How Ottawa Spends, 1996-97: Life Under the Knife 9780773595897

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How Ottawa Spends 1996-97 Life Under the Knife

Edited by Gene Swimmer

C a r l e t o n U n iv e r sit y P ress

©Carleton University Press, Inc. 1996 Carleton Public Policy Series #18 Printed and bound in Canada

National Library of Canada cataloguing How Ottawa Spends 1983Annual. 1996-97 ed.: Life Under the Knife Each vol. also has a distinctive title. Prepared at the School of Public Administration Carleton University Includes bibliographical references. ISSN 0822-6482 ISBN 0-88629-285-9 (1996-97 ed.) 1. Canada-Appropriations and expenditures-Periodicals. 1. Carleton University. School of Public Administration. HJ7663.S6

354.7100722

C84-030303-3

Cover design: Your Aunt Nellie Sculpture featured onfront cover Collectionfor Preston 1994: pigmentation, hydrocal, fabric, fibre glass, steel and wood. Number 5 in a limited edition of 10 by Riley Gamer. Carleton University Press gratefully acknowledges the support extended to its publishing program by the Canada Council and the Ontario Arts Council. The Press would also like to thank the Department of Canadian Heritage, Government of Canada, and the Government of Ontario through the Ministry of Culture, Tourism and Recreation, for their assistance.

CONTENTS

Preface An Introduction to Life Under the Knife

Gene Swimmer The Program Review Process: A Deconstruction

Gilles Paquet and Robert Shepherd Looking for the Core: Industry Canada and Program Review

G. Bruce Doem Environment Canada's Continuing Roller Coaster Ride

Glen Toner Shrinking the House o f HRIF: Program Review and the Department o f Human Resources Development

Herman Bakvis Public Works and Government Services: Beautiful Theory Meets Ugly Reality

Alasdair Roberts On the Cutting Edge: Program Review, Government Restructuring, and the Treasury Board o f Canada

Evert A. Lindquist

Cashing In on the “ Peace Dividend” National Defence in the Post-Cold War World

Claire Turenne Sjolander The Canada Health and Social Transfer: Forcing Issues

Allan M. Maslove Lion Taming: Downsizing the Opponents o f Downsizing

Andrew Cardozo Pink Slips and Running Shoes: The Liberal Government’ s Downsizing o f the Public Service

Ian Lee and Clem Hobbs Banking on Transparency: An Interpretation o f Recent Changes at the Bank o f Canada

Calum M. Carmichael Security and Intelligence in a Cold Climate

Reg Whitaker

APPENDICES Fiscal Facts and Trends Abstracts/Resumes Contributors

PREFACE

This is the seventeenth edition o f How Ottawa Spends. Over the years, we have attempted to provide timely and constructive analyses o f fed­ eral government spending and policy in the hope o f stimulating debate about public priorities and options. This year’ s edition focuses on how various federal agencies and societal groups are coping with the un­ precedented reductions in federal spending. Have the restraint mea­ sures been like a scalpel, surgically removing unnecessary fat from the federal government or more like a chain-saw cutting a wide swath through core programs? The School o f Public Administration at Carleton University pro­ duces How Ottawa Spends through the contributions and collabora­ tion o f many people. Let me begin by thanking the authors who worked under extremely tight deadlines and maintained their good spirits de­ spite my constant bugging. As a peer-reviewed publication, we also rely heavily on the assistance o f many other academic colleagues to provide comments, criticism and advice to the contributors and to the editor. This year, particular thanks are due to Allan Maslove, Katherine Graham, Susan Phillips, Gilles Paquet, David Zussman and Glen Toner, as well as to the individuals who provided helpful comments directly to the authors. Elizabeth Dandy provided excellent research assistance and comments to all o f the authors as well as compiled the tables and charts that appear as the appendix Fiscal Facts and Trends. As always, we are indebted to the staff at the School o f Public Ad­ ministration without whom this annual publication would not appear. In particular, the School’ s superb Administrator, Martha Clark, effec­ tively managed the entire production process and served as copy editor for the final version. Jackie Carberry did a wonderful job at trans­ forming the original manuscripts in photo ready page proofs. We also want to thank Douglas Campbell for excellent copy editing at various stages o f this project. John Flood and Pauline McKillop o f Carleton University Press extended invaluable professional support. We are grateful to Sinclair Robinson and Nandini Sarma for French transla­ tion and Diane Dupuis for production o f graphics.

Given that this is my first year as editor o f How Ottawa Spends, I would like to express my special thanks to Susan Phillips, my prede­ cessor as editor, and Martha Clark for always being there to provide encouragement and advice on what needed to be done next. Finally, I am grateful to my partner in life, Carol Silcoff, for her understanding and support throughout this project. Gene Swimmer Ottawa April 1996

The opinions expressed by the contributors to this volume are the per­ sonal views o f the authors o f the individual chapters and do not reflect the views o f the Editor or the School o f Public Administration o f Carleton University.

1 An Introduction to Life Under the Knife

GENE

SW IMMER

I t has been more than a year since the landmark Liberal government Budget o f February 1995. The reductions in government spending prom­ ised over the following three fiscal years would accumulate to $29 billion and be accompanied by a reduction o f 45,000 federal public employees. The driving force behind these expenditure cuts was the federal government debt. By 1995, the debt amounted to $546 billion, and annual interest on the debt was approximately $42 billion, which represented 26 percent o f federal spending. By comparison, federal program spending net o f transfer payments was only 19 percent. A c­ cording to Finance Minister Paul Martin, higher than expected interest rates would cause the government to fall $ 10 billion short o f its target o f reducing the deficit to 3 percent o f Gross Domestic Product (GDP) by 1996-97, unless it acted.1However, these cuts are much more than a frantic across-the-board slashing exercise. They have been portrayed

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as a change in philosophy toward reducing the role o f the federal gov­ ernment by devolving responsibilities to other levels o f government and to the private and voluntary sectors; reducing transfer payments to provinces, individuals, and businesses; and applying private sector management techniques to those federal government activities that re­ main. Paul Martin spoke with pride o f the fact that “ relative to the size o f the economy, program spending will be lower in 1996-97 than at any time since 1951.” 2Canada was a very different country in 1951, with­ out medicare, the Canada Assistance Plan, or equalization payments to provincial governments, and with an unemployment rate o f 2.4 per­ cent. Arthur Kroeger has referred to this budget as marking the end o f “ fifty years o f activist, interventionist and above all, self-confident government.”3 As the sub-title, “ Life Under The Knife,” indicates, this year’ s edi­ tion o f How Ottawa Spends focuses on life in Canada from the per­ spectives o f specific government departments, the Liberal government, and society as a whole, now that the federal budget-cutting knife is being wielded as never before in the last three decades. At the micro­ level o f government departments, the results are mixed. Some depart­ ments have relied on technology and/or cost-recovery to meet their budget constraints, with few effects on their mandates and programs. In other cases, departments have attempted to maintain their entire mandates instead o f specializing, despite having fewer resources, and have succeeded in doing many things, but none very well. Still others have made the hard choices about what part o f their mandates will be jettisoned, and it remains to be seen what the long-term effects o f these decisions will be. Although the government is smaller, it is an open question whether the Liberals are “ getting government right.” In the process, thousands o f employees across the government are being forced out o f jobs, while the morale o f those who remain has plummeted to new depths. Other ramifications o f the 1995 budget cuts transcend departments and affect all Canadians. Lower transfer payments to provinces will force their governments to reevaluate the quantity and quality o f many social services they wish to provide and to decide whether provincial and local taxes can be raised to pay for them. In addition, the smaller

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federal transfer could eventually erode away the existing national stan­ dards for health and social assistance. Funding cuts to socially ori­ ented public interest groups, though justified on the basis o f deficit fighting, act as a catalyst to speed the dismantling o f the welfare state, by muting political voices o f dissent. O f all the parties o f interest “ living under the knife,” the Liberals are faring among the best. They have been able to maintain strong popu­ larity throughout the budget-cutting exercise. Aside from a temporary dip in support following the narrow victory on the Quebec Referen­ dum, Liberal support has been consistently above 50 percent in opin­ ion polls.4Part o f their success is undoubtedly based on general public opinion that the deficit had to be addressed, and the lack o f an effective national opposition party in Parliament. Still, the Liberals have man­ aged the politics o f restraint extremely well, by setting easily attain­ able deficit targets, delaying the timing o f some cutbacks, playing down rhetoric about individual responsibility and voluntarism, and appear­ ing to equalize the pain o f the cuts across all constituencies and re­ gions. Aware that life under the knife has taken a toll on the public, Finance Minister Martin in his 1996 Budget attempted to allay fears about the future, while maintaining his resolve to continue to lower the federal deficit. A N O V E R V I E W OF T H E C H A P T E R S

Most o f the cuts to program spending have resulted from a bureaucratic exercise that began in 1994, and that has become known as Program Review. Each government department was assigned a preliminary target reduction that had to be attained by the 1997-98 fiscal year. Although the goal was a 19 percent overall reduction, the notional targets, developed by the central agencies, ranged from 5 percent to as much as 60 percent. Each department then conducted an internal review o f its programs in an attempt to evaluate where the cuts should be made. Every program was to be tested against six sequential criteria: Does the program serve the public interest? Is the program a legitimate role for government? Should the program be provided by the federal government as opposed to other levels o f government? Could part or all o f the program be transferred to the private/voluntary sector? Could

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the program efficiency be improved? and, finally, Is the program affordable given the fiscal constraint? Having gone through this review exercise, each department submitted its strategic plan to a co-ordinating committee o f deputy ministers by the summer o f 1994. After necessary revisions resulting from the DM committee’ s recommendations, the departmental minister presented the plan to a Cabinet Committee o f Ministers, which included Marcel Masse (the Minister responsible for Program Review), Arthur Eggleton (the Treasury Board President), and Paul Martin (the Minister o f Finance). The recommendations o f this committee were submitted to Cabinet for final discussion and approval. Program Review differed from past review initiatives in several ways.5 First o f all, it was not conducted by outsiders, as was the Conservative government’ s ill-fated Nielsen Task Force, nor did it allow for much input from the public, as would be the case in a royal commission structure. Because the outcomes o f the reviews would be announced in the Budget, most deliberations went on in secret. Second, the financial imperative, combined with the strong role played by central agencies, made assigned targets less susceptible to bureau­ cratic and political negotiation. In the past eight years, departments had been subject to 14 rounds o f budget freezes and cuts imposed in an erratic matter. Nonetheless, new spending occurred, through policy reserve funds and government initiatives. In the new expenditure man­ agement regime no such reserves were available, so the process be­ came a zero-sum game. The only way a program could be expanded was by a reduction in other program spending. Third, there were well-defined, universal, and seemingly objective criteria that were the basis for rational decision-making. The underly­ ing ideology o f the exercise is to determine the “ core role o f govern­ ment,” which will reduce the size o f federal government to the appropriate level. The exercise also emphasizes the doctrines o f “ new public management.” This paradigm is based on a belief in the superi­ ority o f private sector management styles, which translates into foster­ ing competition in the public sector, decentralizing responsibilities by a separation between policy making (steering) and implementation (row­ ing), and providing quality service delivery, often through the use o f private sector partners. As Paul Thomas points out, the rationality o f

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these criteria is partially a veneer covering over basic political judg­ ments: By calling on the bureaucracy to identify, at least initially, whether there is a public interest attached to various programs and activities [the first criterion], the program review has merged political judgements with managerial considerations.6 Finally, once the target and the criteria were established, the process was decentralized, with individual departments analysing their own programs and priorities, under the presumption that departmental staff would be the most capable to determine innovative ways o f program delivery. One Treasury Board official stated that departments were more co-operative than might have been expected, because the review process involved a much greater degree o f rationality than the previ­ ous random cuts, which made departmental planning almost impos­ sible.7 Chapter Two provides a global assessment o f Program Review. It is followed by six chapters devoted to in-depth assessments o f how spe­ cific government departments managed the budget-cutting exercise and analysing the impact o f the Liberal government’ s restraint program at the departmental level. These studies situate Program Review within previous attempts at providing services under restraint, and try to iden­ tify implications for the future. To what extent have departments em­ ployed the concepts o f the new public management to cope with its shrinking budgets? Have the restraint measures been like a scalpel, surgically removing unnecessary fat from the department, or more like a chain-saw, slashing through its core mandate? In some ways this departmental focus represents a return to the roots o f How Ottawa Spends, which began seventeen years ago as a series o f explanations and evaluations o f individual departments. The de­ partments analysed here have been among the most affected by budget and staffing reductions: Industry; Environment; Human Resources and Development; Treasury Board; Public Works and Government Ser­ vices; and Defence.8Chapters 9-11 are concerned with aspects o f the restraint initiative that apply across departments: reducing provincial transfer payments, downsizing the public service, and cutting funds to public interest groups. The last two chapters are studies o f special

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aspects o f the Canadian state: the central bank and the security and intelligence network. Judging the success o f a complex exercise like Program Review is complicated by its multifaceted objectives. Focusing exclusively on the magnitude o f the budget cuts to be obtained, one would be inclined to say that the exercise was a success. The Liberals have convinced the public about the need to reduce the size o f government. Even though the $17 billion savings from program expenditures is back-end loaded, with $3.9 billion coming in 1995-96, $5.9 billion in 1996-97, and $7.2 billion in 1997-98, the Liberal government will apparently not let up on its restraint policy, despite the fact that a federal election is likely within the next two years. Even assuming these global reductions are achieved, Program Review could be considered less than successful. This was supposed to be an exercise concerned with getting govern­ ment right, not just budget slashing. *

Gilles Paquet and Robert Shepherd believe that Program Review has not fulfilled its mandate to reform the governance system o f the federation. They argue that the philosophy o f subsidiarity, which underlies the six criteria for evaluating programs, has been largely ignored. Subsidiarity presumes that individuals are capable o f taking primary responsibility for their own welfare, that government must play a subsidiary role in helping individuals, and that state assistance can be provided more effectively by organizations close to the individual (i.e. local and provincial, as opposed to federal, agencies). Relying on government speeches, confidential interviews, and examples o f programs that were either maintained despite failing the six tests or eliminated despite passing the tests, they attempt to deconstruct the Program Review exercise to understand the Liberal government’ s underlying agenda. Paquet and Shepherd conclude that the Review has been redefined to focus on need, affordability, and efficiency o f programs, at the expense o f addressing governance. They believe that the change in direction has resulted from several different factors. The failure o f the Meech and Charlottetown Accords, combined with a historical predisposition toward

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public enterprise and interregional redistribution, strengthened the Liberals’ resolve to retain a centralist view o f governance. At the bureaucratic level, Treasury Board Secretariat’ s rigid adherence to expenditure and human resources policies stifled innovation by departments. According to the authors, getting Program Review back on the governance track would require an imposition o f even greater spending cuts by the government, so as to force real questioning o f all programs, a rejection o f the erroneous belief that decentralization will “ balkanize” Canada, and an increased political commitment by the federal Liberals to get governance right. They are pessimistic that these conditions will be met. Their analysis is no doubt controversial and makes a number o f nor­ mative judgments along the way. Not everyone will accept the validity o f subsidiarity, or their implicit view that the regional distribution o f income and (as a result) social services should be determined by the marketplace. Nonetheless, they provide tangible evidence that Program Review was far from infallible and that the exercise emphasized effi­ ciency and affordability over governance. It can be argued, however, that part o f the Liberals’ success in maintaining their popularity while managing restraint is attributable to their playing down some aspects o f subsidiarity. They have been able to distinguish their deficit reduc­ tion policies from those o f the Ontario and Alberta Conservative gov­ ernments, in part, by refraining from explicit references to the idea that individuals must assume primary responsibility for their own well­ being. For several years before Program Review, Industry Canada was in a state o f flux, which stemmed in part from debates about what indus­ trial policy meant in a free trade environment. Two separate reorgani­ zations in 1987 and 1993 (before the Liberals took office) established a new mandate that focused on fostering efficient markets and the in­ ternational competitiveness o f Canadian business.9The department was to phase out grants to businesses and concentrate on providing microeconomic analysis and knowledge. To many departmental plan­ ners, Program Review was the next logical step in the consolidation o f the benefits that arose from the 1993 reorganization.

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•

Bruce Doern traces the process and outcome o f Program Review within Industry Canada. The process developed to carry out the Review was exemplary, including simultaneously a bottom-up analysis o f fourteen program areas using the six criteria, and a top-down approach aimed at developing a sense o f the department’ s broad missions (eventually defined as sectoral development, marketplace framework laws, and policy development). It turned out, however, that the six tests were not especially helpful, in that experienced analysts could justify most programs in terms o f the criteria. At the top level, there was an expectation that the department’ s original expenditure reduction target was negotiable, in that savings from earlier restraint initiatives and profits from fee-for-service activities could be counted toward the target. When it became clear that the target was real, Industry Canada was faced with a hard choice between offering up the sectoral branches (the heart o f its knowledge role) and offering up DIPP, a program o f grants to the aerospace and defence industry. The department reluc­ tantly offered up the DIPP program, but the players at the centre preferred the other choice, largely on the political basis o f not wanting to cut money to central Canada, in particular Montreal, given the impending referendum. In the end, and with the aid o f massive lobbying from aerospace interests, DIPP was preserved and the sectoral branch was cut by 40 percent (compared to 15 percent for the marketplace frame­ work and policy development roles). Doern believes that policy development and marketplace framework services are indispensable, so he was not surprised that the sectoral branch knowledge role became the focal point o f the cutting activities. It is impossible to say at this point whether the sectoral role has been sharpened or incapacitated.

In 1993, Environment Canada was reeling from the effects o f a Con­ servative government that had largely lost interest in environmental issues and had reorganized the department by transferring the Canada Parks Service to the Department o f Canadian Heritage and with it 40 percent o f Environment’s employees and resources. The department’ s

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fortunes changed with the election o f the Liberals, who had made sev­ eral commitments about the environment and sustainable development. With a senior cabinet minister, Sheila Copps, at the helm, the depart­ ment found itself involved with an expanding mandate as Program Review began. •

Glen Toner documents how Environment Canada responded to the challenge o f an expanding mandate and shrinking resources. Major issues facing the department included living up to international conventions concerning climate change and biodiversity, establishing new legislation concerning toxic waste management, and developing incentives for the public and private sector to make sustainable development principles a part o f daily decision-making and practice. At the same time the 1995 Budget cut the department’ s expenditures by 32 percent and its staff by 25 percent over three years. The cuts would have amounted to 50 percent had Environment Canada not been able to convince Finance at the political and bureaucratic level that the base budgetary figure for Program Review purposes should include non-renewable funding under the “ Green Plan.” The fact that Finance Minister Martin had previously been the Liberal’ s environmental critic and architect o f many o f the Red Book commitments was crucial to Environment’ s success. The department was also fortunate that most o f the resource adjustments could be made by means o f a technological fix. Accelerated automation o f weather services generated more than half the necessary staff reductions. When combined with charging for many previously “ free” special weather services, reducing grants and contributions, and de­ emphasizing local regulatory issues, Environment Canada succeeded in meeting its target without significantly cutting programs. Toner argues that Environment Canada has temporarily survived more or less intact, but that the less painful cuts are in the past. Future reductions will require the department to make strategic choices about what will remain. This will prove particularly difficult, because the holistic nature o f

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environment policy requires a national, if not an international focus. Decentralizing environmental responsibilities, because o f either financial or unity concerns, could leave a substantial void, given the diminished resources o f other levels o f government. Environment will have to ensure that co-ordinated actions with other levels o f government reflect their capacity to deliver. In 1993, Human Resources Development Canada (HRDC) was cre­ ated by Kim Campbell’s Conservative government as a product o f the amalgamation and transfer o f elements from several departments: the employment and insurance side o f Employment and Immigration, the welfare component o f Health and Welfare, and all o f Labour. Although the reason behind the reorganization was to reduce the number o f de­ partments and cabinet positions, there was a policy rationale for plac­ ing all o f the aspects o f the social safety net in one department. •

Herman Bakvis explains that in 1994, Lloyd Axworthy, Minister o f HRDC, launched the highly publicized Social Security Review, which would implicitly evaluate the depart­ ment’ s programs and generate sufficient budgetary savings to make a formal Program Review redundant. By early 1995, it became clear that a major revamping o f social programs was not going to be possible. The Minister o f Finance apparently won the battle within Cabinet and assumed control o f the process with the 1995 Budget announcements o f the new Canada Health and Social Transfer (CHST), and cuts o f $2 billion to Unemployment Insurance (UI) and about another $1.1 billion in non-statutory HRDC programs. As a result, HRDC entered Program Review late, with targets cast in stone that had to be met in the only areas where substantial control was retained: service delivery and the Human Resources Investment Fund (HRIF). By a reorganization o f the regional offices o f various parts o f HRDC and greater reliance on technology (i.e. electronic kiosks, submission o f claims by phone), the department was able to establish one-stop shopping for all HRDC services, from unemployment insurance to

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pension benefits. In the process about 150 offices were closed, 5,000 positions eliminated, and $200 million saved annually. In comparison, the HRIF is at best a work in progress. In 1995, the HRIF was supposed to consist o f consolidated revenue fund programs such as youth initiatives, Unemploy­ ment Insurance funded programs to put the unemployed back to work through wage subsidies, etc., and other programs, such as Canada Student Loans. The HRIF represented $4.2 billion, which would then be cut by almost $.9 billion in a strategy similar to the CHST exercise. As o f April 1996, it is very unlikely that the UI funded programs will be folded into the HRIF, where resources would shrink, because these job programs are extremely important to the members o f the Liberal caucus and Cabinet from the Atlantic Provinces. It remains unclear which programs within HRIF will be cut and by how much. Bakvis argues that Program Review has been less effective in HRDC, because it is a much larger department than most, and entered the Program Review later in the electoral cycle and after substantial public debate over the Social Security Review. All these factors tended to politicize the process, making it much more difficult to roll back the welfare state quietly. New public management concepts made an impact in Public Works and Government Services Canada (PWGSC) long before Program Review. The new philosophy regarding the internal supply o f goods and services to government agencies was to increase competition, which would lead to more efficient provision and better quality services. This represented a departure from the previous arguments that a monopoly on the supply o f common services would lead to greater economies o f scale and therefore lower cost. This department provides an excellent basis for empirically testing the new public management philosophy. •

Alasdair Roberts explains that the 1993 reorganization, which merged Public Works and Supply and Services, was premised on competition. Line departments were now allowed to purchase supplies and services from either the private sector or

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from PWGSC. The department would be transformed into a holding company of autonomous “entrepreneurial, bottom-linedriven” special operating agencies (SOAs),10which would compete with potential private sector suppliers. Unfortunately, the transformation worked out better in theory than in practice. Officials at PWGSC became concerned about fragmentation within the department and eventually abandoned the holding company plan. PWGSC also learned about the political risks associated with entrepreneurship. The Canada Communication Group (CCG), the SOA responsible for printing, allowed other government departments to transfer money to its revolving fund for unfinished printing jobs, in order to prevent funds from lapsing at the end o f the fiscal year. The resulting furor led the department to transfer the executive officer o f CCG and to retain greater regulatory control over its future SOAs. Finally, this experiment illustrates the politics o f competition facing common service agencies. If an SOA does not perform well, there will be a demand to eliminate the inefficient organization in favour o f private alternatives. If the agency performs too well, there will be complaints from private sector firms o f unfair competition. In this case, private firms argued that CCG and the Architectural and Engineering Services Branch had unfair advantages in obtaining government work. Both Treasury Board and the department developed policies to reduce competition and to allow for private sector sub­ contracting o f work. The policies had less to do with “ levelling the playing field” than with temporarily buying the silence o f private sector firms by guaranteeing them a piece o f the market. As a result o f Program Review, the government decided to privatize the CCG, as well as parts o f the Translation Services SOA. Roberts concludes that the PWGSC experience proves that there are real costs associated with establishing market-like arrangements in a department. No central agency is more concerned with the machinery o f govern­ ment than the Treasury Board Secretariat (TBS). It produces the over­ all expenditure budget for departments, oversees hundreds o f

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administrative policies and regulations, and acts as the formal publicservice employer in matters o f staff relations. TBS.represents an inter­ esting vantage point from which to view Program Review, because not only was it a major player in the process, exhorting departments to evaluate their programs and implementing the new expenditure man­ agement system, but also, as a participant in the review process, it had to grapple with its own resource reductions. •

Evert Lindquist traces the development o f Treasury Board Secretariat’ s four branches (Program, Financial and Information Management, Human Resources, and Official Languages and Employment Equity) over the past decade to demonstrate that even before Program Review the department had gone through many painful reorganizations and staffing cuts. As part o f the structural change, there were attempts to increase the horizontal integration o f the Secretariat, to respond to criticisms that TBS was a hydra-like organization in which one head did not know what the other heads were doing. Previous attempts did not succeed in breaking down the mentality that assumed that each branch could establish policies in isolation from other branches. All too often, new consultative mechanisms and bilateral processes were layered on top o f existing ways o f doing business, sending contradictory messages to departments and increasing TBS and departmental workloads further. In spring 1994, TBS was faced with the challenges o f administering the new expenditure management system, which required departments to submit business plans for approval, as well as absorbing its notional cut o f 15 percent in resources. Teams were set up with representatives from all branches to provide single-window access for departments developing business plans. The project was a modest success, and departments want the single-window concept extended to all TBS contacts. The internal Program Review committee determined that each branch would have to absorb a 19 percent cut, with the extra 4 percent being earmarked for an internal reserve for new initiatives. Program Branch was only reduced by 15 percent, because o f its increased workload.

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Lindquist believes that TBS should be restructured toward strategic management around issues like business planning, implementation o f program restructuring, and alternative delivery, and away from micromanagement. Resources for the Program Branch should increase at the expense o f other branches, which would relinquish some responsibilities to departments. Going into the 1993 federal election, the first in the post-Cold War era, all political parties agreed that substantial cuts to defence spend­ ing were necessary. On February 17,1994 the Liberal government’ s Minister for the Department o f National Defence (DND) announced the establishment o f ajoint Senate-Commons parliamentary review o f defence policy. The announcement set the stage for the first round o f cuts imposed on DND in the 1994 Budget. Rather than being subject to the internal Program Review exercise, DND’ s mandate and pro­ grams were discussed within an “ open and democratic” parliamentary process. *

Claire Turenne Sjolander argues that the consultations around the Parliamentary Committee and the subsequent White Paper issued by DND legitimated, rather than influenced, the emerging mandate within the department about Canada’ s postCold War military role. Despite the Liberal government’ s Red Book emphasis on the role o f peacekeeping, since taking office it has retained DND’ s mandate to maintain a multi-purpose combat-ready military force, albeit somewhat leaner and meaner. In the process, the Parliamentary Committee ignored proposals from an organization o f leading Canadian academ­ ics, politicians, and business-people to radically restructure the military, modernizing and expanding the Army at the expense o f high-technology procurement for the Navy and the Air Force. The White Paper and the Budget eventually echoed the original DND concept o f a leaner general-purpose combatcapable military. Turenne Sjolander argues that the refusal to make hard choices has left the Canadian military with a great power’ s ambitions, but a middle power’ s budget. It is largely wishful

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thinking on the part o f the government that higher technology procurement will allow the Navy and the Air Force to function with a unchanged mandate, but a diminished budget. Maintain­ ing a general-purpose combat-ready mandate makes it difficult to cope with the increasing demand upon Canada to provide peacekeepers. The scandals in Rwanda and Somalia were partially a consequence o f the fact that peacekeeping, despite its high public profile, is secondary to the military’ s broader mandate. What can be said about Program Review on the basis o f the six departmental case studies? First o f all, there are some common themes that appear with respect to the process. Most departments entered the exercise on the heels o f fairly painful reorganizations, and many in­ volved probably considered the Review as “this year’ s model” o f re­ straint. Despite the allegedly objective nature o f the six criteria, there is evidence that the decision-making process was not devoid o f poli­ tics. Creative managers could find ways to apply the criteria to justify continuing most programs. In addition, the targets turned out to be negotiable for some departments but not others. While Industry had no success in effecting its required reductions, Environment succeeded in having the Green Plan sunsetted funds included in its funding base. The fact that the Finance Minister had previously been the environ­ ment critic was hardly a coincidental factor in its success. Similarly, the concerns o f Liberal MPs from Atlantic Canada have hampered attempts by Human Resources to reduce the resources directed to job programs in order to reach its Program Review target. There is conflicting evidence about whether greater public input would have changed the decisions that were eventually made. While the par­ liamentary process surrounding the Defence review did not affect the outcome, it can be argued that the Social Security Review contributed to the politicization o f Program Review at Human Resources, with the result that social programs could not be quietly reduced. The cases also yield conflicting results regarding the value o f “the new public management” in restructuring government. It is certainly true that a number o f departments (Environment and Human Resources) have benefited from the adoption o f microelectronic technology. Some departments have also adopted the private sector strategy o f “ one-stop

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shopping” to enhance service quality. On the other hand, experience with more entrepreneurial agencies (i.e. SOAs) has been less success­ ful. The political costs o f managerial errors, which in the private sec­ tor are an unavoidable consequence o f risk-taking, have led some operational departments and Treasury Board Secretariat to be cau­ tious about relaxing rules and policies for alternate service-delivery mechanisms. At the same time, evidence from Public Works points to the basic instability o f these quasi-public organizations. If an SOA is not competitive there will be pressure to abolish it, but if it is very successful there will be complaints from private sector competitors. Not surprisingly, the final results are mixed. Environment was able to meet its target by means o f technology, cost-recovery, and operational consolidations without significantly reducing services to the public, although this may be only a short respite before its expanding mandate overwhelms even a frozen budget. On the other extreme, Defence is depending on technology to allow it to maintain its broad mandate rather than specialize in peacekeeping. There is already evidence that this attempt to do everything will lead to not doing anything well. Trea­ sury Board Secretariat, facing a similar situation, has depended largely on coping strategies and so far has had difficulty in changing its micromanagement culture. O f the departments studied, only Industry was prepared to make the hard choice o f narrowing its focus. Ironi­ cally, external political factors were responsible for shaping the deci­ sion to greatly reduce its sectoral knowledge capacity (as opposed to cutting defence and aerospace industiy grants). It seems likely that as fiscal restraint continues, other departments will be faced with equally hard decisions. The 1995 Budget not only tackled direct program spending, but went after the major transfers to provincial governments, replacing the Es­ tablished Programs Financing (EPF) and the Canada Assistance Pro­ gram (CAP) arrangements with a new funding scheme, which is now known as the Canada Health and Social Transfer (CHST). The pri­ mary purpose o f the new regime is to reduce transfer payments sub­ stantially, beginning April 1,1996. This was time-released pain built into the Budget, no doubt designed to kick in after the federalist forces comfortably won the Quebec Referendum.

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Allan Maslove discusses two sets o f issues that arise as a consequence o f the announcement o f the CHST: effects on health and welfare programs, and broader implications for fiscal arrangements in the Canadian federation. The CHST is projected to transfer $6.1 billion less cash to the provinces in 1997-98 than was transferred in 1995-96 (under EPF and CAP). Aside from the significant fiscal consequences for provinces, the declining block grant will make it more difficult for the federal government to enforce any national standards for health or welfare. Access to the EPF block funding was conditional on a province’ s abiding by the conditions o f the Canada Health Act, such as that prohibiting extra-billing. Similarly, access to CAP cost-sharing funds was dependent on a province’ s abiding by federal conditions, including a prohibi­ tion on residency requirements for welfare benefits. Maslove warns that unless the federal government stabilizes the CHST cash transfer in real terms, it will soon lose its economic clout as a means o f keeping provinces in compliance. It is unclear whether the 1996 Budget guarantee o f a minimum cash transfer o f $11 billion will be sufficient. The effects o f the CHST block fund on welfare could be even more devastating, because the federal government no longer pays as much as fifty cents o f provincial welfare spending dollars. Provinces can be expected to cut welfare benefits, particularly now that the lower overall transfer funding is operational. The introduction o f CHST can also be viewed as just the latest o f a series o f fiscal shocks that have been imposed on the provinces by the federal government, and that are further straining fiscal federalism. Maslove proposes an alternative structure for the CHST that would turn it into a conditional revenue-sharing scheme. Under his plan the cash transfer would be based on revenue generated by designated taxes levied and collected by the federal government. The revenue pool would then be distributed to the provinces on an equal per capita basis, subject to the Canada Health Act conditions and the guarantee that there be no residency requirement for soteial

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assistance. The transfer would become a more predictable relative claim on the federal budget, and it would also be more immune to unilateral change by the federal government. It is likely that no other part o f the restraint program will be felt by the public as much as these transfer cuts, but their impact will be indi­ rect—by way o f provincial cutbacks to social services and/or to trans­ fer payments to local levels o f government, which will in turn reduce services. So far the federal government has largely escaped responsi­ bility for the pain, but that may change now that cuts are operational. People who lose theirjobs will also feel the pinch. As a result o f the 1995 UI proposals, the maximum allowable benefit will fall, and there will be additional penalties on frequent users. Unlike changes to other social programs, these changes will not allow the federal government to hide behind a shield o f intergovernmental finance. The public will also start to be affected in less dramatic ways. Many services that used to be provided “free” will now cost money, from airport user fees to a charge o f $25 plus GST for a complete copy o f the government’ s budget. Although the Liberals have trumpeted that their assault on the deficit has been accomplished almost exclusively without tax increases, many o f the privatization initiatives lead to de facto tax increases from the perspective o f the users o f the service. Similarly, some o f the reductions in agricultural and transportation subsidies will be passed on to consumers in the form o f higher prices for goods and services. Individual and business interactions with government agencies will also change. A major part o f new public management philosophy em­ phasizes high-quality service for customers. On the positive side, there will be more “one-stop shopping,” where a single regional office o f the federal government will provide a wider variety o f services. At the same time, greater microelectronic automation will probably make it more difficult to get information from an actual person. This new para­ digm also has the potential down side o f treating the public exclusively as clients, rather than as citizens in a political society. A major appeal o f service delivery by non-government agencies is that decisions to reduce services, raise prices, or close down facilities are de-politicized. For example, a non-governmental agency can justify shutting down a

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low-traffic airport or wharf in terms o f the bottom line, without risking a debate about interregional equity. Federal public servants are part o f the human debris from the re­ straint exercise. In addition to not having received a raise for five years, and routinely working overtime with little or no compensation, these employees have been forced to bear the major brunt o f restraint. Even before the 1995 Budget announcement, the Liberals presided over a reduction o f almost 15,000 full-time equivalent employees during their first 16 months in office. The Finance Minister estimated that another 45,000 positions would disappear between 1995-96 and 1997-98, al­ though included in this figure are 12,000jobs that would be lost among the uniformed military and Crown Corporations, and 6,000jobs in air navigation services that would be transferred to a non-profit corpora­ tion. That still leaves 27,000job losses in public service departments from what was once thought to be the country’ s most secure employer. *

Ian Lee and Clem Hobbs document the development o f job security in the federal public service with particular emphasis on the years since 1984. Despite rhetoric from the Mulroney Conservative government about reducing the federal public service by 15,000 employees, the actual reduction turned out to be less than one third o f this. In addition, the government negotiated a Workforce Adjustment Directive with the public service unions, which guaranteed “ a reasonable job offer” to any indeterminate employee declared surplus. Despite promis­ ing “ pink slips and running shoes,” the Conservatives wound up providing “ ironclad job security” for its non-term employ­ ees (80 percent o f the total). During the 1993 election, the Liberals vowed that the public service would not be cut, so there was no need to discuss reduction mechanisms. Ironically, soon after their election the Liberals demanded massive spending cuts, first in Defence and eventually in all depart­ ments. The government argued that the required employee downsizing could not be attained through normal attrition. Using the Department o f Defence as a pilot project, the Liber­ als developed several voluntary incentive programs aimed at encouraging resignations and early retirements. Amended

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versions o f these programs were offered to the 11 “ most affected departments” by Program Review, while the govern­ ment unilaterally suspended the guaranteed “ reasonable job offer” in these departments. Lee and Hobbs demonstrate that there was sufficient normal attrition for the Liberals to have reached their downsizing target within three years, without spending $1.5 billion on incentives and/or abrogating the Workforce Adjustment Directive with the unions. They suggest the plan was politically motivated to inflict pain on a group not highly regarded by the Canadian public. They also contend that the divergence between both the Conservatives’ and the Liberals’ campaign promises and their actions once in office cannot help but increase public cynicism about politicians. Although the government unilaterally modified a job security agree­ ment negotiated with the unions, it did provide relatively generous sev­ erance, training, and early retirement packages. It is not surprising that over 9,000 employees took advantage o f the incentive packages in the first six months o f the downsizing. Even once the downsizing is completed, the exercise will have left an indelible mark on those employees who have survived. The possibility that the downsizing could have been accomplished through attrition, albeit a little more slowly, is particularly upsetting. Do the Liberals believe that the best way to motivate federal public servants is through fear? As will be discussed shortly, the events surrounding the 1996 Budget have done little to reassure the remaining federal public em­ ployees about their future. The Liberal government’ s restraint exercise has also left its mark on public interest groups. Obviously, as departments look for cuts in or­ der to reach their restraint goals, grants and contributions to interest groups are likely candidates. As mentioned earlier, the philosophy o f defining citizens as merely consumers o f services, rather than as indi­ viduals politically participating in civic society, undermines the basic logic associated with funding interest groups. •

Andrew Cardozo traces the development o f federal funding for various types o f public interest groups in Canada. He points out that an important source o f funding for business

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groups, and one that has not been challenged, is the tax system. Payments to business organizations and even to lobbyists are tax deductible as legitimate business expenses. Direct funding o f social interest groups by government can be seen as an attempt to level the playing field, and ensure that a broad spectrum o f views is available in the formation o f government policy. Social policy groups were first attacked by the Mulroney Conservatives, who were astounded to find that government-funded groups were among the most vociferous critics o f their proposals to cut social programs. Although the funding reductions to groups were discussed in terms o f money, the Tories were accused o f seeking revenge. The Liberals have not attacked the credibility o f interest groups, but have continued to cut funding, albeit in an appar­ ently dispassionate and strategic manner. Cardozo analyses the funding cuts received by more than 15 major organizations, and found no bias against those interest groups that have been vocal advocates for social programs, and unafraid to criticize the government. There is a discernible shift o f funds to organi­ zations prepared to provide research and client services. To the extent that organizations move to these roles in order to obtain funds, their advocacy role will likely suffer. Cardozo argues that this environment runs the risk o f silencing centre and leftwing advocates, while business and related advocates will still be heard, since their financing through the tax system remains intact. He argues that government should redress the balance by extending charitable status to advocacy public interest groups, and updating its policies on grants and contributions. Cardozo’ s analysis is consistent with the view that for reasons o f pub­ lic acceptability, the Liberals have constructed a restraint program based on equalizing the pain to all constituencies (except perhaps their own employees). The final two chapters o f this year’ s volume focus on two special institutions within the Canadian state: the Bank o f Canada and the Canadian security and intelligence agencies. Although these studies diverge somewhat from the general focus, they are consistent with our renewed commitment to encourage analysis o f federal government

HOW O T T A W A SPENDS

agencies. Interestingly, both these institutions must grapple with restraint, among other issues, although for very different reasons. The Bank o f Canada is probably the most important Crown Corpo­ ration in Canada. It oversees the inter-bank payment system, issues most o f Canadian currency, acts as the federal government’ s banker, and intervenes in money markets to affect exchange rates and short­ term interest rates. •

Calum Carmichael analyses the recent changes at the Bank o f Canada as they relate to the size o f the organization, the conduct o f monetary policy, and governance. The Bank plans to cut operating expenditures by 10 percent and staff by 25 percent over the next five years. Although some o f these reductions are technologically driven, the principal reason for the Bank’ s announcement was a symbolic one: to be seen as behaving consistently with the Liberal budget cuts and with its own long-term advocacy o f smaller government as a necessary condition o f a reduction in the deficit. The Bank has also modified its conduct o f monetary policy, with the intention o f increasing the transparency o f its goals and actions. With the government’ s support, it has reaffirmed a commitment to price stability as the primary goal o f public policy, with a 2 percent annual inflation target. The Bank has shifted from the auto­ matic weekly setting o f the Bank Rate to periodic adjustments in the rate it charges banks, in order to send a clearer signal about how it wants short-term rates to move. In 1994, the Bank announced the formation o f a Governing Council and a new approach to communications in order to counteract the perception that the Governor o f the Bank alone controls monetary policy. Transparency has meant that the Bank has become more open about its conduct o f monetary policy, but has not meant that it is more responsive to critics o f the choices made. Carmichael concludes that transparency may strengthen the Bank’ s effectiveness in controlling economic activity, but is unlikely to affect its position with the Canadian public. Al­ though the messengers have changed, the message, which emphasizes price stability, has not.

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Just like the Department o f Defence, Canada’ s security and intelli­ gence agencies have been forced to come to terms with the end o f the Cold War. •

Reg Whitaker discusses the recent trials being faced by the two Canadian security and intelligence agencies. In the past, the nature o f the “ secret state” has allowed the Canadian Security Intelligence Service (CSIS) and the Communications Security Establishment (CSE) to escape much o f the public scrutiny exercised over normal government agencies. CSIS is primarily concerned with internal threats to security, which, until recently, have been taken to consist o f various political organizations o f the political left. The CSE is responsible for electronic data-gathering, which has been focused on the Soviet Bloc countries. As successive governments have tried to find the proper degree of executive control, these agencies have been forced to find new roles and budgetary justifications, as a result o f the end o f the Cold War. Their vulnerability has coincided with the deficit crisis, which has forced these agen­ cies to downsize and face greater degrees o f financial account­ ability than ever before. CSIS has been able to define its new role as fighting terrorism, which actually commands greater public backing than counter-espionage. The CSE is also adapting to the post Cold-War environment. The focus o f electronic eavesdropping has moved to our Western Allies to facilitate economic negotiations. The agency is developing private sector partnerships, which will allow it to provide its information services on a cost-recovery basis. “In short, CSE is transforming itself into 'Spies R Us.’ ” Whitaker concludes that these agencies have not been immune to the Program Review ethos. The Auditor General is initiating an audit o f the security intelligence field, which marks a new step to the normalization o f the secret state. T H E 19 9 6 B U D G E T

Paul Martin’ s third Budget was a savvy political mixture o f staying the course o f expenditure restraint and deficit reduction so as to maintain

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the confidence o f money markets, and reassure the public concerning the future o f the social safety net.

Deficit Reduction From the outset Martin reaffirms his commitment to reduce the deficit. Annual targets for the deficit have been extended to 1997-98: • • •

1995-96: $32.7 billion (4.2 percent o f GDP) 1996-97: $24.3 billion (3 percent o f GDP) 1997-98: $17.0 billion (2 percent o f GDP)11

The 1995-96 target will easily be met and some analysts are predicting that the final figure could be well below $30 billion.12To ensure that the later targets are attained, very conservative assumptions about in­ terest rates and economic growth are used, and, in addition, a contin­ gency reserve fund o f $2.5 billion is established for 1996-97 and $3 billion for 1997-98. Rather than setting difficult, even unattainable targets, as was the tradition o f Conservative fmance ministers, Martin has aimed at modest targets that are now virtually certain to be met. As a result, he has restored confidence in the budget process and the government’ s ability to manage the economy. Martin clearly wants to distinguish the Liberal’ s pace o f deficit-cut­ ting from those o f the Reform Party and the Conservative govern­ ments in Ontario and Alberta: The fact is, draconian budgets are not difficult to write. The arithmetic is painless. But the human consequences are not.... A measured pace ensures that short-term savings will become long-term savings—a down payment towards restored fiscal health. Indiscriminate cutting, on the other hand, raises the real risk that short-term savings will become long term costs.13

The distinction may be more rhetoric than reality. Michael Walker o f the Fraser Institute points out that the expected federal spending re­ duction, in real terms, for the 1996-97 year is 4.5 percent, which ex­ ceeds the real spending reduction, 4.3 percent, achieved by the Klein government in Alberta.14

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The deficit reductions come almost exclusively from expenditure reductions, as opposed to tax increases. In fact, this Budget contains no tax increases.15In addition to program spending reductions o f $5,869 billion in 1996-97, and the $7,217 billion in 1997-98 announced last year as a result o f Program Review, another $.368 billion has been cut from 1997-98 and $1,912 billion from 1998-99. Although supposedly based on the principle o f “getting government right,” the 1998-99 numbers look suspiciously like an across-the-board reduction o f 3.5 percent, with a few exceptions. These new cuts will cause further em­ ployment reductions. Although the Budget does not state how many jobs would be lost, an extrapolation based on their original Program Review numbers would lead to an estimate o f 5,000-6,000 jobs af­ fected.16The cumulative effect is that program spending in 1998-99 will be 21.5 percent below the 1994-95 level, and will represent only 12 percent o f GDP, which is the lowest level since 1949-50.17 Part o f the expenditure reductions results from cuts to subsidies. Business subsidies across departments will fall by $100 million, and those that remain will focus more on small business development and the high-technology sector, and involve more repayable loans as op­ posed to grants. In agriculture, direct production subsidies will be re­ moved in favour o f income stabilization programs. The dairy subsidy will be phased out over five years, starting August 1997. Another source o f savings will be continued privatization and com­ mercialization. In addition to selling the air navigation system to a non-profit corporation, as previously announced, and privatizing the Canada Communication Group, the government will sell a number o f assets to the private sector, including its fleet o f railway grain cars and shares in National Sea Products Ltd.18The government will also with­ draw from the direct operation o f ports and the management o f social housing (which will be offered to provinces). There is considerable emphasis on alternative delivery systems for government services to reduce costs and eliminate duplication. Con­ trary to pre-Budget rumours, the government, having opted to take a slow approach, has proposed only three new agencies: for food inspec­ tion, for national parks, and for tax collection. The new organizational form will lie between a crown corporation and a special operating

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agency in terms o f arms-length relationship from the federal govern­ ment. The single food agency will remove the existing overlap in test­ ing, in which three different government departments sharejurisdiction, and it will potentially allow for greater provincial participation. The Parks Canada agency will save money primarily by reducing person­ nel costs by contracting out work to employee-owned companies, and other private and voluntary sector establishments. The major econo­ mies from a national tax collection agency would come from merging federal and provincial tax collection functions.19The prospect o f free tax collection will likely be used as a carrot to get provinces to agree to harmonize their sales taxes with the GST. Potential savings for prov­ inces are probably not large enough, however, to resolve the Liberals’ big political problem, the promise to scrap the GST.20 About 40,000 employees would be affected by the creation o f these agencies. Although it is unlikely the change in organizational status would affect wages and working conditions immediately, to the extent that duplication is reduced and contracting out accelerated, layoffs will eventually result.21

Job Creation The Liberals promised in the Red Book to create 100,000 jobs in the first two years o f their mandate through a $6 billion national infra­ structure program.22 After two years, only 60 percent o f the money was spent, so the 1995 Budget extended the program to five years. There is a similar situation o f half-broken promises in the youth em­ ployment programs. The Canadian Youth Service Corps, a program designed to develop work skills for unemployed youth, will have its $175 million funding stretched from three to five years, and funding for the Youth Internship Canada program has been set at $233 million for 1995-97, $50 million below what was originally promised. Against this backdrop, overall job growth tapered o ff in 1995, after a strong first year. Most new jobs created have been part-time, and while the national unemployment rate is below double digits, the unemployment rate for those 15 to 24 years old increased to 16.1 percent for 1995.23 Given this situation, one might have expected the Budget to address job creation. The government’ s general philosophy is that the key to new jobs is economic growth, and that the best thing it can do to stimu­

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late growth is to reduce the deficit and get the debt under control. Nonetheless, the government has reallocated $300 million to expand two youth employment programs aimed at creating summer jobs for students and easing the transition from school to work.24 The Liberals are obviously aware that the job issue could be their Achilles’ heel. Unlike their past two Budgets (and all recent Budgets), the 1996 Budget did not include the unemployment rate or employ­ ment growth forecasts for 1996 and 1997 along with its estimates for the interest rate and GDP growth.25 Still, they are well-positioned to increase direct job creation in a 1997 pre-election Budget, if neces­ sary, because o f the substantial cushion in Martin’ s deficit estimates for the next two years.

Social Policy Initiatives Despite his commitment that new initiatives can be financed only by reallocating existing funds, Martin has addressed a number o f social policy concerns. The biggest issue revolves around the Canada Health and Social Transfer. The major cut to provincial transfers, though an­ nounced in the 1995 Budget, began on April 1, 1996. Martin has at­ tempted to shift the focus away from the pain associated with the present cuts to the future, where the Budget guarantees sufficient stability to protect national standards in medicare and social assistance programs. In particular, Martin stated that in 1998-2000 the total CHST (cash plus taxing power) will be frozen at $25.1 billion, and that modest increases will follow in 2001-03. At no time would the cash transfer fall below $11 billion, a guarantee that has made it conceivable that the government will retain the capacity to enforce national standards (see Allan Maslove’ s chapter for details).26 Martin has also tackled old age pensions. Effective in 2001, a Se­ niors Benefit will replace the existing Old Age Security and General Income Supplement programs now available to seniors. The new ben­ efit would be tax free and fully indexed to inflation, but the size o f the benefit would be reduced for those with family incomes exceeding $40,000. Single seniors with more than $52,000 and couples with in­ comes above $78,000 would not receive any benefit. The current clawback begins at $53,125 in individual income (not the family in­ come).

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The Seniors Benefit is expected to save $2.1 billion in 2011, with greater annual savings in the future. The Budget argues that the new system is fairer, in that it better targets assistance to those seniors that are in need, while reducing the rate o f increase in public pension costs and thereby enhancing the program’ s sustainability. To make the new system more salable, all individuals at least 60 years old (as o f Decem­ ber 31, 1995) will have the choice o f the old or the new plan, which guarantees that no members o f this important electoral constituency will be worse off, and many will be better off.27There is not likely to be much resistance from potential losers, those under 60 with rela­ tively high pensionable earnings (e.g. baby-boomers), because retire­ ment is still far off. The Canada Pension Plan (CPP), the public pension scheme that is based on mandatory contributions from employees and employers, is also at risk, because o f demographic changes. The Budget announced the establishment o f a public consultation process on the Plan and made a commitment for the federal and provincial governments to have solutions to the CPP problems in place by the end o f 1996.28 The most ingenious social policy reforms involve the “ child support package,” which changes the taxability o f child support payments.29 As o f May 1, 1997 child support paid under agreements or court or­ ders will no longer be tax deductible from income by the payer and counted as taxable income by the recipient. In addition, courts will be required to award child support based on provincial guidelines that increase the payment as the income o f the non-custodial parent and/or the number o f children increases, so thatjudges cannot reduce the child support payment to offset the new tax regime. The payment values are based on what families actually spend on children, on average, ac­ cording to consumer surveys. A judge will retain some discretion to set support payments above or below the guidelines, according to the spe­ cial needs o f the child, undue hardship to either parent or child, and the degree o f shared custody. The government believes that the guidelines should increase the fairness o f judicial awards, and encourage both parties to reach a voluntary agreement, in order to avoid legal costs. Although support orders or agreements signed before May 1997 are not formally affected, the custodial parent retains the right to go to court to modify an existing order. Given this reality, it is likely that

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most existing support documents will eventually be amended by mu­ tual agreement or by the courts to reflect the new regime. The net effect o f the policy will be to increase the disposable income received by the custodial parent (typically the mother) and, presum­ ably, the child, at the expense of the non-custodial parent (typically the father). To ensure that the effectively higher level o f child support is paid, the government has proposed a number o f new initiatives to in­ crease enforcement, including the possibility o f revoking the passport o f a chronic defaulter. The new child support taxability regime will also increase both fed­ eral and provincial tax revenue, because the parent who is paying sup­ port is usually in a higher tax bracket than the receiving parent (the current tax rule will cost the federal government about $240 million in 1996-97). Although the full impact o f the changes will take many years, these new revenues will be ploughed back into a related initiative to provide assistance to families with children. Part o f the family allow­ ance system includes a Working Income Supplement o f up to $500 per year for low-income working families with children. This supplement will be increased to $750 on July 1,1997 and $1,000 on July 1,1998, at an eventual cost o f $250 million annually. The government esti­ mates that one third o f the 700,000 families that will receive a higher benefit are one-parent families. Whether the child tax support plan will be as successful as the gov­ ernment hopes is an empirical question. Judges may routinely reduce support payments below the guideline, because o f the undue hardship the new tax regime imposes on the non-custodial parent (usually the father). Rather than reducing litigation, the new regime may induce more non-custodial parents to go to court demanding joint custody. The new regime may lead to higher rates o f chronic default, and over­ burden the existing enforcement mechanisms, which are largely a pro­ vincial responsibility. Nonetheless, it is a politically astute plan. Although the Liberal government is indirectly playing havoc with pro­ vincial social programs through the big cuts to the CHST, which have just begun,30it can take credit for directly reducing child poverty through the new child support regime and the increase in the Working Income Supplement. The Liberals have engineered policies that will appeal to both females and left-of-centre voters at no cost, except to non-custodial parents (mainly divorced fathers).

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The Public Service In the weeks leading up to the 1996 Budget, Treasury Board approached the unions with a proposal to further reduce job security. In cases where a department decided to devolve part or all o f a program to another public, private, or not-for-profit agency, current employees would have to move to the new employer, provided this did not involve a salary reduction o f more than 15 percent. Otherwise, the employees would be laid off. Bargaining between the government and 14 unions led to an agreement that maintained the basic framework o f the Treasury Board proposal but included some minor concessions. Two unions, the Pub­ lic Service Alliance o f Canada (PSAC) and the Social Science Em­ ployees Association (SSEA) refused to become involved in the process.31 This Budget provided little relief for federal employees. The Program Review cuts announced for 1998-99 will generate another 5,000-6,000 job losses, and in the process will sustain the fear o f job loss for yet another year. The Budget contained a cryptic statement about chang­ ing public employee compensation in a manner that is consistent with restraint and fairness to employees. Treasury Board President Marcel Masse explained the next day that the wage freeze would end June 1, 1996 with the payment o f increments (and performance pay for man­ agers), and that collective bargaining would be reinstated in the fall o f 1996. However, to protect the government’ s restraint plans, workers would not be allowed to select binding arbitration to settle disputes, and would be obliged to strike in the event o f an impasse. The govern­ ment also announced that it would legislate the new job security rules concerning devolution, but that the two unions who did not negotiate will have a less generous plan imposed on them as punishment.32 These changes must be put in context. First, only 40 percent o f non­ management employees are eligible for increments, although the value o f a typical step is not inconsequential, ranging from 2 to 4 percent, depending on the classification.33The suspension o f arbitration as part o f the return to collective bargaining is ironic. For the first twenty years o f collective bargaining in the federal public service, the govern­ ment used many tactics to get unions to choose arbitration instead o f the right to strike.34Masse’ s plan is a tacit admission that federal pub­ lic employee salaries are lower than those o f comparable groups, and that to allow an arbitrator to determine wages using objective criteria

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would endanger expenditure restraint. Similarly, if the government is looking for further concessions in working conditions from unions, it is unlikely to obtain them from an arbitration award, because arbitra­ tors resist changes to the status quo, particularly in non-compensation aspects o f the contract. For these reasons, the government is content to take its chances that employee groups will not be able to mount an effective strike. The PSAC, the largest union, will not be affected, because it has historically refused arbitration. Whether it can mount an effective strike is unclear. Some other groups will be virtually pow­ erless under the strike route, because most o f their members are desig­ nated as essential employees who must continue working during a strike (as an extreme example, 100 percent o f nurses are so designated). Finally, the government’ s punishment o f PSAC and SSEA is likely to be short-lived. Both groups should be able to negotiate the slightly better job security provisions in cases o f devolution during the next round o f bargaining, because it is not in the employer’ s interest to administer two sets o f job security rules for workers in the same de­ partment.

National Unity Martin says little in a direct way about national unity, although there are references in his conclusion about a shared vision for Canada: Successful countries do more than occupy a place on the map. They live in the soul o f their people—because they are relevant to the betterment of their lives. And so, for Canada, it is time to set goals anchored in our shared values and aspirations.35

It appears that the government believes that by restoring confidence in the future o f Canada’ s medicare and pension programs, it can under­ cut arguments by Lucien Bouchard that social programs in Quebec are at risk if the province remains in the federation. In particular, the Seniors Benefit should prove popular in Quebec, which has the high­ est proportion o f low-income seniors in the country and should there­ fore wind up with the biggest share o f people actually better o ff as a result o f the new plan. The new formula for the CHST not only strength­ ens the federal power to demand national medicare standards, but gives Quebec a $600 million smaller reduction than the Parti Qu6b6cois had

HOW O T T A W A SPENDS

predicted for 1997-98. Only half o f the province’ s relative advantage, enjoyed because it escaped the cap on welfare benefits, has been re­ moved. Martin’ s other tax and program changes have been a mixed bag for Quebec. Phasing out dairy subsidies and reducing the tax ad­ vantages o f labour-sponsored venture capital funds will disproportion­ ately hurt Quebec citizens, while larger subsidies to high-technology industries (including aerospace) should particularly help the Montreal region.36 In any event, it is unlikely that there will be another referendum be­ fore 1998. Premier Bouchard has made it clear that there will not be another referendum until after the next provincial election, and that he prefers to govern for a normal mandate before calling another election (presumably in 1998 or 1999).37As mentioned earlier, Martin should be in position to spend resources in the next budget, and thus to dem­ onstrate the value o f federalism to Quebeckers, without jeopardizing his deficit targets. CONCLUSION

How is life under the knife? The answer depends on which institutions and which parts o f the public are being discussed. Although deficit reduction cannot be accomplished without some pain, there are still “ winners and losers,” at least in a relative sense. It has been shown that Program Review focused primarily on effi­ ciency and affordability, rather than governance. Some federal depart­ ments were better equipped to deal with the process than others. In two cases (Environment and Human Resources), technology reduced costs without cutting services. The politics o f budget-cutting worked in favour o f one department (Environment), and against another (Industry). At­ tempts to do everything with a smaller budget through coping strate­ gies and wishful thinking have not been successful, and will eventually require departments that have made such attempts (Defence and Trea­ sury Board) to come to terms with reducing their mandate. With respect to the public at large, the two groups most affected by the cuts are public employees and low-income individuals, particu­ larly those who need social assistance. Though federal public employ­ ees are no more responsible for the deficit and debt problems than

LIFE UND ER THE KNIFE

other members o f society, they are required to pay twice, as both em­ ployees and citizens. The federal cuts could easily displace 50,000 employees by 1998-99. Those who are lucky enough to keep theirjobs are facing increased workloads, less job security as a result o f legisla­ tion, and little chance o f catching up, after five years without a general wage increase. On top o f this, they are obliged to share whatever sac­ rifices are required o f the public at large. Individuals in need o f government assistance will experience sub­ stantial hardship. Cuts to provincial payments will almost certainly be translated into lower welfare payments and/or more requirements to obtain social assistance. At the same time, the proposed changes to the unemployment insurance program will lower benefit rates for every­ one and particularly penalize seasonal workers, who are frequent us­ ers. Only low-income seniors have largely escaped the pain. Nonetheless, all low-income families are particularly vulnerable to the increases in food prices that could result from the removal o f agricul­ tural and transportation subsidies. By comparison, middle- and upper-income Canadians have fared better. The integrity o f the social program that most concerns Cana­ dians, health care, has probably been protected for at least several years by the new CHST formula. Taxes have not increased, and the changes to UI do not greatly concern a group with relative job stabil­

ity*

The corporate sector is doing quite well, despite government restraint. It has succeeded in convincing government that control o f the deficit must be achieved through spending cuts, rather than tax increases. In addition, the Bank o f Canada’ s and the Liberal government’ s priority to keep inflation low, even at the expense o f lower economic growth and higher unemployment rates, has put many businesses in the envi­ able position o f earning high profits, with less employee pressure for higher wages, because o f concerns about job security. Although cer­ tain businesses have been stung by cuts in government subsidies, in the high-technology field subsidies have increased. The business sec­ tor can even look forward to a future o f greater influence on govern­ ment, because its interest groups are largely subsidized through the tax deductibility o f contributions, while social interest groups, which

34

HOW O T T A W A SPENDS

might exercise a counteracting force, are dependent on government grants that will vanish within the next three years. Perhaps best o ff is Chretien’ s Liberal government. The hard fiscal decisions are behind them. The big cuts have been made and/or will begin to come on stream in the next year. Through a combination o f creative policy-making (the child support and seniors packages) and clever manipulation o f the timing o f cuts and focusing o f debates (the CHST), they have governed like conservatives, yet maintained an im­ age o f protecting the welfare state. In addition to riding high in public opinion polls, the Liberals won five out o f six by-elections in late March, shortly after the 1996 Budget. They are well positioned to call an elec­ tion next fall (before the scheduled April 1997 constitutional discus­ sions with the provinces), on the basis o f bringing in a 1995-96 deficit some $5-7 billion below the target. Alternatively, some o f those sav­ ings could be moved ahead one year, allowing for a 1997 pre-election Budget with programs to enhance allegiance to the Liberals in the en­ suing election. The meta-problem o f Quebec sovereignty remains, but even here it appears they will have at least a two-year hiatus before fighting another referendum. With the financial picture and their gen­ eral popularity largely under control, the Liberals can devote much o f their energies to national unity. notes

1would like to thank Elizabeth Dandy for her valuable research assis­ tance during the preparation o f this chapter. I also greatly appreciate the comments on the first draft made by Katherine Graham, Allan Maslove, and Susan Phillips. 1 2 3

Paul Martin, Minister o f Finance, Budget Speech (Ottawa: Canada Communication Group, 1995), 3. Ibid., 4. Arthur Kroeger, “ Changing Course: The Federal Government’ s Program Review o f 1994-95,” in Armelita Armit and Jacques Bourgault, eds., Hard Choices or No Choices (Toronto: The Institute o f Public Adminis­ tration of Canada, 1996), 21. For an in-depth discussion o f the 1995 Budget, see Susan Phillips, “ The Liberals’ Mid-Life Crises: Aspirations and Achievements,” in Susan Phillips, ed., How Ottawa Spends 1995-96: Mid-Life Crises (Ottawa: Carleton University Press, 1995), 1-30.

LIFE UN D ER THE KNIFE

I

4

According to a Southam News-Angus Reid poll of 1,520 Canadians taken in March 21-25, 1996, two weeks after the 1996 Budget, 54 percent would have voted for the Liberals (down from 58 percent in February 1996). See “Liberals Still Riding High in Popularity, Poll Shows,” Ottawa Citizen, March 30, 1996, A3. 5 For in-depth analyses of the federal Program Review process, see Kroeger, “ Changing Course,” Paul Thomas, “Visions Versus Resources in the Federal Program Review,” and Mohammed Charih, “La revision des programmes f£d£raux: un examen du processus,” all in Armit and Bourgault, eds., Hard Choices or No Choices. 6 Thomas, “Visions Versus Resources,” 41. 7 The comment was made by Richard Paton, Deputy Secretary o f Treasury Board, at the Canadian Centre for Management Development Annual University Seminar, February 22,1996. 8 Some greatly affected departments, notably Transport Canada, could not be included this year, but it is hoped that they will be analysed in next year’ s edition. 9 For a description o f the 1993 Campbell Conservative and Chretien Liberal governments’ reorganizations see Gene Swimmer, Michael Hicks, and Terry Milne, “Public Service 2000: Dead or Alive?,” in Susan Phillips, ed., How Ottawa Spends 1994-95: Making Change (Ottawa: Carleton University Press, 1994), 199-200. 10 For a description of Special Operating Agencies, see Swimmer, Hicks, and Milne, “ Public Service 2000,” 179-83. 11 Paul Martin, Minister o f Finance, Budget Speech (Ottawa: Canada Communication Group, 1996), 4, 28. 12 The government has already reduced its parliamentary appropriation for 1995-96 interest costs by $2.5 billion, which means that the deficit should be $30.2 billion, without accessing the contingency fund. See Alan Freeman, “ Deficit Drops by $1 Billion in January,” The Globe and Mail [Toronto], March 9, 1996, B2. 13 Martin, Budget Speech (1996), 8. 14 Michael Walker, “ Budget OutKleins Klein,” The Globe and Mail [Toronto], March 24,1996, B10. 15 A special 12 percent tax on bank profits introduced last year is continued for an additional year, and certain tax changes have occurred in the resource sector to level the playing field between taxation of renewable and o f non-renewable resources. 16 This number was confirmed by Finance officials as a reasonable estimate. See Kathryn May, “Another 6,000 Jobs to be Cut by 1998,” Ottawa Citizen, March 7, 1996, Al. 17 Paul Martin, Minister of Finance, Budget Plan (Ottawa: Canada Commu­ nication Group, 1996), 12.

35

36

18

H O W O T T A W A SPENDS

The value o f the sale o f the air navigation system and the railway grain cars, amounting to more than $1 billion, has not been included in the 1996-97 Estimates, which gives Martin another potential source of spending in 1997-98. 19 Martin, Budget Plan, 1996,46-48. It is worth noting that both the food inspection and tax collection agencies represent greater centralization, with a single government organization replacing separate federal and provincial agencies. 20 According to an Angus Reid-Southam News poll taken in February 1996, 75 percent of Canadians do not expect the Liberals to keep their promise to replace the GST before the next election. Almost 60 percent view that failure as a breach o f a somewhat significant promise. See “Public Expects Liberals to Renege on Promise to Axe GST, Poll Shows,” The Ottawa Citizen, February 28, 1996, A5. The Ontario government recently rejected federal overtures to harmonize its 8 percent provincial sales tax with the GST. See Richard Brennan, “Harris Won’t Blend GST with Ontario Sales Tax,” The Ottawa Citizen, March 22, 1996, A4. 21 Parks Canada has announced that 2,000 employees will be laid off, although some will be given the opportunity to work as independent contractors for the agency. See “Parks Canada to Slash up to 2000 Workers,” The Ottawa Citizen, March 22, 1996, A3. The savings and potential job losses from the national tax collection agency have not been built into the budget estimates for 1996-98. 22 Liberal Party o f Canada, Creating Opportunity: The Liberal Plan for Canada (Ottawa, 1993), 61. 23 See April Lindgren, “Job Creation Stymies Liberals,” The Ottawa Citizen, March 1, 1996, A4. 24 See Martin, Budget Plan, 1996, 24-5, 72-3. 25 Ibid., 91. 26 Martin, Budget Plan, 1996, 56-58. 27 The importance of selling the new plan to seniors is evident right down to the design of the budget documents explaining the benefit, which are prepared in a larger type font for better visibility. See Canada, The Seniors Benefit: Securing the Future (Ottawa: Canada Communication Group, 1996). 28 Martin, Budget Plan, 1996, 63-64. 29 See Canada, The New Child Support Package (Ottawa: Canada Commu­ nication Group, 1996). 30 For example, as o f April 1, 1996 (when the CHST replaces the Canada Assistance Plan), the social assistance payment for a child under one year old in Winnipeg fell from $247.70 to $182.45. See Margaret Philp, “Last Shared-Cost Program Scrapped,” The Globe and Mail [Toronto], March 30, 1996, A5.

LIFE U ND ER THE KNIFE

31 32 33 34

35 36

37

See Kathryn May, “ Sacrificing Job Security Lesser of Two Evils, Unions Argue,” The Ottawa Citizen, February 10, 1996, A3. Kathryn May, “ Government Ends Freeze on PS Wages,” The Ottawa Citizen, March 8, 1996, A l. Information provided by the Communications Branch of Treasury Board Secretariat. See Gene Swimmer, “ Collective Bargaining in the Federal Public Service o f Canada: The Last Twenty Years,” in Gene Swimmer and Mark Thompson, eds., Public Sector Collective Bargaining in Canada: Beginning o f the End or End o f the Beginning? (Kingston: IRC Press, 1995), 368-407. Martin, Budget Speech, 26. See Edward Greenspon, “Holding to Deficit Targets Wins Points for Martin,” The Globe and Mail [Toronto], March 7, 1996, A 10, and Philip Authier, “ Quebec Share o f Deficit Unfair, Landry Claims,” The Ottawa Citizen, March 7, 1996, A6. “No Quick Vote, Bouchard Indicates,” The Globe and Mail [Toronto], March 15, 1996, A5.

37

2 The Program Review Process: A Deconstruction

GILLES PAQUET ROBERT SHEPHERD

Some circumstantial evidence is very strong, as when you find a trout in the milk. Henry David Thoreau

S o o n after the Chretien government was elected in the fall o f 1993, it was confronted with two crises, each demanding immediate and de­ cisive action: the public finances crisis, which called for a national debt containment and deficit reduction program, and a crisis o f gover­ nance, which generated demands for change in the structure and func­ tioning o f the federation. Together, these led the Chretien government to initiate a strategy o f Government Renewal aimed at reducing fed­ eral expenditures, clarifying the core responsibilities o f the federal gov­ ernment and rebalancing the division o f labour among the different levels o f government and the private and not-for-profit sectors in the

HOW O T T A W A SPENDS

Canadian governance system, and equipping the federal public service with the tools necessary to improve the efficiency o f public sector management. Government Renewal incorporated four types o f activities: •

•

•

•

broad “policy reviews” in areas such as defence, science and technology, employment, social security, and foreign affairs, to determine the extent to which existing policies coincided with government priorities and capabilities, an activity that came to be known as Program Review, an examination o f the efficiency and effectiveness o f federal departments and agencies, where financial targets were set over a three-year period, commencing in April 1995 (individual departments and agencies were given the responsibility to meet such targets according to their own priorities), a series o f action plans, prepared in concert with provincial governments, to reduce duplication and to improve overall operational efficiency in the federation, and an integration o f various federal programs and initiatives, designed to improve efficiency by means of alternative delivery systems for government services or by means o f new technolo­ gies.

The purpose o f this essay is to examine critically one aspect o f Gov­ ernment Renewal— Program Review. Our general diagnosis is that it has not been as effective as it might have been. It has undoubtedly triggered some expenditure reductions, and these are likely to con­ tinue. However, it has not generated a reform o f the federation’ s gov­ ernance system in keeping with the subsidiarity agenda that was the basis o f Program Review. Our contention is that this agenda was de­ railed until the October 30,1995 Quebec Referendum. However, there are signs that it could be put back on track in 1996. Although the word subsidiarity is never mentioned in the documents connected with Program Review, the principle o f subsidiarity under­ lies the series o f tests proposed by the Program Review exercise. The principle is built on two assumptions: that individuals are competent and capable o f taking primary responsibility for their own welfare, and that help to individuals can be provided more effectively, effi­

THE P R O G R A M R E V I E W PR O CE SS

ciently, and caringly by organizations in close proximity to them than by governments, which can and must play only a subsidiary or sup­ portive role in providing such help.1 In the next sections, we examine first the historical context o f the Program Review process and the rationale that underlies it. Then, we probe the workings o f Program Review and attempt to deconstruct it, drawing both from insights generated through interviews with senior government officials and from oblique external perspectives, such as those provided by reports from the Office o f the Auditor General. Fi­ nally, we examine critically the responses elicited by the Program Re­ view exercise and suggest some ways to refurbish the process in future phases so as to bring it closer to its original mandate. In the conclu­ sion, we speculate not only on the recent turnabout in the federal strat­ egy brought about by the razor-thin victory o f the federal forces in the October 30 referendum (and hinted at in the new “master plan” that is purported to have been developed by the federal government early in 19962), but also on the likelihood that these new initiatives geared to devolve federal responsibilities toward the other stakeholders will be carried out. the p r o g r a m

review

process

From the 1930s to 1970s, governments became progressively more involved in the operations o f the socio-economy. This involvement can be attributed to many factors: the failures o f the laissez-faire capitalist system revealed by the Great Depression and the subsequent increased role o f the state to ensure economic stabilization, the dawn o f an era o f greater protection o f individuals in the face o f interruption o f earnings, sickness, or work-related disability, and the increasing demands placed on government generally by its citizenry. As the pervasiveness o f the state presence escalated, there were de­ mands for greater scrutiny o f government activities. Questions about whether governments were performing their task economically (doing things at the lowest possible cost), efficiently (doing things the right way), and effectively (doing the right things) have become o f pivotal interest particularly since the late 1970s. Moreover, mounting govern­ ment deficits during this period and rising public dissatisfaction with their governments led many to conclude that government operations

HOW O T T A W A SPENDS

might not be as economical, efficient, and effective as might be desir­ able. Questions regarding government performance rose to the top o f the agenda in Canada during the 1980s. The Mulroney government cre­ ated the Nielsen Task Force in 1984 to explore various ways in which government could dispatch its work more economically, efficiently, and effectively. Although the task force yielded many important obser­ vations, the impact o f this multistakeholder exercise was practically negligible, because the critiques o f the “ amateurish outsiders” who were asked to examine the federal government activities were often an easy prey for “well-informed insiders.” Many recommendations, how­ ever well-founded, could easily be shown to have been inadroitly couched, and, consequently, were buried.3 During the late 1980s, a number o f studies addressed certain organi­ zational problems that affected the federal government’ s performance: lack o f vision and leadership in government departments, problems o f human resource management, lack o f autonomy o f front-line manag­ ers, and the musical chair syndrome, which was attributed to the fre­ quency with which deputy ministers are rotated— every 22 months on average. A “vertical solitude” syndrome—a relative disconnection and lack o f loyalty and trust on the part o f junior executives vis-a-vis their superiors— was also uncovered, and attributed to the lack o f a robust organizational culture: it would appear that “the middle management groups... have not internalized a consistent set o f public sector val­ ues,” and that their superiors “ have not done a credible job o f commu­ nicating a consistent view o f public sector culture.” Among other things, this factor was identified as the source o f the growing disconnected­ ness between senior bureaucrats and their executives.4 These indict­ ments led the Mulroney government to launch a dual initiative late in 1989: Public Service 2000 (PS 2000) and the creation o f the first Spe­ cial Operating Agencies (SOAs). PS 2000 was an ambitious top-down effort at public service renewal to ensure more efficiency and better quality services to Canadians through the creation o f a more empowered and innovative workforce. The creation o f the first five SOAs by decree was an effort to create organizations with a greater margin o f managerial maneuverability and independence so that they might be able to increase their efficiency and improve the quality o f services to the Canadian public. This new

THE P R O G R A M R E V I E W PR O CE SS

organizational form was intended to be extended over time to the larg­ est possible number o f governmental organizations. Both initiatives were managed from the very senior ranks o f the pub­ lic service and were designed to modify the structure and functioning o f government. However, they did not question fundamentally the gov­ ernance process. Moreover, there did not appear to be the robust po­ litical commitment necessary to ensure that these initiatives would be fully carried out. A number o f reforms, such as a revised Public Ser­ vice Staff Relations Act, a new job classification system, and new departmental budgetary procedures unfolded. However, the sort o f fun­ damental reform o f government that had originally been envisaged and promised (politically, managerially, and organizationally) never mate­ rialized, for systemic reasons.5 As the federal financial crisis deepened with the recession o f the early 1990s, it became apparent that nothing less than a critical re­ thinking o f the state’ s role and its operations in the socio-economy (i.e. the governance process) was likely to yield the necessary solutions. This led the Mulroney government in 1991 to initiate a special study on the sort o f fundamental governance transformation that would be required. This study was carried out by a blue-ribbon committee o f independent experts under the leadership of Robert de Cotret. The re­ port has never been made public, but it is widely understood that it proposed two families o f transformations: a restructuring o f ministries and a reframing o f the role o f central agencies. In June o f 1993, the influence o f this study was felt when Prime Minister Kim Campbell implemented the first segment o f the de Cotret report. She reduced the number o f federal ministries from 32 to 23, regrouped the ministries in a more coherent way, and eliminated six cabinet committees (including the Planning and Priorities Committee). Redesigning the role o f central agencies was not addressed, despite the fact that the committee believed that such redesigning was necessary, in order to permit the new ministerial structure to manage more freely and effectively. As indicated by Glen Shortliffe in the Second Annual Report to the Prime Minister on the Public Service o f Canada (1993), an advisory committee was created “to provide advice on the restructuring o f gov­ ernment, with a focus on the reduction o f costs, increased effective­ ness and enhanced service to the Canadian public.”6 Reorganization

HO W O T T A W A SPENDS

was planned to proceed in three phases. For the newly engineered de­ partments that were created by Kim Campbell, Phase I involved build­ ing new structures and management teams. For the remaining departments, Phase I meant the consolidation o f existing activities and the streamlining o f operations. Phase I ultimately led to the signing o f performance agreements between each deputy minister and the Clerk o f the Privy Council. Performance agreements spelled out departmen­ tal priorities, expectations, and anticipated savings. Phases II and III called for operational rationalization and a fundamental re-examina­ tion o f programs and services. Despite the fact that the Liberal party questioned the rationale o f Kim Campbell’ s restructuring during the 1993 election campaign, it did not reverse the Campbell government initiative. Instead, it built on that initiative. Marcel Masse was designated as the Minister for Pub­ lic Service Renewal, and the government announced the continuation o f the Campbell government’ s reorganization initiative: Phases II and III were undertaken under the general rubric o f Program Review. The announcement was made in the February 22,1994 Budget. The philosophy o f Program Review and the guidelines for its imple­ mentation were spelled out in the form o f six tests (see Table 2.1) which were developed during the winter o f 1994 to assist federal de­ partments and agencies in the review o f their activities. These six tests were intended to be a series o f questions to be an­ swered sequentially. They were to serve as filters or screens to assist in decision-making about the value-added o f federal programs. One can view these questions as a decision tree. At each stage, a null hypoth­ esis is put to a test and the burden o f proof lies with individuals who are knowledgeable about a program to demonstrate that the program meets all the tests if they wish to defend it from the cuts demanded by budget deficit reduction strategies. One may divide the sequence o f tests into four general stages. In Stage A (corresponding to the Public Interest test), one poses the basic question as to whether the activity under scrutiny continues, whatever its past merits, to serve a public interest. If not, it should clearly be a prime candidate for termination. If it serves a public interest, it must then be subjected to the Stage B tests (the Role o f Government, Feder­ alism, and Partnership tests).

THE P R O G R A M R E V I E W PROC ES S

Table 2.1 Six Tests o f Program Review Test

Purpose

Public Interest Test

Does the program area or activity continue to serve a public interest?

Role of Government Test

Is there a legitimate and necessary role for government in this program area or activity?

Federalism Test

Is the current role of the federal government appropriate, or is the program a candidate for realignment with the provinces?

Partnership Test

What activities or programs should or could be transferred in whole or in part to the private or voluntary sector?

Efficiency Test

If the program or activity continues, how could its efficiency be improved?

Affordability Test

Is the resultant package of programs and activities affordable within the fiscal restraint? If not, what programs or activities should be abandoned?

Source: Privy Council Office, Program Review and Getting Government Right

Stage B attempts to address governance, and applies roughly the subsidiarity test. That is, once it has been established that the program serves a public interest, it must then be determined whether the federal government should take responsibility for it or whether the activity can be devolved, in whole or in part, to the provinces or the private or voluntary sector. The subsidiarity principle suggests that the federal government should be involved only in circumstances where other sec­ tors or governments cannot perform the activity satisfactorily. The option o f creating partnerships is welcomed. If the program or activity passes both the Stage A and Stage B tests, then the Stage C test must be applied (the Efficiency test). The principal question posed is whether the program or activity can be delivered

HOW O T T A W A SPENDS

more efficiently than it is at present. If so, alternatives must be proposed to improve efficiency and, it is hoped, effectiveness. It cannot be assumed that the program will pass the Stage D test o f “ affordability” even though it has been shown to be a federal program activity that serves a public interest, that only the federal government can provide it, and that it is most efficiently dispatched. The tests o f Stages A, B, and C demand a degree o f evidence to demonstrate a pass or failure, the results o f which can be debated and/or adjudicated. However, the question o f whether the federal government can afford such an activity (Stage D) is subjective, because only the federal gov­ ernment is authorized to determine what it can afford. Such a decision obviously depends on the financial constraints that the Canadian gov­ ernment must face, and these are attributable largely to the debt and the deficit. In the spring o f 1994, the six tests and the notional targets for expen­ diture reduction were communicated to all departments and agencies. In June 1994, the Program Review Secretariat was created in the Privy Council Office. The role o f the Secretariat was to analyse departmen­ tal responses in their strategic plans. In the late spring, Marcel Masse met with all departmental co-ordinators for Program Review to dis­ cuss implementation. During the summer, departments and agencies finalized their strategic plans and submitted them in the autumn to the Secretariat for analysis. During the fall, the departmental plans were analysed by the Secre­ tariat with the assistance o f the Department o f Finance and the Trea­ sury Board Secretariat. Once completed, the departmental and agency plans were submitted to a committee o f deputy ministers, under the chairmanship o f the Clerk o f Privy Council, Jocelyne Bourgon. The committee was charged with assessing the plans and whether they were in keeping with the guidelines assigned. The members o f this Commit­ tee o f Deputy Ministers were Mel Cappe, David Dodge, Robert Giroux, Peter Harder, Suzanne Hurtubise, Ranald Quail, Janet Smith, and Wayne Wouters. Those plans that did not meet the expectations o f the committee were returned for additional work. The Program Review Secretariat at the Privy Council Office was charged with the followup. The results o f the work o f this committee were then presented to the Ministerial Co-ordinating Committee for Program Review, chaired by

THE P R O G R A M R E V I E W PR OCE SS

Marcel Masse and comprised o f Sheila Copps, Art Eggleton, Herb Gray, Sergio Marchi, Anne McLellan, Andre Ouellet and Brian Tobin. This process led to a further screening and generated a range o f deci­ sions regarding government operations, which were presented to Cabi­ net and incorporated into the February 27,1995 Budget. Throughout this elaborate process, a number o f departments and agencies were required to perform additional work on their strategic plans before any firm decision could be made regarding particular operational areas. A number o f such files were discussed in weekly meetings in the late fall o f 1994 and were eventually transferred to the second round o f Program Review, slated for 1995-96.7 A D E C O N S T R U C T I O N OF THE P R O G R A M R E V I E W PRO CE SS

In the best o f circumstances, an evaluation o f Program Review would ascertain the degree to which the two basic objectives, to respond to fiscal pressures and to redesign the federation’ s governance system, have been achieved, and the extent to which the objectives have proved to be complementary or conflicting. This has been undertaken at the departmental or agency level in a number o f chapters o f this book. Our goal is to analyse the process in toto. This sort o f evaluation has, for a variety o f reasons, proved more difficult than had been anticipated. First, much o f the work conducted at the level o f the Bourgon and Masse committees is not supported by any detailed available documentation. This circumstance is not a mat­ ter o f neglect. Respondents have made it clear that the lack o f docu­ mentation results from a deliberate decision to leave no paper trail. Indeed, it has come to our attention that the Office o f the Auditor General has been unable to obtain any Program Review process docu­ mentation for the purpose o f audit. All relevant documentation has been declared “ advice to the Minister,” and therefore privileged com­ munication not subject to the usual audit. Second, our interviews with senior officials connected with the process have proved perplexing. Senior departmental officials tended to underscore flaws in the Pro­ gram Review process, while senior central agency officials were more disposed to declare Program Review a success, although they were

HO W O T T A W A SPENDS

quite vague when asked what criteria they used to arrive at such an assessment. These conditions have shaped our deconstruction strategy. This strat­ egy is threefold. First we sketch very briefly a framework to guide our work. It proposes four plausible criteria that may be used to arrive at an evaluation o f the process. This framework forms the basis o f our diagnosis o f Program Review. Second, we address the formal struc­ ture o f the Program Review process. We examine critically its internal coherence, its ambiguities, and its contradictions, in order to make sense o f its evolution over the last two years. Third, we mention a few instances o f slippage in the outcome o f the Program Review process, purely for illustration purposes. These nuggets o f information have been gleaned from evaluative work completed by the Office o f the Auditor General, which surveyed the same territory recently using other methods. They are not meant to be substitutes for the Program Review process in each agency or department. We merely wish to highlight the fact that circumstantial evidence would appear to confirm that Pro­ gram Review may not have been immune to either errors o f Type I (rejection o f demonstrably desirable programs according to the six tests) or errors o f Type II (perpetuation o f demonstrably less desirable programs according to the same tests).8

A Framework We have retained four criteria in our evaluation o f Program Review. These are: • • •

•

the extent to which Program Review was instrumental in implementing a philosophy o f subsidiarity, the extent to which it has effected a profound organizational reform o f the governance system, the extent to which it examined seriously the efficiency and affordability o f all existing federal programs and the degree to which delivery mechanisms were enhanced, and the extent to which it has generated significant reduction in federal government expenditure levels.

To gauge the success o f Program Review according to these four tests, we have drawn from three sets o f observations: first, a summary

THE P R O G R A M R E V I E W PR O CE SS

of the planned federal expenditure reductions and reallocations reported in the February 1995 Budget, in Paul Martin’ s economic statement o f December 6,1995, and in the March 6,1996 Budget; second, a set o f interviews with persons closely connected with Program Review; and, third, a gleaning o f supportive evidence from parallel evaluation ef­ forts by the Office o f the Auditor General to corroborate interview evidence. In essence, we have come to the conclusion that Program Review has drifted away from its original rationale, which was embodied in the six questions. What was originally envisaged as a rethinking and reframing o f the role o f the state within Canada’ s governance system and o f the role o f the federal government within it, was already dwarfed by the end o f 1994 to an exercise o f federal expenditure reduction, and by the end o f 1995 to an efficiency-seeking exercise. The extent to which this drift was intentional is far from clear. Our impression is that much o f it evolved by default. Although it must be left to the specific chapters o f this book to determine whether there has been a significant increase in the efficiency o f delivery mechanisms within the existing governance system (criterion 3 above), one may propose a broad diagnosis about the relative success o f the Program Review on the basis o f the other three basic criteria.

As a federal expenditures reduction strategy, Program Review has been relatively successful. Although a number o f federal programs (and in particular those concerned with major transfers to persons and other levels o f government) have remained unscrutinized, there is little doubt that this exercise led to an important list o f federal expenditure reductions, as witnessed by the February 1995 Budget. It must be noted, however, that it is extremely difficult to determine to what extent Pro­ gram Review has gone far enough fast enough. There are widely di­ vergent points o f view on this question.9

As an exercise o f organizational reform o f the federal governance system, Program Review has received various and mixed evaluations. Some, like Arthur Kroeger,10have heralded Program Review as a part o f a critical change in the governance system. However, this view is based much more on the change in the transfers to the provinces and the proposed Canada Social Transfer than on the impact o f Program

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Review per se. Others, and we are o f this view, fail to see anything o f the sort. Despite the importance o f the budget cuts, it cannot be said that the governance system has been re-engineered. Only if one as­ sumes a systematic follow-up o f Program Review (and not only in Year I and II) in which more fundamental reorganizations are forth­ coming, can one conclude that a metamorphosis o f the governance system has commenced. It may be that the results o f the October 30 Referendum will trigger such a move, but the experience to the end o f 1995 has not generated significant organizational reform, except in some very well-defined areas, and mainly as an unintended consequence o f the strategy o f overt federal expenditure reduction.

As an exercise to implement a philosophy o f subsidiarity, it can be argued that the Program Review has been ineffectual Given the lan­ guage o f subsidiarity embedded in the six tests, one can only be startled by the fact that the Federalism and Partnership tests have all but been eliminated from the consciousness o f program assessors. The only important devolution activities that have emerged recently (outside o f spectacular moves at Transport Canada and in very few other agen­ cies) have been embodied in the Canada Social Transfer: a unilateral disengagement o f the federal government rather than reasoned devolu­ tion with appropriate compensation, a policy move that has nothing to do with Program Review. Even though a redefinition o f the federal government’s role does not necessarily mean that it must be smaller in every case, one can point to a sufficient number o f recentralization initiatives that have been implemented where a good case can be made for decentralization, that one could mount a substantial indictment o f Program Review on the grounds that it neglects the principle o f subsidiarity.11One could cite a range o f such cases, from insistence on maintaining centralized norms and standards, to serious instances o f selective inattention to such new realities as local systems o f innova­ tion when rethinking industrial policy.

Scrutinizing the Process Various aspects o f the Program Review process were significant enough to merit attention. They may help to explain why the process evolved the way it did.

THE P R O G R A M R E V I E W PROC ES S

An important facet o f Program Review is that it has been conducted entirely by insiders, senior political and bureaucratic officials who were likely to bear the brunt o f any serious transformation o f the gov­ ernance system. In some cases, junior bureaucrats were involved, but Program Review has been immunized against any meaningful input by either the stakeholders/clients o f the agency or the citizenry and its elected officials. This curious approach resembles that o f the Public Service 2000 exercise, and stands in opposition to the traditional pre­ cepts o f a democratic society, where the citizenry has the moral right and obligation to decide how it wishes to be governed and a say in any process that proposes to change that system. Canada has opted in the past to utilize such mechanisms as royal commissions, external evalu­ ative reviews, or, at a minimum, to institute some consultation process with the public and with stakeholders who have a direct interest in the change. In this case, the process was orchestrated from the top, with limited internal consultation and without any meaningful external con­ sultation in most instances. While “ outsiders” are often easy to finesse, they are less so when they are important stakeholders. Moreover, when stakeholders and citi­ zens are involved, one may expect the politicians to be more likely to stand up for the policy decisions proposed. In both PS 2000 and Pro­ gram Review, the limited attention accorded the process by the politi­ cians, and their relative lack o f concern about the policy outcomes (except insofar as they brush against broad political sensitivities), made it inevitable that the dual focus on governance transformation and deficit reduction would not be maintained. Program Review may have required each department and agency to assess each program on the basis o f the six detailed criteria. However, there is no assurance that this was done in a systematic manner. Indeed, nothing better summarizes the view we have obtained from senior public servants (outside o f Treasury Board and the Department o f Finance) than the following statement, dated July 18,1995, from a very senior public servant with extensive knowledge o f the review process. From my perspective, the Federal Program Review, while producing dramatic results in terms o f dollars or job cuts, was primarily a scramble for cash, and did not represent a “re-design” or “re-invention” of

HOW O T T A W A SPENDS

government as had been claimed by some. Federal Departments cut what could be cut, and little real attention was paid to the six starting criteria. There was little or no attempt made to examine the structure and process o f government on a horizontal basis, to lessen the pressures which require departments to incur such enormous overhead costs (e.g. the massive impact o f bloated Central Agencies and their multiple controls and demands on departments, the costs of the unwieldy, obsolete and ineffective personnel system—which every critic since Glassco has vainly tried to reform—and the unduly centralized and control-oriented financial and administrative systems). There is little evidence that the Program Review was either strategic or guided by any overall notion o f where this will take the Federal role.12

The criteria utilized by the Bourgon and Masse committees to deter­ mine review priorities with respect to the governance system have not been made clear to the public. No blueprint or strategic plan or set o f guiding principles had been prepared for these two committees to as­ sist them in their work. Consequently, they were ill-equipped to focus on the elements o f the governance system that could not easily be trans­ ferred to the lower order governments, or to identify the nature o f the co-ordination, harmonization, or co-decision institutions that would be necessary to ensure the requisite co-ordination among levels o f gov­ ernments in the event that some devolution might be envisaged as a result o f Program Review. There was no general set o f principles akin to those Andre Burelle has suggested13to help these committees arbi­ trate such matters. An important consequence o f the absence o f a guiding philosophy is that the possibility o f exploring important measures o f devolution was minimized. The lack o f benchmarks to assess meaningful suggestions under the rubrics o f the Federalism test and the Partnership test could only lead to the marginalization o f those most important dimensions o f the governance agenda. Even as general a principle as subsidiarity provides a basis to proceed with a plausible reallocation o f responsi­ bilities among levels o f government and between government and the private or not-for-profit partners. No such principle appears to have been used by the Bourgon and Masse committees. From the very beginning o f Program Review, the Office o f the Auditor General appears to have been frustrated at the limited reporting o f the results o f the Government Renewal initiatives:

THE P R O G R A M R E V I E W PR OC ES S

We have a long history o f reform attempts that did not achieve their goals; a breakthrough is required! Strong central leadership—political and bureaucratic—will be required. Furthermore, a regular and timely report is essential—a report that is based on a more systematic assess­ ment o f progress toward the government’s public service aims, and that reflects results o f importance to parliamentarians and to Canadians more generally ... providing the information necessary to permit Parliament to fulfil its related oversight responsibilities.14

It is our understanding, based on respondent statements, that this gen­ eral position generated much unease in late 1994, but not enough to elicit serious and enlightening reporting. Because the Office o f the Auditor General was denied access to basic information, the audit o f the Government Renewal process that was expected to emerge in its 1995 Report never materialized. However, there has been a formal report to Parliament regarding Program Review. It was submitted in November 1995 by the President o f the Treasury Board, Art Eggleton.15The report is most illuminat­ ing, in that it redefines the very notion o f Program Review. Rather than being defined in terms o f the six principles stated at the beginning o f the exercise, the Review is represented as “ a set o f methods for finding answers to crucial questions, such as how well we are doing and could we do better?” 16 The focus is not on “ substance” but on “ methods.” Art Eggleton states that “this report is a snapshot o f what review methods are being used in the federal government.” Program Review is reduced to a mod­ est portion o f the panoply o f on-going review activities designed to examine “the need, affordability and efficiency o f all programs.” 17 By the fall o f 1995, the Federalism test and the Partnership test ap­ pear to have been essentially removed from the Program Review ob­ jectives. Moreover, Program Review had been diffused and diluted by drowning it in a sea o f on-going “audits, evaluations and reviews.” Likewise, its governance component had been set aside and replaced by a focus on “ quality services,” more or less recycled from the PS 2000 exercise.18 The focus on “ improved performance” and on “ results-based man­ agement” o f the “quality services” exercise had become the new centre o f gravity. By concentrating exclusively on economy and efficiency

H O W O T T A W A SPENDS

(and quality) and eliminating the concern about effectiveness from the agenda, the Treasury Board Secretariat had declawed the Program Review process and immunized the federal government and the federal public service from the effects o f subsidiarity.19 Until March 1996, there was limited attention accorded to the Effi­ ciency o f the Federation exercise. This portion o f the Government Renewal process, despite some remarkable breakthroughs20at the ad­ ministrative level, provides additional evidence that little weight was afforded to the Federalism test over all. Administrative aspects, in­ cluding issues related to efficiency, were left to individual departments to pursue as appropriate. General efforts to orchestrate federal-provincial forums on a cross-departmental basis were abandoned. It was only on the occasion o f the March 6, 1996 Budget that mat­ ters o f overlap and duplication at the federal-provincial level came to be singled out as a central issue both for deficit reduction and for government renewal. The Privy Council document (Getting Govern­ ment Right) tabled the day after the Budget emphasized the central importance o f new partnerships with different stakeholders as a way to “bring the federal government closer to communities and citizens by moving decision-making, program delivery and design closer to citi­ zens,” and celebrated the successes o f the Efficiency o f the Federation initiative on this score.21 It is quite clear that the governance agenda has been given new prominence, but it is not easy to determine the extent.

Some Illustrative Gleanings About Outcomes The fact that “government priorities” have remained unstated does not necessarily mean that an “ unwritten plan” exists, but there is some oblique and circumstantial evidence to support the hypothesis that such a plan exists and has been a determining force. For the central agency respondents, anomalies in the process were simply random flaws in a process that never claimed to be perfect, or they were the result o f the dual screening o f the Bourgon and the Masse committees, which was designed to ensure that “government priori­ ties” were pursued. We were provided with numerous examples o f various anomalies throughout our interviews— decisions that would appear, for no obvi­ ous reason, to be at odds with what any straightforward application o f

THE P R O G R A M R E V I E W PR O CE SS

the six tests would suggest. These instances may reasonably be inter­ preted as evidence that some raison d ’etat may have prevailed. More­ over, departmental officials have complained that their efforts to reconfigure federal activities (in particular in the direction o f new part­ nerships) were scuttled by “ a degree o f intractability on the part o f Treasury Board and others.”22It is difficult to “demonstrate” how wide­ spread these anomalies or blockages have been, but we can at least “ illustrate” the existence o f such anomalies and blockages, and at­ tempt to identify some o f the patterns they appear to reveal.

Four anomalies We have sketched a few examples cited by respondents that might be considered as likely “Program Review errors” : Type I errors (rejecting or cutting a program when it was most satisfactory according to the tests), or Type II errors (maintaining programs that would appear not to meet the six tests). Citing these examples is not intended to suggest there should not have been exceptions to the Program Review tests for raisons d ’etat o f one sort or another. Our intention is to illustrate that in fact the process was not infallible. Decisions were made thatprima facie would not appear to follow the Program Review logic. Such program decisions may simply reveal a certain frame o f mind or a pattern o f “ unstated objectives.”

Indian Affairs and Northern Development: On-Reserve Capital Facilities and Maintenance Program The purpose o f the On-Reserve Capital Facilities and Maintenance Program is to provide support for Indian and Inuit communities to acquire, operate, and maintain basic facilities such as schools, libraries, and offices. Total funds allocated to this activity were approximately $570 million in 1994-95. According to the Auditor General, “ In its approach to devolution, the Department has continued to transfer responsibilities to First Nations for delivering capital and maintenance projects. However,... the Department has not targeted and controlled areas o f high risk.... The Department’ s risk and exposure from failure to properly maintain capital assets are high.” 23Specifically, continuation o f this program does not satisfy the “Role o f Government” test. Although some communities are capable o f managing capital assets, thereby satisfying the “Partnership” test, most communities cannot, for various

HOW O T T A W A SPENDS

reasons. The Auditor General argues, therefore, that a universal approach to devolution, which induces inefficiency, is not appropriate. Devolution has been encouraged in many situations in which the capacity o f a community to assume responsibility has been and continues to be insufficient. The continuation o f this program in its present form may be regarded as an error o f Type II. It may be more appropriate to ensure, via pre-determined performance criteria, whether a community has the capacity to manage such projects, or to pursue a process o f transition that includes some degree o f training.

Environment Canada: National Contaminated Sites Remediation The purpose o f the this program was to manage the remediation o f contaminated sites in federal and provincial jurisdictions. It contained four components— three funded jointly with the provinces for nonfederal sites, and the Federal Sites Component funded by Environment Canada. Total funds allocated were $ 150 million over five years, to be used for site assessment, remediation, the development o f remediation technology and for the development and preparation o f environmental standards. The program, which was intended to sunset on March 31, 1995, was extended until March 31,1996 to allow Environment Canada the opportunity to complete several ongoing projects. The three components allocated to the clean-up o f non-federal sites are not considered here because they intersect with provincial jurisdic­ tion and fail the Federalism test. However, the Federal Sites Compo­ nent, which examined the clean-up o f all contaminated federal sites, was identified by respondents to have arguably passed all Program Review tests. When funding for this initiative ended on March 31, 1995, “no national plan or federal fund had been created for cleaning up the remaining contaminated sites [i.e. 18 o f the 325 assessed sites had been cleaned up as o f March 31,1995] that pose risks to human health and the environment.”24This component appears to have been an ideal candidate for renewal or amendment in some form, especially given the high degree o f public support suggested by the Auditor Gen­ eral: “ When rating environmental problems, Canadians rank hazard­ ous waste second only to ozone depletion.”25 Clearly, the Federal Sites Component serves the public interest (Public Interest test), since only a fraction o f the sites have been remediated. Given that the sites identified are in federal jurisdiction, responsibility

THE P R O G R A M R E V I E W PR O CE SS

lies in whole or in part with the Crown (Role o f Government test, Federalism test). Transferring this program and the subsequent prob­ lems would not be politically, morally, or legally acceptable. With re­ spect to efficiency, respondents agreed that with adequate funding and departmental co-ordination, implementation could be improved. Elimi­ nation o f a program that enjoyed high public support (although not vocalized specifically) and addressed a problem that is clearly federal responsibility may be regarded as an instance o f Type I error.

Western Economic Diversification Program The principal objective o f this program was to build a partnership between the federal government and western governmental and private sector interests in order to promote economic development and diver­ sification in the western provinces. Respondents indicated that the pro­ gram served the public interest, for there is a need for such vital investment in the West to promote growth. Respondents believed the program qualified as an appropriate government function, for it is in­ tended to create partnerships in the effort to stimulate the economy (Federalism and Partnership tests). Although respondents believe that the program could be made more efficient by ensuring that partners are clear as to their respective roles and responsibilities, the program was seen to be fulfilling its objectives. Investment has been increasing in the area and job creation has been rebounding. When asked about affordability, most respondents agreed that the program was yielding important dividends and was worth the investment. Yet, the program was cut. Over all, the program exemplifies a Type I error.26

Indian Affairs and Northern Development: Native Claims Programs In 1969, the federal government agreed as a matter o f policy that its “ lawful obligations” to Aboriginal people had to be recognized if its relationship with those groups were to improve. Since 1974 various claims programs, including comprehensive claims (involving settlement o f disputes regarding traditional native use and occupancy o f land) and specific claims (involving settlement o f disputes regarding the fulfilment o f treaties, and government administration o f reserve lands, band funds, and other assets) were instituted to remedy past and, in some circumstances, present grievances. In 1991, a number o f

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recommendations were made by First Nation representatives and the Ministers o f Justice and Indian Affairs to improve current guidelines, including the removal o f the “pre-confederation bar,” so that claimants could be allowed to file grievances regarding violations prior to confederation in 1867. Almost $280 million was allocated to the settlement o f various types o f claims (except land claims) in 1994-95. Respondents familiar with this program indicated that continuance o f this program did not satisfy Program Review tests: the program could not be defended as serving the public interest “other than to provide First Nations with another source o f funding.” They said that major outstanding grievances have been addressed by the program. Grievances being presented to the federal government today were argued to be highly questionable. Investigation o f such grievances is both costly and time-consuming, thereby clearly failing the affordability test. When asked whether the program serves any public interest, respondents argued that the rationale o f the program is no longer clear, nor are its objectives relevant. Over all, it was argued that the political agenda and senior management priorities placed these programs “high in importance with questionable application o f the [Program] review.” This is an instance o f Type II error.

Nature o f the Blockages Program Review was inviting critical thinking from public service ranks, but some forces would appear to have been at work to obstruct the process from being carried out to its logical conclusion. Our inter­ views point to three main forces that may have stifled the process. First, it was suggested by many respondents that the negative effects associated with the failures o f the Meech Lake and Charlottetown ac­ cords had strengthened the resolve o f the federal government to as­ sume as much control over matters o f governance as possible. The rejection o f these decentralizing accords was interpreted in federal circles as a call for a strong federal government in the face o f a new threat to national unity generated by the emergence o f various “ identity groups,” such as persons with disabilities, seniors, the homosexual community, Quebeckers, westerners, and women’s groups. Usually, individuals have a plurality o f interests and each individual is associated with many groups, each representing some o f the individual’ s interests. What is novel with these “ identity groups” is that the number o f interests o f the

THE P R O G R A M R E V I E W PR O CE SS

individual associated with such groups is so extensive that the group tends to define and represent the whole person.27Such groups are sus­ pected o f being more corporatist than pluralist. They represent notjust one segment o f an individual’ s concerns but the entirety o f the person: “ Many o f an individual’s interests are bound up [with] and represented by a single group.” Society is perceived as becoming a group o f groups, less and less capable o f understanding and talking to one another.28 It has been argued that national institutions for “discursive democ­ racy” might generate a better appreciation o f the limits imposed by mutual responsibilities. Indeed, often identity politics can be harnessed, by enabling people to debate and decide on the conditions o f their in­ terdependence in an inclusive forum. But this is not the strategy envis­ aged by the Canadian government. Rather than attempting to build such a forum, in which groups may learn from each other and generate debate and arrive at compromises, our central government has come to perceive itself as more capable than the groups o f constructing such compromises. This propensity to centralize would appear to be rein­ forced at a time when globalization forces have weakened the nation­ state considerably and have called for a more distributive form o f governance: large private and public organizations have had to reorga­ nize into networks o f autonomous units that are agile, and better able to adapt to ever-changing circumstances.29A certain schizophrenia is bound to emerge. Second, many anomalies would appear to reveal a centralized mindset whereby the federal government has made a conscious effort to maintain and re-affirm control over various activities that have been an integral part o f its responsibility in the past, whatever the logic o f Program Review might suggest. This is a trait that would appear to afflict many national governments ill-suited for a “dispersive revolution” that drains power from it (outward to global institutions, laterally to multinational enterprises, and downward to sub-national organizations).30 This centralizing mindset has blocked change in Canada perhaps more than in other countries, because o f our “economic culture.” Herschel Hardin has suggested that our economic culture has been characterized by a predisposition toward public enterprise and a pref­ erence for inter-regional redistribution. These features help to explain our particularly strong propensity to centralize, because such massive inter-regional redistribution cannot be obtained without a high degree

HOW O T T A W A SPENDS

o f centralization.31Although the Liberal party, through its “Red Book,” recognized that the trend in governance systems is toward decentrali­ zation, there are reasons to believe that this centralizing mindset is still paramount in the current government.32 In the case o f Western Diversification, for example, it would appear that the federal government, in an effort to get its “ fiscal house in order,” has elected to assume sole responsibility for matters o f fund­ ing, thereby ensuring a centralized focus. In the case o f the On-Re­ serve Capital Facilities and Maintenance Program, it was suggested by a few respondents that in many cases in which First Nations are placed on the fast track to devolution, negative results were expected, and these negative results allow the federal government to argue that its presence is still required. There is evidence o f a pattern whereby the federal government has set out to strengthen its role in various areas. The consequences o f this mindset, however, is that it can stifle any innovation in the direction o f decentralization, even when it is demanded and needed. Thirdly, in the face o f conflicting demands for change, it is not un­ reasonable that a solution o f despair be characterized by a return to the basic rules and a reaffirmation o f procedural rationality as an anchor. According to our respondents, this would explain the new prominence o f the Treasury Board Secretariat and the new reverence for perennial rigid expenditure and human resource management policies. However, such rigidity has inhibited innovation and creativity. For example, it was suggested that, as a consequence o f Program Review, it might be prudent in some cases to enter ajoint venture with a private sector organization to assist in the provision o f some specific depart­ mental services. In this way, the costs and risks associated with the responsibility o f providing a service would be shared, with the hope that a newly refined service would be cost-effective and perhaps pro­ fitable. However, when ideas o f this sort were submitted to Treasury Board via the departments’ business plans, they were summarily re­ jected as inappropriate.33Although Treasury Board was not often spe­ cifically blamed for the stoppage, it would appear that the management regime did not offer the flexibility or the legislative maneuverability for innovation, because o f the new ethos o f rules as a source o f stabil­ ity.

THE P R O G R A M R E V I E W PR OC ES S

The joint impact o f these blockages has been important. Senior offi­ cials o f the Canadian governance system have been caught in a signifi­ cant dilemma. Various new groups in Canadian society have generated paradoxical demands for devolution and decentralization, while at the same time echoing support for a strong central government. These demands are clearly contradictory, and have projected a Rorschaktype background that federal public officials have interpreted accord­ ing to their own proclivities. This has given yet more momentum to the traditional economic culture o f centralization that has characterized Canadian government. With this backdrop, it is not difficult to understand the growing role o f Treasury Board in setting basic rules when the technology o f gover­ nance would appear to be in need o f repairs. It has become an anchor at a time when the country is being pulled in different directions by the requirement o f minimal integration and the logic o f subsidiarity. This is a propitious terrain for the centralized mindset. A new rationale for a strong central government has therefore evolved in the form o f the need for process and rules. This is the means through which ownership o f Program Review has come to be claimed by the Treasury Board Secretariat, not so much by design as by default. These three blockages (political, mental, and managerial) have cre­ ated a gauntlet in which Program Review has been brought to a halt. Unwittingly, the consolidation o f identity groups has served as a major lever to reinforce the centralized mindset o f the Canadian government. This new environment has created a dynamic in which contradictory demands have given a new importance to those upholding the rules. Accordingly, the Treasury Board has emerged as “ keeper o f the rules” within the Canadian federal structure. W H Y W A S THE PRO CE SS D E R A IL E D AN D C A N I T BE P U T B A C K ON T R A C K ?

The Program Review process was allowed to drift away from its origi­ nal rationale for a number o f reasons. First, given the complexity o f the issues facing the government and the paucity o f alternative ideas debated in the public forum, the citizens have been prone to conform to any strategy that would give the appearance that the government was

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addressing important issues o f governance rationally. Second, given that the objectives and implementation o f Program Review were closely guarded by senior decision-makers, it was very difficult for the public at large to detect the nature and the extent o f the drift until it had become a reality. Third, there was no forum in which the public could contribute significantly to the process. Because o f its emphasis on se­ crecy, the Chretien government had immunized Program Review from both public scrutiny and disapproval. Some immunity was also de­ rived from the overall popularity o f the Chretien government and from its marketing o f Program Review as its way to transform the gover­ nance system. Finally, there would appear to be a perception among many observers o f Program Review, such as the media, academia, and interest groups, that even if affordability had become the driving fac­ tor for change, the means o f achieving such change were not as impor­ tant as the outcomes achieved, financial or otherwise. Combined with this perception was the belief that change is evolutionary and that it may be too early to detect results. This could only weaken any call for a reality check. Nonetheless, the process can be salvaged, but certain conditions must be met. We cannot establish the canonical list o f necessary and suffi­ cient conditions, but we would like to draw attention to three impor­ tant necessary conditions: additional fiscal pressure, allaying o f the fear o f balkanization, and a new momentum in the commitment o f the federal government to respond to public demand for better governance. First, a less faint-hearted attack on the deficit and debt by the federal government is necessary to force the “real” questioning o f all pro­ grams. Only dramatic pressure to significantly reduce government spending can influence change in the governance system. There were signs in the December 6,1995 economic statement that the Minister o f Finance is still somewhat faint-hearted, unwilling or unable to obtain consent from the Chretien Cabinet to proceed more assertively toward the zero-deficit target. This de-emphasis o f deficit and debt reduction has been re-affirmed in the Budget speech o f March 6,1996. “Holding the course” on the deficit is seen as assertive action and across-theboard departmental cuts as demonstrating action. Governance cannot be changed easily. There are vested interests in the present system likely to prevent the requisite level o f mobilization

THE P R O G R A M R E V I E W PR O CE SS

o f the citizenry. Some would say that we need the moral equivalent o f a war or the sociological equivalent o f a defeat to mobilize the popula­ tion, and that the spectre o f deficit and debt does not fare well as a mobilization lever. But it may be the only one we have. Given this context, the sense of diminished financial pressure that has been com­ municated by the Minister o f Finance over the last few months is a significant message. It may encourage the search for alternative mecha­ nisms o f program delivery (within the present unmodified governance system) as a fully satisfactory strategy. Only if the fiscal pressure is extremely high will the government be forced to challenge its roles and responsibilities seriously and to effect changes in the governance sys­ tem. Second, the renewal o f governance does not necessarily entail devolution in all cases. There are many other directions in which governance can be reframed. However, the fear o f the disintegrative impact o f the devolution process has been important in building legitimacy for efforts to counter the subsidiarity agenda underlying the Program Review process. This is a misguided and potent argument, which must be addressed squarely. Decentralization need not balkanize. It simply forces local and pro­ vincial governments to provide the level o f services they can afford and desire. The fact that regions are endowed with different resources, value systems, and public services does not imply balkanization,.but results in the free flow o f resources in a barrier-free economy. Such a market economy does not ensure identical local conditions everywhere. Indeed, the very differences among local conditions and provinces are the triggers that command resource flows between areas. Mobility between localities and provinces ensures that local authorities are pre­ vented from effecting inefficient policies. It is only when balkanization is falsely construed as the obverse o f homogenization (which is a serious misunderstanding and a very mis­ leading definition) that the unreasonable conclusion that decentraliza­ tion automatically triggers balkanization emerges. In fact, this bizarre mis-definition is not innocent. Rather, it is an attempt at obfuscation. When balkanization is defined properly, the main source o f balkanization in Canada would appear to be not decentralization but centralization.

HOW O T T A W A SPENDS

There is no balkanization when there is a clear connection between the price o f goods and services in a particular place and their produc­ tion costs, and when there is nothing to prevent the normal adjustment o f resource flows to the differentials in costs or prices. Balkanization occurs when there is a wedge between the prices o f goods and services and their production costs and when something prevents the normal adjustment to this distortion. When the federal government imposes regulations, standards, or equalization mechanisms upon the provinces, such actions may be ar­ gued to distort prices, diminish provincial and local responsibilities for their inefficient policies, and prevent the movement o f resources to areas where they are valued most. Such processes can be regarded as a trade barrier. Given these circumstances, provincial governments are able, because o f federal enforcement, to behave less efficiently, given that the federal government has shifted the burden o f implement­ ing inefficient policy to other members o f the federal club. Indeed, as Migue states, under the present equalization rules, “the more ineffi­ cient the provinces are, the more they are compensated by the central authority.”34 Third, it is not sufficient to experience greater fiscal pressure and to exorcize the fear o f balkanization-by-decentralization to generate a genuine process o f governance transformation. One must also be able to count on the commitment by the federal government in power. Oth­ erwise, the denial syndrome will prevail. Indeed, the failure o f Pro­ gram Review up to the end o f 1995 may be regarded mainly to be the result o f a failure o f political will. What Meech and Charlottetown have failed to bring about through the high road o f constitutional re­ form might have been accomplished by administrative means if Pro­ gram Review had been highly focused and fuelled by a meaningful political will. Neither the Speech from the Throne o f February 27, 1996, nor the address by Prime Minister Jean Chretien in his response to the Speech from the Throne on February 28, 1996, nor the Budget Speech o f March 6,1996 have given any signs o f a new resolve on the part o f the Chretien government to give a second life to Program Review and to the whole Government Renewal exercise. Yet a document tabled by the Privy Council Office on March 7th, 1996 signals some possibility o f a reframing o f the debate.35

THE PR O G RAM REVIEW PROCESS

Getting Government Right appears to be a boost for government renewal. First, it clearly separates the governance-directed issue o f getting government right from the efficiency-directed concerns o f making the federal government work better. Second, the document appears to indicate that the Privy Council Office, which originated the Program Review process and lost control to Finance and Treasury Board, may wish to regain control o f it. Finally, the document appears to provide evidence that some social learning on the part o f federal public officials has occurred as a result o f the October 30th Referen­ dum, and that the governance agenda has again risen in prominence. Although there is still some reluctance to state clearly that subsidiarity is the guiding philosophy, its spirit permeates the section on new partnerships (pages 17-18) o f the March 7 document, and there is a sharpening o f focus. The federal government would also appear to be willing to sketch explicitly the contours o f the areas where it feels some federal presence is essential: • • • •

to benefit economic and social union, to pool national resources, to protect Canadian values and identity, and to defend Canada’ s sovereignty.36

This leaves an immense amount o f latitude in the process o f clarifica­ tion o f the federal roles and responsibilities that the document identi­ fies as the first key objective. Other objectives are to devote resources to the highest priorities, to provide better, more accessible, and more participative government, and to achieve a more affordable govern­ ment. While still preliminary, it would appear that there might be a shift in emphasis back to governance in the conduct o f the next phase o f Program Review. These three conditions are not sufficient to ensure that the Program Review process is refocused and successful. However, unless the fis­ cal pressure is more intense, the spectre o f balkanization allayed, and the governance thrust o f Program Review reaffirmed, it cannot be ex­ pected that the promised transformation that is urgently required will materialize. Many benefits may be realized from expenditure reduc­ tion and from the pursuit o f efficiency. However, the essentials re­ quired to reframe governance will be missed.

H O W O T T A W A SPENDS

CONCLUSION

The Government Renewal process was not borne only out o f difficult fiscal times, it was a reasoned Cartesian response to fundamental de­ mands for change in the governance o f the federation. Although these demands have been articulated in contradictory terms in many forums over the last few years, their poignancy has been felt in the recent debates surrounding the Meech Lake and Charlottetown accords and in the heated discussions that led to the October 1995 Referendum on Quebec separation. The Program Review exercise was a crucial component o f this re­ newal process. It held the promise, in its original form, and still holds the promise, if its integrity is restored and if the systemic barriers are removed, o f accomplishing by administrative means (together with the other components o f the Government Renewal Program) much o f what both Meech and Charlottetown could not deliver. If this opportunity is allowed to slip, we risk tumbling into a dynamic o f fragmentation and decay. We know that the Canadian public has become increasingly disenchanted with the manner in which change has occurred in Canada, and that approximately 29 percent o f the Canadian population firmly believes that by the year 2000 “the country as we know it will no longer exist.”37 The derailment o f Program Review and its subsequent reduction to a federal expenditure reductions program cum quality services exercise cannot and must not be gauged solely by the usual indicators o f fiscal policy or gains in productivity. It must be evaluated in terms o f the broad objective o f the reinvention of governance. Any belittlement o f this objective in the whole equation cannot but invite a further erosion o f the federal system. Both the fiscal perspective and the quality services perspective on these issues are important in their own right and may be defended as useful contributions to better government. However, they are unduly reductive when compared to the original mandate o f Program Review and to the challenges confronting Canada. These side roads do not lead to Oz, and if we proceed along them, we ensure that the effects o f Program Review will be negligible. Allowing Program Review to play

THE P R O G R A M R E V I E W PR O CE SS

itself in its new rags would amount to staging Hamlet without the Prince o f Denmark. Fortunately, 1996 may provide a unique if small window o f opportu­ nity for the refurbishment o f the governance agenda o f Program Re­ view. The panic generated by the results o f the October 30, 1995 Referendum on Quebec separation combined with increasing demon­ strations o f dissatisfaction across the country would appear to have struck (however faintly) to the heart o f the Chretien Cabinet. The “mas­ ter plan” revealed by Maclean ’s in its February 5,1996 issue appeared to indicate that senior decision-makers have been led into taking devo­ lution seriously. Such a circumstance may prove beneficial. However, one should not discount the powers o f dynamic conservatism and the possibility that various instrumentalities and mantras like “quality ser­ vices” and the “ search for alternative program delivery and financing” will be favoured by all as sanitized avenues that look desirable be­ cause they are ways to effect changes without truly changing. At the time o f writing (mid-March 1996), after the Speech from the Throne, the March 6 Budget speech and the series o f papers released in their aftermath, there is ample evidence that the forces o f dynamic conservatism are still hegemonic. First, the Chretien government is considering an early election. Therefore, the debt and deficit problem, less resolved by lackadaisical policies than attenuated by a fall in the rate o f interest, has been pushed to the background. Second, the rheto­ ric o f balkanization remains omnipresent. Third, the March 7 docu­ ment from the Privy Council Office does not indicate in any meaningful way that the “ master plan” evoked by Maclean’s in February 1996 will be carried out after all. The sort o f crisis needed to kickstart a “renewed” Program Review is still not clear. It may arise from the meeting o f First Ministers in the spring o f 1996, or the rash o f meetings being organized by dozens o f groups o f concerned Canadians across the country. In any case, how­ ever, the likelihood that anything substantial might be initiated to trans­ form the Canadian governance system is inversely proportional to the time elapsed since the October 30 Referendum and directly propor­ tional to the relative importance o f the non-constitutional route in the First Ministers’ proposals.38

68

HOW O T T A W A SPENDS

NOTES

The authors are most grateful for the critical comments o f Gene Swim­ mer, Elizabeth Dandy, John de la Mothe, and David Zussman on an earlier version o f this paper. They should not bear any guilt by asso­ ciation for our work. As will become obvious, we have not always chosen to follow their helpful advice. 1 2 3

4

5

6 7

8

9

For additional details, see C. Millon-Delsol, Le principe de subsidiarite (Paris: Presses Universitaires de France, 1993). M. Janigan and E.K. Fulton, “ The Master Plan,” Maclean’s, 109, 6, February 5,1996, 18-19. V.S. Wilson, “What Legacy? The Nielsen Task Force Program Review,” in K. Graham, ed., How Ottawa Spends 1988-89: Conservatives Heading into the Stretch (Ottawa: Carleton University Press, 1988), 23-47. This is extremely clear in D.R. Zussman and J. Jabes, The Vertical Solitude (Halifax: Institute for Research on Public Policy, 1989), espe­ cially chapter 4; see also T. W. Plumptre, Beyond the Bottom Line: Management in Government (Halifax: Institute for Research on Public Policy, 1988); G.F. Osbaldeston, Keeping Deputy Ministers Accountable (Toronto: McGraw Hill Ryerson, 1989). J. Jabes and G. Paquet, “ RSforme administrative dans la fonction publique fgdSrale au Canada: preliminaires h une Evaluation,” in M. Charih and M. Paquin, eds., Les organisations publiques a la recherche de Vefficaciti (Sainte-Foy, PQ: Ecole national d’administration publique, University du Quebec, 1994), 27-47. G. Shortliffe, Second Annual Report to the Prime Minister on the Public Service o f Canada (Ottawa: Supply and Services, 1993), 12. For example, External Affairs, which had been subjected to a broad policy review and had inherited a new deputy minister, was transferred to the second phase; in the same way, Indian Affairs and Northern Develop­ ment and other departments have remained relatively underscrutinized. In analysing programs, one must presume that if the program has been put in place, there must have been reasons to support such a move. In statistical parlance, our null hypothesis is therefore that the program under evaluation is valuable. Type I error is the error o f rejecting the null hypothesis when it is true (i.e. the error of rejecting a truly valuable program). Type II error is the mistake of accepting the null hypothesis when it is false (i.e. the error o f supporting a program when it is truly not valuable). On the one hand, some, like Arthur Kroeger, do not hesitate to characterize the 1995 Martin Budget, basing their opinions on the results o f Program Review, as “a bookend ... after fifty years o f activist,

THE P R O G R A M R E V I E W P ROCESS

10 11

12 13

14

15 16 17 18

interventionist and, above all, self-confident government,” but much of his argument is based less on the Program Review impact on the Martin Budget than on the substantial reductions that are to be made in federal transfers to the provinces, and the proposed consolidation o f federal support into a single program, to be known as the Canada Social Transfer. (A. Kroeger, “ The 1995 Federal Budget,” Opinion Canada, 3, 2, [April 1995], 1-5; see also A. Kroeger, “Changing Course: The Federal Government’s Program Review o f 1994-95,” in A. Armit and J. Bourgault, eds., Hard Choices or No Choices [Toronto: The Institute of Public Administration of Canada, 1996], 21-28.) On the other hand, one indication that it may not have been completely successful as a deficit reduction process is the confidential International Monetary Fund document obtained by Southam News and much publicized in the press on December 5,1995. The IMF warns that the process o f deficit reduction has been “unduly slow” ; in their view, a perfectly successful Program Review exercise might have generated much deeper and faster federal cuts in expenditures. (E. Beauchesne, “ World Watchdog Urges Deeper, Faster Federal Cuts,” The Ottawa Citizen, 5 December 1995, A lA2.) Nonetheless, there were deep cuts in the federal spending in a large number o f departments and agencies as a result o f Program Review, so nobody would deny that it was relatively successful. Kroeger, “Changing Course.” For instance, see G. Paquet and J. Roy, “ Prosperity Through Networks: The Bottom-Up Strategy That Might Have Been,” in S. Phillips, ed., How Ottawa Spends 1995-96: Mid-Life Crises (Ottawa: Carleton University Press, 1995), 137-58. Private communication. Burelle builds a plausible scenario of decentralization based explicitly on the principle o f subsidiarity. He develops a series of classes o f more or less overlapping jurisdictions and proposes a specific reallocation of activities among levels of government together with the array o f manage­ ment and decision-making mechanisms that would have to be set up to handle the requisite co-ordination, harmonization, and co-decision. See A. Burelle, Le mal canadien (Montreal: Fides, 1995). D. Desautels, Report o f the Auditor-General o f Canada to the House o f Commons 1994 (Ottawa: Minister o f Supply and Services, 1994), 1-22, 123. A. Eggleton, Strengthening Government Review: Annual Report to Parliament by the President o f the Treasury Board (1995). Ibid., Foreword. Ibid., 1. This diversion culminated in October 1995, when the Treasury Board Secretariat produced ten pamphlets on Quality Services, which were widely distributed throughout the federal departments and agencies.

69

70

19

20

21

HOW O T T A W A SPENDS

Diversions from original initiative objectives are not uncommon. The PS 2000 exercise o f the early 1990s suffered such a fate. As noted by the Auditor-General, “PS 2000 was initially designed and communicated to staff as a ‘ management-driven exercise.’ Yet its philosophy is one of participative management. Despite the notable efforts o f some depart­ ments to involve staff at all levels, executives point to a lack o f staff involvement and ‘ ownership’ o f the initiative as a major implementation failing. In addition, inconsistency is perceived between some of the principles o f PS 2000 and other initiatives or actions. These include: ongoing downsizing and operating budget cuts; the 1991 budget that helped to precipitate a national public service strike and led to wage restraint legislation; the Al-Mashat affair; the decision to reduce the number o f public service executives by ten percent.” See D. Desautels, Report o f the Auditor General o f Canada to the House o f Commons 1993 (Ottawa: Minister o f Supply and Services, 1993), 174. On December 21, 1993 the First Ministers agreed to make improving the efficiency o f the federation a collective priority o f their governments. They agreed that this initiative would begin with a systematic assault on overlap and duplication and that, in the long term, 1) it would determine which order o f government was best suited to deliver a program or a service, and 2) it would make policies and programs more effective and affordable. The vehicle developed to focus these commitments by govern­ ment leaders is govemment-to-govemment action plans. This is a new approach, in which governments work together in their program delivery. A large number o f action plans dealing with issues as varied as business service centres, international business development, food inspection, and initiatives to deal with the underground economy have been signed. The Efficiency o f the Federation Initiative was very much an initiative parallel to Program Review and inspired by the same general philosophy. The lack o f support and interest for this Initiative at the federal level led to its fizzling out at the end o f 1995 with the resignation of the federal senior executive in charge o f it. See T.R. Robinson, “ Federal/Provincial Admin­ istrative Relations: Opportunities and Constraints,” Remarks at the Institute o f Public Administration meeting in Charlottetown on August 29, 1994; also private communication from T.R. Robinson (31 March 1995) and “The Efficiency o f the Federation Initiative: Information Update,” October 1,1995. Privy Council Office, Getting Government Right: A Progress Report (Ottawa: Minister o f Supply and Services, 1996), 15-16. It is important to note that this document appears to indicate that the Privy Council Office is now taking the initiative once again in Program Review after having allowed the initiative to slip away to Finance and Treasury Board, as we shall see.

THE P R O G R A M R E V I E W P ROCE SS

22

23

24 25 26

27

28 29

30 31 32

We have heard many contentions that Program Review had often initiated attempts to improve departmental operations by developing more flexible approaches. However, Treasury Board and other central agencies often responded to requests for innovative arrangements by enforcing “archaic” regulations and disallowing what may be perceived as innovative solu­ tions. D. Desautels, Report o f the Auditor General o f Canada to the House o f Commons 1995, Nov. 1995 (Ottawa: Minister o f Supply and Services, 1995), ch. 23. D. Desautels, Report o f the Auditor General to the House o f Commons 1995, May 1995 (Ottawa: Minister of Supply and Services, 1995), 2-5. Ibid., 2-8. Moreover, as stated in the Report of the Auditor General May 1995 (Chapter 20), as the Program Review was in full operation, there was a parallel and significant process of recentralization of this program by the federal government, when devolution would have appeared more appro­ priate: 60 percent o f western diversification financial assistance had to receive the approval o f the Minister’ s office in 1988, compared with 100 percent o f all assistance in 1994-95. M.J. Piore, Beyond Individualism: How Social Demands o f the New Identity Groups Challenge American and Political Life (Cambridge: Harvard University Press, 1995). Ibid., 21. This is the core o f Naisbitt’s “global paradox,” which he states as “the bigger the world economy, the more powerful its smallest players.” J. Naisbitt, Global Paradox: The Bigger the World Economy the More Powerful Its Smallest Players (New York: Morrow & Company, 1994). Also see G. Paquet, “Institutional Evolution in an Information Age,” in T.J. Courchene, ed., Technology, Information and Public Policy, The Bell Canada Papers in Economic and Public Policy, 3 (Kingston: John Deutsch Institute for the Study o f Economic Policy, 1995), 197-229. J. de la Mothe and G. Paquet, “ The Dispersive Revolution,” Optimum, 25, 1 (1994), 42-48. H. Hardin, A Nation Unaware (Vancouver: J.J. Douglas, 1974). G. Paquet and J. Roy, “Prosperity Through Networks,” 148. This propen­ sity to centralize has been defended and rationalized by many observers who claim that already Canada is one of the most decentralized federa­ tions and that “ a deeply divided society, a regionalized economy, and a decentralized federalism all make it harder to respond to global chal­ lenges.” R. Simeon, “ Globalization and the Canadian Nation-State,” in G.B. Doem and B.P. Purchase, eds., Canada at Risk? Canadian Public Policy in the 1990s (Toronto: C.D. Howe Institute, 1990), 57. We have shown this defence of centralization and enforced “national standards” as

71

72

33

34

35 36 37 38

HOW O T T A W A SPENDS

a source o f “social efficiency” o f the federation and as a foundation for better economic and social integration to be bogus. G. Paquet, “ Gouvemance distribute et habitus centralisateur,” Transactions o f the Royal Society o f Canada (1995) (forthcoming). Respondents have provided numerous examples from various departmen­ tal initiatives at Industry Canada and at Public Works and Government Services. In such cases, Treasury Board was intrumental in torpedoing the partnerships by withholding the autonomy demanded by the partners in connection with certain tasks and activities. Migu6 has even ventured some back-of-envelope estimates of the extent to which federal spending is distortionary (in the sense just mentioned), and has come to the conclusion that (after taking into account the expenditures in the nature o f truly national public goods, that is, those providing most efficiently collective services to the national community) this subtle balkanizing effect, which already characterized 60 percent of federal spending in 1960, now characterizes some 76.5 percent o f federal spending. This is quite an indictment of the federal authorities, who have induced the setting o f all sorts o f arrangements to meet national stan­ dards and then have claimed that, since the provinces and municipalities are spending de facto a larger portion o f the total public expenditures, the federation is becoming more decentralized. In fact, provinces were often coerced into such spending, or at least put in a position where they could not politically abstain from embarking on such programs. This is not decentralization by any meaningful definition of the term. J.L. Migu6, “ The Balkanization o f the Canadian Economy: A Legacy o f Federal Policy,” in F. Palda, ed., Provincial Trade Wars: Why the Blockade Must End (Vancouver: The Fraser Institute, 1994). One can only note with concern the statement in the March 1996 Budget defining a floor level below which federal-provincial cash transfers will not be allowed to fall. While some may feel reassured that this will ensure the maintenance of a certain degree of inter-regional redistribution, others may equally be concerned that this represents a clear declaration on the part of the federal government that it intends to maintain its capacity to balkanize the country by centralized policies, whatever the diktats o f Program Review might be. See Privy Council Office, Getting Government Right, which was tabled the day after the March 6, 1996 Budget. Ibid., 17-18. A.R. Gregg, “Can Canada Survive?” Maclean’s, 108, 52 (December 1995/January 1996). G. Paquet, “The Downtrodden Administrative Route,” Inroads, 1996 (forthcoming).

3 Looking for the Core: Industry Canada and Program Review

G. BRUCE DOERN

F o r Industry Canada and its microeconomic policy mandate, the fed­ eral Program Review involved yet another search for the core o f its free trade era role. The central question to be explored in this chapter is whether Industry Canada has found such a viable core or whether Program Review has cut the department o ff at the knees, depriving it o f the essential capacity it needs to make and implement microeconomic policies in a globalized economy. The overall results o f Program Review for Industry Canada can be succinctly stated and are best summed up in relation to the trio o f the department’ s mandate roles: sectoral development, marketplace frame­ work laws, and policy development. The 40 percent cuts hit mainly the sectoral branches, the heart o f the department’ s knowledge role.1Cuts in the 15 percent range were applied to the marketplace framework role, the regulatory role inherited in 1993 from the former Department

HOW O T T A W A SPENDS

o f Consumer and Corporate Affairs. The policy sector o f the depart­ ment also absorbed cuts o f about 15 percent. While the decisions that were made can be easily summarized, the nature o f the three Industry Canada roles, the reasons for the cuts, and the possible consequences o f the cuts, obviously require a more de­ tailed and subtle analysis. The structure o f the chapter suggests the interplay o f factors that help explain the decisions made: recent ideas about industrial policy, the Program Review process and its tactical politics, and the practical interplay among the department’ s roles. The analysis begins with the recent history o f the department, especially the 1993 merger/reorganization, which in turn exemplified a longer evolution o f ideas about industrial policy in the recent free trade era. The second section outlines the key stages o f the Program Review process, the internal dynamics o f which involved both bottom-up and top-down review elements, an interplay between Industry Canada’ s Minister John Manley and the department, and central agency (Privy Council Office, Treasury Board)-departmental relations and tactics. The third section looks at the decision outcomes in greater detail, pri­ marily with a view to examining the interplay among the three roles and business lines in the Industry Canada mandate. Section four fo­ cuses on the sectoral development role, where the cuts hit hardest. The conclusions follow, focusing on the central question o f whether a vi­ able core has been found and whether the scalpel o f Program Review has cut out any vital organs. I N D U S T R I A L P O L I C Y A N D THE 1993 R E O R G A N I Z A T I O N

No account o f the Industry Canada Program Review can ignore the fact that the 1994-95 review process was merely the latest in a series o f program and/or organizational restructurings whose triggering mechanisms were also entwined with debates aboutjust what Canadian industrial policy was all about. The longer trail o f these changes and debates in the 1960 to 1980 period.needs more space than is available in this chapter. For our purposes, it is sufficient to say that these pre­ free trade disputes focused on how to accommodate regional and na­ tional economic development in an era when there was considerable federal money, fewer worries about U.S. countervailing trade mea­

I ND U S T R Y C A N A D A

sures against Canadian subsidy practices, and less overall awareness o f the imperatives o f globalization.2 By 1987, each o f the above conditioning factors had changed, and the new realities were captured to some extent in the reorganization that led to the establishment o f Industry, Science and Technology Canada (ISTC) in 1987 by the Mulroney Conservative government.3 ISTC was given a mandate that focused more on international technol­ ogy-based competitiveness. The government also announced that its new flagship department for the microeconomy was to phase down its use o f grants and was to base its role much more on good analysis and knowledge. It was to become a reasoned advocate within the govern­ ment for industrial competitiveness, in short, a more aggressive hori­ zontal agency. ISTC and its predecessor departments had suffered a decline in influence in the Ottawa policy system, which is reflected in the fact that there have been nine changes o f minister in a decade. The 1993 reorganization that produced the present Industry Canada was a second, more concerted effort, heading in a similar direction, but with three important differences.4In organizational terms, Indus­ try Canada incorporated a wider set o f policy tools and mandates by absorbing areas such as consumer policy and business framework law, including competition policy, from the former Department o f Consumer and Corporate Affairs, investment policy and research from Invest­ ment Canada, and telecommunications policy and research from the former Department o f Communications. In addition, the industrial and economic policy imperatives that were tentatively asserted in 1987, before a free trade agreement was sealed, were now believed by the federal government to be compellingly obvious. Finally, the 1993 reor­ ganization was accompanied by an explicit requirement to secure 25 percent savings in person-years and budgets, primarily in the area o f corporate services, but also in the policy function. The mandate o f Industry Canada in 1993 was to “ foster Canadian business development, efficient markets, and Canadian competitive­ ness” 5by •

•

integrating key levers o f economic development (i.e. the levers o f the former ISTC and the new levers assembled in the new department), providing strategic information and analysis to business,

HOW O T T A W A SPENDS

• • •

improving business access to government, reducing internal barriers to trade, and managing the $6 billion science and technology expenditures more strategically.6

A serious shift to a more concerted microeconomic role had to be car­ ried out just as expenditures were drying up. Industry Canada was to be “a trafficker in information for consumers, for business, and for public policy.” It was to be a “ prime mover in improving the frame­ work for business in Canada” and in “developing a sectoral approach to business across many departments” in the federal government.7 Structurally, the new department was headed by the deputy minister, supported by an associate deputy minister and seven assistant deputy ministers (ADM). Accordingly, there were seven ADM-headed opera­ tional sectors: • • • • • • •

Manufacturing and Processing Industries Service Industries and Small Businesses Spectrum, Information Technologies, and Telecommunications Regional Operations Consumer Affairs Industry and Science Policy Corporate Services

However, as a result o f the 1993 reorganization, the minister also had to manage an enlarged “portfolio” or “ ministry” as well as a depart­ ment per se. The broader portfolio elements arose because some quasi­ independent or arms-length officials or agencies report through the minister to Parliament. These portfolio officials and agencies were: • • • • •

Commissioner o f Patents, Registrar o f Trade-Marks, and Canadian Intellectual Property Office Assistant Deputy Registrar General President, Communications Research Centre and Centre for Information Technologies Innovation Director, Investigation and Research, Competition Act, Bureau o f Competition Policy Canadian Space Agency

INDUSTRY CANADA

• • • • • • • • •

Cape Breton Development Corporation (DEVCO) Competition Tribunal Copyright Board o f Canada Federal Business Development Bank National Research Council o f Canada Natural Sciences and Engineering Research Council o f Canada Social Sciences and Humanities Research Council o f Canada Standards Council o f Canada Statistics Canada

It must also be stressed that the department’ s legislative mandate be­ came much broader as a result o f the 1993 reorganization. Industry Canada is responsible for administering 41 Acts o f Parliament, and the minister for four more. The department also enforces on behalf o f some provinces 22 provincial statutes regulating the grades and sales o f agricultural and fish products at the retail trade level. Last, but not least, the new department had 6,000 full-time employ­ ees, 2,500 o f whom worked outside the National Capital Region, and 2,500 o f whom had come from the telecommunications sector. Indus­ try Canada’ s $1.1 billion budget and its numerous business services were delivered from 141 points o f service, a vast increase from the former ISTC configuration.8 The 1994-95 Program Review was always seen by internal planners as the obvious next phase that would have to follow the 1993 reorga­ nization.9But Program Review also began in an organizational setting in which several organizational and policy subcultures barely had any time to gel. In short, each o f the founding organizations entered the merged entity with a different culture and with a different view o f the marriage. The former ISTC, whose officials had the lead role in the new department, saw the reorganization as an opportunity not only to secure cost savings but also to obtain a better mix o f policy tools and knowledge-based services to carry out an effective microeconomic func­ tion. Investment Canada, though a small agency, brought a global per­ spective and an analytical capacity that had the potential to improve microeconomic analysis. The telecommunications sector o f the former Department o f Communications, while shocked at the divorce from its former departmental home, quickly saw the new department as a place where it would be not only a crucial vertical industrial sector with

HOW O T T A W A SPENDS

growth potential in its own area but also a horizontal sector vital for modernizing the microeconomy as a whole. The former Consumer and Corporate Affairs components brought a mixed perspective, with the business framework law areas cautiously pleased, and the more vul­ nerable consumer sector quite dismayed about its future prospects. As the Program Review process began in the summer o f 1994, In­ dustry Canada, though bruised by budget cuts and preoccupied with the need to accommodate new units and cultures, still had a much clearer view o f its roles than in the previous two decades. It had been given a better sense o f its role as the lead microeconomic policy ad­ viser o f the government. Its industry sector branches remained crucial to the information and knowledge role and had not yet been hit with direct cuts. Its marketplace framework law and regulatory role was seen as the third role, clearly a needed role, although it did not yet know quite what to do with these new presences in its midst. THE P R O G R A M R E V I E W PR OC ES S

Industry Canada’ s Program Review process is best examined in the context o f four processes or dynamics often going on concurrently: a bottom-up process; a top-down process; a ministerial and central agency process; and, strangely, the absence o f a significant business interest and client consultation process. Program Review essentially occurred in the summer and autumn o f 1994. An approach and plan for review was approved late in June. During the next six weeks the bottom-up review o f 14 program group­ ings (see Table 3.1) took place and the results were assessed by the Program Review Council (essentially the department’ s senior execu­ tive committee renamed). During the last week o f August, the Pro­ gram Review Coordinator submitted recommendations to the Deputy Minister, Harry Swain. Simultaneously, Industry Minister John Manley and his “portfolio” deputy heads agreed on the recommendations o f this non-departmental aspect o f Program Review. A final determina­ tion by the Minister o f the overall departmental and portfolio package then took place. This package in turn was presented by the Minister and the Deputy Minister to their respective central government “ star chamber” committees at the political and bureaucratic levels.

INDUSTRY CANADA

The Bottom- Up Process

Within Industry Canada, the bottom-up review process involved more than 200 officials organized into the 14 program groupings listed in Table 3.1, each headed by a Director General. The six generic tests o f program review (see Table 3.2), as well as Industry Canada’ s “jobs and growth” test, were applied to these groupings.10The six tests and the bottom-up process were seen as dealing with the present, whereas the jobs and growth test was portrayed as dealing more with the fu­ ture. Each o f the 14 groupings was put through a four-step challenge process: an initial one-on-one meeting with the Deputy Minister, an indepth challenge session involving the program component review team, a challenge panel comprised o f ADMs with horizontal responsibilities plus selected other individuals from within and outside the department, and a final challenge session with the above-mentioned Program Re­ view Council. Table S. 1

Industry Canada Program Review Groupings • • • • • • • • • • • • • •

Bankruptcy Competition Policy Consumer Affairs Corporations Intellectual Property Legal Metrology Spectrum Aboriginal Business Program Communications Incentive Program Communications Research DIPP Sectoral Development Small and Medium-Sized Enterprises Science and Technology

The bottom-up review process centred on the 14 program groupings largely because this was the way a common template o f information could be assembled in the short time available. The groupings also corresponded to activities and clusters where operational expertise

HOW O T T A W A SPENDS

existed, a crucial fact, given that the leadership o f the department was often unfamiliar with the operational realities o f the new mandate ar­ eas acquired in the 1993 reorganization. The review teams assessed program groupings in relation to thejobs and growth test and to the six basic tests o f Program Review, which appear in Table 3.2. Table 3.2

The Six Basic Tests of Program Review *

The Public Interest Test

*

The Role of Government Test

*

The Federalism Test

Does the program continue to serve a public interest? Is there a legitimate and necessary role for government? Is the current role o f the federal government appropriate or is the program or activity a candidate for realignment with the provinces?

*

The Partnership Test What programs should be or could be provided in whole or in part by the private/voluntary sector?

*

The Efficiency Test If the program or activity continues, how could its efficiency be improved?

*

The Affordability Test Is the resulting package o f activities/programs affordable within the fiscal constraint?

Source: Industry Canada.11

The Top-Down Process

A top-down review process was under way concurrently. This process centred around discussions among the Deputy Minister and Assistant Deputy Ministers, who struggled at a broader conceptual level with what the broad missions or lines o f business were and ought to be. This process sought to develop, if possible, fresh lines o f thinking, and even new nomenclature, linked to the microeconomic agenda. Invari­ ably, this was cast more in terms o f the jobs and growth criteria, be­ cause o f Minister Manley’ s emphasis on the 1993 Liberal Red Book

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and the fact that the department had been debating and was about to publish Building a M ore Innovative E conom y , the Chretien Government’ s main policy document on the microeconomy.12 These top-down discussions eventually centred on the triad o f man­ date roles mentioned at the beginning o f the chapter, but not before they had wandered further afield. For example, conceptual discussions almost inevitably took the senior officials to all o f the potential policy mandate areas that have a part in enhancing productivity and growth, such as trade, technology, investment, human resource development, and marketplace framework law. But many o f these (trade, and human resources, for example) are not areas in which Industry Canada has prime departmental jurisdiction. Discussions at this level also centred on whether the department re­ ally had three or four or more lines o f business. The first three, policy, sectoral development, and marketplace framework law, were settled on quite quickly. The contention emerged over whether “ business as­ sistance,” or the remaining subsidies for business, principally the $ 140 million Defence Industries Productivity Program (DIPP), should be viewed as a fourth line o f business. These spending programs were seen by many as being out o f step with the department’ s knowledge role. However, these programs were also largely centred on the Montreal- and Toronto-based aerospace industry. Science and Technology was also seen as a potential fifth line o f business. However, again it was a realm o f program spending that involved not only other federal departments (and their laboratories) but also the Industry Canada minister’ s portfolio (e.g. the research granting councils) and the department proper.13Eventually, three lines o f business became the focal point, but not before some difficult in­ dustrial policy political activity, which indeed is continuing well into 1996, and which is discussed in a later section o f this chapter. The Minister, the Central Agencies, and Tactical Politics

The interplay between the department, Minister John Manley, and the central agencies (the Privy Council Office and Treasury Board) is obviously crucial. In formal terms, the departmental-central agency dynamic focused on the early and late stages o f Program Review. It was the centre that at the outset supplied the 40 percent and 15 percent reduction mandates for the overall Program Review process. In the

HOW O T T A W A SPENDS

final stages, in the early autumn, the Minister and the Deputy Minister defended their proposals in half-hour meetings before the central star chamber committees. In informal ways, the departmental-central agency relationship involved even more crucial tactical dynamics. As in all budget-cutting exercises (and Ottawa has had several in recent years), the tactical politics start withjudgments regarding whether the 40 percent cuts were notional, and thus subject to negotiation, or real. They also involve tactics regarding just what is included and whether past donations to the blood bank o f deficit politics are cred­ ited to the totals or excluded from them. For example, in the latter category, Industry Canada argued that it ought to receive a credit for the profits generated by its marketplace framework activities (e.g. patent fees), since they made money for the government. It also sought a credit for previously sunsetted programs (many o f them science and technology related). These normal tactics, however, were part o f a larger strategy that essentially stonewalled the centre. The key to this strategy was Minis­ ter John Manley himself. If there were other preferred strategies at the top official levels o f Industry Canada, it is not clear whether they were much different or simply followed the ministerial realities. First, Manley is a minister from an Ottawa riding, and hence was identified with an Ottawa area political commitment that there would be no more job cutbacks. Second, he was also strongly committed to the overall thrust and the details o f the Liberal Party Red Book proposals, many o f which spoke especially about science and technology. Third, among these details were strong views about the need to protect some o f the areas in his portfolio, such as the previously cut Ottawa-based National Re­ search Council (NRC). Fourth, Manley had no previous ministerial experience, and had been catapulted into a quite senior cabinet job by Prime Minister Chr&ien. Within the Cabinet, he was determined to show strength by not offering up any cuts until he saw what other ministers were offering. Meanwhile, at the centre, the group o f senior officials heading the overall Program Review, but backed ultimately by the clout o f the Minister and Department o f Finance, had agendas o f their own. First, they knew that the 40 percent cuts were not notional but were in fact real. Second, as an array o f deputy ministers, they included persons

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who had particular views about Industry Canada and what ought to be cut. In particular, there were persons who believed that the sector branches should be severely reduced in number and/or in personnel. This view may have been based on a process o f elimination. That is, the market framework area o f Industry Canada was seen to play an undisputed, essential public sector role in a modem economy, and, moreover, made money. The policy role should be cut, but would not produce big dollar savings. The needed dollars could be found only in the DIPP program or in the sector branches, and the senior officials preferred to cut the sector branches. All or some sector branches may have been seen by the star chamber committee as simply being not very good in their knowledge roles, though this is impossible to deter­ mine in any precise way. It is more likely that in the rough and tumble o f cutback politics, the star chamber committee was simply cutting where they could without being certain about the real effects o f the cuts, and without any confidence that the six tests or the jobs and growth test were definitive. The Deputy Minister o f Industry Canada, Harry Swain, was known for his view that the sector branches were the heart o f Industry Canada,which may have contributed to his association with the stone­ walling strategy. Faced with an “ affordability” choice (the sixth test) between offering up DIPP or the sector branches, the Minister and Swain preferred to offer DIPP, but only reluctantly, because it is a good jobs and growth program. Meanwhile, enough players in the cen­ tre eventually reached the opposite conclusion, largely on the basis o f central Canadian Toronto-Montreal and federal-provincial calculations about the aerospace and defence industry. The battle over these final choices was also linked to the expected Quebec referendum and ex­ tended right into the Budget Day lockup, where the DIPP cuts were “ retrieved” by a massive last-second lobby from the DIPP interests (aerospace firms, provinces, and MPs). Business Consultation?

In the final analysis, the bottom-up and top-down and the departmen­ tal-central agency processes o f Program Review extended from June 1994 right to the February 1995 Budget. However, another aspect o f the process warrants attention. Given that Industry Canada is about

HOW O T T A W A SPENDS

industry, it is logical to ask what role business interests played in the process as a whole. We have seen that the DIPP-aerospace industry was mobilized at the end, but the larger question arises, “ Were there extensive industry consultations?” The answer is essentially no. Because the review was linked to a budget, there were some con­ straints on how open any potential business consultation process could in fact be. Moreover, the time constraints were quite severe. The Di­ rector General leaders o f each o f the 14 program groupings were in­ vited to communicate with their business clientele in the way they thought appropriate. Some discussions occurred between the Deputy Minister, the ADMs, and macro-business associations such as the Canadian Manufacturers’ Association (CMA) and the Business Council on National Issues (BCNI). This muted and limited business involvement must be set against the larger backdrop o f business attitudes toward Industry Canada and its predecessor agencies. First, business interests had been largely argu­ ing, especially since free trade, and in the light o f the deficit, that sub­ sidies should be eliminated and the knowledge role given more emphasis. Thus the business community was heading in the same direction as the broad thrust o f the Industry Canada mandate. Secondly, business sectoral interests had mixed experiences with the various sector branches, some finding “their” sector branch’ s role useful and others finding theirs much more problematical. Also, the analytical news that some sector branches had recently been bringing to their sectoral inter­ est groups was uncomfortable or difficult, in that it demonstrated that that sector was not ready for competition. Third, the very nature o f a knowledge and information role is such that business interest groups may themselves not be the relevant players they once were. The logic behind a knowledge role presumes that it is firms that matter. Firms actually make decisions to invest that are based on various kinds o f knowledge, including the “knowledge products” being supplied by a non-subsidizing Industry Canada. Some Industry Canada officials express concern that business inter­ ests did not rise to “ support” their department, as would other interest groups whose policy fields were caught under the budget cutter’ s knife. On the other hand, many firm-level clients were probably quietly sat­ isfied with what was being delivered, especially in the marketplace

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framework area, where services were being improved and cuts were only at the 15 percent level; this area, moreover, paid for itselfthrough user fees and revenue. In conclusion, the Program Review process was nominally an inter­ locking four-game process. However, the business consultations and the departmental top-down process were the least cohesive o f the games in play. Thus, decisions ultimately turned on an interplay between the minister-star chamber tactics and the analytical work o f bottom-up program groups. However, to obtain a better sense o f the relevance o f the six tests and the further jobs and growth test, we need to probe actual outcomes more closely. PROGRAM REVIEW OUTCOMES

The overall outcome o f Program Review is that between the 1994-95 and 1997-98 fiscal years, the department will have cut its workforce by 20 percent and its spending by 51 percent. The 15 percent and 40 percent cuts were o ff what the budget would have been in 1997-98. The 51 percent reduction is from 1995-96 to 1997-98, and is a larger blend o f sunsetted programs and program review. Thus its budget will shrink from $1.15 billion to $569 million in 1997-98.14When seen in relation to the ministry’ s main lines o f business, Table 3.3 confirms that the biggest relative cuts are in the sectoral development mandate area, with both policy and marketplace rules and services increasing slightly as a percentage o f total spending. The item designated as “other” refers to special programs such as Aboriginal Business Canada, the Federal Economic Development Initiative for Northern Ontario, and the Canadian Tourism Commission, which are seen as outside the department’ s normal lines o f business. These aggregate data only reveal part o f the situation. We need to look more closely at other outcomes and at more particular decisions, and, in this context, assess the extent to which the six general Program Review tests and thejobs and growth test were relevant as determining factors. The first overall outcome is that the priority given to the department’ s three main lines o f business has been altered, with microeconomic policy ranked first, marketplace rules and services elevated to second, and

HOW O T T A W A SPENDS

Table 3.3

Industry Canada Lines of Business After Program Review

1995-96°

Fiscal Year 1996-97“

1997-98b

as a percentage of total departmental spending Policy Sectoral Marketplace Other

3.7 49.6 19.3 27.2

4.2 41.1 18.2 36.1

4.9 37.9 21.0 18.4

Notes: a Totals do not equal 100 because of rounding off. b Totals do not equal 100 but conform to Industry Canada total figures given in source document. Some spending is not included in “other,” such as the Ontario Infrastructure Program and Fed Nor (the regional agency for Ontario). Source: Calculated from Industry Canada, Outlook on Program Priorities andExpenditures J995-96 to 1997-98,14.

industry sectoral development dropping to third. The description o f these lines o f business has also been sharpened in the process o f Pro­ gram Review (see Table 3.4). For example, there is a clearer emphasis than in the past that the focus is on “ gaps” in competitiveness. This in turn may mean that the department will be delivering policy knowl­ edge and pressure that some sectors o f industry may not want to hear. The nature o f the sectoral development services will also bring In­ dustry Canada much more into relations with human capital interests and departments. Industry Canada and its predecessor departments undoubtedly saw business groups as their main constituency. But in­ ternationalization and globalization have created a new imperative, particularly in Industry Canada, to address human capital issues and interests. At first glance, this suggests dealing with unions and orga­ nized labour, but this form o f overall associational politics is not oc­ curring, because unions do not see Industry Canada as an ally. Nevertheless, Industry Canada, at the sectoral level and horizontally across the government, is having to invent ways o f relating to human

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Table 3.4

Industry Canada Stated Mandates or Lines of Business After Program Review Microeconomic Policy Focuses on the key competitiveness gaps facing Canadian business and industry by • developing policies and marketplace frameworks to help industry and communities grow and prosper, • advocating industry and consumer policy interests and initiatives within the federal government, among the different levels of govern­ ment, and with foreign governments, • expanding trade development efforts to help more firms trade, and to trade in more markets, • enhancing technology diffusion policies and activities so that more firms use advanced technology and use it more effectively. Marketplace Rules and Services The main marketplace rules and ser­ vices include bankruptcy, corporations law, competition law, consumer pro­ tection, legal metrology, intellectual property, spectrum management, and small business loans administration. The department aims • to make framework laws and marketplace services as forward looking as feasible, • to see Canadian framework laws acknowledged around the world as benchmarks for effective rules governing the marketplace, • to use marketplace services as instruments to support microeconomic policy development and encourage competitiveness and innovation. Industry Sectoral Development Industry Canada will act as a catalyst to address competitiveness gaps that individual firms and the business com­ munity cannot deal with effectively on their own. This new sectoral ap­ proach includes three core functions: • to help Canada’ s industrial sectors become more innovative by providing focused trade, technology, investment, and human resource development services, • to deliver a sectoral policy agenda designed to promote the interna­ tional competitiveness o f Canadian industry in the global marketplace, • to provide unique world-class information products based on sectoral analysis and international benchmarking.

Source: Based on information in Industry Canada, Outlook on Program Priorities and Expenditures 1995-96 to 1997-98,4-8.

HOW O T T A W A SPENDS

capital interests. An example o f this change emerged in the first microeconomic policy paper that the new Industry Canada submitted to the Chretien government before Program Review in the fall o f 1993. The key item stressed in the microeconomic agenda was the need for far better human capital/social policies to enhance the mobility, train­ ing, knowledge, and flexibility o f workers and professions at all levels. Specific sectors o f the department in the 1990s were already encoun­ tering numerous situations where relations had to be established with educational institutions and local sector-based workers, unionized and non-unionized. This meant that a wider mandate was involved, but with reduced resources. The elevation o f marketplace rules and services to the second rung on the departmental ladder was the product o f many factors. In the detailed review process, they easily met all the test criteria. The fact that they made money was readily apparent, but it was also clear that the employees in this area, who made up almost half o f the department’ s workforce, could not be subject to too large cuts, because their exper­ tise was crucial to these regulatoiy programs being carried out in lo­ calities scattered across the country (e.g. weights and measures inspection; consumer services). As Industry Canada’ s main national presence, they played a role that was clearly andjustifiably federal in nature. In addition, there was a strong desire to begin to look at these frame­ work regulatory areas not just as makers o f rules, but also as sources o f new information for business. Thus, data on bankruptcy trends, on patterns o f new incorporation o f firms, and on patents and other intel­ lectual property could be supplied in new and useful ways. These and other related service aspects were seen as being a logical outgrowth o f the new Industry Canada mandate, but they also had begun to germi­ nate earlier in particular framework areas and agencies, such as the Canadian Intellectual Property Office, and also in the Liberal government’ s overall initiative on service delivery and service stan­ dards.15 Among the decisions made during Program Review, some involve areas o f concern that, although important to particular constituencies, are relatively minor in terms o f spending, while others have a greater significance. In the first category, we will look at consumer policy and

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Aboriginal Business Canada, and in the latter, we will explore further the Defence Industries Productivity Program (DIPP). With respect to consumer policy, the six criteria o f Program Review appeared to justify continuing activities in this field.16Five o f the six tests were deemed by the review team to have been met, and the sixth, the partnership test, was partially met. Even the affordability test was not difficult, especially when the cost was calculated as being 11 cents a year for each Canadian. Moreover, the consumer area had already been cut quite severely in the 1993 reorganization. However, when seen in the broad context o f the jobs and growth criterion, the seventh de facto test, the consumer area was vulnerable, not because it could not be linked to such a test, but rather because the dominant industry cadre o f former ISTC officials simply did not pay much attention to it. Overall, officials concluded that consumer areas were not central to Industry Canada’ s new mandate after Program Review. Industry Min­ ister John Manley did not fully share this view, and, in the end, a very small consumer affairs group was retained. A related point should also be made about consumer interests and the politics o f consumerism in the late 1990s. Consumer interests are still institutionalized inside the department, whereas formerly they re­ sided outside, in the previous Department o f Consumer and Corporate Affairs. For many consumer lobby groups, this change was seen as moving the lamb into the lion’ s den. But the internationalization o f industrial policy as reflected through free trade agreements and free trade economics is, almost by definition, a pro-consumer policy. In addition, Industry Canada now includes a telecommunications sector presence, where conflict between issues o f protection versus choice and competition (the message versus the medium) are endemic. Con­ sumer interests are notoriously difficult to mobilize, for all the usual free-rider reasons, but their presence must not be lost sight o f in the post-Program Review era. Indeed, under the influence o f ideas such as Michael Porter’ s competitiveness strategies, tough and informed do­ mestic consumers, defined to be both individual consumers and firms as consumers o f input products, are seen to be crucial to national com­ petitiveness in the modem globalized economy.17 The example o f Aboriginal Business Canada also demonstrates the twists and turns o f Program Review. Aboriginal Business Canada

HOW O T T A W A SPENDS

consists o f only 100 persons, based in Ottawa and in nine regional offices. The core program it administers is the Aboriginal Business Development Program and Joint Venture Program, which provides financial and development assistance to Aboriginal entrepreneurs and communities to start up or expand commercial ventures.18 In 1993 almost 1,300 projects were funded, involving over $35 million in program money and over $97 million in other funds supplied by applicants or other sources o f capital. The program is based on a recognition that only projects with strong potential to be commercially profitable will generate wealth and contribute to self-sufficiency for Aboriginal peoples. With both service and financial components, this program can support all phases o f the business development cycle. When subjected to Program Review and to the climate o f the emerg­ ing Industry Canada mandate, Aboriginal Business Canada was not likely to be seen as a good match. It was a classic subsidy program, unlikely to be anything other than a marginal contributor to jobs and growth. The Industry Canada review showed, however, that on agovernment-wide basis, Aboriginal Business Canada met most o f the six tests.19In particular, the analysis showed that the program was afford­ able, in that the federal government received a return o f $ 1.20 (through taxes and reduced social assistance) for every $1.00 invested. None­ theless, on a departmental basis, Industry Canada would have can­ celled the program on affordability grounds, but it was decided by the central agencies that the program would continue, and that Industry Canada would not have to include this item in its overall Program Review final totals. In effect, the department was a given a credit for Aboriginal Business Canada without having to cut elsewhere, which was a sensible decision. This result reflects the larger picture o f Pro­ gram Review, in that Aboriginal program spending as a whole was the only area that received a net increase in resources, as revealed in the February 1995 Budget. The Defence Industry Productivity Program (DIPP), as we have seen, went through a series o f ups and downs in Program Review. The ob­ jective o f DIPP is to develop and maintain strong aerospace and de­ fence-related industries across Canada capable o f competing successfully over the long term in domestic and export markets, and to develop and maintain civil aerospace and defence-related production

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capability. The review team analysis concluded that the $ 140 million annual investment met the first five tests and was a demonstrably ef­ fective creator o f highly paid and knowledge-intensive jobs. Thus the issue o f DIPP’ s future centred on the affordability test.20In the fall o f 1994, the department recommended to Minister Manley that DIPP be retained at about the same level. Indeed, it recommended that the focus and title o f the program be expanded to other industrial sectors (a son or daughter o f DIPP program). As discussed earlier, the Minister and department reluctantly offered to cut DIPP once it was seen that the 40 percent cuts were real rather than negotiable. Then DIPP was given a reprieve when the TorontoMontreal aerospace and defence industry sector mounted a fierce lobby. Its fate was debated in the full knowledge that other countries support their aerospace industries and defence preparedness industries. As a result the 1996 Budget announced the establishment o f Technology Partnerships Canada. The program will encourage partnership and risk sharing with the private sector and will lever investment in the development and commercialization o f high-technology products and processes. The fund will grow from about $150 million in 1996-97 to about $250 million by 1998-99.21 We turn finally to the fate o f overall science and technology (S&T) program spending. The S&T element provided a particular dilemma for Industry Canada. First, in the 1993 reorganization Industry Canada had been given the lead role for the government on S&T policy. How­ ever, by far the largest part o f the government’ s $6 billion total S&T spending occurred in other science-based federal departments, such as Environment Canada, Natural Resources Canada, and Agriculture and Food Canada. For three decades these departments successfully de­ fended their turf from the co-ordinating aspirations o f various “ sci­ ence planners” at the centre. Second, most o f Industry Canada’ s S&T spending was in the Minister’ s portfolio (the NRC granting councils), which the Industry Minister was especially interested in protecting. Third, much o f the department’ s own S&T spending was sunsetted and therefore not renewable. As if this were not enough, the Minister had already announced that an elaborate special S&T Review would be conducted. This started before Program Review, but its long delayed conclusions arrived too

HOW O T T A W A SPENDS

late to inform the Program Review process in any significant way. S&T spending is thus still likely to face further cuts across the federal government during the next few years. THE S E C T O R A L D E V E L O P M E N T R O L E : SHARPENED OR IN C A P A C IT A T E D ?

It is evident from the analysis above that the classic sector branches o f Industry Canada took a direct hit in Program Review and the resulting pincer movement o f expenditure politics. A major question therefore is whether this outcome has sharpened the sector development role or actually incapacitated it. To address this question, we need to look backward and forward. The exact role o f the sector branches has never been easy to de­ scribe. At one level over 100 sectors are monitored to some extent, but about 25 have been the focal points o f Industry Canada and its prede­ cessor agencies. After Program Review there are 19 sectors, including newly created sectors, such as the entertainment sector. In addition, other federal departments, such as oil and gas, mining, forestry, and food and agriculture, have sector roles. In the 1960s, the sector branches were not particularly big spenders or subsidizers, in part because the tariff was much higher. For the next fifteen years, the branches, in concert with regional development spend­ ing, handed out money and knowledge to industry, while tariffs, the previous protectionist instruments o f choice, were lowered. The knowl­ edge the branches had about an industry was partly derived from the information that firms had to submit in order to obtain funds. But it was also derived from sector branch analysts’ own knowledge. Branches such as the auto sector had a core o f expertise that was extremely strong and put to good use. These varied sectoral knowledge capaci­ ties were crucial in the path-breaking free trade negotiations in the 1986 to 1988 period. A second role played by the sector branches throughout this period was that o f helpful navigator, and even lobbyist, for their sectors in the inner decision processes o f the federal government. A mixture o f tasks was involved that ranged from helping industries to structure initia­ tives to warning their sectors that specific ideas simply would not fly in the current climate.

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A third role was that o f policy advisor to the minister and the gov­ ernment on matters that affected the sector in question. This could involve overt policy proposals or early spadework to ensure that an­ other federal department was not launching a policy that could harm the sector in question. By the early 1990s, with the spending role stripped away and the tariff gone, knowledge roles were all that remained. At the same time, however, the branches did not necessarily have the same levers for obtaining information from business. Firms no longer needed to sub­ mit information for grants, because there were few grants left. More­ over, the telecommunications revolution was simultaneously changing the production economics o f all sectors, creating new sectors such as strategic materials or environmental industries for which basic infor­ mation was new to eveiyone, and compelling the government to itself produce its own one-stop on-line business information services. Thus by the time o f Program Review, the sector branches were being asked to reinvent themselves to supply not only timely value-added knowledge to business but also useful and different information to the government. This was to be accomplished while losing several hun­ dred o f their sector branch people. These losses were traumatic for the persons being cut, and would have been much worse had it not been for the federal government’ s various buy-out and incentive programs for departing employees. There was trauma also for other employees who were uncertain about their fate, and hence morale overall was very low. The issue o f whether Industry Canada has cut itself off at the knees goes to the core o f just what knowledge and capacities its sector branch employees ought to have for the future as opposed to what they have had in the past. If an aging analytical core is being let go, then, as in many other national institutions, this may be a good thing, however painful. Indeed, Industry Canada is one o f the few departments that have built-in transition room and budgets to hire several new and younger analytical personnel. Obviously, as long as there is a Cabinet there will have to be capacities in each sector branch to advise the minister, as well as international trade and finance ministers, who have no such detailed sectoral knowledge. However, with regard to industry, there are difficult choices as to how far one can go and what provable success can be determined.

HOW O T T A W A SPENDS

Industry Canada’ s sectoral branches cannot become expert at supplying value-added knowledge in any entrepreneurial sense without incurring the wrath o f the growing consulting industry, which sees itself as being in the same business. Thus the sector branches must produce some form o f “ public goods” knowledge. By extension, this may mean that Industry Canada’ s sector branches will evolve into an ever greater focus on small and medium-sized businesses that could not afford to purchase the information privately. Knowledge service roles also are seen simply as networking and fa­ cilitating roles. These roles too may be valid, but they are hard to evaluate and obtain credit for. Businesses and sectors may not want to acknowledge that the Industry Canada role really helped, or, alterna­ tively, they may genuinely not know whether it, as distinct from many other factors, helped produce better performance. Apparently missing from any serious consideration o f sector branch roles were the conceptual views o f those who argue that industrial policy is, or will rapidly become, a bottom-up region and city-centred dynamic. This view also centres on the concept o f local-spatial net­ works, especially in the high-technology spheres, and hence raises con­ cerns about how national policy can, if at all, relate to such views about what drives innovation and growth. All o f the above suggests that “cutting itself off at the knees” is the wrong metaphor to use. For the knowledge role it is not legs that mat­ ter, but ever-changing brainpower and analytical capacity. Since this is a dilemma that all modem institutions face, Industry Canada de­ serves a good dose o f both sympathy and empathy. CONCLUSIONS

Most assessments o f the politics o f budgeting (incremental increases or cutback management) question the utility o f formal criteria in such politically and organizationally charged dynamics. From this perspec­ tive, the six tests o f Program Review and Industry Canada’ s seventh test o f jobs and growth probably did not screen out much or determine much o f what was actually cut. At one level, the tests were ones that skilled officials could analytically slither their way through and around, or they were simply a good set o f rationales that fit not badly simply

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because they were already among the solid reasons why the programs existed in the first place. Thus, in an important sense the Program Review process in Industry Canada cannot be dismissed asjust a raw exercise in power politics o f both the ministerial and bureaucratic variety. More than any previous set o f circumstances, the combination o f the 1993 reorganization and the review exercise did force a hard look atjust what Canadian indus­ trial policy was and should be as the millennium approaches. Some o f this had begun in the mid- to late 1980s in the early free trade days, but there was still a tentativeness in policy approach and discussion. Pro­ gram Review, and the prospect o f truly significant cutbacks in spend­ ing, provided a disciplining environment, although the disciplining is inevitably mediated by a mixed and rushed political-analytical setting. Program Review has contributed to Industry Canada’ s sharper ar­ ticulation o f its main mandate areas or business lines and, equally important, o f the rationales within those business lines. In this concep­ tual sense, the department has found a core that, on balance, is better thought out than the situation a decade ago. But this does not mean that the core is wholly coherent. Program Review was intended to show further that the days o f grants and subsidies were over, but the DIPP saga showed that not everyone agrees. There are, in short, aspects o f “the old industrial policy” that either can and should be supported, or that significant political inter­ ests and industrial sectors will insist be retained and even expanded, albeit in the form o f the kind o f levered investment inherent in the previously mentioned Technology Partnerships Canada program. Program Review also showed that differences are bound to exist between ministerial and departmental perspectives on just which ac­ tivities ought to be cut and to what degree. Industry Canada’ s review quickly settled on the two absolute imperatives o f its late 1990s role. Its policy role, for the minister and for the government, is undoubtedly crucial. The marketplace rules and services are an absolutely indis­ pensable framework feature o f a functioning capitalist market economy both for firms and consumers. It is not something the federal govern­ ment can choose not to deal with. This area is also looming ever larger in the next round of international market access negotiations. Given the need for budget cuts, it is not difficult to see why the sector development role became the focal point for an extremely difficult

96

HOW O T T A W A SPENDS

debate. But this is where the most serious concerns must be raised. Industry Canada, and the central agencies that forced the cuts, have done themselves great harm not in the strict sense that cuts were made, but rather in the sense that Program Review simply provided no viable way for assessing what actual capacities were needed by the department and the government for the sector development aspects o f the knowledge role. This assessment depends on having the time and place to examine how one conceives the knowledge role in the knowledge economy and exactly how one conceives the underlying capacity o f the state, rather than simply the size o f the state. Capacity turns on the particular mix o f skills that sector branch analysts have or need to acquire on their own or in partnership with others. It also turns on Industry Canada’ s abilities to network with interests other than business and hence involves a widening o f its traditional sense o f its own clientele. And it likely turns on how, if at all, a national department can link with bottom-up regional/spatial industrial policy networks that were not at all a part of the formal or informal calculus o f Program Review. NOTES

This analysis is based on the documents cited as well as on several interviews conducted by the author with Industry Canada and other federal officials. I thank these persons for their time and assistance in the research and for constructive comments offered on earlier drafts o f this chapter. Thanks are also due to my colleagues Glen Toner, Gene Swimmer, and Gilles Paquet for their helpful comments. 1

2

3

4

Details on spending cuts will follow below. See Industry Canada, Outlook on Program Priorities and Expenditures 1995-96 to 1997-98 (Ottawa: Industry Canada, 1995). See Andre Blais, “The Debate on Canadian Industrial Policy,” in Andre Blais, ed., Industrial Policy (Toronto: University o f Toronto Press, 1985), 55-82, and Donald Savoie, Regional Economic Development: Canada's Searchfor Solutions (Toronto: University o f Toronto Press, 1986). See G. Bruce Doem, “ Industry, Science and Technology Canada: Is There Industrial Policy After Free Trade?” in Katherine Graham, ed., How Ottawa Spends 1990-91: Tracking the Second Agenda (Ottawa: Carleton University Press, 1990), 49-72. See Industry Canada, Introduction to the New Portfolio o f Industry and Science (Ottawa: Industry Canada, July 1993). For a few weeks the new

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5 6 7 8 9

10 11 12

13

14 15

16 17

18

19

department was referred to as Industry and Science Canada, but it quickly became simply Industry Canada. Ibid., 5. Ibid., 5. Ibid., 4. Ibid., 5. See G. Bruce Doern, “The Formation o f Industry Canada: Second Beginnings for a Department o f the Micro-Economy” (Paper presented to the Workshop on the 1993 Federal Reorganization, Canadian Centre for Management Development, 1995). See Memorandum from Program Review Coordinator to Industry Canada EXs, January 12, 1994 (Unpublished Memorandum, January 12, 1994). Industry Canada, “ Industry Canada Program Review Answers To The Six Basic Tests” (Unpublished Document, 1994), Introduction. See Liberal Party of Canada, Creating Opportunity: The Liberal Plan for Canada (Ottawa: Liberal Party o f Canada, 1993), and Industry Canada, Building a More Innovative Economy (Ottawa: Industry Canada, 1994). For a good analysis, see Gilles Paquet and Jeffrey Roy, “ Prosperity Through Networks: The Bottom-up Strategy That Might Have Been,” in Susan Phillips, ed., How Ottawa Spends 1995-96: Mid-life Crises (Ottawa: Carleton University Press, 1995), 137-58. See Roberto Gualtieri, “ Science Policy and Basic Research in Canada,” in Susan Phillips, ed., How Ottawa Spends 1994-95: A More Democratic Canada? (Ottawa: Carleton University Press, 1994), 301-38. Industry Canada, Outlook on Program Priorities, 3. See G. Bruce Doern, The Road to Better Public Services: Progress and Constraints in Five Federal Agencies (Montreal: C.D. Howe Institute, 1994). Industry Canada, “Industry Canada Program Review Answers, ” Section 3. See Michael Porter, Canada at the Crossroads (Ottawa: Business Council on National Issues and Government of Canada, 1991), and Michael Porter, The Competitive Advantage o f Nations (New York: Free Press, 1990). See Industry, Science and Technology Canada, Aboriginal Economic Programs: Policy Guidelines (Ottawa: Industry, Science and Technology Canada, 1993). Industry Canada, “Industry Canada Program Review Answers, ” Section 8.

20 21

Ibid., Section 11. Paul Martin, Minister of Finance, Budget Plan (Ottawa: Canada Commu­ nication Group, 1996), 75.

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4 Environment Canada’s Continuing Roller Coaster Ride

GLEN TONER

I n their definitive history o f Environment Canada, G.B. Doern and Thomas Conway characterize its first twenty years (1971-91) as a “ rise, fall and rise.” 1Over the last four years the roller coaster ride has continued. Public concern about the quality o f Canada’ s and the world’s environment soared in the late 1980s, and Environment Canada (DOE)2 rode the crest o f this wave o f concern to a major financial and mandate expansion under the $3 billion 1990 Green Plan.3This period repre­ sents Doern and Conway’ s second rise. While the department enjoyed a couple o f years in the government’ s policy and financial spotlight, its subsequent and second fall was as precipitous as its second rise. It started with the June 1993 Kim Campbell reorganization, in which DOE suffered significant losses to its mandate, personnel, and budget when the Canadian Parks Service was transferred to the new Depart­ ment o f Canadian Heritage. The fall deepened when DOE later suf­ fered substantial cuts under the Liberals’ Program Review.

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However, unlike that o f 1993, the 1995 cut represents a reduction in budgets and staff, but not a reduced mandate. Indeed, the irony o f the latest “ fall” is that the environmental mandate has continued to expand while resources have withered. Despite improvements in some areas, virtually none o f the environmental problems have been solved. Inter­ national4and domestic pressures continue to grow for improved envi­ ronmental protection in atmospheric issues such as climate change, ozone depletion, and airborne toxics, and in broader toxic pollution issues related to water and soil quality. Moreover, wide-ranging insti­ tutional changes are emerging, as public and private sector organiza­ tions struggle to come to terms with the implications of institutionalizing sustainable development practices. So the reductions in DOE’ s resources imposed by Program Review have essentially nothing to do with the reality o f the mandate. Rather, this response to the federal government’ s fiscal crisis is happening in the face o f the continuing expansion o f the already multi-dimensional environmental agenda. The first section o f this chapter outlines the pre-Program Review organization o f the de­ partment and the paradox o f an expanding policy mandate but shrink­ ing resources under the Liberals. The second section describes the process employed by DOE to undertake the internal review of its pro­ grams. The third section considers the implications. T H E P A R A D O X OF A N E X P A N D I N G M A N D A T E BUT SHRINKING RESOURCES

The Pre-Program Review Organization

In 1994-95, DOE had 5,700 staff in over 120 sites across Canada, operating on a budget o f $737 million. The department maintains a very large science and engineering capability among its staff. Head­ quarters operations consist o f five services headed by Assistant Deputy Ministers: Policy and Communications, Corporate Services, Atmo­ spheric Environment Services (AES), Environmental Protection Ser­ vice (EP), and Environmental Conservation Service (EC). DOE has five regional operations (Atlantic, Quebec, Ontario, Prairie and North­ ern, and Pacific and Yukon), with the three major line services, AES, EP, and EC, plus Corporate Services, integrated in each region under a single director general.

ENVIRONMENT CANAD A

The department’ s statutory authority arises from several pieces o f legislation related to pollution prevention and control, as well as to nature conservation. Some examples are the International Boundary Waters Treaty Act, the Migratory Birds Convention Act, the Fisheries Act, the Arctic Waters Pollution Prevention Act, the Department o f the Environment Act, the Canada Wildlife Act, the Transportation o f Dangerous Goods Act, and the Canadian Environmental Protection Act. Other federal departments with responsibility for various aspects o f environmental protection include Fisheries and Oceans, Canadian Heritage, Natural Resources, Transport, Health, Indian Affairs and Northern Development, Agriculture and Agri-food, and Finance. En­ vironment is a constitutionally ambiguous area, in which both the fed­ eral and provincial governments havejurisdiction. Federal, provincial, and territorial ministers meet in the Canadian Council o f Ministers o f the Environment (CCME). The Council is the major permanent inter­ governmental forum for discussion and co-operation on environmen­ tal issues o f regional, national, and global concern.5 The Expanding Mandate: The Red Book and “ Outgreening the Tories ”

In opposition, the Liberals were highly critical o f the Conservatives’ Green Plan, arguing that it did not go far enough in changing the deci­ sion-making system to institutionalize a sustainable development frame­ work. Nor, in the Liberals’ view, did the Green Plan move quickly enough to address environmental assessment, climate change, toxics management, and other areas in such a way as to fulfil the federal government’ s environmental protection mandate. By the end o f their mandate the Conservatives had largely lost interest in the environment and sustainable development.6The Liberals picked up the sustainable development project abandoned by the Conservatives and dedicated a chapter o f the Red Book to it. This was partially due to the fact that Paul Martin was both the Liberal environment critic and the primary architect o f the Red Book. This amount o f attention to the environment is quite remarkable in that it had dropped off the “top-of-mind” opin­ ion polls during the 1992-93 recession, and still the Liberals chose to make it a major, high-profile item in their electoral manifesto. More than the political expediency o f allowing the Liberals to run against

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the Tories’ environmental record, it demonstrated the degree to which environment and sustainable development considerations had entered the mainstream o f political thought. The Red Book called for a “fundamental shift in values and public policy,” arguing that “ sustainable development— integrating economic with environmental goals— fits the Liberal tradition o f social invest­ ment as sound economic policy.” 7Thus, the Liberals embedded their commitment to sustainable development within the political traditions and philosophical orientation o f the party. Several dimensions o f the Liberals’ sustainable development program “ outgreen” Conservative promises in the Green Plan and challenge the bureaucratic forces within other federal departments, which, often successfully, resisted the insti­ tutionalization o f sustainable development under the Tories.8The Lib­ erals recognized the philosophical and organizational hydra-like nature o f the federal system, which is organized under a resource manage­ ment paradigm,9 when they stated that “the national environmental agenda can no longer be separated from the national economic agenda. It is past time for the federal government—across all departments— to act on this understanding by adopting economic and environmental agendas that converge.” 10Specific Red Book commitments aimed at changing behaviour and making environmentally sustainable decisions included: •

•

•

• •

creating an Environmental Auditor General to report directly to Parliament on how successfully federal laws and programs support the shift to sustainable development, launching a comprehensive baseline study o f federal taxes, grants, and subsidies to identify barriers and disincentives to sound environmental practices, proclaiming the Canadian Environmental Assessment Act (CEAA) and shifting decision-making power to an independent Canadian Environmental Assessment Agency, subject to appeal to the Cabinet, amending the Act to recognize intervener funding as an integral feature o f the assessment process, creating “ Action 21,” an independent national campaign similar to “ Participaction,” to communicate the need for individual and collective action for sustainable development,

ENVIRONMENT CA NAD A

•

• •

committing 25 percent o f all new government funding for research and development to technologies that substantially reduce the harmful effects o f industrial activity on the environ­ ment, or specifically enhance the environment, using economic instruments for environmental protection, as a complement to the traditional regulatory method, and strengthening the enforcement o f pollution standards.

The Red Book also contained a number o f commitments related to specific environmental protection issues, such as the reduction o f car­ bon dioxide (C 02) and other emissions into air and water, energy effi­ ciency, renewable resources, contaminated sites and protected spaces, that either reinforced or extended Green Plan commitments. Prime Minister Jean Chretien appointed Sheila Copps, a senior mem­ ber o f Cabinet, as Minister o f Environment, a former provincial envi­ ronment minister, Clifford Lincoln, as Parliamentary Secretary, and a former federal environment minister, Charles Caccia, as Chair o f the Parliamentary Standing Committee on Environment and Sustainable Development, placing considerable experience and weight on the side o f the sustainable development agenda. The January 18,1994 Speech from the Throne reiterated the Liberals’ commitment to making sus­ tainable development an integral component of decision-making at all levels o f society, and highlighted the positive relationship between pol­ lution prevention, the development o f environmental industries, and job creation. It also formally announced that the Canadian Environ­ mental Assessment Act would be proclaimed. Although the first Liberal budget on February 22,1994 did not have a major environmental focus, the Green Plan was not singled out for special cuts (as it was in the previous four Tory budgets). DOE and other departments involved in the Green Plan had to absorb acrossthe-board reductions in the wage component o f their operating costs and a 5 percent reduction in grants and contributions, as did all other departments. The budget introduced two specific environmental provisions: a tax deduction for mining companies to set aside funds for the reclamation o f mine sites, and improved tax treatment for certain types o f energy conservation equipment. A multi-stakeholder task force involving government, industry, and environmental NGOs was established to undertake the major Red Book commitment to review

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taxes, subsidies, grants, and other “barriers and disincentives to sound environmental practices and to find effective ways in which to use economic instruments to protect the environment.” ' 1Clearly, Program Review descended on DOE in the midst o f an ambitious, dynamic, and expanding agenda. The cuts have to be understood within the context o f this burgeoning policy mandate. DOE and Environmental Protection and Conservation

Three major issues dominated the Liberals’ environmental protection agenda during their first two years in power. At the June 1992 Rio United Nations Conference on Environment and Development, Canada signed both the Climate Change Convention and the Biodiversity Con­ vention, and in December 1992 it became the first country to ratify both o f these conventions. As is often the case in Canada, where the federal government has constitutional authority to negotiate, sign, and ratify international conventions, but provincial governments have ju­ risdictional authorities central to the implementation o f international agreements, a detailed process o f federal-provincial negotiations both preceded and followed the signing, as Canadian governments attempted to develop joint implementation plans.12 With regard to the other issue, toxics management, the 1988 Canadian Environmental Protection Act (CEPA) was subject to a statutory fiveyear review. Copps asked the House o f Commons Standing Commit­ tee on Environment and Sustainable Development to review the Act, and it tabled I t ’s About Our Health!: Toward Pollution Prevention CEPA R evisited 13in June 1995. All three o f these environmental pro­ tection programs are central to the department’ s mandate in 1995-96.14 Climate Change

At Rio, the Mulroney Conservatives committed Canada to stabilize C 02emissions at 1990 levels by the year 2000 in accordance with the terms o f the Framework Convention.15In the Red Book, the Liberals “ outgreened” the Tories by stating that “ a Liberal government will work with provincial and urban governments to improve energy effi­ ciency and increase the use o f renewable energies, with the aim o f cutting carbon dioxide emissions by 20 percent from 1988 levels by the year 2005.” 16

ENVIRONMENT CANAD A

The climate change file has proven to be an extremely difficult one for the Liberals. While an extensive national consultative process in­ volving the Departments o f Environment, Natural Resources, and For­ eign Affairs and International Trade, the provinces, key industrial sectors, and environmental groups worked through 1993 and 1994, it was unable to come to an agreement on a national strategy. As a result, Canada attended the first Conference o f the Parties in Berlin in May 1995 admitting that under current conditions Canada would be 13 per­ cent above the target 1990 emissions level by the year 2000. The International Panel on Climate Change stated in its fall 1995 report that “Global mean surface temperature has increased by be­ tween about 0.3 and 0.6 degrees C since the late 19th century, a change that is unlikely to be entirely natural in origin. The balance o f evi­ dence, from changes in global mean surface air temperature and from changes in geographical, seasonal and vertical patterns o f atmospheric temperature, suggests a discernible human influence on global cli­ mate.” 17Despite this increasing scientific certainty, the climate change debate in Canada became increasingly divisive along sectoral, regional, ideological, and policy lines. Sheila Copps decided to adopt a personal leadership role on climate change, and this has placed her in a highprofile confrontational position with the oil and gas industry, the Con­ servative government o f Alberta, and her cabinet colleague Anne McLellan, Minister o f Natural Resources and the Alberta representa­ tive in Cabinet.18Her strongest allies have been Moe Sihota, the B.C. NDP Environment Minister, and the environmental community. The central dispute is over the policy instruments required to reduce emissions. McLellan, Alberta, and industry groups argue that volun­ tary initiatives by industry can achieve the necessary reductions. Copps, B.C., and environmentalists doubt the effectiveness o f voluntary ini­ tiatives to meet the goal, and argue that Canada must develop a new regulatory regime. Alberta is particularly opposed to the use o f fiscal instruments such as carbon taxes, which could reduce consumption o f its oil, gas, and coal resources, while environmentalists have taken an increasingly strong position in favour o f such charges.19The oil, gas, and coal sectors, together with the government o f Alberta and Natural Resources Canada, have formed a formidable juggernaut against regu­ lating economic activities to achieve reductions in greenhouse gases,

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and have been successful in promoting a National Action Plan that consists largely o f a voluntary challenge and registry initiative and a joint implementation program.20As a result o f these dynamics, open conflict between DOE and Natural Resources Canada and between Copps and McClelland was a prominent feature o f the bureaucratic and cabinet politics associated with the climate change file.21

Biodiversity The development o f a Canadian position prior to the signing and rati­ fication o f the Biodiversity Convention, which came into force in De­ cember 1993, and the negotiation o f the Canadian Biodiversity Strategy since Rio have both taken place in a less contentious, lower-profile context. Federal, provincial, and territorial governments share respon­ sibility for conserving biodiversity and ensuring the sustainable use o f biological resources. Together they created a Biodiversity Working Group, and with input from the non-governmental Biodiversity Advi­ sory Group (with representation from the private sector, local and in­ digenous communities, conservation organizations, and research institutions) developed a Draft Canadian Biodiversity Strategy in June 1994. After a period o f consultation, the Canadian Biodiversity Strat­ egy: Canada’s Response to the Convention on Biological D iversity22

was released in 1995. The Strategy is a voluntary agreement among Canadian governments to improve citizens’ understanding o f the value o f biological resources and to develop incentives and legislation to support their conservation and sustainable use. Internationally, one goal is to put in place a regime to share equitably the benefits that derive from the utilization of genetic resources between the developing countries that husband them and the industrial sectors that utilize them. The Second Conference o f the Parties met in the fall o f 1995 in Indonesia, to review international progress among signatories to the Convention. At this meeting, Canada competed with Geneva, Nairobi, and Madrid for the right to be the seat o f the Convention Office. Canada won, and the office will be opened in Montreal in 1996. The most controversial conservation issue championed by Copps in this area has been the creation o f a Canadian Endangered Species Protection Act.23 The February 27, 1996 Throne Speech24 reiterated the government’ s commitment to introduce this legislation as well as leg­

ENVIRONMENT CA NAD A

islation to ratify the UN Straddling Stocks Agreement and the Law o f the Sea. The Throne Speech also expressed the Liberals’ goal o f pro­ moting the long-term conservation and revitalization o f the Pacific salmon fishery, the revitalization o f the east coast fishery, and the cre­ ation o f new national parks and national marine conservation areas. The Reform o f CEPA

The government is under pressure to strengthen and broaden the fed­ eral toxics management mandate. The Liberal-dominated Standing Committee released its review of the Canadian Environmental Protec­ tion Act, one o f DOE’ s major statutory power bases, in June 1995.25 This report called for a much more interventionist, regulation-oriented, enforcement-driven approach to the management o f toxics in Canada. The Committee report was praised by environmentalists and con­ demned by industry26when it came out in the summer. So DOE was lobbied hard by both sets o f non-governmental actors as it developed the government’ s response. Intense interdepartmental lobbying also transpired as departments articulated the interests o f their various cli­ ents.27 The government’ s response accepted a number o f the Committee’ s recommendations in the areas o f strengthening enforce­ ment, requiring mandatory pollution prevention plans for toxic sub­ stances, and giving the public the right to file civil suits when the government fails to enforce an act. On the other hand, the government backed away from the proposed regulation o f biotechnology, in part as a result o f internal pressure from the Minister and from the Depart­ ment o f Agriculture and Agri-Foods.28 The government faces contending internal and external pressures in regard to how much, if any, responsibility ought to devolve to the provinces. The Standing Committee Report on CEPA rejected the doless-with-less philosophy and called for a strengthened federal presence in this sharedjurisdiction. This approach is potentially in conflict with other federal governmental initiatives that are influencing the policy context. Consistent with the Marcel Masse-PCO led government-wide initiative to reduce overlap and duplication between the federal and provincial governments, the Canadian Council o f Ministers o f the Environment facilitated an initiative titled “ Rationalizing the Management Regime For the Environment.” The outcome was a draft

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Environmental Management Framework Agreement,29which includes draft schedules identifying the proposed roles o f each government in eleven specific areas o f environmental management, including monitoring, compliance, emergency response, policy and legislation, environmental assessment, and international agreements. This so-called “harmonization” agreement alarmed environmental groups and worried the Standing Committee. Its biggest supporters were business and those provinces that thought they could get the federal government out o f certain areas o f activity while having federal resources transferred to themselves. Sheila Copps never really liked the Council, which relies on consensus-based decision rules, and in which the federal government acts as just one o f 13 governments. Copps was unhappy with some o f the provinces, particularly Alberta, for their stance on the climate change file, and in May 1995 she rejected the multilateral Framework Agree­ ment approach in favour o f a bilateral federal-provincial approach to environmental management agreements. Copps believes fervently in a strong federal presence and national standards for environmental pro­ tection and felt that harmonization shared too much with the provinces in the determination o f national standards. Some provinces and the Reform Party are pressuring the federal government to return to the harmonization negotiations. DOE and Sustainable Development

While action on the climate change, biodiversity, and toxics manage­ ment fronts will contribute to the more sustainable utilization o f envi­ ronmental resources, the Liberals have also introduced measures to enhance the knowledge base and improve the incentives for govern­ ment, citizens, and private sector firms to institutionalize sustainable development practices in their daily decision-making. In June 1990 the Mulroney government introduced a non-statutory requirement to provide prior environmental assessment for all policies and programs coming before Cabinet. Thus, all departmental memo­ randa to Cabinet are supposed to include an environmental analysis, though departments have been able to devise their own procedures, which are not made public. While the Liberals have retained this prac­ tice, they rejected pressure from environmentalists to make environ-

ENVIRONMENT CA NAD A

mental assessments o f policy statutory. In Creating Opportunity, the Liberals promised to create an Environmental Auditor General, who would report directly to Parliament and hold individual departments and the government as a whole accountable for “ how successfully fed­ eral programs and spending are supporting the shift to sustainable de­ velopment.” 30 Copps asked the House Standing Committee to investigate the parameters o f such an office and the Committee re­ sponded in May 1994 with a proposal to create a Commissioner o f the Environment and Sustainable Development. The government replied with legislation that will see the commissioner located within the office o f the Auditor General. The law will require each minister to regularly table a departmental sustainable development strategy in Parliament. In generating their strategies, the departments will be required to as­ sess existing policies, programs, and operations in terms o f their cur­ rent impacts on the environment and society.31Departments are required to consult broadly with stakeholders and clients in the development o f these strategies, which should provide key groups within the policy community with unprecedented access to a department’s mandate plan­ ning. The commissioner will use these strategies to evaluate each department’ s progress in implementing sustainable practices and poli­ cies. To assist departments in developing their strategies and to signal publicly the Cabinet’ s support for this initiative, the federal govern­ ment created a Guide to Green Government. The Guide, a public docu­ ment signed by the Prime Minister and all cabinet ministers, stated that “we want to play a leadership role in turning sustainable develop­ ment thinking into action. This is why we are now taking the next step o f establishing a framework in which environmental and economic signals point the same way; a framework which integrates sustainable development into the workings of the federal government—right across the board.” 32The Liberals introduced a complementary initiative, The Greening o f Government Operations, to improve the federal government’ s environmental stewardship by requiring that all depart­ ments minimize water, fuel, and electricity use and waste production in the operations o f their buildings, fleets, and lands. The initiative will also require that environmental impact be taken into account in the purchasing o f goods and services. The intent is to use the government’ s

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procurement muscle to aid the development o f environmentally pro­ gressive Canadian technologies and industrial practices, which will be competitive in export markets.33 Another Red Book promise was to “conduct a baseline study o f fed­ eral taxes, grants, and subsidies, in order to identify barriers and disin­ centives to sound environmental practices. We want to promote, not hinder, the research, development, and implementation o f clean and energy efficient technologies; renewable energy use; the sustainable management o f renewable resources; and the protection o f biological diversity.”34This promise was reiterated in the January 1994 Speech from the Throne, and the February 1994 Budget announced that a multi-stakeholder task force would be created “to find effective ways in which to use economic instruments to protect the environment and to identify barriers and disincentives to sound environmental prac­ tices.” 35The 40-member task force was established in July 1994 with a membership consisting o f business leaders, environmentalists, aca­ demics, and government officials. The Task Force, which reported in November 1994, proposed a series o f immediate options for the 1995 Budget and recommended market-based instruments that could be de­ veloped and implemented over a longer term.36Given the brieftime the Task Force had to do its work, it could not perform the comprehensive baseline review o f the environmental impacts o f federal taxes, grants, and subsidies, but recommended that the baseline review be under­ taken. At the request o f the Minister, the Standing Committee on Envi­ ronment and Sustainable Development held hearings into fiscal disincentives and recommended a process for completing the baseline study called for in Creating Opportunity by the end o f September 1996, in time to influence the 1997 budget.37 After a series o f court decisions in the late 1980s, the Conservatives introduced a new Canadian Environmental Assessment Act. In the Red Book the Liberals criticized the Tories’ effort, stating that “ the gap between rhetoric and action under Conservative rule has been most visible in the area o f environmental assessment.”38The Liberals prom­ ised to revise the still unproclaimed legislation to shift decision-mak­ ing power to a new independent Canadian Environment Assessment Agency, subject to appeal to Cabinet. The Liberals made this amend­ ment and included a change to recognize intervener funding as an inte­

ENVIRONMENT CANADA

gral component o f the assessment process and proclaimed the act in January 1995. Another Red Book promise was to create Action 21, a $ 10 million a year public awareness program to fund the activities o f non-govern­ ment, non-profit organizations whose purpose is to carry out local environmental projects that protect, rehabilitate, or enhance the natu­ ral environment. Action 21 replaces the Green Plan Environmental Partners Fund. Like its predecessor, Action 21 will require project sponsors to contribute matching funds or in-kind support and will favour projects that build the capacity o f communities to sustain activities into the future. Clearly, the Liberals have, as promised, expanded the environmental and sustainable development mandate o f the federal government since they took office. The next section reviews the scope o f the cuts and the process by which they were taken. Shrinking Resources

For the first twenty years o f its existence, DOE had been lumped, inappropriately in many people’ s minds, in the social policy commit­ tee o f Cabinet. With the emergence o f the sustainable development paradigm in the late 1980s, a Cabinet Committee on the Environment was created in the second Tory mandate (1988-93). When this com­ mittee was collapsed in Kim Campbell’ s June 1993 cabinet-shrinking reorganization, DOE was shifted into the economic policy committee, where the Liberals have kept it. While it could be argued that this was conceptually important, linking the economic and environmental di­ mensions o f development and recognizing that DOE’ s mandate had significant effects on the economy, it was unfortunate timing for DOE, as the Liberal Cabinet decided to cut economic departments by around 30 percent, and social policy departments by roughly 10 percent. The February 1995 Budget reduced DOE’ s annual budget by 32 percent from $737 million to $503 million over the three years ending in 1997-98.39As a result o f this cut, DOE will lose about a quarter o f its staff (1,400 o f 5,700) across the country.40 O f the 1,400 positions lost, 322 are expected to be in the National Capital Region, 120 in the Atlantic region, 137 in Quebec, 376 in Ontario, 311 in the Prairie and Northern region, and 134 in the Pacific and Yukon region.41Viewed as cuts to DOE’ s various services, the positions were divided up roughly

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as follows: Atmospheric Environment Services 800; Environmental Protection Service 140; Environmental Conservation Service 210; Policy and Communications and Corporate Services 250. In regard to the overall level o f cuts, DOE was able to convince the Department o f Finance to make a favourable determination regarding. the base from which the cuts were to be made. Finance’ s initial posi­ tion was that the Green Plan was a sunsetted six-year program, and therefore that all departments that had received Green Plan funds should not include them in their base. Thus, under Finance’ s approach, DOE’ s cuts would be made from the level o f its budget prior to the Green Plan. DOE argued that the Green Plan had become so deeply inte­ grated into the operations o f the department’ s ongoing programs that they could not possibly be separated out. Fully 40 percent o f the Green Plan budget over the previous five years went to DOE, with the result that 28 percent o f DOE’ s budget came from Green Plan money. Thus Finance’ s proposal would have meant a 30 percent cut from a base o f 72 percent o f the current budget, which was equivalent to a 50 percent cut from its current base. This debate was played out at both the political and the bureaucratic level. At a meeting in Paul Martin’ s office on Parliament Hill on a hot, humid day in July 1994, Sheila Copps and Deputy Minister Mel Cappe were told that DOE’ s cut would be 30 percent. Copps and Cappe made the case to Martin and Marcel Masse, the minister responsible for Program Review, that DOE was sufficiently different from the other departments receiving Green Plan money that it should be allowed to take its cuts from current levels o f spending. Martin, because o f his previous experience as Liberal environment critic, was sympathetic, and the DOE argument won the day.42 This argument had to be re­ peated at the bureaucratic level with officials from Finance and Trea­ sury Board. While Finance officials were hesitant, they acknowledged the logic o f DOE’ s position and ultimately accepted the argument. In the end, DOE was the only department that had Green Plan money calculated into its base. This was not universally appreciated, because departments like Industry, Natural Resources, and Fisheries and Oceans all had Green Plan money that was not replenished, yet they had to make cuts from their pre-Green Plan budgets. DOE was able to con­ nect its argument to the political agenda, pointing to the fact that one

ENVIRONMENT CA NA D A

o f the key Red Book chapters focused on environment and sustainable development. As a consequence, DOE’ s budget even after the $234 million cut was still larger than the department’ s budget prior to the Green Plan.43 DOE was fortunate to be able, in large part, to ride a technological fix to its Program Review cuts. The acceleration o f Atmospheric En­ vironment Service’ s 1987 strategic plan to automate the delivery o f weather services will allow the department to absorb over half o f the personnel cuts (800 o f 1,400) by replacing labour-intensive and rou­ tine tasks by technology. Together with the plan to commercialize many o f the previously free “ special use” weather services (to commercial clients like ski resorts, snow removal firms, insurance companies, le­ gal firms, the construction industry, and the transportation sector), the department was able to reduce staff and costs without significantly cutting programs. THE I N T E R N A L P R O G R A M R E V I E W P R O C E S S : HORIZONTAL AND VERTICAL

Ironically, DOE was actually rather well positioned to undertake the introspective horizontal review required by Program Review, because o f the major restructuring exercise that had been forced upon it a year earlier. The June 25,1993 restructuring o f government resulted in the unfortunate and ill-conceived step o f transferring the Canadian Parks Service from Environment Canada to the structural anomaly that was to become the Department o f Canadian Heritage, where Parks was combined with amateur sports, official languages, and cultural indus­ tries. This decision paid no heed to the important ecosystem manage­ ment and monitoring role played by the Parks Service, and followed in the historical wake o f numerous organizational blunders by the politi­ cal centre throughout the history o f DOE.44 As a result, DOE’ s staff and budget were reduced by 40 percent and the remaining operation was reorganized. The Conservation and Protection Service was di­ vided into two stand-alone services (Environmental Protection and Environmental Conservation), the Corporate Policy Group became Policy and Communications, and there was a major redistribution o f programs among the new services. As wrenching as this process was

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for DOE, it forced the senior management to grapple with the inter­ relationships among departmental programs. Early on in Program Review, DOE set up an internal review process to allocate potential cuts. In January 1994 a Strategic Investment Task Force was established by the Deputy Minister at the time, Nick Mulder. Chaired by the ADM o f Corporate Services, the Task Force reported to the Environment Management Board, which was made up o f the DM, ADMs, and Regional Directors General. So when the 1994 Feb­ ruary Budget announced that a systematic Program Review would be launched, the department was relatively prepared to proceed. The new Deputy, Mel Cappe, arrived from Treasury Board in May 1994 as the department was gearing up for Program Review. The Task Force was to establish a systematic, horizontal cross-service approach for evalu­ ating the operations o f the department. It drafted a list o f questions to assist internal program reviewers in undertaking a top-down review o f departmental functions and issued a “ Positioning Paper on Core Roles” in the summer o f 1994. This paper outlined the following five factors that should delimit and focus DOE’ s activities: • • • • •

clear federal lead for constitutional reasons, provision o f a national legal and policy framework, mobilizing Canadians and communities for sustainable development, leading for reasons o f economy o f scale and competitiveness, and clear need for joint collaboration and action.

DOE had undertaken a major five-year business planning exercise in 1994, and therefore had already done some forward planning regard­ ing these questions in the context o f establishing its Operational Plan­ ning Framework. The Task Force also established guidelines for linking the DOE reviews with the broader government-wide reviews that were concurrently being undertaken, such as the Science and Technology Review, the Sustainable Development Framework, the Grants and Contributions Review (including the funding o f interest groups), and the Review o f Agencies, Boards, Commissions and Advisory Bodies. Management Board adopted a three-pronged conceptual framework,

ENVIRONMENT CANAD A

highlighting science, policy, and service delivery, to discipline its hori­ zontal review o f existing programs. At its June 1994 Retreat, the Man­ agement Board attempted to shape the broad directions the department should move in, and to notionally identify resource shifts between func­ tions. It also agreed to a common data base, and questions that would govern a bottom-up review o f all program elements in each o f the services. The Service ADMs were to lead these internal vertical re­ views o f service programs. Initially, the senior management tried to put a positive spin on the exercise by talking about “building a 70 percent department,” but as the magnitude o f the cuts sunk in after July, there was no denying the department was involved, even after the decision on the resource base, in a major downsizing exercise; many positions would be lost as significant budgetary dollars were surren­ dered, so the 70 percent department rhetoric was dropped. Along with other departments, DOE received the six PCO key tests in June. The six questions were similar to the questions already being utilized by the Task Force to shape the departmental review, and it produced a set o f guidelines for the vertical bottom-up reviews that addressed the concerns outlined in PCO’ s six questions: • • • • • •

Does the program or activity serve the public interest? Is government involvement necessary? Is there an appropriate role for government in the activity? Is there scope for an increased private sector role? Is there scope for increased efficiency? Is the activity affordable?

DOE senior managers had a sense o f what the departmental cuts would be even before the July ministerial meeting, so that when DOE received its first set o f numbers from Finance in July, the architecture for the departmental program review was in place, and the action shifted to the bottom-up service review processes. The Environmental Man­ agement Board meetings were the internal mechanism for co-ordinating the service reviews. The process did not work exactly as planned, and the Regional Directors General were integrated into the vertical pro­ cess in differing degrees. Tensions emerged between the horizontal re­ view managed by corporate services and the more traditional vertical service-oriented reviews, with the primary role being assumed by the

116

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vertical approach as the program review process accelerated under time pressures in the fall o f 1994. Frustration within the department was exacerbated by the uncertainty associated with the numbers com­ ing from the centre. In November things changed significantly for the worse when Finance ordered that an additional $60 million be added to the cuts already allocated. So despite the pain o f the previous months, each o f the three line services had to face the frustration o f going back to their review o f their programs to cut an additional $20 million. Morale was strained in part because DOE senior management de­ cided to employ a very broad-based and open internal review process, which directly involved many members o f the department. Most DOE officials have been educated in the natural sciences or engineering, and not in the policy sciences. Some DOE staff shared the doubt that was still afloat in the broader public service at that time that the Liberals would actually lay anyone off; after all, this was seldom done in gov­ ernment. Because o f the scientific background o f most DOE officials and their passionate belief in the environmental mandate, there was little sympathy for such “ cutting exercises,” which hamper the department’ s capacity to protect the environment. As the department prepared for the key cabinet meeting in October, it utilized the Program Review template that focused on the three hori­ zontal functions o f science, policy, and service. DOE proposed to Cabi­ net that in areas where the department had direct jurisdiction, it would shift its emphasis to the international and national levels and to nation­ ally significant ecosystems, while correspondingly de-emphasizing lo­ cal issues, where other levels o f government can provide services. In areas o f shared responsibilities, DOE planned to emphasize building partnerships within the context o f nationally significant ecosystems and to make fewer unconditional contributions to unrelated activities. More specifically, the department’ s proposed changes were designed to emphasize: Science

• •

a shift toward a more ecosystemic approach, research in areas that require a core capacity to address policybased issues (for example, large-scale research that requires

ENVIRONMENT CAN ADA

•

• •

federal infrastructure and for which there are no commercial alternatives), replacing fully funded, non-directed external research with more highly leveraged initiatives that are better aligned to its ecosystemic objectives, modest increases to its effort in socioeconomic research, and the pursuit o f opportunities for commercialization o f its research facilities.

Policy • • •

• •

building a proactive and integrated sustainable development policy agenda, bringing information to Canadians in forms that are easily accessible, creating a harmonized regime o f regulatory, market-based, and voluntary instruments within which Canadians can make pollution prevention and other decisions with a reasonable certainty as to their consequences, building a broad consensus on economic sector/industry sustainability plans, and focusing DOE technology development capability on catalyzing a vibrant environmental industry sector.

Service

•

• • • •

maintaining the quality o f services in areas where it is best situated to conduct the activity, such as when providing weather and health-related warnings, providing good ecosystem models based upon integrated environmental monitoring, emphasizing activities that engage others in environmentally responsible actions, leading by example in “ greening” its own facilities and activi­ ties, and maintaining enforcement and compliance capacity.

Grants and contributions were viewed as delivery mechanisms, both to accomplish direct federal objectives and to build the capacity o f others—

117

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HOW O T T A W A SPENDS

such as building the local enforcement capacity o f provinces that currently lack it. For environmental groups, the department planned to shift its focus to specific outputs through time-limited arrangements that will encourage self-sufficiency. The proposed functional reorientation was not a major departure from existing practices, and in fact reflected changes already under way at DOE. While Sheila Copps presented DOE’ s proposed reductions, which came largely from the Service function activities, to Cabinet in Octo­ ber, she continued to reflect on the cuts proposed by the bureaucrats. In January, she reprioritized about $23 million worth o f spending. It was at this point that the State o f the Environment reporting function was cut dramatically. On the other side o f the coin, she ensured that no cuts were made to enforcement or to the budget o f the Canadian Envi­ ronmental Network. She also redirected funds to Action 21. This min­ isterial reorientation to local actions and initiatives was in opposition to the overall bureaucratic thrust to reduce resources committed to local activities. Copps’ s decision to save $3.5 million dollars over three years by cutting the State o f the Environment reporting was one o f the most unfortunate o f her tenure.45Major gains had been made in the last few years in Canada and internationally in the gathering and synthesis o f environmental, social, and economic data on the state o f the environ­ ment. Such integrated information enables us to monitor progress and make better decisions in support o f pollution prevention, environmen­ tal assessment, and sustainable development. The 1991 State o f the Environment Report was widely utilized as an educational document, and the analysis in it contributed to policy development. The State o f the Environment unit in DOE dedicated to the preparation o f the 1996 national State o f the Environment Report will be disbanded. The 1996 Report and subsequent individual data reports on specific topics will be primarily provided electronically. As the department admits in its 1995 Business Plan, “ as the department moves from single, compre­ hensive and integrated reports on the state o f the environment toward more frequent reporting on issues o f immediate concern, there is the risk that an appropriate degree o f integration o f environment, economic and social considerations as they apply to ecosystems will be lost.”46 This one decision eliminated Canada’ s leadership in this area.

ENVIRONMENT CA NAD A

IM PLICATIONS AND CHALLENGES

While DOE faced the very real paradox o f an expanding mandate and diminishing resources, it found a solution to the Program Review cuts that did not require a major change in departmental philosophy. Be­ cause o f the decision on the base for its cuts and because o f its ability to rely on the technological fix and commercialization, the department was able to retain the fiscal capacity to maintain most o f its existing functions. Indeed, the department’ s budget for 1998-99 is still, in ab­ solute terms, larger than it was in 1988-89. If DOE does face signifi­ cant budgetary cuts in the future, it will be forced to make fundamental, strategic choices about what activities it wants to retain.47 It simply would not be able to do everything it is currently doing, and this sug­ gests that the department may be subject to an ongoing introspective process regarding its activities and focus. This section addresses three themes central to that process o f self-examination. Departmental Focus

Table 4.1 indicates how the department reallocated resources around its three major business lines and departmental administration. It still does virtually everything it was doing, but relies more on technology to do it. This represents a mixed blessing for the department and its clients. The debate about the scope o f DOE’ s mandate is as old as the department. In 1970-71, when the department was being set up, Pierre Trudeau and his advisers initially envisioned the creation o f a broad ecosystem manager. “ The Throne Speech o f October 1970 envisaged an elaborate role and mandate when it stated that Canada would have ‘a department to be concerned with the environment and the husbanding o f those renewable resources that are part o f and dependent on it, with a mandate for the protection o f the biosphere.’”48However, this larger version o f DOE as an ecosystem manager with significant horizontal economic review powers was opposed “ forcefully and overwhelmingly [by] the ministers and mandarins who headed Ottawa’ s other main central agencies and resource departments.”49Consequently, the man­ date that emerged was a narrower environmental protection mandate akin to an “ end-of-pipe” service concerned with specific incidents o f pollution. As a result, DOE spent 20 years as a marginalized, policy-

119

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H O W O T T A W A SPENDS

Table 4.1

Resource Shifts Business Line

1994-95 SMillions

SMillions

% Shift

R educing Risks to Human H ealth and to the Environment

. . • • .

Atmospheric Change Toxics® Enforcement Biodiversity/Wildlife Preserving Ecosystems

53.9 74.4 13.1 39.3 133.9

41.3 38.3 13.1 33.3 72.3

-23.4% -48.5% 0.0% -15.2% -46.0%

W eather Forecasts and W arnings and Em ergency Preparedness Services

. Weather Forecasts and Warnings . Emergency Preparedness

142.8

102.5

-28.3%

10.1

6.3

-37.9%

33.9 84.8 16.2

14.0 54.2 16.2

-58.8% -36.1% 0.0%

15.0

19.0

+26.7%

68.5 39.5

51.9 33.0

-24.3% -16.3%

725.6

495.4

-31.7%

G iving Canadians the Tools to Build a G reener Society

. Information Products and Services . Technologies and Know-how • Partnerships D epartm ental Items

. Program Infrastructure Not Allocated to Service and Business Linesb A dm inistration0

• Administration . Employee Benefit Plans Total

Notes: There may be discrepancies because of rounding, a Most of the reduction in the toxics category can be attributed to previously planned sunsetting of the contaminated sites clean-up and PCB destruction activities. Without these two items, the reduction in toxics is in the order of 20 percent. b Unallocated items include, for example, Information Technology infrastructure renewal, replacement of financial systems, educational leave and skills training, and a translation envelope, c About IS percent of the department’s budget lies outside the primary business lines. Of that amount, about 10 percent covers areas like finance and administration, informatics, legal services, human resources, and corporate and regional management. Source: Environment Canada Business Plan 1995-96-1997-98, 6.

ENVIRONMENT CAN ADA

weak, environmental protection department before the emergence o f the sustainable development paradigm during the second wave o f en­ vironmental concern in the late 1980s. The Green Plan and the Red Book went some way to resurrecting the vision represented in the 1970 Throne Speech. It is imperative that DOE officials resist pressures, both fiscal and bureaucratic, to retrench into the narrow environmen­ tal protection trap, where DOE would once again be marginalized. Indeed, the department must regenerate the policy analysis capability required to negotiate on an equal footing with other departments and the central agencies. The Program Review cuts did not vitiate the department’ s commit­ ment to sustainable development and pollution prevention. Environ­ mentally informed decision-making and integrated ecosystem thinking are beginning to take their place alongside regulation, cleanups, en­ forcement, and protection as an emphasis in the department’ s activi­ ties. It is crucial that this direction be retained. A more aggressive role in promoting sustainable development during the first half o f the man­ date was constrained by Sheila Copps’ s view that she was to be the major advocate for environmental protection within Cabinet. From this perspective, the trade-offs among social, economic, and environmen­ tal goals implicit in sustainable development ought to be resolved not within individual departments but around the cabinet table, where there are ministers responsible for economic, environment, and social policy concerns. In this regard, Copps’ s view mirrored that o f Pierre Trudeau in 1970, when he backed away from the expansive vision o f DOE to create the more truncated mandate. Many o f the responsibilities related to sustainable development are systemic in nature and therefore impact on all departments, not just DOE. Still, DOE will often be expected to play a lead role when it comes to these system-wide initiatives. With respect to greening gov­ ernment operations, DOE teamed up with Treasury Board and Public Works and Government Services to provide advice and guidelines to other departments. It also sponsored or co-sponsored framework docu­ ments on sustainable development strategies and environmental man­ agement systems.50DOE has undertaken to be the first department to produce a strategy in order to set the standard for other departments. Having given birth to the idea that sustainable development strategies are a crucial accountability tool in the integration o f environmental

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factors into decision-making in all government activities, DOE has a responsibility to provide leadership. So while these requirements do not involve only DOE, they do produce special obligations, which re­ quire staff and senior management time. The Federal Role

Governments, as our collective decision-making systems and as our arbiters o f the common good, have a special trustee relationship to the public goods— wildlife, air, water, land—that comprise our natural environment. In Canada, our perennial debate revolves around how the authorities associated with environmental quality can be co­ ordinated to meet these trustee responsibilities. Both the political reali­ ties o f the Canadian federation and the very nature o f environmental problems require that environmental issues be dealt with through an integrated framework requiring the collaboration o f the different lev­ els o f government. International and interprovincial transboundary problems, the transfer o f pollutants across media, and the diversity o f local conditions all require intergovernmental co-operation for effec­ tive management o f environmental problems. The requirements of sustainable development necessitate the collabo­ ration o f the federal and provincial governments. The role o f provin­ cial governments in resource management and economic development, as well as their often intimate relations with industry, make them nec­ essary partners for the establishment o f a policy framework that will permit a balance among economic, social, and environmental goals. A number o f emerging trends enhance the federal role: *

•

the globalization dynamic and the corresponding internationali­ zation o f environmental policy through the supranational activities o f international agencies and the expansion of bilateral and multilateral transboundary agreements in an increasingly broad range o f areas strengthen the need for a strong federal presence on the international stage, the inclusion o f environmental considerations in both product and process design is resulting in the harmonization o f interna­ tional standards over what and how we produce and consume and is influencing international trade rules and regimes, and

ENVIRONMENT CAN ADA

•

international pressure, emanating primarily from Europe, for national budgetary reform and for the greater use o f economic instruments to achieve environmental and sustainable develop­ ment goals will increase pressure on legislators to eliminate environmentally deleterious barriers and incentives.

The combined trajectory o f these international trends sheds a new light on the federal role: responsibilities for trade and commerce, sci­ ence, information development and sharing, international negotiations, taxation, and other federal powers will continue to grow in impor­ tance. These emerging international trends will place increasing de­ mands on DOE. The current federal-provincial harmonization debate is taking place within a “time bubble” that does not adequately reflect this reality. Indeed, short-term domestic “national unity” pressures in response to Quebec separatism, which give no consideration to the trustee role o f governments toward the environment, are shaping the debate about how to arrange responsibilities in this area. Environmental problems are complex and holistic: they cry out for an approach that recognizes the interdependence o f biophysical and social processes and institu­ tions. At a time when federal-provincial relations are already tense and the fiscal crisis deepening, the country would have much to gain from better co-ordination between levels o f government. In this context, the DOE Program Review shift in focus to interna­ tional and national strategies and national standards, nationally sig­ nificant ecosystems, and enforcement o f regulations, and away from local clean-up activities, is a sensible reallocation o f diminishing re­ sources, given the provinces’ responsibilities for local issues. How­ ever, with respect to the future transfer o f additional responsibilities to the provinces, there remain serious doubts about the capacity o f the provinces to take over functions shed by the federal government. Vir­ tually all provincial governments are themselves undertaking major expenditure reduction campaigns to deal with their own deficit and debt situations, which are decreasing the capacity o f provincial envi­ ronment departments. In addition, some provincial governments are reducing the overall role o f the state for ideological reasons, including diminishing the regulatory, monitoring, and enforcement capacity and responsibilities o f provincial environment departments.51

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HOW O T T A W A SPENDS

Proponents o f across-the-board decentralization liked what they per­ ceived to be the mandate-shrinking elements o f the harmonization ini­ tiative, while opponents feared the exercise amounted to reckless constitutional amendment via the back door. The fact remains, how­ ever, that the transboundaiy dimensions o f so many environmental is­ sues means that environment may not be a very logical candidate for much devolution.52Given the diversity o f provincial capacity, Copps’ s rejection o f the multilateral approach in favour o f a set o f bilateral arrangements that reflect varying provincial conditions is understand­ able. Even if a general agreement on environmental management is forced into being by national unity pressures,53its implementation may very likely be constrained by a lack o f federal resource transfers to the provinces and the provinces’ lack o f capacity. In other words, if the exercise is driven by non-environmental factors, it is not likely to save DOE much money. P olicy Instruments

As the climate change case shows, there are powerful analytical and emotional elements to the debate over the use o f governing instruments in environmental policy. Despite pressure from European trading part­ ners, in particular, ecological fiscal reform will be slow and will not happen solely as a result o f environmental concerns. Primary control over fiscal instruments rests with the Department o f Finance. Fiscal reform, in addition to environmental concerns, involves ideas such as equity, competitiveness, and efficiency, has trade implications, and affects the material interests o f a broad range o f groups. Copps wanted a small Task Force to follow up on the work o f the Standing Commit­ tee on economic instruments, but Finance was opposed. The lack o f action here reflects the lack o f support around the cabinet table. Thus, the government will continue to rely largely on voluntary ar­ rangements and regulations. While the popularity o f voluntary ap­ proaches continues to grow among traditionally regulated industries, and some experiments with voluntary approaches at the federal level are emerging, such as the Accelerated Reduction and Elimination o f Toxics and the Voluntary Challenge and Registry initiative in the cli­ mate change action plan, thejury is still out. Environmentalists tend to be very suspicious o f voluntary approaches, and there is much debate

ENVIRONMENT CA NAD A

about how effective voluntary arrangements will be if they are not backed up by a rigorously enforced regulatory framework. Moreover, the success o f voluntary initiatives relies upon solid reporting require­ ments, but budgets for monitoring and reporting functions are being cut. It is not clear that there are major cost savings to be achieved by the federal government from either economic instruments or voluntary agreements. Hence, it would appear that despite the government’s effort to stream­ line regulation in general by means o f the proposed Regulatory Effi­ ciency Act, which was introduced into the House o f Commons by the President o f the Treasury Board, the government will continue to rely on regulatory instruments in several environmental policy areas for the foreseeable future. This will require an active role for DOE’s regu­ latory apparatus. Indeed, the expansion to the CEPA mandate with the revised legislation, along with the proposed additional responsibilities from the Biodiversity Convention and the Endangered Species Protec­ tion Act, will require an even stronger regulatory effort. While Copps refused to cut the enforcement budget from $13.1 million per year over the three-year period, the capacity o f DOE to enforce its regula­ tions was already strained. This will force the department to find con­ siderable efficiencies within the enforcement function or to work out bilateral or even more multilateral arrangements with the provinces in this area. For example, as a result o f a federal-Quebec administrative agreement, provincial inspectors enforce federal law on the pulp and paper sector in Quebec. Science- and technology-related expenditures constituted 90 percent o f the DOE budget in 1994-95. O f this only 15 percent is dedicated to research and development (R&D), while 75 percent is spent on sci­ ence-related activities such as weather services, emergency response, monitoring, and technical studies. R&D’ s share o f the science and tech­ nology budget is scheduled to increase to 20 percent by 1997-98. These reductions in staff and budget will limit what DOE can do in-house and will increase existing pressures to contract out as much o f the routine science-related activities as possible. If DOE decides to con­ tinue to do most o f its science-related activities in-house, it will result in a substantial reduction in the support o f scientific and technological work done in the universities, in the private environmental industries

125

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HO W O T T A W A SPENDS

sector, and in the environmental and development NGOs. This will make it increasingly difficult for the department to engage these non­ governmental partners, except in very specific research projects. Efficiency gains may be achievable through better co-ordination o f federal interdepartmental S&T activities. A first step in this regard was taken by the Departments o f Agriculture and Agri-Food, Natural Resources, Fisheries and Oceans, and Environment, when they signed a Memorandum o f Understanding on Science and Technology for Sus­ tainable Development in the Natural Resource Sector in January 1995. This move promotes greater efficiency and effectiveness in the co­ ordination o f research priorities. It should also facilitate the improved understanding o f scientific issues that are at the base o f public policy development. However, difficult choices will have to be made when the priorities o f departments differ. For example, Fisheries and Oceans’ desire to get out o f freshwater research has left the future o f the Ex­ perimental Lakes research facility in northwestern Ontario in doubt.54 DOE is currently discussing the transfer o f this facility with Fisheries and Oceans, but this will be a very expensive endeavour for DOE. Yet this world famous facility, which has played an important role in the science o f atmospheric issues such as acid rain and climate change as well as in aquatic issues, is worth saving. Scientific expertise takes years to develop, and Program Review will result in the loss o f 40 research scientists and managers and an addi­ tional 300 scientific professionals. So the department will have to give serious consideration as to whether to regenerate its scientific exper­ tise in-house or to contract out. If it does retain its scientific functions, it will have to determine how to balance new appointments to reflect the emerging focus on the multidisciplinary ecosystem approach and on the combined social and natural science expertise required by sus­ tainable development. CONCLUSION

DOE was able to manage the cuts dished out in Program Review, but it is at a crossroads. It is at the centre o f a rapidly evolving field. International interest and activity is growing at the same time as do­ mestic interest has declined. The emerging agenda will require good

ENVIRONMENT CA NAD A

science, information, and policy. The federal government cannot af­ ford any further weakening in these areas. Sergio Marchi, who re­ placed Copps as Minister early in 1996, must assert a strong federal role in environmental policy, both around the cabinet table, where he will have to fight against future large cuts, and in discussions with the provinces, where he will have to ensure that co-ordinated actions re­ flect the capacity o f governments to deliver. If not, future cuts will result in major mandate reductions. NOTES

The author would like to thank Gene Swimmer, David Runnals, Tom Conway, Francis Bregha, Tony Hodge, Luc Juillet, and several fed­ eral officials for their helpful comments. 1

G.B. Doern and Thomas Conway, The Greening o f Canada: Federal Institutions and Decisions (Toronto: University o f Toronto Press, 1994),

2

A Department o f the Environment has existed in Canada since 1970. This is also the period when most provincial governments created environment departments. In 1974, the Department o f the Environment became Environment Canada, as part o f the Trudeau government’s effort to incorporate more bilingual terminology into the federal lexicon. However, the old acronym “DOE” continues to be used. The Green Plan was cut over its lifetime by the Conservatives and the money actually allocated to Green Plan initiatives was $2.5 billion. For an analysis of some of the international factors influencing domestic environmental policy see Glen Toner and Tom Conway, “Environment,” in G. Bruce Doern, Leslie A. Pal, and Brian W. Tomlin, eds., Border Crossings: The Internationalization o f Canadian Public Policy (Toronto: Oxford University Press, 1996). For a description of DOE’ s activities and goals prior to Program Review see Environment Canada, Environment Canada Business Plan 1994 to 1999 (Ottawa, 1994). For a review of this period see Glen Toner, “The Green Plan: From Great Expectations to Eco-Backtracking... to Revitalization?” in Susan Phillips, ed., How Ottawa Spends 1994-95: Making Change (Ottawa: Carleton University Press, 1994), 229-60. The Liberal Party of Canada, Creating Opportunity: The Liberal Plan for Canada (Ottawa, 1993), 63. Toner, “The Green Plan,” 248-56.

12.

3 4

5

6

7 8

127

128

9 10 11

HOW O T T A W A SPENDS

Ibid., 223-34. Liberal Party, Creating Opportunity, 63-64. Paul Martin, Minister o f Finance, The Budget Speech (Ottawa: Canada Communication Group, 1994), 8. 12 G.B. Doern, Green Diplomacy (Toronto: C.D. Howe Institute, 1993); Grace Skogstad and Paul Kopas, “Environmental Policy in a Federal System: Ottawa and the Provinces,” in Robert Boardman, ed., Canadian Environmental Policy: Ecosystems, Politics and Policy (Toronto: Oxford University Press, 1992), 43-59. 13 House o f Commons, Standing Committee on Environment and Sustain­ able Development, It’s About Our Health!: Towards Pollution Prevention CEPA Revisited (Ottawa, 1995). 14 See Environment Canada, Environment Canada Action Plan 1995-961997-98 (Ottawa, 1995). 15 On the Framework Convention see Daniel Bodansky, “The Emerging Climate Change Regime,” Annual Review o f Energy and Environment, 1995, 20, 425-61. 16 Liberal Party, Creating Opportunity, 70. 17 International Panel on Climate Change, IPCC Second Assessment Synthesis o f Scientific-Technical Information Relevant to Interpreting Article 2 o f the UN Framework Convention on Climate Change, 1995, 4. 18 John Geddes, “ Green and Mean: Sheila Copps Cleans Up,” The Finan­ cial Post, November 29, 1995, 7. 19 For an overview o f the issues involved in this debate see Fran?ois Bregha, Tom Conway, John Moffet, and Peter Morrison, Ecological Fiscal Reform: A Review o f the Issues (Ottawa: Resource Futures International, November 1995). 20 The voluntary challenge and registry program is being implemented by Natural Resources Canada. It involves the submission of action plans by individual companies from the major greenhouse gas emitting industrial sectors (electrical utilities, manufacturing, energy, transportation and commercial, forestry, pulp and paper, agriculture, mining) detailing the measures that will be taken to limit or reduce greenhouse gas emissions. See “Canada Initiates Voluntary COz Reduction Program,” Global Environmental Change Report, 7, 2 (January 27, 1995), 7; on joint implementation strategies see United Nations Conference on Trade and Development, The Strategy o f Joint Implementation in the Framework Convention on Climate Change (New York, 1995); and Natasha Hassan, “Planting the Seeds for a New Kind o f Trade,” The Financial Post, March 18, 1995, 23. 21 Robert Matas, “ Copps Finds Few Allies at Meeting,” The Globe and Mail [Toronto], November 21,1995, A6. 22 Environment Canada, Canadian Biodiversity Strategy: Canada's Response to the Convention on Biological Diversity (Ottawa, 1995).

ENVIRONMENT CA NAD A

23

24 25 26

27 28

29 30 31

200 scientists from 35 Canadian universities signed an open letter condemning an early draft o f the proposed act. Their primary concern was the legislation’ s failure to protect the habitat o f endangered species. However, several issues concerning habitat are within provincial jurisdic­ tion. See Robert Matas, “Ottawa Failing Endangered Species, Scientists Say,” The Globe and Mail [Toronto], November 23,1995, A4. Canada, Speech from the Throne to Open the Second Session Thirty-Fifth Parliament o f Canada (Ottawa: February 27, 1996), 7-8. House o f Commons, It’s About Our Health! This is not meant to imply that there is a universal consensus among business interests on CEPA or other issues. For instance, the Canadian Environmental Industry Association is concerned about the government’s movement away from the regulatory approach to a reliance on “voluntary initiatives” and “economic instruments.” The environmental industries sector has grown rapidly and is now one o f the top five industries in Canada. It is concerned that the environmental regulations that drove technological innovation have been weakened to the point of hurting this sector’s growth both in terms o f the domestic Canadian market and the $240 billion a year export market. See Canadian Environment Industry Association, “Letter to the Honourable Charles Caccia, Chair, House of Commons Standing Committee on Environment and Sustainable Devel­ opment, on ‘Voluntary Initiatives, ARET and the Canadian Environmen­ tal Protection Act,” ’ May 8, 1995. Robert Matas, “Bureaucrats Pan MP’s Environmental Law Proposals,” The Globe and Mail [Toronto], October 16, 1995, A7. Canada, Environmental Protection Legislation Designedfor the Future: A Renewed CEPA (Ottawa: 1995); see Robert Matas, “ Ottawa to Let Citizens Sue Polluters,” The Globe and Mail [Toronto], December 16,1995, 1; Peter Boisseau, “ Environmentalists Dump on New Pollution Laws,” Ottawa Citizen, December 16, 1995, A13. Canadian Council of Ministers of the Environment, Environmental Management Framework Agreement (Winnipeg: October, 1995). Liberal Party, Creating Opportunity, 64. We are slowly beginning to change the way we think about the meaning of wealth, capital, and development. In a 1995 study, the World Bank for the first time attempted to measure the wealth o f nations by including natural, human, and social capital as well as manufactured capital or “ produced assets” such as machinery, factories, roads, and other infra­ structure required for industry. Natural capital comes from the natural bounty o f a country and includes not only minerals but water, land, and other environmental resources. Human capital reflects the levels of people’ s health and education, while social capital reflects the health of the civil society institutions that promote social cohesion. The potential

129

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32

33 34 35 36

HOW O T T A W A SPENDS

for economic development is higher in those countries with healthy, welltrained populations and abundant resources. “Richer countries are generally those that invest more in human resources” and guard their natural capital. “ Good environmental policies are good economic policies and vice versa.” In the World Bank’ s ranking Canada placed second, after Australia. See Adam Zagorian, “The Real Wealth o f Nations,” Time, October 2, 1995, 33; for the original analysis see Ismail Serageldin, “ Sustainability and the Wealth of Nations: First Steps in an Ongoing Journey,” Third Annual World Bank Conference on Environmentally Sustainable Development, The World Bank, Washington, DC, September 1995. Canada, A Guide to Green Government (Ottawa, 1995), iii. To facilitate the government-wide co-ordination necessary to create the Guide, the government established a deputy minister level Co-ordinating Committee on Sustainable Development. Environment Canada, Directions on Greening Government Operations (Ottawa, 1995). Liberal Party, Creating Opportunity, 64. Cited in Task Force on Economic Instruments and Disincentives to Sound Environmental Practices, Final Report (Ottawa, November 1994). The impact o f the Task Force Report on die 1995 Budget was slight, though changes were made to the capital cost allowances for certain types o f energy conservation equipment and the government promised to review specific requests it receives for tariff relief by importers o f pollution-control equipment. The budget also changed the deductibility limitations associated with the donation o f ecologically sensitive land for conservation purposes, to encourage more Canadian landowners to participate in the preservation o f Canada’ s ecological heritage. See Paul Martin, Department of Finance, Budget Plan (Ottawa: Canada Commu­ nication Group, 1995), 131-33. Although the government never formally responded to the Task Force, these measures plus additional tax changes announced in the 1996 Budget suggest that the Liberals are slowly taking steps to implement at least some of the Task Force recommendations. The 1996 Budget cited the Task Force’ s advice to level the playing field between renewable and non-renewable energy investments and Canada’ s international commitment to reduce C02 levels, in announcing two new incentives to encourage investment in renewable energy. The creation of a new Canadian Renewable Energy and Conservation Expense category in the tax system, and the extension of the use o f flow-through share financing, are designed to give the renewable energy sector access to financing similar to that available to junior resource (oil, gas and mining) companies. Such changes will make it easier for renewable energy companies to access financing in the early stages of their operations, when they may have little or no income. The government also announced

ENVIRONMENT CA NAD A

37

38 39

40

41

42

43 44

45 46 47

that it would study changes to improve the treatment o f energy efficiency investments and investments providing heating and cooling from renewable energy sources in the next budget. See Paul Martin, Depart­ ment of Finance, Budget Plan (Ottawa: Canada Communication Group, 1996), 170-73. House o f Commons Standing Committee on Environment and Sustain­ able Development, Keeping A Promise: Towards a Sustainable Budget (Ottawa, December 1995). Liberal Party, Creating Opportunity, 64. O f the $234 million cut, only about $131 million was imposed by Program Review. $99 million was already scheduled to be cut, $72 million in sunsetting programs and $27 million from prior budget cuts. See Environment Canada, Environment Canada Business Plan 1995-96— 1997-98 (Ottawa, June 1995), 4; see also Martin, Budget Plan, 1995, 35-36. Actual job losses from permanent positions may very well be fewer, depending on how the detailed program planning unfolds over the three years. DOE has, however, also shed numerous term and contract employ­ ees. It is important to note that Environment Canada has a number o f head­ quarters functions and institutes/centres outside of the National Capital Region, including the Canadian Meteorological Centre (Dorval, Quebec), the Atmospheric Environment Service (Downsview, Ontario), the National Water Research Institute (Burlington, Ontario), and the Na­ tional Hydrology Research Institute (Saskatoon, Saskatchewan). Paul Martin’s personal experience with the portfolio as opposition environment critic was once again a key factor. By contrast, the environ­ mental file never received a sympathetic hearing from either o f his Conservative predecessors as Finance Minister, Don Mazankowski or Michael Wilson, and DOE’s arguments might have suffered a different fate with a different Liberal Minister o f Finance. See Environment Canada, Environment Canada Business Plan 19941999 (Ottawa, 1994), 29. For a review o f these see Doern and Conway, The Greening o f Canada', see also M. Paul Brown, “ Organizational Design as Policy Instrument: Environment Canada in the Canadian Bureaucracy,” in Boardman, Canadian Environmental Policy, 24-42. “Environmentalists Lament Demise o f Federal Report,” The Globe and Mail [Toronto], May 2, 1995. Environment Canada, Environment Canada Business Plan 1995-96— 1997-98, 33. The 1996 Budget did not, however, deliver further significant cuts. Unlike several other departments, DOE suffered no further budgetary reductions for the 1997-98 budget year. The 1996 Budget extended

131

132

48 49 50

51

52

53

54

HOW O T T A W A SPENDS

Program Review to 1998-99 and further reduced all departmental budgets. DOE’ s cut was the minimum 3.5 percent. It should be possible to absorb this additional $17 million cut without a significant impact on departmental programs. See Martin, Budget Plan, 1996, 37. A substantial proportion of the $17 million will come from increased cost recovery over and above that achieved in the original Program Review. Doern and Conway, The Greening o f Canada, 17. Ibid., 20. See for example Environment Canada, Directions on Greening Govern­ ment Operations (Ottawa, 1995); Canada, EMS: Self-Assessment Guide (Ottawa, 1995); and Auditor General of Canada, Environmental Manage­ ment Systems: A Principle-Based Approach (Ottawa, 1995). Martin Mittelstaedt, “Ontario Review Touches Off Environmental ‘Alarm Bells’ ,” The Globe and Mail [Toronto], September 26, 1995, A8; John Ibbitson, “ Ontario Puts Environmental Rules on Hold,” The Ottawa Citizen, January 18, 1996, A4; Wendy Stewart, “Conservation Authorities Now Endangered Species,” The Ottawa Citizen, January 23, 1996, A ll. Kathryn Harrison, “Prospects for Intergovernmental Harmonization in Environmental Policy,” in Doug Brown and Janet Hiebert, eds., The State o f the Federation 1994 (Kingston: Institute of Intergovernmental Relations, 1994), 179-99. The February 1996 Throne Speech was dominated by national unity concerns, and environmental management was mentioned as one o f the areas where the federal government will make an effort to work in partnership with the provinces. Canada, Speech from the Throne, 10. Tom Spears, “Funding Dries Up for Elite Freshwater Scientists,” The Ottawa Citizen, December 10, 1995, Al.

5 Shrinking the House of “HRIF”: Program Review and the Department of Human Resources Development

HERMAN B A K V IS

ogram Review, the federal government’ s initiative “ to bring about the most effective and cost-efficient way o f delivering programs and services” 1announced in the Februaiy 1994 Budget, was intended to apply to virtually all government departments. However, as the details o f Program Review unfolded over the spring o f 1994, it became evi­ dent that one major portfolio would be exempted from the process: the Department o f Human Resources Development Canada (HRDC). Only the Labour branch o f HRDC was subject to the formal review pro­ cess. Had this blissful state o f affairs continued to hold true, there would have been no need to write on Program Review in HRDC; or at least the study would have had a rather different orientation. Ideally, from then Minister Lloyd Axworthy’ s point o f view, such a study would have focused instead on the successful completion o f his much vaunted

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Social Security Review, also launched in early 1994. It was this Re­ view— intended to redesign Canada’ s social safety net— that was sup­ posed to have included many activities that in other departments were carried out under the rubric o f Program Review. A successful conclusion to the Social Security Review was not to be, however. The proposals outlined in Axworthy’ s green paper, “ Im­ proving Social Security in Canada,”2 to revamp the entire array o f Canada’ s social programs— from child-care to welfare to post-sec­ ondary education— were too ambitious by half and premised on the tacit if not active consent o f the major stakeholders, including provin­ cial governments, university students, and Unemployment Insurance (UI) recipients. By early 1995 it was clear that agreement on a largescale social reform package was unlikely either within or outside Cabi­ net. Equally unlikely to succeed were Axworthy’ s plans for budgetary savings, part o f his Faustian bargain with Finance Minister Paul Mar­ tin, which were to result from some o f the more ingenious o f the green paper proposals, the income contingency repayment scheme for uni­ versity students being one notable example.3The signs were unmistak­ able that Finance had won out and had effectively taken control o f large elements o f Axworthy’ s social reform package.4 The pronouncements, therefore, in the February 1995 Budget re­ garding changes to social programs came as no surprise to most people. The Canada Assistance Plan (CAP) was to be combined with Estab­ lished Program Financing (EPF), including the transfer payments for medicare, to create one single, gigantic block fund, the Canada Social Transfer (later the Canada Health and Social Transfer, CHST); UI was to be cut by $2 billion, and programs funded out o f the consoli­ dated revenue fund reduced by another $885 million by 1997-98. All that appeared to remain o f the Social Security Review was that the programs financed through the consolidated revenue fund were to be combined into a unified “ Human Resources Investment Fund” (HRIF), which was to “ focus on actively helping unemployed people find and keep jobs, combating child poverty, and providing assistance to those who need help most.” 5 A streamlining o f administrative operations was also expected to yield an additional $200 million, so that all told, by the 1997-98 fiscal year the annual expenditure budget would be reduced by $ 1.1 billion, and the full-time equivalent (FTE) work force

H UMAN R E S O URC ES D E V E L O P M E N T

would fall to 21,000 from 26,000 in 1994-95.6Administrative stream­ lining and the HRIF, therefore, became the two main vehicles for Pro­ gram Review within HRDC.7 In brief, Axworthy’ s ambitions for an integrated approach to social policy had been sharply curtailed: he no longer had control over the post-secondary education portion o f EPF, and he had been arbitrarily told not only by how much to cut his budget but essentially where. Finance was in the driver’ s seat. HRDC now too was subject to Pro­ gram Review, except that the normal review processes as used for other departments had been effectively short-circuited by the imposi­ tion o f specific targets. In assessing the HRDC experience with Program Review, it is im­ portant to keep in mind that the formal review process as applied to all departments, with its six tests,8 including those for affordability and public interest, applies mainly to programs funded out o f a department’ s consolidated revenue fund. Programs o f a statutory nature entailing direct transfer payments to individuals or governments, where there is little or no discretion, were absented from Program Review. In the case o f HRDC this means that even with the imposition o f Program Review large areas o f the department were still exempted from the review process. One o f the issues to be explored in this chapter, there­ fore, is what proportion o f the department’ s activities and programs fell under Program Review, and, secondly, how Program Review in turn related to the policy reviews also underway within the depart­ ment. The second issue to be explored is the purpose that was intended to be served by the HRIF. Finance and HRDC promised that the HRIF would lead to an integrated and more effective approach to program­ ming in the areas encompassed by the HRIF. On the other hand, social policy analysts such as Susan Phillips, and Ken Battle and Sherri Torjman, have seen the HRIF as a case o f “ creative defunding.” 9Es­ sentially, when all the moneys are put under one roof it becomes much easier to “ shrink the size o f the house” by reducing or combining pro­ grams.10As we shall see, the metaphor o f a shrinking house is apt in a number o f ways. Even now, after the 1996 Budget and more than a year after the initial announcement, there is still a question what the size o f the HRIF house will be, what portion o f programs will fall

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under the HRIF roof, and what exactly will happen to the contents when the house begins to shrink. There is also the possibility that the HRIF may end up being crushed either by the UI reform bulldozer, the juggernaut o f federal-provincial relations, or a combination o f both. Finally, the paper will explore briefly four developments in late 1995 and in 1996 that have had a decided effect on the HRIF: the Quebec Referendum, the UI reform proposals announced December 1,1905, the child care initiative announced by Axworthy later that month, and the arrival o f Doug Young as the new Minister o f HRDC in January o f 1996. AM ALG AM ATIO N AND THE SOCIAL SECURITY REVIEW

In order to place HRDC and Program Review in context it is useful to review the circumstances that led first to the creation o f HRDC, the subsequent launching o f the Social Security Review, and, ultimately, the implementation o f Program Review in 1995. HRDC as a portfolio was a product o f the June 1993 Kim Campbell reorganization, which saw the amalgamation o f several departments into a more limited num­ ber o f portfolios and the overall shrinking o f Cabinet from three dozen ministers to two dozen. HRDC was the largest o f the newly created portfolios, and even though its size is comparable to that o f the old Department o f Employment and Immigration, it is in many ways a much more complex entity, encompassing elements and programs from no less than five different departments. Table 5.1 depicts the programs and associated resources (both money and FTEs) that were brought over from the founding units to the new department. Note that the vast bulk o f FTEs came from the former department o f Employment and Immigration (essentially including the employment and insurance part but not including the immigration branch). The welfare component o f the old Department o f Health and Welfare delivered sizable programs in terms o f dollars but had many fewer FTEs. The impetus for bringing all these programs and units together into one portfolio stemmed from the broader concern with downsizing the Cabinet, something that had been debated within the Mulroney gov­ ernment for some time but was actually implemented by the short­ lived Kim Campbell government.11Political symbolism associated with

H UMAN R E S O URC ES D E V E L O P M E N T

Table 5.1 Resources from Founding Units to New HRDC

Founding Department/Program

($000)

Full-Time Equivalents (FTEs)

20,600,000 56,000

19,900 2,800

20,600,300 14,000,000 7,400,000

2,700

50,000

134

4,665 32,749

63 501

18,009

126

106,795 71,423

31 33

2,200,000 489,000

20 98

10,400 10,076

21 39

20,500

21

$65,669,917

26,592

Employment and Immigration Employment and Insurance Corporate Management Health and Welfare Income Security Canada Pension Plan benefits Canada Assistance Plan (CAP) Social Development Grants and Contributions Labour Canada Mediations/Conciliations Labour Operations Labour Initiatives, Information, Workplace Partnerships Older Worker Adjustment Program/NAFTA-Labour Side Agreement Injury Compensation Program Secretary of State Education Support Branch Canada Student Loans Program Status o f Disabled Persons Secretariat and Program The Women’s Program Multiculturalism and Citizenship National Literacy Secretariat Total

—

105

Sources: Human Resources Development Canada Estimates 1994-95', Canadian Federal Government Handbook.

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downsizing and the elimination o f ministerial perks was a critical ele­ ment driving the amalgamation process. At the same time, to the ex­ tent that there was a policy rationale for slicing and dicing various departments and recombining the resulting fragments into larger port­ folios, it most clearly applied to social policy. Bernard Valcourt and Benoit Bouchard, Ministers o f Employment and Immigration and Health and Welfare respectively in the Mulroney and Campbell governments, had been openly complaining that reform o f UI and other aspects o f the social safety net was being hampered by the fragmentation o f re­ sponsibilities across a number o f portfolios; they suggested to the Prime Minister that these responsibilities be consolidated into a single port­ folio. Key officials in both departments, with the support o f their min­ isters, made similar arguments. These collaborative discussions led to the draft o f a white paper for a revamped and more integrated social security system, penned by a senior official in Health and Welfare. Their concerns were driven in good part by a perception that Canada’ s social security system was no longer serving the needs it was supposed to be serving: programs such as UI were not preparing the unemployed for a radically changed economy; the Atlantic fisheries would never again employ the same number o f people; traditional manufacturing jobs in central Canada were disappearing; and for many Canadians, UI, rather than being a temporary way station during times o f eco­ nomic downturn, had become a permanent part o f their income sup­ port system. Revamping the social safety net and placing more emphasis on retraining for a changed economy by combining and reconfiguring several government programs, including those involving transfer pay­ ments to the provinces, was seen as both desirable and feasible. There was also the possibility o f reducing not only administrative costs but also program costs by having a more coherent social security system. According to thinking at the time, the feasibility o f this strategy would be much improved by having all the relevant programs— UI, Income Security, the Canada Assistance Plan, and even post-secondary edu­ cation funding under Established Programs Financing— together un­ der one ministerial roof. Thus a clear policy rationale and a game plan for bringing about an integration and rationalization o f the field ex­ isted before the Liberals were elected in 1993.12 Upon coming to power, the Liberals, and specifically the new Minis­ ter o f HRDC, Lloyd Axworthy, were confronted by the same problems

H UM A N RE S O UR C E S D E V E L O P M E N T

that had worried the Conservatives. Axworthy, by nature an activist “ can do” minister with a social conscience, and with previous experi­ ence as Minister o f Employment and Immigration, realized the poten­ tial o f the new portfolio. Sensing an opportunity to leave his mark on the social policy field, he picked up where Bouchard and Valcourt had left off.13At the same time, it was clear that there was a counterweight in Cabinet in the form o f Paul Martin and some o f his right o f centre colleagues, whose primary concern was deficit reduction. Thus began a squaring o ff between the two most powerful ministers in the Chretien Cabinet— Martin, who clearly had the support o f a number o f key colleagues as well as the business and financial community, and Axworthy, who was responsible for the largest single expenditure port­ folio ($69 billion), and who had a reputation for being committed to people rather than to the reduction o f deficits. In the fall o f 1993 Mar­ tin organized a number o f sessions with notables in the field o f busi­ ness and economics, all o f whom underscored the need for deficit reduction. Axworthy in turn held a number o f well publicized semi­ nars with individuals and organizations in the social welfare field to help publicize the legitimacy o f his position. By early 1994 Axworthy had won, if not a victory, at least a major reprieve, by being given time to formulate a social policy reform package. On January 31,1994 he was able to stand up in the House and announce his “ strategy for social security reform.” 14 HRDC was to be given the opportunity to revamp Canada’ s social security system, but at the same time it was clear that at the end o f the process there would be not only reform but also a substantial contribution from the social policy envelope to the government’ s fiscal reduction framework. Should Axworthy’ s ambi­ tious plan falter or become derailed, Paul Martin would be in control. The reform process was envisioned in three stages. First, the House o f Commons Standing Committee on Human Resources Development was asked to hold hearings on social security and labour market concerns. Concurrently, there would be both federal-provincial discussions and deliberations by a small task force to assist the Minister. All this would form the basis o f the “ Government’ s Action Plan,” to be tabled in April o f 1994. The second stage revolved around more detailed consultations based on the action plan. The final stage would involve the development, tabling, and debate o f legislation late in 1994 with implementation in 1995. On February 17,1994 Axworthy announced

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the composition and mandate o f his advisory task force.15It should be kept in mind that at the time the scope and format o f Program Review had not yet been finalized. It was still not clear, for example, whether this was going to be ajoint venture between government renewal minister Marcel Masse and Treasury Board president Art Eggleton or led by Masse alone, or how Cabinet itself was to be involved. It was not until June 1994 that the Program Review secretariat within PCO and the Co-ordinating Group o f Ministers, the cabinet committee responsible for Program Review, were put in place. It was shortly thereafter that an understanding was reached in Cabinet: that in light o f the social security reform process already well under way, HRDC would be largely exempted from the Program Review process. Within the department a special social security review secretariat was created in January 1994 to tackle this responsibility. At the same time, the department was still completing the not inconsiderable task o f bringing the disparate elements from five different departments into a coherent whole. A Transition and Renewal Secretariat within the department had made considerable headway toward this end, but two major issues remained unresolved. First, during the initial phase o f the amalgamation HRDC employees were told that the changes were about reorganization and renewal, not downsizing. In short, jobs were to be largely protected. While there were 98 FTE reductions among senior ranks in the area o f corporate services, representing a little over $4 million in salaries, over all these changes could not be seen as a major cost-saving or serious downsizing exercise. In this regard, it should be noted that the crucial amalgamation phase occurred during the run-up to the 1993 election. For the new deputy minister o f HRDC, Jacques Noreau, who had no previous direct experience with the largest com­ ponent o f the new portfolio (the old CEIC), the first and most impor­ tant task was simply to ensure continuity in operations and program delivery. The last thing anyone wanted, least o f all the new Prime Min­ ister, was a major disruption in the delivery o f cheques and services during an election campaign. Second, the launching o f the Social Se­ curity Review raised the possibility that major components o f HRDC’ s programs might be delivered by other levels o f government or not de­ livered at all a year or two years hence. This introduced substantial uncertainty as to how HRDC should organize itself for the new but

HUMAN RE S O UR C E S D E V E L O P M E N T

unknown social policy millennium. Furthermore, as the Review began to drag out, various parts o f the organization that earlier had been geared up for change began to settle back into traditional holding pat­ terns. To use internal HRDC parlance, the old “ silos and stovepipes” began to reassert themselves, something that could well hinder change down the road. The Social Security Review certainly became a dragged-out affair. Although the Commons Standing Committee promptly held hearings over an eight-day period and reported at the end o f March, its work in turn was overshadowed by the $5.5 billion over three years in cuts to UI announced in the February 1994 Budget. Amid strident criticism from the Bloc Quebecois, the Committee offered up a vague list o f three broad priorities and eight “ guiding principles,” without reaching any conclusions on specific questions.16 Axworthy was also having difficulty in meshing the work o f his advisory task force with that o f the Social Security Review secretariat within HRDC. And clearly, both within Cabinet and on the federal-provincial relations front Axworthy faced considerable opposition. Within Cabinet, Axworthy not only was caught between the left and right wings o f the party but also faced ministers who were unhappy about the lack o f information and the fact that details on some reform options were being given to provincial ministers before federal ministers had heard o f them. More generally, in Ottawa circles other departments were becoming envious o f the fact that HRDC was exempt from cuts, while they were making substantial sacrifices in administration and programs. The provinces, in turn, led by Quebec, forced cancellation o f a federal-provincial meeting sched­ uled for April.17In June, Axworthy was actively pursuing negotiations with the provinces on his schemes to move people from UI and welfare into training programs and to direct more support toward alleviating child poverty. In doing so he also launched a number o f initiatives for unemployed youth and single mothers funded out o f a special $800 million “ experimental initiatives” program announced in the February 1994 Budget.18 By August, however, with a Quebec election immi­ nent, it became evident that the window for obtaining a federal-provincial consensus had effectively closed.19 Meanwhile the advisory task force and staff were still struggling with the text for the Action Plan, now several months overdue. When

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the green paper was finally released it generated considerable debate and, at the same time, some accolades from those who credited Axworthy for comprehensiveness, boldness, and imagination. But its very comprehensiveness was also its weakness: it was unlikely to gen­ erate the support from the myriad constituencies necessary for its imple­ mentation; indeed, many constituencies were actively opposed to the plans. Thus, when the Standing Committee began its discussion o f the paper, it was besieged by 1,200 submissions and 40,000 “ workbooks” that Canadians had been asked to complete to give voice to their ideas on changing the system.20Proposals such as the income contingency repayment scheme for students, which would have provided the fed­ eral government with a stronger presence in the post-secondary educa­ tion field, were roundly condemned by one o f the major stakeholders in the field, university students. By January it was clear that the Social Security Review process had become far too complex and chaotic. It was also clear that the collision between what David M. Cameron called the engines o f “ deficit reduc­ tion” and “ social policy reform” was imminent.21 When and where exactly the crash occurred is not known, but the debris from the colli­ sion soon appeared in the press. By the end o f January 1995 Axworthy had essentially conceded defeat.22 Three weeks later, the details be­ came evident upon release o f the Budget. Essentially, the 1995 Budget stated that all consolidated revenue fund programs would be combined into the new HRIF. As well, there would be a streamlining and restructuring o f HRDC programs and services. All o f this would result in a “ smaller global budget” The overall savings would be $600 million in 1996-97 and reach $1.1 billion by 1997-98. A good part o f the savings would come from a reduction in FTEs from a base o f approximately 26,000 to 21,000 over a three-year period (Table 5.2). Approximately $200 million was expected to come from savings in service delivery. The rest, approximately $885 million, would come from the actual programs delivered.23Among the more substantial programs targeted for reduction were the Canadian Job Strategy, a legacy o f the Mulroney era,24 and the Strategic Initiatives programs, which had been announced in the 1994 Budget and which Axworthy had been using to help bring mainly provincial governments in Atlantic Canada on board the social security reform train through the summer

H UMA N R E S O UR C E S D E V E L O P M E N T

o f 1994. Transfers to the provinces under the Vocational Rehabilitation for Disabled Persons program were to be frozen at the 1994-95 level. Most attention, o f course, was focused on the new CHST. Clearly, a major portion o f Axworthy’ s portfolio was no longer under his primary control. Equally important, though perhaps less apparent, any prospect o f melding together income maintenance and elements o f the Canada Assistance Plan and Post-Secondary Education Programs with the active measures components o f UI and education and rehabilitation programs in the consolidated revenue fund was now sharply curtailed. To summarize, service delivery, the new HRIF, and the configuration o f the new UI eligibility requirements were essentially the only areas remaining where Axworthy and HRDC were in a position to influence matters directly. Service delivery and the HRIF were to be the main vehicles for the conduct o f Program Review within the department. The extent to which some or all o f the active measures o f UI were to come under the HRIF was left ambiguous.

Table 5.2 Work Force Reductions, Full-Time Equivalents (FTEs)

1997-98

Total

Reduction from 1994-95 to 1997-98

1,184

1,449

3,224

17

215

129

322

666

30

134

318

352

804

30

N/A

N/A

N/A

306

940

1,595

2,123

5,000

1995-96

1996-97

Service Delivery Network

591

National Headquarters Regional Headquarters Other T o ta l

19

Sources: HRDC, News Release, “ Services to be more Accessible to Canadians,” Ottawa, August 2, 1995; Briefing Deck, “New Service Delivery Network,” and internal HRDC sources.

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After the Budget formalized what most within HRDC already knew, the departmental infrastructure for Program Review was put in place. The Deputy Minister created a steering committee consisting o f him­ self, the Associate Deputy Minister, Scott Serson, and five assistant deputy ministers. A support group was created, headed by the former head o f the Social Security Review secretariat. A good portion o f that secretariat was simply rolled over into the Program Review secretariat. Scott Serson was the official chair o f the steering committee. As de­ picted in Figure 5.1, the work was divided up into four areas. Policy development essentially covered the area outside the formal purview o f Program Review, although UI reform would have a definite impact on the service deliveiy vision, while the area labelled “ managing people” concerned the internal management o f human resources in relation to organizational and program changes. The key areas were “operational review” and “ program redesign,” with the latter centred mainly on the HRIF. Both were made the responsibility o f committees headed by ADMs. The Operational Review group completed its work on sched­ ule by July o f 1995. The HRIF is still, even after the March 1996 Budget, very much a work in process, bedevilled by some o f the prob­ lems and dynamics that earlier had affected progress on the Social Security Review, albeit on a smaller scale and with much less public­ ity. As will be noted below, there is considerable question o f whether the HRIF is still a meaningful category or was merely a gleam in the eyes o f Lloyd Axworthy or officials in both PCO and HRDC. The Functional Review component o f the Operational Review was headed by two senior officials, from Financial Services and UI branches respectively. A group o f 19 drawn from all branches set about seeing what could be pared back in terms o f overheads and internal services, essentially using the FTE reduction target o f 5,000 as their reference point. Their report was completed by May. A large part o f their work, however, was contingent upon the work o f the group responsible for recasting and streamlining the service delivery network. Its work was in fact far more critical, not only with respect to cost savings but also with respect to programs that were to be delivered under the rubric o f the as yet undefined HRIF. In effect, the Service Delivery Vision and the new Service Delivery Network launched in late 1995 both affect and offer insight into the future role o f HRDC in the delivery o f social policy.

Figure 5.1

Human Resources Development Canada Priorities for 1995-96

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RESTRUCTURING THE SERVICE DELIVERY NETWORK

The Operational Review Committee initially estimated that in order to take 5,000 FTE staff out o f the system, productivity needed to im­ prove by about 30 percent. Two aspects o f the HRDC service delivery network were apparent. First, remnants o f HRDC’ s predecessor de­ partments in the form o f local offices for the delivery o f income secu­ rity services, such as Canada Pension Plan and Old Age Security, were still scattered about, so that in many cities there were three or four separate HRDC offices, albeit representing different branches. The idea o f one-stop, single-window provision o f many if not all o f the department’ s services had much to commend it, in terms o f both client service and cost savings. The other aspect was the deployment o f new technologies. Banking through ATMs and more recently by phone has been commonplace in Canada, and while HRDC had made a number o f experiments using these new technologies, there was as yet no wide­ spread adoption o f them. To the extent that there was resistance to changing the service delivery network, it was due to the fact that local politicians, and especially MPs, valued a federal presence, and the actual jobs this presence represented, in their communities. The new design for service delivery tried to take account o f these factors. The main thrust o f the Service Delivery Vision, announced in Au­ gust 1995, was as follows: the replacement o f about 450 Canada Em­ ployment Centres with 98 “ parent” Human Resource Centres (HRCCs), plus an additional 207 so-called satellite HRCCs reporting through parent HRCCs; the creation o f up to 400 new points o f service in the form o f electronic kiosks or contracted delivery with non-HRDC part­ ners; and the consolidation o f the 65 income security offices into most o f the 98 parent HRCCs. Furthermore, a telecentre network with 15 call centres would allow submission o f most claims for UI and income security by phone through 1-800 numbers. All told, the Service Deliv­ ery Vision, with the new HRCCs, satellites, electronic kiosks, and 5,000 fewer FTEs, is expected to yield $200 million a year in savings. At the same time, given the new roles that many front-line personnel are ex­ pected to play, approximately $60 million o f that amount is being rein­ vested into training o f HRDC staff. The significant feature o f the new service delivery network is the creation o f the 98 parent HRCCs. Each o f the 62 economic/labour

HUMAN RE S O UR C E S D E V E L O P M E N T

market regions, as defined by Statistics Canada, will have at least one parent HRCC; larger cities will have two or more. These centres will offer a full range o f services and provide both automated and in-per­ son front-end service. The satellite HRCCs will appear very similar to parent HRCCs, with front-end service provided through both auto­ mated and in-person means, but the personnel will be able to handle only non-discretionary tasks and decisions. Matters related to deci­ sions on eligibility for particular employment programs, for example, can only be handled by staff at one o f the parent HRCCs. In short, while the potential reach o f the new HRCC network has been ex­ panded— it is planned that at least 90 percent o f Canadians in every province will be within 30 minutes commuting time o f a parent or satellite HRCC— the depth and range o f in-person services will have been reduced. At the same time, the parent HRCCs will have consider­ ably more authority. Indeed, the new service delivery network repre­ sents a major rebalancing and rejigging o f reporting relationships between the centre, the 10 regional headquarters, and the new HRCCs. As noted in Table 5.2, the most significant cuts in FTEs are being made at the national and regional headquarters level— 30 percent ver­ sus only 17 percent in the actual service-delivery network in the field. The 98 parent HRCCs, in turn, will be headed by higher-level manag­ ers than was previously the case with the Canada Employment Cen­ tres. Sixty-five o f the new managers will be at the E X -1 level, with the remainder at the PM-6 level. The Functional Reviews and the Service Delivery Vision were com­ pleted by June and presented to the PCO and the Government Renewal Minister, Marcel Masse, in July 1995. Given that the department had met all the targets set for it in February, the department’ s proposals in these areas elicited relatively little opposition and received quick ap­ proval.25 The more difficult task was getting the approval o f parlia­ mentarians. Changes in, or closings of, Canada Employment Centres, or any government offices for that matter, tend to be sensitive topics at the best o f times, but particularly so in a period o f slow growth and in regions o f high unemployment. Furthermore, for several decades there has been a well-established tradition that local MPs become actively involved in employment generation projects launched in their ridings through HRDC and its predecessor, CEIC. The extent o f this involve­ ment has varied, and at times it has had a distinctly partisan element,

147

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but on the whole it has generally meant that MPs— opposition as well as government MPs— are consulted by the local HRDC office as to the suitability o f particular projects, people who might be appointed to boards or committees supervising such projects, and so on. Given the existence o f such links between MPs and HRDC offices, it would not be surprising that elected representatives would be sensitive to any changes not only in programs but also in the physical presence o f these offices in their ridings. The fact that at the present time high-unemployment areas tend to be overrepresented on the government benches merely reinforced the point that the House o f Commons, and espe­ cially the Liberal caucus, was much more likely to be problematic than any Program Review committee in Cabinet. To minimize opposition and foster better understanding, the Minis­ ter, his office, and officials in the Insurance and Finance and Adminis­ tration branches spent considerable time during July meeting with MPs individually and in groups. Furthermore, they presented details o f the new service delivery network not only to the Liberal caucus but also to the Bloc Quebecois and Reform parliamentary parties. Considerable pains were taken to spell out exactly what would happen in each riding in terms o f office closings and/or the creation o f new offices and the accessibility o f clients, as well as demonstrating that the FTE cuts were distributed proportionally throughout the service-delivery net­ work. Axworthy in particular also indicated that managers o f the new HRCCs would likely have increased authority over funding and an enhanced role in configuring national employment programs to fit lo­ cal needs, and that consequently local MPs would continue to enjoy influence. The details were publicly released August 2,1995 and in­ cluded where the new offices were to be located and, by implication, which offices would close.26Notwithstanding the propitious timing o f the press release— the middle o f the summer— there was surprisingly little in the way o f critical commentary. In a key Liberal caucus meet­ ing August 9, 1995, Axworthy, Industry Minister John Manley, and the Prime Minister assured Liberal MPs that, with the government moving into the third year o f its mandate, the agenda would be shifting from cuts back to the promises made in the Liberal Red Book, namely jobs and growth. While fears remained over the anticipated cuts in UI— “ The devil is in the detail,” remarked one Liberal MP from New

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Brunswick— the caucus generally was supportive, including the cru­ cial contingent from the Atlantic region.27 This support was based in part on promises that while UI eligibility requirements would become more restrictive, particularly for seasonal workers, there would also be supplements for low-income recipients and their families.28 This was, however, before the full details o f the UI reforms proper became known. While far from having received cabinet approval, elements o f the HRIF and the uses to which the “ active measures” were going to be put were becoming known. By early fall Axworthy and HRDC had overcome some early but crucial hurdles in implementing their pareddown vision o f Liberal social policy. SHRINKING THE HOUSE OF HRIF

Within government circles the HRIF is charitably described as a work in progress. Those more directly involved in its construction, however, indicate that there is confusion over what components, particularly the employment benefits component announced as Part 2 o f the new Employment Insurance package on December 1, are to be included in the HRIF or what the relationship is between the employment measures and the programs supported by the consolidated revenue fund. While the 1995 Budget Plan initially indicated that the HRIF applied only to consolidated revenue fund programs, within the department the HRIF was soon seen as a vehicle for bringing together these programs with the UI active measures. This was also the vision that Axworthy and his officials began selling to the PCO Program Review secretariat. By late summer 1995, however, the difficulties o f integrating the two sets o f programs became apparent, and HRDC began backing away from their initially more ambitious plans for integration. There was also the issue o f what components o f the UI system were to be assessed as part o f Program Review on the one hand and the policy reviews on the other. In any event, the 1996-97 Estimates for HRDC imply that both the consolidated revenue fund components and the new El employment measures are part o f the HRIF, and, furthermore, state that “ its implementation is expected for September 1996.” 29 What is in or out o f the HRIF, and the degree to which the different programs are segregated from one another within the HRIF, are matters

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o f considerable significance, particularly if HRIF is intended to be the main vehicle for shrinking, eliminating, or revamping programs. In general, it is worth keeping in mind that Program Review items are supposed to move along one track through the Co-ordinating Group o f Ministers, while other policy items move along different tracks, that is, other cabinet committees. The shifting o f items from one track to another can affect the way these items are ultimately handled. Assuming that consolidated revenue fund programs, UI active mea­ sures, and the UI reinvestment are all placed in the HRIF, the total amount would be between $4.2 and $4.3 billion, as indicated in Table 5.3 below. The HRIF is to include five new programs, or “ HRIF tools,” for putting the unemployed back to work through wage subsidies, selfemployment assistance, and the like. Table 5.3 HRIF Components Components Consolidated Revenue Fund Other programs UI Reinvestment UI active measures Total

Amount ($ million) $800 770 800 1,900 $4,270

Sources: 1995 Budget Plan; Human Resources Development Canada Estimates 1995-96 and 1996-97.

It is important to keep in mind that the UI (now El) account will be reduced by approximately $2 billion, bringing down the total outlay devoted directly to insurance benefits (as distinct from other El ben­ efits) to $ 14 billion from approximately $ 16 billion. O f that $2 billion being saved, $800 million, the so-called UI reinvestment fund, has been allocated to the HRIF. The amount devoted to UI active mea­ sures, $1.9 billion, remains the same, and this too is to become part o f the HRIF. Unfortunately, the status o f the HRIF— that is, what is en­ compassed by it or even whether the very concept or title will continue

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to be used either within or outside HRDC— has become enormously complicated since fall o f 1995. The Quebec Referendum o f October 30, 1995 led to revised federal thinking on jurisdiction over labour market training. Then there were two major HRDC announcements in December 1995, the first on UI reform and the second on a proposed federal-provincial child-care program.30Finally, in the cabinet shuffle o f Januaiy 1996 Doug Young replaced Axworthy as minister o f HRDC. Young quickly made it known that he had a definite aversion to some critical features o f the new Employment Insurance initiative and was, at best, lukewarm on the child-care initiative. The Quebec Referendum has had numerous consequences in several areas. In the case o f HRDC, the immediate impact resided in the field o f labour market training, an area in which the federal government has had a direct presence for several decades. In the last days o f the refer­ endum campaign the Prime Minister indicated that this area could well be returned to the provinces. The fulfilment o f this promise was for­ malized four weeks after the Referendum.31 Those parts o f the HRIF and the new El legislation dealing with labour market training had to be rethought and carefully redrafted to make them consistent with the Prime Minister’ s referendum promises. Axworthy’ s December 1 announcement on UI and the new El legis­ lation concerns in good part changes in UI eligibility requirements that will yield the promised $2 billion in UI savings annually, but it also refers directly to employment benefit programs that are to come under the HRIF umbrella. However, in the December 1 announcement, there were no references at all to the HRIF proper in connection with the five new employment benefit measures, or “ tools.” Within HRDC, nonetheless, HRIF continues to be used by officials as an organiza­ tional framework. There is also passing reference to it in the 1996-97 Estimates. All this appears to indicate that while HRIF as an umbrella concept may no longer be used as a tool to sell the public on social policy reform it still plays a role in structuring government decision­ making. The child-care program, proposed to the provinces as a cost-shared program, and contingent upon striking an agreement with the prov­ inces by March o f 1996, was initially projected to cost $720 million over three years and draw on the HRIF for funding. Shortly after Young became HRDC Minister he announced that the child-care proposals

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were being dropped, allegedly in light o f the lack o f provincial interest, although he did invite the provinces to meet with him to develop a new set o f proposals.32 The “ Transitional Jobs Fund,” part o f the package o f UI reforms, provides for an additional $300 million to create employment “ in ar­ eas that lack a strong job market.” 33 These moneys are to be chan­ nelled through the federal regional development agencies, such as the Atlantic Canada Opportunities Agency (ACOA), with $60 million to be spent the first year (1996-97), $140 million the second, and $100 million the third. The second year (1997-98) is also a likely federal election year. In the past, these agencies have been used to channel funds to ridings o f government MPs where electoral support is needed. A good portion o f that initial $60 million was spent in Newfoundland during Brian Tobin’ s successful provincial election campaign, much to the chagrin o f the other Atlantic premiers, who lacked Tobin’ s ear­ lier privileged access to Ottawa circles as a federal cabinet minister when allocative decisions were being made. The new employment benefits programs, including the Transitional Jobs Fund, will, by the third year, when expenditures are fully imple­ mented, take up most o f the $2.7 billion represented by the active mea­ sures portion o f UI plus the $800 million UI reinvestment. This part o f the long-awaited UI reform package represents by far the most signifi­ cant development, in terms o f potential impact on the HRIF. While the “ income benefit” (i.e. insurance) component o f UI/EI was, and still is, the primary subject o f debate within the Liberal caucus and o f lobby­ ing by Atlantic premiers— and the main target o f large-scale demon­ strations by seasonal workers throughout Atlantic Canada— it is the employment benefits component, and by implication the HRIF as a whole, that stands to be affected by changes that might be made on the insurance side o f the UI/EI package.34 Last-minute changes by Axworthy covered eligibility requirements and the phasing-in period in the changes to the insurance side and the addition o f the Transitional Jobs Fund. These changes allowed Liberal MPs and premiers to claim partial victory and to reduce their opposition. It was the employment benefit package, however, that was crucial in buttressing caucus sup­ port for, or at least initial acceptance of, the UI reform package as a whole for presentation in Parliament on December 1,1995. It is worth

HUM A N RE S O UR C E S D E V E L O P M E N T

dwelling on the “ employment benefits” package for a moment, in part because it encompasses programs that bear resemblance to ones funded earlier out o f consolidated revenue fund money and because o f its overall impact on the HRIF as well as on Program Review. The overall El package draws an important distinction between “ income benefits”— those payouts resulting directly from claims on the El account based on insurable earnings after people lose theirjobs— and “ employment benefits.” The latter are intended to “ provide more direct assistance to 400,000 unemployed Canadians who need it.” 35 Again, it is these benefits that were formerly labelled the active measures o f UI ($1.9 billion) and that also incorporate the $800 million employment reinvestment component. Much is made o f the fact that “ employment benefits,” following the lead o f countries such as Germany and Japan, represent “ a larger direct investment in jobs and work opportunities.” 36 There are five new active employment measures or “ tools” in the Employment Benefits component o f the new El system:37 1) wage subsidies; 2) earnings supplements; 3) self-employment assistance; 4) job-creation partnerships; and 5) skills, loans, and grants. The dollar amounts notionally allocated for 1996-97, the number o f participants, and the like, are summarized for each component in Table 5.4.38The first four are envisioned primarily as direct delivery programs, that is, those involving direct transfers to individuals, groups, or firms. Wage subsidies, for example, would be given to employers as an incentive to hire new workers, and earning supplements to eligible workers to top up wages that are lower than those received in previous jobs. Many o f these “ tools” have been tested in pilot projects. It is claimed, for example, that an evaluation o f the self-employment assistance program shows participants earning an average o f $142 per week more than non-participants, claiming 92 percent less UI, and being 60 percent less likely to use social assistance.39 The last active measure— loans and grants for skills development— bears directly on provincial jurisdiction. In its proposals, HRDC indicates a wish to respect provincial ju risd iction by “ recognizing p rovin ces’ responsibilities for education and labour market training.”40 At the same time, it also intends to stop the bulk purchase o f spaces in training programs from provincial community colleges, including apprenticeship programs. In the past, these bulk purchases, under the Canadian Job

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Strategy for example, have been a major source o f indirect subsidies for the provinces. The federal government, however, is committed to reaching individual agreements with the provinces as to how loans and grants are to be made in each province, that is, whether directly to individuals, to third parties, or to provinces. Table 5.4

Employment Benefits Programs (estimated for 1996-97) Programs

Maximum per item ($)

Participants (No.)

Total Amount ($)

Wage subsidies

$3,000

66,000

$200 million

Earnings supplements

$3,000

83,000

250 million

Self-employed assistance

$15,000

21,666

325 million

Job-creation partnerships

N/A

83,666

500 million

Loans/grants for skills

N/A

250,000

1,000 million

Transitional jobs fund

N/A

N/A

60 million8

504,332

$2,335 million

Total

Note: a $300 million over 3 years, with $60m the first year, $140m the second, and $ 100m the third. Source: Based on data cited in Greenspon, “Axworthy Plans to Soften Blow in UI Cuts,” The Globe and Mail [Toronto], September 28, 1995, A10; HRDC, News Release, Backgrounder 5, “The Transitional Jobs Fund,” December 1, 1995,2.

Three major misgivings come to the fore, two directly related to the new El package and one to the effects on the HRIF. First, how will these employment benefit “ tools” work in conjunction with the income (insurance) benefits program? The employment benefits program in­ corporates an implicit assumption that many if not most retraining programs have been a failure, the most recent example being the The Atlantic Groundfish Strategy (TAGS) program.41 Hence the emphasis in the five “ tools” on upgrading skills and getting people back into the

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workforce rather than remoulding the unemployed for new occupa­ tions. At the same time, the primary objective o f the income benefits program is to move workers out o f the seasonality trap and into more permanent and stable year-round employment, where they are much less likely to resort to UI. This is to be accomplished by penalizing those who make more intensive use o f the system. The hazard is that the “ employment benefits” could simply serve to counteract the effects o f the new El disincentives. As Edward Greenspon pointed out upon the introduction o f the El legislation, as a result o f political pressures Axworthy (the former minister) “ could end up far from where he started out on UI reform,” 42that is, the seasonality treadmill could simply re­ enter through the backdoor by means o f the five “ tools.” In this connection the largest danger probably lies with the fifth “ tool,” which is also where the revamped service delivery network and the 98 senior managers heading the new HRCCs come into play. In mid-Oc­ tober HRDC began the process o f recruiting individuals for the posi­ tions o f HRCC manager, em phasizing the need for strong entrepreneurial skills. Essentially, these people will be responsible for most decisions on allocating the funds in the job-creation partnerships program, roughly $5 to $6 million per HRCC manager. The strains on these new managers in handling a program that, according to Greenspon, no one pretends “ is anything other than old-style porkbarrelling,” 43 will be considerable. They will be expected to negotiate— nay, wheel and deal— extensively with local community leaders, entrepreneurs, and politicians, and particularly with the local MPs and the federal regional minister. For many o f these interests, taking away the season­ ality component under Part I o f the El legislations represents stigmati­ zation, and, in the words o f Cape Breton MP Frances LeBlanc, “ an unfair attack on Atlantic Canada.” 4 There will be considerable pres­ sure to use these new job-creation programs to protect seasonal work­ ers. In brief, the features o f the old UI system, where UI essentially constitutes an income maintenance rather than insurance program, can all too easily re-assert themselves, only this time there will be consid­ erably less money— $ 1.2 billion less by the year 2000— in the new El pot. In this respect the new El pot is much like the HRIF and the CHST— a creative way o f “ defunding.” The second major concern relates to the federal-provincial dimen­ sion. Federal-provincial relations had never been Axworthy’ s strong

15 5

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suit as HRDC minister. He has always been much more o f a grass­ roots politician interested in community-based activities, not surpris­ ing given his background as a community activist and student and teacher o f urban government and politics.45 It is the 98 HRCCs and their role in fostering community-based employment activities and net­ works, one suspects, that Axworthy found most congenial in the new scheme o f things. Doug Young, while perhaps more pragmatic, has only limited experience on the federal-provincial front. In brief, there is the double hazard o f not only drawing further aspects o f the employ­ ment benefits programs into the vortex o f local community politics, but also drawing the ire o f provincial governments. Many, if not all, may resent being by-passed in the rush to direct funds to the local level. According to the El proposals, HRDC is committed to obtaining provincial approval before striking deals with direct service providers under the new loans and grants scheme. Yet with its attendant commit­ ment to withdrawing funds for the block purchase o f training places from provincial community colleges, these proposals contain all the ingredients for a major federal-provincial clash. More than any other area o f federal-provincial relations, the history o f occupational train­ ing recalls the Karl Marx dictum that those who fail to learn from history are condemned to repeat it.46 What programs in the house o f HRIF are most likely to be hurt? If from the original $4.3 billion HRIF $2.7 billion is taken away for “ employment benefits,” $1.6 billion is left for other programs under the HRIF umbrella, including the new child-care program and the new youth employment initiatives announced in the 1996 Budget Plan.47 Particularly when the child-care program is taken into account, the pressure on all these programs, as they compete for space in a HRIF house that is much smaller than originally anticipated, is enormous. To obtain an idea as to how these pressures bear on individual pro­ grams it is useful to disaggregate the consolidated revenue fund and “ other programs” categories indicated earlier in Table 5.3. This has been done in Tables 5.5 and 5.6 below, using data for the fiscal year 1995-96. HRDC officials have split the consolidated revenue fund portion o f the HRIF into two sections, as represented by Tables 5.5 and 5.6 respectively. The category “ other programs,” broken down into subcategories in Table 5.5, while supported by the consolidated revenue fund, mainly concerns those items that have their own time

H UMAN R E S O URC ES D E V E L O P M E N T

horizons, commitments, and agreements that are difficult to alter. The Atlantic Groundfish Strategy (TAGS), for example, is scheduled to be phased out by 1997-98. The Canada Student Loan program has, at least for the moment, its own integrity. Programs funded out o f the strategic initiatives category are mainly subject to federal-provincial agreements, and furthermore the $115 million in question is far less than what was originally promised. In other words, “ other programs” are characterized by a general agreement that they will not be signifi­ cantly altered from present levels or an already existing understanding as to how they will be gradually wound down. That leaves the remain­ ing consolidated revenue fund programs, shown separately in Table 5.6, as the ones most vulnerable to shrinkage or elimination. On the whole rather heterogeneous, they generally represent programs that were inherited by HRDC in 1993 from smaller departments such as the Secretary o f State and Health and Welfare. One major program, the Canadian Job Strategy, inherited from Employment and Immigra­ tion, is scheduled to be completely phased out, as announced in the 1995 Budget. Its terrain has effectively been taken over by the jobs and skills program, part o f the employment benefits package. Table 5.5

Other Programs 1995-96 Program Canada Student Loans

Budgetary Allocation 1995-96 $521 million

Strategic Initiatives

115 million

TAGS

414 million

Miscellaneous Total

16 million $1,066 million

Source: Human Resources Development Canada Estimates, 1995-96.

Transfers to the provinces under the Vocational Rehabilitation for Disabled Persons program were frozen at the 1994-95 level. At the same time the federal-provincial agreement covering this program is set to expire at the end o f March 1996, and there is no indication

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Table 5.6 Consolidated Revenue Fund Programs 1995-96

Program

1995-96 Budgetary Allocation

Disabled Workers Program

$189 million

Older Workers Adjustment

40 million

Youth Initiatives

183 million

Aboriginal Pathways Strategy

145 million

National Literacy Secretariat

22 million

National Strategic Partnerships 49 million Alcohol Rehabilitation Employment Programs (CJS)

16 million 466 million

Child Care

10 million

Miscellaneous

82 million

Total

$1,202 million

Source: Human Resources Development Canada Estimates, 1995-96.

whether it will be continued, replaced, or simply cancelled. Much the same thing can be said about the other programs. The sum o f the totals in Tables 5.5 and 5.6 is $2,268 million. And then, room must be found for the new child-care initiative, in the amount o f at least $200 million annually, even assuming either that minister Doug Young might scale it down, or that not all provinces will take up the offer to participate.48 This means a total commitment o f close to $2.5 billion, which means that well over $860 million needs to be cut in order to make this con­ stellation o f programs fit the shrunken $1.6 billion HRIF house (i.e. minus the $2.7 for the UI/EI active measures). A good part o f the cut will be taken up by the elimination o f the Canadian Job Strategy (CJS) ($466 million), and perhaps another $150 million from the gradual winding down o f TAGS. Under the most optimistic scenario, that still leaves a shortfall o f approximately $200 million. The 1996-97 Esti­ mates state that “while funds from the CRF [consolidated revenue fund]

HUMAN RE S O UR C E S D E V E L O P M E N T

are decreasing, the El legislation will make it possible for more indi­ viduals to qualify for the ‘ Unemployment Insurance Development Uses (UIDU)’ type o f funding measures.”49 This clearly indicates a hope that the $2.7 billion employment benefits portion o f the HRIF will pick up some o f the slack. There have been suggestions, for example, that child-care benefits could well become the sixth “ tool,” presum­ ably drawing on the $2.7 billion for sustenance. Yet this “ development uses” pot is also coming under pressure, in part because o f the ap­ pointment o f Doug Young as the new HRDC minister. In his previous portfolio, Transport, Young developed a conspicuous reputation for downsizing, subsidy cutting, and privatizing large chunks o f his department. More perhaps than any other minister in the Chretien Cabinet in charge o f an operational department, Young has taken the cost-cutting and deficit reduction edict seriously. Ideas that he would apply the same cost-cutting zeal to the HRDC portfolio were damp­ ened, however, when, shortly after his appointment, he stated, “ When I’ m running an operational department that has trains, planes, ships, trucks,... they don’t make my heart go pitter-pat, [but] social pro­ grams do.” 50 On the other hand, in selecting Young for the Human Resources portfolio, the Prime Minister chose someone acutely vul­ nerable to the political fallout from the seasonality provisions in the El legislation; that is, Young has the misfortune to represent an area o f Atlantic Canada, northern New Brunswick, where only one in four workers has a permanent year-round job. Almost immediately upon his appointment Young indicated that he would be revisiting the sea­ sonality provisions in the Income Benefits (Part I) portion o f the El legislation.51 The changes Minister Young is contemplating concern the “ divisor and intensity clauses,” 52 and these changes will have a direct impact on the active employment measures fund and, by implication, the overall $4.3 billion HRIF. In discussions between the Minister and his officials it has been suggested that up to $200 million may be moved from the active measures portion back into the income benefits portion, that is, the UI/EI fund. This would impose further strain on those programs remaining in the HRIF, whether the El active measures or those currently supported by the consolidated revenue fund. Given the furor over UI reform, and the enormous pressure faced by federal politicians to maintain to the greatest possible degree the integrity o f the UI system,

159

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it is probably the consolidated revenue fund programs that are most vulnerable. For rather different reasons, the “ Loans/Grants for Skills” portion o f the Employment Benefit package is another area that stands to be affected, in this case by the new Minister’ s approach to dealing with the provinces. In keeping with the Prime Minister’ s announcement in November 1995 promising to respect provincial jurisdiction in labour market training, Young expressed his wish to accelerate federal with­ drawal from the training field. But at the same time he also stated that he wishes to see the “ Canadian flag” on every federal dollar spent by the provinces to support programs in this field, a condition that will likely be unacceptable to Quebec.53Thus all the ingredients for a federal-provincial stalemate remain in place. This may well act as an incentive for Ottawa to shift some o f the funds earmarked for skills training to some o f the other active employment measures, or perhaps back into the UI/EI fund, to reduce even further the effects o f the pro­ posed seasonality penalty provisions.54 SUMMARY AND CONCLUSIONS

At this stage it may be useful to return to the issues raised at the begin­ ning o f the chapter in relation to the role o f Program Review, and in particular to the issue o f whether and to what extent Program Review has acted as a catalyst for change within HRDC. Again, it is worth keeping in mind the two main competing forces— on the one hand the wish to continue pursuing some o f the goals raised in the context o f the Social Security Review, and on the other, the requirement that HRDC reduce its expenditures by least $1.1 billion (in addition to the $1.2 billion net reduction in the Unemployment Insurance account). This reduction, as laid down by Martin in his 1995 Budget, was to be made up o f $200 million in administrative savings (encompassing 5,000 FTEs) and close to $900 million in program savings. In response to the imposition o f the Program Review process, HRDC set about re­ viewing its administrative structures, especially its service delivery network, and its programs, encompassed in the main by the consoli­ dated revenue fund. The latter were to be integrated and streamlined within the Human Resources Investment Fund (HRIF).

HUMAN RE S O UR C E S D E V E L O P M E N T

Certainly, with respect to administrative streamlining and revamp­ ing o f the service delivery network, the order to reduce costs must have come as a welcome relief to the deputy minister o f HRDC. It allowed HRDC to retreat from promises made earlier, at the time o f the amal­ gamation in 1993-94, that there would be few jobs lost. There were also a number o f loose ends, particularly with respect to the consolida­ tion and rationalization o f offices in the field, that could be addressed more directly. The end result was a revamped service delivery network with a planned reduction o f 150 in the number o f Canada Employment Centres and the creation o f new Human Resource Canada Centres (HRCCs). However, this new service delivery network also embedded an understanding o f at least some o f the main features o f the HRIF. Unfortunately, while the “ Service Delivery Vision” component o f Pro­ gram Review was completed on schedule by August o f 1995, and ac­ cepted by the Liberal caucus, the Program Review machine stalled when it came to the HRIF. By the late summer o f 1995 an understanding had been reached that the $ 1.9 billion active measures part o f the UI account, along with the $800 million UI reinvestment from the $2 billion in UI savings, were to be brought together with the consolidated revenue fund for a com­ bined HRIF o f close to $4.3 billion. By autumn, however, a realization set in within HRDC that it would be very difficult to combine the UI active measures, envisioned mainly as programs delivered by the fed­ eral government, with the consolidated revenue fund programs, which tended to have their own unique character or be subject to federalprovincial agreements. While a conceptualization o f the HRIF still exists within HRDC, the name is no longer used for public consump­ tion. This cloud over the HRIF hous became obvious on December 1, 1995 with the announcement o f the new Employment Insurance Legis­ lation (El), in which there was no reference at all to the HRIF. Implic­ itly, it also became clear that a boundary o f sorts had been drawn between what is encompassed by the new Employment Insurance Leg­ islation on the one hand, including the UI active measures and employ­ ment reinvestment components, and the consolidated revenue fund on the other. The 1996-97 Estimates suggest that consolidated revenue fund programs may find support under the active measures portion o f the HRIF, but as o f the spring o f 1996 only limited progress has been

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made in bringing the two components together. Although HRDC is now contemplating an internal reorganization that would see the cre­ ation o f a new Human Resources Investment Branch (HRIB), it re­ mains to be seen whether this will result in the closer integration o f the development uses and consolidated revenue portions o f the HRIF. It is also important to underscore how this disjunction between El and consolidated revenue fund programs within the HRIF curtailed the sweep o f Program Review. In effect, the Program Review committee o f Cabinet is but one o f a number o f cabinet committees. Furthermore, the immediate constituency in which Cabinet operates, the Liberal cau­ cus, heavily weighted by MPs from Atlantic Canada and high-unemployment areas more generally, is perhaps at least as important as any single committee o f Cabinet when it comes to issues that have a very high political salience in these regions. Also not to be discounted is the Quebec factor, especially on issues such as labour market training, which has been o f particular concern to that province. The electoral cycle is also important, where both MPs and ministers, increasingly aware o f the electoral clock ticking away, are concerned with how program changes might affect their political fortunes. Thus, it is quite possible to have policy issues within the jurisdiction o f HRDC related to ones handled through Program Review, but mov­ ing along a track through Cabinet quite separate from Program Re­ view. Developments in the latter can have adverse consequences for the former. This double-tracking also provides a setting in which an adroit minister can use decisions reached in one cabinet committee to force or constrain decisions in another committee. This is what ap­ pears to have happened in the case o f the new Employment Insurance Legislation. To make substantial changes in UI more palatable, the five new employment measures came to be defined according to more traditional conceptions o f UI and allied as closely as possible to these conceptions; that is, job creation through subsidies to employers and employees, and upgrading o f existing skills, came to be favoured over retraining for new occupations. These considerations were played out mainly in the Economic Development Committee o f Cabinet, with a supporting role from the Social Development Committee.5SExtensive negotiations between Axworthy, the caucus, and key ministers from Atlantic Canada helped to shape the final package, which included the $300 million “ Transitional Jobs Fund,” to be channelled through the

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regional development agencies, with the bulk o f the funds to be spent in what is likely to be an election year. Once decisions had been reached within the Economic Development Committee o f Cabinet, Axworthy was able to turn back to the Program Review Committee o f Cabinet and argue that the main features o f the HRIF had been locked into place. Further changes in the El legislation to be undertaken by Minis­ ter Young will very likely further dilute the intent o f the active mea­ sures component, affect adversely the consolidated revenue fund programs, and, o f course, further constrain the Program Review pro­ cess. In other words, the shifts between the insurance and active mea­ sures components and the diminution o f the consolidated revenue fund portion o f the HRIF have had more to do with the political sensibilities and clout o f the Liberal caucus, Atlantic premiers, and key ministers from Atlantic Canada than with Program Review, either within HRDC, the PCO Program Review secretariat, or the Program Review Com­ mittee o f Cabinet. The case o f HRDC offers a distinctive example o f the limits o f Program Review and in many ways illustrates the generally restricted influence that this process has in the Canadian context. In other jurisdictions, Australia, Britain, and New Zealand, for example, comparable cabinet committees and ministers have had far more influence in setting the policy agenda and in imposing fiscal discipline.56 In Canada, although the Program Review process likely worked reasonably well for other departments, it was less effective in HRDC, for at least two reasons. First, many o f the other departments tended to be smaller and enjoyed a lower public visibility. Second, for all other departments the process o f Program Review arrived a year earlier. As is generally acknowledged, governments are much better o ff making the difficult decisions earlier rather than later in the electoral cycle. Furthermore, in the case o f HRDC, the Social Security Review not only delayed the hard decisions that had to be made, it also politicized the process, making it much more visible. In many ways the highly public process entailed by the Social Security Review, with parliamentary hearings and the like, ran directly counter to the strategy employed in other countries for rolling back the welfare state, which might be characterized as the stealth strategy o f social policy reform.57 Program Review in some sense offered HRDC an opportunity to do things more quietly and more sequentially. However, this simply could

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not overcome the obstacles posed by UI reform. The consequences o f the limited influence o f Program Review in HRDC are threefold. First, the integration o f programs, particularly employment programs funded out o f the consolidated revenue fund and those supported by the UI active measures fund, is now not impossible, but the possibility is defi­ nitely more limited. One could argue that this might be the proverbial silver lining in the storm clouds gathering over the HRIF house; the integrity o f many o f the smaller consolidated revenue fund programs will be protected from the UI monolith, with its culture o f dependency and the like. But here it is worth keeping in mind a second conse­ quence, namely, that since the December 1995 announcement concern­ ing the new El, the blueprints for HRIF will need to be rescaled for a house with much smaller rooms. This means that when the house starts to shrink, as called for under the Martin Budget, there will be much less flexibility to make trade-offs or rescue particular programs. Given that the course is set for a smaller HRIF, with separate and distinct compartments, what is the likely fate o f the programs inside the shrinking HRIF house? At this point, even in the aftermath o f the March 1996 Budget, neither HRDC, nor the current Minister, nor the Program Review Committee o f Cabinet have given clear indications o f where priorities lie. Axworthy, through his December 13 announce­ ment, had signalled a strong preference for the proposed child-care program, but at the same time did not state which program might suf­ fer as a consequence. Young, in turn, has intimated a weaker commit­ ment to the child-care initiative and would probably prefer to see it dropped altogether; but, since the proposals were put to the provinces and made public earlier by Axworthy, Young finds he cannot simply walk away from them.58 At the same time, given that the child care initiative is a new proposal and distinct from an existing program, it is the item most likely to disappear from the HRIF as a distinct entity. This does bring up the issue o f Axworthy’ s original commitment to the Program Review process as HRDC Minister, and in particular his commitment to deliver a $ 1.1 billion contribution to the fiscal frame­ work. In a shrinking house there are at least two options with regard to the contents, which in this case are the programs. One can quietly shrink the less visible programs and bury them underneath the floor boards. Alternatively, one can simply cast them out the door, publicly labelling them as orphans deserving o f a good home elsewhere. Par-

H UMAN R E S O U R C E S D E V E L O P M E N T

ticularly with an election looming and Prime Minister Chretien’ s com­ mitment to make good on the promises in the Red Book, it will be much more difficult for Doug Young, and the government as a whole, to terminate these orphans out in the open. At base, Program Review is not all that different from the earlier concept o f budgeting under the old Program Expenditure Management System (PEMS). And the prac­ tice o f departments offering up a highly visible and popular item for termination in order to protect either that item or others is well known. Axworthy, having had direct experience with the previous PEMS re­ gime, would no doubt be familiar with such tactics. It is also worth noting that Axworthy likely replenished his reserve o f political capital through his successful streamlining o f the service delivery network and the reform o f the UI program, however much the latter may end up being compromised by the changes that Doug Young will bring to the seasonality provisions. It is not outside the realm o f possibility that Axworthy hoped to preserve as much o f his portfolio and its programs as he could before moving on to Foreign Affairs. The issue o f transfers to the provinces under the Canada Assistance Plan and Post Secondary-Education had, by virtue o f the CHST, essentially been taken out o f his hands. To the extent that the social programs directly under the federal government’ s jurisdiction were recast during Axworthy’ s tenure in the portfolio, greater weight has been given to the UI/EI framework as the primary means o f delivering assistance to those in economic need, and a shrink­ age has occurred in the overall resources allocated to this area. The new Minister is unlikely to alter this basic thrust and indeed will likely reinforce it. In brief, while Axworthy will not go down in political history as the minister who presided over large-scale reform o f the social safety net, neither will he be regarded as the one who presided over its dismemberment. In this respect, Program Review within HRDC under Axworthy will have served as a means to protect the integrity o f the department’ s offerings rather than as a vehicle for either drasti­ cally altering them or paring them back. NOTES

The author would like to thank Peter Aucoin and Gene Swimmer for detailed comments on earlier drafts o f this chapter, and Donna Brothers

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and Fred Deveaux for their capable research assistance. This chapter draws on research supported by the Social Sciences and Humanities Research Council o f Canada and the Canadian Centre for Management Development. The author is solely responsible for all interpretations presented here. 1

Privy Council Office, “Program Review and Getting Government Right,” Ottawa, September, 1994; Paul Martin, Minister o f Finance, Budget Plan (Ottawa: Department o f Finance, 1994), 28. 2 Department of Human Resources Development Canada, Improving Social Security in Canada (Ottawa: Minister of Supply and Services, 1994). 3 See David M. Cameron, “Shifting the Burden: Liberal Policy for PostSecondary Education,” in Susan D. Phillips, ed., How Ottawa Spends 1995-96: Mid-Life Crises (Ottawa: Carleton University Press, 1995), 159-84. 4 Susan D. Phillips, “The Canada Health and Social Transfer: Fiscal Federalism in Search o f a Vision,” in Douglas Brown and Jonathan Rose, eds., Canada: The State o f the Federation 1995 (Kingston: Institute o f Intergovernmental Relations, 1995), 65-96. 5 Paul Martin, Minister of Finance, Budget Plan (Ottawa: Department o f Finance, February 27, 1995), 110. 6 Ibid., 110-11. 7 As noted, the Labour branch had undergone Program Review in 1994. In this case an outside management consulting firm had performed a fullscale review o f the branch. Its recommendations, however, including privatizing or outsourcing many o f Labour’ s functions, were thought to be unrealistic or not well costed and were ultimately accepted neither by HRDC nor by the Program Review committee o f Cabinet. 8 These were the public interest test, the role o f government test, the federalism test, the partnership test, the efficiency test, and the affordability test. See Privy Council Office, “ Program Review and Getting Government Right.” 9 Phillips, “The Canada Health and Social Transfer,” 75. 10 How Finance Re-Formed Social Policy (Ottawa: Caledon Institute of Social Policy, 1995), quoted in ibid., 76. 11 For details see Peter Aucoin and Herman Bakvis, “Consolidating Cabinet Portfolios: Australian Lessons for Canada,” Canadian Public Administra­ tion,, 36 (1993), 392-420. 12 In the run-up to the election, Prime Minister Kim Campbell found it convenient to deny that such a plan existed. See “Overhaul o f UI, Welfare Proposed: Secret Government Document Shelved Due to Election Campaign,” The Globe and Mail [Toronto], October 7, 1993, A l; “ Social

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13

14

15 16 17

18 19 20

21 22 23 24

25

Programs Called Too Vital for Campaign Trail,” The Globe and Mail [Toronto], October 24, 1993, Al. Shortly after being appointed minister, and seeing the array o f resources within, Axworthy is reported to have exclaimed, “This is like Christmas morning,” which suggests that he may have been seduced into adopting an overly ambitious strategy for social policy reform. Quoted in Jim Carr, ‘“ Like Christmas Morning’ Axworthy Seizes the Reins of Power,” Winnipeg Free Press, December 9,1993. Human Resources Development Canada, News Release, “Lloyd Axworthy announces strategy for Social Security Reform,” Ottawa: January 31, 1994. Human Resources Development Canada, News Release, “Lloyd Axworthy announces Ministerial Task Force members,” Ottawa: February 17, 1994. Geoffrey York, “ Committee Divided on Social Reforms,” The Globe and Mail [Toronto], March 26, 1994, A4. Edward Greenspon and Geoffrey York, “Provinces, Cabinet Tripped Up Axworthy,” The Globe and Mail [Toronto], April 16, 1994, A l; Rh6al S6guin, “ Social Reforms Meeting Collapses,” The Globe and Mail [Toronto], April 15,1994, A l. Edward Greenspon, “Axworthy Hits Road for Social Reform,” The Globe and Mail [Toronto], June 25, 1994, Al. Edward Greenspon, “Axworthy Under the Gun on Social Reform,” The Globe and Mail [Toronto], August 23, 1994, Al. James J. Rice, “ Redesigning Welfare: The Abandonment of a National Commitment,” in Susan D. Phillips, ed., How Ottawa Spends 1995-96: Mid-Life Crises (Ottawa: Carleton University Press, 1995), 188-89. Cameron, “ Shifting the Burden,” 160. Edward Greenspon, “ Social Reforms Take Back Seat,” The Globe and Mail [Toronto], January 31, A l. Martin, Budget Plan 1995, 110-11. See Michael J. Prince and James J. Rice, “The Canadian Jobs Strategy: Supply Side Social Policy,” in Katherine Graham, ed., How Ottawa Spends 1989-90: The Buck Stops Where? (Ottawa: Carleton University Press, 1989), 247-87. See also Rianne Mahon, “Adjusting to Win? The New Tory Training Initiative,” in Katherine Graham, ed., How Ottawa Spends, 1990-91: Tracking the Second Agenda (Ottawa: Carleton University Press, 1990), 73-111. The Functional Reviews and the Service Delivery Vision were not actually presented to the Co-ordinating Committee of Cabinet. Rather Mass6 and the Prime Minister were briefed on the proposal, and approved it. Subsequently Axworthy made a brief report to Cabinet. One of the pressures was the long lead time needed to hand out layoff notices to affected employees.

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32

33 34

35 36 37 38

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Human Resources Development Canada, News Release, “ Services to be more Accessible to Canadians,” Ottawa, August 2, 1995. Edward Greenspon and Susan Delacourt, “Liberals Lay Groundwork for UI Overhaul,” The Globe and Mail [Toronto], August 10, 1995, A l, A6. Edward Greenspon, “Axworthy Plans to Soften Blow in UI Cuts,” The Globe and Mail [Toronto], September 28, A10. Department o f Finance, Human Resources and Development Canada Estimates 1996-97 (Ottawa: Supply and Services, 1996), 2-27. Canada, A 21st Century Employment System for Canada: Guide to the Employment Insurance Legislation (Ottawa: Supply and Services, 1995); Human Resources Development Canada, News Release, “Minister Axworthy Announces New Employment Insurance Plan,” Ottawa: December 1,1995; Margaret Philp, “Axworthy Offers Child-Care Funding,” The Globe and Mail [Toronto], December 14, 1995, A l, A19. Office o f the Prime Minister, News Release, “The Prime Minister Delivers on Referendum Commitments with Initiatives for Change,” November 27,1995. “Federal Child-Care Plan Reported Doomed,” The Globe and Mail [Toronto], February 16, 1996, A l; “Child-care Program to Be Re­ assessed,” The Globe and Mail [Toronto], February 21, 1996, A4. Human Resources Development Canada, News Release, Backgrounder 5, 1. Edward Greenspon, “Atlantic Politicians Lean on Axworthy to Dilute UI Plan,” The Globe and Mail [Toronto], October 20, 1995, A6; Greenspon, “Atlantic Premiers Lobby on U I The Globe and Mail [Toronto], November 30, 1995, A l. Human Resources Development Canada, News Release, Backgrounder 1, 2. Canada, A 21st Century Employment System for Canada, 19. Ibid., 20-24. By the year 1999 the total amount should be close to the $2.7 billion. The figures in Table 5.4 represent the proportions by which the money would be allocated between components rather than actual amounts. Human Resources Development Canada, News Release, Backgrounder 2, 4. How well these projections will hold up for the broader population is not clear. The pilot projects may have focused on those candidates best suited for this program. As well, the extent to which the comparison and participant groups were standardized in terms of education and the like is not clear from the information made available. There is, therefore, some basis for questioning these projections. Canada, A 21st Century Employment System for Canada, 25. The program was intended to move at least half the fishers left unem­ ployed with the downturn o f the Atlantic fisheries into new occupations by means o f retraining. According to an assessment by Price Waterhouse,

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42 43 44 45 46

47 48

49 50 51 52

TAGS failed miserably in this respect, with only a miniscule proportion taking up the retraining option and/or finding new jobs as a result of retraining. Edward Greenspon, “Federal Fishery Plan Fails, Report Says,” The Globe and Mail [Toronto], April 27, 1995, A5. On Axworthy’s disillusionment with retraining generally, see Greenspon, “Axworthy Loses Faith in Jobs Retraining,” The Globe and Mail [Toronto], July 28, 1995, A l, A6. Greenspon, “Atlantic Politicians Lean on Axworthy to Dilute UI Plan,” A6. Greenspon, “Axworthy Plans to Soften Blow in UI Cuts,” A 10. Quoted in Greenspon, “Atlantic Politicians Lean on Axworthy to Dilute UI Plan,” A6. See Herman Bakvis, Regional Ministers: Power and Influence in the Canadian Cabinet (Toronto: University o f Toronto Press, 1991), ch. 8. See the classic study o f the effort in the 1960s by the federal government to take more direct control of federal-provincial training agreements, J.Stefan Duprd, et al., Federalism and Policy Development: The Case o f Adult Occupational Training in Ontario (Toronto: University o f Toronto Press, 1973). On more recent developments see Rodney Haddow, “Feder­ alism and Training Policy in Canada,” in F. Rocher and M. Smith, eds., New Trends in Canadian Federalism (Peterborough: Broadview, 1995), 338-68. Paul Martin, Minister of Finance, Budget Plan 1996 (Ottawa: Canada Communications Group, 1996), 73-74. O f the $720 million initially allocated to the proposal, only $630 million would be for federal-provincial programs in child care. The remainder is to be used to fund 6,000 child-care spaces in native villages ($72 million) and research and development ($18 million). Philp, “Axworthy Offers Child-care Funding,” A l. Department o f Finance, Estimates 1996-97, 2-33. Quoted in Hugh Winsor, “New Ministers Will Sink or Swim on Person­ alities,” The Globe and Mail [Toronto], January 29, 1996, A3. Edward Greenspon, “Young’ s Turf Rife with Axworthy Foes,” The Globe and Mail [Toronto], January 27,1996, A4. The “divisor” clause concerns the way number of weeks worked to qualify for UI will change under El. Under the old rules, if the number o f weeks required to qualify was 16, a claimant could take more than 16 weeks in order to accumulate 16 weeks o f actual full-time work. Under the new rules proposed under the El legislation, a claimant can only count the number o f hours worked up to 16 weeks, which could well represent considerably less than 16 weeks of full-time work, with a concomitant reduction in benefits. The “intensity” rule simply penalizes repeat users, so that with each subsequent claim the payout will be reduced by a set

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proportion. It is the “ divisor” rule that is most likely to be changed by Minister Young. Edward Greenspon, “Young Pledges Move Out o f Training,” The Globe and Mail [Toronto], March 1, 1996, A4. One possibility is that a number o f these programs, including ones such as the Older Workers Adjustment program, be turned over to the prov­ inces on a block funding basis, that is, that they become part o f the CHST. However, from the perspective of the provinces, that may repre­ sent a financial loss under the Cash Stabilization provisions for federalprovincial transfers announced in the March 1996 federal Budget. In other words, the money represented by these programs would simply become part o f the $11.5 billion floor and not be seen as being in addition to that floor. Essentially the Social Development Committee was invited to sessions of the Economic Development Committee, chaired by Andr6 Ouellet, when the subject of UI reform was discussed. Peter Aucoin, The New Public Management: Canada in Comparative Perspective (Montreal: Institute for Research on Public Policy, 1995), ch. 5. See Paul Pierson, Dismantling the Welfare State: Reagan, Thatcher, and the Politics o f Retrenchment (Cambridge: Cambridge University Press, 1994). Jane Gadd, “Child-care Plan Still Being Discussed,” The Globe and Mail [Toronto], February 17,1996, A3.

6 Public Works and Government Services: Beautiful Theory Meets Ugly Reality

A L A S D A I R ROBERTS

R i b l ic Works and Government Services Canada (PWGSC) is a young department, established as part o f the June 1993 reorganization o f the federal government. The reorganization brought together the Departments o f Public Works and Supply and Services, as well as the Translation Bureau, formerly in the Department o f the Secretary o f State, and the Government Telecommunications Agency, formerly in the Department o f Communications. The government’ s aim was to consolidate many o f its major common service organizations (CSOs)— those groups whose mission is mainly to provide internal services to other federal departments and agencies. PWGSC now delivers a wide range o f these services, including provision o f office accommodation, real property management, architectural and engineering services, procurement services, printing and publishing, payroll and account management, translation services, telecommunications and informatics

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services, and management and audit advice. In 1995-96 the department had a budget o f $2.2 billion and a staff o f 17,100 Full Time Equivalent (FTE) employees. Administrative reformers had argued for years that the federal gov­ ernment should put all o f its CSOs under one roof, and at first glance the 1993 consolidation may not seem newsworthy. However, appear­ ances can be misleading. The CSOs within PWGSC are going through a period o f dramatic restructuring, and many are confronting funda­ mental doubts about their roles within the federal government. A former Clerk o f the Privy Council, Paul Tellier, has publicly complained about the “ lack o f added value” provided by PWGSC and has suggested that the department should be dramatically cut back.1 PWGSC is feeling the effects o f three phenomena: philosophical changes, fiscal restraint, and unintended consequences. Many leading proponents o f reform within the federal government have abandoned the long-held beliefthat the best way to provide common services within government is to establish centralized monopolies. Since 1990, the government’ s policy has been to break up these monopolies where pos­ sible, and compel CSOs to act more like private businesses, whose survival depends on their success in the competition to serve other departments and agencies. The change in policy was motivated, in part, by a belief that the federal government, faced with a growing deficit, could no longer tolerate the inefficiencies that were thought to be produced by the old approach. The 1993 reorganization built on the new philosophy. PWGSC was envisaged as a “ holding company” for a set o f “ entrepreneurial, bottom-line driven” CSOs. However, the implementation o f the new policy on common services, and o f the 1993 reorganization, has not proved easy. The “ holding company” plan created internal tensions, unanticipated by central agen­ cies, that occupied the attention o f PWGSC executives for much o f 1993-95. Private sector suppliers have also begun to complain that CSOs enjoy unfair advantages in the competition for government busi­ ness. In addition, many individuals inside and outside government are asking a more fundamental question: if the services provided by CSOs are essentially interchangeable with those o f private suppliers, why bother having CSOs at all?

PUBLI C WO R K S A N D G O V E R N M E N T S E R V I C E S

Problems such as these have been examined in a series o f studies and reviews, including a 1994 examination o f the department’ s printing and publishing activities, a substantial internal review o f the department’ s real property activities, the 1994-95 Program Review exercise, and a 1995 Treasury Board Secretariat review o f its policy on common services. The department has responded to internal diffi­ culties by abandoning or reversing important elements o f the 1993 reorganization plan. Perhaps more important, however, is the diffi­ culty that both the department and Treasury Board Secretariat appear to have had in making a strong case for the preservation o f its CSOs in the face o f political and fiscal pressures. As these pressures mount, uncertainty about the future o f PWGSC’ s CSOs seems likely to con­ tinue.2 THE MOVE TO A COM PETITION -BASED COMMON SERVICES POLICY

CSOs in the Canadian government have evolved in three distinct phases. The first was a slow and unplanned accretion o f small, specialized service organizations within the federal bureaucracy. The Department o f Public Works, established in 1867 and responsible for much o f the government’ s construction and real property management, is the old­ est o f these agencies. In time it was joined by others, such as a depart­ ment for printing and stationery procurement (1886), an office for management consulting services (1919), an office for the maintenance o f accounts (1931), a bureau for translation services (1934), a depart­ ment for military procurement (1940), and an agency for defence con­ struction (1951). The second phase in the evolution o f federal common service organi­ zations began with the Glassco Commission on Government Organi­ zation in 1962. It was in this period that a coherent philosophy about the provision o f common services was first applied. The Glassco study had been modelled on the U.S. Hoover Commission, which had rec­ ommended the establishment o f the U.S. government’ s General Ser­ vices Administration, and produced similar recommendations about the provision o f common services within the Canadian government. It

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favoured the use o f centralized CSOs with a monopoly on the provi­ sion o f services, arguing that this approach could produce economies o f scale, give the benefit o f expertise in the production o f services, remove administrative “ distractions” from line managers, and ensure that “ considerations o f public policy” received adequate attention.3 The Glassco Commission rejected the idea o f establishing a Canadian version o f the General Services Administration, but favoured a strength­ ening and consolidation o f existing CSOs. DPW’ s authority over the acquisition and management o f property was bolstered, and the de­ partment was recognized as the exclusive provider o f office space for the public service. In 1969, a new Department o f Supply and Services was established, becoming the central organization for government procurement, printing and publishing, management and consulting ser­ vices, central accounting services, and data processing services. A new CSO, the Government Telecommunications Agency, was also estab­ lished, to provide telecommunications services to line departments. The Glassco Commission viewed CSOs as entities that were best treated as regulated monopolies, and it encouraged the federal govern­ ment to establish a central authority to act as regulator. In the late 1960s, an Administrative Policy Branch was established within the Treasury Board Secretariat (TBS), whose mandate included the devel­ opment o f rules to govern the relationship between CSOs and line de­ partments. A “ common service policy” was soon developed, built on the presumption that line departments would, except in unusual cir­ cumstances, be obliged to do business with CSOs. In 1971, the head o f TBS explained the rationale for its policy: [An] obvious criterion for determining when administrative services should be provided centrally is that o f pure economy. Traditionally it has been assumed, prima facie, that services such as building accommodation ... could be acquired more economically by a central agency—notably the Department of Public Works. Similarly it has been assumed that the procurement o f supplies and services and capital structures could be done more efficiently and economically by another central agency—the Department of Supply and Services. This proposition, endorsed by the Glassco Commission, has generally been accepted by the Treasury Board.4

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In 1976, the Lambert Commission on Financial Management and A c­ countability confirmed the soundness o f the approach laid out in the Glassco report. It recommended a merger o f the major CSOs within the federal government, combined with a strengthening o f TBS’ s power to regulate CSOs.® In the late 1980s, substantial changes were made to the common services policy that had been crafted twenty years earlier. Much o f the pressure for change came from within the public service. There had always been substantial dissatisfaction among officials in line depart­ ments about the quality o f service provided by Public Works, Supply and Services, and other CSOs. In the last decade, however, a combina­ tion o f circumstances gave these complaints special force. A series o f severe budgetary deficits caused the government to take more seri­ ously the argument that the traditional approach to the provision o f common services was highly inefficient. The protests o f line managers were also legitimated by Auditor General reports that criticized the performance o f major CSOs, and by a growing academic literature that suggested that governmental performance would be improved if internal monopolies were broken up and CSOs were obliged to com­ pete for their survival. The push for reform o f the common services policy was helped along by favourable political conditions. The Mulroney government was deeply distrustful o f the federal public service and strongly inclined to the view that the bureaucracy was rule-bound and inefficient. After the 1984 election, the government appointed a private sector task force to review Supply and Services, which suggested that a competitionbased approach to common services would improve productivity within the public service and generate “ more business for the private sector.” 6 At the same time, TBS announced the establishment o f a committee o f senior officials to review the common services policy. However, substantial changes in the policy were not realized for another five years, until the Public Service 2000 initiative. The Prime Minister’ s statement on PS 2000 in December 1989 included a promise to “ adopt a new approach” to common services that would “ make optional as many common services as possible, maintaining mandatory services only where there is an overriding reason.” 7Over the next five months another study group o f public servants reported widespread

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dissatisfaction with the cost and quality o f service provided by CSOs and concluded that “ all common services should be made optional wherever possible.”8Significant revisions to the common service policy followed soon after. TBS announced that the printing and publishing services provided by the federal printing bureau would now be optional, as would many services provided by the Translation Bureau and Public Works. The purchasing authority that had been delegated to line departments was also increased, limiting the role o f the procurement arm o f Supply and Services. Equally significant was a dramatic change in the official philosophy regarding common services. The presumption that regulated monopo­ lies were most likely to produce efficiencies was now displaced by a philosophy that TBS, in a regrettably Orwellian turn o f phrase, called “New Think.” The objective was now to “ minimize the extent o f man­ datory services.” The policy explained: Choice for line departments de facto creates a competitive environment for CSOs. In a competitive environment, where CSOs operate on costrecovery, market pressures cause the CSOs to focus on customer service, providing quality goods and services on time, and competitive pricing.... The CSOs have a natural interest in operating efficiently and being innovative in service delivery in order to remain viable and satisfy customer requirements.9 CSOs were told that they would now be required to undertake periodic reviews o f their activities that included recommendations on “ how the common service in question can become optional in a cost-effective manner.” 10 At the same time that TBS was revising the common services policy, it was experimenting with institutional innovations, such as the use o f revolving funds in place o f appropriations and the introduction o f market-based charging systems, that would be necessary to put the new policy into place. TBS also encouraged the adoption o f a new organizational form, which it expected would help CSOs to meet the challenge o f competition. The new units, known as special operating agencies, or SOAs, were intended to allow certain parts o f the federal public service to “ operate more like the private sector.” 11SOAs would

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be freed from many o f the rules that ordinarily constrain bureaucratic activity, with the expectation that they would develop an “ entrepre­ neurial spirit” and become more innovative, efficient, and responsive to client needs.12Four major CSOs were established as SOAs between 1989 and 1993. The government’ s printing bureau was transformed into the Canada Communication Group, and its management consult­ ing and audit bureaus were merged to become Consulting and Audit Canada. The Government Telecommunications Agency was also es­ tablished as an SOA, and the Translation Bureau obtained approval to move to SOA status in early 1993. In June 1993, the Conservative government announced a dramatic reorganization o f the federal public service, aimed at reducing the num­ ber o f departments and the size o f Cabinet. A key feature o f the reor­ ganization was the consolidation o f several major CSOs into a new department, to be known as the Department o f Government Services. (The department was renamed after the October 1993 election.) It brought together four organizations: Public Works, Supply and Ser­ vices, the Government Telecommunications Agency, and the Transla­ tion Bureau. However, the reorganization plan laid out by TBS in June 1993 also went further: it envisioned a dramatic expansion o f the use o f SOAs within the new department (see Table 6.1). The Government Telecommunications Agency’ s mandate would be expanded to include the informatics activities o f Public Works and Supply and Services, and the organization would be renamed as the Government Telecom­ munications and Informatics Service. Three major branches o f Public Works— the Real Property Branch,13the Realty Services Branch, and the Architectural and Engineering Services Branch— would be trans­ formed into SOAs, as would two smaller parts o f Supply and Ser­ vices— the Stocked Items Supply program, and the Crown Assets Disposal Centre. The new department’ s Corporate Services Branch, which provides finance and administration services to line branches and SOAs, was itself a candidate for SOA status. The new department was about to undertake a novel experiment: it would become a “ hold­ ing company” for an unprecedented range o f government-run “ busi­ nesses,” each o f which was to be “ entrepreneurial, client-driven, and bottom-line driven.” 14

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Table 6.1

Special Operating Agencies Within Public Works and Government Services, December 1993 Status at December 1993

FTEs

% of Departmental FTEs

Canada Communication Group

Established

1,540

8.7

Canadian General Standards Board

Established

60

0.3

Consulting and Audit Canada

Established

450

2.5

Proposed

1,860

10.5

Proposed Proposed

1,030 1,200

5.8 6.8

Realty Services

Proposed

3,320

18.8

Corporate Services

Under review Under review Under review Under review Under review

910

5.1

80

0.5

N/A

N/A

240

1.3

260

1.5

10,950

61.9

Name

Architectural and Engineering Services Government Telecommunications and Informatics Service Translation Services

Crown Assets Disposal Esquimalt Dry Dock Real Property Stocked Item Supply Total

Sources: Estimates, Fiscal Year 1994-95, Part 1, Public Works and Government Services Canada, Table 5; and Treasury Board Secretariat memorandum, “TBS Perspective on the Department o f Government Services,” July 23, 1993.

PUBLI C WO R K S A N D G O V E R N M E N T SE R V I C E S

THE DANGER OF “ B A LK A N IZA T IO N ”

The integration o f most o f the federal government’ s major CSOs into one department proved to be a challenging task. Some o f the problems confronted by the department, although difficult, were typical o f large bureaucratic reorganizations. Others were more distinctive. Senior of­ ficials within PWGSC attempted to sort out, for the first time in Canadian experience, how best to organize a department that consisted largely o f components with “ bottom-line, entrepreneurial” mandates. The department’ s thinking about its internal relationships was domi­ nated by a concern that TBS’ s plan would lead to the fragmentation or “ balkanization” o f the department itself. Apprehensions about balkanization were driven, in part, by a fear that the mandates given to CSOs might lead to an erosion o f the capac­ ity o f the department as a whole to formulate and implement corporate plans. Officials worried, for example, that the heads o f CSOs might become reluctant to invest time in discussions about corporate policy, preferring instead to focus on pressing problems within their own or­ ganizations. The proposal to hold CSOs accountable for performance targets seemed likely to exacerbate this problem. One PWGSC official noted that some CSO heads were not keen to participate in depart­ ment-wide policymaking in the first place, and interpreted the new mandate as allowing them “ total autonomy” from PWGSC. Senior management worried that a similar mindset— what one official called a “ ‘ we-they’ attitude”— might become established more widely within the CSOs. A weakening o f corporate planning capacity would have important operational implications. It might have meant, for example, that the department’ s ability to co-ordinate service delivery by different CSOs— an objective usually described as “ seamlessness” in the provision o f services— might be undermined. There were questions about the rein­ vestment o f CSO profits in other parts o f the department, and about the obligation o f CSOs to take on personnel who had been declared redundant in other parts o f PWGSC. Officials also worried that a weak­ ening o f central planning capacity might lead to an unacceptably wide variation in conditions o f work among CSOs. Concerns such as these led to a proposal made late in 1993 to signifi­ cantly change the plan that had been laid out by Treasury Board in

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June. Under the proposal, the plan o f establishing several distinct SOAs would be set aside, and PWGSC would be transformed instead into “ a single, department-wide SOA.” Proponents o f the “ single SOA” idea argued that it would improve co-ordination and integration between businesses within the department, and give “ greater flexibility to re­ structure or right size” individual businesses. On the other hand, the idea had significant drawbacks. It would require the department to abandon the work already done on individual SOA proposals, and ne­ gotiate with TBS about the structure o f a department-wide SOA. This would be time-consuming, and TBS was known to have concerns about its own ability to monitor a single, large SOA, operating on a single revolving fund. The departmental executive put the idea aside after discussions in January 1994. Instead, the department pursued more modest measures to protect against the possibility o f fragmentation. In the spring o f 1994 advisors to Deputy Minister Ranald Quail produced a document on the gover­ nance o f PWGSC that emphasized that CSOs were to be “ part o f the corporate framework,” and that the deputy would expect a “team ap­ proach at the corporate table.” Heads o f CSOs were to be assessed on the basis o f their participation in corporate policymaking as well as on the achievement o f performance targets, and annual agreements be­ tween CSO heads and the department’ s deputy minister would include responsibilities for corporate goals. A “ business board,” comprised o f the heads o f all CSOs, and chaired by Quail, would be responsible for reviewing annual business plans for each agency to ensure that they conformed to corporate goals. The “ underlying assertion” in the gov­ ernance arrangements, advisors noted, “ is that SOAs continue to be part o f the department, that while SOAs may behave differently ... such different behaviour must still be conducted within the departmen­ tal framework.” 15 OPTION ALITY WITHIN PW G SC ?

Worries about “ balkanization” were intensified by an attempt to apply the logic o f the common services policy to relationships among organi­ zations within the new department. The new common services policy presumed that other departments and agencies should be given the choice

PUBLI C WO R K S A N D G O V E R N M E N T SE R V I C E S

about whether to deal with PWGSC’ s CSOs, on the premise that choice— and therefore competition— would produce cheaper and bet­ ter service. Some TBS officials suggested thatthe same reasoning should be applied within PWGSC, and that each CSO should be given a choice about whether to deal with other organizations in the department. This issue became most pressing as CSOs within PWGSC began to define their relationship with the department’ s corporate services units— its finance and administration branch, its human resources branch, its audit and evaluation unit, and its communications unit. Many CSOs within Public Works and Supply and Services had a long-standing dissatisfaction with the quality o f service provided by the corporate service units, which sometimes led them to build up staff whose re­ sponsibilities duplicated those o f the central units. One existing SOA, the Canada Communication Group, had been given the right to man­ age its own corporate services rather than deal with the central units. The relationship between the CSOs and corporate service units was analogous to that between line departments and CSOs, and TBS offi­ cials proposed to improve it by applying a similar formula. In its June 1993 reorganization plan, TBS suggested that corporate services should be provided by the central units to all SOAs in the department “ on a full cost recovery and optional” basis. A little later, this proposal was elaborated. The department considered the possibility o f establishing the corporate services units as an SOA as well, with its own revolving fund and a mandate to operate on a fee-for-service basis. The proposal to establish optionality for corporate services was re­ ceived with hesitancy within the department. Advisors to Quail sug­ gested that optionality should not be permitted, arguing that SOAs could not be “ expert in everything,” and that central units could pro­ vide services more economically. Officials also worried thatthe corpo­ rate service units, already facing substantial cuts because o f the June merger, would face even greater pressure for downsizing if forced to compete for the CSOs’ business. In July 1993 Quail told TBS that he would not accept their proposal. Service organizations would be per­ mitted to negotiate about “ levels o f service” from the central units, but would not be given “ freedom to walk away.” 16 This decision was not well received by many line managers. A sur­ vey o f regional managers in August 1993 found that some “ challenge[d]

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the requirement to obtain corporate services exclusively from [PWGSC].” The CEO o f an existing SOA expressed concern about the quality o f service likely to be provided by a centralized corporate services group, while the head o f a proposed SOA told Quail that his employees considered the department’ s corporate services to be “ too costly and too slow,” and suggested that some mechanism was needed to “ challenge [the] efficiency” o f centrally provided services. Notwith­ standing these complaints, senior officials remained sceptical about the wisdom o f reversing the deputy’s decision. Advisors acknowledged the apparent “ inconsistency with operating principles” suggested by the policy, but worried about the “ anarchy” that optionality might pro­ duce within the department. The decision on optionality for corporate services was not changed, although the deputy promised a review after three years. The department took a similar view on the question o f whether CSOs would be obliged to purchase other services from CSOs within the department. It again resisted a policy o f full optionality, arguing that it would undermine economies o f scale for CSOs and aggravate uncer­ tainty about their business volumes. Some officials also suggested that CSOs would be embarrassed in the eyes o f external clients if they seemed unable to secure the business o f their neighbours within PWGSC. The department briefly considered adopting a formal policy that would give SOAs a right o f first refusal regarding the provision o f services to other SOAs, but this was abandoned, perhaps because o f resistance from TBS. It was replaced with an informal understanding among executives that optionality would not be exercised within the department. Although the department declined to allow optionality with regard to the acquisition o f corporate services, it did allow SOAs to negotiate with corporate service units about the kind and volume o f services that they would purchase. However, the process o f striking these agree­ ments proved to be long and difficult. CSOs were sometimes frus­ trated by the apparent reluctance o f the Corporate Services Branch to be flexible about the terms o f service agreements. Some officials sug­ gested that the Branch may have been hampered by a “ culture o f con­ trol,” rather than one o f service, that also complicated its more routine interactions with line organizations. It was also clear, however, that

PUB L I C WO R K S A N D G O V E R N M E N T SE R V I C E S

the process o f costing corporate services, and developing an agree­ ment that covered all contingencies about service delivery, was very complex. A standard agreement on corporate services was not com­ pleted until early 1995. Officials sometimes expressed more basic doubts about the wisdom o f using written agreements to regulate relationships between corpo­ rate service units and line organizations. One executive complained thatthe process o f negotiating an acceptable text distracted staff from more important issues, and expressed doubt about the ability o f a writ­ ten agreement to cover all the details that might affect the relationship between corporate service units and CSOs. A better approach, this executive suggested, would be to create an environment in which cen­ tral units were sensitive to service issues, and engaged line staff in regular discussions about the “ larger issues o f service and needs.” Another official presented an even more fundamental criticism o f ser­ vice agreements. The corporate services units, this official argued, exercised control as much as service functions: one o f their main tasks was to ensure, on behalf o f the department as a whole, that the depart­ ment was properly administered. By this reasoning, the units should be entitled to dictate the terms on which they would deliver services. The process o f negotiating agreements, this official said, wrongly im­ plied a right on the part o f line organizations to decide what sort o f services they would receive. RELATIONSHIPS BETWEEN THE REAL PROPERTY SERVICE BRANCHES

One o f the distinctive features o f the reorganization plan proposed by TBS in June 1993 was something that it did not do. The plan left three major branches transferred from Public Works— Real Property, Re­ alty Services, and Architectural and Engineering Services— more or less intact, with the important qualification that the latter two branches were to be moved to SOA status. The decision to maintain three sepa­ rate organizations was one that would exacerbate worries about “ balkanization” until early 1995. The organizational structure that PWGSC inherited from Public Works had been established in 1986, and was premised on the idea

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that there should be a strict separation o f responsibility for the provi­ sion o f office accommodation— assigned to the Real Property Branch— and responsibility for the provision o f property-related services, which was given to the other two branches. The Real Property Branch was expected to exercise a control function, ensuring that other depart­ ments and agencies were responsible in their use o f accommodation, while the other two branches were expected to market their services much as any business would. The Real Property Branch would pur­ chase services from the other two, but would do this through an “ arm’ s-length, buyer-seller” relationship. This arrangement was ex­ pected to impose “ business discipline” on the two service branches. In June 1993, TBS appears to have believed that the arguments in favour o f three distinct branches still held force. In fact, its plan for PWGSC took the logic o f the 1986 structure further, by proposing to transform the two service branches into SOAs, and giving the Real Property Branch the option to buy from other sources if dissatisfied with the services provided by the other two branches. Elsewhere, however, there was substantial dissatisfaction with the 1986 structure. A study o f Public Works by Deloitte and Touche in November 1992 found that recent reforms, such as the introduction o f revolving fund financing and accountability for profitability targets, had encouraged “ potentially destructive” competition between the two service branches, which had been aggravated as fiscal restraint caused a decline in the amount o f work available. The study suggested that the 1986 structure allowed clients to “ play one branch o ff against the other” and created confusion when branches charged different fees for simi­ lar work.17 After the 1993 reorganization, the Auditor General also criticized the 1986 structure, calling it “ bureaucratic and costly to administer,” and suggesting that it sometimes caused cost overruns on PWGSC projects.18 An often-mentioned solution to the problems associated with the 1986 structure was a merger o f the three branches, or at least o f the two service branches. In fact Ranald Quail raised the possibility o f merg­ ing the service branches during his discussions with TBS in early July. However, the idea was not actively pursued. There may be several reasons why this was so. The most important may have been the fact that the process that TBS had used to prepare its plan had not permit­ ted serious consideration o f more dramatic action in the real property

P UBL I C WO R K S A N D G O V E R N M E N T S E R V I C E S

area. TBS had not consulted with the department before announcing the reorganization plan, or allowed adequate time for the department to review and comment on it. Concerns about the organization o f the real property branches con­ tinued to be heard throughout the summer o f 1993. Regional officials, for example, expressed their doubts about the existing design during consultations in mid-August. One regional director complained that clients “ do not differentiate [between the branches] when they have a problem with regional real property matters,” and suggested that the problem o f competition between branches was likely to be aggravated as both became “ more bottom-line oriented and internally focussed.” An internal report concluded that there was “general agreement” among regional managers thatthe two service branches should be merged. In meetings organized by PWGSC in September 1993, client departments also complained about the confusion o f responsibilities and conflict between branches. By this point, however, the window o f opportunity for dramatic ac­ tion had largely closed. TBS had already signed o ff on a new organiza­ tional structure, senior management appointments had been approved and announced, and a regional restructuring plan premised on the con­ tinuation o f the 1986 structure was almost completed. The deputy did, however, attempt to do something to address concerns. In early Au­ gust he had established an “ operating principle” that there should be no duplication o f service lines between SOAs, a rule that could, if successfully enforced, minimize the problem o f overlap or competition among the former Public Works branches. After a departmental ex­ ecutive meeting in August 1993, the deputy went further, asking the heads o f the Realty Service and Architectural and Engineering Ser­ vices branches to consider whether duplication between the two was substantial enough to warrant the establishment o f one, rather than two, SOAs. This review did not produce any significant change in policy. In October 1993, the heads o f the two branches recommended against a merger, arguing that the duplication o f services was not substantial enough to warrant it, that the “ effort required to create a single SOA composed o f 6,000 PYs would be enormous,” and that the merger would be “ disruptive to employee morale, motivation and service deliveiy.” The deputy accepted the ADMs’ advice, but urged the two

18 5

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branches to continue their attempts to eliminate duplication o f service lines and ensure “ seamless delivery to clients... where both organiza­ tions are involved on the same project.” CONFLICTING PRIORITIES WITHIN THE GOVERNMENT TELECOMMUNICATIONS AND INFORMATICS SERVICE

Concerns about fragmentation within PWGSC were also motivated by a concern that CSOs, given a mandate to build up a clientele out­ side the department, might begin to neglect important clients within the department. The problem seemed to be illustrated by the case o f the Government Telecommunications and Informatics Service (GTIS). Other organizations within PWGSC, such as the Government Opera­ tions Services Branch, which handled government accounts and pay­ ments, relied heavily on informatics services provided by GTIS. The directions that were given to the newly appointed head o f GTIS in August 1993 reflected the department’ s ambivalence about an un­ qualified entrepreneurial mandate. The new SOA was to be organized on a competitive, revenue-dependent basis, but at the same time the agency was to “ ensure that quality o f service is guaranteed to internal users.” Notwithstanding these directions, worries about GTIS persisted. An August 1993 report found that managers in the regions had “ con­ cern over [GTIS’ s] priorities” ; so, too, did some members o f the de­ partmental executive. GTIS found itself in a difficult position. While it sympathized with the concerns o f its major clients within PWGSC, it was also under pressure from TBS to avoid arrangements that gave internal users spe­ cial treatment. In the fall o f 1993 GTIS drafted a mission statement that said it would provide “ quality products and services to [PWGSC] and other federal government clients”— a very modest attempt to pro­ vide assurance to internal clients. However, a Treasury Board official expressed concern about the draft: It is clear that [PWGSC] is currently GTIS’s largest single client, and that such a relationship must be nurtured. However, I don’ t believe that there should be any special status for [PWGSC] built into the GTIS role and mission.... If this bias is built in from day one, it will compromise GTIS priorities and service delivery. In order to be successful in a

PUBLI C WO R K S A N D G O V E R N M E N T S E R V I C E S

competitive, market-based environment, GTIS should be, and should be seen to be, independent o f [PWGSC] in terms of their business priorities and business decisions. A PWGSC official responded that this position threatened to aggra­ vate the problem o f fragmentation within the department: “If each SOA is distinct from PWGSC,” he asked, “ then what is PWGSC?” Never­ theless, the mission statement was amended; a later version eliminated any special reference to clients within the department. Two years later, concerns about GTIS’ s relationship to other CSOs in the department persisted. One official suggests that the twin man­ dates that have been imposed on GTIS’ s head— to serve as the department’ s chief informatics officer, while at the same time serving as the head o f a business with an arm’ s-length relationship to internal clients and a bottom-line orientation— have created an “ impossible conflict,” with an unavoidable impact on the quality o f service pro­ vided to internal clients. THE RISKS OF ENTREPRENEURSHIP

The danger o f fragmentation was not the only concern that preoccupied officials in PWGSC. A key element o f the SOA model was the notion that agencies should be freed from the rules that typically constrain managers in the public service. The “ deregulation” o f SOAs was thought to be essential if they were to become more innovative and competitive. “ The whole rationale o f the SOA,” one proponent argued, “ is to give managers the freedom to be more innovative and results-oriented, and to free up the entrepreneurial spirit.” 19However, deregulation was not without risks. Managers in the SOAs might do something controversial, for which the deputy or minister would be held accountable. This was thought to be a particular problem in PWGSC: in June 1993 PCO had identified it as a “ key ethics department,” which would be “ closely scrutinized by the press and the public.” The central issue was whether the minister and deputy minister would be in a position to know about— and perhaps correct— behaviour for which they would be held responsible. Advocates o f deregulation within the public service argued that such risks are exaggerated. The 1990 task force that had recommended an

187

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overhaul o f the common services policy argued that “ in many respects the claims o f increased risks o f embarrassment are overstated and re­ flect the traditional tendency o f government not to trust public ser­ vants or believe that they will act responsibly.” 20It was suggested that the introduction o f new “ results-based” reporting mechanisms would actually improve the ability o f a deputy minister or minister to oversee common service agencies. A discussion paper prepared by Consulting and Audit Canada in January 1994 took this position, arguing that a new results-based control system would actually provide “ a tighter accountability regime than most traditional DM/ADM relationships.” Arguments such as these were not always persuasive. Another PWGSC report observed that senior officials in departments contain­ ing SOAs often worried about the “ possible misuse o f discretion,” and found it difficult to “ let go” o f those agencies. Ranald Quail shared this caution. “ On the one hand,” he told the minister in September 1993: there is a desire to give an SOA sufficient authority and scope to support an entrepreneurial approach, leading to the overall objective o f improved performance in the delivery o f government service. On the other hand, there are concerns ... [about] ensuring that the Deputy Minister has sufficient information to support his accountability for the performance of the SOA. Unfortunately, there was a significant amount o f evidence available to substantiate the fear that deregulation would cause difficulties for the department. In November 1992, for example, the Office o f the Auditor General suggested that the Canada Communication Group, the largest existing SOA within PWGSC, was improperly helping line departments to shelter appropriated funds at the end o f the fiscal year. The Auditor General said that at the end o f the 1991-92 fiscal year the Group had received a payment for $2.5 million from the Department o f Science, Industry and Technology even though services had not yet been provided, and that the money had then been held on the department’ s behalf in CCG’ s revolving fund. CCG dismissed this complaint as the result o f a “ misunderstand­ ing,” but concerns about similar incidents— expressed not only by the Auditor General, but also by the federal Comptroller General, and financial administrators within the department— persisted throughout

P UBL I C WO R K S AND G O V E R N M E N T S E R V I C E S

1993. An internal audit completed in 1994 concluded that thirty de­ partments or agencies had used prepayment contracts to “ park” laps­ ing money in CCG’ s revolving fund. Some officials within PWGSC suggested that CCG, struggling to maintain its place in a highly com­ petitive market, had carried on the practice to satisfy its departmental clients. An internal report also noted that the agency had an “ aggres­ sively entrepreneurial” chief executive officer who was “continuously testing the limits o f budget-making and personnel policy.” 21 The Auditor General was not the only stakeholder to bring forward concerns about practices within PWGSC. In May 1992, the Union o f Public Works Employees brought forward allegations about contract­ ing irregularities within the department’ s Management Audit and Pro­ gram Evaluation (MAPE) Branch. Some MAPE employees complained that the branch had paid for work not yet received, split contracts to avoid tendering rules, knowingly contracted with a firm that should have been barred by the terms o f an earlier contract, relied excessively on a “ select number o f contractors,” and improperly gave supervisory responsibilities within the branch to contractors. An Internal Affairs investigator found these complaints to be justified, and also concluded thatthe Branch had allowed “ false and misleading information” to be included in the branch’ s 1990-91 annual report. The investigator ob­ served that his major concern was: the [text omitted by department] in which the Senior Managers o f the Department conducted themselves in following the provisions o f the Government Contract Regulations. It was felt that the Branch responsible within the Department for reporting on and ensuring Treasury Board policy would have as its prime concern a scrupulous approach to main­ taining strict adherence to contracting policy. The investigator recommended that a further review be conducted, in part to determine whether the contracting irregularities “ are or have been carried out on a wider scale or [as] a continuing practice.” 22 Perhaps because o f its concern about the difficulties that deregulation might cause, the department chose to approach the subject cautiously. Worries about embarrassment may have influenced the department’ s decision to require that CSOs purchase corporate services from the department’ s central corporate service units. It probably also influenced their thinking about the loosening o f controls on CSOs. In the fall o f

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1993, the department had considered the possibility o f obtaining a range o f flexibilities for the new SOAs, including the right to negotiate separate collective agreements, an exemption from the government-wide staffing freeze, permission to adopt a more flexible job classification system, and permission to adopt a performance-pay system. By the end o f the year, however, the idea o f requesting significant flexibilities for the new SOAs had been put aside. A May 1994 report noted that “ no flexibilities o f substance are being sought from [Treasury Board] for the planned SOAs.” Staff within the existing and proposed SOAs complained that this decision would undermine “ their potential business performance ” R E C O N S I D E R I N G THE TBS PLA N

By the spring o f 1994, enthusiasm within the PWGSC executive for the reorganization plan laid out by TBS a year earlier had cooled. The proposal to transform PWGSC into a “ holding company” for an ex­ panded cluster o f SOAs had created internal difficulties that TBS had not anticipated, and the department’ s decision on flexibilities for the new SOAs had been conservative enough that some officials wondered what benefit would be achieved by establishing them. Furthermore, the debate on these important issues had gone on while the executive grappled with a host o f other issues associated with the integration o f several large, and culturally distinct, organizations. It is not surprising that some officials began to think that a more cautious approach to reform might be desirable. One observed: The best policy in the short term may well be to go slowly; to continue to develop our ideas while the department, and indeed the government, settles down to a more comfortable level.... Our present circumstances are probably the worst possible time to push for radical public sector reform. Until that opportunity arises, we may all do best to treat this as a transi­ tion period; to manage our businesses as well as we possibly can; to help our deputy and colleagues with the transition; and to look for business improvements wherever they are possible. Officials continued with the execution o f the TBS plan, however, and aimed to have their plans for the new SOAs approved by Treasury Board in mid-June 1994.

PUBLI C WO R K S A N D G O V E R N M E N T S E R V I C E S

Perhaps more serious was the fact that ministerial support for the expansion o f SOAs was also on the wane. David Dingwall, who had taken over the portfolio in November 1993, was known to be sceptical about the SOA concept, suggesting that it might be a “ smoke-andmirrors” approach to the privatization o f CSOs. Notwithstanding this concern, the Minister had seemed at first willing to go along with the TBS plan. In December 1993, for example, one assistant deputy min­ ister assured employees in his branch that the change in government would not affect his branch’ s plans to become an SOA. In March 1994, however, the Minister appeared to suggest that the use o f SOAs might need to be entirely reconsidered. A ministerial aide told the media that the Minister’ s support for the SOA concept was equivocal, noting that “ it was a decision by the previous government to set up these agen­ cies.” 23 The fate o f the TBS plan was decided at a conference on June 3, 1994. Convened by the Deputy Minister, the meeting included minis­ terial aides, TBS staff, and departmental officials. A participant char­ acterized the meeting as a “ real donnybrook”— a vigorous exchange about the wisdom o f the plan laid out by TBS a year earlier. After the meeting, the plan was trimmed back significantly. The proposal to establish Translation Services as an SOA, which had already been approved once before by Treasury Board in 1993, would proceed. However, all o f the other SOA submissions were abandoned. Further changes to the June 1993 plan came in 1995, as a result o f the federal government’ s Program Review exercise. To undertake its review, PWGSC divided department activities into nine “business lines,” and established teams to prepare assessments o f each business line. Generally, each branch and SOA was identified as an individual busi­ ness line, with the exception o f the Corporate Management line, which included the Corporate Services Branch, Human Resources Branch, and other small central service units. The review o f corporate management activities produced a reversal o f policy on the provision o f corporate services within the department. In 1993-94 the department, following the recommendations o f external auditors and TBS, had focused on transferring corporate services resources into a new Corporate Services Branch, which was intended to sell its services to other CSOs. By 1995, PWGSC officials clearly believed the 1993 plan to be unworkable. As a result o f Program Review,

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the Corporate Services Branch was disbanded, and the resources it contained were redistributed to other organizations within the department. The review produced a commitment to improve the efficiency o f charging arrangements with the remaining central service units. Doubts about the wisdom o f maintaining three separate real prop­ erty services branches also persisted throughout 1994-95. In June 1994, Ranald Quail established an internal task force to examine relation­ ships among the three branches and consider options for reform. Their final report contained a strong critique o f the structure established in 1986, noting that it promoted a “ culture o f conflict” and “ created a system resulting in intra-departmental confrontation and excessive complexity in operations” : The separation o f roles [am ong branches] in its present bu yer-seller form m akes it v ery difficu lt to d ev elop service partnerships across branches; it has created difficu lties in culture and attitudes that dam age our relation­ ships w ith clients as w ell as internal team w ork; and it generates u nneces­ sary w ork and costs in both tim e and m on ey .24

The task force’ s key recommendation— that all three branches be merged into a single Real Property Services Branch— was incorpo­ rated into PWGSC’ s final Program Review report, and publicly an­ nounced by the department in February 1995.25 TH E P O L I T I C S OF C O M P E T I T I O N

In 1990 the Deputy Minister o f Supply and Services, Nick Mulder, observed that CSOs that were obliged to compete for survival were in a delicate position. If a CSO did badly, senior management would be faced with the difficult task o f downsizing or eliminating the organiza­ tion. But if the CSO did well, there would be complaints from the private sector, and substantial pressure to close down or privatize the CSO. The safest route seemed to be to maintain a modest performance— good enough to survive, but not strong enough to attract controversy.26 In 1994 this view was widely shared within PWGSC, and with good reason.

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Recent history had shown that doing badly in the marketplace could be a painful experience. In early 1994, for example, PWGSC learned that Canada Post might not renew its contract with PWGSC’ s Realty Services Branch for property management o f Canada Post’ s facilities. The Union o f Public Works Employees alerted the media about the story in March 1994, generating news reports suggesting that hun­ dreds o f PWGSC employees might be thrown out o f work by Canada Post’ s decision. In July 1994, Canada Post announced that the con­ tract had been given to two private suppliers, Royal LePage and Profac Management. More serious were complaints from the private sector about CSOs that seemed to be doing well. CCG was particularly vulnerable to criti­ cism. It was one o f the largest printing and publishing operations in the country, in an industry that suffered from a serious excess o f produc­ tion capacity. The Group’ s profile had been raised significantly in Feb­ ruary 1993, when TBS gave it authority to respond to requests for proposals (RFPs) issued by other departments. Before that time, CCG, like the other CSOs, had acquired all o f its business through letters o f agreement with other departments. The practice o f using letters o f agree­ ment continued after February 1993. By late 1993, five industry associations, led by the Canadian Printing Industry Association, had begun to protest about the “ unfair advantages” that CCG was alleged to enjoy over private sector competitors.27 The coalition complained that CCG’ s ability to locate representatives within government departments gave it better access to clients, that the use o f letters o f agreement meant some business was never put out to public tender, that CCG was able to use its revolving fund to finance projects before funds were available to client departments, that CCG was able to subsidize its production costs with revenue from mandatory services, and that it had “ put pressure on government departments ... to sole-source exclusively with CCG because CCG is government owned.” CCG also administered the government’ s tendering functions for printing and publishing business, which private firms said created an obvious conflict o f interest. They alleged that CCG had structured tenders to its own advantage, or used information from rival bids while preparing its own.

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Public-private competition had not been flagged as a key issue for PWGSC in June 1993, but by the end o f the year it was clearly central to planning on SOAs. In the early fall David Dingwall, responding to industry complaints, asked TBS to undertake a study o f the problem. In December the PWGSC executive, needing to decide how much lee­ way to give to the proposed new SOAs, had resolved to “ keep a watch­ ing brief on CCG’ s experience,” and had commissioned a special study on the competition issue by Consulting and Audit Canada. In January the department decided to postpone any immediate requests for new SOAs and deferred Translation Services’ plan to be set up as an SOA by April 1,1994. Later that month, the Deputy Minister cautioned the Architectural and Engineering Services Branch that it would “ need to be careful” in the development o f its own SOA plans, noting that the Branch was one o f the “ likely lightning rods for attracting attention” on the competition issue. Outside PWGSC, the competition issue received increasing atten­ tion. Reports o f industry complaints about CCG appeared in the Ottawa media shortly before the Minister was scheduled to testify before a Commons committee about the department’ s 1994-95 estimates. The subject took up much o f the Minister’s testimony before the committee and received more media coverage in the succeeding days. Questions about CCG were also raised in the House, and in the Senate, during the review o f estimates in late April. Media coverage was hostile, char­ acterizing CCG as a “ huge agency” that had become a “ subsidized predator” o f private suppliers.28 Industry complaints intensified in the fall o f 1994, as the House o f Commons considered Bill C-52. The government had described Bill C-52 as housekeeping legislation, designed to provide a legislative foun­ dation for the new department. However, the bill also contained sec­ tions that confirmed the right o f CSOs within PWGSC to contract for work with “ any government, body, or person in Canada or elsewhere.” It was these sections that attracted the attention o f business and pro­ fessional groups, and not just in the printing industry. One o f the most outspoken critics was the Association o f Consulting Engineers o f Canada, which worried about competition from PWGSC’ s Architec­ tural and Engineering Services Branch. Opposition legislators main­ tained that a dozen other groups, including the Canadian Federation o f Independent Business and the Business Council on National Issues,

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were prepared to testify against the bill. Press coverage continued to be largely negative, suggesting that PWGSC— “ with its huge buying power and infrastructure”— was a “ frightening competitor” for the private sector.29Although a House committee reported on Bill C-52 in November 1994, it has not yet received third reading.30 G I V I N G UP ON C O M P E T I T I O N ?

A May 1994 evaluation o f existing SOAs conducted by TBS and the Office o f the Auditor General suggested that the best way to respond to industry complaints about unfair competition was to establish clear “ rules o f engagement” for CSOs that would ensure a level playing field in the fight for government business. Many officials were scepti­ cal about the recommendation. Some argued that the advantage in com­ petition actually lay with private suppliers, because o f the constraints imposed on CSOs by government policies. A Consulting and Audit Canada report prepared for the PWGSC executive in January 1994 argued that the cost structures o f government and private sector opera­ tions were so different that “ it would be extremely difficult to establish anything close to an objectively level playing field.” The group later told TBS that it considered efforts to establish a level playing field to be “ unrealistic.” 31 TBS sympathized with this view. In a May 1995 report it conceded that it would be “ virtually impossible to achieve a completely level playing field between public and private organizations in a competitive environment.” Nevertheless, it tried to right the balance. The report argued that CSOs could provide more extensive financial reports, make broader use o f advisory boards that include customer and private sector representatives, comply with provisions o f the Competition Act even when not legally obliged to do so, avoid mandates that created “ real or perceived” conflicts o f interest, and consider establishing a “ code o f ethical conduct” for government organizations engaged in commercial activities. However, TBS did not propose to eliminate the use o f interdepartmental letters o f agreement, arguing that it is faster and less expensive than the RFP process.32 One technique relied on by the TBS report to avoid complaints about unfair competition was to restrict the extent o f competition between CSOs and private suppliers. It proposed that CSOs be prohibited from

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serving private sector customers, or from serving other public organi­ zations except where the organizations have requested assistance. PWGSC added another restriction: its CSOs would be prohibited from responding to RFPs issued by other departments and agencies. In PWGSC’ s view, this means that its CSOs will not “ compete” for busi­ ness at all, since the process o f obtaining business through letters o f agreement is not regarded by the department as a form o f competi­ tion.33In 1995, PWGSC also responded to complaints from the archi­ tectural and engineering professions by establishing a study group to consider whether the department could change the amount o f work it sub-contracted to the private sector. Whether the steps taken by TBS and PWGSC will be effective in reducing industry complaints is open to question. The promise not to respond to RFPs may have limited significance. Canada Communica­ tion Group, for example, obtained only one half o f one percent o f its total business through RFPs in 1993-94. The TBS report observed that CSOs might engage in “ under-the-table bidding,” even if they could not formally respond to RFPs. Therefore the potential for pub­ lic-private friction remains large. In a memo to TBS, one CSO official observed: Downsizing has made SOAs hungry. This combined with the competitive spirit inherent to SOAs raises the real possibility that SOAs will just get out there and do things, some of which will not be in the interests of Ministers.... We can make all the rules we want concerning tenderbidding etc. to ensure proper competition and what will happen is that people will simply just make deals on the side. If you deal with my SOA you do not have to go the tender-bidding route.... [T]he problem is that suppliers in the private sector find out about these deals. On the other hand, the decision to negotiate with industry on sub­ contracting for architectural and engineering services may be an effec­ tive method o f reducing its hostility toward CSOs. O f course, the negotiations are not primarily about building a “ level playing field” : instead, they are in part focused on assuring that the private sector has an acceptable share o f government business. In the 1996-97 Estimates, the department argues that its aim in the area o f real property services is “ to be viewed as the private sector’ s conduit to new business oppor­ tunities and a valued partner, rather than a competitor.” 34

P UBL I C WO R K S A N D G O V E R N M E N T S E R V I C E S

Attempts to build a “ level playing field” have also been overwhelmed by a much larger problem. The competition-based approach to com­ mon services delivery is built on the principle that the services in ques­ tion are essentially the same whether they are produced by CSOs or private suppliers. Once this principle is conceded, however, observers may easily be drawn to question why a government-run producer o f services is required at all. (In a memo to TBS, one SOA executive asked, “ If use o f common service organizations is optional, why should they continue to exist at all?” ) Unless some compelling case can be made for the preservation o f a government-run competitor, pressure for elimination o f the CSO may be expected to increase, particularly if the operation o f the CSO proves to be troublesome or embarrassing.35 The debate over CCG provided an illustration o f this process at work. The release o f the Deloitte and Touche audit o f CCG in May 1994 was accompanied by a promise from the Minister to establish a special committee o f government and industry representatives to advise on the “ future evolution” o f CCG. Much o f the committee’ s report consists o f a search for a “ public policy purpose” that would justify preserving CCG. The committee considered three possible arguments— security, guarantee o f service, and the maintenance o f a “ challenge and stan­ dard-setting function”— but found none o f them compelling. In its De­ cember 1994 report, the advisory committee recommended that most o f CCG be privatized. Although TBS’ s 1995 report conceded that the “ public policy purpose served by CSOs ... [is] not well understood,” it made no attempt to consider what that purpose might be, arguing instead that the Program Review exercise would provide an opportunity to explore the question. In PWGSC’ s case, however, Program Review seems to have yielded no easy answers to the question either. PWGSC officials re-examined CCG as part o f the Review and were apparently unable to make a good case for retaining the agency. In the February 1995 budget, the government announced its intention to privatize all or part o f CCG’ s activities over the next two to three years.36PWGSC also announced its decision to discontinue the Stocked Item Supply service, which had been a candidate for SOA status in 1993 and decided that major components o f the Translation SOA would be commercialized. A significant component o f PWGSC’ s Architectural and Engineering Services business line was also found to be a “ non-core function,” and

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the department’ s procurement role was limited as well. The department expected that the Program Review decisions, combined with previously announced cutbacks, would cause a 30 percent reduction in its staff complement between 1995 and 2000.37 BEAUTIFUL TH EORY MEETS UG LY R E A L IT Y

In recent years, PWGSC has served as a test-bed for fashionable theo­ ries in public administration. Many reformers— subscribers to a school o f thought known as “ the new public management”— have become strong critics o f conventional bureaucratic structures, arguing that they are slow and inefficient.38 They have argued that the achievement o f greater efficiencies requires the elimination o f old-style bureaucracies and the establishment o f market-type arrangements within government. These prescriptions depend, in turn, on a school o f thought, dominated largely by economists, that says that any organization (such as PWGSC, or the federal government as a whole) can be usefully regarded as a bundle o f contracts between subordinate units, and that the contracts that are struck between units with the “ freedom to walk away” are more likely to produce efficiencies than those that are struck between units that are compelled to deal with one another. The organizational structure established in Public Works in 1986, the common services policy adopted in 1990, and the restructuring plan given to PWGSC in June 1993, are all built upon this “ contractarian” view o f public orga­ nizations. Critics o f this approach could rightly complain that the bold claims that are often made about the virtues o f deregulation and competition are often as loosely substantiated as the claims that were once made about the virtues o f centralization and monopolization. PWGSC’ s re­ cent experience may also provide more tangible evidence o f potential weaknesses in the new approach. The task o f establishing market-like arrangements within a single department is one that has real costs, either in terms o f the resources that are consumed in the negotiation o f service agreements, or in the emergence o f a “ culture o f conflict” (which is in some respects the culture o f the marketplace) and the loss o f coordinative capacity between CSOs. PWGSC appears to have concluded that the cost o f establishing internal markets may sometimes exceed

PUBL I C WO R K S A N D G O V E R N M E N T S E R V I C E S

the efficiency gains that those markets are expected to produce. On the other hand, it may be that PWGSC exacerbated the process o f reach­ ing internal agreements by denying its CSOs the right to “ walk away” if negotiations became excessively complex. Proponents o f the “ new public management” might also be faulted for a larger error: the failure to appreciate the political problems that their prescriptions generate. Executives in PWGSC may be right to treat deregulation o f CSOs gingerly when important stakeholders con­ tinue to dwell on, and demand quick remedies for, instances o f per­ ceived managerial misconduct. But, as many CSO officials have noted, the failure to give CSOs broad flexibilities may mean that they are unable to achieve greater efficiencies in their operations. Again, how­ ever, the “ risks” associated with deregulation might have been amelio­ rated if central agencies had done a better jo b o f designing new accountability mechanisms— including revamped methods o f appoint­ ing chief executives, stronger public reporting and audit procedures, and new rules on the accountability o f chief executives to Parliament— when they drafted their 1993 reorganization plan. Perhaps more serious is the failure o f reformers to anticipate the political difficulties created by competition between government CSOs and private suppliers. Attempts to demonstrate the flatness o f the playing field are unlikely to have much effect in countering deeply rooted popular beliefs about the dangers o f “ big government” and loosely-regulated, “ entrepreneurial” government agencies. The strongest arguments that might be made in favour o f the preservation o f CSOs would probably emphasize the distinctive character o f the services they produce, or the control function they exercise; but TBS, in adopting the principle o f optionality, has tacitly suggested that neither o f these arguments has much merit. When the federal government adopted the new common services policy and converted major CSOs into SOAs, TBS officials insisted that it was not a prelude to privatization.39These officials were undoubtedly sincere. However, the evidence suggests that the effect o f a competi­ tion-based policy is to create an environment in which political pres­ sure for the privatization o f CSOs grows substantially. In any case, the government, faced with severe budget problems, has backed away from earlier assurances on privatization. The 1995 budget statement

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promised that the government would privatize government operations “ wherever that is feasible and appropriate.” The future o f PWGSC depends very much on its ability to make a case for its CSOs that will be effective in resisting these political and financial pressures. To date, the efforts that have been made in internal reviews appear to have had limited success in producing strong argu­ ments for the preservation o f CSOs. On the other hand, it must be noted that there is now little evidence publicly available to substantiate often-repeated claims about the benefits o f a competition-based com­ mon services policy. This is an instance in which a public discussion about the policy, and the role o f PWGSC, would be very useful. The government missed an opportunity to have that discussion when it forced Bill C-52 through the Commons Committee on Government Opera­ tions in the fall o f 1994. Perhaps the Senate will seize the opportunity when the bill (renamed C-7) arrives on its doorstep. NOTES

1 2

3

4

5 6 7 8

Paul Tellier, “ It’ s Time to Re-engineer the Public Service,” The Globe and Mail [Toronto], February 27, 1994, A27. This paper draws on interviews with government officials and internal documents, many o f which were obtained through Access to Information Act requests. In the interests o f concision, quotations from internal documents are generally not referenced. Details may be obtained from the author. Royal Commission on Government Organization, Report, Vol. 1, Man­ agement o f the Public Service (Ottawa: Queen’ s Printer, 1962), 57-58; Report, Vol. 2, Supporting Services for Government (Ottawa: Queen’ s Printer, 1962), 13-14. A.W. Johnson, “ The Treasury Board o f Canada and the Machinery of Government of the 1970s,” Canadian Journal o f Political Science, 4, 3 (1971), 362. Royal Commission on Financial Management and Accountability, Final Report (Ottawa: Supply and Services Canada, 1979), 161. Ministerial Task Force on Program Review, Government Procurement: Spending Smarter (Ottawa: 1986), 12-15. Privy Council Office, Public Service 2000: The Renewal o f the Public Service o f Canada (Ottawa: Supply and Services Canada), 59. Public Service 2000, Report o f the Task Force on Administrative Policy and the Role o f Common Service Agencies (Ottawa: PS 2000 Secretariat, 1990), iv.

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9 10

11 12

13

14 15

16 17

18 19 20 21

22

Treasury Board Secretariat, Manual on Material, Risk and Common Services (Ottawa: Treasury Board Secretariat, 1994), c. 3.0, 3-4. Treasury Board Secretariat, Manual on Material, Risk and Common Services (Ottawa: Treasury Board Secretariat, 1994), c. 3.1, Appendix A, 3. Ian Clark, Government Renewal: Overview Briefing (Ottawa, November 5, 1993), Presentation overheads, 10. The “ flexibilities” given to SOAs have included exemption from personyear controls, authority to set and adjust rates for services, approval to establish a separate revolving fund, authority to increase the management category complement, authority to adopt flexible staffing arrangements, increased authority to enter into service contracts, and authority to approve administrative items such as business class travel, conference attendance, travel allowances, and hospitality. One SOA—the Canada Communication Group—has “separate employer status,” which allows it to negotiate its own collective agreements. The Real Property Branch was known as the Accommodation Branch before 1993. For convenience, I will refer to it in this paper only as the Real Property Branch. The Esquimault Dry Dock was also considered as a candidate for SOA status. Public Works and Government Services Canada, Special Operating Agencies: Some Views on Opportunities, Risks and Implications for Parent Departments (Ottawa: PWGSC, 1994), 11; emphasis in original. Canada Communication Group’s right to produce its own corporate services was preserved. Deloitte and Touche, Public Works Canada: Review o f Administration and Program Delivery (Ottawa: Deloitte and Touche, November 1992), 40-45. Office o f the Auditor General, Report to the House o f Commons, 1993-94 (Ottawa: Office of the Auditor General, 1994), 34: 26. Nick Mulder, “ Managing Special Operating Agencies: A Practitioner’s Perspective,” Optimum, 22, 2 (1991), 22. Public Service 2000, Report o f the Task Force on Administrative Policy, 38. In September 1994, the internal audit o f CCG’s “pre-payment” practices was leaked to the media, producing harsh coverage. The government, responding to parliamentary complaints about the “ scandalous practices” within CCG, promised an immediate inquiry. Within a few days, CCG’ s chief executive officer, Norman Manchevsky, was transferred. Public Works Canada Internal Affairs, Possible Misappropriation o f Government Funds, File No. 194-92-11-11/0, n.d. See especially pp. 9394. This report was obtained in response to a request under the Access to

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202

23 24 25

26 27

28 29 30 31

32

33

34 35

36 37

HOW O T T A W A SPENDS

Information Act. Some passages in the released document were deleted by the department under section 19(1) of the Act. Ross Howard, “Federal Agency Investigated for Undercutting Business,” The Globe and Mail [Toronto], March 24, 1994, A4. PWGSC Task Force on Real Property Services, Report (Ottawa: PWGSC, 1995), 2: 4; 9: 6; 11: 1. The Program Review exercise also resulted in a further curtailment o f the SOA model. PWGSC announced that the Canadian General Standards Board would give up its SOA status, which it had obtained in 1991. Mulder, “ Managing Special Operating Agencies,” 22. The group, called the Graphic Communications Industry Coalition, also included the Society of Graphic Designers of Canada, the Canadian Business Forms Association, the Canadian Book Manufacturers’ Associa­ tion, and the Canadian Association o f Photographers and Illustrators in Communications. Ross Howard, “Federal Agency Investigated for Undercutting Busi­ nesses.” Gord McIntosh, “Competitive Bureaucrats Annoy Business Sector,” Calgary Herald, February 15, 1995, D3. Bill C-52 has now been renamed Bill C-7, and is up for third reading. Consulting and Audit Canada, Response to Questions Posed by Treasury Board in Relation to the Provision o f Services to Federal Government Departments and Agencies, internal memorandum, n.d. Treasury Board Secretariat, Earning Their Markets and Paying Their Way: Internal Suppliers and Competition (Ottawa: Treasury Board Secretariat, 1995). Thus a PWGSC official felt able to offer the House Committee on Government Operations the “categorical” assurance “that we have the policy not to compete with the private sector.” Department o f Finance, Public Works and Government Services 1996-97 Estimates, Part III (Ottawa: Canada Comunication Group, 1996), 2-23. A recent report on the United Kingdom’ s executive agencies observes that privatization is sometimes regarded as “a way to get out o f all the delicate problems raised by the reform process.” Sylvie Trosa, Next Steps: Moving Forward (London: Cabinet Office, 1994), 38. In July 1995 the department announced that it had appointed a committee to advise the department on the privatization process for CCG. The struggle to establish a rationale for PWGSC’ s CSOs is evident in the department’ s 1996-97 Estimates. The Real Property Branch identifies one of its major goals as that of “build[ing] recognition among clients and central agencies that the [real property] program adds value to real property services.” Department o f Finance, Public Works and Govern­ ment Services 1996-97 Estimates, Part III, 2-8 and 2-21.

PUB LI C W O R K S A N D G O V E R N M E N T S E R V I C E S

38

39

See Christopher Hood, “A Public Management for All Seasons?” Public Administration, 69 (Spring 1991), 3-19; Patrick Dunleavy and C. Hood, “From Old Public Administration to New Public Management” Public Money and Management (July-September 1994), 9-16. See, for example: I.D. Clark, “ Special Operating Agencies: The Chal­ lenges o f Innovation,” Optimum, 22, 2 (1991), 16.

2 03

7 On the Cutting Edge: Program Review, Government Restructuring and the Treasury Board of Canada

EVERT A . LIN D Q U IST

I f one were to choose a vantage point from which to begin fathoming the range o f issues and challenges confronting the federal government and its public service, there would be no better place than the Treasury Board Secretariat (TBS). Not only does it serve the Treasury Board, one o f the four standing cabinet committees o f the Liberal govern­ ment, as well as other cabinet committees, it also monitors and regu­ lates the affairs o f departments and agencies. TBS produces the expenditure budget, advises on resource allocation for programs, re­ sponds to the assessments o f the Auditor General on how well policies and programs are administered, oversees hundreds o f administrative policies and regulations in scores o f domains,1and acts as “ employer” o f public servants on behalf o f the government on management-labour matters and other human resource issues. This broad range o f respon­ sibilities often leads officials and observers to invoke the images o f the

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Treasury Board as the “ manager” o f the federal public service and an important “ information node” within the government. And, since the Treasury Board has initiated or implemented a variety o f public ser­ vice reforms, it has also been viewed as an important agent for change. There are other, less positive, images in circulation. For many senior managers in operating departments, the Treasury Board is the central agency that says “N o!” or announces policies without regard to the specific challenges o f departments and programs. For others, the issue is not that the Treasury Board says no, but that it cannot quickly say “ Yes!” To them, the Treasury Board and its officials constitute a hydra­ like monster whose many heads independently reach into operating departments, preaching the mantra o f “ service quality,” but seem un­ aware they are attached to the same body. In this view, the Treasury Board still merits its title o f “ Kafka’ s Castle,” because the institution remains unfathomable; rather than serve as a beacon o f reform, it is often perceived as an obstacle to reform, which does not utilize its own resources productively.2 Many outsiders acknowledge that TBS has found ways to give departments better support, but in the context o f expenditure reductions and program restructuring, such initiatives are widely interpreted as sending mixed signals, since the Treasury Board still monitors, challenges, and regulates departments.3A final image is that o f an institution in decline: since the Treasury Board no longer manages a sizable operating reserve, nor controls person-year alloca­ tions, there is a perception that TBS no longer holds much sway over departments or government policy. Given the breadth o f TBS responsibilities, it is not surprising that there exists a hodgepodge o f images. All too often, however, we in­ voke one or more o f these conflicting images o f TBS without address­ ing its real capacities and modes o f operation, and, in doing so, miss the opportunity to develop a clearer view o f its accomplishments and to identify real opportunities for reform. For the most part, the litera­ ture on the Treasury Board has failed to examine the central agency as an organization, or, more precisely, as a cluster o f organizations with significantly different tasks.4 The purpose o f this chapter is to begin filling in some o f these empirical gaps, and to provide a foundation for a constructive discussion about what directions the Treasury Board and TBS should move in terms o f organizational and policy develop­

TREASURY BOARD

ment. I begin with an overview o f major Treasury Board initiatives, and then explore in the next four sections how the Program Review and other developments have affected and created new challenges for the Program Branch, the Financial and Information Management Branch, the Human Resources Branch, and the Official Languages and Employment Equity Branch. I then review recent efforts to create corporate capacity to improve co-ordination and integration across branches, and to mobilize staff to take up rather daunting challenges. The final section considers the prospects for reform and offers some recommendations. The theme o f the Treasury Board being “ on the cutting edge” has several meanings. First, its officials have been key players in the Pro­ gram Review process, providing a challenge to departments and imple­ menting government decisions through the Expenditure Management System. I argue that any claims that the Treasury Board and its Secre­ tariat has little influence on reform are misguided, or need to be highly qualified. Second, TBS is also an object o f Program Review, and its Secretary and branches are grappling with how best to deal with the cuts. Every branch is actively rethinking its operations and the policies it administers, and there have been tentative, but promising, attempts to improve horizontal integration in order to serve operating depart­ ments. A third meaning has to do with determining whether or not TBS has sufficient resources to deal with its challenges and responsi­ bilities. A cursory comparative analysis suggests that some functions may be significantly under-resourced. If so, the Treasury Board is truly on the edge, either as an innovative institution or one that is about to snap. Finally, even though TBS is an important instrument for imple­ menting the public service reform agenda o f the government, TBS as an “ organizational knife” 5may have limited capacity and authority to reshape itself to meet key challenges. Recent appointments and trans­ fers o f responsibility to the Treasury Board are promising, but deep reform o f the structure and processes o f TBS will be contingent on whether Treasury Board ministers devote sufficient time and energy to make the business planning process a serious exercise for ministers and departments, and on whether the Prime Minister and the Clerk o f the Privy Council make the reform o f all central agencies and their administrative policy regimes atop priority.

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THE T R E A S U R Y B O A R D S E C R E T A R I A T : ON THE W A N E O R TH E C U T T I N G E D G E ?

Many observers believe that the Treasury Board and its officials have lost their ability to control the affairs o f departments and to exert influ­ ence on the direction o f the public service as a whole. In conversation, many observers inside and outside the Treasury Board Secretariat at­ tribute the waning o f conventional influence to inadequate ministerial or deputy ministerial leadership, but overlook the degree to which such change was either inevitable or by design. Interestingly, such assess­ ments implicitly presume the ascendancy o f the other central agen­ cies— the Privy Council Office and the Department o f Finance— without parallel analysis o f whether either o f these agencies is more “ in con­ trol” than a decade ago. It is true, o f course, thatthe Treasury Board no longer “ controls” in the manner it used to, when departments were required to secure “ pre­ authorizations” on the details not only o f budget issues but also o f a range o f human resource, administrative, and informatics matters. Most observers would agree that the effort to reduce control has been a posi­ tive, long overdue development, and would not argue for a return to past practices. However, few observers have described what a new “ powerful” Treasury Board would look like, and whether that model would differ greatly from the existing one. In addition, there has been a failure to identify the newer, sometimes more subtle, channels o f influence exercised by Treasury Board officials. Consider these examples o f how TBS has quietly exercised a differ­ ent role. While the Minister o f Finance and his department have been in ascendancy because o f the deficit and debt problems, it remains true that an increasing proportion o f budgetary decision-making during the last decade has involved restructuring or eliminating programs (par­ ticularly non-statutory programs). TBS officials have been deeply in­ volved in developing options and implementing final decisions. They also had the lead role in designing and implementing the new Expendi­ ture Management System,6 even though decisions regarding fiscal framework, tax policy, federal-provincial arrangements, and statutory programs remain firmly the domain o f the Minister o f Finance. In­ deed, the Secretary and the Program Branch have worked very closely

TREASURY BOARD

with the Minister and Department o f Finance in preparing the last half-dozen budgets. Likewise, it is widely understood that the Privy Council Office de­ signed and co-ordinated the massive June 1993 restructuring o f the federal government announced by Prime Minister Kim Campbell, and then co-ordinated the 1994 Program Review by the Liberal govern­ ment. But it is rarely acknowledged that in both cases Treasury Board officials had key roles to play in analysing and challenging the propos­ als emanating from operating departments. Finally, Treasury Board officials, who were deeply involved in the negotiations with public sector unions, advised on the decisions to suspend collective bargain­ ing and the Workforce Adjustment Directive, and designed the Early Retirement Incentive and the Early Departure Incentive programs.7 Arguably, then, the relevance o f TBS has never been greater, even though its role has been neither celebrated nor transparent. However, TBS is grappling with new challenges that have emerged in its tradi­ tional domains o f authority. These challenges include restructuring and revitalizing the public service, contributing to Program Review, facili­ tating alternative delivery and financing o f programs, implementing business planning by departments, and elaborating new human resource policies, to name a few. But as TBS has taken up new challenges, it has not relinquished old responsibilities, which has led to concern about whether its branches can properly oversee all the policies and pro­ grams it manages. Another problem is that the role o f the Treasury Board, as well as its statutory authorities and structure, were conceived for a different era, when the public service was expanding. TBS branches have tended to function as a conglomerate o f mini-central agencies, each with differ­ ent policies to administer that bear on operating departments. With this reality in mind, this chapter attempts to convey the recent experi­ ence and current challenges o f each branch on its own terms— in any case, it is easier to comprehend the consequences o f “ TBS-wide” re­ forms at this level. However, the current and future challenges for TBS are very different from past ones. The key issue for ministers and for operating departments is whether TBS resources have been de­ ployed across branches in a sufficiently effective manner to handle the challenges o f downsizing a large public service, and then managing a

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smaller one. The conventional wisdom is thatthe branch “ stovepipes” need to be broken down in order to transform TBS. Various attempts have been made to deal with this problem, but, as will be discussed at length later, none has fundamentally changed branch-based operations and the cultures that go with them. Any assessment o f whether TBS has sufficiently reformed its opera­ tions must recognize that considerable change has occurred during the last few years. In 1992, an operational review led to the reorganization o f several branches and the elimination o f about 10 percent o f mana­ gerial ranks. The June 1993 restructuring was an important event be­ cause not only did TBS have a key implementation role, but it also absorbed the functions o f the Office o f the Comptroller General. In November 1994, a mini-reorganization moved several units across dif­ ferent branches, and more corporate capacity was installed in the Secretary’ s office. TBS participated in the Program Review as a de­ partment, and the result was a commitment to reduce its 1994-95 re­ source base for core services by 18 percent by the 1997-98 fiscal year (see Table 7.1), which will translate into an estimated decline in staff o f 170 full-time equivalent employees (FTEs) from the current level o f approximately 939 FTEs. These cutbacks will come in addition to previous de-layering and staff reduction exercises carried out during the early 1990s.8 But, under the new Expenditure Management Sys­ tem announced in February 1995, the Treasury Board assumed re­ sponsibility for privatization and for the so-called “ small p” programs, about $46 billion worth o f non-statutory programs, in a new division o f responsibility with the Department o f Finance.9Finally, staff have had to adjust to the leadership styles and strategic priorities o f four ministers (Loiselle, Edwards, Eggleton, and Masse) and three deputy ministers (Clark, Giroux, and now Harder) in recent years.10 One goal o f this chapter is to convey the extent o f change in TBS over the last few years. Before we delve into branch and corporate developments, it is important that readers understand that TBS offi­ cials do not believe they have been singled out for special treatment. They know that far more dramatic change has often been experienced in other parts o f the public service, and many would agree that reforms to TBS have not occurred quickly and decisively enough. On the other hand, critics and reformers alike must understand that TBS has not

TREASURY BOARD

been frozen in time, and that in important respects there have been constraints on its capacity to initiate bolder reforms. The reasons for this go beyond leadership, and are related to the priority given to imple­ menting several major downsizing and restructuring initiatives, and the degree o f interest o f successive governments in reforming central agencies and the policies governing the public service. PROGRAM BRANCH: E X P E N D I T U R E M A N A G E M E N T IN T R A N S I T I O N

For many observers inside and outside the government, the Treasury Board’ s Program Branch is the Treasury Board Secretariat. Regard­ less o f the veracity o f such views, they derive from the proposition that budgetaiy decisions are the single most important factor that constrains and defines the delivery o f programs and even other non-financial is­ sues such as human resource management. However, even this tradi­ tionally powerful branch has been under considerable stress, and must make difficult decisions about how best to deploy its declining resources. A primary responsibility o f the Program Branch is to produce the expenditure budget for the Government o f Canada and to confer with government agencies and departments on budgetary and financial mat­ ters. The primary points o f contact with departments and agencies are program analysts, who monitor the activities o f departments and pro­ grams throughout the government.11The analysts work in three sec­ tors, each led by an assistant secretary: Economic Programs; Social and Cultural Programs; and Government Operations, Foreign and Defence, and Immigration Programs. Program analysts have always been the core o f Program Branch operations, but the current comple­ ment o f 66 FTEs will be reduced to 54 by the 1997-98 fiscal year. In August 1991, the program sectors were de-layered (as part o f a public service-wide policy to have no more than three levels o f execu­ tives below the deputy minister) by eliminating the “ group chiefs” who managed small clusters o f program analysts and reported to directors, who, in turn, reported to the assistant secretaries and the deputy secre­ tary. No matter how justified, the de-layering came as a shock to the culture and operation o f the branch, because the group chiefs provided an important back-up for dealing with shifting workload, emergency

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Table 7.1

Profile of the Treasury Board Secretariat's Operating Budget After December 1993 Budget and Program Review Reductions9 Fiscal Years 1994-95 to 1997-98 ($ millions) % Operating Budget by Organization Unit

1994-95 (Est)b

Reduction 1994-95 to 1997-98

1995-96 (Proj.)

1996-97 (Proj.)

1997-98 (Proj.)

7.4

6.8

6.4

6.0

19

Corporate Services*1

13.3

12.4

11.2

10.4

22

Secretariat Reservee

-

1.2

2.4

2.4

20.6

17.8

16.3

15.1

27

5.9

4.9

4.5

4.2

29

Financial and Information Management

21.5

19.4

17.7

16.4

24

Program

18.0

16.5

15.4

14.3

21

86.7

79.0

73.9

68.8

21

-

2.1

2.0

2.0

86.7

81.1

75.9

70.8

-

0.8

0.3

0.1

86.7

81.9

76.2

70.8

Core Services Corporate Management Management0

Service Branch Human Resources Official Languages and Employment Equity

Operating Budget after Program Reviewfor Core Services Adjustmentsf Operating Budget after Adjustmentsfor Core Services Infrastructure Works Total

18

18

TREASURY BOARD

NOTES TO TABLE 7.1 a

b c

d

e

f

The Secretariat administers two special funds, the administrative costs of which it absorbs in its ongoing operations. One fund covers GovernmentWide Contingency Management, for which an amount of about one per cent of non-statutory spending is allotted, currently budgeted at about $450 million annually. The other fund covers Government Contributions to Centrally-Covered Employee Benefits. Based on current assumptions, the projected cost of these contributions during the planning period are $738.1 million for fiscal year 1995-96, $735 million for 1996-97, and $750 million for 1997-98. Estimated allocation adjusted to reflect organizational changes implemented in fiscal year 1994-95. Management includes the offices o f the President, Secretary, and Chief Informatics Officer, the Operations Secretariat, Planning and Communica­ tions, and Legal Counsel, Corporate Services include Human Resources, Finance, Informatics, Security, and General Administration Services. Only the Secretariat’s share o f this Branch’s Operating Budget is shown, although it provides joint services to the Secretariat and the Department o f Finance, The Reserve will be allotted within the organization in line with final decisions on the timing and implementation of planned adjustments to the Secretariat’s business, Adjustments to reflect the allocation o f costs to departments for translation services and Federal Law Enforcement Under Review, beginning in fiscal year 1995-96. Source: Treasuiy Board Secretariat.

requests, and the training o f new analysts. One result was that there were far fewer staff to handle responsibilities in an era o f dramatic change to the public service and expenditure management, although some slack was taken up by the improvement o f productivity by means o f information technology and by heavier reliance on management train­ ees on six-month rotational assignments. The Crown Corporations and Privatization Sector monitors the ac­ tivities o f Crown agencies. Its assistant secretary reports to the Deputy Secretary, Program Branch, and to the Department o f Finance. This sector has experienced some upheaval; in June 1993, staff from the Privatization group in the Department o f Finance were transferred to what used to be called the Crown Corporations sector, and its staff complement was reduced, in part because privatization initiatives tailed o ff during the late 1980s and early 1990s. More recently, the sector

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(with 26 FTEs) has played an important role in analysing and promot­ ing alternative delivery options. The Expenditure Management Sector integrates the work o f pro­ gram analysts, develops overarching views o f expenditure priorities, consults with the Department o f Finance, and produces the Main Esti­ mates. Its three divisions have approximately 40 FTEs (which will decline to 31 FTEs in the 1997-98 fiscal year). The Estimates division produces the expenditure budget, works with departments to produce the Main Estimates, and releases funds (following consultations within the branch) to departments from a central operating reserve. The Ex­ penditure Analysis division provides a horizontal and more analytic view o f expenditures programs, with economic and finance expertise, and undertakes selective studies (such as the interest group funding review). Finally, the Management Initiatives division works on special projects and horizontal issues, usually with a management focus. This group provided the corporate capacity for TBS-wide initiatives such as the Increased Ministerial Authority and Accountability agreements, service standards, departmental management assessments, shared man­ agement agendas, preparation o f documents, the Expenditure Man­ agement System, Estimates reform, and alternative delivery. Few observers acknowledge that many Program Branch officials are deeply involved in preparing the annual budget delivered by the Minis­ ter o f Finance— during the months before the budget is announced, the President o f the Treasury Board, the Deputy Secretary o f the Program Branch, and senior officials work closely with colleagues in Finance to produce broad budget options and work out more detailed plans— though this depends on the personalities involved. The Main Estimates, o f course, deal with the expenditure budget. For all intents and pur­ poses, the Program Branch functions as part o f the Department o f Finance during the pre-Budget period. This relationship has expanded since the inception o f Program Review and increasing government in­ terest in finding alternative ways to deliver programs. Nonetheless, the branch’ s self-confidence declined markedly in the early 1990s, largely because staff witnessed an erosion in its tradi­ tional sources o f knowledge. Until the early 1990s, it was understood that analysts should spend no longer than two years in their posts, and then take up new positions in operating departments and other central

TREASURY BOARD

agencies— such turnover allowed the branch to regenerate its knowl­ edge o f departmental operations and issues. But de-layering, the hiring freeze, and the need to provide back-up for management trainees, led to less rotation. Other sources o f information, obtained when depart­ ments sought person-year authorizations, pre-transaction clearances, and access to Treasury Board operating reserves, dwindled with the granting o f increased flexibilities to departments, the adoption o f single operating budgets, and the allocation o f a smaller reserve. The pro­ cesses employed during the early 1990s, such as the Multi-Year Op­ erational Planning and the Shared Management Agendas, and, more recently, business planning, did not result in higher quality informa­ tion on how well programs were managed by departments. The branch found it difficult to define its evolving role while imple­ menting several major public service-wide initiatives and budget re­ ductions, and its own reductions and reorganizations. The Privatization group was absorbed from the Department o f Finance, and the June 1993 restructuring resulted in the Accounting and Cost Sector o f the Office o f the Comptroller General joining the branch. The Deputy Sec­ retary, Mel Cappe, initiated a change process designed to improve upward feedback and develop a better sense o f mission, but he was appointed Deputy Minister o f Environment in May 1994 at a critical juncture. Richard Paton, formerly the Deputy Secretary o f the Admin­ istrative Policy Branch, became the new Deputy Secretary in August 1994. He was an “ outsider,” someone from another TBS branch, who had strong strategic management skills and who might attempt to de­ velop horizontal relationships with other branches. At the time, the key challenge for the Program Branch was how to rethink its operations in order to take up the roles associated with the new Expenditure Management System— which included participating in Program Review and overseeing the business planning process, Es­ timates reform, and the “ small p” programs amounting to approxi­ mately $50 billion— while adapting to reduced resources. In late 1994, the Accounting and Cost sector was moved to the new Financial and Information Management Branch, and the Bureau o f Real Property and Material (25 FTEs) and the Regulatory Affairs group (9 FTEs) o f the former Administrative Policy Branch joined the Program Branch.12 Both units had expertise relating to alternative delivery. The branch

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currently has 190 FTEs, and its target is 153 FTEs by the 1997-98 fiscal year. It is anticipated that, given ongoing public service restruc­ turing, branch workload will increase by 20 percent. These realities convinced the Deputy Secretary that the Program Branch had to become more “ strategic” in policy and management terms. It was widely agreed that continued reliance on a manifold cop­ ing strategy— broader coverage o f portfolios by staff, use o f manage­ ment trainees, improving information systems, and co-ordination with other central agencies— was insufficient for dealing with impending challenges. Ways had to be found to better align branch priorities with government priorities, to focus staff resources on programs and issues with the largest expenditure implications, and to take up issues requir­ ing the broad expertise o f the branch or co-ordination across depart­ ments.13Staff felt that too much time was consumed by “transactions,” and, in this connection, the branch has tried to use business planning, ongoing Program Review, and alternative delivery as opportunities to better focus interactions with operating departments and other central agencies. A related goal was to reduce branch Treasury Board sub­ missions by 20 percent in the 1995-96 fiscal year. The first cycle o f business planning during 1995 led to some note­ worthy change. Analysts worked with departments to develop new re­ porting formats, drawing on the experience o f the Crown Corporations and Privatization sector. Analysts either sat on, or supported, inter­ branch teams to review departmental plans. This represents a shift in the right direction, but it did not transform branch operations and cul­ ture, in part because deep reform is contingent on the government and Treasury Board expressing strong interest in business planning and alternative delivery initiatives. This may change with the arrival o f a new President, Secretary, and Deputy Secretary, and the recent deci­ sion to move the responsibility for co-ordinating Program Review from the Privy Council Office to the Treasury Board. FINANCIAL AND INFORMATION MANAGEMENT BRANCH: AMBITIOUS PLANS

The recently established Financial and Information Management Branch (FIMB) has a breathtaking portfolio o f responsibilities, complemented

TREASURY BOARD

by ambitious plans for securing administrative and technological change in the federal public service. Formed largely from elements o f older entities— the former Administrative Policy Branch (APB) and the former Office o f the Comptroller General— its staff have experienced many reorganizations and have adapted to new roles. The best way to begin is to observe how the Administrative Policy Branch (APB) changed its focus during the late 1980s and early 1990s. The branch developed administrative policy for the public service in three areas: •

•

•

Information management, including access-to-information and privacy, security, records and other information holdings, electronic data processing, telecommunications, and informa­ tion technology standards, Administrative management, including risk management and insurance, common services, and asset, contract, and property management, and Provision o f advice on audit and evaluation for departments, and dissemination o f best practices. These responsibilities were handled by approximately 75 staff, and, according to many observers, the branch operated strictly in the “ control” mode, with pre-transaction approvals.

During the late 1980s, APB began to rethink how these functions were managed. More emphasis was put on developing policy frame­ works, improving accountability, and adopting a service orientation toward operating departments, as opposed to approving detailed plans from them. One step was to raise threshold levels for Treasury Board approvals o f various transactions. Another was to rely more heavily on, and to nurture, the administrative policy communities o f expertise throughout the public service in specific functional areas such as in­ formation and administrative management. Communications loomed larger as a tool for the exchange o f best practices and for determining how better to support and develop sensible standards for departments. Additional impetus came with the Public Service 2000 exercise and its Task Force on Administrative Policies and Common Services, which reported in 1991. At the same time, the Council for Administrative Renewal emerged, a group o f senior functional and central agency

217

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managers committed to a bottom-up co-operative approach to the re­ form o f administrative policies, in order to reduce costs and better support program delivery.14 As APB’ s strategic posture changed, its responsibilities broadened. The Bureau o f Real Property Management and the Office o f Regula­ tory Affairs were moved into the branch in 1992, and it soon had a staff o f approximately 100.15As part o f the June 1993 restructuring, the functions o f the Office o f Comptroller General were moved into TBS: its Accounting and Costs sector went to the Program Branch, while the Audit and Evaluation sector joined APB, and the Financial Management and Information Systems group was used to establish a new Office o f Information Management Systems and Technology led by a Chief Informatics Officer, who reported directly to the Secre­ tary.16 The reorganization was more than a reshuffling o f boxes; the creation o f this new unit reflected the Secretary’ s keen interest in mov­ ing the public service forward in areas o f information technology and management.17 More organizational changes followed. In late 1994, another TBSwide reorganization transferred the regulatory affairs group and the real property and material group from APB to the Program Branch. The Accounting and Costs Sector was moved into a new Financial and Information Management Branch that absorbed the remaining responsibilities o f the former Office o f Information Management Systems and Technology. All the sectors o f the former Office o f the Comptroller General were in one branch (information management, evaluation and audit, and financial management). The evaluation and audit units were combined with units working on service quality and service standards into a new Government Review and Quality Services Sector. The new branch had 197 FTEs for the 1994-95 fiscal year. The succession o f reorganizations had a deleterious impact on mo­ rale. The deputy secretary o f FIMB has put in place an upward feed­ back process and is reducing non-priority responsibilities unless supported by new resources. Perhaps more importantly, the branch is moving forward with ambitious plans to improve government admin­ istrative operations: •

The Quality Services Initiative: The President o f the Treasury Board announced this initiative in October 1995 to encourage

TREASURY BOARD

•

•

•

departments to undertake increased consultation with clients, unions, and employees, to develop service standards and engage in benchmarking, and to launch recognition and com­ munications strategies.18 The Financial Information Strategy: A multi-year initiative to improve the quality o f financial information available to ministers and senior officials, and to facilitate greater delega­ tion from the centre, with sufficient financial controls.19The goals include moving departments onto common financial systems, adopting accrual accounting across the government, and producing consistent and timely data for the Expenditure Management System. The Cityplan Strategy: This initiative sets out a more detailed plan for implementing the Blueprint for Information Technol­ ogy vision. It seeks to employ information technologies to improve service to citizens (such as single-window service and ATM machines), and to increase the efficiency o f government operations by gravitating to common computer hardware, electronic publishing, and Internet access, and integrated computer systems and networks across the public service. Improving review and accountability'. An initiative to increase the relevance o f audit, evaluation, and review activities for the government, central agencies, and department managers. This requires maintaining a data-base on all audits, reviews, and evaluations in progress across the public service, and identify­ ing projects requiring TBS assistance or leadership.20TBS is also trying to improve co-ordination with the Auditor General and Parliament, with the Government Review and Quality Services sector providing a single window for reporting and for day-to-day interactions.21

All four initiatives seem like strides in the right direction, but the benefits will tend to flow in the longer term, and, in some cases, will require new resources in the short term. They will not assist the Trea­ sury Board and operating departments in handling immediate chal­ lenges, such as Program Review and meeting expenditure reduction targets. Perhaps even more sobering is the fact that this reform agenda must be implemented in the context o f dwindling resources: FIMB

219

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must move from 197 FTEs in the 1994-95 fiscal year to 154 FTEs by the 1997-98 fiscal year, a decline o f almost 22 percent. Its managers are seeking to collaborate with operating departments and other branches by identifying projects that can receive joint funding, and by borrowing funds from the Treasury Board reserve funds, which will be repaid with future savings. HUMAN RESOURCES BRANCH: CONTINUAL CHANGE AND HUGE POLICY CHALLENGES

The Human Resources Branch supports the Treasury Board in its role as “ employer” for the federal public service. Its statutory authorities flow from the Public Service Employment Act, the Public Service Staff Relations Act, the Public Service Superannuation Act, and some parts o f the Financial Administration Act. According to a recent tally, the branch is responsible for just over 200 policies, programs, and projects, with a complement o f close to 240 FTEs.22 However, the human re­ source function has been in constant turmoil during the early 1990s because o f attempts to rationalize and reorient internal capacities, and because o f government decisions to suspend collective bargaining, downsize the federal public service, and alter the workforce adjust­ ment regime. During the late 1980s, human resource issues were the responsibility o f the Personnel Policy Branch and the Staff Relations Branch. The role o f the Staff Relations Branch was to support Treasury Board min­ isters when they negotiated with public sector employees and their union representatives on a variety o f compensation and work place issues.23 It is important to note that, as is the case in other public ser­ vice jurisdictions, collective bargaining for all employees is handled by the Treasury Board and not each department, though recently de­ partments have been given more input into negotiations. There were 78 bargaining units in the public service that negotiated with the Trea­ sury Board in 1990. About 85 staff dealt with these responsibilities. The Personnel Policy Branch was responsible for implementing and monitoring policies on health and safety matters, pensions, insurance plan contributions, and executive and management compensation. It also provided advice for agencies outside what was ordinarily consid­

TREASURY BOARD

ered the Treasury Board universe— the Canadian Forces and the RCMP. This branch developed the policies that were the precursors to the Workforce Adjustment Directive, and oversaw the general structure o f operating departments and central agencies, classification systems and training, and development o f pay systems. Staff also developed poli­ cies and advised on matters such as affirmative action, human rights, training, human resource planning, and job security for surplus em­ ployees, and monitored how well departments administered delegated responsibilities. About 190 staff carried out these responsibilities dur­ ing the late 1980s. In the early 1990s, the human resource function contended with sev­ eral strong forces for change. One important impetus was the Public Service 2000 exercise.24 Broad in scope, it focused on ways to over­ haul human resource management in the public service. The final re­ port recommended, first, that deputy ministers receive greater authorities and flexibilities from the Treasury Board for hiring, deploying, and firing employees, and, second, that the Treasury Board consult more when developing new human resource policies. These recommenda­ tions built on the prevailing Increased Ministerial Authority and A c­ countability Strategy o f the mid-1980s, which had resulted in significantly reduced reporting requirements for departments and less TBS capacity to monitor how well the departments were implementing policies. These ideas, in addition to substantive proposals for statutory change, led to the creation o f a small Human Resources Development Branch in April 1991. The branch supported the new Human Resources De­ velopment Council, and shepherded Bill C-26, the Public Service Re­ form Act (December 1992), through the legislative process and implemented its provisions. The branch was also to serve as an agent for change within TBS, since the old human resource branches were believed too traditional in approach and competencies. A related rea­ son for creating the branch was that the staff relations function had recently been absorbed by the Personnel Policy Branch, and its man­ agers needed to focus on consolidating the branches, and not on broader reform issues. Staff in the Personnel Policy Branch endured further upheavals. First, the September 1991 strike by the Public Service Alliance o f Canada

221

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led to the introduction o f back-to-work legislation by the government on September 16 that suspended collective bargaining and imposed a wage freeze.25 Second, the Secretary o f the Treasury Board commis­ sioned several reviews in 1992 to identify efficiencies. The merger was part o f an initiative to reduce senior managers in TBS, but the reviews led to the branch absorbing a 15 percent cut in resources, a decline in 45 FTEs. Finally, in February 1993, the functions o f the small Human Resources Development Branch and the Personnel Policy Branch were consolidated and given a new title, the Human Resources Policy Branch. Staff grappled with several challenges while experiencing continual restructuring. First, several staff co-ordinated the groundwork required to develop the universal classification system recommended by PS 2000, a massive project intended to create a more flexible system for later­ ally moving employees working in about 100,000 positions, and to reduce significantly the complexity and cost o f classification and staff­ ing. Second, Prime Minister Campbell announced on June 25, 1993 that the cabinet and the public service would be restructured. Imple­ menting this decision consumed many branch staff for months,26and derailed the classification exercise, since departments had to focus on reorganizing their corporate services and operations. The complexity derived from the fact that although responsibilities could be transferred relatively easily by an Order-in-Council decision, it was far more dif­ ficult to move the employees who discharged those responsibilities.27 Staff had to oversee how employees were legally deployed and surplus employees handled, and to provide departure advice and services to employees and departments, consistent with the Workforce Adjust­ ment Directive, a generous job security policy that had been negoti­ ated following the September 1991 strike. For the first time, the branch established weekly (later less frequent) meetings with human resource managers from the affected departments in order to work through these issues. To further complicate matters, it was during this time that the Auditor General o f Canada levelled a broadside at TBS for not having ad­ equately monitored how departments were utilizing the provisions o f the Workforce Adjustment Directive, having concluded that there was considerable abuse o f the policy.28This put added pressure on human resources staff to assess the branch’ s capacity to monitor the policies

TREASURY BOARD

for which it was responsible, and to clarify the locus for accountability on the part o f the Treasury Board, TBS, Parliament, and operating departments. It underscored the problems with data systems managed by departments, but pertinent to TBS authorities. Finally, the last budget o f the Conservative government and first two budgets o f the Liberal government created additional pressures. The adoption o f operating budgets (which allow salaries to be traded for other operating expenditures) required the branch to work closely with colleagues in the Program Branch and the Department o f Finance to determine how budget reductions might affect the public service. The February 1994 Budget announced additional wage freezes for the 199496 fiscal years,29which meant that the services o f many experienced negotiators were no longer needed.30 The February 1995 Budget an­ nounced Program Review decisions and significant expenditure re­ ductions that, together, implied that the public service would be reduced by about 45,000 FTEs by 1998. When negotiations with unions to relax employment security guarantees failed, the government intro­ duced legislation to suspend such guarantees in certain circumstances. The government introduced the Early Departure and Early Retirement incentive programs,31which were designed by Human Resources staff, who oversaw their implementation by departments. To assist with the downsizing, the branch instituted weekly meetings with representa­ tives from the “ most affected” departments and put in place a national system o f “joint adjustment committees” with unions. These latest challenges were addressed while the branch coped with TBS initiatives to restructure operations. In late 1994, an internal re­ organization led to a new title for the branch: the Human Resources Branch (HRB). A few months later staff were informed that, as its share o f meeting Program Review targets for TBS, the branch would absorb a 30 percent cut in resources by the 1997-98 fiscal year. As these reductions occur, staff must plan for the next round o f collective bargaining, or at least develop a fallback strategy for handling com­ pensation and other labour-management issues when the current legis­ lation expires. An important issue is the extent to which the collective bargaining o f operational issues can be devolved to departments rather than handled by HRB, or whether separate employer status for departments is a

223

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HOW O T T A W A SPENDS

viable option. There is also considerable interest among deputy minis­ ters and program managers in moving toward competency-based as opposed to position-based staff assignments, and finding easier ways to move employees within the federal public service, to other govern­ ments, and to the private and non-profit sectors. To assist with the movement to improve horizontal integration across branches, HRB established a business planning group to work with departments and the Program Branch on a portfolio basis, and to assist with the group responsible for developing integrated proposals for alternative deliv­ ery options. On the other hand, the government has relinquished few human resource policies, and HRB is expected to administer and monitor the performance o f the government and departments for all statutory responsibilities in the human resources domain. OFFICIAL LANGUAGES AND EMPLOYMENT EQUITY BRANCH: FURTHER CONSOLIDATION

The Official Languages and Employment Equity Branch (OLEEB) stands as an anomaly. While each o f the other branches has close to 190 FTEs, it had approximately 60 FTEs during the 1994-95 fiscal year. The branch administers programs o f considerable symbolic im­ portance. Nevertheless, its programs have been under pressure since the early 1990s. The Official Languages Branch was established not long after the 1972 federal election, three years after the adoption o f the Official Languages Act.32The new branch was created to give a strong push to the development o f policies and programs on the language o f work in departments and agencies, the participation o f francophones in the public service, and the provision o f service to citizens in both official languages. Its responsibilities included negotiating agreements with departments and agencies and advising them on the designation o f bi­ lingual positions and on recruiting strategies. The branch also over­ saw the translation function and the language training programs, services that were provided throughout the entire public service. Fi­ nally, the branch assisted the President o f the Treasury Board in re­ sponding to the annual report o f the Official Languages Commissioner to Parliament. During the 1990-91 fiscal year, the branch had 66 FTEs.33

TREASURY BOARD

Interest in employment equity for designated groups has been in­ creasing significantly at TBS since the late 1980s.34A small unit work­ ing on the problems o f under-representation and retention o f designated groups in professional and management groups was located in the Per­ sonnel Policy Branch. The Public Service Reform Act o f 1992 re­ quired the President to submit an annual report to Parliament on employment equity, and deputy ministers had to work with managers, union representatives, and employees to set department targets and to develop public plans.35Internal advisory committees were formed for designated groups within the public service, and the President appointed his own advisory committee. By 1992, the number o f staff working on these issues expanded to 17 FTEs. Their tasks included gathering data to inform the setting o f targets, initiating pilot projects and other pro­ grams to help meet targets, working with departments to develop plans, and undertaking evaluations and audits o f departmental performance. The Official Languages Branch and the employment equity group were autonomous from the other branches, but not immune from pres­ sures to reduce costs and alter management structures. In October 1992, the two functions were combined into the Official Languages and Employment Equity Branch. About 67 FTEs were allocated for the 1991 -92 fiscal year, and the plan was to reduce this allocation for the 1994-95 fiscal year to about 60 FTEs. About one third o f the resources are committed to the employment equity programs. One goal was to have the employment equity programs use the information systems and reporting regimes in place for the official languages programs, and another was to streamline the reporting demands on operating de­ partments. Resource reductions have led OLEEB to develop new “ frameworks” for administering the programs: departments, rather than OLEEB, will be encouraged to conduct evaluations and audits. Infor­ mation technology will be used to lower the costs o f communicating with the respective administrative communities that span the public service. Although OLEEB was not integrated into the Human Resources Branch, and was therefore spared many o f its tensions and turmoil,36 OLEEB must determine how to deliver its programs with a decline in resource levels o f 29 percent by the 1997-98 fiscal year. In addition to relying more on operating departments, it must find ways to collaborate

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with other TBS branches. Some staff see potential in recasting official languages objectives as a “ service quality” matter that might be o f interest to FIMB. Another issue concerns how to integrate its need to secure data with broader TBS monitoring o f departments— the branch did not sit on the inter-branch teams that reviewed department business plans,37and there is a general drive to streamline reporting. INCREASING CORPORATE CAPACITY AND HORIZONTAL INTEGRATION

For years, a common complaint from officials in operating departments has been that “ one hand o f the Treasury Board does not know what the other hands are doing.” The problem has been twofold. First, many o f the issues confronting operating departments that require central agency assistance no longer match, and perhaps never did, the organization o f TBS expertise. Routine requests and problems have been adequately handled by traditional branch structures, but such matters are increasingly delegated to departments. The important problems now presented to TBS by departments are intrinsically complex because they relate to significant restructuring and downsizing initiatives. The privatization o f the Airport Navigation Service stands as just one example. Such problems are complex because the human resource, financial, real property, and technological issues must be dealt with simultaneously; such initiatives become additionally difficult when departments must deal with different TBS branches or sectors, receiving inconsistent advice or delays in approvals. The mismatch between departmental needs and the organization o f TBS expertise would not be a major obstacle if there were better co­ ordination. At the risk o f overstatement, it might be said that each branch has often acted as a separate fiefdom (although arguably there is a hierarchy among the branches, with the Program Branch typically sitting atop the heap), developing and administering its own policies and responsibilities in isolation. The result is that Treasury Board min­ isters and officials have rarely developed an overarching view o f how the complex o f its policies and activities impacts on a given depart­ ment or a specific program, let alone designed processes to facilitate integrated problem-solving and planning.

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However, this is not for want o f trying. The problem o f vertical silos has been recognized within TBS for some time— staff at all levels have had extensive experience in operating departments and are well aware o f those frustrations. Indeed, there have been several attempts to redress this problem during the last decade, but none succeeded. To see how the organizational and process changes flowing from TBS’ s Program Review and the adoption o f business planning constitute a departure, it is worth reviewing previous attempts to reorient TBS.

Previous Bilateral and Consultative Initiatives The first was the Increased Ministerial Authority and Accountability (IMAA) initiative announced in 1986. Bilateral master agreements were to be negotiated between the Treasury Board and operating depart­ ments with the goal o f increasing flexibilities and devolving authori­ ties to ministers and their departments while at the same time ensuring accountability based on performance indicators. These negotiations were co-ordinated by a special IMAA group within the Program Branch, but drew on expertise from all branches. Eight agreements were con­ cluded, but the initiative was eventually considered a failure, in part because there were significant transaction costs incurred inside and outside TBS in order to arrive at the comprehensive agreements. Per­ haps these front-end costs would have been tolerable, but the flexibilities secured by the departments were soon demanded by, and granted to, other departments; a trend that was simply accelerated by the PS 2000 exercise. In 1991, the Secretary, Ian Clark, instituted the Shared Management Agenda process, a series o f bilateral meetings with deputy ministers to discuss a short memorandum that identified common priorities and challenges, the intended function o f which was to focus the interac­ tions between both organizations during the forthcoming year. In addi­ tion, he formalized the process by which the performance o f deputy ministers and their management teams was documented. The Depart­ mental Management Assessments were reviewed by the Committee o f Senior Officials when assessing the performance o f deputy ministers. All TBS branches contributed to both processes, submitting proposals for criteria and assessments based on their respective areas o f func­ tional expertise.

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There were mixed feelings about these processes. Many deputy min­ isters viewed them as productive exercises for determining shared pri­ orities, and for providing the first systematic and comprehensive feedback on their managerial performance. For TBS officials, these exercises were labour-intensive and frustrating. Branch perspectives were reduced to brief, sometimes elliptical statements (or not included at all), and, because o f their role in performance appraisal, the final documents had very restricted circulation.38Except for the one or two departments judged to be the best managed, where the Secretary ar­ ranged for some public recognition, the aggregate TBS “ view” on the managerial performance o f a department was not widely known, nor its influence on the fortunes o f deputy ministers understood. The result was that TBS officials— not to mention their counterparts in operating departments— came to view both exercises as little more than “ papershuffling.” Some TBS officials worried that resource reductions had compromised their ability to measure performance in certain areas with confidence. Nevertheless, officials on both sides invested considerable time and energy in these memoranda, because deputy ministers closely reviewed and negotiated their contents. Departments and TBS officials also became increasingly dissatisfied with the Multi-Year Operational Planning (MYOP) process, which culminated in submissions to the Program Branch each fall. The purpose o f a MYOP submission was to supply financial information and identify budgetary pressures to inform the drafting o f the Estimates and the spring Budget. Increasingly, they also were used to request information on specific management initiatives or issues from departments. Since the MYOP process was primarily a budget exercise, it did not serve as a genuine opportunity to probe the complex o f management issues and departmental strategic planning, which would have required tapping into all TBS branches and direct departmental representation. Moreover, detailed scrutiny o f MYOP submissions was undertaken within the Program Branch, and not by the Treasury Board. The process culminated in a two-hour meeting o f the Treasury Board in early December intended to review and discuss an aide-m em oire that aggregated the submissions, and to secure authorization for producing the Main Estimates.

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Another hallmark o f TBS during the Clark era was the creation o f consultation forums with deputy ministers, as well as senior program and functional assistant deputy ministers, from across the federal pub­ lic service. Clark established the Human Resources Development Coun­ cil and the Employment Equity Council, re-established the TBS Advisory Committee, strongly supported the work o f the Council for Administrative Renewal, and strengthened the regional councils o f fed­ eral executives.39 Other initiatives, such as the service standards and information technology initiatives, led to the formation o f committees with representatives from departments. In part, the proliferation o f councils and committees was a response to PS 2000 and its call for a more collegial and consultative posture on the part o f central agencies, but it was also a pragmatic response to the fact that TBS had fewer resources and fewer ways to “ control” departments— in the early 1990s, it increasingly had to appeal to common interests to get things done. What is most interesting about these developments is that the colle­ gial approach and the many reorganizations did not result in signifi­ cant changes to how TBS operated, because the collegial posture was primarily focused on improving interactions with the rest o f the sys­ tem. “ Integration” occurred at the level o f the Executive Committee, but did not necessarily result in changed patterns o f work below the deputy secretaries and assistant secretaries. This reflected the leader­ ship style o f the Secretary, who preferred to work in a collegial manner with senior colleagues at TBS and elsewhere in the public service, and who respected the authority o f his deputy secretaries when it came to branch management. What this meant was that most institutional development proceeded within branches under the leadership o f deputy secretaries, including increased internal and external consultation. One result was that, even though important themes for transforming TBS were identified, a clear corporate image o f its priorities did not emerge in terms o f structure and day-to-day interactions with departments. The new consultation mechanisms and bilateral processes tended to be layered onto existing ways o f doing business— and little was overtly taken o ff the table— thus leading to contradictory images o f what sort o f relationship TBS sought with departments, and the “ deep culture” o f the institution was not transformed.

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Giroux s Change Processes: Grappling with Program Review In May 1994, the arrival o f a new Secretary, Robert Giroux, created a new opportunity to better horizontally integrate TBS, to deal with the Program Review that had been announced, and to project a new cor­ porate image to insiders and outsiders alike. The Secretary essentially adopted a two-track approach: TBS’ s contribution to its own Program Review was handled by a small group led by the Assistant Deputy Minister, Corporate Services, while a more inclusive Vision exercise was launched that engaged staff from all branches. Both tracks pro­ ceeded during the summer o f 1994, and culminated in discussions and decisions by the Executive Committee that fall. The Vision exercise consisted o f task forces on four subjects: re­ forming expenditure management, rethinking human resources in the public service and by TBS, improving service delivery, and increasing accountability and control. Each task force had representation from all branches and from the other task forces, and had groups working on specific issues. A visiting ADM, who was not connected to any o f the branches, co-ordinated the process; the goal was to have options ready for review by senior management in August. Many o f the topics had long been the object o f internal debate, but with the government interest in articulating a new expenditure management system and con­ ducting Program Review, as well as the appointment o f a new Clerk o f the Privy Council and a new Secretary, it was time for a fresh start at developing a new strategic direction. The Program Review exercise was far more tightly held. The ADM Corporate Services worked with Andy Macdonald, the outgoing Chief Informatics Officer, to develop options and scenarios for handling the notional targets given to TBS by the Department o f Finance in late spring: a 15 percent reduction over three years. They were supported by two staff in the Corporate Services Branch responsible for TBS’ s own financial planning. The strategy was to meet rather than resist the targets, because it was believed that TBS and other central agencies should serve as examples to other departments, and it was surmised that delivering on cuts would lead to smoother reviews by the deputy ministerial and ministerial Program Review committees. Unlike the Vision exercise, this was not an inter-branch process, except at the highest level; branch views were largely developed and articulated in­ dependently by the deputy secretaries.

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The analysis and recommendations from both exercises informed several meetings o f the Executive Committee in September and Octo­ ber 1994. Although many options were considered, it was determined that each branch would absorb a 19 percent cut in resources, and the extra 4 percent in cuts were to be diverted to an internal reserve for new initiatives. Program Branch was exempted from the additional 4 percent reductions because o f anticipated workload increases associ­ ated with the adoption o f business planning and the implementation o f Program Review decisions. This plan was approved by the Program Review committees. Another by-product o f both processes was the decision by the Secretary to establish a new Financial and Information Management Branch, and to move several units to and from the Pro­ gram Branch. Finally, the Vision task force’ s deliberations informed the TBS contributions to the 1995 Budget, the new Expenditure Man­ agement System, the business planning concept, and the early retire­ ment and early departure plans for public servants. However, neither the Vision exercise nor Program Review led to de­ tailed plans about how to absorb even deeper cuts while preparing to assist and oversee significant change in the rest o f the public service. The traditional branch stovepipes remained, and morale throughout TBS was low. The Secretary concluded that the challenges could only be met by continuing to engage staff, and by mobilizing resources and working better across branches. Giroux’ s strategy was threefold. First, he established an Advisory Council for Change in February 1995, com­ prised o f employees from all branches, with a six-month mandate to recommend ways to modify branch mandates so as to reduce duplica­ tion and overlap, to improve internal morale and communication, to develop strategies for managing downsizing and other human resource issues, and to implement the business planning regime inside TBS. Second, he established a Planning and Communications Directorate, headed by an assistant deputy minister, which would contain capacity for strategic planning, challenge the branches, co-ordinate its own in­ ternal business planning process, deal more effectively with other cen­ tral agencies on strategic issues, undertake policy reviews, and obtain relevant research and information. Finally, the business plan teams were identified as a way to improve horizontal integration by calling for representation from almost all branches.40

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The Advisory Council for Change, whose members continued work­ ing in their full-time positions, formed eleven working committees and recommended initiatives to the Executive Committee. To improve hori­ zontal and vertical relationships, several Open House events were or­ ganized so that staff could visit colleagues in other branches, an “Activity Day” took place where staff could mingle with the President and senior managers in an informal setting, and staff were encouraged to participate in team-building seminars. An employee survey was commissioned to develop a baseline assessment o f attitudes and mo­ rale, and to obtain feedback on the strengths and weaknesses o f man­ agement and TBS. It confirmed that staff enjoyed the challenges o f their jobs and enjoyed working with colleagues, but it revealed that they were frustrated, because downsizing meant fewer officials did the same or more work, compensation freezes meant that good work could not be rewarded, and there was insufficient strategic direction for cop­ ing with these pressures as well as conflicting demands from depart­ ments and Cabinet. The process culminated in a half-day Town Hall meeting in October for all employees, with a frank discussion o f the findings o f the survey with the President and the entire senior manage­ ment team. Business Planning and Horizontal Integration: The A cid Test Operating departments, o f course, were not greatly interested in whether or not Treasury Board officials learned more about each other. Given the pressures to restructure departments, meet Program Review tar­ gets and recommendations, and implement the early departure and early retirement programs, they wanted evidence that TBS would serve their needs better. The most important strategic reform, for symbolic and for practical purposes, was the implementation o f business planning, announced with the Expenditure Management System, which was os­ tensibly to replace the Multi-Year Operational Planning reporting and some other bilateral reporting between departments and TBS. How­ ever, for the business planning innovation to succeed would require important improvements in how TBS branches worked together. An early worry o f insiders and outsiders alike was that business plans would be layered on top o f old reporting processes, serving to increase rather than decrease the workload o f program analysts and

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departmental officials. Early signals indicated that this would not hap­ pen. Departments were told that business plans would replace the IMAA agreements, the Multi-Year Operational Plan submissions, and the Shared Management Agendas.41 However, departments still had to confirm future expenditure reference levels during the fall.42 Second, inter-branch teams were established inside TBS to advise departments and to evaluate the final business plans. Third, TBS wanted to make the process productive, leading to useful strategic documents for oper­ ating departments, and better external scrutiny o f departmental strate­ gies. Finally, it was felt that the plans should reflect the unique responsibilities and challenges o f departments— aside from meeting general guidelines on content, the plans were to reflect departmental preferences. By allowing flexibility in the formats, TBS staff antici­ pated that the first wave o f business plans would be diverse and neces­ sarily experimental. TBS officials wanted to avoid two practices associated with past initiatives. They did not want the plans to focus on operational details, as was the case with the IMAA agreements. Rather, they were to be strategic, focusing on medium-term challenges for the services pro­ vided by a department and agencies in its portfolio, and identifying what assistance and flexibilities would be required to implement deci­ sions flowing from Program Review and the February 1995 Budget. The model was inspired by the reporting regime utilized to monitor and approve the activities o f Crown corporations: the full business plan would remain a confidential cabinet document, if desired by the minister, but departments would prepare less detailed “ Outlook” docu­ ments for review by standing committees in the House o f Commons and the public in late spring, following the annual Budget.43 The second practice to avoid was to rely on one or two staff in the Program Branch to co-ordinate the input from all branches, some o f which were not structured well on a departmental basis and might contribute perspectives that were not a priority for the department. To avoid gridlock and frustration inside and outside TBS, it was decided to create teams that would focus on each department, with representatives from pertinent branches led by designated directors in the Program Branch. Thirty-one such teams were established. These teams were “ virtual,” since members did not relinquish full-time

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responsibilities, and much communication took place through electronic mail, but there was a “ single window” for departments to contact. The April 15 deadline for submitting plans was tight, given that de­ partments had only learned about the Program Review decisions and resource allocation for the next three fiscal years in the February Bud­ get. The plans were unlikely to be masterly; however, TBS officials determined that it was essential to move forward with the process, since it would be unproductive to continue the Multi-Year Operational Planning process in the fall. Few departments met the deadline, but most did submit their business plans by early summer. This, in turn, led to two important questions: How many plans would be presented by departmental ministers for detailed review by the Treasury Board? and Would the plans be full Treasury Board submissions or simply approved documents for discussion? The Board agreed to review a smaller group o f departmental plans in the “ first cycle,” and to have the rest (approximately forty) reviewed by staff and submitted to min­ isters as a package for approval. The exercise was a qualified success.44Many departments appreci­ ated the opportunity to take a strategic management perspective rather than simply a financial perspective in their dealings with the Treasury Board, and used the opportunity to engage their own staff in planning for the future in the wake o f Program Review. It was for this reason that many departments were disappointed that their plans did not re­ ceive detailed scrutiny by the Treasury Board, although it must be understood that under the MYOP regime, it was the TBS program analyst who presented the departmental submission to the Assistant Secretary for Expenditure Management— the department never made direct presentations to the Treasury Board. In addition, the depart­ ments seeking additional management flexibilities were disappointed when they did not receive approvals immediately. In some cases, it was apparent that the business plans submitted to the Treasury Board were “ paper-pushing,” and did not serve as the department’ s primary strategy document. This raises the important question o f how the Trea­ sury Board will deal with poor or superficial business plans, which will be addressed in the final part o f this chapter. For their part, Treasury Board officials seem pleased with the initia­ tive, although they would concede that much progress still needs to be made before business plans can be considered a success, particularly

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with respect to improving horizontal capabilities. The real test o f their usefulness as management, planning, and accountability tools will oc­ cur during the second and third cycles. The main goal o f the first cycle was to put the process in motion, and to engage the Treasury Board ministers in a review o f the plans. For the Treasury Board it was an opportunity to develop a more holistic view o f departments, and ap­ parently ministers have expressed interest in reviewing more plans during the next cycle, albeit at the strategic level. From a developmental perspective, TBS officials believe that the business plan teams worked reasonably well, despite some turnover in directors and concerns that some branches did not co-ordinate their internal expertise. There are plans to give the leaders more training in team-building. Another concern is that the single window concept is focused only on the business plans and, to a certain extent, alternative delivery— it is difficult to build and maintain productive teams if they are not regularly used. Finally, many department officials were either not aware o f the single-window concept or were not satisfied that TBS has indeed turned the comer in this regard, in that single windows related only to business plans, and not to all reporting and departmentTBS transactions. By late 1995, although some promising changes have taken place at TBS, most officials inside and outside would probably agree that deep cultural and institutional change had not yet occurred. The Secretary took important steps toward improving horizontal communication, but whether this has led to meaningful horizontal integration and better service for departments is an open question. One huge cloud hanging over the change activities that fall was the Secretary’ s decision to leave the public service. This was cause for some cynicism, since building on the change process would be at the whim o f an incoming Secretary. However, Giroux argued that the momentum for change would not decline, because o f the imminent restructuring o f the public service, that the responsibility for coping with those changes rested with staff in any event, and that the exercise would be a sound basis for handling the transition to a new deputy minister once the appointment was an­ nounced. In late November 1995, the Prime Minister announced that Peter Harder, the former Deputy Minister o f Citizenship and Immigra­ tion, would be the new Secretary.

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REDESIGNING THE " OR GA N I Z ATI ON A L KNIFE" TO SERVE A NEW TREASURY BOARD

This chapter has shown that, like the rest o f the federal public service, the Treasury Board Secretariat has been under pressure. Each branch has been reorganized— in some cases, several times— and is consider­ ing ways to significantly reform operations and policy regimes (which includes relinquishing some responsibilities) in order to address new challenges and implement funding reductions averaging 21 percent over the next three fiscal years.45 These branch-led initiatives have been complemented by modest attempts to improve how TBS, as a corpo­ rate entity, serves operating departments and ministers. Because o f resource reductions, restructuring, and broader spans o f control, there is less tolerance— among the senior managers o f operating departments and inside TBS— o f processes and reporting regimes that do not add value to grappling with these challenges. The previous Secretary in­ stalled better strategic planning capacity, and engaged all staff in change activities. The most important initiative has been business planning, which may improve working relationships not only between TBS and operating departments, but also among TBS branches. There is a sense, however, that these changes have not fundamen­ tally changed how the Treasury Board and its officials work, nor how they interact with departments. I noted earlier that without adjustments the business planning regime risks becoming a paper-pushing exer­ cise. The reflex is to attribute the lack o f fundamental change to inad­ equate leadership by previous Secretaries. However, I have argued that TBS has wrestled with significant internal and external chal­ lenges— both Clark and Giroux made strategic decisions about reform priorities while coping with demanding jobs. More importantly, secur­ ing significant reform is not wholly the domain o f Presidents and Sec­ retaries o f the Treasury Board. They could not unilaterally reform the oversight o f departments, human resource policies, or the structure o f TBS without the government clearly expressing interest and support. Without the government taking a strong interest in “ administrative plumbing,” TBS could not have moved forward with an ambitious agenda in the manner o f the governments in Australia, the United King­ dom, and New Zealand.46

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This may have changed. Recent developments indicate the Liberal government may be taking a stronger interest in restructuring programs and human resource policies, and redefining the relationship between the Treasury Board and departments. These developments include: •

•

•

•

The Prime Minister appointed Peter Harder as the new Secre­ tary o f the Treasury Board. Harder, who recently helped to form and restructure an operating department (Citizenship and Immigration), has a reputation for moving quickly and manag­ ing in a non-hierarchical manner. As part o f his January 25,1996 cabinet shuffle, the Prime Minister appointed Marcel Masse as President o f the Treasury Board and also appointed a strong Treasury Board, with senior appointments (Paul Martin, Sergio Marchi, Diane Marleau, Douglas Young, and Anne McLellan).47 The Prime Minister also announced that co-ordinating Program Review, a function previously handled by the Privy Council Office, is now a responsibility o f the Treasury Board. This brings together Program Review and business planning— the “ upstream” and the “ downstream” forums on restructuring— under the auspices o f one cabinet committee. The government is continuing to move forward with its agenda on alternative delivery and downsizing the Public Service that flowed from Program Review. The March 1996 Budget and related negotiations with public sector unions indicates the government! s interest in supporting this agenda by means o f a new human resources framework and by additional exit incentives designed to facilitate moving employees with programs to other governments, to special purpose agencies, and to the private sector48

In short, several wheels— the government’ s agenda, recent ministerial and deputy ministerial appointments, and the assignment o f responsi­ bilities— are now aligned in such a way as to permit significant reform o f Treasury Board operations. In what ways should TBS be restructured? This question cannot be answered properly without first speculating on how the priorities o f

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Treasury Board might evolve, since TBS must serve its ministers. The Treasury Board should become far more strategic, devoting most o f its energies to reviewing business plans, program reviews, and alternative delivery proposals, and to assisting departments needing support from the centre. Indeed, the previous Treasury Board indicated that it wanted to review more business plans, and with Program Review now within its ambit, its ministers can devote sustained attention to restructuring issues, and TBS expertise will be at the disposal o f a single cabinet committee. Equally important is the fact that business planning can be directly linked to ongoing Program Reviews, which should make their submission a far more serious matter for departments. In this context, Treasury Board ministers should indicate their priorities clearly, so that government review, audit, and evaluation information can inform their decisions. The implication is that the Treasury Board should have less interest in micro-managing departments, and minor Treasury Board submissions from departments should decline even further. By moving in this direction, the Treasury Board might begin to ap­ proximate Australia’ s Expenditure Review Committee, which includes the Prime Minister, the Treasurer (equivalent to our Minister o f Fi­ nance), the Minister o f Finance (equivalent to the President o f the Trea­ sury Board), and the most senior ministers o f operating departments. It invests far more time by Canadian standards in grappling with the details o f the expenditure budget, and identifying programs to be re­ viewed, evaluated, or considered for commercialization.49But I would like to venture a more radical view as to how the Treasury Board might interact with operating departments. To date, most ideas for reform have focused on how the Treasury Board might improve its review o f departments. In my view, a strengthened business planning process, aided by enhanced program review capacity and working with firm expenditure targets, should provide an opportunity for operating departments and their ministers to challenge the Treasury Board and its officials on how well they have been served. Developing and imple­ menting business plans should involve two-way accountability, where the performance o f the Treasury Board and TBS— particularly with respect to horizontal integration— should be the object o f as much at­ tention as the performance o f ministers and their departments. No matter to what extent the Treasury Board transforms itself, the key challenge for the Secretary will be how to restructure TBS in or­

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der to serve the Treasury Board in a more strategic fashion. One prior­ ity should be to enhance and co-ordinate expertise across branches, in order to aid Treasury Board deliberations. Another priority should be to bolster the integrity o f the Expenditure Management System, par­ ticularly with respect to improving financial reporting from depart­ ments, which will require co-ordinating the projects o f the Program Branch and the Financial Information and Management Branch. The impending further decline in TBS resources indicates that, where pos­ sible, branches should decentralize responsibilities to operating de­ partments. Finally, the Secretary should be a strong advocate o f overhauling human resource management o f the public service and rebalancing the resources o f central agencies in this area to signifi­ cantly reduce aggregate resources used by the Privy Council Office, the Treasury Board Secretariat, and the Public Service Commission. My assumption is that TBS will have to support the Treasury Board and Secretary in a more continual, year-round process o f program review, business planning, implementation o f program restructuring and alternative delivery, and ensuring accountability. The critical or­ ganizational challenge will be to find the best way to co-ordinate ex­ pertise in order to support the Treasury Board and work with departments. There are, in my view, three relevant options: •

•

Maintain horizontal teams. This would build on the approach employed for the first round o f business planning, except that the inter-branch teams would be used more regularly through­ out the year for upstream and downstream activities. The problem is that it might be difficult to transfer a model that worked (under stress) for a limited, concerted period to more continuous interactions, particularly if the Treasury Board seeks to examine more departments and programs. This option presumes that other resources are better used elsewhere in TBS. Create an Operations Branch. This proposal would provide the “ single window” to departments by providing points o f contact within a new branch. It would take over responsibility for inter-branch co-ordination from directors in the Program Branch. However, it would create another line o f reporting to the Secretary, and competition would likely emerge between

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•

both branches, since advice on budgetary resources will always be paramount. It would risk repeating the experience o f the Planning Branch during the 1970s.50 Deepen the Program Branch-led approach. If TBS invests more resources in support o f business planning and program review, the capacity o f the Program Branch could be expanded. Program Branch directors should continue to exercise leader­ ship, but they should have better support, and this necessitates clearer delineation o f roles. First, directors should be supported by staff whose only role is to manage horizontal work teams, provide the “ single window” to departments, and better support the Treasury Board in a more proactive role. Second, the emerging practice o f appointing two types o f program ana­ lysts— financial analysts, who manage budgetary and other financial transactions, and policy specialists, who analyse alternative delivery options and provide policy advice— should be accelerated and assisted by hiring more staff.

My preferred option is the third one. It addresses the problem o f port­ folio coverage and will provide opportunities for staff to take up new opportunities within TBS. It will also be amenable to efforts to create special TBS-department teams to handle particular adjustment chal­ lenges. Some readers will bridle at the prospect o f investing more resources in the Program Branch. But I am presuming that the Treasury Board will relinquish responsibilities in other functional areas to ministers and their departments, and that human resource management will be reformed in such a way as to ensure that central agencies collectively expend fewer resources in that area. A common view is that Ottawa’ s central agencies are not only greater in number, but have far more resources at their disposal, than those o f comparable jurisdictions. Such assertions, even if correct, do not address how resources are allocated to particular functions, such as expenditure management and financial and information management. Though a definitive study has yet to be conducted, preliminary figures should give central planners and critics pause. In Australia and the United Kingdom, the units performing

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equivalent duties have at their disposal approximately 100 more FTEs.51 This explains why Australia’ s Department o f Finance has far more clout than TBS: not only has it served a powerful and fully engaged Expenditure Review Committee, but it has significantly more capacity in expenditure management and financial management.52 This sheds new light on the complaints about the past inability o f TBS to meet their demands; the difficulties may not be a function o f either poorly organized or poorly managed resources, but o f inadequate resources. I am not suggesting that the Program Branch ought to receive 100 more FTEs, but this comparison suggests that reallocating 25-30 FTEs might not be unreasonable. Even if TBS managers wanted to follow this advice to increase the capacity o f the Program Branch, and perhaps FIMB, they could not move unilaterally. To bolster the capacity o f even one branch implies a major reallocation o f resources across branches, and would compro­ mise the capacities o f other branches and the integrity o f the policies and programs they manage. Such a reallocation could not proceed without the endorsement o f the government, the Treasury Board, and the Clerk o f the Privy Council, nor could it without an overhaul o f the affected policy regimes. I have had little to say about transforming TBS culture, because in my opinion cultural change will flow from the strategic and structural reforms advocated above. There is a commonly held view that TBS culture is not conducive to reform, and that its officials will actively resist working in new ways. This perception confuses the behaviour o f TBS officials who have worked within particular institutional and policy webs with their willingness to countenance reform. Most outsiders are unaware that TBS officials have long been frustrated about working within policy and administrative frameworks they know have been evolving too slowly to deal with major challenges, and make it difficult for them to perform their jobs well. There is a strong interest in mov­ ing TBS in a new direction, but, as I have already argued, this can only happen if the government and the Treasury Board give TBS and the public service a clear sense o f direction and commit valuable ministe­ rial time to making the reforms work. If such ministerial engagement is forthcoming, I have no doubt that TBS culture will quickly evolve.

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Figure 7.1

The Government's Expenditure Management System

Finance TBS B udget speech E stim ates ta b lin g

P rim e M inister M inister o f Finance

F e b ru a ry F in al b u d g e t decisions M arch Jan u a ry -

P re p a ra tio n a n d review of d e p a rtm e n ta l business plans

D epartm ents TBS Treasury B oard

June

F e b ru a ry C abinet C om m ittees. M inister o f Finane. Treasury B oard P C O /F IN /TB S C a b in e t review of budget stra te g y M ay -Ju n e ^ Finance H ouse Standing C om m ittee on Finance

H ouse Standing C om m ittees D epartm ents TBS R elease and review of d e p a rtm e n ta l outlooks

D ecem ber -Ja n u a ry Cabinet C om m ittees M inisters PCO C a b in e t review o f p rio ritie s

B udget co n su ltatio n pro cess

Ju n e

O c to b e r D ecem ber

S e p te m b e r O c to b e r

p

R elease o f budget co n su ltatio n p a p ers

O c to b e r

Finance PC O

S o u r c e : T r e a s u r y B o a r d S e c r e ta r ia t.

C a b in e t review ‘ of budget co n su ltatio n s tra te g ies Cabinet C om m ittees Treasury B oard PC O /F IN /TBS

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APPENDIX: OVERVIEW OF O T T A W A ’ S “ NEW” EXPENDITURE MANAGEMENT SYSTEM*

The Expenditure Management System (EMS) was unveiled in Febru­ ary 1995, but in many ways it reflected the decision-making approach o f the Liberal government since its election in October 1993. Like all such systems, it sets out a process by which the Cabinet and central budgetary agencies— namely the Department o f Finance and the Trea­ sury Board Secretariat— deal with resource requests from ministers and their departments. Before identifying the EMS’ s new features it is important to acknowl­ edge that many changes in the old Policy and Expenditure Manage­ ment System occurred during the mid- to late 1980s. This included the shift from “ envelope” allocations for expenditure portfolios to “ refer­ ence levels” for departments and specific programs, a commitment to producing the Budget o f the Minister o f Finance in tandem with the annual expenditure cycle (usually in February each year), steadily grant­ ing departments flexibilities for allocating resources within budgetary levels, and regularizing consultations with outside groups. These changes were introduced in a piecemeal fashion, so that the EMS si­ multaneously provides a snapshot o f how the expenditure manage­ ment system evolved over the past decade or so, and indicates the Liberal government’ s directions for expenditure management. The EMS timetable found in the government discussion document is reproduced here as Figure 7.1. The key features o f the new system can be summarized in the following three clusters o f points: •

Reallocation and no policy reserves. The EMS presumes that federal program expenditures will decline and that deficit reduction will remain a priority for the foreseeable future. All decision-making proceeds within multi-year expenditure targets proposed by the Department o f Finance and approved by the Cabinet. Though not ruling out the identification o f new priorities, the EMS is geared to financing new expenditures by reallocation from existing resources, and thus, standing in great contrast to PEMS, the EMS does not revolve around policy reserve management (although a contingency reserve is

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•

•

set aside to ensure that the Minister o f Finance meets deficit targets and other statutory obligations). Proposals for new initiatives must have attached a reallocation plan for securing resources, either from the sponsoring department or from more departments, and must be approved by the appropriate policy committees o f Cabinet. The Treasury Board will manage an operating reserve to assist those departments requiring bridging assistance to finance projects that will significantly increase productivity, and must be repaid. Business planning and performance indicators. The EMS overhauls how the Treasury Board solicits information from departments and agencies. Rather than rely on Multi-Year Operational Plans (MYOP), which used to be submitted in the early fall and set out operational details about programs and financial pressures, the Treasury Board has requested more strategic documents— business plans— that are to focus on how to improve or to restructure programs or “ lines o f serv­ ice.” Like the MYOPs that preceded them, the business plans must work within previously approved reference levels for departments and programs. The plans are also intended to provide a vehicle through which departments can request flexibilities from the Treasury Board to facilitate adjustment and better resource management, and to identify indicators and service standards that will measure the performance o f pro­ grams. Both the business plans and estimates submissions are considered official documents, unless otherwise indicated by ministers. They do not yet replace other forms o f departmental reporting to the Treasury Board, such as financial reporting, major capital expenditures, employment equity and official languages, to name a few. The business plans will be given detailed scrutiny by the Treasury Board on a rotating basis. Improved informationfor House standing committees. The Liberal government announced in February 1994 its intention to involve the standing committee o f the House o f Commons more fully in scrutinizing the activities o f departments and their budgets. The department business plans will provide information for relatively brief “ Outlook” documents to be

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submitted to standing committees each May, following the Budget. They are to be accompanied by reforms to the infor­ mation contained in the Part III documents o f the Main Esti­ mates as well as reforms to the program and vote structure approved by Parliament in order to secure flexibilities in dealing with financial authorities. Committees are to get greater access to audit and evaluation information from the government. Several o f these reforms require the agreement o f the government, Parliament, and the Auditor General o f Canada. The government and the House o f Commons have recently agreed to six pilot projects to review performance reports submitted by departments to standing committees. A key consideration in designing the EMS, especially with regard to producing new information for internal and external consumption, is to ensure that it is timely for the actors who will use it and that it draws on previously produced information, so as to reduce the reporting bur­ den on departments and the Treasury Board. *For more detail on these points, see Canada, The Expenditure Management System o f the Government o f Canada (Ottawa: Minister o f Supply and Services, 1995); and see Evert A. Lindquist, “Citizens, Experts and Budgets: Evaluating Ottawa’s Emerging Budget Process,” in Susan D. Phillips, ed., How Ottawa Spends 1994-95: Making Change (Ottawa: Carleton University Press, 1994), 91128; “Has Federal Cabinet Decision-Making Come Full Circle?” in Paul W. Fox and Graham White, eds., Politics: Canada, 8th edition (McGraw-Hill, 1995); and “Information, Parliament and the ‘New Public Management,” ’ Canadian Parliamentary Review (Summer 1996), forthcoming. NOTES

This chapter could not have been written without the co-operation o f the Treasury Board Secretariat. I was permitted to interview officials in all branches, and I attended the TBS Town Hall Meeting held on October 16, 1995 in Ottawa. I would like to acknowledge the assis­ tance o f staff in the Planning and Communications Directorate, who facilitated the contacting o f officials and the distribution o f a draft o f this chapter. I would like to thank Peter Aucoin, Ian Clark, Robert Giroux, David Good, Arthur Kroeger, Jim Mitchell, Gene Swimmer,

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Paul Thomas, and many current TBS officials for their comments on an earlier draft o f this chapter. The analysis and recommendations do not necessarily reflect the views o f the Treasury Board Secretariat or o f any o f the individuals mentioned above. The responsibility for any error rests with the author. 1

Administrative policies embrace such matters as finance, accounting, contract management, classification, information technology, and privacy, to name a few. 2 For use o f this metaphor, see A. W. Johnson, “The Treasury Board o f Canada and the Machinery o f Government in Canada,” Canadian Journal o f Political Science, 4, 3 (September 1971), 346-66; and Gerard Villeux and Donald J. Savoie, “ Kafka’s Castle: The Treasury Board of Canada Revisited,” Canadian Public Administration, 31,4 (Winter 1988), 517-38. For further background on the Treasury Board, see Michael Hicks, “The Treasury Board o f Canada and Its Clients: Five Years o f Change and Administrative Reform 1966-71,” Canadian Public Administration, 16, 2 (Summer 1973), 182-205; Douglas J. McCready, “Treasury Board: Lost Influence?” in Allan M. Maslove, ed., How Ottawa Spends 1984: The New Agenda (Toronto: Methuen, 1984), 215-39; and Donald J. Savoie, The Politics o f Public Spending in Canada (Toronto: University o f Toronto Press, 1990). 3 For a more detailed discussion, see Ian D. Clark, “ Restraint, Renewal, and the Treasury Board Secretariat,” Canadian Public Administration, 37, 2 (Summer 1994), 209-48. 4 For an alternative conceptualization, see “Central Agencies and Adminis­ trative Policy Networks,” in Evert A. Lindquist, “New Agendas for Research on Policy Communities: Policy Analysis, Administration, and Governance,” in Michael Howlett, Laurent Dobuzinskis, and David Laycock, eds., Policy Studies in Canada: State o f the Art (Toronto: University o f Toronto Press, forthcoming). 5 See Philip Selznick, The Organizational Weapon (New York: McGrawHill, 1952), and the final chapter of James A. Deseaux, Designing Bureaucracies: Institutional Capacity and Large-Scale Problem Solving (Stanford: Stanford University Press, 1995). 6 Canada, The Expenditure System o f the Government o f Canada (Ottawa: Minister o f Supply and Services Canada, 1995). See the Appendix to this chapter for an overview of the system. 7 Treasury Board o f Canada Secretariat, Managers ’ Guide to Employment Adjustment (Ottawa: Public Service Employment Adjustment Group, Human Resources Branch, Treasury Board Secretariat, March 1995). 8 The 1991 Budget resulted in a 15 percent decrease in resources, and the 1992-93 fiscal year base of 817 FTEs was reduced by 4.4 percent for the following fiscal year.

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9 10

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This envelope is formally called the Direct Program Expenditure Enve­ lope. It is worth noting that such turnover is a relatively recent phenomenon: John Manion was Secretary o f the Treasury Board from 1979 to 1986, Gerard Veilleux from 1986 to 1989, and Ian Clark from 1989 to 1994. Depending on the size and complexity of a department and its portfolio, a program analyst might be assigned responsibility for one department or a cluster of departments and agencies, or two or three analysts might review a larger, more complex department. This change meant that both parts o f the former Office of Privatization and Regulatory Affairs were re-integrated into TBS, but to different parts and at a lower level in the hierarchy. See Treasury Board o f Canada Secretariat, Program Branch Priorities, 1995-96: Making Government Better (Ottawa: Treasury Board Secre­ tariat, 1995). For an overview of these changes, see Richard Paton and Christiane Dodge, “ Reinventing Administrative Policies for the 1990s: Administra­ tive Policy Reform in Canada,” International Journal o f Public Sector Management, 8, 2 (1995), 6-18; and the 1991-92 Main Estimates for the Treasury Board Secretariat, 2-23-2-25. The Council for Administrative Renewal received financial and logistical support from the Office of the Comptroller General, and is now supported by the Financial and Informa­ tion Management Branch of TBS. It provided a new model for managing and reforming administrative regimes, where central agencies played more of a co-ordinating and support role: problems were identified, and solutions proposed and vetted, by officials in operating departments. See Art Silverman, “Administrative Renewal in the Federal Public Service: The Next Generation,” Optimum: The Journal o f Public Sector Manage­ ment, 24, 1 (Summer 1993), 72-81. Figures from Department of Finance, Treasury Board o f Canada Secre­ tariat, 1992-93 Estimates (Ottawa: Minister of Supply and Services, 1992), 2-26. For some officials, the reorganization brought matters full circle. The Office o f the Comptroller General was originally formed in 1978 from elements o f the former Planning Branch and the Administrative Policy Branch. The former Comptroller General assumed the role o f Chief Informatics Officer for the Government of Canada, and APB’ s information manage­ ment group moved into the Office of Information Management Systems and Technology (but not the group responsible for information, commu­ nications, and security policy). It was this office that soon produced the Blueprintfor Renewing Government Services Using Information Technol­ ogy: Discussion Draft (Ottawa: Treasury Board o f Canada, 1994), a “ vision” for restructuring the information capabilities of the federal

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government. It served as a basis for consultations with departments to produce specific plans and strategies for gravitating toward shared systems and new forms o f service delivery. The Quality Services Initiative builds on the release of “The Declaration o f Quality Service” in December 1994, which not only committed the government to the improvement of service to citizens and clients, but also provided a ministerial push to a two-year effort to develop service standards throughout the public service. See Treasury Board Secretariat, An Overview o f Quality and Affordable Service for Canadians: Estab­ lishing Service Standards in the Federal Government (Ottawa: Minister o f Supply and Services, 1994); and Quality Services: An Overview (Ottawa: Minister of Supply and Services, 1995), and nine related guides on specific topics. FIMB plans to work in partnership with Public Works and Government Services Canada, the Council for Administrative Renewal, and operating departments. The strategy envisions the creation o f a prototype system, pilot testing with selected departments, and phased implementation to the remaining departments. FIMB will establish a project management team and rely heavily on four ADM committees, on departmental co-ordination and implementation, systems, functional requirements, and review. Projects that fall into this category include horizontal or interdepartmen­ tal reviews o f programs or activities that span several agencies or departments. See President of the Treasury Board, Strengthening Govern­ ment Review: Annual Report to Parliament by the President o f the Treasury Board 1995 (Ottawa: Minister o f Supply and Services, 1995). Officials from the Government Review and Quality Services sector also represented FIMB in the 1995 TBS review of departmental business plans, though the pertinent FIMB expertise varied widely, depending on the department under review. The list is excerpted from an untitled TBS memorandum, c.1993 or early 1994. The Staff Relations Branch provided advice, expertise, and negotiators for collective bargaining and the National Joint Council processes, the full range of benefits issues, and the handling o f grievances from unions and their employees. The branch was also responsible for advising on the creation and structure o f bargaining units and whether certain employees or groups should be exempt from joining unions. Canada, Public Service 2000: The Renewal o f the Public Service o f Canada (Ottawa: Minister of Supply and Services, 1990). The legislation, the Public Sector Compensation Act, provided for a compensation settlement of 0 percent and 3 percent. See Gene Swimmer and Kjerstine Kinaschuk, “ Staff Relations Under the Conservative Government: The Singers Change but the Song Remains the Same,” in

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26

27

28

29 30 31

32 33 34

Frances Abele, ed., How Ottawa Spends 1992-93: The Politics o f Com­ petitiveness (Ottawa: Carleton University Press, 1992) 267-312. Staff in the Human Resources Policy Branch advised the Secretary and the Implementation Board on the new department structures and associ­ ated senior executive appointments (assistant deputy minister level) proposed by each deputy minister. They also supported the Secretary as a member of the Senior Personnel Committee of the Public Service Com­ mission, which screened the recommendations made by the deputy ministers o f the restructured department for the EX 1-3 appointments (below the level of assistant deputy minister). The Public Service Rearrangement and Transfer o f Duties Act is the means by which responsibilities and functions can be transferred to ministers or departments. However, until responsibilities are awarded to new ministers and departments by statute, employees remain the legal responsibility o f their former deputy ministers or departments. In the case o f the June 1993 restructuring, agreements between deputy ministers and shell departments served as bridges until the new departments were given legal force. Auditor General of Canada, “ Payments to Employees Under the Work Force Adjustment Policy,” in Report o f the Auditor General o f Canada to the House o f Commons 1992 (Ottawa: Minister o f Supply and Services, 1992), 187-208. In addition, departments were no longer permitted to award pay incre­ ments within grades. Many experienced negotiators took advantage o f the departure and retirement incentives discussed below. For details, see Treasury Board o f Canada Secretariat, Managers' Guide to Employment Adjustment (Ottawa: Human Resources Branch, March 1995), and Ian Lee and Clem Hobbs, “Pink Slips and Running Shoes: The Liberal Government’s Downsizing of the Public Service,” this volume. Previously, the Personnel Policy Branch was responsible for official languages policy and programs. This is the “ actual” figure from the 1992-93 Estimates for the Treasury Board Secretariat. The designated groups included women, Aboriginal peoples, persons with disabilities, and members of visible minority groups. See Beneath the Veneer: The Report o f the Task Force on Barriers to Women in the Public Service (Ottawa: Minister of Supply and Services, 1990), submitted to the President o f the Treasury Board on April 23, 1990, and Government o f Canada, Public Service 2000: The Renewal o f the Public Service o f Canada (Ottawa: Minister of Supply and Services, 1990), 7982. In addition to specific remedies (e.g., not allowing retired members o f

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38

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40

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the RCMP, CSIS, and the Armed Forces to compete for public service positions, and the right to recruit and promote in order to redress imbalances), a deputy ministerial advisory committee was established in June 1990, later called the Employment Equity Council. The extent o f progress on meeting employment equity targets and establishing management regimes was to comprise one element o f deputy minister performance reviews. During the early 1990s, the group working on these matters was located in the Employment Equity, Planning and Policy Development Division. OLEEB was probably not integrated into the Human Resources Branch or its predecessors because o f the need to send the right symbolic message to external constituencies— including Parliament, the Official Languages Commissioner, and the Canadian Human Rights Commission—and because adding its functions to HRB would have further complicated the management challenges for a deputy secretary with a broad span of control and a difficult set of policy issues. This decision partly flowed from concerns about teams becoming too unwieldy. In any case, the officials from the Human Resources Branch would be familiar with official languages and employment equity issues. Circulation was generally restricted to bilateral discussions between the Secretary and the deputy minister, although sometimes TBS officials would meet with departmental executive committees. Regional council meetings and visits by senior officials from Ottawa typically took place in the regions, but an annual conference was held in Ottawa each November. The business plan did not require discussion o f official languages and employment equity issues, or o f information management, long-range capital planning, or communications plans, because other reporting regimes existed. For further details, see Government of Canada, The Expenditure Manage­ ment System o f the Government o f Canada (Ottawa: Minister o f Supply and Services, 1995); and Treasury Board o f Canada Secretariat, New Directions: Departmental Business Plans and Outlooks (March 1995). As one TBS official put it, “Nothing has changed for financial officers in departments.” On the other hand, the Annual Reference Level Update process perhaps served as a more accurate description o f what the former MYOP submissions usually achieved. The Outlook documents are prepared to meet the new Standing Orders of the House of Commons that allow standing committees to review more forward-looking information on departments. The precise function of the Outlook documents is unclear, as they will be part o f a larger package of reform to the Estimates and the Supply process that is under consider­ ation by the Treasury Board, the Auditor General of Canada, and leader­ ship from the House o f Commons and the Senate. See Treasury Board of

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44

45

46

47 48

49

50

51

Canada Secretariat, New Directions: Departmental Business Plans and Outlooks (March 1995). This analysis is based on research interviews and K. Watson and C. Smith, “A Review o f Business Planning in the Government o f Canada,” a report commissioned by the Treasury Board Secretariat and submitted by the Rideau Strategy Consultants, October 24, 1995. This figure includes the funding for two different reserves managed by the Treasury Board: the Secretariat Reserve for internal initiatives, and the Government-wide Contingency Management Reserve for assisting departments to deal with operational matters. For a description and comparison, see Peter Aucoin, The New Public Management: Canada in Comparative Perspective (Montreal: Institute for Research on Public Policy, 1996). Office o f the Prime Minister, “ Release: Prime Minister Announces New Ministry,” January 25, 1996. See Hugh Winsor, “ Deal Presages Next Step in Federal Cuts,” The Globe and Mail [Toronto], February 10, 1996; and Canada, Getting Government Right: A Progress Report (Ottawa: Minister of Supply and Services, 1996), 22. The Expenditure Review Committee meets for days and weeks on end in order to review programs and to send signals early on in the budget process about what its priorities will be, and then spends weeks and days on end crafting the budget. For analysis o f how the ERC operated during the 1980s, see Colin Campbell and John Halligan, Political Leadership in an Age o f Constraint: Bureaucratic Politics Under Hawke and Keating (St. Leonards: Allen and Unwin, 1992). For more general discussions o f the Australian experience, see Peter Aucoin and Herman Bakvis, “Con­ solidating Cabinet Portfolios: Australian Lessons for Canada,” Canadian Public Administration, 36, 3 (Fall 1993), 393-420; and Auditor General o f Canada, “ Canada’s Public Service Reform, and Lessons Learned from Selected Jurisdictions,” in Report o f the Auditor General o f Canada to the House o f Commons (Ottawa: Minister of Supply and Services, 1993), 155-85. See Richard French, How Ottawa Decides: Planning and Industrial Policy-Making 1968-1980 (Ottawa: James Lorimer & Company, and Canadian Institute for Economic Policy, 1980). In Australia, the Department of Finance allocated 292 FTEs for budget development and management, which is equivalent to the work of the program sectors and the expenditure management division. The Program Branch is slated to have 153 FTEs by the 1997-98 fiscal year, at which time it will be performing additional functions such as regulatory affairs, real property management, and privatization. It is worth noting that in Australia the government places considerable importance on the produc­ tion by “ supply” analysts of accurate forecasts o f departmental

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resourcing. In the United Kingdom, the Treasury had close to 400 staff involved in “public expenditure and value for money” activities, with about 260 staff in the supply or expenditure divisions alone, just before a reorganization announced in October 1994. Shifting back to Australia, the Department o f Finance allocated 172 FTEs to the Resource Manage­ ment Framework program and another 285 FTEs to the Government Financial Administration and Services program, which embrace responsi­ bilities roughly equivalent to those o f the Financial and Information Management Branch, which currently has 197 FTEs and will move to 154 in the 1997-98 fiscal year. See Australia, Department of Finance, Annual Report 1993-94 (Canberra: Australian Government Publishing Service, 1994); and H.M. Treasury, Fundamental Review ofH M Treasury's Running Costs (October 1994). (British figures were obtained by telephone interviews.) The interviews were conducted with Canadian and Australian officials familiar with the operations of the agencies associated with both govern­ ments.

8 Cashing In on the “Peace Dividend”: National Defence in the Post-Cold War World

CLAIRE TURENNE SJOLANDER

T h e 1993 election witnessed the emergence o f a remarkable consen­ sus among the major political parties in Canada: whatever the out­ come, the defence budget would be slashed. The first Canadian federal election o f the post-Cold War era, having unfolded around the twin themes o f budget trimming and deficit reduction, produced unprec­ edented agreement as to the absolute necessity o f cutting back on de­ fence spending.1The then-ruling Conservative party under its new leader Kim Campbell promised a $1 billion cut from the EH-101 helicopter contract (reducing the total number o f aircraft to 43 from the original 50), as well as a further $3.3 billion in other defence spending cuts over five years. The Reform Party called for an unspecified reduction in Canada’ s military missions, cancellation o f the helicopter deal, and withdrawal from the North Atlantic Treaty Organization (NATO). For its part, the New Democratic Party argued for a 3 percent annual

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reduction in the defence budget, the scrapping o f the helicopter deal, the closing o f several military bases, and the elimination o f the $200 million in subsidies provided to the defence industry. The Bloc Quebecois took a more dramatic road, committing itself to a signifi­ cant 25 percent reduction in the National Defence budget (although military bases in Quebec would be spared), in addition to the cancella­ tion o f the helicopter contract. Finally, Prime Minister Jean Chretien’ s Liberals committed themselves with great fanfare to the scrapping o f the EH-101 contract2and promised a further $ 1.6 billion in spending reductions over the next four years. After decades in which Canada was vulnerable to the criticism that it was not “ pulling its weight” in international security arrangements,3the geo-strategic and fiscal reali­ ties o f the 1990s prepared the ground for questions as to the necessary level o f defence spending in Canada, although not explicitly as to the purpose o f that spending. That the budget o f the Department o f Na­ tional Defence (DND) has been on the chopping block through the first years o f the Chretien government, as indeed it had been in the waning days o f the Mulroney era, should come as no surprise in the face o f such consensus. This chapter will examine the nature o f the cuts faced by DND since the election o f the Liberal party. Most specifically, it will explore the process o f redefining DND’ s mandate after the Cold War, a process that attempted to influence the nature o f the budget cuts, if not their extent. In telling the story o f the DND under the Chretien government, the chapter will focus first on the consultative process designed to define a new mandate for the department within the context o f budget­ ary constraints and the new geopolitical reality. Beginning with a brief discussion o f the Mulroney government legacy and the cuts that had already been initiated, the chapter moves to the accession o f David Collenette as Minister o f National Defence in the Chretien govern­ ment. Following upon a commitment made by the Prime Minister on the day he was sworn in, Collenette initiated a parliamentary and os­ tensibly open and “ democratic” review o f defence policy and produced almost simultaneously a White Paper on National Defence. In this respect, the chapter will argue that consultation had but a limited ef­ fect, legitimizing, rather than profoundly influencing, the emerging postCold War mandate o f the Department o f National Defence. Second, in

N A T I O N A L DEFENCE

an examination o f the specific cuts faced by DND, it will argue that the department has sought to preserve its leading edge military capa­ bility, potentially at the expense o f more prosaic commitments, such as peacekeeping. Paradoxically, however, peacekeeping serves an impor­ tant symbolic function, justifying the resources absorbed by DND in the post-Cold War world whether or not the broader objectives o f the Canadian military coincide with the extension o f peacekeeping com­ mitments. While budget cuts have been the subject o f public debates, the criti­ cal question with respect to DND surrounds the redefinition o f its role and that o f the Canadian armed forces in the face not only o f budget cuts, but o f a dramatically altered international reality. The conun­ drum that has confronted DND since the collapse o f the Soviet Union and the dismantling o f the Berlin Wall has not been only a fiscal one. The impact o f the changed international environment cannot be over­ stated: the pressing question becomes one o f how to transform a mili­ tary built around the Cold War security structure once the Cold War enemy has disappeared and the money has run out— and into what? The Liberal party’ s “ Red Book,” which detailed its victorious elec­ toral platform, was deafeningly silent on the specifics o f such a redefi­ nition. Beyond the cancellation o f the infamous EH-101 helicopter deal and further unspecified and mysterious “ additional cuts to the defence budget,” defence is given short shrift— a mere two paragraphs in 112 pages. These two paragraphs refer seven times to one theme: peace­ keeping. A Liberal government will strengthen Canada’ s leadership role in inter­ national peacekeeping.... In part, this will be done through a reorientation o f Canadian defence policy... to emphasize the key priority o f peacekeep­ ing. Consideration will be given to creating a special peacekeeping bri­ gade ... to meet the increasingly diverse requirements o f modem peacekeeping. The Liberal government will also seek to convert surplus military bases in Canada to peacekeeping training ..., and will encourage Canadian military industries to shift production in order to better support peace­ keeping needs. We will give priority to Canadian efforts to improve the UN’ s policies on peacekeeping.'1 Significantly, this portrait o f the Canadian military as dedicated peace­ keepers concealed the extent o f the difficult choices to be made, or to

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be sidestepped, behind the veil o f liberal internationalism, which has been the legacy o f the Liberal party since the days o f Lester B. Pearson. Despite the Red Book’ s emphasis on peacekeeping, specific guid­ ance as to the application o f cuts or a newly defined post-Cold War role for DND is hard to find. Apparently searching for some clearer guidance, the Chretien government initiated a parliamentary review o f defence policy and, parallel to the broader exercise o f Program Re­ view, published in December its 1994 Defence White Paper. Follow­ ing upon its election commitment, the Liberal government adopted a process in the case o f DND that was considerably broader than the Program Review exercise imposed on other departments. The pledge to “ democratize” foreign and defence policy-making, allowing the Canadian Parliament and interested publics to participate in the re­ definition o f foreign policy in the 1990s, meant both that the definition o f a new mandate for DND involved a more extensive review process than that for other departments,5and that it was begun earlier. In part, however, as we will see, the timing o f this initiative and the white paper that followed was dictated by the desire to influence the nature o f defence spending cuts foreseen in the February 1995 federal Bud­ get. The answer to how DND should be transformed, however, ap­ pears to echo that proposed for other government departments: National Defence will do everything it once did and more, all wrapped in the packaging o f peacekeeping, but fiscal realities and the end o f the Cold War’ s “ peace dividend” will require it to do everything on much less. Reconciling the consensus around budget cuts with the preservation o f a broad mandate, however, is easier said than done. It is in this discus­ sion o f the contrasts and inconsistencies between cuts and mandate that the chapter will touch most explicitly upon the significance, real and rhetorical, o f peacekeeping for the post-Cold War Canadian mili­ tary. As with the case o f the Red Book, peacekeeping may be the man­ tra that conceals a multitude o f sins, many o f omission. THE LEGACY OF THE MULRONEY AGENDA

The Department o f National Defence should have witnessed its hey­ day under the Mulroney administration— and in some respects it did. Upon the election o f the Mulroney government in 1984 and in response to electoral commitments, resources made available to DND increased,

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peaking in 1989. The regular forces, for example, increased steadily in number from 80,838 in 1984 to 88,800 in 1989. The number o f civil­ ian employees rose from 33,228 in 1984 to 36,600 in 1989.6 More impressively, the financial resources allocated to the department, in part as a result o f a number o f new procurement initiatives (some o f which had been launched under the Trudeau government), increased by more than 50 percent, from about $8 billion in 1984 to well over $12 billion in 1989. In 1987, Perrin Beatty’ s Defence White Paper Challenge and Commitment1called for a further significant increase in defence spending, including the contentious acquisition o f a fleet o f nuclear submarines. As is suggested by the optimistic note sounded in Edgar Dosman’ s review o f spending at DND in 1988, the Mulroney government had succeeded in revitalizing “ the Department after years o f neglect.... DND is no longer a fringe player and the public debate about the future o f defence policy is now a permanent part o f the Canadian political landscape.”8As Martin Shadwick commented later, however, governments and analysts “ would do well to recall that Canadian white papers on defence have a nasty habit o f imploding shortly after their release.”9 Not to be outdone, the optimism o f de­ fence supporters hit a wall by the start o f the second term o f the Mulroney government. Clearly, the 1987 “ Cold Warrior” white paper, followed on its heels by the collapse o f the East Bloc and the dismantling o f the Soviet Union and the Warsaw Pact, was destined for quick implosion. Even prior to the realignment o f geopolitics, however, deficit and debt con­ siderations were already wreaking havoc with the spending growth forecast in the white paper. The April 1989 Budget began the process o f cutting planned increases and procurement initiatives outlined in the white paper, amounting to “the defa cto scuttling o f Challenge and Commitment prior to the end o f the Cold War.” 10 The trend toward reduction o f planned expenditure increases and finally toward reduced expenditures was confirmed with the end o f the Cold War and the accession o f Marcel Masse to the position o f Minister o f National Defence. In the September 1991 “ Defence Policy Review” interim state­ ment, elaborated upon in the more comprehensive April 1992 over­ view, “ Canadian Defence Policy,” the Mulroney government announced its intention to recuperate a portion o f the “ peace dividend” associated with the end o f the Cold War to assist in its more pressing priority o f

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reducing the federal deficit. Masse’ s take on the peace dividend was a plan to reduce the size o f the regular force to 75,000 (from 89,000) members by 1995-96, to cut several billion dollars from spending on defence over five years, and to close Canada’ s two military bases in Germany, Baden-Soelligen in 1993 and Lahr in 1994.11Cuts in regu­ lar forces were to be somewhat compensated for by an increase in reserve forces. In the light o f future concerns, the decision to cut per­ sonnel exclusively at the level o f military forces was particularly in­ structive. The large cadre o f civilian employees o f DND and the network o f military bases and installations across Canada were left relatively untouched. Apart from the commitment inherited by Kim Campbell when she assumed the job o f Minister o f National Defence to purchase 50 EH-101 helicopters at a cost o f $5.8 billion (later 43 at $4.8 bil­ lion), the trend on defence spending was clear— reduction was to be the slogan o f the post-Cold War DND. The 1991-92 cuts might have represented the peace dividend for Masse and the Mulroney govern­ ment, but they did not change the modus operandi o f DND, despite arguments to the contrary. O f special note, shortly after the release o f the Masse documents Chief o f the Defence Staff General A. J.D.G. de Chastelain argued that the Cold War doctrine had been “replaced by the concept o f general-purpose combat-capable armed forces, stationed in Canada for the most part, ready to deploy anywhere in the world in Canada’ s interests.” 12 The definition o f a new mandate for the Canadian military was not widely perceived. Within weeks o f the 1993 election o f the Chretien government, a Globe and Mail editorial lamented that: [s]omebody, somewhere, sometime soon is going to have to make some decisions about the raison d’etre of the Canadian Armed Forces. The Forces have been on auto-pilot for so long that it’ s easy to forget that the Department of National Defence quietly sucks down in the neighbourhood o f $ 12-billion a year, 10 per cent o f Ottawa’s program spending, with only the occasional burp.13 Having inherited an agenda not o f support for DND, but rather o f cutbacks in light o f budgetary pressures, the Chretien government quickly launched just such a reconsideration.

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THE DEFENCE POLICY REVIEW AND THE 1994 WHITE PAPER

On February 17,1994 the Liberal government’ s Minister o f National Defence, David Collenette, announced a joint Senate-Commons par­ liamentary review o f defence policy. This parliamentary review would assist the Minister and DND in the preparation o f the Chretien government’ s White Paper on National Defence. The timing o f Collenette’ s announcement was not coincidental; in addition to stress­ ing the vast scope o f the parliamentary review, the Minister also set the stage for the immediate cuts that were to be handed down to DND in Finance Minister Paul Martin’ s first budget. In his address to the House and more specifically in his directives to the parliamentary com­ mittee, Collenette made it clear that the driving issues were financial. While the parliamentary review was to have a broad mandate to recon­ sider all aspects o f Canadian defence policy— at least at first glance— fiscal constraints were paramount. Collenette warned the House that the government would not be able to await the results o f the parlia­ mentary review before beginning the slashing exercise by closing mili­ tary bases and laying o ff employees. “ It’ s a question o f keeping planes in the air, o f preserving the current operational effectiveness.” Collenette went on to explain that the financial problems o f DND were “ on the edge” o f threatening military operations, requiring that short-term so­ lutions be found before the Senate-Commons committee finished study­ ing the broader questions o f defence policy.14From the start, therefore, the work o f the committee was to be constrained— at least, ostensi­ bly— by serious fiscal limitations and by the budget cutting exercise. Before proceeding to the budget cuts that laid the foundations for the committee’ s work, it is useful to examine in more detail the Minister’ s “ Guidance Document” provided to the Defence Policy Review Committee. In this document, Collenette makes quite clear the range o f issues that needed to be addressed by the committee, and yet foreshadows the government’ s thinking on these questions. The Guidance Document begins with a discussion o f the international setting, which attempts to contextualize the review process. The first paragraph is quite celebratory, pointing to the fact that “ the prospect o f Canada

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becoming involved in conflict against a major power in the near future seems unlikely,” and that “ [t]he world has made progress with respect to peace and security.” 15Lest this climate o f relative peace and a low level o f threat to Canada be perceived as a reason to dismantle the Canadian military, however, the document continues with the observation that: [nevertheless, the international environment remains volatile and unpre­ dictable. The “New World Order” is anything but orderly. Violent dis­ putes ... have created pockets o f suffering and conflict around the globe.... From the perspective o f today’s chaotic world, it is impossible to predict with any certainty the degree o f stability o f the global environment Cana­ dians will face in the twenty-first century. No one can tell whether we have entered a long period o f turbulence and disorder.... In these uncer­ tain times ... [sjhould Canada maintain—at the lowest possible cost—a combat-capable totalforce o f naval, land and airforces which is ad­ equately equipped, appropriately supported, and properly trained to protect Canadians and protect their interests and values abroad?16 This combat-capable total force will also have a range o f tasks, as suggested in the Minister’ s Guidance Document. DND must ensure good governance at home— including action against “ illegal activi­ ties” that challenge Canadian sovereignty (illegal or harmful foreign fishing, drug trafficking, illegal immigration, and the intentional re­ lease o f pollutants o ff Canadian coasts)— as well as support civilian law enforcement agencies in a range o f areas, including humanitarian evacuations and search-and-rescue operations. Regarding activities abroad, the Minister notes that “ [o]ne assumes that Canadians will want to continue to contribute to UN and other multilateral peace and humanitarian assistance operations.” Further, the document points to the importance o f NATO and to the fact that “ Canada must continue to work within the NATO context... to meet current and future chal­ lenges,” as well as to participate in continental defence, given “ our traditional commitment to North American defence and our relation­ ship with the United States.” Finally, the Minister stresses the impor­ tance o f becoming involved in “ stability” issues in the Asia-Pacific region, in addition to Canadian contributions to stability in North America and Europe.17 Collenette’ s depiction o f the “ new role” o f the Canadian military in the post-Cold War era is very evocative o f General de Chastelain’ s

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characterization o f the military’ s evolution toward “ general-purpose combat-capable armed forces,” and clearly reflects the preferences o f DND to maintain strong capabilities in all branches o f military service and all aspects o f international military activity. Further, beyond a refusal to identify one clear threat, and the disappearance o f Canadian bases in Europe, this conceptualization o f the Canadian militaiy lacked any consolidation o f the mandate that emerged in the Cold War period, despite the document’ s focus on fiscal pressures. In many respects, the “ transformation” o f the Canadian military into one capable o f respond­ ing to any emergency anywhere in the world on short notice represents a broadening o f the mandate o f the department, precisely because the end o f the Cold War has made possible a range o f interventions that were earlier limited by the “ East-West” security structure. The emergence o f this picture o f the Canadian forces as a multi­ purpose, combat-capable military is strongly evocative o f the postCold War restructuring o f the U.S. military initiated by President George Bush in the light o f pressures to show a budgetary “ peace dividend.” Bush advocated the creation o f a “ leaner, meaner” military, which would rationalize its activities and capabilities, in large part by closing bases and downsizing military personnel, but which would continue to profit from the best high-technology equipment in order to fill the role o f an “ international rapid reaction force.” 18In many respects, U.S. interven­ tion in the Gulf War can be seen as a test o f such a model o f the American military. It was a relatively rapid campaign, fuelled by hightechnology equipment, with a minimum o f U.S. casualties and a quick conclusion. The U.S. model is difficult to apply to the Canadian mili­ tary, however, for the latter has never enjoyed access to a U.S.-sized defence budget. Despite this, the notion o f a “ leaner, meaner” military appeared to obviate the need for hard choices, at least in the short term. These choices, however, are raised, as we shall see, in submis­ sions to the parliamentary committee that challenged the suitability o f the general-purpose model for Canadian forces. Against this backdrop, the first budget o f Finance Minister Paul Martin in February 1994 began a process o f serious cutting at DND. Far exceeding the election pledges o f a $ 1.6 billion cut over four years in addition to the scrapping o f the EH-101 contract, Martin promised a $7 billion reduction in spending over five years, o f which only $1.7 billion would come from cancellation o f the helicopter deal.19While

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dramatic, Martin’ s first budget cuts targeting DND have found some favour within the defence community. In particular, two areas were hit— departmental overhead and defence infrastructure— repeating the pattern o f U.S. post-Cold War military cuts. The Mulroney cuts initi­ ated by Minister Masse had been widely criticized because they tar­ geted military personnel, rather than the civilian workforce o f DND.20 The Martin 1994 Budget, while pledging a reduction in the regular forces, from 74,800 to 66,700 in four years, also committed itself to a reduction in the number o f civilian employees in DND over the same four-year period to 25,200 from 33,600. In addition, the budget set about the closing and consolidation o f a number o f military bases and installations. The list was impressive, touching eight o f the twelve prov­ inces and territories.21 By far the most controversial closing was that o f the College Militaire Royal de Saint-Jean, although other military teaching institutions, including Royal Roads Military College in Victoria, the National Defence College in Kingston, and the Canadian Forces Staff School in Toronto were also given the axe. Despite tre­ mendous pressure, the Chretien government held firmly to its decision to close the College and pledged instead to ensure bilingual education at the one remaining military university, Kingston’ s Royal Military College. The issue, however, became a highly politicized one given the Bloc Quebecois’ s position as official opposition and the forthcoming Quebec Referendum.22 In many respects, the first Martin budget had managed to cut a con­ siderable amount from the funds available to DND, all the while pre­ serving room for the parliamentary committee review process. The hard choices o f defining Canadian defence priorities, missions, and responsibilities within the context o f relatively shrinking resources had been effectively sidestepped. The question o f choices was not to re­ main quite so marginal during the parliamentary committee’ s hear­ ings. THE DEFENCE POLICY REVIEW AND CA NA DA 21

From the beginning o f formal consultations in March 1994 through to the presentation o f its report on October 31, 1994, the Special Joint Parliamentary Committee on the Review o f Defence Policy sought to

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define the mandate o f the post-Cold War forces in order to contribute to the preparation o f the White Paper on National Defence. Parallel to this review process, formally announced in March 1994, a Special Joint Committee on the Review o f Foreign Policy was also consti­ tuted. While there had been some interest in creating one single special committee that would examine both defence and foreign policy (thus making the links between analyses o f changing international structure and o f changing military requirements more explicit), the decision was finally made to hold the two reviews separately. Foreign Minister Andre Ouellet was said to have favoured an integrated review, but on this point David Collenette appears to have won the day. Collenette’ s mo­ tivation seems to have been largely financial. The Minister was com­ mitted to completing the exercise before the end o f 1994, in large part to minimize “ the damage that might subsequently result from Finance Minister Paul Martin’ s parallel ‘ programme review’ which was ex­ pected to lead to draconian budget announcements early in 1995.” 23 The Foreign Policy Review had no similar deadline, and merging the two might lead to delays on the Defence Review side.24 Both the Defence and the Foreign Policy Review Committees were to entertain submissions and presentations from numerous interested parties, as had been promised in the Red Book’ s commitment to an “ open process in foreign policy-making,” and in this regard the De­ fence Review Committee travelled to ten Canadian cities, as well as to Western Europe and the United States. While the committee was, as is the norm, selected from all recognized parties in the House o f Com­ mons, there was within its membership a definite pro-defence bias. As Robert Lawson has pointed out, o f the eleven members o f the House o f Commons represented on the committee, three had been senior officers within each o f the branches o f military, two others had been commis­ sioned officers at some point in their careers, and a further two repre­ sented ridings that contained large military bases,23 ensuring that the perspective o f DND would be well represented during the hearings. Further, as Denis Stairs has underscored, the committee was “ deter­ mined to produce a report that would have practical policy signifi­ cance?™ Given the mandate provided to the committee by the Minister’ s Guidance Document, such a concern with policy relevance would al­ most certainly ensure that the committee review would be consistent

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with the broad outlines o f the general-purpose, combat-capable force proposed. O f the 841 submissions received by the Defence Policy Review Com­ mittee, perhaps none had the potential to be more influential than that o f the Canada 21 Council. Composed o f 20 leading Canadians from academe, business, and politics, the self-styled “ blue ribbon” panel had come together in early 1993, determined to stimulate public policy discussion on national defence, an area “ that seemed ripe for reconsid­ eration, given the momentous changes that had occurred in the interna­ tional environment.”27To that end, the Canada 21 Council produced a substantial report for the committee entitled Canada and Common Security in the Twenty-First Century. Because o f the stature o f its members, the Canada 21 Council could not easily be dismissed.28The reaction o f the defence establishment to the Council's recommenda­ tions for a post-Cold War military that did not follow their favoured model o f a general-purpose, combat-capable force, therefore, is most instructive. Canada 21 presented the Defence Review Committee with one sce­ nario o f the hard choices to be made. It argued that “ the prospect o f an attack by the armed forces o f a powerful state directly upon Canada or upon our allies is now unlikely.” 29 From this observation, similar to the initial assumption o f the ministerial Guidance Document, it drew somewhat different conclusions. As a result o f the diminution o f direct threat: Canada is ... freer to make choices about its security than it was through­ out the long Cold War.... To meet... challenges, the government must deploy the resources that it mobilizes to ensure maximum effectiveness. Canada cannot be everywhere and do everything. If it attempts to do so, it risks dissipating its resources and sliding into policies of mediocrity.30 Hard choices, therefore, should be the order o f the day. Accordingly, the Canada 21 Council argued that across-the-board cuts at DND would result in a “ miniature model o f a traditional ‘ gen­ eral-purpose’ military force— one with just a little o f everything, but not enough o f anything to be effective in any conceivable situation.” 31 In response to the reality o f fiscal constraints, therefore, Canada 21 proposed that the Canadian military be radically restructured. The

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Canadian forces should be able to assure Canada’ s territorial sover­ eignty, participate in the protection o f North America, and participate in common security operations to a greater extent than currently pos­ sible. Canadian forces should not, however, participate in international operations that might include a high probability o f attack by “ heavy armoured formations, heavy artillery, or modem airpower.” Canada should cease procuring equipment designed to defend against such eventualities as well, thereby fundamentally changing its commitments, particularly in NATO. The Navy would be reduced to peacekeeping support and coastal patrol, while two thirds o f the Air Force’ s CF-18 fleet would be taken out o f active service. In contrast, the Army, the principle arm o f peacekeeping, would be expanded and extensively modernized.32 This departure from the general-purpose model was not well received. Martin Shadwick suggested that while “ Canadian military reaction to Canada 21 has not been universally negative,... its architects would probably be well-advised to don flak jackets before entering National Defence Headquarters.” 33 Most significant, for the purposes o f the ongoing review, were the comments o f David Collenette himself: It has been said that the greatest enemy o f the truth is often not the lie, but the myth.... Peaceful and predictable it [the post-Cold War world] is not—witness the Gulf War, Bosnia and Rwanda. Another myth, related to the first, is that Canada no longer requires armed forces capable o f com­ bat. A third misconception is that Canada can meet all its security re­ quirements with constabulary forces alone.34 The irony, o f course, is that Canada 21 certainly did not offer the most radical proposals before the Defence Review Committee.35The blan­ ket repudiation from DND, including the comments o f its Minister, suggests the extent to which the direction o f the “ new” Canadian mili­ tary had already been determined; in such a climate criticisms would not easily be accepted. Not surprisingly, therefore, the report produced by the Special Joint Committee reaffirmed many o f the principles enunciated in the minis­ terial Guidance Document. In part because the Defence Review was not linked to the Foreign Policy Review process, the possibility o f broader discussion was foregone, and the debate appeared to focus on

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force structure and composition rather than on the specifics o f man­ date or o f mission in its most general sense. Defining Rwanda as a development and aid issue rather than as a military issue, for example, would conceivably have led to different recommendations and a differ­ ent understanding o f the concept o f security and the role o f DND; indeed, just such a link between foreign and defence policies was ad­ vocated in the recommendations o f the Canada 21 Council. As it stood, the review did not present a blueprint for a new Canadian armed forces or a new perspective on DND activities. In their majority report, the Liberal and Reform Party members o f the committee proposed no major reorientation o f Canada’ s defence doctrine: “ Canada must be able to send land, sea and air forces to fight overseas as part o f a military alliance.” 36 Within the context o f fiscal constraints, however, the committee did propose some cuts. The most serious o f these were to hit the Air Force: according to the committee, 25 percent o f the CF-18 fleet should be taken out o f active service.37 Counterbalancing this reduction, DND should purchase new armoured personnel carriers and shipbome and search-and-rescue helicopters. The Review also recommended the ex­ pansion o f the Army by 3,500 soldiers, the slashing o f headquarters staff by 50 percent, the increase o f the reserve force, and the mainte­ nance o f NATO and NORAD commitments. The Navy should assume an increased role in patrolling the Pacific in response to Canada’ s in­ creased economic and trade interests in the region, and would there­ fore keep its contingent o f frigates and destroyers. In all, despite the fiscal constraints noted repeatedly by the Chr&ien government and the Minister o f National Defence, the Review only proposed modest cuts to the defence budget— in the vicinity o f $300 million a year for three years. “ We are approaching the minimum size o f force and minimum level o f capability required for the government to act to protect Canadian interests in the world.... Defence spending is not responsible for the deficit problem, nor can cutting it be the remedy.” 38The “ internation­ alist” side o f Canadian defence policy, in particular its engagement in peacekeeping activities, would justify protecting a good deal o f DND’ s budget.39Clearly, the parliamentary Review had provided the Minister with sympathetic ammunition as DND prepared for the next round o f budget cuts with the lead-up to its white paper.

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THE 1994 DEFE NC E WH ITE PAP ER

While the objective o f the Defence Policy Review was to inform the preparation o f the Defence White Paper, the fact that the White Paper appeared barely one month after the presentation o f the Joint Commit­ tee report might suggest otherwise. The “ consultative” purpose o f the Defence Policy Review was put into question by the observation by an official at the Department o f Foreign Affairs that “the Defence De­ partment hasn’ t yet seen the defence committee report, but has a de­ fence white paper already written.”40Indeed, while the review process was underway the minister was “ also conducting a ‘ mini-review’ o f his own” 41 in order to prepare for the publication o f the White Paper. Despite the fact that it followed so closely on the heels o f the commit­ tee report, the White Paper’ s discussion reflected a similar perspec­ tive— hardly surprising given the extent to which the Defence point o f view appeared to have influenced the preparation o f the committee report. Tabled in the House o f Commons on December 1, 1994, the White Paper continued to call for the maintenance o f a general-purpose combat-capable force, although it was tempered by a more real­ istic appraisal o f the scope o f the cuts likely to be imposed on DND in Martin’ s second go at the Department. The White Paper proposed staff reductions in the regular forces to 60,000 from 72,000 by 1999, as well as massive cuts among its civilian employees— down to 20,000 from 33,000. Headquarters rationalizations were also suggested. The Army would increase by 3,000 soldiers in response to peacekeeping commitments, while corresponding cuts would hit the Air Force and headquarters staff. Following the Joint Committee report, the White Paper pledged new armoured personnel carriers for the Army, new helicopters— and potentially submarines— for the Navy, and new search-and-rescue helicopters for the Air Force. Canada would main­ tain its commitments in NATO and NORAD. While the White Paper envisaged some transfer o f resources between branches o f the military, DND’ s preference for a general-purpose force clearly defined the agenda. As Chief o f Defence Staff General John de Chastelain argued, the White Paper would “ still allow Canada to participate with allies in meaningful operations anywhere in the world.” 42Interestingly, the most

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substantial section o f the document is entitled “ Contributing to Inter­ national Security,” which evokes at length the liberal internationalist tradition o f the Liberal Party: Canadians are internationalist and not isolationist by nature. We uphold a proud heritage o f service abroad. We take pride in Lester B. Pearson’ s Nobel Prize for Peace not simply because it did a great Canadian consid­ erable honour, but because it was a reflection of our evolving interna­ tional personality. More than 30 years later, Canadians could once again take pride in their contribution to peace as the Nobel Peace Prize was awarded in recognition o f the work o f peacekeeping personnel. Multilat­ eral security cooperation is not merely a Canadian tradition; it is the expression o f Canadian values in the international sphere.43 No other section o f the White Paper defines defence priorities in terms o f Canadian values, national pride, Canadian personality, and interna­ tionalist heritage. Despite concerning itselfwith much more than peace­ keeping forces— a combat-capable military, after all, is not primarily composed o f peacekeepers— the White Paper follows upon the em­ phasis given to peacekeeping in the Red Book and the committee re­ port. In essence, the White Paper continued the tradition o f wrapping defence priorities for a general-purpose, combat-capable force within the “ emotional legacy” o f peacekeeping. The consequences and con­ tradictions o f this trend will be examined in the following pages. NATIONAL DEFENCE ON THE CHOPPING BLOCK: THE 1995 BUDGET

On February 27,1995 Paul Martin tabled his second budget. In many respects, the Budget contained no surprises for DND; most o f the cuts had been foreshadowed by the White Paper. The “ final act” in the review and redefinition o f Canadian defence policy, the Budget largely confirmed the orientation put forward by the department and its Min­ ister. From its 1994-95 level o f $11.4 billion, defence spending was now projected to fall to $9.9 billion in fiscal 1997-98 and to fall again to $8.7 billion in 1998-99. While expenditures will fall 14.2 percent over three years, National Defence continues to have the largest oper­ ating budget o f any government department. More concretely, defence

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expenditure on a per capita basis will decline to roughly $340 a year in 1997-98, from its 1994-95 level o f $400.44While these figures reflect real cuts, it is worth remembering that defence spending was $319.80 per capita in 1983-84 and $354.70 in 1984-85, the years prior to the defence expenditure increases o f the Mulroney government. Compared to the $185.40 per capita expenditure for 1979-80,45 before the major procurement initiatives o f the latter years o f the Trudeau government, the 1995 Budget can hardly be said to have “ gutted” DND. Included in the overall cuts is a planned reduction in capital spend­ ing o f $ 15 billion over the next 15 years, with priority given to those acquisitions identified in the White Paper: search-and-rescue helicop­ ters, maritime helicopters (which operate from the decks o f ships), armoured personnel carriers, and submarines. According to budget documents, these acquisitions are consistent with “the most critical needs o f a multi-purpose, combat-capable force,” 46precisely the “re­ defined” military set out in the parliamentary review and the White Paper. Other reductions announced in the Budget focused on further ration­ alization o f overhead. Each o f the military “ branch” headquarters— naval command in Halifax, Army headquarters in Saint-Hubert, Quebec, and Air Force command in Winnipeg— would be closed, with its functions being transferred and consolidated within Ottawa head­ quarters. Military facilities in British Columbia (Chilliwack; Jericho Beach), Alberta (Calgary), Ontario (London; Toronto), and New Brunswick (Moncton) were also to be closed, adding to the total o f installations and bases shut down as a result o f the 1994 Budget clos­ ings. Despite the significant number o f closings, many suggested that National Defence had yet to make some o f the most difficult deci­ sions— which militia armouries and naval reserve facilities to close. These installations number more than 200, spread throughout the coun­ try. Equally, some o f the closings or consolidations overstate the case. While headquarters in Halifax, Saint-Hubert, and Winnipeg were tar­ geted for consolidation, each o f these cities would continue to have an important military presence. Seeking to minimize the potential politi­ cal fall-out in Quebec from the closing o f Saint-Hubert, “ federal offi­ cials were quick to point out that only the 450 army headquarters jobs willdisappear. The other DND jobs at Saint-Hubert will be retained at

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other military facilities in the Montreal area.”47 In fact, the area that would suffer most from DND personnel cuts was Ottawa, with signifi­ cant headquarters reductions. Echoing the White Paper, the Budget advocated a reduction o f regu­ lar military personnel to 60,000 and o f civilian staff to 20,000 by the end o f the decade. While it was hoped that the personnel reductions could be effected largely through attrition, DND announced its inten­ tion to continue the successful buyout program that it had begun in response to the cuts announced in the 1994 Budget.48Twenty-five per­ cent o f the military’ s CF-18 fleet would be moved into “ flyable stor­ age,” a process already begun in light o f the Defence review and white paper deliberations, leading to the budget statement announcement o f reductions in the personnel contingent o f the fighter bases at Cold Lake, Alberta, and Bagotville, Quebec. What is clear, o f course, is the extent to which the proposals o f the White Paper were incorporated into the 1995 Martin Budget. In es­ sence, one could argue that in the case o f National Defence, Program Review under the guise o f a white paper was successful; the cuts deemed acceptable within the mandate o f a general-purpose, combat-capable force defined by DND were translated into budgetary realities in the Martin budget exercise. The 1995 Budget was a clear signal that the Chretien government endorsed the “ new role” defined by the military for itself. From this “ success” story o f program rethinking, mandate redefining, and cuts imposed, however, we must ask a larger question. What does a general-purpose, combat-capable military force— a “ leaner, meaner” military with lower overhead— really mean for DND and how does peacekeeping, the mantra o f the Red Book and the white paper, fit into such a vision? GREAT POWER AMBITIONS, MIDDLE POWER BUDGET

Probing more deeply the consequences o f and reaction to the Canada 21 Council proposal, one is struck by one inescapable conclusion. Canada 21 assumptions, clearly built around the premise that the great­ est international contribution o f the Canadian forces is to be found in peacekeeping activities, however these have come to be defined, privi­ lege the Army at the expense o f the existing Air Force and the Navy.49

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As Janice Gross Stein argues as project director, “ Canada must define its priorities, identify areas o f comparative advantage, develop ‘niche ’

policies, andfocus its resources so that Canada contributes distinc­ tively across the broad spectrum o f common security.” 50In light o f the Council’ s recommendation to increase the size o f and to modernize the Army, while reducing the role o f the Navy and decommissioning two thirds o f the Air Force’ s high-technology fighters, there can be no doubt about its evaluation o f Canada’ s “ niche” in international security. The Martin Budget defines a quite different objective and makes specific reference to the need to devote “ a higher proportion o f available re­ sources to operational needs and [to adjust]... the balance o f resources between the maritime, land, and air forces.” 51 There is here no ques­ tion o f favouring one service over the other. Hard choices o f the type advocated by Canada 21 clearly challenge the balance between the branches o f the military, a challenge already being felt to some extent within DND. The share o f DND spending allocated to land forces command, the branch that primarily supports UN and other peacekeeping operations, has been increasing steadily in the post-Cold War era. In fiscal 1991-92, the share o f spending con­ sumed by land forces represented 17.97 percent o f DND spending. By 1996-97, that share will have increased to 29.10 percent, a substantial increase. Land forces command now consumes the largest share o f the DND pie. The 1996-97 Estimates reveal that land forces have a grow­ ing “ financial edge” over the other services.

Table 8.1 Financial Requirements by Activity (thousands of dollars)

Maritime forces Land forces Air forces

Estimates 1996-97

Estimates 1995-96

Forecast 1994-95

2,139,198 3,039,846 2,563,302

2,283,717 2,949,695 2,801,600

2,540,924 2,870,831 2,736,168

Source: Estimates 1996-97, Part III: National Defence, 7, and Estimates 1995-96, 10.

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In the context o f a redefined role for the Canadian military in the post-Cold War world, there is no debate as to the role o f the Army— it is peacekeeping. The fact that there are constant references to peace­ keeping throughout the defence section o f the Red Book, and subse­ quently and most starkly in the White Paper, defines a mandate for land forces. At its most basic, almost simplistic level, however, the concept o f general-purpose, combat-capable forces assigns starring, rather than supporting, roles to the Navy and the Air Force. O f course, there are consequences to preserving key roles for the Air Force and the Navy. Once the CF-18s stationed in Europe as part o f Canada’ s NATO commitment were repatriated under the terms de­ fined by Marcel Masse for the closing o f European bases, they were reassigned in part to “ Operation Spectre,” a contingency plan detail­ ing the “ deployment worldwide o f Canadian multi-role fighter forces.” 52 This rapid-reaction contingency plan was developed for use in the for­ mulation o f scenarios specific to UN or NATO coalition actions. As a result, Air International noted that “ [d]espite defence cutbacks, [the air force’ s ] ... mission is more demanding than ever.”53Within the con­ text o f this new responsibility, the standing down o f a squadron o f CF18s appears to challenge the concept o f a key role for air forces, until one notes that the White Paper also endorses the acquisition o f precision-guided munitions for use with the remaining CF-18s. The “ lead­ ing edge” high-technology orientation o f this new equipment is presented in the White Paper: “ [Precision-guided munitions] will afford the Gov­ ernment a very accurate close air support capability and maximize the usefulness o f the aircraft. It will, in particular, provide new options for the use o f this sophisticated weapons system in circumstances appli­ cable today with ammunition so accurate as to minimize damage out­ side the target area.” 54 The number o f CF-18s can be cut, as long as the remaining aircraft remain players within the context o f an allied rapid-reaction force. The difficulty, o f course, is that this high-technology equipment is expensive, and in times o f budgetary cutbacks, expensive procurement or re-fit is vulnerable to cancellation in midstream. For example, in 1990 Bristol Aerospace Ltd. o f Winnipeg was awarded a moderniza­ tion contract that would outfit 44 CF-5s, the Air Force’ s lead-in jet, with a multi-million dollar avionics upgrade. This upgrade was de­ signed to bring the cockpit o f the CF-5 up to CF-18 standard, thus

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easing the transition for fighter pilots from the CF-5 to the CF-18. After an expenditure o f $76 million and the refitting o f 35 o f the air­ craft, the White Paper announced that the CF-5s would be sold in order to meet expenditure reduction targets.55Not only do expendi­ tures like these, which relate to the combat-capable mandate o f the “ new” armed forces, end up costing DND enormous resources without benefit, the grounding o f the CF-5s has left the Air Force with no aircraft that can provide effective transition training for the CF-18s.56 A multi-purpose combat-capable force costs money and requires train­ ing and support. It is not clear, as the military seeks to preserve its leading edge high-technology equipment (even when, as in the case o f the CF-18s, these are reduced in number), that the necessary support equipment can be provided or maintained. In a similar vein, in 1993, for the first time in Canadian history, Canada’ s naval forces were evenly divided between the East and West coasts. As reflected in the parliamentary committee report and raised implicitly in the Minister’ s Guidance Document, naval staff claimed that Canada needed to have a greater presence in the Pacific, given growing Canadian economic interests in the region and the prospect o f regional instability that might lead to the emergence o f new threats. It is interesting to note that the newest edition o f Jane’s Fighting Ships pays particular attention to Canada’ s new naval emphasis in the Pa­ cific. Jane’s points out that Canada now has the ability to keep her ships deployed globally,57 no small feat for such a small navy! With the demise o f the Cold War, the “ conflict anywhere anytime” aspect o f the general-purpose, combat-capable mandate creates the ability for the Navy to define for itself a new, and starring, role. O f course, the question as to whether or not such expenses are neces­ sary or wise goes to the heart o f the debate over defence policy— a debate that was largely circumscribed in the defence review process. The CF-5 example suggests that there is a gap between the broader mandate o f National Defence and the financial possibility o f its real­ ization. Keith Krause has made the argument quite starkly: Put simply, the fiscal realities of the foreseeable future suggest that Canada’s capacity for involvement in an intense high-tech war will be limited. Those envious of the most advanced military technology on dis­ play south o f the border will lament this, but there is no reason (other

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than misplaced “prestige”) why Canada should not opt for a “mediumtech” and lower cost armed force.58 More recently, Canada’ s new Chief o f Defence Staff, General Jean Boyle, has publicly decried the state o f the Canadian forces. In an interview with The Globe and Mail, Boyle “ frankly acknowledged that the Canadian army is too weak to be sent to the front line in a real war.” He went on to say that “ [i]f the government asked me to go into a high intensity theatre with the equipment that I have today, I’ d have to say I can’ t do it.... I f it means disagreeing with the position o f the government, I will do so.” 59In some respects, o f course, Boyle is quite correct. His assessment, however, raises important questions: the pri­ ority on high-technology equipment (the re-equipped CF-18s, the Canadian frigates that are the envy o f other navies— including the American) within the context o f a limited budget necessitates trade­ offs. Like the grounding o f the CF-5s, preserving the high-technology capability engenders consequences elsewhere in the military. Secondly, however, and more fundamentally, why would Canada be involved in a “ real war” ? This is the role the military has sought for itself, and the role justified by the White Paper. It is not necessarily the role chosen by the Canadian political leadership, or by the international commu­ nity. To understand this, we must return to peacekeeping. CONCLUSIONS: PEACEKEEPING AND THE “ NEW” CANADIAN MILITARY

The one role that is clear, even as the activity itself becomes fuzzier, is peacekeeping. Peacekeeping is the key to the new agenda o f the armed forces because it can be sold to the Canadian public and to its political masters. Procurement, for example, can be linked to peacekeeping to make its justification easier. As James Fergusson has observed, for example, “ Given the well-publicized deficiencies o f many o f the armoured vehicle types currently deployed in the former Yugoslavia, few Canadians are likely to take umbrage at an APC replacement and modernization project.” 60This is not to make the crass suggestion that the military would engage in massive procurement projects simply because peacekeeping may have some resonance within the Canadian

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public. Fergusson’ s observation does point, however, to the fact that peacekeeping has been the highest profile role o f the armed forces since the end o f the Cold War, and it is the one with which Canadians most readily identify. Certainly the repetitive invocation o f peacekeep­ ing as the value, personality, pride, and heritage o f all Canadians that is found in the White Paper would suggest that at least part o f DND has come to much the same conclusion. The high profile role accorded to peacekeeping, however, creates its own dilemmas. As David Cox noted in 1993, testifying before the Standing Committee on National Defence and Veterans Affairs, “ we need to understand the factors that drive a situation in which a budget o f $12 billion or more per annum produces a minimal capability to deploy forces overseas, so that with 4,300 personnel, or something o f that order, in peacekeeping missions, the capabilities o f the Canadian Armed Forces seem to be exhausted.” 61 Our analysis o f the Defence review process and the White Paper permits us to answer David Cox’ s remark, however. The Canadian armed forces are not primarily peace­ keepers. In the context o f the Cold War they have been and continue to be moulded into a general-purpose, combat-capable military. This is their mandate. Peacekeeping, despite its public profile, is, if not inci­ dental, then at least secondary to that broader mandate. The difficul­ ties o f this situation are legion. It is impossible to broach the subject o f peacekeeping without reference to the scandals o f Somalia and, to a lesser extent, Rwanda. While such behaviours may have served to raise questions in the Canadian collective consciousness as to the value o f peacekeeping, particularly given the financial costs that are perceived to be linked to such activity, one o f the major consequences for the armed forces was the disbanding o f the Airborne Regiment, which was felt to be responsible. The loss o f the Airborne was felt acutely within the Army, not only because o f the end o f the tradition o f the Regiment, but because its dismantling signalled the end o f the most visible sym­ bol o f the Army’ s multi-purpose, combat-capable function. As has been often noted in the media, the Airborne were never trained to be peacekeepers. Less often discussed, however, is that the Airborne re­ sponded quite clearly to the “ redefined” mandate o f National Defence. The fact that Airborne personnel were reallocated to various units in the Army in order to maintain such a capability also testifies to the

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primordial importance o f this mandate. Peacekeeping is stretched to its limits for no greater reason than that peacekeeping is not the raison d ’etre o f the Canadian military. The story o f National Defence under the Chretien government is in part a success story. DND was largely able to direct a policy review process in a manner that would ensure that its preferred multi-purpose mandate would be adopted. While budget cuts have been difficult, they have not yet completely undermined this new mandate, although the CF-5 episode does raise questions as to whether this will continue to be possible over the next couple o f years. Peacekeeping activities have come to represent the translation o f this new mandate to the Canadian public, the easiest answer to the question o f what DND currently does— now that the Cold War is over. A more systematic discussion o f de­ fence policy within the context o f Canadianforeign policy might well raise both awareness and pointed questions as to why the Canadian military is seeking to emulate the “ leaner, meaner” forces south o f the border. In a discussion o f the Somalia peacekeeping scandal, Martin Shadwick reflected on its potential consequences on funding. He commented that General de Chastelain, after the release o f the 1994 White Paper, pointed to the sense o f “ relief ’ in the military “ that there will still be a fighting force, that they are not to become some kind o f gendarmerie.” Shadwick went on to add that “ [i]f Canada’ s military establishment does not get its house in order this time, if it still ‘ doesn’t get it,’ that relief could prove decidedly premature.” 62The fact that the international commu­ nity is calling upon Canadian peacekeepers more frequently, while Canada’ s military redefines itself to remain combat-capable, within the context o f fiscal pressures, suggests that something will eventually have to give. The recent appointment o f General Boyle as the new Chief o f Defence Staff suggests that DND’ s preference is to stay the course with its mandate as outlined in the White Paper. As the finan­ cial squeeze continues, however,63 it is likely that hard choices will be imposed, if they cannot voluntarily be made. NOTES 1

The summary o f the major parties’ defence election platforms can be found in Geoffrey York, “ Consensus on Cutbacks for Defence Astounds

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Critic,” The Globe and Mail [Toronto], October 13, 1993, A6. Jean Chr&ien put this plank o f the Liberal party election platform forward very simply: “For me, I’ ll take one piece o f paper and I’ ll take my pen. I will write: ‘Zero helicopters—Chr&ien.’” (“ Beyond the Helicopters,” The Globe and Mail [Toronto], October 21, 1993, A34). 3 An allusion to this longstanding criticism, and to the manner in which the issue o f national defence usually arises in election campaigns, can be found in the opening paragraph o f the How Ottawa Spends review of National Defence in the Mulroney years: “During the 1984 campaign, the Prime Minister had trumpeted the East-West threat and his determina­ tion, if elected, to ‘ honour the commitment.’” Edgar J. Dosman, “The Department o f National Defence: The Steady Drummer,” in Katherine A. Graham, ed., How Ottawa Spends 1988-89: The Conservatives Heading into the Stretch (Ottawa: Carleton University Press, 1988), 165. 4 Liberal Party o f Canada, “Peacekeeping and Foreign Aid,” Creating Opportunity: The Liberal Plan for Canada (1993). Internet site: http:// www.mbnet.mb.ca/wpgsth/general/redbook/redbook.html. 5 With the exception o f the parallel review process for the Department of Foreign Affairs and International Trade. 6 1984 figures are taken from Edgar J. Dosman, “The Department of National Defence,” 175; 1989 figures are from the Department o f National Defence, 1994 Defence White Paper (Ottawa, December 1994), 46. 7 Department o f National Defence, Challenge and Commitment: A Defence Policy for Canada (Ottawa, 1987). 8 Edgar J. Dosman, “ The Department o f National Defence,” 190. 9 Martin Shadwick, “The Canadian Forces after the Cold War: Requiem or Renaissance?” Policy Options (June 1994), 22. 10 Ibid. 11 For further discussion of the Masse defence statements, see Alexander M. Wooley, “Canada is Ignoring Its Navy,” Policy Options (January-February 1994), 40-43, and Martin Shadwick, “The Canadian Forces after the Cold War,” 23-24. 12 Cited in Martin Shadwick, “The Canadian Forces after the Cold War,” 23. Given that Masse’s statements continued to emphasize the necessity o f maintaining maritime, land, and air forces capable o f safeguarding Canada’s territorial security, and responding to threats to continental security, as well as to a plethora o f NATO and UN requirements, it is difficult to see how this new “concept” affected the structure of the Cold War armed forces or that of the Department of National Defence— other than that potential threats were now seen, at least rhetorically, to be everywhere rather than focused on a single adversary. 13 “ The Armed Forces, Under the Knife,” The Globe and Mail [Toronto], December 1, 1993, A 18. 2

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14 15

16 17 18

19

20

21

22

23 24

25

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Hugh Winsor, “Collenette Warns o f Base Closings,” The Globe and Mail [Toronto], February 18,1994, A4. “Review o f Defence Policy Guidance Document to the Defence Policy Review Committee from the Minister of National Defence,” Canadian Defence Quarterly, 23, 3 (March 1994), 40. Ibid.; emphasis added. All citations are from the “Review o f Defence Policy Guidance Docu­ ment,” 40-42. For a discussion o f the American force structure that emerged under the Bush administration, see SIPRI Yearbook 1991: World Armaments and Disarmament (New York: Oxford University Press, 1991), 118, and SIPRI Yearbook 1993: World Armaments and Disarmament (New York: Oxford University Press, 1993), 349. Over the first three years, 1994-95 to the end o f 1996-97, the Martin cuts were anticipated to be $3.5 billion, including the scuttling o f the EH-101. The remaining $1.8 billion in cuts already exceeded the Red Book pledge. See David Collenette, Budget Impact: National Defence (Ottawa, February 1994), 1. Since the highwater point in 1989, the Mulroney government had cut military personnel by 14,000, whereas it had trimmed only 3,000 from the civilian workforce. Popular criticism of the numbers o f civilian personnel had been rising as well. In an editorial at the end o f January 1994, The Globe and Mail wondered, “According to Ottawa’ s Main Estimates ..., amidst all the downsizing in areas that really matter, the number o f departmental pencil pushers is actually rising.... In the name o f General Sir Isaac Brock, what is going on?” “ The Defence of the Indefensible,” The Globe and Mail [Toronto], January 25, 1994, A20. P.E.I., Manitoba, Saskatchewan, and the Yukon were spared. In truth, however, P.E.I. had already been touched with the closing o f the base at Summerside, while Manitoba had already lost the CF-18 servicing facility in Winnipeg. The Yukon and Saskatchewan, for their part, have very little to target, with the exception o f facilities at Moose Jaw. In response to political pressures from Quebec, the federal government has suggested a number o f alternate uses for the College, including the creation o f a language training centre. Denis Stairs, “The Public Politics o f the Canadian Defence and Foreign Policy Reviews,” Canadian Foreign Policy (Spring 1995), 103. Of course, running parallel reviews would also have had the effect of reducing the possibility o f alternative perspectives on “security,” as broader foreign policy goals would be less likely to inform the specifics o f defence policy and force structure. Robert Lawson, “Construction o f Consensus: The 1994 Canadian Defence Review,” in Maxwell A. Cameron and Maureen Appel Molot,

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26 27 28

29 30 31 32 33 34 35

36

37

38 39

eds., Canada Among Nations 1995: Democracy and Foreign Policy (Ottawa: Carleton University Press, 1995), 103-4. Denis Stairs, “ The Public Politics,” 105; emphasis added. Ibid., 94. Janice Gross Stein, Harrowston Professor o f Conflict Management and Negotiation at the University o f Toronto, was the project Director for the Canada 21 Council. The Council included Ivan L. Head (Chair), Thomas S. Axworthy, John Kim Bell, S. Robert Blair, Jean Paul Brodeur, Tim Broadhead, Annamarie P. Castrilli, the Honourable Jacques Courtois, Arthur A. Defehr, Admiral Robert H. Falls, Arthur S. Hara, the Honourable Donald S. Macdonald, Ann Medina, Knowlton Nash, Sylvia Ostry, the Honourable Gerard Pelletier, John C. Polanyi, Joseph L. Rotman, the Rt. Honourable Robert Lome Stanfield, and the Honourable Maurice F. Strong. For a discussion of the assumptions underlying the Canada 21 Council’s report, see Janice Gross Stein, “ Canada 21: A Moment and a Model,” Canadian Foreign Policy, 2, 1 (Spring 1994), 913. Ibid., 9-10. Ibid., 10-11. The Canada 21 Council, Canada and Common Security in the TwentyFirst Century (Montreal: Masse Communications Inc., 1994), 62. Ibid. Martin Shadwick, “The Canada 21 Prescription,” Canadian Defence Quarterly, 23, 4 (June 1994), 33. Cited in “Defence Debate Called Unbalanced,” The Globe and Mail [Toronto], May 3,1994, A4. Project Ploughshares, for example, argued for an increase in aid spend­ ing, to be financed by a drastically reduced defence budget. In particular, such expenditure reductions would entail the elimination of the CF-18s, as well as a reduction in the number o f frigates and destroyers. (Robert Lawson, “ Construction o f Consensus,” 106). See also Denis Stairs, “The Public Politics,” for a more thorough examination o f the diversity of briefs and submissions made to the Defence Review Committee. Jeff Sallot, “ Defence Trimmers Target Brass,” The Globe and Mail [Toronto], November 1,1994, A l. The Bloc Qu6b6cois, for its part, issued a minority report arguing that while Canada should remain within NATO’ s political superstructure, it should “ substantially reduce its military commitments to the alliance” (Ibid.). Although, as we shall see, these CF-18s were moved into “flyable storage,” allowing them to be deployed if necessary, while the remaining 75 percent o f the fleet would receive weapons systems upgrades. Jeff Sallot, “ Defence Trimmers Target Brass,” A6. A similar argument with respect to the Review has been made by Robert Lawson, “ Construction o f Consensus.”

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40 41 42 43 44 45

46 47 48

49 50 51 52 53 54 55

56

57 58 59 60

HOW O T T A W A SPENDS

Jeff Sallot, “ Canadian Forces on the Line,” The Globe and Mail [Toronto], October 31,1994, A4. Denis Stairs, “The Public Politics,” 108. Jeff Sallot, “ Military HQ Takes Job Hit,” The Globe and Mail [Toronto], December 2, 1994, A2. Department of National Defence, 1994 Defence White Paper, 27. Jeff Sallot, “ Headquarters for Army, Navy, Air Force to Close,” The Globe and Mail [Toronto], February 28, 1995, A4. Per capita expense figures for 1983-84, 1984-85, and 1979-80 have been reproduced from Edgar J. Dosman, “The Department o f National Defence,” 177. Even accounting for the effects o f inflation, the Defence budget remains relatively well preserved. Paul Martin, Minister o f Finance, Budget Plan (Ottawa: Canada Commu­ nication Group, 1995), 114. Jeff Sallot, “ Headquarters for Army, Navy, Air Force,” A4. Ibid. On the voluntary buyout o f civilian personnel, see Ian Lee and Clem Hobbs, “ Pink Slips and Running Shoes: The Liberal Government’s Downsizing of the Public Service,” this volume. Of course, the Air Force and Navy can, at least theoretically, be radically redefined to better meet the objectives of peacekeeping missions. Janice Gross Stein, “Canada 21,” 11; emphasis added. Paul Martin, Minister o f Finance, Budget Plan, 114. “Canada’s Fighter Group,” Air International, 49,4 (October 1995), 200. Ibid. Department of National Defence, 1994 Defence White Paper, 48. This is discussed in both “Canada’s Fighter Group” and in “$76 Million Later, Jets to be Grounded,” The Globe and Mail [Toronto], March 16, 1995, A4. The 1994 Defence White Paper suggests that the lead-in training formerly done on the CF-5 will be apportioned between the CF-18 itself and the Tutor jet trainer (48). The latter suggestion in particular was greeted with some disdain by specialist publications such as Air Interna­ tional. The lack o f a training aircraft for the CF-18s has at least the potential to be dangerous. Richard Sharpe, Preface, Jane’s Fighting Ships 1995-96 (Surrey, U.K.: International Thompson Publishing Co., 1995), 36. Keith Krause, “ Canadian Defence and Security Policy in a Changing Global Context,” Canadian Defence Quarterly, 23, 4 (June 1994), 11. Paul Koring, “Army Unfit for Battle, Boyle Says,” The Globe and Mail [Toronto], February 13, 1996, Al. James Fergusson, “The Missing Dimension o f the White Paper: A Defence-Industrial Strategy,” Canadian Defence Quarterly (June 1995), 30.

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61 62 63

Cited in Martin Shadwick, “ Dollars, Defence and Inclusiveness,” Canadian Defence Quarterly, 22, 4 (July 1993), 43. Martin Shadwick, “Courting Disaster,” Canadian Defence Quarterly, 24, 3 (March 1995), 32. Finance Minister Paul Martin announced a further $800 million in cuts in his 1996 budget.

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9 The Canada Health and Social Transfer: Forcing Issues

A L LA N M. M A S L OV E

I t ’ s always nice to begin positively. Perhaps the most important posi­ tive contribution o f the Canada Health and Social Transfer is that it is forcing Canadian governments at all levels to reexamine some o f the fundamental precepts o f social programs and o f federal-provincial fis­ cal relations. Making the same point less positively, one could equally say that— details provided in the last two budgets notwithstanding— the new transfer fails to address some fundamental problems o f social programs and o f fiscal federalism, and that, as a result, further adjust­ ments will be required. The Canada Health and Social Transfer (CHST)1was unveiled by the federal Minister o f Finance in his budget speech o f February 1995 and came into effect on April 1,1996. The CHST superseded the Es­ tablished Programs Financing (EPF) arrangements, which had existed since 1977, and the Canada Assistance Plan (CAP), which had existed

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since 1966. The CHST is to be a “ super block fund” that will embody Ottawa’ s presence in the fields o f health care, social assistance, and post-secondary education. The initial development o f the CHST appears to have occurred en­ tirely within the federal Department o f Finance, with little input from the federal ministries with responsibilities in these fields (Health, and Human Resources Development). For example, the social policy re­ form green paper published by the Minister o f Human Resources De­ velopment in the fall o f 1994,2just four months before the Budget, did not include among its options for discussion any proposal akin to the CHST. Reflecting its origins, the CHST, as announced in the 1995 federal Budget, displayed more evidence o f federal expenditure con­ trol than o f social program considerations. Accordingly, arguments related to increasing the flexibility for the provinces to meet their so­ cial policy needs (while still respecting national standards) or to pro­ moting labour market efficiencies appeared to be mainly ex post facto rationalizations. The overriding motivation was clearly federal expen­ diture and deficit reduction. While that is still the dominant theme, the adjustments announced in the March 1996 Budget respond, to a lim­ ited extent, to some o f the social policy concerns raised over the inter­ vening year. This chapter discusses two sets o f issues arising out o f the announce­ ment o f the CHST and its subsequent enactment by Parliament. The first set relates to the three social policy fields to which it ostensibly pertains. This part o f the discussion covers territory familiar to ob­ servers who have followed the progress o f the CHST, because, to date, most o f the commentary on the transfer has been directed toward these concerns. The second set o f issues revolves around some broader con­ cerns with fiscal arrangements in the Canadian federation. While not all o f these issues have arisen as a result o f the CHST, and none o f them are solely a function o f it, the advent o f the CHST provides an opportunity to begin to address some o f these issues. The chapter con­ cludes by outlining a proposal for restructuring the fiscal transfer to address many o f the problems that the CHST currently leaves unre­ solved.

THE C A N A D A H E A L T H A N D S O C I A L T R A N S F E R

THE CHST AS SOCIAL POLICY

The main fiscal impact o f the CHST is to reduce transfers to the pro­ vinces compared to what they would have been under the former EPF and CAP programs. Over two years (1996-97 and 1997-98), cash trans­ fers to the provinces are scheduled to decline by about 33 percent, from $18.5 billion in 1995-96 to an estimated $12.5 billion in 199798.3 This large decline in transfer funding will obviously have a sig­ nificant impact on the fiscal circumstances o f the provinces; we return to this point later in the chapter. According to the March 1996 Budget, the cash transfer will continue to decline to about $11.1 billion in 19992000 and remain at roughly that level until 2002-03. While the policy fields o f health, welfare, and education are all con­ stitutionally the responsibility o f the provinces, it is generally (though not unanimously) recognized that some aspects o f these fields involve concerns that extend beyond the boundaries o f any one province. Gen­ erally, these involve either national conceptions o f equity or issues o f efficiency in the context o f the Canadian (as distinct from a provincial) economy. For example, equity is a primary objective o f public policy in health. Adequate levels o f health care should be available to all Canadians irrespective o f their incomes; it is also the case that this is a national statement rather than a provincial one. As recently expressed to the Commons Finance Committee during its hearings on the CHST: Canadians as Canadians have obligations to each other that go beyond an inter-regional laundering o f money. For us, the Canadian community is meaningful if it directly engages important social issues that touch Canadians deeply. For us, Canada is made more meaningful if there are important spheres o f shared experience, critical programs such as health care and social welfare the parameters o f which we set in common.4 This statement speaks to values o f “ Canadian community” and na­ tional identity and the consequent equity obligations that Canadians have to one another. These values do not by themselves necessitate federal government action. It is not beyond imagination to devise

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scenarios in which inter-provincial co-operation can address national equity goals. But, as discussed below, it is also by no means clear that such arrangements would be easy to arrive at or to sustain. With respect to economic efficiency, also in the field o f health care, comparable (though not identical) levels o f service across provinces and portability o f coverage contribute to the efficient operation o f the Canadian economy through the protection o f labour mobility. Signifi­ cant differences in service levels could generate inter-provincial mi­ gration simply for the purpose o f gaining access to superior services or, alternatively, they could impede inter-provincial mobility when labour market conditions would call forth such movement. Similarly, provincial minimum residency requirements could impede labour mo­ bility. Accepting that extra-provincial considerations are involved, there are in practice limited means available to ensure the achievement o f “ national standards” in these fields. One option is to rely on inter­ provincial co-ordination. Provinces, recognizing that it may be in their common interest to adopt policies that may not be in the interest o f one province acting alone (e.g. ensuring mobility), can come together and agree on a set o f principles to which each province’ s legislation will conform.5However, the negotiation and maintenance o f such agree­ ments is neither straightforward nor costless. The process that finally resulted in securing an internal free trade agreement among the prov­ inces (with Ottawa’ s support) demonstrates that differing provincial interests make negotiations very difficult, and that there is no guaran­ tee o f success. Agreements that are obtained may be difficult to main­ tain over time, as one province or another comes under pressures that were unforeseen at the time the agreement was reached. As well, inter­ pretations o f what provinces are committed to may not be consistent. Advocates o f greater decentralization in the federal system often ad­ vance this alternative to federal involvement in order to meet concerns raised about national standards. The burden o f proof, however, rests with them to provide assurance that this route can be policy-effective and cost-effective. A second option is for the federal government to act as the agent that promotes the national interest. Given that Ottawa cannot regulate the actions o f the provinces in their areas o f jurisdiction, there is really only one policy instrument available to Ottawa for this purpose— its

THE C A N A D A H EA LTH AND S O C I A L T R A N S F E R

“ spending power.” Ottawa cannot regulate provinces, but it can offer financial payments to provinces whose programs meet specified con­ ditions. This has been the route followed from the outset o f federal participation in these policy fields. Most recently, before the CHST, this federal involvement in these provincial social policy areas has been through the EPF and the CAP. Under EPF, Ottawa offered the provinces a block fund ostensibly in support o f health care and post-secondary education. The significance o f the block funding arrangement was that the amount o f money a province was entitled to receive was not related to its levels o f spend­ ing in the two designated policy fields. The cash transfer to a province was determined by a “ formula.” The quotation marks are added be­ cause in the decade leading up to its replacement, the EPF “ formula” was changed unilaterally several times by the federal government, which at the very least was inconsistent with the impressions o f stability and security conveyed by the existence o f a formula.6As a result o f these changes, the cash transfers were declining over time, and projections indicated that they were destined to dwindle to zero over the next de­ cade. The EPF cash transfer was the lever that Ottawa used to uphold national standards in the area o f health care. These objectives, speci­ fied in the Canada Health Act, require provincial health care systems to be comprehensive, universal, accessible, portable between provinces, and publicly administered, in order for a province to receive its full share o f the EPF funds. The projected decline in the transfer called into question the capacity o f Ottawa to uphold these principles over the long term. The structure o f CAP was quite different. Under this program, Ottawa, in effect, reimbursed the provinces for a portion o f their eli­ gible social welfare costs. The conditions Ottawa attached to the CAP payments included the payment o f assistance on the basis o f need with­ out requiring the recipients to meet other conditions (this prohibited workfare), the prohibition o f a minimum residency period for eligibil­ ity, and the requirement that an appeals procedure be in place.7 The principal point o f dissent between (some of) the provinces and Ottawa over CAP was the decision in 1990 to limit the growth o f the CAP transfer to the three non-equalization recipient provinces (Ontario, Alberta, and British Columbia). As a result, by 1995, rather than

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reimbursing about 50 percent o f social assistance costs in these prov­ inces as originally intended, Ottawa was paying as little as 29 percent in Ontario. After four years (the end o f fiscal 1993-94) it is estimated that this “ cap on CAP” cost the three provinces a total o f $5.8 billion in lost transfers. Ontario alone lost almost $5 billion o f this amount. The announcement in 1995 o f the CHST, forming one block grant relating to all three policy areas, and the attendant cutback in overall federal contributions, suggest that Ottawa’ s role in the fields o f health care, post-secondary education, and social assistance is about to change. From a social policy perspective, questions arise about the develop­ ments that are likely to occur in each o f these three policy fields and about the continued viability o f national standards in health care and welfare. We focus on the transfer program as it relates to each o f the three policy fields, leaving discussion o f broader questions o f federal­ ism for the next section. Structurally, the field left most unaffected by the shift to the CHST is post-secondary education. The reason for this is straightforward. Under the predecessor program, EPF, Ottawa did not require any per­ formance standards on the part o f the provinces in the area o f educa­ tion. That continues to be the case under the CHST. Provincial spending on post-secondary education will presumably be affected by the over­ all decline in federal transfers to the provinces, as will provincial spend­ ing in other policy fields. However, there is nothing in the CHST that impacts directly on education as such. It is interesting to note that in the field o f post-secondary education, in the absence o f federal standards, provinces have themselves created a “ national” system. None imposes a tuition fee differential on out-ofprovince students, and university degrees are (for the most part) rec­ ognized interprovincially. (Certifications and diplomas earned at the college level may be less portable.) Perhaps this provides the strongest support for the argument that provincial co-operation is a feasible route to the achievement o f national standards. In health care, the federal government continues to use the CHST cash to uphold the Canada Health Act. In the short run, there has been no change in this area. In fact, for the first few years o f the CHST, Ottawa actually will have more money in the CHST pool than if EPF had continued, because o f the folding in o f the CAP money. Thus, one

THE C A N A D A H E A L T H A N D S O C I A L T R A N S F E R

might argue that in the near term the fiscal clout available to Ottawa to maintain the Health Act principles has actually increased. However, over the longer term important questions remain unanswered. As previously noted, over the past decade the amount o f cash in this federal pot used to uphold the Health Act conditions has been steadily declining. Table 9.1 shows that EPF cash amounted to 33 percent o f provincial health care spending in 1984, and has fallen steadily to 21 percent in 1995.8During the first two years o f the CHST compared to the former EPF and CAP programs combined, this trend is acceler­ ated. While the 1996 Budget indicates that the amount o f money in the federal transfer to the provinces will be stabilized at $11 billion, the problem o f maintaining its real value with respect to inflation and popu­ lation growth over time has not yet been adequately addressed.9

Table 9.1 Federal Cash Transfers to the Provinces as a Share of Provincial Health Care Spending Fiscal Year Ending

Total Cash ($ million)8

As%of Prov. Health Expend.

“Health” Cash ($ million)1*

As%of Prov. Health Expend.

1984 1985 1986 1987 *1988 1989 1990 1991 1992 1993 1994 1995

7490 7942 8434 8722 8698 8880 9120 9075 9531 9920 9832 9638

32.7 32.6 32.0 30.2 28.3 26.6 24.9 22.9 22.1 22.2 21.4 21.1

5464 5982 6283 6484 6500 6657 6861 6842 7163 7462 7460 7277

23.9 24.6 23.8 22.4 21.1 19.9 18.7 17.3 16.6 16.7 16.2 15.9

Notes: a Includes all EPF cash. b Includes only EPF cash designated by Ottawa as being for health plus Extended Health Care Services. Source: Calculations based on data from Statistics Canada.

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The question o f Ottawa’s ability to uphold the health care standards remains. Do the measures in the 1996 Budget provide Ottawa with sufficient fiscal clout to divert a province that wants to modify its Medicare system in a manner inconsistent with the Health Act prin­ ciples? One cannot provide a definitive answer other than to say that the fact that cash transfers are secured does not by itself guarantee that Ottawa can be effective. For example, in the final three years o f the arrangement, ending in 2003, Alberta will receive about $900 million annually; whether that amount is enough to deter the provincial gov­ ernment if, for example, it wanted to institute widespread user fees is an open question. While the $11 billion in aggregate would appear to carry a lot o f clout, one must examine the transfer to be paid to each province to assess its sufficiency in this regard. It is likely to be in the area o f welfare that the most significant pro­ grammatic changes will occur. To receive its CHST funds, a province need observe only one condition in its welfare program, namely not to impose a residency requirement. As a result o f the abandonment o f the other conditions under CAP, we may expect to see provinces modify­ ing their welfare systems. For example— and there is already evidence that this is occurring— provinces may impose a variety o f performance or behaviour conditions on recipients under the general name o f “ workfare.” Moreover, since the basis o f funding with respect to welfare has changed, levels o f provincial support are also likely to change. Under CAP, provinces were reimbursed about 50 percent o f their eligible expenditures (except Ontario, Alberta, and B.C., as noted earlier); the CHST pays each province a single block grant. Thus, from the per­ spective o f a provincial government the relative cost o f putting money into welfare rather than other activities has increased, and we might expect to see welfare spending cutbacks as a result.10 Already the declines in the cash transfer and the prospect o f more to come have given rise to a number o f challenges to the system in the areas o f health and welfare. For example, the provinces have chal­ lenged Ottawa’ s moral and political authority to speak for and attempt to enforce national standards in health and welfare when its financial participation is steadily dwindling. In part, the dispute between Ottawa and Alberta— and, less publicly, several other provinces— regarding

THE C A N A D A H EA LTH A N D S O C I A L T R A N S F E R

the province’ s approval o f private clinics’ charging “ facility fees” (user fees by another name are still user fees) reflects the perceived weaken­ ing o f the federal government’ s authority to maintain its declared na­ tional standards. Further, in December 1995 an inter-provincial (excluding Quebec) Ministerial Council on Social Policy Reform and Renewal produced a report to the premiers advocating Ottawa’ s com­ plete withdrawal from the field o f health. It recommended the develop­ ment o f a provincial accord that would embody the guiding principles (national objectives) to which each province would commit itself. As noted above, whether the provinces can deliver a meaningful and binding set o f standards is an open question. Certainly the health care advocacy groups overwhelmingly do not think so. The thrust o f their interventions has been to urge Ottawa to maintain a strong fiscal pres­ ence and to continue upholding the Canada Health Act principles (and in some cases, strengthening them). Another impact o f the declining transfer has been to pit interests against one another in the three policy areas ostensibly funded through the CHST. In the fall o f 1995, HEAL (the Health Action Lobby), a coalition o f major health care providers and consumers, advocated a fiscal transfer that would have preserved Ottawa’ s presence in the health field at the expense o f complete abandonment o f the welfare field. Given that the block fund grants are fungible, the actual distinction is, to a large extent, artificial; the interesting point to be made here is the height­ ened sense o f competition among social policy interest groups attempting to preserve their programs in the face o f a perceived declining social envelope.11 THE CHST AND FISCAL FEDERALISM

As suggested in the previous section, the introduction o f the CHST is only the latest in a series o f unilateral moves by the federal govern­ ment with respect to its participation in several areas o f provincial jurisdiction. As Table 9.2 illustrates, in the decade or more prior to the CHST, federal transfers to the provinces declined in relative terms, mainly as a result o f the series o f restraint measures Ottawa applied to the EPF transfer. The table indicates that, while Ottawa’ s revenues were growing as fast as or faster than provincial revenues, its grants

291

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accounted for progressively smaller shares o f provincial revenues.12 For example, using 1980 as a base year, by 1995 in Ontario federal transfers relative to total provincial revenues had declined by 15 per­ cent (to 84.4 percent o f the 1980 level). Thus, aside from the impacts on particular policy fields, the federal actions raise broader questions about the balance o f public sector re­ sources in the federation and the process by which adjustments occur. These issues are the subject o f this section. On the question o f revenue shares, Table 9.2 shows that between about 1984 and 1993 federal revenue grew more quickly than total provincial revenue, from 107 percent o f provincial own revenue to 121 percent. While the trend has been interrupted in the last two years shown in the table, in 1995 the federal share o f total public sector revenue was still higher than it was a decade earlier, both before (112 percent compared to 106 percent) and after (90 percent compared to 84 percent) transfers to the provinces. We must emphasize that these are statements only about relative positions; during all or most o f this period, governments at both levels were grappling with large budget deficits. Moreover, these data only compare actual revenues o f the respective governments; they are not standardized for changes in tax rates over the period, and thus cannot be read as measures o f fiscal capacity. What does seem to come through, however, is that without these transfer reductions, Ottawa’ s deficit would have been larger over this period, and the provincial deficits possibly lower. In this sense, there was a downloading o f a portion o f the federal deficit to the provincial level. At the same time, the areas where public expenditure pressures have arguably been the greatest— health, welfare, and education/train­ ing— are all wholly or largely under provincial jurisdiction. These changes to the federal-provincial fiscal framework are, from the perspective o f a province, unanticipated budgetary shocks. The provinces are forced to react, sometimes over a very short period o f time. Not surprisingly, one by-product is dissatisfaction with the pro­ cess from which these shocks emerge. The changes to the transfer pro­ grams and the distortions to the pattern o f program cutbacks that may have resulted were all the products o f unilateral federal decisions. Fur­ ther, in almost all cases the provinces had no opportunity to contribute

Table 9.2

Federal and Provincial Revenue and Federal Transfers to Provinces Federal Transfers/Total Provincial Revenue 1979-80 = 100 Fiscal Year Ending 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Federal Revenue as % o f Provincial Own Revenue 107.4 110.5 121.3 111.4 106.5 106.4 109.4 114.8 113.9 111.7 111.3 111.9 117.2 120.7 115.4 111.7

Federal Revenue as % of Provincial Total Revenue 83.4 86.5 96.2 88.0 84.1 83.5 85.2 91.0 90.9 89.7 90.2 90.9 94.6 96.2 91.5 90.4

Nfld.

P.E.I.

N.S.

N.B.

Que.

Ont.

Man.

Sask.

Alta.

B.C.

100.0 95.8 98.1 100.0 96.9 98.3 96.7 98.1 94.6 95.6 95.0 91.3 89.8 90.6 88.1 90.0

100.0 95.3 93.6 93.1 90.0 86.9 86.7 86.5 81.1 82.0 80.9 78.9 74.9 76.0 67.5 67.8

100.0 98.3 97.8 92.7 91.8 90.3 83.8 84.0 80.4 83.6 82.9 81.9 81.0 84.2 78.4 83.2

100.0 90.7 92.7 95.6 90.9 88.6 88.8 85.7 84.2 82.0 80.1 78.8 73.9 86.9 75.3 73.7

100.0 92.1 89.8 94.1 105.1 99.6 92.5 82.3 78.7 76.0 75.2 74.4 68.9 78.7 76.8 73.6

100.0 102.9 97.1 87.9 100.0 98.8 91.3 84.4 81.5 72.8 69.4 70.5 79.2 94.8 85.0 84.4

100.0 98.7 83.9 81.7 80.4 80.6 75.5 72.3 70.2 75.3 77.2 78.5 80.9 76.1 77.4 75.8

100.0 87.4 126.4 110.4 95.6 107.1 102.2 122.5 120.3 125.3 130.2 139.6 162.1 131.9 136.8 144.0

100.0 95.2 121.4 107.1 114.3 136.9 146.4 179.8 170.2 196.4 170.2 182.1 172.6 202.4 228.6 203.6

100.0 100.6 88.0 87.3 115.2 109.5 105.7 111.4 115.2 93.7 84.2 72.8 74.1 85.4 71.5 69.6

Source: Calculations based on data from Statistics Canada.

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to these decisions, either formally or informally. Most were announced by various federal Ministers o f Finance in their budget speeches, which, prior to tabling in Parliament, were cloaked in the usual budget se­ crecy. This federal power to affect provincial finances is not limited to changes in EPF/CAP/CHST. In fact, each order o f government can unilaterally and directly affect the financial situation o f the other, though the routes running in the federal-to-provincial direction are more nu­ merous. In addition to the CHST and its forerunners, consider as ex­ amples the following:13 •

In recent years, questions have begun to emerge about the federal-provincial Tax Collection Agreements. Under these Agreements, Ottawa collects personal income taxes on behalf o f the provinces (except Quebec, which collects its own taxes). These arrangements enhance the efficiency o f the tax system over all, because taxpayers need prepare only one rather than two tax returns, and because common definitions and concepts create a high degree o f tax harmonization. However, it is also the case that the Agreements expose the provinces to unantici­ pated revenue changes as a result o f federal budget decisions. Part o f the reason for this is that provincial tax liabilities are determined on a “ tax on tax” basis rather than on a “ tax on base” basis. That is, rather than levying their tax rates on calculated taxable income (the tax base), the provinces levy

•

their taxes as a percentage o f basic federal taxes. Thus, any changes to the federal rate, definition o f taxable income, or certain federal credits, will also affect provincial revenue. Changes in major items, such as the introduction o f and later cutbacks to lifetime capital gains exemptions, have major impacts on provincial personal income tax revenue. This is further than one needs to go to achieve tax harmonization. A “tax on base” system would, for example, leave provincial revenues unaffected by federal rate and credit changes.14 Federal cutbacks to and restructuring o f (Un)Employment Insurance result in significant changes in demand for social

THE C A N A D A HE A L T H A N D S O C I A L T R A N S F E R

•

welfare assistance, the impacts o f which are now (since the introduction o f the CHST) fully borne by provincial budgets. The proposed 30 percent income tax cut in Ontario, if enacted, would provide the federal government with an annual windfall gain o f approximately $0.5 billion. The reason for this is that Ontario is part o f the five-province standard for purposes o f calculating fiscal equalization, and the reduction in the Ontario tax rate would affect the equalization formula. O f course, this also means that the seven equalization-receiving provinces would collectively receive $0.5 billion less in payments from Ottawa.15

These extensive interconnections between federal and provincial budgets are testimony to the sophisticated fiscal arrangements in the Canadian federation. They are also akin to the economists’ notion o f "externalities,” or “third party effects.” An externality arises when individuals and/or firms who are not party to a market decision or transaction are nonetheless affected (positively or negatively) by its occurrence. Because the affected third parties are not participants in the transaction, their interests are not represented, and therefore, in general, the outcome will not be economically efficient. There is an analogy in the foregoing examples. One government’ s decisions (usu­ ally Ottawa’ s) affect the fiscal circumstances o f others (usually the provinces), even though the latter governments have no input into the decision. Economic analogies aside, one might well respond with “ So what?” These links have existed for a long time, they are integral to the nature o f Canadian fiscal federalism, and by and large the system works well. Moreover, attempting to break some o f these links— to disentangle the federal and provincial budgets— if not carefully considered, could ac­ tually damage the high level o f efficiency-enhancing harmonization that exists in many areas. All true, as far as it goes. However, the case can also be made that the strains have become sufficiently serious that if they are not addressed, fractures may start to appear in the fiscal system. They have become more serious and are especially noticeable in times o f budgetary contraction, though one should recognize that

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the fiscal linkages are equally present with respect to program expan­ sion. The CHST and the transfer cutbacks that led up to it are thus but one more point o f pressure contributing to these strains. The fallout from these stresses in the fiscal system may extend to other areas. Take, for example, federal GST and provincial retail sales taxes. From the outset, even before the GST was enacted, it was the preference o f the federal government to secure provincial co-operation to institute an integrated national sales tax. There is little doubt that such a system would have been and still would be more efficient than the current arrangement, which, in most provinces, involves two sales tax regimes operating side by side. To date, the federal government has not achieved much success in persuading the provinces to sign on.16 The political unpopularity o f the GST is undoubtedly one reason why provincial governments are wary o f becoming party to an off­ spring o f the GST. But another reason may well relate to the fiscal externality issue raised here. Currently, the provincial retail sales taxes represent, for most provinces, the largest revenue source not linked into the federal revenue system in some way. Provinces have full con­ trol over the bases and rates o f tax. An agreement like that for income tax with respect to sales taxation could expose the provincial treasur­ ies to further vulnerability as a result o f unilateral decisions made in Ottawa. Despite the impressive degree o f federal-provincial fiscal har­ monization that exists, the consequence o f one government’ s being forced to react to major revenue (or expenditure) shocks resulting from the unilateral decisions o f another causes strains to the fiscal system. The CHST is only the most recent o f these. A standard approach in economics to the externality problem is to find a way to internalize the externality, that is, to force or induce decision-makers to take into account the interests o f the third party or to arrange for the third party to be represented directly in the decision. What might be a corresponding remedy in the case o f federal-provin­ cial fiscal relations? To advocate complete joint federal-provincial decision-making with respect to a selection o f program areas would likely be a recipe for paralysis in these fields. At the very least it would be an extremely cumbersome and costly way to make decisions, in that any one gov­ ernment could hold out for unreasonable compensation from the oth­

THE C A N A D A H E A L T H AND S O C I A L T R A N S F E R

ers. However, it does seem that limited reforms might be possible along the lines o f developing conventions o f good conduct in these overlap­ ping areas. Such understandings might be as simple as a commitment to consult among governments. It would not cause financial markets to tremble if a federal Minister o f Finance were to relax the constraints o f budget secrecy enough to consult with his provincial counterparts on any po­ tential budget items that would directly alter provincial revenues. Fur­ ther, a joint federal-provincial agency could be established to provide neutral data and monitor developments in fiscal arrangements. Finally, in social program areas such as those involved in the CHST, there may be some room for Ottawa to acknowledge some o f the provincial views and agree to develop national standards jointly with the provinces rather than declare them unilaterally. Since these standards are not up for discussion each year, this would be unlikely seriously to complicate decision-making. What joint determination might foster is a greater sense o f “ buy in” to the principles by all governments, and perhaps even a clearer understanding o f what each government requires to maintain its commitments. AN ALTERNATIVE STRUCTURE FOR THE CHST

The foregoing discussion has raised as crucial issues the stabilization and maintenance o f the real value o f the CHST over time, and the dampening o f the provinces’ vulnerability to fiscal shocks resulting from decisions in Ottawa (the externality concern). One means o f ad­ dressing these concerns might be to set the CHST cash transfer to the provinces equal to the total amount o f revenue generated by a speci­ fied number o f (say) personal income tax points.17Each year, the amount available for transfer to the provinces under the CHST would be de­ termined by the revenue generated by these designated tax points. The effect would be to transform the CHST into a conditional revenue sharing scheme. This is not the same as making more tax room available (i.e. turning more taxes over) to the provinces; the federal government would continue to levy and collect these taxes, but would undertake that the resulting revenue would be distributed as cash transfers to the provinces on an equal per capita basis, subject to the Canada Health Act conditions

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and the condition that there be no residency requirement for social assistance. The revenue pool from which these cash transfers would be made could be drawn from Personal Income Taxes, from the GST, or from some combination o f both.18 Under an arrangement such as this the provinces would continue to receive funds from the federal government to enhance their fiscal ca­ pacities. The federal government would maintain leverage with respect to the Canada Health Act principles and the absenced o f a residency requirement for welfare. Further, the problems o f stability and predict­ ability would be addressed. The transfer would be stabilized (in real terms), in that the amount would be determined by the revenue gener­ ated by the designated taxes. It would be predictable to the same extent as would be the growth o f the designated revenue pool. At the same time, because the transfer is determined by revenue generated from designated taxes, its relative claim on the federal budget would also tend to be stabilized. With respect to the externality concern, a conditional revenue shar­ ing arrangement would differ in a subtle but significant way from pre­ vious grant programs. Because the transfer to the provinces is determined by designated tax revenue rather than being a conventional spending item in the federal government’ s expenditure budget, it would be somewhat more insulated from Ottawa’ s normal budgetary pres­ sures. Provincial revenue from the revenue sharing would thus enjoy a correspondingly greater degree o f security than has been experienced under EPF. This distinction between conditional revenue sharing and traditional grant programs, such as EPF and the existing CHST, is, however, one o f degree; it should not be overstated. A federal govern­ ment that was intent on changing the terms or structure o f the revenue sharing arrangement could still do so. Transitional arrangements would be required to achieve equal per capita cash transfers to the provinces. Currently these amounts differ across provinces, because o f the intricacies o f the EPF formula and the differing CAP transfers. The March 1996 Budget contained provi­ sions to move the cash transfer part o f the way toward equal per capita amounts by 2003. Because the total cash transfer is to be held essen­ tially fixed, the effect will be to equalize toward the middle. As a re­ sult, provinces now receiving above average per capita amounts, including Quebec, will be relative losers. Ontario, Alberta, and British

THE C A N A D A HE A L T H A N D S O C I A L T R A N S F E R

Columbia, which now receive less than average per capita amounts (because o f the “ cap on CAP” ), will be relative winners. In absolute terms, all provinces will receive less, as the total cash transfer declines from $15 billion in 1996-97 to about $11 billion in 2002-03. An alter­ native that could apply to either the existing CHST or the conditional revenue sharing version suggested above would be for Ottawa to bring each province’ s per capita grant up to the level o f the highest, over a period o f years.19 That would, o f course, require an increase in the total cash transfer, but with appropriate phase-in arrangements the additional cost to Ottawa should be easily manageable. While an arrangement such as conditional revenue sharing would not address all the concerns raised here or elsewhere regarding the CHST, it would constitute a modest step forward in federal-provincial fiscal relations. Besides addressing several key issues immediately re­ lated to Ottawa’ s presence in social programs, it would serve as a potential beginning o f a renewal o f fiscal arrangements in the Canadian federation. NOTES

I wish to thank the editor, Gene Swimmer, Elizabeth Dandy, and Sandra Bach for helpful comments, and SharmalaNaidoo for research assis­ tance. 1

2 3

The CHST was first announced as the Canada Social Transfer (CST). The word “Health” was added to the title some weeks later to make the point that the federal government still considered itself a significant factor in the provincial delivery of services under Medicare. Human Resources Development Canada, Improving Social Security in Canada (Ottawa: October 1994). These amounts differ from those cited in earlier documents because o f a change in the method used to account for transfers to Quebec. Under contracting-out arrangements dating from the 1960s, Quebec received a special 8.5 point income tax abatement. The value o f these tax points was previously deducted from the province’ s EPF and CAP cash payments. Rather than continue this practice, the federal Department o f Finance now reports Quebec’ s full CHST entitlement (consistent with other provinces) and separately reports the recovered cash payments. The amount involved in this accounting change is approximately $2 billion annually; the actual net amount transferred to Quebec is not affected.

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4 5

6

7

8

9

10

11

12

13

HOW O T T A W A SPENDS

Keith Banting and Robin Boadway, “ Presentation to the Standing Committee on Finance, House of Commons,” May 9, 1995. It is also possible that such understandings emerge as tacit agreements or conventions, without there being any explicit agreement among the provinces. The fact that to date all provinces have refrained from assess­ ing higher out-of-province tuition fees in their universities falls into this category. For more details see Allan M. Maslove, “Reconstructing Fiscal Federal­ ism,” in Frances Abele, ed., How Ottawa Spends 1992-93: The Politics o f Competitiveness (Ottawa: Carleton University Press, 1992), 57-78. For details see Sherri Toijman, “ Is CAP in Need o f Assistance?” in Keith Banting and Ken Battle, eds., A New Social Vision for Canada? (Kingston: Queen’ s School of Policy Studies, 1994), 99-113. To reiterate, it is important to realize that the federal cash transfers to the provinces are not earmarked in any sense. They are not health care dollars as such. The provinces are free to allocate the funds in any fashion they deem appropriate (including levying provincial taxes at lower rates than otherwise would be the case). The EPF transfer changes are here expressed relative to provincial health expenditures only to provide an indication o f the viability of the federal lever to uphold the Canada Health Act principles. The CHST “ formula” has again been engineered to produce the government’s cash commitment o f $11 billion. This is accomplished by allowing the “total entitlements” (which are the sum of the revenues produced by the tax points transferred to the provinces in 1977 plus cash) to grow by roughly the same amount as the revenue relating to the tax point transfer. The residual entitlement—the cash transfer—is thus stabilized. This has already occurred in Alberta and Ontario, where the “cap on CAP” essentially had the effect o f turning the CAP payment into a quasi­ block grant, an amount largely unrelated to actual provincial spending on welfare. For a short time, which included a federal-provincial finance ministers meeting, the HEAL proposal seemed to be riding high, though it was later rejected by the federal finance minister. The exceptions to this pattern are Saskatchewan and, especially, Alberta. This is likely due to the volatile nature of natural resource revenue in these provinces, and, in particular, due to the fact that 1979-80, the base year for the Table 2 index, was a year when oil revenues were exception­ ally high. Examples are limited to direct program links, and do not include broader connections, such as fiscal policy stimulation (restraint), which can impact on both revenues and expenditures o f other governments.

THE C A N A D A H E A L T H A N D S O C I A L T R A N S F E R

14

15 16 17

18

19

The current arrangements can also work in favour of the provinces. If Ottawa raises its income tax rates and generates more revenue as a result, the provinces also receive more tax revenue without having to raise their own tax rates. M. Mendelson, “Looking for Mr. Good-Transfer” (Ottawa: Caledon Institute o f Social Policy, 1995). It is surely an irony that the one province with which Ottawa has man­ aged to achieve significant sales tax harmonization is Quebec. It is worth emphasizing that this is not related to the income tax points turned over to the provinces at the outset o f EPF in 1977. The federal government cut its personal income tax rate by 13.5 percentage points and its corporate income tax rate by one point, and the provinces in­ creased their respective rates by offsetting amounts. The effect was to leave the position of taxpayers basically unchanged but to decrease federal revenues and increase provincial revenues by balancing amounts. These tax points are now firmly part o f the provincial tax “room” and should not be regarded as part of any existing transfer from Ottawa. A similar proposal was suggested recently by Paul A. Hobson and France St. Hilaire, Reforming Federal-Provincial Fiscal Arrangements: Toward Sustainable Federalism (Montreal: Institute for Research on Public Policy, 1993). However, unlike the suggestion here, the Hobson-St. Hilaire proposal for income “tax abatement” was not conditional on meeting the terms of the Canada Health Act. See Mendelson, “Mr. Good-Transfer,” for one such proposal. Mendelson proposes an equalization in per capita terms across provinces based on the sum o f the cash transfer and the 1977 EPF tax transfer. The proposal here is in terms of the per capita cash transfer only.

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10 Lion Taming: Downsizing the Opponents of Downsizing

ANDREW C A R D O Z O

(_ > a il them voluntary organizations, public interest groups, or special interests, a wide array o f non-profit, non-governmental organiza­ tions exist in Canada that address just about every public policy imaginable. Some o f these groups are extremely influential, some have moderate success from time to time, and others exist on the margins, preferring to ignore government and focus on people, public attitudes, or community solutions. In recent years, just as our national political institutions have come under criticism, so has the legitimacy o f na­ tional groups been publicly challenged— sometimes by their own mem­ bers, but more often by their critics.1An extension o f this questioning o f legitimacy has been an attack on the public funding that goes to these groups. Public interest groups have had to justify their existence and their access to public funds as never before. The effect o f these new dynamics on public policy development is noticeable, in that these groups have become less able to respond to the quickly changing policy

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scene, especially the rapid downsizing o f government. For those ele­ ments in society who want to see rapid change, this interference with the work o f these groups is welcome. After all, according to the con­ ventional neo-conservative wisdom, these groups are only “ defending their turf” and the policies that they are interested in, without caring about the larger picture o f fiscal policy and the new evolving role o f government in Canada.2 While this controversy rages, the federal government is reducing the funding to these groups in a more strategic and planned manner than ever before. This is not necessarily all bad for the development o f public policy. Some observers welcome the possibility that a group that has an exaggerated sense o f the size o f its constituency or that claims to speak for constituencies it does not really represent will van­ ish from the scene as it loses resources and profile. The reduction o f funding has also meant an improvement in groups’ accountability both to their membership and their funders. Two groups whose credibility has not been widely questioned, the Canadian Association for Adult Education and the Canadian Disability Rights Council, have folded, but other organizations are taking up some o f their workload. Unfortunately, there is the potential for governments— bureaucrats and politicians alike— to play favourites about which groups survive and which do not. Although the voluntary sector is noticeably less vibrant than in the seventies and eighties, for several reasons, such as fatigue and general disillusionment with the process o f advocacy, these groups remain an indispensable link between the populace and gov­ ernment. For example, when Finance Minister Paul Martin introduced in his February 1995 Budget the Canada Health and Social Transfer, which would fundamentally alter the nature and provision o f health and social services, he launched a debate in which only a select few Canadians would participate. Provincial governments, a handful o f academics, and an impressive cross-section o f some seventy-five rep­ resentatives from various organizations spoke eloquently about the benefits or dire consequences o f this restructuring.3Thanks to the in­ terest groups, the public’ s views would be heard, even if not heeded. These are the groups with a “ corporate memory” capable o f address­ ing such complex issues in detail and at short notice. While the major attack on interest groups is framed in the context o f wanting the “ ordinary Canadian” to have more say, the irony is that

PUBLI C I NT E R E S T G R O UP S

the ordinary person is not going to have enough expertise to challenge the decision-makers. Instead, an ever-decreasing number o f Canadi­ ans— a smaller elite— will have all the influence, especially concern­ ing complicated issues. Ordinary Canadians’ influence will be very superficial, through public opinion polls and town hall meetings. Fur­ ther, as government funding o f public interest groups shifts focus from advocacy to service provision and projects done in partnership, the advocacy role will become more cautious and circumspect. The lion that was once the provocateur o f vigorous and challenging dialogue will be completely tamed.4 This chapter begins with some background on the role o f public in­ terest groups and how, when, and why funding to groups began. This will be followed by a discussion on when and why attitudes toward these groups changed, bringing us up to the 1994 and 1995 Budgets, which reduced their funding. The effects on public interest groups and, in turn, on the development o f public policy are then discussed. The chapter concludes with recommendations for the future.

Definitions Determining clear-cut definitions for the different types o f organiza­ tions is problematic. These terms change over time as they take on or are ascribed different attributes. There will always be some overlap between the various terms used. The definitions I will use in this analysis are summarized in Table 10.1.

Why they exist Interest groups have existed in one form or another for decades, repre­ senting, for instance, industrialists, labour unions, the temperance movement, or suffragists. Invariably, they have existed to put forward a certain set o f views, to lead in developing new ideas, and to defend certain existing ideas. Paul Pross and Iain Stewart provide a compre­ hensive explanation o f their role: Public interest groups are formal organizations whose members have joined together to promote altruistically a common perception o f the public interest. These groups play an important part in public consultation because they articulate alternative positions on policy issues, aggregate support around those positions and provide a mechanism through which their supporters can communicate with those who think differently.5

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Table 10.1

Definitions of Groups Public interest group

Service provider

Non-governmental organization (NGO)

Voluntary organization

Non-profit organization

A movement

Populist movement

A group whose members act together to influence public policy in order to promote their common concerns as well as to advance broad societal interests. The group is and its members are non-profit in nature and the group is not centred on providing direct financial or economic benefit to its members. Acting individually, the members would be relatively powerless.8 An organization whose prime focus is to provide services to a societal group, such as seniors, new immigrants, or small businesses. These groups may advocate for policies that will better serve their respective clients; increasingly they provide research and consulting services. An organization of citizens established outside government, at least in part to influence public policy. Some may receive government financial assistance. NGOs are often public interest groups or service providers. An organization made up primarily of volunteers. There could be a small paid staff component that works under the direction of the volunteers. Public interest groups are voluntary organizations for the most part. An organization dedicated to advance some set of societal interests, whose prime purpose is not profitmaking. It would normally have some considerable voluntary component. Generally a public interest group that does more than represent member views, and that works at a more fundamental level to “move.” The leadership of the movement educates the members about the full extent of the issues and the range of possible solutions, some of which may require challenging the governing system or public attitudes. Examples are feminist groups, as well as the New Democratic and Reform parties. A movement that stresses the supremacy of common people over politicians, rejects existing intermediate organizations between the people and their leaders, and directs its efforts against other groups that are seen as having too much power.b It usually has some noticeable popular support and does not seek or accept public funding.0

PUBLI C I NT E RES T G R O UP S

Table 10.1, cont'd

Definitions of Groups Charity

According to Revenue Canada, a non-profit organization that addresses at least one of the following: health, relief of poverty, advancement of religion, education, or other charitable purposes that benefit the community at large. Such an organization can provide tax deductibility to its donors and is restricted in its advocacy work.

Business or professional association

A business group or professional association seeks to address the needs of its members, be they manufacturers, lawyers, or doctors. While increasingly addressing public interest issues, group members are in profit-making positions, and the group tends to have more financial and economic clout than a public interest group.d A group designed primarily to address the needs of workers in various areas. A union or collective of unions has membership very clearly defined and established in labour relations legislation. Though their main purpose is to engage in collective bargaining, labour unions have traditionally addressed larger societal interests. A paid professional agent who acts on behalf of clients, often corporate or other financially secure groups, for legislative or policy changes or monetary gain. They largely operate behind the scenes and the full extent of their influence gets little attention.6 These three terms have taken on pejorative connotations, to suggest that a group is demanding unwarranted or special treatment, and that it exists primarily to pressure government for its own narrow interests. A special interest group is sometimes defined in more neutral terms as an organization that addresses a particular and clearly definable membership, such as manufacturers, or persons with AIDS; this usage is rare. The Treasury Board definition: “interest groups are defined as non-govemmental, non­ commercial groups that pursue an interest using government funding, primarily through grants and contributions.’*

Labour group

Lobbyist

Special interest group, single issue pressure group, lobby group

“Interest groups”

cont'd...

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NOTES TO T A B L E

a

b

c

d

e

f

10.1

This definition borrows freely from three sources: Peter Finkle, Kemaghan Webb, William T. Stanbury, and Paul Pross, Federal Government Relations with Interest Groups: A Reconsideration (Ottawa: Study prepared for Consumer and Corporate Affairs Canada, 1994), 20-21; S.D. Phillips, L.A. Pal, D.C. Hawkes, and D.J. Savas, Interest Groups in the Policy Process (Ottawa: unpublished study for the Department o f Secretary o f State, 1990), 130-40, quoted in Finkle, et al.; and The Indispensable Link: The Role o f Public Interest Groups in the Development o f Government Policy, People and Government Series, Issue No. 1 (Ottawa: Pearson-Shoyama Institute, 1995), 6. Trevor Harrison, O f Passionate Intensity: Right Wing Populism and the Reform Party o f Canada (Toronto: University o f Toronto Press, 1995), 5. In this section Harrison quotes from writers such as H.C. Boyle, P.R. Sinclair, and Ernesto Laclau. Such organizations need aggressive fundraising efforts. Several engage professional fundraisers, who organize various initiatives, including direct mail campaigns. See also Scott Piastowski, “Tax Scam,” This Magazine, July 1995. The Canadian Taxpayers Federation is noted as having 65 commissioned sales people, who get a commission of up to 50 percent o f the fees from newly recruited members, For a detailed expos£ on an influential business group see David Langille, “The Business Council on National Issues and the Canadian State,” prepared for the Political Economy Sessions o f the Canadian Political Science Association, University o f Montreal, June 2, 1985. There is a Lobbyists Registration Act, which defines lobbyists and requires a minimal degree of reporting, primarily on who their clients are. The precise issues they address, the amount o f their contact with government officials and politicians, and the amount o f money they receive remains confidential. Lobbyists do not appear before parliamentary committees or speak to the media on the policy issues that they work on. This definition is both too broad and too narrow. It includes academics who receive grants, and fanners who receive subsidies, but it does not include genuine “interest groups” who do not happen to receive funding. See Treasury Board Secretariat, Program Branch, “The Review o f Interest Group Funding,” September 30, 1994, 4. (Received through an “ access to informa­ tion” request.)

Early this century the churches, especially some denominations o f the Protestant church, became active in promoting a “ social gospel,” which emphasized various social reforms, including industrial safety, unionization, public health legislation, prohibition o f alcohol, an end to child labour and prostitution, and the vote for women, among other reform measures.6

PUBLI C I NT E RES T G R O UP S

In 1973 Robert Presthus noted that there were two groups “ who have always held a dominating position in our politics because o f their superior internal organization— the French Catholic Church in Que­ bec and the interlocking financial-industrial-commercial interest.” In Quebec the church drew its power from its ability to control the voting o f its parishioners. Big business was powerful because o f its ability to contribute to campaigns, its constant official and unofficial lobbying, and its leaders’ economic and social relationships with politicians.7 The Catholic church in Quebec has lost much o f its power, partly because it was seen by the populace as being too close to government, and involved in resisting the forces o f modernization and seculariza­ tion. Because o f its resistance to the separatist aspirations o f Que­ beckers, it has also lost the support o f most nationalists.8Nevertheless, the Catholic and Protestant churches throughout Canada have from time to time joined with various other social action groups to speak out effectively. Big business has maintained considerable influence with government, and, more importantly, has continued to attempt to shape public opinion. While this chapter will deal primarily with organizations that focus their attention on government, it is important to note that some effec­ tive advocates seek primarily to influence public opinion, which will, in turn, influence government action. It is much easier to make a case when public opinion is on your side. While big business has continued to have the ear o f government at the top levels, at the grass roots, neo­ conservatives have spent the last 20 years in the hinterland diligently making their case to the wider public.9 The changing relationship between political parties and interest groups should also be addressed. One view suggests that interest groups are taking over the policy development role from political parties, while another view suggests that the growing complexity o f policy develop­ ment has promoted a new form o f co-operation between the two groups. A related issue concerns the fact that interest groups participate in elections, taking clear positions and trying to influence voters, although they may stop short o f endorsing particular parties or candidates. Sev­ eral groups have played active roles in the recent national and Quebec referenda. Not everyone agrees that public interest groups should play such a role in democratic representation, elected politicians being viewed as the only ones who can legitimately represent citizens.10

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Why they receivedfunding It is instructive to consider the motivation behind various early gov­ ernment initiatives in the funding o f interest groups. Some o f the earli­ est federal grants were awarded in 1951 by the Citizenship Branch, to “ foster good citizenship in all Canadians.” The funding went toward adult education and training for new citizens to advance goals that the government shared. The concept o f “ participatory democracy” and advocacy did not emerge as a serious factor in funding to groups till the late 1960s, during the early Trudeau years." Business groups have been helped for many decades through the tax system. Membership fees to a local board o f trade or chamber o f commerce have been a tax deductible business expense. More recently it has become common for large corporations to contract lobbyists to conduct advocacy, which is also a tax deductible expense. In reality, the advocacy work o f busi­ ness groups is subsidized by all taxpayers, although that case is rarely made.12 Some have suggested that tax deductibility was the federal government’ s rationale behind funding some non-business organiza­ tions, to balance out the debate. Governments were not financially constrained at the time, so there was a greater willingness to be flex­ ible in policy directions, and ideals o f participatory democracy were high on the federal agenda. Susan Phillips noted that: government funding to these disadvantaged constituencies adds an element o f fairness in the representation o f the spectrum o f interests in Canadian society. It allows organizations o f women, Natives, disabled, official language minorities and poor people to be heard among the voice o f the economically powerful like the Pharmaceutical Manufacturers’ Association or Macmillan Bloedel.13 There is, however, no official government-wide starting point to the funding o f non-governmental organizations, no major policy decision or act o f Parliament. It began in various departments on an ad hoc basis and just grew— an approach that has been severely criticized by fiscal conservatives, who feel the system is out o f control. Virtually every department and portfolio has offered group funding in recent years. Business groups have received both national and re­ gional development assistance. National and local funding programs within federal departments have also assisted groups addressing the

PUBLI C I NT E RES T G R O UP S

environment, sports, medicine and health care, poverty, and social policy, and the needs o f seniors, youth, women, and ethnic and racial minorities.14Treasury Board calculated that a total o f $3.3 billion goes to interest groups, according to its definition. This calculation is over­ stated, because it includes sizeable amounts in such categories as grants to academics, Canadian membership in international organizations, subsidies to farmers and ranchers, and subsidies to private sector cor­ porations. Given the definitions used for this chapter, the total direct funding to public interest groups is likely to be in the range o f $1 -$1.5 billion, which includes funding to groups in the social policy, environ­ mental, industrial, and defence sectors; much o f the funding includes service delivery o f various kinds.15

Government advisory councils Governments also fund advisory councils and independent agencies, which complement the non-govemmental public interest groups in de­ veloping public policy. While the dynamics o f their relationships have always been in flux, there have been times when the two have worked closely together, and other times when they have worked at cross-pur­ poses. The latter has usually occurred when an agency has taken on the function o f explaining the views o f the government to the people rather than explaining the views o f the people to the government.16 Government-appointed advisory councils have been funded in areas as diverse as science, econom ic affairs, the status o f women, and multiculturalism. These agencies have been relatively well funded, but their members have been government appointees. While these councils are usually set up to advise a particular minister, the relationship has often become strained. Council members feel they should have free­ dom to address any issues they see fit and desire greater influence than they end up having, while the minister feels they should operate in a relatively confidential milieu, only providing advice on issues when he or she requests it. While councils in the four areas mentioned above have been abolished, the present Liberal government established oth­ ers in new priority areas, namely, the environment, crime prevention, and health policy. Shorter term committees have also operated to ad­ vise on the information highway and on social security reform.17Some government agencies also provide a watch-dog function, reporting to

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Parliament on how particular policies are being implemented. These include the Office o f the Commissioner o f Official Languages and the Canadian Human Rights Commission; the latter routinely participates in and co-sponsors events with various equality-seeking groups.18While not the primary focus o f this chapter, these councils are sources o f non-governmental involvement in public policy, often with significant resources and research capacity. Non-governmental groups have been able to use councils’ research materials to make their own case, but both governmental and non-governmental organizations will continue to appear separately before parliamentary committees on areas o f com­ mon interest.

The growing criticism of suchfunding The Progressive Conservative government o f Brian Mulroney began to address a more fiscally conservative agenda, but had limited suc­ cess. To their chagrin there was considerable political cost associated with questioning certain kinds o f government expenditures. The Con­ servatives began to focus on the funding o f social policy groups. Backbench MPs were astonished to discover that among the most vo­ ciferous critics o f their proposed cuts to social programs were groups funded by the government. Reducing these groups’ resources was more than a matter o f saving a few million dollars. If the voices o f these critics could be muted, making cuts to the big ticket transfer programs would become easier.19While public arguments were couched in terms o f money, the Conservatives were roundly accused o f seeking revenge on their critics. Judy Rebick, then president o f the National Action Committee on the Status o f Women (NAC), referred to the cuts as “ stupid vindictive politics.”20 Beginning in 1989,21the Conservative government was rumoured to have a list o f “ the big twelve” public interest groups that it wanted to stop funding.22“Public Enemy Number One” was certainly NAC, whose funding was cut by 50 percent, to be followed by a further 15 percent in each subsequent year. The Canadian Council on Social Development lost its core funding in entirety, but received some project funding, as is still the case. Some Aboriginal organizations also lost their core funding from the Native Citizens Branch in the Secretary o f State Department, although they continued to receive various project and treaty-related funding through Indian Affairs and Northern

P UBLI C I NT E RES T GRO UP S

Development, and Employment and Immigration. These cuts resulted in escalating tensions and continuing public criticism. There was unmistakable hostility between the Tory government and most social policy groups.

Political parties and interest groups Another source o f tension between public interest groups and political parties has been the fact that the interest groups have become consid­ erably sophisticated in analysing issues, attracting people with exper­ tise (paid or voluntary), lobbying, and using the media. Interest groups are able to remain consistent in their policy positions, while political parties change overtime. The parties seethe groups as narrow-minded and unrealistic, while they see themselves as taking policy positions consistent with the constantly evolving priorities o f the wider society. Pross and Stewart note that although their activities: do not always endear public interest groups to the dominant interests in a policy community, their function in promoting and extending public discussion is increasingly recognized. In fact, with the continuing inability of traditional political parties to organize meaningful policy discussion within their own ranks, the role of such groups becomes more valuable.23 This value causes both respect and resentment. When the Liberals took office in Ottawa in late 1993, there was a new climate for public interest groups. In the past, while the relation­ ship with the governing party was always a bit tense, there would be a symbiotic relationship with the two opposition parties. Now, for the first time, if they could not develop a working relationship with the governing party they would be completely outside the parliamentary orbit.24Most national groups declined to develop a close working rela­ tionship with the Bloc Quebecois, because the party is committed to separation from Canada. The Reform Party made it clear it did not want to work with any “ special interests.” It was a matter o f pride for them to refuse to meet with a group. Reformers quickly adopted the term “ special interest” to refer to any group they fundamentally dis­ agreed with, and gradually began to gather around them certain favourite groups, such as the gun lobby, and anti-tax and anti-immigration orga­ nizations. For example, a number o f key members o f the Canadian

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Taxpayers Federation (CTF) were members o f the Reform Party. Preston Manning is also a very popular speaker at their rallies.25 On one occasion, the Reform Party immigration critic sent the media a public opinion poll on behalf o f the anti-immigration “ Immigration Association o f Canada,” an organization that has enough money to commission public opinion polls, but will not release its list o f direc­ tors.26The key Ottawa lobbyist o f the National Firearms Association openly urges his members to join the Reform Party, while there are close working relationships between senior Reformers and key mem­ bers o f the National Citizen’ s Coalition and the Fraser Institute.27 While the Reform Party has led the attack on funding, a lone Liberal backbencher went on a similar crusade. John Bryden challenged the funding that went to fourteen groups, and the fact that some o f them had charitable tax status.28While his “ report” had no consistent meth­ odology, his status as a government MP seemed to give him license to criticize with abandon. His research methods were questionable. He obtained information from groups without disclosing his purpose, and in at least one case even misrepresented himself when calling a group— an unusual approach to research for a Member o f Parliament. His report contains selections o f photocopied information obtained from groups. In some cases he includes a page or two from an annual re­ port, while in others, miscellaneous pages from reports filed by chari­ table groups. To denigrate one group he included one page o f a letter regarding the Charlottetown Accord, from which he concluded, sim­ ply because the letter supported the government’ s constitutional posi­ tion, that the group received funding. No other information was provided on the group’ s work. There were also several instances o f inaccurate information. For example, he alleged that another group received pub­ lic funding to run public service announcements in support o f the Charlottetown Accord, whereas it raised the money privately and had studio time donated by a television station. None o f these inaccuracies were picked up by the media. He also introduced a private member’ s bill to require senior executives o f such groups to reveal their salaries, giving the impression o f a sector rife with highly paid and unaccount­ able executive officers.29 Part o f Bryden’ s crusade stemmed from a personal grudge against many influential groups: “ I was amazed to find that senior politicians

PUBLI C I N T E R E S T GRO UP S

deferred to them so much.... As a backbench MP, I was in severe com­ petition to be heard.”30In fairness, this concern about representation is shared by other Liberal backbenchers, especially those elected for the first time in 1993 who have had little contact with such groups. An­ other widely held sentiment was voiced by an Ontario Liberal MP, who noted his displeasure with groups who claim to speak for several hundred thousand Canadians— a number larger than the population o f his riding. This is sometimes seen as challenging the legitimacy o f MPs, whose representative credibility comes from the electoral pro­ cess— which they feel has greater legitimacy than the electoral process o f an interest group.31The Liberal caucus also has a special committee that has been examining the issue o f funding to interest groups in time for the 1996 budget. It has met in private, heard from a few outsiders, and communicated with the finance minister in private.32 The tension between MPs and public interest groups is a new phe­ nomenon that seriously undermines the ability o f the groups and MPs to work together to advance what are often common interests. The end result is that interest groups and Parliament are moving further away from each other.

The Liberal cuts infunding The Liberals, in their first federal Budget, continued the process, initi­ ated by the Conservatives, o f cutting funding to public interest groups, but they did so in a seemingly dispassionate and strategic manner. Government ministers were careful not to attack the groups or their credibility, and for the most part the groups also refrained from public counterattacks.33 The reduction in funding to interest groups came in announcements in the 1994 and 1995 Budgets: February 1994: Grants and contributions to groups Fiscal reality requires that the government review its policy on funding interest groups. Our goal is to encourage greater reliance on funding from other sources. To provide a period o f transition, notification will be provided in advance and the full effects o f this review will be seen in the 1995 budget.34 February 1995 Our approach to interest group funding will change. Some groups will continue to be funded as is. For others in a position to secure financial

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support from outside government, we will move towards a system based on the provision o f matching funds. For still other groups, while they undoubtedly serve a worthy purpose, continued funding will not be possible due to our financial situation.35 This open announcement o f the move toward reduced funding pro­ vided groups with ample time to get used to the idea, whether or not they could find alternate sources o f money. The expected outcry did not materialize, because many o f the groups, preoccupied with their respective causes, believed that they would not be affected too seri­ ously, or were resigned to the situation. The announced cuts had gone through extensive review at the bu­ reaucratic level. Prior to 1994, an analysis o f interest group funding known as the Finkle Report was conducted for Consumer and Corpo­ rate Affairs. The authors addressed funding issues o f relevance across government, including the need to clarify government relations with various types o f groups, the problems inherent in using the tax system, and the need to recognize certain groups, taking into account the equality section o f the Charter o f Rights.36 While the report did not carry the importance o f an official document o f the Finance Department or Trea­ sury Board in matters relating to budget announcements, it seems to have influenced government policy. Between the 1994 and 1995 Budgets Treasury Board Secretariat released a policy paper that provided a framework for how depart­ ments should priorize funding to interest groups as resources decline. The paper was prepared by a committee o f departmental assistant deputy ministers, to complement the process o f Program Review that was taking place across government.37 Art Eggleton, then Treasury Board President, wrote to all his cabinet colleagues, summarizing the paper and asking them to review their funding to interest groups “ with a view to reducing our overall level o f support and encouraging greater reliance on funding from other sources.” 38The fact that all such docu­ ments recognized the positive role played by interest groups had the effect o f blunting criticism by groups that were being cut. In previous budget-trimming exercises, funding cuts were usually made across the board, although the Tories did stray from this proce­ dure when they tried to silence some o f their critics. This time the federal government was using a non-aggressive strategic approach that

PUBLI C I NT E RES T G R O UP S

would require a rationalization o f all funding. The result is a decen­ tralized system according to which each department implements its own cuts, consistent with the “ getting government right” approach o f Program Review. Departments were provided with four basic prin­ ciples, which were designed to be flexible, and which could be priorized as each department saw fit (all four criteria may not be relevant to each group): •

•

•

•

The extent to which the interest group’ s own members or a larger public, benefit from the group’ s activities. The larger the benefit to the public from the group’ s activities, the more likely that group should receive funding from the federal government; The group’ s ability to obtain alternative sources o f funding. The higher the ability o f the group to access alternate sources o f funding, the lower the priority o f that group for government funding; The focus o f the group’ s activities. Interest groups which confine their activities to advocacy on behalf o f their members should in most instances receive lower priority for government funding than those groups which deliver important services to the public on behalf o f this government; and Consistency o f the group’s activities with government priori­ ties.39

It is worth commenting on these four principles. The first principle o f “ larger benefit to the public” looks fine at first glance, but is problem­ atic when you come to a group that speaks for persons with AIDS or battered women. Presumably some o f the other principles come into play. The second principle regarding “ ability to access other funds” is in keeping with the existing practice, whereby a Chamber o f Com­ merce would have a lower funding priority than an anti-poverty group. It is not clear, though, who determines the ability to access other funds and what criteria are used for such an assessment. The third principle represents a clear shift in priority away from advocacy to service pro­ vision, which includes research, development o f materials, and actual services to people. Participatory democracy is no longer important. More service provision means less time for advocacy, especially as

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core funding is replaced by project funding, which is very labour-intensive, requiring close involvement with departmental officials. In addition, when groups conduct contract research, the results are often delivered in a low-key or even confidential manner. The service provi­ sion priority, which could include finding new ways o f delivering ser­ vices, might well meet the public policy priorities o f advocacy groups by involving them in a hands-on way. It nevertheless moves them away from advocacy. The fourth principle, which requires consistency with the government’ s priorities, is ambiguous. If consistency relates to pri­ ority policy areas, this requirement would be understandable, but if it is interpreted as consistency with the government priority views, then funding would be used to complement political priorities, which would be a more blatant approach than that o f the Conservatives. There is no doubt that the cuts to these groups have been extensive, and some commentators have been extremely critical o f the Liberal record in this regard. Maude Barlow and Bruce Campbell write: A right wing backlash against these groups has blamed them for all sorts o f alleged ills in society, from government overspending to welfare abuse. The funding assault that started under the Mulroney Conservatives is being vigorously pursued by the Liberals, with support from the Reform Party. Bully boys within the Liberal caucus are encouraged in their campaigns to eliminate funding and tax assistance to “ special interest” groups. Indeed, Liberal funding cuts to civil society organizations surpass those o f their Conservative predecessors.40 There are no current plans to evaluate the implementation o f these four principles or the resulting change in funding priorities. Such a review should be established in the next year or two with a keen eye on the effects o f citizen input in the development o f public policy.

Examples o f funding reductions Table 10.2 summarizes how transfers to various interest groups have changed as a result o f the implementation o f the Treasury Board guide­ lines. This is followed by a detailed description o f the effects o f the changes on some groups.

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319

Table 10.2 Examples of Funding Cuts to Interest Groups Organization

Funding Department

Funding Changes*

National Anti-Poverty Organization

Reduction of 15% Human Resources Development Canada (C: $212,000) (HRDC)

Canadian Council for International Co-operation

Canadian International Development Agency

Status of Women National Action Committee on the Status Canada of Women (NAC)

Reduction of 15% (C: $800,000 P: $4 million) Reduction of 5% (C: $256,000)

Canadian Environmental Network (CEN)

Environment Canada

Unchanged; undecided for the future (C: $600,000)

Coalition of National Voluntary Organizations (NVO)

Voluntary Action Branch, Department of Canadian Heritage

Funding eliminated over two years (C: $51,000)

Canadian Housing and Renewal Association

Canadian Mortgage and Core funding terminated; still receive project Housing Corporation funding (P: $200,000) (CMHC)

Consumers’ Association of Consumer Aflairs Sector, Industry Canada Canada

Reduction in core funding; increase in project funding (C: $363,000, P: $200,00)

One Voice—The Seniors Network

National Welfare Grants, HRDC

Core funding unchanged; new project funding (C: $35,000, P: $450,000)

Canadian Child Care Federation

Child Care program, HRDC

Core and project funding reduced by 15% (C: $63,500, P: $657,990)

Child Care Advocacy Association

Status of Women Canada

Core funding reduced by 5% per year for 3 years (C: $165,000)

Canadian Chamber of Commerce

HRDC; Foreign Aflairs and International Trade; Industry Canada

HRDC project completed; International Trade funding reduced 26%; new Industry funding (P: $290,000) cont’d...

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Table 10.2, cont’d Examples of Funding Cuts to Interest Groups Organization

Funding Department

Funding Changes*

Canadian Labour Congress

Labour Education Program, HRDC

Funding reduced by 16%; to be eliminated after 199697 (P: $3.1 million)

Canadian Figure Skating Association

Sports Canada, Department of Canadian Heritage

Funding reduced by 20% (C: $782,500)

Conference of Defence Associations (and Institute)

National Defence

Funding eliminated over 3 years (C: $200,000)

Canadian Labour Force Development Board

HRDC

Funding reduced (C: $2.6 million)

Canadian Conference of the Arts

Canadian Heritage

Core funding ended; replaced by “purchase of service” agreement (P: $390,000)

Canadian Ethnocultural Council (CEC)

Multiculturalism Branch, Department of Canadian Heritage

Reduction of 10% (C: $163,500)

Federation des communaut& francophones et Acadiennes du Canada

Official Languages Support Branch, Canadian Heritage

Reduction of 8% (C: $665,000)

Canadian Wine Institute

Agriculture Canada and Reduction of 5.5% Industry Canada (joint (P: $323,000) market development program)

* The funding change shown is from 1994-95 to 1995-96, unless otherwise indicated; 1995-96 funding levels are indicated in parentheses; C=Core funding, P=Project funding or fee-for-service contract Source: Organizations listed.

PUBLI C I NT E RES T G R O UP S

The National Anti-Poverty Organization is the leading voice for Canadians living in poverty. In recent years it has addressed issues such as the Canada Assistance Plan, pension policy, free trade, social security reform, the Canada Health and Social Transfer, labour mar­ ket issues, the U.N. Covenant on Economic, Cultural and Social rights, the rights o f poor people under the Charter o f Rights, and pre-budget planning. In 1994-95 the organization received $250,000 from the National Welfare Grants branch, now in Human Resources Develop­ ment Canada (HRDC), which was cut by 15 percent for 1995-96. Its funding is under review for 1996-97.41 While it has publicly disagreed with some o f the government’ s plans with respect to social policy changes, it is respected for its good research and continued attempts to provide alternative solutions. The National Action Committee on the Status o f Women is the largest national coalition o f women’ s organizations. While it focuses on “ women’ s issues” such as violence against women and reproductive technologies, it also addresses a wide range o f social, economic, and international policy issues relevant to women, men, and children alike. In 1994-95 it received $270,000 in core funding, down from a high point o f some $600,000 six years ago. In 1995-96, it received a cut o f 5 percent. The funding comes from Status o f Women Canada.42 The National Action Committee never shies away from controversial is­ sues. While it does not enjoy any great friendship with any o f the three major parties, its relatively small funding cut is probably a sign that the government recognizes that its constituency is substantial. Though it does not include every women’ s group, it addresses so many issues that most such groups would find some commonality.43 The Canadian Environmental Network is an information-sharing network o f environmental organizations, including the Sierra Club, Wildlife Habitat Canada, and numerous local groups, such as the Tree Project o f New Brunswick. The network addresses all environmental issues, including international treaties and issues in other countries that have international relevance. Its 1994-95 core funding o f $600,000 from Environment Canada did not change for 1995-96, while 1996-97 funding has yet to be finalized.44 The department has considered a move to matching funding in the future.

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The Coalition o f National Voluntary Organizations advocates on behalf o f the voluntary sector on issues such as financing, charitable status, and the future o f volunteerism. It received core funding in 199495 o f $102,000, which was cut by 50 percent for 1995-96 and com­ pletely disappears after that. It is presently seeking new funding sources in order to continue its existence and is investigating the possibility o f an alliance with another like-minded group.45 The major cut partly reflects a scaling back o f the Voluntary Action program (Department o f Canadian Heritage), the source o f its funding. The Consumers’ Association o f Canada has expressed consumer interests for many years on issues ranging from bank fees to telephone charges. In 1992-93 it received $850,000 in core funding, which has fallen to $315,000 for 1995-96. It has currently undertaken a $200,000 literacy project with banks and grocery stores to assist these busi­ nesses in providing services to illiterate customers.46 The Canadian Child Care Federation (CCCF) and the Child Care Advocacy Association (C C A A ) address child care issues from dif­ ferent perspectives. The CCCF provides information services on child care issues regarding emerging trends and professional development. Its advocacy role is relatively minor. In 1994-95 its core funding was $75,000 and project funding totalled $771,894, received from Child Care programs at HRDC. These figures were reduced to $63,650 for core funding and $657,990 for project funding in 1995-96. The CCAA has only been eligible for its main funding from Status o f Women Canada. It advocates for policy development with considerable atten­ tion to equality for women. It received $165,000 in 1995-96 and is in the middle o f a three-year reduction cycle o f 5 percent a year, for a total o f 15 percent over the three years. The Canadian Chamber o f Commerce, which represents business interests, received funding under two projects. One was the Forum for International Trade Training, which it established in combination with organizations such as the Canadian Exporters’ Association, the Canadian Manufacturers’ Association, and the Canadian Federation o f Labour. The other was a contract for trade promotion in Asia, pri­

PUBLI C I NT E RES T G R O UP S

marily to operate a Canadian Trade Office in Taipei, Taiwan. Although the amounts received were substantial— $4.85 million for the two projects in 1993-94— the Chamber feels this differs from grants and contributions to interest groups, because it is a fee-for-service or part­ nership contract.47Increasingly, though, other interest groups are mov­ ing to similar transfer arrangements. Funding for the trade promotion was $200,000 in 1995-96, and the contract will continue till 1997-98. The Chamber is also co-ordinating the new Canadian Business Net­ works Coalition with other business groups for which it is receiving $270,000 over three years from Industry Canada. The Canadian Figure Skating Association administers the national figure skating program, including high performance competition, sets standards and rules for activities, and provides training for instruc­ tors, coaches, judges, and officials. Its advocacy role is minimal. Sports Canada conducted a comprehensive review o f its funding criteria and priorization in 1994-95 and announced a new rating system for fiscal 1995-96.48 While most o f the major sports, such as figure skating, swimming, and badminton would continue to get funding, others were dropped completely from the list, including the sports o f squash and weightlifting. The Canadian Figure Skating Association’ s core fund­ ing was reduced by 20 percent to $782,500 in 1995-96, although its total budget is $9.5 million. While Sports Canada is reputed to have diligently used the Treasury Board guidelines for its review, the Figure Skating Association should have received a lower priority, because o f its high access to alternative sources o f funding, including television revenue and high-priced ticket sales. It was probably helped because o f its high level o f interest among the public.49 The Conference o f Defence Associations (CD A ) received $252,000 in 1993-94 and 1994-95. The umbrella group o f 12 associations (and 13 associates) has a mandate to study the problems o f defence and security and to promote the efficiency and well-being o f Canada’ s Armed Forces. The adjunct non-profit CDA Institute has a similar mandate, but with emphasis on programs o f education and informa­ tion. In 1995-96 the grant from National Defence (shared by CDA and the Institute) was reduced to $200,000. In 1996-97 it is scheduled to

3 23

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fall to $100,000 and be terminated the year after. The CDA also re­ ceived free office space in National Defence Headquarters, which it will lose in 1996.50 The Canadian Labour Force Development Board is unique in that it is a non-govemmental organization created by the federal govern­ ment, with members elected by various constituencies. At the time o f its inception, Susan Phillips hailed it as a true example o f collabora­ tive partnership between government and an NGO.51 Over its fiveyear existence, it has not met these expectations. The Board’ s mandate is to advise on labour market planning, and when it was originally created it was to have power to decide in general terms how the Unem­ ployment Insurance Development Uses fund would be spent. Over time and changes in ministers this was reduced to a mandate to provide advice on labour market/labour force development issues.52The Board’ s funding has been reduced from a $3.6 million grant in 1993-94 to $1 million in core funding plus up to $1 million in project funding for 1996-97 and is expected to continue as such over five years.53

Bias in the cuts On the basis o f the examples provided here one can make the follow­ ing conclusions. There does not appear to be a political bias in favour o f or against any particular set o f groups, and some o f the most vocal critics o f government have been affected less than others. The differ­ ence in funding decisions for the vocal National Action Committee on the Status o f Women (where funding was cut by only 5 percent) and the relatively gentle Coalition o f Voluntary Organizations (where fund­ ing was terminated) is a case in point O f the vocal groups, the Canadian Labour Congress (CLC) was most clearly affected, with the $3 mil­ lion labour education program being terminated, although it must be acknowledged that the case made against the CLC was a powerful one. Unlike other groups, it has an active and formal partisan tie to one political party, and spends a considerable amount o f its general re­ sources in support o f that party at election time.54 On the other hand, one could also make the case that the Canadian Chamber o f Com­ merce supported the Conservatives in the 1988 election when they ag­ gressively supported the free trade issue and the Conservatives were the only party doing so.

PUBLI C I NT E RES T GRO UP S

The clear favourites for funding appear to be organizations that will undertake research and/or other services, which is new territory for many groups. Examples o f such organizations are the Consumers’ Association o f Canada, the Canadian Housing and Renewal Associa­ tion, One Voice— The Seniors Network, and the Canadian Conference o f the Arts. The challenge will be to conduct research and provide services on behalf o f government in the partnership mode and the ex­ pected confidential manner, and yet conduct advocacy work. The vol­ untary membership o f groups usually demand that advocacy be carried out vigorously and intensively in the public arena. While the average reduction across government was in the 15 per­ cent range, the actual cuts varied from department to department. Within one department, namely Canadian Heritage, funding changes ranged from an 8 percent reduction to a complete elimination o f funding. There is no doubt that the exercise was designed to maximize savings while minimizing the public outcry (as is the case with most spending cuts), and in this respect it must be considered successful.

Whither advocacy? Many observers expect advocacy-related funding to all groups to be completely eliminated over the next two to three years. Those organi­ zations that want to continue to receive federal funds will have to do so more on a “ purchase-of-service” basis. On the positive side, this will allow them to do some o f the things they lobby government to do. On the negative side, their independence from government is even more compromised than when they received core funding. As the funding for advocacy falls, the demand on groups for input on policy issues is increasing, primarily because o f the major government realignment and re-organization. The Canada Health and Social Transfer, social security, and pension policy reforms are three examples involving major changes at the federal as well as the provincial level. Because o f the immensity and the range o f issues, the pressure falls most heavily on national organizations, who are not only getting called upon by federal departments and Parliamentary committees, but who are having to re­ spond to queries for more information by local and regional members. It should be noted that the social security reform exercise was one o f the few that provided intervener funding for national, provincial, and local groups to consult with members and conduct research to prepare

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for their submission to the parliamentary committee. This allowed the submissions to be the product o f extensive consultations within groups. While it is still early to gauge the full effects o f the cuts on the devel­ opment o f public policy, policy input and advocacy is decreasing, as is the research, consensus building, and bartering that takes place within groups (i.e. all the steps o f preparation). Where groups are able to conduct research their advocacy work may actually be strengthened, because they will have access to better information than in the past. Yet it is unlikely that they will receive research funding for the issues o f prime interest to them. They will inevitably be taken o ff course, which has led some to wonder if this was the government’ s intention.

The changing scene o f interest groups Social policy interest groups now have less say in policy development. Other groups, especially business groups, are enjoying increased in­ fluence, partly because o f their prominence relative to social policy groups and partly because o f the rightward shift in the Canadian po­ litical discourse. While direct funding to business groups through in­ dustrial incentives and regional economic programs is being cut, assistance directed to them through the tax system continues unchal­ lenged. In addition, new groups have emerged that can best be de­ scribed as right-wing populist groups, advocating lower taxes, sharp reductions in social programs, an end to gun control, and limits to gay rights and abortion. They also tend to espouse various other neo-con­ servative causes, such as re-instatement o f capital punishment, oppo­ sition to euthanasia, limits on immigration, and an end to employment equity. Some o f the most vocal right-wing groups benefit generously from the tax system. The Canadian Taxpayers Federation has a member­ ship fee o f $107 for businesses, which is considered a deductible busi­ ness expense.55The leading conservative think tank, the Fraser Institute, is also registered as a charity, on top o f which it receives money from other charities, such as the Donner Canadian Foundation.56 Donner also funds other business-oriented organizations, such as the C.D. Howe Institute and the Public Policy Forum.57All these organizations regu­ larly chastise the government for not sufficiently reducing expendi­ tures o f public money. Conservative views about economic issues are

PUBLI C I NT E RES T G R O UP S

also expressed through business groups and corporations, which are often represented very effectively by professional lobbyists whose work happens completely outside the public eye.58 It is interesting to note that as the public interest groups that have been prominent in recent decades are facing a decline in influence, the churches are coming back to the fore, resuming the role they once played, in response to what they see as an unprecedented attack on social justice. Recently various coalitions o f Protestant and Catholic churches have openly attacked the dismantling o f welfare policies by the Ontario Conservative government.59 As the Liberal government continues to reduce the effectiveness o f the middle-of-the-road and left-of-centre public interest groups, it will increasingly face a barrage o f business and right-wing populist groups, with a much reduced labour and social justice sector on the left. It is a situation that the Liberals may find difficult, because the stronger groups will inevitably continue to push the political spectrum to the right, leaving the Liberals little choice but to follow.

National unity The other potential cost o f reduced funding stems from the fact that national interest groups helped build a sense o f pan-Canadian con­ sciousness. Given our extensive geography, people from different parts o f the country do not often meet personally. National organizations with modest travel budgets brought people together on a regular basis, developing personal relationships and, more importantly, a better un­ derstanding o f priorities in different parts o f the country. Over the years, several thousand Canadians participated in such gatherings. Furthermore, these national groups have consistently advocated a mean­ ingful federal government, or, put differently, a clearly defined Canadian state with national standards, priorities, and values. It is not a coinci­ dence that the strongest attack on national groups comes from the Re­ form Party, which wants to see a major devolution o f powers and a reduction o f social programs by the federal government. As the move­ ment for social policy is tamed, the Liberals risk finding themselves with few among the public to articulate the need for a federal govern­ ment— and by extension a united Canada.

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What next? As governments successively download their responsibilities all the way to community groups and the voluntary sector, and as public policy requires more expertise to set priorities, non-governmental organiza­ tions and interest groups should be prepared to take on an increasing role. At a minimum, the government needs to maintain funding for at least some viable public interest groups in all key sectors, and provide incentives for charitable donations.60 They should expand the chari­ table tax status to all advocacy groups, given that some advocacy groups, namely business groups, unions, and political parties receive tax benefits. In the 1996 Budget, Paul Martin announced greater tax assistance for registered charities by raising the annual limit on dona­ tions, and made a commitment to examine other ways to increase chari­ table donations.61 While no further cuts in funding to interest groups were announced, the 1995 budget cuts are expected to end all federal funding within two to three years. The federal government would do well to introduce a “ Voluntary Sector Enhancement Act,” which would make a clear statement about the importance o f volunteerism, citizen involvement, and advocacy, and would make necessary changes to the tax system. This would stimu­ late a good public discussion on how public policy development should operate, how charities should function, and how social services should be downloaded. Federal policies on grants and contributions should be updated— preferably with the level o f funding maintained— and pub­ licly stated. Another positive measure would be the establishment o f a formal apprenticeship program, whereby certain kinds o f voluntary work or modestly paid work in NGOs would be recognized as formal training. As the opportunities for employment are shrinking in the manufacturing and service sectors, and the information sector does not offer large numbers o f jobs, attention is turning to the social sector for the creation o f new employment and apprenticeships. Governments should begin looking at this sector as an economic opportunity rather than a millstone.62 Rather than finger-pointing and scapegoating, it is time for the fed­ eral government to rise above the fray to enhance the sector that has to pick up the slack that the government itself is creating.63In all o f this, the following warning should be kept in mind:

PUBLI C I N T E R E S T G R O UP S

The welfare state came about largely because of the failure of volunteerism and charity to cope with citizens’ needs in modem indus­ trial democracies. Only the state can mobilize and command the re­ sources necessary to provide collective goods in a regular, reliable, accessible, fair, democratic, efficient and professional manner. Demo­ cratic government is best placed to minimize paternalism and class-based or racial prejudice on the part of the service-providers. Access to services should be the right of citizenship rather than a privilege or a favour.64

NOTES

Thanks are due to Gene Swimmer, Susan Phillips, Elizabeth Dandy, and Rashmi Luther for reviewing this chapter in earlier drafts and providing a slew o f helpful hints. Thanks also to Ross MacLeod o f the Treasury Board Secretariat for giving the chapter the insider’ s once­ over. The members o f the Pearson-Shoyama Institute, and all those who have attended its “ People and Government” roundtables in 1995, have also greatly contributed to my understanding o f these issues. A special word o f gratitude to all those who readily agreed to be inter­ viewed on this subject and, more importantly, readily provided finan­ cial information on their organizations. (Note to MP John Bryden: Try the front door next time; it’ s always open!) 1

2

While conservative forces have been attacking these groups for several years, it has been unusual for the leadership within the groups to recog­ nize the seriousness o f the attacks on their legitimacy. The challenge was acknowledged by Carol Phillips, executive assistant to the president of the Canadian Labour Congress, at a roundtable on the Future of Interest Groups hosted by the Pearson-Shoyama Institute in January 1995 in Ottawa. She was referring specifically to the union movement, but her observation applies to various other sectors. Michael Walker, “Disarming Special Interests is Key to Re-engineering Ontario Economy,” Financial Post, July 22-24, 1995. Walker is executive director o f the Fraser Institute, the leading neo-conservative think tank in Canada. In the article he advised the Ontario government to introduce a large number of bills at one time so as to overwhelm all the “special interest groups,” an approach that was used by B.C.’ s Social Credit Premier Bill Bennett several years earlier. In November the Ontario government tabled an economic statement that made budget cuts in

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4

5 6

7 8

9

10

11

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HOW O T T A W A SPENDS

almost all policy areas, and in December it introduced Bill 26, an omnibus bill of unprecedented scope. The creation o f the Canada Health and Social Transfer was announced in the February 1995 Budget. A parliamentary committee held hearings over two weeks in May at short notice and heard from some 75 witnesses, including the National Anti-Poverty Organization, the Canadian Council on Social Development, the C.D. Howe Institute, the Canadian Nurses’ Association, the Canadian Labour Congress, and the Canadian Chamber o f Commerce. In some ways this chapter is a follow-up and updating of two earlier articles in How Ottawa Spends. See Susan D. Phillips, “ How Ottawa Blends: Shifting Government Relationships with Interest Groups,” in Frances Abele, ed., How Ottawa Spends 1991-92: The Politics o f Frag­ mentation (Ottawa: Carleton University Press, 1991), 183-228; A. Paul Pross and Iain S. Stewart, “Lobbying, the Voluntary Sector and the Public Purse,” in Susan Phillips, ed., How Ottawa Spends 1993-94: A More Democratic Canada...? (Ottawa: Carleton University Press, 1993), 10942. Pross and Stewart, “Lobbying,” 121-22. Ramsay Cook, “The Triumph and Trials of Materialism,” in Craig Brown, ed., The Illustrated History o f Canada (Toronto: Lester & Orpen Dennys Limited, 1987), 397-401. Robert Presthus, Elite Accommodation in Canadian Politics (Toronto: Macmillan of Canada, 1973), 18-19. Andrew Grenville and Angus Reid, “Catholicism and Voting No,” The Ottawa Citizen, January 2, 1996. The authors suggest that committed Catholics voted No in the Referendum in much higher proportion than others. This is most noticeable with the “Christian right” in the United States and, in a different way, with a movement that has combined neo-conser­ vatives and the middle class in Western Canada and rural Ontario, and been driven by a combination of anti-tax groups, the religious right, and a new approach among political parties—the Reform Party in Canada as a whole, and the provincial Conservative parties in Alberta and Ontario. Alexandra Dobrowolsky and Jane Jenson, “Reforming the Parties: Prescriptions for Democracy,” in Susan D. Phillips, How Ottawa Spends 1993-94: A More Democratic Canada...? (Ottawa: Carleton University Press, 1993), 64-68. The chapter reviews the report of the Royal Commis­ sion on Electoral Reform and Party Financing published in 1992. Leslie A. Pal, Interest o f State: The Politics o f Language, Multiculturalism and Feminism in Canada (Montreal: McGill-Queen’ s University Press, 1993), 105-07. Rosemary Spiers, “Right-wing Institute is Politically Correct Charity,” Toronto Star, January 25,1996. Also, see David Robbins, “My Weekend

PUBLI C I NT E RES T GRO UP S

13 14

15

16

17

18

at the Fraser Institute,” This Magazine, December 1995, 36. Robbins makes the point that the Institute was the beneficiary o f tax deductible contributions from Southam newspapers, MacMillan Bloedel, and Thomson Canada Ltd. Business organizations receive funds in a similar manner; see Maude Barlow and Bruce Campbell, Straight Through the Heart: How the Liberals Abandoned the Just Society (Toronto: HarperCollins Publishers Ltd., 1995), 57-58. It should be pointed out that trade unions and professional associations also benefit from the tax system, because dues are tax deductible. Phillips, “How Ottawa Blends,” 197. Government of Canada, 1993-94 Public Accounts, Section 8 (Transfer Payments); “Transfer Payments to Interest Groups” (1994-95 Main Estimates). The figure o f $3.3 billion is used in Treasury Board Secretariat, “The Review o f Interest Group Funding,” September 30, 1994. The figure came from the Main Estimates 1994-95. In the early 1980s the Canadian Consultative Council on Multiculturalism was instrumental in having the multiculturalism policy expanded; so influential were they that, not satisfied with the efforts of the minister, they were able to communicate directly with the Prime Minister’ s Office; non-governmental groups, on the other hand, were not very adept at government lobbying at that time. In the Mulroney years, the committee was stacked largely with Conservatives (as it was with Liberals in the Liberal years), and spent most o f its time defending the government policy, to the extent that when the government changed its policy to reflect that o f the non-governmental groups (in the lead-up to the 1988 election), the advisory council was left disagreeing with the minister they had been staunchly defending. The bias o f the writer is declared: he worked in the office o f the multiculturalism minister in the early eighties and was executive director o f the non-governmental Canadian Ethnocultural Council from 1986 to 1991. The Information Highway Advisory Council, appointed by the Minister o f Industry, conducted its work in 1994 and 1995, and was disbanded when its final report was submitted, although it is likely to be re-consti­ tuted in 1996 to provide advice on more detailed issues. The Minister of Human Resources Development appointed the Ministerial Advisory Committee on Social Security Reform, which also conducted its work during 1994 and 1995 and provided advice to the minister in private. Over the same period a Standing Committee of the House of Commons held public hearings across Canada and tabled a public report on the same subject. Canadian Human Rights Commission, Annual Report 1994 (Ottawa: Minister of Supply and Services, 1995), 100-07.

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Susan Phillips, “Redefining Government Relationships with the Govern­ ment Sector,” 12. Phillips points to similar tactics used by the Reagan and Thatcher governments for similar purposes, as observed in Paul Pierson, Dismantling the Welfare State? Reagan, Thatcher and the Politics o f Retrenchment (Cambridge: Cambridge University Press, 1994), 158. 20 The statement was made during a press conference in September 1989, when the Secretary of State department pulled funding for a conference on employment equity on the day the conference was beginning. Rebick was a highly visible critic o f the Mulroney government on several issues, to the point that the Prime Minister himself took verbal shots at her from time to time. 21 It is worth noting that in the six months leading up to the 1988 election, the Conservative government systematically announced major new funding in just about every minister’ s portfolio, which bought good will from most interest groups. Whether or not the group benefited finan­ cially, their issues were getting attention. Finance Minister Michael Wilson maintained that this funding was all accounted for and would not increase the deficit. Within weeks of the election of 1988 the government declared there was a fiscal crisis, and several o f the announced fundings were withdrawn over subsequent years. A similar showering o f gifts did not precede the 1993 election. 22 The big twelve were said to include the National Action Committee on the Status o f Women, the Canadian Council on Social Development, the National Anti-Poverty Organization, the Canadian Day Care Advocacy Centre, the Assembly o f First Nations, the Canadian Ethnocultural Council, the Coalition o f Provincial Organizations for the Handicapped (now called the Council of Canadians with Disabilities), and the Con­ sumers’ Association o f Canada, as well as government appointed councils such as the Canadian Advisory Council on the Status o f Women, the National Welfare Council, and the Canadian Multiculturalism Advisory Committee. While the term “the big twelve” was often circulated in the rumour mill, I have never been able to confirm the identity o f all twelve. 23 Pross and Stewart, “Lobbying,” 122. 24 This changed situation is part o f what caused a fair amount o f concern in various public interest groups and resulted in a series of discussions about the role o f interest groups and new forms of consultation. See the “People and Government Series,” Pearson-Shoyama Institute, Issues 1, 2, & 3 (1995), for a discussion on re-defining the role o f these groups, funding, and consultation formats. Similar meetings were convened by the Canadian Centre for Philanthropy and the Canadian Centre for Manage­ ment Development, and a new network was formed, called the Round Table on the Voluntary Sector. 25 Scott Piatowski, “ Tax Scam,” This Magazine, July 1995, 25.

PUBLI C I NT E RES T G R O UP S

26

27

28 29

30 31

32 33

34 35 36

Immigration Association o f Canada, May 1995. The material was sent out by Reform’s immigration critic at the time, Art Hanger, with a covering press release entitled, “New Immigration Poll is revealing says Hanger.” Naturally, Hanger liked the findings o f the poll, which, among other things, called for a moratorium on immigration. Murray Dobbin, Preston Manning and the Reform Party (Toronto: James Lorimer & Company, 1991), Chapter 5. The National Citizens’ Coalition publishes a list of funding it finds particularly wasteful in a pamphlet entitled “Tales from the Tax Trough,” the most recent of which was published in January 1996. It is designed to inspire individuals to call their MPs to complain about the waste o f taxpayer dollars. The Coalition is “for more freedom through less government,” a sentiment shared by the Fraser Institute and the Reform Party. John Bryden, “ Special interest group funding,” November 1994. Bill C-224. An Act to require charitable and non-profit organiza­ tions that receive public funds to declare the remuneration o f their directors and senior officers. First reading March 15, 1994. Introduced by John Bryden, M.P. The bill is likely to be shelved in favour o f a new question on remuneration being added to annual reports from charities to Revenue Canada. Susan Delacourt, “Losing Interest,” The Globe and Mail [Toronto], April 1, 1995, D5. Comments made by Liberal MP Andy Mitchell at a workshop hosted by the Canadian Centre for Management Development entitled “ Looking for consultation links among Canadians, Politi­ cians and Public Servants,” March 21,1995. The committee is chaired by Carolyn Parrish (Mississauga West), and conducted its work over 1995 and 1996. The issue o f funding to interest groups was not raised in the famous “Red Book” (Liberal Party o f Canada, Creating Opportunity: The Liberal Plan for Canada, September 1993), which was the Liberal pre-election platform. With regard to interest groups and lobbying, two issues are raised: the curtailment o f interest group spending during an election, and an increase in the regulation o f professional lobbyists and lobbying firms. Paul Martin, Minister of Finance, The Budget Speech (Ottawa: Canada Communication Group, 1994), 15. Paul Martin, Minister of Finance, Budget Speech (Ottawa: Canada Communication Group, 1995), 15. Peter Finkle, Kemaghan Webb, William T. Stanbury, and Paul Pross, Federal Government Relations with Interest Groups: A Reconsideration (Ottawa: Study prepared for Consumer and

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37 38

39

40 41 42 43

44 45 46 47

48

Corporate Affairs Canada, 1994). The report was completed in 1992, butwas updated in 1993, andhas a publishingdate ofFebruaiy21,1994. The relevant section in the Charter o f Rights disallows discrimination based on “race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.” Groups that address these issues are sometimes referred to in the literature as “Charter groups,” which is somewhat o f a misnomer, since the Charter did not sanction particular groups or organizations. Treasury Board Secretariat, Program Branch, “The Review of Interest Group Funding,” September 30, 1994. Arthur C. Eggleton, President o f the Treasury Board, “Letter to all cabinet ministers regarding review o f funding to interest groups.” November 8,1994. Eggleton, “Letter,” November 8, 1994. While these points are at the heart of the paper prepared by the Treasury Board Secretariat, in summarizing the entire paper the letter explained them in fuller detail and is therefore quoted here. Barlow and Campbell, Straight Through the Heart, 65. Information provided by National Anti-Poverty Organization staff: Lynne Toupin, executive director, and Francois Dumaine, assistant director. Information obtained from the National Action Committee on the Status o f Women office. It is worth noting that the government-appointed Canadian Advisory Council on the Status o f Women was disbanded in 1995. The announce­ ment came days after the federal Budget, and the Council was given eight months to completely wind down. Its role had been to provide advice to government on the impact o f any and all federal programs on the status of women. While it was completely separate from NAC, the two organi­ zations often worked together for common goals. Its budget for 1993-94 was $3.5 million, a figure noted in the 1993-94 Annual Report, which was never formally released, because o f the Council’s demise. Information obtained from the Canadian Environmental Network executive director. Information obtained from Coalition executive director Rose Potvin. Information received from Rosalie Daly Todd, Executive Director, Consumers’ Association of Canada. Canadian Chamber o f Commerce, “Backgrounder on Government spending and the activities of the Canadian Chamber,” Press Release, October 31, 1994. “New funding and accountability framework for sport,” News Release from the Department o f Canadian Heritage, March 31, 1995. Information received from Peggy Bose, financial director, Canadian Figure Skating Association.

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50 51 52

53 54

55

56

57 58

59

60

61

Information received from David Code, Executive Director of the Canadian Defence Associations Institute, and from the organization. Phillips, “ How Ottawa Blends,” 209-11. Modelled after labour market boards in various European countries, the Board is unique in going beyond the traditional labour-business member­ ship. Information received from Annual Reports of the Canadian Labour Force Development Board and interviews. Bryden, “ Special Interest Group Funding,” 28. The CLC is formally part o f the New Democratic Party. The government funding provided to the CLC has been for labour education, a non-partisan activity. Piatowski, “ Tax Scam,” 25. The individual membership is $55. It is interesting to note that the Federation has an aggressive membership recruiting process whereby 65 commissioned sales people receive up to 50 percent o f the fee for new members and 30 percent for renewed members. In 1994 CTF raised $3 million. Also keep in mind that this is one o f the most active o f the anti-tax groups that call for drastically reducing public expenditures. Spiers, “Right-wing institute.” Institute executive director Michael Walker claimed that they would prefer not to have this status, but it was necessary in order for them to receive funds from other charitable organizations, such as the Donner. He believes that the Institute’ s private donors would make their contributions even without the tax status. Information from the Donner Canadian Foundation, Toronto, 1995. It is interesting to note that while the Reform Party has strongly attacked most vestiges o f power and influence, it has not addressed the power of professional lobbyists. Likewise, amendments to the Lobbyist Registra­ tion Act by the current Liberal government made only modest changes— perhaps partially in response to the effective lobbying o f the lobbying industry. One source of information is a bulletin called The Lobby Monitor (Ottawa: ARC Publications), which provides a listing of lobby­ ists and their clients in addition to topical articles on lobbying issues. “An open letter to all people o f good will,” advertisement in various newspapers, January 7, 1996. The letter openly attacks the government’ s cuts to welfare programs and the promise o f a tax rebate that will benefit the wealthy the most. Gordon Floyd, “Issue Alert; Upcoming Federal Budget: Proposed new incentives for Charitable Donations,” Canadian Centre for Philanthropy, January 18, 1996. Paul Martin, Minister o f Finance, Budget Speech (Ottawa: Canada Communication Group, 1996), 17. An accompanying document gives the following details: “Charitable donations: Tax assistance for charitable donations will be increased by raising the annual limit on donations from

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HOW O T T A W A SPENDS

20 percent o f net income to 50 percent; and to 100 percent in the event of death. Gifts of appreciated capital property will benefit from higher limits o f up to 100 percent of net income. Ways o f further encouraging chari­ table giving and of ensuring that support for charities is effectively translated into beneficial activities will be examined.” See Paul Martin, Minister o f Finance, Budget in Brief (Ottawa: Canada Communication Group, 1996), 16. See Jeremy Rifkin, The End o f Work: The Decline o f the Global Labor Force and the Dawn o f the Post-Market Era (G.P. Putnam & Sons, 1995). In recent years, some research has been undertaken on increased delivery of services by non-govemmental organizations: Nola Breithaupt and Martin Ulrich, “Third party accountability and delivery: Working document,” Treasury Board Secretariat, October 1994. Paul Leduc Browne, “Charities Not Efficient or Fair Way to Provide Services,” The Ottawa Citizen, February 22, 1996, A 13. Mr. Browne is a researcher with the Canadian Centre for Policy Alternatives.

11 Pink Slips and Running Shoes: The Liberal Government's Downsizing of the Public Service

IAN LEE CLEM HOBBS

When we become the government, we are going to give those public servants pinks slips and running shoes.1 Brian Mulroney, Leader, Progressive Conservative Party An agreement has been ratified on what happens to federal Public Service employees whose jobs are eliminated. The agreement was reached through consultations in the National Joint Council representing 17 unions.2 Gilles Loiselle, President, Treasury Board The Liberal Party understands your concern.... Liberals support the right to free collective bargaining and believe that to negotiate in good faith is fundamental to good government.... The Liberal Party opposed Bill C113, the Conservative government’s legislation which received Royal Assent in March, 1993, and froze public service wages for a further two

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HOW O T T A W A SPENDS

years and effectively suspended collective bargaining for the same period.3 Jean Chretien, Opposition Leader, Liberal Party This is the largest work force reduction by the federal government since it returned to peacetime operations after the Second World War.4 Arthur Eggleton, President, Treasury Board

T h i s chapter examines the origins o f downsizing in the federal Pub­ lic Service. The analysis reveals that downsizing in the federal govern­ ment did not start with the election o f the Progressive Conservatives under former Prime Minister Brian Mulroney in 1984 nor did it end with the defeat o f the Conservatives in 1993. Indeed, it was only after the defeat o f the Conservatives that substantial and significant reduc­ tions o f federal Public Service employees commenced. After discussing the origins o f the downsizing during the second to last Trudeau administration, we will examine the development o f the work force adjustment policy under the Mulroney Conservative gov­ ernment and the subsequent enhancements to the Work Force Adjust­ ment Directive in 1991. We will then focus on the promises o f the Liberal party in the 1993 election concerning the Public Service, with particular reference to public pronouncements o f the Liberal candi­ dates in the Ottawa ridings, as this was their defining issue. Following this analysis, we will examine the 1994 downsizing program initiated in the Department o f National Defence, which laid the foundation for the government-wide employment reduction program announced in the 1995 federal Budget. Finally, we address the 1995 program, which is the largest peacetime downsizing in Canadian history. HISTORICAL REVIEW OF JOB SECURITY IN THE FEDERAL PUBLIC SERVICE

There is a long history o f federal government policies and collective agreement rights to soften the impact o f employment reductions. The first collective agreements negotiated in 1967 included a severance clause that provided for two weeks o f severance pay for the first year o f service and one week o f severance pay for each completed year

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thereafter to a maximum o f 28 weeks. The severance pay provisions only applied to indeterminate employees, and not term employees, who received no compensation if the government did not renew a term after its expiry.s While the amount o f the severance was negotiable, most other aspects o f job security were the unilateral rights o f management pursuant to the Public Service Employment Act (PSEA). In the late 1960s, the government instituted a practice o f granting three months notice to public servants designated surplus and two weeks notice to term employees if the contract was terminated early. At the same time, a priority list was established for public servants desig­ nated surplus. Once a position was designated surplus and three months notice given to the office-holder, the public servant became a “Priority 5,” pursuant to section 30 (1) o f the PSEA. After the 90-day notice period, the person was laid o ff and moved up to a Priority 4.6 These individuals would remain on the priority list for one year, permitting them to apply for a position that was closed to people not employed in the Public Service. Individuals on priority notice had the right to jobs for which they possessed the qualifications; that is, they did not have to win positions by means o f competitions. In 1977, the government instituted a separate severance package for Public Service executives. This policy allowed, under certain condi­ tions, for a payment that, together with the employee’ s severance pay entitlement, would not exceed 104 weeks pay, when employment was terminated at the initiative o f the Government.7 The first instance o f a system-wide downsizing initiative in the federal Public Service occurred with the so-called “ Guns o f August” in 1978. In this now legendary event in Public Service culture, the then Prime Minister Trudeau returned from the G7 Western Economic Summit and a private meeting with Chancellor Schmidt o f Germany and announced a $2 billion reduction in government expenditures in a press conference (the Minister o f Finance at this time was Jean Chretien).8A formal program was announced that required the elimination o f 5,000 public service jobs. As a consequence o f this exercise, the notice period given to public servants was extended to six months by a government regulation. Shortly after, the Conservatives under Joe Clark were elected and instituted a complete freeze on hiring across the government. As some departments interpreted the freeze as a call to release term employees— even those with 20 or 25 years o f continuous service—

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the new Conservative government granted protection to the long-time terms by announcing that all terms would become indeterminate (permanent) employees if employed continuously for five years. ELECTION OF THE CONSERVATIVES

In 1984, Brian Mulroney was elected with the largest number o f seats in Canadian history. During the campaign, he made the widely quoted comment that when elected he would give public servants “ pink slips and running shoes,” although, as documented below, it was more a case o f blue slips and walking shoes. The federal Budget o f May 1985 called for across-the-board restraint in the federal Public Service con­ sisting o f a 4 percent capital expenditure reduction commencing in 1985-86 and the elimination over three years o f 15,000 public ser­ vants. Because o f the difficulty o f closing out some programs in the three-year period, the Treasury Board Secretariat unofficially extended the period to five years. The previously established notice and severance pay programs in the federal Public Service were passive policies that awaited people to be designated before taking effect. The first incentive program designed to solicit employees in classification groups or organizations to resign in exchange for compensation was developed at the National Research Council in the mid-1980s. While aggregate data are not available from that downsizing program,9there were lessons learned from the experi­ ence. It was discovered that there were very different take-up rates by types o f occupation: * *

professionals and scientists had lower take-up rates, technical and white collar administration had higher take-up rates.

Possibly because o f their positive experience with the NRC, the Con­ servatives developed what later became known as the Work Force Adjustment policy. On May 28,1986, the Treasury Board announced that surplus employees would be permitted to resign and receive a Payment-in-Lieu o f Notice (PIL) with approval o f the Treasury Board. Previously, the employee had to serve out the notice period when the

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position was declared surplus. This seemingly insignificant change was extremely important, for it could now be used as an incentive pro­ gram. Shortly thereafter, on July 18, 1987, Treasury Board Secre­ tariat delegated management o f the PIL to departments, and at the same time announced that all surplus employees would be entitled to a “ guarantee o f one year o f training.” In essence, this meant that all public servants had a jo b guarantee for one year after losing their po­ sition. This permitted public servants whose position was designated surplus to obtain another position. Although the PIL was not officially designed as an incentive program, from this point on it was used proactively by the departments at the fiscal year-end to solicit resigna­ tions to meet person-year limits imposed by the Treasury Board Secre­ tariat. In other words, the first “job guarantee” — the original work force adjustment policy— can be traced to the first Mulroney Conser­ vative government. The shift from “ pink slips and running shoes” in August 1984 to “job guarantees” in July 1987 is profound, and contin­ ued after the 1988 election, when an additional 15-week separation benefit was introduced by the Conservatives for public servants over 50 years o f age. The Conservative government downsizing program identified 26,658 employees as affected or as potentially surplus. However, by the end o f the program, only 1,200 were actually laid off, receiving only the severance pay entitlement under their respective collective agreements, while 7,600 received a buyout (PIL, severance, and separation ben­ efit) and resigned. According to Table 11.1, during the five-year pe­ riod 1985-90, full-time indeterminate10 positions were reduced by 15,054, which could be interpreted as achieving the stated target o f the Conservative government. There was, however, an increase in parttime indeterminate (986), term (9,419), and seasonal (308) positions. Consequently, the most important figure is not full-time indeterminate but full-time equivalent (FTE). The FTE was reduced by only 4,684. While it can be argued that the replacement o f indeterminate positions by terms and casuals will result in financial savings, because o f lower rates o f pay and the avoidance o f benefit packages, the net savings were obviously far less than could have been expected if the FTE had fallen by 15,000. Thus, the Conservatives did not significantly reduce the size o f the Public Service under their downsizing program. Rather,

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Table 11.1 Employment in the Federal Public Service 1985-1995

Year 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Full time indeterminate

Part-time indeterminate

Term >6 months

Term 25 years

Increases for >25 years

Occupational category

Lower than average among Technical, Scientific & Professional categories

Higher than average among Scientific & Professional categories, lower than average in Administrative & Foreign Service categories

Salary level

Does not appear to influence departure decisions

Does not appear to influence departure decisions

First official language

Does not appear to influence departure decisions

Does not appear to influence departure decisions

Regional unemployment rate

Does not appear to influence departure decisions

Does not appear to influence departure decisions

Source: Table created by authors from “The Civilian Reduction Program at the Department o f National Defence: Factors Affecting Early Departure Decisions,” Treasury Board Secretariat, Human Resources Directorate, Strategic Planning and Analysis Division, Analysis Research and Compensation Group, July, 1995.

years o f pensionable service are more prone to accept the early retire­ ment offer. Occupational category matters, because employees in the Administrative and Foreign Service categories do not have skills that are highly transportable to the private sector. At this point, the model can predict what will happen but does not address the question o f why it will happen. From an analysis o f the 36 decision variables in the questionnaire, it was found that ten underly­ ing or latent factors, as shown in Table 11.4, help explain why an offer was either accepted or refused.

Table 11.4

Comparison of Perceptual Factors/Variables Affecting CRP Acceptance Decisions for Group A and B

Factors

Variables

Group A ranking of importance

Risk aversion

Income tax too severe; pension penalty too high; expectation o f reasonable job offer; lack o f job opportunities outside govt.; downsizing in other govt, sectors; fear of losing job security; fear of losing salary and benefits; need for a work environment

1

Fear o f relocation

Loss o f money on home sale; probable relocation; desire to stay close to relatives and friends; risk with the reasonable job offer.

2

Waiting to retire

Already decided to leave; generous CRP offer; best offer to come; close to retirement

3

Ready for change

Willing to go back to school; want new challenges

4

Bad timing

Not enough time to decide; lack of information; departure date not suitable

5

Wait and see

Like DND job; expect other offers in the future; a sufficient number of others will accept CRP offer

6

Group B ranking of importance

Variables

Group A ranking of importance

Group B ranking of importance

Bad working environment

Dislike job; poor relations with supervisor; poor relations with colleagues

7

7

Skill not transferable

Skill not transferable; not finding a substitute

8

N/A

Found substitute

Found substitute

9

N/A

Foundjob

Foundjob

10

9

No career opportunity

No career prospect at DND; too much restructuring at DND

N/A

4

Being a substitute

Found substitute

N/A

10

Factors

Note: 1 = most important while 10 = least important Source: Table created by authors from information in “The Civilian Reduction Program at the Department o f National Defence: Factors Affecting Early Departure Decisions,” Treasury Board Secretariat, Human Resources Directorate, Strategic Planning and Analysis Division, Analysis Research and Compensation Group, July, 1995.

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HOW O T T A W A SPENDS

These results indicated that the take-up rates are strongly influenced by favourable dispositions toward early retirement, particularly among those who are simply waiting to retire. This influence is more pro­ nounced among Group A employees, because o f the higher degree o f risk they face in the decision process. In Group B, the perception that DND does not offer good career possibilities further contributes to the departures. The fact that career prospects do not emerge as a factor for Group A simply reflects the fact that all work positions are definitely being terminated in that group. Both groups indicate that risk aversion played a major role in the decision to decline the CRP buyout. In Group A, this could be because o f the expectation o f a reasonable job offer, while in Group B, it could be interpreted as a “ wait and see” attitude toward job reduction ef­ forts. This “ wait and see” attitude in the context o f Group A suggests that decliners facing job termination believe that the reasonable job offer greatly reduces the risks associated with their situation. The dif­ ficulty o f planning a smooth transition into another job (for Group A) or into retirement (for Group B) further contributes to the decision to decline the offer, although to a much lesser extent. The importance o f financial obligations reduced the chance o f ac­ cepting the buyout for both groups. The results also suggest that some o f the employees in Group A decline the offer in spite o f the risks o f a reasonablejob offer, because they do not think their skills are transfer­ able to the private sector. In contrast, in Group B, some younger em­ ployees actually leave voluntarily in order to take advantage o f the training package. O f the 3,100 employees who left DND in 1994-95, approximately 64 percent did so under the CRP provisions.19The results o f the sur­ vey greatly enhanced the design o f a program for the Public Service at large. For example, the training/education options, financial planning assistance, and career counseling offered to employees separating from the Public Service would have the effect o f reducing risk aversion. Nevertheless, there are several differences between the DND popula­ tion and the Public Service population at large that make extrapolation difficult. For example: •

the DND civilian population is generally older than the rest o f the Public Service (44.3 years versus 41.6 years on average),

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• • • •

the average number o f years o f continuous service and o f pensionable years is higher at DND, the average salary is lower at DND ($35,088 versus $42,287), there is a heavier concentration in the operational and adminis­ trative support categories at DND, and the DND population has a lower concentration in the National Capital Region.

Table 11.5 shows the results when adjustments are made for these differences and analyses conducted to estimate the take-up rates in the Public Service at large. On the basis o f the salaries o f those accepting the CRP, the results show that a purely voluntary approach with the entire DND popula­ tion (Group B) would have resulted in average costs o f $58,680 per offer and a total program cost o f $442.9 million, with an estimated 26.8 percent take-up rate. Extending the CRP offer to the rest o f the Public Service under a totally voluntary approach would have resulted in an average cost o f $64,869 per offer; however, a relatively low takeup rate o f 16 percent was expected, yielding an estimated total pro­ gram cost o f approximately $1.88 billion. On the basis o f these calculations, a 29,000 employment reduction could be achieved through a voluntary program across the Public Service. It would, however, be necessary to reserve the managerial right to refuse an application un­ der such a voluntary program. These calculations were provided to the government by the Treasury Board to indicate the cost o f a purely voluntary approach (extrapolation o f Group B). As discussed below, the government rejected the voluntary approach— possibly because o f the information above— in favour o f a targeted approach. The CRP program provided an opportunity to study the motivations o f employees in accepting voluntary departure from the Public Service and assessing the influence o f various factors that contribute to the departure decision process. It appears that the separation package of­ fered to DND employees was considered too generous. All surplus employees were entitled to one year o f salary as a lump sum payment together with departure allowance, severance, and supplementary pay­ ments to a maximum o f 104 weeks o f pay. As will be shown below, the Public Service Early Departure Initiative established lower “ caps” to reduce the cost o f the program.20

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Table 11.5

Extrapolation of CRP Results to Entire DND Program and to Rest of Public Service CRP Sample results

Estimates for DND Population DND (A) DND (B)

Estimates for the rest of PS Population PS (A) PS (B)

Group (A)

Group (B)

Population excl. Mgt.

2,290

1,915

28,162

28,162

181,220

181,220

Average total payment

$53,580.09

$61,724.22

$48,318.72

$58,680.47

$54,109.24

$64,869.12

Est. number of takers

1,460

634

13,514

7,547

45,305

28,940

0.6374

0.3311

0.4799

0.2680

0.2500

0.1597

$78,227 M.

$39,133 M

$653,025 M

$442,886 M

$2,451 B

$1,877 B

Est. take-up rates Total Program Costs

Source: “The Civilian Reduction Program at the Department o f National Defence: Factors Affecting Early Departure Decisions,” Treasury Board Secretariat, Human Resources Branch, Strategic Planning and Analysis Division, Analysis Research and Compensation Group, July, 1995.

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CURRENT DOWNSIZING PROGRAM: 1995-97

Before discussing the current downsizing program announced in the 1995 Martin Budget, it is necessary to examine the Liberal record o f public service reductions up to the time o f the 1995 federal Budget. From Table 11.1, we can see that the total number o f full-time equiva­ lent employees at the beginning o f the Mulroney Conservative govern­ ment in 1985 was 241,170, and, at the end o f Mulroney’ s last full year in office, 237,202. However, in the 16 months after the Liberals as­ sumed office (November, 1993 until March 31,1995), the Public Ser­ vice was reduced by 15,000 full-time equivalents from 237,200 to 222,400. During the last half-century, no government was able to re­ duce the Public Service by 15,000 FTE. Yet the Liberals achieved this in 16 months without any new incentive programs (except for the CRP program, which accounted for approximately 3,000 o f the 15,000 re­ duction). Leading up to the 1995 Budget, the government decided that natural attrition could not provide a reduction equal to the reductions required in the 11 “ most affected departments” because o f Program Review.21 As o f December 31, 1994, 8,815 public servants across the entire Public Service qualified to retire immediately without a pension pen­ alty,22while there were another 9,000 “ near-retirees” in the 55-59 age group. However, there were 20,000 public servants across the Public Service in the 50-54 group. It was estimated that by December 31, 1997, an additional 10,114 employees would be eligible to retire with­ out penalty.23As a consequence, Treasury Board forecast that 50 per­ cent o f all the people leaving during the next three years would be over 50 years o f age, while one third o f all people over 50 years o f age in the Public Service would leave. This demonstrates what one Treasury Board official referred to as the “ pissed o f f ’ factor. Because o f the government’ s decision that it could not achieve the reductions voluntarily, negotiations were initiated with the unions through the National Joint Council. On February 2,1995, a final pack­ age was presented to all the unions at a meeting o f the National Joint Council. The government proposed the following: *

a return to collective bargaining on all matters excepting rates o f pay, salary, and increments,

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HOW O T T A W A SPENDS

• • •

• • •

third party binding arbitration but no right to strike, suspension o f the Work Force Adjustment Directive for departments most affected by downsizing, revisions to the Work Force Adjustment Directive (a reason­ able job offer within 40 kilometres, instead o f 16 kilometres, and government could proceed to contract out before placing all surplus employees), which would remain in place for all departments not facing major downsizing, pension-based early retirement incentive would be available to all employees declared surplus, cash-based early departure incentive would be offered to surplus employees in the most affected departments, and establishment o f joint committees to assist surplus employees to find employment.24

Although most o f the unions agreed, the PSAC rejected the government’s proposal. As unanimity is required under the rules o f the National Joint Council, the proposal was rejected25 The status quo would re­ main until collective agreements expired in 1997, at which time the Workforce Adjustment Directive was negotiable on a bargaining unit basis. Despite the remarkable decrease o f 15,000 FTEs discussed above— which was achieved without suspending the Work Force Adjustment Directive— on February 21, 1995 Mr. Eggleton announced a largely involuntary downsizing o f the Public Service over the next three years26 This was confirmed on February 27,1995, when Paul Martin tabled his Budget, in which it was announced that 45,000 Public Service jobs would be cut in three years. A report made by the Treasury Board Secretariat indicated that the Minister was referring to Full-Time Equivalents (see Table 11.6).27 Four specific measures to reduce the size o f the workforce were an­ nounced by the government: • • • •

Early Retirement Incentive (ERI), Early Departure Incentive (EDI), Unpaid Surplus in most affected departments, Reasonable job offer.

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Table 11.6 Source of Reductions in FTEs Activity Early retirement incentives Early departure incentives

Number of FTE's 4,000 13,000-15,000

Block transfers and devolutions

6,000

Reductions in military

7,000

Reductions in separate employer and crown corporations

5,000

Reduced number of terms and casual employees

5,000

Attrition

3,000

Other management o f labour® Total

0-2,000 43,000-47,000

Note: a Includes reduction contracts, encouragement of part-time and other work arrangements, reduction of overtime, and use o f WFAD in those departments that are not “most affected.” Source: Treasury Board Secretariat undated document provided to authors.

The Early Retirement Incentive is available to all employees for whom the Treasury Board is the formal employer and who are declared sur­ plus during the next three years, so long as they are at least 50 but not yet 60 by the time they leave the Public Service and have at least 10 years o f service with the federal government, at least five o f which must be pensionable. Employees who opt for other departure programs do not qualify for the ERI. These programs include the Civilian Re­ duction Program at DND, the early departure incentive available in the “ most affected” departments only, and a payment under the execu­ tive employment transition policy. Previously, under the Work Force Adjustment Directive, employees who retired early could receive up to 15 weeks o f separation benefits. This payment has now been suspended. Employees who receive a “ reasonable job offer” while on surplus sta­ tus cannot opt for the ERI, nor can employees who have been offered

357

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a position with a new employer when work is transferred outside the Public Service, for example, Transport Canada employees who will be transferred to NavCan. Moreover, executives offered alternative Pub­ lic Service employment under the executive employment transition policy will not qualify for the ERI. Usually early retirement means a reduced pension. Under the ERI and existing measures there would be no reduction, but the 15-week separation pay now available to employees who retire early would not apply. Once they have been given a surplus notice, eligible employees will have 60 days to decide whether to accept the option.28 Here is an example o f the ERI: A 53-year-old employee who has been working in an indeterminate position in the Public Service for 25 years, earning $36,000 per year on average, is declared surplus. On the basis o f the usual provisions for early retirement, since this em­ ployee is short two years o f age 55 and five years short o f 30 years o f service, the penalty would be the larger o f these two shortfalls, 5 years. The penalty is 5 percent for every year o f shortfall, hence a reduction o f 25 percent, yielding a pension o f approximately $13,500 per year. Now under the ERI no penalty would be applied and the pension would be approximately $ 18,000 per year. However, after July 15,1995 there is no longer a lump-sum payment to the individual (15/52 x $36,000 = $10,400).29 The Early Departure Incentive is available only to those employees in the “ most affected” departments holding indeterminate positions. It offers a cash payment in return for resignation from the Public Service (see Table 11.7). Eligible employees have 60 days from the date they receive the EDI offer to decide whether to accept it. An individual who decides to accept must resign within 6 months o f the offer. An indi­ vidual who rejects the EDI would, under the terms o f the modified Work Force Adjustment Directive, be entitled to no more than six months paid surplus status. If no reappointment occurs by the end o f that time, the individual would be placed on unpaid surplus status for 12 months. The EDI cash settlement consists of: •

Severance pay (two weeks pay for the first year o f continuous Public Service employment and one week for each additional complete year),

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•

Lump Sum Payment (39 weeks pay for less than five years o f continuous Public Service employment or 53 weeks if more than five years),

•

Service allowance (up to six weeks pay for employees who have had more than five years o f continuous employment and who are entitled to a full pension),

•

Training allowance (employees may qualify for an educational and training reimbursement o f up to $7,000 for completed training that helps the individual prepare for employment outside the Public Service).

Employees with less than five years o f service can receive up to 44 weeks pay. The maximum for employees who are entitled to an unreduced pension is 70 weeks. For other employees the limit is 90 weeks pay.30 Unpaid Surplus status was the third option for employees in the most affected departments. A surplus employee who refuses the ERI or EDI receives six months o f salary (PIL). During this period the individual may accept ajob offer. I f an offer is not received, the individual is then placed on Unpaid Surplus for one year with continued health, life, and dental insurance coverage and continued membership in the pension plan. A person who refuses a job offer while on Unpaid Surplus is struck o ff immediately. If the surplus employee does not receive a job offer by the end o f twelve months (Unpaid Surplus), the person is struck o ff the Public Service and is placed on the Priority List pursu­ ant to the PSEA discussed above. The final measure announced by the Minister o f the Treasury Board on February 21,1995 concerned the reasonable jo b offer, which was suspended in the “ most affected departments.” However, it continues in effect in the “ less affected departments.” 31If an employee’ s position is designated surplus in a less affected department, that person can apply for ERI (if the qualifications are met) or wait for a reasonable jo b offer. A senior official at the Treasury Board Secretariat argues that if a person opts for ERI or EDI in one o f the most affected depart­ ments and is offered a job, the individual must take it. However, this has not been interpreted and ruled on by a legal authority.

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Table 11.7

Early Departure Incentive for “most affected” Departments Surplus notice issued: Decision time 60 days. Separation action to be completed in 6 months Financial benefit Training Financial benefits: Not eligible for pension EDI offer limit: allowance Lump sum: 39 weeks pay < 5 years service accepted up to $7,000 44 weeks pay 52 weeks pay > 5 years service over 4 years < 5 years service Severance pay: 2 weeks for 1st year + 1 week for each additional year 90 weeks pay Service allowance (limited to those with more than 5 years > 5 years service continuous employment): Up to 6 weeks pay Not eligible Financial benefit Eligible for reduced pension Reducedpension EDI offer for Training limit: Financial benefits: (Less than 30 years accepted 44 weeks pay allowance pensionable service, age SO or Lump sum: 39 weeks pay < 5 years service < 5 years service 52 weeks pay > 5 years service older) Severance pay: 2 weeks for 1st year + 1 week for each 90 weeks pay additional year > 5 years service Service allowance (limited to those with more than 5 years continuous employment.): Up to 6 weeks pay Not eligible Financial benefit Pension Eligible for pension EDI offer for Training limit: Financial benefits: (No penalty) accepted 70 weeks pay allowance Lump sum: 39 weeks pay < 5 years service (At least 30 years of 52 weeks pay > 5 years service pensionable service + age 50 Severance pay: 2 weeks for 1st year + 1 week for each or older) additional year. Service allowance: Not eligible Such an offer makes the recipient ineligible for other options of the EDI Reasonable Job Offer made within 60 days 6 months PIL. If no offer: 12 months on unpaid leave (Health/dental and pension status Reasonable Job Offer option selected maintained). If still no offer laid off. Note: The Early Departure Incentive does not apply to executives. Source: Created by authors from Treasury Board of Canada News Releases.

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Objectives o f EDI and ERI According to an internal (and astonishingly candid) government docu­ ment released under Access to Information, the objectives o f the EDI, ERI, and WFA were as follows: 1) 2)

3)

4) 5) 6) 7) 8) 9) 10) 11) 12)

13) 14)

To keep departmental spending levels within the targets as set out in the 1995 budget, especially those for 1997-98. To keep the costs associated with the EDI within PSSRA 1-1 and similar initiatives outside PSSRA 1-1 within the $1 billion charge taken for 1994-95 in the 1995 Budget. To encourage the separation o f employees whose work ceases to exist and where there is little possibility o f placement within the public service. To provide short-term financial bridging to employment in sectors outside the Public Service or to retirement. To reduce the income loss associated with retirement under a PSSA allowance. To reduce the number o f employees who are being paid where no work exists. To reduce the number o f employees who will be on unpaid surplus status. To keep monetary incentives to a level that will generate separation. To maintain a sense o f fair treatment for all employees, including those who have not been affected. To encourage separation at the earliest possible point, so that salary savings are greater. To reduce the possibility that enhanced provisions can be obtained by waiting. To create the impression that incentives are fair to the taxpayer and are not out o f line with those o f other employers in other sectors. To keep well-qualified employees whose functions will still exist. To reduce the necessity for recruitment to replace employees who have left with financial incentives.

361

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HOW O T T A W A SPENDS

15) To reduce potential criticism from the Auditor General, the media and parliament over mismanagement o f the program.32 The first objective is extraordinarily political, for it insists on the need to keep departmental spending in line for 1997-98— the period o f the next federal election. This objective is formulated presumably in reac­ tion to pressure from the Reform Party to reduce spending. Likewise, objective 6— to reduce the number o f employees who are being paid where there is no work— is promulgated because o f the politically ex­ plosive nature o f media or opposition allegations that there are such employees. Finally, objectives 12 and 15 deal explicitly with potential criticism from the media or opposition or the general public. Taken together, these objectives relate to political objectives that have noth­ ing to do with Program Review— the reason given by the government to justify the downsizing program.

Most Affected Departments (MAD) The Program Review process necessitated very substantial reductions in some departments designated “ most affected departments.” The 11 “ most affected” departments announced on February 27, 199533were Agriculture and Agri-Food; Environment; Industry; Fisheries and Oceans; Human Resources Development; Finance; National Defence; Natural Resources; Public Works and Government Services; Trans­ port; and Treasury Board Secretariat. In May and June the Treasury Board President added 12 agencies to the list: Canadian Transporta­ tion Accident Investigation and Safety Board; Grain Transportation Agency; Canada Communication Group, unionized employees o f the Canadian Security Intelligence Service; Auditor General; Canada Coun­ cil; Canadian Advisory Council on the Status o f Women; National Research Council; National Film Board; House o f Commons; Interna­ tional Development Research Centre; and Public Service Staff Rela­ tions Board.34 All o f these agencies are deemed separate employers under the Financial Administration Act. The employees from these organizations taking advantage o f the ERI will not be counted as part o f the targeted reduction in the narrow public service, for although they participate in the pension plan, each o f these agencies has an

D O W N S I Z I N G THE PUBLI C S E R V I CE

independent payroll system. Thus employees o f these agencies can apply for ERI, but not the EDI offered by Treasury Board. Alternate or SWAP Program Originally, the Treasury Board refused to allow substitutes or swaps between those designated surplus but who wanted to remain in the Public Service and those not designated but who wanted to leave. How­ ever, under tremendous pressure from the unions and public servants, the government relented. On May 18, 1995 the Treasury Board an­ nounced a program for the management o f the placement o f alternates. The Board emphasized that it was a “ management-driven and con­ trolled exercise,” and that any swap had to be arranged before the employee was formally notified o f termination. As the Professional Institute o f the Public Service o f Canada noted, the policy was fraught with weaknesses, including: • • • • • • • •

no reference to inter-departmental exchanges, no central structure to manage or coordinate the exchange process, no central inventory for employees to register their needs for exchanges, no redress process, no monitoring process by third parties, exchanges limited to affected employees, no time to undertake a systematic process o f exchanges before notices went out, and process is ad hoc driven by informal networks o f managers.35

Treasury Board officials claimed that there was no need to establish a “ centralized bureaucracy to oversee the alternation process,” because two thirds o f the alternations occurred within the departments, and swaps represented only 10 percent o f all departures.36 But the low numbers exist precisely because the central clearing house for infor­ mation that is essential for a government-wide “ market” in swaps to emerge does not exist. Information is the sine qua non o f any market; weak or inadequate information causes markets to fail.

363

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HOW O T T A W A SPENDS

Forecast and Interim Results o f Downsizing The Treasury Board Annual Report on employment statistics for the federal Public Service includes all departments and agencies listed under Schedule 1, Part 1, o f the Public Service Staff Relations Act. This does not include uniformed military personnel or those employed in crown corporations or independent agencies. The total number o f em­ ployees in indeterminate positions under the jurisdiction o f the Trea­ sury Board as o f March 1995 was 184,132 full-time and 5,394 part-time, exclusive o f the executive category, a total o f 189,526 em­ ployees.37 The President o f the Treasury Board estimated that 45,000 employ­ ees would be declared surplus in the next three years, i.e. by 1998.38 Twelve thousand would be drawn from the uniformed military and Crown Corporations, which will develop their own Alternate Program (SWAPs) for work force reductions, and a further 6,400 Transport Canada employees responsible for air navigation services will be trans­ ferred to a new non-profit organization called NavCan. The remaining 26,600 would be drawn from those departments for which the Trea­ sury Board is the employer, with 11,000 coming from the National Capital Region. The Treasury Board has estimated that 4,000 employees in indeter­ minate positions might accept the ERI program over the three-year period. In March 1995 the population to which the program applies was made up o f 28,551 males and 16,099 females who have served for 10 or more years. This population has two components: those between 50 and 60 years o f age with at least 30 years o f service, who will be entitled to retire without penalty, and those between 50 and 60 years o f age with at least 10 years o f service, who can retire early but with a penalty (see Table 11.7). The EDI program, which required parliamentary approval, was not available before the summer o f 1995. At the time o f this article (Feb­ ruary, 1996) this program was only available to the 11 departments and 15 agencies designated as the “ most affected,” although it is pos­ sible that other departments will be added to the list. In March 1995 the Public Service work force was 225,619. Those who are eligible for ERI (which only applies to indeterminates) cannot take advantage o f EDI and vice versa. If we remove an estimated number o f public ser-

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vants eligible for the ERI (those currently between 50 and 60 years o f age and those between 47 and 49 who will become eligible during the next three years) and those who are unlikely to have the five years o f service required to avoid reduced EDI payments, the estimated num­ ber eligible to receive EDI becomes 162,612 (see Table 11.7). Since the 11 “ most affected” departments account for approximately 60 per­ cent o f this figure and are the only departments where employees are allowed to accept the EDI, the target population is reduced to 97,567. It is estimated that between 13,000 and 15,000 employees (13.4-15.4 percent) may accept this offer. Using the estimated number o f employees accepting the ERI and EDI plus the 6,000 transferred to a new corporation, a reduction o f 8,000 employees remains to be made. According to the Treasury Board,39 these reductions will be handled through attrition, manage­ ment o f term appointments, flexible work arrangements, and— where necessary— layoffs. Over the last ten years there has been an average o f 11,695 separa­ tions per year, excluding the DND separations attributed to the CRP (see Table 11.8). Using the lowest figure (1993-94) o f 8,404, it still appears that approximately 25,000 would have left the Public Service over the three-year period without any incentive programs. This figure is not much less than the target figure o f 27,000 for the current downsizing program for the Public Service. While it would be unreasonable to expect the positions o f all those who left voluntarily would be in the areas where the government re­ quired downsizing, there does not appear to be a pressing reason for the massive spending projected, nor was there sufficient reason for the government to break its contractual commitment to public servants by unilaterally amending the Work Force Adjustment Directive to ensure that the 27,000 reduction is achieved. The Treasury Board has set aside $ 1 billion for the EDI program for the 11 “ most affected” depart­ ments. If we take the Treasuiy Board estimate o f 15,000 employees who will opt for the EDI, the cost will amount to $66,666 for each employee released. The ERI has been given a budget o f $300-400 million for an estimated 4,000 employees, or an average o f $100,000 per employee released under this section o f the program. Clearly, any employee thinking o f leaving during this three-year period will opt for

3 65

Table 11.8

Separations from the Public Service by Reason: Full- and Part-Time Indeterminate Positions 1985-86 to 1994-95 R ea so n

Abandonment of position Death End o f specified period Laid off Other Rejected during probation Release Resignation Retirement Revocation of appointment Unknown T o ta l

1986-87

1987-88

1988-89

1989-90

1990-91

1991-92

1992-93

1993-94

1994-95

61 447

61 420

45 448

38 391

35 392

54 387

32 360

29 370

17 368

10 381

121 597 43

131 1,354 32

136 1,367 54

169 1,527 26

147 1,124 16

186 1,420 20

125 3,251 14

129 2,393 7

132 1,452 12

130 1,351 11

168 173 5,510 5,697

140 159 5,942 5,001

108 116 6,344 6,036

126 113 6,113 5,629

118 83 5,343 4,864

165 110 4,394 4,852

163 95 3,812 4,031

131 103 2,677 3,294

102 117 2,396 3,425

104 114 3,318 3,703

9 23

5 140

11 128

11 77

11 54

6 346

5 359

9 209

9 374

5 430

1 2 ,1 8 7

1 1 ,9 4 0

9,351

8 ,4 0 4

9,557

1985-86

1 2 ,8 4 9

13,385

14,793

1 4 ,2 2 0

1 2 ,2 4 7

Note: The 1994-95 figure of 9,557 separations includes 3,100 who left DND. Of this 3,100, the Civilian Reduction Program accounted for 1,984. Source: Treasury Board Secretariat, Human Resource Branch, Analysis, Research and Compensation Group, November 1995.

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either ERI or EDI rather than leave without the incentive. Given the current incentive plan, it appears to be impossible for Treasury Board to miss its targets, and indeed they should be exceeded. The Second Quarterly Report from Treasury Board states that Public Service em­ ployment decreased by 15,651, which is in excess o f expectations from the average yearly figures above. This is to be expected, as employees calculate the financial benefits o f separation under the separation pack­ ages. The four changes that constitute the downsizing program will have an impact upon the demographic profile o f the Public Service. The current age distribution o f the Public Service is approximately nor­ mally distributed with a mean o f 42 years (see Figure 11.1). It has been argued that the incentive programs would encourage the senior managers o f the future to leave, and thus cripple the Public Service. The ERI is open to all public servants who fall in the age bracket 5060 during the three-year period 1995-98 and have been employed at least 10 years in the Public Service. This means that public servants who are 47 in 1995 will become eligible for the ERI in 1998. The Early Departure Incentive may be taken by those in the ERI age bracket if it is advantageous for them to do so. For others, only those who have been declared redundant can take advantage o f the ERI or job-swapping. This means that the Treasury Board retains control and can there­ fore control the number o f employees who can leave under the EDI program. Under these conditions, the loss o f future managers can only occur if the Treasury Board does not exercise managerial control on eligibility for the EDI. By definition, ERI attracts people over 50 during the three-year pe­ riod, while it is estimated that the EDI will appeal disproportionately to young people in their twenties and early thirties, who are young enough to start over again, encouraged in part by the generous training allowance. Moreover, the radically decreased recruitment o f young people during the past five years will ensure that there is less and less fresh blood. I f these predictions are accurate, the Public Service will become even more skewed toward the baby boomers, who will be trapped— too young to retire and too old to start over. The Public Ser­ vice will become overwhelmingly populated by people between the ages o f 40 and 50 who want out but can’ t go.

367

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HOW OTTAWA SPENDS

Figure 11.1 Age Distribution o f Public Servants March 1995 20000

------- *— ------- 1—

— « ------- ^

17.5

2 7 .5 2 2 .5

3 7 .5 3 0 .5

4 7 .5 4 2 .5

5 7 .5 5 2 .5

67 .5 6 2 .5

7 0 .0

F iv e -y e a r ag e b a n d s

S o u rc e : C o n s tru c te d b y a u th o rs fro m O c c u p a tio n a l C a te g o ry , G e n d e r a n d A g e B a n d ta b le s in E m p lo y m e n t sta tis tic s fo r th e F e d e ra l P u b lic S e rv ic e 1 9 9 4 -9 5 , T re a s u ry B o a rd o f C a n a d a S e c re ta ria t.

T o d ate, tw o q u arters o f d ata have been released. T ab le 11.9 rev eals th a t the n u m b er o f in d eterm in ate public servants has been reduced by 4.9 p ercen t, o r 9,451 from a pop u latio n o f 194,733, w h ile te rm s and ca su a ls have been red u ced b y 20 p ercen t, o r 6,200 from a population o f 3 0 ,8 8 6 . D ep artm en ts are g ettin g rid o f te rm s and casuals to m eet ex p en d itu re red u ctio n targets. G iven th a t dep artm en ts control th e d is­ tribution o f their operatin g budgets and th at person-years are no longer constrained, the data suggest th at departm ents w ill reduce line item s— ex clu d in g salaries o f indeterm inates— in the operating budgets to save bodies. M o st o f the indeterm inate reductions thus far have been v o lu n ­ tary , b ecau se o f th e ru sh to leave b efo re Ju ly 15, 1995, w hen th e 15w eek sev eran ce p a y w as elim in ated . T h ese include 4,1 6 9 ac cep tin g the ERI and 9 8 6 tak in g th e ED I (see T a b le 11.10). A s data beco m e

Table 11.9

Public Service Reductions, by Department From April Xto September 30,1995 Most Affected Departments (MAD) Agriculture and Agri-foodc Grain Transp. Agency Adm. Fisheries and Oceans'1 National Defence Environment Industry Finance Transport*1 Human Resources Development Natural Resources Public Works and Govt. Services0 Treasury Board (Secretariat) Cdn. Transp. Accident Investigation and Safety Board Total-MAD Departments Other Departments Total

MARCH 1995° Indeter- Terms & Total minateb Casual 8,875 25 9,314 24,676 5,004 4,948 819 12,773 22,639 4,599 14,192 692

1,237 0 974 4,222 472 423 19 985 4,194 624 1,305 38

273 108,829 85,904 194,733

9 14,502 16,384 30,886

10,112 25 10,288 28,898 5,476 5,371 838 13,758 26,833 5,223 15,497 730

SEPTEMBER 1995 Indeter- Terms & Total minateb casuals

REDUCTION Indeter Terms & Total minateb casuals

8,388 22 9,239 22,055 4,579 4,549 742 12,026 20,817 4,112 13,183 617

1,634 2 1,268 3,719 341 352 15 111 3,180 400 1,050 28

10,022 24 10,507 25,774 4,920 4,901 757 12,803 23,997 4,512 14,233 645

487 3 75 2,621 425 399 77 747 1,822 487 1,009 75

(397) (2) (294) 503 131 71 4 208 1,014 224 255 10

90 1 (219) 3,124 556 470 81 955 2,836 711 1,264 85

282 258 123,331 100,587 102,288 84,695 225,619 185,282

6 12,772 11,914 24,686

264 113,359 96,609 209,968

15 8,242 1,209 9,451

3 1,730 4,470 6,200

18 9,972 5,679 15,651

Notes: a All active PSSRA 1-1 employees at end of month, b Also includes seasonal employees, c Includes the Prairie Farm Rehabilitation Adminstration. d The Canadian Coast Guard is shown under Fisheries and Oceans. e Includes the former departments of Public Works, Supply and Services, and parts of the departments of Communication and the Secretary of State. Source: Quarterly Report on Public Service Employment Reductions, Treasury Board Secretariat, Human Resources Branch, Strategic Planning and Analysis Division, Analysis Research and Compensation Group, January 1996.

370

HOW O T T A W A SPENDS

Table 11.10

Public Service Reductions, by Reason (Indeterminate employees only) From April 1 to September 3 0 ,1995a Reason Separations1* Adjustment programs (estimates) Early Retirement Incentive Civilian Reduction Program Workforce Adjustment Directive Executive Employment Transition Policy Early Departure Incentive Sub-total Other reasons Total (Separations) New Indeterminate Employees0 External recruitment Net inflow o f terms to indeterminate Total Leave Without Pay Net outflow to leave without pay Total Reduction

Reductions

4,169 2,054 1,448 72 986 8,729 1,712 10,441

(743) (1,073) (1,816)

826 9,451

Notes: a For the PSSRA 1-1 active population at the end of month, b For active employees only. c The hiring activity is linked with the specific skills requirements and geographical needs. Under the Public Service Employment Act, terms are entitled to compete for indeterminate positions. Source: Quarterly Report on Public Service Employment Reductions, Treasury Board Secretariat, Human Resources Branch, Strategic Planning and Analysis Division, Analysis Research and Compensation Group, January 1996.

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available in subsequent quarters, the mix between indeterminate labour and other operating expenses (including term employees) will likely change. The data presented by classification in Table 11.11 reveal another interesting pattern. The clerical and program management groups have accounted for 51 percent o f departures during the first two quarters o f the downsizing program. Daryl Bean, President o f the PSAC, pre­ dicted before the Senate Standing Committee on Finance40 that his union will account for between 20,000 and 25,000 o f the projected 45,000 reductions. This is partly because PSAC is the largest union, with 170,000 members, but it is also due to a pattern seen in previous downsizing exercises (e.g. DND). Blue collar, technical, and semi­ skilled people with lower levels o f education opt disproportionately for EDI or similar incentives to leave their jobs, while professionals have lower propensities to leave. I f this pattern continues, the Public Service Alliance will face the accelerated loss o f its members, in addi­ tion to the threat that in the future the government may demand more highly skilled employees, who will be represented by other unions. In Table 11.6,6,400 positions labeled “ Block transfers and devolu­ tion” cover the transfer o f Transport Canada employees to the non­ profit organization NavCan. The affected employees retain all benefits and wages intact and have the same unions representing them. In the March 1996 Budget, it is expected that the government will propose the commercialization o f more than 60 federal operations, accompa­ nied by reduced employee pay, benefits, pensions, and other working conditions. This topic is now under discussion with the unions. There appear to be three options. The first is the NavCan model, with all benefits remaining intact. The second would require workers to accept transfers even if their salaries were reduced up to 15 percent. Refusal to accept a transfer would result in a three month lay-off notice and no entitlement to ERI or EDI. The third would permit employees to refuse a transfer in which salary reductions were more than 15 percent, in which case the government would find them anotherjob or offer them a buy-out.41 The impact o f these two latest developments cannot be assessed at the present time.

371

372

HOW O T T A W A SPENDS

Table 11.11

Public Service Reductions, by Occupational Groups From April 1 to September 3 0 ,1995a Selected Groups

Indeterminateb

Terms and Casuals # %

Total

#

%

CR Clerical and Regulatory PM Programme Administration DA Data Processing AS Administrative Services ST Secretarial, Stenographic and Typing EG Engineering Support

1,608

4.4

4,404

31.8

6,012

11.9

1,592

4.8

398

16.0

1,990

5.6

87

6.8

1,716

80.1

1,803

52.7

941

6.3

100

14.8

1,041

6.7

716

9.4

206

15.4

922

10.3

477

7.4

146

16.2

623

8.4

Sub-total

5,421

5.4

6,970

32.6

12,391

10.2

278

7.5

4

36.4

282

7.6

Other groups

3,752

4.1

(774)

(8.2)

2,978

3.0

Total

9,451

4.9

6,200

20.1

15,651

6.9

EX Executive

#

%

Notes: a For active PSSRA 1-1 employees at end o f month, b Also includes seasonal employees. Source: Quarterly Report on Public Service Employment Reductions, Treasury Board Secretariat, Human Resources Branch, Strategic Planning and Analysis Division, Analysis Research and Compensation Group, January 1996.

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CONCLUSION

What you will see is the most fundamental structural change that has been done in the last 45 years in Canada.42 Marcel Masse, Minister Responsible for Public Service Renewal The employment reductions achieved by the Liberals in the 16 months prior to the 1995 downsizing program were impressive and substantial compared to the much smaller reductions under the Mulroney govern­ ment over nine years. Clearly, the Liberal government has been much more efficient at terminating public servants. The current downsizing is much more aggressive, in that it includes casual, part-time, sea­ sonal, and term employees in addition to the full-time and part-time indeterm inates o f the last downsizing program. Secondly, it is clear from the data on attrition that on average 9,000 employees per year were leaving the government annually up to the time when the downsizing program was announced. As the govern­ ment announced that it wanted to eliminate 27,000 public servants over three years, it is evident that these numbers could have been achieved voluntarily without any special programs or the suspension o f the Work Force Adjustment Directive. Thirdly, given the government’ s decision to proceed with a downsizing program, it is very clear that it could have been designed as a govern­ ment-wide, voluntary program with the Treasury Board reserving the right to authorize or reject applications for a buyout. Such a program would have allowed the employer to control the entire process to en­ sure that there were no shortages in a particular classification, depart­ ment, or region. Indeed, a similar program had been designed and was highly successful at the National Research Council in the mid-1980s. Fourth, since the election o f the first Wilfrid Laurier Liberal govern­ ment in 1896— 100 years ago— most o f the Ottawa area constituen­ cies elected Liberal MPs most o f the time. Throughout this period, the largest single number o f voters in the Ottawa area were federal public servants, who largely viewed the Liberals, in the words o f Liberal MP Marlene Caterall and Liberal MP Mac Harb, as the “ friend o f the Public Service,” while they viewed the Progressive Conservative party as hostile to the Public Service. The review o f government decisions o f

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374

HOW O T T A W A SPENDS

the past 15 years suggests the opposite interpretation. While former Prime Minister Mulroney promised pink slips and running shoes, in fact his government gave public servants pay raises and job security— not once but twice— by introducing and extending the Work Force Adjustment policy. Consequently, Mulroney did not significantly re­ duce the size o f the Public Service during his nine years in office. In contrast, the Liberals promised public servants a return to collective bargaining and job security, and once in office removed theirjob secu­ rity— not once but twice— and gave them pink slips and running shoes, by reducing the Public Service by approximately 60,000 public ser­ vants. Finally, the fiscal crisis o f the federal government, which is only getting worse as the national debt inexorably ratchets upward, the con­ tinuing hostility to the public sector and taxation, and the concomitant political pressure to reduce the number o f public servants, ensure that the build-down o f the Public Service will continue. As discussed above, these issues were not discussed during the 1993 election campaign by the Liberals. This demonstrates why the public has become so cynical toward politicians.

APPENDIX Employment Types in the Federal Public Service Employment types are largely differentiated by the duration o f em­ ployment and the weekly hours o f work: Indeterminate employment indicates the status o f a person appointed to the Public Service whose tenure is o f unspecified duration. Such persons are commonly referred to as “ permanent.” Specified term employment (term) indicates the status o f a person appointed to the Public Service for a fixed period o f time. Such per­ sons cease to be employees at the expiry o f that period. This status is commonly referred to as “ term employment,” and the individual em­ ployees as “ terms.” These terms fall into two categories, short-term, those appointed for less than three months, and long-term, those ap­ pointed for three months or more.

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Casual employment indicates the status o f persons employed under section 21.02 o f the Public Service Employment Act for a specified period o f no more than 90 days by any one department. That depart­ ment may extend employment up to a maximum o f 125 days within a twelve month period. This extension cap does not apply if the indi­ vidual is rehired by another department. Full-time employment categorizes those who work the full amount o f scheduled hours o f work for their occupational group, normally de­ fined in their collective agreement. Such employees may be o f either indeterminate or term status. Part-time employment categorizes those who work anything less than the full amount o f scheduled hours o f work for their occupational group, normally defined in their collective agreement. Such employees may be o f either indeterminate or term status. Seasonal employees are those appointed to work cyclically for a por­ tion o f the year (season) each year.

NOTES

The authors are deeply grateful to Professor Gene Swimmer for his critical and very helpful comments on successive drafts o f this paper. They are also grateful to Paul Mercier, Michel Laurendeau, and Jim Plumpton at the Treasury Board Secretariat, Human Resources Direc­ torate, Analysis Research and Compensation Group, for the provision o f statistical and technical information and explanations o f this infor­ mation. However, the interpretations in this paper represent only the views o f the authors. 1 2 3 4

This statement was widely quoted during the election campaign in August 1984. Treasury Board o f Canada, News Release, December 9,1991. Letter to the Professional Institute o f the Public Service, February 12, 1993. Notes for a statement by Arthur Eggleton, President of the Treasury Board, Tabling the Main Estimates in the House o f Commons, February 28, 1995.

375

376

5 6

HOW O T T A W A SPENDS

See the Appendix for definitions of types o f federal public employees. Priorities 1 and 2 were for individuals on a leave of absence pursuant to section 30 (1) and (2) o f the PSEA, while Priority 3 represented the controversial priority granted to politically exempt staff of cabinet ministers pursuant to section 30 (9). 7 A Separation Pay Policy was authorized by an Order in Council, PCC 1977-3225, dated November 24, 1977, which required that: 1. the employee involved was appointed by the Public Service Commis­ sion to the Senior Executive Group o f the Executive Category; or is a Deputy Minister or other person appointed by the Governor in Council and; 2. each case required approval by the Treasury Board based on the specific circumstance o f each case. 8 Richard Gwyn, The Northern Magus (Toronto: McLelland and Stewart), 326-27. 9 No usable data were collected from this downsizing, according to both the Treasury Board Secretariat and the National Research Council. 10 The government reports the size o f the Public Service using a measure o f labour consumption called “Full-Time Equivalent.” This indicator factors in the length o f time an employee works each week. For example, two employees working half their weekly scheduled hours of work are equivalent to one employee working all of the scheduled weekly hours. See the Appendix to this paper. 11 This trend has emerged in universities and in the corporate world during the past ten years. It has been analysed extensively by Charles Handy, The Age o f Paradox (Boston: Harvard Business Press, 1994). 12 See Gene Swimmer and Kjerstine Kinaschuk, “ Staff Relations Under the Conservatives: The Singers Change but the Song Remains the Same,” Frances Abele, ed., How Ottawa Spends 1992-93: The Politics o f Com­ petitiveness (Ottawa: Carleton University Press, 1992), 267-312. 13 If the job offered was at a lower classification, the department had to protect the employee’ s salary indefinitely through “red circling.” See Swimmer and Kinaschuk, “ Staff Relations,” 295. 14 Spoken in response to a statement by another candidate that the next government—no matter which party was elected—would be forced to substantially reduce the size o f the Public Service, at an All Candidates Meeting sponsored by Federal Superannuates Association, R.A. Centre, Ottawa, October 1993. Upon the election of the new government, Ms. Caterall was appointed the Parliamentary Secretary for the Treasury Board, which was responsible for designing the downsizing program discussed below. 15 Lester Thurow, “ The Need for Strategic Approaches,” in Jean Chr&ien, ed., Finding Common Ground (Ottawa: Voyageur Publishing, 1992).

D O W N S I Z I N G THE PUBL I C S E R V I CE

16

The Civilian Reduction Program at the Department o f National Defence, Treasury Board Secretariat, Human Resources Directorate, Analysis Research and Compensation Group, July 1995, Appendix A. 17 One theory that has received a great deal o f research support is that there are four career stages characterized by certain types o f concerns and developmental tasks individuals at a given stage must face and undertake. These are: 1. The exploration stage (age 15-24), where finding an acceptable occupation is the main concern; 2. The establishment stage (age 25-44), where security is the objective in the chosen occupation; 3. The maintenance stage (age 45-59), where risk avoidance is the primary concern and individuals attempt to hold their positions and keep abreast o f new developments; 4. The disengagement stage (age 60 and over), where individuals tend to slow down and think about retirement and non-work sources o f life satisfaction. D. Super, The Psychology o f Careers (New York: Harper and Brothers, 1957). 18 Although the socio-demographic variables still leave a fair amount o f variance unexplained, the overall predictive capacity o f the statistical models used in these analyses reaches 83 percent for Group A and 74 percent for Group B. These percentages correspond to the proportion of the affected employees whose decision to accept or decline the CRP offer can be accurately predicted. 19 Treasury Board Secretariat, Statistics for the Public Service, 1994-95. 20 For example, the ERI provided the following caps: less than five years service 44 weeks pay; if entitled to an immediate pension, 70 weeks of pay; and more than five years of service and not entitled to a pension, 90 weeks of pay. 21 Richard Paton, Deputy Secretary, Program Branch, Treasury Board Secretariat, estimated that “ of the $17 billion to be cut from departmental budgets over the next three years, about one-quarter will have to come from the wage bill.” Standing Senate Committee on National Finance, October 4, 1995, Issue No. 25, 25: 5. 22 Treasury Board Secretariat document entitled “Retirement Potential,” released pursuant to an Access request. No date. 23 Ibid. 24 Document presented to the House o f Commons Standing Committee on Finance by the Professional Institute of the Public Service o f Canada, May 2, 1995. 25 Treasury Board o f Canada News Release, February 3, 1995. 26 Treasury Board o f Canada News Release, February 21,1995.

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378

27 28 29 30 31

32 33 34 35

36

37 38 39 40 41 42

HOW O T T A W A SPENDS

Treasury Board Secretariat, Human Resources Branch, February 2, 1995. Treasury Board of Canada, News Release, February 21,1995. Treasury Board of Canada, News Release, October 1,1995. Treasury Board o f Canada, Backgrounder to the EDI, October 1, 1995. But this is about to change. Kathryn May o f the The Ottawa Citizen has published a series o f articles stating that the government is about to eliminate job security for all federal public servants. See “PSAC Tells Government to ‘ Stick It,’ ” Kathryn May, The Ottawa Citizen, February 3, 1996. The article states that “Treasury Board warned the unions it would legislate a deal if one couldn’t be reached.” If job security is eliminated, employees would be forced to accept transfers to the new employer when the government commercialized or privatized or devolved agencies. Also see “Governments Move In to Kill Job Security,” Kathryn May, The Ottawa Citizen, February 7, 1996. Internal TBS document entitled “EDI/ERI & WFA Objectives,” released pursuant to an Access request. No date. Treasury Board of Canada News Release, February 27,1995. Treasury Board o f Canada News Release, May 5,1995 and June 16, 1995. Document presented to the Senate Standing Committee on National Finance by the Professional Institute of the Public Service of Canada, June 15, 1995, 6-7. Richard Paton, Deputy Secretary, Program Branch, Treasury Board of Canada, Senate Standing Committee on National Financey Issue No. 25, October 4, 1995, 25-26. Treasury Board Secretariat, Employment Statistics for the Federal Public Service, 1994-95. Treasury Board o f Canada News Release, Feb. 12,1995. Ibid. Standing Senate Committee on National Finance, Issue No. 21, June 15, 1995,21:30. May, “PSAC Tells Government to ‘ Stick It,’” The Ottawa Citizen, February 3,1996. Address given by the Honourable Marcel Mass6, Minister responsible for Public Service Renewal, to the Canadian Centre for Management Development and the Institute on Governance, Ottawa, April 3, 1995.

12 Banking on Transparency: An Interpretation of Recent Changes at the Bank of Canada

CALUM

M.

CARM ICHAEL

T h e Bank o f Canada is arguably the most important crown corpora­ tion o f the federal government. It is the lender o f last resort, having the power to make loans to deposit-taking institutions so that the payment system between them functions smoothly, and the cash-flow problems o f one institution do not destabilize the entire financial system. It is the issuer o f bank notes— paper currency. It is the banker for the govern­ ment, operating the deposit accounts through which the government’ s revenues and expenditures flow, and managing the government’ s Ex­ change Fund Account, to intervene in the foreign exchange market. It is the fiscal agent o f the government, managing the sale o f new govern­ ment securities as well as the service and redemption o f old debt. Fi­ nally, the Bank o f Canada is responsible for monetary policy, which affects the quantity o f money and the level o f short-term interest rates. Because the Bank o f Canada is so important, its recent history de­ serves attention. Many changes have taken place since Gordon Thiessen

380

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succeeded John Crow as Governor in February 1993. Some have af­ fected the size and operations o f the Bank, paralleling, but apart from, what is occurring throughout the federal public service as a result o f Program Review. Other changes have affected the tools, goals, indica­ tors, and structures o f governance with which the Bank conducts mon­ etary policy. The Bank has described these other changes as making its actions, purposes, decisions, and procedures more transparent. This chapter describes recent changes at the Bank, their origins and effects. It does so with the primary purpose o f making transparency transparent. However, in order for one to appreciate where the Bank is going to, it is first necessary to appreciate where it is coming from. Consequently, the chapter presents current practices in the context o f past practices, particularly those under Crow. In doing so, it serves the secondary purpose o f developing a general understanding o f the Bank, in the belief that such an understanding is important, whether one is inclined to praise or criticize the Bank. As H. Scott Gordon argued almost four decades ago: The public itself must also accept responsibility for its political matura­ tion by developing an active and critical attitude toward its public institutions. In this the Universities have, o f course, a special role to play. A central bank without critics cannot fail to develop the view that monetary affairs are mysteries known only to itself. Such a view is quite undesirable, both for the society at large and the central bank as well.1 An understanding o f the Bank o f Canada remains important, particu­ larly given the debate during Crow’ s term that centred on the Bank’ s mandate and its relationship with the government. CHANGES TO THE SIZE AND OPERATIONS OF THE BANK

In July 1995, Thiessen announced the annual revisions to the mediumterm plan for the Bank o f Canada. These revisions would, over five years, reduce the annual operating expenses by 10 percent ($10-20 million), and the number o f regular positions by 25 percent (500-600 person-years), relative to the levels in 1994. The reduction in expenses would involve privatizing some activities, “ adjusting” service levels to corporate clients, introducing or raising fees for some services, and re­ organizing the institution’ s structure and administrative processes. The

B A N K OF C A N A D A

reduction in positions would be achieved through early retirement, voluntary departure, and severance packages. Thiessen’ s announce­ ment came four months after Finance Minister Paul Martin had an­ nounced that by fiscal year 1997-98, spending under Program Review would be cut by 19 percent, and the number o f positions cut by 14 percent, relative to the levels in 1994-95. The announced reductions are, to some extent, a response to changes in the demand for Bank services. Some o f these changes are technology-driven. They include the decline in the volume o f bank notes to be processed and distributed, following the removal o f reserve require­ ments in 1994, the shift toward higher denomination notes used by automatic bank machines, and the introduction o f the two-dollar coin. They also include the decline in the volume o f government securities to be cleared and settled, following the introduction o f a computerized book-entry system. Other changes in the demand for Bank services are policy-driven. They include the anticipated increase in the volume o f Canada Savings Bonds and possibly other new retail debt instruments, based on the government’ s intention to sell a greater proportion o f its debt to individual Canadians. The expanded workload in this area is to be accommodated in the context o f the overall cuts. Primarily, however, the reductions are the result o f the Bank’ s fol­ lowing the government’ s example. In his announcement, Thiessen re­ ferred to a current environment in which “ more than ever, all public institutions are expected to make a contribution to lowering the costs o f the federal public sector.” 2The Bank’ s Annual Report for 1994 had indicated its responsiveness to such expectations. In describing the Bank’ s operations, the Annual Report uses the words “efficient,” “ ef­ fective,” and “ strategic” more than 25 times.3 This responsiveness may seem surprising, given the apparent degree o f the Bank’ s financial and managerial independence. The annual rev­ enue earned by the Bank on its holdings o f government bonds, net o f the interest paid on deposit liabilities, far exceeds the profits o f even the largest chartered banks. In 1995 they totalled $2 billion. This rev­ enue, net o f operating expenses, is paid to the Bank’ s single share­ holder: the government. Thus the financial independence o f the Bank is more apparent than real. The operating expenses, although small relative to the Bank’ s earnings, represent a net expenditure by the gov­ ernment, to be paid out o f general tax revenue.

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Table 12.1 presents the annual operating and staff expenses o f the Bank, measured in millions o f dollars, for the past 25 years. The oper­ ating and staff expenses are also measured, respectively, as a percent­ age o f government current expenditure on goods and services, and as a percentage o f government compensation (excluding defence). The data demonstrate the relatively small size o f the Bank. Over the period, its operating expenses have only marginally exceeded 1 percent o f the government’ s current expenditure, and staff expenses have remained well below 1 percent o f the government’ s wages and salaries.4 From the late 1970s to the late 1980s, the Bank grew, relative to the govern­ ment. However, since then the operating expenses have declined in relative terms, and the staff expenses have levelled off. The decision o f the Bank to reduce its own expenses and positions cannot be explained on the basis o f their fiscal significance alone.

Table 12.1

Bank of Canada Staff and Operating Expenses 1970-74 Average Staff Expenses8 (millions o f dollars) As percentage of federal government wages, salaries, and supplementary income (excluding defence) Average Operating Expensesb (millions ofdollars) As percentage of federal government current expenditure on goods and services (excluding defence)

14.5

.69 28.8

.81

1975-79 1980-84 1985-89 1990-94 27.5

.67 59.9

.82

50.6

.75 106.0

.91

76.9

.83 164.9

1.09

97.9

.83 205.6

1.03

Notes:

a These comprise salaries, contributions to pension and insurance funds, travel and staff transfers, and other staff expenses, b These include depreciation on buildings and equipment. Sources: Bank of Canada, Annual Report, various issues; CANSIM, Time Series D11158, D ll 159, D5267.

B A N K OF C A N A D A

The managerial independence o f the Bank is also limited. The Bank is managed by a Board o f Directors consisting o f the Governor, who serves as Chair, the Senior Deputy Governor, the Deputy Minister o f Finance (a non-voting member), and twelve outside members. The outside members are appointed by the Minister o f Finance, with cabi­ net approval, to serve three-year renewable terms, and are required not to be experts in banking, but rather to come from “ diversified occupa­ tions.” By tradition they represent all provinces. These members, with cabinet approval, appoint the Governor and the Deputy Governors, and set their salaries. The entire Board approves the annual budget and revisions to the medium-term plan o f the Bank. It usually meets seven times a year. The Executive Committee o f the Board, consisting o f the Governor, Senior Deputy Governor, Deputy Minister, and four outside members, meets more frequently. Although independent o f the government, the Board o f Directors is certainly aware o f government priorities. These can be voiced directly by the Deputy Minister, and indirectly by the Governor, who meets weekly with the Minister o f Finance. There is a reason why the Board would be not only aware o f the government’ s desire to reduce the size o f the public sector, but also responsive to it. The Bank has long advo­ cated reduced government spending in order to reduce the deficit: a matter o f practising what one preaches. According to the Bank, a smaller deficit would reduce the government’ s demand for loanable funds, thereby reducing the interest rates that the suppliers o f those funds could claim. Moreover, a smaller deficit would slow the growth o f the government debt, improve the government’ s credit rating, lower the particular interest rates it must pay, and thereby reduce government spending in the future: a virtuous cycle.5 Because the Bank has long advocated reduced government spend­ ing, its own efforts in this area take on a symbolic importance far beyond their fiscal significance. Moreover, by follow ing the government’ s example, the Bank was avoiding the criticism it had re­ ceived in the past when it appeared not to do so. For example, in Feb­ ruary 1991 Finance Minister Michael Wilson announced a freeze in total government compensation for 1991-92 such that any wage in­ creases would have to be offset by fewer positions. At the same time, he announced a 3 percent cap on any negotiated wage increases for each o f the next two fiscal years. The budgeting process o f the Bank o f

383

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Canada operates on a calendar year, not the April to March fiscal year o f the government. In December 1990, the Board had approved a 4.75 percent wage increase for all Bank employees. This increase, when seen in comparison with the government salary freeze, drew criticism that, during March, spread from the House o f Commons Standing Committee on Finance, to the front and editorial pages o f newspapers, to Wilson himself.6 Critics also pointed to data on total salaries and average employment years, recently published in the Bank o f Canada Annual Report for 1990, that suggested a 7.2 percent increase in the average salary for that year. Crow defended the increases as being needed both to reduce the turnover in staff and to raise its skill mix. However, by May 1991 the Board approved a plan that would hold the average annual growth in the Bank’ s operating expenses below 3 per­ cent for the next five years, and that would immediately cut a number o f positions— primarily those o f in-house maintenance staff—to allow the Bank to observe an overall salary freeze for 1991. In June 1995, on the eve o f the Governor’ s announcement o f the revisions to the medium-term plan, the Bank was again criticized for not appearing to follow the government’ s example o f spending restraint. Late in the month, information was leaked to the press that the salary ranges for the four Deputy Governors had been raised by 10 percent as o f June 1994, at a time when wages in the government, and ostensibly the Bank, were frozen. Following the leak, the Board responded quickly, not by compensating for the higher salaries as in 1991, but rather by rescinding the raises for two years.7The difference in tack can be ex­ plained by the difference in critics the Board faced. In June 1995, the press and the Minister o f Finance were joined by Bank employees, whose salaries had been frozen for the previous three years and whose workloads and jo b security would be affected by the revisions to the medium-term plan.8 CHANGES TO THE CONDUCT OF MONETARY POLICY

The reductions in operating expenses and positions that Thiessen an­ nounced in July 1995 did not directly affect how the Bank o f Canada conducts monetary policy. Over the past three years, the Bank has adopted other changes that have affected the tools, goals, indicators, and governance o f monetary policy.

B A N K OF C A N A D A

Tools Monetary policy is defined by the tools with which it is implemented: the quantity o f money and short-term interest rates. These tools deter­ mine that monetary policy affects the economy as a whole, and cannot be adapted to treat differently certain regions or sectors or individuals. The Bank o f Canada adjusts the tools o f monetary policy by altering the composition o f its balance sheet. Base money. Money serves as a unit o f account, a store o f value, and a medium o f exchange. The Bank constructs different measures o f the stock o f money on the basis o f their liquidity— how readily the forms o f money can be used as a medium o f exchange. Narrow measures are the most liquid and may include such things as bank notes and demand deposits at banks. Broader measures include less-liquid items such as term deposits or foreign currency deposits. The particular measure o f money over which the Bank could have the greatest influence is a narrow measure called base money. It con­ sists o f currency, plus the non-interest-bearing accounts at the Bank held by deposit-taking financial institutions. Until July 1994, these accounts included the required reserves o f the chartered banks, de­ fined as a ratio o f their own deposit liabilities. Since then, the govern­ ment has eliminated the reserve requirements, believing that they did not contribute to the solvency o f the banks, but rather penalized them, because they were not required o f other deposit-taking institutions, such as trust companies or caisses populaires. At present, the accounts at the Bank o f Canada consist only o f settlement balances held by a group o f thirteen deposit-taking financial institutions called direct clearers. These balances enable these institutions to settle daily, on the books o f the Bank o f Canada, the net payments between them. The Bank o f Canada could increase base money by an open-market purchase o f a government security from a private holder, paying for the security by writing a cheque on itself.9 The private holder would deposit the cheque with a financial institution, who would either de­ posit the cheque in its account at the Bank o f Canada or redeem it for bank notes. The increase in the Bank’ s assets (the security) has been matched by an increase in its liabilities (bank notes and the account o f the financial institution): base money has been increased. Particularly when reserve requirements existed, the increase in base money would have a ripple effect, allowing the chartered banks to increase their own

385

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HOW O T T A W A SPENDS

deposit liabilities, and thereby increasing broader measures o f the money stock. Short-term interest rates. Short-term interest rates are the rates o f re­ turn on fixed-income securities that mature within one year o f being issued. Upon maturity, the original issuer pays the present owner a fixed amount o f income. The rate o f return is determined by the price the owner paid in order to receive this income. A higher price implies a lower return. The open-market purchase described above would have enabled the Bank to put downward pressure on short-term interest rates, if in purchasing the security the Bank had bid up its price within a year o f its maturing.10The Bank believes it can best control an increase in the quantity o f money, not by increasing its supply through higher base money, but rather by increasing its demand through lower inter­ est rates.11 Lower interest rates would encourage individuals to hold less o f their wealth in the form o f securities, and more o f it in forms that could also serve as mediums o f exchange. The Bank can affect short-term interest rates in other ways. One is by determining its own reserve bid at the weekly auction o f govern­ ment treasury bills. These are fixed-income securities that mature in 31,91,182, or 364 days. By raising its bid, the Bank raises the aver­ age price at which the new treasury bills are sold, thereby lowering the average rate o f return they offer.12 Another way is by managing the settlement balances by transferring funds between the government’ s accounts at the Bank and the accounts o f the direct clearers.13 The Bank may decide to transfer into the accounts o f the direct clearers more funds than they will collectively need as settlement balances. Because these accounts pay no interest, the direct clearers will dispose o f excess balances, for example by purchasing treasury bills or by offering one-day loans to investment dealers. Such actions would put downward pressure on short-term interest rates. In all o f these ex­ amples, the actions by the Bank would put downward pressure on interest rates. The reverse actions, o f course, would put upward pres­ sure on them. The Bank’s choice of tool. The Bank o f Canada focuses on short-term interest rates rather than base money, in the belief that interest rates have a more stable relationship with economic activity in general. In putting pressure on interest rates, the Bank has recently shifted from

B A N K OF C A N A D A

influencing the rate on 91-day treasury bills through the weekly auc­ tion and subsequent trading, to influencing the one-day or overnight rate through the management o f settlement balances.14This shift has been accompanied by a decline in the volume o f treasury bills pur­ chased and sold by the Bank. It has also been marked by the Bank’ s introduction in May 1994 o f a 50 basis-point (half o f 1 percentage point) target range for the overnight rate that the Bank would move up or down periodically.15In February 1996, the Bank Rate changed from being determined automatically at 25 basis points above the weekly setting o f the 91-day treasury bill rate, to being determined periodi­ cally as the upper bound o f the target range for the overnight rate. The Bank Rate is the penalty interest rate that the Bank charges on over­ night loans to the direct clearers who run a deficit in their settlement balances. The reason the Bank has shifted its focus from the 91-day treasury bill rate to the overnight rate is not simply that it can better control the latter. Sure enough, the treasury bill market has more participants who have more alternative investments both inside and outside Canada, and thus who may be more influenced by actual or anticipated changes in international interest rates or exchange rates or inflation rates. How­ ever, the Bank seeks not to control one particular rate o f interest, but rather to put pressure on the variety o f rates being offered by fixedincome securities that mature within one year. Toward this end, a Bankinduced change in the overnight rate is useful only to the extent that it affects other short-term rates, including the treasury bill rate, and in that task it will come up against the same factors that made the trea­ sury bill rate more difficult to control from the outset. The reason the Bank has shifted to the overnight rate is that it, by being more controllable, can send a clearer signal as to the direction the Bank wants short-term interest rates to move. The periodic an­ nouncement o f a new target range for the overnight rate, backed up by the Bank’ s ability to keep that rate within that range, makes clear the Bank’ s intentions in a way that the more volatile treasury bill rate cannot. The Bank believes that by making its actions more transparent it will have a stronger influence upon short-term interest rates over all, and through them, a stronger influence upon economic activity in gen­ eral. According to Thiessen, “The less uncertain the market is about

387

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HOW O T T A W A SPENDS

the Bank’ s intentions, the smoother will be the response o f other short­ term interest rates” ; moreover, “ the longer a new level o f very short­ term interest rates encouraged by the Bank’ s actions is expected to prevail, the greater the effect on the exchange rate” and other eco­ nomic variables.16To the Bank, the transparency o f its actions is not an end but a means, valued not for itself but for what it can do. As a signal, the overnight rate is not without problems. Admittedly, fluctuations in the treasury bill rate, and o f the Bank Rate tied to it, run the risk o f either concealing Bank intentions that exist, or suggest­ ing Bank intentions that do not exist. The periodic adjustment o f the overnight target range, and o f the Bank Rate tied to it, run the risk o f always suggesting a change in Bank intentions, and therefore o f trig­ gering a response in the exchange rate and other economic variables, whether warranted or not. For example, a downward adjustment in the target range, introduced simply to accommodate a downward adjust­ ment in interest rates, could be interpreted by international investors as the beginning o f a trend being enforced by the Bank, and as such could trigger a run on the dollar. A signal becomes a problem if it cannot be turned off.17 Goals The goals o f monetary policy refer to the specific ends or general ob­ jectives for which the tools are used. The preamble to the Bank o f Canada Act, originating in the 1930s, refers to these objectives in the context o f the Bank’ s mandate: to regulate credit and currency in the best interests of the economic life of the nation, to control and protect the external value of the national monetary unit and to mitigate by its influence fluctuations in the general level o f production, trade, prices, and employment, so far as may be possible within the scope o f monetary action, and generally to promote the economic and financial welfare o f Canada.18 This mandate is very broad. It requires the Bank to use its tools (“ to regulate credit and currency” ) to pursue general objectives (“ best in­ terests,” “ economic and financial welfare” ). To the extent that there are trade-offs in desirable conditions, either in the short run or in the long run, defining objectives requires the making o f assumptions or

BA NK OF C A N A D A

value judgments. The Bank is to pursue objectives, however defined, by influencing real economic variables (“ employment,” “ production” ) and nominal ones (the exchange rate, “ prices” ). This influence is to be exercised with an understanding o f how the Bank’ s tools affect eco­ nomic activity, and o f what opportunities and limitations it faces in using them (“ so far as may be possible within the scope o f monetary action” ). The Bank refers to how its tools affect economic activity as “ the transmission mechanism.” Thiessen has recently outlined the Bank’ s understanding o f it.19According to that understanding, the Bank can­ not affect the long-term aggregate supply o f goods and services. Po­ tential output is determined by available technology, and by the full employment o f the available resources, including labour, at their natu­ ral or capacity levels.20The Bank can affect the aggregate demand for goods and services. A change in short-term interest rates does so through two channels. The first is by affecting the costs o f borrowing. Lower interest rates reduce these costs, and thereby encourage producers to invest in fixed capital and inventories, and consumers to spend on durables such as motor vehicles and housing. The second channel is by affecting the exchange rate. Lower interest rates reduce the demand for Canadian fixed-income securities, and thus for the Canadian dol­ lars required to buy them. A reduced demand for Canadian dollars would cause their price to fall relative to that o f other currencies. As long as Canadian prices do not rise to offset the effects o f a lower dollar, the traded goods and services produced in Canada would be less expensive to foreigners, and those produced abroad would be more expensive to Canadians. The demand for Canadian export- and im­ port-competing goods and services would increase. Through both chan­ nels, lower interest rates tend to increase aggregate demand, and higher rates tend to decrease it. Efforts by the Bank to put downward pres­ sure on short-term interest rates are called expansionary; efforts to put upward pressure are called contractionary. Whether an expansionary policy leads to higher production and employment or to higher prices depends on both the gap between potential and actual output, and the extent to which inflation is expected. I f output is near its potential level, or if inflation is fully expected, then an expansionaiy policy would result in inflation, and would have brief or no effect on production and employment.

389

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HOW O T T A W A SPENDS

In describing the transmission mechanism, Thiessen emphasized that the effects o f the Bank’ s tools upon economic activity are slow and imprecise. They take place over long periods o f time, measured in months and years. They can be offset by fiscal actions o f the govern­ ment, political events, changes in technology, shifts in world trade, or movements in the prices o f resource products, including energy and agricultural goods. The potency o f Bank actions depends on the extent to which they, and the purposes behind them, are transparent. Accord­ ing to Thiessen: Because the effects o f monetary policy are spread over time in a way that is not readily predictable, the conduct of monetary policy must have a stable, medium-term focus. That rules out trying to fine-tune the economy in such a way as to avoid cyclical swings in production and employ­ ment.21 The nature of the transmission mechanism limits what the Bank can do. This understanding o f the transmission mechanism and o f what monetary policy can do is not particularly controversial. There is a wide consensus among economists and policy analysts about the op­ portunities and limitations that face the Bank. What is more contro­ versial is thejudgment o f the Governor and his predecessor about what monetary policy should do, about how its general objectives should be defined. According to thatjudgment, the pre-eminent goal o f monetary policy should be price stability. It can be achieved and preserved by the Bank’ s adoption o f a contractionary stance that reduces the growth o f aggregate demand until it matches the growth o f potential output. The goal is controversial because o f the questions it poses. How is price stability to be defined? How quickly is it to be achieved? What are the costs and benefits associated with achieving and preserving it? How are they to be measured? At what rate o f inflation do the costs o f achieving it outweigh the benefits? Is that rate 0 percent, 7 percent, or 3 percent, which happens to be the rate o f inflation below which the government does not index personal transfer payments or tax deduc­ tions? The Bank’ s choices o f price stability as the goal o f monetary policy, and o f the speed with which it is to be achieved, are simply that: choices. Those who judge that the associated benefits exceed the asso­ ciated costs would consider these choices good; those with different

B A N K OF C A N A D A

judgments would consider them bad.22The choice o f price stability is not somehow inherent to monetary policy or part o f its definition, con­ trary to what one could infer either from Thiessen’s assertion that “ price stability is the contribution to the effective operation o f the economy that monetary policy is capable o f delivering,” 23 or from the assertion made in the Annual Report for 1994 that “ monetary policy is con­ cerned with managing the rate o f monetary expansion in a way that is consistent with preserving the value o f money, that is, by maintaining stability in the general level o f prices.” 24 The Bank o f Canada has chosen price stability as the pre-eminent goal o f monetary policy at various times over the past four decades. Such was the case in the late 1950s under Governor James Coyne, who declared “ price stability ... essential to the maintenance over a long period o f fruitful economic growth and a consistently high level o f employment.” 25 The goal was also chosen in the late 1970s under Governor Gerald Bouey, although then the anticipated costs o f achiev­ ing it figured prominently: “ Because the inflationaiy process in Canada has become so deeply entrenched and has gained such momentum, there is no way o f bringing it under control quickly except at very heavy cost in terms o f foregone output and lost jo b opportunities.” 26 The contractionary policy o f the period was gradual. More recently and more decisively, price stability has been chosen under Crow. In January 1988 he announced that: monetary policy should be conducted so as to achieve a pace of monetary expansion that promotes stability in the value o f money. This means pursuing a policy aimed at achieving and maintaining stable prices.27 In February 1991, the Governor made this choice o f goal more tan­ gible by announcing targets for the rate o f inflation: 3 percent by the end o f 1992,2.5 percent by the middle o f 1994,2 percent by the end o f 1995, with further reductions to be announced thereafter until price stability, then to be defined, was achieved.28 These target rates were the midpoints o f a range o f plus or minus 1 percentage point. For the purpose o f targeting, inflation was to be measured by the year-overyear increase in the consumer price index, adjusted to exclude the vola­ tile effects o f food, energy, and indirect taxes. The Governor’ s announcement made the goal o f price stability more tangible, not only

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HOW O T T A W A SPENDS

because it specified these details, but also because he made it jointly with the Minister o f Finance. The Bank o f Canada’ s chosen goal o f monetary policy became, explicitly, the government’ s as well. Following thejoint announcement, there was a public discussion about whether the broad mandate o f the Bank o f Canada should be narrowed to the achievement and preservation o f price stability. The economist David Laidler proposed this narrow mandate in a monograph pub­ lished in May 1991J29The government included narrowing the man­ date among the many proposals for constitutional reform that it published in September 1991.30The question o f whether or not to nar­ row the mandate o f the Bank o f Canada was assigned to a subcommit­ tee o f the House o f Commons Standing Committee on Finance that held hearings in November 1991. At the hearings o f this Sub-Committee on the Bank o f Canada, the Bank was among the witnesses arguing for a narrow mandate. Their arguments fell under three categories. The first category centred on the anticipated benefits o f price stability: stable prices would reduce un­ certainty about relative prices in the future and would allow invest­ ment choices to be more productive, they would reduce the costs associated with hedging against and compensating for the risks o f in­ flation, and they would protect those less able to hedge.31 The second category o f arguments centred on the assumption that a narrow man­ date would make the goal o f price stability more transparent, and thus the Bank’ s anti-inflationary commitment more credible. By these ar­ guments, much o f inflation may be a self-fulfilling prophecy. People making contracts may set higher prices to compensate for expected inflation, thereby generating the inflation they expect. A legislated re­ quirement to achieve and preserve price stability could reduce infla­ tion by reducing inflationary expectations. The third category o f arguments centred on the assumption that a narrow mandate would improve the accountability o f the Bank. Given the single criterion o f price stability, the government, Parliament, and the Canadian elector­ ate could more easily judge the Bank’ s performance in conducting monetary policy. The counter-arguments for keeping a broad mandate, which would include references to such things as production and employment, were variations on the theme o f having one’ s cake and eating it too.32 The response to the first category o f arguments is that the benefits o f price

B A N K OF C A N A D A

stability are as available under a broad mandate as under a narrow one. To the extent that price stability might only be achieved or pre­ served at a cost o f foregone employment and production, a broad man­ date at least requires that such costs be taken into account when defining price stability and the pace at which it is to be achieved. Moreover, a broad mandate is more enduring. It could accommodate a revision to the Bank’ s understanding o f the transmission mechanism that might follow a discovery o f how the Bank, by using its tools, could affect not only aggregate demand, but also long-term aggregate supply. The re­ sponse to the second category o f arguments is that a narrow mandate would not make the goal o f price stability any more transparent than the jointly announced inflation targets were already doing. The re­ sponse to the third category is that a narrow mandate might make easier the Bank’ s task o f accounting for its performance, but might remove from the Bank the onus both to explain its understanding o f what it can and cannot achieve, and to justify its choices on the basis o f their anticipated and measured costs and benefits. A broad mandate places this onus on the Bank, prevents it from hiding behind legisla­ tion, allows for debate, and potentially promotes the Bank’ s public support. Having heard these arguments and counter-arguments, the Sub-Committee on the Bank o f Canada recommended that the existing broad mandate not be changed.33By the fall o f 1992, all proposals referring to the Bank o f Canada were dropped from the list o f constitutional reforms that were put forward by the government in the context o f the Charlottetown Accord. Under Thiessen, the Bank has continued to choose price stability as the pre-eminent goal o f monetary policy, operating with a broad man­ date. His appointment could be characterized as a demonstration o f continuity in this goal. Thiessen had been the Senior Deputy Governor under Crow, and therefore part o f the team choosing price stability in 1988. When his appointment was announced in December 1993, the Bank o f Canada and the governmentjointly issued a statement extend­ ing the inflation target o f 2 percent for 1995 until 1998. The statement departed slightly from what had been foreseen in February 1991. It extended, rather than reduced, the 1995 target; and it described the target in terms o f the upper and lower bounds o f 3 and 1 percent, rather than the midpoint. Moreover, it postponed until 1998, rather

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than declared, the Bank’ s and the government’ s decision as to “ what stability in the broad level o f prices means operationally.” 34 Indicators The Bank o f Canada adjusts its choice o f tools to achieve its choice o f goals, and does so with an understanding o f the slow and imprecise effects its tools have upon economic activity. In adjusting its tools, the Bank refers to data that it believes convey timely and accurate infor­ mation on the present and future conditions o f the economy, and on the degree to which monetary policy is contractionary or expansionary. The types o f data that convey this information are called economic and policy indicators. The Bank’ s choice o f indicators reflects its thinking about which ones convey timely and accurate information. The Bank interprets its chosen indicators in the context o f the pro­ jections offered by a computerized model o f the Canadian economy. The model consists o f algebraic equations designed to represent the interdependent decisions o f households, firms, the Bank, the govern­ ment, and foreigners, and the transactions among them. The numerical values o f the coefficients and parameters o f the equations are based on the Bank staffs assumptions about the magnitudes o f various influ­ ences on the decisions represented in the model. Since September 1993, the Bank has been using a new Quarterly Projection Model (QPM) rather than the Research Department Experimental (RDX) family o f models.35The new model differs from the older ones by having fewer equations, by being “ calibrated” rather than “ estimated” (the numeri­ cal values o f the coefficients and parameters are assigned to satisfy a set o f desired properties, rather than to approximate past relationships), and by tying the expectations o f decision-makers in the model to the actual projections o f the model itself. A series o f smaller satellite mod­ els, describing particular sectors o f the economy, provides a more de­ tailed breakdown o f the QPM projections. Because o f these and other differences, the Bank believes that the QPM provides more reliable depictions o f future economic activity than did the RDX models. The Bank updates the QPM and its projections four times a year, alternating between seven- and two-year time horizons.36 For each update, staff compare newly available data with what had been previ­ ously assumed or projected, and judge whether any differences are transitory or enduring. If they judge the latter, then they may revise the

B A N K OF C A N A D A

values o f the model’ s coefficients and parameters. With these revi­ sions, and a new starting point, QPM projects a new path for policy variables— including short-term interest rates— that is consistent with the goal o f keeping inflation within the target range. The model and its satellites also project paths for consumption, investment, government expenditure, exports, and a set o f disaggregated economic variables. The differences between these projections and data that become avail­ able in the future form the basis o f future updates. Bank publications refer to numerous indicators o f present and future economic conditions.37The growth o f the American or Japanese econo­ mies may suggest changes in aggregate demand coming from foreign sources. Consumer spending, inventory levels, and the growth o f M l (a narrow measure o f the money stock) may suggest changes in aggre­ gate demand coming from domestic sources.38 The output gap— the difference between estimated potential output and actual output— may suggest the extent o f inflationary pressures. Similar information may be conveyed by excess productive capacity in a variety o f industrial groupings, or the slackness in the labour market as suggested by the unemployment rate or average wage settlements. The Bank believes that movements in the exchange rate affect the price level over a period o f two years, and that the growth in M2+ (a broad measure o f the money stock) is a good indicator o f future inflation. Recent publications report that the Bank is giving greater attention to two new indicators o f the stance o f monetary policy: the term spread and the monetary conditions index. The term spread equals a long­ term rate o f interest minus a short-term rate, typically measured by the rates o f return on government bonds maturing in ten years or more, and on 91-day treasury bills. Long-term rates are less influenced by monetary policy than are short-term rates, such that the difference be­ tween the two is thought to be a better gauge o f the present stance o f policy than are short-term rates alone. A large positive term spread suggests an expansionary stance; a small positive or negative term spread, a contractionary one. The Bank has inferred the usefulness o f this indicator from recent tests that find a positive relationship be­ tween it and subsequent growth in gross domestic product.39 The second indicator receiving greater attention is a monetary condi­ tions index (MCI), which combines data from the two channels through which the Bank believes it can affect aggregate demand: short-term

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interest rates and the exchange rate. In constructing a formal index, the Bank uses a 91 -day rate and a trade-weighted average value o f the Canadian dollar measured against major foreign currencies. The index weights the change in the exchange rate one third as much as the change in the interest rate, based on the belief that a 3 percent change in the exchange rate has an effect on aggregate demand comparable to a 1 percent change in the interest rate. A lower MCI suggests a more ex­ pansionary stance; a higher MCI, a more contractionary one.40 The Bank has used the MCI as an operational guide to monetary policy for several years. Under Thiessen, the conduct o f monetary policy can be summarized by the following framework. The Bank and gov­ ernment jointly announce a target range for inflation, making trans­ parent their pre-eminent goal. The movement o f inflation within the target range, or changes in inflationary pressures as suggested by dif­ ferences between the observed and projected values o f particular eco­ nomic indicators, may require an adjustment in the desired path o f the MCI. For a given exchange rate, this adjustment suggests a change in short-term interest rates. The Bank makes transparent its desired change in short-term rates by announcing a change in the target range for the overnight rate. Within this framework, the target ranges for inflation and the overnight rate promote transparency. They help make clear the Bank’ s purposes and actions, in order to strengthen its influence on economic activity. Within this framework, the MCI pulls the curtain. It prevents the policy decisions o f the Bank from becoming transparent. By itself, the index reveals little. The numerical value o f the MCI measures changes in two variables from an arbitrary starting point, and therefore has no absolute meaning. A given value could indicate that the stance o f policy is too expansionary, too contractionary, or just right, depending on the economic context in which it is interpreted. In defining that context, the values o f other indicators and the Bank’ s unpublished projections are key. Although the MCI suggests clarity and coherence in the Bank’ s decision-making, it preserves a degree o f undetectable discretion. It is too early to determine the consequences o f the MCI as an opera­ tional guide.41 Will it require interest rates to become more volatile in order to offset swings in the exchange rate? Will it make a more ex­ pansionary stance difficult to introduce in small measures, a decline in

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interest rates perhaps triggering a run on the Canadian dollar? Does only the level o f the MCI matter, as the Bank suggests, or does its composition matter as well, given that interest rates and exchange rates affect aggregate demand through different channels? These questions can be addressed after a longer period o f observation. Governance Governance deals with who is, and who should be, responsible for monetary policy, for choosing the tools, goals, and indicators, for ap­ plying them, and for receiving compliments or complaints. In Canada, the question o f governance has centred on defining a balance between legitimacy and independence. Legitimacy is a condition in which poli­ cies and policy-makers receive and retain general public support. In practice, it requires the policy-makers to be answerable to the elector­ ate or the electorate’ s representatives sitting in Parliament or forming the government. Independence, as it applies to monetary policy, has two themes.42 The first centres on the need for technical knowledge and quick response when dealing with financial markets, which pre­ cludes receiving government approval for much o f the conduct o f mon­ etary policy. The second theme centres on the inflationary bias and uncertainty that might result if the power to spend money were not separate from the power to print it. According to the Royal Commis­ sion on Banking and Finance: If market values [of interest rates] were subject to capricious influence from government efforts to gain the temporary fancy o f the electorate, neither Canadians nor foreigners would be as willing to invest in this country.... It is only realistic to recognize that government might occasionally be tempted to use the monetary system in an inappropriate way to finance its requirements through the hidden and discriminatory tax o f inflation rather than through taxes which expose it to close, and possibly embarrassing, parliamentary and public scrutiny.43 In the Royal Commission’ s mind, although there is in general a trade­ o ff between independence and legitimacy, each does not always dimin­ ish the other. The Royal Commission was created following the resignation o f Governor Coyne in 1961. His resignation came after the House o f

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Commons passed a bill declaring the governorship vacant. It ended a term characterized by evident and unresolved differences between the Governor and the government on the contractionary stance chosen by the Bank, as well as on statements made by Coyne concerning the size o f the deficit and the extent o f foreign investment in Canada. To pre­ vent such unresolved differences in the future, and to define a work­ able balance between legitimacy and independence, the Royal Commission called for “ a dual system o f responsibility under which the Bank formulates monetary policy and executes it from day to day but under which the government must accept full and continuing re­ sponsibility for the policy being followed, although not in the normal course for the details o f its execution.” 44 In the event o f unresolved differences between the Bank and the government, the Minister o f Fi­ nance should have the right to issue a directive to the Governor speci­ fying the changes in the conduct o f monetary policy the government wishes and the period over which they are to be undertaken. By impli­ cation, the Governor would either comply with the directive, or resign. The ideas o f dual responsibility and o f the directive were put forward by the Bank under Coyne’ s successor, Governor Louis Rasminsky. The directive was added to the Bank o f Canada Act in 1967. The Royal Commission made clear that the directive was to be “ used only as a last resort and after extensive and conscientious attempts to reach agreement have failed.” 45 To date, it has never been used, and thus, one assumes, has never been needed. Nevertheless, the directive underlines the central position o f the Governor in determining mon­ etary policy. The Governor is appointed for a seven-year renewable term by the Board o f Directors, with Cabinet approval, and holds the position “ during good behaviour.” The Governor meets weekly with the Minister o f Finance, and chairs the weekly meetings o f the Execu­ tive Committee and the periodic meetings o f the Board. The Governor submits the Annual Report to the Minister. On that and other occa­ sions, the Governor appears before the House o f Commons Standing Committee on Finance. So central is the Governor to the determination and defence o f monetary policy that, as implied by the directive, a change in policy would likely require a change in Governor. The central position o f the Governor was evident under Crow. He announced the goal o f price stability in 1988. Prior to the government’ s

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giving explicit support to this goal in 1991, he oversaw and defended the Bank’ s contractionary policy, which peaked in 1990. Table 12.2 provides annual data for indicators o f the economic conditions and the stance o f monetary policy over the seven-year term o f Crow. The term began with inflation exceeding 4 percent, capacity utilization high, gross domestic product growing at an annual rate above 4 percent, and the unemployment rate falling below 8 percent. The shift toward a more contractionary stance was evident after 1988: the treasury bill rate increased, and with it the value o f the Canadian dollar. The term spread declined and then became negative for 1989 and 1990. A mon­ etary conditions index rose and peaked in 1990. The change in eco­ nomic conditions is striking. Inflation fell below 2 percent by 1992; however, gross domestic product declined in both 1990 and 1991, M l shrank in 1990, capacity utilization fell, and the unemployment rate rose above 11 percent by 1992. In the eyes o f the opposition parties, the provincial governments, editorial writers, and many in the general public, the Bank o f Canada was responsible for worsening, if not cre­ ating, the recession. Much o f the criticism was directed toward Crow, who came to personalize the goal o f price stability and the costs asso­ ciated with achieving it. In this context, governance became a subject o f public discussion, as it had three decades before. Now, however, the discussion took place with the government explicitly supporting the controversial goal o f price stability. David Laidler, in the same monograph in which he rec­ ommended a narrow mandate, argued that “ anyone concerned with maintaining the political legitimacy o f the Bank o f Canada should be deeply worried not just that its policy commands such slender political support, but also that criticism o f policy so frequently takes the form o f personal attacks on the governor.” 46 To address the situation, he proposed to “ improve” the “ public image o f policy” such that “ it would seem to be the result o f the careful deliberations o f a committee o f well-informed experts, and it could not be misrepresented, as it too often is at present, as reflecting the whim o f one person.” 47This could be done, he suggested, by changing the role o f the Board o f Directors from overseeing the internal management o f the Bank, to contributing toward the determination and defence o f monetary policy. Toward that end, the outside members would become a group o f six full-time

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Table 12.2 Policy and Economic Indicators, 1987-93 1987

1988

1989

1990

1991

1992

1993

91-day treasury bill rate (percent)

8.19

9.42

12.02 12.80 8.85

6.50

4.91

term spread3 (basis points)

175

81

-210

-199

97

227

295

monetary conditions index (basis points)

0

340

784

880

544

88

-288

inflation0(percent)

4.30

3.93

4.80

3.96

3.64

1.63

1.69

gross domestic product growth*1 (percent)

4.2

5.0

2.4

-.2

-1.8

.8

2.2

Ml growth6 (percent)

14.1

5.4

3.9

-.8

4.6

5.5

10.8

capacity utilization rate (percent)

85.1

86.2

84.4

81.5

78.7

78.5

80.0

unemployment rate (percent)

8.9

7.8

7.5

8.1

10.4

11.3

11.2

Notes:

a Difference between the average annual yields on Government o f Canada bonds with maturity over 10 years, and the average annual yield on 91-day treasury bills. b The change in the 91-day treasury bill rate from its value in 1987, plus onethird o f the percentage change in the Canadian dollar index against G-10 currencies from its value in 1987. c Based on the consumer price index, adjusted to remove the effects o f food, energy, and indirect taxes. d Measured at constant prices. e Consists o f currency outside banks, plus Canadian-dollar demand deposits at the chartered banks. f Total non-farm goods producing industries. Source: Bank o f Canada, Bank o f Canada Review (various issues).

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experts, appointed for staggered seven-year terms by Cabinet, drawn from short lists put forward by provincial governments. The government contributed to the public discussion by including greater provincial involvement with the Bank among its proposals for constitutional reform.48Those proposals, however, would not change the role o f the Board. Rather, the outside members o f the Board would be appointed by Cabinet, in consultation with the provinces, and would chair new regional consultative panels that could more formally intro­ duce regional economic concerns into the Bank’ s deliberations. More­ over, the Governor’ s appointment would require ratification by a reformed Senate that would be elected and provincially representative. The Sub-Committee on the Bank o f Canada reviewed these models for changing the structure o f governance, as well as models from other countries. It concluded that none demonstrated an obvious superiority over the current structure, and that the problems associated with a concentration o f decision-making power with the Governor and the lack o f regional input were not very great. It recommended only that some o f the outside members o f the Board be selected for their exper­ tise in monetary policy.49Crow interpreted this conclusion as a vindi­ cation o f his view that “ something that wasn’ t broken did not need to be fixed,” and a rejection o f Laidler’ s view, which he characterized as “ the Bank o f Canada was not broken b u t... there still were reasons why it needed fixing anyway.” 50 Although Crow believed that the structure o f governance at the Bank was neither broken nor in need o f repair, his successor obviously has not shared this belief. As Governor, Thiessen has initiated reforms designed to address the concerns expressed by Laidler. Whereas Laidler had proposed to improve the public image o f monetary policy by enhancing the role o f the Board, Thiessen has chosen to do this by enhancing the role o f the Deputy Governors. As o f June 1994, the four Deputy Governors, together with the Governor and the Senior Deputy Governor, form a new Governing Council. In announcing this new Council, Thiessen stated that its purpose was to decentralize the decision-making process at the Bank, and to make it more collegial. Collectively, its members make decisions on broad organizational and strategic issues, and on the basic principles concerning monetary policy. Individually, the four Deputy Governors make decisions within four

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jurisdictions: Monetary Policy and Financial Analysis, Economic Analysis, Financial Markets, and Administration.51 The formation o f the Governing Council coincided with the adoption by the Bank o f a new approach to communicating with outside audi­ ences. This approach attempts to improve the Bank’ s public image, in part by lowering the profile o f the Governor. Previously, the Deputies could only make speeches outside the Bank on condition that they not be quoted by name. This was to ensure that the Bank spoke with one voice, that o f the Governor. This condition o f non-attribution has been dropped, and the number o f speaking engagements for the Deputies has been increased. Moreover, since 1995 the Governing Council has issued a semi-annual Monetary Policy Report that is “ designed to in­ crease the transparency and understanding o f Canadian monetary policy.” 52The Monetary Policy Report covers recent developments in inflation, the outlook for inflation, and the experience o f the Bank in meeting the targets. As part o f the new approach, the Annual Report for 1994, the first under Thiessen, adopted a new format geared to­ ward a more general audience. Referring to this format, the Governor explained that “ communicating what the Bank is up to and why is important if we are going to maintain the confidence o f Canadians.” 53 Much o f the economic analysis, together with the charts and tables found in previous Annual Reports, has been moved to the semi-annual Monetary Policy Reports. In their place is an expanded description o f the operating expenses, activities, and innovations at the Bank, a state­ ment o f its strategic directions, and an overview o f its governing struc­ ture. This overview includes individual photographs o f the outside members o f the Board o f Directors and a group photograph o f the Governing Council, making these individuals literally visible for the first time. MAKING TRANSPARENCY TRANSPARENT

Since the appointment o f Governor Thiessen in February 1993, the Bank o f Canada has experienced considerable change. Its operating expenses and staff positions have been cut to an extent, and by meth­ ods, similar to those adopted by the federal government. The overnight rate has become the main tool o f monetary policy, as suggested by the

B A NK OF C A N A D A

adoption o f a target range to which the Bank Rate is now tied. Price stability remains the pre-eminent goal o f monetary policy, as confirmed by the extension o f inflation targets. A monetary conditions index, combining interest rate and exchange rate measures, has received greater attention as an indicator o f the stance o f monetary policy. The Bank decides upon a desired path for this index, with reference to the eco­ nomic projections offered by a new model o f the Canadian economy. A new Governing Council and a new approach to communications por­ tray more collegial decision-making. These recent changes emphasize the importance o f appearances. This does not mean that the changes are superficial or misleading. Rather, this means that, for the Bank, doing the right thing includes being seen to do it. The cuts in expenses had a symbolic importance that exceeded their fiscal significance. Transparency is a key concept behind changes to the conduct o f monetary policy. It lies behind the adoption o f the target range for the overnight rate, the periodic adjustment o f the Bank Rate along with that range, the extension o f the target range for infla­ tion, and the concerted effort to improve the public image o f monetary policy. Transparency has meant that under Thiessen the Bank has become more open about its actions, purposes, decisions, and procedures. However, transparency does not mean that the Bank has become more responsive to those who disagree with its choices in these areas. To the Bank, transparency represents a change in method, not a change in priority. In its priorities, the Bank remains very much as it was under Crow. And even as a change in method, transparency has not applied universally, as suggested by the extent o f undetectable discretion pre­ served by the MCI, or by the secrecy surrounding the salary increases for the Deputy Governors. To the Bank, transparency has value not in itself, but for what it can do. And what it can do, in the Bank’ s judg­ ment, is strengthen both the Bank’ s influence on economic activity and the Bank’ s position in Canadian polity. Will transparency, as adopted by the Bank, strengthen the Bank’ s influence on economic activity? Possibly. The target range for the over­ night rate, and the periodic change in the Bank Rate, could assist the Bank in signalling the direction in which it would like interest rates to move. However, to be effective, a signal must be not only seen, but

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also understood and believed. Changes in the target range for the over­ night rate must be accompanied by press releases explaining the inten­ tions and rationale behind the changes, and, over time, by an earned reputation for keeping interest rates at the target levels for as long as necessary. The target range for the rate o f inflation could assist the Bank in achieving and preserving price stability by reducing inflation­ ary expectations. However, the target range alone cannot do this: it must be accompanied by credibility in the Bank’ s pledge to keep infla­ tion within the range. The MCI, by preserving a degree o f undetect­ able discretion, may work against the Bank’ s gaining or keeping this credibility. Will transparency, as adopted by the Bank, strengthen the Bank’ s position in Canadian polity? Unlikely. That position is already strong. The government explicitly supports the Bank’ s choice o f policy goal. The directive, which enables the Minister o f Finance to change the Bank’ s conduct o f monetary policy, has consequences that may dis­ courage the Minister from using it. If used, the directive would pit the government’ s expertise and communications skills against those o f the Bank, and it would make manifest the government’ s ultimate responsi­ bility for monetary policy and for receiving the associated criticism. The establishment o f the Governing Council and the new approach to communications may have changed the messengers o f the Bank, but not the message. Different messengers may allow the Bank’ s decisions to be stated more clearly, and the Bank’ s decision-making to appear more collegial. However, they do not alter the fact that, for good or ill, the Bank’ s priorities have not changed. To the extent that the Bank has made its actions and purposes more transparent, so as to strengthen its influence upon economic activity, it may attract greater attention from persons who believe themselves or others hurt by those actions and purposes. If the Bank under Thiessen is to receive less public criticism than the Bank under Crow, it will be the result not o f transparency in governance, and certainly not the result o f transparency in the Bank’ s actions and purposes. Rather, it will be the result both o f inflationary pressures, and thus short-term interest rates, remaining low, and o f the Bank being correct in thinking that full employment can be and will be achieved under price stability.

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NOTES

The author greatly appreciates the comments o f Gene Swimmer, Steve Harris, Larry Schembri, Tom Rymes, and Gary MacDonald, on an earlier version o f this chapter. 1 2 3 4

5 6

7

8

9

10

11 12

H. Scott Gordon and L.M. Read, “The Political Economics o f the Bank o f Canada,” mimeograph (June 1958), 18. Gordon Thiessen, “Notes for presentation to staff on activity review and the medium-term plan,” mimeograph (July 6,1995), 4. Bank of Canada, Annual Report 1994 (Ottawa: Bank o f Canada, 1995). Of course the relative size of the Bank would appear much smaller if one used total expenditure, which includes defence spending, transfer payments, interest on the debt, and capital investment. See, for example, Bank o f Canada, Annual Report 1993 (Ottawa: Bank o f Canada, 1994), 8-9. Alan Freeman, “ Bank Wages Goad Wilson: Minister Vows to Apply Federal Restraint Guidelines,” The Globe and Mail [Toronto], March 21, 1991, B5. Canadian Press, “Bank o f Canada Nixes Big Pay Hikes: Thiessen Denies Martin’s Anger Behind Move,” The Globe and Mail [Toronto], June 30, 1995, B3. Following the leak, the Governor met with the senior staff o f the Bank, and apologized not for the decision to raise the salaries o f the Deputy Governors, but rather for the “ lack of transparency”—the secrecy— surrounding that decision. According to a confidential interview, the senior staff were outraged. The Bank currently uses open market operations not to affect base money, but rather to signal the direction in which it would like short-term interest rates to move. The Bank would use an open market purchase to signal a downward direction, neutralizing the effect upon base money by transferring government deposits from the direct clearers to itself. Some open-market purchases o f government securities are accompanied by an agreement by the Bank to sell them back the next business day at a marginally higher price. Such a transaction—called a Special Purchase and Resale Agreement—allows the Bank to put downward pressure on the one-day interest rate—called the overnight rate—regardless of the maturity o f the security being transacted. Bruce Montador, “The Implementation o f Monetary Policy in Canada,” Canadian Public Policy, 21, 1 (March 1995), 110-11. This action would also increase base money. By raising its bid, the Bank would be buying more treasury bills from the government, paying for

405

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them by writing cheques on itself that the government would deposit with the direct clearers. 13 Kevin Clinton, “ Bank o f Canada Cash Management: The Main Tech­ nique for Implementing Monetary Policy,” Bank o f Canada Review (January 1991), 3-25. 14 The management o f settlement balances, whereby the Bank transfers more-than- or less-than-sufficient funds from the government’s account to the accounts of the direct clearers, presumes that the direct clearers do not know the exact outcome o f the net payments between them, and thus are uncertain about whether they have a surplus or deficit o f funds in their account, until the next day. This is the result of the net payments being determined by cheques and other paper-based items, which are cleared overnight. In 1997, however, a new electronic system for the transfer o f large payments will replace most o f the paper-based system, and will eliminate most of the uncertainty by providing immediate settlement o f large payments. After 1997, therefore, the Bank will no longer manage the settlement balances. Rather, at the end of each business day it will give the direct clearers the opportunity to lend and borrow overnight funds between themselves in order to reduce their known net deficit or surplus positions. The rate at which these funds will be lent and borrowed will lie somewhere between the Bank Rate that the Bank will charge on overnight loans to those with a deficit, and the Bank Rate less 50 basis points that the Bank of Canada will now pay those with a surplus. Proposed legislation will allow the Bank, for the first time, to pay interest on surplus settlement balances. These rates that the Bank will charge and pay define the upper and lower bounds of its target range for the overnight rate. See Bank o f Canada, “A Proposed Framework for the Implementation o f Monetary Policy in the Large Value Transfer System Environment,” Bank o f Canada Review (Winter 1995-96), 73-84. 15 Small differences in percentages are measured in basis points, where 1 percentage point equals 100 basis points. 16 Gordon Thiessen, “Uncertainty and the Transmission o f Monetary Policy in Canada,” Bank o f Canada Review (Summer 1995), 46. 17 This problem was anticipated when, in June 1962, the Bank changed the way die Bank Rate was determined: from adjusting at 25 basis points above the 91-day treasury bill rate to being set periodically. See Royal Commission on Banking and Finance, Report (Ottawa: Queen’s Printer, 1964), 464. In March 1980 the Bank Rate was again allowed to adjust above the treasury bill rate. 18 Government of Canada, Bank o f Canada Act (Ottawa: Minister of Supply and Services, 1994), 1. 19 Thiessen, “Uncertainty,” 41-58. 20 In labour markets, the concept of full employment is consistent with unemployment resulting from the temporary transfer o f workers between

B A N K OF C A N A D A

jobs (frictional unemployment), or from the mismatch of skills sought and skills available (structural unemployment). 21 Thiessen, “Uncertainty,” 56. 22 Some who have criticized the Bank’ s choices since 1988 have argued in favour of a less contractionary stance, in the belief that a better benefitcost mix could have been attained under lower interest rates and a lower value of the dollar. According to this view, the costs o f higher inflation would have been outweighed by the benefits of higher employment over the 1988-93 period. See, for example, Pierre Fortin, “The Canadian Fiscal Problem: The Macroeconomic Connection,” Michael C. McCracken, “ Recent Canadian Monetary Policy: Deficit and Debt Implications,” and Pierre Fortin and Lars Osberg, “Credibility Mountain” in Pierre Fortin and Lars Osberg, eds., Unnecessary Debts (Toronto: James Lorimer and Company, 1996), 26-38, 71-89, 157-72. These authors argue that the contractionary policy o f the Bank has increased the government’ s deficits and debt by raising the interest payments on what the government has borrowed, and by slowing the growth of gross domestic product and the associated tax revenues. 23 Thiessen, “Uncertainty,” 57. 24 Bank o f Canada, Annual Report 1994, 10. 25 Cited by H. Scott Gordon, The Economists Versus the Bank o f Canada (Toronto: The Ryerson Press, 1961), 38. 26 Gerald Bouey, “ Statement before House o f Commons Standing Commit­ tee on Finance, Trade and Economic Affairs, 6 November 1975,” Bank o f Canada Review (November 1975), 4. 27 John Crow, “The Work o f Canadian Monetary Policy,” Bank o f Canada Review (February 1988), 4. 28 Bank of Canada, “Press release: Targets for reducing inflation, 26 February 1991,” Annual Report 1990 (Ottawa: Bank o f Canada, 1991), 61-62. 29 David E. W. Laidler, How Shall We Govern the Governor? A Critique o f the Governance o f the Bank o f Canada (Toronto: C.D. Howe Institute, 1991). 30 Government o f Canada, Canadian Federalism and Economic Union: Partnership for Prosperity (Ottawa: Minister of Supply and Services, 1991), 37-39. 31 For a discussion o f the benefits o f price stability, see Bank of Canada, Annual Report 1990 (Ottawa: Bank o f Canada, 1991), 13-15. 32 For a summary o f these counter-arguments, see Peter Howitt, “Reform of the Bank o f Canada and Harmonization o f Macroeconomic Policies,” in Robin W. Boadway and Douglas D. Purvis, eds., Economic Aspects o f the Federal Government’s Constitutional Proposals (Kingston: John Deutsch Institute, Queen’ s University, 1991), 48-59.

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33

34 35

36

37 38

39

40

41

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43 44 45 46 47 48 49 50 51 52 53

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Canada, House o f Commons, Minutes o f Proceedings and Evidence o f the Standing Committee on Finance, First Report o f the Sub-Committee on the Bank o f Canada (Ottawa: House o f Commons, 1992), 13-25. Bank of Canada, “ Press release,” 61. S. Poloz, D. Rose, and R. Tetlow, “The Bank of Canada’ s New Quarterly Projection Model (QPM): An Introduction,” Bank o f Canada Review (Autumn 1994), 23-38. P. Duguay and S. Poloz, “The Role o f Economic Projections in Canadian Monetary Policy Formulation,” Canadian Public Policy, 22, 2 (June 1994), 189-99. See, for example, Bank of Canada, Monetary Policy Review (November 1995). During the 1970s, the Bank explicitly relied on Ml as an indicator o f aggregate demand, until financial innovations late in the decade made it unreliable. For a description o f these innovations, see Charles Freedman, “Financial Innovation in Canada: Causes and Consequences,” American Economic Review, 73 (May 1983), 101-06. Kevin Clinton, “The Term Structure of Interest Rates as a Leading Indicator o f Economic Activity: A Technical Note,” Bank o f Canada Review (Winter 1994-95), 23-40. For a description o f the use o f the MCI, see Charles Freedman, “The Role o f Monetary Conditions and the Monetary Conditions Index in the Conduct o f Policy,” Bank o f Canada Review (Autumn 1995), 53-60. For an argument against using interest rates and exchange rates as operational guides that pre-dates the MCI, see David E.W. Laidler and William B.P. Robson, The Great Canadian Disinflation (Toronto: C.D. Howe Institute, 1993), 51-79. For a critique o f these themes, see H. Scott Gordon, “The Bank o f Canada in a System o f Responsible Government,” Canadian Journal o f Econom­ ics and Political Science, 27, 1 (February 1961), 13-22. Royal Commission on Banking and Finance, Report, 541-42. Ibid., 543. Ibid. Laidler, How Shall We Govern the Governor? 22. Ibid. Government o f Canada, Canadian Federalism and Economic Union, 39-40. Canada, House o f Commons, Minutes o f Proceedings, 27-37. “ What to Do About the Bank o f Canada,” Bank o f Canada Review (June 1992), 10. Gordon Thiessen, “Memorandum to staff, 27 May 1994.” Bank o f Canada, Monetary Policy Report (November 1995), 3. Bank o f Canada, Annual Report 1994 (Ottawa: Bank o f Canada, 1995), 5.

13 Security and Intelligence in a Cold Climate

REG WHITAKER

TOUGH TIMES IN THE SPY WORLD

O ecurity” and “ intelligence” conjure up no end o f exotic images: spies and counterspies; disloyalty and treason; bugs and wiretaps; codes and codebreaking; deception and betrayal. The imaginary spymasters James Bond and George Smiley hover in the background, not to speak o f the semifictionalized figures o f Kim Philby, Igor Gouzenko, and even Mata Hari. These images are harmless enough so long as they remain fixed in the world o f spy novels and sensational journalism, but they are pretty misleading when applied to the real world o f security and intelligence-gathering as a routine aspect o f government opera­ tions, which is anything but romantic. Security and intelligence are different from other areas o f policy. They have always been part o f a “ secret state” within the state. As

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such, less has been known about these activities, and thus less about how well or badly they are done. Privileged by a degree o f secrecy unavailable to other, more normal government departments, security and intelligence agencies have escaped much o f the detailed scrutiny imposed upon others, from without (Parliament, press, and public), but also from within (Cabinet and the central agencies). Shrouded in secrecy, such agencies have tended to attract a fair amount o f mytho­ logy. Extravagant notions o f sinister influence coexist with uninformed allegations o f incompetence. In Canada, no less than three royal commissions as well as a parlia­ mentary review1have been called into being in the postwar era to ex­ amine aspects o f the secret state and recommend changes, and as recently as 1984 a new legal regime was constituted to mandate and regulate the security side. The current Liberal government has com­ mitted itself to establishing for the first time a statutory regime for Canada’ s external electronic eavesdropping agency. Over the years, scandals have periodically erupted in the media, and show no sign o f abating. Obviously, these activities have posed persistent problems for successive governments. Just as obviously, no precise and lasting bal­ ance o f control and autonomy has yet been struck. To add to the pervasive sense o f administrative unease surrounding security and intelligence, the entire field o f activity (both in Canada and internationally) has just undergone a massive paradigm shift with the end o f the Cold War and the frantic search for new roles and bud­ getary justifications that has followed in its wake. And in this precise moment o f maximum vulnerability, the fiscal crisis o f the state has forced these agencies into the unfamiliar position o f having to downsize their establishments and operations and face degrees o f financial ac­ countability never seen before. In short, times are tough in the spy world. O f course, no sympathy can be expected from other sectors o f the bureaucracy, also facing tough times, which resent the special position o f relative privilege and exemption from critical scrutiny enjoyed by security and intelligence in the past. From the public, and a cynical press, suspicion is the most likely attitude— hardly surprising given the deliberate obscurity in which these activities were, and still are, cloaked. The most important issue is how the executive branch o f government intends to handle this area and what it has in mind for security and intelligence in the future. This

SECURITY AND INTELLIGENCE AGENCIES

remains an unusual, if not anomalous, area o f policy and administra­ tion, one that offers a concrete test case o f the Liberal government’ s capacity to get its bureaucratic house in order. SECURITY AND INTELLIGENCE AS BUREAUCRATIC FUNCTIONS

The world is, and has been for a very long time, a system o f sovereign states (or at least states with the pretensions o f national sovereignty). States form, among other things, monopolies o f knowledge. Each state protects, well or badly as the case may be, its own “ secrets.” More aggressive and resourceful states attempt to uncover the closely guarded secrets o f other states, which they deem relevant or potentially rel­ evant to their own security. To the international state system we should add the more recent appearance o f multinational corporations as sig­ nificant international actors, with interests in protecting trade secrets and in ferreting out the secrets o f their competitive rivals, and the com­ plex relationships between these corporations and the various state actors. “ Intelligence,” properly understood, is really no more than the sys­ tematic collection (from both open and closed sources), evaluation, analysis, and interpretation o f information required by governments about other states or activities outside national boundaries. Acquisi­ tion o f closed information may be by either human or technical means. The former involves direct collection by agents or sources, the latter by the interception and decrypting o f protected communications, or by sophisticated sound, image, and electromagnetic surveillance. Intelli­ gence is an information product consumed in the first, and often the last, instance by the governments that order its production, and is a bureaucratic process kept within as tight bounds o f secrecy as pos­ sible. “ Counter-intelligence” has to do with the acquisition o f information or the taking o f action designed to neutralize hostile intelligence ser­ vices. “ Security” is related to counter-intelligence, but has broader origins as well. States look to protect their national security against threats from abroad and from within. Espionage, foreign-directed ter­ rorism, and clandestine foreign-influenced activity considered detri­ mental to national interests are prime examples o f external threats.

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Internal threats could include domestic-inspired terrorism or political violence, sabotage, and the controversial category o f “ subversion” (more about this later). In practice, external and internal threats have often been linked, as during the Cold War, when the Soviet threat was em­ bodied in espionage as well as in Communist-inspired domestic sub­ version believed to be directed by Moscow. Whether the threats are external or internal, secrecy o f operations is crucial. The argument is that such threats are mounted in a clandestine or covert fashion, and thus demand extraordinary, clandestine meth­ ods o f protection and countering. The methodology o f security and intelligence operations must be kept away from hostile eyes, and the only way that this can be done is by securing this information from friendly but unauthorized eyes as well. Moreover, the identity o f secret sources o f intelligence must be protected at all costs, and governments habitually build formidable barriers o f secrecy around this informa­ tion. Although these rationales for secrecy are unassailable on their own terms, critics suggest that they are too often used as ironclad excuses to cover up incompetence, malfeasance, or violations o f citi­ zens’ rights. The problem is that the state cannot have it both ways: secretive methods cannot be made transparent, but without transpar­ ency, distrust and suspicion will linger about what the state is doing. Canada historically has been less involved in foreign intelligence than have our closest allies. Canada does not now have and never has had a centralized foreign intelligence-gathering agency like the Cen­ tral Intelligence Agency (CIA) or Britain’ s Secret Intelligence Service. This does not mean that Canada gathers no foreign intelligence, just that it is not as concerted and co-ordinated in pursuit o f this kind o f information as are our more single-minded neighbours. Various de­ partments do gather some intelligence abroad, notably Foreign Affairs for political intelligence, and National Defence for military intelligence. The nearest we have to a central agency is the Communications Secu­ rity Establishment (CSE), whose appropriations are hidden under the Defence Ministry budget and on whose behalf the Minister o f National Defence purports to answer in Parliament. The CSE has its origins in the Examination Unit set up under External Affairs during the Second World War, which became the Communications Branch National Re­ search Council after the war and later the CSE. This agency is wholly concerned with technical intelligence-gathering, specifically “ signals

SECURITY AND INTELLIGENCE AGENCIES

intelligence,” or electronic eavesdropping. From the late 1940s, it has been closely tied to its elder sister agencies, the National Security Agency (NSA) in the United States and the Government Communica­ tions Headquarters (GCHQ) in the United Kingdom, as a junior part­ ner in a worldwide monitoring network directed mainly against communications in the Soviet bloc. The other half o f the CSE mandate is to secure Canadian government communications from unauthorized eyes. The CSE until recently attracted little public attention. Most public notice— occasionally notoriety— has attached to the internal security side, namely, until 1984, the Security Service, a section o f the Royal Canadian Mounted Police (RCMP), and, since then, the Canadian Security Intelligence Service (CSIS). As a country with a relatively limited foreign intelligence role, Canada tended to focus its interest more on internal threats to security. Various political movements, from Sikh extremists to fascist groups, have been targeted as threats over the years by the Security Service, but its main preoccupation from the First World War until very recently has been parties, movements, and organizations o f the political left, and, at least during the 1960s and 1970s, Quebec separatist movements as well. Since the end o f the Cold War, terrorist and extremist movements o f whatever ideological stripe, both foreign and domestic in origin, have become the major focus. Domestic political movements targeted as threats are usually linked (whether accurately or not is often a matter o f controversy) with hos­ tile external forces. Such targeting is inevitably controversial, as it involves the state in defining what constitute legitimate forms o f politi­ cal dissent— and exercising sanctions against those who are judged to step outside these limits. This sort o f activity has been described as “ political policing,” something inherently at odds with the rhetorical principles o f liberal democracy, but an activity that has always been present, in one form or another, in actual liberal democracies.2Politi­ cal policing is obviously contentious, with potential for great divisive­ ness. The divisiveness has been particularly evident in Canada since the 1960s, when domestic political movements— most importantly Quebec separatism, but also a mainly homegrown New Left in English Canada— became primary targets for state surveillance and interfer­ ence. It is in fact public scandals that have led to major policy and legislative changes,3 and such scandals have usually resulted when

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some section o f the citizenry has felt itself to be unfairly or inappropri­ ately treated. Canada is hardly unique in this. All our neighbours have themselves suffered periodic controversies about the machinations o f the secret state in their domestic political affairs. Canada has been relatively innovative in the elaboration o f formal mechanisms o f con­ trol and, especially, accountability, to cope with these problems on an ongoing basis. Most o f this innovation took place in the mid-1980s; more than a decade later, there are questions about lost momentum, routinization, and institutionalization in the Canadian system, and whether Canada has really kept up with the radically changing times in the security and intelligence business. Part o f the difficulty in evaluating the Canadian system o f control and accountability has been a bias inherent in the way in which reform presented itself. Since the embarrassment o f public scandals was the goad to serious reflection on the part o f government, the “ fix” was seen mainly in terms o f public reassurance. This preoccupation rests on a particular conception o f why accountability is required: if the propriety o f security intelligence activity is brought into question, Par­ liament and the public must be assured that the norms o f liberal de­ mocracy are not in fact being violated. Accountability in terms o f propriety has been central to Canadian mechanisms. But propriety, while obviously important, is not the only basis for accountability. Governments are, or should be, concerned as well with efficacy. Are secret agencies doing what they are required to do by governments, and how well are they doing it? At a deeper level, what ought they be doing, and are they, with their special bureaucratic powers and privi­ leges, the appropriate agencies to be doing these things? Unfortunately, questions o f efficacy have tended to get less public attention than the “ sexier” issues o f propriety. Propriety has tended to dominate account­ ability to Parliament, press, and the public, precisely the most visible elements o f the system. Efficacy questions have tended to be left at the level o f executive accountability, that is to say, at the most shadowy levels o f the process. THE CANADIAN ACCOUNTABILITY SYSTEM

The CSIS Act o f 1984, following the recommendations o f the McDonald Commission, established a civilian security service, CSIS, outside the

S E C U R I TY AN D I N T E L L I G E N C E A G E N C I E S

auspices o f the RCMP, where it had rested for decades. “ Civilianization” o f the security service had been a longstanding reform proposal that had been recommended by an earlier royal commission (Mackenzie) in 1969. In the latter case, fierce bureaucratic resistance had been mounted by the RCMP and their allies in the senior civil service, with the result that the government did not implement civilianization as such. They did, however, as a compromise, appoint the first civilian, John Starnes (a career External Affairs official), to head the security service. The arguments in favour o f civilianization (that security intelligence should be detached from law-enforcement for reasons both o f propriety and efficacy; that different training and different qualities were required for security than for the paramilitary ethos o f the RCMP) remained the same eleven years later when McDonald reported. McDonald made the arguments at much greater length, with more supporting detail, and with much greater force and weight than did Mackenzie. Most importantly, the series o f scandals surrounding illegal activities that convulsed the RCMP security service in the late 1970s, mostly centred on Quebec but not confined to that province, had created a climate in which serious reform was widely considered necessary. Senior and influential members o f the security service itself had come to the con­ clusion that it was in the organizational interest o f the RCMP to divest itself o f the controversial activities o f security intelligence. Moreover, with the focus on Quebec separatism, national security had become a divisive domestic (and federal-provincial) issue. A clear break with past practice and a new beginning were indicated. Finally, the Liberal government was looking for a means to deflect criticism from its own less than exemplary record o f management o f the field.4The McDonald recommendations, by assessing structural “ blame” on the RCMP, seemed to point to a way out. Hence, civilianization o f the security service became the centrepiece o f the legislative response to the Commission’s highly-publicized Report. As a civilian agency, CSIS would work in a context much different from that o f its predecessor. The latter had no specific mandate from Parliament, and enjoyed a high degree o f freedom from outside scru­ tiny. The CSIS Act5 provides a relatively precise mandate. The Ser­ vice “ shall collect, by investigation or otherwise, to the extent that is strictly necessary, and analyse and retain information and intelligence respecting activities that may on reasonable grounds be suspected o f

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constituting threats to the security o f Canada and, in relation thereto, shall report to and advise the Government o f Canada” [s. 12]. Threats to the security o f Canada [s. 2] are defined to include: a) espionage or sabotage; b) “ foreign influenced activities within or relating to Canada that are detrimental to the interests o f Canada and are clandestine or deceptive or involve a threat to any person” ; c) threats or use o f “ se­ rious violence against persons or property for the purpose o f achieving a political objective within Canada or a foreign state” (terrorism); and, most controversially, d) “ activities directed toward undermining by covert unlawful acts, or directed toward or intended ultimately to lead to the destruction or overthrow by violence of, the constitutionally established system o f government in Canada.” The last is the so-called “ subversion” clause, although the term subversion is nowhere seen in the Act. This definition has drawn considerable critical attack over the years, while the other three have generally escaped criticism. Having stated what CSIS is authorized to do, s. 2 also specifies what it is not to do, that is, investigate “ lawful advocacy, protest or dissent”— un­ less carried on in conjunction with the specified threats. CSIS is granted extraordinary powers o f entry, search and seizure, and surveillance, and, where authorized, is given specific exemption from Criminal Code prohibitions against interception o f communica­ tions.6 In effect, powers previously exercised by the RCMP security service without legal mandate are now explicitly granted CSIS. How­ ever, much o f the CSIS Act is given over to quite detailed provisions for mechanisms o f control, accountability, and review, to ensure that these extraordinary powers are not misused. The accountability ele­ ments break down into six distinct parts. The statutory mandate has already been mentioned. Second are provisions for ministerial respon­ sibility: formal lines o f authority linking CSIS with the Solicitor Gen­ eral and the deputy minister responsible. Third is the creation o f an internal or executive review office, that o f the Inspector General o f CSIS (IG), answerable solely to the Solicitor General. Fourth, public accountability is provided by the Security Intelligence Review Com­ mittee (SIRC), which answers in part to the Solicitor General but also to Parliament, and issues annual public reports as well as special re­ ports from time to time. Fifth,judicial control is provided through the issuance o f warrants to authorize intrusive surveillance operations (it should be noted here that the use o f human sources— the most intru­

SECURITY AND INTELLIGENCE AGENCIES

sive o f all surveillance techniques— is not covered by the requirements for judicial warrants, which apply only to the use o f technical sources o f surveillance; use o f human sources is left to ministerial or adminis­ trative guidelines). Lastly, there was provision for a one-time parlia­ mentary review o f the CSIS Act after five years, which took place in 1989. THE SECURITY INTELLIGENCE REVIEW COMMITTEE

The CSIS Act is considered innovative and is widely admired abroad, being often cited for instance by proponents o f reform in the U.K. as a desirable model to be implemented in that country. The most innova­ tive aspect o f the Act is the establishment o f SIRC. This committee is to be made up o f Privy Councillors7 not currently sitting as MPs or Senators, appointed for fixed terms by the prime minister in consulta­ tion with the leaders o f the official opposition parties in Parliament. SIRC is supposed to have complete access to any information held by CSIS excepting “ cabinet confidences,” 8and may carry out investiga­ tions when requested to do so by the Solicitor General or on its own initiative. SIRC may also investigate complaints against CSIS brought to its attention by members o f the public. It also hears appeals brought to it by public servants against security clearance decisions and re­ views immigration and citizenship rejections based on security grounds. In the latter incarnation, SIRC functions as a quasi-judicial tribunal that discloses to an appellant some but by no means all o f the evidence submitted; appeals from its rulings are to the Federal Court. SIRC is an independent body, a creature neither o f the Crown nor o f Parlia­ ment, although reporting to both. The McDonald Commission had rec­ ommended that a joint parliamentary committee on security and intelligence be established in the same legislation as that which created the civilian security service.9 No mention o f such a committee was made in the CSIS Act (except for the one-time five-year review); in­ stead SIRC was to serve as the only public review and oversight body. It was obviously intended to be reflective o f the partisan makeup o f Parliament, and, in view o f the requirement that members should be Privy Councillors, it seems that previous political experience was con­ sidered an important qualification. At the same time, there was some expectation that SIRC’ s independent status would lend it a degree o f

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autonomy and impartiality that could not be expected o f a parliamen­ tary committee. There was no precise parallel for such a body in pre­ vious Canadian governmental practice, nor do Canada’ s close neighbours have any analogous organization in the field. The enthusiasm for SIRC shown by many foreign observers can be traced not only to its legislative mandate but to its actual record in its first few years. Here, the role o f the first chairman, Ron Atkey, must be judged crucial. Mr. Atkey, a prominent Toronto lawyer and former Conservative cabinet minister, understood the importance o f taking the initiative from the outset in putting flesh and blood on the legisla­ tive skeleton. He also realized, and accepted, that this would involve SIRC in confrontation with the agency it was reviewing. He later re­ flected that he saw the role o f Chairman as being that o f a “ pain in the ass” to CSIS.10Certainly under his chairmanship SIRC directed criti­ cal scrutiny toward some o f CSIS’ s operations. The most striking evi­ dence o f SIRC’ s impact (in conjunction with a report by the respected senior public servant Gordon Osbaldeston11) was the Conservative government’s decision in 1987 to close the Counter-Subversion Branch o f CSIS. This branch represented the most controversial aspects o f security service operations, targeting persons and groups that appeared to be doing little more than engaging in “ lawful advocacy, protest or dissent” — to cite what CSIS was specifically told not to do in its man­ date. A small percentage o f the files in this branch were redirected to the Counter-Espionage and Counter-Terrorist branches, but some oth­ ers were deposited in the National Archives, where, through Access to Information requests, it is now possible for researchers to gather an impression, despite censorship, o f the vast state surveillance operation that once existed against trade unions, universities, peace groups, and other associations o f civil society. SIRC also reversed some security rejections in citizenship cases after hearing CSIS evidence and finding it wanting. However, in one test case, SIRC’ s ruling that a public ser­ vant be given security clearance despite a hostile CSIS report was ignored by the government. In a precedent-setting Supreme Court de­ cision, the government’ s right to overrule SIRC was upheld.12 On the whole, SIRC under Atkey was able to negotiate a delicate passage between criticism and responsibility. It was important that a watchdog body establish a critical distance from the agency it was

SECURITY AND INTELLIGENCE AGENCIES

overseeing, but not undermine the agency’ s credibility with the gov­ ernment it was serving. CSIS was clearly unhappy that SIRC was looking over its shoulder, but this was hardly surprising for officials who had always enjoyed an unparalleled degree o f autonomy, having been allowed to do their work in deep shadow. Institutionalized over­ sight was valuable, however, for more than checking propriety. Early in the history o f CSIS, the agency lost its first Director, Ted Finn, who was forced to step down when it became apparent that a wiretap appli­ cation to a judge had contained inaccurate information. Just as seri­ ously, a case against defendants charged with plotting to murder a visiting foreign government minister was prejudiced. SIRC had rec­ ommended strengthening the application procedures in ways that, if already in place, might have forced CSIS to make a more accurate application, and thus obviated considerable embarrassment for the agency. Thus oversight could be seen to contribute to efficacy as well as to propriety. However much SIRC’ s early record commended itself to both Canadian and foreign observers, there was an inherent problem in sus­ taining the review agency’ s momentum. Politically astute and effective leadership is not necessarily transferable to a second generation; insti­ tutionalization and routinization will inevitably begin to take over from initiative and innovation. The tendency o f a review agency to seek a more comfortable accommodation with the organization it is supposed to be watching over will grow with time. In fairness it must be granted that CSIS was also learning to accommodate itself to the new reality o f review and oversight, and that part o f that accommodation was to change its ways to meet the new expectations engendered by the ma­ chinery for accountability. Yet within ten years o f its inception, SIRC’ s image as a reliable watchdog was beginning to be questioned. The first step in declining prestige was the choice by Prime Minister Brian Mulroney o f Ron Atkey’ s successor as Chairman when the lat­ ter retired in 1989. Mr. Mulroney chose to treat the appointment as nothing more than a chance to fulfil an old patronage obligation by naming the elderly Tory media baron, John Bassett, Sr., who had no experience whatever in the field and who certainly lacked Atkey’ s en­ ergy and drive. Other Committee appointments since have been gener­ ally undistinguished.13The political context o f the appointments has

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been particularly damaging. Mr. Mulroney filled all the current posi­ tions in SIRC within the last year o f his mandate; their terms will last through most o f the life o f the current Parliament. Following the cata­ clysm o f the 1993 election, SIRC was left highly unrepresentative o f the new Parliament: four o f the five members are associated with par­ ties that no longer hold official status (three Tories— one more than in the House o f Commons!— and one New Democrat), while neither the Bloc Quebecois nor the Reform Party is represented at all. This be­ came something o f a public embarrassment during the Grant Bristow affair in 1994-95, which included allegations o f possible CSIS inter­ ference in the Reform Party, and contributed to a tense and confronta­ tional atmosphere between SIRC and the parliamentary subcommittee on national security. The idea o f an independent committee that would be broadly reflective o f the makeup o f Parliament, although non-partisan, seems to have come unstuck. SIRC Annual Reports continue to contain what appear to be wellsupported and reasonable criticisms o f CSIS activities and practices in specific contexts, as well as praise for good performance where warranted. SIRC staff is professional and has amassed a good deal o f experience, and a practical working modus vivendi with the Service is an appropriate and useful relationship. In the most significant— or at least the most publicized— issue yet to face SIRC for special investi­ gation, the Grant Bristow affair, the Committee responded with admi­ rable promptness and produced a detailed report14that was generally effective in reassuring the public about an affair that had been escalat­ ing rather wildly in the media. This was accomplished in an atmo­ sphere not especially conducive to calm consideration and in which unprecedented criticism and suspicion had been directed against SIRC, as well as CSIS, by press and Parliament. Although questions remain unresolved about this affair, including some aspects o f SIRC’ s inves­ tigation,15the Committee did accomplish what it had been set up to do in the first instance: provide credible review and accountability that is accessible in reasonable part to the public. Like other federal agencies, SIRC has had to make do with less. Its budget has always been mod­ est, and its spending relatively frugal, but after small but steady in­ creases in the late 1980s, reaching a peak o f just under $1.6 million in fiscal 1991-92, it has seen its resources cut back, down to $ 1.4 million in 1994-95.16 Some activities have had to be reduced or curtailed.17

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Despite accomplishments in the face o f adversity, and notwithstand­ ing the genuine value o f SIRC reports, there is also evidence that SIRC’ s critical distance from CSIS has narrowed over the years. Some o f this narrowing is suggested in criticisms o f its Bristow Affair report for allegedly going too easy on CSIS for its handling o f Bristow and his questionable behaviour while a paid source within the neo-Nazi Heri­ tage Front. Another example touching on civil liberties that does not reflect well on either CSIS or SIRC is a citizenship security case heard by SIRC. A university student o f Palestinian origin had been denied citizenship and threatened with deportation on the advice o f CSIS that he was “ associated” with an organization, the Popular Front for the Liberation o f Palestine, that had engaged in terrorist acts in the past, even though no evidence was presented that he himself had ever done anything to threaten the security o f Canada. SIRC uncritically rubberstamped the CSIS-Immigration decision. It was left to a Federal Court judge on appeal to quash the ruling on the basis that it was in violation o f the Charter o f Rights, being no more than a case o f “ guilt by asso­ ciation.” 18This was a long way from SIRC’ s earlier days under Atkey, when it had been at least occasionally aggressive in defence o f civil liberties under assault from the secret state. THE INSPECTOR GENERAL

Less can be said about the office o f the Inspector General, given its less public role. One o f the odder aspects o f the CSIS Act is the rela­ tionship between the IG and SIRC. There is a chain o f reporting that begins each year with a report from the CSIS Director to the Solicitor General. The IG must then complete a Certificate as to that office’ s satisfaction with the CSIS report. Both documents are then transmit­ ted to SIRC, which completes its Annual Report to the Solicitor Gen­ eral, which is in turn presented to Parliament and made public. SIRC may also “ task” the IG’ s office for specific research inquiries.19There is a potential conflict o f interest here, in that SIRC answers to both the Solicitor General and to Parliament, while the IG answers to the So­ licitor General alone. Although unusual, this relationship appears to work smoothly from the perspective o f both SIRC and the IG. IG Certificates have been released under Access to Information in truncated form. From these sometimes heavily censored declassified

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versions, as well as from Access releases o f special investigations on specific topics tasked by SIRC, one can infer that successive IGs have been critical. Certain themes have emerged from time to time concern­ ing shortcomings o f CSIS in fulfilling ministerial guidelines and in providing appropriate information concerning its activities. Overtime, CSIS appears to have satisfied the IG in general, with specific reser­ vations. However, there is one clear instance o f a serious clash be­ tween the IG and CSIS, arising from lack o f access to pertinent information. In late 1993 the IG, Ms. Ursula Menke, wrote to the Solicitor General that this “ office was conceived as the ‘ eyes and ears’ o f the Minister. To the extent that a Minister expects the Inspector General to provide some assurance that there are no significant com­ pliance issues in relation to CSIS, it is important that the Inspector General have the unrestricted access to CSIS information envisaged in the Act.”20 She was reacting, in part at least, to a refusal o f CSIS to allow her access to documents regarding ongoing operations (a re­ striction that SIRC has apparently agreed to). The CSIS Director re­ sponded angrily to her criticisms and offered no concessions. Ms. Menke shortly left her post, after a very brief tenure, for a position in the private sector. Her successor has been pursuing another aspect o f lack o f access to information: particular problems that have arisen in CSIS have been dealt with directly between the CSIS Director and the So­ licitor General but have not been referred to in the Annual Report, thus leaving the IG out o f the loop. Efforts are now being made to have copies o f such direct reports made available to the IG.21 PARLIAMENTARY REVIEW

Parliament is clearly the weakest link in the accountability chain. As previously noted, the framers o f the CSIS Act did not follow the ad­ vice o f the McDonald Commission and mandate a parliamentary com­ mittee at the heart o f the oversight process. In fact, they did not mandate any parliamentary presence in the process at all, save the provision for the five-year parliamentary review o f the Act. SIRC annual reports were submitted for the first few years to a special subcommittee o f the Standing Committee on Justice and to the Solicitor General, but this was very much an ad hoc arrangement that provided no continuity and little experience for the members in the arcane field o f security intelli­

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gence. Annual questioning o f SIRC members on their report was des­ ultory and unsupported by research. This, however, changed with the creation o f the five-year review committee in 1989. Under the chairmanship o f Blaine Thacker, a Tory MP who had chaired the only previous such review exercise (on the Access to Infor­ mation and Privacy Acts in 1986-87), the Special Committee took its work veiy seriously. Assisted by a small but energetic research staff, MPs gained familiarity with the subject matter and learned how to ask probing questions. Interestingly, they developed a non-partisan spirit and produced a unanimous report.22 Public hearings provided an op­ portunity for a variety o f groups and individuals to make their views known; CSIS and other security officials testified sometimes in open session, sometimes in camera. It could not however be said that the government was very co-operative, and this was the weak point in the exercise. There was a huge disparity in the resources allocated to the review: in preparing for and responding to the review, the executive outspent the legislative branch by a ratio o f more than six to one.23 Worse, the executive was not prepared to give the parliamentarians much more o f a look-in than is given to ordinary citizens: staff were reduced to requesting relevant documents under Access to Informa­ tion, just like any other curious citizens— and with the same limited results. During in camera hearings, officials do not appear to have been much more forthcoming than in public sessions. The Report was thoughtful and reasonable, while constructively critical in tone, but its authors had to acknowledge the limitations on the picture they had been able to build up. The Report made a number o f recommendations designed to enhance both the propriety and efficacy sides o f the pro­ cess. The government came back with its own briefer and blunter re­ sponse, pointedly entitled On Course, which rejected all o f the recommendations and refused to even contemplate “ structural change.” 24The government found it easy to shrug o ff the entire parlia­ mentary exercise as o f little consequence. Dismayed as they may have been by government resistance to par­ liamentary participation in the process, the MPs decided to dig in their heels and create a permanent Subcommittee on National Security. This was established in 1992 and was made up mainly o f veterans o f the Special Review Committee so as not to lose the experience they had acquired. The members chose not to seek access to classified secrets

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(thus not to require security clearances o f members), on the assump­ tion that the subcommittee’ s role should be complementary to that o f SIRC, which did have full access. They would deliberately avoid be­ coming “ insiders” and part o f the “ loop”— which is what happens to U.S. congressional intelligence committees. Rather they saw themselves as goading SIRC, prodding it from time to time and monitoring its monitoring o f CSIS.25This might have worked out as an innovation in the Canadian system never contemplated in the CSIS Act, adding some parliamentary leaven, but the 1993 election threw o ff all these calcula­ tions. In the new Parliament following the 1993 election, the subcommittee was reconstituted. Given the brutal turnover in House membership, there was only one survivor o f the previous subcommittee still sitting, Liberal Derek Lee, who became the chair. As it has turned out, this subcommittee has not acted as a complement to SIRC, but rather as an antagonist. The spark setting o ff confrontation was the Bristow affair, and the problem was partisanship: Reformers and Bloc Quebecois members o f the subcommittee were deeply mistrustful o f a SIRC per­ ceived to be dominated by Tories. The subcommittee held its own hear­ ings, some public, some in camera, and television cameras recorded sharp confrontations between SIRC and some o f the MPs. Yet without access to the kind o f secret information available to SIRC, and riven by their own internal partisan divisions, the parliamentarians have been unable, even a year after the SIRC Heritage Front report appeared, to produce a report o f their own on the affair. By 1996, we can conclude that Parliament has tried to force entry into the accountability loop, but that it has so far been unable to find a firm footing. CO-ORDINATIVE ORGANIZATION OF THE POLICY FIELD

So far we have discussed the CSIS Act and the various elements o f the accountability process around this legislation. As indicated earlier, CSIS is by no means the sole agency in the field. From the first growth o f Canadian intelligence in the late 1940s, successive governments have developed co-ordinative mechanisms at the centre o f the executive to manage the policy process. Historically, these have revolved around

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the Cabinet and the Privy Council Office (PCO). Until 1993, formal ministerial authority emanated from a cabinet committee on security and intelligence, chaired by the prime minister, with ministers from relevant departments (External Affairs, Defence, and Solicitor Gen­ eral in particular). This committee had a somewhat checkered history. At certain points— for example, during the October 1970 FLQ hos­ tage crisis— it had played a relatively important role. During the Mulroney years, however, the prime minister rarely called it into ses­ sion (one informant suggests that it met only twice: once after the 1984 election and once following the 1988 re-election, in both cases as a formality). When Mulroney’ s short-term successor, Kim Campbell, carried out a major restructuring o f the Cabinet and the senior civil service, she simply abolished the committee. Jean Chretien reduced the number o f cabinet committees even further, and did not renew the committee on security and intelligence. There is thus no longer any cabinet-level co-ordinative body for policy. This presumably does not mean in itself a lack o f ministerial control, but it does mean that re­ sponsibility falls directly on the individual ministers (i.e. the Solicitor General for CSIS, the Minister o f National Defence for the CSE). Policy co-ordination must be found at the interdepartmental level, and here the PCO is the focal point. The PCO houses an Interdepartmental Committee on Security and Intelligence, chaired by the Cabinet Secretary, with deputy heads o f the relevant departments. This is in turn supported by two advisory committees, one on security and the other on intelligence, each o f which has several policy-specific subcommittees. When the parliamentary five-year review committee tried to look at this bureaucratic structure, they were effectively stonewalled concerning anything more detailed than the broad organizational chart (even that was incomplete).26The government remains highly secretive about this machinery, although some light has been shed on changes made to the foreign intelligence side since 1993, where centralization in the PCO at the expense o f Foreign Affairs has continued.27 Since the system is quite deliberately made opaque, it is o f course very difficult to evaluate its effective­ ness— which may be the point. But in the new era o f radically shifting policy paradigms and overarching requirements for cost reductions and downsizing, the lack o f co-ordinative ministerial control over the

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field is worrying. Whether these rather shadowy bureaucratic mecha­ nisms can conceptualize and impose ways o f doing “ better with less” remains to be seen (or not seen, as the case may well be). CHANGING PARADIGMS: CSIS

When CSIS took over security intelligence from the RCMP in 1984, the spy world seemed familiar and indeed largely unchanged in four decades. The Cold War was the alpha and omega, the first and last word on everything to do with intelligence. The carry-over into peace­ time o f the spy establishments thrown up during the Second World War to fight what Sir Winston Churchill had memorably called the “ wizard war” could be almost entirely attributed to the early postwar emergence o f the Soviet threat. The RCMP security service had been in on the ground floor o f the new espionage world when Igor Gouzenko defected from the Soviet Embassy in Ottawa in late 1945 with a sheaf o f documents incriminating a number o f federal public servants with left-wing sympathies as spies on behalf o f the Soviet Union (not to speak o f the only elected Communist MP, later jailed for espionage). This brought the RCMP into closer co-operation with security and intelligence agencies in the United Kingdom and the United States, co­ operation that was to deepen and become consolidated through the course o f the next few decades. The security service became an impor­ tant Canadian link in the U.S.-led Western anti-Soviet security alli­ ance. The Gouzenko affair also forced the government to institute a massive program o f security screening for public servants and defence industry workers, as well as a screening program for immigration and citizenship.28The security service was the front line agency in all this screening, and as a result amassed voluminous files on hundreds o f thousands o f individual Canadians and Canadian organizations. The criteria were almost exclusively based on Cold War ideology: “ leftwing” or pro-Communist ideas, sympathies, and associations were considered tantamount to disloyalty. This was a formidable security apparatus, linked to a wider Western intelligence network, that was in no doubt concerning the identity o f the enemy and the need for a long­ term struggle that would require secret services armed with extraordi­ nary powers.

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Thus CSIS stepped into a situation where the policy objectives were clear, even though the propriety o f the means used by its predecessor was in some question, and the capacity o f the new agency to do what was expected might be in doubt, what with review agencies and critics breathing down its neck. Moreover, CSIS found itself embroiled in a difficult relationship with the RCMP, which not surprisingly resented the blow to its prestige embodied in the new civilian agency, and lost no opportunity to show its disdain.29 Since the RCMP had not, and indeed could not, entirely vacate the field o f national security, given its responsibilities for criminal investigation in cases o f suspected espio­ nage and terrorism,30 turf wars between the two agencies have not been absent, especially in the mid-1980s, although this problem has considerably abated more recently.31In another sense, CSIS began its organizational life in deep continuity with the RCMP, in that almost all o f its officer-level personnel was drawn from the former service. This was hardly surprising under the circumstances, but was a cause for criticism, inasmuch as civilianization was supposed to be a remedy for inappropriate behaviour by the RCMP security service. Critics also wondered whether the deep-dyed conservative Cold War bias o f the Mounties would be transferred to a new agency that ought to be rethinking its role. In retrospect it should have been clear that the dominance o f Cold War thinking was already under considerable strain. The very series o f scandals that had called forth the McDonald Commission and the CSIS Act had been associated mainly with the government’ s response to a domestic, non-Cold War related security threat: Quebec separatism, especially its violent, clandestine wing.32 The emergence o f interna­ tional terrorism, the roots o f which had little or nothing to do with the East-West conflict, suggested security threats from a much more com­ plex world than had previously been contemplated. This was brought home in the most brutal fashion in 1985, when an Air India passenger jet bound from Canada to New Delhi was blown up o ff the Irish coast, killing 329 people, most o f them Canadian citizens. Widely believed to be the work o f Sikh terrorists, this horrific act has to this day never resulted in a single criminal conviction. The failure o f the combined (or perhaps not combined) efforts o f CSIS and the RCMP not only to prevent this terrorist act (the death toll is still the worst for any single

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act o f international terrorism), but even to secure criminal convictions after the fact, was a signal that anti-Communist preoccupations were increasingly irrelevant and misleading. The closing o f the CounterSubversion branch o f CSIS— already alluded to— was one indication o f growing governmental impatience with old patterns o f behaviour. Still, throughout the late 1980s, the Counter-Intelligence branch con­ tinued to target Communist states as virtually the sole espionage threat to Canada, although Counter-Terrorism was clearly growing in im­ portance and gaining greater resources. In 1989 the entire world o f security and intelligence was definitively turned over with the collapse o f Communism and the end o f the Cold War. The problem in the early 1990s for all Western agencies, Canadian included, was at once simple and overwhelming: what to do when the enemy vanishes? Declaring victory and retiring after a parade was certainly not an option, since it would violate the first rule o f all bu­ reaucratic organisms: self-preservation. A sometimes frantic search for new roles that would justify continued funding has ensued. It would be easy to ridicule these efforts, but ridicule would not be entirely fair. The Cold War defined security and intelligence for decades, because that was the context o f the international order throughout those de­ cades. The end o f the Cold War did not end international insecurity or interstate rivalries, it simply changed the context within which these were played out. Some old threats to security had waned, but others continued, sometimes from different sources. And new threats had appeared. CSIS has had little difficulty finding post-Cold War roles to play that could gain governmental approval and in some cases even wide­ spread public support as well. Combatting terrorism actually com­ mands greater public backing than counter-espionage, since with terrorism the public can envisage itself readily in the role o f potential victim, while espionage is more an arcane quarrel among state elites.33 Terrorist activity with international scope, such as the threat o f mili­ tant Islamic groups, demands counter-terrorist activity mounted on a co-ordinated global scale. The Cold War Western network— now ex­ tended in some instances to the former Communist antagonists— of­ fers a ready-made infrastructure capable o f redeployment, and one that CSIS is well plugged into. The same goes for the relatively new but deadly threat o f nuclear proliferation, most ominously when this

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involves terrorist organizations. Since the Oklahoma City bombing, the possibility o f purely homegrown terrorist activity cannot be writ­ ten off. On all o f these counts, CSIS has and will have a continuing role. There are, as always, down sides in these new roles as well. Coun­ tering international terrorism involves CSIS in investigating certain immigrant groups and organizations in Canada, and these investiga­ tions have led to charges o f bias and discrimination, for example, by Canadians o f Middle Eastern origin during the Gulf War. Well-placed human sources are one o f the best ways o f gathering intelligence on clandestine terrorist groups. CSIS has to work very hard at developing and handling such sources (not to speak o f producing intelligent analy­ ses) in immigrant groups where the Service has not traditionally had much if any presence, and to do so without generating backlash from the particular ethnic group. When it comes to groups suspected o f potential for violence, the use o f human sources can also be risky, as witness the Bristow affair, where serious issues were raised, even if not proven, about possible misconduct by a CSIS undercover source operating in a neo-Nazi organization where racist and illegal actions were expected. The old issues o f propriety, and the possibility o f do­ mestic discord, also surface where investigations o f potential violence touch on sensitive domestic political questions. CSIS inquiries into Aboriginal political activities is a prime example. After Oka and other sometimes violent blockades and sieges in B.C., Ontario, and else­ where, the potential connection between native militancy and violence can hardly be denied. Yet the spectre o f a secret police carrying out intrusive surveillance o f native people fighting for their historical and collective rights is obviously charged with negative political signifi­ cance. Another potential domestic minefield lies in the current tense situa­ tion o f Quebec-Canada relations. Despite official denials that CSIS is investigating the sovereignist movement (as legitimate political forces eschewing any form o f violence, the PQ/BQ are formally outside the CSIS mandate), and even in the absence o f any public evidence to the contrary, it is difficult to imagine that a federal Liberal government, desperate and disoriented after the sovereignists nearly won the 1995 Referendum, would deny itself the assistance o f assessments from its security agency that might go beyond open sources. Any such covert

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activity would o f course be a matter o f extreme delicacy, with the highest possible priority placed upon non-disclosure. The unprecedented security situation o f a country with a very large “ legitimate” seces­ sionist movement embedded in some o f its central institutions, includ­ ing the federal Parliament, presents complex and difficult questions. It would for instance be “ normal” for the Bloc Qu6b6cois, as Her Majesty’ s “ loyal” Opposition in the House o f Commons, to have a representative on SIRC (just as the Liberals as official opposition al­ ways approved an appointee from 1984 to 1993). Given the access SIRC enjoys to CSIS information, this is most unlikely to happen. Another new role for CSIS is in the area o f economic intelligence. In the post-Cold War environment, economic (sometimes significantly called “ competitive” ) intelligence is a very hot area internationally in the spy trade. National security is being redefined to downplay, to a degree, some o f the traditional military concerns and upgrade con­ cerns about trade, technology, and the competitiveness o f nationallybased commercial corporations. For CSIS, as a security intelligence agency with a primarily domestic mandate, this means protecting Canadian technology against illegal transfer and Canadian corpora­ tions against industrial espionage from abroad, and securing the strat­ egies and plans o f Canadian trade and commercial negotiators from the prying eyes o f competitors. This represents a wrenching adjust­ ment from the past, not only because it requires refocusing on whole new areas o f subject matter, but perhaps more importantly because it identifies close Cold War allies as potential competitors and thus as subjects for counter-intelligence. During the Cold War there was never any question as to who were Canada’ s friends and enemies. In the post-Cold War era, it is precisely the “ friends” who may be the “ en­ emies” when it comes to economic competition, even while they re­ main close allies for other purposes, such as counter-terrorist co-operation. For an agency that has a long history o f relative depen­ dence on its allies, especially the United States and the United King­ dom, the move to a new flexibility is not necessarily an easy adjustment. Another security aspect o f international economic activity has to do with transnational organized crime, a phenomenon drawing increasing attention from Western intelligence and policing agencies. Any new role here will not, however, be as expansive as that gained by CSIS’ s

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British counterpart, MI5, which has used putative connections between international terrorism, the illegal arms trade, drug trafficking, and money laundering to get new authority to act against transnational organized crime. In the Canadian case, the latter dimension should fall clearly under the jurisdiction o f the RCMP, which has long been in­ volved in the international aspects o f combatting criminal activity. With such changes in the air, and no doubt more to come, manage­ ment o f the agency is obviously facing a significant challenge. Re­ cruitment and training must take account o f a much more open-ended jo b description for a career intelligence officer than had been envis­ aged when CSIS was first set up in 1984 and the challenge was seen as a matter o f breaking away from the old police mentality. CSIS has thus been facing some deep reappraisals and restructuring o f both its objectives and its methods. To add to the pressure, the very moment when the old paradigms are shifting is the same moment when the fiscal crisis o f the state is enveloping CSIS as well as more regular government agencies. For some time in the early 1990s, CSIS’ s an­ nual budget was actually rising, reaching a peak o f $244.3 million in fiscal 1993-94. Since this was coincident with an era o f downsizing and deficit reduction under the Mulroney Tories, and since very little detail was available to Parliament about the CSIS budget, other than a global “ one-liner” in the Estimates, there was some sniping about the allegedly privileged position o f CSIS in a time o f fiscal restraint. How­ ever, CSIS had been promised a new headquarters o f its own (it had been making do with premises designed for other purposes and not suitable for its specialized needs). The increases in its budget were attributable to the cost o f the design and construction o f a high-tech and high security building (20 percent o f the 1993-94 figure was for capital expenditure). The new headquarters is now completed, with a consequent dramatic 95 percent decline in the capital budget by fiscal 1995-96. Personnel and other expenditures are also being curtailed, from $197.5 million in 1992-93 down to $180.4 million in 1995-96.34 It is scheduled to drop further to $159 million in 1997-98, almost 20 percent below 1992-93. By the same year its personnel will have been slashed to just over 2,000,27 percent fewer than in 1992-93. CSIS too is having to make do with less. Given that some o f its traditional ac­ tivities have been curtailed or cut back significantly, there might be

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room for overall resource reduction, but moving into new and in some cases uncharted areas o f activity presents significant pressures on a declining budget. What is unclear from the outside is the degree o f effective cost-accounting and expenditure control. CSIS has always treated its internal allocation o f funds as highly secret information, where disclosure might do damage to its effectiveness by offering evi­ dence to its enemies o f its methods. Although accountability over other aspects o f CSIS activity has been established with greater or lesser effectiveness, there is no public or visible accountability for how money is being spent. I shall return to this point later. C H A N G I N G P A R A D I G M S : T H E CS E

The CSE also faces major restructuring in the post-Cold War era. As an integral, if junior, partner in the UKUSA agreements o f 1947 that established the framework for allied co-operation in signals intelli­ gence for the next four decades,35the CSE was embedded in the Cold War intelligence paradigm. Ironically, the CSE underwent a major facelift and modernization in the 1980s, including the installation o f its own Cray “ supercomputer” and the beefing up o f its staff by about a third,36to make a more important Canadian contribution to monitor­ ing the Soviet threat, just as that threat was about to crumble. The question for the 1990s is what new uses will be made o f the CSE’ s sophisticated capacity for technical intelligence-gathering and its ac­ cumulated expertise in such arcane matters as codebreaking and soft­ ware for keyword and voice recognition (important for flagging relevant communications from the vast volume that is being intercepted). The technical capacity for scooping communications out o f the air is awe­ some, and the technical capacity to make sense o f what is intercepted is growing by leaps and bounds. The weaponry is dazzling. But who or what is it directed at? One fear about the CSE is that this capacity might be turned inward to spy upon Canadians in ways that evade legal controls— or that CSIS and the RCMP might be “ tasking” the CSE to make end runs around controls over their activities. This has always been denied flatly by government spokespersons. An alternative version o f this scenario sees the various allied agencies— the CSE, the American NSA, the British GCHQ, etc.— tasking each other to do their own spying so as to evade

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each agency’ s prohibition on domestic espionage. This too has been denied, although a recent book by a former CSE employee claimed that precisely this was done, with the CSE spying on British cabinet ministers as a favour to the British, and in turn contracting out elec­ tronic eavesdropping on Quebec separatists to allies.37More recently, another former CSE employee charged that the agency did intercept some communications between Canadians as a by-product o f monitor­ ing communications to and from foreign embassies and legations in Canada.38Such a possibility had been acknowledged previously by the government, which, however, claimed that purely Canadian communi­ cations would not be retained by the agency. The technical capacity to intercept domestic conversations is there, but no compelling evidence has yet come to light to suggest that this capacity is being used in any systematic or determined way. More important is the external direction o f the CSE. Now that the all-consuming target o f Western electronic surveillance has gone into the dustbin o f history, the heavy high-tech armoury o f the Western listening network has been turned inward— into a weapon to be used against allies in economic competition. The French have been using espionage as a trade weapon for years, with the Americans as a prime target. Recently, the United States was mildly embarrassed when it was revealed that it was spying on the Japanese during intense trade negotiations between the two countries. Canadians, according to one o f our chief negotiators,39were seriously concerned about the United States listening in on their strategy during the negotiations over the Canada-U.S. Free Trade Agreement and took evasive action. Among recent revelations by former CSE employees is that Canada is playing the same game. The CSE apparently eavesdropped on the Mexicans during the NAFTA negotiations, and has allegedly spied extensively on the South Koreans and the Japanese to gain economic intelligence as Canada expands its Pacific trading role. Official denials should be taken with more than a grain o f salt. In the Hobbesian war o f all against all that is global economic competition, it is to be expected that Ottawa would look to the CSE to deliver whatever assistance can be provided— especially since our competitors have no scruples about spying on us. The proliferation o f international organizations and o f international co-operation in peacekeeping and peacemaking ventures in trouble spots around the world also calls forth new demands on intelligence and new

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forms o f intelligence-sharing. In many cases, the very lives o f peace­ keepers may depend upon the quality o f intelligence. Although Canada has been involved in many peacekeeping and supervisory roles in con­ flicts from Bosnia to Somalia to Haiti, the lack o f a centralized exter­ nal intelligence-gathering agency may endanger the quality o f Canadian contributions to shared intelligence. The CSE does have considerable technical capacity that could be put to use in some situations. In the era o f fiscal restraint, government agencies are encouraged to provide services to the private sector on a user-pay, cost-recovery ba­ sis. Although the security-intelligence sector would seem an unlikely candidate for marketization, given its historical insulation, the CSE is already moving into closer relations with the private sector on a strictly business basis. A “ top secret” document obtained under Access to In­ formation dated September 21, 199440 indicates that “ the effect o f budgetary constraints pervades and dominates all corporate activity from long-term, strategic planning to daily operational tasks,” and cites management problems in finding ways to motivate employees in the absence o f rewards through salary increases. The document goes on to suggest that “the future also holds a number o f opportunities which could revolutionize CSE’ s programs.” The immediate plans, drawn up in conjunction with Treasury Board, are on the INFOSEC side o f CSE operations, that is, ensuring the security o f Canadian government com­ munications. Armed with its own “ market research report,” CSE will be attempting to “ deliver INFOSEC services, on a cost-recoverable basis,” beyond the federal government to clients in the private sector. In addition, “ partnerships” (that ubiquitous Ottawa buzzword) are to be sought with other government agencies and industry to collaborate in a variety o f endeavours in which CSE expertise and technology could be salable. Eventually a “ dynamic virtual INFOSEC organiza­ tion” will cut across not only agency lines but public-private sector lines as well. In short, CSE is transforming itself into Spies R Us.41 Just how much CSE costs the Canadian taxpayer has been some­ thing o f a mystery, although a little less so recently. For years, deliber­ ate efforts were made to conceal its expenditures within the broader estimates for National Defence. On May 2,1995 the Deputy Minister o f National Defence for the CSE, Margaret Bloodworth (who doubles as the Deputy Clerk, Security and Intelligence, in the PCO), appearing

S E C U R I T Y AN D I N T E L L I G E N C E A G E N C I E S

before the Commons Subcommittee on National Security, for the first time produced global budget figures. According to Ms. Bloodworth, for the fiscal year 1995-96 CSE’ s resources were $60.5 million for salary, $23.6 million for operations and maintenance, and $29.1 mil­ lion for capital, giving a total o f $113.2 million.42 These figures do not, however, begin to tell the whole story; the Canadian Armed Forces contributed in 1991 an estimated additional $150 million in personnel and other support to the CSE’ s activities. In fact, an entire section o f the armed forces, the Canadian Forces Supplementary Radio System, is dedicated to CSE work: it is estimated that in 1991 this involved the assignment o f about 1,100 military personnel to operate monitoring stations in Canada, Bermuda, and Germany. In June 1993 it was es­ tablished that the CSE itself at that time had 875 employees.43Putting these figures together, we get a picture o f a budget that is probably in the range o f a quarter o f a billion dollars, and something in the range o f 2,000 person-years. That the CSE should outspend CSIS is no sur­ prise, given its much more capital-intensive operation. From the 1994 document quoted above, it is apparent that the CSE too is feeling the squeeze o f diminished resources for its more expensive operations. There is evidence o f systematic cost-saving actions: at least one listen­ ing post, in Alert, N.W.T., has been automated, and is now remotely controlled from Ottawa. At the same time, there has been a major building program at the site o f the Leonard Tilley Building headquar­ ters in Ottawa. It is difficult to accurately gauge the real financial picture o f this agency so long as the government is as coy with the numbers as it has been. In an atmosphere o f increasing press speculation about the agency and criticism from ex-CSE employees, the chair o f the House Sub­ committee on National Security, Mr. Derek Lee, succeeded in passing a resolution in the Commons that the government establish a form o f accountability for the CSE. The 1989-90 parliamentary committee reviewing the CSIS Act, o f which Mr. Lee had been a member, had identified the lack o f accountability for the CSE as a major lacuna o f the Canadian system and had recommended a new National Security Act that would encompass thefunction o f security and intelligence as the subject for review and oversight rather than a specific agency, as with the CSIS Act. This was ignored by the Tory government o f the

435

436

HOW O T T A W A SPENDS

day. By 1995, in the United Kingdom a new Intelligence Services Act had for the first time brought the British equivalent o f the CSE, the GCHQ, under the same form o f parliamentary accountability as the security service and the foreign intelligence agency. The time seemed ripe for change, and the Minister ofNational Defence, David Collenette, indicated that the government accepted the resolution and would pro­ ceed with some form o f accountability for the CSE. The shape o f this new mechanism remains unclear, as no announcement has been made by the spring o f 1996. It is possible that SIRC might have its mandate broadened, although this would probably not meet with the approval o f the opposition members on the Subcommittee on National Security, who would prefer a new review body. Whatever is done, the ball is clearly in the court o f the present Liberal government to produce a second round o f innovation in accountability a decade after the CSIS Act. B A C K TO THE FUTU RE

The field o f security and intelligence is under the pressure o f a double whammy: radically changing policy paradigms and the desperate search for new roles are intersecting with aggressive downsizing and budget­ ary reductions. To the extent that these agencies can convince govern­ ments o f the value o f their services in strictly contemporary terms, and to the extent that they can also convince governments that these sert vices cannot be as effectively and efficiently provided by other, non­ secret agencies, they will survive. They will, however, almost certainly have to make do with less, but also— and this is the rub— do new and more things with less, in the spotlight o f greater public and parliamen­ tary scrutiny. It will not be easy. Given the nature o f these agencies, they cannot be expected to fulfil the public aspects o f the Liberal government’ s Program Review. But its effects will be felt nonetheless. It is interesting to note that for the first time the Office o f the Auditor General is initiating an audit o f the security and intelligence field. Such an audit will mark a new step toward the “ normalization” o f this once highly secret and privileged field o f activity. It may be a sign o f the times.

SECURITY AND INTELLIGENCE AGENCIES

NOTES

1

The first was the Taschereau-Kellock report regarding Soviet espionage in Canada in 1946; the second the (Mackenzie) Royal Commission on Security in 1969; the last and most complete review was the (McDonald) Commission o f Inquiry Concerning Certain Activities o f the RCMP in 1981. In 1990 a special parliamentary committee completed a five-year review o f the Canadian Security Intelligence Service Act. 2 See Peter Gill, Policing Politics: Security Intelligence and the Liberal Democratic State (London: Frank Cass & Co., 1994), for the bestdeveloped attempt to conceptualize “political policing” in terms both of the theory o f the state and the empirical situation in the English-speaking democracies. 3 This is a general point I have made in a two-part article, “The Politics o f Security Intelligence Policy-making in Canada I, 1970-1984,” Intelli­ gence and National Security 6, 4 (October 1991), 649-68, and “The Politics o f Security Intelligence Policy-making in Canada II, 1984-1991,” Intelligence and National Security 7, 2 (April 1992), 53-76. 4 I have interpreted the background to the CSIS Act at some length in “The Politics o f Security Intelligence Policy-making I: 1970-1984.” 5 R.S., 1985, c. C-23. 6 S. 21(3) provides that authorization may be given to “ intercept any communication or obtain any information, record, document or thing” and for that purpose: (a) “enter any place or open or obtain access to any thing” ; (b) “ search for, remove or return, or examine, take extracts from or make copies of or record in any manner the information, record, document or thing” ; or “ install, maintain or remove any thing.” S. 26 gives CSIS exemption from the section o f the Criminal Code dealing with interception o f communications. 7 Anyone who has held an office in either a federal or provincial cabinet is automatically a Privy Councillor for life. There is however no impedi­ ment to a prime minister naming others as Privy Councillors as an honour—or, in the case o f SIRC, as a way o f meeting a technical qualifi­ cation for appointment. None o f the five current members o f SIRC ever held cabinet office. This might be interpreted as contrary to the spirit o f the CSIS Act, although not to the letter. 8 Although often repeated by SIRC, this claim to unrestricted access is somewhat overstated in practice. SIRC has apparently agreed not nor­ mally to seek direct access to files used in ongoing CSIS operations (Director o f CSIS to the Solicitor General, February 24, 1994). Moreover, a number o f years ago SIRC signed a protocol with CSIS that appears to indicate some potential restriction on access to CSIS documents contain­ ing information received in confidence from foreign governments or their

437

I

438

9

10 11

12 13

14 15

16

17

18 19

HOW O T T A W A SPENDS

agencies (“Third-party Access Protocol,” Access to Information request #117-94-046). Commission of Inquiry Concerning Certain Activities of the Royal Canadian Mounted Police, Freedom and Security Under the Law: Second Report v. 2 (Ottawa: Minister of Supply and Services, 1981), Recommen­ dations 181-85, 1102-03. This committee would be assisted by an “Advisory Council on Security and Intelligence” that looked a bit like a stripped-down SIRC, but emphasis was clearly placed on a strong parliamentary presence. David Vienneau, “Retiring Watchdog Atkey Doesn’t Regret Being ‘ Pain’ to Spies,” Toronto Star, December 1,1989. Solicitor General, People and Process in Transition: Report to the Solicitor General by the Independent Advisory Team on the Canadian Security Intelligence Service (Ottawa: Minister of Supply and Services, October 1987). Thompson v. Canada [1992] 1 SCR 385. These appointments include a building contractor whose only apparent qualification was as a large personal contributor to the Prime Minister’ s electoral fund (George Van), an elderly former Tory fundraiser ( Eddie Goodman), and a Montreal lawyer with no background in the field named as Bassett’ s successor as Chair (Jacques Courtois). Rosemary Brown, a former NDP member o f the B.C. Legislature, also chairs the Ontario Human Rights Commission, a position rather more demanding of her time. The only member with any prior experience in the field was Liberal Michel Robert, who resigned to take a judicial appointment. He has since been replaced by Paule Gauthier, one o f the original members under Mr. Atkey, who has returned to lend the Committee some needed experience. SIRC, The Heritage Front Affair: Report to the Solicitor General o f Canada (Ottawa: Canada Communication Group, 1994). I have addressed some o f these issues in an article, “The ‘ Bristow Affair’ : A Crisis o f Accountability in Canadian Security Intelligence,” Intelli­ gence and National Security, forthcoming. A commentary and response by Mr. Maurice Archdeacon, Executive Director o f SIRC, is included. SIRC, Annual Report 1994-95 (Ottawa: Minister of Supply and Services, 1995), 67-69. By comparison, this represents about 0.7 percent of the budget for CSIS for the same period (the CSIS budget is discussed below). Administrative costs are being reduced through automation, fewer contracts for external editing and research services, fewer on-site audits, and the elimination o f sponsored seminars and conferences. The case o f Issam Al Yammani in the Federal Court o f Canada. R.S., 1985, c. C-23, s.39(2)(a); s. 54.

SECURITY AND INTELLIGENCE AGENCIES

20

Solicitor General Access request #95001, Ursula Menke—Herb Gray, Nov. 12,1993. This statement is followed by two paragraphs blacked out in their entirety. 21 Information supplied by Professor Peter Gill. 22 House o f Commons, Special Committee on the Review o f the Canadian Security Intelligence Act and the Security Offences Act, In Flux But Not In Crisis (Ottawa: Minister o f Supply and Services, 1990). 23 From figures assembled in “The Politics o f Security Intelligence Policy­ making II,” 67. 24 Solicitor General, On Course: National Security for the 1990s: The Government’s Response to the Report o f the House o f Commons Special Committee on the Review o f the CSIS Act and the Security Offences Act (Ottawa: Minister o f Supply and Services, 1991). 25 Interview with Blaine Thacker, MP, Toronto, Nov. 1991. 26 “The Committee is unable to assess ... whether the current system for co­ ordinating, assessing and disseminating intelligence in the government is meeting Canada’s security and intelligence needs. The Committee is also unable to determine to what extent the Prime Minister’ s Office or Cabinet make use o f security or foreign intelligence. Finally, the Committee is unable to assess how useful the security or foreign intelligence product is for consumer departments in the government.” Canada, House of Com­ mons, Special Committee on the Review o f the Canadian Security Intelligence Act and the Security Offences Act: In Flux but Not in Crisis (Ottawa: Minister of Supply and Services, 1990), 46-47. 27 See Stuart Farson, “Accountable and Prepared? Reorganizing Canada’s Intelligence Community for the 21st Century,” Canadian Foreign Policy 1, 3 (Fall 1993), 43-66. 28 On the impact o f Gouzenko and the government security screening program, see Reg Whitaker and Gary Marcuse, Cold War Canada: The Making o f a National Insecurity State, 1945-1957 (Toronto: University o f Toronto Press, 1994); on immigration and citizenship security see Reg Whitaker, Double Standard: The Secret History o f Canadian Immigra­ tion (Toronto: Lester & Orpen Dennys, 1987). 29 The RCMP initially denied CSIS officers access to data in CPIC, the police intelligence data bank that was routinely shared with municipal and provincial police forces. This problem has long since been corrected. 30 The second part o f the CSIS Act is the Security Offences Act, which fixes responsibility on the RCMP where reasonable and probable grounds exist to believe that criminal offences have taken place or are likely to take place. CSIS has no criminal investigative authority, as such. The RCMP in fact established a National Security Intelligence Directorate within its own organization that by 1989 had a staff o f 114 and a budget o f $7.7 million (about 5 percent o f the total budget of CSIS in that same year).

439

440

HOW O T T A W A SPENDS

A comprehensive CSIS-RCMP Memorandum of Understanding now spells out the terms o f co-ordination and co-operation between the two agencies. 32 Although the instinctive early reaction of the RCMP had been that the violent separatist movement must be run from Moscow, by the time o f the October 1970 Crisis they had largely abandoned this for a more nuanced understanding o f the movement in its indigenous Quebec setting. See Reg Whitaker, “Apprehended Insurrection? RCMP Intelligence and the October Crisis,” Queen’s Quarterly 100, 2 (Summer 1993), 383-406. 33 Empirical evidence for this can be found in Joseph Fletcher, “Mass and Elite Attitudes About Wiretapping in Canada: Implications for Demo­ cratic Theory and Practice,” Public Opinion Quarterly, 53 (1989), 22545. 34 SIRC, Annual Report 1994-95, 66. 35 See Jeffrey T. Richelson and Desmond Ball, The Ties That Bind: Intelli­ gence Cooperation between the UKUSA Countries—the United Kingdom, the United States o f America, Canada, Australia and New Zealand (Boston: Allen & Unwin, 1985) for the most comprehensive examination in print o f this network. 36 Bill Robinson, “ Ultra Secret: Canadian Signals Intelligence and the Fall and Rise of Cryptanalysis in Canada.” March 1991. Unpublished. 37 Mike Frost and Michel Gratton, Spyworld: Inside the Canadian and American Intelligence Establishments (Toronto: Doubleday, 1994). 38 Jim Bronskill, “Government to Probe Former Spy’ s Allegations,” Canadian Press, November 14,1995. The story was broken by Andrew Mitrovica, CTV News, November 12, 1995. 39 Gordon Ritchie, personal conversation. 40 CSE, Presentation to the Cryptologic Resource Co-ordination Group, September 21, 1994. My thanks to Andrew Mitrovica o f CTV News, who obtained this document. 41 The CSE is now offering courses to the private sector in aspects o f information security management through a CSE INFOSEC Learning Centre. It has even established its own home page on the Internet to advertise its services (http://www.cse.dnd.ca). 42 Press Release, “ Statement by Deputy Clerk, Security and Intelligence,” May 2,1995; House o f Commons, Standing Committee on National Defence, Evidence, May 2, 1995. 43 Phil Rosen, “The Communications Security Establishment: Canada’s Most Secret Intelligence Agency,” Library o f Parliament, Research Branch, Sept. 1993, 5-6. The best unofficial source on the CSE is Bill Robinson, a researcher in Waterloo, Ontario. He has compiled a wealth of data on the agency on “The Unofficial Communications Security Estab­ lishment Webpage” on the Internet (http://watservl.uwaterloo.ca/ -brobinso/cse.html). See also his forthcoming article, “Intelligence, 31

SECURITY AND INTELLIGENCE AGENCIES

Eavesdropping and Privacy: Who Watches the Listeners?” in Craig McKie, ed., The System: Crime and Punishment in Canadian Society: A Reader (Toronto: Thompson Educational Publishers).

441

APPENDIX FISCAL FACTS AND TRENDS

This appendix presents an overview o f the federal government’ s fiscal position and includes certain major economic policy indicators for 19861995, as well as some international comparisons. Facts and trends are presented for federal revenue sources, federal expenditures by policy sector, the government's share o f the economy, interest and inflation rates, Canadian balance o f payments in total and with the United States in particular, and other national economic indicators. In addition, international comparisons on real growth, unemployment, inflation and productivity are reported for Canada, the U.S., Japan, Germany and the U.K. The figures and time series are updated each year, providing readers with an ongoing current record o f major budgetary and economic variables.

444

HOW O T T A W A SPENDS

TableA. 1 Federal Revenue by Source 1986-95

As a Percentage of Total Fiscal Y ear

Personal T a x (a)

C o rp o ra te Tax

O ther Indirect Taxes (b) Revenue (c)

T o ta l Revenue

A nn ual Change

1986

50.3

11.1

2 2 .8

15.8

10 0 .0

5.6

1987

5 4 .2

11.3

2 3 .9

10.7

1 0 0 .0

1 3.7

1988

5 5 .8

10.9

2 3 .6

9.7

1 0 0 .0

6.6

1989

5 4 .0

11.1

2 4 .6

10.3

1 0 0 .0

10.3

1990

5 3.5

11.1

2 4 .4

11.0

1 0 0 .0

4 .7

1991

5 7.3

9.6

2 1 .7

11.5

1 0 0 .0

6 .7

1992

6 0 .7

7.2

2 1 .3

10.8

1 0 0 .0

-

1 99 3

6 1 .0

6.0

2 2 .0

1 1.0

1 0 0 .0

-0.5

1994

5 9 .0

7.7

2 3 .3

10.0

1 0 0 .0

-0 .9

1995

5 9 .7

8.6

2 2 .6

9.1

1 0 0 .0

5.3

(a) Unemployment insurance contributions are included in the total. (b) Consists of sales taxes, energy taxes (except for petroleum and gas revenue tax and incremental oil revenue tax), excise duties, customs import duties, and the GST. (c) Consists of non-resident income tax, petroleum and gas revenue tax, incremental oil revenue tax, miscellaneous other taxes and non-tax revenue.

Source; Public Accounts of Canada.

0.2

F I S C A L F A C T S AND T R E N D S

Figure A. 1

Sources o f Federal Revenue as a Percentage o f Total 1995

Source: P ublic A ccounts o f Canada.

445

446

HOW O T T A W A SPENDS

Table A. 2 Federal Expenditures by Sector 1992-97

Percentage of Total Outlays Sector

1992

1993

1994

1995

1 9 9 6 (a )

1 9 9 7 (a )

Justice

2 .0

2.1

2.1

2 .0

2 .0

2.1

Heritage

2 .0

2 .2

2.1

1.8

1 .6

1.6

Transport

2 .5

1.8

1.9

1.8

1.7

1.2

Industry

1 .8

2.1

2.1

2 .5

2 .4

2 .3

Foreign .A.flairs

2 .5

2 6

2 .5

2 .5

2 .7

2 .6

N atural Resources

4 .4

3 .9

3 .5

3 .0

2 .7

3 .2

G o v ’t Operations

3 .6

3 .8

3 .8

4 .2

4 .0

3 .8

Defence

7.1

7 .7

7 .3

7.1

6 .6

6 .7

Fiscal Arrang.

1 0 .7

1 1.0

1 1.9

1 6 .1

1 6 .0

1 4 .5

P u b lic Debt

2 4 .9

2 5 .0

2 4 .7

2 5 .5

3 0 .1

3 0 .3

Social Programs

3 8 .6

3 7 .8

3 8 .0

3 3 .7

3 0 .5

3 1.7

ioo

ioo

ioo

ioo

IOO

IOO

Total O utlays

(a) For 1996 and 1997, expenditures on Parliament and Governor General are listed separately in the Main Estimates, 1996-1997. They are included above in Government Operations for consistency across years. For 1996 and 1997, the category o f Fiscal Arrangements has been retitled Major Transfer Payments to Other Levels of Government in the Main Estimates, 1996-1997. Source; Public Accounts o f Canada and Main Estimates, 1996-1997.

FI S CAL F AC TS A N D T R E ND S

Figure A. 2

Federal Expenditures by Sector Estimates 1997

Social Programs 31%

Public Debt 30%

Fiscal Arrangements 14% Defence

6%

Source: Main Estimates, 1996-1997.

Other 17% Gov’ t. Operations Natural Resources Foreign Affairs Industry Justice Heritage Transport

3.9% 3.2% 2.7% 2.3% 2.1% 1.6% 1.2%

447

448

HOW O T T A W A SPENDS

Figure A. 3 Federal Expenditures by Sector 1991-97

Billions of Dollars (current)

Fiscal Year

* Other includes: Justice, Heritage, Transport, Industry, Foreign Affairs, Natural Resources and Government Operations. Source; Public Accounts o f Canada and Main Estimates, 1996-1997.

FISCAL FACTS AND TRENDS

Figure A. 4 Federal Revenue, Expenditures, and Deficit as a Percentage o f GDP

1986-95

Percentage of GDP

Fiscal Year

Source: Public Accounts of Canada, the Bank o f Canada Review and The Daily, February 29,1996.

449

450

HOW O T T A W A SPENDS

Table A. 3 Federal Deficit

1986-95

Millions of Dollars Total Budgetary Annual Expenditures Deficit % Change

As % o f GDP

Fiscal Year

Total Revenue

1986

76 933

111 516

34 583

-10 .2

6.8

1987

85 931

116 664

30 733

-11.1

5.6

1988

97 612

125 813

28 201

-8.2

4 .7

1989

104 067

133 018

28 951

2.7

4 .5

1990

113 707

142 703

28 996

0.2

4.3

1991

119 353

149 971

30 618

5.6

4.5

1992

122 032

156 675

34 643

13.1

5 .0

1993

120 380

161 401

41 021

18.4

5.7

1994

115 984

157 996

42 012

2.4

5.9

1995

123323

160785

37462

-10 .8

6.1

Revenue totals are calculated on a net basis. Source; Public Accounts o f Canada and The Daily, February 29,1996.

F I S C A L F AC TS A N D T R E N D S

Figure A. 5

Federal Revenue, Expenditures and Deficit 1986-95

Billions of Dollars (current)

Fiscal Year

Source; Public Accounts o f Canada and The Daily, February 29,1996.

451

452

HOW O T T A W A SPENDS

Figure A. 6 Growth in Real GDP 1986-95

Annual Change (percentage)

Fiscal Year

Source; Bank o f Canada Review and The Daily, February 29,1996.

F I S CAL F A C T S A N D T R E N D S

Figure A. 7 Rates of Unemployment and Employment Growth 1986-95

Percentage

Fiscal Year

Source; Historical Labour Force Statistics (71-201), Statistics Canada.

453

454

HOW O T T A W A SPENDS

Figure A. 8 Interest and Inflation Rates 1986-95

Percentage

Fiscal Year

*The CPI excludes food. Energy is excluded from 1990 to 1994. Source; Bank o f Canada Review and the Consumer Price Index, Statistics Canada.

F I S CAL F A C T S A N D T R E N D S

Figure A. 9 Productivity and Costs 1985-94

Annual Change (percentage)

Fiscal Year

Source; Economic Reference Tables, Department of Finance.

455

456

HO W O T T A W A SPENDS

Figure A. 10 Balance of Payments 1985-94

Billions of Dollars (current)

Fiscal Year

Source; Economic Reference Tables, Department o f Finance.

F I S CAL F A C T S A N D T R E N D S

Figure A. II Growth in Real GDP Canada and Selected G7 Countries 1985-94

Annual Change (Percentage)

t ------------ r-

1985

’86

’87

i------------ 1----------- 1------------ 1------------ 1------------ 1------------ 1

’88

Source.* OECD Economic Outlook.

*89

’90

’91

’92

’93

’94

457

458

HOW O T T A W A SPENDS

Figure A. 12 Unemployment Rates Canada and Selected G7 Countries 1985-94

Standardized Unemployment Rate (Percentage)

Source; OECD Economic Outlook.

F I S CAL F A C T S A N D T RE ND S

Figure A. 13 Annual Inflation Rates Canada and Selected G7 Countries 1985-94

Inflation Rate (Percentage)

Source.' OECD Economic Outlook.

460

HOW O T T A W A SPENDS

Figure A. 14 Increase in Unit Costs Canada and Selected G7 Countries 1985-94

Annual Change (Percentage)

Source; OECD Economic Outlook.

F I S CAL FA C T S A N D T R E N D S

461

Table A. 4

International Comparisons 1985-94 Percentage Change from Previous Period 1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

2.4

-0.2

-1.7

0.7

2.4

4.6 4.1

Growth in R eal G D P Canada

4.7

3.3

4.2

5.0

U.S.

3.2

2.9

3.1

3.9

2.5

1.2

-0.7

2.6

3.0

Japan

5.0

2.6

4.1

6.2

4.7

4.8

4.3

1.1

0.1

0.5

Germany

2.0

2.3

1.5

3.7

3.6

5.7

4.5

2.1

-1.3

2.9

U.K.

3.8

4.3

4.8

5.0

2.2

0.4

-2.2

-0.6

1.9

3.8

9.5

8.8

7.7

7.5

8.1

10.2

11.2

11.1

10.3

Unem ploym ent R ates Canada

10.4

U.S.

7.1

6.9

6.1

5.4

5.2

5.4

6.6

7.3

6.7

6.0

Japan

2.6

2.8

2.8

2.5

2.3

2.1

2.1

2.2

2.5

2.9

Germany

7.1

6.4

6.2

6.2

5.6

4.8

4.2

4.6

5.8

8.4

U.K.

11.2

11.2

10.3

8.6

7.2

7.0

8.8

10.0

10.3

9.5

4.4

4.7

1.1

1.5

0.7

Private Consumption Canada

3.7

3.8

4.0

3.8

4.7

U.S.

3.9

3.1

4.2

4.2

4.9

5.1

4.3

3.3

2.7

2.1

Japan

2.2

0.4

0.2

-0.1

1.8

2.6

2.5

2.1

1.0

0.3

Germany

1.8

-0.6

0.5

1.3

2.9

2.7

3.7

4.7

4.0

2.8

U.K.

5.3

4.0

4.3

5.0

5.9

5.5

7.4

4.8

3.5

2.5

-0.8

Unit Labour Cost in the Business S ector Canada

3.4

2.8

4.9

4.7

4.8

4.9

4.2

2.2

1.2

U.S.

3.0

2.5

3.7

4.2

3.1

4.9

3.8

2.4

2.3

1.8

Japan

-1.0

0.9

-0.4

-1.4

1.2

2.2

1.6

1.6

0.5

1.2

Germany

1.6

2.6

2.4

-0.1

0.7

1.3

2.8

5.8

3.8

-0.5

U.K.

5.0

3.6

3.3

6.3

9.3

9.9

6.7

3.3

0.8

0.4

Unemployment Rates according to OECD Standardized Definition. Source; OECD Economic Outlook

a b s tr a c ts

/

resumes

Herman Bakvis

Shrinking the House of HRIF: Program Review and the Department of Human Resources Development The evolution o f Program Review in the Department o f Human Re­ sources Development Canada (HRDC) was quite different from that in other departments. It came a year later and it arrived only after the failure o f Lloyd Axworthy’ s highly ambitious Social Security Review. Furthermore, the department was given explicit reduction targets by the Minister o f Finance, as per the 1995 Budget Plan: 5,000 FTE (from 26,000 to 21,000 employees) and $1.1 billion in program expendi­ tures by 1997-98. These cuts were in addition to the $2 billion cut to the Unemployment Insurance (UI) budget announced in 1994. In re­ sponse the department launched two vehicles for Program Review: the new Service Delivery Network and the Human Resources Investment Fund (HRIF). The former involved the streamlining, automating, and revamping o f the system o f delivering HRDC services to clients. The HRIF in turn was intended to bring together a host o f smaller pro­ grams supported by the consolidated revenue fund with the “ active measures” component o f Unemployment Insurance. It was also in­ tended to shrink the financial house. While the design o f the new Ser­ vice Delivery Network was completed in August o f 1995, the HRIF is still very much a work in progress and its implementation far from certain. The chapter discusses the limits o f Program Review in HRDC by examining the development o f these two vehicles, the role played by HRDC ministers Lloyd Axworthy and Doug Young, and the im­ pact o f federal-provincial relations and UI reform on constructing the HRIF. Also discussed are the implications o f a shrinking HRIF with respect to specific programs such as the child-care initiative and the active employment measures component o f the new Employment In­ surance legislation.

L ’Examen des programmes au sein du ministere du Developpement des ressources humaines Canada (DRHC) a evolue de fagon tres differente comparativement a d ’autres ministeres. En effet, il est arrive un anplus tard, seulement apres I ’echec de la tres ambitieuse Revision de la securite sociale de Lloyd Axworthy. De plus, le ministere a regu

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du ministre des Finances des objectifs en matiere de reduction tres precis, aux termes du Plan budgetaire de 1995 : 5 000 ETP ( de 26 000 a 21 000) et 1,1 milliard $ en depenses de programmes d'ici 1997-98. Ces reductions viennent s ’ajouter a celle de 2 milliards $ au budget de I ’assurance-chdmage annoncee en 1994. En reponse, le ministere a lance deux vehicules d ’examen deprogrammes: le nouveau Reseau des services a la clientele et le Fonds d ’investissement en ressources humaines. Le premier comportait la simplification, Vautomatisation et la reorganisation du reseau des services du ministere. Le deuxieme etait destine a reunir un ensemble de petits programmes finance par le tresor et la composante « prestations d ’emploi actives » de I ’assurance-chdmage. Hdevait servir egalement a reduire les depenses globales. L ’organisation du nouveau Reseau des services a la clientele a ete termine en aout 1995, mais le Fonds est toujours un travail en cours et la mise en oeuvre en est loin d ’etre certaine. Ce chapitre discute les limitations de I ’Examen des programmes au DRHC a la lumiere du developpement de ces deux vehicules, le rolejoue par les ministres du DRHC Lloyd Axworthy et Doug Young, ainsi que I ’impact des relationsfederales-provinciales et de la reforme de I ’assurance-chdmage sur la construction du DRHC. L ’article discute egalement les implications de la reduction duDRHC sur des programmes particuliers tels que leprojet de garde d ’enfants et la composanteprestations d ’emploi actives de la nouvelle legislation sur I ’assurance-emploi. Andrew Cardozo

Lion Taming: Downsizing the Opponents of Downsizing The role o f public interest groups and the funding that they receive have been under attack in recent years. While the Conservatives began to cut the funding levels in their second term, it was not until the 1994 and 1995 Liberal budgets that a strategic approach to cuts was put in place. While core funding is being cut, and is likely to be completely eliminated over the next two to three years, several organizations have undertaken research and service delivery projects, which allows them to continue their work, albeit in a more controlled manner. Their advo­ cacy work is on the decrease, especially in the social policy field, just when significant changes and devolution are taking place in the area. A “ Voluntary Sector Enhancement Act” would be a useful mechanism

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to address the future o f this sector in the years to come.

Le role des groupes d ’interetpublic ainsi que leur fincmcement ont ete attaques au cours des demieres annees. Les conservateurs ont commence a en reduire le fincmcement au cow's de leur deuxieme mandat, mais ce n ’est qu ’avec les budgets liberaux de 1994 et de 1995 qu’une approche strategique en matiere de reductions a ete mise en place. Lefinancement de base subit une reduction, et risque d ’etre completement elimine au cours des deux ou trois annees a venir. Plusieurs organisations ont cependant entrepris des projets de re­ cherche et de prestation des services, ce qui leurpermet de continuer leur oeuvre, bien que d ’une fagon plus restreinte. Elies font moins pour assurer la defense etpromotion de leurs droits, au moment meme ou il se passe des changements significatifs ainsi qu ’une devolution dans le domaine de la politique sociale. Une loi sur la mise en valeur du secteur benevole serait un mecanisme utile pour assurer I ’avenir de ce secteur dans les annees a venir. Calum Carmichael

Banking on Transparency: An Interpretation of Recent Changes at the Bank of Canada This chapter describes and interprets recent changes at the Bank o f Canada that have taken place primarily since Gordon Thiessen be­ came Governor in 1994. These changes affect not only the operating expenses o f the Bank, but also the tools, goals, indicators, and gover­ nance o f monetary policy. The Bank has presented the latter changes as steps that improve transparency— the visibility o f the Bank’ s ac­ tions, purposes, decisions, and procedures as they affect monetary policy. This chapter suggests that the Bank values transparency as a means o f strengthening its influence on economic activity and its posi­ tion in Canadian polity. Although transparency may help the Bank in the former task, it will not help in the latter.

Ce chapitre decrit et interprete les changements recents a la Banque du Canada qui sont intervenus principalement depuis la nomination de Gordon Thiessen auposte de gouvemeur en 1994. Ces changements affectent non seulement les depenses defonctionnement de la Banque, mais aussi les outils, les objectifs, les indicateurs et la gestion de la politique monetaire. La Banque a presente ces changements comme

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des mesures pour augmenter la transparence—la visibilite des ac­ tions, des buts, des decisions et des procedures de la Banque qui affectent la politique monetaire. Ce chapitre suggere que la Banque privilegie la transparence pour, d ’une part, accroitre son influence sur I ’activite economique et, d ’autre part, renforcer sa position dans I ’organisation politique canadienne. Cette transparence estpeut-etre utile pour le premier objectifmais elle ne sera d ’aucune utilite pour le deuxieme. Bruce Doern

Looking for the Core: Industry Canada and Program Review The chapter examines whether Industry Canada has found a viable core for its free trade era role or whether Program Review has cut the department o ff at the knees, deprived o f the essential capacity needed to make and implement microeconomic policies in a globalized economy. The analysis shows that Program Review did force Industry Canada to take a hard look at just what Canadian industrial policy was and should be as the millennium approaches. It has contributed to Industry Canada’ s sharper articulation o f its main mandate areas and, equally important, o f the rationales within those areas. The analysis also con­ cludes that Industry Canada, and the central agencies which forced the cuts, have done themselves great harm not in the strict sense that cuts were made, but rather in the sense that Program Review simply pro­ vided no viable way for assessing what actual capacities were needed by the department and the government for the industrial sector devel­ opment aspects o f the department’ s central knowledge role.

Ce chapitre examine la question de savoir si Industrie Canada a trouve un centre viable pour son role a I ’ere du libre-echange ou bien si I ’Examen des programmes a effectivement ampute ce ministere en le privant de la capacite fondamentale de creer et d ’appliquer des politiques micro-economiques dans une economie mondialisee. II ressort de cette analyse que VExamen des programmes a bien fo r d le ministere a examiner de pres quelle etait et devait etre la politique industrielle dupays a I ’approche du nouveau millenaire. L ’Examen a permis a Industrie Canada de mieux articuler lesprincipaux domaines relevant de son mandat et, ce qui est tout aussi important, lesprincipes directeurs operant dans ces domaines. U ressort egalement de cette

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analyse qu ’Industrie Canada, et les organismes centraux qui ont impose ces reductions, se sontfait beaucoup de mal, non pas au sens strict defaire les reductions, mais plutot dans le sens que I ’Examen des programmes n ’a tout simplement foumi aucun moyen viable d ’evaluer les besoins en capacites reelles du ministere et du gouvernement, en ce qui concerne son role de centralisateur de connaissances quant au developpement du secteur industriel Ian Lee and Clem Hobbs

Pink Slips and Running Shoes: The Liberal Government’s Downsizing of the Public Service This chapter traces the history o f downsizing in the federal govern­ ment from the introduction o f severance pay in 1967 to the 1995 pro­ gram to reduce the Public Service by 45,000 employees over a threeyear period. The 1985 program to reduce 15,000 public service posi­ tions is shown to have resulted in a change in the mix o f “ tenured” public servants and “ sessional” or part-time employees rather than the stated objective. The Civilian Reduction Program (1994) in the De­ partment o f National Defence is examined and the transfer o f the les­ sons learned in this exercise to the Public Service at large is illustrated. The 1995 Early Retirement Incentive and Early Departure Incentive programs to achieve a reduction o f 45,000 employees over a threeyear period are contrasted with the normal attrition o f positions over the past ten years. It is concluded that the same result could have been achieved by a government-wide voluntary program with a managerial reservation to authorize or reject applications for buyout.

Ce chapitre resume I ’histoire de la reduction des effectifs au sein du gouvernementfederal depuis I ’introduction des indemnites de depart en 1967jusqu ’au programme de 1995 visant a reduire la Fonction publique de 45 000 employes sur uneperiode de trois arts. On demontre que le programme de 1985 visant a retrancher 15 000postes a abouti a un changement dans la proportion desfonctionnaires avec perma­ nence par rapport aux employes temporaires ou a tempspartiel, plutot qu ’a I ’objectif declare. On examine le Programme de reduction du personnel civil (1994) du ministere de la Defense nationale et on illustre le transfert des leqons de cet exercice a la Fonction publique en general. Le programme d ’encouragement a la retraite anticipee et

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la prime de depart anticipe destines afaire m e reduction de 45 000 employes sur une periode de trois arts sont compares a Vattrition normale survenue au cours des dix demieres annees. On en conclut que le meme resuitat aurait pu etre atteint par un programme volontaire a travers toute la Fonction publique, sous reserve d ’autorisation ou de rejet de la part de la gestion, des demandes d ’indemnite de depart. Evert A. Lindquist

On the Cutting Edge: Program Review, Government Restructuring, and the Treasury Board of Canada There are many contradictory images o f the Treasury Board and its Secretariat. This chapter updates these images by depicting TBS and its branches as a conglomerate o f mini-central agencies, reviews re­ cent efforts to reorganize each branch and restructure its activities, and describes recent attempts to redress the “ stovepipe” problem and improve horizontal integration through business planning and change exercises. This chapter suggests that notwithstanding a steady stream o f initiatives, particularly the expenditure reduction targets flowing from Program Review and the adoption o f business planning, there has not been deep cultural change and significant reorientation o f TBS activities. Recent decisions by the Prime Minister set the stage for more fundamental restructuring o f TBS, which should involve strength­ ening some functions, such as expenditure management, and signifi­ cantly overhauling some others. However, if such reforms are to bear fruit, they will require the active engagement o f Treasury Board min­ isters and the government.

Ilyade nombreuses images contradictoires du Secretariat du Conseil du Tresor. Ce chapitre met ces images a jour en depeignant le Secretariat et ses directions generates comme un conglomerat d ’organismes centraux en miniature, examine les efforts recents de reorganiser chaque direction generale et d ’en restructurer les activites, et decrit les tentatives recentes de redresser le probleme de cloisonnement et d ’ameliorer I ’integration horizontale en recourant a la planification operationnelle et a differents exercices de changement. Ce chapitre suggere que malgre un flot constant d ’initiatives, notamment les objectifs en matiere de reduction de

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depenses decoulant de I ’Examen desprogrammes ainsi que I ’adoption de laplanification operationnelle, iln ’y a eunichangementprofond au niveau de la culture, ni reorientation significative des activites du Secretariat. Les decisions recentes du premier ministre ont prepare le terrain pour une restructuration fondamentale du Secretariat, ce qui devrait comporter le renforcement de certaines fonctions telles que lagestion des depenses, et une refonte significative d'autres. Pour que de telles reformes portent desfruits, ilfaudra I ’engagement actif des ministres du Conseil ainsi que celui du gouvernement. Allan Maslove The Canada Health and Social Transfer: Forcing Issues The Canada Health and Social Transfer (CHST) is forcing Canadian governments at all levels to reexamine some o f the fundamental pre­ cepts o f social programs and o f federal-provincial fiscal relations. In the policy fields o f health care and social assistance, cuts in federal transfers to the provinces— the CHST being the latest in a long se­ ries— call into question the ability o f Ottawa to maintain national stan­ dards. The declining transfers have already resulted in challenges to Ottawa’ s moral and political authority in these fields. The CHST and other unilateral moves by Ottawa have also raised challenges to the broader structure o f fiscal arrangements in the federation. The chapter concludes with a suggestion that, in order to restore stability and secu­ rity to the transfer programs without imposing (relatively) larger fi­ nancial burdens on Ottawa, the CHST should become a conditional revenue sharing plan.

Le Transfert social est en train deforcer les gouvernements canadiens a tous les niveaux a reexaminer certains preceptesfondamentaux qui sous-tendent les programmes sociaux et les relations federalesprovinciales. Dans les champs politiques des soins de sante et de I ’assistance sociale, les reductions aux transferts federaux faits aux provinces—le Transfert represente la derniere de toute une serie— remettent en question la capacite du gouvernement federal de maintenir des standards au niveau du pays. La baisse des transferts a deja mene a la contestation de I 'autorite morale etpolitique dufederal dans ces domaines. Le Transfert et d'autres demarches unilaterales dufederal ont mene a des remises en question de la structure generate

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des arrangementsfiscaux ausein de lafederation. Le chapitre termine par la suggestion que, pour restaurer une certaine stabilite etsecurite auxprogrammes de transfert sans imposer desfardeaux relativement plus importants sur le gouvernement federal, le Transfert devrait devenir un plan conditionnel de partage de revenus. Gilles Paquet and Robert Shepherd The Program Review Process: A Deconstruction Program Review is a central piece o f the on-going Government Re­ newal process. It was not only a knee-jerk reaction to difficult fiscal times but a reasoned Cartesian response to fundamental demands for change in the governance system o f the Canadian federation. This pa­ per examines the historical context o f Program Review and the ratio­ nale that underlies it. Then it deconstructs Program Review, drawing from insights o f senior officials familiar with the process and from oblique perspectives provided by the reports o f the Office o f the Auditor General. From this information base, the paper develops an evaluation o f Program Review in toto and explains how it lost its governance focus and became an exercise in expenditure reduction and subsequently an exercise in quality service. The authors speculate on the reasons that might explain this derailment and on the conditions necessary for the integrity o f the original mandate o f Program Review to be restored. The conclusion echoes a certain measured pessimism.

L 'Examen des programmes est une piece centrale dans le processus general de Renouveau du gouvernement. II ne s ’agitpas d ’une simple reaction aux press ions fiscales mais d ’un effort cartesien raisonne pour repondre aux demandes de changement dans le systeme de gouvemance de lafederation canadienne. Ce texte examine le contexte historique dans lequel s ’inscrit I ’Examen desprogrammes et la logique sur laquelle ce processus repose. On s ’appuie sur les perceptions de hautsfonctionnaires qui ont observe le processus de pres et sur des perspectives de rechange foumies par les rapports du Bureau du Verificateur Generalpour deconstruire leprocessus d ’evaluation des programmes. A partir de cette base documentaire, on presente une evaluation de I ’Evaluation des programmes in toto et on se demande comment il en est venu a perdre son point d ’ancrage dans la gouvernance pour devenir un exercice de reduction de depenses

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publiques et subsequemment un exercice de recherche de qualite. Les auteurs speculent sur les raisons quipeuvent expliquer ce deraillement et sur les conditions necessairespour que I ’integrite du mandat origi­ nal de VEvaluation de programmes soit restauree. La conclusion traduit un certain pessimisme mesure. Alasdair Roberts

Public Works and Government Services: Beautiful Theory Meets Ugly Reality Public Works and Government Services Canada (PWGSC)— a new department that houses the government’s major common service orga­ nizations (CSOs)— is in the middle o f dramatic restructuring. PWGSC has focused much o f its attention on internal difficulties created after the department’ s establishment in June 1993. Changes to the government’ s policy on provision o f common services, aimed at break­ ing up CSO monopolies on service delivery within government, have also created financial and political difficulties for the department, and provoked widespread doubts about the rationale for maintaining gov­ ernment-run common service organizations. Several recent reviews, including the 1994-95 Program Review exercise, have responded to these internal and external challenges. These reviews have remedied weaknesses in the 1993 reorganization plan but have been less suc­ cessful in producing strong arguments for preserving the major CSOs. The department will be downsized substantially over the next five years.

Le nouveau ministere des Travauxpublics et services gouvemementaux Canada (TPSGC) qui abrite les principales organisations des ser­ vices communs (OSC) du gouvernement, sub it actuellement une restructuration dramatique. Le TPSGC s ’est concentre en grande partie sur les difficultes internes qui ont fait suite a la creation du ministere en juin 1993. Les changements a la politique du gouvernement en matiere deprestation des services communs, destines a briser les monopoles des OSC sur les services au sein du gouvernement, ont egalement cree des difficultes financieres et politiques pour le ministere, et ontprovoque des doutes sur la raison d ’etre des organisations des services communs relevant du gouvernement. Plusieurs examens recents, y compris VExamen des programmes de 1994-95, ont repondu a ces remises en question venant

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de Vinterieur et de Vexterieur. Ces examens ont bien remedie aux faiblesses du plan de reorganisation de 1993 mais ont moins bien foumi des argumentsforts pour lapreservation desprincipales OSC. Le ministere vivra une reduction considerable au cours des cinq annees avenir. Gene Swimmer

An Introduction to Life Under the Knife The landmark 1995 Liberal Budget dramatically cut federal govern­ ment spending and employment to reduce the deficit. The Budget also signalled a change in philosophy toward reducing the role o f the fed­ eral government by devolving responsibilities to other public and pri­ vate sector organizations, and applying private sector managerial tech­ niques to the remaining federal government activities. This introduc­ tory chapter provides an overview o f the following twelve chapters, which focus on how specific federal departments, the Liberal govern­ ment, and society as a whole are adjusting to the unprecedented budget cutting. The Liberals have managed the politics o f restraint extremely well by setting attainable targets, using time-released cutbacks, and ap­ pearing to equalize the pain across constituencies. Their successful strategy has continued with the 1996 Budget, which stays the course o f deficit reduction to maintain the confidence o f money markets while reassuring the public about the future o f social programs.

Le budget liberal historique de 1995 a reduit defagon spectaculaire les depenses et Vemploi afin de s ’attaquer au deficit. Ce budget a marque un changement de philosophie a Vegard de la reduction du role du gouvernement federal provenant de la devolution de responsabilites a d ’autres organisations du secteurpublic etprive et a I ’egardde I 'application des techniques de gestion du secteur prive aux activites conservees par le gouvernement federal. Ce premier chapitre donne une vue d ’ensemble des douze chapitres suivants qui portent sur lafagon dont certains ministeresfederaux, le gouvernement liberal et notre societe en general sont en train de s ’adapter a ces reductions budgetaires sans precedent. Les liberaux avaient extremement bien mene la politique de contraintes enfixant des objectifs realistes, en etalant les reductions

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et en semblcmt bien distribuer la douleur. Jls ont continue cette strategie fructueuse avec le budget de 1996, qui conserve la politique de reduction du deficit pour maintenir la confiance des marches monetaires, tout en rassurant le public sur Vavenir des programmes sociaux. Glen Toner

Environment Canada’s Continuing Roller Coaster Ride Throughout its 25-year history Environment Canada has faced a se­ ries o f ups and downs. Its most recent down began with the June 1993 government reorganization, when the Canadian Parks Service was sev­ ered from the department. This trajectory was exacerbated when Pro­ gram Review lopped 32 percent o ff the departmental budget for the years 1995-99. The department faced the paradox that while its bud­ get was shrinking its mandate was expanding, in large part because o f promises made by the Liberals in their Red Book. Still, the department emerged from Program Review without significantly reducing its pro­ grams, in part because o f a favourable decision by Paul Martin on the base from which the cuts would be made and in part because o f the acceleration o f a technology substitution program. This chapter analy­ ses the paradox o f the expanding mandate and diminishing resources, and the internal departmental review process and its implications.

A trovers ses vingt-cinq annees d ’histoire, Environnement Canada a fait face a des hauts et des bas. Son dernier bas a commence avec la reorganisation gouvernementale de 1993, alors que le Service canadien des pares a ete enleve au ministere. Cette trajectoire a ete exacerbee quand I 'Examen des programmes a reduit le budget du ministere de 32 pour cent pour 1995-96. Le ministere s ’est trouve devant le paradoxe qu ’au moment meme ou son budget se retrecissait, son mandat s ’elargissait, en grande partie a la suite des promesses des liberauxfigurant dans leur Livre rouge. II reste que le ministere est sorti de I *.Examen sans que sesprogrammes soient reduits defaqon importante, en partie grace a une decisionfavorable de Paul Martin quant a la base ou les reductions seraientfaites et en partie grace a I ’acceleration d ’un programme de remplacement des technologies. Ce chapitre analyse le paradoxe que represente I ’elargissement du mandat accompagne de la diminution des ressources, ainsi que le

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processus de Vexamen interne du ministere et les implications du celui-ci. Claire Turenne Sjolander

Cashing In on the “Peace Dividend”: National Defence in the Post-Cold War World This chapter examines the nature o f the cuts faced by DND since the election o f the Liberal party and, explores the process o f the redefini­ tion o f DND’ s mandate after the Cold War. It begins by focusing on the consultative process designed to define a new mandate for the de­ partment within the context o f budgetary constraints and the new geo­ political reality. Following upon a commitment made by the Prime Minister on the day he was sworn in, Minister o f National Defence David Collenette initiated a parliamentary and ostensibly open and “ democratic” review o f defence policy and produced almost simulta­ neously a white paper on National Defence. In this respect, the chapter argues that consultation had but a limited effect, legitimizing, rather than profoundly influencing, the emerging post-Cold War mandate o f the Department o f National Defence. Second, in an examination o f the specific cuts faced by DND, it argues that the department has sought to preserve its “ leading edge” military capability, potentially at the expense o f more prosaic commitments, such as peacekeeping. Para­ doxically, however, peacekeeping serves an important symbolic func­ tion, justifying the resources absorbed by DND in the post-Cold War world whether or not the broader objectives o f the Canadian military coincide with the extension o f peacekeeping commitments.

Ce chapitre examine la nature des reductions auxquelles fait face le ministere de la Defense nationale depuis I ’election du Parti liberal et explore le processus de la redefinition du mandat de ce ministere depuis la fin de la guerre froide. II commence par un examen du processus de consultation congupour definir un nouveau mandatpour le ministere dans le contexte des contraintes budgetaires et de la nouvelle realite geopolitique. A la suite d ’un engagementpris par le premier ministre le jour de son assermentation, le ministre de la Defense nationale David Collenette a inaugure un examen parlementaire supposement ouvert et« democratique » de lapolitique en matiere de defense et a produit a peu pres simultanement un livre

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blanc sur la Defense nationale. A cet egard, le chapitre soutient que cette consultation n ’a eu qu ’un effet limite, et qu ’elle a servi a legitimer, plutot qu ’a influencer profondement, le mandat du ministere qui emerge depuis lafin de la guerre froide. Deuxiemement, le chapitre examine les reductions specifiques qui pesent sur le ministere et soutient que le ministere a cherche a preserver sa capacite militaire depointe, potentiellement aux depens d ’engagements plus prosaiques tels que le maintien de la paix. Cette derniere activite remplit paradoxalement une fonction symbolique importante, servant a justifier les ressources absorbees par le ministere dans un monde sans guerre froide alors que I ’elargissement des engagements en matiere de maintien de la paix ne figure pas necessairement parmi les objectifs generaux des militaires canadiens. Reg Whitaker

Security and Intelligence in a Cold Climate Security and intelligence is an unusual area o f government activity. Agencies engaged in intelligence- gathering and/or the protection o f national security have enjoyed privileged access to the scarce resources o f secrecy, and have been insulated from many o f the forms o f ac­ countability to which other departments and agencies are subject. Canadian security and intelligence agencies, like their counterparts in other Western countries, have been hit with a “ double whammy” : first, the end o f the Cold War has forced drastic redefinitions o f national security and triggered a search for new roles; second, the fiscal crisis o f the state is squeezing budgets and demanding more accountability for tax dollars spent. This chapter examines the impact o f these pres­ sures on the major Canadian agencies, the Canadian Security Intelli­ gence Service and the Communications Security Establishment, and the mechanisms for executive and parliamentary control over their activities. It concludes that this hitherto esoteric aspect o f government is likely to be increasingly “ normalized” in the future.

La securite et les renseignements representent un domaine inhabituel d ’activite gouvernementale. Les organismes assurant la collecte des renseignements ou la protection de la securite nationale ontjoui par lepasse d ’un accesprivilegie aux rares ressources du secret et ils ont ete isoles des differentes formes de responsabilite auxquelles sont

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soumis d ’autres ministeres et organismes. Les organismes ccmadiens de securite et de renseignements, comme lews equivalents dans d ’autres pays de I ’Ouest, viennent de recevoir deux coups : premierement, la fin de la guerre froide a impose des redefinitions drastiques de la securite nationale et a necessite la recherche de nouveaux roles; deuxiemement, la crise fiscale de I ’Etat a I ’heure actuelle impose des restrictions sur les budgets et demande une responsabilite accrue en ce qui concerne I ’utilisation de I ’argent des contribuables. Ce chapitre examine Vimpact de ces pressions sur les principaux organismes canadiens, le Service canadien du renseignement de securite et le Centre de la sicurite des telecommunications, ainsi que les mecanismes permettant a la haute direction et au Parlement de controler leurs activites. L ’article conclut que cet aspectjusqu ’ici esoterique du gouvernement risque d ’etre de plus en plus normalise a l ’avenir.

CONTRIBUTORS

Herm an Bakvis is a Professor o f Political Science and Public Administration at Dalhousie University. Andrew Cardozo is President o f the Pearson-Shoyama Institute. Calum M . Carmichael is an Associate Professor in the School o f Public Administration at Carleton University. Bruce Doern is a Professor in the School o f Public Administration at Carleton University and is Visiting Joint Professor o f Public Policy at the University o f Exeter. Clem Hobbs is an Assistant Professor in the School o f Business at Carleton University. Ian Lee is an Assistant Professor in the School o f Business at Carleton University. Evert A. Lindquist is an Associate Professor in the Department o f Political Science at the University o f Toronto. Allan Maslove is a Professor in the School o f Public Administration at Carleton University. Gilles Paquet is a Professor o f Economics and Public Management in the Faculty o f Administration at the University o f Ottawa, a Principal o f PRIME, and Senior Research Fellow at the Canadian Centre for Management Development. Alasdair Roberts is an Assistant Professor in the School o f Policy Studies at Queen’ s University.

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Robert Shepherd is a Lecturer in the Faculty o f Administration at the University o f Ottawa, a Research Associate o f PRIME, and an Associate o f The Regulatory Consulting Group, Inc. Gene Swimmer is a Professor in the School o f Public Administration at Carleton University. Glen T oner is an Associate Professor in the School o f Public Administration at Carleton University. Claire Turenne Sjolander is an Associate Professor o f Political Science at the University o f Ottawa. Reg Whitaker is a Professor o f Political Science at York University.