether restaurant bills would be covered by the plan, but the Food Minister firmly opposed a two-tiered system of food insurance. "We are committed to the equal victualage of all Canadians, rich or poor," she said. "The rich should not be able to get better food care simply because they can afford to pay for someone else to prepare or serve their meals." Some cabinet ministers favoured imposing equality by banning restaurants entirely, but they were voted down by their more liberal colleagues. So restaurant bills were covered, and only tipping was outlawed, lest a wealthy diner obtain an unfair advantage over a poor one.

The merits of the FAT Canada plan have been immediately apparent to everyone. No longer are there two classes of citizens-one eating filet mignon and the other eating hamburger. The food banks have closed down. The newspaper stories about hungry children have ceased. Supermarket and restaurant owners are delighted-business has never been better, and they never have to worry about bounced cheques. Foreign grocers and restaurateurs immigrate in droves, attracted by the guaranteed revenues. Farmers prosper. It's a great time to be a Canadian.

* * * * *

The year is 2011. A report on FAT Canada's first five years contains disturbing news. Canadians have apparently been wasting food: taking home more than they need and throwing it away when it goes bad. It's rumoured that many cats and dogs won't eat pet food any more, preferring to wait for leftover roast beef.

Food stores no longer have to compete on price, so they've been competing on congeniality, quality, and variety, urging shoppers to take home huge quantities of caviar, lobster, T-bone steak and imported delicacies.

Even fast-food outlets, striving to maintain their youthful image without making their customers second-class citizens, now serve ground Porterhouse steak inside their sesame seed buns. There is no longer any market for the poorer cuts of meat. Because of the waste, the price of the better cuts is forced up.

Demand for cheap foods like pasta and peanut butter is down. A few manufacturers go out of business. The country's canneries start closing. Who wants canned produce when fresh is available free?

Sparsely populated areas are finding that their former grocers and restaurateurs have moved to the city, where high population density guarantees greater profitability. Canada is now spending twice as much on food, in constant dollars, as it did when the plan began, but the troubling news is downplayed by the media and the Free Lunchers are re-elected by a landslide.

* * * * *

It's 2015. With Canada's skyrocketing food bill now a matter of common knowledge, support for the government weakens. The Free Lunchers promise to maintain their popular food insurance program without increasing taxes or the deficit. Only a few minor changes will be necessary.

First, to demonstrate its commitment, the government announces a new name: the Food Assurance Sacred Trust of Canada, or FAST Canada for short. Free Lunch economists declare that the cause of excessive food spending is too many food suppliers. Henceforth, grocers and restaurateurs must be licensed. Immigrants are ineligible for a license without Canadian training and experience. Future licensees will be permitted to operate only in remote, under-serviced communities. The number of city licences is strictly limited. Many supermarkets and restaurants are forced to shut down. The government also declares that food suppliers have been getting too rich. Billings will be capped. Even the holders of the coveted licences start moving to other countries.

To eat out, Canadians now need reservations several weeks in advance-even at burger joints. Grocery shoppers have to line up to gain entry to the crowded stores, which no longer bother to stock merchandise above their billing cap. Wealthy Canadians start shopping in the U.S., triggering complaints in Parliament about "two-tiered nourishment."

In a final, desperate attempt to restore the quality of Canada's food care, the government raises taxes. The spell is broken. Finally, Canadians come to recognize the fraud they had so willingly believed in for 10 years. An election is held, and the government fails to capture a single seat, proving once again that there really can't be such a thing as a free lunch.

Wrapped in Red Tape

Fazil Mihlar

Governments all over the world, including Canada's, are being forced by varying pressures to cut the size of government. You might believe that we have politicians on a short leash. But you would be mistaken. Governments have two ways to spend money: they can extract money through taxation and spend money directly, or they can order you to spend it yourself on something they have decided in their collective wisdom is good for you. This latter route is called regulation.

One of the most important but often overlooked challenges to Canada's economic competitiveness has come from regulatory burdens imposed by all three levels of government. Government regulations are now a big obstacle to the creation of jobs.

In 1993-94, the whole array of federal, provincial, and local regulation cost Canadians $85.7 billion (12 percent of GDP) in compliance costs according to The Fraser Institute's latest study, "Regulatory Overkill: The Cost of Regulation in Canada." This compliance cost translates into an annual burden of $11,929 per family of four.

The study also examined the regulatory costs faced by 20 firms drawn from different sectors of the economy, including oil and gas, mining, manufacturing, and services. On average, total regulatory costs increased by 22.3 percent annually from 1992 through 1994. These figures indicate that the rhetoric of regulatory reform by successive governments at the federal and provincial levels has not been met with action.

The number of regulations affecting businesses in Canada has escalated dramatically since 1975. Over 100,000 federal, provincial and territorial regulations have been passed between 1975 and 1994. This substantial growth translates into an average of 1,068 federal and 3,462 provincial regulations each year. In real dollars, the administrative cost incurred by all three levels of government in dispensing regulation has risen from $2.9 billion in 1973-74 to $4.9 billion in 1993-94, a real increase of 63 percent.

This large regulatory burden has led to reduced job growth, slower productivity growth, reduced competitiveness, higher prices for consumers, and heavier taxes to support the regulatory bureaucracy.

Supporters of more regulation argue that they hope to shield people from harmful air and water pollution, and prevent injury from defective or dangerous products, among other things. While these aims may be laudable, policy makers often fail to ask whether a new regulation will meet these goals, whether it is the most cost-effective method of protecting the public, or whether it will have unintended side-effects. Past experience suggests that policy makers either overlook or ignore alternative ways to achieve the results they seek, including market solutions which may cause fewer job losses and will serve the Canadian consumer and taxpayer better.

Regulation is a hidden tax. For governments, business regulation is a rather painless way of advancing various public policy concerns without directly spending tax money. Governments directly impose burdens on firms by "waving their magic wand" of legislative power. On the surface, this imposition of socially desirable requirements on business appears to be an inexpensive way of achieving public policy objectives. In addition, regulation appears to cost governments relatively less, and therefore does not seem to be a burden on taxpayers. The reality, however, is that the public does not escape paying the full cost. Every time a government agency regulates to safeguard the environment, foster occupational health and safety, or promote product safety, it imposes a higher cost on firms. Canadian consumers end up paying a higher price for everything they consume.

As the world becomes more economically integrated, and as more countries move toward market economies, Canadian firms will face increasing competition. Canadian governments can no longer afford to stifle Canadian enterprises-the engines of economic growth-with costly and unnecessary regulations. If they continue to do so, they will only end up hurting those people they are trying to protect: the Canadian public.

[Fazil Mihlar's 80-page "Regulatory Overkill: The Cost of Regulation in Canada," is a Fraser Forum Critical Issues Bulletin available from The Fraser Institute for $12.95 plus GST, and shipping and handling. To order, call (604) 688-0221 or (416) 363-6575 ext. 325.]

A Dialogue About Business

Chris Sarlo

The following dialogue is intended to convey a flavour of the current debate about business, profits, and free markets while leaving aside the emotional rhetoric. Is there any common ground here?

Patrick is a United Church minister with a strong interest in "social justice." Daniel is a CEO with a mid-sized manufacturing firm. The two neighbours recently engaged in a lively conversation:

Patrick: I read recently that your company is downsizing. You are going to lay off 500 workers.

Daniel: That's right. Over the next two years we will be reducing our work force by about 10 percent. Half will be retiring and won't be replaced. The other half will be let go with a severance package that is generous by industry standards.

Patrick: But you made a profit of over $20 million last year.

Daniel: Yes, but that $20 million profit represents a rate of return on our invested capital of 10 percent. We could have earned almost that much last year on risk-free government bonds. More importantly, I no longer need 5000 employees. With new technological developments and a more efficient management structure, we can now generate the same output with 90 percent of our current workforce. We are in a very competitive, global market. Becoming more efficient over the next couple of years will keep us just a step ahead of the competition.

Patrick: So, what you are saying is that profits are more important than people. For me, that's just not acceptable. I want a society in which the needs of people are primary and the needs of business are secondary. Many of those workers who are laid off have families to support. Your decision to downsize in the name of more profit has left them out in the cold.

Daniel: Let me suggest to you that postponing the decision to make my business more efficient for a few years would put more jobs, more people with families, in jeopardy. Longer term, if I have more workers than I need, I am going to have to raise my prices. Consumers simply are not going to pay higher prices for my product when they can get something comparable at a lower cost. I don't have a monopoly. I can't count on having lots of customers remaining loyal if I raise my price. If I lose many customers, the business is lost and with it thousands of jobs. On a positive note, some of my laid off employees have already found new jobs. I'm confident they all will. They are good quality people.

Patrick: Let's get away from your own business situation and talk more generally. What about the social responsibility of business? Private corporations operate within a society composed of real people with real needs. Surely there is a responsibility to give something back to the society from which you draw your profits?

Daniel: My primary responsibility is to my shareholders, the owners of the firm. They have invested money in the company in order to make a good rate of return. Indeed, the vast majority of our shareholders are pension funds with thousands of working class members. Isn't it ironic that workers are now the primary owners of capital through their mutual funds and pension funds?

In terms of social responsibility, I think we do more for society by vigorously pursuing profits than we would if we had any other goal. The high standard of living that all of us enjoy is the result of the efficiencies generated by profit seeking. I'm no expert, Patrick, but I don't know of any alternative system that has given people the kind of material well-being that free markets have. Our firm is active in the community. We sponsor sports teams, public speaking contests in the schools, a women's shelter, and a camp for disabled children. Quite honestly, we regard these as public relations activities rather than charity. As an individual, I am very involved in the community as a member of several charitable organizations and boards. I don't believe we have any responsibility or obligation to do these things but I do believe that they are good things to do. After all, we live in a free society, sort of.

Patrick: But what about the tragedy of unemployment? There are hundreds of thousands of people out there in the real world who can't find a job and are unable to support their families. And what about the tremendous inequalities of income and wealth? How do you justify all of that?

Daniel: Well, let's talk about jobs. I happen to believe that free market competition produces more jobs, better quality jobs and higher standards of living than any alternative. It does this, largely, because in the process of pursuing profit and maintaining a competitive edge, firms find better and less expensive ways to produce commodities. This means either lower prices for consumers or higher shareholder value. Either way, demand in the economy increases and thus produces more jobs. With free markets we get innovation, jobs and increasing incomes. Are you suggesting that government can somehow produce a better result? Any evidence that I am aware of simply doesn't support that. Indeed, as state involvement in our economy has increased over the past forty years, so has the unemployment rate.

On the matter of inequality, I agree that there are significant