July 2001

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Now What? Reflections on a Revolution in Progress

Preston Manning, MP

I want to begin by thanking The Fraser Institute for this opportunity to speak to you, and for inviting me to become a Senior Fellow of the Institute when I retire from Parliament at the end of the year.¹

I almost said, "when I escape from Parliament," but that would imply that Parliament was some sort of institution for the criminally inclined, which would, of course, be grossly unfair ... to institutions for the criminally inclined ... so I must choose my words carefully.

I also want to thank the friends and supporters of The Fraser Institute for providing so much of the intellectual capital that's required to advance such concepts as private property, freedom of enterprise, freedom of trade, and market- based solutions to public problems. Your work is of particular importance to those of us who are in the political arena.

I am also reminded today that concepts such as economic and social entrepreneurship affect our country for the better only when they are lifted off the pages of research documents and policy statements and embodied in the lives and actions of actual people.

Harold Walter Siebens, whom many in this room will remember, was a contemporary of my father, and I remember quite a few stories about their early meetings. He was an individual who embodied many of the concepts that The Fraser Institute stands for, and I am honoured to be able to dedicate this address to him today, and to know the members of his family are here.

A revolution in progress

Our subject is "the revolution in progress." Let me give you a few thoughts on that topic.

The concept of revolution is that one set of ideas or rulers is overthrown by another, and I think it is true to say that there has been a revolution in progress in Canada—and in many other countries—for the last two decades.

In most countries, the idea that governments can manage and direct resources and economies better than properly-functioning markets has now been virtually discredited. Further, market-based approaches to the creation and distribution of wealth have replaced approaches that rely on the intervention or protection of the state throughout the world, including almost all the old bastions of socialism and communism.

In Canada, at the national level, a significant milestone in that revolution was the abandonment of protectionism as a national policy by the Conservative government of Brian Mulroney, and the negotiation of the free trade agreement (since expanded) with the United States. (Who says I've never had anything nice to say about Brian Mulroney?)

In most countries, the idea that governments can consistently live beyond their means, and finance ever increasing deficits and debts through ever increasing taxation, has also been discredited.

What I would call The Fraser Institute "Creed of Fiscal Responsibility in Government" is being adopted by more and more governments, at all levels, regardless of political stripe. That creed may be summarized in twelve words: "Control your costs, balance your books, reduce your debts, reduce your taxes." In 1993, it was that creed which inspired the Reform Party's "Zero in Three" campaign—a plan to reduce the federal deficit to zero in three years. (That campaign helped us break onto the national stage in federal politics, and forced the Liberals to rethink their approach to government finances.) That creed has been most successfully practiced at the provincial level by Ralph Klein in Alberta and Mike Harris in Ontario.

The so-called Klein revolution has helped to make Alberta one of the strongest—if not the strongest—provincial economies in the country, attracting investment and stimulating job creation at record levels. Mike Harris's Common Sense Revolution in Ontario, is doing much the same thing.

In 1993, when I first went to Ottawa as an MP,  I met Mike Harris and Tony Clement who were then in opposition, when they were just starting out to sell the Common Sense Revolution to Ontario voters.

In those days, they would be lucky if they could get 200 people out to a meeting in Ottawa—the bastion of big government spending. People didn't want to hear what they had to say. But just last Thursday, my wife Sandra and I went to a fundraiser for Mike Harris in Ottawa, attended by over 1,000 people who applauded everything that he said. Common sense economics can be politically successful.

How wonderful it is that provincial governments across the country are competing with each other as to who can get their debt and taxes lower. There's a constructive fiscal revolution in progress, and it's a great thing to see.

Beyond the revolution

I have a friend in the United States who says we Canadians don't know how to maximize the market potential of a great idea. He says that when we Canadians have a great idea—like "The Fiscal Revolution"—we put it all in one book and try to peddle it as one package.

What the Yankee entrepreneur would do is divide the package into three parts, and get three books out of it, and three times the profit. So you would have Toward the Fiscal Revolution.  Then you would have The Revolution.  And then you would have Beyond the Revolution. (This idea might have proven useful for Tom Flanagan,² author of First Nations? Second Thoughts. Tom could have maximized his book sales by having had Towards Second Thoughts, then Second Thoughts, and, finally, Beyond Second Thoughts.)

We have reflected a bit on the revolution in progress.  Let's reflect for a moment on the question, "Now What?" What's beyond? What are the next steps in that revolution, provincially, nationally, and internationally?

Carrying on the revolution on the provincial front

On the provincial front in Canada, as many of you  know, we have still not achieved genuine east-west free trade. There is a lot of work to be done in that area across provincial boundaries, and there are still some provinces where the warm and stimulating winds of fiscal responsibility have not yet reached.

British Columbia, that great province which ought to be the wealthiest in Canada on a per capita basis, has not yet controlled its costs, balanced its books, reduced its debts, or reduced its taxes. But as you all know, recently that province took a giant step toward these goals by replacing the NDP government with the government of Gordon Campbell.  The revolution in British Columbia is just beginning, but it has begun. And we wish Gordon Campbell every success.

Sometime within the next 18 months, there is a good chance that the people of Saskatchewan will take a similar step by replacing the NDP government there with a more fiscally responsible government headed by my former House of Commons colleague, Elwin Hermanson. The revolution has not yet begun in Saskatchewan, but it is at least on the horizon.

And when that happens, and if Manitoba eventually follows suit, I can no longer use the reply which my father used to give years ago when asked, "Did Alberta have a secret economic strategy?" He said, "Yes, they did. It was the election of socialist governments in Manitoba, Saskatchewan, and British Columbia."

But there is another dimension to expanding the conservative revolution which is particularly relevant to Alberta and Ontario. Suppose a provincial government does get its books balanced, its taxes down, its debts down, and its costs under control (which Alberta has already done and which Ontario is getting close to completing), what then? As the old Peggy Lee song goes, "Is that all there is, my friends? Is that all there is?"

The answer is no.  There is still work to be done, but work of a different kind.

When Adam Smith wrote his most famous book The Wealth of Nations, he set out the principles that should guide governments in nurturing a wealth-producing, market-based economy. But Adam Smith also wrote another book. It is entitled, On Moral Sentiments, and in it he asks this question: "To what PURPOSE is all the toil and bustle of the world? What is the END of avarice and ambition, of the pursuit of wealth, of power, and pre-eminence?" He then answered that question by saying that the purpose and end of wealth creation was not wealth creation in itself, but the "fortune" and "happiness" of others. In Adam Smith's words:  "How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the FORTUNE OF OTHERS, and render THEIR HAPPINESS necessary to him, though he derives nothing from it, except the pleasure of seeing it." So it is in our day, that many of the ends to which the wealth of productive societies is directed by individuals, by governments, and by markets, are social ends.

The two largest spending areas of all provincial governments in Canada are health care and education.  These are services of immense importance to all Canadians. But to date, in Canada these services have been provided largely by huge public-sector monopolies, with all the inefficiencies and restrictions of consumer choice that monopoly entails. "Carrying on the revolution" requires us to help governments and the public address the role of private sector resources and marketplace mechanisms in the provision of better and more health and educational services for Canadians.

With respect to health care, the real issue here is not whether private resources have a role to play in Canadian health care.  At present, of the $90 billion per year that Canadians spend on health care services, over $30 billion already are purchased from private insurance and suppliers. The issue, therefore, is not whether Canadians need public or private health care services, but how to harness both public and private resources to the objective of quality health care, regardless of ability to pay.

A similar issue exists with respect to the role of private resources, and the creation of more freedom of choice, in the educational field—a subject which the Ontario government began to address in its most recent budget.

I suggest that "carrying on the revolution" for The Fraser Institute and for conservative-oriented provincial governments means bringing private capital and market mechanisms as well as public resources more effectively to bear on the provision of health and educational services and to push that idea with the same vigour and determination that has been used to push policies like deficit reduction.

Carrying on the revolution on the national front

What does "carrying on the revolution" mean on the national front? There is no question that as early as 1984, increasing numbers of Canadians wanted federal spending to be controlled, wanted the federal deficit eliminated, wanted federal debts and tax reduced. That's what many Canadians voted for in 1984 in the federal election.  That's what later led to much of the disillusionment with the Mulroney Conservatives, when, after nine years in office, that fiscal agenda had not been achieved.

In 1993, Reform offered its Zero in Three program to eliminate the deficit, but our opponents and many of the commentators said this solution was "too extreme." Pierre Trudeau once said that Canadians are "extreme moderates," so any program labelled as "extreme" faces an uphill struggle in our country. In the federal election of 1993, therefore, Canadian voters elected Liberals to form the government and elected fiscal reformers in opposition. In the federal parliament it was left to fiscal reformers in opposition to drive the fiscal agenda from the back of the bus.

The Canadian genius for moderation manifested itself by handing over the management of the needed fiscal revolution at the federal level to people who did not believe in it, thereby insuring that the revolution did not go to extremes. This is a peculiarly Canadian way of getting things done. Sort of.

It invokes the question, "Why did the Canadian cross the road?" The answer, of course, is to get to the middle. Unfortunately, this "middle way" has a habit of becoming the "muddle way." And that is what's happened to the fiscal revolution at the national level.

What, then, is the status of the fiscal revolution at the national level? The federal budget, to give credit, has at least been balanced, but mainly by increasing taxes, not by controlling costs. The initial steps toward federal debt reduction are only now being taken. (You could argue from the opinion polls that there was public support for that in 1984.) For a country to take 16 years to make a self-evident decision in its own interest is simply too slow in the age of high technology. And furthermore, the $3.4 billion increase in federal spending confirmed in the Finance Minister's recent Economic Statement jeopardizes both the balancing of the budget and the delivery of real federal tax relief to Canadians.

I particularly want to stress this latter point:  The federal government has loudly proclaimed in its last two budgets, and in a recent Economic Statement, that it is delivering substantive tax relief at the federal and national level. But at the street level, when Mr. Martin's claims are presented, the vast majority of Canadians say, "What federal tax relief? We don't know what you're talking about."

I asked the national pollster, Pollara, to include the following question on a national public opinion survey conducted in the first week of May, just before Mr. Martin's statement: "Personally, have you noticed a reduction in the amount of federal taxes taken from your paycheque or not?"

The survey found that 76 percent of respondents had not noticed any reduction in federal taxes taken from their pay cheques. On the Prairies, the number was even higher than the national average, at 83 percent.

The survey found that those most likely to have noticed some federal tax relief were in households with incomes in excess of $100,000 a year. But among lower and middle income households, the households which Mr. Martin claims to have been targeting for federal tax relief, 73 to 77 percent report no noticeable reduction in their federal taxes. The reasons for this are quite plain. First, the tax reductions themselves have been so minuscule that people don't notice them. And second, they are often offset by increases in other federal deductions, such as the hikes to Canada Pension Plan premiums.

So at the federal level, the national-debt- to-GDP level is still over 50 percent.  The projected $3.4 billion increase in federal spending threatens to unbalance the budget.  And until Canadians start getting real federal tax relief—tax relief that actually registers on their pay cheques and in their bank accounts—the stimulative effect of Mr. Martin's tax relief measures is simply not there. Tax relief as a protection against recession, which it is being presented as, doesn't happen unless people actually believe that they're getting that relief and can make consumption decisions based upon it. In short, the fiscal revolution at the national level remains incomplete.  There remains much work to be done, by The Fraser Institute, by interest groups committed to tax and debt reduction, and by fiscal reformers in the 37^th Parliament.

Toward democratic conservatism

Speaking of Parliament, it is not appropriate for me to comment at this time on the corrective steps that I think need to be taken to create a principled, united, conservative alternative to the federal Liberals at the national level. I have done a lot of work on this subject in the past, and will have more to say about it once I am out of Parliament and able to operate in a less partisan environment. But let me say that one of the great tasks facing conservative thinkers and activists at the outset of the twenty-first century is to debate and decide what adjectives should be attached to the great noun "conservative" in order to make conservatism relevant, understandable, and attractive to larger and larger numbers of Canadians. In other words, to majorities, so that you can get majority government.

Nobody in Canada has done more to help define and explain fiscal and economic conservatism than The Fraser Institute and we should pursue that task with vigour. But in this country, to be able to address the challenges of national governance, particularly national unity, it's also necessary to have a constitutional as well as an economic vision. Much work needs to be done to define and communicate a "constitutional conservatism" that addresses these issues—a constitutional conservatism that challenges the concentrations of monopoly power in the political market place, like the Prime Minister's office and some of our federal institutions, in the same way that free market conservatives challenge monopoly power in the economic marketplace.

In my view, there is also an important place for social conservatives in the conservative coalition of the future, particularly as champions of law and order and the role of families in society. But both fiscal and social conservatives will need to work out some accepted and agreed- upon rules for reconciling differences between them concerning the role of the state in the modern society, if they intend to work together to bring that society about.

When I visit high schools, as I frequently do, and ask the next generation of Canadians what kind of Canada they want to live in, it will not surprise you to know that over 50 percent of the answers I receive are expressed in terms of "environmental conservation." "We want to live in a country," these young people say, "where there is clean air, clean water, clean soil, biological diversity, sustainable forests....." and so forth. The words "conservation" and "conservative" come from the same root, but for conservatism to be made relevant to the next generation, environmental conservation will have to occupy a much more prominent place in the conservative creed than it has heretofore.

And finally, if I personally have a favourite adjective that I would like to play a larger role in defining the conservatism of the future, it would be the adjective "democratic." Agreeing to the simple rules of democracy—respect for everyone's opinion in debate, but resolving issues by democratic votes at the end of the day—is for me the best way to reconcile the differences between fiscal and social conservatives in any conservative coalition.

On the international front, as many of you would know, there is a major debate shaping up as to what sort of governance structures, top down or bottom up, should be established internationally to deal with the environmental and social issues which attend globalization and the international expansion of free trade. This was as much the subject of debate at the recent Summit of the Americas Conference in Quebec City, as were the economic policies necessary to advance the creation of the Free Trade Area of the Americas. It would be a

huge mistake for the champions of free markets and free trade to vacate the field on this issue, and leave it to the opponents of free markets and free trade to define that governance structure. The so-called international "democracy deficit," the constitutional and governance arrangements for any Free Trade Area of the Americas, and the form, substance, and powers of any future Congress of the Americas—which certainly will come—should be thoroughly addressed by democratic conservatives if we want to see free market and free trade policies succeed internationally as well as at home.

Conclusion

In conclusion, I look forward to working with you—and our friends and colleagues across the country—in carrying on the revolution which your efforts have thus far so ably advanced. To me, that means carving the words of our fiscal responsibility creed—control your costs, balance your books, reduce your debts, reduce your taxes—into the governing statutes and cabinet tables of

every government in Canada, including the federal government.

To me, it means paying more than lip service to the concept of sustainable development, and making environmental conservation as much a part of the conservative creed as the conservation of freedom.

And to me, "carrying on the revolution" also means finding the keys to uniting economic, social, constitutional, environmental, and democratic conservatives to advance these values, internationally as well as domestically, in the exciting months and years that lie ahead.

Notes

1 On May 22, 2001, the Institute announced that Preston Manning, former Leader of the Official Opposition, is to become a Senior Fellow of The Fraser Institute upon his retirement from Parliament at the end of the year.

2 Tom Flanagan is a Fraser Institute Senior Fellow and author who was Director of Research for the Reform Party of Canada in the early 1990s.

Questions for Preston Manning

Michael Walker: Let me begin by asking you to sketch out in your own words what you are going to do when you come to The Fraser Institute early in 2002.

Preston Manning: For years I've been living off the ideas that have been generated by The Fraser Institute, so I feel that maybe it's time that I gave something back. But I do hope to contribute to some of the themes that I have discussed in my address. There is still a lot of work that has to be done on the fiscal revolution, particularly at the national level. I think I can give some insights there.

I also want to look further into the idea of reconciling social and fiscal conservatism. The reason I attach so much importance to it, is that I don't think there are enough fiscal conservatives in the country to form anything other than a right-wing NDP. And if you want a majority conservative movement, at some time you've got to get conservatives of different stripes working together, and I think a lot of work has to be done on that. I also think this area of environmental conservatism and democratic conservatism are areas that need to be fleshed out. They are areas in which I have a personal interest.

MW: What do you feel the election of Gordon Campbell in British Columbia will mean for Western Canada, and for Canada as a whole—most notably for provincial rights?

PM: Well, I think the election of the Campbell government in BC is a great step forward. Of course, the majority of our members in the House of Commons come from BC, so we've watched and talked to Gordon Campbell as he's built things up over the years. I have great expectations there. I think it's going to mean that the BC economy is going to start performing the way it ought to have been performing for years. I think you can argue that the growth rate in this country has been one percent lower than it could have been because of a string of NDP governments. BC is a huge economy, and sometime in the twenty-first century it's going to become the second largest province by population in the country. When that economic engine is not operating profitably and properly, it's a drag on the entire economy, so I look to Campbell to create an environment in BC where enterprise can flourish, and give Alberta some competition.

MW: If you could change one decision in your career, what would it be and why?

PM: That's hard to answer. Some of you might be thinking about things like Stornaway and the like, but on the bigger picture, there are two things I may have done differently.

One is this: I am a person who has an interest in an infinite variety of ideas. In politics, however, you've only got so much capital. I think you're better to pick three things and do all you can to push those, even if you've got some good ideas in forty-nine other areas. Focusing is the key. Prior to the 1993 election, we campaigned on this zero-in-three idea, which really helped us with our break-through, but we also spent about a quarter of our time banging away on other issues that today no one remembers at all. If, maybe six months earlier, we had focused on that one area, I think our outcome might have been better. Concentrate your resources.

The other thing I found in marketing constructive ideas for change, is that where I tend to go right to the reform, Canadians like to see a transition plan. We found with Canadians that even if you have an excellent idea for change—one that Canadians will agree with—whether it's in economy or the social area of the constitution, if you do not show them how to get from where they are now to the point you're trying to get to, you don't make as much progress as you should. In Atlantic Canada, for example, in trying to sell the idea that tax relief is a better way to achieve economic recovery than the subsidy-driven approach, you've got to show Atlantic Canadians how we are going to make the transition. If there was one thing I'd do differently, I think it would be to show people the transition plan for getting to the final objective, rather than just saying here's the objective, now take a leap of faith.

MW: Please explain your distinction between social responsibility and social conservatism.

PM: I don't know that there is a big distinction, but there are, in the conservative camp, people whose focus is more on  the so-called social issues and the social fabric of society, particularly the role of families and the significance of law and order. That's their priority, just the way the fiscal conservatives' priority is more on budget balance and free market economics. When I use the term "social conservatism," I'm talking about people with those priorities. Some people say that you can't reconcile the social conservative and the fiscal conservative positions, but I say you have to. This country is not the same as the United States. In my judgement, people who support conservatism in this country are spread out on a larger number of issues than in the US and somehow you've got to figure out a way to get them to work together.

MW: What will it take to convince Ontario voters to support a fiscally and socially conservative federal party to form a national government?

PM: Slow progress is being made in Ontario on the provincial level. Ontarians have voted quite strongly in both of their last provincial elections for a government that is certainly fiscally conservative, and one that has advocated some fairly major social changes as well—particularly changes to the welfare system and a stronger commitment to law and order. I don't think in Ontario that there's an aversion to ideas simply because they come from the West. I think some of the problems in breaking through in Ontario are other than that. If you want to test that thesis, ask a pollster what people's reasons were in the last election for not voting, or not voting Alliance. Was it because of the Western flavour, or was it because of something else? I think if you ask those questions you'll find it was something else. Having said that, there's still a lot of work to do to break through in Ontario.

MW: Somebody sent in a joke: "We've had lots of wind in Alberta, and some people think it's Chinooks, but actually it's the sigh of relief coming in from the province of British Columbia." Why is there such resistance to a flat tax when the current tax relief equated to the same value of about $20 billion that would have been involved in the movement to a flat tax?

PM: A lot of it comes down to how the idea is marketed. The Reform Party wanted to commit to the flat tax fairly early on, but because of the revenue state of the government of Canada, the flat tax rate that would have been required to deliver the same amount of revenue as the progressive tax system was higher than the lowest rate under the progressive tax system. With the public you can talk all you want about tax reform, but the only thing the public is interested in is actual tax reduction. If, by promising the flat tax, you could not at the same time promise a tax reduction to every category, you lost a lot of potential support. In about 1998, the revenues of the federal government came to the point where you could actually match the current revenue of the current system with a 17 percent flat tax, which meant that everybody got some tax relief. So it is becoming more marketable, but that is only one of the critical factors.

The other thing for tax reformers to think about is why is there such massive resistance to the flat tax at the bureaucratic level in Washington and Ottawa? My judgement is that it has nothing to do with economics. It has to do with the politics of tax increases. If you get one flat tax rate, and then try to increase it, you injure everyone in the country because there's only one rate. It's like an amoeba. If you prick him in one place, he hurts all over because there's only one cell. With a differentiated tax system, on the other hand, you can play all sorts of games. We'll give you some tax relief by taking a little more from him. I think the great resistance to the flat tax at the bureaucratic level is that it makes it very hard to increase taxes. Causing themselves such difficulty is the last thing the bureaucrats in Ottawa want to do.

MW: Over a year ago, I wrote an article in the National Post which described how someone with a $20,000 dollar income received, in round numbers, $10,000 in government benefits. How do you give a tax cut to people who are already receiving such enormous benefits?

PM: Our program for tax relief preserved a lot of the basic things people get from the government, particularly in the health care and social services area, without diminishing their benefits. The way you appeal to the lower income people in Canada is to point out that they, too, are still paying a whole lot of tax. For example, here's how we sold tax relief in union halls. We would go into a union hall during the workers' coffee break and say, "Has anybody here got a stub from their last overtime pay?" They'd fiddle around, look in their pockets, and somebody would find a stub and bring it out. So we would start looking at the deductions. We'd point out that they were paying a huge amount of tax on that last bit of income. We'd say, "Who are you working for? Are you working for General Motors or are you working for Paul Martin? According to this it's about equal." So you can sell tax relief to union people, and to lower-income people, basically the same way you do with everybody else. Show them how much is being taken out of their pockets and say, "You know, if you had a tax reduction, you'd have more in your pocket."

MW: What are your ideas about health care reform?

PM: Without getting into all the details, I think there are two big areas that have to be dealt with. The one I touched on, and it's one of The Fraser Institute's areas of study, is that you have to get a better balance between public and private resources in the health care field. There is not enough public money, in my judgement, to pay for the health care services of the future, and you've got to find ways of getting more private capital in. I think that stopping this foolish debate about whether it is public or private money is the first task. It isn't either public or private; it's a balance between the two. From there, we can move on to addressing things like public-private partnerships in health care which is an acceptable way to mix funding in other sectors.

The other problem, speaking federally, is how to get the right balance between federal and provincial responsibilities in health care. The public are sick and tired of the fighting between the federal and provincial governments. You'll find that the public says, " I don't care whether it's federal, or provincial, or municipal, or universal. All I want is the waiting line to be shortened, and to receive quality care when I get there." But I think there is a clear distinction is the roles of each level of government. The federal government can play a role in setting national standards—not arbitrarily, but setting them through inter-provincial agreements and facilitating co-operation. And the federal government can provide some of the financing. All the rest of it should be done as our constitution says—basically, by the provinces.

MW: Given your views on the necessity of uniting economic and social conservatives to form a political majority, is there more room for the Canadian Alliance to expand amongst Liberal and even NDP voters than the Tories?

PM: Yes, I think there is. The Alliance has got a fair number of fish from the Tory barrel, so fishing there might not yield quite as many results as at one time. But the vast majority of Canadians do not have deep commitments to political parties. They will go with whoever offers them what they think is the best government and answers to two or three key issues. I regard virtually any voter as fair game. If you've got something sensible to say, something that recognizes a voter's particular concern and addresses it better than the other guys, then you have a fair chance of getting that vote. So I say, don't just fish in the conservative barrel. Go wherever the voters are. If you've got the right program, you can get them.  

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