The Economy and the Constitution: Getting it Right

"The trouble with this whole country is that it's divided up into little puddles with big fish in each of them."

Hugh MacLennan "There is no recipe for turning bouillabaisse back into fish."

Matthew W. Barrett, on the difficulty of restoring unity to a disintegrating Canada.

Canada went scudding into spring last week with tattered sails and a somewhat bedraggled crew, its compass spinning wildly.

On this, the tail-end of yet another long winter of discontent, Canadians find themselves somewhere between a quandary and a fine kettle of fish. As a country, Canada is only 125 years old and already it seems like the warranty's running out!

Hopefully, Canadian political leaders are in the midst of what will be the last major constitutional round for years. As Joe Clark has reminded us: the country does not want to make these discussions regular events--a sort of constitutional Olympics.

What will be the outcome of the national unity poker game? How will political leaders engaged in the federal-provincial-territorial-aboriginal negotiations--slated to last about 10 weeks--resolve the conflicting demands of the various interest groups?

To date, the intensity of the debate has been fueled by the self-interests of the parties involved. Perhaps there is a need for a more objective--or selfless--perspective. I call it the Benchley Principle.

The American humourist, Robert Benchley, once sat for a college examination which called on him to discuss the North Atlantic fishing rights controversy, first from the point of view of Great Britain, and then from the point of view of the United States. Remembering nothing at all about the controversy, he chose an alternative approach--he described the dispute from the point of view of fish!

Let's apply the Benchley Principle to the Canadian constitutional debate and, for the moment, ignore the views of the various claimants. Let's look at the constitutional debate solely from the point of view of the Canadian public interest. A lot of things come into sharper focus.

Our guest speaker, Allan Taylor, chose such an approach in his widely acclaimed address to the Royal Bank Annual Meeting in January. His speech, entitled The March of Folly, outlined the significant costs associated with Canadian disunity and made the compelling point that "national unity and economic prosperity are cut from the same cloth."

Similarly, in his keynote address at the opening of the National Assembly last week, Premier Bourassa also applied the Benchley Principle in vigorously defending national unity. In putting himself squarely on the side of federalism, Bourassa abandoned the recent Quebec-based hard-line rhetoric. He spoke instead of Canada as a "rare and privileged" country blessed with special qualities such as "peace, justice, liberty and standard of living." Time will tell whether this more conciliatory tone is a brief seismic anomaly next to the continuous political earthquakes emanating from Quebec.

The interminable constitutional wrangling and the uncertainty about the outcome is disruptive for all Canadians. Are we spending so much time on the constitutional dock that we are missing the economic boat? Further, if we are unable to resolve our constitutional differences, are Canadians going to be able to steer our economic ship of state? Are economic considerations an unnecessary or untimely distraction or do they represent important ballast for any constitutional deal? Our guest speaker today, Allan Taylor, will address the issue of how Canadians can get both our constitution and our economy sailing again in the right direction.

Allan Taylor is a member of what may be the last generation of bank chief executives who started their banking careers as teenage tellers and junior clerks. Indeed, he passed up a university scholarship to join the Bank at age 16 in 1949.

Maclean's magazine describes Mr. Taylor's style as "gracious and approachable" and attributes his ability to put people at ease to his upbringing in Prince Albert, Saskatchewan. Allan Taylor belies Mark Twain's description of a banker as "a fellow who lends his umbrella when the sun is shining and wants it back the minute it begins to rain."

After 15 years in the Bank's international division, Mr. Taylor became President in 1983. He was appointed Chairman of the Royal Bank in 1986.

Allan Taylor's overview of the issues that confront this country is broadened by his membership on the Executive and Policy Committees of the Business Council on National Issues, and the Board of Directors of the Conference Board of Canada.

Allan Taylor is a director of numerous major companies. He takes a particular interest in relations between the academic and business communities. His achievements in this area have been recognized by honourary doctorate degrees from several universities.

The top of Royal Bank Plaza offers an excellent perspective on the Canadian economy, and the impact that constitutional gridlock is having on Canadians' ability to compete. The Canadian and Empire Clubs are honoured to have this joint opportunity to invite Allan Taylor to our lectern. Ladies and gentlemen, please join me in welcoming Allan Taylor.

Allan Taylor.

The last time I had the privilege of addressing The Empire Club was in 1985, and I last spoke to the Canadian Club four years later. Those were more normal times--more prosperous times. My subjects on both occasions were esoteric but, I felt, relevant: financial services restructuring and telecommunications policy.

With the substantial progress that has been made since then in reforming laws regulating our business, it is tempting to return to this theme.

But these are not normal times, nor prosperous times. Decisions will be made in 1992 that affect the welfare of Canadians for generations to come.

So I want to discuss some of the economic implications of the constitutional debate with you today, starting with the enormous costs all of us will have to pay if Canada self-destructs.

Of course, it would be easier in the short term, especially for business people, to remain silent. But the easy way is not always the right way when the interests of a nation are at stake.

Now at this point you might protest that constitution-making is for citizens, not banks. As I told our annual shareholders meeting, I do not have, nor do I pretend to have, any special expertise or knowledge in this area. But, our bank is almost as old as Canada We have some knowledge of how our economic system works--and what it needs to work. And it requires no constitutional expertise to see that many of the assumptions in this debate are both naive and dangerous.

Canadians must understand that separation without pain is a real-world impossibility. In my estimation the costs of a break-up would be huge and long-term. The value of our dollar would drop; our strong currency would be replaced by two weaker new ones. Foreign investment would fall. The internal Canadian market would be shattered, as would our common international trade policy, and our stabilizing fiscal structure.

The price of this folly would be paid by everyone in Canada--here, in Ontario, in Quebec and in every province and territory. The very quality of life would be diminished for us and our children.

Now, even as I speak, there is evidence that uncertainty over our future is damaging us. Foreigners wonder if Canada is a safe haven for the savings of clients; some European financial institutions advise investors to take a cautious attitude toward Canada. At home, uncertainty causes businesses, governments and individuals to put off investment decisions.

Yes, we will all pay a very heavy toll if Quebec goes. But the point to recognize quite clearly is that an outright split is not the only danger facing us. So today I want to focus on two economic imperatives that will put us in fighting shape to take on the world if we restore Canada.

First, new constitutional arrangements must enable our economic union to prosper and become increasingly competitive. Second, we must pursue sound economic policies now if a renewed Canada is to inherit a solid base for prosperity.

A strong, integrated and efficient Canadian economy will enhance Quebec's opportunities to flourish as a Distinct Society in a renewed federation. A strong, integrated and efficient Canadian economy is necessary to protect--and enhance over time--a social covenant. Most Canadians feel passionately that a caring, sharing society is a fundamental and special characteristic of Canada I am one of them.

A strong, integrated and efficient Canadian economy will give the native people the economic benefits they need to enjoy self-government within Canada.

It is time for Canadians and their leaders to acknowledge that the federation works for all, or it works for none. In the difficult months to come we will need even greater statesmanship, and that includes making compromises where necessary. This could well be our last chance to save the federation.

Now I understand why many people are sick and tired of all this talk about the constitution. In this cruel recession, they are first and foremost interested in finding jobs and protecting jobs.

Others put the emphasis on the need for Canada to be much more competitive. And whether we like it or not, the global economy is being restructured. We must adapt by upgrading our public and private enterprises.

Still others insist that the first item on the national agenda must be restructuring the federation. That means adapting Canada's political system to new regional realities.

What is being missed here is the most basic point of all. These three concerns--jobs, competitiveness, a new constitution--are absolutely inseparable. To have the number and kinds of jobs we need, we must be competitive. And to be competitive, we must solve the constitutional crisis.

Nothing would do more to assist economic recovery or to enhance competitiveness than accepting a viable plan to keep Canadians together. This would reassure foreigners that Canada has a bright future. It would restore the confidence of Canadians in themselves.

It is encouraging that the vast majority of Canadians now appear to agree with this fundamental point. The evidence is in a new Decima national poll. It finds that fully 81 per cent--eight out of every 10--Canadians believe that resolving the national unity debate is important or very important in the recovery of the Canadian economy. I am one of this 81 per cent.

Yet, in the headlong rush of the constitutional debate, a foolish notion is often just below the surface and sometimes above it. This is that lasting and meaningful political unity can somehow be achieved without regard to the powers and arrangements needed to develop a competitive economic union.

Here we come face to face with the first imperative to which I referred. We must emerge with constitutional arrangements that make our economic union more efficient and prosperous, not less so.

The curious notion that in balkanization, protectionism and parochialism there is strength, flies in the face of history. It is plain nonsense to think that political unity can be achieved through economic disunity.

Look at Europe. After a millennium of turmoil, the Europeans are scrambling to pool some of their hard-won sovereignty to join a common cause. They had already negotiated an economic union and are now moving toward greater political unity.

On this side of the Atlantic there are cautionary lessons about denying governments powers to maintain an integrated national economy.

More than two centuries ago, the 13 American states wasted eight years trying to govern themselves under a disastrous experiment called the Articles of Confederation. Each state had an equal vote. Key matters--declaring war, issuing coinage and spending--needed the consent of nine of the 13 states.

The result was chaos. Prices collapsed, competing currencies proliferated, debtors' prisons were filled. Connecticut's firewood was taxed in New York Massachusetts closed its ports to British vessels, but Rhode Island gave the British the right to ship goods overland into Massachusetts.

Advocates of a strong economy, led by Alexander Hamilton, then crusaded for the adoption of the U.S. Constitution. This noble document gave the central government adequate powers to manage the economy in the interests of all. It was a practical blueprint for a union based on liberty and prosperity.

In our own history there is compelling proof that increasing economic unity brings strength. The Canadian federation was created in part as a practical plan to help solve very pressing economic problems. Debt loads had overburdened the public finances in British North America. Roads, railways and canals could not be financed to open the country to commerce. The economy was stagnant.

So the Fathers of Confederation brought the northern part of this continent together. They didn't just negotiate a commitment to democracy and diversity. They gave Canada the foundations for strong economic development.

The new country, with remarkable speed, provided a solid financial base for growth. It facilitated a freer and more integrated domestic market and developed the West.

In other words, it worked. The economy of the Canadian federation grew progressively stronger. Since the beginning, Canada has been viewed by international markets as much stronger than its parts. We built railroads, highways and air services on that strength. We built broadcast networks and a solid national financial system. We built social programs that other nations envy. The people of this immense country were brought closer together.

To destroy a country with this record of achievement would be an exercise in folly rare in the history of free nations. To strengthen it would assure Canadians a worthy place in the world of the 21st century.

But in the process of trying to rebuild Canada politically, we must be vigilant about another danger. The danger is that--inadvertently, perhaps--we will so weaken the national economy that it will be no match for the forces of international competition.

Such a "solution" would be the legacy of exhaustion and expediency. Canada would become a toothless economic tiger. All Canadians would lose in the process. Region would be pitted against region.

In every successful federation, there are certain crucial economic functions that central governments must perform. There are some economic functions that central and regional governments must perform in very close harmony. There are others that can clearly be left with regional governments.

I m not going to enter the detailed debate on the division of constitutional powers; that is the job of our politicians. But I am certain a stronger Canadian economic union, not a weaker one, must be the result.

In general terms, however, there are some broad prerequisites for keeping the economic union strong and efficient. We need a single national currency and a single national monetary policy--these are essential for a strong national economy. We need a national fiscal policy capable of fighting national recession, evening out regional economic difficulties and supporting nationwide development. We need to preserve our strong nationwide financial position. We need to achieve a high degree of harmony in our tax and regulatory systems, as Europe is seeking to do.

We also need a common market in Canada. The free flow of goods, services, people and capital has to be assured. This is such an important issue in the current debate that it merits special attention.

It is absurd that you can buy Moosehead beer in New York, but not in Toronto. It is equally absurd that travellers between Halifax and Saint John still have to change buses at the New Brunswick-Nova Scotia border.

Do we laugh, or do we cry, when paving stones are ripped out of the sidewalk in Aylmer, Quebec, when it is discovered that they were made across the river in Ontario?

Why must a teacher of the French language from Quebec take a special course to teach French in Ontario?

There are more than 500 barriers to inter-provincial trade. The Canadian Manufacturers' Association suggests that removing them could save more than $6 billion.

Make no mistake, we can do this while retaining realistic policies that help regions to survive in tough times. But instead of the self-defeating policies of protectionism and subsidization, the objective should be to support sustainable regional economic development. It is sheer waste to allocate billions of tax dollars to keep unnecessary, inefficient or non-competitive enterprises alive.

And all the new policies must eliminate the costly and wasteful duplication of federal and provincial services, no matter how powers are shared by governments.

So let's look at Europe again. In Europe there is a broad agreement that competitiveness is a virtue, not a vice. All remaining legal barriers to the complete mobility of goods, services, labour and capital between 12 states with 340 million people are coming down. This puts the Europeans 10 or 20 years ahead of us. It takes them way beyond the provisions of the Canada-U.S. Free Trade Agreement.

The key question, of course, is whether the Canadian people want removal of inter-provincial trade barriers. Again, I refer to the latest Decima unity poll. It shows that fully 75 per cent of Canadians do want to remove restrictions on the flow of goods and services within Canada

A single market would strengthen Canada politically. It would promote efficiency and competitiveness in the smallest domestic economy of the seven leading industrial nations. Any new constitutional arrangements must recognize this fact.

But let us not make the mistake of thinking that appropriate constitutional arrangements will, in themselves, be sufficient for ensuring a strong economy. This is the second economic imperative we must all understand. The quality of economic policies will determine whether a renewed federation inherits a strong foundation or a crumbling base.

And here we are making some progress. The quality of some of our current economic policies on inflation, deficit control, trade liberalization and industrial regulation is most encouraging.

We are beginning to get our inflation down to levels that compare with the best of the industrialized countries. This is the result of one thing and one thing only--a consistent monetary policy aimed at protecting the value of the currency. It gives us some assurance that our new federation will inherit a worthy currency. It also means that our emergence from recession will not be aborted by a return to high inflation and sky-high interest rates.

Our record on fiscal policy is another matter. For two decades our public debt, both federal and provincial, has grown much faster than the economy. This has diverted our national savings from productive investments. It has forced us to borrow huge amounts from foreign investors. On both counts we have been mortgaging the income of the next generation. Nor is our generation doing all that well: 35 cents of every federal dollar now pays only the interest on the public debt.

The last two federal budgets have at last started to move us in the right direction and we cannot afford to lose our way. There is enormous urgency for the federal and all provincial governments to work together so that the new federation inherits fiscal strength and not crippling debt.

We are clearly in tune with the trends of the end of this century in seeking more open North American free trade and a broadening of our trading opportunities through the GATT negotiations.

The current shrill protectionist trade sentiments in the U.S. are deplorable. The strongest vigilance on the part of our government is justified. But it is ludicrous to argue that Canada would have been more protected without the Free Trade Agreement. The dispute-settling mechanism in this agreement gives us an essential new tool for dealing with unfair trade actions.

We have also begun to build a stronger economic base through re-regulation of the financial system, the telecommunications system, and the privatization of government enterprises. Then there is the new but encouragingly intense debate on improving national productivity through a whole range of policies. Canada is not unique in this respect. All over the world there is restructuring. All over the world, the need to manage change more efficiently is being accepted.

Therefore, on this second imperative--improving economic policy now--we are moving toward the priorities of the 21st century.

So, in this period of constitutional crisis it is wise to recall what our much-maligned economic union has done for Canadians. The United Nations rates Canada second among 160 countries in the quality of life. This is based on human freedom, racial equality, gender equality, longevity, living standards, economic well-being and distribution of income. Not bad for a people who spend more time counting their debits than their credits.

The boat people, and millions of other victims of tribalism and bigotry, are trying to break down our doors. They want in. They want to share our good life. Meanwhile, in the rubble of the Soviet Empire, the people are learning a bitter lesson. This is that democracy, social justice and prosperity cannot be achieved by simply raising a flag.

Together, for a century and a quarter, Canadians have built a country that is the envy of humankind. Together, we can meet the challenge of saving Canada and assuring our children a worthy place in the 21st century.

The appreciation of the meeting was expressed by Joyce Kofman, Past President, The Canadian Club of Toronto.