How Ottawa Spends, 2004-2005: Mandate Change and Continuity in the Paul Martin Era 9780773572379

Citation preview

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How Ottawa Spends, 2004–2005

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How Ottawa Spends 2004–2005 Mandate Change in the Paul Martin Era Edited by

g.bruce doern

McGill-Queen’s University Press Montreal & Kingston • London • Ithaca

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© McGill-Queen’s University Press 2004 isbn 0-7735-2813-x (cloth) isbn 0-7735-2814-8 (paper) Legal deposit third quarter 2004 Bibliothèque nationale du Québec Printed in Canada on acid-free paper that is 100% ancient forest free (100% post-consumer recycled), processed chlorine free. McGill-Queen’s University Press acknowledges the support of the Canada Council for the Arts for our publishing program. We also acknowledge the financial support of the Government of Canada through the Book Publishing Industry Development Program (bpidp) for our publishing activities.

The National Library of Canada has Catalogued this publication as follows: How Ottawa spends 1983– Prepared at the School of Public Administration, Carleton University. Publisher varies. Continues: How Ottawa spends your tax dollars, issn 0711-4990 Includes bibliographical references. issn 0822-6482 isbn 0-7735-2813-x (cloth) isbn 0-7735-2814-8 (pbk) 1. Canada – Appropriations and expenditures – Periodicals. I. Carleton University. School of Public Administration hj7663.s6

354.710072′2

c84-030303-3

This book was typeset by Dynagram Inc. in 10/12 Baskerville.

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Contents

Preface

vii

1 Martin in Power: From Coronation to Contest G. Bruce Doern

5

pa r t 1 m a c r o c h o i c e s a n d c h a l l e n g e s 2 Fiscal Imbalance as Government Failure Gilles Paquet

25

3 The Emerging Policy Shift in Canada-us Relations Michael Hart and Brian Tomlin

46

4 Global Flows and Local Places: The Cities Agenda Neil Bradford

70

5 Innovation, Services, and the Transformation of the Canadian Industrial Structure 89 Tyler Chamberlin and John de la Mothe

pa r t 2 s o c i a l u n i o n a n d the importance of place 6 Martin’s Moment: The Social Policy Agenda of a New Prime Minister 111 James J. Rice and Michael J. Prince 7 I spy with My Little Eye ... Canada’s National Child Benefit 131 Stephanie Paterson, Karine Levasseur, and Tatyana Teplova

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vi Contents

8 New Fishery Management in Atlantic Canada: Communities Governments, and Alternative Targets Stephan Schott

151

pa r t 3 e n e r g y, r e s o u r c e s , a n d e n v i r o n m e n t eco nomy int egration 9 Implementing Kyoto: When Spending Is Not Enough 175 Douglas Macdonald, Debora VanNijnatten, and Andrew Bjorn 10 Governance for Sustainable Development: Next Stage Institutional and Policy Innovation Glen Toner and Carey Frey

198

11 Federal Policy and Alberta’s Oil and Gas: The Challenge of Biodiversity Conservation 222 Michael M. Wenig 12 “Smart Regulation,” Regulatory Congestion, and Natural Resources Regulatory Governance G. Bruce Doern

245

pa r t 4 r e n e w i n g g o v e r n a n c e 13 The Next Generation? Recruitment and Renewal in the Federal Public Service 277 Jonathan Malloy 14 The Office of Ethics Commissioner, Accountability, and Public Trust 296 Luc Juillet 15 Reshaping Ottawa’s Centre of Government: Martin’s Reforms in Historical Perspective 317 Evert Lindquist, Ian Clark, and James Mitchell Appendix A: Canadian Political Facts and Trends Appendix B: Fiscal Facts and Trends Abstracts/Résumés Contributors

399

385

367

351

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Preface

This is the twenty-fifth edition of How Ottawa Spends. During this period, we have examined the priorities, policies, and spending habits of the prime ministerial eras of Pierre Trudeau, Brian Mulroney, and Jean Chrétien. Virtually every federal departmental policy mandate area has been examined by our contributing authors, who come from across Canada and the world as well as from Carleton University and the School of Public Policy and Administration. Once again, we wish to convey our great appreciation of the efforts and analytical insights of our contributing authors.* Thanks are also due to several individuals who commented on early drafts of the chapters presented at an October 2003 conference on the new prime ministerial era. These include: Daniel Schwanen, Institute for Research on Public Policy; Andrei Sulzenko, Industry Canada; Allan Maslove, Carleton University; Tom Courchene, Queen’s University; Jane Jenson, Canadian Public Policy Research Network; William Doubleday, Environment Canada; Ken Ogilvie, Pollution Probe; Jayson Myers, Canadian Manufacturers and Exporters Association; Bill Jarvis, Environment Canada; and Peter Aucoin, Dalhousie University. Financial support for the conference and for some of the underlying research is also gratefully acknowledged. This came from the Social Sciences and Humanities Research Council of Canada, the School of Public Policy and Administration, the * The opinions expressed by the contributors to this volume are the personal views of the authors of individual chapters and do not necessarily reflect the views of the editor or of the School of Public Policy and Administration at Carleton University.

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viii Preface

Carleton Research Unit on Innovation, Science and Environment (cruise), Industry Canada, Natural Resources Canada, Environment Canada, Health Canada, and the Treasury Board Secretariat. We also thank key individuals at McGill-Queen’s University Press, Philip Cercone, Joan McGilvray, and Joanne Richardson for their high quality production and editorial support. Yixin Kimmie Huang, Karine Levasseur, and Martha Clark also deserve our thanks for their excellent technical and research support. Personal thanks are also owed to my colleagues at the School of Public Policy and Administration and at the University of Exeter. G. Bruce Doern Ottawa May 2004

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How Ottawa Spends, 2004–2005

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pa r t o n e Macro Choices and Challenges

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1 Martin in Power: From Coronation to Contest bruce doern

The old adage that “in politics, a week is a long time” seems appropriate as an initial characterization of the early experience of the Paul Martin Liberal government. Swept into office after, in a particularly predatory manner, ousting Jean Chrétien as prime minister of Canada and leader of the Liberal Party of Canada, Martin seemed headed for an effortless, coronation-like triumph. But the Martin era has quickly been supplanted by the brutal realities of a sudden (and welcome) form of contested national politics in Canada. Martin, as prime minister, limped home in the 28 June 2004 federal election with a minority government, winning only 135 seats in the House of Commons and 36.7 percent of the vote, compared with 99 seats for the Conservative party, which had 29.6 percent of the vote.1 A resurgent New Democratic Party won 19 seats and 15 percent of the vote, and the Bloc Québécois punished the Liberals in Quebec, winning 54 seats.2 The sudden change in perception, mood, and reality was the product of three developments, none of which seemed likely to converge when Martin made his initial run for the top job in 2002 and 2003. The first development was the relatively quick achievement of the merger of the Canadian Alliance party and the Progressive Conservative party into the new Conservative Party of Canada, along with the quite easy and remarkably non-contentious victory of Stephen Harper as the leader of the new Conservative party. This change alone promised to end a decade of vote-splitting by conservative voters - a fact of political life that had virtually guaranteed Liberal dominance in Ontario and paved the way for Jean Chrétien’s three consecutive majority governments from 1993 to 2003. By the spring of 2004 the new Conservative party was

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6 Macro Choices and Challenges

contending strongly in public opinion polls with the Martin Liberals and was even contemplating forming a minority government in the 2004 election. That election gave it a considerable electoral breakthrough in Ontario, but, after concerns that it might actually win a minority government, it succumbed to a late Liberal surge in Ontario. This was partly due to negative Liberal campaign advertisements directed at Harper, but it was also due to genuine doubts about the suitability of Harper as a possible prime minister. The second development was the tabling of the auditor general of Canada’s report on the sponsorship program scandal, which exposed financial mismanagement and possible corruption.3 The auditor general was scathingly critical of the Liberal failure to follow normal contracting practices in the sponsorship program during the period between 1997 and 2001. The sponsorship program was established after the 1995 Quebec referendum on sovereignty and was supposed to enhance federal visibility and presence in Quebec. Of particular concern to the auditor general was about $100 million that went to advertising firms to manage all dealings with the organizers of various events. In the wake of the sponsorship scandal, and despite Prime Minister Martin’s personal commitment to get to the bottom of it (in part through special inquiries), the Martin Liberals plummeted in public opinion polls. Their minority government status can be significantly attributed to this scandal, which also saw the Liberals split internally as old wounds emerged between the Chrétien and Martin wings of the party. The French-English interplay surrounding the scandal also had the polls showing the Bloc Québécois surge ahead of the Liberals among Quebec federal voters. This was because the scandal was seen as discrediting Quebec federal politics and politicians, and because it was associated with the 1995 Quebec sovereignty referendum and its narrow defeat. With the 2004 election results the Bloc Québécois has been strengthened to an extent that few thought possible after the last federal election. The third development was the increasingly apparent lack of preparedness on the part of a Martin entourage that, for the previous eighteen months, had seen itself as the opposition within the Liberal party but that now had to be a government - a government that, ultimately, had to run on a ten-year record showcasing Chrétien’s rule and Martin’s stewardship of national finances. Despite two years of preparing for power, the Martin Liberals seemed, and were, decidedly lacking in sure-handedness and consistency, particularly with regard to the sponsorship scandal but also with regard to us president George Bush, whether and when to call an election, and then in the early stages of the election campaign itself. Fears that it would be a Martin minute rather than a Martin era were no longer unthinkable among previously bullish and confident Martinites.

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7 Martin in Power

Within the context of these core political dynamics, the 2004-05 edition of How Ottawa Spends examines the key issues of national prioritysetting and public spending, and provides an informed look at many of the key policy issues. These issues are caught up in the new contested realities of Canadian political life as the Martin government takes office as a minority government; however, they are also played out against the longer track record of the Chrétien years, beginning in 1993, when Martin became Canada’s minister of finance.4 These issues include: federal-provincial-local fiscal imbalance, Canada-us relations, the cities agenda, the innovation agenda and the services sector, social policy, the National Child Benefit system, Atlantic Canada fisheries, the implementation of the Kyoto Protocol, sustainable development, oil and gas and biodiversity conservation, smart regulation and the governance of natural resources, recruitment and renewal in the federal public service, ethics policy and institutions, and Ottawa’s central agencies of governance. My account of the nature of political and policy change and continuity in the early Martin months in office proceeds in three steps. First, I look at the national priorities and statements enunciated by the Martin Liberals the day they were sworn into office, as evident in both their February 2004 Speech from the Throne and their 23 March budget speech presented by Finance Minister Ralph Goodale as well as in their election campaign. I then present a preview of the chapters in How Ottawa Spends, concluding with some overall observations regarding key challenges and contradictions facing the Martin minority government.

the martin government’s priorities Prior to the 2004 election, the priorities of the Martin government emerged on three key occasions: the swearing-in of the new Cabinet on 12 December 2003, the Speech from the Throne on 2 February 2004, and the budget speech on 23 March 2004. Broadly, the same themes were developed on each occasion, but the budget speech was the only occasion on which the enormous political fallout from the sponsorship program scandal (following the tabling of the auditor general’s report on 10 February 2004) had to be directly addressed. The 2004 election campaign brought out still further elements of the Liberal platform. Statements on the Swearing in of the New Government The new federal government, sworn in on 12 December 2003, announced several priorities and policy themes.5 Reflecting the views of a new prime minister, and to be interpreted and implemented by a

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8 Macro Choices and Challenges

Cabinet composed overwhelmingly of new ministers, the key themes announced on 12 December 2003 were:6 • • • • • • •

Democratic reform Ethics Strengthening our social foundations Building a twenty-first-century economy Ensuring Canada’s place in the world Securing Canada’s public health and safety Financial accountability

Also announced on 12 December was the considerably changed system of Cabinet committees. While my analysis is not focused on the Cabinet policy process per se (see Chapter 15), some of the changes in committees directly reflect different themes and priorities. The previous federal government’s Cabinet committees had been centred around the Cabinet Committee on the Economic Union (cceu) and the Cabinet Committee on the Social Union (ccsu). But the new government’s Cabinet committees include committees on: • • •

• • • •

• •

Priorities and planning (chaired by the prime minister) Operations (chaired by the deputy prime minister) Domestic affairs (an integrated approach to social, economic, and environmental policy) Aboriginal affairs (chaired by the prime minister) Global affairs (chaired by the prime minister) Canada-us Relations (chaired by the prime minister) Security, public health, and emergencies (chaired by the deputy prime minister) Expenditure review Treasury board

At this early stage in the life of a new government one cannot infer too much about this system or how it will actually work. But three of its features warrant mention and should be kept in mind. First, the prime minister is chairing four of the committees, an unprecedented situation in Canadian Cabinet government and one that may not last long, given the already huge workload facing a prime minister who also finds himself with a minority government. Second, the label “domestic affairs” implies that, in principle, some of the normal distinctions between economic and social policy may be submerged as greater integration is sought. Indeed, in the new government’s approach there are frequent references to the “social economy.” Third, as Chapter 3 shows, there is a considerable focus on Canada-us and global affairs.

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9 Martin in Power

The priorities and themes of other departments are obviously already a part of the themes and Cabinet committee changes announced by the new government. Some of the earlier themes from these departments emerge from the Chrétien government’s agenda. These include the innovation agenda (Industry Canada-led but government-wide in nature), the skills agenda (led by Human Resources and Development Canada but also government-wide), and the Smart Regulation Initiative (Privy Council Office-led but also governmentwide). Democratic Reform Prime Minister Martin presented democratic reform as his government’s “first order of business.”7 Reforms are to be centred on the way the House of Commons conducts its affairs. Key changes will include: an increased number of free votes on government legislation “other than votes of confidence and a limited number of matters of fundamental importance to the government”;8 strengthened roles for House of Commons committees; a requirement that ministers “actively engage with Private Members and ... meet regularly with House of Commons committees in their portfolio area to discuss priorities and receive input on legislative initiatives;9 a greater role in the appointment process; and an expanded role for parliamentary secretaries in their relations with Parliament (including such secretaries being sworn in as Privy councillors so that they can be invited to Cabinet and Cabinet committee discussions, as appropriate).10 Indirectly, however, the democratic reform initiatives will have other likely effects. The new government’s focus is on enhancing Parliamentary democracy. But this will occur as part of a larger debate on other conceptions of democracy. These are also a part of the Canadian democratic tradition and include stakeholder, or interest group, democracy and governance as well as direct civil society, or communitycentred, forms of democracy and governance. Ethics Also linked to democratic reform as a key policy theme is the issue of ethics. Even prior to the sponsorship scandal, this element of the Martin agenda included a promise to immediately reinstate legislation to establish the office of an independent ethics commissioner and a Senate ethics officer, each of whom would report to their respective chambers. This legislation was immediately passed in the new Parliament (see Chapter 14) Strengthening Social Foundations The new government’s commitment to strengthening Canada’s social foundations centred on splitting the current Human Resources and Development Canada (hrdc) into two departments: the new Department of Human Resources and Skills

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10 Macro Choices and Challenges

Development and the new Department of Social Development. The former is to focus on developing a “well-functioning labour market and lifelong learning systems” and its minister is specifically mandated to “engage the private sector, non-governmental organizations, and communities in community development and the social economy.”11 The latter department will focus on ensuring that an effective income security system is in place. Other initiatives, including Aboriginal affairs, and the previously mentioned new Cabinet Committee on Aboriginal Affairs (chaired by the prime minister) are also a part of the social foundations theme. The previous government’s 2002 discussion paper, Knowledge Matters, was anchored by hrdc.12 It raised very daunting issues for Canada’s overall labour market policy, including a far greater dependence on immigration as a source of skilled and unskilled labour than was the case in the past. The Martin government’s decision to forge a new Department of Human Resources and Skills Development with a mandate to engage stakeholders directly in the process provides these groups with important opportunities to tackle these issues. Building a Twenty-First-Century Economy The new government’s inaugural policy themes include a commitment to building a twenty-firstcentury economy that will focus on science and technology. The initiatives listed built on a speech that Prime Minister Martin gave in Montreal prior to being sworn in - a speech that focused on the knowledgebased economy and on the importance of new transformative technologies and industries.13 Eleven elements were included in the 12 December 2003 swearing-in list of statements under the heading “Building a 21st-Century Economy.” These included: appointing a national science advisor to the prime minister; a comprehensive assessment of federal support for research and development; fostering innovative Canadian companies through the more effective commercialization of university research and better access to early financing; and promoting leading-edge technologies, in particular health and environmental technologies. It also included the cities agenda and sustainable development.14 This element of the new government’s agenda clearly draws on the previous government’s focus on the innovation agenda - an agenda Martin had personally championed and funded generously as minister of finance, particularly between 1997 and 2002. The 2002 Achieving Excellence paper on innovation, and the subsequent consultations, brought about widespread industrial and university involvement in a debate about Canada’s strengths and weaknesses with regard to taking advantage of, and coping with, the knowledge-based economy.15

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11 Martin in Power

Ensuring Canada’s Place in the World Several initiatives under this policy theme are intended to strengthen Canada’s influence in the world. These include a shorter list of items centred not only on the promise to conduct a comprehensive review of Canada’s place in the world but also on the creation of the two new Cabinet committees referred to earlier (i.e., the Cabinet Committee on Global Affairs and the Cabinet Committee on Canada-us Relations), both chaired by the prime minister (see Chapters 3 and 15). Ensuring Canada’s Public Health and Safety This policy theme calls for a strengthened fundamental federal role not only in “securing the public health and safety of Canadians, while ensuring that all Canadians continue to enjoy the benefits of an open society” but also in dealing better with the “new risks, including new threats of disease, international criminal activity, and terrorism.”16 The key initiatives under this policy rubric include: the creation of a new minister of public safety and emergency preparedness; a new Canada border services agency; a new Canada public health agency; and a new Cabinet committee on security, public health and emergency preparedness chaired by the deputy prime minister. There is little doubt that this policy theme for the new government is a direct result of the impact of such key emergency events as the 9/11 crisis. Though driven by crisis events and serious cross-border issues, this policy theme involves “public health” and thus is bound to raise any number of new issues as well as various ways of thinking about old ones, including those reviewed in the wake of the 2003 sars and bse (“mad cow”) crises. Jurisdictional disputes between and among the core food, health, and environmental regulators and policy makers can be readily expected as new agencies are forged out of old ones. Public health concerns will certainly force new discussions concerning the quality of the food system in general as well as such issues as health and obesity. Different kinds of debate will also likely occur around how to rank and prioritize different threats and different risks on a cross-governmental basis and how to address them. Financial Accountability The Martin government’s reforms under financial accountability centre on establishing (actually, re-establishing) a distinct office of the comptroller general under the Treasury Board. The government also established the previously mentioned Cabinet Committee on Expenditure Review. This committee will be chaired by the president of the Treasury Board and will conduct a review of all programs, expenditures, and work towards “creating a culture of continuous reallocation and realignment” of spending (see below).17

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12 Macro Choices and Challenges

The Speech from the Throne The first Martin government Speech from the Throne (sft) was presented to Parliament on 2 February 2004. The key themes and values expressed in the sft basically reflected the 12 December 2003 statements, only with more details and recrafted language. The key themes and subthemes, in order of presentation, are: • • •

•

•

Changing the way things work in Ottawa Restoring Trust and Accountability Strengthening Canada’s Social Foundations – Medicare funding and the new Public Health Agency plus a new chief public health officer for Canada – Caring for our children – Creating opportunity for Canadians with disabilities – Aboriginal Canadians – Great Places to Live: A New Deal for Communities Building a twenty-first-Century economy – Lifelong learning – Science and technology (with a focus on the commercialization of research) – Regional and rural development – Sustainable development (including commitments to the Kyoto accord; and a ten-year, $3.5 billion program to clean up contaminated sites) Canada’s Role in the World18

The ethics and democratic reform themes were recast as pledges to change “the way Ottawa works.” The previous focus on a cities agenda, much previewed in earlier Martin speeches, had broadened into an agenda for communities. This is, without doubt, the product of lobbying within the Liberal party caucus to spread the cities agenda funding away from big cities and towards communities in mp s’ constituencies. The initial $7 billion commitment (over ten years) to cities was in the form of rebates from the goods and services tax (gst). The sustainable development commitments contained the obligatory comments about implementing the Kyoto Protocol but also contained some “wriggle room” to allow the government to slow implementation and to tie it to economic conditions and realities. The $3 billion commitment to clean up contaminated sites was a surprise, and it vastly exceeded any additional implied funding for the implementation of the Kyoto Protocol. In general, the sft was seen as a substantial move to the left on the part of the Martin Liberals, an interpretation that was borne out by its

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13 Martin in Power

failure to mention tax reductions and or major defence policy commitments. In this regard, the first Martin sft was a continuation of the last Chrétien sft, though this scarcely received any mention in the former.19 The Budget Speech By the time the budget speech of 23 March 2004 was unveiled, the Martin Liberals were down in the polls and in shock over the effects of the sponsorship program scandal as well as over the revitalization of the Conservative party (which had completed its own leadership race). As the election loomed, Finance Minister Ralph Goodale stated that his budget for 2004-05 had two main objectives: (1) “to demonstrate unequivocally the principles of financial responsibility and integrity” and (2) “to begin to give tangible shape to the goals presented in the Speech from the Throne.”20 Goodale spoke of his first budget as “prudence with a purpose.” There is little doubt that the prudence pledge was a direct result of the sponsorship scandal and earlier expenditures controversies of the Chrétien era. But it was also the product of the very small budgetary surplus perceived to be available, combined with Martin and Goodale’s determination not to go into deficit spending (as had most other Organization for Economic Co-operation and Development governments) and, thus, to preserve the record of seven consecutive Liberal balanced/surplus budgets. It was also premised on a year of sluggish growth (2003), in part due to the impact of the sars and bse crises but also due to the us economic downturn. And the budget was crafted on the Department of Finance’s acceptance of the average private-sector forecast of real growth in 2004 (2.7 percent) and 2005 (3.3 percent). The first few paragraphs of the budget speech were taken up with the realities of the sponsorship program debacle and, thus, dealt with the political imperatives of strengthening financial management and operational integrity. Goodale announced several steps, including: the re-establishment of the Office of the Controller General of Canada; the appointment of professionally accredited comptrollers to sign all new spending initiatives; the bolstering of the internal audit function; and new corporate governance rules for Crown corporations (some of which were implicated in the sponsorship scandal). The prudence theme was also reflected in other prominent budget speech provisions, such as: the continued establishment of a $3 billion contingency reserve augmented by a further $1 billion for economic prudence; the promise, through expenditure review, to identify $3 billion in annual savings within four years; and the plan to reduce Canada’s debt-to-gdp ratio to 25 percent within ten years.

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14 Macro Choices and Challenges

It was within the context of these provisions that Goodale went on to flesh out actual tax and expenditure changes and commitments. As indicated above, the tax side was scarcely mentioned, and there were no new tax reductions for individuals. Only tax benefits for corporations were on offer, and these were in the form of faster write-offs for the depreciation of computers, heavy machinery, and other capital equipment. On the expenditure side, Goodale promised new spending in the following areas (some of which had already been announced): • • • •

•

• • • •

•

$7 billion over ten years for cities through a rebate of the gst $4 billion over ten years for the clean-up of contaminated sites $1 billion to assist farmers and cattle producers hit by the bse crisis $665 million over two years for public health, including the new public health agency $605 million over five years for intelligence, border protection, marine and cyber-security, threat assessment, and emergency response $270 million for venture capital for start-up technology companies $250 million for dnd missions in Afghanistan $248 million for international assistance Canada Learning Bond initiative to provide up to $2,000 for children born after 2003 in lower-income families; and a grant of up to $3,000 for first-year postsecondary-dependent students form such families. Accelerated spending of infrastructure funds on cities and towns, including $350 million for Toronto transit.21

Following these major policy priority-setting events, the Martin Liberals also made much of their determination to reach a long-term deal with the provinces on how to both sustain and reform Canada’s health care system. Health care became Martin’s leading issue in the election campaign, along with a proposed $5 billion national day care program that had not been mentioned in either the sft or the budget speech.22 The essential trade-off for health care was more sustained federal funding, but only in exchange for fundamental institutional and management reforms in the delivery of health, including some new federally favoured initiatives such as pharmacare and greater home care services. The Martin Liberals made health care the central election issue -- one that would allow them to portray the Harper-led Conservatives as the Alberta-led party that would move to two-tier health care and/or whose major tax cuts would make adequate health care financing impossible. In this, in pure electoral terms, they were partly successful. This was how the Martin agenda was fleshed out; however, in the early election campaign it did not seem to be resonating with Canadians. In part, this was because it had to contend with voter anger and

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15 Martin in Power

scepticism towards a Liberal party that had long been in power. The Stephen Harper Conservatives finally unveiled parts of their agenda during the election campaign.23 They promised major tax cuts for individual Canadians and for business. The Conservatives also expressed deep scepticism over the federal regional development agencies and over regional and business subsidies. They promised that they would not support the Kyoto Protocol - a promise that was aimed directly at their core Alberta power base. An explicit cities agenda was not on offer, in part because the Harper Tories tend to favour a more decentralized form of federalism combined with a realignment of tax powers rather than the use of federal spending power. Harper also promised far greater support and funding for national defence than did the Liberals. The Conservatives tried to suppress their social conservative agenda. However, issues such as same-sex marriage, abortion, and bilingualism emerged during the campaign, and it became clear that the Tories would push their agenda through free votes and private members bills in the House of Commons. In other respects, in Opposition the Harper Conservatives may not be much different from the Martin Liberals. They indicated that they would pour more funds into medicare but would be more openly inclined than are the Liberals to support private-sector delivery of some health care services. They are also likely to support many of Martin’s ideas for enhancing Parliamentary democracy, including free votes by members of Parliament. However, they are likely to go well beyond the Liberals by focusing on Senate reform, including electing senators. A stronger focus on Canada-us relations and North American integration is also likely to be broadly shared by Liberals and Conservatives, including an emphasis on borders and security. The fact that the Jack Layton-led ndp holds the balance of power in a minority Parliament means that particular elements of the ndp platform will assume greater importance than would normally be the case.24 Layton will undoubtedly support the cities agenda and day care initiatives as well as health care funding and the implementation of the Kyoto Protocol. However, the ndp’s pursuit of proportional representation and its opposition to involvement in the us missile defence program are unlikely to give it much leverage as the Martin Liberals can get support for its policies from the Conservative party. In general, though, Martin’s need of ndp support will likely result in higher public spending than would otherwise have been the case.

an overview of the chapters Gilles Paquet examines the issue of fiscal imbalance as an indicator of governance failure and as a key challenge to any federal government.

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16 Macro Choices and Challenges

He argues that, in a world of rapid change, where social needs evolve and fiscal resources depend on volatile transnational circumstances, any historically inherited fiscal arrangements may be expected to generate some imbalance between the resources and responsibilities of the different levels of government in a federation. Such episodic imbalance is a financial matter that can be resolved by ad hoc transfers. But when such an imbalance becomes chronic and structural, Paquet argues that it becomes a “revelateur of a fundamental disconcertation” and that this calls for a transformation of the foundation of federal, provincial, and municipal fiscal arrangements. Such a refounding of the governance of the Canadian federation is needed because of the inefficiency of the present arrangements. However, Paquet argues that one should not expect major changes as Canadians have no taste for grand national efforts of this kind. He examines some of the mechanisms that might make the federation fiscally sustainable. The chapter by Neil Bradford, who writes about the cities agenda, focuses on Paul Martin’s declaration that there is “no question that the path to Canada’s future runs through municipal governments large and small, urban and rural.” Bradford’s analysis takes stock of the recent explosion of interest in Canada’s cities and the policies needed to build vibrant ones. He shows that research on innovation in the knowledge-based global economy suggests that, with their long-standing reputation for liveability and high ranking in international surveys of urban quality of life, Canada’s cities should now rise to the top. But he also argues that Canadian cities show serious signs of strain, even decay, in their infrastructure and governance. In analyzing “problems in the cities” and “problems of the cities” Bradford highlights two divergent solutions: (1) more autonomy for municipalities and (2) more collaboration among all levels of government. Making the case for multilevel urban governance, he examines three key priorities: the urban policy lens, trilevel institutional machinery, and intergovernmental revenue-sharing agreements. The chapter by Michael Hart and Brian Tomlin argues that conditions are right for a major policy shift in Canada’s relationship with the United States. It shows that all of the elements seem to be in place for the establishment of a conjoined border security/market access issue. The authors argue that the policy community seems to be close to agreeing that some form of deeper integration with the us is needed, although the idea has not yet evolved to the point where proponents of the various possible forms of such integration have jumped on a single bandwagon. Finally, they argue that significant political change is

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under way and that this is providing policy entrepreneurs with a window of opportunity in which the security-access problem may be recognized, the deeper integration solution may be grasped, and a coalition of political support may be mobilized in support of policy change. However, whether or not that change will occur still depends on the particular actions of key players on both sides of the border. The chapter by Tyler Chamberlin and John de la Mothe looks closely at the debate over innovation policy within the context of Canada’s services sector. The authors argue that the government should consider a new approach to innovation policy - one that is focused on the dominant sector of the Canadian economy; that is, the services sector. They argue that there is an opportunity for Canada to embrace the changes that have taken place both domestically and internationally with respect to the geographic location of economic activity and, thereby, to position itself in a way that is potentially unique among industrialized nations. This opportunity will require the federal government to make significant strategic investments rather than one-year budgetary allocations. Moreover, it must formulate a new alternative for the country based on existing and future resource strengths that are centred on Canada’s human capital. James Rice and Michael Prince examine the social policy challenges facing a Martin government. They first outline the Martin government’s social policy intentions as expressed in the February 2004 Speech from the Throne. They also consider the degree of financial room and, thus, social policy space the government will have in the short term for meeting these intentions. The chapter then highlights the major social policy developments and related political effects of the federal budgets from 1994 to 2001, arguing that these provide a lasting foundation for any reforms to be undertaken by Prime Minister Martin. The authors also examine Martin’s musings on the societal role of the federal state. Finally, Rice and Prince propose, and briefly describe, a new national social project, a Canadian disability benefit strategy, which could well serve as one of only a few bold new initiatives that the Martin Liberals will undertake. They conclude that reforms in federal social policy will, by and large, occur in a focused and incremental manner, implemented and funded over the medium- to long term in response to the limited budgetary room available over the next few years. Stephanie Paterson, Tatyana Teplova, and Karine Levasseur provide an analysis of policies towards children. They show that a regime shift occurred in the latter years of the Chrétien era, which moved away from

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an equality-based discourse on children towards a policy framework centred on the needs of the child. Reflective of this emerging childcentred policy framework is the National Child Benefit system (ncb), with its goals of reducing child poverty and promoting labour force attachment and intergovernmental cooperation. The authors use the first two goals to measure the success of the ncb. Through an examination of the fiscalization of child benefits affecting many Canadian families, the authors also examine the ncb through the eyes of two cohorts: single mothers and families with children with disabilities. Based on this examination, they conclude that the ncb, while a good start, has been limited in meeting two of its stated goals (including the reduction of child poverty and the promotion of labour force attachment). They argue in favour of a return to a universal system of benefits and call for a more comprehensive policy mix in Canada’s treatment of children. Stephan Schott examines the social and economic challenges facing any government regarding Atlantic Canada’s fishery. His chapter shows that the fishery is, to the largest degree, centrally controlled by the federal government through species-specific licences and individual quotas based on a total allowable catch (tac). He argues that speciesspecific licences provide overharvesting incentives and undermine harvesters’ support of the conservation of specific resources. Schott shows that individual quotas have not proven to make harvesting more sustainable either in Atlantic Canada’s fishery or in the majority of other fisheries worldwide. Additionally, minimum size restrictions and mesh size regulations are set at an arbitrary level, allowing too many young fish to be caught and thus making fish stocks more volatile. Schott suggests a considerable readjustment of age selection targets, gear selection regulations, and broader rights, permitting harvesters to select a variety of species. He also argues that more authority should be given to communities with regard to the management, control, and ownership of fisheries, particularly with regard to such relatively stationary stocks as shellfish. For migratory species, he suggests catch pooling and output-sharing in partnerships in lieu of tac and individual (transferable) quotas. Douglas Macdonald, Debora VanNijnnaten, and Andrew Bjorn analyze policy developments following the Chrétien government’s ratification of the Kyoto Protocol in December 2002. They set out the context for Canadian policy making, basic sectoral and geographic data on greenhouse gas emissions, the influence of American policy, and the varying provincial incentives that make achieving national consensus so diffi-

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cult. They then examine the breakdown of federal-provincial national policy development that preceded the ratification decision and the transition to an era of bilateral, sequential federal-provincial negotiation, which, to date, has resulted in only two agreements (between Canada and Prince Edward Island and between Canada and Nunavut). Initial steps towards the unilateral federal regulation of large industrial emitters are reviewed, as are the policies being developed individually by each province. The chapter concludes with a discussion of the implications of the transition from the Chrétien to the early Martin administration. Glen Toner and Carey Frey assess the sustainable development (sd) issues facing the government. Their chapter first examines the sd change process launched by the Mulroney government in 1990 and then advanced by the Chrétien government. Despite comparative studies that judge Canada to be among the world leaders in institutionalizing sd practices, the authors conclude that the change process had lost momentum by the end of the Chrétien era. Looking ahead, Toner and Frey argue that Paul Martin has a longer personal experience with, and a stronger understanding of, sd than did either of his predecessors. They develop three major sets of policy and institutional reforms that the government should consider in order to re-energise the sd change process. These changes centre on: (1) strengthening political will through changes at the executive level, (2) strengthening the policy tool kit, and (3) strengthening the role of the commissioner of environment and sustainable development (by making it independent of the Office of the Auditor General). The chapter by Mike Wenig focuses on the issue of biodiversity conservation and the new conflicts and opportunities it presents regarding federal incursions into Alberta’s management of its oil and gas resources. Wenig explores the extent to which federal incursions are necessary in order to reduce threats to biological diversity from the cumulative impacts of Alberta’s thriving upstream oil and gas sector. He considers Ottawa’s constitutional and legislative authority to conserve biodiversity as well as the policy bases for Ottawa’s interest in biodiversity conservation. He argues that an integrative, landscape- or ecosystem-based planning framework is needed to address cumulative impacts and that Alberta is not taking sufficient steps to implement such a framework. Wenig then provides recommendations regarding how Ottawa could use its legal authority to spur provincial land-use planning for biodiversity conservation while respecting Alberta’s ownership of its oil and gas resources.

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Bruce Doern examines the issue of multiple regulatory bodies and regulatory congestion in the forestry, minerals and metals, and energy subsectors, which, at the federal level, are in the domain of Natural Resources Canada. He examines how, within the context of the federal government’s “smart regulation” agenda, the three resource subsectors have attempted to deal with multiple regulators. He shows the extent of regulatory congestion and points out that there are important new approaches to complex rule making being attempted and debated. These include codes, covenants, and forms of social contract and corporate governance. Doern’s analysis also shows that difficult spatial and location-specific issues remain and that these create some contradictions and constraints as various players exhibit different views about regulation, depending on specific investments by firms, resources, resource use and production, and ecosystems. Jonathan Malloy probes the issue of recruitment and renewal in the federal public service and looks at whether a genuine “next generation” renewal is possible. He discusses recent and ongoing reforms and argues that, despite rhetoric that emphasizes change and dramatic renewal, actual reforms have been gradual and piecemeal at best. Different variables and dynamics have often worked against each other to prevent wholesale change and the transformation of the public service. This has meant the continuation of existing pathologies and problems, even though, in recent years, the public service has experienced significant turnover. Malloy argues for a more concerted focus on developing a “next generation” of public servants - one that can create new excitement and true renewal in the federal public service. Key to this is the continuing reform of the recruitment system along with strong leadership and commitment from the highest political and public service levels. Luc Juillet examines how, in March 2004, the Martin government gained parliamentary approval for the creation of a new independent Office of the Ethics Commissioner to replace the discredited Office of the Ethics Counsellor. Initially developed by the Chrétien government, and meant to strengthen integrity and to bolster public trust in government, the new office will report to the House of Commons and have the authority to review the conduct of both members of Parliament and public office holders, including Cabinet ministers. Juillet argues that, while some changes could be made to improve its credibility and legitimacy, the Office of the Ethics Commissioner represents a significant improvement over the previous system and could strengthen government accountability. He also concludes, however, that, given the

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complex factors underlying trends in citizens’ confidence in government, it is unlikely that a new institutional mechanism to deal with allegations of ethical misconduct will do much to bolster trust. Evert Lindquist, Ian Clark, and James Mitchell reflect on how the central institutions of the Canadian government have evolved during the modern era, and they evaluate recent initiatives to reshape the central machinery and processes, particularly those introduced by Prime Minister Paul Martin. They first outline a framework for assessing the dynamics of the central institutions of government and then identify the distinctive features of Canada’s centre of governance, including the role of the prime minister, factors affecting institutional design, and how the centre effects change in the system. They then review four eras of reform, identify broad patterns of reform and institutional change, and review the key challenges that need to be addressed by the Martin government as well as the implications for the design and capabilities of central institutions. The chapter then assesses Martin’s decision not only to establish a new expenditure management system but also to narrow the focus of the Treasury Board Secretariat and to re-assign its responsibilities to other central agencies and departments. It concludes by setting out the preconditions that would enable these new central arrangements to work.

prospects and constraints The chapters in this book indicate that there are no shortage of challenges and contradictions to be faced in the now highly contested political context of a Martin minority government. Several key prospects and constraints will bear careful watching, not all of them admitted or recognized in the Liberal (or Opposition) party priorities and statements to date. Fiscal imbalance is the central theme in Gilles Paquet’s analysis and is a crucial issue of fiscal federalism. It is inevitably conjoined with Neil Bradford’s analysis of the cities agenda and of the need to obtain a better match between governing responsibilities and the fiscal and other capacities of the levels best able to handle these issues. Ottawa has fiscal surpluses and the potential for much greater ones. All of these dimensions must be set against the deteriorating state of provincial finances. Several provincial governments have serious deficits and have embarked on budget-cutting programs. Their future budgets all project ever-growing amounts of health care spending as a percentage of their budgets, largely because of the aging of Canada’s population but also because of new drugs and treatments that Canadians want

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now and will increasingly want in the future. Meanwhile, as several chapters show, other socio-economic policy demands and needs (such as child benefit, disability benefit, Kyoto implementation, education, and innovation/learning) are queuing up for funding at the federal and provincial levels. So it may be seen that fiscal imbalance, in its full sense, has simply not been publicly recognized by the Martinites. On the other hand, Canada-us relations are highly recognized in the new government’s priorities. Some of this recognition is necessary, given that there has been some deterioration in the relationship between these two countries. Exactly how much deterioration has taken place is a key question, and much depends on Canadians’ general dislike of President George W. Bush and on how Martin navigates this slippery slope. Michael Hart and Brian Tomlin’s analysis provides further evidence of how key groups and interests are seeking a major shift towards greater integration with the United States. But there are serious dangers to over-emphasizing this priority. As noted, Prime Minister Martin chairs a new Cabinet committee on Canada-us relations. However, depending on how various policy issues and controversies are channelled through the various Cabinet committees, there is now a greater danger that most, or at least far too many, issues will be cast and debated as Canada-us issues when, in fact, they should be looked at through other political lenses. Canada’s postelection political party system itself is a key factor for determining the kind of governing in which the Martin government can engage. Martin’s own predatory methods of winning power over the Chrétien Liberals in the midst of a third straight majority government means that, to a greater extent than can be recalled in recent memory, the Liberals may themselves constitute two political parties. One leadership predator’s success sets precedents for the tactics of the next leadership predator. The prospect of division from within is likely if Martin actually does give greater reign for mp s with regard to Parliamentary reform. How all of this plays out in a minority government situation remains to be seen. But too much democracy of this kind may well be seen by the Martinites as theoretically interesting but practically impossible, particularly when party whips have to count the votes on a daily basis to ensure Parliamentary survival. The Harper Conservatives are likely to face these divisions as well. The new Conservative Party of Canada is, indeed, the Alliance- Conservative party. Its leadership is right-wing and Alberta-centred. Its 2004 election platform tried to make it appear to be a more centrist and moderate party, and to jettison its religious right content.25 It is a party that is undoubtedly more disposed to significant tax cuts and greater defence spending than is the Liberal party, but the more mp s it elects

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from Ontario, the more centrist it will become, and this may lead to a new bout of Western alienation within the Conservative party. Quebec politics now has a sudden and very great potential to reassert sovereigntist pressures on the national political scene. The Bloc Québécois has re-emerged in the wake of the sponsorship program scandal. The Charest Liberal government of Quebec has quickly plummeted in popularity and has misread what Quebecers will tolerate concerning the rollback of the state. It is also significant that, despite his own Quebec base of power as an mp, Paul Martin has a core political staff that is remarkably thin on the ground with regard to its knowledge of Quebec.26 The Martin era begins with a regionally fractured political result. Considerable western alienation may find a new voice from the election results, especially in Alberta, where Martin sought inclusion but, during the 2004 election campaign, ended up demonizing an Albertabased leader and the Alberta Conservatives on medicare. The success of the Bloc Québécois has given new energy to Quebec separatism. Atlantic Canada and Ontario maintained strong Liberal support. The net result, in a minority government context, is that political leadership of a high order will be required from a prime minister who has only grudgingly been given a second chance. Last, but hardly least, the issue of ethics in politics will not go away. As Luc Juillet’s analysis shows, the final legislative adoption of the new Office of the Ethics Commissioner is a key step in the right direction. But it by no means fully addresses the larger malaise of mistrust that too often characterizes the relations between citizens, voters, and elected politicians.

notes 1 Globe and Mail, 29 June 2004, 1. 2 Ibid. 3 See Darren Yourk, “Findings ‘Deeply Disturbing,’ Auditor General Says,” Globe and Mail, 19 February 2004, 1. 4 See Bruce Doern, ed., How Ottawa Spends, 2003-2004: Regime Change and Policy Shift (Toronto: Oxford University Press, 2003), chap. 1. 5 Office of the Prime Minister, “Prime Minister Announces Appointment of Cabinet,” News Release (Ottawa: Office of the Prime Minister, 12 December 2003). 6 Ibid., 1-6. 7 Ibid., 1. 8 Ibid. 9 Ibid., 2.

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24 Macro Choices and Challenges 10 For further analysis, see Peter Aucoin and Lori Turnbull, “The Democratic Deficit: Paul Martin and Parliamentary Reform.” Paper presented to the Annual Conference Atlantic Provinces Political Science Association, Memorial University, September 2003. 11 Office of the Prime Minister, “Prime Minister Announces Appointment of Cabinet,” News Release (Ottawa: Office of the Prime Minister, 12 December 2003), 3. 12 See Canada, Knowledge Matters: Skills and Learning for Canadians (Public Works and Government Services Canada, 2002). 13 See Paul Martin, “Building the 21st-Century Economy,” speech to the Board of Trade of Metropolitan Montreal, Montreal, Quebec, 18 September 2003. 14 Office of the Prime Minister. “Prime Minister Announces Appointment of Cabinet,” News Release (Ottawa: Office of the Prime Minister, 12 December 2003), 4. 15 See John de la Mothe, “Ottawa’s Imaginary Innovation Strategy: Progress or Drift?” in How Ottawa Spends, 2003-2004: Regime Change and Policy Shift, ed. Bruce Doern, 172-86 16 Office of the Prime Minister, “Prime Minister Announces Appointment of Cabinet,” News Release (Ottawa: Office of the Prime Minister, 12 December 2003), 5. (Toronto: Oxford University Press, 2003). 17 Ibid., 6. 18 Office of the Prime Minister, A Speech from the Throne to Open the Third Session of the Thirty-Seventh Parliament of Canada (Ottawa: Office of the Prime Minister, 2 February 2004). 19 On the Chrétien sft, see Bruce Doern, ed. How Ottawa Spends, 2003-2004: Regime Change and Policy Shift (Toronto: Oxford University Press, 2003), chap. 1. 20 Honourable Ralph Goodale, “The Budget Speech, 2004” (Ottawa: Department of Finance, 21 March 2004), 1. 21 Ibid., 3-6. 22 Campbell Clark and Drew Fagan, “pm Plans $5 billion in Daycare,” Globe and Mail, 3 June 2004, 1. 23 Conservative Party of Canada, Demanding Better: Conservative Party of Canada Platform, 2004 (Ottawa: Conservative Party of Canada, 2004). 24 See “NDP Platform,” Toronto Star, 12 June 2004, 5. 25 See Brian Laghi, “Tories Go Moderate in Policy Blueprint,” Globe and Mail, 5 May 2004, 1. 26 See Lysiane Gagnon, “Don’t Build Hope on Shaky Polls,” Globe and Mail, 3 May 2004, 5.

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2 Fiscal Imbalance as Governance Failure g i l l e s pa q u e t Some circumstantial evidence is very strong, as when you find a trout in the milk. Henry David Thoreau

In a high-risk world of turbulence and rapid change, where the social needs may evolve rather rapidly, and the fiscal resources dry up or grow exponentially depending on international circumstances, the possibility of a mismatch between evolving fiscal responsibilities and statutorily defined fiscal resources at the different levels (federal, provincial, local) of governments in Canada is obvious. The very existence of well established and permanent equalization payments programs, and other forms of intergovernmental transfers designed to rebalance the fiscal equation if and when the need arises, would appear to be the living proof that such is the case. And the chronic intrusions of the Canadian federal government in policy areas falling clearly under provincial and local government jurisdictions (like education and infrastructure) reveal that there are federal financial surpluses to allocate to these sorts of uses and that, therefore, the provincial and local governments may not have been allocated a sufficiently large share of the limited fiscal resources to handle these needs themselves. In the Spring of 2002, this issue was raised starkly by the Séguin Commission, a study group created by the Parti Québécois Quebec government under the chairmanship of Yves Séguin (a former revenue minister in an earlier Liberal government in Quebec) to explore whether there were fiscal imbalances in the Canadian federation. The commission report (backed with carefully prepared projections by the Conference Board of Canada) concluded that indeed there was a fiscal imbalance. The official reaction of the Canadian federal government

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was brusque and outraged. Senior federal ministers and officials stated bluntly that the idea of a federal-provincial fiscal imbalance was a myth: not only did it not exist, but it could not exist. My argument in this chapter is: 1 that the Canadian federal government has been quite disingenuous in denying the very possibility of a fiscal imbalance. While there may be legitimate differences of opinion about the size of such an imbalance, and about the sorts of remedies that might be called for, there is no serious ground to claim that it is a logical impossibility in Canada. 2 that fiscal imbalance is nothing but one of many clear indicators of governance failure in Canada: that is, a révélateur of much disconcertion in the governing of Canadian affairs. Consequently, a permanent resolution of the problem requires more than a temporary reshuffling of the financial deck. It calls for a reform of the governance of the Canadian socio-technical federal system.

fiscal federalism and the limits t o f i s c a l p r e d at i o n The economic logic underpinning federalism is that a multilevel governance may yield higher efficiency through assigning the different tasks involved in governing and managing the public household to the level of government able to do the job most effectively, most efficiently, and most economically. It is on the basis of this logic that constitutions determine the different roles of the federal, regional, and local governments; assign to them various responsibilities; and determine the fiscal resources to be allocated to each level to do these jobs. This allocation is often guided by a philosophy of subsidiarity that aims at devolving responsibilities to the lowest level of government (i.e., the one closest to the citizen that can handle the task effectively) since needs may differ from place to place. Fiscal federalism is the label used to refer to the wide array of processes and negotiated arrangements that defines some workable sharing of resources and responsibilities among jurisdictions and, therefore, a viable fiscal regime. This is a complex process haunted by considerable friction, disagreements, competing claims, and political arithmetic. The notion of fiscal imbalance, or disequilibrium, connotes the disparity between the legitimate revenues and expenditures of the different levels of government. It may be a horizontal imbalance between a large city and its suburbs, if the large city provides, without compensa-

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27 Fiscal Imbalance as Governance Failure

tion, public-good-type services to the citizens of the suburbs without compensation. One may correct such disequilibrium through some financial contribution by the suburban government to the large city government. It may also be a vertical disequilibrium between the federal and provincial governments or between the provincial and local governments. This is the case when fiscal resources are shared by predetermined arrangements in such a way that a given level of government receives more than is required to dispatch its responsibilities, while another level receives less than is necessary to perform its legitimate functions. This can be repaired either by fiscal resources transfers between surplus and deficit levels of government, or through a redistribution of governing responsibilities between levels of government, or through some changes in the rules or basic arrangements underpinning the governance of the federation. All levels of governments collect taxes, although they do not necessarily use the same basis upon which to calculate them. Some taxes are collected on revenues or expenditures, others on the basis of property values only, still others on transactions, and so on. But at the end of the day, the same citizen is imposed upon by these different tax schemes. This poses a serious coordination problem – a problem of governance – since one cannot continually add on new taxes or new levels of taxation separately, without generating repercussions on the whole fiscal regime (i.e., on the ability and capacity of all levels of government to collect taxes). Whatever the source of the fiscal pressure (federal, provincial, or local), the citizen, at first, complies with the request more or less merrily, having been persuaded more or less fully that it represents the price for the public goods and services that are supplied by the government in question. But as the fiscal burden rises as a result of all sorts of taxes, the citizen begins to feel some pressure and rationally seeks ways to reduce this through tax avoidance (legitimate ways of limiting one’s contribution) or through tax evasion (illegitimate ways of limiting one’s contribution, either by hiding some of the tax base or by shifting activities underground). The global impact of these various strategies is well known and has been captured in a stylized way by the Laffer curve, which defines that relationship between the effective tax rate and fiscal revenues of governments. One can easily see in the figure below that if the tax rate (on the vertical axis) is zero, then the tax receipts by governments (on the horizontal axis) is also zero. One can also easily see that if the tax rate is 100 percent (i.e., if all income is taxed away), then tax receipts are not likely to be different from zero since no rational citizen would declare any income to such a predatory government. The whole economy would go

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underground. Between a tax rate of 0 percent and 100 percent, at first government’s fiscal receipts would grow as a larger portion of incomes is taxed away, but government revenues would peak in absolute terms as the citizens come to feel more pressed and are led to indulge in more and more effective strategies of tax avoidance and tax evasion. The Laffer curve may take different shapes depending on the fiscal mores and ethos of a country (efficiency of fiscal police, civic engagement, fiscal tolerance of the citizenry, tax policies in neighbouring states, the rate at which citizens begin to search actively for ways to avoid taxes, the speed with which such activities escalate as tax rates increase, etc.) These parameters are different from country to country and may change from time to time. The Laffer curve phenomenon poses a particularly difficult problem of governance in federal states since the effective global tax rate depends on the compounded tax policies of the three or more (when there are regional governments) levels of government. The unilateral action of one level of government may affect the tax receipts of other levels of government if the additional fiscal pressure generated by a new tax initiative at one level triggers more tax avoidance or evasion in toto. A government that would increase taxes without taking into account what is already imposed on the citizenry by other levels of government may, indeed, generate an erosion of the tax base for everyone and trigger a drop in tax receipts for all levels of government. This is not a theoretical curiosity for academics. Recent studies would appear to indicate that Canada is in the critical zone of the Laffer curve (i.e., in the zone where the tax receipts’ reaction to changes in tax extraction rates is significant). Giles and Tedds1 have shown that there is a significant relationship between the effective tax rate and the growth of the underground economy in Canada. In the period from 1976 to 1995 the effective global tax rate grew from around 30 percent to around 36 percent of gdp, and this would appear to explain the growth of the underground economy – from an estimated 3.5 percent of gdp in 1976 to an estimated 16 percent in 1995. To gain a better appreciation of what this means, one may suggest that the $130 billion of income that was not declared in 1995 corresponds to the combined gdp of British Columbia and Saskatchewan. This would mean that, while the estimated losses in government fiscal revenues ascribable to the underground economy were in the neighborhood of a few billion dollars in 1976, they might have been in the neighborhood of $44 billion in 1995. An adventurous extrapolation would suggest that, by 2004–05, no less than $60 billion might be lost by governments in tax receipts as a result of tax avoidance and evasion. This has most certainly exacerbated the problems of tax sharing among the different levels of government.

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29 Fiscal Imbalance as Governance Failure The Laffer Curve

Tax rate

Government revenues

Consequently, one cannot presume that any level of government can decide to raise the tax burden of its citizens in any way it chooses without this decision having a potentially negative spillover impact on the fiscal revenues of other levels of government. Therefore, the doctrinaire position of some federal politicians and bureaucrats (who state peremptorily that there cannot logically be any fiscal imbalance since all governments in deficit can always reduce it by raising new taxes) is not very persuasive. So, if there is a structural fiscal imbalance, it is absolutely crucial that it be corrected via collaborative governance arrangements and fiscal concertation. But many stakeholders (like the business community) often react negatively to calls for fiscal concertation or fiscal reform. They fear that any new fiscal arrangements might simply provide an opportunity to raise taxes. This explains why much care must be taken, when discussing fiscal imbalance problems, to ensure that any solution being envisaged is not only arrived at collaboratively but is also shown to be demonstrably fiscally neutral on the total tax burden (i.e., that it will not raise the total tax bill imposed on the citizenry). Otherwise, robust opposition may result to even the most minor and reasonable repairs to the fiscal plumbing.

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s e g u i n , c o n f e r e n c e b o a r d , f e d e r at i o n o f m u n i c i pa l i t i e s , sgro e t a l . The Séguin Commission (which was created by the Quebec government in May 2001) tabled its report in March 2002.2 It immediately generated a burst of interest in fiscal imbalance issues throughout all of Canada.3 The Federal-Provincial Fiscal Imbalance The Séguin Commission, in large part, based its fundamental finding (i.e., that there is a fiscal imbalance in Canada) on the analysis of the patterns of government revenues and expenditures in Canada as well as on certain projections of revenues and expenditures at different levels of government prepared by the Conference Board of Canada. This was done originally for the federal and Quebec governments only, but, by the end of the summer of 2002, the Conference Board study had been extended to the rest of Canada.4 At the core of the board’s findings is a forecast of cumulative federal surpluses of over $570 billion from now to 2019–20 and of cumulative deficits for the provinces. For the Séguin Commission, this fiscal imbalance has its origin in three main sources: (1) the different dynamics of revenues and expenditures at the federal and provincial levels – the provinces having responsibilities for sectors like education and health, where the rate of growth of expenditures is much higher than are the rates of growth of financial needs in sectors for which the federal government is responsible; (2) the volatile and capricious nature of federal transfers to the provinces, which are routinely slashed unilaterally by the federal government in response to its own priorities; (3) the propensity of the federal government to intervene in provincial jurisdictions under the broad banner of its “power to spend,” such interventions doing much to make the fiscal imbalance less obvious because they tend to reduce the size of “visible” federal surpluses as a result of the federal government spending lavishly in areas of provincial jurisdiction. The Séguin Commission identified important consequences of this fiscal imbalance: first, it prevents provinces from serving the citizens as well as they should; second, it introduces a higher degree of confusion in the decision-making process than is necessary; and three, much less efficiency and accountability ensue as a result. To solve this fiscal imbalance problem, the Séguin Commission put forward a number of propositions: first, some immediate fiscal transfers to the provinces

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31 Fiscal Imbalance as Governance Failure

from the federal government ($2 or $3 billion to Quebec, some $8 billion for all the provinces) to help them meet their obligations; second, a redefinition of the sharing of fiscal resources (i.e., the replacement of the conditional Canadian Health and Social Transfers by unconditional transfer of income tax points or some other tax field like the gst); three, modification of the equalization payment scheme to limit the federal “power to spend,” modify the rules for the calculation of the transfers, and make the negotiation of future adjustments to the scheme more transparent. The Federal-Provincial-Municipal Fiscal Imbalance The Séguin Commission, and the subsequent studies of the Conference Board of Canada in the summer of 2002, focused exclusively on the federal-provincial fiscal imbalance, but many of the arguments it presented would appear to be equally valid for the provincial-local levels. Even without the benefits of Conference Board type nationwide financial projections for the provincial-local levels, some more limited projections made by the board based on the likely fiscal situation of Quebec municipalities,5 but also on a number of empirical studies,6 make a very strong case for the presumption that there is also a fiscal imbalance between the provincial and local levels of government. Indeed, if one were to use the Quebec data as an indicator of the overall fiscal situation of the city-regions in Canada, the situation is quite alarming. It is surmised by the Conference Board study that, if no overhaul of the fiscal regime is engineered, then Quebec municipalities are likely to see their debt load treble over the next twenty years and the property tax burden double over the next five. Therefore it is not just a problem of deficit in capital budgets and higher debt load (as a result of the need to repair the deteriorated infrastructure) but also a problem of facing a deficit in financing basic operations. Such pressures would require phenomenal and destructive property tax increases. The first source of this provincial-local fiscal imbalance has to do with the growing relative importance of cities as a source of the wealth of the nations and provinces in which they are located. Toronto represents over 40 percent of the gdp of Ontario; Halifax, Montreal, and Vancouver represent half the gdp of their respective provinces; Winnipeg and Calgary and Edmonton together represent some two-thirds of the gdp of Manitoba and Alberta, respectively. These city-regions are the main locus of innovation and creativity in their respective provinces, and they have seen their responsibilities increase without being

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provided with the necessary resources to generate the requisite social capital to underpin the economic growth and social progress of their hinterlands. The second reason why fiscal imbalance may have worsened of late has to do with the relatively slow growth of the fiscal resources at the local level, as noted by the Federation of Canadian Municipalities (fcm) and the td Bank Financial Group: while local government revenues have grown by 14 percent between 1995 and 2001, provincial revenues have grown by 30 percent and the federal receipts by 38 percent. As a result, in Canada, the city-region level of expenditures has not kept up with what would have been required to maintain competitiveness. The fcm, for instance, has estimated that per capita local government expenditures (in us dollars) are less than $800 in Canada, over $1600 in the United States, and over $2,100 in Europe. It is not too far off the mark to suggest that the local government pockets approximately one-tenth of what the provincial and federal governments raise in taxes, even though the former has to provide essential services to a much greater degree than do the latter. The third reason why one may despair of the situation improving is the immense reliance of local governments on property taxes. Some 55 percent of municipal revenues come from property taxes in Canada. In the United States, it is 21 percent. This sort of tax may be adequate to deal with services to property (police, fire protection, garbage collection, etc.), but as cities get burdened with much broader responsibilities (e.g., those pertaining to education, immigrant integration, development, etc.) it cannot underpin an adequate tax regime. The Quebec study has shown that, in the last decade or so, property values have been relatively stagnant at a time when income or sales grew by close to 3 percent per year. Moreover, even when property values grow, the real asset value may not be realized and remains only a “potential.” Taxing it before value realization may generate extraordinary hardship for those on a fixed income. One must therefore find ways to finance these new “urban expenditures” differently. The Plight of Local Government However sharp the disagreements between the federal and provincial governments about the existence and extent of the fiscal imbalance between them, there is broad agreement about the difficult financial situation of cities. This alarming diagnosis has been confirmed by the Organization for Economic Cooperation and Development (oecd) examination of the Canadian case in its Territorial Reviews. The Sgro Report of the Prime Minister’s Caucus Task Force on Urban Issues,

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which reported in November 2002, focused on needs and carefully avoided the fiscal imbalance issue; however, it built on the conclusion of the oecd report and stated that there existed a “new rationale for more federal involvement” in urban issues. It implicitly recognized that cities cannot meet the challenges of urban sustainability with the resources made available to them now and, therefore, that more resources need to be injected into solving urban problems. And it argued for a cooperative and negotiated approach involving the three levels of government. The three sectors targeted by the Sgro Report as priorities were affordable housing, transportation, and infrastructure. In each case, a national strategy is proposed that can only be realized through the massive transfer of resources towards urban priorities.7 The solution of transferring fiscal resources to cities is not, however, envisaged by the Sgro or by the oecd/Ottawa-vetted report; rather, what is proposed is redefining the roles of the different levels of government to match their existing fiscal resources as well as negotiating contract-type agreements (as suggested by the oecd) to provide the required resources to cities. This is neither a surprising research result nor a surprising policy recommendation. Transfers from senior governments constitute only 19 percent of municipal government revenues in Canada, while they constitute 27 percent in the United States and 31 percent in Europe. So one might reasonably expect an urban strategy to recommend an increase of such transfers. But in Canada neither the federal nor the provincial governments, given their centralized mindset, would consider the possibility of transferring significant financial resources to cities – except in the form of conditional and tightly controlled grants. Even though the Conference Board of Canada study for the Union des municipalités du Québec suggested that it might be necessary to transfer one-quarter of the provincial value-added tax to the cities, speculations about the possibility of transferring income tax points or other significant tax fields to the local governments all appear fanciful and are not really on the radar screen. Still, a loose arrangement of this sort (if somewhat capriciously interpreted) has been negotiated between Manitoba and the City of Winnipeg and is firmly in place in Ohio, New York, and Scandinavia. However, as cities continue to consolidate into a smaller number of larger urban units, the plausibility of such transfers increases. But in Canada, for the time being, the only tax transfer that has been seriously considered is an exemption from the gst for municipalities. This was an initiative confirmed in the 23 March 2004 budget. There has also been speculation about a transfer to the municipalities of a portion of the tax on gasoline at some time in the future.

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the sophistry of the c anadian federal government Even though the presumption of some fiscal imbalance can be said to be strong, the Canadian federal government has reacted “brusquely” (in the words of a diplomatic observer from Great Britain)8 to the contention that this might be the case. Indeed, first the Department of Intergovernmental Affairs and then the Department of Finance denounced what they have called “the myth of fiscal imbalance.” The official federal government’s position has been that fiscal imbalance is at once technically impossible, empirically non-existent, most improbable, and in any case adequately handled by the existing fiscal transfer mechanisms. Such a semi-contradictory cascade of arguments, and the obvious sophistry enmeshed within it, might not appear to deserve much attention or analysis. But it would be a mistake not to see it as a révélateur of both a state of mind (which, unfortunately, has had a significant impact in all areas of public policy in Canada) and the state of affairs in Canadian federalism. The Canadian federal government suffers from what, following Stephen Carter, one might label a “liberal constitutional” fixation that is both anti-democratic and anti-communitarian. This fixation is built on a model that holds that “the central government … is more likely than anybody else to find the answers that are right” and that holds that citizens’ views are “irrelevant, except when they happen to be in support, in which case they are crucial.”9 Unfortunately, decades of such behavior at the federal level appear to have had a deleterious effect on the mindset of provincial governments, which would appear, in many instances, to have slumped into the same trap. This has led to a rather disingenuous handling of the fiscal imbalance issue through a series of ill-founded propositions.10 A Tautological Argument: Fiscal Imbalance is a Technical Impossibility It has been argued that, supposedly, the fiscal imbalance is technically impossible because provincial authorities always have the ability to restore their fiscal equilibrium either by reducing expenditures or by raising new taxes. The argument is tautological and the assumption is false. One can reach this conclusion only by dogmatically ignoring the Laffer curve and by trivializing the demographic pressures of demand on social services that fall under provincial and local jurisdictions.

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A Specious Argument: Fiscal Imbalance Is Empirically Non-Existent The second argument suggests that the fiscal surpluses at the federal level are minute, the federal debt load extremely heavy, the provincial deficits rather small, and the pressure on provincial expenditures not that great. It also suggests that the decision of most provinces to reduce provincial taxes has led to self-inflicted deficits. The federal Department of Finance argument relies upon many questionable assumptions: (1) there is, for reasons of competitiveness, “pressure” to reduce taxes at the federal level, while tax reduction is only a matter of “choice” at the provincial level, indicating (when this option is exercised) that “they [the provinces] believe that they have sufficient revenues to manage their spending pressures”; (2) a relative appreciation that the “needs” of the federal government are imperative (for “only the federal government can stand behind nationwide programs and standards”) while those of the provinces can be de-prioritized through exercising the “choice” to reduce taxes; (3) a statement of “expectations” based entirely on the whim of the federal government, that statement being that the provinces have no reason to expect difficulties since resources transfers have been promised for the 2000–05 period (this does not acknowledge that these “expectations” are subject to the whim of the federal government, as the experience of the last decade has demonstrated).11 The “Forecasts are Unreliable” Argument: Fiscal Imbalance as Improbable The federal Department of Finance has systematically argued that the Conference Board forecasts that indicated important probable cumulative surplus at the federal level, and cumulative deficits at the provincial level, are unreliable. Consequently, it is argued, one cannot build any argument for fiscal transfers from such forecasts. If it is true that there are margins of error in these forecasts, and that one may legitimately argue with the absolute levels of surplus and deficits generated by such a forecasting machine, this hardly legitimizes regarding any forecast as pure fantasy. The sum total of the arguments is that federal surpluses are not as large as is claimed and that they are “needed” for priority tasks, that the provinces have a sufficient margin of manouvreability to immediately effect corrections to their fiscal deficits, and that, since cities need additional fiscal resources, the federal government might legitimately transfer resources to them directly through conditional grants or “contracts.”

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The 23 March 2004 budget has not provided a meaningful answer to the fiscal imbalance problem. Indeed, it has not provided an answer to any of the critical problems facing the Canadian socio-economy. It is a budget that nibbles at problems but does not deal with them. It ignores completely the fiscal imbalance argument made by the provinces, and the gst exemption for municipalities can only be regarded as a “downpayment” on the promise made by Prime Minister Paul Martin to forge a new deal for cities. The most optimistic observers are not discouraged because of the fact that they regard the March 2004 budget as a “downpayment budget”: it is not meant to provide a view of what the government has in mind for the medium term but, rather, to shower all sorts of soft commitments in all sorts of directions for electoral purposes. For them, the real test will come in the Fall 2004 Speech from the Throne and in the next budget. The pessimists are less certain that even the next budget will live up to the promises of the Martin rhetoric. The scandalplagued Liberal party and the internecine wars still plaguing it would appear to have put any major governance overhaul on hold. The Martin government would appear to have been derailed: reacting to an overplayed indictment by the Office of the Auditor General, the Martin government has chosen a strategy of submission. Indeed, it has vindicated the harsh judgment of the Auditor General by not contesting it, and it has fuelled the fire by making statements about the “whole system being broken” and having to govern differently in the future. This has led to an extraordinarily defensive stance in which the whole of the federal public service has been put under a cloud and the government has declared its intention of subjecting it to incredibly demanding controls.12 In the meantime, it would appear that it is business as usual with adhocery as the guiding principle. This is best illustrated by the recent announcement of a $350-million federal contribution, over five years, to the upgrading of the Toronto transit system. It is a joint federalprovincial-municipal contributory ad hoc arrangement that is much more in line with the old-style infrastructure scheme of Chrétien fame than anything resembling a renewal of the federation’s governance arrangements.13 But it would not be fair to say that it will really be business as usual. The recent flurry of collective hysteria around the “sponsorship scandal” has already had deleterious effects on Canadian governance, as is obvious from reading the first few pages of the Budget Speech of 23 March 2004. At a time when distributed and collaborative governance would appear to have become imperative, there has been a circling of wagons in Ottawa and a decision to impose a new gospel of

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comptrollership that is making it unlikely that collaborative federalism will thrive.

a plea for distributed governance Even though there may be differences of opinion about the nature, size, and import of the vertical fiscal imbalance syndrome in Canada, there is broad agreement that it is not “un être de raison” and that no fiscal sleight of hand will suffice to correct the situation. The matter calls for governance reform. Governance exhibits effective coordination when power, resources, and information are widely distributed. Fiscal imbalance is a simple indicator of both poor coordination and a high degree of disconcertion in the Canadian federation. Correcting such governance failure requires an understanding of the various sources of the disconcertion, a good knowledge of the principles and mechanisms of good governance that should guide reforms, a fair appreciation of the elusive way in which Canadians deal with governance issues, a sense of the very high cost of inaction on this front, and some insight into the sorts of mechanisms required to improve the governance of the federation. Turbulent Times It is not difficult to understand why disconcertion has grown in Canada. As technological change, economic growth, and socio-cultural effervescence increased, all organizations (private, public, and civic) were forced to adapt to the new circumstances that created the need for a heightened capacity for speed, flexibility, and innovation. Not only did new forms of integration and coordination as well as structures and tools have to be found but also a whole new way of thinking.14 Private, public, and social concerns ceased to be drivers of people and became “drivers of learning”:15 learning organizations came to be based on new forms of alliances and partnerships rooted in more horizontal relationships and moral contracts.16 This dispersive revolution crystallized into new networks of business organizations, more subsidiarity-focused governments, and increasingly virtual, elective, and malleable communities. Major governance challenges ensued; for example, the need to acquire speed, flexibility, diffuseness, and innovativeness while maintaining the necessary coordination, coherence, and integrity. These forces have been at work for some time, but their impact has been considerably heightened by the digital revolution, which has materialized over the last while. Businesses, governments, and communities

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have been confronted with a greater demand for participation as technology has made this ever more possible. Citizens have also become much more active partners in the governance process. This has redefined the public space and led to the founding of distributed governance regimes based on a wide variety of fluid and always evolving communities.17 This does not refer just to the process of power being dispersed towards localized decision making within each sector: it also refers to power being dispersed over a wide variety of actors and groups within the economy, society, and polity. All this has triggered a paradoxical outcome: as globalization proceeds, economic integration increases and the component parts of the system become more numerous. The central question is how to organize for faster learning. And it would appear that the game of learning is going to generate more innovation and speed if those components confronted with different local realities are empowered to take decisions on the spot. This is why globalization has led to localized decision making, to dispersing powers towards cityregions.18 Fiscal Federalism Redux The new imperatives of distributed governance are bringing back the old spirit of federalism; that is, the spirit of subsidiarity. Federalism was designed to ensure a division of labour among the private, public, and civic sectors, and among levels of government based on the dual principles of (1) efficiency and (2) decision making that stays as close as possible to the citizen. Indeed, the existence of multilevel governance provides an opportunity for higher-level decision making only if the lower-level processes prove incapable of handling these responsibilities efficiently. This was the original spirit of the program review exercise designed by the Privy Council Office in the 1990s. But this governance exercise quickly degenerated into a cash-grab exercise (which fundamentally corrupted its original purposes) when deficit and debt reduction became the categorical imperative. The Treasury Board Secretariat took control of the program review process. This shift away from the original governance objectives underpinned the dramatic cuts in cash transfers that led to the dramatic recentralization of fiscal power. This shift towards centralization was rationalized in the name of egalitarianism: if equality is the primary good, then centralization is necessary since, in order to redistribute resources, one has first to bring them to the centre. This stands in sharp contrast to the new guiding philosophy of federalism and the new centrality of distributed

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governance and collaboration based on subsidiarity. Despite the federal government’s fundamental propensity to centralize, and the opportunities provided by episodic scandals (and their dramatization by the Office of the Auditor General) to rationalize a return to a command-and-control mentality, a drift from egalitarianism to subsidiarity is in progress. And one may reasonably hypothesize that this is bound to lead to a fair amount of devolution, much participation, and an increase in the efficiency, transparency, and legitimacy of Canadian governance.19 This hypothesis may appear somewhat weakened by the recent chill generated by the sponsorship scandal and other irregularities that have led the government to impose more robust controls. One should not, however, be mesmerized by such bursts of collective hysteria fed by imprudent generalizations, some irresponsible reporting, and an unwillingness by the new government (under a cloud of suspicion for the activities of its predecessor) to challenge the Office of the Auditor General for fear of electoral fallout. The structural forces at work in driving the process of devolution are broader and stronger than these episodes of control frenzy. However, such episodes underline the fragile nature of public opinion in Canada on these matters and the wisdom of Canadian reluctance to address governance challenges through grand palavers that can easily be derailed by accidental events. The Elusive Canadian Way The evolution towards this new form of governance (which is likely to repair governance failures and, as a result, fiscal imbalance) is not likely to emerge as a result of a coup d’état. Canadians do not manage societal change in such disruptive ways (which they see as divisive and as likely to generate nothing but stalemate). So, despite the hot rhetorical style of their political leaders, Canadians have generally chosen a distinctively “cool style” of evolution. Indeed, over the last decades Canadians have defined their “distinctiveness” almost despite their leaders, and they have been quite effective at it. This distinctiveness has been characterized by expressions such as “a passion for bronze” (Kimon Valaskakis) or “slow adrenaline” (Pico Iyer). The Canadian public’s rejection of grand schemes has at times been deplored as occasions manquées. But Canadians, with their hefty dose of tolerance and apathy, are ironists, “never quite able to take themselves seriously because always aware that the terms in which they describe themselves are subject to change,” and they spend much time worrying

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about the possibility of having been initiated into the wrong tribe and taught to play the wrong language game.20 Thus they prefer (1) understatement, irony, and self-mockery in their rhetoric, and they most certainly resist being “branded” like cattle or “bridged” in a crippling way in the face of liquid modernity; 21 and (2) they prefer a sort of pragmatism and ad hoc bricolage in their practice, and they gamble on a combination of plural, partial, and limited identities even though this often increases the distances between them and their fellow Canadians – for this is Canadian distinctiveness.22 It is interesting to note that Canadians are often in a state of schizophrenia, finding themselves torn between their commitment to centralized state-run social justice and their conviction that genuine solidarities are local and community-based. In fact, it is another element of Canadian distinctiveness that Canadians have refused to choose: they want both the state-run social justice à la medicare and community-based solidarity. The central question is whether it will be top-down or bottom-up federalism that will prevail when a choice is finally required. My hypothesis is that bottom-up federalism will triumph in the long run. The Cost of Inaction The governance failures revealed by fiscal imbalance have resulted in inefficiency, poor accountability, and poor stewardship; however, it is extremely difficult to offer a precise measurement of these costs. Thus, many observers have ignored them. Yet inefficiencies of all sorts are quite obvious. First, it is clear that local and provincial needs remain unmet while federal surpluses are spent in areas where, according to the citizenry, priorities are less urgent. The waste involved in this misallocation is important. Second, this misalignment of resources and needs not only generates static allocative inefficiency but it also translates into a lessening of Canada’s competitiveness (as noted above). Fiscal imbalance itself generates a significant amount of waste of resources as the result of the haggling between deficit governments and surplus governments – and the costs of transaction that this generates. But even more damage is generated by the degree of aloofness and irresponsibility poor governance injects into the fiscal regime as the lines of accountability become frayed. Incentives matter. Why should governments act responsibly as spenders if they do not have to collect their own taxes? A great deal of waste ensues when spending becomes disconnected from taxpayers’ diligence and degenerates into a simple game of intergovernmental squabbling that the citizenry hardly understands.

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If provinces or municipalities that want to spend more money were asked to collect the taxes to finance the goods and services their voters tell them they want, then the lines of accountability would be clearer. But as long as many of these governments are prevented from raising their own taxes, or destructive vertical intergovernmental tax competition leads to tax base erosion, then significant welfare losses can be expected. It is difficult to put a dollar figure on the costs of inaction in resolving these governance failures. However, if economists have learned anything in the debates surrounding the identification and attempts to measure x-efficiency (the effectiveness with which a given set of inputs are used to produce outputs), it is that the x-inefficiency generated by poor governance, faulty incentives, and lack of effort – not to mention the amount of misguided effort generated and the amount of slack produced in the system – is very significant indeed. In empirical studies of x-inefficiency, it is quite clear that its size varies considerably from country to country, and from one organizational setting to another; however, it is not unusual to find a waste factor of the order of 25 percent. Some order of magnitude for the efficiency gains that might obtain if governance failures were eliminated might also be gauged from some of the results of the organizational re-engineering that occurs when organizations are faced with unforeseen external competition or the removal of state protection. If the exact measurement of such x-efficiency gains from governance overhauling is still missing, oblique gauges appear to confirm that it is significant.23 These costs, although difficult to pin down, are significant enough for the citizenry to have become not only aware of them but also worried about them. In the recent Portraits of Canada – an annual survey of public opinion in Canada conducted by the Centre for Research and Information on Canada – it has been established that Canadians in every part of the country, from September to October 2003, had three top priorities for the next prime minister: more spending on health care (73 percent), improved federal-provincial cooperation (70 percent), and increased spending on education and training (69 percent).24 It may appear quite extraordinary that a subject as arcane as federalprovincial relations could arouse so much concern in the citizenry that it ranks just below health and just above education. But, compounded with the fact that a significant majority of citizens believe that provincial and local governments need more fiscal resources, this clearly indicates that governance failure and fiscal imbalance have become issues of national concern and that citizens are unwilling to tolerate continued inaction.

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Missing Mechanisms Whatever the problems ascribable to governance failures (and to the fiscal imbalance that reveals them) they are not likely to be resolved easily. Nothing less than a significant effort to modify the Canadian governance regime will do; however, as I have indicated, this will have to proceed par étapes and somewhat obliquely because Canadians have no taste for tackling big issues in a frontal way. This significantly constrains what the new prime minister can do, but in a paradoxical way it may fit very well with Martin’s style. Paul Martin is not an ideologue; he is quite conscious of the baroque Canadian governance system; and he recognizes that he will likely have approximately 1,000 days to make a difference. He is also conscious that he will not have the same ineffective no-man’s-land Opposition that blessed his predecessor and that he will have to work in an era of moderate fiscal restraint. To face the three major challenges of productivity stagnation, decline in public trust, and growing social disengagement (along with the general disconcertion of the Canadian socio-political economy), Mr Martin cannot count on any dramatic instant reframing of perspectives. The only tool at his disposal involves putting in place some missing mechanisms capable of providing some of the needed repairs. These mechanisms are of many sorts. First, the new philosophy of governance requires public space for dialogue and deliberation: nothing less than genuine forums wherein such questions might be debated. Second, there must be the possibility of developing looser and fuzzier mechanisms of coordination (for rigid rules may not be what is required in a turbulent context). Third, such forums and moral contract initiatives have to be built on the cost-based pricing of public services, on workable competition, and on the recognition of the centrality of soft and fuzzier accountabilities.25 The first group of missing mechanisms that is required would provide spaces for dialogue and deliberation. The Council of the Federation (which is in the process of being created) may turn out to be a most unfortunate initiative and a major impediment to the creation of “truly broad” spaces for deliberation. What is required are loci for federal/provincial/local deliberations as a necessary tool for reducing the high degree of existing disconcertion. How can one hope to bring the three levels of government together (albeit on restricted issues or areas of concern) when there is no place for them to meet? Given the impossibility of corralling all parties for a sort of fiscal Meech, one should at least require the necessary forums for deliberations on families of concerns.

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The second group of missing mechanisms that is of crucial importance is that pertaining to certain critical policy fields. Since there is no hope of being able to reduce disconcertion directly in toto: it must be negotiated in more limited and tractable forums. There are several broad fields in which such covenants are urgently needed: (1) health and education, where performance indicators show that the results are optimal and where the federal government should clearly agree to have a completely hands-off stance if the provinces agree to transform the governance of these two broad areas; (2) macrostability and social capital, where the federal role is prominent and where an agreement must be reached that some support has to be forthcoming from other levels of government; and (3) cities and public administration (or the role of the state), where some form of partnership has to be struck. The third group of missing mechanisms is very diffracted and corresponds to the array of arrangements required for the socio-economy to function properly and for self-organization to proceed as well as it can. This ranges from mechanisms for permanently keeping programs under review – a regular cycle of program reviews – to ways in which new mechanisms of consultation and negotiation will be put in place, to the reform of the House of Commons, to the use of a mixed-member proportional representation in elections of the sort recently proposed by the Law Reform Commission, and so on. A detailed list of this third group of mechanisms would carry us beyond the confines of this chapter, but it should be clear that it is not disconnected from the fiscal imbalance issue. For instance, it is clear that a subsidiarity-inspired renewed Program Review might accomplish much to reshuffle the different responsibilities among government levels.

conclusions My examination of the fiscal imbalance issue as a révélateur of governance failure does not lead to much optimism. It has led to the conclusion that fiscal imbalance is not a simple problem of public finance plumbing. Only a critical examination of the governance regime of the country holds the promise of any meaningful rebalancing that could result in effective collaborative governance. Yet collaborative governance is a form of partnership, and any partnership entails a sort of power sharing, and this the current stakeholders appear to fear. This is why there is such a denial of the fiscal imbalance syndrome: admitting that the problem exists could only lead to a refoundation of the federation. I have underlined the reasons why fiscal imbalance exists in Canada, shown how it is a révélateur of a more fundamental disconcertion, recognized that Canadians have a characteristic way of dealing with

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governance issues, and suggested that it is through the creation of a multiplicity of missing mechanisms that we may hope to resolve the governance problem and its fiscal echo effect. By identifying three groups of missing mechanisms (forums for deliberation, moral contracts in certain key areas, and a multitude of arrangements to limit inefficiencies, improve accountabilities, and promote citizen engagement), I have only pointed in a promising direction. Much more fleshing out is required before this might lead to a program for the new prime minister.

notes 1 D.E.A. Giles and L.M. Tedds, Taxes and the Canadian Underground Economy (Toronto: Canadian Tax Foundation, 1996). 2 Y. Séguin, Pour un Nouveau Partage des Moyens Financiers au Canada (Quebec City: Rapport de la Commission sur le Déséquilibre Fiscal, 2002). 3 J. Mintz and M. Smart, “Why Quebec’s Tax Point Transfers are a Good Idea,” National Post, 25 March 2002, 3. 4 Conference Board of Canada, Projections des Equilibres Financiers des Gouvernements du Canada et du Québec (Ottawa: Conference Board of Canada, 2002). 5 Union des Municipalités du Québec, La Situation Fiscale des Municipalités Québécoises (Quebec City: Recherche conjointe de l’umq et du Conference Board du Canada, Mai 2003). 6 Federation of Canadian Municipalities, Fast Facts on Canada’s Urban Regions (Ottawa: Federation of Canadian Municipalities, 2001); and Early Warning: Will Canadian Cities Compete? (Ottawa: Federation of Canadian Municipalities, 2002); B. Burleton, “A Choice between Investing in Canada’s Cities or Disinvesting in Canada’s Future,” Toronto, Toronto-Dominion Bank, bulletin, 22 April 2002. 7 oecd Territorial Reviews, Canada (Paris: oecd, 2002); J. Sgro (Chair), Canada’s Urban Strategy: A Vision for the 21st Century (Ottawa: House of Commons, 2002). 8 I. McLean, “Fiscal Federalism in Canada,” Nuffield College Politics Working Paper 2003. 9 S.L. Carter, The Dissent of the Governed (Cambridge: Harvard University Press, 1998), 20. 10 G. Paquet, Pathologies de Gouvernance (Montreal: Liber, 2004), chap. 7. 11 Department of Finance, The Fiscal Balance: The Facts (Ottawa: Department of Finance, September 2003). To bolster the argument that “provincial needs” are not really that pressing, Minister Stéphane Dion (in many speeches and overhead presentations used to point to the fact that health expenditures as a percentage of gdp have not grown over the last while.

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12 13 14

15 16 17 18 19 20 21 22

23 24 25

This argument makes little sense since the results quoted were simply the result of the dramatic reductions in federal transfers to the provinces, which have forced the latter to ration health services to their citizens (S. Dion “Les municipalités et le gouvernement fédéral,” [Allocution à la Fédération canadienne des municipalités le 26 mai 2001]; S. Dion “L’équilibre fiscal et les relations financières entre les gouvernements au Canada” [ Allocution au St James Club le 13 mars 2002]). G. Paquet, “The $100 million Mirage: A Cautionary Tale,” optimumonline 34, 1: (Spring 2004). J. Simpson, “The Old Deal Performs Better Than the New Deal,” Globe and Mail, 31 March 2004, A.19. G. Paquet, “Canada as a Disconcerted Learning Economy: A Governance Challenge,” Transactions of the Royal Society of Canada (ser. 6) 8: (1998): 69–98. W.B. Wriston, The Twilight of Sovereignty (New York: Scribner’s 1992), 119. G. Paquet, Governance through Social Learning (Ottawa: University of Ottawa Press, 2003). D. Tapscott and D. Agnew, “Governance in the Digital Economy,” Finance and Development, December 1999, 34–7. J. Naisbitt, Global Paradox: The Bigger The World Economy, The More Powerful Its Smallest Players (New York: Morrow, 1994). G. Paquet “Innovations in Governance in Canada,” Optimum 29, 2–3 (1999): 71–81. R. Rorty, Contingency, Irony and Solidarity (Cambridge: Cambridge University Press, 1989), 73–5. R.D. Putnam, Bowling Alone: The Collapse and Revival of American Community (New York: Simon and Schuster, 2000). G. Paquet, “Toward a Baroque Governance in 21st Century Canada,” in Canadian Distinctiveness into the 21st Century, ed. C. Gaffield and K.L. Gould, 59–88 (Ottawa: University of Ottawa Press, 2003). H. Leibenstein, Beyond Economic Man (Cambridge: Harvard University Press, 1976). Centre for Research and Information on Canada, Portraits of Canada 2003 (Ottawa: cric, 12 January 2004), 3. I have explored some of these mechanisms in a few recent studies: G. Paquet, Gouvernance: Une Invitation à la Subversion (Ottawa: Centre d’études en gouvernance, 2003); G. Paquet, The New Geo-Governance: A Baroque Approach (Ottawa: Centre on Governance, 2003). See also R. Hubbard and G. Paquet, “Missing Mechanisms: The New Frontier,” paper presented at “Constructing Tomorrow’s Federalism,” a conference held in Regina, March 2004.

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3 The Emerging Policy Shift in Canada-us Relations michael hart and b r i a n to m l i n

In a previous edition of this volume, we described how policy priorities in Canada were profoundly shaped, both directly and indirectly, by changes in the public policy agenda in the United States that resulted from the terrorist attacks on New York, Washington, and Pennsylvania on 11 September 2001.1 Those effects continue to reverberate. In this chapter, we pick up this analysis again to examine developments in the Canadian policy arena concerning relations with the United States as these have played out in the two years since those shocking events. Our aim is to assess the prospects for a major policy shift in Canada’s relationship with the United States – a shift towards more actively addressing governance issues arising from deepening integration. This examination is informed by a model of the policy process that seeks to explain, first, why some issues become prominent on governmental policy agendas and, second, how alternative policy approaches to issues are identified and chosen. The model conceives the policy process as consisting of three separate streams – problem identification or recognition, policy alternatives generation, and politics – that flow through and around government, largely independent of one another. Conventionally, agendas are set by problems or politics, and alternatives are generated in the policy stream. At certain critical times, the three streams come together, and at that juncture major policy change can occur.2 We examine recent developments in the three streams concerning Canada’s relationship with the United States, trying to anticipate the process by which particular solutions might be joined to identified problems and how the two might be joined to favourable political

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forces to produce a particular policy outcome. Our analysis must be tentative, however, since this joining is most likely to occur when policy windows – defined as opportunities to advocate particular proposals or conceptions of problems – are opened, either by the appearance of compelling problems or by political circumstance. In these occurrences, policy entrepreneurs play a key role by investing resources in pushing particular proposals or problems, prompting important people to pay attention, and coupling solutions to problems, and both to politics. However, the model is indeterminate concerning the circumstances under which windows will open or under which entrepreneurs will succeed in exploiting these openings, so we cannot point with certainty to a particular policy outcome. The best we can do is to assess whether conditions are right for windows of opportunity to open so that we may be on the alert for the entrepreneurial coupling of streams that could result in a policy shift.

problem stream: the changing agenda o f c a n a d a - u s r e l at i o n s We begin our analysis with an examination of the principal issues that have been circulating recently in Canada in the problem stream concerning Canada-us trade and economic relations. We are interested in issues that are raised by advocates in the policy community who are attempting to secure a place for them on the governmental agenda. First, there are issues advanced by producer groups concerned about access to the us market for specific products, such as softwood lumber, wheat, steel, or beef. Generally, the government responds to these concerns and seeks to find solutions through diplomatic representation, negotiations, or dispute settlement procedures. The presence of both the problems and the solutions, however, feed into the second and third groups. One group of policy advocates sees these and other problems as arising primarily from Canada’s free trade agreement with the United States. Centred in the Council of Canadians, in the Canadian Centre for Policy Alternatives, and within organized labour, this group argues that free trade has exacerbated economic and social problems in Canada, and has adversely affected Canadian culture and cultural institutions, foreign policy traditions, sovereignty, and democracy, and has put Canada’s natural resources and the environment at risk. In the latter area, Canadian supplies of fresh water and oil and natural gas are often identified as particularly vulnerable. For the second group of policy advocates, concerns originate with market access but are focused on border security and administration. This is because they believe that border disruptions are likely to result

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from American efforts to make its borders more secure and that these disruptions will impede access to the us market for Canadian goods and services, with negative consequences for Canada’s economy and ability to attract investment. Leading proponents of this view include the Canadian Council of Chief Executives and the C.D. Howe and Fraser Institutes. As indicated, producer groups have had little problem getting their immediate market-access issues recognized as problems that should be addressed by the government. As for the other two groups, those advocating recognition of the relationship between border security and market disruption have made considerable progress over the past roughly four years, while the free trade Cassandras have not. Currently, the border issue seems to have legs, but this was not always the case. In fact, until fairly recently, the government was not convinced that border security was a problem that warranted serious attention. How is it, then, that some problems capture the attention of important people in and around government, and obtain a place on the governmental agenda? Objective indicators of the presence of a problem are important, especially quantitative ones. However, indicators alone do not make problems self-evident. They require a push from a focusing event to carry them on to a governmental agenda. Such an event may arise from the occurrence of a crisis, the creation of a compelling symbol, or the personal experience of a senior policy maker. Even a focusing event is rarely sufficient to carry an issue to a prominent place on the policy agenda; rather, it typically serves only as a catalyst by reinforcing some pre-existing perceptions of a problem. Finally, problem identification is more likely when government officials receive feedback about the inadequacy of existing policies and programs. In this section, we analyze the evolution of the border security–market access issue in terms of these determinants of problem identification. Indicators of a Problem The issue of security on us borders initially made its way on to the Canadian governmental agenda in 1996, when a proposal was introduced in the us Congress for changes to Section 110 of the Illegal Immigration Reform and Immigrant Responsibility Act (iirira), changes that would require the documentation of every alien (including Canadians) entering and exiting the United States. Adoption of entry/exit controls at us ports of entry would seriously disrupt personal and business traffic between the United States and Canada, threatening Canada’s access to the us market and causing severe cross-

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border traffic congestion. In the end, Canada was able to head off the implementation of controls, convincing key members of Congress, particularly from border states, that Canada was not the intended target of the legislation and that the unintended consequences for commercial traffic would be intolerable. With this successful resolution, the issue dropped off the agenda until December 1999, when Ahmed Ressam was stopped while attempting to enter the United States from Canada with a car trunk full of powerful explosives. These were to be used, it was learned subsequently, in a terrorist attack on the Los Angeles airport. Ressam had established himself in Canada over the previous three years under an assumed name and using a fraudulent Canadian passport. He was subsequently tried and convicted in a Los Angeles court. The incident was deeply embarrassing to Canada and raised questions in us government circles about Canada’s reliability as a security partner. In the aftermath of the Section 110 issue, the government was at pains to assert its reliability, but little was actually done to assuage American fears. However, the Section 110 and Ressam episodes did result in the development of information concerning the consequences of enhanced screening by us agencies of the cross-border movement of Canadian goods and services, and some alarming indicators were constructed concerning the dollar cost of delays to manufacturers. It is important to note here that, while Canada acted to head off the application of Section 110 to Canadians, and to counter the fallout from the Ressam affair, the connection between us border initiatives and market access had not yet been identified as a problem deserving a priority place on the government’s decision agenda. In fact, the government’s response to Ressam was largely rhetorical, crafting and delivering messages intended to convince Americans that they had nothing to worry about on their northern frontier. At a workshop organized by the Centre for Trade Policy and Law in December 1999, for example, senior government officials were invited to discuss “the border effect” – the idea that the very existence of the Canada-us border presented a problem for Canadian industries, especially in the face of potential impediments generated by American security concerns. Most participants, however, did not see the issue as a problem that should, or could, warrant the government’s attention. A Focusing Event That all changed, of course, with the terrorist attacks of 11 September 2001. The new measures that were immediately put in place to screen entry into the United States from Canada had their predicted effects,

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with long delays severely impeding the access of Canadian products to the American market. The border security–market access issue was suddenly thrust onto the governmental agenda. In response, the government sought to assure us officials that Canada was playing its part in ensuring the security of North America and to convince them that heightened security measures on the American side of the Canadian border were unnecessary. us officials, for their part, made it clear to Canadians that they required deeds, not words, and a variety of initiatives were taken, particularly on Canadian visa and refugee policies, to satisfy American concerns. However, as the memory of 11 September faded, at least in Canadian minds, the security-access issue gave way to other pressing concerns in Canada-us relations, and traditional market-access issues, from softwood lumber and energy to durum wheat and steel, came to once again dominate the governmental agenda. Existing Perceptions Even though the memories of 11 September may have faded somewhat, the events were sufficiently traumatic that they continue to serve as a compelling symbol of us vulnerability to unconventional attacks across its borders – a symbol that continues to resonate not only for Americans but also for Canadian officials. The question, then, is whether existing perceptions about the security-access issue have changed since 11 September, especially from what they were at the end of 1999. On 12 December 2001 John Manley, then Canada’s minister of foreign affairs, and Tom Ridge, then the us director of homeland security, signed the Smart Border Declaration, which included a thirty-point Action Plan for forward planning. The agreement rests on four declared pillars: “the secure flow of people, the secure flow of goods, secure infrastructure, and information sharing, and coordination in the enforcement of these objectives.” Both governments now receive regular status reports on the implementation of the Action Plan. Since the Smart Border Declaration is explicitly aimed at minimizing security risks while expediting the flow of trade, and since both governments now receive regular status reports on the implementation of the Action Plan, it is likely that the security-access issue is now more firmly established in official perceptions of the Canada-us relationship than was the case before 11 September. Feedback Our concern in this chapter is whether or not it is likely that the security-access issue has sufficient legs to achieve a priority place on the

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governmental agenda. This is more likely when government officials receive feedback about the inadequacy of existing policies and programs, and, indeed, the government has been in receipt of such feedback from a number of important Canadian advocacy groups. In the aftermath of 11 September, the Canadian Manufacturers and Exporters (cme) took the lead in establishing the Coalition for Secure and Trade Efficient Borders, a group made up of forty Canadian business associations and individual companies. The coalition’s aim is to ensure that the government is aware of the business perspective when it deals with border issues. While the cme welcomed the Smart Border Declaration, as did the Canadian Chamber of Commerce and the Canadian Council of Chief Executives, all three groups pressed the government to continue to deal with the security-access problem in order to protect Canadian commercial interests. The Canadian Council of Chief Executives, in particular, has devoted considerable attention in its advocacy activities to Canada’s relationship with the United States and, in particular, to the security-access problem. In short, all of the elements seem to be in place for the establishment of the security-access issue as a problem that must be dealt with on the government’s decision agenda: •

•

•

•

there are a number of indicators that a problem exists on the border, and the measures of the dollar costs of delays (developed by industry and government) made the point rather dramatically; the crisis of 11 September provided a focusing event for officials, one that served as a compelling symbol not only of American vulnerability but also of the way Canadian economic interests could be held hostage to us security concerns; existing perceptions have shifted in as much as the link between border security and market access is institutionalized in the Smart Border Declaration; and the government is in receipt of a steady stream of feedback about the need to keep the problem front and centre in Canadian concerns.

However, in the model of policy change we employ, all of these characteristics may be present and a problem still may not make it onto the government’s decision agenda. This is because the policy process consists of more than a stream of problems waiting to be identified; it also includes a stream of policy alternatives that must ultimately be linked to problems. We now turn to an examination of the policy alternatives that have been circulating in the policy community concerning the Canada-us relationship as well as the efforts of policy entrepreneurs to link policies with problems.

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policy stream: the development o f p o l i c y a lt e r n at i v e s Ideas about policy alternatives circulate in communities of specialists scattered through and around government. Individual ideas in this stream of policy proposals engage in a process of continual refinement until some are ready to enter a serious decision stage as alternative choices. Advocates for particular proposals or ideas are policy entrepreneurs, inside or outside of government, who are defined by their willingness to invest resources (time and energy, and occasionally money) in order to secure a future return (desired policies, satisfaction from participation, or career rewards). These entrepreneurs try to build acceptance for their policy preferences, softening up both the policy community and the larger public by pushing their ideas repeatedly and in many different forums. If entrepreneurs are successful in communicating their idea in a policy community, then a consensus may spread through the relevant community as a particular idea catches on, a tipping point is passed whereby the idea takes off, and a bandwagon effect secures its widespread acceptance as the right course. We want to analyze the evolution of ideas in the policy stream to see if any are candidates for entering a serious decision stage. Congruent with developments in the problem stream, policy ideas concerning the Canada-us relationship focused initially on market-access issues and first surfaced in the period leading up to the tenth anniversary of the negotiation and implementation of the Canada-us Free Trade Agreement (fta). At two conferences sponsored by Michigan State University in September 19983 and McGill University in June 1999,4 for example, former ministers and negotiators, as well as invited policy analysts, considered the economic and political impacts of the fta and discussed prospects for pursuing the “unfinished” agenda. Similarly, in December 1999, at the workshop organized by the Centre for Trade Policy and Law, a group of twenty-five government and non-government experts considered the prospect of negotiations to address the unfinished agenda.5 Concurrently, officials in the Micro-economic Analysis Branch of the Department of Industry were hard at work pursuing a major research initiative aimed at providing a firmer intellectual and statistical basis for understanding the extent and implications of bilateral linkages in a rapidly integrating North America.6 This was simply business as usual, however; there is no evidence that the trade policy community was, in any sense, abuzz with ideas about the future path of Canada’s relationship with the United States.

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This state of affairs changed abruptly and dramatically in the period immediately following the terrorist attack of 11 September 2002. The impact of the attack on us attitudes towards the outside world, including its border with Canada, had a galvanizing effect on discourse within the policy community. As we noted in the previous section, the virtual closure of the border in the days immediately after 11 September concentrated minds on a newly recognized problem. Business groups, for example, previously lukewarm about the Canada-us trade policy agenda, called for immediate action by the federal government to address this new threat to the security of their access to the us market;7 and newspaper pundits expressed increasing concern with the threat to Canada’s long-term prosperity.8 In this environment, debate within the policy community focused on ways to deal with the border security-market access problem, and policy entrepreneurs found newly receptive audiences for their ideas. While the focus of policy discussion has been on the security of Canadian access to the us market, most participants in the discussion have recognized that the agenda must also encompass us preoccupations with defence and security matters. Carleton University analysts Bill Dymond and Michael Hart were among the first out of the gate with a paper outlining the need to refine the trade and economic agenda in the light of the new security reality ushered in by the increased terrorist threat. In Common Borders, Shared Destinies, they provided a detailed outline of the emerging trade and security agenda.9 Since then, a growing number of papers, speeches, workshops, conferences, and opinion pieces have dissected Canada-us trade, economic, and security issues from every conceivable angle and proposed a range of solutions, including the following: •

•

Former Canadian ambassadors to the United States, Allan Gotlieb and Derek Burney, are convinced that only a major initiative has the scope to attract us political interest and provide room for mutually beneficial trade-offs. Gotlieb has suggested that Canada and the United States establish a joint community of law to foster joint rules, procedures, and institutions to govern common interests in creating a more open and more secure Canada-us economic space, while Burney has called for the two governments to work together on an initiative that addresses us concerns on the security front and Canadian priorities on trade and investment matters.10 Bank of Canada governor David Dodge has challenged the two governments to pay serious attention to the benefits of deeper integration, including a more open and integrated labour market, allowing Canadians and Americans to work wherever opportunity beckons.11

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54 Macro Choices and Challenges •

•

•

•

•

•

•

The Canadian Council of Chief Executives has advanced a strategy focused on reinventing borders, maximizing economic efficiencies, negotiating a comprehensive resource security pact, sharing in continental and global security, and developing twenty-first-century institutions to manage the new partnership.12 The C.D. Howe Institute, under the leadership of University of Toronto business economist Wendy Dobson, has commissioned a series of “Border Papers” aimed at creating a better intellectual foundation for consideration of a joint Canada-us strategy that is big enough to attract us political attention and to address the full gamut of economic and security issues now affecting bilateral relations. The series includes work from both Canadian and American analysts; some twelve papers have now been published, examining everything from the prospects for a customs union to the impact of enhanced security on bilateral trade flows.13 irpp president Hugh Segal, in a series of speeches over the past three years, has similarly challenged Canadians to think big and creatively about Canada-us relations with a view to developing new rules and institutions to govern joint interests. irpp economist Daniel Schwanen has written various articles examining the pros and cons of further governance arrangements to foster deeper integration, arguing that the need to proceed is clear but cautioning that security and market access arrangement should be pursued on their own merits and not used as trade-offs in a “grand bargain;”14 he is currently at work on drafting the contours of a treaty of North America capable of addressing the access-security nexus. Fraser Institute analysts, particularly Fred McMahon and Martin Collacott, have been building a case for more active efforts to link trade and economic and security interests with a view to creating both more open and more secure cross-border ties.15 The Conference Board of Canada has sent out mixed signals, first arguing that Canada needs to approach the bilateral agenda incrementally, solving problems where it can and avoiding linkages to the extent possible, but subsequently calling for a Canadian debate on various options for securing access to the us market, up to and including a North American customs union.16 The Public Policy Forum has held a number of consultations and sponsored research aimed at determining business attitudes towards the evolving Canada-us trade and economic agenda, much of which points to the need for a new round of bilateral discussions.17 University of Alberta business economist Rolf Mirus has circulated various papers suggesting that Canadian and American economic integration has reached the stage at which a customs union or com-

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•

•

mon market arrangement is required to capture the full benefits of integration.18 Economists Tom Courchene and Richard Harris have made the case for a common currency to advance Canadian macro-economic and trade and investment interests.19 McGill legal scholar Armand deMestral advocates that Canada and the United States move towards upgrading the legal commitments in the North American Free Trade Agreement (nafta) from intergovernmental treaty commitments to rights and obligations that have “direct effect,” allowing citizens to pursue rights under the agreement through the domestic courts, analogous to the direct effect that is central to the implementation of the treaties establishing the European Union.20

There is a contra side to the debate as well. Nationalist critics, from Stephen Clarkson to Peter Newman, have raised their voices, warning that any new initiative with the United States would threaten Canadian sovereignty and undermine Canada’s ability to chart its own course.21 Economist Andrew Jackson believes that pursuit of the “big idea” threatens the expression of distinctive Canadian values on defence, international affairs, and immigration and refugee issues, while limiting Canada’s ability to shape industrial development, to control the energy sector, to move towards a more environmentally sustainable economy, to levy taxes at the level needed to maintain a distinctive Canadian social model, and to control the impacts of international trade and investment agreements. His colleague at the Centre for Policy Alternatives, Bruce Campbell, has proposed, as an alternative to the deeper integration approach, “the deliberate pursuit of small steps,” a strategy whose cumulative effect over time may lead the government to challenge nafta in key areas where national interests take precedence. Finally, Queen’s political scientist Bob Wolfe insists that the need for action has been exaggerated, arguing that most issues are already well in hand or can be addressed within the framework of existing rules and institutions.22 However, these dissenting views are swamped by the flood of papers, speeches, workshops, conferences, and opinion pieces that are promoting change in the Canada-us relationship as a means of dealing with the border security-market access problem. Certainly, the policy community is being softened up by what amounts to a virtual drumbeat for deeper integration, and there is little doubt that policy entrepreneurs are trying to build acceptance for their policy preferences in the policy community and the general public by presenting their ideas repeatedly and in many different forums. However, it is our sense that

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no tipping point has yet been reached, that members of the policy community are not yet clamouring to get on board a single policy bandwagon. In other words, no idea has yet won general acceptance in the trade and foreign policy communities. That take-off point has still to be reached. And, in any case, policy change does not depend on the discovery of an idea whose time has come but, rather, on a particular alignment of problem, policy, and politics. The process of creating alternatives for policy makers to consider may well proceed independently of the process of problem identification. However, viable alternatives must exist before a problem can secure a solid position on the decision agenda. Even in this circumstance, problems and their alternative solutions exist alongside the political stream, which also exerts influence on the policy process.

p o l i t i c s s t r e a m : t h e m o b i l i z at i o n of politic al forces Developments in the political stream have their most powerful effects on agendas. The stream is composed of elements related to electoral, partisan, and pressure group considerations of politicians and those who serve them. An important component of the political stream is the national mood. Governmental participants’ sense of the climate of opinion on an issue – gleaned from mail, media, and lobbyists, among other sources, including public opinion polls – can provide a fertile ground for certain ideas. Similarly, the component of organized political interests is important to those in government in so far as the interests all point in the same direction, thus providing a powerful impetus to move on that course. The third major element in the political stream is composed of events within the government itself. Governmental actors affect policy agendas through two major processes: turnover and jurisdiction. Agendas may change because some of the major participants change. Furthermore, agendas are significantly affected by jurisdictional boundaries and by turf battles. The final component in the political stream is consensus building. Unlike the policy stream, where consensus is built through persuasion and diffusion, consensus in the political stream is achieved through bargaining and coalition building among participants in the selection of a course of action. As in the policy stream, however, once adherents of a particular alternative have grown sufficiently in number, then the balance of support will tip overwhelmingly in the direction of that option. The distinction between agendas and alternatives is useful analytically in distinguishing the effects of the various components of the political stream. The mix of the national mood and elections has a strong impact on policy

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agendas and is capable of overwhelming the balance of organized forces. But once a problem is on the decision agenda, then organized forces can be expected to step back in to shape alternatives and outcomes. The National Mood Polling done over the course of the past few years indicates the extent to which Canadians have come to terms with closer Canada-us trade and economic ties. An Ekos poll taken in the Spring of 2001 indicated that, while 58 percent of Canadians did not foresee the likelihood of Canada joining the United States in the foreseeable future, only 22 percent did not anticipate the evolution of deeper North American economic integration over the same time period.23 Polling in August 2001 continued to confirm this assessment. Liberal pollster Michael Marzolini found that 85 percent of Canadians supported closer trade and economic ties with the United States and that 75 percent would even support closer social and cultural connections. He cautioned, however, that Canadians continue to be allergic to such words as “integration” and “harmonization.”24 These findings were confirmed by a smaller National Post/compas poll, which found that 64 percent of Canadians want to see a freer flow of goods and services across the border.25 Polling soon after 11 September indicated that 85 percent of Canadians wanted the government to adopt “much tougher” immigration and refugee laws and that 76 percent believed Canada should harmonize anti-terrorism laws with the United States as quickly as possible, suggesting an increasing level of comfort with the non-commercial aspects of deepening integration.26 While this level of ease with Canada-us cooperation on non-economic measures of cross-border cooperation may have waned in subsequent months, as the intensity of feelings generated by the events of 9/11 faded, polling continues to show high levels of support for closer ties with the United States across a wide range of issues. Marzolini, for example, continues to find strong support for closer ties to the United States. In a March 2003 poll he found that 90 percent of Canadians favoured closer economic ties and that two out of three Canadians supported closer social and cultural ties. Marzolini notes that “these results are consistent with what we’ve seen over the past couple of years … Canadians are interested in making the most of our close proximity to the United States.”27 Canadians also show a growing awareness of the impact of border security measures on bilateral trade and investment interests. An Ipsos-Reid October 2003 poll found that 63 percent of Canadians believe that enhanced border security measures hinder bilateral trade, while 33 percent believe it is helpful.28

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At the same time, Canadians indicate a much higher ambivalence about us foreign policy, the war in Iraq, and us flexing of its hyperpower muscles. Much of this ambivalence translates into a dislike of President Bush and the current Republican administration. A summer 2003 Environics poll indicated that three out of five Canadians have an unfavourable opinion of Mr Bush, making him the most unpopular president among Canadians in twenty years.29 The war’s impact on Canadian attitudes towards closer ties with the United States, however, appears minimal. A March 2003 survey by cric found that only one in four Canadians want the government to put more distance between Canada and the United States.30 That Canadians’ comfort levels with the United States go beyond trade and economic interests was confirmed by an ses/Sun Media poll in May 2003, which showed that three out of five Canadians support Canada’s participation in the us Missile Defence Shield.31 In general, Canadians have become much more pragmatic in their assessments of closer Canada-us trade and economic ties. The Globe and Mail’s Edward Greenspon concludes: “Twenty-first-century Canadians are not the same people as 20th-century Canadians. They are far more pragmatic, and therefore less ideological. They are more demanding and less trusting … As the 1990s progressed, suspicions about free trade gave way to a widespread view that not only was a continental economy inevitable, but that it delivered opportunity as well as risk … The message, in essence, is this: We’re willing to grow closer economically if that’s what it takes to ensure prosperity. But don’t ask us to give up those things that truly give us meaning as a people. We want your best and our best.”32 In sum, to the extent that governmental participants’ sense of the climate of opinion – the national mood – is gleaned from public opinion polls, they will find strong support there for deeper integration in Canada-us relations. Organized Political Interests Two parliamentary committees have provided a forum for the expression of views by organized political interests in the current debate about the bilateral relationship. The House of Commons Standing Committee on Foreign Affairs and International Trade, in its report of December 2002, provides a comprehensive survey of Canadian expert opinion as well as some useful recommendations for immediate action. The Senate Standing Committee on Foreign Affairs also held hearings on the issue and released its report in June 2003.33 Both reports concentrate more on recording points of view and less on the presentation of recommendations that would tackle broad strategic

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and economic issues. However, as policy proposals become more refined, further hearings and analyses by parliamentary committees are likely, particularly in the form of hearings focused on specific options, and these will provide an opportunity for various political interests to stake out their positions publicly.34 What we do know from our survey of alternatives that are circulating in the policy stream is that the organized political interests that matter most on trade policy are all pushing for a government initiative to ensure that the border does not stand as an impediment either to the bilateral flow of goods and services or to the ability to attract investment. The major organized business interests – the Canadian Chamber of Commerce, Canadian Manufacturers and Exporters, and the Canadian Council of Chief Executives – are all pushing in the same direction on the issue, providing a powerful impetus for agenda, and perhaps policy, change. If the issue is placed on the governmental agenda, then doubtless other political interests will surface, some of which will be opposed to the direction of change advocated by Canadian business. But by then it may be too late for the contras, particularly since their views do not appear to reflect the broader national mood. Turnover and Jurisdiction Paul Martin’s installation as prime minister on 12 December 2003 touched off a substantial turnover of the key players in government, providing a major opportunity for change in policy agendas and policy alternatives. New ministers, and their senior officials, will bring new issues to the Cabinet table, and the transition in power will provide an opportunity for policy entrepreneurs to pitch their problems and solutions to players who may be open to new ideas. Change, if it occurs, will not be sudden, however. The problem and policy advocacy activities that are currently in play, and that we have described in those respective streams, will be superseded by bargaining and coalition building among organized political interests and officials as they seek sufficient adherents to tip the balance of support in a particular direction. Martin’s appointment of Scott Brison as his parliamentary secretary, with special responsibility for Canada-us relations, sent a strong signal to business and other communities that he is prepared to engage on the Canada-us agenda. In addition, the prime minister made it clear that he would be attending to that agenda personally when he created a new Cabinet committee on Canada-us relations, with himself as chair. Responsibility for the Smart Border Declaration and Action Plan was assigned to the new deputy prime minister, Anne McClellan.

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McClellan is charged with developing a more coordinated approach to border and security matters (along lines similar to the us Department of Homeland Security) and, to this end, was given the task of creating a new portfolio combining customs and federal police responsibilities. She will thus be better placed to deal with the us secretary of homeland security, Tom Ridge, than was her predecessor, John Manley, who operated with the support of a temporary task force in the Privy Council Office but without direct portfolio responsibilities for many of the issues. The appointments of Brison and McClellan at the political level are also supported by the appointment of Jonathan Fried as the prime minister’s chief foreign policy advisor and head of the Privy Council Office. Secretariat on Canada-us Relations supporting Brison. Fried brings a wealth of Canada-us experience to his position, including assignments in Washington as part of the Canada-us free trade negotiating team and as assistant deputy minister for trade policy in the Department of Foreign Affairs and International Trade. Fried is a known quantity to Martin: he served as Martin’s Sherpa for international financial affairs when he was on assignment as senior assistant deputy minister at the Department of Finance. Fried also has a well deserved reputation as a policy entrepreneur who is prepared to exercise policy leadership. Mr Martin appointed veteran politician James Peterson as the new minister of international trade. Peterson’s predecessor, Pierre Pettigrew, had outlined an ambitious agenda for the further evolution of Canada-us trade and economic relations, one that would require serious negotiations to refine and upgrade the rules and institutions governing the shared Canada-us economic space.35 Pettigrew also moved to upgrade Canadian representation in the United States, announcing the Enhanced Representation Initiative (eri), a major increase in the number of consulates and trade offices Canada will maintain in the United States.36 However, there is so far no indication whether Peterson will adopt a similarly ambitious agenda for bilateral relations. His colleague at the Department of Foreign Affairs and International Trade, Foreign Minister Bill Graham, told an audience at the annual Couchiching Conference that “we need to keep an eye on both the advantages and potential limitations of continental integration. And as we do so, we must guard against both simplistic views of what defines our sovereignty and simplistic views of what matters most to Canadians.”37 In other words, the pursuit of Canadian economic and security interests with the United States needs to be carefully balanced against the maintenance of Canadian values. It remains to be seen

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whether Graham’s careful balancing act reflected the perceived hostile views of his then prime minister, Jean Chrétien, or his own more considered views. Paul Martin, in announcing his new Cabinet, confirmed Mr Graham in his job and gave him what Mr Chrétien had consistently denied him: a mandate to pursue a full-fledged foreign policy review – a review that will provide scope for a serious look at the Canada-us trade and security relationship.38 Martin, on his assumption of office, indulged in some powerful early symbolism in phone calls to us president Bush and a bilateral visit with the us chief executive during the Summit of the Americas in Monterrey, Mexico. He signalled that he wanted a warmer and more productive relationship with the Bush administration than was apparent in the strained relations that had become painfully evident under Chrétien. Despite the symbolism, however, Martin has maintained a studied neutrality on the direction he is prepared to go in relations with the United States. His reply to the Speech from the Throne, on 2 February 2004, while it identified the meeting with Bush in Monterrey as a first step towards a new relationship with the United States, did not strike a bold new direction for bilateral relations; rather, it was pretty much the usual business of market access, just done better with more contacts: Our Government is committed to a more sophisticated approach, not only to manage our shared objectives, but also to manage difficult issues, such as bse and softwood lumber, which have exacted a troubling toll right across Canada. We want to buttress our mutual understanding by having greater parliamentary engagement with members of the United States Congress; greater engagement between Canadian officials and their counterparts; between representatives of our provinces and territories and their states; and between mayors.

The Throne Speech itself, despite the government’s declaration of its commitment “to a new, more sophisticated approach to this unique relationship [with the us],” struck the same note: To ensure a border that is open and effective in handling the volumes of people, goods, and services flowing to and from our economies, the security concerns of both sides must be respected. Building on the success of the Smart Borders initiative, the Government will engage with the United States to further strengthen North American security while facilitating the flow of commerce and travellers. It will also work toward infrastructure investments at key trade corridors to ensure that we can facilitate the expanding trade between our countries.

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Beneath the bromides, however, substantive movement was under way. Drew Fagan reported in the Globe and Mail on 24 February 2004 that federal officials were building a blueprint for “concerted coordination of action with Washington,” although his sources cautioned “that Ottawa is not considering the type of sweeping ‘nafta-plus’ agenda that many Canadian business groups have advocated and that would require the approval of the us Congress.” At least not yet. In summary, political circumstances seem right for the elevation of the security-access problem on to the government’s decision agenda and for the identification of some form of deeper integration with the us as the appropriate policy response to the problem. The national mood is supportive, or at least permissive; organized political forces, at least those that have so far taken a stand, are pushing in that direction; and the recent change of government has produced new players who are actively looking for problems to solve and solutions that might work. However, whether the streams will be joined in this way will depend on policy entrepreneurs, who must take advantage of the opportunities presented at a moment when the politics are right for change. And successful entrepreneurs are likely to keep their heads down, at least for the short term, while the political stream in Ottawa is preoccupied both with the promotions scandal that enveloped the Martin government early in 200439 and the prospect of an early election. Only after those immediate electoral politics have been settled can we expect to see the emergence of serious moves to join problem and policy.

conclusion: prospects for a policy shift This chapter has focused on recent developments in the evolution of streams in the Canadian policy process. In many ways, this evolution is reminiscent of developments concerning the Canada-us relationship over the period 1981–85, which led to the decision in September 1985 to negotiate a free trade agreement with the United States.40 In the problem stream, in the earlier policy process, rising us protectionism proved a critical catalyst, while today the principal catalyst is concern about the security of access gained by the fta/nafta in the context of hardening us administration of the border. However, in the policy stream in the 1980s a free trade agreement emerged fairly quickly as the preferred policy option. Discussion today is much more diffuse and more broadly focused on the governance of shared North American economic and security concerns, including consideration of defence, security, immigration, and foreign policy issues as well as trade and investment. Finally, while there are similarities in the politics

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streams then and now, there are also important differences. In both periods significant turnovers put new prime ministers (and ministers) in place, making both times ripe for agenda change. However, the national mood in 2004 is more supportive of deeper integration, should a government wish to move in that direction, than was the national mood in 1985, when free trade with the us was a deeply divisive issue. Moreover, important organized political interests are now all pushing in that direction, whereas this was not the case in 1985. Another important difference between the two periods concerns the coalition building that must occur among key players in order to finally select a course of action. In 1984 a coalition favouring free trade was constructed on the base of the Conservative Party’s support in Western Canada and Quebec, where support for the initiative was high in both the public and in industry. If Martin’s Liberals remain based primarily in Ontario, as was the case with the Chrétien government, then it remains to be seen what kind of coalition of political support could be constructed for an initiative for deeper integration with the United States, bearing in mind that the politics stream is ultimately about the electoral and partisan considerations of politicians and those who serve them. Finally, in the 1980s important policy entrepreneurs operated effectively on a number of fronts to exploit the window of opportunity created by the election of a new government: Derek Burney, a senior official, acting inside the bureaucracy; Peter Lougheed and Donald Macdonald, a former provincial premier and former federal cabinet minister, respectively, providing an important perspective on the politics of the issues; and Tom D’Aquino, head of an umbrella business group, actively linking problem and solution in the inner councils of government. It remains to be seen whether similar entrepreneurs will emerge to engineer deeper integration through a comparable window of opportunity in the present. It must be emphasized, as well, that our exclusive focus here has been on the prospects for a Canadian policy shift. Before anything bilateral can happen, of course, there need to be parallel or complementary shifts in the us policy process (and perhaps in that of Mexico as well). Most analysts are agreed, however, that a bilateral initiative must begin in Canada and that Canadians must first have a clear idea of what they want and why before any useful dialogue can be initiated with the us government. Even American commentators, less concerned about bilateral issues than their northern counterparts, accept the conventional wisdom that initiatives should originate in Canada, recognizing that Canadians are likely to be sensitive to any us initiatives. This conventional wisdom in Canada-us relations remains true and helps to explain the greater number of Canadian over American analysts engaged in developing new integration proposals.

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Nevertheless, this asymmetry in analysis should not be interpreted as denoting an absence of us interest. There are us interests, but they are not of the same order as those of Canada. The extent of cross-border integration has created a deep, and asymmetrical, Canadian dependence on the American market. Asymmetry is even more pronounced today than it was a generation earlier: in nominal terms, the American economy is fifteen times the size of the Canadian economy; bilateral trade is about eighteen times more important to Canadians than it is to Americans. The absolute value of us economic interest in a comprehensive trade and investment initiative, however, is roughly equal to that of Canada’s. More important, the United States has as vital an interest in a productive, mutually beneficial bilateral relationship as does Canada. A us government could reasonably conclude that a more open and prosperous North America would, in the final analysis, prove the best guarantor of us security. The events of 11 September likely strengthened the case in the United States for a comprehensive initiative, adding urgency to the security dimension that, in the post-Cold War era, had faded from public consciousness. Disruptions at the border underlined to a growing number of Americans, as they did to Canadians, the necessity of keeping the border open as a conduit for trade, tourism, and investment, and making it less vulnerable to disruption by terrorist and other threats. American economic and security interests are clearly implicated in the free flow of goods and services between the two countries and in cooperative police, intelligence, and related security strategies. Beyond this, we cannot speak to the prospects for a similar policy shift in the United States as our analysis here has concentrated on Canada.41 In summary, the model of the policy process that we have used suggests that conditions are right for the opening of a window of opportunity that could produce a major policy shift in Canada’s relationship with the United States. First, all of the elements seem to be in place for the establishment of the security-access issue on the government’s decision agenda as a problem that must be addressed. Second, there seems to be a consensus forming in the policy community that some form of deeper integration with the United States is needed, although the idea has not yet evolved to the point where proponents of the various forms of such integration have jumped on a single bandwagon. Finally, significant political change is under way, providing policy entrepreneurs with an opening in which to bring the three streams together, fashioning a window of opportunity, where the border security-market access problem is recognized, the deeper integration solution is available, and a coalition of political support is mobilized in support of policy change. However, the model also stipulates that, while the streams may be

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joined at open windows of opportunity, this does not guarantee that change will occur. Without resourceful policy entrepreneurs to do the coupling, the streams are not joined and the windows close. Our previous policy analyses using the multiple streams model convince us that policy change is rarely driven by inexorable forces behind an idea whose time has come. On the contrary, policy process streams are typically joined by fortuitous events at a number of critical junctures, and policy entrepreneurs need as much dumb luck as they do skill in their efforts to take advantage of the windows of opportunity that open at those moments. If there is a lesson here for the Canada-us policy process, it is this: substantial changes in agendas and policies occur neither comprehensively nor incrementally; instead, they result from the alignment of a complex array of conditions associated with problems, policies, and politics, and the associated actions of knowledgeable players who are lucky and skilful enough to be able to exploit these opportunities to bring about change. So, while conditions seem to be ripe for policy change, whether that change will occur still depends on the particular actions of key players, which we cannot anticipate.

notes 1 Michael Hart and Brian Tomlin, “Inside the Perimeter: The us Policy Agenda and Its Implications for Canada,” in How Ottawa Spends, 2002– 2003: The Security Aftermath and National Priorities, ed. G. Bruce Doern, 48–68 (Toronto: Oxford University Press, 2002). 2 John Kingdon, Agendas, Alternatives, and Public Policies, 2nd ed. (New York: HarperCollins, 1995). 3 The conference papers appeared in Mordecai E. Kreinin, ed., Building a Partnership: The Canada-United States Free Trade Agreement (East Lansing, mi: Michigan State University Press, 2000). 4 The conference papers appeared in L. Ian MacDonald, ed., Free Trade: Risks and Rewards (Montreal and Kingston: McGill-Queen’s University Press, 2000). 5 The discussion is captured in a subsequent article edited by Michael Hart, “Canada-us Free Trade: Is It Time for Round Two – A Virtual Roundtable,” Canadian Foreign Policy 7, 3 (2000): 122–36. 6 See Richard Harris, ed., North American Linkages: Opportunities and Challenges for Canada (Calgary: University of Calgary Press, 2003), for the results of some of this research. 7 In October 2001, for example, the Conference Board of Canada released a special report – Border Choices: Balancing the Need for Security and Trade – calling on the government to eliminate border inspections altogether with the negotiation of a customs union. In November 2001 the newly formed

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8

9

10

11

12 13

14

15 16

Business Coalition for Secure and Trade Efficient Borders called for “a comprehensive and integrated solution” to security and border issues. In December 2001, the Canadian Council of Chief Executives (ccce) announced the creation of the Action Group on Canada-us Cooperation, cochaired by former mandarins and now council members Derek Burney and Paul Tellier. David Bradley, chief executive of the Canadian Trucking Association, was one of the earliest and most articulate spokesmen for a major effort to redefine Canada-us trade relations, suggesting that “the current focus on border issues in both countries may well represent a rare window of opportunity to achieve progress on an integrated and more rational border processing system.” National Post, 15 October 2001. See, for example, Drew Fagan, “This Problem Borders on Urgent,” Globe and Mail, 11 December 2001, A13; or Robin Sears, “With Sovereignty, Less Is More,” Toronto Star, 4 May 2002, H1. Bill Dymond and Michael Hart, Common Borders, Shared Destinies: Canada, the United States and Deepening Integration (Ottawa: Centre for Trade Policy and Law, 2001). Gotlieb in various articles in the National Post (11/9/02, 5/3/03, 22/5/03, and 10/9/03); the most detailed version was presented to a conference at the Woodrow Wilson Center in Washington, 27 February 2003, “A North American Community of Law.” Burney, “Twin Pillars of Pragmatism,” address to Canada-us Law Institute, Annual Conference, Case Western Reserve University, Cleveland, Ohio, 11 April 2003. See, for example, David Dodge, “Economic Integration in North America,” Remarks at the Couchiching Institute on Public Affairs, Geneva Park, Ontario, 7 August 2003, accessed at A description of the initiative is available at . See Wendy Dobson, “Shaping the Future of North American Economic Space: A Framework for Action,” C.D. Howe Institute Commentary No. 162 (Toronto: C.D. Howe Institute, April 2002). It and the other papers in the series are available at . Daniel Schwanen, “Interoperability with the us, Not Convergence,” Policy Options, November 2001; and ibid., “Let’s Not Cut Corners: Unbundling the Canada-us Relationship,” Policy Options, April 2003. Both can be accessed at , as can the speeches by Segal. See, for example, articles in the Fraser Forum for March 2002 and March 2003. Charles A. Barrett and Hugh Williams, Renewing the Relationship: Canada and the United States in the 21st Century; and ibid., Performance and Potential 2002–2003. Both accessed at .

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67 The Emerging Policy Shift in Canada-us Relations 17 The Public Policy Forum, under the direction of David Zussman, has pursued a number of initiatives aimed at strengthening understanding of the implications of deepening Canada-us integration. See . 18 Rolf Mirus, “After Sept 11: A Canada-us Customs Union,” Policy Options, November 2001, accessed at . 19 See, for example, Thomas Courchene and Richard Harris, “From Fixing to Monetary Union: Options for North American Currency Integration,” C.D. Howe Institute Commentary No. 127 (Toronto: C.D. Howe Institute, June 1999). Courchene’s more general views on the impact and implications of deepening continental integration can be found in fta at 15, nafta at 10: A Canadian Perspective on North American Integration, irpp Working Paper Series, No. 2003–02. 20 See Armand de Mestral with Jan Winter, “A Proposal for a Draft Treaty Giving Direct Effect to nafta,” Paper presented to the irpp conference “Art of the State ii: Thinking North America – Prospects and Pathways,” Montebello, 16–18 October 2003. 21 See Clarkson, “Time to Break Free (Trade),” Globe and Mail, 27 September 2002; and Newman, “Beware of Freer Trade,” Maclean’s, 2 December 2002. David Crane made a similar case in the Toronto Star, 9, 13. and 16 August 2003. Canadian Labour Congress secretary treasurer, Hassan Yussuff, also provides a complete catalogue of the nationalist view of free trade and deeper bilateral integration in a speech delivered at the 2003 Couchiching Conference, “Sovereignty or Standard of Living,” available at 22 “See You in Washington? A Pluralist Perspective on North American Institutions,” irpp Choices 9: 4, accessed at . 23 National Post, 4 June 2001. A broader assessment of public attitudes to international trade and trade agreements can be found in Matthew Mendelsohn and Robert Wolfe, “Probing the Aftermyth of Seattle: Canada Public Opinion on International Trade, 1980–2000,” paper prepared for the National Policy Research Conference, Ottawa, 1 December 2000. 24 Ottawa Citizen, 24 August 2001. 25 National Post, 25 August 2001. 26 National Post, 29 September 2001. 27 Terry Weber, “Canadians Seek Closer Ties with us, Poll Says,” Globe and Mail, 25 March 2003, accessed at . 28 “Canadians and Americans Reflect on Cross-Border Business in a Post9/11 World,” accessed at .

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68 Macro Choices and Challenges 29 Shawn McCarthy, “Canadians vote Bush Least-Liked President,” Globe and Mail, 12 July 2003, accessed at . 30 “Canadians Differ from Americans on Iraq, United Nations, But Only 1 in 4 Seek More Distant Ties with the us,” poll results accessed at . 31 Poll results accessed at . 32 “Building the New Canadian,” Globe and Mail, 10 November 2001, F4. Greenspon and Darrell Bricker provide a more detailed analysis of this perspective in Searching for Certainty: Inside the New Canadian Mindset (Toronto: Doubleday, 2001). 33 House of Commons Standing Committee on Foreign Affairs and International Trade, Partners in North America: Advancing Canada’s Relations with the United States and Mexico, accessed at ; and Senate Standing Committee on Foreign Affairs, Uncertain Access: The Consequences of us Security and Trade Actions for Canadian Trade Policy (June 2003), accessed at . 34 Beyond these parliamentary committees, various task forces, committees, and initiatives throughout the government are seized of the need to gain a better appreciation of the challenges facing Canada-us relations, including coordinating work by the Policy Research Initiative and the Canadian Centre for Management Development. Little of this will emerge for public consumption until such time as Ottawa perceives a more welcoming political climate. 35 Pierre Pettigrew, “The Canada We Want in the North America We Are Building,” Address at the 8th Annual Canadian-American Business Achievement Award and International Business Partnership Forum, Toronto, 16 October 2002, accessed at and “Dancing with the Elephant: Contending with an Assertive Superpower in Trade and Global Diplomacy,” Empire Club, 25 September 2003, accessed at . 36 “Canada, us and Mexico Reject Customs Union as Next Step,” National Post, 8 October 2003, B19. On the new consulates in the United States, see . On the nafta Commission statement, see .

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69 The Emerging Policy Shift in Canada-us Relations 37 “Sovereignty, Independence, and Integration,” Couchiching Summer Conference, Orillia, 10 August 2003, accessed at . 38 See Michael Hart and Bill Dymond, “Canadian Trade Policy at the Crossroads,” Policy Options, February 2004. 39 For future reference, the scandal involved dubious payments out of the Department of Public Works and Government Services for promotional activities on behalf of the Government of Canada following the close 1996 Quebec referendum. 40 Brian Tomlin, “Leaving the Past Behind: The Free Trade Initiative Assessed,” in Diplomatic Departures: The Conservative Era in Foreign Policy, ed. Nelson Michaud and Kim Nossal, 45–58 (Vancouver: UBC Press, 2001). 41 The issue of whether or not Mexico needs to be engaged in any new initiative further complicates the analysis. Some us analysts are firmly of the view that the us political economy of any post-nafta discussions requires the inclusion of Mexico; others come to exactly the opposite conclusion, pointing out that political criticism of nafta in the United States is almost wholly focused on Mexico.

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4 Global Flows and Local Places: The Cities Agenda neil bradford

Canadian cities are back on the public policy agenda. Prime Minister Paul Martin has declared that there is “no question that the path to Canada’s future runs through municipal governments large and small, urban and rural.”1 Indeed, the cities agenda has become what one long-time Ottawa watcher terms the “signature issue” for the new prime minister, the policy file in which he has invested the most political capital.2 As a Liberal leadership candidate, Martin made bold promises about a “New Deal for Canada’s Cities.” The hopes of mayors everywhere were raised just as surely as were the anxieties of the premiers. In his first month in office, Prime Minister Martin revamped Ottawa’s urban policy capacity, creating a new cities secretariat in the Privy Council Office, an external cities advisory committee headed by urban advocate Michael Harcourt, and appointing a parliamentary secretary focused on urban concerns. And the February 2004 Speech from the Throne ensured the new policy machinery would not be idling. Numerous commitments to cities and communities were announced, ranging from a gst rebate for municipalities and acceleration of infrastructure funding, to the exploration of fuel tax sharing arrangements, to innovative policies for the urban social economy and Aboriginal peoples in cities. In light of the recent explosion of policy interest in the cities, the purpose of this chapter is twofold. First, I step back to consider the broader forces shaping Canada’s new urban agenda, highlighting the spatially concentrated problems and opportunities pushing cities to the policy forefront. Critical here is the so-called paradox of globaliza-

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tion, whereby powerful information technologies and virtual communications, contrary to much conventional wisdom, are making cities more, not less, important places where people live and work. Second, I examine a host of issues surrounding design and implementation of the prime minister’s unfolding New Deal. I suggest that Canada’s urban policy debate is presently framed by two divergent perspectives. The local autonomy strategy looks to empower municipalities as an independent order of government able to control their own destiny, while the multi-level governance approach seeks new modes of collaboration among federal, provincial, and municipal representatives in order to revitalize cities. Reflecting on the relative merits of these frameworks, I identify three common challenges in moving forward along either track. First, provincial constitutional responsibility for municipalities must be respected even as urban problems cross the jurisdictional boundaries of governments. Second, any solutions must be attuned to the different needs and capacities among Canadian municipalities, from the handful of sprawling city regions to the many medium-sized and smaller centres. Finally, progress will require new fiscal arrangements that provide all municipalities with a viable revenue base to plan and deliver services in their communities. Simply put, Canada’s new urban agenda must strike a balance between valuing local flexibility and communitybased innovation on the one hand, and safeguarding equity and accountability across cities on the other hand. Given the constitutional complexities, intergovernmental rivalries, and great variation in the country’s urban profiles, the chapter concludes that the New Deal for the Cities will be implemented over the longer term on an issue-by-issue basis as different cities and provinces engage the process.

p l a c e m at t e r s : t h e pa r a d o x o f g l o b a l i z at i o n In many ways, all the attention now being paid to cities is somewhat surprising. The burst of “techno-enthusiasm” that initially accompanied globalization and the information revolution led many observers to predict the “end of geography” and “the death of distance.”3 Mobile knowledge workers, footloose transnational corporations, and electronic consumers – all freed from the constraints of place by instantaneous global transactions – would disperse across the landscape. Just as globalization’s frictionless capital flows and freer trade erased policy differences among nation-states, a world of virtual communication “would render obsolete the traditional reasons why people gathered together in cities: to be close to jobs, culture and education, and shopping.”4

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However, researchers now track a convergence of flows transforming cities into strategic economic and social sites, and making the quality of their governance a pressing concern. These urbanizing flows are threefold: people, commerce, and policy.5 Today nearly 80 percent of Canadians live in cities, and some 64 percent of the entire population live in the country’s twenty-seven large and mid-sized metropolitan areas. The figures reflect a number of demographic trends, including successive waves of immigrant settlement in the largest cities, the migration of many young people from rural areas to urban centres, and the substantial numbers of people with Aboriginal origins moving to cities. Such flows are driven by the search for new economic opportunity, better access to key public services, and the diverse cultural and lifestyle amenities available only in the larger urban settings. In turn, the structure of the Canadian economy has shifted dramatically, with agriculture, natural resource exploitation, and secondary manufacturing all giving ground to urban-centred service-based activity. The seven largest metropolitan areas presently generate almost 45 percent of the country’s gdp. Finally, the flows of people and capital into Canadian cities have been reinforced by political transformations. For nearly two decades, upper-level governments have passed down responsibilities to municipalities, leaving local officials grappling with a host of unfamiliar public policy and service delivery challenges. As the places where globalization’s three flows most visibly intersect, cities have the potential to be the engines of national prosperity in the new economy. When knowledge becomes the key to productivity, firms maintain their edge not by cutting costs or accessing raw materials but, rather, by participating in networks that generate the ideas and circulate the know-how necessary for innovation. As Michael Porter and many economic geographers emphasize, cities, with their population density, thick labour markets, and organizational synergies, are the natural home for clusters, which are distinguished by their intensive, face-to-face relations among disparate economic actors ranging from firms and venture capitalists to research institutes and skills centres.6 But not all cities realize their potential to house robust clusters. Richard Florida has demonstrated that only those cities that invest in their “quality of place” will attract or nurture the requisite knowledge workers and cutting-edge investments.7 Leading the pack are cities that value cultural and lifestyle diversity, respect the environment, preserve authentic neighbourhoods, and maintain accessible community services in areas such as health, libraries, and recreation. By virtue of their openness to new ideas and creative “talent,” these urban hot spots generate innovations at a pace far beyond the norm, enabling them to replenish the initial ingredients of success.

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Against this backdrop, Canada’s cities might well be expected to rise to the top, with their long-standing reputation for livability and high ranking in quality-of-life surveys. Many bring together creative people from all walks of life and backgrounds in a dynamic mix of recreational amenities, employment opportunities, and cultural experiences. Indeed, recent Canadian applications of Florida’s cluster model find that our urban centres compare favourably with America’s most “creative communities.” Meric Gertler and his colleagues conclude that city-regions in Ontario and Canada “have a creative and diverse habitat on which to build and strengthen their knowledge-intensive economies and spur overall growth.”8 Yet, just at the moment when the strategic import of cities is fully revealed, concern grows that Canadian cities are falling behind. A recent Organization for Economic Cooperative and Development (oecd) study described Canada’s “disjointed approach” to urban policy and a lagging national engagement with the problems of cities.9 While European and American policy makers experiment, respectively, with new approaches to “urban regeneration” and “community empowerment,” their Canadian counterparts seem to be resting on their laurels, depleting the investments of an earlier generation rather than preparing for coming opportunities.10 The current wave of urban research not only demonstrates that cities are sites of innovation in the global economy but also warns that Canadian cities, in their infrastructure and governance, are showing serious signs of strain, even decay. In fact, the dimensions of the looming “urban crisis” can be captured through the analytic distinction drawn by Harvey Lithwick more than thirty years ago between “problems in the cities” and “problems of the cities.”11

problems in the cities The problems in Canada’s cities originate in complex dynamics beyond the locality that rapidly acquire their strongest expression in urban settings: poverty, homelessness, pollution, crime, and so forth. Urban research now reveals a concentration of major social problems in cities and within particular areas across metropolitan spaces. In the past decade growing polarization and poverty evident at the national level has become even more pronounced in cities. A recent study of poverty in three Canadian cities (Toronto, Saskatoon, and Calgary) reported “a growing income gap in Canadian cities” and concluded that “cities are more effected by income trends than non-urban areas and that they experience greater polarization and income inequality.”12 Urban labour markets increasingly feature a service sector divide between well paid careers in finance, insurance, consulting,

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media, law, and so forth and low-paid jobs in retail, tourism, cleaning, data entry, and so forth. Moreover, work opportunities and experiences in the cities are highly segmented according to race, gender, and ethnicity. People of colour, women, recent immigrants and refugee claimants, Aboriginal people, and young people find themselves disproportionately represented in “bad jobs.” They experience rates of poverty, and unemployment or underemployment, that are much higher than is the average for all city residents.13 Such urban poverty in Canada has rarely exhibited the degree of spatial concentration long evident in the United States, where stark differences exist between wealthy suburbs and distressed inner cities, the latter being overlain by the concentration of African-Americans and Hispanics. But there is cause for concern as growing numbers of poor families live in the poorest parts of many cities, suggesting a declining social mix within and among communities. Poverty rates in these areas, often in the central city but also in the inner suburban rings, are rising at a much faster rate than are those in proximate outer suburbs, or so-called “edge cities.” The City of Toronto’s poverty rate in 1995 was 27.6 percent compared to only 9.9 percent in outlying Oakville.14 In light of these trends, Kevin K. Lee observed that the increasing geographic concentration of poor families “may lead to the isolation of residents from employment networks, as is evident in some inner cities in the United States.”15 Taken together these social and spatial dynamics in cities suggest another perspective on how place matters in the global age. At issue are the daily lives of the many people stuck on the wrong side of the digital divide in the knowledge-based, talent-driven economy. These urban dwellers find that globalization may only have relocated them in occupational terms, from relatively well-paid, full-time manufacturing employment to low-paid, temporary service jobs and, in spatial terms, from a stable neighbourhood and adequate housing to something far less desirable. People living in such places of disadvantage face great obstacles in moving forward. The logic of social exclusion parallels the economic cluster argument about the dynamic effects of the local “innovative milieu” on a firm’s prospects. In this case, however, the social environment works in the opposite direction: negative neighbourhood effects do not spawn new ideas or learning opportunities; rather, they multiply the constraints on individuals and families already in difficulty, as barriers in one aspect of life become linked to others. The diversity of the city celebrated by Richard Florida will not drive innovation if those who are different or poor find themselves isolated in decaying neighbourhoods. There is, then, a double-sided dynamic to how cities matter more today than they did before. They are potential engines of national pros-

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perity at the same time as they are locales concentrating the risks of social exclusion. As Gilles Paquet, Charles Sabel, and others observe, the interconnected problems in cities are not just complex, they are wicked.16 Characterized by critical information gaps about what precisely is required to help, by large coordination failures in terms of channeling the appropriate resources to the right target, and by the intensity of their “horizontality,” wicked policy problems are resistant to traditional monosectoral interventions designed from above by insulated, distant bureaucracies. Instead, these problems demand place sensitive, holistic approaches: flexible strategies built from the “ground or street up” on the basis of local knowledge and delivered by multipartite networks crossing program silos and jurisdictional turfs. Put differently, solving the wicked problems in cities demands better integration of place-based municipal planning and people-based policies of upperlevel governments. Communities that reach their potential are spaces of inclusion and innovation. When public policy and physical planning intersect in balanced and mixed forms of urban development, all residents in the city can participate fully in, and move easily among, work, school, recreation, and civic activism. For all these reasons, leading poverty researchers in Canada now call for a “spatial component” in national anti-poverty policy.17 Similarly, Industry Canada’s new innovation strategy identifies local places as the focal point for policy intervention since it is in “communities that the elements of the national innovation system come together.”18 And the National Round Table on the Environment and the Economy declares that “if Canada hopes to make a positive contribution to global sustainable development, perhaps nothing is so important as getting cities right.”19 The opportunity to act simultaneously on urgent national economic, social, health, and environmental problems is greatest in cities, as is the likelihood of effective coordination among actors, agencies, and governments. But what is the capacity of local actors – municipal officials, community organizations, and ordinary citizens – to respond to the problems in their midst and contribute to building quality places? On this question, most observers answer that Canadian cities are poorly equipped.

problems of the cities The problems of Canada’s cities are rooted in a growing mismatch between municipal responsibilities and the policy resources available to act – or even the opportunity to contribute ideas to the decisive actions of upper-level governments – on the problems growing in their midst. Two brief examples illustrate the difficulties.

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Immigration is overwhelmingly an urban affair, with the vast majority of newcomers choosing to live in a few large city regions. Integration of people into a new society does not come cheaply in either money or time, but it is crucial for social inclusion. The issues to sort through include: access to affordable housing, language training, recognition of foreign credentials, combating racial discrimination, and education upgrading or employment training. Further, such services must meet the varying transition needs of different categories of immigrants, from entrepreneurs and professionals to refugees. Appropriately, leadership here resides with municipalities that, on the front lines with community agencies, are working to deliver tailored and timely supports. Much less sensible, however, is the absence the voices of these same local officials in the deliberations of higher-level governments, where immigration policy decisions are taken on matters ranging from the criteria for entrance into the country to the annual flow of newcomers and requisite adjustment supports.20 These choices directly affect local institutions for assisting immigrants, with large implications for municipal budgeting and program planning. Such a disjuncture between policy design and service provision risks high concentrations of immigrants facing protracted difficulty in building their new lives. Beyond the obvious human cost, economic talent is squandered even as the country faces skill shortages and an aging workforce. Second, there is a financial squeeze, described by a chorus of public finance experts as the “fiscal unsustainability” of cities.21 To manage their own debt and deficit problems, federal and provincial governments have, in the past decade, passed responsibilities downward without financial compensation and, indeed, with reduced transfers. According to the Federation of Canadian Municipalities (fcm), in the last five years federal and provincial/territorial revenues increased by 16 percent and 21 percent, respectively, while municipal revenues increased by only 4 percent. Property taxes constitute about 55 percent of all local government revenue in Canada, and municipalities find themselves squeezed between greater local service demands and ratepayer backlash. One consequence of the financial pressures is more urban sprawl. Pierre Filion, in his analysis of the barriers to compact “smart growth”, argues that cutbacks from upper-level governments accentuate municipal governments’ “fiscal dependence on growth” and their “attentiveness to developers requests.”22 However, as Filion also points out, the strategy is flawed and not sustainable. The infrastructure bill for such greenfield development far away from existing services is greater than is the high-density alternative. More air pollution, wasteful energy consumption, and disruption of fragile ecosystems or watersheds also generate long-term environmental and health costs.

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These two examples bring into focus the three fundamental problems in Canadian urban governance and policy development. First, municipal governments function with an outdated legal status anchored in a nineteenth-century model of subservience to their provincial masters for the efficient provision of a highly circumscribed set of local services, ranging from keeping cattle off the street to preventing public drunkenness or profanity. Second, they exist in what the fcm has called a political culture of non-recognition and neglect that denies them a say in federal and provincial decision making, irrespective of their rising program responsibilities and community service expectations. Third, municipalities work with limited fiscal capacity, perhaps suitable to nineteenth-century conditions, when the vast majority of Canadians were rural inhabitants, but far from adequate to current municipal responsibilities, which often include welfare systems, social housing, immigrant settlement, hiv/aids hospices, public transit, airports, and harbour management. Appreciation of the problems in and of Canadian cities has triggered widespread interest in new national approaches to urban policy and governance. Much of the concern was initially driven from below by civil society groups and community-based movements. The fcm, as the national representative of Canadian municipalities, overhauled its capacity for policy research and advocacy and now plays a leadership role. In the past two years, however, it has been joined by many others in what now amounts to an informal network of policy expertise urging action on the urban file. Prominent reports have been issued by, among others, the Toronto Dominion Bank, the Canada West Foundation, Canadian Policy Research Networks, the C.D. Howe Institute, the Caledon Institute of Social Policy, the Organization for Economic Cooperation and Development, the Institute for Competitiveness and Prosperity, and the Laidlaw Foundation.23 Their findings and recommendations have been widely publicized in the media and Internetbased policy communities. In 2002 the Toronto Star conducted a yearlong “New Deal for the Cities” campaign. Innovative urban revitalization coalitions, like the Toronto City Summit Alliance, emerged in many cities, bringing together key civic leaders from the private, public, and voluntary sectors. Of course all the problems, activism, and research have not gone unnoticed by governments. In 2001 the mayors of Vancouver, Calgary, Winnipeg, Toronto, and Montreal launched the “C5” group, which focuses on the challenges of the larger cities and pushes for a municipal place at the intergovernmental table. In 2002 the Prime Minister’s Caucus Task Force on Urban Issues offered a “blueprint for action,” beginning with federal reinvestment in housing, infrastructure, and

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transportation.24 And scrutinizing Prime Minister Martin’s New Deal for the Cities from the opposition benches is former fcm president Jack Layton, now leader of the New Democratic Party.

new urban policy architecture: l o c a l a u t o n o m y o r m u lt i - l e v e l governance? A national policy debate is well under way on the problems and prospects of Canada’s cities. It remains for the appreciation of the policy significance of localities in the global era to be matched with the resources for implementing urban strategies as well as the expanded political space for including local voices in the design of those strategies. In these terms, reform ideas are coalescing around two broad approaches: (1) more autonomy for municipalities and (2) more collaboration among all levels of governments. These approaches are by no means mutually exclusive, but there are important differences between regarding how they frame the issues, the roles and responsibilities of governments, and policy priorities. The local autonomy approach seeks to empower and strengthen municipalities by disentangling them from their political masters in the provincial capitals and Ottawa. It draws on (1) recent community soundings that show that municipalities among all governments are now viewed by citizens as having the best understanding of local needs and (2) research findings that show that municipalities have demonstrated “remarkable resilience and capacity to innovate in the face of all the problems of the past three decades.”25 On this basis, it is argued that municipalities cannot rely on upper-level governments to meet the needs of their residents or to fulfill their destiny as policy innovators. What’s required is greater municipal independence through legal or constitutional recognition and new fiscal tools. In legal terms, the call is for formal recognition of municipalities as a third order of government, with its own power base and shielded from unilateral provincial or federal actions. The strongest expression of this would be through constitutional amendment. The former mayor of Toronto, Mel Lastman, speculated about his municipality separating from Ontario to become its own city-state with full provincial status. A more plausible route is through new municipal charters, setting out a broad list of local powers, endorsed and respected by provincial legislatures such that local councils can act on a range of issues without first seeking permission. The second prong of the local autonomy approach aims to secure more municipal control over more money. Critics of the existing fiscal arrangements reasonably conclude

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that municipalities are seriously constrained by their reliance on inflexible property taxes, regressive user fees, and unstable provincial and federal grants. One solution is to give municipalities new revenueraising instruments: the power to design and levy their own taxes (such as the income, excise, or sales tax) along with access to other fiscal instruments (such as public-private financial partnerships, tax-exempt municipal bonds, and investment incentives). The strongest versions of the local autonomy approach conclude that Canada’s existing twolevel federalism is not just outdated but dysfunctional in the new era of global competition among city-regions. A “hollowing out” of traditional nation-state political legitimacy and national government policy capacity leaves the supranational and local scales as the most significant.26 Along these lines, Thomas Courchene has amended his influential account of region-states in the global age, emphasizing not provincial leadership but the ascendancy of cities, with the megacity of Toronto as the Canadian exemplar.27 Alan Broadbent extends the general point to include Montreal and Vancouver, asserting that such places “could use a bit more ‘downloading’ … and if I were to generally characterize how much, I would say most of what a province does.”28 In short, the local autonomy approach to urban problems concentrates on recasting the provincial-municipal relationship. Reflecting on the negative consequences of years of top-down unilateral fiscal and policy decisions, the strategy is to empower municipalities by disentangling the two governments most directly involved in governing cities. It follows that local autonomy advocates pay much less attention to the broader federal context or to possible new modes of urban-focused interaction among all three levels of government. This broader context is precisely the departure point for the second major approach to urban problems in Canada: multi-level governance. Sceptical of claims about national government hollowing out, this perspective views Ottawa and its budget surpluses as the catalyst in a new tri-level urban engagement. Different in design and operation from earlier high-profile federal policy forays into the cities, the animating vision in this approach is neither direct federal intervention in cities nor a vague overture that lacks the clout or focus to get much beyond the consultation stage (the latter a weakness of the short-lived Ministry of State for Urban Affairs in the 1970s). Between these two, the current collaborative thrust values multilevel governance, allocating roles and responsibilities in relation to what can be seen as the “comparative advantage” of each level of government in solving urban problems.29 Municipalities are best able to “convene the community” – engaging citizens and stakeholders from

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all walks of life in dialogue and action for local priorities. They can also ensure that land-use planning and community services build more inclusive and compact cities. To this end, they may partner with other local organizations – school boards, band councils, social service agencies, business or non-profit networks – on joint projects. For their part, provincial and federal governments are both better equipped than municipalities to flow the necessary financial resources to local partnerships who know best where to invest in their community’s physical and social infrastructure. The collaborative approach to urban problems, like the local autonomy approach, seeks to provide municipalities with stable access to revenue streams beyond the property tax and user fees. Rather than allowing cities to run their own tax system and levy rates, however, the emphasis is on sharing federal and provincial tax revenues. The point is to equip local communities to revitalize themselves on terms of their own choosing in accordance with democratic mandates, while also ensuring that the “new localism” does not breed greater disparity between places.30 Investments are needed everywhere, but larger and smaller municipalities may well differ in their interest in taking control over legislative and financial instruments. As two leading advocates of multi-level governance for cities put it, only upper-level governments “can supply equal access to the fiscal and political resources that enable cities to pursue a wider choice of development strategies.”31 Which of these two approaches to urban problems sets the better course for Canada’s emerging urban agenda? For all its promise of strong and independent municipalities, the local autonomy approach has two significant difficulties. First, there is its political viability. An air of unreality surrounds much of the discussion. Constitutional status for municipalities is not on the radar screen of either federal or provincial politicians. Even in the 1980s and early 1990s, when constitutional change was a national political priority, first ministers did not give municipal claims a serious hearing. The political prospects for municipal charters or more permissive municipal acts are certainly better than are the prospects for the constitutional project. However, any victories for cities are always tenuous, subject to amendment or termination by future provincial governments, regardless of local council interest.32 The second difficulty with the local autonomy approach concerns its policy desirability. Simply put, if municipalities accept downloading of responsibilities in exchange for the power to set and levy their own taxes, then there is the prospect that some will choose, or be forced by circumstance, to raise rates to meet community needs. Others may decide to maintain low taxes and allow certain needs to go unmet. In so-

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cial policy terms, the overall outcome is likely to be undesirable. Fiscally flush localities may practise “not in my backyard,” or “nimby politics,” that hinder inclusive metropolitan planning for affordable housing, public transit, or health services meeting the needs of vulnerable populations such as people living with hiv/aids. As the cycle continues, the incentives are in place for precisely the kind of urban development that new economy analysts such as Richard Florida reject: the subordination of “place-quality” social and ecological investments in a cost-cutting scramble to lure external businesses. At the end of the day, more local autonomy may empower only a handful of aspiring global cities able to grow their own revenue base. Beyond the obvious concern about economic inequality among leading and lagging cities, this scenario might also make social cohesion or cultural accommodation at provincial and national scales more problematic. Tensions could mount between the cosmopolitan larger cities prepared to go it alone and the relatively homogeneous smaller centres lacking the broad economic base to sustain themselves, even with new taxing powers. Economic geographers Larry S. Bourne and Jim Simmons fear that Canada’s “urban future” could become “a permanent set of placebased winners and losers.”33 The multilevel collaborative approach to urban problems has greater potential to avoid such outcomes. Retaining an active role for upper-level governments, it relies on state regulatory authority, conditional grants, and tax sharing to maintain the standards necessary to temper either a local race to the bottom or intercity resentments and economic divides. Equally, through dialogue it could better target new revenue-raising instruments and policy tools to reflect the specific needs and capacities of different cities. Further, this approach seems suited to the political and intergovernmental climate, depending not on grand constitutional redesign but on the spirit of informal, pragmatic bargaining that has animated such recent innovations as the Social Union Framework Agreement. Nonetheless, the specific modalities and protocols for such multilevel collaboration in cities are not immediately obvious. Certainly, there is no “off-the-shelf” template. Two long-time observers of collaborative urban policy making in different countries have aptly summarized the situation: “Viewed from the local problem solving units, the central government seems indispensable as an ally in the consolidation of nascent innovations, but capriciously unreliable as an ally in its ignorance of local circumstance and its own potential to foster development.”34 In fact, there are some existing Canadian urban policy initiatives that conform to the principles of multilevel governance. Three examples capture the essential dynamics. First, in some Western Canadian

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cities, urban development agreements have been implemented to address problems of downtown revitalization (Winnipeg), social exclusion and public health (Vancouver), and knowledge-based economic development (Edmonton). For the federal government, Western Economic Development Canada has functioned as the coordinating agent, assisting the relevant federal departments in negotiating agreements and brokering their participation in problem-solving networks with provincial and local representatives. While these agreements have been criticized for their inadequate funding base and limited duration, they have also been praised for creating a governance process appropriate to multifaceted problems and flowing street-level knowledge into policies and programs. In so doing, they have involved the different levels of government, according to their comparative advantage, in tackling the issues at hand. In the Vancouver agreement the result has been a comprehensive community health strategy featuring a continuum of support from front-line substance abuse treatment to affordable housing, safer streets, and community economic development.35 The second noteworthy collaboration concerns urban infrastructure – specifically, its environmental dimensions. In 2000 the $6 billion Infrastructure Canada Programme included a new priority on Green Municipal Infrastructure for improving air, water, and soil quality; climate protection; and energy efficiency. A $250 million fund was established for municipalities to launch feasibility studies of desirable environmental projects and to invest in innovations that, due to the risk involved or initial lower rates of return, would not otherwise move forward. A notable aspect of the fund was that the federal government designated the fcm as its partner in the management of the program, including project approvals and evaluations. Mobilizing the networks of the fcm, the federal program has tapped local knowledge about problems, improved connections with local actors for project implementation, and discovered ways to involve the provinces. Third, in December 1999 the federal government introduced the $753 million National Homelessness Initiative to alleviate homelessness in cities. Its centrepiece, the Supporting Communities Partnership Initiative (scpi), supports local partnerships in putting in place comprehensive strategies. The federal government calls for community partners to lead development and implementation of plans, and flows money through a designated “community entity” – municipal governments or networks of agencies depending on the circumstances and capacities on the ground – to fund 50 percent of approved projects. A contract between the federal government and the community representatives sets out the local accountabilities and, equally, commits Ottawa to provide ongoing technical support and advice. Ob-

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servers of scpi have been struck by the adaptability of the program in practice: a variety of different community entities are operating in cities across the country, and the budget channels resources to those cities most affected by the particular problem. Past federal urban interventions have been criticized because Ottawa provided “a certain form of support where it is badly needed, but then feel[s] compelled to do exactly the same thing across the country, even if the needs are dramatically different in other regions.”36 With scpi, federal officials have cast aside the “one-size-fits-all,” or scatter-gun, approach to urban problems. The above initiatives are only the most well known examples of an emergent model of multilevel urban governance in Canada. Many other fields – for example, infrastructure, innovation policy, child care, and affordable housing – now feature similar efforts (although not yet with the same degree of success) to merge national policy frameworks with local problem solving. But much more is needed. As the Naylor report on the 2003 sars crisis put it: “Our first theme is that the single largest impediment to dealing successfully with future public health crises is the lack of a collaborative framework and ethos among different levels of government.”37

a n e w d e a l f o r c a na da’ s c i t i e s ? At this juncture it is clear that implementation of Prime Minister Martin’s New Deal for the Cities will require Ottawa’s leadership in ensuring adequate financing for municipalities while also making strategic use of federal policy resources to enable community problem solving – all the while respecting provincial jurisdiction. Along these lines, the 2004 Throne Speech outlined a two-stage approach. First, the socalled down payment would include a full gst rebate to municipalities, amounting to an estimated $580 million per year, and accelerated delivery of the approximately $3 billion in federal urban aid committed by the former Chrétien government over ten years. Second, Ottawa announced various new priorities for the longer term: discussing with the provinces options for fuel tax sharing with municipalities; enhancing the urban social economy by providing community development coalitions with access to small business programs; advancing a federal urban Aboriginal strategy; and exploring ways to enrich the cultural and artistic creativity of cities. The president of the fcm, Yves Ducharme, certainly welcomed the new federal direction, terming the speech a “grand slam.”38 Of course, federal-provincial tensions and turf wars remain a prominent feature of the urban policy landscape. They resist easy answers or

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glib solutions. In fiscal matters, the differences are fundamental. The legacy of the unprecedented federal expenditure cuts in the 1990s continues to reverberate through the intergovernmental system. The fcm concluded in 2003, notwithstanding various federal infrastructure programs, Canada’s urban deficit in updating roads, rails, bridges, pipes, and the like totalled $57 billion, a sum way beyond anything yet contemplated by either Ottawa or the provinces. Provinces, most obviously Quebec, remain wary of any ambitious federal engagement in “their” cities. Certainly, Ottawa’s New Deal includes a federal negotiating position: provinces will have to agree not to take fiscal advantage of the tax room created by the federal transfers, and new monies will be earmarked by Ottawa to national priorities (e.g., helping to meet Canada’s Kyoto environmental obligations rather than lowering property taxes). One model for deciding priorities and flowing money to meet specific needs in different municipalities might be the Canadian Foundation for Innovation, in this case redesigned to support urban coalitions that, in consultation with their provinces, bring forward innovative revitalization projects for their communities. Regardless of the particular mechanisms, the kind of multilevel collaboration necessary for the prime minister’s New Deal requires greater trust among the governments. Jane Jenson and Rianne Mahon, in their study of local child care innovations, note that “forward motion is possible when all levels of government act with good will and a shared commitment to the same goal, irrespective of constitutional limits to powers or funding constraints.”39 The seeds of a more collaborative style are evident in the practices of the urban development agreements and other tri-level initiatives described above. The trendline is promising: upper-level governments moving beyond the one-size-fits-all mindset towards greater consultation in policy development and partnerships emerging in program implementation adapted to particular local settings, where many of Canada’s key problems – and opportunities – are concentrated.

conclusions This chapter has clarified the rationale for a new national policy engagement in Canada’s urban centres. Not only are major public problems now spatially concentrated in cities, but the knowledge and networks critical to their resolution coalesce in local communities. At present the costs of ignoring these problems are piling up at the doorstep of the municipalities. Soon, however, federal and provincial governments will also feel the effects as lost human capital, increased social tensions, and foregone economic opportunity all take their toll.

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One well publicized study of the cities agenda aptly summarized the case: “it is becoming overwhelmingly apparent that the long-term performance of the Canadian economy and Canadian living standards will hinge on the fortune of our cities … however, Canada’s cities face certain threats that, if left untended, could choke off economic expansion and gains in living standards down the road” (emphasis in original).40 I have argued that the best way forward is through further experimentation with tri-level policy governance, which includes community actors and new revenue-sharing arrangements strengthening the fiscal position of municipalities. Progress will take time, demanding of all parties a willingness to learn from one another and a sustained commitment to change. In fact, just such a pragmatic and longer term orientation has long characterized the federal Liberals’ preferred approach to policy innovation. Michael Prince offers the term “directed incrementalism” to describe the piecemeal roll out of quite ambitious policy visions.41 In contrast to ‘all-at-once big bang change,’ directed incrementalism “is a middle level approach to reform, informing a series of small, moderate, and, occasionally, large steps toward innovation.”42 While Prince’s reference was to social policy, the logic applies equally to the cities agenda. The ambitious vision of a New Deal unfolds over time as agreements are negotiated on specific issues such as immigrant settlement, affordable housing, or public transit, in particular cities or selected groupings of cities. The federal government, with its spending power, budget surpluses and national perspective, is the necessary catalyst for collaboration, but the jurisdiction of the provinces must be respected and the voice of the municipalities – and their communities – must also be heard. Steering a course between top-down centralization and bottom-up decentralization, representatives from each level of government discover what works where and why, and how those solutions might be further applied. The result may be a robust national framework for local problem-solving.

notes 1 D. Girard, “Martin Pledges New Deal for Cities,” Toronto Star, 26 September 2003, 1. 2 Jeffrey Simpson, “Martin’s Lack of Focus Is Eroding His Credibility,” Globe and Mail, 18 February 2004, 1. 3 F. Cairncross, The Death of Distance (Boston: Harvard Business School Press, 1997); Richard O’Brien, Global Financial Integration: The End of Geography (New York: Council of Foreign Relations Press, 1992). 4 Peter Dreier, John Mollenkopf, and Todd Swanstrom, Place Matters: Metropolitics for the Twenty-First Century (Lawrence, ks: University of Kansas Press), 2.

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86 Macro Choices and Challenges 5 Meric S. Gertler, “Urban Economy and Society in Canada: Flows of People, Capital and Ideas,” Isuma 2, 3 (2001): 119–30. 6 David A. Wolfe, ed., Clusters Old and New: The Transition to a Knowledge Economy in Canada’s Regions (Montreal and Kingston: McGill-Queen’s University Press, 2003). 7 Richard Florida, The Rise of the Creative Class (New York: Basic Books, 2002). 8 Meric S. Gertler, Richard Florida, Gary Gates, and Tara Vinodrai, Competing on Creativity: Placing Ontario’s Cities in a North American Context (Toronto: Ontario Ministry of Enterprise, Opportunity and Innovation, and the Institute for Competitiveness and Prosperity, 2002), 24. 9 oecd, Territorial Review: Canada (Paris: Organization for Economic Cooperation and Development, 2002), 159. 10 Federation of Canadian Municipalities, Early Warning: Will Canadian Cities Compete? A Comparative Overview of Municipal Government in Canada, the United States and Europe (Ottawa: Federation of Canadian Municipalities, 2001); N. Bradford. “Place Matters and Multi-level Governance: Perspectives on a New Urban Policy Paradigm” Policy Options 25, 2 (2004): 39–44. 11 N.H. Lithwick, Urban Canada: Problems and Prospects (Ottawa: Central Mortgage and Housing Corporation, 1970). 12 C. Arundel and Associate, with Hemson Consulting Ltd., Falling Behind: Our Growing Income Gap (Federation of Canadian Municipalities, 2003), 58. 13 K.K. Lee, Urban Poverty in Canada (Ottawa: Canadian Council on Social Development, 2000), xv. 14 Ibid., xv. 15 Ibid., 94. 16 Gilles Paquet, Governance through Social Learning (Ottawa: University of Ottawa Press, 1999); Charles Sabel and Rory O’Donnell, “Democratic Experimentalism: What to Do about Wicked Problems after Whitehall,” in oecd, Devolution and Globalisation: Implications for Local Decision-Makers, 67–90 (Paris: Organization for Economic Cooperation and Development, 2001). 17 Lee, Urban Poverty in Canada, 94. 18 Government of Canada, Achieving Excellence: Investing in People, Knowledge and Opportunity. See Web site: . 19 National Round Table on the Environment and the Economy, The Sustainable Cities Initiative: Putting the City at the Centre of Public-Private Infrastructure Investment. See Web site: . 20 Martin Papillon, “Immigration, Diversity and Social Inclusion in Canada’s Cities,” in The Federal Role in Canada’s Cities: Four Policy Perspectives, ed. L. Seidle, 1–36 (Ottawa: Canadian Policy Research Networks Discussion Paper, F/27, 2002). 21 Federation of Canadian Municipalities, Communities in an Urban Century: Symposium Report (Ottawa: Federation of Canadian Municipalities, 2002), 4.

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87 Global Flows and Local Places 22 P. Filion, “Postmodern Planning: All Talk, No Action?” in Urban Affairs: Back on the Policy Agenda, ed. C. Andrew, Katherine Graham, and Susan Phillips (Montreal: McGill-Queen’s University Press), 281. 23 TD Economics, A Choice between Investing in Canada’s Cities or Disinvesting in Canada’s Future (Toronto: TD Bank Financial Group, 2002); Loleen Berdahl, Urban Nation, Federal State: Rethinking Relationships (Calgary: Canada West Foundation, 2001); Neil Bradford, Why Cities Matter: Policy Research Perspectives for Canada (Ottawa: Canadian Policy Research Networks, Discussion Paper F/ 23, 2002); Sherri Torjman and Eric Leviten-Reid, The Social Role of Local Government (Ottawa: Caledon Institute of Social Policy, 2003); oecd, Territorial Review: Canada (Paris: Organization for Economic Cooperation and Development, 2002); Meric S. Gertler, Richard Florida, Gary Gates, and Tara Vinodrai, Competing on Creativity: Placing Ontario’s Cities in North American Context (Toronto: Ontario Ministry of Enterprise, Opportunity and Innovation and the Institute for Competitiveness and Prosperity, 2002); Peter Clutterbuck and Marvyn Novick, Building Inclusive Communities: Cross-Canada Perspectives and Strategies (Toronto: Laidlaw Foundation, 2003); Enid Slack, Municipal Finance and the Pattern of Urban Growth (Toronto: C.D. Howe Institute, 2002). 24 Prime Minister’s Task Force on Urban Issues, Canada’s Urban Strategy: A Blueprint for Action (Ottawa: Office of the Prime Minister, 2002). 25 C. Andrew, Katherine Graham, and Susan Phillips, “Introduction: Urban Affairs in Canada – Changing Roles and Changing Perspectives,” in Andrew et al., Urban Affairs, 3–20; on “community soundings” across Canadian cities, see Clutterbuck and Novick, Building Inclusive Communities. 26 Mickey Lauria, ed., Reconstructing Urban Regime Theory: Regulating Urban Politics in a Global Economy (Thousand Oaks: Sage, 1997). 27 Thomas J. Courchene, “Ontario as a North American Region-State, Toronto as a Global City-Region: Responding to the nafta Challenge,” in Global City-Regions: Trends, Theory, Policy, ed. Allen J. Scott, 158–90 (Oxford: Oxford University Press, 2001). 28 Alan Broadbent, The Place of Cities in Canada: Inside the Constitutional Box and Out (Ottawa: Caledon Institute of Social Policy, 2002), 5. 29 Neil Bradford, Cities and Communities that Work: Innovative Practices, Enabling Policies, 7–8 (Ottawa: Canadian Policy Research Networks, Discussion Paper F/32, 2003). 30 S. Clarke and G. Gaille, The Work of Cities (Minneapolis: University of Minnesota Press, 1998), 2. 31 H.V. Savitch and P. Kantor, Cities in the International Marketplace: The Political Economy of Urban Development in North America and Western Europe (Princeton: Princeton University Press, 2002), 339. 32 A. Sancton, “Cities Are Too Important for Municipalities Alone,” Inroads 11 (2002): 29.

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88 Macro Choices and Challenges 33 L.S. Bourne and J. Simmons, “New Fault Lines? Recent Trends in the Canadian Urban System and Their Implications for Planning and Public Policy,” Canadian Journal of Urban Research 12, 1 (2002): 22–47. 34 Sabel and O’Donnell, “Democratic Experimentalism,” 67. 35 Judy Rogers, “Government in Progress,” panel presentation to fcm symposium, “Communities in an Urban Century,” Vancouver, 2001, 2. 36 TD Economics, A Choice, 26. 37 Dr. D. Naylor, “Learning from SARS: Renewal of Public Health in Canada” (Ottawa: Health Canada, 2003), 212. 38 H. Scoffield and J. Lewington, “Big-City Mayors Welcome ‘New Dea,l› Globe and Mail, 3 February 2004, 1. 39 J. Jenson and R. Mahon, Bringing Cities to the Table: Child Care and Intergovernmental Relations (Ottawa: cprn Discussion Paper F/26, 2002), 28. 40 TD Economics, A Choice, 4, 9. 41 Michael Prince, “The Return of Directed Incrementalism: Innovating Social Policy the Canadian Way,” in How Ottawa Spends, 2002–2003: The Security Aftermath and National Priorities, ed. G. Bruce Doern (Toronto: Oxford University Press, 2002). 42 Ibid., 192.

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5 Innovation, Services, and the Transformation of the Canadian Industrial Structure ty l e r c h a m b e r l i n a n d john de la mothe

In the Budget Plan for 2004, the Government of Canada noted that “the commercialization challenge is a complex one, as the process requires contributions from individual researchers, institutions, entrepreneurs and capital providers, among others” (132). It then committed to “studying how the commercialization environment could be improved, and how in the long term Canada can be at the leading edge of commercializing its intellectual property assets” (132). As researchers of the commercialization process, and innovation more generally, we are pleased to hear of the government’s decision to conduct more research; however, we believe that this research must have a broader scope than previous investigations of innovation and commercialization and must include what has become Canada’s most important sector: the services sector. In September 2003 Mr Martin previewed some of the decisions that were made in the 2004 budget in a speech given to the Board of Trade of Metropolitan Montreal.1 In this speech Mr Martin spoke extensively about the “new economy,” about the transformative technologies that were a part of this and also about the underlying social foundations necessary for an innovative country. The speech was not intended to present a complete economic policy agenda for the government but was a useful and encouraging glimpse of the new leader’s perspective on the economic and business issues facing the country. This perspective has been further articulated in the budget document for 2004. The role of the services sector was mentioned a number of times during the September speech (more so, in fact, than in the actual budget document) but

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always as second to those of product-oriented sectors, despite the fact that services constitute almost 70 percent of Canada’s gross domestic product. One might have expected that the largest part of the economy would receive first billing by the new prime minister of Canada. In this chapter we attempt to identify the economic significance of the services sector, the nature of innovation within that sector, and some possible areas for policy action. We argue that Prime Minister Martin should consider a new approach to the issue of innovation, one that would both differentiate Canada from most of the other industrialized nations of the world and target the core sectors of the economy rather than traditional industries (which have seen themselves reduced to marginal players in advanced industrialized societies such as Canada). This approach would centre on promoting and encouraging innovation in dynamic services sectors. Our policy suggestions include both small and large measures that the government should take in order to improve the innovative environment of services-sector firms, leading to the creation of a strategic advantage for Canada in this dynamic and growing sector of the economy.2 Our first policy suggestion is to increase research into the process of innovation in the services sector. Here we are encouraged by the government’s commitments in the recent budget and suggest that they target research for the services sector, both specifically and significantly. Our second policy recommendation is for policy makers to reconsider the range of innovation policy instruments that are currently being used. Innovation in the services sector is significantly different from innovation in the manufacturing sector, which is the focus of most innovation policy tools. A third recommendation is to conduct a thorough review of government policies and programs with an eye to identifying barriers to innovation in the services sector. The financial services industry would be an important starting point for this review as existing regulations prevent firms from effectively expanding into international markets. A fourth policy recommendation is for the government to go much further on the issue of the affordability of higher education specifically and on issues of knowledge acquisition generally. In the knowledge-based economy we should make every effort to ensure that knowledge acquisition is accessible to all those who are willing and able to try, not willing and able to pay.

t h e “ n o t- s o - n e w ” i m p o r t a n c e of the services sector Traditionally, the services sector was referred to as the tertiary sector, which literally means the third part. This term is gradually being replaced by the “services sector,” but the attitudes towards the sector on

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the parts of individual citizens (who are mostly unaware of the importance the sector now has), policy makers (who are aware of the importance of the sector), and politicians have not changed. The importance of primary industries, which involve harnessing the economic resources of the land (agriculture, mining, etc.) is easy to understand; for example, we all need to eat. Secondary industries, or manufacturing, involve a refinement, combination, or development of resources through the use of human capital or knowledge.3 The production of physical items is also easy to comprehend, and our use of these items daily and/or our desire to obtain physical items (e.g., homes, cars, and boats) make us keenly aware of their importance. If we consider this classification system from a historical perspective, we can note that, at the earliest stages of the industrialization process, societies are necessarily interested in agriculture and the production of other natural resources. We shift our attention to manufacturing as human capital is developed and wealth from the land allows for the pursuit of more diverse interests and problems. The services sector develops last in this process.4 Some authors have treated the shift to the services sector the way many would treat a sporting match, with people taking sides and arguing how their team (or sector) is truly the greatest, despite the fact that, at least from an economic perspective, competition is really a joint search by all sectors for improved standards of living. Deindustrialization and the view that production is the goal of any proper economy have persisted and government policy appears to have followed, with manufacturing industries receiving the bulk of all direct and indirect industrial subsidies. Despite its historical development, it is difficult to understand how the services sector is now so overlooked, especially given the sheer mass of this heterogeneous sector. In Canada over eleven million jobs, or 75 percent of all employment, are in the services sector. Total output for the sector in 2002 was over $661 billion (in 1997 dollars) or 68 percent of all gross domestic product (gdp). Consumer spending in the services sector totalled over $85 billion (also in 1997) for 53 percent of all spending by consumers. The services sector is unquestionably the most important industry in Canada. Canada is not unique in having its firms concentrated in this sector. In 1995 the average output share of services for Organization for Economic Cooperation and Development (oecd) countries was approximately 70 percent of total gdp. By way of comparison, the United States had the highest concentration of services sector firms at over 80 percent of total gdp (in 1994), while in Germany the services sector accounted for only 65 percent (in 1995).

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Indeed, if we look back at the Canadian industrial structure we see that the services sector surpassed 50 percent of total gdp in 1955. It’s growth recently – 20 percent between 1991 and 2001 – has only deepened our dependence on the sector. Furthermore, the services industries accounted for 93 percent of net job growth in Canada between 1978 and 1986.5 Yet these figures do not indicate the changes that have taken place during the past fifty years with respect to the types of firms and activities that constitute the sector. Leading these changes are knowledge intensive business services (kibs) firms, which have emerged as major contributors to economic wealth. kibs include the fields of accountings, management consulting, marketing services, and technical engineering services. These activities are high value added and are exportable to the rest of the world. It is important to note as well that services and manufacturing, far from being adversarial in their activities, are highly complementary. Services allow relatively homogenized manufactured products to be differentiated. Baldwin, Gellatly, Johnson, and Peters illustrate this point with the example of flour and pancakes.6 Flour is a relatively homogenous commodity sold by the flour milling industry. Pancakes (aside from the frozen type now available at supermarkets) are sold by restaurants – services firms that provide a variety of formats to cater to the demands of the customer from a breakfast meal to refined diner entrée (sold under the name of crepe). We see that the result of the service is a product that is ever closer to the exacting wants of the customer. Therefore, they argue, the provision of the service can increase the final demand for the original manufactured product. When we look to the future, the place of services in the economies and societies of industrialized countries such as Canada appears to be ever more important. The case of jds Uniphase may be illustrative. In 2000 jds Uniphase had over 10,000 employees in the Ottawa area, many of whom were involved in the physical production and assembly of products. In late 2003 employment in the region stands at approximately 500 (almost all research personnel), the result of a major downturn in the telecommunications sector but also notably the result of a shifting of production and assembly jobs to Southeast Asia to take advantage of the availability of low-cost labour. This example is hardly unique, and the shifting of not only lower-paying production jobs, such as Ray Vernon’s International Product Lifecycle Theory7 would suggest, but also of knowledge-intensive research, development, and design jobs to places such as China and India has raised the concerns of many. The recent series of stories covered on the cnn network in the United States (entitled “Exporting America”) would have us believe that this shifting of jobs poses a major threat to the future economic strength and potential of the richest countries in the world.

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Why so Underappreciated? Since Daniel Bell’s seminal work,8 the importance of the services sector has been known to the informed citizen. This said, our tendency is to start and often end discussions of the economy and/or of business with manufacturing firms without any mention of services firms. There are a number of factors that contribute to the under-appreciation of the services sector. First, we might consider the challenge of valuing the importance of activities rather than physical items. Some have described this as the problem of “recognizing that which we cannot drop on our toe.” The way in which we educate people may also be partly to blame here. College and university instructors in both economics and management often prefer to discuss abstract physical items (frequently referred to as “widgets”) to explain theory rather than to discuss concrete situations involving firms in services. This tendency extends into our textbooks and research agendas. If such writers were to attempt to view products not as physical artefacts but, rather, in terms of the services they render, then we may be able to adjust the teaching of economics and business management. Thomas Levitt9 conceptualized this in term of quarter-inch drill bits, arguing that people don’t buy quarter-inch drill bits because they want quarter-inch drill bits but because they want quarter-inch holes. Similarly, we could consider a television, which does not provide any particular value to most people as a physical object but is rather entertaining when it is used to view the services provided by broadcasters and filmmakers. Second, we may wish to consider the joint impact of unionization and trade associations on raising the public’s perception of a sector. On the employers’ side of this equation, the heterogeneity of firms and subsectors has resulted in the development of fewer total industry associations, which have been collectively less vocal than their counterparts in manufacturing industries. The Canadian Manufacturers and Exporters Association is a good example on the production side of a vocal and effective industry voice. On the employee side of the services sector we see a high proportion of unionization in public administration; however, in the private sector the voice of services sector employees is comparatively quiet with respect to manufacturing firms. Connected to this previous issue are the motivations of politicians. Elected officials are ultimately responsible to the electorate, which, while complacent in many areas where government action can have direct and immediate impact, are extremely sensitive to issues of economics.10 This sensitivity is acute in the area of jobs or, more specifically, the availability or scarcity of jobs. Jobs are the currency of

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politicians, even though their direct ability to create or destroy positions is questionable, aside from their ability to increase or decrease the size of their own organizations. Because individual services sector firms tend to be smaller than their counterparts in the manufacturing industries, their ability to secure the attention of politicians is limited. The more geographically distributed nature of the services sector, within a city or region and across the country, also reduces the concentration of industry interests in any one constituency. Internationally, Canada is a net buyer of services from the rest of the world. In 2002 we purchased a total of $16,213 million worth of services internationally while selling $14,334 million for a net deficit of $1,879 million. Despite this deficit Canada maintains a net surplus in trade on the basis of a large surplus in the trade of manufactured goods. This surplus in manufactured products is frequently mentioned in the media, often by politicians, and is rightfully a source of pride for Canadians. Regional economic developers will argue that up to 75 percent of the firms and economic activity in a region are required to support the life of the city (physicians, lawyers, retailers), and it is the remaining 25 percent, which are export-oriented, that are responsible for raising our standard of living through trade. Historically in Ottawa this involved exporting government services to the rest of Canada in exchange for a flow of tax dollars into the region. Most cities in Canada, however, are not like Ottawa but are, instead, dependent on export-oriented manufacturers for this function. It is exactly this issue that many of the vocal manufacturing firms and industry associations use to justify existing (or to demand new) government support programs. Modern cities such as Toronto, however, have become specialized in exporting financial services and media services (including new media forms). Finally, we may wish to consider the attitudes of managers in services sector firms with respect to government/media attention. It may be that services sector firms are less demanding of public attention to the plight of their organizations and their perceived importance to the economic life of the country than are the firms in other sectors. Unfortunately, the limited amount of business research on services sector firms means that we are presently only able to speculate on this issue.11 The combination of these, and other, factors have resulted in a general misappreciation of the economic importance of the services sector on the part of the public. Overcoming these image problems is essential not only for the firms within the sector but also for the Canadian economy as a whole. In order to overcome them, however, we must first provide at least a partial topography of the heterogeneity of firms and subsectors that are considered to be a part of this massive industry.

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The Changing Composition of the Services Sector As a residual sector by design, the heterogeneity of activities in this “miscellaneous” sector makes it challenging for individuals to understand it. The images that commonly spring to mind when considering the services sector are those of a hairdresser or cleaning person and not those of a physicians, accountant, or stock brokers; however, all of these occupations are a part of the sector. Here we may wish to consider as well the differences between marketed services and non-marketed services. In Canada, health care, education, policing, and other public administrative activities fall into the category of non-marketed services. Removing these types of activities, we see that marketed services still account for over half of gdp (52 percent) and jobs (52 percent) in the country. We focus our attentions on a few of these marketed services and the changes that have taken place with respect to the size of various subsectors. In order to comprehend the large and diverse services sectors, Miles and Boden have developed a useful classification system based on four transformative processes involved in any service that is provided.12 They consider transformative processes with respect to (1) the environment, (2) artefacts, (3) people, and (4) symbols. Changes in the state of the environment is the first transformative process considered. Here they identify such activities as waste management, pollution clean-up, and park keeping. In Canada we see that administrative and waste management services presently account for about 2.2 percent of total output. Changes in the state of artefacts is the second transformative process considered. Installation, repair and maintenance, goods transport, building services, and wholesale and retail trade are the activities involved in this area. Wholesale services (5.8 percent), retail services (5.5 percent), and transportation and warehousing (4.6 percent) collectively account for 15.9 percent of total output in Canada annually. Changes in the state of people are the third transformative process. Here the authors include health and education services, and hospitality and consumer services (hairdressing, public transportation). Accommodations and food services alone account for 2.3 percent of total output each year. The final transformative process involves changes in the state of symbols, or information. These include knowledge services (which bring intelligence to bear on any of the aforementioned processes), entertainment services, and communication services, including broadcasting and telecommunications. Arts, entertainment, and recreation services account for 0.9 percent of total output. While we have seen aggregate growth of employment in the services sector, some subsectors have faired relatively better and a couple have

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actually declined over the period between 1991 and 2001. Real estate and leasing (North American Industrial Classification [naic] codes 5311–5331) and public administration (naic codes 9110–9191) were the two subsectors to decline over this period (by -8 percent and -9 percent, respectively). At the other end of the growth spectrum management of companies and enterprises and administrative and support services (naic codes 5511–5629) grew by an industry high 76 percent between 1991 and 2001. This leading growth industry was followed by professional, scientific and technical services (naic codes 5411– 5419), with a growth rate of 64 percent; and information and cultural industries combined with arts, entertainment, and recreation at 42 percent over the same period. The differences between subsectors in the services sector are quite distinct when we consider the wealth generated per employee in various subsectors. Finance and real estate sectors contributed 19.4 percent of gdp but contributed three times less to the total workforce, whereas the retail trade sector contributed 5.3 percent of gdp while its workers constituted 11.9 percent of the entire workforce.13 The development of kibs has been an important part of the industrial transformation that has occurred both in Canada and in other industrialized countries. The growth of kibs in Canada, while partially assisted during the late 1990s by a weak Canadian dollar (especially in relation to the United States), must ultimately be attributed to the competitiveness of our services sector firms. Quality, not price, tends to dictate consumers’ choices in these sectors. As evidence of the competitiveness of Canadian kibs, we note the following. First, Canada is now a net exporter of legal services.14 The value of the exports of legal services firms increased annually by 9.8 percent over the period of 1995 to 2000, 88 percent of which went to the United States. Second, management consultants achieved a trade surplus of $88 million in 1996.15 The revenues of management consultants grew by between 10 percent to 30 percent per year from 1990 to 2000. Moreover, the average weekly salaries for those employed in the sector rose by an average of 3 percent during the 1990s.

i n n o vat i o n i n t h e s e r v i c e s s e c t o r Despite extensive efforts by academics (and, internationally, within parts of various government departments) to differentiate between the concepts “innovation” and “productivity,” some economists/policy makers continue to use these terms interchangeably.16 The term “innovation,” as it is used by innovation scholars,17 refers to a much wider variety of activities and outcomes than those which are included in the

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study of productivity and, perhaps more important, productivity growth. The introduction of a service or product that has never before been seen in the marketplace, such as a new medical treatment that alleviates the pain or suffering of patients (be it by physician technique/ method or pharmaceutically), is an example of an innovation that can radically improve our lives but may not necessarily be reflected in any one, or aggregate, measure of productivity. If we do, for a moment, constrain our analysis to those process-related innovations that are reflected in productivity statistics, then we note an important peculiarity that has arisen between the services and manufacturing sectors internationally. This peculiarity is in regards to international productivity convergence. It was widely predicted that the spread of the application of technology (and especially those technologies that go into international manufacturing activities such as automated production lines utilizing robots and information and communication technologies) would lead to the international convergence of aggregate productivity across countries. Thus, we would predict that, over time, less productive countries would converge towards most productive countries as a result of the transference of technologies in manufacturing sectors. This, however, has not occurred; rather, it has been shown that, while aggregate productivity has indeed converged over time between industrialized countries, this convergence has been led by productivity convergence in the services sector and not in the manufacturing sector. In fact, “for all measures, the manufacturing sector shows no or little convergence, while other sectors, especially services, show strong evidence in favour or convergence.”18 These findings come from a study of fourteen oecd countries (including Canada, the United States, Japan, the United Kingdom, Germany, France, Sweden, Finland, and other medium powers) over a seventeen-year period from 1970 to 1987, and they considered both labour and technology productivity for different sectors. The authors of this study suggest that the sectoral differences for productivity convergence could be the result of differences between tradable and non-tradable sectors. In non-tradable sectors, including such services industries as retail sales, the technologies used are more readily transferred than are those in tradable sectors, such as exportoriented manufacturing sectors (where we find specialized comparative advantages in the production of goods). The example that they give is that of bar code scanning technologies that are used in retail outlets around the world versus the individual types of manufacturing activities in countries that may be dependent on different regional strengths (low labour costs, specialized skills in machine making, etc.). These findings lead to some interesting new questions regarding not

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only the nature of innovation in different sectors but also how innovations are diffused across international boundaries (and the effect of this diffusion on economic and social progress). If we now expand our consideration of innovation in the services sector beyond process innovations, we find that there are a number of challenges facing our understanding of the nature and extent of innovation in this sector. The first issue is that traditional indicators of innovative activity do not very well capture the nature of innovation in the sector. Input indicators such as research and development spending, which are key for the development of new innovative products, are relatively less important for stimulating innovation in the services sector. Similarly, output measures such as patents do not accurately reflect the realization of an innovation in the services sector. Knowledge-based services industries, such as banking, are also among the leading users of new technologies, particularly information and communication technologies. Software technologies, for example, often demand significant adaptations by services sector users. Services sector firms can also be conduits of technological knowledge to their customers (consultancies and training).19 All of these issues affect our ability to understand the rate of innovation in services industries, the nature of this innovation, and it’s impact. Driven by a desire to understand these issues and their implications, Statistics Canada is presently undertaking a survey of innovation in the services sector.20 This survey follows on a limited previous study of “dynamic service industries” (communications, financial services, and business services) that was conducted in 1996 and published in 1998, and which provided a number of important insights into innovation in Canadian services industries. Innovation in Select Canadian Services Industries The industries surveyed in 1996 were chosen based on findings from previous studies of the United Kingdom, Italy, and Germany, which identified these industries as substantially more innovative than most of the services sector. They were and are, however, very different in their composition. Financial services are dominated by a small number of firms, many of which are amongst the largest firms in any sector in the country, whereas business services include such subsectors as computer services, architectural, engineering, and technical services firms, where over 90 percent of all firms had sales of less than $2 million a year in 1991. This said, the select industries studied all showed very high rates of innovation. In technical business services 43 percent of respondents indicated that they had achieved a product, process, or

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organizational innovation. These figures increased to 45 percent of respondents in communications services and 62 percent of respondents in financial services, all significantly higher than the average of 36 percent recorded for all Canadian manufacturing industries but roughly equal to those recorded for the most innovative of manufacturing sectors. Despite our previous comments regarding the limited usefulness of input measures of innovation in the services sector, we must state that this sector does invest significantly in research and development (r&d). Services sector firms accounted for 29 percent of total r&d spending in Canada in 2002. Business services were the largest r&d spending, accounting for 17.3 percent of all services sector r&d. A select number of other sectors should be noted here because of their recent successful growth and their intrasectoral trade. Biotechnology is the first of these growth sectors, and it saw total spending on r&d increase by almost 53 percent over the period between 1997 and 2000. In 2000, 66 percent of biotech r&d was directed towards the services sector. The services sectors of the environmental sector, albeit small at the present time, saw r&d spending increase by 88 percent between 1997 and 2000. Health care services spending on r&d has seen significant growth since 1988, when it accounted for 13.5 percent of all r&d spending in the country. In 2001 this number had risen to 20.5 percent, and with an aging population it is expected to climb even higher. The final sector we will consider is the informational and communications technologies industry. The manufacturing side of the information and communications technologies sector has suffered from an international downturn, which saw telecommunications carriers reduce their annual capital expenditures from us$70 billion to us$20 billion between 2000 and 2003. As Figure 1 shows, this downturn has been confined to the manufacturing side of the sector. The services side in Canada has posted continuous gains, including a growth of total output of 13 percent between 2000 and 2001 alone. Leaving aside the large manufacturing firms, such as Nortel Networks (with its unique and very important position in Canada’s r&d topography), we note that on the services side of the ict sector, total spending on r&d increased by 28 percent between 1997 and 2000 and now stands at almost $1.1 billion a year. On an aggregated basis, it is interesting to note that Canadian services sector firms constitute a larger percentage of the total number of firms performing research and development activities in Canada than, on average, is the case for this sector in the oecd countries. Canadian services firms account for 27 percent of all firms conducting r&d in the country, whereas the oecd average is 17 percent.

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100 Macro Choices and Challenges Figure 1 Distribution of ict gdp by Sector, 1997–2000

70,000

ICT_Total__TIC_Total

60,000 50,000 40,000

ICT_Services__TIC_Services

30,000 20,000 10,000

02 20

01 20

20

9 19 9

8 19 9

19 97

00

ICT_Manufacturing__TIC_Manufacture

0

Source: Statistics Canada, Services Indicators 2nd Quarter 2003, Catalogue No. 63–016-xib.

Public Policies Towards Services Sector Innovation Manufactured goods are tradable, especially those that are technologically based or highly standardized internationally. The tradability of goods is used as a justification for why we in Canada, and most of our trading partners, subsidize manufacturing industries.21 While tariff barriers have fallen due, in large part, to the development of the World Trade Organization (and it’s predecessor, the General Agreement on Tariffs and Trade) and the proliferation of regional trade agreements, policy makers internationally have found creative alternatives to support their domestic manufacturing industries. The result is a state of competition that is exaggerated by policy measures. At present, the majority of services tend to be more nationally or regionally focused and, therefore, less international trade oriented. Thus, the normal desire of governments to develop trading industries, and/or to off-set the subsidization of other countries, is not nearly as strong for the services sector as it is for manufacturing industries. Manufacturing industries are thus far more likely to be export-oriented than are the services industries. This, however, does not mean that Canadian services industries are completely protected from international activity, and we again note that Canada had a net deficit of $1,879 million in 2002. While these figures are much lower in comparison to trade figures in merchandise goods, we must recognize that services are becoming increasingly tradable. In financial services, for example, we see decreased regulation and increased cross-border merger and acquisition activity. Canadian banks,

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like their international competitors, see domestic business as basically mature, stable, and low margin, whereas international markets offer the opportunity for greater returns, albeit with potential risks (such as those recently suffered by the Bank of Nova Scotia when the Argentine economy got into difficulties). Regulations are clearly an issue for services sector firms when it comes to innovation. Historically, innovation policies attempted to create incentives for firms to conduct increased research and development assistance, to collaborate with each other, or to stimulate business creation. The bulk of this effort came through the scientific research and experimental tax credit system (sr&ed). The government’s support through this program has been, and continues to be, significant. Perhaps partially as a result, Canadian services firms have above average levels of research and development activities in comparison to firms from other oecd countries. For the services sector, however, we cannot forget that, while those activities that have been traditionally defined as research and development are important, they are not a “silver bullet” capable of solving all innovation challenges facing services sector firms. In 2002 the federal government launched its innovation agenda, which involved an extensive consultation exercise culminating in a national summit. In the original documents, Achieving Excellence: Investing in People, Knowledge and Opportunity and Knowledge Matters: Skills and Learning for Canadians,22 the government takes a broad approach to innovation, focusing on issues such as knowledge and skills creation. These issues are important for manufacturing- and services-based industries alike, and the suggestions that are made are useful for our present purposes. Governments, not just at the federal level but at the provincial and even municipal levels, are responsible for creating the environment in which economic activity takes place. Skills development and knowledge creation and acquisition are two environmental elements that affect innovation in all sectors, including services. The targets that were set in the Innovation Strategy and the recommendations that have come out of the Innovation Summit were nearly all directed towards the manufacturing sector. For example, the target that has been repeatedly mentioned as moving from fifteenth to fifth in terms of the gross expenditures on research development in Canada as a percentage of gross domestic product (gerd/gdp), takes a linear system view of innovation. These perspectives are – if at all useful, given the amount of research and policy work that has gone into the development of complex and dynamic innovation systems – based on manufacturing industries, where research and development make new products possible.

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Another example of the targets outlined by the government can be found in the section entitled “Sources of Competitive Advantage.” In this section the government sets the goal of establishing at least ten internationally recognized technology clusters. While services sectors are heavy users, and in some cases developers, of technologies, not one of the identified clusters was service oriented. This said, many services firms prosper as a result of technology clusters; however, this is a market response that is at most a trickle down from policy action. Attempting to build knowledge-based service sector clusters has not been attempted before using traditional innovation policy tools. We expect that, given time and commitment, efforts to create service-based clusters would be at least as successful as are those manufacturing sectors that have previously received the bulk of government support for cluster development.

conclusions Given the foregoing analysis of the transformation of the Canadian economy, what can we ask of a Martin government that is attempting to stimulate innovation in the services sector? Our first suggestion is to increase funding for research into the services sector and, specifically, into the process of innovation in that sector. Our understanding of the nature of innovation in the services sector is at best incomplete. Policy recommendations, as a result, are difficult to make until we have a better understanding of the process of this. The survey that is presently being conducted by Statistics Canada is a start towards our understanding, but we will need to both increase the scope of statistical study within the services sector as well as the types of research conducted. The study of patents and citations, which has been well developed in Canada already, cannot provide us with the necessary understandings. Therefore, both internal (Statistics Canada and Industry Canada) and external (i.e., university) research funding needs to be increased or targeted towards our understanding of the services sector. On this point, we are encouraged by the government’s commitment, previously noted, to increase research into the commercialization process, and we suggest that a significant portion of this research be dedicated to the services sector. It has been argued that government policy should at least not hinder innovation. We know that the federal government’s new leadership will not be without a variety of valid issues, all vying for attention and public resources. Solutions that do not demand substantial financial resources to implement should therefore be very attractive. Identifying and then reducing or eliminating regulations, restrictions, and

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any other barriers to innovation that are the unintended consequences of government policy, as we have previously argued,23 should be a priority. A comprehensive review of government programs (while not without cost), with a view to their impact on the innovative activities or intentions of firms, is therefore suggested. This recommendation echoes those of the Insurance Bureau of Canada (an industry association whose membership represents 90 percent of the non-government, non-life insurance business in Canada).24 The 2004 budget announced the creation of the new Cabinet Committee on Expenditure Review (chaired by the president of the Treasury Board), which adopts the seven critical tests of government programs that were used in the original program review conducted by the Liberals during the first Chrétien mandate. A test for the effects of programs and regulation on the environment of innovation should be added to the list of essential tests of government policy.25 Taxation is one of government’s most important policy tools, especially in areas of economic development, and also needs to be considered here. First, given that, on average, services sector firms do not spend as much on r&d as do their manufacturing counterparts, increasing, or perhaps more important, adjusting the scope of the Scientific Research and Experimental Development Tax Credit (sr&ed) system should be considered. Increasing the scope to include the types of activities that are fundamental to services sector firms, such as market research, could address this issue. In the services sector a customer focus is essential, and market research is a means of getting ever closer to the desires of consumers. The questions “What do people need?” and “What do people want?” should be seen as at least as important as the question “What is technically possible?”. Indeed, it could be argued that, without the first question, the second question is trivial. Market research is useful to almost all firms in the economy, and as such, it may be more efficient to consider an adjustment to the general level of taxation in the country (business and/or individual). Lowering taxation could increase the incentive to innovate across industries, moving us towards a broader perspective on innovation than our present innovation policy tools encourage us to consider. We acknowledge that this option would have associated costs and could affect our ability to fund the social programs that Canadians have repeatedly said are important to them (health care, education, social security, etc.). The terms “knowledge-based economy” and “new economy,” which seem to be used interchangeably to denote the uniqueness of our current economic context, are both ambiguous (almost to the point of irrelevancy) and overused. With respect to the former term, it has been convincingly argued that, throughout history, all economies have been

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knowledge-based.26 Of course, this does not mitigate the usefulness of the concept in our present context. Indeed, we believe that the creation of new knowledge and, especially, the adoption of knowledge (i.e., learning) by large numbers of Canadians to be essential for any economic development plan. There is evidence, unfortunately, that over the past fourteen years Canadians’ access to higher education has become harder rather than easier. Throughout the 1990s average tuition fees increased by 6 percent per year in inflation-adjusted numbers for a total increase of 76 percent.27 The result is that the average student graduating from a fouryear program at a university has a debt of $21,200. This despite the 1998 endowment of $2.5 billion for the Millennium Scholarship and a variety of other programs aimed at increasing access and easing the debt burden of students and graduates. The cost of attaining knowledge in the knowledge-based economy has risen and the actions that have been taken to develop the human capital base have fallen short. In the Budget Plan for 2004, the government has continued this approach of extending debt relief and other forms of incremental assistance to students. If a new government was to seriously attempt to promote innovation in the knowledge-based economy, which is dominated by services industries, it would need to change this incrementalist strategy (focused on easing the burdens of student debt) to one that addresses the causes of student debt: the tuition fees of colleges and universities. Making this decision would not be politically easy given (1) the historically low voter turnout of young people, (2) an aging population, (3) the indirect nature of this policy instrument for economic development, and (4) the federal-provincial division of responsibility for education (i.e., the research-granting agencies at the federal level and the provincial government’s provisions of basic funding for universities). It would require a strong buy-in on the part of the politicians and leadership to make this a reality. If it is not realized, then the chances of Canada ever becoming a top-five country in terms of competitiveness are slim to non-existent. We have presented a number of options for a new leadership to consider, some “big issues,” and some “small issues.” At the core, a focus on the services sector is a radical departure from traditional industrial policy in Canada and in the world. Efforts to prop up, promote, or develop manufacturing industries have resulted in a competition between the governments of various countries and/or regions through various incentive/subsidization programs instead of a competition between firms. Productivity in manufacturing sectors has not converged internationally over time because of technology; rather, we have seen distinct competitive advantages emerge based on the specific attributes

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of each national economy, as Paul Krugman identified some time ago.28 The convergence of productivity in the services sector internationally suggests that these industries are at the forefront of international competition. Focusing our attentions on developing these industries, where presently we have a trade deficit, could assist our move away from a natural resources dependent economy towards one that is ever more dependent on knowledge resources. Our desire for industrial diversification as a country is a long-standing “big issue,” and services provide an opportunity to leap-frog ahead of many industrialized nations who, despite their adoption of the knowledge-based economy language, are still focused on industries that have been in a pronounced twenty-five-year decline (which is unlikely to change). Services have provided jobs for both the highly skilled (e.g., management consultants) and less skilled workers (e.g., retail sales), and it is time now for new leadership to focus its attention on them. Finally, we have also suggested some “smaller issues” for this new leadership to consider. Increasing both internal and external research budgets to study the services sector, so as to lead to better policy advice, would not require a major government commitment. Similarly, adjusting tax credits and analyzing the effects of government policy on the services sector would not be something to hang a political hat on, although if it were successful in encouraging the development of a trade surplus-producing services sector the knock-on benefits to jobs and economic growth would allow other types of visionary action to be taken (e.g., social development). Making education more affordable could be a small issue if the government chose to act as it has in the past (e.g., with incremental increases in the funding of scholarships). Alternatively, this new leadership could make this a “big issue” if it decided to make the affordability of education for all (rather than for a few) a mantra for its commitment to the knowledge-based economy and social development. Regardless of what the government chooses to do, we argue that Canada’s largest sector is a “big issue” that has gone unnoticed for too long – by academics and governments alike.

notes 1 Paul Martin, “Building the 21st Century Economy,” speech given to the Board of Trade of Metropolitan Montreal, 18 September 2003.Transcript available at . 2 We note here that Industry Canada has started to take a lead on the issue of innovation in the services sector and has already convened meetings specifically on that topic. We are further encouraged by the positive comments Senior Assistant Deputy Minister Andrei Sulzenko made regarding a

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106 Macro Choices and Challenges

3 4

5 6

7

8 9 10 11

12 13

14

15

16

preliminary draft of this paper, which was delivered at the 2003 “How Ottawa Spends” conference in Ottawa. See Ian Miles and Mark Boden, ed., Services and the Knowledge-Based Economy (London: Continuum, 2002). We note that some individuals may wish to consider the development of domestic services (cooking, child-rearing, etc.) as occurring at least in parallel with the development of the primary and manufacturing industries. Our focus, which is perhaps archaic, is on the development of revenue-generating sectors. Economic Council of Canada, Employment in the Service Economy (Ottawa: Economic Council of Canada, Minister of Supply and Services, 1991). John Baldwin, Guy Gellatly, Joanne Johnson, and Valerie Peters, “Innovation in Dynamic Service Industries” (Statistics Canada Occasional Paper, Catalogue no. 88–516-xpb, 1998). Raymond Vernon, “International Investments and International Trade in the Product Life Cycle,” Quarterly Journal of Economics 21 (May 1966): 190– 207. Daniel Bell, The Coming of Post-Industrial Society: A Venture in Social Forecasting (New York: Basic Books, 1973). Levitt, cited in J.B. Quinn, Intelligent Enterprise: A Knowledge and Service Based Paradigm for Industry (New York: Free Press, 1992). This observation became widely popular during the Clinton administration in the United States under the slogan: “It’s the economy, stupid.” The authors do not claim to have exhaustive knowledge of business research into services sector firms but, rather, are highlighting the relative absence of popular research on the topic, at least in Canada. Ian Miles and Mark Boden, “Introduction,” in Ian Miles and Mark Boden, Services and the Knowledge-Based Economy, 1–15 (London: Continuum, 2000). Julio Miguel Rosa and Fred Gault, “Research and Development in Canada’s Services Sector,” Services Indicators (2nd Quarter) 10, 2 (2003): . (Statistics Canada.) Industry Canada, “Legal Services,” Service Industries Overview Series, Industry Canada, Ottawa, November 2001. Available on-line through the strategies Web site of Industry Canada. Industry Canada, “Management Consulting Industry,” Service Industries Overview Series, Industry Canada, Ottawa, March 2001. Available on-line through the strategies Web site of Industry Canada. For example, Stephen S. Poloz, senior vice-president and chief economist of the Export Development Corporation of Canada, has said: “Innovation is at the heart of productivity growth, which is what makes the difference between ordinary existence and rising economic prosperity. Innovation implies changing how business is done, anywhere and everywhere along the business chain. Contrary to popular belief, innovation is not solely a high-

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107 Innovation, Services, and the Canadian Industrial Structure

17

18

19 20

21

22

23 24

25

tech concept, but embraces traditional resource sectors, manufacturers and service providers as well – all are in a position to boost productivity.” See Stephen Poloz (2002), “An Innovation Summit – November 20, 2002.” Available on-line at: . Joseph Schumpeter’s definition of innovation and his classification of five different types of innovation (product, process, organization, material, and market) is the one used most often here. Andrew B. Bernard and Charles I. Jones, “Comparing Apples to Oranges: Productivity Convergence and Measurement across Industries and Countries,” American Economic Review 86, 5 (1996): 1216–38, at 1216. Ian Miles and Mark Boden, “Introduction,” in Ian Miles and Mark Boden, Services and the Knowledge-Based Economy, 1–15 (London: Continuum, 2000). The Program of Research on Innovation Management and Economy at the University of Ottawa’s School of Management, along with Statistics Canada’s Science, Innovation, and Electronic Information Division, conducted a series of seminars over the 2002–03 academic year to discuss innovation in different Canadian services industries in preparation for the survey that is presently in the field. We realize that using the term “subsidized” is problematical, given Canada’s membership in the World Trade Organization as well as other regional trade agreements (such as the North American Free Trade Agreement). However, the use of any other language to describe government support of industries (in Canada and/or elsewhere around the world) obscures the reality of international markets. Governments around the world continue to support domestic industries but use “political spin” to create the appearance of a full commitment to the ideology of “free trade.” Government of Canada (2002), Achieving Excellence: Investing in People, Knowledge and Opportunity; and Knowledge Matters: Skills and Learning for Canadians. Both are available on-line at . Tyler Chamberlin and John de la Mothe, “The Integration of Innovation Policies: The Case of Canada,” Prometheus, March (in press). Insurance Bureau of Canada (2003), “Innovation in Financial Services: An Action Plan for the Property and Casualty Insurance Industry.” Submission to the Government of Canada on the topic of the Innovation Strategy. Available on-line at: . Though not connected to the issues of the present chapter, we suggest that the government should also consider adding a question relating to the impacts of government programs on the physical environment. In the 2004 budget, the Martin government dedicated considerable and much-needed funding and attention to environmental issues. Environmental issues are

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108 Macro Choices and Challenges similar to issues relating to innovation in that they are parts of complex systems of interactions. As such, both innovation and environment must be made a consideration in nearly all decisions that a government makes. 26 Brian Loasby has argued this point repeatedly, making the distinction between the relative importance of the “state-of-the-art” knowledge and the total stock of knowledge available to the world. The growth of library “stacks” indicates that the quantity of knowledge is greater now than at any time before (though our abilities to understand, synthesize, and utilize this knowledge is debatable); however, the relative usefulness of the most efficient agricultural techniques are at least as important to agrarian economies as are advanced communications and computing science to our Canadian economy today. See Brian Loasby, Knowledge, Institutions and Evolution in Economics (London: Routledge, 1999). 27 Sean Junor and Alexander Usher, Alexander, “The Price of Knowledge: Access and Student Finance in Canada,” paper written for the Canadian Millennium Scholarship Foundation, 2002. 28 Paul Krugman, “The Narrow Moving Band, the Dutch Disease, and the Competitive Consequences of Mrs. Thatcher,” Journal Development Economics 27, 1–2 (1987): 41–55.

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pa r t t w o The Social Union and the Importance of Place

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6 Martin’s Moment: The Social Policy Agenda of a New Prime Minister james j. rice and michael j. prince

Our aim is to explore the social policy directions Paul Martin will take as prime minister. Our analysis is based on the premise that looking at Martin’s past role in Cabinet, his basic values, and his need to honour his father’s contributions to Canadian social welfare sheds important light on where Martin will take the federal government. In the first section, we outline the Martin government’s social policy intentions as expressed by the February 2004 Speech from the Throne. We also consider the degree of financial room, and thus social policy space, the Martin government will have in the short term for meeting these intentions. In the second section, we highlight the major social policy developments and related political effects of the Martin budgets from 1994 to 2001, arguing that these provide a lasting memory and basis for any reforms to be undertaken by the new prime minister. To further discern his inclinations in social policy, in the third section we report on Martin’s musings on the societal role of the federal state. In the fourth section, we propose and briefly describe a new national social project, a Canadian disability benefit strategy, which could well serve as one of only a few bold new initiatives that the Martin Liberals will undertake. We conclude that reforms in federal social policy will, by and large, occur in a focused and incremental manner, implemented and funded over the medium- to long term, in response to the limited budgetary room in the next few years. As a fiscally conservative Liberal, Martin will be constrained in his social policy endeavours.

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112 Social Union and Place

speech from the throne: strengthening the social f o u n d at i o n s o f c a n a d a The February 2004 Throne Speech, while setting the agenda for the election, also forecast the social policy direction Martin resolves to take over the next few years. “We want government to reflect our values in the actions they take. This includes living within our means; investing as we can afford; and looking to the future.”1 From a broader perspective Martin wants to distinguish himself from Chrétien. The Throne Speech was full of references to governing in new ways. He wants to develop a “new team,” to introduce “new democratic reform,” and to foster “new opportunities for all Canadians.” This is not so easy in social policy terms. When we look at what the Throne Speech had to say about social policies we see a familiar catchphrase – ensuring opportunity. Martin has used this as a central theme to all of his social policy initiatives over the last ten years. The Throne Speech re-emphasized this commitment. “We want a Canada with strong social foundations, where people are treated with dignity, where they are given a hand when needed, where no one is left behind. Where Canadians – families and communities – have the tools to find local solutions for local problems.” For Martin, this means “ensuring that all Canadians have the opportunity to develop and use skills and knowledge to their fullest. It means removing barriers to opportunity. It means building on the fundamental fairness of Canadians.” When we examine these social policy commitments, we see that the Martin government identified seven areas for new or enhanced federal involvement. 1 Martin’s (and apparently the public’s) top priority is national public health care. The federal government has already committed to providing a further $2 billion health-care transfer to the provinces and territories this year (2004–05). The Throne Speech notes the Martin government wants these “funds to help reduce waiting times; to improve access to diagnostic services; to provide for more doctors and more nurses.”2 At the same time, the speech claimed the government would take the lead in establishing a more responsive public health system. They plan to create a new Canada Public Health Agency that will “ensure that Canada is linked, both nationally and globally, in a network for disease control and emergency response.” 2 The Martin Liberals, like the Chrétien Liberals, plan to focus on families with children. Working with the provinces and territories, the Martin government will hasten initiatives under the existing Mul-

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113 The Social Policy Agenda of a New Prime Minister

tilateral Framework for Early Learning and Child Care, thus producing more quality childcare spaces more swiftly. This is an old refrain that may move the country closer to a national childcare system, which was promised back in the early 1990s. They do plan, in cooperation with the provinces, to extend Understanding the Early Years (a pilot project) to at least 100 communities so that they can identify children whose readiness to learn is at risk. Additionally, the Martin government claims it will do more “to ensure the safety of children through a strategy to counter sexual exploitation of children on the Internet and by reinstating child protection legislation.” While these are interesting promises they do not deal with the substantial issue of child poverty. 3 In the most explicit and policy-specific way, the 2004 Throne Speech projected a ten-year-plus plan for Canadians with disabilities. Commitments included making the federal public service a model employer, extending compassionate care benefits, and forging a comprehensive labour market agreement for persons with disabilities. In general, the Martin government says it wants “a Canada in which citizens with disabilities have the opportunity to contribute to and benefit from Canada’s prosperity – as learners, workers, volunteers, and family members.”3 Later in the chapter, we describe a major new reform that could help the government achieve this objective. 4 There is the never-ending recognition that Aboriginal peoples have not received their fair share of the economic pie and general quality of life in Canada. “Aboriginal Canadians have not fully shared in our nation’s good fortune. While some progress has been made, the conditions in far too many Aboriginal communities can only be described as shameful. This offends our values. It is in our collective interest to turn the corner. And we must start now.”4 The speech indicates that the government will, in cooperation with First Nations, establish an independent Centre for First Nations Government. 5 Martin also plans to increase federal support for college and university students. The Throne Speech declares the government will “work with provinces and territories to modernize the Canada Student Loans Program to help overcome financial barriers to post-secondary education and training.” It plans to update and improve grants and to increase loan limits in order to increase access for middle- and low-income families and their children and to reflect the rising cost of education. In addition the government plans to broaden eligible education expenses to include “the new essentials, such as computers.” It also plans to introduce a “starter grant” to act as an incentive to encourage families to save for postsecondary education.

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114 Social Union and Place

The plan is for this “learning bond” to grow over time and for the government to use it as a way of delivering education benefits to Canadian families. 6 The government calls for a new deal for communities. Its long-term plan is to “work with provinces to share with municipalities a portion of gas tax revenues or to determine other fiscal mechanisms which achieve the same goals.” The government recognizes that this will take time so it is prepared to act more immediately by providing all municipalities with full relief from the portion of the Goods and Services Tax (gst) they now pay. It maintains that, “over the next decade, this will provide Canada’s municipalities with approximately $7 billion of stable new funding to help meet critical priorities.”5 7 As part of the renewal for cities, the Martin government plans to make a new commitment to community development, particularly through volunteers and local entrepreneurial activities. “The voluntary sector and the millions of Canadian volunteers are essential contributors to the quality, fairness and vitality of our communities. The Government will continue to advance the Voluntary Sector Initiative, to strengthen the capacity and voice of philanthropic and charitable organizations and to mobilize volunteers.”6 While some steps have been made over the past few years, there has been limited direct support given to the voluntary sectors. In his response to the Throne Speech, Martin re-emphasized his intention to make the social economy – that is, entrepreneurial, not-for-profit approaches to community development – a focal piece of Canada’s social policy tool kit.7 The Throne Speech submits: “Social and economic goals are inseparable. A stronger economy requires stronger social foundations. And if we want to build a fairer, more equitable society, we need a stronger economy.” This neoconservative belief means that Martin’s social policy agenda, and his own approach to governing generally, must be seen in light of his unyielding commitment to fiscal prudence and a balanced budget as well as a strong economy.

find in g t he mon ey, c r e at i n g t h e s o c i a l p o l i c y To accomplish these social goals, therefore, Martin needs to find the money, whether new or old, to create the budgetary space for policy making. He has been carrying out a financial review – department by department. He needs to know what is being done and how much is being spent. He is keenly aware that the Liberals made a number of promises over the last few months of the Chrétien reign, and he will want to put a hold on most of these.

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115 The Social Policy Agenda of a New Prime Minister

From a larger perspective, social policy space will depend upon how well the economy performs above established expectations. Predicting economic growth is always a risky business. At the beginning of 2003, David Dodge, the governor of the Bank of Canada, predicted a 3 percent growth rate for 2003. By April he had reduced this to 2.5 percent and by July to 2 percent. Long-term forecasts are just as capricious. Looking ahead, private sector economists forecast Canadian economic growth rising to 3.5 per cent in 2004 and remaining there for 2005, although all projections must be placed in the context of the uneven us recovery and the continuing political instability in the Middle East. Where does this leave Martin in terms of social policy space? The Organization for Economic Cooperation and Development (oecd), in a recent report on Canada’s economic performance, has argued that the 2003 federal budget “left virtually no fiscal room over the next few years for further spending increases, tax cuts, or debt reduction beyond what is already planned. Increased spending – especially on health care – and further small personal and corporate tax cuts leave the projected federal balance around zero, after setting aside the safety margin, until at least 2008.”8 This viewpoint touches on the ongoing social program commitments made in recent budgets – commitments to affordable housing, childcare and early learning, the Health Care Accord, the Canada Child Tax Benefit, and the multi-year tax reduction plan. An alternative view on fiscal capacity provided independently by Judith Maxwell and Michael Mendelson suggests that there remains a degree of financial room for the new prime minister to undertake a mix of policy initiatives in economic policy and social policy on both the spending and tax side.9 If there is space, it is very limited. Martin is caught between making promises to continue tax cuts while maintaining social expenditures. What will he do? He is a cautious man and has never liked the high risks of radical change. His policy style is one of incrementalism at a time when he must be bold if he is to take the government in a new direction. At the beginning of his leadership race Martin claimed, “In recent times, a kind of complacency, a certain drift, has set in and we’ve lost some of the great energy and enthusiasm that Canadians are looking for … In my view, new times require new approaches, and I want to lead a new government with a renewed sense of purpose, and a sharper focus and a clearer plan.”10 Martin will find it challenging to take the government in new directions, although finding money is not new to him. When he took over the reins in the Department of Finance in 1993 he carried out a budget review of all departments. His goal was to reduce the size of government and begin to bring the deficit under control. Martin was able to capture the social policy agenda from Lloyd Axworthy, minister of

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116 Social Union and Place Table 1 Social policy in the Martin budgets, 1994–2001: Major developments and political effects Federal Budget

Policy decisions

Political effects

1994

Planned changes and major cuts to Unemployment Insurance and federal transfers to provinces and territories. Income testing of the age tax credit

Set a constrained fiscal context for the 1994–95 Social Security Review

1995

Establishment of Canada Health and Social Transfer (chst) to replace the Canada Assistance Plan and funding for postsecondary education and health care under the Established Programs Financing arrangement. Before-tax income testing of Old Age Security benefits, as of July 1996

Sidelined House of Commons report on social security reform Enraged provinces and social policy organizations Eliminated counter-cyclical role by Ottawa in provincial social welfare Further shift from universality to selectivity of elderly benefits

1996

New Seniors Benefit proposed to replace, as of 2001, Old Age Security, Guaranteed Income Supplement, and the age and pension credits Five-year funding commitment for chst

Criticisms of proposal, and improved budget situation, led to its eventual withdrawal

1997

National Child Benefit System announced No further cuts to programs

Gave impetus to renewed intergovernmental cooperation on social policy

1998

Canada Child Tax Benefit (cctb) introduced Canadian Opportunities Strategy that included Canada Millennium Scholarship Fund

Support to low-income families with children, and investing in education and skills emerge as priorities

1999

Additional funds for health care under the chst over next five years Enrichment to the cctb Launch of Canadian Institutes of Health Research

Re-entry of Ottawa into health policy and funding of health research

2000

Restoration of full indexation of the personal income tax system Five-year tax reduction plan Further investments in health under the chst and in families through the cctb

Curtailment of “social policy restraint by stealth” and enhancement of tax relief to Canadians

2001

Investments in health care, early childhood development, Aboriginal children, and skills development

Funding First Ministers’ accord on health and early childhood development

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117 The Social Policy Agenda of a New Prime Minister

human resources and development, when he failed to restructure Canada’s social security system. At that time the Standing Committee on Human Resources Development was given the job of carrying out a national consultation to hear Canadian’s ideas about how social security should be changed and to make recommendations to the government about how the system should be restructured. Internal debates between standing committee members from the Bloc Quebecois and the Reform Party left the committee unable to bring in unified recommendations. After endless squabbles three reports were prepared, reflecting the failure to create acceptable recommendations. In the face of this failure, Martin stepped in and the Department of Finance took over control of the review process.

finance minister martin as social policy minister: programming and politics, 1994–2001 Martin’s extraordinary ability to exercise power over social policy came from various sources. First, Martin was equipped with a 1993 election campaign promise to reduce the federal deficit to 3 percent of the gdp by 1996–97 (from the 6 percent in 1993–94) then to 2 percent in 1997–98 and 1 percent in 1998–99. As documented in previous editions of How Ottawa Spends, restoring fiscal order and responsibility to the federal state through giving the latter a smaller and more focused role was the overriding agenda of the first Chrétien government. Second, this agenda was supported by public opinion, which was more favourable to cuts to social programs in the mid-1990s by a Liberal government than it was to such cuts in the 1980s by a Conservative government. And third, even as surpluses emerged from 1997–98 onward, the philosophy of prudence in budget planning, and of maintaining sound fiscal management, remained core principles in the second and third Chrétien governments. Success in eliminating the federal deficit, and halting the rise of national debt and then paying down some debt, enhanced Martin’s reputation and standing within the government, the Liberal caucus and party, and among the Canadian public. In the words of a former parliamentary secretary to Martin: Paul Martin is often described as a fiscal conservative and not given enough credit for his social conscience. But, as the nation’s fiscal health began to show new signs of life, the budgets he delivered in the House of Commons began to reflect the social program priorities of Canadians. As his parliamentary secretary, I saw Paul Martin arguing forcefully and successfully with departmental

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118 Social Union and Place officials and other advisors for increased Canada Health and Social Transfers to the provinces and territories; for investments in research, innovation and training; [and] for tax policies favouring the disadvantaged and persons with disabilities. Under Paul Martin’s stewardship, the National Child Benefit grew to over $7 billion annually, benefiting children and families with low or modest incomes.11

Martin turned the role of finance minister into a fast track to higher office. Aided by a strong staff, Martin made astute and frequent use of opinion polls, focus groups, and policy experts in managing issues, framing budgetary themes, and testing ideas. Martin also regularized the practice of consulting annually with economists from the major chartered banks and private-sector forecasting firms in determining fiscal and budget plans. On the basis of this independent expertise, the Department of Finance could set the outer limits of social policy reform with arguments and analyses about fiscal imperatives. Estimates on revenues, expenditures, interest rates, and other economic factors set the boundaries for social policy making.12 Pressures from business interest groups, the bond and financial money markets, and international agencies such as the oecd bolstered these arguments and the influence of finance. Major social policy developments introduced by the Liberals in the Martin budgets are outlined in Table 1. Far from comprehensive, the list is intended to highlight substantial changes of retrenchment or expansion. As would be expected in social policy making, some of these measures originated within federal departments (e.g., the early childhood development and Aboriginal health) and a few were championed by the Prime Minister’s Office (e.g., the Millennium Scholarship Fund and the national homelessness initiative). Of course, these measures were shaped by the fiscal framework and budget plans of Finance Minister Martin in terms of actual amounts committed and over what period. Two of the changes listed above dramatically affected the nature of social welfare in Canada. The first were the changes Martin made to the structure of social security. Effective April 1996, the Liberal government scrapped the Canada Assistance Plan (cap), which had financed up to 50 percent of eligible costs incurred by the provinces in providing social assistance and social services, and the Established Program Finances Act (epf), which had supported health care and postsecondary education. The government replaced these with the Canada Health and Social Transfer (chst), combining all expenditures into one super block fund. At the same time, the federal government cut the size of its financial support by some $6 billion over a three-year period.

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119 The Social Policy Agenda of a New Prime Minister

Martin claimed these new arrangements would give the provinces more flexibility while increasing federal financial stability. In fact, the shift from cap and epf to the chst meant provinces were no longer “required” by legislation to provide support to people “in need” regardless of their category. This placed the provinces in a position of being able to provide benefits to some groups and not to others. The result was that many provinces tightened their regulations regarding single unemployed males, some tightened their regulations regarding mothers with children, and others introduced mandatory work requirements before people could receive social assistance benefits. Some provinces changed the way that eighteen-year-old adults would be treated and made them dependent upon their parents for support. All of these changes came about as a result of the federal government dropping the requirement that provinces support people “in need.”These shifts fundamentally alter the well-being of low-income families. Martin’s financial prudence led to reductions in many social policy areas. His legacy can be seen in the failure to substantially reduce child poverty over the period the Liberal government was in power. In fact, during the period in which the United Nations voted Canada “the best place in the world to live” child poverty grew for six out of eight years. Child poverty rates grew from 15.3 percent in 1989 to 19.2 percent in 1998, reaching a high of 21.6 per cent in 1996. These years can be thought of as bitter years for children. While the rest of the economy was growing and people were prospering, children from poor families were living increasingly desperate lives.13 The changes to chst also fragmented the access points for welfare groups and poverty advocates across the country.14 As the provinces took over more decision-making authority regarding the development and maintenance of welfare programs, advocates found they were fighting issues on many fronts rather than focusing on the federal government. While this may provide relief to federal politicians, it has created a much more complex and difficult arena for social change. The fragmentation of social security has not ended. As of April 2004 the chst is being divided into two transfers schemes: a Canada Health Transfer and a Canada Social Transfer. Martin has not described the principles, conditions, or desired outcomes of the new transfer systems. There has been a deafening silence on this, as on most other policy questions, during Martin’s leadership campaign. The question on many social advocates minds is whether this will lead to a diminished role by the federal government in social welfare programs across the country. As finance minister, Martin and his finance officials dominated federal social policy decision making in the deficit years, experiencing few

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120 Social Union and Place

political setbacks. Deficit elimination provided him with a powerful tool for altering social policies and redirecting social programs. Even when he achieved budget surpluses he held a tight rein on expenditures, and many client groups, families, and community-based organizations remained adversely affected by past cutbacks to federal support for provincial social assistance and social service programs. While he was given credit as the “boy wonder” for eradicating a $42 billion deficit during the deficit years, he did so by dismantling much of his father’s welfare state and abandoning a national commitment to social security.

martin’s musings and measures on the social role of government As previewed in the Throne Speech, a likely Martin government theme will be providing people with equal access to opportunity. This means ensuring access to health care, education, training, and childcare as a way of leading to increased participation in the workforce. From a broader perspective, Martin has argued that the federal government must be active in fighting for and defending a “fair” and “inclusive” society, creating increased opportunity for employment for those who are marginalized by personal or social conditions, and promoting innovation in federal provincial relations in order to develop more effective ways of delivering social programs. Upon becoming prime minister in December 2003, Martin quickly announced a substantial restructuring of the federal ministry. For our purposes here, the most significant change was the division of the giant Human Resources Development Canada portfolio into two new departments: the Department of Human Resources and Skill Development (hrsd) and the Department of Social Development (sd). hrsd is responsible for human capital development, labour market strategy and programming, and promoting a culture of lifelong learning among Canadians. hrsd is also responsible for the federal initiatives on the Aboriginal Human Resources Development Strategy, Employment Insurance, employment equity, homelessness, labour, student loan programs, and community economic development activities. The Department of Social Development’s core mandate includes the main federal income security policies and programs for families with children, persons with disabilities, and seniors. sd is mandated to work towards breaking down barriers to equality of opportunity for Canadians and offering supports to enable people to fully participate in their communities. All existing targeted disability programs, including those on

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121 The Social Policy Agenda of a New Prime Minister

employment and the labour market along with the Office for Disability Issues, have been consolidated within sd, making it the lead department and focal point for the federal disability agenda. When the minister of social development, Liza Frulla, was appointed, the prime minister apparently told her that this had been his father’s department when it was National Health and Welfare. Beyond this personal and historical significance, the formation of sd signals a renewed commitment to removing barriers and fostering opportunities, and supports a stronger focus on policy development. A new department may also enable officials to do things in new ways, such as allocating grants and contributions to community organizations in a more strategic and multi-year approach. Of course, as with any major government reorganization, there will be growing pains in clarifying roles and responsibilities and in managing the transitions. We expect reforms in the social policy realm will generally occur in a focused and incremental manner, implemented and funded over the medium- to long term. We also suggest that the personal income tax system will continue to be a favoured policy instrument that the Martin government will use to offer targeted tax relief and to address social goals. A commitment to health care is reflected in the 2003 Accord on Health Care Renewal agreed to by the federal and provincial First Ministers. Figure 1 presents the commitments the federal government has made for the next eight years. This reflects increased federal contributions of $34.8 billion over five years. These commitments are based on the government forecasting balanced budgets for the next five years (2003 Budget Speech) and maintaining a $3 billion annual Contingency Reserve. As federal surpluses emerged, bringing a new era of budgeting and governing, Martin set out principles for building a strong economy and a secure society. In his 1998 budget speech Martin specified the principles of frugality, focus, steadfastness, looking to the long term, partnership, and fairness. On focus, he said: “The core priority of government must be to set the national agenda. It can never again fall into the trap of trying to be all things to all people, of having so many priorities that in fact it has none.”15 On being balanced and fair, Martin said: Canadians know that there is more to taking care of the nation than simply taking care of the books. Canada is not just a marketplace. It is a community. Our country is anchored in shared risks and shared benefits, in lending a hand knowing, that some day, we too may be in need. That is the spirit that built this land.

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122 Social Union and Place Figure 1 Growing Support for Health and Social Programs (chst, cht/cst and Health Reform Fund) Extended Legislative Framework

60

chst

Planned Levels

cht/cst

55 50 45

38.8

($ billions)

40 31.9

35

35.3

34.5

4.5

3.5 2.4

1.5 2.3

1.0 1.7

51.2

5.5

9.8

56.0

53.5

46.1

43.9

40.8

48.8

12.4

11.1

3.1

2.5

30 25 20 15 10 5

Cash

Cash Increase

1

0

-1 10 20

09

-1

9 -0 08 20

20

8 -0 20

07

-0

7

6

06 20

05 -0 20

04 -0

5

4 -0 03 20

Tax Transfer

20

3 -0 02

-0

2 20

01 20

20

00

-0

1

0

Health Reform Fund

Source: Federal Transfers to Provinces and Territories, February 2003, available at www.Fin.qc.ca/ Fedprov/chsc.html. Note: Years 2008–09 to 2010–11 reflect the roll-in of $5.5 billion from the Health Reform Fund (subject to review by First Ministers by the end of 2007–08).

The Canadian spirit of coming together is not something that only appears now and then in response to great natural disasters or disruptions. It abides. It is there in every community, every corner of the country, every day. And it is there in the great national programs that have come to define who we are, and what we want to become.16

In striving to be a country of equal opportunity for the many, Martin has said: “All Canadians do not begin life at the same starting line. For some, the race is virtually won before it’s begun. For many others, it clearly is not. Circumstances and privilege can create a playing field that is very uneven. When individual Canadians are deprived of the opportunity of reaching their full potential, the country is deprived of

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123 The Social Policy Agenda of a New Prime Minister

the opportunity of reaching its full potential.” Government can and should do something to advance equal opportunity, even in times of economic growth and prosperity: “A rising economic tide does not lift all boats. There are Canadians who, for many reasons, do not enjoy the opportunities others do – but who would grasp them immediately, and lift themselves up, if only given the chance.”17 Similarly, we can expect him to continue his support for the National Child Benefits. Martin’s most important contribution to social policy was the development of the Canada Child Tax Benefit program. He wanted the cctb to focus on three objectives: (1) prevent and reduce the depth of child poverty, (2) ensure families will be better off as a result of parents working, and (3) reduce overlap and duplication of government programs and services. This program, developed in 1996, is a partnership of the Government of Canada, the Provinces and Territories, and the First Nations. As prime minister, Martin has indicated that children’s issues will remain near the top of his social agenda. “As long as we establish our priorities and as long as we are constantly reviewing spending on a line-by-line basis and making sure that we are reallocating to the highest priorities … we can, in fact set out a very, very dynamic set of social programs for Canadians.”18 More important to low-income and moderate income families is the restoration, by the 2000 budget, of full indexation to the personal income tax system and the ending of the partial indexation of tax brackets, credits, and income thresholds for maximum benefits of assorted income programs. Full indexation protects taxpayers from automatic tax increases resulting from inflation. Martin justly called this move “the most important change to the Canadian tax system in more than a decade.”19 The change is estimated to provide $6.2 billion in tax relief to a wide range of Canadians in 2004–05. The ending of partial indexing of tax brackets, credits, and the income thresholds for maximum benefits of assorted income programs ensures that the value of benefits Canadians receive under social programs and the goods and services tax credit is not eroded by inflation. This represents an important change to Canadian social security in that it stops the erosion in the after-tax value of taxable social benefits that took place each year from 1986 to 1999. While restoring full indexation of the federal income tax system and transfers, the original value of tax credits and thresholds was not restored, resulting in a permanent diminishment in the worth of various benefits.20 We can observe a new approach to federal-provincial relations, something all new prime ministers readily pledge. This new effort can be seen in the way Martin dealt with the provincial Premiers’ Social

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124 Social Union and Place

Union agenda. In contrast to Chrétien, Martin has committed to meeting with provincial and territorial leaders on an annual basis. His act of inviting premiers and territorial leaders to the Grey Cup is symbolic of the new relationships in the same way that recent visits to the western provinces can be seen as symbolic of mending political fences. Martin will also need to find a way to connect with the new synergy created by the strong relationship developing between Jean Charest and Dalton McGuinty. With new Liberal premiers in both Ontario and Quebec, an opportunity exists for more constructive intergovernmental relations. Regular meetings with premiers and territorial leaders will provide occasions for sharing their collective, regional, and individual views with the prime minister. This, in turn, should enable Martin to develop new social policy initiatives in concert with the provinces and territories. On the positive side, we may witness increased harmonization between federal and provincial programs. On a less constructive note for Martin, it may place pressure on Ottawa’s budgetary manoeuvrability as well as lead to lobbying for additional funds in an array of policy fields. The stakes are high. An opportunity for augmented social policies appears to be present, as does the potential for a more visible level of discord among governments if agreements are not reached in an opportune way. The political honeymoon in federalism may already be over. Familiar skirmishes in intergovernmental relations are evident over health care funding, equalization payments, and the fiscal imbalance between the orders of government. Provinces and territories are lobbying Ottawa to share more tax revenue with them, and they have been running newspaper and television advertisements calling for Ottawa to increase its share of health care funding from the current 16 percent (as they estimate) to the 25 percent recommended by the federal Romanow report on health care.21 These tensions so quickly arise because, although new prime ministers may promise a different style and wish a fresh start, they do not begin with a clean slate. Martin inherits a political economy and policy history of real and perceived cutbacks, expectations, grievances, inequities, and promises (for sure) of a better future. As part of that better future in public policy and intergovernmental relations, Martin is talking about finding ways to create a “new deal” with cities and other municipalities. Metropolitan and urban centres across the country face challenges of revitalizing downtown cores, replacing old sewer and water systems, as well as improving social capital and infrastructure. An opening exists for Martin to link his ideas on a new deal for Canadian cities with a set of social policy proposals supported by a host of community organizations and policy research insti-

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125 The Social Policy Agenda of a New Prime Minister

tutes. Martin’s cities agenda, examined in depth by Neil Bradford in Chapter 4 of this volume, would be significantly reinforced by a serious federal commitment to the creation of new affordable rental housing; to enhanced settlement services, including language and skills training, for new immigrants and refugees; and predictable and adequate support for community-based social agencies. These social initiatives would address some pressing needs, alleviate certain disparities, and promote the livability and inclusiveness of urban communities.22 Finally, the limited policy space should encourage Martin to turn his attention towards the voluntary sector for help in solving social problems. His speeches have referred to the “democratic deficit” and “social deficit” resulting from changes in society. Martin should examine ways of providing enhanced participation of the voluntary sector in the development and review of federal social policies and programs as a way of giving these ideas greater depth and wider public appeal. Such a step would breathe life into the Social Union Framework Agreement, advance the Voluntary Sector Initiative, and improve the accountability and transparency of social policy decisions. Initiatives in this area could provide for activists in the childcare, disability, and immigrant communities as well as mayors and municipalities with a louder voice in national policy and decision processes. One of Martin’s few setbacks in social policy reform was the attempt to restructure federal elderly benefits. The plan was to replace Old Age Security, the Guaranteed Income Supplement, and the age and pension income tax credits with a more income-targeted, family-tested, and marginally more generous Seniors Benefit. Unveiled in the March 1996 budget, this planned reform, after considerable criticism from the political left, centre, and right, was quietly taken off the agenda by Martin in July 1998, even though Department of Finance officials were developing a revised program in response to criticisms. For Martin, the main reason for embarking on the Seniors Benefit was to generate long-term savings in elderly benefit programs. Now, with a budget surplus, the fiscal case was no longer self-evident and politically compelling.23 Consequently, “Canada’s elderly benefits system today remains a hodgepodge of poorly-fitting pieces,” with inequities among families and inadequate benefits for low-income seniors.24

a n e w n at i o n a l s o c i a l p r o j e c t : a c a n a d i a n d i s a b i l i t y s t r at e g y As a new national social project, we believe Prime Minister Martin could well follow a pattern he set with his Child Benefits Program and focus his energies on developing a new federal program for people

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126 Social Union and Place

with disabilities. A new Canadian disability benefit system (cdbs) could well be his legacy: but it will not be his only social policy issue. If Martin were to pick one area in which he could make a historic contribution and leave an important legacy, it would be to modernize and advance social policies related to people with disabilities. Such a program would need to reflect core values: •

•

Every Canadian with a disability has timely access to all necessary supports regardless of their ability to pay for these supports; and, No Canadian suffers undue financial hardship as a result of having to pay for disability-related supports and services.

The underlying concern is twofold: (1) ensuring a more adequate supply of core supports across the country and (2) reducing the economic responsibilities and burdens borne by individuals and families associated with disabilities. It closely fits with an agenda of expanding equal access to opportunity. In most of his budgets Martin enhanced assistance to those with disabilities, in his words, “Canadians who do not seek special rights but simply equal citizenship.”25 Under a cdbs, federal funds would be transferred directly to individuals and families who use them to offset the costs of disability supports and to purchase such services and goods as needed. But this proposal is much more than an income transfer program. Integral to its design is an intergovernmental framework. The comparable initiative in practice to this proposal is the National Child Benefit, the intergovernmental initiative started in 1998 when Martin was finance minister. A national disability benefit would be a federal/provincial/territorial arrangement with certain shared goals. These goals may well be to take people with disabilities off welfare programs, to recognize the extra costs of goods and services associated with living with a disability, and to promote the expansion of supply and thus access to supports. The federal government would invest in a new Canada disability tax benefit (cdtb), a refundable tax credit replacing one or more exiting federal income tax measures, with new investments in the cdtb phased in over a five-year schedule. Since most existing tax benefits are non-refundable, they provide slight if any assistance to very poor individuals and families. As the value of the cdtb grows, the provinces and territories, as well as First Nations, would reinvest saved monies from social assistance and or related disability assistance programs into an agreed framework of health, community and home care, educational, employment, and social service areas of action. Provinces and territories would have the flexibility to decide in what mix of services they

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127 The Social Policy Agenda of a New Prime Minister

would reinvest. A critical part of this strategy would be intergovernmental agreement that the cdtb would not be offset by other means. The intent is that provinces and territories would also contribute additional funds towards disability supports. Also, the cdbs would contain public accountability provisions to monitor and report regularly on spending as well as on new programs and services established because of the strategy. Designing and delivering a modern system of disability supports, as sketched here, is based on intergovernmental respect and requires collaboration. It will involve the participation of federal departments, the provinces and territories, disability organizations, other community service agencies, and policy experts. In addition, the proposal assumes a sizable federal financial investment as well as provincial and territorial reinvestments if not new investments. Martin has the authority and experience, the foresight and opportunity, to reaffirm leadership in Canadian social policy.

conclusions Martin’s thinking implies neither a radical expansion nor a drastic contraction of the social role of the federal government. His ruminations on social policy convey a view of assisting people to reach their potential through the exercise of personal effort, buttressed by a pooling of resources in social and economic programs for addressing shared risks and benefits. This reflects the liberal metaphor of life as a race on an uneven playing field. People need help in being part of the race, and those who are disadvantaged at the start need assistance in competing. Martin’s speeches reveal a view of national social programs as cultural expressions of the Canadian spirit as well as political artefacts of the Liberal party, many of which were created when his father, a recognized social reformer, was in government.26 There remains, surely, room for debate over where Martin will draw the line between government, the market, and other institutions in civil society. This includes debate over the boundaries between the social role of the federal government and provincial/territorial governments plus municipalities, and between public governments and Aboriginal governments in Canada. For the new prime minister, a limited degree of financial room exists, especially in the first few years, to undertake new policy measures in health and social protection on the spending and tax side. A likely theme in Martin’s government will be that providing equal access to opportunity is both good social policy and good economic policy. On the social policy front there are many challenges. The national public

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128 Social Union and Place

health care system needs continued repair and renovation. The Romanow Report made many recommendations, not all of which have been adopted or fully funded. The provinces and territories will most certainly come to Martin early in his mandate wanting more health care funding. The social welfare systems in many provinces need help. Postsecondary education needs further assistance. Social housing and childcare are pressing issues. Cities and rural areas need support. Aboriginal communities are looking to the federal government for support across a range of issues. We expect reforms in the social policy realm will generally occur in a focused and incremental manner, implemented and funded over the medium to longer term. We also suggest that the personal income tax system will continue to be a favoured policy instrument by a Martin government in offering targeted tax relief and addressing social goals. The initial social policy agenda of the new prime minister highlights seven issue areas: national public health care, children, Aboriginal peoples, postsecondary education and research, a new deal for cities, the volunteer sector and social economy, and Canadian with disabilities. To leave a lasting and distinctive mark on social policy, Martin must identify a key policy area and focus on transformational reform. As a new national social project, we propose to Prime Minister Martin a Canadian disability benefit system. This is one of the few bold new initiatives Martin will likely embark on over the coming years. The aim of this reform proposal is to establish an adequate supply of core disability supports and services across the country, and to offer income assistance to offset the additional costs to Canadians living with disabilities. It will move us closer to a Canada where people living with disabilities, and their families, have the support they need to overcome barriers, pursue opportunities, and exercise their rights and responsibilities as citizens.

notes 1 Office of the Prime Minister, Speech from the Throne, 2 February 2004, to Open the Third Session of the Thirty-Seventh Parliament of Canada, 2. Available at Web site . 2 Ibid., 4. 3 Ibid., 5–6. 4 Ibid., 6. Other promises with respect to Aboriginal peoples include renewing the Aboriginal Human Resources Development Strategy, expanding the Urban Aboriginal Strategy, engaging other levels of governments on the place of the Métis in federal policies, and establishing a new Cabinet Committee on Aboriginal Affairs chaired by Martin.

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129 The Social Policy Agenda of a New Prime Minister 5 Ibid., 7. 6 Ibid. 7 Readers unfamiliar with the concept and practice of social economy can consult Jack Quarter, Canada’s Social Economy: Co-operatives, Non-profits, and Other Community Enterprises (Toronto: Lorimer, 1992); Eric Shragge and Jean-Marc Fontan, eds. Social Economy: International Debates and Perspectives (Montreal: Black Rose, 2000); and Yves Vaillancourt and Louise Tremblay, eds. Social Economy: Health and Welfare in Four Canadian Provinces (Halifax: Fernwood, 2002). 8 Quoted in Eric Beauchesne, “Last Budget Wiped Out Surplus: Canada Has No Fiscal Room for Increased Spending, Tax Cuts, Think-Tank Warns,” CanWest News Service, 3 September 2003. 9 For views that Canada continues to have capacity to invest in health and social protection, see Judith Maxwell, The Great Social Transformation: Implications for the Social Role of Government in Ontario (Ottawa: Canadian Policy Research Networks, September 2003); and Michael Mendelson, Foundations and Future of Social Policy in Canada (Ottawa: Caledon Institute of Social Policy, November 2002). 10 cbc News Report, updated 25 September 2003. Available on-line at

11 Roy Cullen, “Martin – Communicator and Consensus Builder – A Liberal View,” Policy Options 23, 7 (2002): 16. 12 For a fuller discussion of the “fiscalization of social policy,” see James J. Rice and Michael J. Prince, Changing Politics of Canadian Social Policy (Toronto: University of Toronto Press, 2000), 143–6. 13 James J. Rice, “Being Poor in the Best of Times,” in How Ottawa Spends, ed. G. Bruce Doern, 102–120 (Don Mills: Oxford University Press, 2002). 14 On the implications of these changes, see Rice and Prince, Changing Politics of Canadian Social Policy; or James J. Rice, “Redesigning Welfare: The Abandonment of a National Commitment,” in How Ottawa Spends, 1995–96: Mid-Life Crises, ed. Susan Phillips, 185–207 (Ottawa: Carleton University Press, 1995). 15 Hon. Paul Martin, The Budget Speech 1998 (Ottawa: Department of Finance, 24 February 1998), 5. On Martin’s belief that the role of a prime minister should be “to concentrate on a few areas and do them well,” see also Susan Delacourt, Juggernaut: Paul Martin’s Campaign for Chrétien’s Crown (Toronto: McClelland and Stewart, 2003), 316. 16 Ibid. 6. 17 Ibid. 9. 18 Paul Martin, quoted by Canadian Press, 21 October 2003. 19 Hon. Paul Martin, Minister of Finance, The Budget Speech 2000 (Ottawa: Department of Finance, 28 February 2000), 18. 20 On the mechanics and politics of stealth in social programs, see Ken Battle, No Taxation without Indexation (Ottawa: Caledon Institute of Social Policy,

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21

22

23

24

25 26

1998); and Michael J. Prince, “From Health and Welfare to Stealth and Farewell: Federal Social Policy, 1980–2000,” in How Ottawa Spends, 1999– 2000: Shape Shifting – Canadian Governance toward the 21st Century, Leslie A. Pal, ed., 151–96 (Toronto: Oxford University Press, 1999). On recent media samples of a fairer system of fiscal federalism, see Heather Scoffield, “Provincial Finance Ministers Reject Federal Equalization Plan,” Globe and Mail, 21 February 2004, A7; and Eric Beauchesne, “Federal Government Gets Rich, We Go into Debt, Provinces Say,” Ottawa Citizen, 9 March 2004, A6. On the health care funding debate, see Rob Mickleburgh, “Health System May Not Survive the Decade, Premiers Warn,” Globe and Mail, 25 February 2004, A4; and the Premiers’ Council on Canadian Health Awareness, available at . For further discussion on these proposals, see materials by the Canadian Council on Social Development, at and Campaign 2000, a national coalition of civil society organizations dedicated to eliminating child and family poverty, at . Finance Canada, “Finance Minister’s Statement on the Seniors Benefit,” News Release (Ottawa: Department of Finance, 28 July 1998). For the original proposal, see Finance Canada, The Seniors Benefit: Securing our Future (Ottawa: Department of Finance, March 1996). Ken Battle, Sustaining Public Pensions in Canada: A Tale of Two Reforms (Ottawa: Caledon Institute of Social Policy, July 2003), 27. Battle offers an insightful analysis of this ill-fated effort at a radical reform of elderly benefits. Martin, Budget Speech 1998, 9. See, for example, P.E. Bryden, Planners and Politicians: Liberal Politics and Social Policy, 1957–1968 (Montreal and Kingston: McGill-Queen’s University Press, 1997). On the liberal view of society as a competitive race and the related notion of equality of opportunity, see Bryan S. Turner, Equality (London: Tavistock, 1986).

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7 I Spy with my Little Eye ... Canada’s National Child Benefit s t e p h a n i e pa t e r s o n , k a r i n e l e va s s e u r , a n d ta t y a n a te p l o v a “The future of our children is, quite literally, Canada’s future.” Speech from the Throne, February 2004

The twelfth of December 2003 marked the end of the Chrétien era, ushering in a new political regime headed by former minister of finance Paul Martin. Although Martin is best known for reducing the heavy federal deficit, equally important, and certainly less well known, is his commitment to child benefits in Canada. Spearheading the National Child Benefits system (ncb) as Minister of Finance, Martin gave top priority to reducing child poverty and helping parents move from welfare to work, prompting speculation as to the type of leader he will be.1 In his initial months as prime minister, Martin has already demonstrated continued commitment to children and families, infusing increased funds into early childhood development and childcare. However, Martin’s style of politics differs markedly from that of the Chrétien Liberals, blurring traditional lines between economic and social policy, with potential implications for child benefits. Since its inception, the ncb has become the cornerstone of child benefits in Canada, signalling an important shift in family policy, moving from a regime characterized by an equality discourse to a childcentred policy framework.2 After a period of fiscal restraint and retrenchment, emphasis placed on children, especially at-risk children, materialized with the infusion of federal dollars into an integrated child benefit system and programs for youth and working parents. Indeed, since the end of universal family allowances in 1988, federal The authors wish to thank the following for their comments and suggestions: Michael Bach, Ken Battle, Bruce Doern, Jane Jenson, Michael Prince, Frances Woolley, and several interviewees who wished to remain anonymous.

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spending on family benefits has shifted to a targeted program administered via the tax system emphasizing child poverty reduction and early childhood development. By 2003 commitment to children was cemented with the establishment of the Early Child Development Framework, housed under the earlier 1999 National Children’s Agenda. This nascent child-centred policy framework, to which the ncb is central, raises several questions about social policy in the Martin era. Does the current framework offer the tools necessary to meet its goals? In other words, is child poverty declining and is labour force attachment increasing? If not, then what is required to meet these goals? We argue that Canada’s child-centred policy framework is still underdeveloped, placing too much emphasis on the ncb to reduce child poverty. We also argue that labour force attachment requires a much more comprehensive policy framework, allowing parents to balance both work and family. In addition, structural barriers outside and within the labour market limiting access to quality employment must be addressed before we can adequately combat child poverty in Canada. In the following section, we outline the National Child Benefits System and its place in Canada’s social policy spectrum. Subsequently, we consider two special cases: single mothers and parents with special-needs children.

t h e n at i o n a l c h i l d b e n e f i t s ( ncb) sy stem Announced in the 1997 federal budget, the ncb system includes the base Canada Child Tax Benefit (cctb), a low-income supplement, a new Child Disability Benefit for parents with special-needs children, and provincial and territorial reinvestments directed at working parents. As of July 2003 the maximum cctb payment is $1,169, clawed back at $33,487. The ncb low-income supplement for the first child in a family is $1,463, clawed back at $21,529. About 85 percent of Canadian families receive the cctb,3 the amount of which is determined by income, and about 40 percent receive the ncb supplement.4 The maximum Child Disability Benefit is $1,600 with an income threshold of $33,487. Characterized by three goals – to prevent and reduce the depth of child poverty, to promote labour force attachment by ensuring that families will always be better off as a result of working, and to reduce overlap and duplication among and between levels of government – the ncb represents Canada’s key initiative for child benefits. Prior to the ncb, the Child Tax Credit (ctc) initially consisted of a base benefit and a working income supplement. In 1998 the ctc was changed to the cctb, now constituting the base benefit of the ncb.

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133 Canada’s National Child Benefit Composition of the ncb system

ncb

cctb Base Benefit Reinvestment

ncb Supplement

cbd

Prov/Terr.

Federal increases to this base benefit were met by provincial reductions in expenditure for social assistance. Provincial money was then reinvested in programs and services aimed at working parents.5 At the same time, the working income supplement was replaced by the ncb supplement, available to parents under the threshold income regardless of their income profile. By 2000 benefits were fully indexed with inflation. Adding a new component to the ncb, the 2003 federal budget introduced the Child Disability Benefit (cdb) with the goal of helping families with the costs of raising a child with disabilities. This policy helps fill a void in the federal income support framework by including children with disabilities from low- and modest-income families. With significant increases in spending and the addition of the new disability benefit, the ncb represents a sound commitment to child policy. Justifying the shift to children, politicians called attention to the rights of children and to the increasing rates of child poverty in Canada and the ensuing tarnished international reputation that followed.6 Canada’s prosperity contrasted heavily against high child poverty rates, ranking poorly in the United Nations Report Card. Closer inspection, however, reveals that the impetus for the regime shift may have more to do with economic principles than benevolence.7 The recent changes to Canada’s family policy, and indeed social policy in general, are characterized by Anthony Giddens’s “third way” rhetoric, marking the explicit convergence of economic and social policy goals. Theorists deem the third way as a political necessity for politicians and policy makers.8 Arguing that the political left and right dichotomy no longer suits the political environment characterized by globalization, individualism, political agency, and ecological problems, Giddens refers to the third way as the “radical centre” comprising elements of both left and right. Although there is no archetype for the third way approach, expenditure is generally targeted towards a “social investment state,” where, according to Giddens:

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134 Social Union and Place government has an essential role to play in investing in the human resources and infrastructure needed to develop an entrepreneurial spirit. Third way politics, it could be suggested, advocates a new mixed economy … The new mixed economy looks instead for a synergy between public and private sectors, utilizing the dynamism of markets but with the public interest in mind. It involves a balance between regulation and deregulation and a balance between economic and the non-economic in the life of the society. The second of these is at least as important as the first, but attained in some part through it.9

Exemplifying third way politics, the “active society,” initiated by the Organization for Economic Cooperation and Development (oecd), integrates income support with labour market participation.10 Seeking to overcome the divisive nature of the Keynesian welfare state, the active society envisions employment as the way to overcome social exclusion. Giddens observes, “Exclusion is not about gradations of inequality, but about mechanisms that act to detach groups of people from the social mainstream.” 11 Thus social investment is aimed at fostering self-sufficiency via “active” employment rather than “passive” direct cash transfers.12 Stimulating active employment also requires a balanced, or comprehensive, policy mix focused on families, including generous leave programs and care services.13 It is on this basis that the ncb, a significant portion of Canada’s social investment strategy, is limited. The ncb marks an explicit link between productive and reproductive spheres. Its stated goals emphasize the importance of reducing child poverty, fostering labour force attachment, and intergovernmental cooperation. Ultimately, it is these goals against which the success of the ncb must be measured. For the purposes of this chapter, we will focus on the first two – child poverty alleviation and labour force attachment – however, provincial and territorial reinvestments also play a key role in furthering these stated objectives.14 By analyzing the implications for Canadian families, particularly single mothers and parents with special-needs children, this chapter demonstrates that the ncb has met these goals with only limited success. We argue that the ncb fails on two levels: first, despite being heralded for representing the significant structural reform of Canada’s social policy,15 the ncb has done little to stimulate labour force participation and attachment. In the absence of a comprehensive policy mix of income redistribution and social services, focused on the specific needs of families, the structural reform of the ncb is simply not enough to remedy barriers outside and within the labour market. Second, while the ncb can be credited with modest decreases in child poverty, the benefit itself is inadequate to reduce child poverty in Canada.

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135 Canada’s National Child Benefit

t h e f i s c a l i z at i o n o f c h i l d b e n e f i t s : i m p l i c at i o n s o f a ta x - b a s e d s y s t e m Our research identified two major problems with the ncb, both of which have negative implications for its ability to achieve its stated goals and both of which affect low- and middle-income families in Canada. First, by neglecting the issues of horizontal equity and regional variances in spending power, the extent to which the ncb reduces child poverty is negligible. Second, high marginal tax rates and the lack of a comprehensive benefits package, including adequate quality childcare, prevent parents from entering the labour force. Despite modest decreases in the child poverty rate between 1996 and 2001, previous studies have demonstrated that the ncb has done little to reduce child poverty in Canada.16 This is due not only to inadequate benefits but also to the structure of the benefits as an incometested system administered via the tax system, which compromises the concept of horizontal equity. Many economists argue that every tax system should satisfy both vertical and horizontal equity. Vertical equity refers to the principle that people with greater ability to pay taxes should do so, and it serves as the basis of the progressive structure of the tax system. Horizontal equity, in contrast, is defined as “the principle where people with equal ‘ability to pay’ taxes should have equal tax liabilities.”17 While it is generally agreed that the Canadian tax system should satisfy the horizontal equity principle, debate centres on interpretation. For example, does horizontal equity mean that persons earning the same income should pay the same tax irrespective of family size and number of dependents? Economists argue that, in order to address both equity concepts, at any income level there should be an important distinction between people with family responsibilities and those without.18 According to Vincent and Woolley (2000), due to the costs and responsibilities associated with raising children, horizontal equity suggests that parents should pay less tax than should non-parents.19 Under the ncb, however, a substantial portion of families with children receive no benefits, thus undermining the issue of horizontal equity. Despite the increase in benefits announced in the 2003 budget, benefits are fully phased out for a two-child family with a net income of $80,250. Only families with three or more children receive benefits above this level. Several issues arise with this type of targetting. First, Statistics Canada (Low Income Cut Off) estimates that a family of four living in a metropolitan area needs one and one-half times the income of a childless family. Thus, a dual-earner family with two children and

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an income of $70,000 is equivalent to a childless couple earning an income of $46,700, which equals $23,300 less income per year. The difference in equivalent incomes is not reflected in the design of the ncb;20 rather, child benefits are taxed back as absolute income increases. Compounding this problem is the regional disparity in spending power, varying by both region and metropolitan area. For example, the spending capacity of a two-child family earning $70,000 in Toronto is significantly different from that of a similar family in Regina. The family in Toronto will struggle to make ends meet, while at the same time receiving no ncb supplement and having about 73 percent (for 2004) of their cctb taxed back.21 The new Child Disability Benefit (cdb) is not exempt from these problems arising from disparate targetting. Having a special-needs child is a significant burden on families, both emotionally and financially. Yet these families with $60,000 income, with similar expenses as families with $30,000, will not receive the $1,600 cdb. Although middle- and upper-income families with children with disabilities are not entirely excluded (since they can claim the Disability Tax Credit), the levels of assistance are too low to adequately assist parents with the costs of raising their children. Until the question of horizontal equity is addressed, the ncb will be limited in its ability to adequately combat child poverty. In addition to the reduction of child poverty, the ncb attempts to foster labour force attachment. It does this by attempting to reduce the “welfare wall,” referring to the disincentive effects of moving from social assistance to the labour market.22 Despite its attempt to do this, the effect of ncb remains negligible as ncb recipients continue to face high marginal tax rates. To understand how a high marginal tax rate distorts economic decisions, we need to realize two things: first, as noted by Rowe and Woolley (1999), the total package of taxes and benefits is what matters to most people. In other words, what they care about is their “effective” tax rate and not taxes and benefits alone. For example, if one pays $5,000 in taxes and receives benefits only for $1,000, then the effective taxes are $4,000. Second, the taxation of income at the margin, or the marginal tax rate, determines the efficiency cost of taxation. Rowe and Woolley (1999) note that if a person with a 40 percent marginal tax rate has an opportunity to earn an extra $100, s/he will only keep $60 in disposable income. If the value of his/her time is $61, this opportunity will be turned down and welfare worth $39 (that is, $100 to $61) is forgone.

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These concepts imply that “a person who loses $40 in benefits for every $100 of extra income they earn faces exactly the same disincentives as one who pays an extra $40 in taxes. Both face a 40 per cent effective marginal tax rate. Thus the ‘clawback’ of benefits raises effective marginal tax rates, creates disincentive effects and distorts economic decisions in exactly the same way the taxation does.”23 This effect is even more pronounced when additional benefits, such as childcare, supplementary health care, and so on, are absent. Moreover, families facing the highest marginal tax rate are not the top earners; they are low-income families, most often with children. For example, a number of studies estimate that low-income families receiving child benefits and entering the labour force would face the same effective marginal tax rate as that faced by high-income earners.24 For example, Vincent and Woolley (2000) note that, for each dollar earned by a low-income three-child family, child tax benefits are currently reduced by about one-fourth. Combined with income and payroll taxes, this group faces higher effective marginal tax rates than do middle- and high-income families. What is important here is that labour force participation decisions are made based on marginal, not total, tax rates. When one adds to this tax rate the costs associated with employment (such as transportation, childcare, etc.), the financial return from working may be minimal if not negative.25 Indeed, not all employment opportunities offer benefit programs (i.e., health, dental) so Canadians contemplating a move from welfare to work also take into consideration the possible loss of these benefits. The difference between the effective marginal tax rates faced by a single earner with two children and the one without children is illustrated in Table 1. The figures were calculated using a simplified version of Canada’s current income tax system. As one can see, families with children with income between $20,000 and $30,000 face an effective marginal tax rate almost twice that faced by families without children. Thus, high marginal tax rates act as a disincentive effect for ncb recipients. While it is true that the base cctb provides incentives for entering the labour force by retaining child benefits, the issue of high marginal tax rates still poses significant barriers for such “activation.” Thus, the ncb “has [only] moved, not removed the welfare wall.”27 The questions of horizontal equity and high marginal tax rates limit the extent to which the ncb will meet its objectives. There is clearly a need to modify the benefit to acknowledge the principles of both horizontal and vertical equity, and to reduce marginal tax rates. In addition, benefits must be large enough to recognize not only the costs of children but also the costs of employment. The social necessity of these policy reforms will become even more apparent in the next section, which addresses single motherhood.

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138 Social Union and Place Table 126 Simplified effect of child benefit tax back, single-earner family (2003 benefit levels)

Income between ($)

Combined federalprovincial tax rate

Benefit tax back rate

Effective marginal tax rate With children

0 – 12,000

No children

0

0

0

0

12,000 – 20,000

25

0

25

25

20,000 – 33,000

25

20

45

25

34,000 – 60,000

30

5

45

40

60,000 – 80,000

45

5

50

45

80,000 +

45

0

45

45

Source: Nicholas Rowe and Frances Woolley, “Policy Options 20, 5 (1999): 57–60, at 58. Modified for 2003. Note: Statutory tax rate calculated assuming provincial taxes are 50 percent of federal taxes. Actual provincial taxes may be higher or lower.

single mothers Perhaps the biggest criticism of the ncb is its neglect of the relationship between women and children’s poverty. For single parents, specifically single mothers, the implications of using a tax-based system for child benefits are especially pronounced. Single mothers experience poverty in a much different way than do single fathers and two-parent households. Lone-parent families comprise 25 percent of all families with children, about 81 percent of which are headed by women.28 Single mothers earn about 35 percent of the before-tax average market income of two-parent families with children and about 62 percent of the average market income of single-parent families headed by men.29 These figures are striking when one considers the fact that more than one-third (37 percent) of single mothers are raising families on less than ten dollars per hour.30 Analyzing the potential of the ncb as a social investment strategy, reducing child poverty and stimulating labour force participation and attachment, requires us to consider the context of women’s poverty. The ncb investments in children, mentioned above, are a good start but remain inadequate to alleviating children’s poverty in Canada, and they are not comprehensive enough to stimulate labour force participation. Although the base benefit of the ncb, the cctb, allocates benefits to the primary caregiver (usually the mother), the supplement

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139 Canada’s National Child Benefit

and provincial reinvestments are targeted towards the working poor. Transition from the Child Tax Credit to the ncb augmented funds only for low-income working parents or those receiving employment insurance.31 Similarly, under the ncb system, federal money is met by an equal reduction of provincial funds, allowing for provincial reinvestment of those funds into programs and services for families, a large portion of which are targeted towards working parents. This has meant that a large portion of single mothers, those on social assistance and who arguably need it most, saw no increase in their benefits upon the implementation of the ncb.32 Moreover, single mothers outside of the paid labour market will not reap the benefits of provincial reinvestments, and this amounts to discrimination based on gender because it assumes that all parents have equal access to the paid labour market.33 The key problem with the ncb, from the perspective of single motherhood, is that it neglects the fact that female labour force participation is inextricably linked both to women’s role as primary caregiver and the burdens of unpaid labour. It is also linked to structural barriers within the paid labour market, such as discrimination and occupational segregation. These problems are embedded within the broader issue of gender inequality and prevent women from participating as equals in the paid labour market. Consider, for example, a study conducted by labour economists Cleveland, Gunderson, and Hyatt that discovered that childcare is a significant inhibitor of labour market participation among women.34 Indeed, Campaign 2000 writes, “Even though more than 70% of young children have mothers in the paid labour force, only 12% of children 0–12 have access to a regulated child care space.”35 Young observes, “Women’s ability to participate fully in the paid labour force is … adversely affected by their primary caregiving role for their children. The result is that there are many women who cannot ‘afford’ to participate in the paid labour force.”36 Maureen Baker argues, “until gendered inequalities within the home are resolved, women will continue to have a comparative disadvantage in paid employment.”37 These problems are even more pronounced when one considers the experiences of women in the formal economy. Despite the ncb’s emphasis on labour force participation, 67 percent of single mothers are employed,38 signalling structural barriers within the paid labour market (such as low wages, part-time or insecure employment) that perpetuate poverty.39 Even where men and women attain similar levels of education, women are less likely to be employed.40 Further, female earnings are still only 64 percent of those of men.41 Indeed, Campaign 2000 observes:

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140 Social Union and Place Significant changes to the labour market include the growth of jobs in the small business sector and self-employment, as well as the move to non-standardized forms of employment. Full-time jobs increased 13% between 1990 and 2000 while part-time employment grew 21%. And while permanent jobs during the recovery years of 1997 through 2000 grew 8%, temporary employment grew by 21%. While women accounted for almost half of the labour force in 1999, women performed almost 80% of all part-time jobs.42

The nature of women’s employment and the problems associated with it are more severe for single mothers. For example, the median income of single mothers ($22,939) is only 34 percent that of married couples ($67,505), and the incidence of low income among single mothers (35.1 percent) is almost twice that of male-headed lone-parent families (17.3 percent) and four times that of couple families (9.1 percent).43 Rather than address the structural barriers of the labour market, policies such as the ncb have the potential to entrench them.44 This points not only to the need for a significant increase in child benefits but also to the need for a radical restructuring of the labour market. Situated within the context of gender inequality, emphasis on labour force participation and attachment is perhaps misdirected. Advocates of the ncb observe that labour market participation is the most likely route out of poverty.45 Such an observation clearly neglects the fact that marriage and divorce are the largest indicators of poverty among women, with divorce as the most likely route into poverty and marriage as the most likely route out of poverty.46 Further, the depth of poverty among single mothers is more severe than that of any other cohort.47 The implication, of course, is that measures designed to foster labour force attachment will be inadequate without addressing barriers both inside and outside the paid labour market. In sum, in the absence of policies and programs addressing these structural issues of women’s poverty, the ncb will be unlikely to meet its objectives of reducing child poverty and increasing labour force attachment. Lacking adequate childcare and demand-side initiatives within the labour market, child poverty will continually be linked to the poverty of their mothers. Leah Vosko observes that “the absence of explicitly gendered provisions does not amount to gender-neutral consequences.”48 It should be noted that Prime Minister Martin has announced new monies for a national childcare initiative. However, in the absence of national standards regarding the allocation of those funds, the effectiveness of the program may be compromised. Ultimately, any anti-poverty program must recognize that children’s poverty is contingent upon their parent’s social and economic well-being.

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141 Canada’s National Child Benefit

pa r e n t s w i t h c h i l d r e n with disabilities Although parents with special-needs children must deal with the limits of the ncb in terms of horizontal equity and marginal tax rates, these families also experience unique circumstances. In addition to emotional and financial stress, it is often the case that only one parent participates in the paid labour market.49 Campaign 2000 (2003) notes, “Children with disabilities and their families face immense financial, social and emotional stresses. Inadequate services and supports leave these families with lower incomes, more reliance on public transfers, and more restrictions in the labour market. Rates of poverty are five times higher among families that have children with disabilities than among other families.” The key mechanism providing financial assistance to persons with disabilities is the non-refundable tax credit (worth up to $989 in 2002) known as the Disability Tax Credit (dtc). Regarding support for children with disabilities, the 2000 federal budget introduced an additional non-refundable dtc supplement worth a federal tax reduction of $577. It is projected that the dtc, including the children’s supplement, will assist 450,000 Canadians at a cost of $400 million. Since the dtc is a non-refundable credit, those Canadian families who are too poor to pay taxes do not benefit from this tax provision. To bring low- and modest-income families with children with disabilities into the federal income support framework, Finance Minister John Manley announced the Child Disability Benefit (cdb)in the 2003 budget as an income-tested, indexed supplement to ncb worth up to a maximum of $1600 for its first year (July 2003 to June 2004). Families earning less than $33,487 in 2003 with one disabled child will receive the full $1600 supplement. Above this amount, the cdb will be reduced to zero when the family income reaches $46,602 with one disabled child, $47,584 for two disabled children, and $48,211 for three disabled children. The cdb is projected to assist 40,000 families at a cost of $50 million.50 Its goal is obviously to provide support to low- and modest-income families with a special-needs child. There may also exist a much more implicit goal: labour market participation. By placing the cdb under the ncb umbrella, it raises speculation as to whether the cdb also suggests labour market attachment since “[in] over 60% of two parent families with a child with a disability, one parent has to leave the labour market to provide unpaid support for their child.”51 Though, to be sure, the maximum payment of $1600 does “not adequately meet the costs of providing support for a child with a disability.”52 For such a

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142 Social Union and Place

needy group this is not a generous amount, and it will not likely help parents to participate in the labour force. Compounding the issue of inadequate benefits is its lack of vision as the 2003 budget did not provide insight into future financial values of the cdb. All that was announced was the creation of the cdb with a maximum payment of $1600. But what is the cdb’s long-term vision for 2004–10? Given that the cdb is a recent creation it is too early to judge whether it will be used, either explicitly or implicitly, as a mechanism to promote labour market participation. Regardless, like the broader ncb, the inadequacy of the benefits and the neglect of barriers specific to parents of children with disabilities limit the extent to which the cdb can reduce either child poverty or the financial strains faced by parents. The two recent tax provisions – the dtc supplement for children and the cdb – are consistent with the intergovernmental agreement of full citizenship for disabled individuals as expressed in the In Unison paper.53 These tax expenditures provide not only symbolic recognition but also substance; this is because they are embedded tax policies, which are rarely terminated. While the cdb helps fill a gap of income support for lower- and modest-income families, it adds to piecemeal policy making, creating more complexity and confusion within the tax system. This is compounded by the fact that a substantial number of tax provisions already exist for individuals with disabilities, each with different eligibility criteria. This piecemeal approach raises many questions, including: Have we spawned so many tax provisions in an effort to help Canadians with disabilities that we have lost sight of the big picture? How do we simplify the system to create a more coherent and comprehensive approach to the taxation of disabled Canadians? And, more important, is the tax system the best way through which to deliver benefits to these families? The ncb may not be the best way to assist families with children with disabilities since it is not responsive to the specific needs of these children.54 Some children have multiple disabilities and, as their severity of the latter varies, so does the costs associated with raising these children. It is not desirable to build a real-needs test into the cdb as this would involve stigma and intrusiveness; however, we must recognize the problems faced by families experiencing the highest costs in raising special-needs children. Indeed, understanding the rationale for constructing disability support based on income is difficult. Rather than constructing disability as a uniform affliction, the government may need to entertain the notion of creating differing levels of disability and thus providing appropriate support for each level without subjecting the child in question to a multitude of tests.

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143 Canada’s National Child Benefit

An additional problem, undermining the promise of helping families with the costs associated with raising a child with disabilities, is the narrow criteria for eligibility. Both the dtc supplement for children and the cdb rely on the eligibility criteria of the dtc. Eligibility requires that an individual’s impairment must be “prolonged,” which is defined as lasting continuously for at least twelve months, and must “markedly restrict” the person from performing one or more “basic activities of life,” including perceiving, thinking, remembering, feeding, dressing, hearing, walking, and eliminating body waste. The issue of eligibility is overwhelming and a complete treatment of it is not possible here. Briefly, however, the eligibility criteria are designed to assist the most severely disabled, excluding many Canadians whose impairments are both severe and markedly restrict their activities but are not continuous. For example, multiple sclerosis “is a cyclical, unpredictable, progressive and degenerative disease. And because it is episodic in nature, many individuals with this disease are unable to qualify for the dtc because attacks do not last for a continuous period of 12 months.”55 Additionally, the eligibility criteria are reactive and do not help either to prevent disabilities or to assist individuals with higher medical costs than those pertaining to non-disabled Canadians. Diabetes, by itself, is not a disability, but lack of proper treatment can lead to disabling complications. Canadians with insulin-dependent diabetes are not eligible for the dtc but face high medical costs; consequently, some of these people make decisions about the treatment of their diabetes based on financial considerations rather than on determining which treatment will best prevent future disabilities. This issue has generated considerable attention within political and social circles to the point where it has become somewhat of an embarrassment for government. In response to this embarrassment, the government proposed minor amendments to the eligibility criteria in the 2003 budget and created a technical advisory committee to advise it on eligibility and administrative criteria for the dtc.56 The disability community hopes that, through this committee, improvements will be made to the eligibility criteria.

p o l i c y i m p l i c at i o n s a n d l i m i tat i o n s Investments in children are difficult to criticize, and helping individuals acquire the necessary skills to compete in the paid labour market is an important part of Canada’s changing social and economic policy landscape. However, the ncb fails on both quantitative and qualitative levels. As the cornerstone of child benefits in Canada, the ncb is quantitatively

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144 Social Union and Place

inadequate to reduce child poverty. In the absence of a comprehensive policy mix focused on the specific needs of families, the ncb is qualitatively limited as a measure designed to stimulate labour force participation and attachment. How can policy makers improve the ncb? The preceding discussion pointed to a few problems of the ncb common among all target groups; namely, high marginal tax rates and ineffective targeting stemming from the neglect of horizontal equity, along with problems faced by particular groups of recipients. We propose two sets of reforms to the ncb. First, we support the reintroduction of universal child benefits and advocate a substantial increase in those benefits. Second, we propose a balanced mix of both income redistribution and services to ensure that families get the support they need to balance both productive and reproductive spheres. Universal family allowances were replaced by a targeted system of child benefits in 1988. Although universalism has been panned as inefficient and outdated, the advantages of such benefit schemes cannot be overlooked. As Rowe and Woolley note, “with targeted benefits, people who receive them, face clawbacks with additional income, and therefore pay a higher effective marginal tax rate than people with similar incomes who do not receive benefits.”57 Implementing universal benefits, in turn, would reduce and possibly end the clawback of benefits, guaranteeing a minimal level of benefits to all children. Reducing the child benefit tax-back rate could potentially solve the problem of high effective marginal tax rates.58 More people could afford to participate in the formal economy, leading to better future life chances. Universal child benefits will allow for fair tax treatment of Canadian families with and without children.59 Moreover, with significant increases in benefits, the costs of raising children will be recognized and guaranteed for all families, and the principle of horizontal equity will inform the tax system, acknowledging that families with children need more income than do families without children. It will recognize children as people rather than as dependents within the Canadian tax system – people entitled to a guaranteed minimum level of income. This concept also applies to families with special-needs children as they face significantly higher childrearing costs then do families without specialneeds children. In addition to extending the client base of the ncb, the benefits need to be increased substantially.60 As a guide for increasing benefits, Vincent and Woolley suggest that equivalence scales similar to the Statistics Canada Low Income Cut Off should be used in order to determine the appropriate level of transfers. On top of compensating

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145 Canada’s National Child Benefit

parents for the expenses related to raising a child – expenses that do not vary with the income of the family61 – universal child benefits can be seen as “social insurance directed at the children themselves and … meant to ensure that children in needy families have reasonable opportunities in the future (a responsibility of government that is enunciated in the constitution).”62 This is especially true for parents of children with disabilities. There is a need to create a more responsive system of benefits for families with a special-needs child. Using taxation as a social policy instrument creates a “blunt” effect and fails to accurately reflect the true costs of raising a special-needs child. What is needed are more categories of disability that will truly help families with the costs of raising their special-needs children; what is not needed is the construction of disability as a uniform affliction. Although universality has little support, it recognizes that every child is entitled to access to a certain level of benefits and an increase in the equity and efficiency of the Canadian tax system.63 Although income redistribution is necessary to reduce child poverty, equally important is the extent to which benefits are supplemented with comprehensive services to balance the state-market-family nexus. This means supplementing child benefits to parents with programs designed to help with the costs of raising their children as well as active labour market participation. In addition to the problems of high marginal tax rates and neglect of horizontal equity common to all recipient groups, single mothers must face structural barriers both inside and outside the paid labour market. These barriers perpetuate a comparative disadvantage for women in the labour force. Since the ncb only targets the supply side of the labour force without altering the demand side, it has done little to help women make any gains in the paid labour market. In the absence of such corrective measures, the ncb will not combat discrimination in the form of low wages and insecure, part time employment. Similarly, it will not ease the responsibility for care and unpaid labour, for which mothers are primarily responsible. This suggests that the ncb must be only part of a more comprehensive child benefits package, including adequate childcare and familyfriendly employment policies. Such policy changes would also benefit parents with special-needs children. Parents with special-needs children face tremendous emotional and financial strain, which often prevents one parent, usually the mother, from access to the paid labour market. Equally important is the reorientation of policy goals to explicitly recognize the demands of caregiving and more equally distribute these responsibilities between men, women, and the state. At present, the piecemeal measures

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146 Social Union and Place

that have been implemented to assist families with special-needs children are not comprehensive enough to adequately address the broader issue of child poverty.

conclusions The preceding discussion demonstrates that the ncb has been limited in meeting its stated objectives. First, it has done little to reduce child poverty in Canada. Second, in the absence of a comprehensive policy mix, focused on the specific needs of families, the ncb is unable to stimulate labour force participation and attachment. High marginal tax rates coupled with absent provisions (including dental and health benefits, which are not always available from employers) and failure to recognize both the gendered context of children’s poverty and the unique circumstances of parents with special-needs children have hindered the ability of many to enter the paid labour market. We conclude with a brief discussion of the advantages of returning to a universal system of benefits and call for a more comprehensive policy mix in Canada’s treatment of children. Although the ncb has contributed to the recent decline in child poverty, an analysis of the past two decades suggests that this may not be a long-term trend.64 The ncb supplement helps some but not all families, particularly those led by single mothers and those with a special-needs child. It takes much more than a benefit to help raise a child and keep her/him out of poverty. As the most recent Report Card issued by Campaign 2000 observes, attention needs to be paid to labour market issues, housing, childcare, health and dental benefits, and services for special-needs children. Without such attention, the ncb is destined to fail: and the cost of this failure, we argue, it too severe for our children. Paul Martin has shown himself to be a strong supporter of children. The change to the ncb system under his watch has been significant since it represents an important shift within the social policy of the past few decades. Despite Martin’s reassurance that he is a fiscal fundamentalist, his desire to leave his mark in the area of social policy is strong and his chosen area concerns the building of a child-centred policy framework. Just as his father left his mark on Canada’s social policy framework, so has Paul Martin. And he has done this by commingling social and economic policy in order to benefit Canada’s children. Regarding disability issues, Martin stated in his leadership campaign: “I think it’s unforgivable that we’ve not developed a comprehensive program to level the playing field for disabled Canadians.”65 Martin, we suggest, is sincere in his desire to help Canada’s

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children, but his policy focus lacks an understanding of the barriers families face when moving from welfare to work. Only when those barriers are adequately addressed within Canada’s social policy spectrum can we adequately address the issue of child poverty.

notes 1 See Maclean’s, 18 August 2003, cover story. 2 See Wendy McKeen, “Shifting Policy and Politics of Federal Child Benefits in Canada,” Social Politics 23 (2001): 186–90; Alexandra Dowbrowolsky and Jane Jenson, “Shifting Patterns of Representation: The Politics of ‘Children,’ ‘Families,’ ‘Women,› working paper prepared for the meeting of “Care, Values, and the Future of Welfare” – cava, Leeds University, 1 November 2002; and Wanda Weigers, The Framing of Poverty as “Child’s Poverty” and Its Implications for Women (Ottawa: Status of Women Canada, 2002). 3 Ken Battle and Michael Mendelson, “The National Child Benefit: Another Hiccup or Fundamental Structural Reform?” Caledon Institute of Social Policy Presentation, prepared for the Conference on the State of Living Standards and the Quality of Life in Canada, October 1998, 11. 4 Maclean’s, supra, note 1. 5 New Brunswick and Newfoundland were the only two provinces that did not reduce social assistance payments. 6 See Ken Battle, “The National Child Benefit: Best Thing since Medicare or New Poor Law,” in Canada’s National Child Benefit: Phoenix or Fizzle? ed. Douglas Durst, 22–35 (Halifax: Fernwood, 1999). 7 Jane Jenson and Denis Saint-Martin, “Building Blocks for a New Welfare Architecture: From Ford to lego?” Prepared for the Annual Meeting of the American Political Science Association, 2002, 10. 8 See Anthony Giddens, The Third Way: Renewing Social Democracy (Cambridge: Polity Press, 1998); and Anthony Giddens, “Introduction,” in The Global Third Way Debate, ed. Anthony Giddens, 1–22 (Cambridge: Polity Press, 2001). 9 Giddens, supra, note 8, at 99–100. 10 Mitchell Dean, “Governing the Unemployed Self in an Active Society,” Economy and Society 24, 4 (1995): 559–83, at 567. 11 Giddens, supra, note 8, at 104. 12 See Giddens, supra, note 8; Dean, supra, note 10; and William Walters, “The ‘Active Society’: New Designs for Social Policy,” Policy and Politics 25, 3 (1997): 33–44. 13 See Gosta Esping-Andersen, “A Welfare State for the 21st Century,” in Giddens, supra, note 8, at 134–56; and James Midgley, “Growth, Distribution, and Welfare: Toward Social Investment,” in Giddens, supra, note 8, at 157– 71.

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148 Social Union and Place 14 Although we focus on the first two goals, one important implication of provincial reinvestments is the potential undermining of national standards. See Sandra Bach and Susan Phillips, “Constructing a New Social Union: Child Care beyond Infancy,” in How Ottawa Spends, 1997–98: Seeing Red – A Liberal Report Card, ed. Gene Swimmer, 235–58 (Ottawa: Carleton University Press, 1997); and Gerard Boismenu and Jane Jenson, “A Social Union or a Federal State? Competing Visions of Intergovernmental Relations in the New Liberal Era,” in How Ottawa Spends, 1988–99: Balancing Act – The Post-Deficit Mandate, ed. Les Pal, 57–80 (Toronto: Oxford University Press, 1998). 15 Battle and Mendelson, supra, note 3. 16 See Campaign 2000, 2003 Report Card. As of 2001, the rate of child poverty was 15.6 percent, down from 2000 but still higher than the 1989 rate of 14.9 percent. See also Pierre Lefebvre and Phillip Merrigan, “Assessing Family Policy in Canada: A New Deal for Canadian Families and Children,” Choices 9, 5 (2003): 1–100. Available at . 17 Carole Vincent and Frances Woolley, “Taxing Canadian Families: What’s Fair, What’s Not,“Choices 6, 5 (2000): 1–44. 18 See Frances Woolley, “For a Radical Redesign of Our Tax Treatment of the Family,” Policy Options 19, 7 (1998): 7–9; Frances Woolley, “Compassionate Priorities for Tax Reduction,” Policy Options 20, 10 (1999): 18; Carole Vincent and Frances Woolley, supra, note 16; and Nicholas Rowe and Frances Woolley, “The Benefits of Universality,”Policy Options 20, 5 (1999): 57–60. 19 Vincent and Woolley, supra, note 17. 20 Ibid. 21 Frances Woolley, “Blurring Boundaries: The Disappearing Distinction between Social and Economic Policy,” in Linking Economic and Social Policy to Benefit All Canadians? ed. Charles Beach (Kingston, on: John Deutsch Institute for the Study of Economic Policy, Queen’s University, forthcoming). 22 Battle and Mendelson, supra, note 3. 23 Vincent and Woolley, supra, note 17. 24 See Allan MacNaughton, Thomas Matthew, and Jeffrey Pittman, “Stealth Tax Rates: Effective versus Marginal Tax Rates,” Canadian Tax Journal/Revue fiscale canadienne 46, 5 (1998): 1029–66; and Vincent and Woolley, supra, note 17. 25 Woolley, supra, note 18 at 18. 26 Vincent and Woolley, supra, note 17 at 58. 27 Vincent and Woolley, supra, note 17 at 22. 28 Statistics Canada, Census 2001, available at . 29 Statistics Canada, supra, note 28. 30 Campaign 2000, Report Card on Child Poverty in Canada, 1999 (Ottawa: Capaign 2000, 2000).

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149 Canada’s National Child Benefit 31 See Claire F.L. Young, Women, Tax and Social Programs: The Gendered Impact of Funding Social Programs through the Tax System (Ottawa: Status of Women Canada, 2000), 33, and Battle, supra, note 6 at 48. 32 See Weigers, supra, note 2; and Jane Pluckingham and Gordon Ternowetsky, “Child Poverty and the cctb/ncb: Why Most Poor Children Gain Nothing,” in Canada’s National Child Benefit: Phoenix or Fizzle? ed. Douglas Durst, 103–14 (Halifax: Fernwood, 1999). 33 McKeen, supra, note 2. 34 Gordon Cleveland, Morley Gunderson, and Douglas Hyatt, “Child Care Costs and the Employment Decision of Women: Canadian Evidence,” Canadian Journal of Economics 24, 1 (1996): 132–51. 35 Campaign 2000, Report Card on Child Poverty in Canada, 2001 (Ottawa: Campaign 2000, 2003). 36 Young, supra, note 31. 37 Maureen Baker, “Poverty, Social Assistance, and the Employability of Mothers in Four Commonwealth Countries,” in Women’s Work Is Never Done: Comparative Studies in Care-Giving, Employment, and Social Policy Reform, ed. Sylvia Bashevkin, 85–112 (New York: Routledge, 2002), 92. 38 Statistics Canada, Women in Canada, Work Chapter Updates (Ottawa: Statistics Canada, 2003), catalogue number 89F0133xie. This figure represents single mothers with children under the age of sixteen in the labour force. 39 Maureen Baker, supra, note 37. 40 Statistics Canada, supra, note 28. 41 Statistics Canada, supra, note 28. 42 Campaign 2000 (2002) supra, note 35. 43 See Statistics Canada, supra, note 28. These figures include only those families with children under eighteen years of age. 44 See Weigers, supra, note 2; Pluckingham and Ternowetsky, supra, note 32. This is a matter of debate. For example, that parents can still receive benefits as they enter the workforce offers the potential for women to be more selective in the employment they take or to spend more time at home. 45 Rick August, “Income Security and the Labour Market: Saskatchewan Perspectives on Child Benefit Reform,” in Canada’s National Child Benefit: Phoenix or Fizzle? ed. Douglas Durst, 61–83 (Halifax: Fernwood, 1999). 46 See Lorraine Davies, Julie Ann McMullin, and William R. Avison, Social Policy, Gender Equality and Poverty (Ottawa: Status of Women Canada, 2001); Weigers, supra note 2; and Clarence Lockhead and Katherine Scott, The Dynamics of Women’s Poverty in Canada (Ottawa: Status of Women Canada, 2000). 47 Campaign 2000, Report Card on Child Poverty in Canada, May 2002 (Ottawa: Campaign 2000, 2002). 48 Leah Vosko, “Mandatory ‘Marriage’ or Obligatory Waged Work: Single Mothers and Social Assistance in Wisconsin and Ontario,” in Women’s Work Is Never Done: Comparative Studies in Care-Giving, Employment, and Social

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150 Social Union and Place Reform Policy Reform, ed. Sylvia Bashevkin, 165–200 (New York: Routledge, 2002). 49 Canadian Association for Community Living, The 2003 Federal Budget: What It Means for People with Disabilities and their Families ( Ottawa: Canadian Association for Community Living, 2003). 50 Families claiming the cdb can still claim the dtc and the supplement for children. 51 Canadian Association for Community Living, supra, note 48. 52 Ibid. 53 In October 1998 the federal, provincial, and territorial governments, except Quebec, signed this document. 54 Sheri Torjman, Will the “Children’s Budget” Include Kids with Disabilities? (Ottawa: Caledon Institute, 1999). 55 Standing Committee on Human Resources Development and the Status of Persons with Disabilities, Getting It Right for Canadians: The Disability Tax Credit, March 2002. 56 This committee is co-chaired by Sheri Torjman of the Caledon Institute and tax expert Robert Brown. 57 Rowe and Wooley, supra, note 7. 58 Vincent and Woolley, supra, note 17. 59 Ibid. 60 See Battle and Mendelson, supra, note 3; Campaign 2000, November 2003. 61 Vincent and Woolley, supra, note 17. 62 Robin Boadway, “Retain Targeting, But Make Credits Refundable,” Policy Options 20, 10: (1999): 18. 63 Woolley, supra, note 18. 64 See Statistics Canada, Income Trends in Canada, 2001 13F0022xcb, cited in Campaign 2000 Report Card, November 2003. 65 Canadian Press (Ottawa), “Martin Offers Social Wish List,” 7 November 2002.

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8 New Fishery Management in Atlantic Canada: Communities, Governments, and Alternative Targets stephan schott Ensuring viability of fish stocks is a responsibility that we as a sovereign nation have to our people and to our children. Paul Martin, 23 May 2003, in Charlottetown, pei

At the leadership debate in May 2003 Paul Martin was explicit in his desire to reorganize and strengthen fishery management in Atlantic Canada. He pointed to an improvement in the quality of science, to better communication between fishers and scientists, and to taking a tougher stand on foreign fishing fleets. Although foreign fleets that operate outside of Canada’s 200-mile zone of exclusive use cause a threat to stocks and the viability of our fisheries, it is by no means the only reason for the demise of the fishery. Even without cooperation from foreign fleets it would pay for Canada to reform fishery management within the 200-mile zone limit. In the Speech from the Throne in February 2004 Paul Martin envisioned a Canada with strong social foundations, a Canada in which families and communities have the tools to “find local solutions for local problems.” He committed himself to build capacity and institutions in communities so that they could better help themselves. At the same time the Speech from the Throne announced a new Oceans Action Plan that will maximize the potential of Canada’s vast coastal and offshore areas. The integration of local solutions and the maximization of potential in coastal areas is not only a challenge but also an opportunity to improve living conditions for many coastal communities and to make ocean management more sustainable. The Department of Fisheries and Oceans (dfo), which has the mandate to manage fisheries and oceans in Canada, has committed itself to new forms of governance, shared stewardship of resources, and better

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knowledge accumulation. This is manifested in its Sustainable Development Strategy (2001–03). The dfo, for example, repeatedly addresses the concept of co-management but is relatively vague on its institutional design. It has not moved beyond the establishment of some advisory multistakeholder bodies with no formal power-sharing arrangements. There have been no significant changes or innovations in governance, nor have there been any general policy direction changes. One of the advisory bodies established by dfo, the Atlantic Fisheries Policy Review, found that the department’s policies have substantial social, environmental, and economic impacts but that the Department lacks any mandate on social and economic objectives. Economic, environmental, social, and political aspects of the management system jointly determine the sustainability of managed resources and the institutions that govern them. Atlantic Canada’s fishery management is species-specific and, to the largest degree, controls fishing effort with individual quotas based on a total allowable catch (tac). The determination of the tac turns out to be very problematic due to large fluctuations in recruitment, changes in fishing technologies, and inadequate information upon which to set a conservative quota. Experiences in most other fisheries show that tac management has more often contributed to stock declines than avoided them.1 There is increasing consensus that complex ecosystems, such as marine resource environments, require adaptive management and depend on feedback from resource users to assess stocks and changes in the ecosystem. Community-based management in the form of territorial user rights has proven to be quite successful in stabilizing incomes and resource stocks for non-migratory (sedentary) species. The sharing of some (particularly migratory) resources between communities, offshore, and international fleets, however, demands proper economic incentives and coordination by other institutional arrangements. This chapter reviews historic experiences in Atlantic Canada’s fishery, experiences in other fisheries, and results and suggestions from the natural resource management and common pool resource literature. It then discusses the possible implementation of alternative targets and policy instruments as well as the design of institutions and their linkages as part of a co-management regime that involves power sharing between different levels of institutions and governments. The future role of harvesters, scientists, and different levels of government within the new management paradigm is discussed and recommendations are made. The chapter concludes that Atlantic Canada should consider the establishment of community-based rights for the harvest of sedentary (relatively stationary) species, where social boundaries co-

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incide with biological boundaries, and consensus within communities is likely to be reached. Informal catch pooling and output-sharing in independent partnerships is a suggested alternative to quota management for migratory species (such as cod, haddock, and flatfish) or for fishing grounds that cannot be governed by community-based management. More selective harvesting by gear at significantly older age selection for some species (such as cod) should be further examined. Harvesters need to be actively involved in decision making, data collection, and decisions concerning changes of policy instruments and management targets. Provinces and the dfo will have to devolve some of their powers and take on a more facilitating and educating role.

historic developments and management approaches The moratorium of 1992 has put the reliability and organization of fishery management in Atlantic Canada in question. After 1992 the groundfish fishery, of which cod was the most lucrative species, was reduced to less than 10 percent of its traditional value. Even before its catastrophic collapse, the groundfish fishery’s revenues were less than its administration and management cost.2 Before the moratorium groundfish and shellfish roughly created the same landed value, and historically groundfish dominated landed values and total catches. The region’s commercial fishery now depends on very valuable shellfish. Due to the increase in the value of shellfish and the sharp increase in exploitation rates, the landed values of the Atlantic fishery before and after the moratorium are not fundamentally different. Crab quotas, for example, increased by more than five times in a span of only ten years, and it is questionable whether current harvest rates are sustainable. There are already signs of recruitment failures and reduced stock numbers in some areas, particularly in Newfoundland. Not only is there now an increased dependence on one single fishery, but the decline of groundfish has also resulted in conflicts between groundfish and shellfish harvesters concerning shares of shellfish quota or licences. The cod fishery was the oldest fishery in Atlantic Canada and for centuries has consistently produced relatively stable harvests. A historic review of the most important cod fishery, the northern cod fishery off the coast of Labrador and Newfoundland, helps to identify possible flaws in past management policies and in the way institutions as well as regulatory and political processes influenced developments. The key events are well documented and summarized by Parsons3 and Lear and Parsons.4 I will complement their analysis with other sources and with some of my own research findings.

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An inshore fishery in Newfoundland developed in the seventeenth century. In 1866 the cod trap was introduced, and this is still the predominant gear used in the inshore fishery. By 1901 there were around 4,000 cod traps, the same number as in 1990. Conflicts between the inshore and the offshore sector began to accelerate with the introduction of dragging, and since 1920 the previous upward trend in the inshore sector’s catch was reversed. From 1920 to the present, inshore catch in the most significant fishery, the northern cod fishery, gradually declined. In 1920 the inshore fishery had an aggregate catch of more than 300,000 metric tons (mt), and by 1974 the catch had declined to 34,000 mt. Until 1950 attempts were made to limit effort and to avoid gear conflicts by regulating mesh sizes in cod nets and cod traps, and prohibiting trawlers on specific grounds. Local cod trap committees were formed to design cod trap berths. In 1950 an international body International Commission for the Northwest Atlantic Fisheries (icnaf) was given the mandate to maintain a maximum sustained catch in the fisheries. icnaf controlled fishing gear from 1953 to 1971 through mesh size regulation and through supervizing the construction of otter trawls. Total catch in the northern cod fishery was relatively stable from 1946 to 1958, fluctuating between 200,000 and 300,000 mt. After 1958 catch increased dramatically, reaching an all-time peak of 810,000 mt in 1968; however, it declined below 200,000 mt after 1976. Increasing capacities and intense fishing efforts after 1958 caused experts to seek other management instruments. Mesh size restrictions, however, had only been used to a limited degree. Instead of considering much larger holes in the nets and raising the age at first capture, catch quotas were touted as reducing fishing effort and the strain on fishing stocks. Catch quotas, however, required knowledge about stock sizes and annual recruitment of young fish – knowledge that was not properly developed at that time and that is still controversial. They also critically depends on the collection of reliable data from fishers, both offshore and inshore. In 1973 the first tac was announced: 665,000 mt, of which 90,000 mt were designated for the Canadian three-mile zone. Enforcement of the tac was unnecessary because, from 1973 to 1976, the fishery failed to take it. This very large tac set the wrong signal for investment and fishing effort. It turned out that stocks were not as large as expected, with aggregate catches as low as 152,000 mt in 1976. This should have been a warning sign for the potential problems with tac management. In 1977 the 200-mile zone was introduced, which gave Canada authority over most of the fish stocks and gave Canadians confidence about the future of the fishery. Some stocks, however, go through international wa-

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ters and run the risk of being intercepted by foreign fleets. Besides this, catch predictions were based on average recruitment estimates of the past (including the extraordinary years of the 1960s). In 1979 Newfoundland started to demand a greater share of jurisdiction in fisheries management, causing interprovincial conflicts (particularly with Nova Scotia) with respect to landing requirements for offshore vessels. Newfoundland attempted to require all offshore vessels to land their catch in Newfoundland for processing. The province also demanded an 85: 15 split of catches between the inshore and offshore fishery, but by 1981 the distribution was only approximately 55 percent for their inshore fishery. From 1980 to 1986 the offshore fishery expanded its catch by 127 percent, from 79,000 mt to 179,000 mt, while inshore catches declined. This caused inshore fishers to question the dfo’s stock assessment. As a reaction inshore fishers organized themselves and formed the Newfoundland Inshore Fisheries Association (nifa). In 1986 the Canadian Atlantic Fisheries Scientific Advisory Council (cafsac) noticed, through retrospective analysis based on revised population numbers, that actual harvest rates (i.e., fishing mortality rates) were much higher than intended by the fishery management target. When recruitment is much lower than expected, or harvesting is more intense than the catch data predicts, actual harvest rates can be much larger than planned. Recruitment turned out to be smaller than expected (see Figure 1), and individual quotas had undesirable side effects, such as high-grading and by-catch.5 Parsons,6 an oecd report,7 and The Economist8 all find that high-grading and by-catch are very significant problems for quotas-based fisheries. These problems have to do with the principle of getting the maximum value each time a vessel goes to sea. Fish that are of minor quality or size are discarded at sea (and, as a consequence, are wasted) because vessels want to exchange quota only for the highest achievable fish value. By-catch refers to the undesirable harvest of species that are not targeted: and the more vessels engage in discarding, the more by-catch is acquired. A vessel that catches a species as a by-product but does not own any quota for that kind of fish needs to discard it, unless it is allowed to purchase quota after the fact. High-grading exists whether a quota is tradable or not, and the by-catch problem is only potentially reduced (certainly not eliminated) by allowing the purchase of quotas after fish have been harvested. Some species have insufficient value and are always discarded. In 1986 capelin and crab licences were increased, which could have been partly responsible for the inshore decline of cod catches. Capelin are the main prey for cod, and increased harvest rates for capelin do

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not help in accelerating the recovery of cod stocks. Fishers also moved into harvesting other species because of a decline in catch rates for cod. In 1987 a task group on the Newfoundland Inshore Fishery recommended increasing observer coverage on offshore trawlers but also pointed out that there was potential overfishing in the inshore fishery of southeastern Newfoundland. In 1989 cafsac announced shocking news for the Atlantic groundfishery. It found that the actual harvest rates of the fishable stock were consistently about double those estimated earlier. cafsac suggested a drastic reduction of the tac to 125,000 mt, but fisheries Minister Siddon did not follow the recommendations and instead authorised a tac of 235,000 mt. The famous Harris Report in 1990 confirmed cafsac’s earlier findings and made twenty-nine recommendations. The government accepted all but three of them. It declined to further reduce the tac and to construct a joint management board involving Canada and Newfoundland, and it decided not to pursue unilateral action to acquire management rights over straddling stocks beyond its 200-mile zone. By 1992 the harvest rate of the fishable biomass was so high that the entire stock was composed of five- and six-year-old fish that had not fully contributed to spawning activity. Most parts of the cod fishery ceased in 1992, with a desperate attempt to rebuild stocks with the remainder of the five- and six-year-old cohorts. Cod can reach an age of up to thirty years, but fish that were older than six were rarely found in 1992. Other marine species in Atlantic Canada can reach fifteen years of age (herring), twenty-five years (redfish), or even fifty to sixty years (American plaice). Due to the long lifespan of various species, fishery management has many aspects in common with mixed-forestry management. It would, therefore, make sense to study the growth of fish just as one studies the growth of trees: in order to determine the best age at which to harvest them. In contrast to the forestry, age distribution in the fishery biomass has a significant impact on new recruitment. Unfortunately, Atlantic Canada’s fishery management controls catch rather than optimal age selection and age distribution in the remaining population. The interaction between species, predator-prey relationships, and the impact of the tac on the age structure of populations, as well as changes to the habitat or ecosystem, are not adequately considered in setting management targets. Catch by age class in the northern cod fishery has consistently shifted to younger age classes, with the most abundant age class consisting of five-year-old fish at the end of the 1980s, although young cod have very fast growth rates and take up to seven years to become sexually mature (see Figure 2).9,10,11 When total catch is composed of an

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increasing number of young fish, the size of older age classes (seven and up) that traditionally participated in spawning activity will decline. This, in turn, can significantly reduce recruitment numbers of young fish entering the fishery in subsequent years and can cause a drastic change in the age structure of the population. It has been recently observed that five- and six-year-old fish are participating more in spawning activity than used to be the case.12 Recruitment has not recovered despite a moratorium of over ten years, and it is uncertain what effects this fundamental change in age population structure will have on the future sustainability of this resource and the ecosystem. The experience in Atlantic Canada’s fishery demonstrates how difficult it is to regulate complex common-pool resources such as marine fisheries. The failure to predict stocks has created mistrust of fishers in top-down management and, therefore, has discouraged the harvester’s belief that restraining effort today will reap rewards tomorrow. Consistency in fisheries management is almost more important than is accuracy in assessment because fishers might perceive changes as unfair13 and then stop cooperating with managers and management rules. The single-species management approach also caused other problems between gears and between fishers that harvest different species. Due to the decline of the groundfish fishery, the shellfish fishery became more dominant. The fishers that started to harvest crab and lobster were not necessarily the same who used to harvest cod or haddock. A rivalry started and cod fishers often requested a share in the crab fishery. In the spring of 2003, after briefly reopening the cod fishery for a few years on a very small scale, a new moratorium was imposed. Many cod fishers now demanded a share of the crab quota. Shellfish populations are even harder to predict because of the difficulty of determining the sex of the species. It is feared that the same turn of events that occurred in the groundfish fishery could soon be experienced in the crab and lobster fishery. One of the key assumptions of fishery management had been that the change in populations could be predicted by statistical inference about past recruitment and that actual fishing mortality could be successfully controlled. This turned out to be a flawed assumption, and even with perfect foresight, single species management can lead to overfishing if local spawning groups are depleted, if habitat is destroyed, or if other ecological factors that are important to sustainability are disturbed. The fact that fishing mortality was double the rate expected or intended could have been the result of overfishing as well as overestimation of recruitment and stock size. These two factors are connected. The rationale for reliance on expert-staff institutions becomes weaker, as does effective accountability, if scientific prediction is repeatedly

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unsuccessful. Even when the government invests largely in monitoring, enforcement, and the punishment of rule-breakers, it will not be able to induce harvesters to engage in processes of collective learning and rule development, which is essential for successful adaptive management. The management of complex systems such as marine environments relies on feedback to developments in all parts of the ecosystem, which, in turn, requires cooperation in acquiring information as well as the proper distribution and communication of that information. Fishery management, therefore, should emphasize the role of collective learning and institutional evolution. Instead of “fine-tuning” shortterm objectives it should focus on the recognition of patterns and on long-term goals,14 such as, for example, the age structure of populations coupled with long-lasting conservation incentives. The experiences in other fisheries with regard to institutional design, and their success in stabilizing harvests and stocks, is reviewed next.

experiences in other fisheries There has been a substantial literature about voluntary collective action leading to more efficient and sustainable management of common property resources (cpr) without government control or reassignment of property rights.15 This literature did not have as much impact on the management of fisheries in the past as did the literature on individual quota (iq) or individual transferable quota (itq) management. Field studies demonstrate that voluntary collective action can be successful if group size is not too large, resource boundaries are clearly defined, harvesters establish and adhere to rules, mechanisms for monitoring and enforcement (such as sanctions or legal systems) are in place, and if rules are not subject to higher levels of government.16,17 Social science experiments in the laboratory investigated the effect of institutions and social environments on the behaviour of harvesters. They showed that communication alone encourages cooperation and induces harvesters to reduce effort for the common good.18,19 Local harvesters that interact on an ongoing basis have an incentive to invest in reputation as this establishes trust among other harvesters. People who violate rules can be sanctioned at relatively low cost because of their need to avoid social shame and loss of reputation. For many non-migratory marine resources community-based management has, therefore, been rather successful. In some cases cooperatives or institutions have evolved. Locally developed rules and institutions seem to have greater legitimacy than do government-imposed regulations since they give rise to a rationale for stewardship and a collective learning process.

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When several communities or social groups exploit the same cpr sufficient communication links might exist within each social group but not among them and, therefore, partial, secluded voluntary action alone would not necessarily lead to the socially efficient and sustainable use of the cpr.20 In the latter case we require co-management, or the sharing of authority, information, and decision making between different levels of governments, communities, and harvesters. A good example of community-based management is the Maine lobster fishery.21 Fishers organized themselves to keep outsiders out, to limit the number of traps used, and to create territorial rights without any legal basis. It is unlikely that this management system would have been as sustainable had the government intervened and centrally allocated access to the resource. Other self-organized fisheries are the result of legislation. Two of the most famous examples are Norway’s Lofoten cod fishery and Japan’s fishing cooperatives.22,23 The “Lofoten Law” was enacted by the Norwegian government in 1897 in order to solve crowding and gear problems. It was realized that practical and local knowledge was necessary. The law, therefore, specified the principles for organizing fishers democratically so they could decide the rules of the fishery and resolve conflicts. Currently there are fifteen control districts that correspond to well defined territories. Each district has its own regulatory committee made up of representatives from each gear type. The committee determines how a territory is divided between different gear types. Each gear type is then designated to a specific area. Effort is indirectly controlled by allocating the least space to the most powerful gears. Factory-owned trawlers and purse-seiners have so far not been allowed to participate. Japan’s fishery is divided into a coastal, offshore, and distant-water fishery. The coastal fishery plays a vital role and brings in 55 percent of the total value in production.24 If fishers are not organized in a cooperative they are not permitted to harvest. The first fishery law that led to this development dates back to 1743, and it has gradually developed into a more complete set of rules and institutions. Fishing rights are area-based (territorial user rights for fisheries [turfs]), and many cooperatives are community-based. Migratory fish and mobile gear is excluded from these fishing rights and are regulated by the central government. Catches of non-migratory fish have been stable, and fisher incomes are equal to or above the national average. The effectiveness of rules established within local cooperatives differed by area and proved to depend on the cohesiveness of the local community. The conservation of mobile fish such as flatfish was not as successful as was the conservation of non-migratory fish. Inshore fishers felt that a

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constraint in effort would benefit trawlers who harvest the fish in waters outside local boundaries. This is one of the weaknesses of turfs. Due to the inefficient and unsustainable harvest of migratory species, Japanese coastal communities started to pool their catch with other communities and to then share the pooled catch. This system raises the question of how to share the catch. The idea of catch-pooling and output-sharing in partnerships has been analyzed both in theory and in practice by Schott25 and Schott et al.,26 respectively, and is further discussed in the following section. The Japanese example demonstrates the usefulness of area-based fishing rights for stationary resources and the limitations of dealing with migratory species. Fishers had to organize themselves in fishery organizations and create their own rules, which turned out to be very powerful and effective with regard to conservation and management measures as well as with regard to the sustainability of the management system. Because of the migratory nature of many marine resources (e.g., cod, herring, and haddock), many countries have adopted individual quotas (iqs) or individual transferable quotas (itqs). iqs or itqs allow fishers to harvest anywhere unless they are coupled with area restrictions for certain gears. They are typically based on a share of the tac that varies every year, and, consequently, they carry a large amount of uncertainty. The licensed iq holders, therefore, have a “quasi-user right” because they own a specific share of an uncertain tac. The government or central agency is really the right holder because of its authority over the tac. As the experience in Atlantic Canada has shown, it is extremely difficult to assess stocks and to predict recent and future recruitment at the time the tac needs to be determined and announced to harvesters. Retrospective analysis based on catch data and catch composition is often necessary to assess historic recruitment levels and to evaluate the development of various age classes. The information is often lagged; therefore, tacs are frequently inaccurate and unreliable. Fishers are, however, bound by the tac and will act accordingly. The harvest decisions made by fishers, therefore, are influenced by the government’s tac decision and are not particularly useful for analysis of the stock status and recruitment conditions. It would be helpful if harvesters were not constrained by their quota as then fishery managers would get more valuable information about stock conditions. Apart from the problems of deriving a tac for iq or itq management and the undesirable side effects of high-grading and by-catch, tac has other controversial aspects. Rights to shares of the resource need either to be grandfathered (based on historic catches) or auc-

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tioned off to the highest bidder, which could have unfavourable effects on income distribution and might be perceived as unfair. Normally, an itq system will result in a concentration of ownership because less efficient fishers will find it in their interest to trade their right to more efficient vessels. Fishers with better access to capital can invest in better technology, which, in turn would enable them to be more efficient than other fishers and to make better use of quotas. This could create an incentive for fishers to get further indebted. Concentration of ownership is not desirable if it leads to market power and price-setting behaviour on the part of a few harvesters. International experiences with itq or iq management have been disappointing. A review of thirty-seven itq or iq fisheries found that twenty-four experienced at least some temporary declines in stocks after instituting the programs.27,28 The Organization for Economic Cooperation and Development review found that individual quotas present serious problems with regard to the initial allocation of quota, enforcement, and compliance. Due to this, as well as having inadequate information to set a conservative tac, individual quota management has contributed to stock deteriorations. In Iceland, since the introduction of itqs, the herring fishery rebounded while the most important fishery – the cod fishery – declined. Recent retrospective analysis in Iceland indicates the same problems with cod management as occurred in Atlantic Canada: harvest rates for cod in the last three years were at least double the planned rates by fishery managers. Iceland’s Marine Research Institute (mri) also reported problems with haddock stocks as well as historically low catches for shrimp, which resulted in tac reductions of 25 percent for shrimp and a 2003–04 moratorium for scallops.29 Over the past decade, iqs or itqs have been the dominant management instrument in the world’s fisheries. They have not been the answer to the problem of declining stocks and they have not made fisheries more sustainable, equitable, or politically stable. Other alternatives exist, both in the field and in theory, that deserve to receive more attention. These are explored next.

a lt e r n at i v e ta r g e t s a n d management approaches Complex ecosystems and scientific uncertainty require adaptive management and collective learning. The recognition of familiar, reoccurring system patterns gives resource users assurance about future harvests and provides a payoff for conservation efforts. Harvesters would have more confidence in fishery management and future harvests if they were participating in the active collection and interpretation of

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information as well as in decision making. Scientists would have much better data to work with if they effectively cooperated with harvesters. Cooperation would require training of both harvesters and scientists to enable effective communication and to avoid misunderstandings. Communities are the centre of social activities related to harvesting, and they are where information is shared, activities are monitored, and future practices are debated. They should receive more rights over fishing areas that they can control on an ongoing basis. The longer generations of fishers harvest an area, the better their understanding and cumulative knowledge base concerning species interaction and the effect of their activities on the ecosystem upon which they depend. The migratory nature of many marine resources demands coordination between communities, harvesters, scientists, and governing institutions. In order to create conservation incentives, resource users must have faith in the management or the resource and the cooperation of others, and they must also believe that their share is just. Another economic instrument that does not require quota limits or quantitative assessments of tacs is the harvest tax. A harvest tax, or landing fee, acts as a marginal price instrument. Fishers will land fish as long as the marginal cost of harvesting does not exceed the tax per unit of fish landed. When there is uncertainty about the resource stock, as in many marine fisheries, harvest taxes are preferred to itqs or iqs.30 Weitzman compares fishery management to the use of a vacuum cleaner. We can either decide how many particles (fish) to catch or at what power level to operate the vacuum cleaner (fishing fleet). If we don’t know how many dust particles (or fish) are there, then it makes no sense to prescribe how many particles to suck up. It does, however, make sense to control the power level of the vacuum cleaner. The tax controls the power level of the fleet or the incentives to supply fishing effort. The harvest tax could be set at precautionary high levels and then be eased as long as harvests remain stable or are growing. Despite its advantages in cases of resource stock uncertainty, taxes have other limitations and, therefore, have rarely been used in the fishery. Harvest taxes extract rents from resource users and, therefore, fishers usually oppose them. Harvesters are suspicious of the determination criteria used for tax rates and the use of tax revenues. In addition, like quotas, harvest taxes provide discarding incentives. Harvesters would not want to land inferior fish that were valued below the tax rate. And, again just like quotas, landing fees would create neither sufficient conservation incentives nor a learning environment within which fishers could freely share their information. An alternative to both itqs and harvest taxes is catch-pooling and equal output sharing in independent partnerships.31 These instru-

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ments allow harvesters to freely extract as much as they wish. Harvesters then share their entire output equally with a small subgroup made up of all the harvesters. Output sharing in partnerships results in freeriding on the effort of others, which is desirable in an environment in which harvesters have an incentive to overharvest. By choosing the right partnership size, harvesters can be induced to reduce effort and to supply only the desired or optimal amount. Partnership size is the policy instrument. When stocks are declining fishery managers would set a larger partnership size, which would reduce effort and, therefore, increase stock numbers. The instrument does not require formal cooperation between partners. Harvesters can be randomly allocated to partnerships or they can share with the same partners. An experiment in a laboratory setting, which reflected the incentive structure of a common-pool resource like the fishery, verified the analytical suggestions of equal output sharing in partnerships.32 When individuals harvested on their own, without sharing output, they overextracted from the resource according to predictions. The introduction of output sharing had a significant impact on harvesters’ extraction behaviour and on their income levels. As partnership size was increased, aggregate effort significantly declined. Even the worst-off harvester in output sharing partnerships (partnership sizes of four and six were tested) had a larger income than did harvesters that did not share output. There was no significant difference in average effort levels when harvesters were sharing with strangers and when they were sharing with the same partners; however, income distribution was more equitable with strangers. The practical implication for public policy is that we could have harvesters from different communities, countries, and gears share output. Due to the positive effects on income distribution, and in order to avoid collusion, it would probably be best to frequently reallocate partners. This could be easily administered through the current dockside monitoring system coupled with the accounting of processors. Output sharing avoids high-grading incentives because harvesters are not induced to search for the best available quality and to discard inferior quality fish. It provides feedback for fishery managers because harvests are not influenced by tac limits. Politically, it would also be much more feasible to make policy changes. In times of low stock abundance it is always difficult to announce reductions in the tac or to announce an increase in tax rates. Output sharing would merely require harvesters to share in larger partnerships: the catch would still be endogenous to harvesters’ decisions and rents would remain with harvesters. As a policy instrument, partnership size would, therefore, be politically easier to sell, would face less opposition, and would create less suspicion

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on the part of resource users than would output sharing. Output sharing in partnerships could be considered as one component of broad community-based rights – a component that enables members from different communities to link together in order to collectively manage and share migratory species. The quality and age of fish should also be controlled in conjunction with output sharing through appropriate mesh size and gear regulation. The current determination of the age at which cod are first allowed to be harvested ignores major economic and biological principles. Fishery managers focus on the control of the aggregate biomass by tac, which includes all of the age classes. Average weight by age data is readily available, which enables the estimation of growth by age across time or across cohorts. As long as a fish’s net growth rate (accounting for natural mortality due to predation) exceeds the discount rate, it rarely makes sense to harvest that fish and to invest the proceeds at the going interest rate. Data from the northern cod fishery indicates that we should not extract any fish before they reach seven years of age (see Figure 3) unless our discount rate is above 10 percent.33 This economic recommendation coincides with the age at which females normally become sexually mature (at age seven) and, therefore, also confirms biological recommendations. Fishery managers in Atlantic Canada, however, allow cod as young as three years to be harvested. When the joint harvesting of several species cannot be avoided, it should be requisite to employ gears with different selection characteristics and use them at different harvest rates (i.e., fishing mortality rates).34 The harvest rates could be controlled by gear-specific output-sharing partnerships and gear-specific age selection constraints. Selective harvesting in a multiple species model should be the subject of future research, which will involve thorough analyses of alternative feasible mesh sizes, gear constructions, and the cost of technologies as well as growth rates of all of the selected species and predator-prey relationships. Changing mesh sizes is not a new policy instrument, and, as several experiments have demonstrated, it can be very effective.35 A paper that evaluated the effects of mesh sizes on selectivity of cod in various areas in Newfoundland,36 found that increasing the minimum mesh size results in significant reductions in small fish landings as well as in significant decreases in total inshore landings in the short run. The short-run effects are not necessarily detrimental for the inshore fishery in the long run, particularly if the entire fishery changes its age selection. If the entire industry, including offshore fishers, had to adhere to stricter mesh sizes, then we would end up with a larger population of older fish and increased landings in biomass and value.

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Simulations in a multiple-cohort, single-species setting for the northern cod fishery, using estimates for a spawner-recruit relationship, show that harvests and stock sizes are much more stable and less volatile with gears that only select fish that are at least seven years of age.37 Substantial mesh size and size selection adjustments require transition periods with low catches, but larger catches could be achieved much quicker if harvest rates were effectively controlled. A moratorium offers a good opportunity to adjust mesh size because there is no shortterm trade-off in foregone harvests during the transition period (assuming the moratorium is long enough).

t h e f u t u r e r o l e o f dfo, s c i e n t i s t s , provincial governments, and communities The federal government, as a fishery resource owner, has to take on responsibility in times of crisis and has to settle conflicts between fishers with different species-specific licences. In many instances these conflicts would be more effectively settled within communities or regions. dfo could assist in setting up democratic institutions and establishing harvesting rules. Fishers from each community could be entitled to harvest sedentary (non-migratory) species within community boundaries. Each community might favour different rules and institutions; some might use a cooperative approach, as in the Japanese coastal community fishery. The advantage of territorial, or multiple-species, rights over species-specific rights is that fishers can benefit more from conservation efforts. For example, if cod harvests are being reduced or temporarily stopped, and the impact is an increase in the abundance of other species, then a fisher who has broad rights will reap the benefits of his or her conservation efforts. If, on the other hand, fishers only have licences for specific fish, then they will not so easily support closures of their own fishery. A good example is the closure of the Georges Bank cod fishery in 1994. By 1999 cod had barely recovered, there was a large growth in the scallop populations.38 We have seen similar links between the abundance of shellfish in Atlantic Canada, which caused many cod fishers to be very disgruntled and sceptical about their benefits from the cod moratorium. Broad rights also enable owners to better adapt to changes in the environment and in the market. turfs are certain rights, and they encourage collective information gathering on the part of communities as well as the sharing of information with other communities and dfo. For the management of migratory species (e.g., haddock, cod, and flatfish), as well as for information sharing between communities and

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harvesters, we need the involvement of federal and provincial institutions. The role of dfo, however, needs to be redefined. It has conducted a lot of useful scientific work, which should be complemented with more local knowledge. Due to the large resource and ecological uncertainty, dfo should switch to incentive-based management instruments (such as output sharing) that favour the cooperation of fishers. Fishers would not know with whom they were sharing; they could be sharing with people from there own community as well as fishers from other communities. This would encourage self-monitoring and the reporting of cheating behaviour as a harvester’s income would now be directly affected by other people’s behaviour in two ways. First, the violating harvester could be in the observing harvester’s output-sharing group; second, cheating would reduce stock levels in the long run and, therefore, future stock and income levels. Since property rights are more complete the with output sharing of migratory species and community ownership of sedentary species, harvesters would have more of an incentive to protect their rights and to deal with problems locally. Because fish migrate between provinces and even into international waters, a federal or multiprovincial, rather than a provincial, agency is needed to coordinate (and assist in) the management of migratory species. dfo should try to convince international fleets to use significantly larger mesh sizes. Larger stock sizes and bigger, older fish would benefit every nation, as long as all nations cooperated. It should not be so difficult to reach agreement at least on increasing mesh size. Older cod, for example, reap significantly higher prices per pound than do younger fish.39 And gear violations are easier to detect than is excessive harvesting, particularly if fish are not landed in Canadian ports. Provincial governments should, of course, be part of a co-management approach. They should especially have input into regional development issues as well as education and communication between fishers, communities, and scientists. They could also be involved in income redistribution should some areas become wealthier than others. Transferring more authority and power to provincial governments, as has recently been demanded by some provincial premiers, would not be a solution. In fact, it could make matters worse. The heart of the problem can only be addressed by shifting authority and responsibility to resource users; that is, to the people who ultimately control the resource. Their behaviour is influenced by management rules and institutions, and their cooperation is essential to the successful management of complex cprs. Provincial ownership would follow short-term political goals of temporarily keeping harvests steady. Provinces do not consider the interest of bordering provinces that harvest the same

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167 New Fishery Management in Atlantic Canada: Communities

populations of fish; several disputes between Newfoundland and Nova Scotia are good evidence of this. Furthermore, it is important to have a strong united representation in negotiating the sharing of stocks beyond the 200-mile zone. There would also be a large duplication of effort if every province were to invest in their own scientific assessment and fishery management institutions.

conclusions There is overwhelming evidence that top-down management based on scientific knowledge and quantity-based effort-control instruments in the form of quotas have not made fisheries more sustainable. Topdown management only works if it is precise and if it is generally accepted by harvesters. When allowable harvests are heavily fluctuating, or management is not able to avoid stock collapses or long-lasting moratoria, harvesters lose faith in the system and do not see any sense in conservation efforts. Species-specific licences and inadequate age control targets magnify the problems as they further divide harvesters and contribute to the instability of stocks and individual incomes. This chapter discusses several possible substantial changes to fishery management in Atlantic Canada. First, an institutional environment of power-sharing, knowledge-sharing, and trust needs to be established, and this is only feasible if harvesters and communities have more complete, equal, secure, and diversified rights. An essential part of this new institutional environment involves replacing species-specific rights with multiple-species rights, or territorial user rights. Besides assisting in the establishment of a true co-management environment, dfo should focus on securing the stability of stocks rather than trying to fine-tune populations on an annual basis. A shift to more economically and biologically sound age selection targets is recommended. Finally, economic incentives need to be introduced – incentives that are not perverse and that do not undermine a trusting and sustainable institutional environment, especially for highly migratory species. This will only occur if harvesters trust dfo and scientists, and if their cooperation does not affect property rights. It is important to minimize the use of individual quotas and to use more complete community-based rights; it is also important to engage in catch-pooling and output sharing in partnerships. The cod moratorium has been in place for more than a decade now, and not a lot of essential institutional or policy changes have taken place. It is questionable whether we are better prepared to sustain stocks and to avoid stock collapses in the future. Co-management is

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168 Social Union and Place

not just equivalent to “working together” in the form of multiple stakeholder meetings or consultations but, rather, it involves the devolution of power, the integration of knowledge and institution building and capacity building. Paul Martin’s commitment to endowing communities with more power and rights to manage their own destiny, to be able to build up capacity and institutions and to become equal partners with other communities and levels of government, is a move in the right direction. Now is the time to experiment with alternative institutions, policy instruments, and management targets that have been tried elsewhere or that were examined in similar settings. Field experiments can happen on a small scale, while everyone awaits the return of groundfish. At the same time, the exploitation of shellfish should be reevaluated and reorganized before that fishery faces similar problems to those faced in other uncertain ecological systems or with other species in the same ecosystem.

Figure 1 Recruitment of three-year-old fish between 1962 and 1992 (based on J.W. Baird, C.A. Bishop, and W.L. Brodie, The Assessment of the Cod Stock in nafo Divisions 2J, 3K, and 3L, cafsac Research Document, 90/18, 1990; C.A. Bishop. E.F. Murphy, M.B. Davis, J.W. Baird, and G.A. Roase., “An Assessment of the Cod Stock in nafo Divisions 2j+3kl”, nafo Science Council Research Document 93/86, ser. no. N2271, 1993).

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Figure 2 Catch composition by age (based on research trip to dfo, St John’s, nf, 1998; and Bishop et al., “An Assessment of the Cod Stock”).

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notes 1 Organization for Economic Cooperation and Development (oecd), Towards Sustainable Fisheries: Economic Aspects of the Management of Living Marine Resources (Paris: Organization for Economic Cooperation and Development, 1997). 2 W. Schrank, B. Skoa, P. Parsons, and N. Roy, “The Cost to Government of Maintaining a Commercially Unviable Fishery: The Case of Newfoundland 1981/82 to 1990/91,“Ocean Development and International Law 26 (1995): 357–90. 3 L.S. Parsons, Management of Marine Fisheries in Canada (Ottawa: National Research Council of Canada and Department of Fisheries and Oceans, 1993. 4 W.H. Lear and L.S. Parsons, “History and Management of the Fishery for Northern Cod in nafo Divisions 2J, 3K and 3L,” in Perspectives on Canadian Marine Fisheries Management, ed. L.S. Parsons and W.H. Lear, 55–90 (Ottawa: National Research Council of Canada and Department of Fisheries and Oceans, 1993). 5 P. Copes, “A Critical Review of the Individual Quota as a Device in Fisheries Management,” Land Economics 62, 3 (1986): 278–91. 6 Ibid., 3. 7 Ibid., 1. 8 “Turtle Power-Bycatch from Fishing is a Bigger Problem than Was Realized,” The Economist, 24 February 2003, 32. 9 C.A. Bishop, “An Assessment of the Cod Stock in nafo divisions 2J+3KL.” nafo Science Council Research Document 93/86, ser. no. N2271, 1993, 51. 10 J.W. Baird, C.A. Bishop, and W.A. Brodie, “The Assessment of the Cod Stock in nafo Divisions 2J, 3K, and 3L,” cafsac Research Document, 90/18, 1990, 89. 11 Department of Fisheries and Oceans, Stock Assessment Data for Catch Numbers by Age, Weight by Age, Female Maturity at Age, Research Vessel Index (Ottawa: Department of Fisheries and Oceans Science Branch, April 1998). 12 P.A. Shelton and M.J. Morgan, “An Analysis of nafo Division 2J3KL Cod Spawner Biomass and Recruitment,” nafo Science Council Res/Doc., ser. no. N2217, 1993. 13 W.G. Doubleday, “Reliability of Scientific Advice on Fishery Management Measures”, in Perspectives on Canadian Marine Fisheries Management, ed. L.S. Parsons and W.H. Lear, 369–84 (Ottawa: National Research Council of Canada and Department of Fisheries and Oceans, 1993). 14 J. Wilson, “Scientific Uncertainty, Complex Systems, and the Design of Common-Pool Resources,” in The Drama of the Commons, ed. E. Ostrom, T. Dietz, N. Dolsak, P.C. Stern, S. Stonich, and E.U. Weber, 327–60 (Washington, dc: National Academy Press, 2002).

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171 New Fishery Management in Atlantic Canada: Communities 15 Some representative and influential examples are: F. Berkes, Common Property Resources: Ecology and Community-based Sustainable Development (London: Belhaven Press, 1990); E. Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action (Cambridge: Cambridge University Press, 1990); E. Schlager and E. Ostrom, “Property Rights Regimes and Natural Resources: A Conceptual Analysis,” Land Economics 68 (1992): 249–62: E.W. Pinkerton, “Local Fisheries Co-management: A Review of International Experiences and Their Implications for Salmon Management in British Columbia,” Canadian Journal of Fishery and Aquatic Science 51 (1994): 2363–2378. 16 D.R. Leal, “Community-Run Fisheries: Preventing the Tragedy of the Commons,” in Taking Ownership-Property Rights and Fishery Management on the Atlantic Coast, ed. Brian Lee Crowley, 183–220 (Halifax: Atlantic Institute for Market Studies, 1996). 17 E. Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action (Cambridge: Cambridge University Press, 1990). 18 E. Ostrom, R. Gardner and J. Walker, Rules, Games, and Common-Pool Resources (Ann Arbor: University of Michigan Press, 1994). 19 S. Hackett, E. Schlager, and J. Walker, “The Role of Communication in Resolving Commons Dilemmas: Experimental Evidence with Heterogenous Appropriators,” Journal of Environmental Economics and Management 27 (1994): 99–126. 20 S.T. Kinukawa, T. Saijo, and M. Une, “Partial Communication in a Voluntary-Contribution-Mechanism Experiment,” Pacific Economic Review 5 (2000): 411–28. 21 J.M. Acheson, “The Lobster Fiefs Revisited,” in The Question of the Commons, ed. Bonnie J. McCay and James Acheson, 37–66 (Tucson: University of Arizona Press, 1987). Acheson, J.M., 1981. “The Lobster Fiefs: Economic and Ecological Effects of Territoriality in the Maine Lobster Industry,” Human Ecology 3, 3 (1987): 183–207. 22 Ibid., 16. 23 T. Yamamoto, “Development of Community-Based Fishery Management System in Japan,” Marine Resource Economics 10 (1995): 21–34. 24 Ibid., 23. 25 S. Schott, “A Partnership Solution to the Commons,” School of Public Policy and Public Administration Working Paper, 2003. 26 S. Schott, S. Mestelman, N. Buckley, and A. Muller, “Output Sharing among Groups Exploiting Common Pool Resources”, mceel Working Paper, 2003. 27 Ibid., 1. 28 T. Tietenberg, “The Tradable Permits Approach to Protecting the Commons: What Have We Learned?” in The Drama of the Commons, ed. E. Ostrom, T. Dietz, N. Dolsak, P.C. Stern, S. Stonich, and E.U. Weber, 197–232 (Washington, dc: National Academy Press, 2002).

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172 Social Union and Place 29 Marine Research Institute, “English Summary of the State of Marine Stocks in Icelandic Waters, 2002/2003: Prospects for the Quota Year 2003/ 2004,“unpublished paper, 2003. 30 M.L. Weitzman, “Landing Fees vs Harvest Quotas with Uncertain Fish Stocks,” Journal of Environmental Economics and Management 43 (2002): 325– 38. 31 Ibid., 25. 32 Ibid., 26. 33 S. Schott, “The Optimal Management of Multiple Cohort Fisheries with an Empirical Application to the Harvest of Northern Cod” (PhD diss., University of Guelph, 2000). 34 S. Schott, “The Optimal Selection and Harvest of Multiple Cohorts”, Marine Resource Economics 16 (2001): 109–26. 35 C.A. Bishop, “Cod Trap Mesh Selection Studies,” in Canadian Technical Report of Fisheries and Aquatic Sciences 1075 (St John’s, nf: Research and Resource Services, dfo, 1982); G. Brothers and J. Hollett, “Effect of Mesh Size and Shape on the Selectivity of Cod Traps,” in Canadian Technical Report of Fisheries and Aquatic Sciences 1782 (St John’s, nf: Fisheries Development Division, Fisheries and Habitat Management, 1991). 36 Brothers and Hollett, “Effect of Mesh Size.” 37 S. Schott, “Reforming Canada’s Atlantic Cod Fishery Policy,” School of Public Policy and Administration Working Paper, 2003. 38 S.A. Murawski, R. Brown, and L. Hendrickson, “Large Scale Closed Areas as a Fishery-Management Tool in Temperate Marine Systems: The Georges Bank Experience,” Bulletin of Marine Science 66 (2000): 775–98. 39 D.E. Lane and B. Kaufmann, “Bioeconomic Impacts of tac Adjustment Strategies: A Model Applied to Northern Cod,” Canadian Special Publication of Fisheries and Aquatic Sciences 120 (1993): 387–402.

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pa r t t h r e e Energy, Resources, and Environment-Economy Integration

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9 Implementing Kyoto: When Spending Is Not Enough douglas macdonald, d e b o r a va n n j i n n a t e n , and andrew bjorn

Will a Paul Martin government continue the activist approach to climate policy initiated by Jean Chrétien when he ratified the Kyoto Protocol in December 2002? The signs are ambiguous. Both the prime minister and his environment minister, David Anderson, one of the few Cabinet members to survive the leadership transition, have made positive noises. Optimistic rhetoric was carried into the 2 February 2004 Speech from the Throne, although the only specific measure contained therein was a commitment to develop an “equitable national plan” – hardly reassuring, given that the lack of a detailed plan was the major argument used by provincial and business interests intent on blocking ratification in 2002 and that “equitable” is a code word for Alberta discontent. Nor did the 23 March 2004 federal budget give any clues. The budget provided a $200 million commitment to technological development but committed much greater funding to contaminated site remediation. Since we cannot answer this question by pointing to the specific statements or actions of the new Paul Martin government, we instead provide a review of political and policy developments on the ground, including us influence, differing provincial incentives, and lobbying activity by the relevant industry sectors. We then chronicle in detail climate policy implemented by the federal and provincial governments since ratification. The picture that emerges can be placed in two frames: (1) a sharp break from the coordinated federal-provincial policy development (that has been the norm since Canada ratified the

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Climate Convention in 1992), which has been replaced by unilateral federal action, and; (2) a jumble of different provincial policy objectives and measures. Strong federal leadership is clearly required. Until the dust settles after the election in 2004, however, it is difficult to predict whether such leadership will be forthcoming.

t h e c l i m at e c h a n g e p o l i c y c o n t e x t The international Kyoto regime, which only needs ratification by the Russians to take legal effect,1 is intended to reduce emissions of six greenhouse gases (ghgs). Because it accounts for close to three-quarters of total ghg emissions, the carbon dioxide released during the burning of coal, oil, and natural gas is considered to be the most significant of the six. In 2001 three provinces were responsible for over twothirds of Canadian emissions – Alberta (31.2 percent), Ontario (28 percent), and Quebec (12.5 percent). British Columbia (9 percent) and Saskatchewan (8.4 percent), were the next largest emitters, while the remaining 10.9 percent was generated by the other provinces and territories. The major sectoral emission contributions are: transportation (26 percent), electricity and heat production (19 percent), manufacturing (6.8 percent), oil and gas production (9.3 percent) and agriculture (8.3 percent).2 Over the past few years, the Canadian policy discourse has been framed as the need to close the “Kyoto gap” – policy measures that will bring total annual ghg emissions (measured as “carbon dioxide equivalents”) from what economic modellers predict will be the “business as usual” level (i.e., governments take no further policy action) of 809 megatonnes (mt) to a level 6 percent below 1990 emissions, which is 571 mt. The difference between those two levels, approximately 240 mt, is the “gap” that policy must close. The November 2002 federal government Climate Change Plan states that the gap will be closed in three stages: (1) eighty mt of reductions will result from policy measures already taken by governments; (2) 100 mt will result from new policy to be developed and implemented beginning in 2003; and (3) the final sixty mt may not need to be achieved if the other countries that are party to the Kyoto regime allow Canada “clean energy export” credits derived from its exports of hydroelectricity and cleaner-burning natural gas to the us.3 At the Eighth Conference of Parties (cop-8) in New Delhi in October 2002, the Canadian government proposed that, first, Kyoto parties should be allowed emissions credits for clean energy exports and, second, since it has the widest Kyoto gap of all signatory countries, Canada should receive up to 70 mt of credits per year (which represents the amount of emissions avoided by the United

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177 Implementing Kyoto Table 1 Total and sectoral ghg emission reductions required (Climate Change Plan 2002) Total

business as usual 2010

809

minus Kyoto objective

569

gap to be closed

240

minus hoped for export credit

Sectoral

60

sectoral reductions required

180 megatonnes

transportation, buildings, individual

33

lie

96

agriculture, forest, sinks

38

buy international credits

12 179 megatonnes

Note: Figures are approximate, hence the discrepancy between 180 and 179. Sinks refers to carbon stored in soil and trees.

States because of Canadian clean energy exports) in the first commitment period.4 Although the broader idea of credits received some support from countries such as Russia and Poland, it was strongly opposed by European Union (eu) officials and, surprisingly, the United States. The issue was not resolved either there or at the Ninth Conference of Parties in Milan, Italy, in December 2003. Even if the clean energy export credits are granted, how can federal and provincial policy makers close the Kyoto gap by the year 2010 (as the mid-point between 2008 and 2012, that year is the commonly referred to target date)? They must assemble a mix of policy measures from the four basic options available: (1) reduce energy demand through increased efficiency and behaviour change; (2) shift behaviour of energy generators away from fossil-fuel energy (including that used to generate electricity) to energy sources that do not emit ghgs (hydroelectricity, nuclear and renewable energies); (3) put in place measures to capture and store carbon dioxide in plants, soil, or by mechanical means; and (4) pay people in other countries to reduce their emissions by purchasing emissions credits on the international trading market, which will be established as part of the international Kyoto regime. Governments can either directly purchase those credits themselves or induce private actors to do so as one way of fulfilling their regulatory obligations. As set out above in Table 1 in approximate terms, the federal plan hopes to reduce emissions from individuals, transportation, and buildings by 20 percent, and from industry, including fossil-fuel and electricity producers, by 50 percent. The government hopes to achieve

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another 20 percent reduction by capturing carbon dioxide and a further 10 percent through the purchase of international emissions credits. The American Influence The March 2001 decision of the Bush administration not to ratify the Kyoto Protocol officially set the us administration on a different policy path from that adopted by the Canadian federal government. Given that approximately 80 percent of Canada’s exports are destined for the United States, as are the large majority of energy exports, industry and some provincial governments have argued that Canada should follow the American policy approach, which focuses on reducing emissions intensity (relative to gdp ) rather than placing an overall cap on emissions. In February 2002, Bush announced his administration’s goal of reducing ghg emissions intensity by 18 percent within ten years – which would in effect allow emissions to rise (the current us administration forecast is that the intensity approach will result in emissions approximately 30 percent above 1990 levels by 2012, compared to the Canadian target [which may well not be achieved] of 6 percent below 1990s levels by that date).5 One year later, Bush unveiled “Climate vision,” a plan for reaching that goal via purely voluntary actions on the part of industry working in a loose partnership with the federal government. Meanwhile, the Bush administration released a National Energy Plan that called for increasing the domestic and continental energy supply through accelerated oil and gas exploration as well as coal use – which would also result in increased co2 emissions. With the Republicans gaining control of both Houses of Congress after the 2002 mid-term elections, the prospects for action on climate change by the legislative branch are slim indeed. A measure to reduce ghg emissions was soundly rebuffed, and the Energy Bill – which contains minimal incentives for renewable energy generation alongside generous incentives for oil and gas exploration as well as coal use – remains mired in the Senate. Many argue that North American economic integration means Canada has no choice but to abandon the international regime and follow the American path. Yet the American influence on Canadian climate change policy is likely to be less unidirectional and more ambiguous than official policy statements suggest. Despite the anti-Kyoto rhetoric of national-level Republicans, the us federal government administers a substantial body of innovative programs aimed at reducing ghg emissions, and these programs certainly have not ground to a halt under

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Bush’s leadership. As Bramley points out, it is quite clear that “governments in the U.S. have ... taken far more significant action to reduce ghg emissions than have governments in Canada.”6 It was estimated in late 2002 that us government spending on climate change related programs had reached 4.5 billion, far more than any other country – and spending has, in fact, increased under the Bush administration.7 In addition, there has been considerable Canada-us cooperation on climate-related projects at the operational level in the past, and this cooperation has continued. In fact, in March 2002 the State Department and Environment Canada released a joint statement pledging expanded cooperation on climate-change projects. This initiative was to involve many us agencies and Canadian departments and agencies that are already engaged in this issue. The idea was to focus cooperation in such areas as the development of clean coal, carbon sequestration, co-generation and renewable technologies, and climate change science and research. Further, it is important to note the critical role that us state governments are playing with respect to ghg reductions and the effect this may have on neighbouring provinces. us states have certainly been more active than Canadian provinces, enacting a variety of measures to cap ghg emissions from large emitters (such as power plants); to increase the use of alternative energy sources, fuels, and transportation; and to increase energy and vehicle efficiency.8 New Hampshire, Massachusetts, and Oregon, for example, have imposed limits on carbon-dioxide emissions from power plants, while Nebraska, North Dakota, and Oklahoma have established programs to encourage carbon sequestration. Maine now generates 24 percent of its energy from renewable sources and, in 2003, enacted legislation intended to bring emissions in that state down to 1990 levels by 2010. A number of states have enacted Renewable Portfolio Standards that set statewide quotas for the generation of green power. And, in 2002, California passed a new law mandating reductions in ghg emissions from vehicles, which has again sparked a nationwide debate about a “California Effect” in terms of the diffusion of policy and technology change beyond the borders of this most populous us state. Moreover, attorneys general in seven northeastern states announced plans in early 2003 to sue the federal government, claiming the failure to impose limits on carbon-dioxide emissions violates the Clean Air Act. And one could argue that state activism is spilling over the border. The Conference of New England Governors and Eastern Canadian Premiers (neg/ecp), a forum for transboundary cooperation among the six New England states and the five easternmost provinces, began to focus on the regional implications of climate change as early as

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1989. After scientific study of the impacts of climate change in the northeastern region, as well as continual discussions over the decade, in 2001 the neg/ecp agreed on a goal of reducing regional ghg emissions to 1990 levels by 2010 and to 10 percent below 1990 levels by 2020. There are some moves afoot to extend this transboundary ghg reduction regime to include additional states, including New York, New Jersey, and Maryland. In addition, the Gulf of Maine Council, another transboundary regional organization that encourages cooperation among New Brunswick, Nova Scotia, Maine, New Hampshire, and Massachusetts, formed the Climate Change Network to support the neg/ecps Action Plan. To the west, cross-border cooperation under the auspices of the British Columbia-Washington Environmental Cooperation Council is now under discussion. Although it is unclear whether these cross-border efforts have resulted in actual emissions reductions, it is important to recognize that the “constituent regions” of the Canada-us relationship have a role to play in determining the extent and nature of us influence. In summary, the influence of us domestic policy on Canada is not simply a force working against effective action in this country to reduce ghg emissions. That pressure exists, but other, contrary influences are also coming from south of the border. Given recent, widespread criticism of the “misuse” and “manipulation” of climate science by the Bush administration, as well as revelations that the Pentagon has been secretly modelling the security implications of a world radically altered by climate change, these contrary influences may be strengthened. Differing Provincial Incentives Another important part of the climate change policy context is the disparity between the positions taken by the provincial governments in Canada. In most situations in the past, Alberta and British Columbia have actively opposed Kyoto; Quebec and Manitoba have supported the federal government’s pro-Kyoto position; and Ontario has provided no major public support or resistance. To some extent, these positions might be explained by governing party ideology: Alberta, British Columbia, and, until recently, Ontario have all been governed by conservative administrations dedicated to cutting government expenditures and reducing costs to businesses. Opposition parties in these legislatures have often announced their support of the Kyoto Protocol and argued against provincial policies that have violated the spirit of Canada’s emissions reduction targets.9 However, while the On-

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tario government is now controlled by the Liberal party, many observers doubt that the new McGuinty government will be able to keep its election promise to close coal-burning plants by 2007. Policy analysts tend to agree that the connection between the platform and the policy decisions actually made by a governing party is tenuous; rather, the differences in provincial economies appear to be a more significant factor in policy changes. As the basic goal of the Protocol is to shift energy production away from carbon, high costs are imposed on some provinces with carbon-intensive economies but lower costs, while other provinces are offered financial benefits for expanding opportunities for the sale of hydroelectricity. Broadly speaking, Alberta, Saskatchewan, and Newfoundland (and perhaps British Columbia and Nova Scotia in the future) are oil and gas producing provinces that will undoubtedly be hurt by limits on ghg emissions. Conversely, British Columbia, Manitoba, and Quebec are able to generate a significant portion of their electricity from falling water due both to geography and previous policy choices; therefore, the shift to a low-carbon economy offers them potential benefits. When these realities are overlaid on the enduring themes of Canadian federalism, such as language identity, western alienation, and the gap between metropolis and hinterland, it is hardly surprising that a national consensus has not yet been found. Electricity generation is an important component of provincial climate policies. Figure 1 shows the different proportions of hydropower and fossil fuels in electricity generation by province for the year 2000 (given in terawatt-hours). It is obvious that, while approximately 60 percent of Canada’s electricity is generated by hydropower, these resources are not evenly distributed across the country. Although some provinces have had notable growth in wind power generating capacity, this technology is still not cost-competitive with other types of generation, especially natural gas and coal-fired generating plants. Therefore, growth in demand in provinces with limited hydroelectric generation potential, such as Alberta and Saskatchewan, will need to be met by expanding capacity with thermal plants that generate significant greenhouse gases. But even areas that have considerable hydroelectric resources may be required to meet short-term increases in demand with ghg-emitting facilities as well, given that thermal plants typically require less time and effort to plan and construct. bc Hydro is planning to expand its generating capacity with the Vancouver Island Generating Project (vigp), a 265-mw natural gas fired power plant project. Even in Quebec, Hydro-Quebec and the newly elected Liberal government have

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200 180 160 140 120 100 80 60 40 20 0

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Total Generation (TW-h)

Figure 1 Electricity generation mix (2000)10

attempted to push plans for the $550 million, 800-mw Suroit natural gas fired plant in Beauharnois in order to meet predicted energy shortfalls before new hydroelectric capacity comes on-line.11 Beyond electricity policy, the varying importance of oil and gas royalties and contributions to provincial economic activity is key. Alberta, the most vocal opponent to Kyoto, is dependent in no small measure on the oil and gas sector for its economic well-being. Proposed oilsands exploitation projects are central to that province’s economic future, and the government has often linked its success to the defeat of federal ghg emissions regulations. (In fact, in pursuit of this goal, in January 2004 the Alberta government informed industry leaders that oil and gas companies that attempted to enter into voluntary agreements for ghg reductions with the federal government would risk losing provincial royalty and income tax breaks.)12 In the same way, projects in Saskatchewan and existing and proposed offshore oil and gas exploitation in Newfoundland, Nova Scotia, and British Columbia presumably influence the thinking of those governments with respect to Kyoto. On the other hand, some provinces have key industries that may be positioned to benefit under Kyoto. For example, jurisdictions that produce a significant amount of grain crops can benefit from mandatory ethanol blending. This concept became popular after blending requirements instituted in the State of Minnesota in October 1997 sup-

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ported the growth of the local ethanol industry and expanded the market for corn within that state.13 It has gained momentum within the Kyoto framework due to the co 2 neutral status of biofuels and has been promoted as a key initiative under the climate change plans in Saskatchewan and Manitoba. To this end, Saskatchewan has required the sale of ethanol-blended gasoline by April 2004 under the regulations of the Ethanol Fuel Act.14 Manitoba has created the Ethanol Office within the Ministry of Energy, Science and Technology to support the development of an ethanol industry in the province and has mandated the sale of ethanol-blended gasoline by 2005.15 Another case is hydroelectricity created for export: Manitoba and Quebec generate most of their electricity through hydroelectricity, some of which is exported to other provinces. As hydroelectric generation is considered to be another ghg-neutral source of electricity, there may be an expanded market for exports to other jurisdictions if provinces are forced to reduce emissions. The expansion of this market has been suggested as one possible impetus for the joint ManitobaOntario Memorandum of Understanding signed on 30 April 2003, which arranged to investigate the feasibility of creating an interconnected energy grid and developing the 1250 mw Conawapa Hydroelectric Project on the Nelson River in Manitoba.16 National policy fields such as health, education, and defence are certainly characterized by ongoing federal-provincial dispute. Those policy processes, however, do not start from such wide differences in basic economic incentives. Achieving national consensus on climate policy is a unique challenge.

federal and provincial policy actions The machinery used for national climate policy development during the 1990s centred on periodic meetings of federal and provincial environment and energy ministers that were convened to consider agreements reached since the last meeting by various committees staffed by officials from those ministries. Coordination was provided by two national secretariats – (1) the Canadian Council of Ministers of Environment and Council of Energy Ministers, and (2) the National Climate Change Secretariat. This process of periodic meetings of energy and environment ministers is referred to as the Joint Meeting of Ministers (jmm). The last joint meeting of ministers was held at Halifax on 28 October 2002. At that meeting all the provinces, despite their differing positions, adopted a resolution demanding that then prime minister

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Chrétien discuss climate policy with the premiers prior to ratification. That demand was rebuffed, and the jmm ministers have not met since. There have, however, been meetings of federal and provincial officials. The federal minister of natural resources said on 12 June 2003: “My deputy minister and the Environment deputy minister have met with provincial governments across this country to look at what their priorities are and how they feel they can contribute. We are working toward developing an mou with the provincial governments to make sure they play a role.”17 The point is that these meetings have been largely bilateral, with federal bureaucrats meeting their counterparts in only one province, unlike the multilateral jmm process followed during the past decade. Individual federal-provincial agreements have always been a basic mechanism of national environmental policy. They were first used in the 1970s as the two levels of government sorted out how they would coordinate their roles in this area of shared jurisdiction. The national acid rain program, negotiated by the federal government and seven eastern provinces in 1985, was then implemented through a series of bilateral federal-provincial agreements. In that case, however, they were a codification of the sharing of total national cost, which had been negotiated during the previous five years using the traditional system of federal-provincial policy development. If, in fact, the federal government succeeds in negotiating agreements privately with each province without ever sitting down with all of them around one table, then we will have moved into a new mode of national policy making. The Quebec Legislative Assembly adopted a resolution on 10 April 2001 urging the federal government to ratify Kyoto and another on 24 October 2002 asking that “the Federal Government negotiate a bilateral funding agreement with the Québec government, focused particularly on targeted measures, and the implementation of the strategy for reducing greenhouse gas emissions.”18 There was no immediate federal response, but in April 2003 the environment and resource ministers sent a letter to all provinces and territories, providing them with a draft memorandum of understanding and inviting expressions of interest. As of March 2004 three bilateral agreements had been signed: one between Canada and Nunavut, on 31 October 2003; another between Canada and Prince Edward Island, on 7 November 2003; and one with Manitoba on 19 March 2004. In general terms, these agreements set out areas in which the two jurisdictions will cooperate (such as development of new renewable energy sources), but they contain no firm commitments either with respect to provincial emission targets or with respect to federal funding to be provided to the province in question. As we discuss in the conclusion, it is not clear that a series of se-

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quential bilateral agreements, setting aside the near impossibility that all provinces and territories will sign on, can add up to effective national policy. Federal Government Policy During 2003 spending remained, as is usually the case for federal environmental policy, the instrument of choice. The February 2003 budget provided $2 billion for climate change spending over the next five years, which is further to the $1.7 billion committed to date.19 Few details for that spending were announced at the time, but on 12 August 2003 the government announced plans for $1 billion of that amount. Approximately $131 million was allocated to programs intended to reduce emissions from individual Canadians; $650 million for programs aimed at business, primarily building and transportation efficiency and ethanol-gasoline production; $160 million to “support and collaborate with provinces”; $30 million for Aboriginal and northern communities; $50 million for reducing government’s own emissions; and $80 million for “negotiations, international reporting and partnering support,” which may or may not refer to purchase of international credits. Another $250 million was provided in the 2003 budget to the Sustainable Development Technology fund for new technology development.20 As noted, the March 2004 budget added another $200 million to that fund. For the first time, however, the federal government has indicated it might supplement spending with the policy instrument of law. As noted above, three industrial sectors are expected to account for something like half the total emissions reductions called for in the November 2002 Climate Plan. The most significant policy evolution with respect to this sector is the stated willingness of the federal government to impose, for the first time, legally binding constraints on corporate behaviour with respect to climate. Until now, the only legal instrument used by the government of Canada has been the 1992 Energy Efficiency Act, which governs the energy-efficiency design of some appliances and machinery. Although critics suggest it could be used more effectively, it is not prominent in current federal policy development; instead, the federal government is developing a very different legal instrument – a combination of “backdrop” law and legally binding contracts with individual firms, governing either the absolute quantity of their emissions or the ratio of emissions to production. The function of the backdrop law is to provide an incentive for firms to enter into such contracts (referred to as “covenants” in the federal plan) by threatening more onerous obligations if they do not. Although the

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instrument to be used is a contract rather than a regulation, the fact that it is legally binding makes it potentially far more effective than exhortations to voluntary action. The idea is that firms will then meet their contractual obligations through some combination of emission reductions, purchase of “offsets” (funding for sinks provided by agriculture or forests) or purchase of international credits. To date, development of new federal climate legislation has not moved beyond the discussion stage. Whether or not a bill will actually be presented in Parliament is one of the many aspects of climate policy that must await the outcome of the next election. The federal government is not, of course, developing policy in isolation. The affected industries and their trade associations, particularly the Canadian Association of Petroleum Producers (capp), representing the oil and gas sector, are applying considerable pressure. During the intense political debate preceding Kyoto ratification, capp made its position very clear. First, Canada should not ratify at all but, rather, coordinate its climate policy with that of the Unites States, which had opted out of the Kyoto regime. Second, it should both give the sector the regulatory certainty it needs to attract future investment and, at the same time, reduce to a minimum the cost that climate policy will impose upon the sector.21 Although it failed to prevent ratification, through adroit lobbying capp has largely achieved its other objectives. The November plan notes industry fears that it might be asked to pick up some part of the unallocated 60 mt and states: “The Government ... agrees that the target under emissions trading will not be more than 55 Mt. Any amounts beyond that target would be achieved through incentives.”22 The next paragraph of the plan states that the Government “is prepared to discuss” shifting some of the 55 mt reduction into the second Kyoto commitment period, beginning in 2012. Presumably also in response to capp lobbying pressure, the government has given other commitments to the sector. An open letter from the Natural Resources Minister to capp, 18 December 2002, states: “the Government will set the emissions intensity targets for the oil and gas sector at a level not more than 15 percent below projected business-as-usual levels for 2010.”23 (At the same time, a guarantee was given to all industrial sectors that any reduction costs above fifteen dollars per tonne would be paid by the federal government.) Thus, capp was given another assurance that regulation would be open-ended, imposing no limit on total production, and an upper limit was carved out in terms of its share of total industrial effort – in advance of the other two sectors. On 24 July 2003, capp received another letter, this time from the prime minister. Noting that government and oil industry officials had met a number of times “to discuss ways to increase certainty

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in the long-term development of the oil sands” Mr Chrétien gave these commitments, among others: (1) new targets for the period after 2012 would not hurt the sector’s competitive export sales position; (2) the 15 percent target will be carried into the post-2012 period; (3) firms emitting below target will be able to bank those emissions to apply to future years; and (4) money spent by firms on research and development will be treated as part of the reduction effort, analogous to money spent on buying credits or offsets.24 After receiving these “comforting words” from the prime minister, Canadian Natural Resources Ltd retracted the threat it had made in the fall of 2002 that Kyoto regulation might cause it to delay an $8.5 billion oil sands project and stated that the initiative was “back on track.”25 Although not the subject of such public discussion, the electricity sector undoubtedly represents a greater challenge for the federal government. As set out in Figure 1, at present 61 percent of electricity generated in Canada comes from hydroelectric sources, 25 percent from fossil fuels, 13 percent from nuclear, and the remaining 1 percent from other sources, including renewables.26 Those fossil-fuel generating plants contribute approximately 19 percent, or 137 mts, of total Canadian emissions. Obviously, there is considerable potential here to achieve a sizable portion of the total Canadian reduction through switching to other energy sources, such as hydro, nuclear, or renewables, and by demand reduction. The likelihood of unilateral federal electricity policy, however, is extremely slim. Although some provinces, led by Alberta and Ontario, are working to introduce competition and are inviting private investment in electricity, the bulk of electricity produced in Canada each day still comes from provincially owned utilities. To influence their behaviour, the federal government would have to, in effect, regulate provinces, which, in de facto terms, cannot be done in this country. The federal resource minister has flatly declared that this is something the present government will not attempt: “The other thing we’re doing is encouraging large [electricity] utilities to ensure they buy a certain amount of their new power as renewable energy ... But as to whether we can legally force them to do that, I think it’s within the provincial context. Provincial governments could force them to do that because they’re crown corporations. Federally we could not legally force them to do that.”27 Like other business sectors, the trade association representing electricity associations – the Canadian Electricity Association (cea) - has taken the position that it cannot meet this objective by the 2010 deadline and still guarantee certainty of electricity supply. In a letter to Ministers Anderson and Dhaliwal dated 25 September 2002 the cea stated that “there remains a considerable gap between our understanding of

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what is practically achievable in the Kyoto time frame and what is either assumed or explicitly set out in federal documents,” and it concluded by stating that “we caution against a precipitate decision on ratification.”28 Writing some five months later, after the ratification decision, the cea echoed this theme, saying “Canada will likely face the prospect by 2008 of being far short of its Kyoto commitments.”29 Despite these difficulties, the federal government did manage to sign a few voluntary agreements with industry in 2003 – one with the Forest Products Association, one with Du Pont, and an agreement on emissions trading principles with representatives of a large number of sectors. Thus we see that, during 2003, the gap between what industry is proposing and the 6 percent reduction objective has barely narrowed. The most visible sector, oil and gas, has achieved its basic objective of refashioning federal policy in such a way that it does not threaten the viability of capital investment in the oilsands. There is little reason to believe other sectors will be less successful when they sit down to bargain with federal regulators. Individual Provincial Actions30 Our purpose in this chapter is to explore the likelihood that Canadian policy, as it evolved during 2003, will achieve the Kyoto goal. Since provincial policy action is key, we provide here a snapshot of climate policy organization and policy instrument choice in each province. We also briefly examine emission reduction initiatives undertaken or planned in major industrial sectors. While the data presented here are preliminary, they do give some indication of the relative priority given to the issue by each province and the possibility that climate policy across the provinces will succeed in reducing overall emission levels. Table 2 sets out the lead agency in each province and indicates whether or not a new entity has been created. As can be seen, only Quebec and Alberta have put in place new agencies, with relatively high status. All other provinces have kept the issue at a mid-level in their respective energy or environment departments. In addition, as of the time of writing, four provinces have climate change action plans in place (pei, qb, mb, ab), three provinces are developing such plans (nt, nb, bc), and three provinces have no action plan in place or under way (ns, on, and sk).31 The action plans vary in terms of vision, specificity, and content. Alberta’s action plan begins with a commitment to “taking effective action on climate change” by cutting emissions in the province relative to gdp

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189 Implementing Kyoto Table 2 Organizational/Strategic preparedness

Lead administrative unit(s)

StandAlone entity?

Action plan?

nf

Policy and Planning Division Dep’t of Environment

No

Being developed Discussion paper released June 2003 Goes to Cabinet autumn 2003

pei

Air Quality and Hazardous Materials, Fisheries, Aquaculture and Environment and Energy and Minerals Section, Development and Technology

No

2001 Curbing Climate Change, first in series of three-yr plans

ns

Climate Change Division Energy Department

No

No

nb

Department of Energy

No

Being developed Discussion paper released Jan. 2003, workshops in Mar/Apr

qc

Bureau sur les changements climatiques Ministère de l’Environnement

Yes

Successive plans (1995, 1996, 2000) Plan d’Action Québécois sur les Changements Climatiques 2000-2002

on

Air Policy and Climate Change Branch

No

No

mb

Climate Change Branch Manitoba Energy, Science and Technology

No

2002 Province of Manitoba Climate Action Plan, revised plan expected 2004

sk

Saskatchewan Environment, Energy Development and Climate Change (Industry and Resources) and Resource Development (Saskatchewan Agriculture and Food)

No

No

ab

Bureau of Climate Change Strategic Directions Division Ministry of Environment Also: Climate Change Central (public-private entity)

Yes

2002 Alberta Climate Change Plan

bc

Climate Change Section Water, Air and Climate Change Branch Environment Protection Division Ministry of Water, Land and Air Protection

No

Being developed

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by 50 percent below 1990 levels by 2020. It does not mention the Kyoto Protocol and argues, instead, that adopting an emissions intensity approach “makes sense because Canada’s major trading partner, the United States, has not adopted an absolute emission reduction target but is instead focusing on improvements in emissions intensity.” Alberta also released, in November 2003, a plan for further regulation of electricity sector emissions. Manitoba’s Action Plan, in contrast to Alberta’s, notes “strong support for Kyoto ratification” and commits to the “ambitious goal of meeting and exceeding Canada’s Kyoto targets.” A task force on emissions trading in Manitoba, chaired by Lloyd Axworthy, has also now reported. Prince Edward Island’s plan cites climate change as “one of the greatest environmental challenges we face in Canada today” and accepts Canada’s ratification of Kyoto, but it does not have a specific provincial target for reductions. Interestingly, Alberta’s action plan is the most detailed and, unlike other provincial plans, contains commitments to negotiate emissions reductions with industry sectors, put in place regulatory backstops, and move forward with emissions trading. Also of note is that, in those provinces that have action plans, only Alberta is in the process of enshrining plan provisions in legislation. No province has officially adopted a target for total jurisdictional emissions, either in an action plan or any other policy document. As noted above, the Alberta government has established a goal of reducing ghg emissions intensity in the province, although this, of course, is not an absolute reduction goal, and it is estimated that a 20 percent to 25 percent increase in emissions over 1990 levels will result if this target is adopted. The Manitoba government Web site claims that, “by 2010, Manitoba’s net contribution could equal a greenhouse gas reduction of up to 18 per cent from 1990 levels, significantly more than the six per cent reduction required of the nation as a whole [emphasis added].”32 Other provinces may have an informal ghg reduction target to guide decision making, although they are quick to note that these are not formal targets. In fact, a number of provincial officials interviewed for this chapter indicated that they were waiting for individual provincial targets to emerge out of a national negotiating process.33 It is also important to note that the four Atlantic provinces and Quebec, as members of the neg/ecp, have agreed to reduce regional emissions to 1990 levels by 2010 and to 10 percent below this by 2020. This agreement does not include specific jurisdictional targets, although sectoral neg/ecp targets include reducing emissions from government operations by 25 percent by 2010, reducing electricity emissions by 20 percent per unit generated by 2025, and increasing energy saved through conservation by 2025.

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Public reporting on progress is important in order to ensure that governments are held accountable for reduction promises made (if, indeed, any are made) as well as in order to facilitate discussion with regard to the effectiveness of the policy instruments chosen. ghg reporting is already occurring in Nova Scotia, Quebec, Ontario, and Prince Edward Island (which measures both ghg emissions and sealevel rise) and is expected to begin in Newfoundland and Alberta in 2004. Other provinces have no plans for reporting. With the exception of Alberta, there are currently no provincial programs mandating reductions in ghg emissions by large industrial emitters (e.g., the manufacturing or oil and gas sectors). In fact, several provincial officials interviewed for this study indicated that they had no intention of regulating ghg emissions from these sectors as they expected the federal government to do so. Some provinces have undertaken less formal actions; for example, Quebec and the Aluminum Association of Canada have signed a voluntary “framework agreement” with a reduction target of 200,000 tonnes per year, while Ontario has in place cooperative, non-binding agreements with industry to undertake climate change initiatives. Alberta plans to negotiate agreements with the manufacturing and oil and gas sectors that will set specific goals for reducing their emissions per unit of output. The neg/ecp agreement, which could have some influence on the reduction activities of eastern provinces, includes targets for emission reductions for government operations and the electricity sector – although the time frame (to 2025) is far beyond the Kyoto target date. Electricity production, which is almost completely under provincial control, accounted for almost 18 percent of Canada’s ghg emissions in 2002. As discussed in Section 2 above, provinces have different physical resources that affect their energy prospects and ghg emission profiles; while Newfoundland, Quebec, Manitoba, and British Columbia have large-scale, low-emission hydroelectric developments, coal – the dirtiest fossil fuel – figures prominently in the energy mix in Nova Scotia, Saskatchewan, and Alberta. Almost all provinces are planning an increase in wind generation, with Manitoba (250 mw by 2009) and Alberta (500 mw in 2003) expecting the largest increases. Yet Alberta is also adding approximately 4,000 mw of coal-based generating capacity, which dwarfs any increases in wind and cogeneration capacity. Most provinces have no ghg emission reduction targets for their electricity sectors: only the major public utilities in Ontario and Manitoba have such targets. Alberta’s electricity sector will shortly have an emissions intensity reduction target, and bc Hydro plans to offset 50 percent of its emissions by purchasing emissions credits from abroad.

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Prince Edward Island is pursuing a “cooperative approach” to achieving ghg emissions reduction from its electricity sector. Energy policy developments currently under way in the Atlantic provinces, however, may result in new emissions reductions goals or changes to the energy mix in these jurisdictions. In order to obtain emissions reductions, measures to increase the share of renewable energy sources are key. In comparison with measures adopted in numerous us states, however, renewable energy development in the provinces is lagging. There is little in the way of incentives (bc offers a tax exemption for alternative energy) or provincewide Renewable Portfolio Standards (rps) to guarantee that a portion of electricity is generated from renewable sources (pei Energy Corp has a non-binding renewable quota of 10 percent, Ontario 8 percent, and British Columbia 50 percent, with the latter to be obtained largely through hydro). Most provinces are doing some research or conducting pilot projects to encourage renewables, although the scale of these projects is relatively small. Energy policy and other political developments may somewhat change the outlook for renewables in Canada, however. For example, New Brunswick’s recently passed Electricity Act empowers the government to implement an rps, and, in its campaign platform, the new Liberal government in Ontario also committed to am rps of 5 percent by 2007 and 10 percent by 2010. The transportation sector is the leading source of ghg emissions in most provinces, and measures to increase public transit use, vehicle fuel efficiency, and alternative fuel vehicles are key. Public transit funding is considerably lower in Canada than in the United States, at both the federal and provincial levels, and only Quebec has taken significant action in this area by adopting municipal targets for decreasing the use of cars and increasing the use of public transit (while also making transit fares tax-deductible). In terms of vehicle emissions, only British Columbia and Ontario have vehicle emission inspection and maintenance programs (neither of which monitor ghgs), and only British Columbia has a zero-emission vehicles program. A number of provinces, including Quebec, Ontario, Manitoba, and British Columbia, offer tax incentives for biofuels. In addition, a bill recently introduced in the Manitoba legislature would require the blending of ethanol at 10 percent in all gasoline sold in the province and replace an ethanol tax break with direct subsidies. Saskatchewan is phasing in a mandatory 5 percent ethanol blend over 2003-04 and a 7.5 percent blend after 1 January 2005. What appears to be emerging across the ten provinces, then, is a patchwork of policies relating to climate change. Some provinces (e.g., Quebec and Alberta) appear to be further along in terms of mobiliz-

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ing their organizational and program resources for ghg reductions, while others are in the midst of policy discussions. While one might be tempted to argue that the overall cross-country picture could look quite different within a three-to-five year time frame, little in the way of formal policy and targets – via legislation or regulation – is proposed or on the books; instead, most provinces appear to be trying to better coordinate and even “rebundle” or “ramp up” existing energy efficiency and emission reduction initiatives. Perhaps most important, we do not have structures and processes in place for monitoring these various and varying initiatives in terms of the extent to which they are contributing – and can in the future contribute – to meeting Canada’s Kyoto goal.

conclusions From this review of the evolution of Canadian climate policy during the first year after ratification of the Kyoto Protocol, four things emerge as having the most significance for the likelihood of achieving policy success. First, the federal-provincial policy process is not working and, in its place, we see instead an attempt by the federal government to negotiate a series of one-on-one agreements. This means that there is no forum within which the provinces can gather to negotiate the distribution of total Canadian cost. If this process were to be carried through to completion it would mean that allocation of cost would be implicitly decided by the federal government – the only player who can see all the cards – alone. The chances of provinces such as Alberta or Ontario granting that degree of federal power are slim. As we have seen, none of the provinces, other than Alberta (which has essentially opted out of Kyoto implementation), has adopted a target for emissions reduction within its borders. As rational actors, they have no incentive to do so, absent some mechanism for adoption of targets by all. Second, the federal government has launched an effort to directly regulate industry, reversing the policy movement of the past decade. While the federal government has in the past imposed direct environmental regulation on some sectors, most notably pulp and paper, the scale of those efforts is minuscule in comparison to what would be required to effectively regulate the industries that must provide roughly half of the total ghg emission reductions. Direct federal regulation goes against the grain of Canadian national environmental policy making. It was tried briefly by the Trudeau government in the 1970s, and the Mulroney government in the late 1980s and early 1990s, but then largely abandoned in both periods in the face of strenuous provincial

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objections. Certainly, the 1998 Canada-wide Accord on Environmental Harmonization signalled the federal government’s intention to take a backseat to the provinces in environmental regulation. After unilateral ratification, however, the federal government has jumped up front and grabbed the climate steering wheel with both hands. Given the fact that this is a sharp national policy reversal, coupled with the de facto impossibility of directly regulating provincially owned electricity utilities, it is hard to see how the Paul Martin government can meet the Canadian ratification goal by itself. Third, we find a jumble of uncoordinated provincial initiatives that vary greatly in terms of such things as objectives, organizational design, and policy instrument choice. Perhaps effective policy will spontaneously emerge across the ten provinces, but past experience suggests that this is unlikely. The fourth significant element is the apparent failure of the large industrial emitters to grant, even on the level of rhetoric, the legitimacy of the Kyoto cap or time frame. It seems unlikely they will abandon their position that existing technology must not be prematurely replaced, which means the Kyoto target can only be achieved by 2020 or later. Nor are they likely to abandon their lobbying objective of seeing the policy target of an absolute cap on emissions replaced by the openended, us-style intensity objective. On the other hand, they are engaged in negotiations and have signed some voluntary agreements. Here, too, we find ambiguity. Do these developments mean policy success is impossible? Not necessarily. In particular, the fact that American policy can be seen as ambivalent at worst or, more optimistically, moving towards some carbon reductions (at the state level) is likely to have an effect between now and 2010. Canada, like all the other industrialized nations, is almost certain to make the transition to a low-carbon economy over the course of the coming decades. Fossil fuel supplies are finite, price fluctuates, and global supply is fraught with political and military uncertainty. The ongoing search for increased organizational and technological efficiency, which has been the hallmark of the postwar period, is almost certain to carry energy use away from fossil fuels. Regardless of environmental impacts, there are good reasons for Canada to seek a position at the forefront of that movement. Whether or not Canada will in fact move forward on decarbonization remains to be seen. It is possible that whatever government is elected in 2004 or 2005 will manage to use the movement towards direct federal regulation as leverage for a new “equitable, national” coordinated federal-provincial policy. This might be aided by the fact that industrial leaders, having advanced part way down the path, have come

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to think continuation is the most cost-effective option open to them. Conversely, an absence of federal leadership coupled with provincial and industry resistance may mean Canada stays in its present policy muddle until the end of the first Kyoto commitment period in 2010.

notes 1 Under the Kyoto Protocol’s complex weighting system, countries responsible for 55 percent of emissions must approve it in order to bring it into force. As the us – the world’s biggest polluter – has backed out, this leaves Russia with the deciding vote. 2 Environment Canada, Canada’s Greenhouse Gas Inventory, 1990-2001 (Ottawa: Environment Canada, 2003). 3 Government of Canada, Climate Change Plan for Canada (Ottawa: Public Works and Government Services of Canada, November 2002). 4 The David Suzuki Foundation, “Going Backwards: The Alberta Plan and the Clean Export Credit.” Available at: , accessed: 08/05/03. 5 Personal communication, Dr Harlan Watson, Senior Climate Negotiator and Special Representative, Bureau of Oceans and International and Environmental and Scientific Affairs, us Department of State, 18 February 2004. 6 M. Bramley, A Comparison of Current Government Action on Climate Change in the us and Canada (Edmonton: Pembina Institute for Appropriate Development, May 2002), 1. 7 The United States Mission to the European Union, “Fact Sheet: us Cites Greenhouse Gas Emission Declines,” 23 October 2002, . 8 See, for example, S. Clemmer, B. Paulos, and A. Nogee, Clean Power Surge: Ranking the States (Cambridge, ma: Union of Concerned Scientists, April 2000); M. Bramley, A Comparison of Current Government Action; B.G. Rabe, Statehouse and Greenhouse: The Evolving State Government Role in Climate Change (Arlington, va: Pew Center on Global Climate Change, November 2002). 9 References to Hansard of the Legislative Assembly of Alberta, 1542-1545, 25th Legislature, 2nd Session: remarks by Ms Debby Carlson, Liberal mla Edmonton-Ellerslie, 3:10 pm, 27 November 2002; Hansard of the Legislative Assembly of British Columbia, 37th Parliament, 4th Session: remarks by Ms Joy MacPhail, ndp mla Vancouver-Hastings, 3 April 2003; Hansard of the Ontario Provincial Parliament, 37th Parliament, 4th Session: remarks by Mr James Bradley, Liberal mpp St Catharines, 1:50 pm, 5 June 2003.

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196 Energy, Resources, and Environment-Economy Integration 10 Statistics Canada, Electric Power Generation, Transmission, and Distribution, Catalogue number 57-202-xib, 2002. 11 Kevin Dougherty, “Hydro Power Project on Hold as Charest Orders Review: Greenhouse Gas Concerns Fuel Liberal Storm Heading into Quebec Convention,” Montreal Gazette, 7 February 2004, A1. 12 Gary Park, “Alberta Tax Credits Linked to Climate Agreements,” Platt’s Oilgram News 82, 29 (13 February 2002): 2. 13 Minnesota Department of Agriculture (2003), Economic Impact of the Ethanol Industry in Minnesota, Agricultural Marketing Services Division. Available on-line at . 14 Ethanol Fuel Act, S.S. 2002, c. E-11.1. 15 Biofuels and Gasoline Tax Amendment Act, S.M. 2003, c.5. 16 Governments of Ontario and Manitoba, “ Manitoba and Ontario to Investigate East-West Grid and Development of Conawapa,” joint press release, 30 April 2003. 17 Statement by the Honourable Herb Dhaliwal, Minister of Natural Resources, to the House of Commons Standing Committee on Environment and Sustainable Development, 12 June 2003, edited evidence, p. 12. 18 Hansard, National Assembly of Quebec, 10 April 2001; resolution attached to the Environment Québec Press Release “Quebec’s Position on the Implementation of the Kyoto Protocol: Minister Boisclair Obtains the Unanimous Support of the National Assembly,” 24 October 2002. 19 Department of Finance news release, “Budget 2003 Supports Social and Economic Agenda While Maintaining Balanced Budgets,” 18 February 2003. 20 Government of Canada news release, “Government of Canada Announced $1 Billion Toward Implementation of the Climate Change Plan for Canada,” and backgrounders, 12 August 2003. 21 Douglas Macdonald, “The business campaign to prevent Kyoto ratification,” paper presented at the annual meeting of the Canadian Political Science Association, Dalhousie University, May 31, 2003. 22 Government of Canada, Climate Change Plan for Canada (Ottawa: Public Works and Government Services Canada, 2002), 32. 23 Government of Canada, news release, “Government Responds to Industry Concerns about Climate Change,” and attached letter from Resource Minister Herb Dhaliwal to John Dielwart, Chairman, capp, 18 December 2002. 24 Letter by the Prime Minister to the Canadian Association of Petroleum Producers, 25 July 2003, Prime Minister’s Web site. 25 Brent Jang, “Canadian Natural Oil Sand Project on Track,” Globe and Mail (“Report on Business”), 2 August 2003, B1. 26 Canadian Electricity Association, Perspectives (Toronto: Canadian Electricity Association, October 2002), 2.

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197 Implementing Kyoto 27 Statement by the Honourable Herb Dhaliwal, Minister of Natural Resources, to the House of Commons Standing Committee on Environment and Sustainable Development, 12 June 2003, edited evidence, p. 12. 28 Hans R. Konow, President and ces, Canadian Electricity Association, to Environment Minister David Anderson and Natural Resources Minister Herb Dhaliwal, 25 September 2002. 29 Canadian Electricity Association, Canadian Electricity and the Environment: Electricity and Climate Change, Managing Electricity Greenhouse Gas Emissions (Toronto: Canadian Electricity Association, February 2003), 1. 30 Debora VanNijnatten wishes to thank the Social Sciences and Humanities Council of Canada for its financial support of the provincial comparisons in this section. She also wishes to thank Matt Walcoff for his outstanding assistance in compiling provincial information for Newfoundland, Prince Edward Island, Nova Scotia, New Brunswick, and Manitoba. 31 Those provinces without an action plan may outline climate change initiatives in energy or other environmental policy documents. For example, Nova Scotia’s Energy Strategy as well as its Electricity Marketplace Governance Committee report do address climate change in a detailed manner. 32 . 33 Confidential interviews.

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10 Governance for Sustainable Development: Next Stage Institutional and Policy Innovations g l e n to n e r a n d c a r e y f r e y

In Beyond Policy Analysis, Les Pal includes sustainable development (sd) on his 1990s list of “ideas in good currency.”1 Based on the institutional and policy analysis that follows, it appears that the sd change process committed to by the Mulroney and Chrétien governments has lost momentum; hence, it may be a legitimate to ask if sd is still an “idea in good currency.” Paul Martin is credited with addressing the fiscal deficit in the 1990s. The commissioner of environment and sustainable development (cesd) and other commentators argue that Canada is currently accumulating an environmental and sd deficit. Will Martin, as prime minister, want to address it? As the Mulroney and Chrétien experiences indicate, to be successful the sd change process must be on the prime minister’s agenda. As Our Common Future presciently observed two decades ago, “in the final analysis sustainable development must rest on political will.”2 In a brilliant insight Our Common Future concluded “in the end, sustainable development is not a fixed state of harmony, but rather a process of change in which the exploitation of resources, the direction of investments, the orientation of technological development, and institutional change are made consistent with future as well as present needs.3 (See also Table 1.) Carley and Christie also underscore the importance of sd as a process of change: “Above all else, therefore, sustainable development … will be the result of a process of mediation among environmental, economic and social goals. It is in this essentially political process that improvements in human resource capacity

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199 Governance for Sustainable Development Table 1 Mulroney and Chrétien government perspectives The Brundtland report quickly captured the world’s imagination with the concept of sustainable development ... activity in which the environment is fully incorporated into the economic decision-making process as a forethought, not an afterthought. It holds that resources must be treated on the basis of their future, as well as their present, value ... While Canadians accept the merits of sustainable development, we understand it is a philosophy, not an action plan. Canadians themselves must determine their own actions for harmonizing our environment and our economy. Sustainable development is what we want to achieve. The Green Plan sets out how we are going to achieve it together in the years to come. (4-5) Our Green Plan sets out a national challenge that will require the efforts of all Canadians ... Only in this way will our Green Plan be a living document that turns theory into practice; that allows us to respond to new and emerging priorities over time; that truly makes our national environmental agenda a plan for life. (174) Canada’s Green Plan for a Healthy Environment, 1990 Our governmental structure contains elaborate systems to hold Parliament accountable for the management of public monies, but no equivalent scrutiny for Parliament’s management of the public environmental trust. This has led to a wide gap between Canada’s international rhetoric on sustainable development and its actual domestic practice. For example, although Canada promises to fight climate change, federal policies continue to favour private transport over public transit, and energy use over energy conservation. A Liberal government will establish a framework in which environmental and economic signals point the same way. (64) Managing economic development and human growth without destroying the life-support system of our planet demands of Canadians a fundamental shift in values and public policy ... Sustainable development – integrating economic with environmental goals – fits in the Liberal tradition of social investment as sound economic policy. Preventative environmental care is the foundation of the Liberal approach to sustainable development; it is wise public investment like preventative social policies and preventative health care. (63) Creating Opportunity: The Liberal Plan for Canada, 1993 In Creating Opportunity the Government of Canada charted a new way of doing business. In it we recognized that sustainable development should be integrated into the way government defines its business and makes its decisions. That is why we are creating a Commissioner of the Environment and Sustainable Development to hold government accountable for greening its policies, operations and programs. The Government of Canada firmly believes that our economic health depends on our environment health. We firmly believe that the federal government can help shape a future characterized by sustainable development. This is why we want to play a leadership role in turning sustainable development thinking into action. This is why we are now taking the next step of 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. The Guide to Green Government, 1995

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and new organizational concepts can make a major contribution to the realization of sustainable development … In the light of this, we suggest that the ‘process’ of sustainable development must precede the product.”4 While the momentum of the Chrétien government sd change process appears to have stalled, there is no hard evidence that a Martin government is prepared to abandon sd as a guiding approach for government. Indeed, given a strong constituency of support within the Liberal caucus, Martin’s personal historical engagement with sd (going back to the 1972 Stockholm Conference, where he was an assistant to Secretary General Maurice Strong), his very effective period as environment critic during the Tories’ Green Plan era, and his authorship of the far-reaching and reform-minded “Sustainable Development” chapter of the Liberal’s 1993 Red Book, there is every reason to believe that, or the first time, Canada will have a prime minister who truly understands sd. If Martin is serious about linking the security agenda with Third World living conditions, then he will invariably be drawn into sd discourse. Canada has been viewed as one of the most proactive of the developed countries and has made a number of institutional and policy changes to advance the sd agenda. Moreover, the federal government maintains a strong formal commitment to sd. Nonetheless, an increasing number of authors have come to the conclusion that the institutional and policy changes of the past fourteen years have been inadequate to the task of fundamentally entrenching sd as a guiding principle of Canadian public policy. This chapter analyzes key institutional and policy innovations introduced by the Mulroney and Chrétien governments and proposes additional changes for the Martin government.5

institutionalizing the c anadian s u s ta i n a b l e d e v e l o p m e n t c h a n g e process: how are we doing? A recent major study compared ten Organization for Economic Cooperation and Development (oecd) countries plus the European Union and ranked Canada at the top of the middle category just behind the leading group, which included the Netherlands, Norway, and Sweden.6 A 2001 Columbia and Yale Universities study of 122 countries ranked Canada third overall behind Finland and Norway. The rankings were based on the Environmental Sustainability Index, which identifies twenty-two major factors that contribute to environmental

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sustainability, including air quality, overall public health, and environmental regulation.7 A forthcoming review of three “front-running” oecd members – Germany, the Netherlands, and Canada – analyzes the effort of each country to integrate environmental factors into both vertical (within departments) and horizontal (across government) decision making. The three “front-running” countries are credited with pursuing three different paths: “Canada is characterized by ‘the Parliamentary Mode,’ with a strong emphasis on monitoring integration within the legal-parliamentary context. Germany is characterized by ‘The Executive Mode,’ with new and functionally specific mechanisms for executive coordination horizontally at the national level and vertically across the levels of federal governance. The Netherlands is characterized by ‘the Administrative Mode,’ with legislative and administrative innovations in planning and target-group implementation.”8 So, relatively speaking, Canada shapes up positively when compared to other countries. The comparative studies assess Canada on the basis of the institutional and policy innovations it has made to implement sd compared to those of other countries. Domestic reviews, however, tend to focus more on the implementation effort following the innovations and, of course, do not have the obligation to compare the Canadian effort with those of other countries, except to “cherry pick” best practices from elsewhere to contrast to Canada’s performance. Several recent studies have been very critical of the nature and pace of the Canadian change process, suggesting that the sd project has lost steam, despite the institutional and policy changes made to anchor it in the mainstream of Canadian public policy. A Pembina Institute paper is highly critical of the effectiveness of the institutional changes. It argues that the incorporation of sd principles into legislation has been very general and largely ineffectual. Moreover, “Efforts to incorporate sd principles into regulations to date have been very limited and almost entirely symbolic.”9 A key institutional innovation in the Canadian system is the departmental Sustainable Development Strategy (sds), which departments are required to update every three years. The intent is to have departments integrate sustainable development principles into their new and ongoing policies and programs, and to report regularly to Parliament on their progress. The Pembina study concludes that “there is a broad consensus among external observers that the effectiveness of the sds process in achieving the incorporation of sustainable development principles into federal policies and programs has fallen well below expectations”.10 Because of the lack of a clearly articulated sd framework, and

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institutional gaps, the federal government has not gotten very far in developing a set of indicators to monitor progress or performance in this area. Weak policy direction and a lack of central agency support has obviated the strength of Strategic Environmental Assessment (sea) as a tool for assessing the potential impacts of policies, programs, and plans going before Cabinet or to senior decision-making councils in departments.11 Stratos notes a fundamental paradox in the Canadian approach, “at issue is not so much the architecture of this framework as its implementation.”12 An implementation gap seems to have arisen between rhetoric and action which has blunted the impact of many of the initiatives … The dynamic at the core of the federal model – independent public audits of mandated departmental sdss – has led to a conservative, low-risk, low-impact, approach to sustainable development rather than the innovative, comprehensive, policy and attitudinal changes initially envisaged. While there are clearly many reasons for this under-performance, the lack of sustained leadership appears to be a major contributing factor.13

Given the nature of the sd change process, it is not surprising that strong and coherent leadership is cited in virtually all the literature as a fundamental condition for ensuring effective institutional and policy change. In the Canadian federal government several central agencies (Privy Council Office, Treasury Board Secretariat, and Finance Canada) are responsible for horizontal coordination. Stratos argues that these agencies “are not playing a strong role in sd governance: by and large, they do not have the expertise required nor have they been given the explicit mandate to do so … This situation can have a far-reaching impact: for example, because Finance Canada does not innovate in the area of economic instruments for environmental protection, Canada as a whole does not and one of the most important approaches to implementing more sustainable forms of development is underutilized.”14 Interestingly, mainstream business research organizations are joining this chorus. The Conference Board of Canada produces an annual assessment that benchmarks “Canada’s performance against that of the best countries in the world on a range of indicators of sustainable development … 100 indicators in six categories: Economy, Innovation, Environment, Education and Skills, Health, and Society.”15 In comparison with twenty-three other members of the oecd, Canada makes the top twelve in five of the six categories – in contrast to last year when it was in the top twelve across the board. Interestingly, the one area in which Canada slipped badly (to a dismal sixteenth) was environment.16

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The creation of the Office of the cesd in 1996 was one of the key institutional innovations of the Chrétien government. In 1998 the cesd argued that the first round of sdss revealed a number of weaknesses, two of which were fundamental: namely, many strategies were less a commitment to change in order to promote sd than a restatement of the status quo, and nearly all departments failed to establish the clear and measurable targets that are crucial to the success or failure of the sds process. The second set of sdss were tabled by ministers in February 2001, and in the 2002 report the cesd assessed the “strategic” function of the strategies. “From the outset, the federal government has expected its sustainable development strategies to produce change.”17 The cesd tried to determine whether the process of creating and implementing sdss had changed the way federal government departments delivered their mandates, and it concluded that the implementation effort was uneven, with some departments performing better than others: “We found that the strategies generally fell short of fully meeting our criteria for a strategic document … this hinders the process of change that A Guide to Green Government was designed to assist.”18 It was evident that departments as a whole had not adequately integrated sd concepts into departmental business planning, policy development, and decision-making documents. Performance reporting was improving but still in need of much work. The strategies were far better at cataloguing work that departments had already planned to carry out – what the cesd called “good business as usual”19 – than they were at including activities that would push departments further along the sd path. A short-term perspective, the absence of a practical and understandable image of sustainable development, and a lack of senior management engagement were some of the reasons for the lack of progress. Indeed, the cesd argued in the 2001 report that the absence of a coherent government-wide management system was a major problem. The largest enterprise in Canada does not have a common management approach, completed standards, a timetable, or oversight to guide and hold departments accountable for their sustainable development programs … there must be a Government of Canada perspective, which includes an agreed-upon timetable for implementation of a management system, if there is to be a consistent management system in all departments within a reasonable time … Adopting a methodological approach to managing sustainable development is one test to measure whether the government is serious about sustainable development or whether it is treating it as a paper exercise.20

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If the government is serious about implementing sd, as opposed to paying lip service to it through a paper exercise, then central direction is needed. Some departments are well engaged, some are lagging behind, and others are largely disengaged. Part of the reason for this, in the cesd’s view, is the lack of guidance given the absence of a Government of Canada sds: “The challenge faced by each department is like helping to assemble a large jigsaw puzzle without the picture box. Many of the needed pieces are on the table (departments are undertaking short-term, worthwhile activities) but it is not clear what picture is meant to emerge … There is a growing view among departmental officials and other stakeholders that a clear Government of Canada perspective is needed to facilitate greater co-ordination and coherence in the federal voice on sustainable development.”21 In the executivedominated Canadian system of parliamentary government, line department senior managers take their signals from the central agencies close to the prime minister. One of the reasons for the weak and uneven engagement at the departmental level has been the paucity of leadership shown by the Privy Council Office (pco). In the 2002 report the cesd called on the pco to “lead ministers, departmental senior managers, and central agencies in making a renewed commitment to sustainable development in government policies and programs.”22 But the pco did not agree to play a leadership role in renewing the federal government commitment to sustainable development, including providing enhanced guidance and direction to departments and agencies. The pco stated that the leadership should come from the Sustainable Development Coordinating Committee of deputy ministers, along with assistant deputy ministers and mid-level officials in the Interdepartmental Network on Sustainable Development.

p o l i c y i n n o vat i o n f o r s u s ta i n a b l e development: how are we doing? The institutionalization of sustainable development in the federal government appears to have so far resulted in little innovation with respect to policy instruments. While successful examples exist on individual issues, a bold and comprehensive agenda to integrate economic, environmental and social policy at the national level has failed to materialize. sd is now prominent in the national discourse of both the private and public sector due in large part to federal policy towards international institutions and agreements (see Table 2). However, while Canada compares favourably with other industrialized nations

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205 Governance for Sustainable Development Table 2 Selected Mulroney and Chrétien era sustainable development innovations Regulation/ Legislation

Amended Canadian Environmental Protection Act Created External Advisory Committee on Smart Regulation

Exhortation

Strategic Environmental Assessment Guide to Green Government Departmental Sustainable Development Strategies

Voluntary

Accelerated Reduction/Elimination of Toxics Voluntary Commitment Registry Climate Change Plan for Canada: One Tonne Challenge

Expenditure

Green Plan See Table 3 for post-2000 period

Fiscal

Program Review Spending Cuts to Perverse Subsidies Ozone Depleting Substances Regulations Tradable Regime Greenhouse Gas Emissions Permit Trading

International

1972 un Conference on Human Environment 1992 Rio unced Earth Summit 2002 World Summit on Sustainable Development Convention on Biological Diversity Agenda 21 Kyoto Protocol Treaty on Persistent Organic Pollutants

Institutions

National Round Table on the Environment and Economy International Institute for Sustainable Development Commissioner for the Environment and Sustainable Development

on macrolevel sustainable development issues, it has fallen behind in obtaining results from domestic policy making. A shift in focus towards policies that result in real progress on improved environmental quality should now be considered a priority before taking on any further obligations at the international level. A growing number of experts advocate a modernized and innovative approach towards the use of regulatory, economic, and fiscal instruments, all of which had previously been limited by the Mulroney and Chrétien governments. The atmosphere of fiscal constraint of the 1990s created an emphasis on policy innovation in exhortation and voluntary initiatives as an alternative to market-based instruments, but this approach has yielded mixed results. Attempts by the federal government to lead by example in environmental management have been hampered by an implementation gap and continual issues surrounding accountability structures. Despite the legislated requirement to table sdss, strategic priorities for departments are now outlined in the annual deputy minister performance agreement – a document in which sd issues are noticeably

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absent and which features instead such standards as the promotion of learning, official languages, and modern comptrollership.23 Federal policies have been somewhat more successful in advancing the use of voluntary instruments that do not necessarily require the active involvement of government. These efforts have resulted in several agreements with industry on environmental issues (see Table 2). However, a 2000 oecd report is highly critical of the government’s overreliance on these mechanisms to address climate change: “No cost opportunities for curbing pollution are rare and a strategy based on voluntary agreements alone cannot be expected to correct completely for the external costs of pollution. There is a need to increase the use of economic instruments to enforce the polluter pays.”24 The “toolkit” for motivating both large industrial emitters and individual Canadians to reduce their emissions continues to emerge, and it is unclear, at this point, what role voluntary initiatives will ultimately play versus regulation and/or economic instruments. In recent budgets, a stronger economy and improving federal government finances have resulted in expenditure instruments making a swift return as a policy response to sd (see Table 3). However, environmental lobbyists continue to lament that the government still lacks definitive plans on how to successfully and efficiently implement the programs it intends to fund.25 While spending increases are popular during prosperous economic times, overall effectiveness in changing market behaviour can be lost if expenditures are not sustained over the long term. These instruments must also be mixed with other policy tools to ensure the right combination of integration, alignment, and timing essential for achieving a successful implementation. For example, this failed to occur with the Green Plan in early 1990s and has not yet emerged with the Climate Change Plan for Canada. The use of regulatory instruments by the federal government has also been significantly marginalized over the past decade. However, a number of the existing challenges to the modern regulatory framework can be attributed to issues originally identified as a result of sd efforts in the early 1990s. While regulations can be difficult to design and are often politically volatile, they can also successfully create a sense of urgency and provide an incentive to innovate. Mark Jaccard has identified effective sector-specific, market-oriented regulations that perform well in terms of effectiveness, administrative feasibility, economical efficiency, and political acceptability.26 These “smart regulations” should eventually complement other economic and marketbased policy innovations in a broader, more coherent toolkit. In 2002 the federal government announced its intention to review its regula-

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tory approach and later established funding for the External Advisory Committee on Smart Regulation (eacsr). This committee is mandated to report on areas where the federal government could modernize its regulatory strategy to include sustainability, economic concerns, and the administrative burden on business.27 successful, this report should affect policy development in the next government. Recent federal governments have made almost no attempt to integrate environmental and economic decision making through the use of traditional fiscal instruments. The 1993 Liberal Red Book promised to “conduct a comprehensive baseline study of federal taxes, grants and subsidies, in order to identify barriers and disincentives to sound environmental practices.”28 While the government did establish this task force, it was overtaken almost immediately upon its release in the mid-1990s by the government’s attack on the fiscal deficit. Numerous subsidies were, however, eliminated incidentally as a result of “program review” spending cuts.29 Nonetheless, traditional resource industries, fossil fuel producers, and the nuclear industry still receive tax breaks and subsidies that may have perverse effects on the environment.30 Some policy innovation in the use of economic instruments has emerged around tradable permits and trading regimes, primarily to address air pollution. Using these instruments, governments establish limits on allowable emissions and assign or sell permits to industrial emitters. Polluters can buy and sell the permits with the intention of either reducing emissions or increasing individual limits where abatement costs are higher.31 However, the overall reluctance to use fiscal instruments more broadly has greatly reduced the federal government’s ability to influence market consumption and investment decisions.32 The concept of a “triple-bottom-line” accounting that incorporates metrics for natural and social capital in addition to existing economic indicators is still not part of integrated decision making at the federal level, although some departments are contributing to the development of corporate sustainability reporting tools.33 David McGuinty argues that the integration of the economic system with the natural environment is a bottleneck on the path towards sd and that two systematic barriers must be overcome in order to make additional progress: “These barriers are the way we measure and value things – our ‘economics,’ and the way we make decisions.”34 Rectifying this problem requires long-term adjustments to our underlying systems to ensure that decisions are made based on the full value of the natural environment’s support to the economy. However, public policies do not currently support these objectives. Instead of constraining market

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forces, policy instruments should work to promote innovation, provide mechanisms such as measurement systems to increase awareness, and incorporate environmental externalities into prices.35 The oecd suggests that “several environmental objectives could be achieved in a more cost-effective way using market-based instruments.”36 More effective policy tools would include environmental taxes, tax incentives and tax shifting, tradable permits, the phasing out of environmentally damaging subsidies, and strengthening the economic effectiveness of alternative instruments such as voluntary arrangements. While a strong case exists to make better use of market instruments for SD, a number of long-standing challenges have yet to be solved. There has been a distinct philosophical bias in recent public policy in favour of awareness tools and voluntary initiatives and against the use of financial or regulatory incentives. Environment Canada admits that, although it is attempting to promote the use of economic instruments for environmental protection, there are mixed views regarding their application: “There is still a real lack of knowledge about economic instruments. Traditional regulators and the broader public are not familiar with how they work, and need to understand how they can be more effective.”37 The oecd acknowledges that “winners and losers” result from policy reforms intended to better protect the environment and that those concerns are affecting the design of market-based instruments in ways that are not compatible with sd. The challenge of communicating environmental externalities and the rationale for price changes to the public is especially significant. Issues regarding the compliance burden on households and firms can easily lead to either total inaction or such significant exemptions that the resulting efficacy of the policy is negligible. Approaches for reducing these effects include meeting established criteria for policy instrument design and employing a variety of complementary measures to support economic instruments. Environment Canada has noted that revenues from environmental taxes could be used to complement voluntary initiatives, recycled within affected industries to reduce compliance costs and used to shift the overall tax burden to promote investment and to discourage environmentally hazardous activities. However, these instruments may also result in a more complex tax code that would need to be communicated to and accepted by the public. In addition to stakeholder consultations, the oecd recommends a phased-in implementation process to provide time for adaptation and complementary measures that may be required to address unintended effects in areas such as household income distribution.

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r e - e n e r g i z i n g t h e s u s ta i n a b l e development change process: three proposed martin-era reforms Leadership and Political Will: Changes at the Executive Level One constant factor in all of the analyses of the sd change process is leadership and political commitment. In the Canadian experience, Mulroney’s engagement was reasonably active from the acid rain agreement, through his speech at the 1988 United Nations General Assembly committing Canada to respond to Our Common Future and the signing of the biodiversity and climate change treaties after Rio, to the development and early implementation of the Green Plan. Chrétien’s engagement was episodic, book-ended by his signature on the Guide to Green Government in 1995 and his speech to the World Summit on Sustainable Development in September 2002, in which he committed Canada to ratifying the Kyoto Protocol (which took place in December 2002). Martin has a longer history of engagement has than either of his predecessors. One enormous problem with the Canadian sd engagement experience has been the lack of, or confusion around, leadership at the executive level. Mulroney assigned the leadership role to the environment minister, and this caused all sorts of problems for the Green Plan development process as many departments resented Environment Canada’s elevation within the departmental pecking order and the fact that it got to manage the only significant pool of “new money” during the second Mulroney government.38 Executive leadership under Chrétien never settled anywhere. With all ministers signing the Guide to Green Government, and all departments required to develop an sds, the Chrétien government intentionally chose a highly decentralized model. Moreover, the government chose to have parliamentary institutions provide the oversight and review functions. The Standing Committee on Environment and Sustainable Development and the cesd played the primary role, though the Liberal caucus did create its own Sustainable Development Caucus Committee. As noted above in its response to the cesc, the prime minister’s department, the pco, eschewed any responsibility for leadership or coordination and suggested that ad hoc arrangements such as the Sustainable Development Coordinating Committee of Deputy Ministers (sdcc) was the venue for leadership, supported by various interdepartmental networks. While the sdcc did some good work, it was never more than a sideline for busy deputy ministers preoccupied with running their departments and a host of other responsibilities.

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We recommend that national sd objectives be clearly defined and added to the short list of key accountabilities in deputy minister performance agreements. This would go a long way towards improving senior management commitment and performance as deputies would require implementation performance from departmental executives. The leadership issue is something that must be addressed by the Martin government. The lesson of the Mulroney/Chrétien experience is that in order to successfully move the issue it must be on the pm’s agenda. We are not arguing that the Canadian decentralist experiment has been a failure but, rather, that it is in and of itself inadequate to the task. Indeed, the departmental sds innovation is a good one and should continue to develop over time, along with the review and assessment work of the cesd. However, the pco and Treasury Board Secretariat have to become much more thoroughly engaged in the coordination of the implementation process across government and must raise the bar for laggard departments. To anchor the Cabinet’s commitment, Canada needs a new framework document like the Guide to Green Government, which served its purpose in 1995 but is now dated and needs to be supplanted by another document – one that can help departments integrate sd ideas and principles into the policy development stage of their work. Complementing this new “Guide to Sustainable Development” is the need for a federal government sds. The absence of a “chapeau,” or overall Government of Canada sds, has been a major barrier to change in that it has left individual departmental strategies and their policy and program initiatives disaggregated, uncoordinated, and incoherent. While the development of a federal strategy has been discussed for the last couple of years, it is important that it be much more than an amalgam of departmental strategies. What is required is a document that takes a generational perspective and describes “in terms all Canadians can understand, what a sustainable Canada would look like 20 years from now.”39 In one of his first innovations, Martin appointed a national science advisor to the Prime Minister’s Office (pmo). To help lead and re-energize the cultural change process within government, Martin should appoint a prominent individual as sustainable develop advisor in the pmo. Next Stage Policy Challenges: Strengthening the Tool Kit To advance the sd implementation effort, the government should strengthen the use of economic instruments. New approaches, including triple bottom line accounting, ecological fiscal reform, and smart regulations are being developed but need to be more boldly embraced by the policy community and supported by the central agencies. Re-

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cent federal governments have largely resisted or overlooked the use of fiscal policy tools that would better incorporate environmental externalities into market prices. However, the shift to a Martin government provides an opportunity to refocus the sd agenda around a national policy framework that skilfully integrates economic, regulatory, and expenditure instruments.40 The February 2004 Speech from the Throne (sftt) addresses sd specifically and takes a first step in this direction by proposing a tax shift for urban sustainability and the introduction of environmental indicators to national decision making.41 Policy makers should interpret the direction set by the Martin government as a signal of support for further innovation and for strengthening the implementation of these instruments. The foundation for this toolkit will be the realization of a strong system of measurement and indicators that will provide policy makers with the ability to make better informed decisions. Since cuts were made to environmental monitoring and reporting programs in 1995, the federal government has lacked the detailed information required to incorporate environmental and social components into decision making. In 2000 Paul Martin, as minister of finance, asked the National Roundtable on Environment and the Economy (nrtee) to undertake research to develop: (1) better information on the national environment, (2) macroeconomic indicators to address the main concerns of sustainable development, and (3) a proposal to extend the System of National Accounts (sna) to account for natural and social capital. Martin elaborated on the lack of progress with regard to integrating environmental considerations into economic decision making at an nrtee breakfast in 2001: “Why hasn’t there been greater progress? The answer, I would suggest to you, owes much to the difficulty of quantifying the relationship between the environment and the economy. In short, because we lack the right measuring tools, we too often fail to take full account of natural capital in the decisions and choices we make. That is why environmental indicators are so important.”42 The NRTEE responded in May 2003 with Environment and Sustainable Development Indicators for Canada, which proposed the implementation of short-term indicators for air and water quality, greenhouse gas emissions, forest cover, extent of wetlands, and educational attainment.43 Longer-term recommendations include the expansion of national accounts to include a “triple bottom line” once the initial indicators are in place and both the quantity and quality of environmental data are improved. nrtee has identified Finance Canada as being responsible for committing to use the indicators and shaping the sna. Statistics Canada and Environment Canada are also committed to implementing the supporting information systems.

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The February sftt committed the Martin government to implementing three of the six indicators proposed by the nrtee: those monitoring clean air, clean water, and greenhouse gas emissions. While the realization of only three indicators may be interpreted as a disappointment, a more optimistic analysis would be that the integration of even one environmental indicator into national decision making would be a significant step towards sd and that the use of additional indicators would follow quickly after a first success. There do not appear to be any specific barriers to the implementation of the three indicators other than those stemming from the resources and time constraints within the lead departments. However, while the Martin government is taking action on the indicator initiative, more detailed plans for the integration of the sna remain unclear, and a future strategy for triple bottom line accounting is absent from the 2004–06 sdss of the lead departments. Significant resources are required to implement an all-inclusive system of natural and social capital measurement, and this would take years to complete. The Martin government will need to carefully monitor progress regarding its existing commitments regarding the indicator initiative and quickly address the lack of a longer-term direction in order to fully incorporate natural and social capital into federal decision making. Market-based instruments will also play an important role in addressing the sd implementation gap in Canada. Organizations across the political spectrum are calling for tax reform, and advisory bodies have responded with comprehensive proposals to address the inadequacies of existing policy instruments. However, the federal government has for the most part remained silent on recommendations put forward regarding instrument innovation, greening the budget, or the serious investigation of smarter taxation. In Toward a Canadian Agenda for Ecological Fiscal Reform the nrtee argues that past policy instruments are inadequate for addressing problems characterized by complexity, interconnectedness, legacy systems of production, and a consumer culture. Ecological Fiscal Reform (efr) proposes a comprehensive agenda for using suites of instruments comprised of taxes, tax breaks, direct expenditures, subsidies, grants, trading regimes, and user fees. “The research concluded that efr is a worthwhile tool – one to be considered each time policy options to achieve a new environmental goal or objective are being assessed … efr options should be evaluated as part of a suite of measures to address an issue, including command-and-control and voluntary measures.”44 As next steps, the nrtee recommends a long-term strategy to increase comfort levels with the approach among stakeholders. However, the nrtee also proposes numerous high-priority measures, such as lo-

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cation-efficient mortgages that are intended to be quick, effective, lowcost, and low-risk starting points for efr at the federal level.45 The Green Budget Coalition (gbc) emphasizes a shift towards ecological fiscal reform in their 2004 federal budget recommendations. The gbc specifically proposes tax credits for energy-efficient vehicles and the reallocation of revenue from federal gasoline taxes towards funding for municipal public transportation.46 The Canadian Council of Chief Executives has also joined the chorus calling for tax reform in their 2003 statement to the House of Commons Standing Committee on Finance: “The general principle of smart taxation is that you should tax what you don’t want, not what you do. While one goal of tax policy is to redistribute income fairly within the country, it is at least as important to shape tax policy in ways that stimulate the growth of employment and incomes. The economic evidence suggests that one way to do this, without reducing net government revenues by a penny, is to shift the mix of taxes, putting relatively less of the burden on incomes and investment and relatively more on current consumption.”47 The Martin government has made some initial movement towards efr through attempts to address urban sustainability in Canada.48 This issue will likely provide additional triggers for the use of innovative policy instruments by the federal government as the need, the knowledge, and the apparent commitment are present. In addition to the creation of a Cities Secretariat in the pco, a new deal for communities was highlighted in the February sftt, and $7 billion was committed to municipalities through gst relief, with additional promises to share gas tax revenues or to determine other fiscal mechanisms to achieve an equivalent tax shift. While innovative fiscal tools may play a useful role in the long-term funding of Canadian cities, efr should not be limited to that agenda alone. In its 2004–06 sds, Environment Canada identifies the challenge of ensuring that market signals support sustainable development goals.49 However, the most significant barrier to adopting the use of these policy instruments may be in obtaining suitable leadership from the central agencies with influence over fiscal and tax policy. Although the Finance Department has participated in the nrtee’s efr consultations, there is no indication that any recommendations have been acted upon, and the 2004–06 sds goes no further than making a commitment to “assess the potential of proposals received from stakeholders for using the tax system to assist the Government in meeting its environmental objectives, with specific emphasis on the relative effectiveness of tax measures compared to other instruments that may be available within the context of the Government’s other fiscal and policy objectives.50 However, this level of thinking may ultimately be counterintuitive to the adoption of economic instruments for environmental

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policy: “Finance ministries prefer environmental taxes that produce a relatively stable and predictable income, and thus not taxes which are too effective in decreasing pollution (and income). Finance ministries do not like the idea about earmarking the revenue for environmental purposes, since it would hamper their budget control … When environmental ministries have produced complex and inventive tax schemes, tax ministries have often turned them down arguing that they could collect the same amount of revenue in a much simpler way!”51 Leadership at the executive level will be required to ensure that the development of innovative fiscal instruments is given more proactive support at the departmental level. Policy innovation for sustainable development cannot occur in a vacuum: it must develop in combination with appropriate levels of political will, leadership from the centre of government, and institutional support. If the department-focused approach to the implementation of sustainable development is to continue to develop, then the following recommendations should be considered as priorities for the Martin government. As a first step, the implementation of the environment and sd indicators recommended by the nrtee should proceed apace with a plan to expand the nsa to fully incorporate this information before the end of the next term. Finance Canada, Statistics Canada, and Environment Canada have been identified as lead agencies and should receive the resources required to implement the initiative within that time frame. Second, an appropriate institutional body should be tasked to review existing Canadian sd commitments and to identify key targets at risk of not being met. If such a condition exists, then the use of both a national indicator and an economic policy tool to accelerate compliance should be considered. Third, the federal government should initiate a research project to analyze the implications of a full ecological tax shift at the federal level. Finance Canada should play a key role in this project. Finally, further experimentation with ecological fiscal reform should be encouraged in addition to existing proposals to support federal urban sustainability policy. The further addition of economic instruments to the Climate Change Plan for Canada would help to ensure that Kyoto commitments for greenhouse gas emission reductions are met and that Canada regains some of its previous reputation as an sd leader. Sustainable Development and Parliament: Strengthening Canada’s Comparative Advantage Canada is one of the very few developed countries to create a Commissioner of Environment and Sustainable Development. Invariably, Canada is saluted for this initiative in comparative studies. Since 1997 the

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cesd has done excellent work in auditing government programs in a broad range of areas. The commissioner’s office has also developed the capacity to monitor and audit departmental sdss on an annual basis. The reviews of departmental strategies and government programs have been hard-nosed and convincing, earning the commissioner’s office a solid reputation for high-quality and authoritative work. The cesd has become Canada’s comparative advantage in the early twentyfirst-century experiments with institutional change. The rest of the oecd world is watching the cesd “experiment” to see what they can learn from Canada. The location of the cesd in the Office of the Auditor General (oag) has had the advantage of developing real strength within the commissioner’s office with respect to the auditing function for which the oag is so renowned. The adoption of the value-for-money audit methodology has allowed the cesd to excel at the “gotcha” functions of highlighting weaknesses and problems in departmental implementation. The additional tool of the “follow-up” audit has allowed the cesd to check up on whether departments are in fact implementing the recommendations that were agreed to in the original audit. However, despite these strengths, the cesd has been less effective in influencing policy at the development stage. The rear-view, ex-post audit of programs once they have been designed and implemented can be helpful in subsequent modifications to the program. At least as important, however, is the ability to be influential in helping to define the problem in the first place and in developing an approach to address it. To date the focus of the cesd has been incomplete. What is missing is the proactive role in policy development. In large part, the underdevelopment of the “commissioner” functions of advocacy and policy advice is a result of the cesd being located in the oag. The 1993 Red Book commitment to create the cesd was studied by the Standing Committee on Environment and Sustainable Development at the government’s request. In May 1994 the standing committee proposed the creation of an independent Commissioner of Environment and Sustainable Development to play a proactive role in “policy evaluation, forward-looking advice, anticipation, prevention, advocacy, and the coordination of diverse initiatives.” The committee also argued that “an expansion of the role of the Auditor General would enhance the accountability aspect of existing public policy.”52 The government rejected the advice of the committee and established the cesd within the oag. Not surprisingly perhaps, the cesd functions that have developed over the past seven years have primarily been those associated with “the accountability aspect of existing public policy.” Given what we have learned in these past seven years it may be

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time to revisit the recommendation of the committee and to consider removing the cesd from the oag and giving it the independence and broader mandate proposed by the standing committee. Such a move would complement the proposed renewed executive focus on sd outlined above, with a strong policy advisory function from an independent commissioner. The independent cesd should continue to build on its strengths and continue to provide strong and forceful audits of government programs in an annual report to Parliament. This is important as it “gets the attention” of departments. However, greater independence and a higher profile could also facilitate the commissioner building a stronger supportive sd policy community across Canada. This has been cited by some as a problematic outcome of the current low profile. This type of function is not possible within the womb of the oag, which has a strong, legitimate, and long-standing proscription against commenting on policy. As the chief financial auditor of the Government of Canada, it is appropriate that the attorney general should avoid commenting directly on policy or offer policy advice. However, at this early stage in the institutionalization of sustainable development practices in the government of Canada, there is precisely the need for a body that is prepared to champion sd, which is, by definition, a forward-looking orientation. Departments are engaged in a learning process and the coaching or assistance function is important. As the cesd has noted, departments are at very different levels of engagement at the moment, with a group of leaders having emerged, thus showing that progress can be made. It is true, however, that sd in most departments has not moved much beyond the core group charged with developing the sds and reporting on it; that is, sd has not penetrated upward to the executive offices to become an organizing framework for departmental decision making. Nor has it yet penetrated downward to become part of the everyday culture of the working level of most departments. Consequently, innovation, transportation, climate change, tax, and human resource policies, among others, are all being developed largely without an sd lens being applied. Departments aren’t doing it on their own for the most part, the centre is not seriously requiring it, and the cesd isn’t forcefully advocating it.

conclusions It is ironic that, as sd is becoming more mainstream and increasingly integrated into corporate business strategies and investment decision making, we can come to the conclusion that it is loosing momentum in the federal government. The early months of the Martin government

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217 Governance for Sustainable Development Table 3 2000-04 federal budgets: Aggregate sd expenditures 2000 Budget

Climate Change Action Fund

Total: $700 million

Canadian Foundation for Climate and Atmospheric Sciences Sustainable Development Technology Fund Municipal initiatives for clean air and water National strategy for species at risk Great Lakes Action Plan

2001 Budget

Green Municipal Enabling Fund

Total: $485 million

Green Municipal Investment Fund Incentives for renewable energy and energy efficiency projects

2003 Budget Total: $3 billion

Federal contaminated sites Waste and waste systems on reserves National parks and marine conservation Sustainable Development Technology Canada Canadian Foundation for Climate and Atmospheric Sciences Tax incentives for renewable energy Other climate change measures Actions to promote energy efficiency

2004 Throne Speech

Contaminated Sites

Total: $4 billion

Sydney Tar Pond

are important in the history of the sd change process in Canada. Proponents and sceptics of sd, both inside and outside of government, are watching carefully to see if the sd change process will regain strength or stumble along with Martin at the helm. As mentioned, he has the personal qualifications to become a world leader in this area. He will have to surround himself with informed and committed ministers and strong and insightful advisors to overcome a deputy minister community that is not convinced and central agencies that appear indifferent. The policy and institutional innovations recommended in this chapter are based on a close reading of what has worked and what has not worked in the first fourteen years of the post-World Commission on Environment and Development (wced) engagement with the sd change process. Ultimately, Martin will have to keep his eye on the big picture represented by the sd agenda and not be sidetracked by various short-term controversies if he is to outperform Brian Mulroney and Jean Chrétien. As the wced said back in 1987, in the final analysis, sustainable development will rest on political will.

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notes 1 L. Pal, Beyond Policy Analysis: Public Issue Management in Turbulent Times (Toronto: Nelson, 2001),111. 2 World Commission on Environment and Development, Our Common Future (New York: Oxford University Press, 1987), 9. 3 Ibid. 4 M. Carley and I. Christie, Managing Sustainable Development (London: Earthscan, 2000), 32–3. 5 For a summary of key sd events see the International Institute for Sustainable Development’s “Sustainable Development Timeline” at . For examples of the Mulroney and Chrétien governments’ perspective on sd, see Table 1. 6 W. Lafferty and J. Meadowcroft, Implementing Sustainable Development: Strategies and Initiatives in High Consumption Societies (Oxford: Oxford University Press, 2000). 7 Columbia University, 2001. Available at . 8 W. Lafferty. From Environmental Protection to Sustainable Development: The Challenge of Decoupling through Sectoral Integration (Paris: oecd, 2004), 39–40. 9 M. Winfield, M. Anielski, H. Benevides, and A. Kranjc. Governance Tools for Sustainable Development within the Government of Canada (Ottawa: Pembina Institute for Appropriate Development, 2002), 15. 10 Ibid., 17. 11 Ibid., 20. 12 Stratos, Governance Models for Sustainable Development (Ottawa: Stratos, 2002), 26. 13 Ibid., 16. 14 Ibid., 13. 15 Conference Board of Canada, Defining the Canadian Advantage: Performance and Potential, 2003–04: Key Findings (Ottawa: Conference Board of Canada, 2003), i. 16 The Conference Board argues that, while Canadians take pride in the country’s beauty and resources, and, like the rest of the world, perceive Canada as a pristine oasis of natural beauty, we have been lulled into a false sense of security about the state of the environment. While we have abundant resources we are not managing them well. Hazardous waste, air quality, waste water treatment, and the use and quality of water are all problematic. Denmark, Sweden, and Austria get top marks precisely because they actively manage their environment through such means as environmental planning, the enforcement of strict standards, and the use of the best technologies. The report emphasizes that environmental progress

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17

18 19 20

21 22 23

24 25 26

27 28 29

30 31 32 33

does not hurt economic progress as the countries that lead the environment list also make the top twelve in the economy category. The Conference Board blames Canadian “contentment and complacency” for the backsliding. Commissioner of Environment and Sustainable Development, Report of the Commissioner of Environment and Sustainable Development to the House of Commons (Ottawa: Office of the Auditor General of Canada, 2002), 5–6. Ibid., 5–8. The third generation sdss were tabled in the House of Commons in February 2004. Ibid., 5–11. Commissioner of Environment and Sustainable Development, Report of the Commissioner of Environment and Sustainable Development to the House of Commons (Ottawa, Office of the Auditor General of Canada, 2001), 2–1. Commissioner of Environment and Sustainable Development, Report (2002), 5–19. Ibid., 5–20 Privy Council Office, Deputy Minister Performance Agreements: Corporate Priorities for the Public Service of Canada 2003–2004, 2003 (Ottawa: Privy Council Office, 2003). Organization for Economic Cooperation and Development, Economic Survey of Canada, 2000 (Paris: oecd, 2000). Elizabeth May, 2003 Federal Government Budget Analysis (Ottawa: Sierra Club of Canada., 2003). M. Jaccard, “Mobilizing Producers toward Sustainability: The Prospects for Sector-Specific, Market-Oriented Regulations,” in Sustainable Production: Building Canadian Capacity, ed. Glen Toner (Vancouver: UBC Press, forthcoming). Canada, External Advisory Committee on Smart Regulation (eacsr), Mandate, 2003. Liberal Party of Canada, Creating Opportunity: The Liberal Plan for Canada)Ottawa: Liberal Party of Canada, 1993), 64 L. Juillet and G. Toner, “From Great Leaps to Baby Steps: Environment and Sustainable Development Policy under the Liberals,” in How Ottawa Spends, 1997–98: Seeing Red – A Liberal Report Card, ed. Gene Swimmer, 179–209 (Ottawa: Carleton University Press, 1997). May, 2003 Federal Government Budget Analysis. C. Rowlfe and L. Nowlan, Economic Instruments and the Environment: Selected Legal Issues (Vancouver: West Coast Environmental Law Association, 1993). D. Runnalls and F. Bregha, “The Canadian Record Since Rio,” Isuma 3 (2002): 22–6. Stratos, Building Confidence: Corporate Sustainability Reporting in Canada (Ottawa: Stratos, 2003).

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220 Energy, Resources, and Environment-Economy Integration 34 D. McGuinty, “The Way Forward: Integrating the Environment and the Economy,” Isuma 3 (2002): 27–31. 35 J. Moffet, S. Meyer, and J. Pezzack. “Collaborative Public Policy for Sustainable Production: A Broad Agenda and a Modest Example,” in Sustainable Production: Building Canadian Capacity, ed. Glen Toner (Vancouver: ubc Press, forthcoming). 36 Organization for Economic Cooperation and Development, Policies to Enhance Sustainable Development (Paris: oecd, 2001), 16. 37 Environment Canada, Improving Environmental Regulation: An Environment Canada Perspective (Ottawa: Environment Canada, 2003), 20. 38 G. Toner, “The Green Plan: From Great Expectations to Eco-Backtracking to Revitalization?” in How Ottawa Spends, 1994–95: Making Change, ed. Susan Phillips, 229–60 (Ottawa: Carleton University Press, 1994). 39 Commissioner of Environmental and Sustainable Development, Report of the Commissioner of Environment and Sustainable Development to the House of Commons (Ottawa: Office of the Auditor General of Canada, 2002), 5–1. 40 K. Jaimet, “The Green Side of Paul Martin,” Ottawa Citizen, 9 November 2003, A4. 41 Canada, Speech from the Throne, 2 February 2004. 42 P. Martin, Speech by the Honourable Paul Martin, Minister of Finance, at a breakfast organized by the National Roundtable on the Environment and the Economy, Toronto, 25 May 2001. 43 National Roundtable on the Environment and the Economy, Environment and Sustainable Development Indicators for Canada (Ottawa: National Roundtable on the Environment and Sustainable Development, 2003). 44 National Roundtable on the Environment and the Economy, Toward a Canadian Agenda for Ecological Fiscal Reform: First Steps (Ottawa: National Roundtable on the Environment and Sustainable Development, 2003). 45 Ibid. 46 Green Budget Coalition, Recommendations for the 2004 Federal Budget (Ottawa: Green Budget Coalition, 2003). 47 Canadian Council of Chief Executives, Managing for Growth: Fiscal Prudence, Competitive Taxation and Smarter Spending (Ottawa: Canadian Council of Chief Executives, 2003). 48 National Roundtable on the Environment and the Economy, Environmental Quality in Canadian Cities: The Federal Role (Ottawa: National Roundtable on the Environment and the Economy, 2003). 49 Environment Canada, Environment Canada’s Sustainable Development Strategy, 2004–2006 (Ottawa: Environment Canada, 2004). 50 Finance Canada, Sustainable Development Strategy, 2004–2006 (Ottawa: Department of Finance, 2004).

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221 Governance for Sustainable Development 51 M. Anderson, The Use of Economic Instruments for Environmental Policy: A HalfHearted Affair (Toronto: Sustainable Consumption and Production – Linkages Virtual Policy Dialog, 1996). 52 Standing Committee on Environment and Sustainable Development, Report on the Commissioner of the Environment and Sustainable Development (Ottawa: House of Commons, 1994), xi.

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11 Federal Policy and Alberta’s Oil and Gas: The Challenge of Biodiversity Conservation m i c h a e l m . we n i g

This chapter addresses whether Canada’s commitment to conserve biological diversity (or simply “biodiversity”) warrants federal restraints on Alberta oil and gas production.1 Biodiversity conservation is a complex global issue that implicates and touches many if not all aspects of human existence. In Alberta, oil and gas development is a significant, although hardly the sole, threat to biodiversity in the province. Ottawa cannot ignore this threat, but a federal response risks exacerbating strains in federal-provincial relations. Those strains are never-ending and stem from a wide range of issues. Much of Alberta’s complaint with Ottawa has been process-oriented – the so-called federal “democracy deficit.” Of course, Alberta also has disagreements with substantive federal policies. Some of these disagreements relate to social issues (e.g., gun registration, gay marriage, privatization of health care), while others are more economic in nature (e.g., whether the National Wheat Board should retain control over western wheat exports). However, the greatest source of federal/ Alberta discord might be rooted in the broad topic of federal restraints on Alberta’s management of its bountiful oil and gas resources and Alberta’s enjoyment of the economic wealth created from production of those resources. In this context, the National Energy Program (nep) of the early 1980s likely generated the sharpest friction between Ottawa and Alberta. Although the Mulroney government scuttled it by the mid-1980s, the nep left a lingering provincial distrust of any proposed federal programs that touch the province’s oil and gas bounty.

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In addition, it is uncertain whether Ottawa’s post-nep market-based approach to energy security will survive increasing public concern over dwindling gas supplies and urgings, from academics and non-governmental organizations (ngos) if not others, that systematic government efforts are needed to correct the market’s failure to account for many of the environmental costs of energy production. Any federal retreat from the market-based energy security approach might reignite the federal-Alberta friction from the nep era, notwithstanding Alberta’s own occasional non-market leanings (e.g., Alberta’s gas export restrictions). To Alberta, Jean Chrétien’s decision to ratify the Kyoto Protocol – a decision that, so far, Paul Martin has honoured – seemed to legitimate the province’s distrust and has provided still another irritant in federal-provincial relations. Although Alberta’s upstream oil and gas industry is a major source of greenhouse gases (ghgs), the province believes its industry should not be significantly burdened with ghg emission limitations because of the benefits, including “clean” energy, its oil and gas exports provide to the rest of Canada and to the United States. The public face of the Kyoto dispute has simmered somewhat in recent months, in part because of Ottawa’s assurance to keep the oil and gas industry’s burden of reducing ghgs below a specified level. Ottawa no doubt helped its cause by recently reducing corporate tax rates on oil and gas (and mining) resource income, committing to help fund research on ghg reduction technologies for the oil and gas sector, and reaching agreement with representatives of Canada’s major industries on principles for implementing a ghg emission trading system. Russia’s continued resistance to ratifying the Protocol might have taken additional heat off of the Ottawa-Alberta climate change dispute because Russia’s ratification is essential to the Protocol’s existence. Although Paul Martin has thus far largely avoided provincial rancour over Ottawa’s climate change program, the Ottawa-Alberta climate change discord may flare up again. Sources of disagreement may include broad objectives: whether to achieve Kyoto-like absolute emission reduction targets or simply to reduce emissions per unit of output; whether Ottawa has constitutional authority to control emissions of co 2 from Alberta-owned oil and gas; and whether Alberta should be able to adopt its own emissions trading system. Biodiversity loss has not captured as much public attention as has global warming, but it is an equally significant threat (the two problems are also closely related) that requires the attention and response of multiple levels of government. This chapter addresses Ottawa’s role

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in this multigovernance campaign. The first section discusses the general benefits provided by Alberta’s oil and gas sector and its attendant costs, including the risks to biodiversity from the cumulative effects of the considerable habitat disturbances caused by oil and gas activities. The second section explains that Alberta is failing to adequately address the cumulative risks to biodiversity from oil and gas activities because it lacks an effective program for managing cumulative environmental effects through regional planning that includes habitat disturbance limits. This section then explains that, because of the considerable national policy interests in conserving biodiversity, Alberta’s shortcoming is a federal concern. The third section addresses Ottawa’s constitutional and legislative tools for biodiversity conservation. It first shows that the federalism provisions in Canada’s Constitution, while ambiguous in many respects, provide Ottawa with considerable legislative authority with respect to environmental protection, including biodiversity conservation. It then identifies several tools that Ottawa can use to spur Alberta to conduct effective regional planning in order to address the cumulative threats to biodiversity from oil and gas production.

the social benefits and costs of a l b e r ta ’ s o i l a n d g a s p r o d u c t i o n Canada’s economy has long depended on its natural resource wealth, and, at least since the early 1970s, Canadian oil and gas production has been a leader among the country’s natural resource sectors. Since 2000, oil and gas has been Canada’s most productive industry overall. Canada’s oil and gas sector is among the international oil and gas elites from the perspectives of production (thirteenth largest for oil, third largest for gas), recoverable crude oil reserves (second only to Saudia Arabia), and attractiveness for international investment in oil and gas exploration and production (fastest-growing). Canada’s oil and gas production provides substantial economic wealth (in the form of government revenues, oil and gas sector jobs, and boosts to secondary industries) and a strong supply of energy as well as a variety of nonenergy commodities, including fertilizers, lubricants, asphalt, and petrochemical products. Although production occurs in several of Canada’s oil and gas-bearing sedimentary basins, the Western Canadian Sedimentary Basin (wcsb) – encompassing most of Alberta and parts of the three other western provinces as well as parts of the Yukon and Northwest Territories – has been Canada’s most productive to date and, with its burgeoning oilsands production, will remain so in the future. Alberta’s oil

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and gas sector has provided the lion’s share of production within the wcsb. As one industry observer commented, after assessing the province’s largely untapped recoverable oilsands, its remaining recoverable conventional oil and gas, and its coalbed methane potential, “Alberta will remain an energy powerhouse for decades, if not centuries to come.”2 The author’s assumption of centuries-long demand for Alberta’s oil and gas is debatable, but his conclusion at least confirms the fact that the concept of national oil and gas production is largely, albeit hardly entirely, synonymous with Alberta’s oil and gas production. Of course Alberta’s oil and gas sector has risen and fallen. While it is currently prosperous, it is also changing. One change involves the “maturation” of the wcsb. As many have observed, the basin’s “low-hanging fruit” have been picked: considerable recoverable reserves of conventional oil and gas remain, but greater effort is needed to maximize production of those reserves. Part of this effort entails shifting the focus of exploration and production from the shallow, accessible pools in eastern Alberta to the deeper, harder-to-reach, and sour gas-laden pools in the western foothills, and by further exploring the province’s northern regions. This effort also includes energy and resource intensive “enhanced recovery” schemes, which involve coaxing additional production from tired reservoirs by artificially enhancing reservoir pressure. While there is still considerable focus on, and production from, Alberta’s remaining conventional reserves, the rapidly growing oilsands production has eclipsed conventional oil production. The oilsands prospects appear robust for the long term, notwithstanding an early history of cost overruns, a present labour shortage, and competitiveness challenges from a rising Canadian dollar. Alberta’s nascent coalbed methane industry also holds considerable promise with regard to helping to replace declines in the province’s production of conventional oil and gas. Although Alberta’s oil and gas sector contributes significantly to the country’s supply of energy, there are national energy security risks associated with the province’s production. These risks stem from Alberta’s export to the United States of a considerable portion of its oil and gas (65 percent of its sales in 2001), its deference to industry with regard to how much oil and gas to produce each year, and the oilsands’ high demand for natural gas. These risks relate to the security of Canadian supplies of oil and gas, but Alberta’s abundant oil and gas production may also pose a risk for long-term, sustainable supplies of energy in general by discouraging investments in the development of alternative, renewable energy sources. Alberta’s oil and gas sector also raises environmental concerns. The industry’s ghg emissions have been the focus of recent national

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debate, but they are just one component of the industry’s substantial overall environmental footprint. The other components include air pollution, water and soil pollution, non-renewable water uses, and habitat destruction and disturbance. Public health concerns from continued sour gas flaring and venting (and the few violent expressions of those concerns) have provided perhaps the most notorious examples of the Alberta oil and gas sector’s environmental footprint. However, the oil and gas sector, and its oversight by the province, have received environmental black eyes from several other problems, including, most recently, the large quantities of fresh water used irrevocably for “enhanced recovery” of oil and gas.3 Alberta has also received substantial negative press for not adequately managing threats to its vast boreal forest region.4 The oil and gas sector is a major source of threats to the boreal forest as well as to the province’s foothills natural region, although there is disagreement as to whether its footprint is the largest.5 One category of threats to these regions is the cumulative, or landscape-scale, habitat loss through outright habitat destruction and fragmentation.6 Scientists consider these habitat effects the most serious threat to biodiversity, although pollution affects biodiversity as well.7 Some biologists consider habitat fragmentation more complex and insidious than outright destruction, in part because the former tends to occur over long periods and is harder to detect than the latter. At any rate, together, fragmentation and destruction create smaller and smaller habitat “patches” that isolate and thus jeopardize wildlife populations. The corridors that often cause habitat fragmentation may have additional adverse ecological effects in that they provide access routes that increase hunting and use of off-road vehicles. The access corridors may also affect aquatic habitat through sedimentation, bank erosion, in-stream habitat destruction, and barriers to fish passage. Access corridors may also alter predator-prey relations and introduce aggressive weed species. The methods of creating access corridors may also disturb wildlife and cause soil damage. For habitat, the basic problem with the oil and gas sector is that it needs a large amount of land to explore for (and produce) oil and gas on a large scale. While a single well’s surface disturbance to a region may be minor, the disturbance required for the seismic exploration preceding that well, and the roads and pipelines needed to gain access to that well, may be more regionally significant. The amount of disturbance engendered by all upstream oil and gas activities within a given region can be more significant still. By some estimates, the total length of seismic lines approved just in Alberta’s forested “Green Zone” is over 1.5 million kilometres.8 If these lines were combined, they would link the Earth and the moon

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three times and make nearly thirty-eight trips around the Earth. Although the industry has endeavoured to reduce the width of new seismic lines in the last few years, ecological concerns have been raised even with respect to this smaller, line-by-line footprint.9 Moreover, the total number of lines is still increasing and may, in fact, be rising faster than in the past due to increased overall exploration and drilling activity. In addition, while the area of forest cleared for seismic lines appears to be roughly comparable to that harvested for forest operations, the effects may be more environmentally damaging because the oil and gas sector is not required to regenerate vegetation on seismic lines.10 The cumulative magnitude of oil and gas wells, and associated access roads and pipeline rights of way, is similarly significant. Ten to thirteen thousand new wells have been drilled in Alberta in each of the last several years; the number of new wells is expected to increase 16 percent from 2002 to 2003 and to continue increasing in the near term. There were over 103,000 operating wells in 2000. By one estimate, the cumulative area of existing wells in Alberta’s boreal forest region alone was over 886 square kilometres in 1997.11 The transportation network associated with oil and gas production is estimated to include over 200,000 kilometres of roads and railways, causing a footprint of 4,105 square kilometres, and nearly 300,000 kilometres of pipelines.12 Surface mining of Alberta’s oilsands stands to cause the largest habitat disturbance of all oil and gas activities on a project-by-project basis, besides causing a cumulative footprint problem.13 To its credit, the oil and gas sector has made great strides in reducing its surface footprint per unit of operation for both conventional and non-conventional sources. But the industry’s cumulative total footprint remains high and is likely to increase as the industry increases drilling to chase declining reserves of conventional oil and gas, and pursues unconventional oilsands and coalbed methane resources. It is difficult to consider the significance of these problems for provincial biodiversity because, to date, there appears to be no comprehensive accounting of the status of Alberta’s biodiversity at the ecosystem, species, and genetic levels. However, the studies to date give cause for concern. According to provincial estimates, there are roughly 22,800 different species in Alberta, nearly 88 percent of which are bugs and insects. Of the mere 625 of these species assessed (roughly 2.7 percent of the estimated total number of species) as of 1999, five were extinct, twelve were “at risk” and thus “in need of immediate action to keep them from becoming extinct or extirpated.” Species at risk include woodland caribou populations, several of whose ranges in Alberta are heavily criss-crossed by oil and gas operations.

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Another 167 either “may be at risk” or are at least “of concern,” including grizzly bear, whose Alberta ranges have also been heavily affected by the oil and gas sector.14 From a broader standpoint, many of Alberta’s ecosystems have been heavily developed. The province’s aspen parkland and grasslands “natural regions” come first to mind because of their widespread conversion for agriculture. However, Alberta’s vast boreal forest – covering over 53 percent of the province’s territory and 10.7 percent of Canada’s entire boreal forest zone – has lost considerable forest cover and is already severely fragmented.15 A recent modelling of cumulative disturbance in one portion of the boreal region noted that that area had “undergone a profound transformation” due to industrial development between 1950 and 2000 but that this change would “pal[e] in comparison” to the quadrupling of the industrial footprint that the authors predicted for the next several decades.16 Alberta’s foothills region accounts for 14.3 percent of the province and is the province’s third largest region.17 The biologically rich foothills are among the most heavily developed and least protected.18 Much of Alberta’s Rocky Mountain region has been protected – in large part under the federal aegis – although much of the montaine portion of the broader Rocky Mountain region is subject to considerable development pressure. Only the Canadian Shield region, in the province’s northeast corner, remains largely untouched. As the province candidly admitted in 1999, “there are few areas of Alberta not yet criss-crossed by linear corridors.”19 In short, there is a substantial biodiversity concern in Alberta that is belied by the beautiful images of Alberta’s big sky, prairies, mountains, and forests. Of course Alberta is not the only province with a biodiversity problem. Canada’s overall biodiversity record is spotty, at best.20 And there is serious concern about the status of global biodiversity. As Ottawa has cautioned: “As a result of human activities, ecosystem, species and genetic diversity are being eroded at a rate that far exceeds natural processes.”21

b i o d i v e r s i t y c o n s e r vat i o n i n a l b e r ta As discussed above, Alberta’s thriving oil and gas sector causes a variety of habitat disturbances that, together with disturbances from other sources, are a cumulative threat to biodiversity. This section makes the case for a greater federal role in mitigating these threats. It addresses (1) why Alberta’s conservation efforts to date have been inadequate and (2) why Ottawa should care about biodiversity in general and, thus, about Alberta’s inadequacies in conserving biodiversity in particular.

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Alberta’s Approach The cumulative threats to Alberta’s biodiversity result in large part from inconsistent provincial policies. On the one hand, Alberta has committed to pursuing a sustainable development path, including the conservation of its biodiversity,and it has numerous programs that directly or indirectly aim to promote this goal. On the other hand, Alberta’s overall commitment to conserve biodiversity has been fairly modest, at least with respect to managing the threats from cumulative oil and gas activities. The province generally favours and promotes upstream oil and gas exploration and production, and requires the industry to minimize the environmental consequences of such activities only as incidental to achieving its primary objectives.22 In addition to their policy bias towards oil and gas production, Alberta’s land and resource management regimes lack the integrative characteristics needed to adequately manage the cumulative effects of multiple industries and user groups.23 Overcoming this structural flaw would no doubt improve the province’s approach to biodiversity conservation, but even more is needed. There is widespread agreement that effective biodiversity conservation also requires a comprehensive ecosystem- or landscape-based land-use planning process. Land-use plans must not only reflect integrative tools but must also include limits to cumulative landscape disturbance. Such limits should be designed to prevent cumulative developments from exceeding ecosystem “thresholds.”24 Alberta has made only some effort in this direction, starting with an “integrated resource planning” program in the 1970s and, more recently, adopting and supporting several other regional- or ecosystembased projects, including notably the Eastern Slopes Policy for Resource Management, the Woodland Caribou Management Strategy, and the Eastern Slopes Grizzly Bear Project. None of these tools, however, has developed, implemented, and enforced systematic limits to cumulative habitat disturbance. The province also established an integrated resource management (irm) office, although its location within Alberta Environment suggested it would lack the clout to lead an effective integrative effort within provincial government. In late 2001 that office issued a draft province-wide framework for regional planning that included the possibility of using ecosystem thresholds in regional plans in order to manage cumulative effects.25 However, the province has never implemented, or even finalized, the draft framework and seems unlikely to do so as it recently closed the irm office altogether. At least while the office was in operation the department’s irm efforts seemed to be

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focused on promoting two “pilot” regional planning processes. One of these pilots, the Northern East Slopes Strategy, is a multistakeholder planning process for a 7.7-million-hectare area running east from the BC-Alberta border just north of Jasper National Park. The other pilot, the Southern Alberta Sustainability Strategy, covers the broad southern portion of the province. This planning process is just in its threshold information-gathering stage, so it is too early to evaluate its merit from a biodiversity conservation standpoint. What follows is a discussion of the first pilot and a related regional planning process for the Athabasca oilsands area on the eastern side of northern Alberta. The Northern East Slopes planning area is sparsely populated and biologically diverse, containing habitat for woodland caribou and grizzly bears, among numerous other species, and spanning Alberta’s Rocky Mountain, foothills, and boreal forest natural regions. The planning area includes large protected areas as well as broad swaths of public land used for industrial, agricultural, and recreational purposes. Regional planners have identified the oil and gas sector’s growth in the region’s western part as among several regional “resource management concerns” and have advised that the cumulative effects of all activities in the region are “not well understood.” Oil and gas activities account for roughly 55 percent of all revenue generated in the area and over 27 percent of all Alberta oil and gas revenue. Oil and gas leases cover 77 percent of the area, and 12 percent of the surface is off limits to oil and gas activity. Oil and gas exploration is still in the early stages in certain portions of the area, but there is “high potential” for discoveries of new gas pools. However, planners expect that, in order to compensate for declining overall reserves in the area, the oil and gas sector will seek increased well densities and increased surface access.26 The three years of planning work to date has culminated in a “steering group” report. Overall, the report reflects the multi-use philosophy characteristic of Alberta’s failed “integrated resource plans.” However, the steering group also recommended the goal of conserving biodiversity at the ecosystem, species, and genetic levels in the region. Towards that end, the group stressed the need for an integrative management approach, including a cumulative effects management program and the establishment of ecosystem and species “objectives”. But the report does not make a firm or clear recommendation for the establishment of habitat disturbance limits to achieve those objectives, although it comes close to doing this for habitat within the ranges of the local woodland caribou herds.27 Even if the steering group came down firmly in support of limits for conserving a broad range of species and ecosystems, there is a low likelihood that these limits would be established and enforced any time

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soon, if ever. Although the group’s report implies that “quick action is necessary,” its brief discussion of “next steps” makes it clear that there is no formal follow-up mechanism to ensure provincial review, acceptance, and implementation. This message is echoed in the report’s schematic of the overall “planning process,” the last step of which is simply the submission of the draft report and recommendations to the provincial environment minister.28 Will the province’s official support for the planning process thus far be equally reflected in provincial implementation of the steering group’s recommendations? The steering group noted that “successful implementation” will require a “potential reform to [provincial] legislation and policy,” thus implying that the province’s current resource development regime is unsupportive.29 Previous irm-like efforts in Alberta have fallen on this same sword, and that history is likely to be repeated.30 Besides the Northern East Slopes and Southern Alberta planning projects touted as “pilots” by Alberta Environment staff, there is still another major regional planning effort under way, this one for the northeast boreal forest region of the province and covering much of Alberta’s oilsands deposits. Alberta Environment initiated this multistakeholder project – known as the Regional Sustainable Development Strategy for the Athabasca Oil Sands Area (rsds) – in late 1998 in recognition of the “unprecedented pace of development” in that area and the accompanying “increased potential for effects” of that development on “environmental quality, species diversity and abundance, and human health.”31 The rsds, once touted as a “pilot” irm initiative like the Northern East Slopes planning effort,32 identified cumulative threats to biodiversity as a major theme and focus of its work. A complementary project, the Cumulative Effects Management Association (cema), was created to work in “partnership” with the rsds, although the precise relation between the two tracks is unclear.33 cema’s several “working groups” address biodiversity issues from several perspectives, although these issues are most directly addressed by the “sustainable ecosystems” working group, which has a special focus on “biodiversity and landscape diversity.” To date, the group’s efforts seem to have been focused on identifying biodiversity indicators and assessing cumulative effects.34 The work of the rsds/cema has been painfully slow. A July 2001 rsds progress report noted that internal deadlines have slipped considerably.35 Remarkably, the rsds has not produced a subsequent progress report, suggesting that its output has slowed even further. This apparent lack of progress is somewhat understandable given the breadth and complexity of the issues being addressed and the variety

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of project participants and accompanying interests. However, lack of funding and resources also appears to be plaguing the overall effort. These problems, in turn, suggest a lack of commitment from the government and industry participants who are expected to bankroll the work. This lack of commitment is further suggested by the province’s refusal to suspend its regulatory review and approval decisions for major oilsands projects pending the rsds’s completion of its work.36 The Alberta Energy and Utilities Board, Alberta’s chief oil and gas regulator, has expressly bemoaned these delays, but the board’s continued willingness, in the meanwhile, to approve major oilsands projects provides an inherent incentive for further delay. Thus, in a 2000 oilsands project approval decision, the board noted that “significant delays in the [rsds/cema] process or the failure of the process to begin to establish environmental objectives and guidelines for management of cumulative effects within the oil sands region in a timely manner could eventually force the Board to revisit its previous decisions.”37 And again, in a 2002 oilsands project approval decision, the board noted that its oilsands approvals generally have “placed significant reliance on the success of the cema process”. The board stated, however, that it remained “concerned with delays in the issuance [by cema] of recommendations” and, thus, would be “discussing options with both the Alberta and federal government by which the cema process can be encouraged to produce more meaningful results in an earlier timeframe.”38 Two oilsands approval decisions issued by the board in early 2004, through a joint panel with federal officials operating under the Canadian Environmental Assessment Act, still hold out considerable hope for the rsds/cema process, but once again they bemoan continuing delays. Both decisions also rejected calls for the development of interim thresholds pending cema’s completion of its work, and, in that they replaced the heading “cumulative effects” with the heading “regional initiatives,” they seem to play down the importance of cumulative effects generally. However, unlike those rendered in 2002, the 2004 decisions recommend that Alberta Environment complete cema’s work if that organization continues to miss its proposed time lines.39 In another two years, the board will no doubt have approved additional oilsands projects while still wondering why there are further delays. This scenario reminds one of parents who cannot understand why their children consistently ignore their repeated but never-enforced threats. While the province’s chief oilsands regulator continues to put considerable faith in future rsds/cema products, Alberta Environment no longer touts rsds/cema as a “pilot” or model of integrated resources management. This omission may be yet another sign of the lack of provincial commitment to rsds outcomes.

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Even if there is adequate commitment to the rsds generally, the strategy (including its cema partner) has made no commitment to adopt the habitat disturbance limits needed to achieve ecosystem thresholds and effectively conserve biodiversity. The strategy does not even hint at the use of disturbance limits except, amazingly, for surface areas where limits are the least necessary (i.e., areas that are “not underlain by economic oil sands and are not specifically needed” for oil sands mining).40 Finally, as with the Northern East Slopes and Southern Alberta planning efforts, and Alberta’s historic integrated resource plans, there is no formal, legally entrenched method for adopting and implementing the rsds’s products. Besides the “pilot” and other regional planning projects, Alberta’s “Special Places 2000” program ranks high among the province’s major efforts to conserve biodiversity. Begun in 1995 and ended in 2001, the Special Places Program added eighty-one new sites, comprising nearly two million hectares, to the network of protected areas in Alberta and fulfilled the province’s commitment to establish protected areas representative of each of its six natural regions and twenty subregions. At a simplistic level, this accomplishment is consistent with conservation biologists’ contention that protected areas, although not the sole solution, are one of several essential tools for an effective conservation strategy. However, as critics have pointed out, Alberta did not design its protected areas to be sufficiently large, numerous, strategically distributed, and connected to satisfy even this limited objective.41 In addition, the province committed to honour all existing resource tenures and tenure renewals in its protected areas. This policy has raised considerable questions about the extent to which the designated areas are truly “protected.” In sum, while generally committing to conserve biodiversity, Alberta does not appear to be on track to do this. This raises questions, discussed below, about whether Ottawa should take action to prompt Alberta to improve its conservation effort. Federal Interests in Alberta’s Biodiversity There are several policy reasons why Ottawa should care how Alberta, or any Canadian province, balances its biodiversity with its oil and gas or other resource development sectors. First, there is a need for national leadership, in part to prevent the provinces from reducing their environmental standards by competing for economic investments but also to resolve issues of fairness stemming from the differing constraints provinces face in designing and implementing adequate conservation programs. Second, biodiversity does not honour provincial boundaries.

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For example, many species of birds, and some mammals and fish, migrate across provincial and international borders, and many watersheds, underground aquifers, and other ecosystems also cross these borders. The transboundary nature of these resources raises federal policy concerns. Third, even species or ecosystems that are wholly situated within a single province may have extraprovincial connections in that they contribute to the health of interprovincial, national, or international species or other resources. Biodiversity has numerous other values that trigger national and international interests, including supporting cultural diversity and providing “natural” models for human technology, supplies for medicines and other manufactured goods, and heritage values. Some economists believe that biodiversity has a tremendous global value in conservative monetary terms alone ($33 trillion us in 1997, compared to a global gnp of $18 trillion) and even a significant value just for Canada ($70 billion/yr in 1995 dollars).42 Because of its numerous and significant values, biodiversity is often referred to in broad, but still utilitarian, terms as basically essential for human existence. Thus, blanket statements like that of the conservation biologist E.O. Wilson – referring to biodiversity as the “key to the maintenance of the world as we know it” – are common.43 If even remotely accurate, these sweeping statements make a compelling case for a federal role to ensure adequate biodiversity conservation in Canada.

federal roles in biodiversity c o n s e r vat i o n This section describes the actual and potential legal tools Ottawa has to promote the national policy interests in biodiversity conservation in Alberta. I start with a summary of the constitutional division of powers between Ottawa and the province in the environmental arena. I then describe Ottawa’s current conservation efforts and, finally, provide recommendations on additional steps Ottawa should take to bolster Alberta’s management of the cumulative threats to biodiversity through effective regional planning. Ottawa’s Constitutional Authority with Respect to Environmental Protection An assessment of federal tools must start with the well recognized ambiguity of Canada’s constitutional federalism. In the environmental arena, this ambiguity exists, in large part, because the Constitution does not treat “environmental protection” as a distinct legislative category.

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In addition, the legislative topics that are expressly listed in the Constitution have vague boundaries. This vagueness is compounded by the Constitution’s reference to the federal and provincial heads of power as “exclusive” of each other. The functional boundaries between the legislative and proprietary powers assigned by the Constitution are also ambiguous. This problem is especially relevant to federal interests in Alberta oil and gas production because Alberta is the proprietor of roughly 80 percent of the oil and gas found within the province. The ambiguous constitutional framework frustrates implementation of the kind of management framework needed to address today’s complex environmental problems: a holistic, ecosystem-based, and integrated framework, touching a wide range of socio-economic and natural resource management issues. The Supreme Court of Canada has ameliorated this problem somewhat by generally recognizing environmental protection as a “fundamental value” for federalism purposes, by stressing the constitutional need for interjurisdictional cooperation, and by consistently affirming federal legislative initiatives while concurrently viewing the constitutional bases for those initiatives as not precluding complementary local efforts.44 On the other hand, the Supreme Court has not clearly affirmed Ottawa’s constitutional basis to establish a national vision and national minimum standards as overall guides for interjurisdictional cooperation. These guides are necessary to ensure that Canada’s efforts are consistent with applicable international environmental objectives and to resolve conflicts among provinces and territories (collectively “provinces”) with regard to managing interjurisdictional resources and fairly allocating the costs of protecting nationally significant resources. Federal standards are also necessary to prevent the provinces from unduly diluting their environmental standards through interprovincial economic competition. Still another problem results from the Court’s recent efforts to pigeonhole federal legislation under the federal “criminal law” power.45 The Court has broadly interpreted the scope of this power, but its basic content – the enactment of legislative prohibitions and exceptions to those prohibitions – arguably makes it the least flexible of the constitutional powers assigned to the federal government. This inflexibility is inconsistent with the Court’s stress on cooperation, which implies a need for regulatory and overall management flexibility. These problems belie the fact that Ottawa has considerable constitutional authority to legislate in the environmental arena. Besides the criminal law power, this authority includes powers relating to: interprovincial and international trade and commerce (e.g., export/import regulations); taxation; interprovincial structures (including oil and gas

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pipelines); and fisheries and activities affecting fish habitat (likely viewed from a broad, watershed sense rather than just as in-stream habitat). In all likelihood, the Constitution also grants Ottawa considerable authority, through the implied “national concern” branch of the express “peace, order, and good government” power, to conserve natural resources that cross provincial and national boundaries (e.g., such as some air sheds, rivers and aquifers, and migratory birds). This constitutional authority may also extend to the conservation of natural resources that are wholly situated within a single province but that are essential for the maintenance of other resources, which are national in scope. Examples of these interjurisdictional connections are isolated prairie wetlands that support migratory birds, and individual wildlife populations whose extinction threatens the viability of entire species. The federal power to enter into international treaties provides an important basis for setting national visions on international issues but generally does not provide a direct power to adopt national legislation to implement those visions and international commitments. However, this general limitation is inapplicable to the so-called pre-1931 “Empire Treaties,” which notably include the Migratory Birds Convention and the Boundary Waters Treaty with the United States. Of course, Ottawa’s legislative power in these areas is not carte blanche in the sense that federal legislation is still suspect if courts view it as stepping, in “pith and substance,” into the areas constitutionally assigned exclusively to the provinces. These areas include the broad legislative category of “property and civil rights” within provinces as well as provinces’ legislative and propriety powers with respect to their natural resources. Ottawa is typically shy about the scope of its constitutional authority in the environmental arena, as witnessed most recently by its refusal to extend the regulatory ambit of its new endangered species legislation to the habitat of species (other than migratory birds and aquatic species) on non-federal federal lands. Even given this deference – much criticized by scholars and environmentalists – Parliament has adopted several statutes that provide considerable direct and indirect federal leverage in the environmental arena. Several of these statutes are discussed below. Current and Future Federal Strategies for Biodiversity Conservation Canada played a lead role in negotiating the international Convention on Biological Diversity and, in 1992, was the first industrialized country to ratify it. Unlike the Kyoto Protocol’s precise numeric ghg emission

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reduction targets, the Biodiversity Convention does not commit its parties to achieving specific numeric conservation levels. However, the convention does commit the parties to several general conservation principles and broad endeavours, including the adoption of “national strategies” for biodiversity conservation. Pursuant to this commitment, Ottawa adopted the Canadian Biodiversity Strategy in 1995. As with the convention, Canada’s strategy lists numerous general principles and is short on specifics. But the strategy does recognize the importance of integrated, “ecological planning and management, especially at the landscape and waterscape levels” and of rationalizing economic incentives with conservation programs. The strategy also calls for the completion of “networks of protected areas.”46 Many of Ottawa’s existing environmental programs fit into the biodiversity strategy. Chief among these programs are federal regulation of activities that affect habitat for fish and migratory birds, under the federal Fisheries Act and Migratory Birds Convention Act, respectively, and federal regulation of some pollutants from certain sectors under the Canadian Environmental Protection Act. Another long-standing tool is federal environmental assessments, which are now required by the Canadian Environmental Assessment Act (ceaa), for federally regulated or sponsored projects. Besides continuing its long-standing regulatory and environmental assessment programs, Ottawa has taken several new, significant steps to implement the national biodiversity strategy. These steps include conducting and providing support for research on biodiversity and technology for reducing its threats, creating several new federal protected areas, and generally raising the public profile of the biodiversity problem. However, Ottawa has provided only tentative leadership in several other key respects. Because its mandatory habitat protections apply only to endangered or threatened species on federal lands (except for qualifying aquatic species and migratory birds, all of whose habitats are protected), the new endangered species legislation – the Species at Risk Act – takes only baby steps towards protecting species on or close to the brink of extinction. The act does provide a federal “safety net” for terrestrial species on non-federal lands as well as a “recovery planning” process for all qualifying species, but Ottawa has considerable discretion to avoid robustly developing and applying these tools. Ottawa has also played only a weak role in spurring ecosystem-based regional planning efforts.47 To be fair, for a variety of political, practical, and legal reasons, Ottawa cannot unilaterally design and implement those regional plans. Except in rare circumstances, and especially for provincial lands, Ottawa should not even play the lead

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role in this effort because, to be effective, regional planning likely requires considerable initiative from the “bottom up” and broad horizontal and vertical cooperation and consensus. Nevertheless, Ottawa can still provide more of an impetus for regional planning than it is currently providing. The steps for carrying out this enhanced role are described below, specifically with respect to Alberta’s oil and gas sector. However, many of these steps apply to numerous sectors and in other provinces as well as in Alberta. Thus, Ottawa should by no means simply target Alberta’s oil and gas sector. So what should Ottawa do? To begin with, Ottawa should recognize its considerable legal leverage to spur regional planning at the provincial level. This leverage includes conditioning approvals under the Fisheries Act and Migratory Birds Convention Act, and ceaa assessments related to those approvals, on the regulated activities’ consistency with provincial regional plans that meaningfully manage cumulative habitat disturbances (i.e., with clear ecosystem or landscape-scale habitat disturbance limits).48 In at least one Alberta oilsands project approval, Ottawa relied on the rsds/cema program discussed above to provide an adequate measure for mitigating the project’s cumulative effects. In a court challenge to this approach, ngos argued successfully that Ottawa’s reliance on the provincial program was unreasonable, essentially because there was no mechanism for Ottawa to ensure that the program would be carried out.49 Rather than heeding the court and ngo criticism, Ottawa’s response appears to have been primarily to amend ceaa to clarify its legal authority to rely on “fuzzy” provincial regional/cumulative effects management programs, while continuing to express concern about those programs’ lack of progress.50 However, even as amended, ceaa still gives Ottawa authority to condition its environmental assessment approvals on more accountable provincial programs. Because ceaa assessments are required for numerous types of federal approvals, not just those required by environmental legislation, Ottawa can apply this enhanced environmental assessment approach in a wide range of regulatory circumstances beyond those arising under the Fisheries Act and Migratory Birds Convention Act. For Alberta oil and gas operations, these circumstances include approvals of interjurisdictional pipelines by the National Energy Board under the National Energy Board Act.51 Of course, that act itself likely gives the federal board authority to condition its project-based approvals according to a project’s consistency with effective provincial regional plans. The board may also have authority under that act to condition its approvals of oil and gas exports on Alberta’s implementation of a regional planning framework for managing the wells, seismic lines,

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roads, and other upstream projects – many of which are not subject to direct federal regulation – that collectively produce those exported resources. The Species at Risk Act (sara) “safety net” process discussed above provides additional federal leverage for species at risk because Ottawa could view the lack of a provincial legal mandate for effective regional planning as a factor warranting application of the act’s “safety net” provisions. sara provisions for federal involvement in preparing recovery plans and action plans for species at risk may provide Ottawa with additional leverage to spur provincial regional planning. Viewed collectively, these are powerful federal tools. In all likelihood, there would be considerable divisive political fallout from Ottawa’s maximum use of these tools – especially its conditional issuance of oil and gas export licences – to spur effective regional planning in Alberta and elsewhere. Thus, there remains a political challenge for Ottawa to discern what level of pressure is appropriate to providing the needed federal inducement while avoiding unproductive political backlash. Ottawa can help its cause, in part, by continuing to educate Albertans and Canadians generally on the national and international importance of biodiversity and by using its tools to spur regional planning in all of the provinces and for all resource uses, so that Alberta and the oil and gas sector cannot claim that they are being unfairly singled out. Ottawa should also consider supporting these regulatory sticks, or threatened sticks, with carrots. Carrots might take the form of direct economic support for provincial regional planning and indirect support in the form of economic or other “rewards” for successful planning products. Besides encouraging regional planning, Ottawa should also consider using federal taxes and other federally controlled financial tools to encourage the oil and gas sector, and other surface users, to reduce their surface footprint.

conclusions The relationship between federal policy and Alberta’s oil and gas is extremely sensitive. Alberta has the economic and political clout to vigorously argue against federal incursion on the province’s valuable resources and the wealth they generate. Ottawa should respect Alberta’s concerns about federal incursions not simply because of the province’s economic and political muscle but also because of its legitimate constitutional authority, as part proprietor and legislator, with respect to oil and gas produced within the province. And Alberta deserves federal respect because, like all provinces, it is an important political component of the Confederation.

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On the other hand, Ottawa should not ignore the risks posed by Alberta’s oil and gas industry to the national interest in biodiversity conservation. That interest calls for a greater federal role than Ottawa currently plays, and this role should involve the pragmatic use of federal regulatory authority to spur meaningful regional planning as well as systematic re-evaluation and the adoption of economic incentives to reduce surface footprints.

notes 1 The author thanks J. Owen Saunders, Steven A. Kennett, and Bruce Doern for their helpful comments, and Nazeef Muhammed for his research assistance. All errors and omissions are solely those of the author. 2 Dale Lunan, “As Gas Wanes Bitumen wins,” Oilweek Newsletter, 9 June 2003, 3. 3 For example, Bernard Simon, “Alberta Struggles to Balance Water Needs and Oil,” New York Times, 9 August 2002, W1; Michael M. Wenig, “Water for Oil: How Much of a Trade-Off Makes Sense?” Law Now Magazine, June/July 2003, 39; Mary Griffiths and Dan Woynillowicz, Oil and Troubled Waters: Reducing the Impact of the Oil and Gas Industry on Alberta’s Water Resources (Edmonton: Pembina Institute for Appropriate Development, 2003). 4 For example, James Gorman, “For Billions of Birds, and Endangered Haven,” New York Times, 3 September 2003, F1; Fen Montaigne, “The Great Northern Forest Boreal,” National Geographic Magazine, June 2002, 22; Gail MacCrimmon and Thomas Marr-Laing, Patchwork Policy, Fragmented Forests: In-situ Oil Sands, Industrial Development and the Ecological Integrity of Alberta’s Boreal Forest (Edmonton: Pembina Institute for Appropriate Development, 2000); World Wildlife Fund Canada (wwf), The Nature Audit: Setting Canada’s Conservation Agenda for the 21st Century (Ottawa: World Wildlife Fund Canada, 2003), 1. 5 Two Alberta Environment reports noted that, as of 1996 and 1998, respectively, the oil and gas sector had left the most “pervasive and intense ‘ecological footprint’ of any human activity” in the Foothills and Boreal natural regions. Alberta Environmental Protection (aep), Prospects for Protection: The Foothills Natural Region of Alberta – Protected Areas Report No. 10 (Edmonton: Alberta Environmental Protection, 1996), 37 and 162 (hereafter aep 1996); aep, The Boreal Forest Natural Region of Alberta (Edmonton: Alberta Environmental Protection, 1998), 75 (hereafter aep 1998). By contrast, a more recent ngo study lists the oil and gas sector as only the fourth of the five biggest threats to Alberta’s overall biodiversity. See wwf, The Nature Audit, accessible on-line at .

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241 Federal Policy and Alberta’s Oil and Gas 6 For example, Peter Lee, Dimitry Aksenov, Lars Laestadius, Ruth Nogueron, and Wynet Smith, Canada’s Large Intact Forest Landscapes (Ottawa: Global Forest Watch Canada, 2003), 42–4; The Energy and Biodiversity Initiative (ebi), Integrating Biodiversity Conservation into Oil and Gas Development (Washington: ebi, 2003), 10 (accessible on-line at ); Michael M. Wenig and Michael S. Quinn, “Integrating the Alberta Oil and Gas Tenure Regime with Landscape Objectives,” in Access Management: Policy to Practice ed/ Henry Epp (Calgary: Alberta Society of Professional Biologists, forthcoming); Richard S. Schneider, Alternative Futures: Alberta’s Boreal Forests at the Crossroads (Edmonton: Federation of Alberta Naturalists, 2002), 43–62; aep 1996, supra, note 5, at 37; Alberta Environment (ae), State of the Environment Report: Terrestrial Ecosystems (Edmonton: Alberta Environment, 1997), 179 (hereafter ae 1997); Alberta Environment, State of the Environment Report: Wildlife (Edmonton: Alberta Environment, 1999), 34 (hereafter ae 1999). 7 For example, aep 1996, supra, note 5, at 27, 39; aep 1998, supra, note 5, at 62. 8 Schneider, supra, note 6, at 50; Wenig and Quinn, supra, note 6, at 1–2. 9 Arin MacFarlane, “Seismic Lines: An Access Management Problem,” in Access Management: Policy to Practice, ed. Henry Epp (Calgary: Alberta Society of Professional Biologists, forthcoming). 10 Schneider, supra, note 6, at 50; Richard R. Schneider, “Managing the Cumulative Impacts of Land Uses in the Western Canadian Sedimentary Basin: A Modeling Approach,” Conservation Ecology 7, 1 (2003): 8. 11 Schneider, supra, note 6, at 56. 12 Wenig and Quinn, supra note 6, at 1; Schneider (2002), supra note 6, at 43. 13 aep 1998, supra, note 5, at 83–5; ae 1997, supra note 6, at 112 (predicting that, by 2025, oilsands will affect “parts of an area totally between 1200 and 1400 square kilometres”). 14 ae 1999, supra, note 6, at 16, 21–2. 15 For example, Schneider (2002), supra, note 6; Lee, supra, note 5, at 42–4; MacCrimmon and Marr-Laing, supra, note 3; ae 1999, supra, note 5, at 5; aep 1998, supra, note 4, at 1, 16, 165; ae 1997, supra, note 5, at 179–84; and aep 1996, at supra, note 5, at 25. 16 Schneider, supra, note 6. 17 aep 1996, supra, note 6, at 161. 18 Ibid., 25, 169. 19 ae 1999, supra, note 6, at 32. 20 wwf, supra, note 4; David R. Boyd, Unnatural Law: Rethinking Canadian Environmental Law and Policy (Vancouver: UBC Press, 2003), 164–208; Lynn P. Marshall, “Conservation of Biological Diversity in Canada: Pristine Wilderness or Mythical Camelot? (ll.m. thesis, Dalhousie University, 1997), 2–3, 156–60.

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242 Energy, Resources, and Environment-Economy Integration 21 Government of Canada, Canadian Biodiversity Strategy: Canada’s Response to the Convention on Biological Diversity (Ottawa: Public Works and Government Services Canada, 1995), 9. 22 For example, Schneider, supra, note 6; see also, for example, aep 1996, supra, note 4, at 169; Michael M. Wenig, “What Is the value of Alberta’s Vast Fossil Fuel Resources?” Law Now Magazine, December 2002/January 2003, 37. 23 For example, Wenig and Quinn, supra, note 6, 4–8; Steven A. Kennett, Integrated Resource Management in Alberta: Past, Present and Benchmarks for the Future (Canadian Institute of Resources Law, Occasional Paper 11, February 2002); Monique M. Ross, Legal and Institutional Responses to Conflicts Involving the Oil and Gas and Forestry Sectors (Canadian Institute of Resources Law, Occasional Paper 10, January 2002); Steven A. Kennett and Monique M. Ross, In Search of Public Land Law in Alberta (Canadian Institute of Resources Law, Occasional Paper 5, January 1998). 24 For example, Canadian Boreal Initiative, The Boreal Forest at Risk: A Progress Report (Ottawa: Canadian Boreal Initiative, 23 June 2003); J.G. Nelson, J.C. Day and Lucy Sportza, eds., Protected Areas and the Regional Planning Imperative in North America (Calgary: University of Calgary Press, 2003), 11, 17–21; ebi, supra, note 6, at 37; Schneider, supra, note 6, at 135; Kennett, supra, note 23; aep 1998, supra, note 5, at 165; Wenig and Quinn, supra, note 6, at 3–4. In the ecosystem management field, a “threshold” is the point where the total load of cumulative stress on an ecosystem “exceeds the ability of the system to accommodate change, causing an impact that could lead to a fundamental shift in the system.” Cumulative Environmental Management Association (cema), Glossary of cema Terms and Acronyms (). 25 Alberta Environment, Regional Strategies for Resource and Environmental Management: An Alberta Framework (). Discussed in Wenig and Quinn, supra, note 6, at 2; Kennett, supra, note 23, at 19–22. 26 Regional Steering Group, The Northern East Slopes: Sustainable Resource and Environmental Management Strategy (nes Strategy) (Edmonton: Alberta Environment, May 2003), v, 2, 10, 78. 27 Ibid., 4, 6, 7, 18–20, 24–7, 133–7. 28 Ibid., 9, 56. 29 Ibid., 19. 30 Kennett, supra, note 23, at 28–9. 31 Alberta Environment, Regional Sustainable Development Strategy for the Athabasca Oil Sands Area (rsds) (Edmonton: Alberta Environment, July 1999), 1; Alberta Environment and Sustainable Resource Development, Regional Sustainable Development Strategy for the Athabasca Oil Sands Area Progress Report (rsds Progress Report) (Edmonton: Alberta Environment, July 2001), 1.

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243 Federal Policy and Alberta’s Oil and Gas 32 Page Management Counsel Ltd., Regional Strategy Initiatives Review (Edmonton: Page Management Counsel Ltd, 31 October 2001), 1; and rsds Progress Report, supra note 31, at 8. 33 See cema Web page, on-line at ; rsds 2001 Progress Report, supra, note 31, at 2. 34 cema Working Groups, on-line at . 35 rsds Progress Report, supra, note 31, at 2. 36 Ibid. 37 aeub, Decision 2000–50 (14 July 2000), 14. 38 aeub, Decision 2002–89 (22 October 2002), 55. 39 eub/ceaa Joint Review Panel Report (eub Decision 2004–005) (27 January 2004), 73–8; eub/ceaa Joint Review Panel Report (eub Decision 2004–009) (5 February 2004), 73–8. 40 rsds Progress Report, supra, note 31, at 23–5, 29, 67. 41 Andy Marshall, “Many Battles Still Ahead to Protect Special Places,” Wild Lands Advocate 9 (2001): 1–3; Alberta Wilderness Association, June 5, 2002 Media Release: Alberta Scientists Support Expansion of Protected Areas Network; see also Steven A. Kennett, “Special Places 2000: Protecting the Status Quo,” Resources 50 (1995): 1–6; Steven A. Kennett, “Special Places 2000: Lessons from the Whaleback and the Castle,” Resources 63 (1998): 1–8; Government of Alberta, Alberta Special Places, available on-line at . 42 Robert Costanza, “The Value of the World’s Ecosystem Services and Natural Capital,” Nature 387 (2002): 253; aep 1998, supra, note 4, at 57. 43 E.O. Wilson, The Diversity of Life (Cambridge, ma: Harvard University Press, 1992), 15; Neil Gunningham and Mike D. Young, “Toward Optimal Environmental Policy: The Case of Biodiversity Conservation,” 24 Ecology Law Quarterly 24 (1997): 243, 247; Marshall, supra, note 20, at 12. 44 For example, R. v. Hydro-Quebec (1997), 151 D.L.R. (4th) 32 (S.C.C.); 114957 Canada Ltée (Spraytech, Société d’arrosage) v. Hudson (Town), [2001] S.C.R. 241. See also Marshall, supra, note 20, at 102–7; and Michelle Campbell, “Legislation: The Cornerstone For Biodiversity Conservation and Management in Canada” (MSc thesis, University of Guelph, 2000), 21–60. 45 R. v. Hydro-Quebec, supra, note 44. 46 Canadian Biodiversity Strategy, supra, note 21, at 6–7, 22–9, 60, 71. 47 For example, cbi, supra, note 24, at 2. This report found “no specific national response” to a 1999 Senate recommendation for the promotion of comprehensive land-us e planning across Canada’s boreal forest region. 48 In fact, Ottawa should consider delegating its regulatory functions under the first two of these three acts to any province that commits to carry out those functions pursuant to a federally approved, ecosystem-based, regional planning framework. Michael M. Wenig, “The Fisheries Act as a Legal Frame-

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244 Energy, Resources, and Environment-Economy Integration work for Watershed Management” (ll.m. thesis, University of Calgary, 1999). 49 Environmental Resource Centre, et al. v. Canada (Minister of the Environment) (2001), 45 C.E.L.R. (N.S.) 114 (F.C.T.D.) (discussed in Pollution Probe, Regional Environmental Effects Frameworks (Ottawa: Canadian Environmental Assessment Agency, 2001), 18. 50 An act to amend the Canadian Environmental Assessment Act, S.C. 2003, ch. 9, ss. 8, 11, 17(3). Thus, for example, in a 2002 aeub oilsands project hearing, Ottawa indicated its “suppor[t]” for cema but also its “concer[n]” that cema’s output “could not match the pace of development proposals.” aeub Decision 2002–089 (22 October 2002), 64. Rather than withhold federal approvals pending the completion of cema’s work, however, Ottawa simply “recommended” that the provincial regulator “encourage” cema to develop “interim environmental thresholds and objectives.” 51 See Quebec (Attorney General) v. Canada (National Energy Board), [1994] 1 S.C.R. 159 (affirming board condition, in electricity export licence, requiring environmental assessment of upstream hydro-power generation facilities).

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12 “Smart Regulation,” Regulatory Congestion, and Natural Resources Regulatory Governance g. bruce doern

The purpose of this chapter is, broadly, to examine the issue of multiple regulatory bodies and regulatory congestion through an analysis of federal regulators in the natural resources sector.1 This sector encompasses mainly forestry, minerals and metals, and energy, which, at the federal level, is the responsibility of Natural Resources Canada (nrcan). However, diverse policy and regulatory impacts come from many parts of the federal government, including Environment Canada, Fisheries and Oceans Canada, Heritage Canada (parks), the Department of Indian Affairs and Northern Development (diand), the Department of Foreign Affairs and International Trade (dfait), the Canadian Environmental Assessment Agency (ceea), Transport Canada, the Canadian Food Inspection Agency (cfia), and the Competition Bureau. The chapter’s focus is on federal regulation but, of course, it is imperative to mention from the outset that even larger realms of regulation and regulatory congestion in this sector emerge from provincial governments and also from international regulators and regulatory regimes. Indeed, it will be evident that it is virtually impossible to confine discussion strictly to the impacts and issues of federal regulation. The analysis is also linked to the federal regulatory reform initiative on “smart regulation” and to the basic challenges of reforming and governing complex regulatory regimes in a global economy. Such challenges are central to many areas of policy and regulation for a new federal government, and thus a natural resources sector case study has

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value beyond that sector alone. Space does not allow an examination of all of the future issues raised by the smart regulation idea and agenda overall, but it does look closely at the multiple regulator issues and at the problem of managing complex regimes of regulation. The metaphor of urban, or traffic, congestion is quite appropriate as a lens for viewing key regulatory challenges. The largest part of the chapter examines this core challenge in the natural resources regulatory realm through discussing: (1) a basic mapping of the dimensions of the challenge and examples of the impact of multiple regulators on firms and resource sectors; (2) the challenges of managing complex regulatory regimes; and (3) the potential for new regulatory governance modalities or other possible principles and reforms in the era of global markets and competition that will not sacrifice the protection of Canadians and the environment. The central argument in the analysis is that nrcan’s mandate and the core challenges of its three subsectors are virtually coterminous with that of the smart regulation challenge. Both seek to manage the regulatory realm through a better understanding of complex regulatory regimes, which, in their overall impact, should produce both a more innovative economy and sustainable development (i.e., balanced attention to economic, social, and environmental impacts). In particular, it is imperative that the problems and challenges of multiple regulators and regulatory congestion in the natural resources sectors be recognized and addressed as a key national regulatory governance issue. Inevitably, several caveats and constraints regarding the analysis must be emphasized from the outset. First, the information assembled on the federal natural resources sector is of a preliminary and stocktaking kind and, hence, can only capture the nature of the challenges in a somewhat static fashion. Second, the underlying histories of the separate federal institutions and agencies that are involved in natural resource regulatory governance are not covered, and, in many instances, such histories are not available. A more complete analysis would have to incorporate, to a far greater extent than is possible in this brief portrait, the mandates, perspectives, and organizational cultures of these other non-nrcan departments and regulators. The analysis focuses on federal multiple regulators, but its ultimate concern is with natural resource firms and other players that are being regulated and whose focus is on specific investments in plants/facilities, projects, production processes, and products. Such decisions to invest, or not to invest, are increasingly global in nature and involve choices by foreign and Canadian firms as to whether to invest in or expand operations (and create or lose jobs) in Canada or elsewhere.

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They are increasingly affected by regulatory lead-times, lags, and inertia as well as by the inherent quality of the regulation. For such firms (and the communities in which they are located or investing) regulation involves not only rule-making through statutes and delegated legislation (“the regs”) but also guidelines, codes, and detailed administrative, procedural, and information requirements – all of which affect the corporate bottom-line as well as when or whether projects and investments actually take place. Such front-line, multilevel regulatory challenges can be illustrated quite starkly through a by no means atypical example involving a forestry company planning a new forestry project/investment. Such a project involves permits, environmental assessment processes, and related multiple regulatory steps and processes, including: • • • • • • • •

a provincial timber management plan Species at Risk Act requirements permits/requirements under the Navigable Waters Protection Act Fisheries Act requirements Canadian Environmental Assessment Act requirements Provincial permits (of various kinds under several statutes) Further Fisheries Act and ceaa processes and requirements further downstream or at later project/investment stages.2

Not all of these very real micro-dynamics can be examined in this analysis, but for many firms, communities, and non-governmental organizations (ngos), this is the real world of multiple regulators and natural resources governance. Many similar examples may be found for the minerals and metals and energy sectors. The chapter is organized into three parts. The first part briefly outlines the key conceptual issues surrounding the “smart regulation” agenda in relation to earlier efforts at regulatory reform and in relation to future global economy challenges. It also maps briefly some key contextual features regarding natural resource regulatory governance. The second section then maps the multiple regulators and statutes in the natural resources sector. This consists of three lists of the regulatory terrain that affect natural resources, one each for forestry, minerals and metals, and energy (see Tables 1, 2, and 3). The third section discusses the kinds of institutional issues, reforms, and constraints that arise regarding these multiple regulatory issues in natural resources, keeping in mind both the economic and environmental balances that need to be struck. This discussion includes commentary on such issues and modalities as: normal ongoing consultation and prior notice among regulators;

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site-specific and spatial issues combined with high-volume regulatory activities or cases; and the actual and possible role of covenants, codes, and regulatory social contracts/licences. Brief conclusions then follow.

k e y c o n c e p t ua l i s s u e s : s m a r t r e g u l at i o n a n d m u lt i p l e f e d e r a l r e g u l at o r s The federal smart regulation initiative was announced in the 30 September 2002 Speech from the Throne, and work on the initiative is under way, guided and advised by the multistakeholder External Advisory Committee on Smart Regulation (eacsr). The rationale for the initiative is stated by the Chrétien Government as follows: “The knowledge economy requires new approaches to how we regulate. We need new regulation to achieve the public good, and we need to regulate in a way that enhances the climate for investment and trust in the markets. The government will move forward with a smart regulation strategy to accelerate reforms in key areas to promote health and sustainability, to contribute to innovation and economic growth, and to reduce the administrative burden on business.”3 The Throne Speech statement then went on to refer to a number of regulatory realms that would be a part of the reform initiative. These included: intellectual property and new life rules, copyright rules, drug approvals, research involving humans, the Canadian Environmental Assessment Act, a single window for projects such as the northern pipeline, the Agricultural Policy Framework, Canada-us smart border needs, and capital market and securities regulation. The smart regulation initiative found its way into the Throne Speech and thus into a recognized high-priority status due to several pressures and arenas of advocacy. One was certainly the federal innovation strategy paper that had emerged earlier in 2002 and whose consultation processes had generated numerous areas in which current kinds of regulation were seen as obstacles to innovation. There were also some areas where insufficient regulation could also be a bar to progress.4 So the notion that regulation had to be “smart” or “smarter” than in the past certainly emerged from the innovation debate. But, of course, there were also separate pressures emerging from the departments and stakeholder groups concerned with all the more specific areas of regulation cited above. When seen, in terms of federal policies about regulation, as an overriding policy instrument, the smart regulation initiative can be cast as simply the latest in a series of periodic regulatory reform efforts. As

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such it joins earlier efforts in the mid-1980s under the Mulroney Conservative government and in the late Conservative government and early Liberal government years of the 1992–93 period.5 Both of these sought to reform regulatory decision processes, deregulate to some extent, and urge a search for non-regulatory alternatives. Economic values and ideas were certainly a part of these reform exercises, but it is fair to say that neither was driven by a full-blown new economy paradigm per se. The smart regulation initiative is largely driven by such a paradigm. It is also driven, more than the previous reform bursts, by a globalization agenda in which a decade of North American Free Trade Agreement (nafta) and World Trade Organization (wto) experience has heightened the pressures for the integration of rules in a North American and global context. But, as in all regulatory reform exercises, the government’s smart regulation initiative necessarily and genuinely also refers to the values and ideas of health, safety, environmental protection, and achieving the public good through rules. However, in regulatory reform periods these are values and purposes that are often put “on the defensive,” so it speak. Equally, when regulatory reform exercises are not in play and “normal regulation” just ticks along and increases inexorably, these latter social values are often in the ascendancy, and economic values may be more on the defensive. When one takes the smart regulation agenda and relates it to the natural resources sector, several analytical features of natural resource policy and governance have to be kept in mind. These can only be highlighted here, but they are important precursors to forming any overall judgment about what to do about multiple regulators in the natural resource sector. First, there is the important conceptual point about whether the natural resource sector actually functions as a sector in any meaningful policy and regulatory sense. Is it a sector in name only, with the real driving forces coming from its constituent elements of energy, metals and minerals, and forestry? After all, each of these elements are complex industries in themselves. nrcan was formed in 1993 to give focus to natural resources per se, but in many respects it has struggled to have policies for the three realms that are other than subsectoral, in part because the dominant industry interest group structure for these realms is also subsectoral.6 Second, to the extent that nrcan has successfully devised natural resource integrative policies, these have come through two overall policy paradigms: sustainable development and innovation.7 The former is a part of nrcan’s statutory mandate. The latter has been embraced by nrcan ministers partly because it is a government-wide priority but

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also because it is important for the ongoing competitiveness of energy, mining, and forestry. Innovation receives additional emphasis at nrcan not only because it is important per se but also because of some concerns that natural resources are seen by the rest of the government (and perhaps by Canadian society) as “old economy” rather than “new economy.” But, in fact, several assessments of productivity and innovation in Canada point out that the natural resources sector is among the most innovative in that it has a higher propensity than do many other sectors to adopt the latest production and product technologies. Thus, bound up in the nrcan challenge is essentially the same challenge that is bound up in the smart regulation agenda. nrcan wants to promote sustainable development, which drives it in one direction. It wants to promote innovation that may or may not always drive it in the same direction as sustainable development (because this is a case-bycase empirical judgment). And, while attempting to do both, it still necessarily seeks to advance these industries and their employment opportunities because they are important to the Canadian economy, to Canada’s regions, and to hundreds of communities. Third, layered over these first two features is the fact that the natural resource sector, especially in mining and forestry, is also compellingly associated with, and characterized by, the “one-industry town.” In other words, mining and forestry and some aspects of energy too (e.g., uranium and coal) are centred in about 100 smaller communities, where one industrial firm is the main employer. These are typically hinterland-based, often in the northerly parts of provinces, and hence they generate double or even triple forms of regionalism. They are: (1) centred around towns; (2) these towns are in northern or hinterland regions or spaces; and (3) most of them are in provinces, which also see these issues as regional policy vis-à-vis Ottawa. All of these spatial and community dimensions affect how regulations (and larger policies) are viewed and made. The fourth feature is that most of the sustainable development regulatory initiatives come from outside nrcan (and, at the provincial level, from outside provincial natural resource departments). Thus the notion of multiple regulators and regulatory congestion is premised on the fact that the initiatives for many or most of these come from environment departments or health and safety ministries whose first impulse is to view the industry in environmental terms only (or mainly) as well as in terms that do not necessarily take into account either the diverse investment situations of different firms/locales or the international competitiveness of the industry. In this sense, the industries see themselves as being “on the defensive” in regulatory terms far more

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than being on the offensive. This, in turn, raises the question of who should be left with dealing with the regulatory congestion and resultant coordination problems and challenges: firms and communities or the federal government (and the provinces and territories)? A fifth contextual feature is that all of the subsectors involved – mining, energy, and forestry – are increasingly influenced by changed global imperatives and rule making, which drive them and governments in different directions simultaneously. For example, the Canadian mining and metals industry has been virtually turned on its head in the last fifteen years.8 It was once a much more Canadian-based industry. But now Canadian firms, while still very active in Canada, have invested in operations in many parts of the world that are now seeking foreign investment in more liberalized markets. These countries also expect Canada’s companies to be good environmental citizens in their jurisdictions, and hence foreign environmental rules and good corporate governance are ever more important. In the forestry sector there are some similar pressures, but a key feature of globalized forestry regulation is that real rule making is often not government-led but, rather, ngo- and consumer-led. And this has resulted in labelling and other product quality codes being initiated by environmental lobbies and, in many respects, being enforced by them through boycotts, threatened boycotts, and market-centred naming and shaming campaigns.9 Last but not least, in the energy sector rule making has become more internationalized due to: (1) the global climate change debate and the Kyoto Protocol requirements, (2) global and North American free trade in energy and other products, and the consequent complex problems of managing cross-border electricity grids. One is now obliged to look at complex sets of rules – “regulatory regimes,” in the language of this chapter – which were not designed, per se, but that now undoubtedly exist and that affect behaviour in both intended and unintended ways.10

m a p p i n g m u lt i p l e f e d e r a l n at u r a l r e s o u r c e s r e g u l at o r s In this section, I map in a very basic fashion the array of regulatory statutes and bodies in the forestry, mining, and energy subsectors and then highlight the nature of the challenges faced in this rule matrix for natural resources at the federal level. nrcan and its industrial sectors have been concerned about this issue for some time. A 1997 report examined environmental regulations and their impact on mining in Canada (see further discussion below).11 Regulatory “roadmaps” have also been developed for

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areas of activity (e.g., oil and gas approvals in Atlantic Canada, including specific maps, such as those for the Newfoundland Offshore Area).12 (Atlantic Canada Petroleum Institute, 2001). And, of course, the issues about how to implement the Kyoto Protocol commitments are quintessentially about what kinds of regulation and incentives (and new technologies) will be used to coordinate and achieve reductions of greenhouse gas (ghg) emissions sectorally and provincially.13 The starting point for mapping federal natural resources regulation is the regulation within the purview of the nrcan portfolio; namely, the department itself and the agencies and boards that report to or through the minister (e.g., the Canadian Nuclear Safety Commission [cnsc] and the National Energy Board [neb]). The mere mention of a portfolio is itself important because some regulatory bodies have statutory independence from the minister. Nonetheless, the full list of portfolio regulation encompasses the following: •

•

•

•

•

Minerals and Metals Sector (mms) Explosives Act/regulations Export and Import of Rough Diamonds Act Energy Sector (es): Energy Efficiency Act/regulations; Canada-Newfoundland Atlantic Accord Implementation Act; Canada-Nova Scotia Offshore Petroleum Accord Implementation Act Canadian Nuclear Safety Commission (cnsc) Canadian Nuclear Safety and Control Act; Nuclear Liability Act; Earth Sciences Sector (ess) Canada Lands Surveys Act/Canada Lands Surveyors Act; International Boundary Commission Act; Constitution Act, Provincial Boundary Acts National Energy Board (neb) National Energy Board Act; Canada Oil and Gas Operations Act; Canada Petroleum Resources Act; Canadian Environmental Assessment Act; Canada Labour Code 2, Energy Administration Act; Northern Pipeline Act; Canada Transportation Act.

While this is a considerable list, it must be immediately stressed that nrcan is not a major regulatory department. Thus its main concerns about multiple regulators centres on laws and rules initiated elsewhere in the federal government.

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The Forestry Sector Table 1 lists the federal statutes and delegated regulations/rules/ guidelines that affect the forestry sector. Because nrcan is not itself a major forestry regulator, the bulk of the rule making emanates from the Department of Fisheries and Oceans (dfo), Environment Canada, the Canadian Environmental Assessment Agency (ceaa), Transport Canada, the cfia, and diand. Environmental regulatory concerns for the forestry industry are numerous and centre on environmental assessment processes, requirements, and potential duplication (with the provinces as well) and with the Canadian Environmental Protection Act (cepa) and its requirements for regulating substances and classifications of substances. These are both realms of high-volume regulation of numerous discrete sites, projects, input production substances, and effluents and emissions. There are also interesting and complex dynamics regarding the cfia and the regulation of invasive pests such as the longhorn beetle. Invasive pests are species introduced from other countries into Canada and that spread and cause damage to Canada’s plants and ecosystems.14 The behaviour of the invasive species is often unpredictable, and the issue of such pests is global and effects both imports and exports. The brown spruce longhorn beetle is an example of a recent invasive pest. Probably imported through wooden packing materials, it was identified by nrcan scientists in March 2000 and quarantined by the cfia in May 2000. The cfia has jurisdiction and responsibility under the Plant Protection Act to ensure that these pests do not enter the country. The Act also requires that exports from Canada meet the phytosanitary requirements of the importing country. Some of the forestry sector’s concerns about modern federal regulation are the product of the fact that the industry’s lobbying focus has typically been at the provincial level, where most of the regulatory jurisdiction resides and where it was strongly coveted and defended. But recently a national forestry lobby group, the Forest Products Industry Association of Canada, was formed as a response to the growing nature of what the industry saw as fragmented federal government regulation, global and trade regulation, and a trend for the industry to consolidate into fewer and larger firms. As previously mentioned, the forestry sector was also especially susceptible to aggressive forms of global ngoled and market-driven codes and standards aimed at certifying that products were made in a sustainable fashion.15 After all, unlike oil and gas and minerals, forests are a renewable natural resource. These

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codes were being led by ngos and were in competition with the regulations emanating from government-led processes (federal and provincial). The plethora of federal (and provincial) regulations and regulatory approval processes has also led to discussions and debates about the need for environmental regulatory “accords,” “covenants,” and even “social licences,” which might encompass more comprehensive bundles of obligations and responsibilities between the sector and governments or even between a given forestry company and governments/ stakeholders (see further discussion below). Other federal departments and agencies whose regulations and decisions are seen to be increasingly important to the forestry sector writ large are the Competition Bureau and the Department of Finance. Competition policy, both with respect to mergers and views of what constitutes anti-competitive behaviour, is a growing issue. The pulp and paper industry within the forestry sector believes it needs to consolidate into fewer and larger firms, and is also concerned that, in key markets such as the us market, it is increasingly selling into a market dominated by a small set of large buyers. The Department of Finance’s tax policies are also seen as being ultimately regulatory, particularly regarding capital taxes and write-off periods for new equipment and technologies. If competitor countries such as Sweden have faster write-offs, then the failure to keep up is seen as a regulatory problem and multi-departmental coordination problem. Minerals and Metals Sector Table 2 shows the federal laws and regulations emanating mainly from departments other than nrcan on Canada’s minerals and metals sector. Again, environmental assessment legislation and regulatory processes under the ceaa and cepa processes are crucial. Also important are metal, mining liquid effluent regulations and their related environmental effects monitoring programs, which are under the joint responsibility of dfo (under the Fisheries Act) and Environment Canada. There are also impacts from diand under the Territorial Lands Act and the Yukon Placer Mining Act. All of the northern territorial regulatory issues are greatly complicated by devolution of powers to the territorial governments and by the developments in Aboriginal self-governance under treaty negotiations. dfait also has an impact in that it can be the conduit for the need to manage regulatory trade-related initiatives such as recent/current eu initiatives regarding the transportation of dangerous goods, to name but one example.

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255 Smart Regulation, Regulatory Congestion and Resource

The nature of these regulatory impacts and coordination problems have obviously not gone unnoticed. Both nrcan and other key federal departments can point to some successes in the last decade in dealing with these multiregulator challenges. A key process in the mid-1990s centred on streamlining environmental regulation for mining and involved agreed presentations among departments such as nrcan, Environment Canada, dfo, and diand to the House of Commons Standing Committee on Natural Resources.16 This led to a series of recommendations and commitments and processes for reporting on progress. Close to 100 percent of the recommendations were adopted. The report stressed that most of the problem resided in the interpretation, administration, and coordination of the rules rather than in the rules themselves. Thus the changes adopted did not require regulatory/statutory change per se but, rather, improvements in giving prior notice, better communication and information, and minimizing the purely bureaucratic kinds of interdepartmental disputes. This 1996–97 streamlining process at the federal level was then followed by a larger federal-provincial process in 1997–98 conducted with extensive stakeholder consultation.17 A careful reading of these various reports shows that these were efforts that were not aimed only at regulatory efficiency (speed of approvals, reduction of overlaps) but also at regulatory effectiveness (i.e., substantive environmental protection). Despite the above kinds of progress, there nonetheless remain other multiregulator dynamics that are seen in mining and mineral industrial circles as a source of serious concern. One such concern is centred in the view that dfo is inconsistent in the application of its own policies and processes regarding damage to fish habitat and related issues. Some of this is linked to the fact that dfo has a quite decentralized management structure in that its regional directors general report directly to the dfo’s deputy minister rather than to dfo’s assistant deputy ministers (adms). In new legislation now being approved by Parliament, environmental assessment processes under the Canadian Environmental Assessment Act have been improved in an intrafederal government sense. But the mining and mineral sector always yields particular concerns and complaints about the process as a whole because, at any given time, there are always several such processes under way (involving major assessments of projects and investments). These are especially complicated in the new regulatory governance context of the north, but they occur in the south as well. Both environmental assessment processes and general effluent regulations and processes also come up

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256 Energy, Resources, and Environment-Economy Integration

against the complex issues of site-specific regulation. Each mining and mineral project is different and, thus, with respect to both regulatory timing and content, there can easily be conflicting demands between being flexible (treat every firm/project differently) and being consistent (treat every firm/project the same). The larger reality for mining and mineral projects is that sites are different and so are local-contextual ecosystems. But then, as we have seen, this is also the case for the dfo and its diverse pressures for behaving consistently and for treating different ecosystems differently. Another example of regulatory puzzles and some regulatory learning centres on the debates and regulatory issues inherent in endangered species legislation. The initiatives to protect endangered species have come from international obligations and, within the federal government, are led by Environment Canada. In early developments, the perception in the mining and metals industry (and the forestry sector as well) was that Environment Canada’s basic instinct was to reach for the regulatory gun rather than to consider alternatives to regulation. Where species and their habitat were already in danger, regulation makes sense. But where one is seeking to prevent future endangerment, then voluntary initiatives may well be the preferred and more sensible approach. Again, site-specific projects/ecosystems are the order of the day in this realm of regulation as well. The Energy Sector Table 3 captures a major part (but not all) of the multiple federal regulatory domain of the energy sector, which, in turn, must be broken down further into its subsectors of oil and gas, nuclear, electricity, and also alternative renewable energy sources. It is also evident from Table 3 that one immediately slips inexorably into joint federal-provincial realms and federal-territorial and Aboriginal realms of regulation. The latter federal-territorial realm does bring in diand as a regulator and as a player in the complex set of regulators involved in the current processes for regulating and approving the new northern gas pipeline for Arctic gas (Canadian and American). To the extent that Canada-us relations are involved, there is a dfait presence in the policy-regulatory mix as well. The federal-provincial offshore oil and gas accords noted in Table 3 do not, strictly speaking, constitute regulatory involvement by another federal department. But they do, as our earlier reference to “regulatory roadmaps” suggests, present significant challenges for overall regulatory coordination. This is true with respect to the Atlantic Accords and joint offshore boards with Newfoundland and Nova Scotia;

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257 Smart Regulation, Regulatory Congestion and Resource

with the prospect of new joint federal-provincial mechanisms for offshore oil and gas development in British Columbia; and with Quebec, New Brunswick, and Prince Edward Island in the St Lawrence. In Atlantic Canada, the Atlantic Canada Energy Roundtable was formed in 2002 to examine key issues in energy development. Study groups on regulation and on industrial benefits were formed. The regulatory group’s concerns were with numerous issues regarding the different kinds of permit approvals that brought in concerns about dfo’s and Environment Canada’s regulatory practices and inconsistencies. Discussions have also developed about permit approval rates and times for Canada’s offshore regime compared to the offshore regimes of other countries. Crucially, ceaa processes are also involved in energy projects. The need to eventually negotiate offshore board agreements with the other provinces mentioned above also raises issues about whether such regulatory arrangements should be regionally “smart” (and each, therefore, different) or nationally and globally “smart” (and each, therefore, consistent). The Newfoundland and Nova Scotia agreements were also, after all, forged almost twenty years ago, in 1985, and much has changed since then. Climate change policy and regulation and the implementation of Canada’s commitments under the Kyoto Protocol are, of course, constitute an even broader realm of coordination issues now that actual commitments must be negotiated. These centre on the oil and gas sector, but they also affect forestry and mining and mineral industries as greenhouse gas producers (as well as with respect to the use of forest sinks).18

reform issues, prospects and l i m i t at i o n s The above basic stock-taking of multiple federal regulators in the three natural resource sectors is necessarily only a partial picture of regulatory governance in this important part of the Canadian economy. The basic picture revealed is one in which complex overlays of rule making are in place and growing. Problems of coordination and congestion have been recognized for some time, though undoubtedly this has not taken into account their full scope and certainly has not been from the perspective of firms and communities. Several reform issues and limitations have emerged from the above regulatory survey. The first and most basic phenomenon to be highlighted is that these are complex regimes of rule making and, therefore, that any future rule making must not rely only on some prior cost-benefit calculations

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258 Energy, Resources, and Environment-Economy Integration

on a narrow “one-rule-at-a-time” basis. Instead, regulatory analysis has to think through, and factor in, the assessment of entire regimes of regulation as they intersect horizontally, sectorally, and spatially within Canada and within a global and North American context. In any given situation, no one is taking into account the overall picture. Different parts of the government are charged with dealing with a particular process, a particular piece of legislation, or a particular department’s mandate. These are each components, but it is rare indeed for the entire gamut of rules affecting a particular industry operation to be taken into account. A necessary second cautionary point is that such analysis is very difficult. The analysis of regulatory malaise, overlaps, and problems is often a process involving regulatory anecdotes and stories, each important and crucial to the firm, community, or stakeholder involved, mixed with actual or partial claims about more universal situations or systemic evidence. Governments often make rule changes based on single cases of error or regulatory malaise, and thus such examples of coordination jumbles are not to be dismissed. They are very important. But one of the things that makes regulation different from taxation or spending as a core policy instrument is that governments (Canadian and foreign) are far less systematic in collecting and publishing data about regulation (and its impacts) than they are about taxing and spending. Too often policy makers and regulators have nothing but anecdotes to guide regulatory change. A third element of change, perhaps best revealed by the environment and mining sector streamlining process profiled earlier, is that many of the most meaningful solutions to these kinds of smart regulation and regulatory congestion problems can only be achieved through interdepartmental cooperation. This cooperation includes greater awareness of potential roadblocks, prior notice and internal consultation, and sensible experimentation with alternative ways of doing things. These kinds of changes require everyday work and persistence that are not the stuff of sound bites or headlines but that can make a major difference. A fourth aspect of regulatory congestion is found in the frequent references above to site-specific issues, combined with high-volume regulatory cases or processes. As we have seen, such sites of production, investment, and adverse or favourable environmental activities can be specific to a company (or even just one of its investments), a mine, a forest, a pipeline, an ecosystem, a one-industry town, or a large region. Site-specificity combines with high-volume regulatory situations, cycles, and processes across the government as a whole. It is in this combination of dynamics (in the resource sector and in other regulatory

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259 Smart Regulation, Regulatory Congestion and Resource

realms) that the problem of living with contradictions and coordination becomes difficult. Very few players in the process (regulators, firms, communities, ngos) are ever totally consistent about the values they express with regard to how these coordination puzzles should be solved. In selected situations, players can favour: (1) the need for regulators to be consistent (and treat everyone in equal situations equally) or (2) the need for regulators to be flexible (and treat players in unequal or different situations unequally, in short, in the many different ways that make sense in relation to actual situations). A final institutional reform idea or issue that emerges out of these and other dynamics is the search for new instruments of governance (regulatory and otherwise). I refer here to the brief mention above of the greater advocacy of, or use of, modalities such as covenants, voluntary codes, or stylized social contracts.19 These modalities have a lineage that can be traced to forms of licences to practice. For example, media broadcasters obtain licences that contain bundles of obligations and responsibilities between the firm and the state. So do forest companies. Voluntary codes, covenants, and social contracts can be licence-like or they can be seen as devices that function one step further away from state rule making in the proverbial “shadow of the law.” They could be agreements with firms or industry associations or with combinations of these and ngos and local communities. Their potential value lies is in the way in which they might foster flexibility in the handling of complex arrays of obligations and performance undertakings, regulatory and otherwise. Their potential weakness is whether or not they can ensure appropriate forms of accountability, depending on how accountability is defined and perceived (e.g., accountability “up” to ministers and Parliament; or “out and down” to stakeholders [firms and ngos) and communities).20 There are also key issues involved in the kinds of capacity needed (technical, scientific, legal, and analytical) by firms, communities, and governments as these agreements and modalities are used and become more complex.

conclusions The purpose of this chapter has been to broadly examine the issue of multiple regulatory bodies and regulatory congestion through an analysis of multiple federal regulators in the forestry, minerals and metals, and energy subsectors, which, at the federal level, are initially in the domain of Natural Resources Canada. The stocktaking list supplied in Tables 1, 2, and 3 provides a more complete picture than was previously available of the inherent multiple regulator scope and congestion in the three natural resource subsectors. The policy and

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260 Energy, Resources, and Environment-Economy Integration

regulatory statutes and rules emanating from many parts of the federal government are indeed diverse and daunting. The rules emanating from Environment Canada, the ceaa, Fisheries and Oceans Canada, diand, the CFIA, the Competition Bureau, and dfait often start from the mandate preferences and organizational cultures of those departments and agencies, and, not surprisingly, they may see the resource sectors as just one of the economic realms they indirectly and directly regulate. I have attempted to focus on federal regulation, but I reiterate, in conclusion, how difficult it is to leave out the larger realms of regulation, which emerge from provincial governments and also from international regulators and regulatory regimes. The ultimate forms of regulatory congestion traced in this chapter are very much a provincial and international problem as well. The analysis has shown that there are genuine issues at the heart of the “smart regulation” agenda of the federal government. It has been driven largely by concerns about innovation and about prospering in the knowledge-based economy, but it is also concerned about regulatory performance and compliance so as to ensure sustainable development. We have by no means dealt with all of these aspects, but the natural resources sector case study in this analysis does reveal that, in many ways, the mandate of nrcan and the core challenges of the three subsectors are virtually coterminous with that of the smart regulation challenge. Both seek to manage the regulatory realm through a better understanding of complex regulatory regimes that, in their overall impact, hopefully produce both a more innovative economy and sustainable development. The chapter has shown that the three resource subsectors have been aware of, and have attempted to deal with, multiple regulator problems. Efforts at streamlining in the mining sector have been extensive but involve integrated and continuous learning and reform across organizational boundaries, mandates, and cultures. The conduct of further streamlining efforts of this kind within and across the resource sectors can certainly produce benefits. Considerable progress can certainly be made through such efforts without the need for statutory change or yet more rules. A further complement to such streamlining efforts is the exploration of the further use of a designated federal regulatory coordinator, modelled perhaps on the Federal Environmental Assessment Coordinator under the recent changes to the Environmental Assessment Act. The federal ea coordinator can, for example, establish time lines. The analysis has shown that there are important new modalities of complex rule making being attempted and debated, including codes, covenants, and forms of social contract and corporate governance.

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261 Smart Regulation, Regulatory Congestion and Resource

These too can be recommended both for greater use and also for greater study as to which ones are exemplars of best practice and which ones meet the double test of both performance and accountability. But difficult spatial and location-specific issues and dynamics remain, creating some contradictions and constraints as various players exhibit different views about specific investments by firms, resources, resource use, and production, along with the always linked issues of spatial and site-specific ecosystems. Finally, it is important to reiterate that the sets of rules that now impinge on natural resources and that produce the situation of multiple regulators have not been designed by some all-seeing and all-knowing decision maker. The various elements have emerged “one at a time,” in response to particular pressures, and have each time involved some form of political-economic compromise. Once adopted or put into place, the rules and the regulatory bodies have functioned at an operational level in such a way that they escape serious political notice simply because the political system has turned its attention to some other problem or some other pressure point. The difficulty in the early to mid-2000s, and in the context of a smart regulation agenda, is that one has no choice now but to look hard at the cumulative underbelly of regulatory activity and to tackle the regulatory congestion problems that undoubtedly exist.

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262 Energy, Resources, and Environment-Economy Integration Table 1 Illustrative forestry-related federal regulations and regulators Regulations

Regulators

forestry act – natural resources canada Gros Morne Forestry Regulations – Establishment of Gros Morne experimental timber area

Environment Canada

Timber Regulations 1993 – Regulations respecting the cut- Natural Resources Canada ting and removal of timber in a forest area fisheries act – department of fisheries and oceans Pulp and Paper Effluent Regulations – Regulations prescribing discharge limits and monitoring requirements for particular substances in the effluent from pulp and paper mills and off-site treatment facilities.

Department of Fisheries and Oceans (dfo) and Environment Canada (ec)

dfo/ec Port Alberni Pulp and Paper Effluent Regulations – Protect ecosystem of Alberni Inlet, prescribing more stringent limits on discharge of substances and mitigating impact of pulp and paper mill on migrating salmon. British Columbia Logging Order

dfo/ec

canadian environmental assessment act – canadian environmental assessment agency (ceaa) Comprehensive Study List Regulations – Establish which pro- ceaa jects and classes of projects require a comprehensive study. Inclusion/Exclusion Lists Law List Regulations List canadian environmental protection act – environment canada Pulp and Paper Defoamer and Wood Chip Regulations – Regulations respecting the manufacture, import, offering for sale, sale and use of defoamers containing dibenzofuran or dibenzo-para-dioxin at pulp and paper mills using chlorine bleaching processes and of wood chips containing polychlorinated phenols at all pulp and paper mills

Canadian Environmental Protection Agency (cepa)

Pulp and Paper Mill Effluent Chlorinated Dioxins and Furans Regulations – Regulations respecting the release of polychlorinated dibenzo-para-dioxins and polychlorinated dibenzofurans in effluents from pulp and paper mills New Substances Notification Regulations canada shipping act – transport canada Dangerous Goods Shipping Regulations

Transport Canada (tc)

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263 Smart Regulation, Regulatory Congestion and Resource Table 1 Illustrative forestry-related federal regulations and regulators (Continued) Regulations

Regulators

indian act – department of indian affairs and northern development Indian Timber Regulations- regulations in respect of cutting and removing timber from Indian lands

diand

migratory birds convention act – ec Migratory Birds Regulations – Conserve and protect migratory birds.

ec

Migratory Birds Sanctuary Regulations – Control and protect regulated areas.

ec

timber marking act – nrcan Timber marking rules

nrcan

canada wildlife act – environment canada Canada Wildlife Regulations – Provide creation, management, and control of national wildlife areas.

Canadian Wildlife Service

pest control products act – health canada Pest Control Products Regulations

Pest Management Regulatory Agency

seeds act – agriculture and agrifood Seeds Regulations – govern biotechnology in the forestry industry

Canadian Food Inspection Agency (cfia)

fertilizers act – agriculture and agrifood Fertilizers Regulations – govern biotechnology in the forestry industry

cfia

plant protection act – agriculture and agrifood Emergency Plant Infestation Regulations

cfia

canada agricultural products act - agriculture and agrifood Maple Products Regulations – govern international and interprovincial trade in maple products

cfia

territorial lands act – department of indian affairs and northern development Yukon Timber Regulations – respecting the cutting and removal of timber on territorial lands in Yukon territory (as of 1 April 2003, legislation “mirrored” by territorial government as feds devolve responsibility to regional government)

diand and nrcan

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264 Energy, Resources, and Environment-Economy Integration Table 1 Illustrative forestry-related federal regulations and regulators (Continued) Regulations

Regulators

Land Use Regulations – same as above Yukon Forest Protection Regulations – Regulations to protect Yukon forest – same as above canada lands surveys act – nrcan Canada Land Survey Regulations

nrcan

Canada Land Survey tariff canada labour code – human resources development canada Occupational Health and Safety Regulations – these regu- hrdc lations govern employment practices and standards in the forestry industry wild animal and plant protection and regulation of international and interprovincial trade act – ec Wild Animal and Plant Trade Regulations – Regulations respecting the protection of certain species of wild animals and wild plants and the regulation of international and interprovincial trade in those species

ec

species at risk act – ec canada foundation for sustainable development technology act – nrcan crown lands act canada lands surveyors act – nrcan canada forest accord – intergovernmental strategy for sustainable forestry ( 1992) aboriginal forestry strategy

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265 Smart Regulation, Regulatory Congestion and Resource Table 2 Illustrative mineral and metals-related federal regulations and regulators Regulations

Regulators

fisheries act – department of fisheries and oceans Metal, Mining Liquid Effluent Regulations – Replaced the Department of Fisheries Metal, Mining Liquid Effluent Regulations applying to all and Oceans and EnvironCanadian metal mines. They prescribe limits on release of ment Canada cyanide, metals, and suspended solids and prohibit the discharge of effluent that is dangerous to fish. The regulations also require environmental effects monitoring programs designed to identify harmful environmental effects. territorial lands act – department of indian affairs and northern development Canada Mining Regulations – govern mining in nwt

diand

canadian environmental assessment act – ceaa Comprehensive Study List Regulations – Establish which projects and classes of projects require a comprehensive study.

ceaa

Inclusion/Exclusion Lists Law List Regulations canadian environmental protection act - environment canada Asbestos Mines and Mills Release Regulations

ecpa

Chlor-Alkali Mercury Release Regulations Disposal at Sea Regulations Export and Import of Hazardous Wastes Regulations Interprovincial Movement of Hazardous Waste Regulations New Substance Notification Regulations and New Substances Fees Regulations Ozone-Depleting Substances Regulations Persistence and Bioaccumulation Regulations Secondary Lead Smelter Release Regulations nuclear safety and control act – formerly the atomic energy control act - natural resources canada – fed/prov (sk) Nuclear Safety and Control Regulations

Uranium and Thorium Mining Regulations

Canadian Nuclear Safety Commission (formerly the Atomic Energy Control Board)

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266 Energy, Resources, and Environment-Economy Integration Table 2 Illustrative mineral and metals-related federal regulations and regulators (Continued) Regulations

Regulators

yukon quartz mining act – department if indian affairs and northern development Yukon Quartz Mining Act Work Relief Regulations – devolved as of April 2003

diand

Yukon Quartz Mining Land Use Regulations – devolved as of April 2003 yukon placer mining act – department of indian affairs and northern development Yukon Placer Mining Regulations – same as above

diand

indian act – department of indian affairs and northern development Indian Mining Regulations

diand

canadian labour code – human resources development canada Occupational Health and Safety Regulations

hrdc

species at risk act – environment canada minerals and metals policy (fed/prov) confirms jurisdiction over mining in canada, commits to sustainable development explosives act – nrcan

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267 Smart Regulation, Regulatory Congestion and Resource Table 3 Illustrative energy-related federal regulations and regulators Regulations

Regulators

canadian environmental assessment act – ceaa Comprehensive Study List Regulations – Establish which projects and classes of projects require a comprehensive study.

ceaa

Inclusion/Exclusion Lists Law List Regulations canadian environmental protection act – environment canada Benzene in Gasoline Regulations Chlorobiphenyls Regulations Contaminated Fuel Regulations Disposal at Sea Regulations Export and Import of Hazardous Wastes Regulations Export Control List Notification Regulations Export of Substances under the Rotterdam Convention Regulations Federal Registration of Storage Tank Systems for Petroleum Products and Allied Petroleum Products on Federal Lands or Aboriginal Lands Regulations Fuels Information Regulations, No. 1 Gasoline Regulations Interprovincial Movement of Hazardous Waste Regulations List of Hazardous Waste Authorities List of Toxic Substances Authorities Masked Name Regulations New Substances Fees Regulations New Substances Notification Regulations Ozone-Depleting Substances Regulations, 1998 Prohibition of Certain Toxic Substances Regulations, 2003 Regulations Respecting Applications for Permits for Disposal at Sea Rules of Procedure for Boards of Review Sulphur in Diesel Fuel Regulations Sulphur in Gasoline Regulations

cepa

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268 Energy, Resources, and Environment-Economy Integration Table 3 Illustrative energy-related federal regulations and regulators (Continued) Regulations

Regulators

canada shipping act – transport canada Dangerous Goods Shipping Regulations

tc/ec

canada oil and gas operations act – nrcan Certificate of Fitness Regulations – Regulations respecting nrcan/diand the issuance of certificates of fitness for non-provincial offshore oil and gas production, drilling, accommodation, and diving installations. Diving Regulations – Regulate safety of diving operations conducted in connection with the exploration or drilling, production, conservation, processing, or transportation of oil and gas. Drilling Regulations – Regulate exploration and safety of exploration, drilling, and conservation of oil and gas. Geophysical Regulations – Regulations respecting geophysical operations in relation to the exploration for oil and gas. Installation Regulations – Regulate safety, minimize environmental damage, and enable easy access to equipment. Operations Regulations Production and Conservation Regulations – Regulate safety, conservation practices and the prevention of pollution in operations undertaken for the production of oil and gas. Spills and Debris Liability Regulations – Regulations respecting the limits of liability for spills, authorized discharges, and debris emanating or originating from work or activity related to the exploration for or production of oil and gas. fisheries act – department of fisheries and oceans Chlor-Alkali Mercury Liquid Effluent Regulations

dfo/ec

Fish Toxicant Regulations

dfo

Fishery (General) Regulations

dfo

Petroleum Refinery Liquid Effluent Regulations – Limit the amount of specific substances in liquid effluents from petroleum refineries.

dfo/ec

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269 Smart Regulation, Regulatory Congestion and Resource Table 3 Illustrative energy-related federal regulations and regulators (Continued) Regulations

Regulators

canada petroleum resources act (1985) – nrcan/diand Environmental Studies Research Fund Regions Regulations – Prescribes regions for nrcan and diand.

nrcan/diand

Frontier Lands Petroleum Royalty Regulations – Establish royalties on petroleum produced from frontier lands. Frontier Lands Registration Regulations – Determine the administration and registration of interests and instruments in relation to frontier lands and prescribe fees to be paid in respect to such interests and instruments. canada-newfoundland atlantic accord implementation act – fed/prov – nrcan Canada-Newfoundland Oil and Gas Spills and Debris Liability Regulations

nrcan

Newfoundland and Labrador Offshore Revenue Fiscal Equalization Offset Payments Regulations Newfoundland Offshore Area Oil and Gas Operations Regulations Newfoundland Offshore Area Petroleum Diving Regulations Newfoundland Offshore Area Petroleum Geophysical Operations Regulations Newfoundland Offshore Area Petroleum Production and Conservation Regulations Newfoundland Offshore Area Registration Regulations Newfoundland Offshore Certificate of Fitness Regulations Newfoundland Offshore Petroleum Drilling Regulations Newfoundland Offshore Petroleum Installations Regulations Newfoundland Offshore Petroleum Resource Revenue Fund Regulations canada-nova scotia offshore petroleum resources accord implementation act – fed/prov – nrcan Canada-Nova Scotia Oil and Gas Spills and Debris Liability Regulations Nova Scotia Offshore Area Petroleum Diving Regulations Nova Scotia Offshore Area Petroleum Geophysical Operations Regulations

nrcan

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270 Energy, Resources, and Environment-Economy Integration Table 3 Illustrative energy-related federal regulations and regulators (Continued) Regulations

Regulators

Nova Scotia Offshore Area Petroleum Production and Conservation Regulations Nova Scotia Offshore Certificate of Fitness Regulations Nova Scotia Offshore Petroleum Drilling Regulations Nova Scotia Offshore Petroleum Installations Regulations Nova Scotia Offshore Revenue Account Regulations Nova Scotia Offshore Revenue Fiscal Equalization Offset Payments Regulations Nova Scotia Resources (Ventures) Limited Drilling Assistance Regulations Nova Scotia Share of Offshore Revenue Interim Period Payment Regulations Nova Scotia Share of Offshore Sales Tax Payment Regulations Offshore Area Exclusion Order national energy board act Gas Pipeline Uniform Accounting Regulations

neb

National Energy Board Act Part 6 (Oil and Gas) Regulations National Energy Board Electricity Regulations National Energy Board Export and Import Reporting Regulations National Energy Board Pipeline Crossing Regulations, Parts 1 and 2 neb Processing Plant Regulations neb Substituted Service Regulations Oil Pipeline Uniform Accounting Regulation Onshore Pipeline Regulation Power Line Crossing Regulations Toll Information Regulations energy efficiency act Energy Efficiency Regulations – Regulations regarding efficiency and alternative energy.

nrcan

energy supplies emergency act – nrcan and energy supplies allocation board

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271 Smart Regulation, Regulatory Congestion and Resource Table 3 Illustrative energy-related federal regulations and regulators (Continued) Regulations

Regulators

northern pipeline act

dfait

Northern Pipeline Notice of Objection Regulations

dfait

Northern Pipeline Socio-Economic and Environmental Terms and Conditions for the provinces of British Columbia (northern, southern and Swift River portions), Alberta, and Saskatchewan nuclear energy act Uranium Mines (Ontario) Occupational Health and Safety Regulations

Canadian Nuclear Safety Commission

nuclear liability act – nrcan – canada/us Canada – United States Nuclear Liability Rules nuclear safety and control act – formerly the atomic energy control act - natural resources canada Nuclear Facilities Regulations – Class 1 and Class 2 – prescribes licensing procedures and requirements.

Canadian Nuclear Safety Commission (formerly the aecb)

General Nuclear Safety and Control Regulations Nuclear Non-Proliferation Import and Export Control Regulations – Include substances, equipment, and information. Nuclear Substances and Radiation Devices Regulations Packaging and Transport of Nuclear Substances Regulations Radiation Protection Regulations Uranium Mines and Mills Regulations indian oil and gas act – diand Indian Oil and Gas Regulations – Prescribe rules for exploitation of oil and gas on Aboriginal lands

diand

canada wildlife act – ec Canada Wildlife Regulations – Provide creation, management, and control of National Wildlife areas

Canadian Wildlife Service

migratory birds convention act – ec Migratory Birds Regulations – Conserve and protect migratory birds Migratory Birds Sanctuary Regulations – Control and protect regulated areas

ec

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272 Energy, Resources, and Environment-Economy Integration Table 3 Illustrative energy-related federal regulations and regulators (Continued) Regulations

Regulators

canadian labour code – human resources development canada Occupational Health and Safety Regulations

hrdc

nuclear fuel waste act species at risk act – rv energy administration act – nrcan navigable waters protection act – dfo oil substitution and conservation act marine conservation areas act – hc northwest territories water act – diand dominion water powers act – diand arctic waters pollution prevention act – diand canada transportation act – transport canada national parks act – parks canada territorial lands act – diand yukon waters act – diand

notes 1 Thanks are due to Stephanie Paterson for her excellent research assistance. The chapter is also part of a larger research project, being conducted by the author, on the governance of natural resources in Canada funded by the Social Sciences and Humanities Research Council of Canada (sshrc). 2 Adapted from Natural Resources Canada, “The Renewal of the Canadian Environmental Assessment Act,” a presentation by Liv Vancea to Advanced Policy Development Course, Natural Resources Canada, 22 October 2003. 3 Canada, Speech From The Throne to Open the Second Session of the 37th Parliament, 2002. 4 Canada, Achieving Excellence: Investing in People, Knowledge and Opportunity (Ottawa: Public Works and Government Services Canada, 2002).

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273 Smart Regulation, Regulatory Congestion and Resource 5 For discussion, see Bruce Doern, Margaret Hill, Michael Prince, and Richard Schultz, eds., Changing the Rules: Canadian Regulatory Regimes and Institutions (Toronto: University of Toronto Press, 1999). 6 See Bruce Doern and Monica Gattinger, “New Economy/Old Economy? Transforming Natural Resources Canada,” in How Ottawa Spends, 2001– 2002: Power in Transition, ed. Leslie Pal, 221–46 (Oxford: Oxford University Press, 2001). 7 See Canada, Natural Resources Canada: 2002–2003 Estimates, part 3, Report on Plans and Priorities (Ottawa: Public Works and Government Services Canada, 2002). 8 Doern and Gattinger, “New Economy/Old Economy.” 9 See Dennis Browne, Ramesh Chaitoo, and Michael Hart, “Can Eco-Labelling Undermine International Agreement on Science-Based Standards?” in Risky Business: Canada’s Changing Science-Based Policy and Regulatory Regime, ed. Bruce Doern and Ted Reed, 101–30 (Toronto: University of Toronto Press, 2000). 10 For an analysis of changing regulatory regimes in the energy sector, see Bruce Doern and Monica Gattinger, Power Switch: Energy Regulatory Governance in the 21st Century (Toronto: University of Toronto Press, 2003). 11 Canada, The Federal Government’s Response to the Final Standing Committee on Natural Resources Report on Streamlining Environmental Regulation for Mining (Ottawa: Minister of Public Works and Government Services Canada, 1997). 12 Atlantic Canada Petroleum Institute, Offshore Oil and Gas Approvals in Atlantic Canada (Halifax: Atlantic Canada Petroleum Institute, June 2001). 13 See Debora VanNijnatten and Douglas MacDonald, “Reconciling Energy and Climate Change Policies: How Ottawa Blends,” in How Ottawa Spends, 2003–2004: Regime Change and Policy Shift, ed. Bruce Doern, 72–88 (Oxford: Oxford University Press, 2003). 14 Natural Resources Canada, Alien Forest Pests: Context for the Canadian Forest Service’s Science Program (Ottawa: Natural Resources Canada, 1999). 15 See William T. Stanbury, Environmental Groups and the International Conflict Over the Forests of British Columbia, 1990 to 2000 (Vancoucver: sfu-ubc Centre for the Study of Government and Business, 2000). 16 See Canada, The Federal Government’s Response to the Interim Standing Committee on Natural Resources Report on Streamlining Environmental Regulation For Mining (Ottawa: Minister of Public Works and Government Services Canada, 1996); Canada, The Federal Government’s Response to the Final Standing Committee on Natural Resources Report on Streamlining Environmental Regulation For Mining (Ottawa: Minister of Public Works and Government Services Canada, 1997); and Standing Committee on Natural Resources, Streamlining Environmental Regulation For Mining (Ottawa: House of Commons, Standing Committee on Natural Resources, November 1996).

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274 Energy, Resources, and Environment-Economy Integration 17 Intergovernmental Working Group/Industry Task Force on Regulatory Reform, Federal-Provincial-Territorial Review of Environmental Regulations Affecting Mining in Canada (Ottawa: Minister of Public Works and Government Services Canada, 1998). 18 Canada, A Discussion Paper on Canada’s Contribution to Addressing Climate Change (Ottawa: Government of Canada, 2002); and Canada, Canada’s Position on Forests and Agriculture Sinks (Ottawa: Government of Canada, 2001). 19 See Kernaghan Webb, ed., Voluntary Codes: Private Governance, the Public Interest and Innovation (Ottawa: Carleton Research Unit on Innovation, Science and Environment, 2004); and Lester M. Solomon, ed. The Tools of Government: A Guide to the New Governance (Oxford: Oxford University Press, 2002). 20 See Matthew Flinders, The Politics of Accountability in the Modern State (Aldershot: Ashgate, 2002).

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pa r t f o u r Renewing Governance

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13 The Next Generation? Recruitment and Renewal in the Federal Public Service jo n at h a n m a l l oy

Like many other political institutions, the Canadian federal public service has undergone significant changes in recent years. Not only did it weather major cuts in the 1990s, but the nature of its work has changed significantly in both theoretical and tangible forms. The “new public management” in all its varieties, combined with the information technology revolution and changes in citizens’ attitudes towards government, have all contributed to a change in how the public service operates and what is expected of it. Additionally, as many of its babyboomer employees reach retirement age, the public service has begun recruiting more aggressively, and many newcomers have joined it. But these changes and developments have not been accompanied by a strong new sense of direction or purpose for the federal public service. Whether because of the changes or despite them, there is a strong sense that the Canadian public service is not what it could be. This was dramatically demonstrated in December 2003 when the new government of Paul Martin, only a week old, announced a hiring freeze and a complete overhaul of the way the public service conducts a variety of activities. The new government was not satisfied with the current situation, although it soon became clear that it did not have a clear vision of exactly what it wanted to do with the public service. In this chapter I focus on the federal public service and its attempts at renewal and transformation. I argue that, while the public service is currently undergoing significant turnover in its ranks, this is unlikely to lead to a transformative renewal of government. We need a more focused effort at developing a “next generation” of public servants – one

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that can create new excitement and true renewal in the federal public service. To do this, there must be a much stronger commitment – at the highest political levels – to improving the structures and cultures of the federal public service. My purpose is not to add to the existing empirical research and datasets analyzing public service demographics and similar trends, which are widely available from government Web sites and elsewhere;1 rather, it is to focus on the concept of a next generation of public servants. I begin by reviewing previous attempts at reforming the career public service in Canada and then go on to discuss why a next generation of public servants is needed. I then demonstrate that current changes are more gradual than transformative and show how different dynamics contribute to this. I concludes with suggestions about how a next generation can still be built, noting that, above all else, what is needed is political leadership.

public service reform in c anada The federal public service is a convenient target whenever there are debates about problems in government. For some, “the bureaucracy” is a central problem in Canadian politics. There is no shortage of talk about alleged waste and inefficiency in the public service, and accusations that public servants are overpaid with little to show for it. There are many variations on this theme: some consider bureaucrats too far to the left politically, while others find them too right-wing and conservative. The common thread among these critics is that the public service is seen as unresponsive and as insufficient to meet current needs and demands. The same arguments are found about provincial and municipal public servants as well, although they are not the focus of this chapter. Much of the criticism about government and the public service is shallow and unreflective, built on stereotypes rather than on careful study. Still, there is little doubt that there are problems in public administration. Surveys have found that public servants tend to have low morale, high levels of stress, and generally feel disconnected and alienated. They often feel that they are making no difference at all to Canadians’ lives and that far too much time and energy goes into following procedures and trying to coordinate different activities. Furthermore, public servants feel they are being unfairly blamed for all the ills of government and that their honour and integrity are constantly under fire. Individual scandals tend to taint public servants as a whole, against all logic and fairness. And finally, there is constant pressure on public servants to do more with less, with regular upheavals and reorganizations that leave them feeling like little more than inconsequential cogs in the huge wheel of government.

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There have been many attempts over the years to “reform” the public service. Some of these attempts have been very high profile with considerable fanfare; others have been much more subtle. However, they have all attempted to change either or both the structure and the culture of the bureaucracy. Two of the most notable were the ps 2000 initiative of the late 1980s and early 1990s, and the La Releve campaign of the late 1990s. I now look briefly at both. ps 2000 was an attempt to “empower” public service managers by giving them more flexibility and control over budgets and decision making. Based heavily on the principles of new public management (npm), which stress results over rules and a culture of innovation, these reforms were meant to give mid-level public servants a greater sense of freedom and control over their own decisions. But the ps 2000 ideas were roundly criticized for failing to appreciate the continuing need for strong accountability structures and hierarchies to keep control of the vast machinery of government. Many felt that these ideas were imposed in a top-down manner without much consultation of public servants themselves – rather ironic for a campaign centred on empowering these same people. And the reforms took place in the midst of significant cutbacks and a public service strike that did not help to build a new and positive public service culture. Hence ps 2000 ran into strong theoretical and practical difficulties and never made a significant impact.2 In the late 1990s, the La Releve campaign tried a different approach. This campaign (based on the French for “relief,” or “reawakening”) tried to stress renewal across the public service, following the even more severe mid-1990s cuts in the federal government. La Releve tried to rebuild and reinspire the public service in various ways. It stressed education and retraining, particularly for prospective executives in the public service. While ps 2000 emphasized changing the rules and structures of the public service in order to produce a cultural change, La Releve focused more on changing the culture of the public service itself (after several years of structural change driven by severe cutbacks). However it has not been as effective as most hoped. While the program has done much for training future senior executives by establishing new ways of preparing and qualifying for such positions, its effect on the public service more generally has not been as dramatic. It is even more difficult to change cultures and attitudes in the public service than to change structures, and much of La Releve was either intangible or not closely integrated. Furthermore, as I explain below, it could not overcome many of the other dynamics also occurring in the public service at the same time. There are other less high-profile examples of public service reform in the federal government, but they share similar characteristics to ps

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2000 and La Releve. It is very difficult to change either the structures or the culture of an organization as large as the federal government of Canada. And, while more modest attempts have been tried in individual departments or other units, it is often very difficult to copy them elsewhere. Some writers argue that many of the current problems of the federal public service in fact stem from past attempts to “reform” it. Donald Savoie argues that the new public management reforms of the 1980s and 1990s have disrupted the existing patterns in the public service and created confusion and uncertainty. Savoie argues that most attempts at reform have meant imposing inappropriate management practices from the private sector onto government, leaving public servants in an unclear world where the values and criteria for evaluation are unclear or inappropriate. In particular, reform efforts have failed to consider how the public service is not just a functional workplace but also a repository of values, norms, and institutional memory for Canada as a whole.3 It is more than just an enterprise that can be run “like a business.” In fact, Savoie holds that there was once a “golden age” of public service in Canada in the mid-twentieth century, when “the Canadian civil service was held in high esteem and its work was valued, by both politicians and the public.”4 Since then, he argues, a combination of different pressures as well as misguided reform attempts have created an unstable and precarious situation that leaves everyone dissatisfied. He suggests that the chief problem has been insufficient attention to accountability – a problem of ps 2000, mentioned above. Pressures to serve citizens like “customers” and to use their own initiative to get things done has left public servants unclear about their responsibilities to ministers, to Parliament, and, ultimately, to the people of Canada. While Savoie does not think we can return to the practices of the “golden age,” he argues that most reforms have done more harm than good. But other writers argue that such a golden age never existed and that reforms have generally helped improve government and the public service. In particular, reforms that focus on enhancing the delivery of services to citizens, on achieving results over merely following procedures, and on empowering managers and workers have all contributed towards both a better public service and better government for Canadians. While some reforms may have been wrong or inappropriate, they have generally moved in the right direction. Thus Peter Aucoin, while agreeing with Savoie that accountability remains essential, argues that Canadian reforms have generally recognized the unique status of the public service and have attempted to follow appropriate and realistic paths towards enhanced public administration.5

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Whether or not different reform campaigns have worked, and regardless of whether reforms have been headed in the right direction, most observers agree that the public service has undergone significant change in recent years. This includes structural changes (with entirely new types of organizations and practices) and cultural changes (including different expectations about what public servants should be doing and what sort of backgrounds they should have). This leads Evert Lindquist and Gilles Paquet to argue that a new “cosmology” has developed in the federal public service.6 Cosmology is defined as “the intersecting ideas, principles, values and systems guiding the leadership and the culture of public service institutions, as well as its interactions with political leaders and citizens.”7 In the view of Lindquist and Paquet, the traditional cosmology of career public service and external anonymity has been badly shaken in recent years in Canada. Public servants feel less secure in their jobs, and increasing numbers of individuals are moving in and out of government rather than rising through the ranks. They are increasingly held to account publicly, and pressures to manage external relationships are more important than ever. While this may create more challenges for public servants, there may also be more opportunities for satisfaction and the feeling that they are making a difference. Lindquist and Paquet are not necessarily saying whether these changes are good or bad; rather, they are saying that there is a new set of assumptions, values, and practices in play and that this “new cosmology” should be recognized. This chapter argues that the “new cosmology” does not go far enough. What is needed is public service reforms aimed at creating a “next generation” of public servants. The idea of a next generation is similar to that of cosmologies but ties the analysis more closely to actual changes in personnel and their demographics. For Lindquist and Paquet, changes in the cosmology are largely triggered by internal and external shifts in how the public service is viewed and managed. For the generational change that this chapter is talking about, the trigger is the change in the public service ranks themselves, with retirement and recruitment creating an entirely new group of public servants that has not experienced the earlier cosmology. New reforms must recognize this and take advantage of it.

a “ n e x t g e n e r at i o n ” By emphasizing the idea of a “next generation,” I mean something that represents a distinctly new era rather than simply a gradual evolution from the past. In the biological sense, one generation obviously

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follows from another, and successive generations are linked together. But each one is new and distinct from the others, and so in the same way a true “next generation” of federal public servants should be identifiably distinct from its predecessors. In the section above, we saw that public service reform is not an easy task. Grand schemes tend to go nowhere, and changes are often blamed for creating more problems than they solve. How can a next generation be different? As we have seen, in recent years public services increasingly became places of pessimism – not surprising in an environment of general downsizing, poor public support, and harsh political rhetoric. While there is evidence that optimism is on the rise,8 a heavy legacy of pessimism remains. This combines with other problems, such as the eternal confusion over accountability regimes9 and the inescapable hierarchy and complexity of government, to undermine the public service’s attempts to become “an employer of choice.”10 Indeed, the public service pays as much attention to retention of new public servants as it does to their recruitment: too many new public servants appear to be leaving and seeking more interesting assignments and workplaces than what they feel government has to offer.11 It is because of this legacy of pessimism and worries over retention that I argue that a true next generation of public servants must arise. Gradual evolution is not enough to overcome such entrenched problems and pathologies. After years of pessimism, a next generation could provide a real sense of renewal and vigour in the federal government – essentially a “jump-start” for the federal public service at a time of leadership change within the government. A significant influx of new public servants should produce a new mentality and culture of public service. This may be either in intangible areas (such as levels of morale and enthusiasm) or in more concrete areas (such as much greater use of the latest technologies). The common theme for a next generation is that there should be a fairly clear break from the past. Furthermore, this must be a desirable break, one that leaves behind old pathologies and does not yearn for past glories or apparent golden ages. This chapter does not have a precise set of criteria for a next generation. The overarching theme, however, is of a break with the past – a cohort that is strongly and obviously distinguishable from its predecessors. While this may involve skills, the use of technology, and new career patterns in and out of the public sector, the most important aspect of this break is general morale. A next generation must bring a new and unquenchable optimism to the public service, one that lasts beyond its initial months of employment and is not overwhelmed by the culture within which it is embedded. This is unlikely to develop in a climate of gradual evolution; rather, it requires a true next generation.

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Many observers would say the idea of a next generation is self-evident and assured. A next generation will arise, they might assert, because many public servants have retired, or are about to retire, and thousands of new public servants have been hired. Thus many assume that this demographic turnover will create a new, invigorated cohort of public servants. But in the following sections I suggest that we are unlikely to see a dramatic next generation of public servants under current conditions. New people are coming in, but the demographic changes are more gradual than some have supposed, and other issues and dynamics have combined to reinforce gradualism rather than dramatic change in the public service. Still, this may not be the whole story. There are still prospects for a desirable and truly new generation of public servants, and, in the final portion of this chapter, I explore some possible ways of achieving this.

the demographic realities The baby boomer bulge in all Canadian public services is well known. The average age of federal public servants rose considerably from the 1970s to the 1990s so that by 1 January 2000 the share of federal employees aged forty-five to fifty-four was a remarkable 41 percent, while the number of workers under thirty-five was half that of the overall labour force.12 In other words, two out of five federal employees were just around fifty years old, and people in their twenties and early thirties were noticeably underrepresented. This demographic was caused by two major trends. The first was the bulge of boomer-age young people who joined the public service in the late 1960s and early 1970s. The second is the significant cutbacks of the 1980s and, especially, the 1990s that froze new hiring and pushed older workers (as well as the leading edge of boomers) to early retirement. The result was a public service increasingly dominated by individuals born in the late 1940s and 1950s. The same trends were found in provincial governments and other public institutions such as hospitals, schools, and universities. Interestingly, this is not the first bulge in federal public service demographics. While the boomer bulge is well known, it was preceded by a less familiar “veteran bulge” from the postwar era, when large numbers of ex-servicemen entered the rapidly expanding federal public service. From 1940 to 1952 the federal public service tripled in size,13 and for years this expansion presented a noticeable bulge in public service demographics. It was a more specialized bulge – most appointments were in the Departments of Defence, Veterans Affairs, and the post office (then part of the regular public service), and the retirement of the

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members of this bulge in the 1970s was less noticed because of the continuing growth of government in that era. Consequently, the veteran bulge has largely faded from memory and is rarely mentioned in studies of the current boomer bulge. It does not appear to have sparked the same level of discussion and concern that we have seen more recently. The boomer bulge has been primarily discussed and approached as a retirement issue. Certain statistics have been repeatedly cited to illustrate the apparent crisis of so many people leaving the workforce at once. For example, in the late 1990s many noted that almost 30 percent of senior federal public service executives would be eligible for retirement by 2000 and that 70 percent would be eligible by 2005.14 These and other dramatic figures have been used to emphasize the notion of a demographic crisis for the public service, occasionally attracting headlines about the need to hire thousands of new public servants and the crisis of competing for the attention of skilled young people.15 Framing the issue as one of imminent mass retirements tends to emphasize the notion of impending dramatic change and a new generation. But the picture is considerably more complicated. While full information on hiring trends is not always immediately available, the overall pattern appears more evolutionary than revolutionary, for several reasons. The first, simply enough, is that eligibility for retirement is different from taking retirement. The boomers have not suddenly disappeared. In part because of the apparent retirement crisis, those who do depart are often offered a continuum of options that include part-time and consultancy work rather than outright departure. This obviously reduces the sense of breaking with the past in any sort of dramatic fashion: departures are often more gradual. The retirement numbers most bandied about tend to be worse-case scenarios. A second reason why demographic change is more evolutionary than revolutionary is the lack of attendant structural changes. The influx of boomers in the 1960s and 1970s was closely tied to the creation of new portfolios and agencies, particularly policy units, so that many organizations seemed to be staffed almost solely by the young and were very open to new directions.16 In contrast, new recruits today are largely moving into established units and structures, where the opportunity to forge new paths and directions is somewhat limited. Third, many of the new public servants simply are not young. The average age of new indeterminate staff has been slowly rising. In the late 1990s, 32 percent of new permanent hires were over forty; and their mean age in 1998–99 was a rather mature 35.6 years.17 A Public Service Commission study adds even more (unintentional) weight to a picture of only gradual change, reporting on a 2001 survey of 1999–2000 hires:

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285 Recruitment and Renewal in the Federal Public Service We need to dispel the image of the newly hired indeterminate employee as a recent graduate with no substantial work experience. Only 31% of our respondents fit this profile. Most employees surveyed were between 30 and 39 years old. Only about a third were 30 years of age or younger – the average age was 36 years … They are mature, educated and have a range of previous work experience. Nearly half of the new hires had previous work experience in the private sector. As noted in the earlier section on contingent work, a large number had either immediate experience or earlier work experience as contingent workers in government departments. More than 10% had been hired for fairly senior positions at the executive feeder level, those occupations ranked one or two levels below the executive category. Assumptions about the needs of new hires and workforce policies and practices should reflect the realities of this wide age range and work experience.18

This certainly does not suggest generational upheaval. While hires may bring new and different ideas to the public service – particularly with their backgrounds in the private sector – they do not seem to pose a dramatic break with the past or give a sense of a “next generation.” (This also reduces the likelihood of another “baby boom echo” bulge in years to come since new hiring is now spread out rather than concentrated in a particular age group.) A fourth and final reason why change may be at best evolutionary is the nature of hiring – a point raised in the above quote. The issue of “contingent work” means that many interdeterminate (permanent) public service hires have had previous stints as casual, contract, or term employees. This has two implications. The first is that joining the public service is itself a gradual immersion experience for many people: although they may find full-time contingent positions, their attachment and identity as public servants grows very slowly, in step with their employment status. Second, the nature of contingent hiring – often through informal means rather than open competitions and focused on immediate or short-term needs – reduces the likelihood of unconventional new hiring; rather, it tends to reproduce existing norms and standards. I return to this point below. All these arguments do not mean there is not real change going on. The point is that the demographics are much more evolutionary than revolutionary. Emphasis on the boomer bulge and a “retirement crisis” has painted a somewhat false picture of great exoduses and influxes of the old and young, respectively. But the public service is not suddenly being overrun with idealistic twenty-two-year-olds. New employees are mature individuals with very heterogeneous backgrounds, and it is difficult to see either the potential for dramatic change or much sense of a “new generation.”

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other changes Of course, talk about transformation goes well beyond demographics. Public services have also undergone major changes in other areas as well, particularly in theories of management and the use of technology. In this next section, I briefly address these areas of concern, in each case contrasting them with the demographic issues. In each case, I show how attempts to reform the public service must contend with larger efforts to reform or restructure government as a whole. As with earlier attempts, like ps 2000 and La Releve, these contextual issues mean that creating a next generation of public servants is considerably harder than many think. The New Role of the State The 1990s were of a course an era of downsizing and diminishing expectations for public servants and Canadians as a whole. Driven by deficit reduction and then tax cuts, political discourse increasingly accepted limits on the capacity of the state. For public administrators this meant at best tightened circumstances, hiring freezes, and a climate of doing more with less. In many cases it meant outright termination, either through layoffs or pressure to take early retirement or other buyouts. Speaking again in “cosmology” terms, this meant a significant change in assumptions and values surrounding public service employment.19 The notion of career public service was badly undermined, with increasing mobility in and out of government and appointing non-public servants to senior positions rather than relying on those who rose through the ranks. The morale and direction of public servants was also badly hit by these changes. Their job was increasingly to cope with challenges, with limited opportunities to build and reach beyond immediate circumstances and demands. As I have repeatedly mentioned, public service morale in the 1990s took serious hits as public servants reported being more stressed and less satisfied after years of cuts and coping. Even though governments are now in a surplus position and tax cuts are no longer so popular, the legacy of cuts and diminished expectations has left enormous scars on the public service. While obviously important changes, these trends also work against the notion of a “next generation” of public servants. First, they have undermined the appeal of government service for many young people. Government appears to be about austerity and coping rather than about creativity and growth, an assumption detected in surveys of

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young people considering government service.20 Are recruits joining government with a sense of enthusiasm? Or is a government position just another job? This merges with the cosmology of career mobility rather than lifelong service. Government positions may represent little more than specific opportunities to gain particular skills and experiences rather than a broad commitment to public service. Furthermore, even when idealists join the public service, it is hard for them to overcome the legacy of cynicism and low morale within which they soon become embedded. Earlier we noted that young people are generally not joining entire new units but are largely filling slots in existing units. Unless the idealists form a critical mass, they risk being overwhelmed by existing cultures of discontent and mistrust. Evidence of this problem is best found in the alarming number of summer students who report less interest in career public service work after their initial placements.21 We do not always know whether or not this is due to the attitudes of their co-workers, the overall atmosphere of the public service, or other reasons entirely, but the implication is the same: the public service can actually be less attractive to those inside it than to those outside it. While La Releve was specifically formulated to address this crisis and to give the public service a renewed sense of mission, we have seen that it has only been effective in certain ways. It has helped create a new wave of executives who can take over, but it has had few tangible effects on the public service as a whole. The incredible cynicism and malaise associated with downsizing has not been easy to overcome. A final relevant side effect of downsizing that might be mentioned is the impact on public administration in universities. In the downsizing of the 1990s, academic public administration specialists found it increasingly difficult even to maintain levels of resources and programs directed at public administration education as student interest was declining and graduates had only limited immediate job prospects. The result now is a relative lack of (1) dedicated courses and programs directing students into public administration and (2) instructors to teach these students – a problem that is taking many years to resolve. This also affects the appeal and notion of public administration as an elite calling and subsumes it within all the other available career options and disciplines. In short, the downsizing of the 1990s has left a legacy that affects the future public service. While the end of these upheavals should mean that the federal government is ready for renewal, they work against a new generation actually arising; instead, the post-downsizing public service has evolved gradually rather than rapidly, leaving limited chances for a true next generation to arise.

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The New Public Management The new public management (npm)is not so new anymore, and its impact is extremely varied and widespread. The array of management and structural reforms under the npm banner also represents significant change in the public service, quite apart from the downsizing mentioned above. Whatever npm is, it represents a new set of principles for public management and organizations that generally stress productivity over procedures and a greater focus on ends over means. And, while Canadian experiences have not been as concerted as have those in countries such as New Zealand, these principles are widely evident in everything from the creation of new forms of service delivery to experiments in employee empowerment.22 npm reforms should theoretically give a new and powerful sense of change to the public service. And in many ways they have, although the changes are not always viewed positively, as I discussed in an earlier section.23 But again, are they contributing to a next generation of public service? This is not so clear. There is no need to go into the vast debate on either the parameters of npm or its advantages and disadvantages, but we can focus on a few key aspects and their implications. An important facet of npm is the promotion of transferable management skills and values between the public and private sectors. As with the downsizing trend, the effect is to reduce the unique status of public service and to increase individuals’ utilitarian approach to their jobs. Assignments become more about applying immediate skills and building transferable ones and less about broad growth and altruistic commitment. Associated with this are experiments in alternative service delivery, with their varying reliance on private partnerships and arrangements. Again, the effect is to blur any distinctiveness about public service as something unique. Another aspect of npm is what some have called “hyper-accountability.” The increased empowerment of managers as well as an enhanced focus on results puts public servants in difficult positions. No longer are they responsible solely to the department hierarchy and ultimately to ministers, but there is increased emphasis on their being accountable to an array of internal and external actors, including Parliament.24 The emphasis on productivity over procedure also makes accountability more complicated. It is about more than just following the rules. While this may make public service more interesting and challenging for a new generation of public servants, it may also contribute to the difficulties of morale and confidence associated with the stresses of the cuts mentioned above rather than helping to herald a new age of responsive, dynamic public service.

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npm certainly implies transformation, and there has certainly been much change and many upheavals associated with it. But does this contribute to a sense of a true next generation of public servants different from past cohorts? npm is so multifaceted that we cannot make simple statements about its impact. But there is reason to think that it will not contribute much to a renewed next generation, at least not in a positive way. One simple reason for this is that most of the npm upheavals took place in the 1990s, before the current wave of recruitment. They are now fairly well embedded (i.e., they are not something that accompanies the new recruits). Another is that, like the downsized and reoriented state, npm creates so much change and upheaval that it is difficult for a strong and cohesive next generation of public servants to develop and take root. Overall, while npm stresses innovation and creativity, it is unlikely to help create a clearly identifiable and enthusiastic new cohort of public servants. Information Technology and E-government Another reason to expect a next generation is the role of information technology (it) in government. If one sees the new recruits as “a digital generation,” then one might expect considerable changes in the public service.25 Now we have already seen that most recruits are not really that young after all. Still, if they are like the general population, younger public servants will be comfortable with adopting and using new technologies in both their work and personal lives. This could have several implications – from a simple facility with instant messaging, Web site design, and other aids, to a broad harnessing of digital technologies for consultation initiatives or similar projects and, ultimately, to a culture of “networks” rather than hierarchies. Again, is this likely? it has obviously changed how workplaces operate, and it underlies massive new initiatives in “e-government”. But the most notable and successful of these initiatives have been in the area of routine service delivery, while more abstract areas of policy consultations and design have been less obviously successful in it initiatives (despite what their designers may claim). In other words, it’s impact on the public service may be more in areas of the mundane and routine than in areas of creativity and craft. There are obvious exceptions, but the broad effect may be less than what some claim. A chief reason for the limited transformative effect of it is the conflict between boldly creative ideas of networks and the importance of basic accountability structures. The failure of most 1990s dot-coms demonstrates the importance of basic and familiar corporate structures and practices in any it initiatives, and the need to rein in bold

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new experiments that threaten basic practices of management and accountability. This suggests that a next generation of public servants would only be able to use it to push the boundaries and parameters of public service a little bit. This of course assumes that the digital generation joins the public service anyway. It comes as no surprise that surveys have found that the most it-savvy individuals are among the least interested in joining large government hierarchies, often precisely because they seek more flexible and responsive organizations. While new public servants may be more comfortable on a day-to-day basis with instant messaging and other technologies than are their boomer colleagues, it is less likely that this will lead to transformative change with the next generation.

a n y h o p e f o r a n e w g e n e r at i o n ? Given the above discussion, is there any reason to hope for a bold next generation of public servants that can jump-start the federal public service? Obviously the picture painted is one of gradualism rather than transformation. It is also not necessarily a pessimistic picture: the prospects for the future public service are still reasonably good, even if there is no dramatic next generation arising. However, cultivating a true next generation remains a desirable goal. It would provide a definite break from the recent past of downsizing and diminished expectations, and could overwhelm rather than slowly dilute the existing levels of distrust, low morale, and cynicism in the public service. But what might allow such a next generation to arise? In this section I suggest three areas requiring more, or continuing, attention – the recruitment system, the diversity of the public service, and political leadership. Earlier I mentioned the issue of “contingent hiring,” and it is interesting that the Auditor-General of Canada’s 2001 Report found a “culture of short-term hiring” in the federal public service.26 The auditorgeneral and other authorities noted that filling an indeterminate position is a very long and arduous process, prompting managers to create term and casual positions that could be more quickly filled by informal means. Even the then president of the Treasury Board, Lucienne Robillard, admitted in 2003 that “complex procedures … have become an obstacle course that wastes time and money and discourages many good candidates from seeking government employment.”27 This pattern of short-term hiring creates numerous problems, including a lack of job security and a tendency to hire through word-of-mouth rather than through advertised competitions. It has a corrosive effect on the

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public service and, particularly, attempts to build up a next generation of the best and brightest. Relatedly, short-term hiring favours individuals already in the national capital region since people from other parts of Canada have very few opportunities to apply. Many of these problems were addressed in the Public Service Modernization Act, passed in 2003, which, among other things, attempted to clarify and speed up the way in which public servants are hired. But the act was controversial since attempts to speed up the process might endanger the merit principle of hiring the best person (although arguably the merit principle has been undermined more by the short-term hiring patterns than by anything other reforms might do). This tension will continue in any attempts to strengthen the recruitment system. The problem of how to effectively recruit beyond the national capital region has also been addressed, but there is also an obvious tension: advertising and interviewing more widely means higher costs and even more delays.28 But these sorts of reforms are imperative if a next generation is to be built. Short-term hiring from a narrow geographic area simply will not lead to transformation in the federal public service. The second issue is one of gender, ethnicity, and race, elements not fully discussed in this chapter. There has been much discussion about the failure of the public service to adequately reflect the ethnic and racial composition of Canada,29 while women are underrepresented in management roles and, arguably, find the public service dominated by masculine values and approaches.30 The issue is multifaceted, covering recruitment and promotion systems, workplace norms and cultures, management styles, and other elements defying comprehensive resolutions. However, this can and should be an important element of building a new generation of public servants not simply in terms of numbers but also in terms of its varied impact on the values and assumptions of public service. Race, ethnicity, and gender can potentially provide one of the boldest aspects of a next generation by embedding values and practices that are distinct not only from past generations but also from other workplaces and sectors. A next generation of public servants must be a diverse generation. Indeed, this may be where the greatest sense of newness and a break from the past will be found. If government recruitment and promotion practices emulate the diversity of the Canadian population, and workplaces become more accommodating and enriched by different styles of work and decision making, then there is a chance to really see a next generation arise. The third and final issue is simply one of public service morale and its transmission to new recruits. No issue is more important for building

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a next generation, and in this short chapter I have referred again and again to the poor morale and spirit of public servants and, particularly, the effect of this on new recruits. A culture of cynicism and distrust is easily and quickly passed on to new public servants, and it is hard to remove once embedded. It easily perpetuates itself and sends a poor message to those considering a career in public service. Unfortunately, but obviously, this last aspect is the most difficult to address, and there have been no shortage of attempts to do so. Recognition programs, merit pay, speeches, and celebrations have all done their part to try to reinvigorate public servants, but they can only go so far. What has been missing is leadership from the top levels of government – the very top levels. An administration that values pragmatism and compromise does not provide the leadership necessary to inspire the public service, particularly after previously overseeing deep cuts to it. Yet this was the story for much of the Chrétien years, which followed a Progressive Conservative government that was often outright disparaging towards its public servants. The change in national leadership under Prime Minister Paul Martin and the early months of his government suggest that this leadership may be forthcoming. While its immediate actions upon taking government, such as the hiring freeze, were not well thought out (as even the president of the Treasury Board, Reg Alcock, admitted), the Martin government’s response to the sponsorship scandal of early 2004 suggests a new commitment to building a better public service. Whereas the previous government would likely have downplayed the auditor-general’s findings of gross mismanagement of public funds in the federal sponsorship program, the Martin government was noticeably willing to let former and current public servants come forward and allege political tampering and interference. Furthermore, the government’s introduction of whistle-blowing legislation and quick action to fire political appointees enmeshed in the scandal sent a signal to the career public service that it was valued and important. The new government clearly has an interest in public service reform; but, as with its proposed changes to party discipline in Parliament, the real results will not be seen for a while. Still, the change in leadership provides the best possible basis for introducing new and inspiring leadership for the federal public service, and for providing a dramatic break with the past climate of downsizing and poor morale. Calling for a true next generation of public servants, and taking all possible steps to create one, should be a cornerstone of a new government that wishes to improve the quality of governance and democracy in Canada.

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conclusions In this chapter I argue for the creation of a dramatic new generation of public servants in the federal government, but I also identify various obstacles and challenges. I disagree with the assumption that retirements and new recruitment in the public service will automatically create a next generation. In fact, demographics and other factors actually suggest the change will be more gradual and mixed. Past attempts at public service reform have not been very successful as they face huge challenges and complicated contexts. But developing a next generation of public servants remains imperative if governments are to break from the pathologies and problems of the past. Gradual change has not been enough: transformation is needed. This requires both structural and cultural reforms and, above all else, more political leadership than has been evident in recent years. Creating a true next generation will not be easy. But it is imperative if government is to work better and to shake off its ongoing malaise. The federal government should be one of the most interesting and exciting places to work in Canada; but this is not possible unless it undergoes real change and transformation and welcomes a true next generation to public service.

notes 1 A remarkable number of interesting and insightful studies of public service reform and renewal are available from the Public Service Commission of Canada, the Treasury Board Secretariat, and other government organizations. Interested readers should consult their Web sites (, etc.) for the full list and on-line access to the latest reports. 2 For further discussions of these reforms, see David Johnson, Thinking Government: Public Sector Management in Canada (Toronto: Broadview Press, 2003), chap. 8, “Public-Sector Personnel Management.” 3 See O.P. Dwivedi and James Iain Gow, From Bureaucracy to Public Management: The Administrative Culture of the Government of Canada (Peterborough: Broadview Press, 1999). 4 Donald J. Savoie, Breaking the Bargain: Public Servants, Ministers and Parliament (Toronto: University of Toronto Press, 2003), 17. 5 Peter Aucoin, “Beyond the ‘New’ in Public Management Reform in Canada: Catching the Next Wave?” in Handbook of Canadian Public Administration, ed. Christopher Dunn, 37–52 (Toronto: Oxford University Press, 2002).

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294 Renewing Governance 6 Evert Lindquist and Gilles Paquet, “Government Restructuring and the Federal Public Service: The Search for a new Cosmology,” in Government Restructuring and Career Public Service in Canada, ed. E.A. Lindquist, 71–111 (Toronto: Institute of Public Administration of Canada, 2000). 7 Evert A. Lindquist, “Government Restructuring and Career Public Service: Do We Need a New Cosmology?” in Handbook of Canadian Public Administration, ed. C. Dunn (Oxford: Oxford University Press, 2002), 124. 8 See, for example, the results of the 2002 Public Service Employee Survey, which found some improvements in morale since the 1999 survey (available at ). 9 Savoie, Breaking the Bargain. 10 Monica Belcourt and Simon Taggar, Making Government the Best Place to Work: Building Commitment (Toronto: Institute of Public Administration of Canada, 2002); The Future of Work in the Public Sector: Tough Challenges and Practical Solutions (Victoria: Institute of Public Administration of Canada and University of Victoria School of Public Administration, 2000). 11 Government of Canada, Public Service Commission. The Road Ahead: Recruitment and Retention Challenges for the Public Service (Ottawa: Public Works and Government Services Canada, 2002) 12 Government of Canada, Treasury Board Secretariat. Demographic Analysis of the Federal Public Service Workforce: Recent Evidence of Employment Renewal in the Public Service (Ottawa: Treasury Board Secretariat, 1999). 13 N. Morgan, Implosion: An Analysis of the Growth of the Federal Public Service In Canada, 1945–1985 (Montreal: Institute for Research on Public Policy, 1986), 18. 14 See, for example, Jocelyn Bourgon, Clerk of the Privy Council, Fourth Annual Report to The Prime Minister on The Public Service of Canada (Ottawa: Privy Council Office, February 1997). 15 Kathryn May, “Civil Service to Hire 12,000 a Year: Decade-Long Hiring Spree to Replace Retiring Baby Boomers,” Ottawa Citizen, 13 August 2000, A1; Government of Canada, Privy Council Office, Recruitment and Results: Report of the COSO Sub-Committee on Recruitment (Ottawa: Privy Council Office, 2000). 16 See, for example, Michael J. Prince, “Policy-Advisory Groups in Government Departments,” in Public Policy in Canada: Organization, Process and Management, ed. G. Bruce Doern and Peter Aucoin, 221–45 (Toronto: Gage, 1979). 17 Government of Canada, Treasury Board Secretariat, Demographic Analysis of the Federal Public Service Workforce (Ottawa: Treasury Board Secretariat, 1999) 18 Public Service Commission, The Road Ahead: Recruitment and Retention Challenges for the Public Service (Ottawa: Public Service Commission, 2002).

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295 Recruitment and Renewal in the Federal Public Service 19 See Evert A. Lindquist, ed., Government Restructuring and Career Public Services (Institute of Public Administration of Canada, 2000) 20 See Public Policy Forum, Facing the Challenge: Recruiting the Next Generation of University Graduates to the Public Service (Ottawa: Public Policy Forum, 1998). 21 Government of Canada, Public Service Commission, The Road Ahead: Recruitment and Retention Challenges for the Public Service (Ottawa: Public Service Commission, 2002) reports from a 2000 student survey that, “while summer students noted a number of positive attributes of the Public Service and the work units where they worked, only about half of them said they would seek a career in the Public Service” (18). 22 See, for example, Peter Aucoin, The New Public Management: Canada in Comparative Perspective (Montreal: Institute of Research on Public Policy, 1995). 23 B. Guy Peters and Donald J. Savoie, eds., Governance in the Twentieth-First Century (Montreal and Kingston: Canadian Centre for Management and McGill-Queen’s University Press, 2000). 24 Savoie, Breaking the Bargain. 25 See, for example, discussion in John Langford, Thea Vakil, and Evert A. Lindquist, The Future of Work in the Public Sector: Tough Challenges and Practical Solutions (Victoria: Institute of Public Administration of Canada and University of Victoria School of Public Administration, 2000). 26 Office of the Auditor-General of Canada, 2001 Report (Ottawa: Office of the Auditor General of Canada, 2001) 27 Honourable Lucienne Robillard, President of the Treasury Board, “Remarks for a News Conference following introduction of the Public Service Modernization Act,” 6 February 2003. 28 Public Service Commission of Canada, Enhancing Canadians’ Access to Federal Public Service Jobs (Ottawa: Public Service Commission of Canada, November 2002). 29 See, for example, Task Force on the Participation of Visible Minorities in the Federal Public Service, Embracing Change in the Federal Public Service (Ottawa: Public Service Commission of Canada, November 2000). 30 See, for example, Caroline Andrew, “Women and the Public Sector,” in Handbook of Canadian Public Administration: Women and the Canadian State, ed. Caroline Andrew and Sanda Rodgers, 123–38 (Montreal and Kingston: McGill-Queen’s University Press, 1997).

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14 The Office of Ethics Commissioner, Accountability, and Public Trust luc juillet For Canadians to have a truly secure sense of confidence they must know that there is independent oversight of activities. It is this transparency, this accountability that bolsters trust. They must know that it is always the public interest that motivates the public’s business. And they must be assured that independent authority has been vested in an officer to speak to such matters.1 Liberal party leadership candidate Paul Martin, 21 October 2002

A few months after he took office in December 2003, there remained little doubt that how Prime Minister Paul Martin would deal with questions of public-sector ethics would prove to be a crucial issue for his government and, probably, a defining issue for the national election that he would have to fight before the end of the year. More than anything, the damning report tabled by the auditor general in February 2004 on the mismanagement of a series of sponsorship and advertising contracts since the mid-1990s, and the extraordinary attention that it received in the national media, served to focus public attention on government ethics to an extent unprecedented in the last decade. While the “sponsorship scandal” undoubtedly raises broader issues of public administration,2 allegations of political involvement in the procurement process, and frequent media references to the “Liberalfriendly” firms that received contracts, have done much to present the issue as one of unethical conduct by a group of public office holders and civil servants. As such, the controversy has certainly reinforced pre-existing concerns that the federal institutions and regulations dealing with the norms of ethical behaviour by public office holders were insufficient and defective. It is within this context that the new prime minister has declared his intention to “change the way Ottawa works” and that his government has put forward an agenda of administrative and democratic reforms meant to “strengthen the integrity of Government,” increase the transparency

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of government operations, and limit the concentration of power in the Prime Minister’s Office.3 Meant to regain the trust of Canadians in the operations of government, the reform initiatives announced by the Martin government are numerous and wide-ranging, including a new law to protect whistleblowers, revisions to the appointment process for heads of Crown corporations, and changes to the procedures used in the House of Commons in order to empower parliamentarians. However, an important element of this reform package has been the adoption of new legislation on government ethics that has brought about the most significant changes to the federal ethics regime in over a decade. Presented as an initiative that will bolster public trust in government, the law created a new independent position of ethics commissioner that will report to Parliament and that will have the authority to review the actions of all parliamentarians, including members of the Cabinet. In this chapter, I examine the new ethics legislation adopted in March 2004 and assess its strengths both as a system for promoting integrity in government and as a measure for restoring public trust in government institutions. I argue that, while some changes could be made to improve its credibility and legitimacy, appointing an ethics commissioner represents a significant improvement over the previous system – one that could contribute to strengthening our accountability regime. However, despite the potential benefits of the new office, I am sceptical about the impact that it will have on Canadians’ trust in public office holders and government institutions. Given the more complex and fundamental causes that probably underlie the decline in confidence in politicians and political institutions that we have seen over the last forty years, it is unlikely that a new institutional mechanism to deal with allegations of ethical misconduct by parliamentarians and public office holders will do much to reverse this trend.

public opinion and t h e l i b e r a l s ’ e t h i c s pa c k a g e Canadians consider honesty in politics to be very important. In an extensive 1996 survey on public opinion regarding government ethics, 58 percent of respondents ranked honesty as the most important value in politics.4 Given this result, it is not difficult to find it worrisome that, in a large survey conducted in the fall of 2002, 73 percent of respondents agreed with the statement “most political leaders do not tell the truth or keep their promises.”5 In a similar vein, while about 34 percent of Canadians believe that members of Parliament are less honest than the average Canadian, 57 percent of them also believe that they should be held to a higher standard of ethical conduct than ordinary citizens.6

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Generally, public opinion research paints a rather bleak picture of Canadians’ views concerning the honesty of politicians. Since 1965 the percentage of people concurring with the statement “people running the government are crooked or dishonest” has virtually doubled, now representing more than 50 percent.7 Similarly, a poll conducted last year by ekos Research Associates found that 46 percent of Canadians believe that federal politicians are corrupt, a slightly higher percentage than believe that the federal government is corrupt (43 percent) and that federal public servants are corrupt (42 percent). In some regions of the country, the numbers are even greater. For example, in Alberta 57 percent of respondents ranked the federal government as being corrupt. And while the percentage of Canadians who believe the federal government to be corrupt has not increased significantly since the Liberals came to power in 1993, 54 percent of Canadians still think that “the ethical standards of the federal government have slipped badly” over that period.8 These numbers about Canadians’ perception of the integrity of public officials tend to reinforce more general concerns about the decline of public trust in government institutions. Canada, like most industrialized democracies around the world,9 has seen its citizens’ level of confidence in some of its core democratic institutions decrease in the postwar era to such an extent that it is now common to hear concerns about the disengagement of citizens from politics and the growth of a significant democratic deficit. The most prominent source of concern may have been the decline in voter turnout over the 1990s. From a postwar average of 75 percent, Canadian voter turnout declined to 70 percent in 1993, 67 percent in 1997, and approximately 64 percent in 2000. Younger Canadians are among those citizens who participate the least in the electoral process. For example, amongst those young Canadians who were eligible to vote for the first time in the 2000 national election, only 22 percent actually voted.10 Public opinion studies about public confidence in political institutions have also fuelled recent concerns. In 1965, 58 percent of surveyed Canadians believed that they could trust the federal government “to do what is right” just about always or most of the time.11 In 2002, only 27 percent shared this opinion, a figure that seems representative of the levels seen over the 1990s.12 Political parties and the House of Commons do not fair well either. Gallop polls show that less than 20 percent of Canadians have a great deal of trust in the House of Commons.13 In 1993 political parties seemed to hit a low point when 49 percent of Canadians declared that they had very little respect for them. Over the 1990s, this figure averaged about 40 percent.14

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299 The Office of Ethics Commissioner Table 1 The Chrétien government’s ethics package, May 2002 1 The guidelines that set the standards for ethical conduct for ministers and secretaries of state, and which are used by the ethics counsellor in judging the appropriateness of their conduct, will be made public for the first time. 2 New guidelines will be published to clarify the standards of conduct for ministerial dealings with Crown corporations, especially when dealing with constituency matters. 3 New guidelines will be published to provide a framework for ministerial fundraising for personal political purposes. The obvious purpose of these new guidelines is to provide some boundaries and transparency for leadership candidates gathering funds for party leadership campaigns while in office. 4 For the first time since the creation of the office, the ethics counsellor will start reporting annually to the House of Commons and he will appear before a standard committee of the House of Commons to answer questions about his office’s work. 5 The government will propose amendments to the Lobbyists Registration Act to clarify some provisions and to improve its enforcement. 6 A new code of conduct for parliamentarians, including members of the Cabinet, will be developed and tabled in the House of Commons. 7 The government will introduce amendments to Canada’s electoral laws to regulate more stringently campaign financing, including by banning corporate donations to political parties and candidates. 8 Finally, new measures will be introduced to ensure that senior public servants would exercise greater due diligence in the management of public funds.

It is against this backdrop of public opinion that, in May 2002, Prime Minister Jean Chrétien unveiled a set of reforms addressing the issue of integrity in government, which was then referred to as the “ethics package” (see Table 1). The measures contained in the ethics package obviously constituted a response to the long series of controversies about unethical behaviour by members of Cabinet that has plagued the Chrétien government’s years in office. For example, while they clearly go beyond the funding of leadership campaigns, it is hard not to consider that the new political financing measures are, at least partly, a direct response to the public controversies that surrounded the fundraising activities of Liberal leadership contestants during the long contest to replace Jean Chrétien. Similarly, the changes announced regarding the public office holders’ code of conduct and the position of ethics counsellor represented an obvious response to the oft-repeated accusation that the existing position, far from helping to regulate ministerial ethics, served as a political device in the hands of the prime minister to provide absolution to his own government for unacceptable standards of conduct in office.

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However, in addition to responding to these immediate political pressures, the Liberal ethics package was also quite clearly presented as a needed initiative to address a troubling decline in Canadians’ confidence in government institutions. When he unveiled the ethics package in the House, Prime Minister Chrétien stated that “integrity and public trust are the foundation of democratic government,” and, while he expressed pride in the record of ministerial probity and the high standards of integrity of his government, he also argued that the new ethics measures were needed to meet the even higher standards of the Canadian population. Other government officials have defended specific items of the ethics package in the same terms.15 The new ethics measures were explicitly meant to help restore public trust in government institutions. While the Liberal government’s ethics initiative contained eight more or less specific measures, several of the key items concerned changes to the prevailing system of conflict-of-interest regulation, addressing both the content of guidelines for public office holders and the institutional regime entrusted with their administration. At the time, Canada had in place a patchwork of rules with regard to the integrity of elected officials. The Criminal Code made certain practices, such as bribery, illegal. The Parliament of Canada Act prohibited members of Parliament from holding government contracts, and the rules of both houses of Parliament required their members to disclose financial interests when speaking or voting in Parliament on relevant issues. However, many contentious cases that had been the object of public debates over the years fell outside the realm of those laws. For these issues, ministers and their staff could find guidance in a code of conduct created by the government in 1994 out of pre-existing guidelines dating back to the 1970s and modified on a few occasions over the years. Assisting with the application of this code was the essential responsibility of a new position created by the Liberal government in 1994, the ethics counsellor. It was the ethics counsellor’s responsibility to provide confidential advice to Cabinet ministers and other public office holders regarding compliance with existing guidelines as well as to investigate potential misconduct at the request of the prime minister. In all cases, the information provided by public office holders to the ethics counsellor would remain confidential, as would his advice to the prime minister. Almost from its first years in office, the Chrétien government was plagued with controversies about ministerial misconduct and a defective integrity regime. These controversies were played prominently in the House of Commons and the national media. The federal police had to investigate a number of cases, including one directly involving the prime minister. Several ministers have left Cabinet under a cloud.

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Throughout all those controversies, the integrity framework itself became the target of much criticism. The lack of independence of the ethics counsellor made him a prime target of such criticism. He has been repeatedly portrayed as a servile agent of the prime minister, ready to exonerate anyone in the hope of preserving his job. The facts that some of the most acute controversies have involved the prime minister himself and that, incidentally, the ethics counsellor served at his pleasure and reported solely to him, did not help his case. Moreover, since the code of conduct and the advice provided by the ethics counsellor were not in the public domain for most of this period, it was rather difficult for citizens to develop either an understanding of the ethical norms that were to be followed or an informed opinion about the performance of the system in place. In response to the long-standing criticism of the Office of the Ethics Counsellor, the Chrétien government announced that the ethics counsellor would now be asked to table annual reports to Parliament as well as to appear before parliamentary committees to answer questions about his office’s work. Moreover, the public office holders’ code of conduct, which sets out the standards of conduct and the rules administered by the ethics counsellor, would now be made public. Finally, the prime minister also announced that, in the future, he would consult the leaders of the opposition parties before appointing the ethics counsellor, who would serve for a limited mandate of five years and would only be dismissed with the approval of Parliament. While these changes went some way towards addressing the main critiques made of the ethics regime by the media and the opposition parties, and appeared to have been relatively well received by the public,16 they nevertheless fell short of creating an independent officer of Parliament responsible for the ethics regime, a promise that the Liberal party had made in its 1993 electoral platform. However, soon after it was announced, it became clear that the measures described in the ethics package with regard to the ethics counsellor would prove ephemeral. This occurred when the government announced that it would propose new legislation creating a new independent officer of Parliament with the mandate of administering the code of conduct for public office holders as well as new codes of conduct for parliamentarians. While a first government bill proposing the creation of an ethics commissioner as an independent officer of Parliament died on the order paper in November 2003, the new government of Paul Martin reintroduced the same bill in the early days of the new parliamentary session in February 2004. C-4 – An Act to Amend the Parliament of Canada Act (Ethics Commissioner and Senate Ethics Officer) and Other Acts in Consequence – was adopted by Parliament on 30 March 2004.17

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bill c-4 and the proposed ethics architecture Upon coming into force, the new legislation will create a new position of ethics commissioner, which will replace the office of the ethics counsellor and establish a new system of ethics regulation for the Canadian government.18 The ethics commissioner will be appointed by the government (i.e., the Governor in Council). The appointment must be preceded by consultations with the leaders of recognized parties in the House of Commons and will be subject to confirmation by a simple majority vote by the House. The commissioner will be appointed for a renewable term of five years and can only be removed, for cause, by the government following a request by the House. As an independent officer of Parliament, the ethics commissioner will work under the general direction, and report to, a committee of the House of Commons. The new ethics commissioner will have multiple functions and, in particular, will be tasked to administer two separate ethics regimes. The new legislation provides for the adoption of two distinct codes of conduct. The fist code of conduct will cover members of Parliament and be annexed to the Standing Orders of the House. The second code of conduct will cover public office holders – namely, ministers and their designated staff, parliamentary secretaries, and most Governor in Council appointees. It will be required by law that each new prime minister table in the House his or her own version of this second code within thirty sitting days of his/her arrival in office. The requirement for two distinct codes of conduct is meant to reflect the specific circumstances of members of the executive and the prerogative of the prime minister in setting distinct standards for them. With respect to members of Parliament, the commissioner will provide confidential advice with respect to the application of a new code of conduct for parliamentarians to be annexed to the Standing Orders of the House. The commissioner will also administer the new disclosure requirements that will affect members of the House of Commons, their spouses, and their dependent children. Such disclosure of private interests will be kept on file with the commissioner, who will only make summary statements public. The ethics commissioner will also have the responsibility of receiving and investigating complaints made by a parliamentarian against a member of the House. The complaint will take the form of an affidavit stating the facts and reasons for believing that some provisions of the code were violated. It should be noted that the commissioner will not have the authority to initiate an investigation on his/her own initiative.

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If a complaint is deemed to merit an investigation, the commissioner will benefit from the power to summon witnesses to give evidence and produce documents. These powers will be enforced by the House of Commons at the recommendation of the standing committee acting at the request of the commissioner. The new law also requires that any member being investigated be provided an opportunity to defend him/herself before the commissioner. While the investigation will be conducted in private, the commissioner will table her/his report to the standing committee overseeing its activities and, under the proposed code, the committee will play an important role in the operation of the ethics system. In cases where the complaint is judged to be without merit by the commissioner, it is simply dismissed, and the parliamentary committee must accept the commissioner’s ruling as definitive. However, when the commissioner concludes that a violation of the code occurred, he/ she must file a report with the parliamentary committee stating his/ her findings and whether any remedial actions were agreed to with the member at fault. In cases where such agreement has been reached, the parliamentary committee can simply report the results of the complaint process to the floor of the House or, if it is not satisfied, it can chose to return the complaint to the ethics officer for further consideration, with or without directions. Moreover, in cases where agreement on remedial actions has not been possible or when remedial actions is unavailable, the commissioner will simply report on her/his findings and it will be up to the parliamentary committee to investigate the matter further. The committee will then report to the floor of the House, possibly recommending that the member at fault be ordered to take specific action or be sanctioned. With respect to public office holders, the ethics commissioner will hold similar functions. She/he will provide confidential advice to public office holders on the application of the rules established by the prime minister. She/he will also provide confidential advice to the prime minister him/herself on the application of the code, including on matters involving ministers and matters of ethics policy in general. In this regard, the ethics commissioner will play the same advisory and “educational” functions as was played by the ethics counsellor. The ethics commissioner will also have important functions with respect to the investigation of complaints targeting public office holders. In this case also, the commissioner will not be allowed to initiate investigations of his/her own volition, and he/she will not receive complaints from the general public. However, any parliamentarian will be free to file a complaint against a minister or any public office holder falling under the ambit of the prime minister’s code. If the commis-

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sioner judges that a complaint is reasonably grounded, she/he will have the same powers as does a court of record in civil cases to summon witnesses to provide evidence and to produce the documents necessary for a full investigation of the complaint. Again, the new law stipulates that those being investigated must be given the opportunity to make their views known to the commissioner. After his/her investigation, the commissioner must submit a report to the prime minister, setting out the facts, her/his analysis, and conclusions. It is important to note that the law does not ask the commissioner to recommend any appropriate sanctions. However, the commissioner must make the report available to the public as well as transmit a copy of it to the complaining party and the person being investigated. There is no doubt that the new ethics architecture represents a significant departure from the current regime. In contrast to the ethics counsellor, who was appointed by the prime minister, reported solely to him, and served at his pleasure, the ethics commissioner will benefit from greater independence and will significantly increase the transparency of the ethics process regarding the executive. Moreover, the adoption of a code of conduct for parliamentarians is a significant novelty for the Canadian parliamentary system, which, in this regard, trailed behind other Commonwealth jurisdictions, such as the United Kingdom and Australia. While several conflict-of-interest measures were already present in the Criminal Code and the Parliament of Canada Act, the new code of conduct and the Office of the Ethics Commissioner will put in place a more comprehensive, stringent, and updated set of measures and institutions than those that previously existed. However, the new ethics measures are also raising some interesting questions about their relationship to prevailing constitutional norms of parliamentary government, their likely effectiveness, and their potential for contributing to the restoration of greater public trust in our institutions of government. The rest of this chapter examines these questions.

the ethics commissioner and ministerial responsibility The creation of a position of ethics commissioner as an independent officer of Parliament has been criticized as being at odds with our institutions of Westminster parliamentary government. Before the Liberal government’s decision to move in this direction, the ethics counsellor himself, Howard Wilson, condemned the idea of a non-elected ethics officer reporting directly to Parliament. According to Wilson, to entrust an independent non-elected officer with investigatory powers and

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some responsibility over ministerial ethics would run the risk of creating the Canadian equivalent of a permanent us special prosecutor; that is (in a reference to Kenneth Starr, who investigated President Bill Clinton in the Whitewater/Lewinsky affairs), of unleashing a zealous, unaccountable, and politically motivated prosecutor on the executive branch. More generally, the ethics counsellor argued on several occasions that, in a Westminster system, the regulation of ministerial ethics ought to remain the sole responsibility of the prime minister. An ethics officer for the political executive that would report to Parliament would constitute a constitutional anomaly. In a recent paper, Denis Saint-Martin makes a similar argument. In his view, “transferring the job of regulating the conduct of ministers, which is an executive matter, to an officer of the legislature would create a problem of accountability in a system of responsible government.”19 The proposed legislation, Saint-Martin argues, will blur the line between the powers of the executive and the legislature and could curtail the prime minister’s ability to regulate the ethical conduct of his ministers.20 In my view, such concerns tend to mischaracterize the constitutional position that is to be occupied by the ethics commissioner. The ethics infrastructure created by the new law will in no way violate the integrity of our system of responsible government. Under the proposed regime, the ethics commissioner will investigate complaints, make the facts known, and help the prime minister, parliamentarians, and the public at large come to some reasoned judgment about the merit of the case being considered and the appropriate course of action. In the end, the prime minister alone will be in a position to sanction ministers found to be at fault. If his/her decision is found to be lacking and the chosen remedial actions to be insufficient, then it will be the task of Parliament to make her/him account for it and, ultimately, to sanction the government as a whole if the situation seems to warrant it. In the final analysis, it will continue to be politics – the interplay among the prime minister, the opposition, and public opinion – and not solely the judgment of an officer of Parliament that will determine the fate of members of the political executive. Moreover, it would represent a certain slippage in our constitutional thought if we were to accept the view that the prime minister alone ought to be responsible for ensuring ethical behaviour by members of the Cabinet and that, as such, he/she should alone be responsible for setting and administering the rules for public office holders, as if responsible government had nothing to do with Parliament passing judgment on what represents acceptable standards of conduct and performance by the political executive. In fact, by providing better

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information to parliamentarians and assisting them in formulating reasoned views on ethical controversies, the Office of the Ethics Commissioner might very well help Parliament do a better job at keeping ministers accountable. Moreover, by providing for a more transparent process and a more neutral review of the facts in the midst of heated partisan debates, the new ethics regime will help the public come to a more informed and reasoned judgment on the behaviour of public office holders. Finally, to attribute to the prime minister the sole responsibility for setting standards of conduct for Cabinet members is erroneous. Standards of morality in politics, including with regard to conflict-of-interest and especially with regard to those office holders who wield the most power and who are entrusted with the greatest responsibilities, are properly considered to be a matter for the public’s representatives and ought to be upheld through public debate. Setting appropriate standards of ethical conduct is a notoriously difficult exercise that involves passing judgment on the evolving moral standards of the community as well as an appreciation of the complex realities of operating a large modern state. It involves coming to some collective understanding about what should be considered appropriate behaviour in our shared polity. In my view, the prime minister’s code for public office holders should not only be made public by being tabled in the House but it should also be the object of study, debate, and approval by the House in order to strengthen its credibility and legitimacy with parliamentarians and the public at large. There is nothing in the constitutional theory of parliamentary government that would prevent such an approach.

some weaknesses of t h e n e w l e g i s l at i o n While the new measures may help strengthen the current accountability regime, other elements of the proposed legislation have also been the object of criticism and reveal themselves as weaknesses. The first such element is the appointment process. The new legislation states explicitly that the leaders of recognized parties in the House of Commons should be consulted before the appointment is made. It also requires a confirmation of the appointment by the adoption of a resolution in the House. However, under conditions of majority government, these measures still provide opposition parties with limited influence over the selection of the ethics commissioner. It is entirely possible that a candidate would be rejected by all opposition parties and still be imposed on the House by a disciplined vote of the govern-

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ing party. Such limited influence over the selection of the commissioner seems particularly problematic given that the selected officer will have the responsibility to advise and investigate members from parties in the legislature. In such circumstances, it will be imperative that members from all parties trust him to act with competence and fairness. The appointment process currently proposed appears opened to criticism and could prove a disservice to the new commissioner and the legitimacy of the whole system. In my view, in lieu of the proposed system, we would have done well to find inspiration in the legislature of British Columbia. In British Columbia an all-party committee proposes a candidate to the premier, and a two-thirds majority of the legislature must confirm the appointment of the ethics officer. Given that the federal ethics commissioner will also have responsibilities with regard to the political executive, the government may feel uncomfortable entrusting a parliamentary committee with the responsibility for selecting candidates. However, allowing the House to review the candidate’s nomination and then requiring a confirmation by a two-thirds majority could have done much to boost his legitimacy in the eyes of parliamentarians and the credibility of the overall system in the eyes of the population.21 During the committee review of the legislation, the government was already accused of not adequately correcting one of the major weakness of the current ethics counsellor’s office: his discretionary appointment by the prime minister. It is not hard to predict that, if the new commissioner were to render a series of controversial opinions, his/her appointment process would be used to attempt to discredit his/her office. A second point of contention concerns the complaint process. As I pointed out in the previous section, parliamentarians alone will be allowed to file complaints about other parliamentarians and public office holders. The commissioner will not receive complaints directly from the public. This proposal, made by the government, was also supported by the Standing Committee on Procedure and House Affairs. Generally, members appeared to be concerned that a complaint process opened to the public could constitute an open invitation to a flood of frivolous and vexatious complaints. Some members were especially concerned that the process would fall prey to partisan politics, with unfounded complaints made at the time of elections for the purpose of sullying an opponent’s reputation. While these concerns are understandable, they may also be exaggerated. First, the ethics commissioner will have the power to dismiss complaints that are considered to be without merit. He/she may refuse to investigate or terminate an investigation at any time. Moreover, there is nothing that currently prevents unfounded vexatious accusations from

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being made public at any time by individuals with questionable motivations. One does not need to file an official complaint to publicly sully an adversary’s reputation; a press conference will do just fine. In fact, the existence of an independent officer with powers of investigation, who could receive such complaints and pronounce on their merit, would constitute an effective way for targeted members to credibly fend off unfounded accusations. Moreover, with regard to public office holders, it is interesting to note that the faulty system that the ethics commissioner is meant to replace already accepted complaints from the general public. In this regard, the new system will represent a step backward. During its last years of existence, the Office of the Ethics Counsellor has received and investigated a number of complaints about alleged conflict-of-interest situations involving ministers that were made by non-governmental organizations such as Democracy Watch. This opportunity for the public to make complaints did not result in a flood of vexatious or frivolous accusations. Giving the public the opportunity to file complaints directly with the ethics commissioner would be a clear illustration of the transparency and openness of the new ethics framework. It would provide a novel avenue allowing public participation in our accountability regime. And, perhaps more important, it would help to guard against the view that politicians have made sure that the ethics regime regulating their behaviour remained firmly under their own control.

p u b l i c t ru s t a n d g ov e r n m e n t e t h i c s The creation of an independent officer of Parliament with responsibilities for the administration of codes on conflict-of-interest has been repeatedly presented as an important step in dealing with worrying trends in public opinion about politicians and government institutions. While the assessment of the government’s record on ethics differs widely, government and opposition alike have nevertheless presented the new ethics legislation as a way of maintaining Canadians’ trust in public officials. While I see the new ethics infrastructure as a significant improvement on the previous system, I am also rather sceptical about the impact that it will have on the public’s perception of office holders and its confidence in our institutions of government. We should note first that we understand little about the decline of trust in government. Most of the Canadian studies on the subject have relied on data from the National Election Survey and the World Values Survey, and have documented trends from the mid-1960s to the mid1990s. Analyses of the data spanning the last decade have been much

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309 The Office of Ethics Commissioner Figure 1 Percentage of Canadians expressing “a lot/a great deal” or “some” confidence in politic leaders, 1983–2002

60

50

50 44

43

40

42

41

32

30

31 28

20

19

10

0 1983

1985

1986

1987

1988

1990

1992

1995

2002

Source: Data from Centre for Research and Information in Canada, Portraits of Canada 2002, including historical data from Environics Focus Canada/Canadian Opinion Research Archive, Queen’s University.

less prevalent. Some available data suggest that the trend might have reversed since 1993. For example, data from an omnibus poll conducted regularly by the Centre for Research and Information on Canada suggest that the percentage of Canadians expressing a lot or some confidence in political leaders has been on the rise since 1993. In 2002, 42 percent of respondents were in these categories, a number comparable to those found in 1988 and in 1984 (see Figure 1). In another study, Mebs Kanji also points out that, in contrast to the 1980s, levels of confidence in the federal government appears to have risen by about 10 percent over the course of the 1990s, a period in which controversies about unethical behaviour by public office holders abounded.22 While having 58 percent of Canadians expressing little or no confidence in their political leaders is nothing to write home about, these numbers do suggest that we should be careful before talking about worrisome trends of public confidence that would require the introduction of new ethics measures.

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Moreover, it is interesting to note that, while the public’s trust in government might have improved over the 1990s, the percentage of Canadians believing that “people running the government are crooked or dishonest” has continued to rise to some degree. According to a poll released by ekos Research Associates in 2002, 54 percent of Canadians believe that “the ethical standards of the federal government have slipped badly in the past decade.”23 The contradictory trends in opinions about politicians’ honesty and confidence in government raise the possibility that we may not clearly understand the relationship between trust in government and public opinion regarding ministerial ethics – a relationship that is central to the government’s rationale for the reform of the ethics regime. The second set of observations regard some of the prevailing explanations for the decline in confidence in government institutions. The comparative politics literature has placed a lot of emphasis on the hypothesis that advanced industrial democracies are undergoing a fundamental shift in political culture that would see the emergence of postmaterialist values. Derived from the work of Ronald Inglehart, the argument, in a nutshell, is that the generations that have been socialized during the period of postwar affluence have developed a set of values less rooted in material needs for economic and personal security.24 As a result, these generations have become radical in their demands for their right to pursue a variety of personal conceptions of the good life and less respectful of authority. This hypothesis suggests that the decline in confidence in government is only part of a broader shift in values, driven by fundamental socialization processes. In this perspective, it seems that little can be done to reverse such a trend. In the face of such broad shifts in political culture, a new ethics infrastructure seems largely irrelevant as a policy to counter distrust in institutions and politicians. A second hypothesis arising out of more recent work on Canadian surveys can be referred to as the “efficacy gap” hypothesis.25 According to this view, we are witnessing a growing gap between citizens’ expectations about their political institutions’ responsiveness and their evaluation of these institutions’ actual performance. Over the past decades, changes in educational attainment and the availability of information have resulted in more competent citizens who are better informed about politics and more likely to feel that they should have a say in government decision making.26 However, over the same period, we have also witnessed a growing percentage of citizens who believe that politicians and government have “lost touch” with citizens. In sum, according to this hypothesis, while a greater proportion of citizens now feel competent to participate in governance, they do not feel that the polit-

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ical system is adequately responding. This widening gap between an improving sense of personal efficacy with regard to participating in governance and a growing view that political institutions are not responsive to citizens’ concerns could explain the declining trust in politicians and political institutions. Again, in this perspective, while the creation of the Office of the Ethics Commissioner might help address this problem by putting in place a system that better handles allegations of unethical behaviour on the part of office holders, it would hardly seem to qualify as a powerful response to the underlying causes of the decline in confidence. Finally, a third hypothesis raised by Canadian research into the problem of public distrust can be labelled the “representation gap” hypothesis. Drawing on his previous research on members of Parliament, David Docherty has recently showed how citizens and mp s can hold divergent conceptions of the role of parliamentarians. When asked to rank in order of importance the various functions of an mp, Canadian citizens consistently say that mp s should primarily defend the interest of their riding in the political process and actively participate in policy making. Interestingly, when asked to the same question, mp s answer that their primary function is to help constituents resolve problems with the federal government. In sum, there is an obvious divergence in the conceptions that mp s and constituents have of the mp’s role in Ottawa. On that preliminary basis, Docherty suggests that part of the distrust that citizens feel for politicians comes as a result of a mismatch between their expectations and the realities of the mp’s work.27 If such a hypothesis is sound, then combating distrust would appear to require some fundamental changes to our parliamentary institutions. The creation of the Office of the Ethics Commissioner and the adoption of new codes of conduct appear to be rather timid measures in this regard. My point here is simple: without meaning to discount the importance of Canadians’ views on corruption or unethical behaviour in government, it must be recognized that the existing literature on the decline of public confidence in government points to fundamental problems and deep sociological trends – problems and trends that clearly show that what has happened since the 1960s cannot be accounted for by simply pointing to the need to regulate governmental ethics. While the new ethics regime will bring a new measure of transparency and stringency to our accountability system, and may even help Parliament better play its role in this system, it would seem particularly optimistic to expect it to constitute a significant component of an effective policy response to low levels of public trust in government institutions. If the new prime minister is serious in addressing the

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“democratic deficit,” then he would do better to focus on other items of his democratic reform agenda, from a more frequent referral of legislation to parliamentary committees after the first reading in the House to the introduction of a three-line whip system to help reinvigorate the role of backbenchers.28 He could also pay more attention to the public service’s efforts to engage Canadians more directly in the process of policy making. These types of measures would speak directly to Canadians’ concerns about government institutions.

conclusions The new Office of the Ethics Commissioner and the new system that it will administer not only constitute the most significant reform of our institutions for regulating government ethics in nearly a decade, but they also represent a positive addition to our parliamentary institutions. In my view, concerns about the constitutional position of the new ethics commissioner have been exaggerated. Far from curtailing the prerogatives of the prime minister, the new system could bolster the ability of Parliament to properly demand accounts from the political executive while providing more transparency about the norms applied by the prime minister in the management of his Cabinet. If the ethics commissioner succeeds in adroitly charting a balanced course in what will undoubtedly constitute treacherous partisan waters, then her/his work might help the parties, and even the national media, adopt a more sophisticated, considered discourse on appropriate conduct and morality in Canadian politics. If the new prime minister were intent on making his mark on the issue of ethics, then he could quickly move to remedy some weaknesses in the adopted legislation. Asking Parliament to debate and formally adopt the code of conduct for public office holders, allowing it to have a greater say in the selection of the commissioner and opening the complaint process to the general public, would strengthen the credibility and effectiveness of the new regime. However, even if these changes were to be made, I am quite sceptical about the contribution that the new ethics regime will make to the restoration of public confidence in government institutions. If there is hope in the potential of institutional design to contribute to a renewal of trust in government institutions, then the new prime minister would do well to focus on the implementation of the rest of his “democratic deficit agenda,” focusing on other parliamentary reforms. He might also take a more serious look at electoral reforms and our system of representation. It may also be that he should get accustomed to a less trusting and more critical electorate.

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notes 1 Paul Martin, “Proposals for Reform of the House of Commons,” speech delivered to Osgoode Hall, York University, 21 October 2002. 2 See, for example, the early analysis provided in Denis Saint-Martin, “L’Affaire Groupeaction: Un cas de politisation de la Fonction publique fédérale?” Canadian Public Administration 46, 4 (2003): 450–70. 3 Address by Prime Minister Paul Martin to the Chamber of Commerce in Quebec City, 17 March 2004. 4 Maureen Mancuso, Michael Atkinson, Andre Blais, Ian Greene, and Neil Nevitte, A Question of Ethics: Canadians Speak Out (Toronto: Oxford University Press, 1998), 41. 5 Centre for Research and Information on Canada, Portraits of Canada (Ottawa: cric, November 2002). 6 Mancuso et al., A Question of Ethics, 68. 7 Mebs Kanji, “Political Discontent, Human Capital, and Representative Governance in Canada”, in Value Change and Governance in Canada, ed. Neil Nevitte (Toronto: University of Toronto Press, 2002), 79. 8 ekos Research Associates, Trust and the Monarchy: An Examination of the Shifting Public Attitudes Toward Government and Institutions (Ottawa: ekos, 30 May 2002). 9 For data on the declining levels of trust in the political institutions of advanced democracies, see Susan Pharr and Robert D. Putnam, eds., Disaffected Democracies: What’s Troubling the Trilateral Countries? (Princeton: Princeton University Press, 2000); Pippa Norris, ed., Critical Citizens: Global Support for Democratic Governance (Oxford: Oxford University Press, 1999); and Joseph S. Nye, Philip D. Zelikow, and David C. King, Why People Don’t Trust Government (Cambridge: Harvard University Press, 1997). 10 Jon Pammett and Lawrence LeDuc, Explaining the Turnout Decline in Canadian Federal Elections: A New Survey of Non-voters (Ottawa: Elections Canada, 2003). 11 Neal J. Roese, “Canadians’ Shrinking Trust in Government: Causes and Consequences,” in Value Change and Governance in Canada, ed. Neil Nevitte, (Toronto: University of Toronto Press, 2002), 152. 12 ekos, Trust and the Monarchy. 13 David Docherty, “Citizens and Legislators: Different Views on Representation,” in Value Change and Governance in Canada, ed. Neil Nevitte (Toronto: University of Toronto Press, 2002), 165. 14 Docherty, “Citizens and Legislators,” 179. 15 For example, Deputy Prime Minister John Manley, in his remarks to the House of Commons Committee on Procedure and House Affairs on Bill C-34, the first version of the bill establishing the new position of ethics

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314 Renewing Governance commissioner, reiterated that ethics officers and codes of conduct can be effective in “maintaining the public’s trust in public office holders.” 16 The announcement of the ethics package generally elicited a positive response. A poll conducted by ekos Research Associates following its release found that 45 percent of respondents believed that “our system of government had insufficient safeguards to ensure that federal politicians conduct themselves in an ethical manner.” While two-thirds of respondents had not heard of the ethics initiative, half of them supported the introduction of new measures. See ekos, Trust and the Monarchy. 17 The ethics legislation was first tabled in draft form in October 2002 and was referred to standing committees of the House of Commons and the Senate for early consideration. Following the committees’ review, the government tabled Bill C-34 in the House of Commons on 30 April 2003, and the bill was finally adopted by the House on 1 October 2003. However, the bill was later amended by the Senate and referred back to the House, where it died on the order paper at the end of the second session of the 37th Parliament. After Paul Martin became prime minister, the bill was reintroduced in its original form in the House of Commons in the early days of the third session of the 37th Parliament and numbered C-4. C-4 was adopted by the House of Commons on 11 February 2004 and by the Senate on 30 March 2004. 18 The new law also provides for the appointment of a new Senate Ethics Officer, who will be responsible for the administration of a code of conduct for senators. While this chapter focuses exclusively on the Office of the Ethics Commissioner and its relation to the House of Commons and the executive, the appointment of a Senate Ethics Officer generated significant debates and was the main reason for the demise of the first legislative proposal (C-34). For this reason, it is worth a brief discussion. The original government proposal had envisaged the creation of a single officer for both houses. However, pointing out that the two chambers have different rules and are independent from one another, the Senate committee studying the proposed legislation recommended the creation of two distinct offices for the House and the Senate, a recommendation that the government accepted. The law makes clear that the Senate ethics officer will have no responsibilities with respect to the code of conduct for public office holders. However, the appointment process for the Senate ethics officer was the object of much debate in the Senate. When the first bill (C 34) was considered, a majority of senators opposed the appointment process, believing that an appointment made by the Governor in Council, even after a resolution adopted by a majority of senators, would constitute an infringement by the executive on the independence of the Senate. Consequently, C-34 was amended by the Senate in order to provide it with better control over the appointment process. Given the timing of the

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19 20 21

22

legislative process, this amendment caused the bill to die on the order paper of the House of Commons when the second session ended. When it reintroduced the bill under the guise of C-4, the Martin government did not retain the Senate amendment. Senator Austin, the leader of the government in the Senate, argued that, if the Senate ethics officer were to be entirely under the control of the Senate, the position would lack independence and credibility. However, in order to alleviate opposition, Senator Austin, on behalf of the government, pledged that, before appointing an ethics officer, the leader of the government in the Senate would “consult informally” with the leaders of recognized parties in the Senate and submit to the Governor in Council the names of potential candidates who, in his opinion, would receive the support of the leaders of all recognized parties as well as of a majority of senators on both sides of the Senate. According to the law, the appointment would then be made by the Governor in Council, following a favourable resolution adopted on the Senate floor. It is important to note that the commitment made by Senator Austin remains a verbal commitment and, while one might hope to see it evolve into a convention, it would not constitute a legal requirement. For details on the government’s pledge to the Senate, see the comments by the Hon. Jack Austin in Debates of the Senate (Hansard), 3rd session, 37th Parliament, vol. 141, issue 27, 30 March 2004. Denis Saint-Martin, “Should the Federal Ethics Counselor Become an Independent Officer of Parliament?” Canadian Public Policy 29, 2 (2003): 209. Saint-Martin, “Should the Federal Ethics Counselor,” 210. During the debates leading to the adoption of the bill, there was some discussion in the Senate about the constitutionality of any appointment process for the Senate ethics officer that would derogate from the requirement of a simple majority vote. The Constitution Act, 1867, it was pointed out, stipulates that all questions arising in the Senate must be decided by a majority vote (section 36). While the matter was not discussed, the same argument could be offered with regard to the House of Commons since a similar provision can be found in the act (section 49). It should be noted that a similar provision (section 43) in the Constitution of the province of British Columbia ([RSBC 1996] Chapter 66) did not prevent the bc legislature from requiring a two-thirds majority to confirm its ethics officer’s appointment. See section 14(2) of the Members’ Conflict of Interest Act, [RSBC 1996], Chapter 287. Nevertheless, if, at the federal level, these constitutional provisions proved incompatible with the requirement for a super majority, then the government could fall back on other alternatives to provide broader purchase into the selection process, such as requiring the approval of the leaders of recognized parties in the House of Commons before submitting a candidate for approval by a simple majority resolution. Kanji, “Political Discontent,” 79.

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316 Renewing Governance 23 ekos, Trust and the Monarchy. 24 Ronald Inglehart, Culture Shift in Advanced Industrial Society (Princeton: Princeton University Press, 1990). See also Neil Nevitte, The Decline of Deference: Canadian Value Change in Cross-National Perspective (Peterborough, on: Broadview Press, 1996). 25 Neil Nevitte, “Value Change and Reorientation in Citizen-State Relations,” in Value Change and Governance in Canada, ed. Neil Nevitte (Toronto: University of Toronto Press, 2002), 22. 26 Kanji, “Political Discontent.” 27 Docherty, “Citizens and Legislators.” 28 For an assessment of these reform proposals, see Peter Aucoin and Lori Turnbull, “The Democratic Deficit: Paul Martin and Parliamentary Reform,” Canadian Public Administration 46, 4 (2003): 427–49.

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15 Reshaping Ottawa’s Centre of Government: Martin’s Reforms in Historical Perspective evert lindquist, ian clark, and james mitchell

On 12 December 2003, Prime Minister Paul Martin announced several dramatic changes to Ottawa’s central machinery of government, followed by additional measures in the 23 March 2004 budget. These reforms followed the adoption of the Public Service Modernization Act by the outgoing Chrétien government in November 2003, capping off the most significant reshaping of the central capabilities of the federal government in over a quarter century. It seems fitting that we have the opportunity to review and assess these changes in central machinery as part of the twenty-fifth anniversary edition of How Ottawa Spends. The purpose of this chapter is to describe and evaluate the recent changes introduced by Prime Minister Martin to Cabinet and other central institutions within the context of reforms introduced by previous prime ministers over the last four decades. The chapter has five parts. The first describes the composition of the centre and outlines a framework for understanding its dynamics and for guiding our assessment. The second part briefly reviews five modern eras of central reform in Ottawa and identifies patterns and lessons. The third part outlines the policy and administrative challenges that awaited the Martin government in December 2003 and considers their implications for the centre. The fourth part summarizes the reforms recently introduced by the outgoing and incoming prime ministers. The final part puts the reforms in historical context and then considers not only the risks but also the pre-conditions for successfully transforming the central machinery of government within the context of managing a transition and the government’s preparations for an election.

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Our main lines of argument are as follows. We believe that the Chrétien and Martin reforms are significant and that many of them are overdue, particularly with respect to oversight and scrutiny of expenditures. Although many issues concerning the structure of the centre have been under consideration for some time, the aggressive changes launched by Prime Minister Martin were triggered by stark examples of the insufficient monitoring and challenging of departments and their programs, and by concern about the capabilities of the public service to deliver key elements of the policy agenda he had promised in the leadership campaign. The reforms will greatly increase the scrutiny of departments and agencies by central agencies and standing committees, but the heightened focus on financial management, oversight, and comptrollership could go too far, effectively leading to a control mentality that would dampen managerial and service innovation. Finally, while there are few political gains and clear risks in launching such significant central reforms before an election, the biggest challenge for a new government (and those that follow) will be for ministers to sustain this level of interest and commitment in reviewing existing programs.

framework for analysis When discussing how issues of public policy and administrative reform are handled in parliamentary systems, participants and observers often invoke the term “the centre” to describe key actors, a group that includes the prime minister, the Cabinet, and officials in supporting agencies. But catch-phrases can obscure as much as they illuminate. Central institutions are concerned not just with expressing the will of first ministers, as is often presumed, but also with managing largescale, complex organizations. Complexity of the Centre Prime Ministers, their Cabinets, and associated committees embody political and executive authority in the Westminster system. They are supported directly by the Prime Minister’s Office (pmo) and the Privy Council Office (pco) and by several central agencies, departments, and units. The pmo provides political advice and support to the prime minister on the full range of issues of concern to the head of government and is staffed with political appointees. In contrast, the pco supports the prime minister in managing Cabinet and its committees, deals with a variety of horizontal issues that require attention and coordination at

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the centre (as opposed to being the responsibility of a lead operating department), and is staffed by public servants reporting to the clerk of the Privy Council and the secretary of the Cabinet.1 The pco advises the prime minister on managing the government’s agenda by coordinating the Speech from the Throne, transition planning, and ministerial and deputy ministerial planning retreats. It advises on the design and operation of the Cabinet decision-making system, the mandates of ministers, and the structure and functioning of the government generally as well as the appointment of deputy ministers and agency heads. The pco also advises the prime minister on federal-provincial-territorial relations, international relations, and security and intelligence matters. The clerk provides public service advice and support to the prime minister on the full range of issues confronting a government, coordinates horizontal initiatives, and advises on the appointment and performance of deputy ministers. The clerk is also head of the public service, advising the prime minister on the state of the public service and playing a key role in public sector reform initiatives. The two other most central institutions in the Canadian government are the Department of Finance and the Treasury Board Secretariat (tbs). Finance is responsible for advising on fiscal policy, tax policy, the macro-economy, the equalization regime (and other transfers to provinces and territories), and other strategic initiatives that affect the Canadian economy in the broadest sense. It works in support of its minister to set the budget framework for the entire government and plays an active, and often definitive, role on every major spending initiative. In recent years it has effectively controlled much of the larger policy agenda of the government as a whole. The tbs serves the Treasury Board, a statutory committee of Cabinet, and is responsible for expenditure and financial management, the overall quality of management in the public service, and, more recently, major crossgovernment management initiatives. Until the changes of 12 December 2003 it was also responsible for human resources management. Some departments coordinate activities across government. Examples include the Department of Justice, which controls legal strategy and provides legal advisory services across the public service, and the Department of Foreign Affairs (until 12 December 2003, Foreign Affairs and International Trade). Single-purpose secretariats are created to lead, oversee, or implement government priorities. Some, such as the Policy Research Secretariat, the Voluntary Sector Initiative, and the Leadership Network, are located in central agencies; others, such as the Climate Change Secretariat, have been legally and physically outside them.

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Each of these central institutions, and their specific program areas, can be thought of as nodes anchoring different central administrative networks across the public service, with varying degrees of status, resources, and priority for the government of the day.2 In short, “the centre” is a complex phenomenon, encompassing a variety of actors, some working under the direction of the prime minister and others acting indirectly in support of the prime minister and Cabinet. Often they function as countervails to each other, and some, depending on the issue and era, may have considerably more expertise and power than the others. Making sense of this complexity is not just a theoretical issue for academic observers: it is a crucial, practical challenge for prime ministers who must strategically organize and animate Cabinet and the public service to achieve government priorities in the face of a bewildering number of issues, claims, and unforeseen events. Striking an Appropriate Balance: Political Power and Organizational Structures Much has been made in recent years of the “prerogative” powers that belong to Canadian prime ministers. These include appointing ministers, deputy ministers, and other full-time Governor-in-Council appointees; appointing parliamentary secretaries; approving the membership of the government caucus on the standing committees of the House of Commons and the Senate; determining the Cabinet decision-making system; and, advising the governor general on the dissolution of Parliament and the calling of elections.3 Moreover, as compared to the United Kingdom, the rules governing parties in Canada lessen the risk for prime ministers of caucus revolts. Donald Savoie has argued that Ottawa’s modern decision-making process has steadily centralized power in the hands of the previous prime minister, who is said to have bypassed collegial decision making and to have governed by “bolts of electricity.” According to Savoie, the centre under Prime Minister Chrétien operated as an “early warning system for the Prime Minister, anticipating and managing political crises, and pursuing prime ministerial priorities” – and he asks whether or not Cabinet and its committees functioned as little more than “focus groups” to advance a few priorities of the prime minister or to identify new ones.4 However, many pressures and countervailing forces can limit the power of prime ministers: the minister of finance’s traditional autonomy in crafting budgets, the claims of provincial and territorial governments, the regional dimensions of the country, unanticipated crises,

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the need to address symbolic politics, and the extraordinary pressures of time.5 These are centrifugal forces, which tend to pull a government apart. Balancing them requires centripetal leadership and policy coherence from the prime minister and the central institutions of government. As James Mitchell has observed: the centre has an interest in every policy issue, with the result that issues tend naturally to be drawn in to the centre. When the two forces [the centrifugal and centripetal] are in proper balance, government works well – the centre works from the assumption that issues belong in the first instance to ministers, but ministers respect the interest of the centre and the right of the Prime Minister to become involved or to shape policy as he or she sees necessary to ensure the success of the government’s agenda and the survival of the government itself. When these two forces are not in proper balance, it is the result of either of two circumstances: a) the centre can be too weak, with the result that too much is done by ministers acting without proper heed to the interests and direction of the government as a whole, or b) the centre may be too strong, with the result that too many issues are managed from the centre, the Prime Minister becomes overloaded, and the government does not benefit from the ideas and energies of the line ministries.6

What constitutes the appropriate balance between the centre and the rest of the government is highly contextual, depending on current policy challenges, the state of federalism, the policy capacity of operating departments and state of the public service, and the leadership style of the prime minister. Because no prime minister can possibly keep on top of all issues, the power to structure processes and to make key appointments is essential for maintaining control and coherence in the government. A key challenge for any prime minister, therefore, is how to design central capabilities and how to delegate the authority necessary to effectively implement the government’s agenda. In addition to balancing centripetal and centrifugal forces, prime ministers must address the challenge of organizational balance: whether the structure, managerial style, and programs delivered by the public service will fit the changing priorities of the government. Organizational imbalance can arise from rapidly changing external circumstances or from personnel and managerial practices that do not anticipate new demands. Organizational imbalance can reflect insufficient oversight from ministers and public service executives, and legacies of institutional change no longer matching substantive and symbolic needs.7 Such imbalance can be subtle or it can arise suddenly, posing a major challenge to government efficacy and requiring the redesign of Cabinet decision making and public service structures, including central agencies.8

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When there is a significant gap between the challenges confronting a government and its organizational capacities, the prime minister should intervene. Possible solutions range from improving high-level leadership, to recalibrating policy, to instituting deeper administrative reform. Options include: • •

•

•

appointing new ministers with specific mandates; creating new decision-making procedures or structures for ministers; creating or re-mandating central agencies or operating departments; and rethinking, on a wholesale basis, the structure of government.

As the magnitude of reform increases, the matters of timing and sequencing become more important.9 Prime ministers must decide whether to address fundamental administrative reform as a legacy to a successor government or to leave such initiatives as a transition task for the next government. If the latter is chosen, then a new government must determine whether to expend precious ministerial time and executive attention to implement an administrative restructuring that is likely to secure little political credit, cause considerable turmoil in the public service, and make more difficult the implementation of new policy initiatives. Such considerations suggest why political leaders tend to leave administrative reform largely in the hands of public service leaders. Successful reform needs a public service with the capacity and credibility to design and implement major change. However, major machinery change – which carries little political payoff – cannot proceed without strong prime ministerial support. The worst situation occurs when political leaders are disinterested and administrative leaders lack the authority and capacity to carry out needed reforms.10

patterns in reform in the modern public service Reshaping the centre to better serve the government of the day has been an important concern – and sometimes an intermittent preoccupation – of prime ministers and central agency officials throughout the modern era of the public service. Below, we provide a brief overview of how the centre has evolved during five “eras” over the past forty years, and we examine how this evolution was connected to the particular governance challenges and dispositions of successive prime ministers. Our purpose is to offer a broad perspective on the trajectory, rhythms, and lessons of past efforts to modify the central institutions of government.

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Pearson/Trudeau: Building the Modern Centre (1965–79) This era was marked by efforts to encourage a more systematic Cabinet decision-making system and by the rapid growth of the public service. Primer Minister Pearson began the modern Cabinet system with the creation of the Priorities and Planning Committee. Prime Minister Trudeau expanded the size and capabilities of the pmo, and ministers benefited from more systematic preparation of Cabinet documents to inform decision making.11 The greater demands and expectations on prime ministers in the 1960s, as well as the expanding reach of government, required an increase in pco’s size and capabilities. Small units were created to provide advice to the prime minister on foreign policy, security and intelligence, strategic planning, the economic and fiscal outlook, machinery of government, and senior appointments. In 1966 the Treasury Board Secretariat was established as a separate central agency, built around the budget office function from the Department of Finance, to support the Treasury Board in the oversight of expenditures and in personnel – particularly with the introduction of collective bargaining in the public service – and other dimensions of management in government. Many new expenditure initiatives, including shared-cost programs, were introduced, and their costs soon became apparent. The first energy crisis was followed by a minority government shared with the New Democratic Party (1972–74), leading to rapid growth in government expenditures, deficits, and inflation. In 1976, after the auditor general of Canada warned that “Parliament – and indeed the government – had lost or was close to losing effective control of the public purse,” Prime Minister Trudeau appointed the Royal (Lambert) Commission on Financial Management and Accountability. Clark/Trudeau/Turner: The Rise and Fall of pems (1979–84) The Lambert Commission and pco officials simultaneously explored how to reorganize the central institutions and processes of government with respect to expenditure management and personnel management. Before the Lambert Commission issued its final report (which called for improved planning and reporting to Parliament as well as two new central agencies, one for financial management and the other for personnel), the government created the Office of the Comptroller General (ocg) to develop financial and reporting standards and to promote effective program evaluation. The comptroller general reported directly to the president of the Treasury Board rather

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than through the secretary. On the policy front, in late 1978 the prime minister created the Board of Economic Development Ministers and a mirror committee of deputy ministers to coordinate policy across departments, not long after announcing a dramatic $1 billion cut in government expenditures.12 The pco’s challenge during this period was to improve government priority-setting, better manage within government-wide spending limits, and create incentives and systems for reallocating funds within and across departments. This led to the Policy and Expenditure Management System (pems) in 1979, which created new decision-making processes, new policy and operational reserves, and new central agencies – the Ministry of State for Economic Development and the Ministry of State for Social Development – to coordinate and support decision making.13 While pems responded to the problems of the late 1970s, it was also part of transition planning for a new government. The new system was adopted by the Clark government and was retained by Trudeau. pems was a complex method of linking priorities and resources, but it proved too unwieldy and too easy to circumvent. When Trudeau stepped down as prime minister in 1984, his successor, John Turner, eliminated the entire pems apparatus, a decision supported by ministers and public service executives alike. Mulroney/Campbell: Central Drift? (1984–93) The Mulroney government arrived in September 1984 committed to reducing the size and scope of government. The prime minister launched the Nielsen Task Force on Program Review in 1984 to eliminate, streamline, or deliver programs in new ways, but the task force petered out by 1986. Led largely by outsiders unfamiliar with the public sector and the constraints of politics, radical ideas for program change were floated publicly – and affected interests mobilized – before more measured options could be reviewed by the government. The review process took too long and results did not meet expectations. A more successful initiative in the early Mulroney years was Finance Minister Michael Wilson’s regularization of the budget consultation process built around a predictable annual cycle.14 The Mulroney government sought to direct a smaller, more business-like public service. It upgraded the stature and policy capacity of ministerial offices by installing chiefs of staff as countervails to senior public service executives. Little effort was made during the first mandate to reform government machinery, and no successor planning

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system to pems emerged; rather, reflecting his brokerage style of leadership, the prime minister created a sometimes unwieldy and highly personalized Cabinet system,15 and identified key individuals and units in the pmo, Federal-Provincial Relations Office, and Department of Finance to move forward key initiatives. The prime minister took more interest in the public service late in his second mandate within the context of a possible transition in 1993. Former clerk of the Privy Council, Gordon Osbaldeston, initiated a study on public service organization, and a senior minister, Robert de Cotret, headed up a small task force of senior officials to consider options for restructuring.16 Earlier, the clerk, Paul Tellier, had received the prime minister’s authorization to launch Public Service 2000, a deputy minister-driven initiative to articulate new values, leadership, and administrative practices for the public service. Together, these initiatives reflected mounting concern about the sustainability of the government’s fiscal framework and the need for public service restructuring in anticipation of overdue policy and fiscal rationalization. They informed transition planning for a new era of governance. Moreover, there was increasing public support for “leaner,” more fiscally responsible government, following high-profile initiatives in Alberta and Ontario. When Prime Minister Kim Campbell took office on 25 June 1993, she announced a smaller Cabinet, much larger ministerial portfolios, and a wholesale restructuring of the government. A special team working under the aegis of the clerk, Glen Shortliffe, was established in the pco to drive this complex, multi-phase undertaking – one of the largest in the history of the federal government – which merged several departments, reoriented others, and affected nearly half of the public service. Central agencies were not untouched: the ocg was folded into the tbs, with the secretary of the Treasury Board assuming the additional reporting responsibility; and the fpro was incorporated into the pco. Chrétien: From Program Review to Public Service Modernization (1993–2003) After Prime Minister Chrétien took office in October 1993, with his government’s slogan of “Getting Government Right,” relatively minor changes were made to the machinery of government, save for the decision to scrap the nascent public security department.17 Affected departments and agencies continued to digest the extensive changes announced a few months earlier.

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Fiscal responsibility had not been a centrepiece of the Liberal campaign, but growing deficits and debt payments (then about 30 percent of federal outlays) soon made cutting government costs a priority.18 Following extensive consultations in the first budget, the Liberals launched the program review process: ministers and departments submitted three-year expenditure reduction plans (anywhere from 17 percent to 50 percent) consistent with targets set by the minister of finance, which were vetted by committees of ministers and deputies, coordinated by a special secretariat in the pco, and informed by “perspectives” submitted by finance and tbs. The February 1995 budget announced significant program eliminations and downsizing as well as major workforce reductions. These initiatives involved considerable turmoil for public service institutions, and many seasoned executives and other experienced public servants left government during the mid-1990s, at substantial cost to taxpayers. Following the program review, there emerged an appetite for new policy directions at the political level, particularly, efforts to show federal presence in regions and in key policy domains, and efforts to remedy program gaps. The clerk, Jocelyne Bourgon, launched several deputy minister task forces, the Policy Research Initiative, and a renewal initiative for the public service known as La Relève. These steps, along with catch-up compensation increases for public servants, meant that program spending soon returned to pre-program review levels. The Chrétien government did not restructure ministerial portfolios, but it did create several service agencies – the Canada Customs and Revenue Agency, the Canadian Food Inspection Agency, and Parks Canada – which transferred over 40,000 public servants outside the core public service. The central contours of government remained intact. However, in June 1997 the prime minister designated the Treasury Board as the government’s “management board,” a concept that was vague at the time.19 This nevertheless marked the beginning of several government-wide initiatives on the management side, including Modern Comptrollership, Program Integrity, Results for Canadians, and Government Online.20 The Chrétien government also launched task forces on labour-management relations and modernizing human resources management, which led to legislation – the Public Service Modernization Act – in early 2003 that altered the merit and staffing system, the collective bargaining and appeals regime, realigned some tbs and Public Service Commission (psc) responsibilities, and merged the Canadian Centre for Management Development and Training and Development Canada into a new Canada School for Public Service. Towards the end of this period, several high-profile scan-

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dals touched ministers and senior executives, leading to public and parliamentary questioning of the ethics regime for ministers and concern about the competence of executives. We discuss these developments in detail below. Thirty Years of Central Reform: Observations and Lessons The “centre” in Ottawa was constructed in the 1960s to guide and manage a rapidly growing array of federal programs. The centre itself grew in size and complexity at the political and bureaucratic levels, despite efforts to reduce the size of government by Prime Ministers Turner and Campbell in 1984 and 1993, respectively. During the 1990s the Liberal government temporarily moved towards a smaller core public service that, at least in some ways, worked differently than what had preceded it. This did not necessarily imply a smaller role in society for the government, and it involved experimenting with new service delivery models (such as special operating agencies, service agencies, partnerships, and independent foundations). The debates – now abated – over constitutional reform and Quebec sovereignty, and previously over free trade and other international issues, meant that successive prime ministers were highly attentive to federal-provincial relations and to international facets of public policy and governance. The centre was expanded to engage on these issues. Prime ministers typically institute Cabinet reforms at the beginning of mandates. These are highly symbolic and strategic moments. More limited machinery changes in certain sectors tend to be announced mid-mandate to advance specific priorities. Perhaps reflecting greater familiarity with the public service and some interest in ensuring continuity, wholesale organizational reforms are usually announced towards the end of mandates, with responsibility for identifying options and implementation typically delegated to the pco, working with other central agencies. There are two reasons for this. First, no matter how wise or overdue the reforms, prime ministers have not been rewarded in electoral terms for such changes because announcements of this sort do not retain the interest of the media, are not well understood by the public, and form a very small element of the voter’s calculus. Second, public service leaders accept this timing to maintain a role in managing change and to incorporate machinery planning as part of the larger process of transition planning for a new government. Some argue that central institutions have avoided reform, pointing in particular to the June 1993 restructuring.21 However, the Ministries of State for Economic Development and Social Development were created and dissolved; the ocg and fpro were, respectively, put into the

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tbs and the pco in 1993; and the Office of Privatization and Regulatory Affairs was moved in stages into the tbs in the late 1980s. Prime ministers have reshaped many central institutions in response to new challenges. Horizontal initiatives requiring the attention of the prime minister and the government as a whole have led to reliance on ad hoc Cabinet committees and/or the use of small secretariats inside or just outside the pco (e.g., on public service renewal, climate change, the voluntary sector, biotechnology, and policy research).22 This approach creates smaller focal points, or “adhocracies,” that are easily disbanded, or absorbed by larger central agencies or departments, when ministers or executives sense that there is either too much clutter at the centre or that specific goals are better furthered through the larger organizations. It represents a shift from the more permanent approach associated with pems, where standing Cabinet committees and new central agencies were established. The pco’s structure has remained essentially intact over the past forty years, but successive clerks exercised influence in different ways. For example, Jocelyne Bourgon saw deputy ministers more as a corporate resource and encouraged them to lead or to participate in task forces and committees. She gradually obtained more departmental participation in the strategic planning cycle – priority-setting, mandate planning, advising on Speeches from the Throne, and input to budgets – even though the prime minister and minister of finance retained their pivotal positions.23 The Department of Finance today retains its traditional role. There have been modest changes in its structure, and it continues to flex its institutional muscle on substantive policy files that the minister and senior executives view as crucial for managing the economy and national finances. The tbs has changed the most: after several reorganizations, it has seen a diminished role in budget allocation and steady contraction of “pre-transaction” approvals of expenditures, staffing, and organizational structures for new programs. During this period, the tbs concentrated on developing frameworks for management improvement, reporting, and accountability, and providing government-wide leadership on horizontal issues.24 Despite many new central frameworks and expectations about how better to lead and manage operating departments, the central capacity to provide oversight diminished over the decades. There were episodic attempts at reviewing programs: the Nielsen Task Force, Mulroney’s Expenditure Review Committee, the successful program review in 1995, and, most recently, the $1 billion reallocation exercise led by Treasury Board president Lucienne Robillard and Minister of Finance John Manley. However, the expenditure management system adopted

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in 1995 presumed that ministers and departments would work within their respective allocations.25 While they could petition the prime minister, the minister of finance, and Cabinet colleagues for new resources to support an initiative, they were expected to reallocate from within their budgets. Even though the larger budget process has become more predictable, Ottawa has not – until recently – tended to rely on a systematic annual process to challenge and reallocate department budgets. Since the mid-1980s, the management ethos of the public service has emphasized character, values, collegiality, and learning. This values-based and collaborative approach has been largely supported by deputy ministers. Moreover, internal audit capabilities dwindled following the program review and the growing focus on performance or results reporting, which was complemented by central agencies less inclined to perform traditional audit and control roles.26 As a result, poorly designed or managed programs were less likely to be dealt with outside the public eye, but action would quickly occur if matters were brought to the attention of the media and the auditor general of Canada. The tbs may have promulgated frameworks on managerial excellence, but it was regularly on the defensive, trying to explain, on behalf of the government, how it would remedy poor management practices in departments and agencies.

preparing for a new mandate: challenges for the centre As occurs with any transfer of power, as the Martin transition team prepared to take up the reins of office, there was no shortage of challenges.27 Here we identify three particular sets of challenges – policy and resource pressures, restoring confidence in the Public Service, and engaging Parliament – and explore how they created significant momentum for strengthening the central capabilities of the government and its public service. Policy Challenges, Resource Pressures At the other chapters in this volume show, there are myriad policy challenges confronting the country today: participating in international and domestic security, rebuilding defence capabilities, managing trade issues and improving competitiveness, fostering innovation, addressing regional and social disparities, dealing with the living conditions of First Nations communities and governance, improving urban infrastructure, and implementing the Kyoto Accord. This list

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could easily be extended. Many of these issues are priorities for the Liberal party under Paul Martin,28 and they would have to be dealt with by any government because they are high on the public agenda. Addressing these issues has several implications for central capabilities. First, virtually all of them cut across the mandates of individual departments and agencies, and call for a government-wide perspective on policy design and implementation. Second, many require the government to negotiate and collaborate with the provinces, territories, cities, and First Nations to align policies and financial resources; and these jurisdictions are demanding increased funding to play their part. Third, given these pressures to fund new programs and previous commitments, the government must find ways to reallocate funds within and across departments towards the highest priorities. Moreover, the government will want to demonstrate to federal ministers, other governments, and citizens that they are receiving high public value for federal programs. Finally, the government in 2004 will want to rekindle a sense of national purpose, to convince citizens and other governments that the federation functions in a fair manner, and to acknowledge that difficult choices must be made among priorities. Navigating these demands will require adroit leadership, communication, and coordination from the centre. Restoring Confidence in the Public Service In recent years, the reputation of the federal public service, internationally recognized for its excellence, has been called into question.29 A string of scandals has reinforced a growing public perception that the federal public service has become a comfortable pew, full of selfserving people who have lost sight of its traditions and are out of touch with the expectations and realities of Canadian citizens. There has also emerged a view that the government has not been effectively monitoring departments and taking corrective action where required. Too many instances of questionable management practices or outright misuse of funds appear not to have been dealt with until brought to the attention of the media and the auditor general. More generally, despite continuing budget surpluses, the scandals create the perception that the government has not been properly managing its resources and programs. Suddenly, the need to demonstrate good financial management has again become a political priority. During its last mandate the Chrétien government sought to introduce an ethics regime within government that would enjoy the confidence of Parliament and the public. The outgoing government introduced a new values and ethics code for public servants,30 but

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there was considerable public debate over how a new ethics regime for elected leaders should be structured and over the extent to which Parliament would be involved in developing guidelines, reviewing appointments, and monitoring the practices of those in positions of authority. Such a regime would have significant implications for reviewing financial and personal affairs of parliamentarians, an issue dealt with in more detail in Chapter 14 in this volume. Controversies over financial management, program management, oversight, and ethics create fertile ground for criticizing how the government went about reform during the last decade or more.31 While it would be unfair to attribute corruption and mismanagement to specific reforms, any incoming government would have to take stock of what has been accomplished, to identify gaps and deficiencies, and to design workable remedies. The emphasis on a values-based approach has apparently been insufficient to ensure adequate oversight and control, and a consensus was developing that more effort would be required from the centre to ensure integrity and quality in the operations of government.32 While few would seek a return to the days of pre-transaction approvals from the Treasury Board and the psc, before the arrival of the Martin government in December 2003 there were already calls for a dramatic strengthening of financial controls and increasing oversight by central agencies over the activities of operating departments and the performance of deputy ministers.33 Engaging Parliament The federal government is a large, complex entity. The media, the Opposition, and the auditor general remain important parts of our broader system of oversight, but there have been renewed calls for a stronger role for standing committees – a call that grew louder as a result of Paul Martin’s undertakings to the Liberal caucus while campaigning for the party leadership and the performance of the Standing Committee on Government Operations and Estimates during 2003 in dealing with the Office of the Privacy Commissioner and other matters. If standing committees are to play a larger role in the policy and legislative process, and are to better scrutinize the performance of the government, then they need more resources and improved access to information. However, they also need to demonstrate that they can effectively play a different, less partisan role. This is as much a matter of parliamentary culture and ethos as it is a matter of rules or resources. An expanded role for standing committees will undoubtedly put additional pressure on departments and agencies. A crucial challenge is

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to find ways to ensure that providing legitimate access to this information is reasonably efficient for departments and agencies, that privacy concerns are respected, and that Cabinet deliberations remain confidential. The requirement for increased transparency will impose greater obligations on ministers and deputy ministers to appear before standing committees and to provide information on managerial performance.34 On the one hand, this will create additional incentives for central agencies to function as an early warning system for the prime minister and other ministers; on the other hand, it suggests a need for the centre to increase its capabilities for more systematic internal challenge and review (as well as for the supply of useful information) to better prepare departments and agencies for deeper, and more regular, scrutiny by elected representatives. Remedying Imbalance: Implications for Reforming the Centre The combination of perceived inadequate capacity and the ambitious agenda of an incoming government determined to differentiate itself from the previous administration created a disequilibrium in the central machinery of government. In December 2003 the situation was ripe for change.35 Interestingly, the source of imbalance – at least at the political level – had more to do with perceptions about the capacity of the public service to deliver the government’s agenda than it did with the powers of the prime minister. A succession in prime ministers brings with it a broad public expectation to demonstrate meaningful change and embark on new policy directions, and to move beyond rhetoric to concrete actions. Moreover, a new prime minister chosen by a party must necessarily build momentum through governance in anticipation of securing a popular mandate from the electorate. These considerations – along with the need to define and implement a new policy agenda, the desire to restore public confidence in the conduct of ministers and the public service, and the promise to strengthen the role of Parliament – put considerable pressure on the new prime minister to act quickly and decisively. It augured for a centripetal or centralizing dynamic in the short term and raised the possibility of significant organizational change not only in the public service but also in the central institutions of government.

recent reforms of ottawa’s centre From November 2003 to late March 2004 several dramatic reforms were announced by Liberal governments altering the structure and the responsibilities of central institutions. We include here the Public

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Service Modernization Act, one of the last pieces of legislation adopted by the Chrétien government, because most of its provisions were not planned to take place until 2004 and early 2005. The most important of the Martin machinery changes and associated reforms were introduced as part of the swearing in his of new Cabinet and, later, in the March 2004 budget. The Public Service Modernization Act Flowing from a commitment made in the 30 January 2001 Speech from the Throne, the Chrétien government introduced the Public Service Modernization Act (psma)into Parliament in February 2003. It was passed by the Senate on 4 November 2003. The legislation was informed by the work of the Advisory Committee on Labour-Management Relations in the Federal Public Service and the Task Force on Modernizing Human Resources Management in the Public Service.36 Much could be written about the particulars of this wide-ranging act, which amends or establishes four other acts, but here we focus on the implications for the central machinery of government. The main purpose of the psma was to streamline recruitment, hiring, and promotion in the public service and to shift the role of the Public Service Commission away from human resources management and services and towards the protection of merit. These changes came in response to growing concern inside and outside the government about the need to strengthen the human resources management system without relinquishing a strong commitment to the merit principle.37 The merit principle was broadened to embrace “essential qualifications” to allow departments to meet multiple considerations when hiring and promoting staff, such as the ability to work in teams and enhancing diversity. The responsibility for delivering languagetraining programs was taken away from the psc and transferred to the new Public Service Human Resources Management Agency. While the psc will still review external appointments, provision was made for more extensive delegation to deputy ministers and managers in the area of staffing (though the psc retains authority), giving them responsibility for learning, recognition, discipline, demotion, and termination of staff. It was also understood that the psc would strengthen its audit role following the auditor general’s report on the Office of the Privacy Commissioner,38 further buttressed with the appointment of a former assistant auditor general as the president of the Public Service Commission. The Treasury Board will retain authority for staffing standards, qualifications, developmental programs, and deployments, among other things.

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The psma seeks to put labour-management relations for the public service on new footing, attempting to make it more cooperative, efficient, and oriented to the public interest by relying more on adjudication, mediation, and consultation. The act creates two new institutions – the Public Service Labour Relations Board and the Public Service Staffing Tribunal – and authorizes two-tier collective bargaining and labour-management consultation committees in every department. It reestablished a central capability for compensation research and analysis, which had been dissolved more than a decade earlier. The psma establishes a substantial central capability for learning. The new Canada School of Public Service is being formed by combining the Canadian Centre for Management Development, Training and Development Canada, and Language Training Canada. This merges Ottawa-based and regional learning and training capabilities for executives and managers across the country. It also furthers the commitment of the government to implementing its Learning Policy for departments and public servants – a policy that was adopted by the Treasury Board in 2002.39 Among other things, the new school will provide single-window service for executive and management learning and development services, including e-learning. Changes in the Central Machinery of Government Paul Martin was sworn in as prime minister on 12 December 2003. The prime minister used the occasion and the next several days to announce not only the structure of his new Cabinet but also the creation of several new departments, the restructuring of central agencies, and other initiatives.40 As Chapter 1 has shown, his principal themes on taking office were democratic reform, changes to government, ethical conduct, and stronger financial management and accountability. The new Cabinet system is composed of committees on priorities and planning, operations, Treasury Board, expenditure review, domestic affairs, Aboriginal affairs, Canada-us relations, global affairs, and, finally, security, public health, and emergencies. The prime minister indicated that he would chair the Priorities and Planning, Global, Canada-us and Aboriginal Affairs Committees. Several new departments and agencies were created: the Department of Public Safety and Emergency Preparedness was created by attaching new responsibilities to the former Solicitor General’s Department;41 Human Resources Development Canada was split into two departments – the Department of Human Resources and Skills Development, and the Department of Social Development; a new Public Service Human Resources Agency was cre-

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ated, as was a new service agency for border services; and the Coast Guard became a special operating agency in the Department of Fisheries and Oceans. A new Public Health Agency was promised. The prime minister appointed parliamentary secretaries for science and small business; the new deal; Canada-us relations (secretaries were sworn in as privy councillors to allow their participation in Cabinet meetings) and ministers of state for infrastructure; new and emerging markets; public health; and children and youth. He appointed national advisors on national security, national science, Aboriginal affairs, and foreign policy. The leader of the government in the House of Commons was also appointed as minister for democratic reform, and all ministers were required to have staff positions specifically to liaise with Parliament. Several task forces and reviews were launched on seniors, foreign affairs, and refugee determination. In short, the arrival of the Martin government brought major changes to machinery in almost every sector of government activity, but especially at the centre. The focus of this chapter is on central machinery, and several pertinent and significant announcements have been made since 12 December 2003. First, while the Treasury Board was retained as a committee of Cabinet, the tbs was dramatically restructured in order to build capacity to support the Expenditure Review Committee and to focus on comptrollership and financial management. The prime minister announced that a separate Office of the Comptroller General would be re-established in the tbs, with the authority to attest to the expenditure components of policy proposals to be considered by Cabinet and Cabinet committees, to advise on who is appointed to comptroller positions in departments and agencies, and to work closely with them. The Management Accountability Framework recently adopted by the outgoing prime minister and the Treasury Board was endorsed as the primary vehicle for holding ministers and deputy ministers to account. Appointing Reg Alcock as president of the Treasury Board and chair of the Expenditure Review Committee sent a powerful message. Alcock had chaired the Standing Committee on Government Operations and Estimates that had aggressively pursued officials and ministers in the Chrétien government on several issues of probity and mismanagement. His appointment affirmed the centrality of the tbs in a new era of accountability. This new tbs focus on financial stewardship and expenditure management was accompanied by the creation of a separate Public Service Human Resources Agency (pshra), which will coordinate implementation of many facets of the Public Service Modernization Act as well as deal with issues of organization and classification, policy and planning, and responsibility for the leadership network, employment equity,

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official languages, and values and ethics functions. However, several key human resources responsibilities (notably responsibility for collective bargaining) will stay with the tbs, presumably because of their implications for financial stewardship.42 Other concurrent changes to the tbs included the transfer of the Government Online initiative to Public Works and Government Services, even though the tbs retains the Chief Information Office (which is to monitor and challenge departmental information management spending, including Government Online activities). As noted, the pco has added several national advisors and secretariats to its responsibilities. The prime minister indicated that the Aboriginal Secretariat, Cities Secretariat, and Canada-us Secretariat would be located there, along with the advisors on national security, national science, Aboriginal affairs, and foreign policy. The pshra will report to the president of the Queen’s Privy Council, along with the Canada School for Public Service, but both are institutionally independent from the pco. Other initiatives included introducing a new ethics regime for parliamentarians and measures to increase the relevance of Parliament, which we can only broach in this chapter. The prime minister indicated that the government would quickly issue a revised Guide for Ministers and Ministers of State (which would also apply to deputy ministers),a Conflict of Interest and Post-Employment Code for Public Office Holders,43 and require more transparency for travel and other expenditures. He also promised that his government would reintroduce legislation to create ethics commissioners for the House of Commons (ethics commissioner) and the Senate (ethics officer) in addition to the Office of Ethics Counsellor, which reports directly to the prime minister. He also committed to allowing more free votes, ensuring that standing committees have a greater role in the policy and legislative process (along with more resources), and allowing standing committees to vet appointments for Crown agency heads and possibly other categories of appointments, including those to the Supreme Court of Canada. As we discuss later, all these changes will have implications for central agencies. The 23 March 2004 Budget and Other Announcements On 30 December 2003, as a precursor to the budget, the government announced a freeze on capital projects, reclassifications, and the size of the public service, and ordered a review of all expenditures to be completed before 31 March 2004. The prime minister canvassed public service executives for policy ideas to support his agenda.44 On 23 March 2004, the minister of finance, Ralph Goodale, presented his

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first budget, soon followed, as is traditional, by more details on the expenditure budget by the president of the Treasury Board, Reg Alcock. In broad terms, the budget confirmed, as Chapter 1 has shown, that the Martin government would adopt a prudent budgeting posture, would place increased emphasis on accountability and financial management, and would tightly scrutinize current expenditures. The budget re-announced the recreation the Office of the Comptroller General, which would ensure “professionally certified” comptrollers in each department.45 But the budget, and particularly the documents Responsible and Prudent Financial Management and Strengthening Public Sector Management, outlined more details of a new expenditure management regime. The government has indicated that it will: •

•

•

•

•

•

•

target $1 billion per year for reallocation from existing expenditures and programs to meet new commitments, continuing with the reallocations identified in the fiscal year leading to the 2003–04 budget, which included the more recent 10 percent cut in professional services contracts for departments, a cap on the number of employees in the public service, and deferral of several Crown projects;46 request the new Expenditure Review Committee (erc) to launch reviews of the thirty largest departments, as well as government-wide policy and program reviews and operations reviews to ensure value for money, to identify reallocation opportunities, and to effect better ways to deliver programs;47 strengthen the internal audit function, disclose all government contracts over $10,000, implement new governance rules for Crown corporations and special audits by the auditor general to take place every five years, and require risk analysis profiles of each departments and agency to be approved by the tbs;48 introduce single, government-wide financial and human resources information systems, requiring further consolidation of existing systems; launch reviews of the Financial Administration Act, the governance capacity and reporting of Crown corporations, and the accountabilities and responsibilities of ministers and public service executives to be completed by early fall 2004; improve capabilities in the areas of financial management, internal audit, procurement and contracting, and information systems by identifying core learning requirements, special standards, and training programs. This is all to be done in close cooperation with the new Canada School of Public Service; and submit an annual, comprehensive report on the public service and its management to Parliament, and engage mp s in a review process.

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Other relevant undertakings were not part of the budget announcements. The government indicated that it would include House of Commons standing committees in the review of appointments to federal organizations. Among the possibilities floated in the media were vetting appointments to the Immigration and Refugee Board, Crown corporations, Supreme Court nominees, and Senate appointments.49 The prime minister said he might countenance Senate reform more generally, but only with provincial consent.50 Whistleblower legislation was introduced to create a public integrity commissioner to review complaints and allegations of wrongdoing within government institutions. The commissioner would report to a minister – the president of the Privy Council. The legislation covers all employees in the larger federal public sector (not just the core public service), except ministerial staff or those working on national security.51

martin’s central reforms: is the new balance sustainable? Our historical review suggests that many ideas animating the Martin reforms have existed for some time, particularly those relating to strengthening financial and program management and oversight. Most have been hotly debated inside the public service. Given the balance of interests between the centre and line departments, and the well known transitional costs of structural changes, a decision to make such changes had to await a clear and present political danger. This was provided by the sponsorship affair. The central reforms announced by the Martin government are the most substantial changes to the centre of government since the late 1970s. Like any large-scale restructuring, there will be adjustments and rethinking of these plans, and several decisions about reporting relationships and the internal structure of agencies have yet to be resolved. This chapter has focused on the notion of “imbalance,” and many observers have noted there are fashions, swings, and over-compensations in reforms.52 Fully addressing one set of priorities inevitably creates different challenges. In this final section, we comment on a number strategic issues that have emerged from our review and that have particular relevance to the management and sequencing of reform. First, restructuring the tbs by carving out most of the human resources management responsibilities and assigning them to a new pshra hearkens back to the Lambert Commission recommendation to create distinct central agencies for financial and personnel management, with both reporting to the Treasury Board. While the tbs is to be focused on financial management, creating another agency un-

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avoidably increases the central clutter in human resources management, leading us to wonder if there will be further rationalization of the human resource management function. Second, the justifications for re-establishing the ocg in the tbs are similar to the reasons given for merging the ocg with the tbs in the June 1993 restructuring: to better connect the ocg mandate with tbs responsibilities. By the late 1980s, there was concern that the ocg, despite reporting directly to the Treasury Board, had insufficient influence. The 1993 integration with the tbs has since been interpreted as diminishing the comptrollership function at the centre. Despite the ambitions of the recent announcements, the key question is what specific steps will be taken to insert ocg perspectives, other than simple costing, into Treasury Board and government decision making, given the many other pressures at play. Third, the Martin Cabinet system has some remarkable similarities to that of the Mulroney government, which also had committees on priorities and planning, operations, and expenditure review, and which made considerable use of ad hoc committees and subcommittees. However, the Mulroney Cabinet system proved unwieldy in the end, and the Expenditure Review Committee process was not sustained. It is unlikely that the prime minister will have sufficient time and energy to animate all facets of this Cabinet system over the course of a mandate. It would seem more likely that the current array of committees is an interim step towards a system that will be further changed after the next election. Fourth, the current heightened focus on comptrollership and financial management should constrain departments and managers, and lead to more prudence. However, the latest reforms will inevitably come to be seen as “unproductive,” similar to the ex ante controls that the Treasury Board used to guide programs and their managers before the mid-1980s.53 While scrutinizing expenditure proposals and performance is not the same as second-guessing organizational structure and line-item budgets from departments, it could have the same effect. Moreover, in the short to medium term, officials will spend a disproportionate amount of their time on control activities and paper management, and far less energy on policy ideas or on service and managerial innovation. Indeed, the latest reforms reflect the ascendancy of the central capabilities and administrative networks associated with the control functions, at the expense of tbs program sectors and more policy-inclined units in the pco and departments. Fifth, the Martin reforms call for more scrutiny of ministers and their departments by parliamentary committees, the media, and citizens. This will create additional incentives for the pmo, the pco, and

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the tbs to monitor and stay on top of all that goes on, and generate pressures to further increase central capacities and resources. Tensions will arise as observers see central institutions and their budgets increase in size. Sixth, there will be continuing debate about the power of the prime minister. Interestingly, despite the widely accepted thesis that Prime Minister Chrétien exercised too much power, by spring 2004 many observers seemed less concerned about Prime Minister Martin acquiring similar authority, although it was suggested recently that he must use power to give up power in order to decrease the democratic deficit.54 However, the accretion and utilization of prime ministerial power is only one dimension. It will be interesting to see whether central agencies and standing committees are given more scope to challenge departments and agencies. One can imagine greater external challenge of departments from standing committees, more powerful central agencies, and more public service executives diverting time towards accountability. At the same time, Prime Minister Martin has implied that he will be more proactive than his predecessor in personally overseeing a host of policy files. Seventh, the decisions to strengthen the budget office, financial management, and department review functions of the tbs are overdue and constitute an important supplement to the values-driven approach that has predominated for the last decade or more. However, there will unlikely be little, if any, political glow for central machinery changes: citizens assume such capabilities ought to be insinuated into government.55 It is also a precarious time to implement such changes and to launch numerous reviews of programs, policies, and operations. In early 2004 the government was just emerging from a transition and its first budget, and was beginning preparations for an election. The timing of the psma reforms fits with historical patterns, but the myriad reviews and strong focus on comptrollership as a transition and preelection strategy seems risky, particularly since defining a compelling policy platform will be considered by most ministers and Liberal candidates to be a more important task. Moreover, the erc reviews are numerous and will intersect in many ways, raising the prospect that, unless the process is well managed, ideas and leaks might put the government on the defensive, as occurred with the Nielsen Task Force on Program Review. Eighth, taken altogether, these observations raise the question of the sustainability of significant ministerial involvement in the comptrollership and financial management reforms. In Strengthening Public Sector Management, the government curiously argues that the erc process is not a “Program Review iii” – a comment that was not likely directed to

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citizens; rather, it was probably a message to public servants that the erc would not be a target-driven expenditure-cutting exercise like the first program review and would, instead, focus on value-for-money as well as on increasing efficiency and innovation. Our concern is quite different: we wonder if the government is aware of the time demands that a properly functioning erc will place on ministers in every budget cycle, and how it will deal with potential rivalry between the Treasury Board and other Cabinet committees. The time was ripe for a periodic, once-per-decade emergency effort to change the trajectory and oversight of programs, and the Martin government has committed considerable political capital, bureaucratic energy, and ministerial time to “get government right” for the foreseeable future. However, history suggests that, without a change in the culture of Cabinet decision making and a significant increase in ministerial time allocated to the review function every year, achieving this new balance will be difficult to sustain.

notes 1 While the pco is technically a “department” for the purposes of the Financial Administration Act and other administrative statutes, it differs from a normal department in that there is no departmental statute setting out the powers of the minister (i.e., the prime minister) who heads it; nor has the pco any programs or other similar departmental functions. It is best described as a small agency that provides public service support to the prime minister as head of government and chair of Cabinet. 2 Evert A. Lindquist, “New Agendas for Research on Policy Communities: Policy Analysis, Administration, and Governance,” in Policy Studies in Canada: The State of the Art, ed. L. Dobuzinskis, M. Howlett, and D. Laycock, 219–41 (Toronto: University of Toronto Press, 1996). 3 For two perspectives, see Donald J. Savoie, Governing From the Centre: The Concentration of Power in Canadian Politics (Toronto: University of Toronto Press, 1999); and Herman Bakvis, “Prime Minister and Cabinet in Canada: An Autocracy in Need of Reform?” Journal of Canadian Studies 20 (Winter 2001): 60–79. 4 See Savoie, Governing From the Centre, 339. However, decision making in well managed organizations often appears similar to rolling focus groups. For an alternative view on these questions from a comparative perspective, see Patrick Weller, “Cabinet Government: An elusive Ideal?” Public Administration 81, 4 (2003): 701–22. 5 See Bakvis, “Prime Minister and Cabinet in Canada”; and Paul G. Thomas, “Governing from the Centre: Reconceptualizing the Role of the pm and Cabinet,” Policy Options 15 (December 2003 – January 2004): 79–85.

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342 Renewing Governance 6 See James R. Mitchell, “The Role of Central Agencies in Building Policy Coherence,” notes for remarks to Commonwealth senior officials, Ottawa, 26 June 1997. 7 A cynical view would see creating small secretariats inside and outside the major central agencies as symbolic politics in an organizational context, designed to disarm critics and buffer the core priorities and decision-making processes of governments. See John W. Meyer and Brian Rowan, “Institutionalized Organizations: Formal Structure as Myth and Ceremony,” American Journal of Sociology 83 (1977): 340–63. 8 In effect, this was what happened with the February 2004 release of the auditor general’s report on the sponsorship program. 9 Ian D. Clark, “Distant Reflections on Public Service Reform in the 1990s,” in Public Service Reform: Progress, Setbacks and Challenges, Office of the Auditor General, ed., 123–54 (Ottawa: Office of the Auditor General of Canada, February 2001). 10 Evert A. Lindquist, “Reconceiving the Center: Leadership, Strategic Review and Coherence in Public Sector Reform,” in Government of the Future, ed. oecd (Paris: oecd, 2000), 158. 11 Richard French, How Ottawa Decides (Toronto: Lorimer, 1980). 12 See French, ibid., for a detailed review of these developments. 13 msed later became the Ministry of State for Economic and Regional Development as part of the January 1982 reorganization that created the Department of Regional Industrial Expansion and moved the trade function to the Department of External Affairs. In a later evolution of the system, a third such central capability was created for issues in the international domain, which were coordinated by a secretariat in the Department of External Affairs. 14 Seymour V. Wilson, “What Legacy? The Neilsen Task Force Program Review” in How Ottawa Spends 1988/89: The Conservatives Heading into the Stretch, ed. Katherine A. Graham, 222–46 (Ottawa: Carleton University Press, 1988); and Evert A. Lindquist, “Citizens, Experts and Budgets: Assessing Ottawa’s Emerging Budget Process,” in How Ottawa Spends, 1994– 95: Making Change, ed. S.D. Phillips, 91–128 (Ottawa: Carleton University Press, 1994). 15 Peter Aucoin, “Organizational Change in the Canadian Machinery of Government: From Rational to Brokerage Politics,” Canadian Journal of Political Science 19, 1 (1986): 3–27; and Joanne Kelly, “Managing the Politics of Expenditure Control: Cabinet Committees in Australia and Canada (1975 to 1999)” (PhD diss., Griffith University, 2000). 16 See Gordon F. Osbaldeston, Organizing to Govern. 2 vols. (Toronto: McGrawHill, 1992); and Peter Aucoin, “Introduction: Restructuring the Canadian Government,” in Restructuring the Canadian Government, ed. Peter Aucoin, 1–15 (Ottawa: Canadian Centre for Management Development, 1998).

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343 Reshaping Ottawa’s Centre of Government 17 Chrétien’s first Cabinet had one fewer minister than did Campbell’s. The bureaucratic thinking that underpinned the Campbell reorganization was, to a large extent, mirrored by the work of the political transition team working for the Chrétien Liberals. 18 Edward Greenspon and Anthony Wilson-Smith, Double Vision: The Inside Story of the Liberals in Power (Toronto: Doubleday, 1996); and Lindquist, “Citizens, Experts and Budgets.” 19 The Treasury Board’s March 2000 document, Results for Canadians: A Management Framework for the Government of Canada, describes the management board role as “focused on helping departments and agencies to improve management practices across the system.” The tbs Departmental Performance Report for the year ending March 1999 states that this role is “to provide advice to the government on how its resources should be managed, and to ensure that Parliament and Canadians have the information they need to hold the government to account.” Interestingly, the term “management board” was not invoked on the departmental Web site to describe the Treasury Board and tbs roles in the 2003 description of mandate and mission. 20 For more detail, see Evert A. Lindquist, “On the Cutting Edge: Program Review, Government Restructuring, and the Treasury Board of Canada,” in How Ottawa Spends, 1996–97: Living Under the Knife, ed. Gene Swimmer, 205–52 (Ottawa: Carleton University Press, 1996b); Evan H. Potter, “Treasury Board as a Management Board: The Re-Invention of a Central Agency,” in How Ottawa Spends, 2000–01: Past Imperfect, Future Tense, ed. Leslie A. Pal, 95–129 (Toronto: Oxford University Press, 2000); Joanne Kelly, “The Pursuit of an Elusive Ideal: Spending Review and Reallocation under the Chrétien Government,” in How Ottawa Spends, 2003–2004: Regime Change and Policy Shift, ed. G. Bruce Doern, 118–33 (Toronto: Oxford University Press, 2003); and Joanne Kelly and Evert Lindquist, “Metamorphosis in Kafka’s Castle: the Changing Balance of Power among the Central Budget Agencies of Canada,” in Controlling Public Expenditure: The Changing Roles of Central Budget Agencies – Better Guardians? ed. John Wanna, Lotte Jensen, and Jouke de Vries, 85–105 (Cheltenham, uk: Edward Elgard, 2003); and Office of the Auditor General, “Managing Government: A Study of the Role of the Treasury Board and Its Secretariat,” chap. 7 in Report of the Auditor General of Canada to the House of Commons, March 2004 (Ottawa: Minister of Public Works and Government Services Canada, 2004). 21 Some observers have argued that the centre was not restructured in order to protect itself and to better serve as an instrument for the prime minister. See Savoie, Governing from the Centre, 336. 22 This has been accentuated under Prime Minister Martin, whose appointment of a number of special-purpose parliamentary secretaries in his portfolio has led to the creation of corresponding special-purpose units in the pco to support them.

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344 Renewing Governance 23 Donald J. Savoie, Governing From the Centre; D.J. Savoie, Breaking the Bargain: Public Servants, Ministers, and Parliament (Toronto: University of Toronto Press, 2003); and Evert A. Lindquist, “How Ottawa Plans: The Evolution of Strategic Planning,” in How Ottawa Spends, 2001–02: Power in Transition, ed. Leslie A. Pal, 61–93 (Toronto: Oxford University Press, 2001). 24 See Evert A. Lindquist, “Getting Results Right: Reforming Ottawa’s Estimates,” in How Ottawa Spends 1998–99: Balancing Act: The Post-Deficit Mandate, ed. Leslie A. Pal, 153–90 (Toronto: Oxford University Press, 1998); Potter, “Treasury Board as a Management Board”; Kelly, “The Pursuit of An Elusive Ideal”; and Kelly and Lindquist, “Metamorphosis in Kafka’s Castle.” 25 Sandra Cordon, “Federal Departments Give up $1 Billion for New spending Pledges,” Canadian Press, 29 September 2003, n.p. For a detailed account and analysis of the Expenditure Management System, see Joanne Kelly, “The Pursuit of An Elusive Ideal.” 26 Gordon F. Osbaldeston, Keeping Deputy Ministers Accountable (Toronto: McGraw-Hill, 1989). 27 See Donald Savoie, ed., Taking Power: Managing Government Transitions (Toronto: Institute of Public Administration of Canada, 1993). 28 Office of the Prime Minister, Speech from the Throne to Open the Third Session of the Thirty-Seventh Parliament of Canada: February 2, 2004. Web site: . 29 See the examples identified in “Recent Breakdowns in the System” from Association of Public Service Financial Administrators, Checks and Balances: Rebalancing the Service and Control Features of the Government of Canada (GOC) Financial Control Framework (Ottawa: Association of Public Service Financial Administrators, December 2003). Available on-line at: ; Jeff Lee, “Owen Broke Federal Rules in Hiring Chief of Staff: Minister Violated Several Treasury Board Rules, Says Public Accounts Committee,” Vancouver Sun, 1 March 2004, 2; Auditor General of Canada, Report on the Office of the Privacy Commissioner of Canada (Ottawa: Public Works and Government Services Canada, 2003); and Daniel LeBlanc, “Auditor to Blast Chrétien Regime,” Globe and Mail, 18 October 2002, 2. The Auditor General expressed serious concern about the resolve and capabilities of the Public Service Commission and, to a lesser extent, the Treasury Board Secretariat in monitoring and correcting deficient practices. The recent hearings of the House of Commons Standing Committee on Government Operations and Estimates reveal worry by all parties about the quality of the public service and about bureaucratic malfeasance. 30 Treasury Board of Canada Secretariat, Values and Ethics Code for the Public Service (Ottawa: Minister of Public Works and Government Services, 2003). Available on-line at .

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345 Reshaping Ottawa’s Centre of Government 31 See, for example, Kathryn May, “Martin Enlists Aid of Reform Expert,” Ottawa Citizen, 27 February 2004, 1, who quotes Donald Savoie as saying, “New public management has been completely discredited, thank God”; and Kathryn May, “Spending Reforms Went ‘Too Far’ Report: Government’s Drive for Efficiency Meant Vital Checks and Balances Lost, Martin Warned,” Ottawa Citizen, 8 December 2003, 1. 32 For the latest update on efforts to improve modern comptrollership, an initiative dating back to 1997, see Treasury Board of Canada Secretariat, Modern Comptrollership Initiative: A Progress Report on Government-Wide Implementation (March 2003). Available on-line at: . 33 On pre-transaction controls, see Ian D. Clark, “Restraint, Renewal, and the Treasury Board Secretariat,” Canadian Public Administration 37, 2 (1994): 221–2. For a list of proposed improvements to financial control, see Association of Public Service Financial Administrators, Checks and Balances. 34 Savoie, Governing From the Centre. 35 See Michael Barzelay’s notion of disequilibrium or partial disequilibrium moments, The New Public Management: Improving Research and Policy Dialogue (Berkeley: University of California Press, 2001), 60. 36 For details, see Treasury Board of Canada Secretariat, “Backgrounder: President of the Treasury Board Introduces Legislation to Modernize the Public Service of Canada,” 6 February 2003; “Public Service Modernization Act – Overview and Highlights,” 6 February 2003; “Backgrounder: President of the Treasury Board of Canada Very Satisfied with Passage of the Public Service Modernization Act,” 4 November 2003; “Fact Sheet: Staffing,” 12 November 2003; and “Frequently Asked Questions on the Public Service Modernization Act,” 12 November 2003. 37 See Jonathan Malloy’s analysis, Chapter 13 (this volume). 38 Auditor General of Canada, Report on the Office of the Privacy Commissioner. 39 See Canada, A Public Service Learning Organization: From Coast to Coast to Coast – Directions for the Future (Ottawa: Canadian Centre for Management Development, June 2000); Canada, A Public Service Learning Organization: From Coast to Coast to Coast – Policy Directions (Ottawa: Canadian Centre for Management Development, June 2000); Canada, A Proposed Continuous Learning Policy for the Public Service of Canada (Ottawa: Canadian Centre for Management Development, April 2001); and Treasury Board of Canada Secretariat, “A Policy for Continuous Learning in the Public Service of Canada” (May 2002), available on-line at: ; and Learning and Development Committee, Progress Report, 2002–2003 (Ottawa: Canadian Centre for Management Development, 2002). 40 See Office of the Prime Minister, “Changing Government: Prime Minister Announces Appointment of Cabinet,” 12 December 2003; and related

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41

42

43

44

45

46

documents on “Democratic Reform,” “New Structures in the Prime Minister’s Office and Privy Council Office,” “Strengthening Our Social Foundations,” “Ethical Conduct,” “Stronger Financial Management and Accountability,” “A New Team,” and “Cabinet Committee Mandates and Membership” (all released December 2003); and Jim Judd, “tbs Restructuring/Restructuration au sct,” memorandum to tbs staff, 12 December 2003; Treasury Board of Canada Secretariat, “Backgrounder: Additional Information on the Process of the Expenditure Review Committee,” 17 December 2003; Public Policy Forum, “Big Changes in Ottawa,” accessed 21 December 2003 at . Martin’s Public Safety and Emergency Preparedness portfolio is strikingly similar to the Public Security portfolio created by Prime Minister Campbell in June 1993 and dismantled by Prime Minister Chrétien. In view of recent threats to domestic security from terrorists and epidemics, the idea to create the portfolio was ahead of its time. They include labour relations and compensation, pensions and benefits, risk management, compensation planning, and joint career transition. See Judd, “tbs Restructuring.” Canada, Governing Responsibly: A Guide for Ministers and Ministers of State (Ottawa: Privy Council Office, 2003); and Canada, Conflict of Interest and PostEmployment Code for Public Office Holders (Ottawa: Office of the Ethics Counsellor, December 2003). Treasury Board of Canada Secretariat and Department of Finance, “Government Takes Action to Control Spending,” press release, 16 December 2003; and Treasury Board of Canada Secretariat, “Government Transition – Frequently Asked Questions: Section C – Freeze,” 30 December 2003. See also Bruce Cheadle, “Prime Minister Demands Hurried Policy Brainstorming from Top Bureaucrats,” Canadian Press, 8 March 2004, 1. Deputy ministers were told on 20 February 2003 to deliver bold policy ideas within two weeks. The implication was that if good ideas were not forthcoming, then the government might rely more heavily on outsiders for advice and possibly for leadership roles. This involved maintaining a contingency reserve plus economic prudence fund. See Allison Dunfield and Terry Weber, “Liberals Put Money on Display of Fiscal Prudence,” Globe and Mail, 23 March 2004, 1; Gloria Galloway, “Damage Control: Goodale Focuses on Good Fiscal Management,” Globe and Mail, 23 March 2004, 2; Department of Finance, Responsible and Prudent Financial Management and Strengthening Public Sector Management, 23 March 2004; Kathryn May, “Ottawa Bears Brunt of Cuts: Department Spending Slashed; History Centre Chopped; Court, Hill Building on Hold,” Ottawa Citizen, 24 March 2004, 2. The Sponsorship Program, the National Unity Reserve, the political history museum, and capital expansion for via Rail. See May, “Ottawa Bears Brunt.”

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347 Reshaping Ottawa’s Centre of Government 47 See Treasury Board of Canada Secretariat, Strengthening Public Sector Management: An Overview of the Government Action Plan and Key Initiatives and Backgrounder: The Expenditure Review Committee: A Catalyst for Modernizing Management Practices (Ottawa: Treasury Board Secretariat, 24 March 2004). Operations reviews include capital asset management, public service compensation, procurement and contracting, corporate and administrative services, professional services, information technology and management, service delivery infrastructure, federal institutional governance, and legal services. 48 Treasury Board of Canada Secretariat, Integrated Risk Management Framework: A Progress Report on Implementation Progress (Ottawa: Treasury Board Secretariat, March 2003). 49 The idea of having House committees vet Senate appointments was quickly dropped as unconstitutional. Apparently the government has requested additional suggestions from standing committee chairs regarding areas where committees might play this kind of vetting role on appointments. 50 Robert Fife and David Vienneau, “Martin to Let mp s Preview Senators: pm Stands Pat on Bilingualism Rule for Senior Bureaucrats,” National Post, 19 December 2003, 3; Darren Yourk, ‹Ottawa Will Never Be the Same,’ Martin vows,” Globe and Mail, 17 March 2004, 1; and Alexander Panetta, “Martin Declares War on Cronyism, Vows Victory ‘Come Hell or High Water,› Canadian Press, 17 March, 2004, 1; and Jane Taber, “mp s Will Vet Top-Court Nominees, Liberal Says,” Globe and Mail, 30 January 2004, 3. 51 “Feds Introduce Bill to Protect Whistleblowers,” Canadian Press, 22 March 2004, 1. 52 Peter Aucoin, “Administrative Reform in Public Management: Paradigms, Principles, Paradoxes and Pendulums,” Governance, 3, 2 (1990): 115–37; Christopher Pollitt and G. Bouckaert, Public Management Reform: A Comparative Analysis (Oxford: Oxford University Press, 2000); and David Good, The Politics of Audit: The hrdc Audit of Grants and Contributions (Toronto: University of Toronto Press, 2003). 53 Auditor General of Canada, “Constraints to Productive Management in the Public Sector,” in Report of the Auditor General of Canada to the House of Commons, Fiscal Year Ended 31 March 1983 (Ottawa: Minister of Supply and Services Canada, 1983); and Clark, “Restraint, Renewal, and the Treasury Board Secretariat.” 54 Tom Kent, “Paul Martin Must Pluck His Power,” Globe and Mail, 29 January 2004, 5. 55 The Martin team seems genuinely perplexed by the public reaction to events set in motion under the watch of a different prime minister, but, as David Good has pointed out, when fanned by selective media reporting, scandals can quickly take on a life of their own. See Drew Fagan, “Martin Team Surprised by Public Backlash,” Globe and Mail, 21 February 2004, 2; and Good, The Politics of Audit.

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appendices

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appendix a Canadian Political Facts and Trends

2003 6 mar: Paul Martin files nomination papers and pays the entrance fee for the Liberal leadership race with the support of 86% of Liberal riding presidents. 6 mar: us President George Bush delivers a speech to ready America for a war with Iraq. 6 mar: The Supreme Court of Canada decides that the federal government can only collect on defaulted taxes to a limit of six years. This decision is estimated to cost the federal government $1.26 billion in uncollected taxes. 7 mar: Finance Minister John Manley files nomination papers and pays the entrance fee to join the Liberal leadership race. 7 mar: The un Security Council gives Iraq until 17 March 2003 to hand over its weapons of mass destruction to avoid war. 11 mar: Paul Martin announces that he will give up control of Canada Steamship Lines and hand control to his sons. 12 mar: The federal government announces its intention to spend $751 million over the next five years to make Canada more bilingual through the Governments Action Plan for official languages, which has three main targets: the education system, community programs, and the federal public service.

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352 Appendix A

16 mar: The Ontario Government announces that several patients are suffering from severe acute respiratory syndrome (sars). 17 mar: Prime Minister Chrétien announces that Canada will not join in a war against Iraq that does not have new authorization from the un Security Council. 19 mar: The us initiates war with Iraq. 20 mar: A House of Commons committee report on the Public Works advertising contract scandal cites faulty administration and poor handling of taxpayers money. 25 mar: An additional $59 million is allocated to the gun registry program after a vote in the House of Commons. 25 mar: American Ambassador to Canada Paul Celluci states that the Americans are displeased with Canada’s decision not to support the us in the Iraq war. 31 mar: Citing bureaucratic and political glitches, the Liberal government puts off transferring responsibility for the federal gun registry from Justice to the Solicitor General, which was scheduled for tomorrow, April 1, 2003. 31 mar: The federal government acknowledges that Canadian troops are on the ground with coalition forces in Iraq even though Ottawa has not endorsed the invasion. 1 apr: Air Canada asks an Ontario court for bankruptcy-protection. 1 apr: Ethics Counsellor Howard Wilson rejects the allegation Finance Minister John Manley violated cabinet conduct guidelines by holding a partisan lunch for Liberal supporters while he was on a prebudget tour of Prince Edward Island. 4 apr: Health Canada reports 160 suspected cases of sars across Canada. Ontario remains the countrys “hot zone” with 129 cases, 18 cases are reported in British Columbia, one in Saskatchewan, one in New Brunswick, and four in Prince Edward Island. 8 apr: Auditor-General Sheila Fraser reports that the federal government has limited knowledge of the number of illegal immigrants in Canada, with a rising backlog of deportation orders that has grown by 36,000 in six years. Her report raises other areas of concern, but the immigration issue dominates media attention. 9 apr: Saddam Hussein’s Iraqi regime collapses.

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11 apr: Steve Mahoney, a Toronto-area mp, is named junior minister for Crown corporations as Prime Minister Jean Chrétien made minor modifications to his Cabinet while also shuffling some senior civil servants. 14 apr: Jean Charest of the Liberals wins a majority in the Quebec provincial election. 16 apr: nafta’s Commission for Environmental Cooperation releases a report citing that Canada’s pollution rates are worse than America’s pollution rates. 16 apr: Federal Environment Minister David Anderson announces that Ottawa will invest more than $1.2 million in several communitylevel projects to reduce pollution from cars and trucks. 17 apr: In a 7-2 decision, the Supreme Court rules that courts are not in a position to overturn divorce agreements unless they are deemed unfair. 17 apr: The Supreme Court of Canada rules that the Quebec government can pay less than minimum wage to welfare recipients enrolled in employment programs. 21 apr: A new report by Environment Canada states that Canadas greenhouse gas emissions declined by 1.3% for the first time in a decade in 2001, even though the economy grew by 1.4%. 21 apr: Statistics Canada reveals that government-run lotteries, video lottery terminals, and casinos generated $11.3 billion in revenues across Canada last year, which is four times higher than the cash flow from betting a decade earlier. 22 apr: Ontario government calls on the federal government for disaster assistance to help Toronto deal with sars. To date, sars has killed 15 Canadians, all in the Toronto area. 23 apr: The rcmp concludes its eight-year, multimillion-dollar investigation into the airbus case without laying new charges. 24 apr: The World Health Organization issues a travel advisory against Toronto because of the sars outbreak. 25 apr: Prime Minister Jean Chrétien announces a $10-million contribution to promote Toronto as a safe travel destination. 28 apr: Public Works Minister Ralph Goodale announces that the federal government will change the way it dispenses advertising money

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354 Appendix A

following a major review of its practices and a series of scandals over contracts in Quebec. 29 apr: Canada offers to provide police, prison experts, legal officers, engineers, and transport planes to help reconstruct Iraq. 29 apr: The federal government announces a series of measures to assist those persons affected by sars. 29 apr: The World Health Organization lifts its travel advisory to Toronto. 29 apr: Prime Minister Jean Chrétien confirms that he will proceed with passage of his political financing legislation despite stiff opposition from the Liberal party. 6 may: Paul Cellucci, the us ambassador to Canada, makes a direct appeal for Canada to participate in the Bush administrations ballistic missile-defence program. The Liberal government delays making a decision on this issue, given the intense debate within the federal Cabinet. 14 may: The World Health Organization removes Toronto from its list of areas affected by sars following discussions with Ontario and federal government officials. 15 may: Officials from the Canada Pension Plan announce that the plan lost more than $1-billion in the last fiscal year due to the poor performance of global equity markets. These loses are pegged at $1.1 billion resulting in a negative return of 1.5%. 16 may: A study commissioned by Fisheries and Oceans from the Ottawa consultant firm Stratos Inc. releases its report on the departments record regarding the environment since 1996. The study posits that the department is a repeat violator of federal environmental rules. 19 may: Immigration Minister Denis Coderre meets with Governor Gary Locke to downplay the possibility that Canadas plan to decriminalize marijuana could lead to a border crackdown by the United States. Critics argue that the legislation may be compromised by allowing American politicians to see the legislation before it is introduced into Parliament. 20 may: Despite speculation of an earlier retirement, Prime Minister Jean Chrétien announces that he will remain prime minister until his originally planned departure date of February 2004. 20 may: Mad Cow Disease is found on a Northern Alberta farm. The Canadian Food Inspection Agency begins an investigation to learn how this cow became infected with the disease.

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355 Canadian Political Facts and Trends

23 may: Transport Minister David Collenette announces the building of a passenger rail line from Pearson Airport to Union Station in downtown Toronto. 23 may: After a brief reprieve from new sars cases in Toronto, officials announce that at least 33 possible sars cases emerged over the past several days. 26 may: The Canadian Food Inspection Agency announces that the tests from the slaughter of the herd from Northern Alberta (see May 20 entry) confirm that no other cow was infected with Mad Cow Disease . 26 may: A joint federal-provincial task force is created to develop strategies to boost Canada’s tourism industry given the economic impacts of sars, the West Nile virus, and mad cow disease . 26 may: The World Health Organization puts Toronto back on its list of affected areas where sars is spreading. This is not, however, a travel advisory. 26 may: The rcmp investigates the electronic theft of personal tax information by a federal government employee that may potentially expose some Canadians to fraud and other criminal acts. 26 may: Canadian Heritage Minister Sheila Copps pledges $100 million of support to build a museum detailing Canada’s political history located in Ottawa. 27 may: Justice Minister Martin Cauchon announces legislation regarding marijuana, where possession of up to 15 grams of pot would be a minor offence punishable by a fine. This legislation would eliminate criminal penalties for simple possession of marijuana but is coupled with tougher penalties against growers and dealers. 27 may: The World Trade Organization rules in Canadas favour regarding the Canada-us softwood lumber dispute. 27 may: Progressive Conservative Leader Joe Clark questions the actions of the Prime Minister in the House of Commons. Prime Minister Jean Chrétien called the Business Development Bank of Canada to lobby for a loan for a hotelier in his riding who was recently convicted of fraud. 28 may: Prime Minister Jean Chrétien receives criticism from the White House after criticizing the United States for its ballooning federal deficit. 31 may: Peter MacKay wins the leadership position of the federal Tories.

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356 Appendix A

2 jun: Manitoba ndp Premier Gary Doer wins his second majority government. 6 jun: International experts arrive to review Canada’s handling of the Mad Cow Disease . 9 jun: Alberta Premier Ralph Klein and Manitoba Premier Gary Doer criticize the federal government’s lack of immediate compensation to beef workers since Ottawa eased employment insurance regulations to help people in Ontario who lost work because of sars. 9 jun: New Brunswick Premier Bernard Lord wins a majority government with the Liberal Party placing a close second. 11 jun: The bill to reform political financing passes in the House of Commons. 12 jun: The federal government introduces legislation designed to crack down on corporate and financial markets fraud. 12 jun: The World Health Organization expresses concern over the second round of sars cases in Toronto but will not place the city under a travel advisory at this time. 13 jun: Canada’s agriculture ministers agree to create an aid package for beef producers hit by the Mad Cow Disease scare. 17 jun: The federal government opts not to appeal the decisions by three provincial high courts that ruled banning same-sex marriages is unconstitutional. 17 jun: The federal government announces a Mad Cow Disease compensation package for the beef industry, costing Ottawa up to $190-million. 20 jun: Revenue Canada begins investigating why George Radwanski, the federal Privacy Commissioner, had his half-million-dollar tax debt forgiven shortly before Prime Minister Jean Chrétien gave him a job as the commissioner. Radwanski comes under suspicion for his excessive spending. 20 jun: Ontario rejects an offer of $250 million from the federal government for sars relief arguing that the province has spent close to $1.2 billion to date. 23 jun: Privacy Commissioner George Radwanski resigns his position. 2 jul: The International Olympic Committee selects Vancouver/Whistler to host the 2010 Winter Olympics. 2 jul: Toronto is removed from the World Health Organization’s list of areas affected by sars.

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357 Canadian Political Facts and Trends

7 jul: Prime Minister Chrétien calls American President George Bush to urge the re-opening of the border to Canadian beef. 14 jul: Prime Minister Jean Chrétien delivers an international plan for the un to prevent future acts of genocide and ethnic cleansing. 17 jul: Phil Fontaine becomes the National Chief of the Assembly of First Nations. 17 jul: The federal government provides draft legislation to allow same-sex marriages to the Supreme Court for legal advice. 22 jul: Finance Minister John Manley drops out of the Liberal leadership race. 28 jul: Federal Ethics Counsellor, Howard Wilson, states that if Paul Martin is elected Prime Minister he should be able to avoid conflicts of interest involving his family-owned Canada Steamship Lines. 30 jul: Agriculture Minister Lyle Vanclief states that little progress has been made in convincing Japan to reopen their country’s borders to Canadian beef. 30 jul: Cabinet Minister Ralph Goodale states that the way trading partners have treated Canada due to its one case of Mad Cow Disease may encourage other countries to keep quiet if they discover a cow with the disease in their country. 31 jul: Morris Fish, a Quebec Anglophone, is appointed to the Supreme Court to fill the vacancy left by Charles Gonthier. 5 aug: John Hamm of the Nova Scotia Tories is re-elected as Premier but with a minority government. 8 aug: The United States lifts its ban on some Canadian beef products but not on live animals. 11 aug: Mexico partially lifts its ban on Canadian beef products but remains closed to live cattle. 12 aug: The federal government announces a $1-billion plan to conserve energy and cut greenhouse gas emissions, and includes incentives to consumers and industry. 14 aug: Canada claims victory after the nafta panel orders the United States to review its duties on Canadian softwood imports. 14 aug: The federal government sues tobacco companies for $1.5 billion for avoiding the payment of taxes while engaged in underground trading.

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358 Appendix A

14 aug: The North Eastern seaboard, including most of Ontario, experiences a massive power outage. 15 aug: Canada and the United States create a joint task force to examine why the power outage occurred. 19 aug: Paul Martin supports the government on same-sex marriages but states that he would not ask other Liberal mp s to vote with the government on this matter. 20 aug: Paul Martin states that other options to marriage may need to be examined, including the “civil union” for same-sex couples. 21 aug: Transport Canada announces that the Dorval Airport in Montreal will be renamed the Pierre Elliott Trudeau International Airport, effective January 2004. 23 aug: Prime Minister Jean Chrétien visits the bc interior to examine the damage caused by forest fires and promises federal government assistance. 25 aug: Prime Minister Jean Chrétien signs a northern land claim and self-government deal with the Dogrib First Nation to assume control over 39,000 square kilometres of land between Great Slave and Great Bear lakes. 26 aug: Paul Martin completes the transfer of his shipping business to his sons. 26 aug: Nineteen men, 18 Pakistanis and one Indian National, are under arrest as they are suspected as being terrorist threats against Canada. 3 sept: Health Minister Anne McLellan states that the federal government supports the idea for a national disease centre. 5 sept: Foreign Minister Bill Graham states that Canada has no plans to send troops to help peacekeeping efforts in Iraq, even under the auspices of the un. This statement comes on the heels of the American government pleading with un nations for help in reconstructing Iraq. 5 sept: The United States lifts another restriction on Canada’s cattle industry by agreeing to accept boneless beef cuts across the border. 10 sept: Charges are filed against a Quebec advertising agency involved in the federal government sponsorship program. 11 sept: Canadian troops are attacked in Kabul, Afghanistan, but no injuries are reported.

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359 Canadian Political Facts and Trends

16 sept: The Canadian Alliance introduces a motion on Tuesday in an effort to block the government’s bid to legalize gay marriage. This motion is defeated by a vote of 137 to 132. 26 sept: Canada will take over command of the nato-led peacekeeping force in Kabul, Afghanistan, next year. 29 sept: pei premier Pat Binns’ Conservative Party win a third majority government. 30 sept: Auditor General Sheila Fraser calls on the rcmp to investigate former privacy commissioner George Radwanski and his top officials. 2 oct: Two Canadian soldiers are killed and three injured in Kabul, Afghanistan. 2 oct: Dalton McGinty’s Liberal Party defeats the Eves’ pc Party to form a majority government in Ontario. 14 oct: News reports claim that Chrétien loyalists are upset with Martin supporters for treating Chrétien like the enemy and pushing him to leave early. 15 oct: An Ontario judge throws out sections of the federal election law dealing with third-party advertising declaring them unconstitutional. 16 oct: The pc and Canadian Alliance sign a merger to unite and form a single right-wing party. 21 oct: The Conservative Party lead by Danny Williams forms a majority government in Newfoundland. 24 oct:. The premiers meet in Quebec City to devise a strategy for more health care funding from Ottawa. 25 oct: Ottawa pledges $100 million as an advance payment for bc in the aftermath of the destructive forest fire season. 3 nov: Finance Minister John Manley informs a House of Commons Finance Committee that he expects a $2.3 billion surplus and that the federal government will allot $2 billion to health care. 5 nov: Lorne Calvert’s npd wins a fourth straight victory in the Saskatchewan election. 5 nov: Former privacy commissioner George Radwanski is found in contempt of Parliament for providing misleading information about his spending.

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360 Appendix A

14 nov: Paul Martin is elected leader of the Liberal Party of Canada. 18 nov: Prime Minister Jean Chrétien announces that Paul Martin will officially become the next prime minister on December 12, 2003. 19 nov: Agriculture Minister Lyle Vanclief announces a new aid package worth $120 million for cattle ranchers. 19 nov: Health Minister Anne McLellan states that the federal government will proceed with the establishment of national council to monitor health care despite the withdrawal of Alberta from this initiative. 24 nov: csis denies that it had any role in the detention of Maher Arar by us authorities or his deportation to Syria. 25 nov: Paul Martin states that the us treatment of Maher Arar, a Syrian-born Canadian citizen, was unacceptable leaving the door open to a possible inquiry. 28 nov: John Manley announces he will not seek re-election and will quit his position as Minister of Finance. 2 dec: mp Robert Lanctot quits the Bloc Québécois to join the federal Liberals. 4 dec: 95.9% of Canadian Alliance members vote in favour of merging with the Progressive Conservatives. 4 dec: The court dismisses David Orchard’s argument that pc Party cannot merge with the Canadian Alliance unless there is 100% support from the membership. 4 dec: Premiers sign plan for a new council to focus on healthcare and the economy. 6 dec: Progressive Conservative delegates vote 90% in favour of merging with the Canadian Alliance to create a new Conservative Party of Canada. 8 dec: The Chief Electoral Officer registers the Conservative Party of Canada as an official party replacing the Canadian Alliance Party and the Progressive Conservative Party. 8 dec: Just a few hours after the announcement that the pc and Canadian Alliance Parties have merged, former Tory leader Joe Clark and fellow mps Andre Bachand of Quebec and John Herron of New Brunswick abandon the new Conservative Party. 9 dec: Joe Handley is acclaimed as the new premier of Northwest Territories by government mlas.

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361 Canadian Political Facts and Trends

9 dec: The creation of a health council is formally announced with Michael Dector named as head of the national body that will serve as an independent watchdog for the Medicare system. 9 dec: Tory mp Scott Brison abandons new Conservative Party to join the Liberals. 12 dec: Paul Martin is sworn in as the 21st Prime Minister of Canada. 12 dec: Prime Minister Paul Martin eliminates the federal sponsorship program. 14 dec: us forces capture Saddam Hussein. 16 dec: Prime Minister Paul Martin freezes federal spending and announces an expenditure review of programs. 18 dec: Former ndp Leader Ed Broadbent announces his re-entry into federal politics. Broadbent will run in the federal constituency of Ottawa Centre. 26 dec: A British lab confirms that an American cow has Mad Cow Disease.

2004 6 jan: The American cow diagnosed with Mad Cow Disease is speculated to have been born in Canada. 9 jan: Agriculture Minister Bob Speller announces the federal government will invest $92.1 million to expand testing for Mad Cow Disease . 13 jan: Prime Minister Paul Martin and us President George Bush announce that the two governments have reached two deals. The first deal allows Canadians to bid on Iraq reconstruction contracts worth billions of dollars. Prior to this deal, Canadians were not going to be allowed to bid since Canada did not join the us in the Iraq war. The other deal ensures that Canadian officials are consulted before Canadian citizens are deported to third countries. 19 jan: The federal government appeals a court ruling that gave retroactive pension benefits to same-sex partners. 23 jan: rcmp search the home and office of Juliet O’Neill, a journalist for the Ottawa Citizen, after she wrote a story of Maher Arar citing documents that were leaked to her. 28 jan: The federal government announces that it will hold a full public inquiry into Canadas role in the deportation and torture of Maher Arar.

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362 Appendix A

28 jan: The federal government broadens its request to the Supreme Court for a ruling on gay marriage. This request may delay a court hearing until after the anticipated spring election. 28 jan: Prime Minister Paul Martin’s shipping company received $160 million in federal government money between 1993 and 2002. This is a much higher amount than was originally estimated. 30 jan: Prime Minister Paul Martin agrees to give the provinces $2 billion for health care. 2 feb: Governor General Adrienne Clarkson delivers the Speech from the Throne. 4 feb: Liberal House Leader Jacques Saada tables a democratic reform package. 5 feb: The former head of the Business Development Bank of Canada, François Beaudoin, wins his lawsuit, arguing that he was forced to quit his job after he questioned a bank loan to an inn in Chrétien’s riding. 10 feb: Auditor General Sheila Fraser releases her report examining the controversial sponsorship program. Prime Minister Paul Martin calls an inquiry and recalls Canada’s ambassador to Denmark Alfonso Gagliano. 16 feb: mp John Bryden announces he will leave the Liberal Party. 20 feb: Supreme Court Justice Louise Arbour announces she will leave Canada’s highest Court for a position with the United Nations. 24 feb: Prime Minister Paul Martin suspends the heads of three Crown Corporations implicated in scandals. 27 feb: Olympic medallist Myriam Bédard announces she will testify in the sponsorship scandal claiming she was forced to resign her position with via Rail after asking too many questions about the sponsorship deals. 28 feb: Canadian Armed Forces airlift Canadians in Haiti after violence erupts. 1 mar: Via Rail Chairman Jean Pelletier is fired after referring to Olympic medallist Myriam Bédard as a pitiful single mother. 4 mar: Prime Minister Paul Martin announces that any donations to the Liberal Party that were tainted by the sponsorship scandal will be handed over to Canadian taxpayers.

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363 Canadian Political Facts and Trends

5 mar: Federal Defence Minister David Pratt commits 425 Canadian Forces personnel to Haiti. 5 mar: Paul Okalik is elected Premier of Nunavut. 5 mar: Prime Minister Paul Martin fires the President of Via Rail, Marc LeFrançois, because of his role in the sponsorship scandal. LeFrançois was one of three Crown Corporation heads suspended on Feb 24, 2004. 6 mar: Tony Valeri, Minister of Transportation, wins the Liberal nomination for Hamilton East-Stoney Creek defeating Sheila Copps. 9 mar: Prime Minister Paul Martin pledges $5 million in international aid for Haiti. 11 mar: Several trains explode in Madrid, Spain killing 199 people with speculation that this terrorist attack is the work of eta Separatists or al-Qaida. 12 mar: Prime Minister Paul Martin fires Michel Vennat, President of the Business Development Bank of Canada. Vennat was one of the three heads of Crown Corporations suspended on 24 Feb. 12 mar: Prime Minister Paul Martin states that the Governor General’s travel expenses will be reviewed “line by line” after it is revealed that Governor General Adrienne Clarkson spent $41-million last year. 15 mar: Treasury Board President Reg Alcock introduces changes to the way executives at Crown Corporations are recruited and hired. 19 mar: Mitchell Sharp passes away at age 92. 20 mar: Stephen Harper becomes the Leader of the Conservative Party. 22 mar: The federal government introduces whistleblower legislation. 22 mar: Prime Minister Paul Martin announces a $995-million aid package for cattle producers. 23 mar: Finance Minister Ralph Goodale releases the budget. 25 mar: Prime Minister Paul Martin acknowledges that the Liberal government was aware of the national-unity fund that pumped money to start up the sponsorship program. 26 mar: A worker contracts the avian flu virus after having contact with dead chickens on a bc poultry farm.

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364 Appendix A

29 mar: Canada’s anti-money-laundering centre suspects $35 million in financial transactions are linked to terrorism in the first nine months of the fiscal year. 29 mar: The name “Conservative Party of Canada” is registered as a new political with Elections Canada and stems from the merger of the Progressive Conservatives and the Reform Party. 30 mar: Auditor-General Sheila Fraser reveals her report stating that, despite federal funding for anti-terrorism, Canada still has major weaknesses in security. 2 apr: Agriculture Minister Bob Speller orders the killing of 19 million chickens and turkeys in southern British Columbia to fight an outbreak of avian flu. 5 apr: A binational panel investigating last summer’s electrical blackout reports that it was a preventable disaster immediate action is required in both Canada and the United States to prevent it from occurring again. 12 apr: Prime Minister Paul Martin draws the ire of the Chinese government for agreeing to meet with the Dalai Lama. 20 apr: An interim report into the sars outbreak refers to Ontario’s public health system as “woefully inadequate.” 21 apr: Opposition mps argue that Prime Minister Paul Martin lobbied for a firm to win a federal contract during the sponsorship scandal. 21 apr: The federal government eliminates a clause in Bill C-9 that would allow developing countries quicker access to generic drugs by eliminating a provision that would benefit brand-name companies. 22 apr: Prime Minister Paul Martin is accused of breaking his promise for more grassroots democracy by appointing a candidate to run for the Liberals in a bc riding. 23 apr: Prime Minister Paul Martin becomes the first Canadian head of government to meet with the Dalai Lama. 24 apr: Former civil servant Chuck Guité who led the sponsorship program states that he was pressured by political staff to give contracts to Liberal friendly firms. 25 apr: Terrie O’Leary, the former Executive Assistant to Prime Minister Paul Martin, declares that she never tried to influence the issuing

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365 Canadian Political Facts and Trends

of contracts to the Earnscliffe Strategy Group. In a written statement, she argues that Chuck Guité’s comments are not accurate. 26 apr: Health Minister Pierre Pettigrew states the federal government should give the provinces a role in how penalties are given under the Canada Health Act. 26 apr: Former Conservative Prime Minister Joe Clark states he would vote for Martin rather than Harper, causing anger within the Conservative Party. 27 apr: A parliamentary committee dominated by Liberals confirm the appointment of Bernard Shapiro as the new federal ethics commissioner replacing Howard Wilson. 27 apr: Deputy Prime Minister Anne McLellan tables proposals to spend approximately $700-million in the areas of national security and natural and health disasters. 27 apr: Former terrorism adviser to us Presidents Bush and Clinton, Richard Clarke, declares that Canada was right in deciding to stay out of the Iraqi War but that its commitment to national defence issues is inadequate. 27 apr: Liberals defeat an opposition motion calling for set schedule for elections similar to America. 29 apr: Minister of Health Pierre Pettigrew makes a statement confirming that the impression he gave yesterday was not correct and that he does not favour a private health care delivery model. 29 apr: nafta panel rules in Canada’s favour regarding softwood lumber decision. 29 apr: Auditor General Sheila Fraser states that she stands by her conclusion regarding the role of the Liberal government in the sponsorship scandal. 30 apr: Prime Minister Paul Martin meets with President George Bush in Washington.

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appendix b Fiscal Facts and Trends

This appendix presents an overview of the federal government’s fiscal position, and includes certain major economic policy indicators for the last decade, as well as some international comparisons. Facts and trends are presented for federal revenue sources, federal expenditures by ministry, and by type of payment, the government’s share of the economy, interest and inflation rates, Canadian balance of payments in total and with the United States in particular, and other national economic growth indicators. In addition, international comparisons on real growth, unemployment, inflation, and productivity are reported for Canada, the United States, Japan, Germany and the United Kingdom.

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368 Appendix B Figure b.1 Sources of Federal Revenue as a Percentage of Total, 2002–3 Other Revenue 6.3%

Indirect Taxes 23.3%

Personal Tax 57.9%

Corporate Tax 12.5%

Source: Department of Finance, Fiscal Reference Tables 2003, Table 3.

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369 Fiscal Facts and Trends Figure b.2 Federal Expenditures by Ministry 2003–04 Estimates

Foreign Affairs and Other (f) 3% International Trade 3% National Revenue 2% National Defence 7%

Social and Citizenship Programs (a) 28%

Industry and Transport 5%

Justice and Corrections (b) 3% Resources and Environment (c ) 3%

Finance (e) 41%

Government Operations and Administration (d) 3%

(a) Social Citizenship programs include departmental spending from Canadian Heritage, Citizenship and Immigration, Human Resources Development, Veterans Affairs, Health, and Indian Affairs and Northern Affairs. (b) Justice and Corrections includes spending from the Department of Justice and the Solicitor General. (c) Resources and Environment includes departmental spending from Agriculture and AgriFood, Environment, Fisheries and Oceans, and Natural Resources. (d) Government Operations and Administration Spending includes that from Public Works and Government Services, the Governor General, Parliament, the Privy Council, and the Treasury Board. (e) Finance expenditures include but are not limited to, spending on public interest charges and major transfers to the provinces. (f) Other includes the consolidated specified purposes account (Employment Insurance). Source: Department of Finance, Main Estimates, Budgetary Main Estimates by Standard Object of Expenditure, Part II, 2003–2004.

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370 Appendix B Figure b.3 Federal Expenditures by Type of Payment 1997–8 to 2003–4

Billions of Dollars (current) 80 Direct Program Spending (d) 70 60 50 Public Debt Charges 40 Social Transfers to Persons (a)

30 20 10 0 97-98

Social Transfers to Governments (b) Defence Other Transfers to Governments (c) 98-99

99-00

00-01

01-02(e)

02-03(e)

03-04(e)

04-05(e)

(a) Includes elderly benefits and Employment Insurance benefits. (b) Consists of the Canada Health and Social Transfer (chst). Prior to the chst, two separate social transfers existed: Established Program Financing for health and postsecondary education expenditures; and the Canada Assistance Plan for welfare and welfare services. The chst figures include cash transfers to the provinces and so not include the value of the tax point transfer. (c) Includes fiscal equalization and transfers to Territories, statutory subsidies and recoveries under the Youth Allowance Program. (d) Includes all operating and capital expenditure costs, including defence. (e) Estimates. Source: Department of Finance, Budget Plan 2003, Tables 8.5, 8.7; Public Accounts of Canada, Vol. 1, Table 1.1.

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371 Fiscal Facts and Trends Figure b.4 Federal Revenue, Program Spending, and Deficit as Percentages of gdp 1993–4 to 2004–5 Percentage of gdp 25 20

Budgetary Revenue

15 10

Program Spending

5

Budgetary Balance

0

2004-05(a)

2003-04(a)

2002-03

2001-02

2000-01

1999-00

1998-99

1997-98

1996-97

1995-96

1994-95

1993-94

-5

Fiscal Year

(a) estimates Note: Budgetary revenue and program spending are based upon fiscal years, while gdp is based on the calendar year. Revenues, program spending, and the deficit are on a net basis. Program spending does not include public interest charges. gdp is nominal gdp. Beginning in 1997–98, the budget deficit trend line changes to indicate a budgetary surplus as a percentage of gdp. Source: Department of Finance, Fiscal Reference Tables 2003, Table 2; Department of Finance, Budget Plan 2003, Table 1.4.

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372 Appendix B Figure b.5 Federal Revenue, Expenditures and the Deficit 1996–7 to 2004–5 Billions of Dollars (current) 200 Total Expenditures 150

Budgetary Revenue

100

50 Budgetary Surplus 0

Fiscal Year

(a) estimates Note: Expenditures include program spending and public interest charges on the debt. Source: Department of Finance, Fiscal Reference Tables 2003, Table 1; Department of Finance, Budget Plan 2003, Table 1.2; Public Accounts of Canada, Statement of Revenues and Expenditures, various years.

2004-05(a)

2003-04(a)

2002-03

2001-02

2000-01

1999-00

1998-99

1997-98

1996-97

Budgetary Deficit

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373 Fiscal Facts and Trends Figure b.6 Growth in Real gdp 1993–2003

Annual Change (per cent) 6

4

2

0

-2

-4 1993

1994

1995

1996

1997

1998

1999

Year Source: Statistics Canada, The Daily, cat. #13-001, various years.

2000

2001

2002

2003

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374 Appendix B Figure b.7 Rate of Unemployment and Employment Growth 1993–2003

Per cent 12 10 Unemployment Rate 8 6 4

Employment Growth Rate

2 0 -2 -4 1993

1994

1995

1996

1997

1998 Year

1999

2000

2001

2002

2003

Note: Employment growth rate and the unemployment rate apply to both sexes, fifteen years and older, and are seasonally adjusted. Source: Statistics Canada, The Daily, cat. # 11-001XIE; Historical Labour Force Statistics (71-201), various years.

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375 Fiscal Facts and Trends Figure b.8 Interest Rates and the Consumer Price Index (cpi) 1993–2003 Average Annual Rate (per cent) 15

10

Prime Rate 5

Bank Rate CPI

0 1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Fiscal Year

Note: The cpi is not seasonally adjusted. The prime rate refers to the prime business interest rate charged by chartered bank, and the bank rate refers to the rate charged by the Bank of Canada on any loans to commercial banks. Source: Bank of Canada Review, Table F1; Statistics Canada, The Consumer Price Index, cat.# 62-001, various years.

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376 Appendix B Figure b.9 Productivity and Costs 1992–2001

Annual Change (per cent) 6 5 4

Output (per person) (a)

3 2 1 0 -1 -2

Unit Labour Costs (b)

-3 -4 1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Fiscal Year (a) Output per person is the real gdp per person hour worked in the business sector, and is a measure of productivity. This trend shows the annual percentage change of this indicator. Real gdp is based on constant 1986 prices. (b) Unit labour cost in the business sector is based on the real gdp, in constant 1986 prices. This trend shows the annual percentage change in this indicator. Source: Statistics Canada, cat.# 15-204, various years.

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377 Fiscal Facts and Trends Figure b.10 Balance of Payments 1993–2002 Billions of Dollars (Current) 80 70 60 50 40 30 Bilateral (Canada/US)

20 10 0 -10

Total

-20 -30 1993

1994

1995

1996

1997

1998

Fiscal Year

Source: Statistics Canada, cat.# 67-001, various years.

1999

2000

2001

2002

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378 Appendix B Figure b.11 Growth in Real gdp Canada and Selected Countries 1993–2003

Annual Change (per cent)

United States Japan Germany United Kingdom Canada

8 6 4 2 0 -2 1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Year Source: Organization for Economic Cooperation and Development (oecd), Economic Outlook, no. 73, Dec. 2003, Annex Table 1.

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379 Fiscal Facts and Trends Figure b.12 Standardized Unemployment Rates Canada and Selected Countries 1993–2003 Standardized Unemployment Rate (per cent) 14

United States Japan Germany United Kingdom Canada

12 10 8 6 4 2 0 1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Year

Source: Organization for Economic Cooperation and Development (oecd), Economic Outlook, no. 73, Dec. 2003, Annex Table 15.

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380 Appendix B Figure b.13 Annual Inflation Rates Canada and Selected Countries 1993–2003 Inflation Rate (per cent) 6

United States Japan Germany United Kingdom Canada

5 4 3 2 1 0 -1 1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Year

Source: Organization for Economic Cooperation and Development (oecd), Economic Outlook, no. 73, Dec. 2003, Annex Table 19.

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381 Fiscal Facts and Trends Figure b.14 Labour Productivity Canada and Selected Countries 1993–2003 United States Japan Germany United Kingdom Canada

Annual Change (per cent) 5 4 3 2 1 0 -1 1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Year

Note: Labour productivity is defined as output per unit of labour input. The data is for labour productivity growth in the business sector. The series on total economy unit labour cost was dropped because inclusion of the public sector was thought to be a distorting influence. Source: Organization for Economic Cooperation and Development (OECD), Economic Outlook, no. 73, Dec. 2003, Annex Table 13.

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382 Appendix B Table b.1 Federal Revenue by Source 1993–4 to 2002–3 As a Percentagte of Total Fiscal Year

Personal Taxa

Corporate Tax

Indirect Taxesb

Other Revenuec

Total Revenue

Annual Change -3.8

1993-4

60.1

8.1

23.0

8.8

100.0

1994-5

61.0

9.4

22.0

7.6

100.0

6.0

1995-6

60.4

12.2

20.4

7.0

100.0

5.4

1996-7

59.0

12.1

20.7

8.3

100.0

7.5

1997-8

58.6

14.7

20.1

6.7

100.0

8.2

1998-9

59.1

13.8

20.1

7.0

100.0

1.2

1999-00

59.2

13.9

19.8

7.1

100.0

6.2

2000-1

56.8

15.7

20.1

7.4

100.0

7.5

2001-2

58.7

13.9

21.1

6.3

100.0

-3.6

2002-3

57.9

12.5

23.3

6.3

100.0

3.4

Revenue by source is on a net basis. (a) Employment Insurance and other income taxes are included in the total. (b) Consists of total excise taxes and duties. (c) Consists of non-tax and other tax revenue. Source: Department of Finance, Fiscal Reference Tables 2003, Table 3.

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383 Fiscal Facts and Trends Table b.2 Federal Deficit/Surplus 1994–5 to 2004–5 Billions of Dollars (current) Budgetary Revenue

Total Expenditures

1994-5

123.3

1995-6

130.3

1996-7 1997-8

Fiscal Year

Budgetary Deficit/Surplus

As % of gdp

160.8

-37.5

4.9

158.9

-28.6

3.5

140.9

149.8

-8.9

1.1

153.2

149.7

3.5

0.3 0.3

1998-9

155.7

152.8

2.9

1999-00

165.7

153.4

12.3

1.3

2000-1

178.6

161.4

17.2

1.6

2001-2

173.3

164.4

8.9

0.8

2002-3

171.6

164.6

7.0

0.6

2003-4a

184.7

180.7

4.0

0

2004-5a

192.9

188.0

4.9

0

(a) Figures for these years are estimates. Note: While revenue, expenditures, and deficit categories refer to fiscal years, nominal gdp is based upon a calendar year. Total expenditures include program spending and public debt charges. Source: Department of Finance, Fiscal Reference Tables 2003, Tables 1 and 2; Department of Finance, Budget Plan 2003, Table 1.2.

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384 Appendix B Table b.3 International Comparisons 1993–2003 Change from Previous Year (in percentage) Growth in Real gdp 1993

1994

1995

1996

Canada

2.3

4.8

2.8

1.6

U.S.

2.7

4

2.7

3.6

1997

1998

1999

2000

2001 2002 2003

4.1

4.1

5.5

5.3

1.9

3.3

1.8

4.4

4.3

4.1

3.8

0.3

2.4

2.9 2.7

Japan

0.3

1

1.9

3.4

1.8

-1.1

0.1

2.8

0.4

0.2

Germany

-1.1

2.4

1.8

0.8

1.5

1.7

1.9

3.1

1

0.2

0

U.K.

2.3

4.4

2.8

2.7

3.3

3.1

2.8

3.8

2.1

1.7

1.9

1993

1994

1995

1996

1997

1998

1999

2000

Unemployment Rates 2001 2002 2003

11.4

10.3

9.4

9.6

9.1

8.3

7.6

6.8

7.2

7.6

7.8

U.S.

6.9

6.1

5.6

5.4

4.9

4.5

4.2

4

4.8

5.8

6.1

Japan

2.5

2.9

3.2

3.4

3.4

4.1

4.7

4.7

5

5.4

5.3

Germany

7.5

8

7.7

8.4

9.2

8.7

8

7.3

7.4

8.1

8.9

10.2

9.4

8.5

8

6.9

6.2

6

5.5

5.1

5.2

5

1994

1995

1996

1997

1998

1999

2000

Canada

U.K.

Labour Productivity 1993

2001 2002 2003

Canada

1.8

3.1

0.8

0.7

1.8

1.5

3

3

0.8

1.4

0

U.S.

0.9

1.3

0.4

1.8

2.2

2.2

2.4

2.3

0.4

4.2

3.1 2.8

Japan

0.1

1

1.7

3

0.9

-0.8

0.6

3.2

0.8

1.5

Germany

0.2

2.7

1.5

1.1

1.6

0.8

0.8

1

0.4

0.8

1.7

U.K.

2.6

3.2

1.2

1.1

1

2

1.5

3

1.5

1

1.2

Source: OECD Economic Outlook, no. 73, Dec. 2003, Annex Tables 1, 13, 15.

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Abstracts/Résumés

Gilles Paquet

fiscal imbalance as g ov e r n a n c e fa i l u r e In a world of rapid change, where social needs evolve and fiscal resources depend on volatile transnational circumstances, any historically inherited fiscal arrangements may be expected to generate some imbalance between the resources and responsibilities of the different levels of government in a federation. Such episodic imbalance is a financial matter that can be resolved by ad hoc transfers. But when such an imbalance is chronic and structural, it is a revelateur of a fundamental disconcertation that calls for a transformation of the foundational arrangements. Such a refounding of the governance of the Canadian federation is an exercise in social architecture that is currently necessary because of the inefficiency of the present arrangements, but it is likely to be the result of bricolage rather than of grand schemes because Canadians have no taste for grand national palavers. Some of the mechanisms that might underpin the repairs making the federation fiscally sustainable are mentioned. Dans un monde en changement rapide où les besoins sociaux évoluent et où les ressources fiscales fluctuent au fil des circonstances internationales, tous les arrangements fiscaux hérités du passé sont susceptibles d’engendrer avec le passage du temps un déséquilibre entre

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386 Abstracts/Résumés

les ressources et les responsabilités des divers niveaux de gouvernement dans une fédération. Si un tel déséquilibre est épisodique, il appelle simplement une solution financière via des transferts ad hoc. Mais quand le déséquilibre se fait chronique et structurel, il devient le révélateur d’une déconcertation fondamentale qui appelle une transformation des arrangements fondateurs. Une telle refondation de la gouvernance de la fédération canadienne est un exercice d’architecture sociale qui est nécessaire à ce point-ci à cause de l’inefficacité des arrangements en place, mais il est probable que ce sera le résultat de bricolage plutôt que d’un grand ménage car les Canadiens n’ont pas le goût des grandes palabres nationales. Quelques-uns des mécanismes qu’on pourrait mettre en place et qui seraient susceptibles de rendre la fédération fiscalement durable sont mentionnés. Michael Hart and Brian Tomlin

th e e m e r g i n g p o l i cy s h i ft i n c a n a da - u s r e l at i o n s This chapter examines recent developments in the Canadian policy arena and argues that conditions are right for a major policy shift in Canada’s relationship with the United States. First, all of the elements seem to be in place for the government to deal with the establishment of a conjoined border security-market access issue. Second, there seems to be a consensus forming in the policy community that some form of deeper integration with the Unite States is needed, although the idea has not yet evolved to the point where proponents of the various forms of such integration have jumped on a single bandwagon. Finally, significant political change is under way, providing policy entrepreneurs with a window of opportunity that will enable them to recognize the security-access problem, to appreciate the availability of deeper integration with the United States, and to mobilize a coalition of political support in aid of policy change. However, whether that change will occur still depends on the particular actions of key players, some of which the authors cannot anticipate. Ce chapitre examine les développements récents et soutient que les conditions sont favorables à un changement majeur dans les politiques entourant la relation du Canada avec les États-Unis. Premièrement, tous les éléments semblent être en place pour l’établissement, sur la liste des décisions à prendre par le gouvernement, d’une question reliant la sécurité frontalière et l’accès aux marchés comme question urgente. Deuxièmement, il semble se former un consensus au sein des

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387 Abstracts/Résumés

responsables de politiques selon lequel une intégration plus poussée aux États-Unis s’impose, même si l’idée n’a pas encore évolué au point où les partisans des diverses formes de cette intégration se sont unis. Finalement, un changement politique important est en cours, fournissant aux stratèges une situation où on reconnaît le problème de la sécurité et de l’accès, où s’offre la solution d’une plus profonde intégration, et où est mobilisée une coalition d’appui politique en faveur de ce changement. Il n’en reste pas moins que la réalisation de ce changement dépend toujours des gestes des acteurs clés, dont certains sont difficiles à prévoir. Neil Bradford

global flows and local places: th e c i t i e s a g e n da Prime Minister Paul Martin has declared that there is “no question that the path to Canada’s future runs through municipal governments large and small, urban and rural.” This chapter takes stock of the recent explosion of interest in Canada’s cities and the policies needed to build them. Research on innovation in the knowledge-based global economy suggests that, given their long-standing reputation for livability and their high ranking in international surveys of urban quality of life, Canada’s cities should now rise to the top. Yet Canadian cities show serious signs of strain, even decay, in their infrastructure and governance. Analyzing a troubling intersection of “problems in the cities” and “problems of the cities,” this chapter highlights two divergent solutions: (1) more autonomy for municipalities and (2) more collaboration among all levels of government. Making the case for multilevel urban governance, this chapter considers three key priorities: the urban policy lens, tri-level institutional machinery, and intergovernmental revenue-sharing agreements. It concludes with some principles to guide the implementation of Canada’s New Deal for the Cities. Le premier ministre Paul Martin a déclaré que «sans aucun doute le chemin de l’avenir du Canada passe par les gouvernements municipaux, grands et petits, urbains et ruraux.» Ce chapitre fait le bilan de l’explosion récente de l’intérêt pour les villes canadiennes et des politiques nécessaires pour bâtir des villes vivantes. Les recherches sur l’innovation dans l’économie du savoir à l’échelle mondiale suggèrent que les villes du Canada devraient maintenant s’imposer, vu leur réputation de longue date de villes où il fait bon vivre et le haut rang qu’elles occupent dans les sondages internationaux sur la qualité de la

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388 Abstracts/Résumés

vie urbaine. Pourtant, les villes canadiennes exhibent des signes de fatigue, de déclin même, dans leur infrastructure et leur gouvernance. A partir de l’analyse d’une intersection troublante de «problèmes dans les villes» et de «problèmes des villes» ce chapitre souligne deux solutions divergentes: une autonomie accrue pour les municipalités, ou une collaboration accrue entre tous les paliers de gouvernement. En présentant des arguments pour la gouvernance urbaine à plusieurs paliers, le chapitre considère trois priorités clés: l’optique de la politique urbaine; la machinerie institutionnelle à trois niveaux; et les accords intergouvernementaux de partage des revenus. L’article finit par donner des principes directeurs de la mise en oeuvre de la Nouvelle Donne pour les villes du Canada. Tyler Chamberlin and John de la Mothe

i n n o vat i o n , s e r v i c e s , a n d t h e tr a n s f o r m a t i o n o f t h e c a n a d i a n industrial structure The early days of the Martin government have been marked by the new leadership’s desire to distinguish itself as different from the Chrétien government and as more appropriate for the current challenges facing the country. In this chapter we recommend that the government consider a new approach to innovation policy, one that is focused on the dominant sector of the Canadian economy: the services sector. We suggest that an opportunity exists for Canada to embrace the changes that have taken place both domestically and internationally with respect to the geographic location of economic activity and, thereby, position itself in a way that is unique among industrialized nations. This opportunity will require the leadership to make significant strategic investments – and not just in a one-year budget allocation. We argue that politicians and policy makers must rethink their approach to economic issues and formulate a new alternative for the country. This alternative must be based on our existing and future resource strength, which is our human capital. Les débuts du gouvernement Martin ont été marqués par le désir de la nouvelle équipe de se distinguer et de se montrer plus apte à relever les défis auxquels le pays fait face. Ce chapitre recommande que le gouvernement considère une nouvelle approche en matière de politique d’innovation, qui se concentre sur le secteur dominant de l’économie canadienne: le secteur des services. Les auteurs suggèrent que le Canada a la possibilité d’embrasser les changements survenus à

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389 Abstracts/Résumés

l’échelle nationale et internationale en ce qui concerne le lieu de l’activité économique pour ainsi donner au pays une position unique parmi les pays industrialisés. Profiter de cette opportunité nécessitera un leadership qui fasse des investissements stratégiques significatifs plutôt qu’une allocation budgétaire d’une seule année. Les auteurs soutiennent que les politiciens et décideurs doivent repenser leur approche face aux questions économiques et formuler une nouvelle alternative pour le pays basée sur notre grande ressource actuelle et future – notre capital humain. James J. Rice and Michael J. Prince

m a rt i n ’ s m o m e n t : th e s o c i a l p o l i cy agenda of a new prime minister This chapter outlines the Martin government’s social policy intentions as expressed in the February 2004 Speech from the Throne. It also considers the degree of financial room and, thus, social policy space the Martin government will have in the short term for meeting these intentions. It then highlights the major social policy developments and related political effects of the Martin budgets from 1994 to 2001, arguing that these provide a lasting foundation for any reforms to be undertaken by the new prime minister. To further discern his inclinations in social policy, the analysis reports on Martin’s musings on the societal role of the federal state. Finally, the authors propose and briefly describe a new national social project, the Canadian Disability Benefit Strategy, which could well serve as one of only a few bold new initiatives that the Martin Liberals will undertake. They conclude that reforms in federal social policy will, by and large, occur in a focused and incremental manner, implemented and funded over the medium to longer term in response to the limited budgetary room available over the next few years. Ce chapitre résume les intentions du gouvernement Martin en matière de politique sociale qui ressortent du discours du Trône de février 2004. Les auteurs considèrent également le degré de marge de manoeuvre au plan des finances et de la politique sociale dont disposera le gouvernement à court terme pour réaliser ces intentions. Ce chapitre résume ensuite les développements majeurs en politique sociale et les effets politiques connexes des budgets Martin de 1994 à 2001, soutenant que ceux-ci fournissent un fondement durable à toute réforme entreprise par le nouveau premier ministre. Pour discerner davantage les tendances de celui-ci en politique sociale, l’analyse porte sur les ré-

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390 Abstracts/Résumés

flexions de Martin sur le rôle sociétal de l’État fédéral. Finalement, les auteurs proposent et décrivent brièvement un nouveau projet social national, la stratégie relative aux prestations pour personnes handicapées, qui pourrait bien constituer une des rares nouvelles initiatives osées que les libéraux de Martin entreprendront. Les auteurs concluent que les réformes de la politique sociale fédérale se produiront globalement d’une façon ciblée et graduelle, et seront appliquées et financées à moyen et long terme, en réponse à la marge de manoeuvre restreinte en matière budgétaire qui prévaudra au cours des prochaines années. Stephanie Paterson, Tatyana Teplova, and Karine Levasseur

“i spy with my little eye …” can ada ’s nation al chil d ben efit A regime shift has occurred, and we are moving away from an “equality-based” discourse towards a policy framework centred on the needs of the child. Reflective of this emerging child-centred policy framework within Canada is the National Child Benefit (ncb) system, whose goals are to reduce child poverty, to promote labour force attachment, and to encourage intergovernmental cooperation. The authors use the first two goals to measure the success of the ncb. Through an examination of the fiscalization of child benefits affecting many Canadian families, this chapter also examines the ncb through the eyes of two cohorts: (1) single mothers and (2) families with children with disabilities. Based on this examination, the authors conclude that the ncb, while a good start, has been limited in meeting two of its stated goals (i.e., the reduction of child poverty and the promotion of labour force attachment). They argue in favour of a return to a universal system of benefits and call for a more comprehensive policy mix in Canada’s treatment of children. Un changement de régime s’est produit qui a transformé le discours basé sur l’égalité en cadre politique axé sur les besoins de l’enfant. Ce nouveau cadre politique est reflété par le Régime national de prestations pour enfants (RNPE) qui a comme objectifs la réduction de la pauvreté infantile, la promotion de l’intégration au marché du travail et la collaboration intergouvernementale. Les auteurs se servent des deux premiers objectifs pour mesurer le succès du RNPE. En se penchant sur la fiscalisation des prestations pour enfants et l’impact de celle-ci sur les familles, l’article examine le RNPE selon l’optique de deux cohortes: les mères seules, et les familles des enfants handicapés.

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391 Abstracts/Résumés

A partir de cet examen, les auteurs concluent que si le RNPE représente un bon départ, celui-ci a eu un succès limité quant à deux des objectifs déclarés (la réduction de la pauvreté infantile et la promotion de l’intégration au marché du travail). Les auteurs donnent des arguments pour le retour à un système universel de prestations et appellent à l’instauration d’une politique plus complète relative au traitement accordé aux enfants du Canada. Stephan Schott

new fishery management in atlantic canada: communities, governments, a n d a l t e r n a t i v e ta r g e t s Atlantic Canada’s fishery is controlled by the federal government through species-specific licences and individual quotas based on a total allowable catch (tac). Species-specific licences provide overharvesting incentives and undermine harvesters’ support of the conservation of specific resources. Individual quotas have not made harvesting more sustainable either in Atlantic Canada’s fishery or in the majority of other fisheries worldwide. Additionally, minimum size restrictions and mesh size regulations both arbitrary and too small, allowing too many young fish to be caught and making fish stocks more volatile. The author suggests readjusting age selection targets and gear selection regulations as well as implementing broader rights, thus permitting harvesters to select from a variety of species. Communities should have more authority to manage, control, and own fisheries, particularly with regard to relatively stationary stocks such as shellfish. As for migratory species, the author recommends catch pooling and output-sharing partnerships in lieu of tacs and individual (transferable) quotas. La pêcherie des provinces de l’Atlantique est contrôlée au plus haut degré par le gouvernement fédéral grâce aux permis spécifiques à une espèce et aux quotas individuels basés sur le total autorisé des captures (TAC). Les permis spécifiques à une espèce incitent à la surexploitation et minent l’appui des exploitants à la conservation de ressources spécifiques. Les quotas individuels ne se sont pas avérés capables d’assurer la durabilité des ressources, ni dans la Région de l’Atlantique ni ailleurs au monde, dans la majorité des pêcheries. De plus, la taille légale minimale et les règlements relatifs à la dimension des mailles sont fixés à un niveau arbitraire tellement bas que trop de jeunes poissons sont pris et que les réserves restent instables. Cet article suggère un réajustement des cibles relatives à l’âge des poissons et à l’équipement

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392 Abstracts/Résumés

ainsi que des droits de pêche élargis, qui permettraient la sélection d’une plus grande variété d’espèces. Les communautés devraient jouir de plus d’autorité en ce qui concerne la gestion, le contrôle et la propriété des pêcheries, en particulier pour les stocks relativement stables tels que les crustacés et mollusques. Pour les espèces migratoires l’article suggère le pool des captures et le partage de la production au moyen de partenariats, plutôt que les TAC et les quotas individuels (transférables). Douglas Macdonald, Debora VanNjinaten, Andrew Bjorn

implementing kyoto: when spending is not enough This chapter reviews policy developments following Canadian ratification of the Kyoto Protocol in December 2002. The context for Canadian policy making – basic sectoral and geographic data on greenhouse gas emissions; the influence of American policy; and the varying provincial incentives, which make achieving national consensus so difficult – is provided. The chapter then examines the breakdown of federal-provincial national policy development that preceded the ratification decision and the transition to an era of bilateral, sequential federal-provincial negotiation that, to date, has resulted in two agreements: one between Canada and Prince Edward Island and the other between Canada and Nunavut. Initial steps towards federal unilateral regulation of large industrial emitters are reviewed, as are policies being developed individually by each province. The chapter concludes with a discussion of the implications of the transition from the Chrétien administration to the Martin administration. Ce chapitre examine l’évolution des politiques à la suite de la ratification par le Canada du Protocole de Kyoto en décembre 2002. L’article discute le contexte de l’élaboration des politiques au Canada – les données sectorielles et géographiques relatives aux émissions de gaz à effets de serre; l’influence des politiques américaines; la variété des mesures incitatives provinciales qui rend si difficile l’établissement d’un consensus national. L’article examine ensuite la ventilation de l’élaboration des politiques fédérales-provinciales qui précédait la décision de ratification ainsi que la transition à une ère de négociations bilatérales et séquentielles entre le fédéral et les provinces qui jusqu’ici a conduit à deux accords, entre le Canada et l’I.-P.-E. et entre le Canada et le Nunavut. L’article examine les premières mesures en vue de la réglementation de gros émetteurs industriels, ainsi que les poli-

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393 Abstracts/Résumés

tiques en voie d’élaboration au niveau des provinces individuelles. L’article se termine par une discussion des implications de la transition du gouvernement Chrétien au gouvernement Martin. Glen Toner and Carey Frey

governance for sustainable development: next stage i n s t i t u t i o n a l a n d p o l i cy i n n o vat i o n s This chapter assesses the sustainable development (sd) process launched by the Mulroney government in 1990 and advanced by the Chrétien government. Despite comparative studies that judge Canada to be among the world leaders in institutionalizing sd practices, this chapter concludes that the change process had lost momentum by the end of the Chrétien era. Looking ahead, the authors argue that Paul Martin has longer personal experience with, and a stronger understanding of, sd than did either of his predecessors. They suggest three major sets of policy and institutional reforms that the Martin government should consider in order to re-energize the sd process: (1) strengthening political will through changes at the executive level; (2) strengthening the policy “toolkit”; and (3) strengthening the role of the commissioner of environment and sustainable development by making it independent of the Office of the Auditor General. Ce chapitre évalue le processus de changement favorisant le développement durable (DD) lancé par le gouvernement Mulroney en 1990 et auquel le gouvernement Chrétien a donné suite. Malgré des études comparatives selon lesquelles le Canada serait parmi les chefs de file mondiaux en ce qui concerne l’institutionnalisation des pratiques DD au sein du gouvernement, ce chapitre conclut que le processus de changement était en perte de vitesse à la fin de l’ère Chrétien. Quant à l’avenir, les auteurs soutiennent que Paul Martin a une plus longue expérience personnelle et une meilleure compréhension du DD que Mulroney et Chrétien. Ce chapitre élabore trois ensembles de réformes en matière de politiques et d’institutions que le gouvernement Martin devrait considérer en vue de réénergiser le processus de changement DD. Ces réformes renforceraient 1) la volonté politique grâce à des changements au niveau exécutif; 2) la trousse à outils en matière de politiques; 3) le rôle du Commissaire à l’environnement et au développement durable en rendant celui-ci indépendant du bureau du Vérificateur général.

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394 Abstracts/Résumés

Mike Wenig

federal policy and alberta’s oil and g a s : the c h a l l e n g e o f b i o d i v e r s i t y c o n s e r vat i o n Federal incursions in Alberta’s management of its oil and gas resources have been the greatest of the many sources of friction between Alberta and Ottawa. This chapter explores the appropriateness of additional federal incursions to reduce threats to biological diversity from the cumulative impacts of Alberta’s thriving upstream oil and gas sector. It considers Ottawa’s constitutional and legislative authority to conserve biodiversity and the policy bases for Ottawa’s interest in biodiversity conservation. The author argues that an integrative, landscape- or ecosystem-based planning framework is needed to address cumulative impacts but that Alberta is not taking sufficient steps to implement such a framework. He then provides recommendations on how Ottawa could use its legal authority to spur provincial land-use planning for biodiversity conservation while respecting Alberta’s ownership of its oil and gas resources. Les ingérences fédérales dans la gestion que fait l’Alberta de ses ressources de pétrole et de gaz ont été la plus grande source de la friction entre l’Alberta et Ottawa. Ce chapitre explore la question de savoir dans quelle mesure des ingérences fédérales additionnelles s’imposent afin de réduire les menaces à la diversité biologique résultant des impacts cumulatifs de l’industrie albertaine florissante qu’est le secteur du pétrole et du gaz. Ce chapitre examine l’autorité constitutionnelle et législative d’Ottawa en matière de conservation de la biodiversité ainsi que les assises politiques de cet intérêt de la part du fédéral. L’article soutient qu’un cadre de planification d’ensemble basé sur le paysage ou l’écosystème est nécessaire pour s’attaquer aux impacts cumulatifs mais que l’Alberta n’agit pas suffisamment dans cette direction. L’article fournit ensuite des recommandations sur la façon dont Ottawa pourrait faire appel à son autorité légale pour encourager une planification de l’affectation du sol au niveau provincial qui assure la conservation de la biodiversité tout en respectant la propriété provinciale des ressources de pétrole et de gaz.

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395 Abstracts/Résumés

G. Bruce Doern

“ s m a rt r e g u l at i o n , ” r e g u l ato ry co ngestion , an d natur al r eso urce reg ulatory govern an ce This chapter examines the issue of multiple regulatory bodies and regulatory congestion in the forestry, minerals and metals, and energy subsectors, which, at the federal level, are initially in the domain of Natural Resources Canada. Couched in the context of the “smart regulation” agenda of the federal government, the chapter examines how the three resource subsectors have attempted to deal with multiple regulators. It shows the extent of regulatory congestion, but it also shows that there are important new modalities of complex rule making being attempted and debated, including codes, covenants, and forms of social contract and corporate governance. The analysis also shows that difficult spatial and location-specific issues and dynamics remain, creating some contradictions and constraints as various players exhibit different views about specific investments by firms, resources, resource use and production, and the always linked issues of spatial and site-specific ecosystems. Ce chapitre examine la question de la multiplicité des organismes de réglementation et celle de la congestion de la réglementation dans les sous-secteurs des forêts, des minéraux et métaux, et de l’énergie qui au niveau fédéral relèvent en premier lieu de Ressources naturelles Canada. Dans le cadre de la «réglementation intelligente» préconisée par le fédéral, ce chapitre examine la façon dont ces trois sous-secteurs de ressources ont réagi à cette multiplicité. Ce chapitre montre l’ampleur de la congestion de la réglementation mais il montre également les tentatives et les débats, en vue de nouvelles modalités importantes de réglementation complexe, dont des codes, des conventions et des formes de contrats sociaux et de gouvernance au niveau des entreprises. Il reste des questions et dynamiques difficiles en ce qui concerne l’espace et le lieu, ce qui crée des contradictions et contraintes alors que les divers acteurs font preuve d’une différence de points de vue concernant les investissements spécifiques d’entreprises, les ressources, l’utilisation et la production de ressources, et les questions toujours reliées d’écosystèmes en termes d’espace et de sites.

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396 Abstracts/Résumés

Jonathan Malloy

th e n e x t g e n e r at i o n ? r e c r u i t m e n t a n d r e n e wa l i n t h e f e d e r a l p u b l i c service This chapter discusses recent and ongoing reforms in the federal public service. It argues that, despite rhetoric that emphasizes change and dramatic renewal, actual reforms have been gradual and piecemeal at best. Different variables and dynamics have often worked against each other to prevent the wholesale transformation of the public service. This has meant the continuation of existing pathologies and problems, even though the public service has experienced significant turnover in recent years. The author argues for a more concerted focus on developing a “next generation” of public servants that can create new excitement and true renewal in the federal public service. Key to this is the continuing reform of the recruitment system as well as strong leadership and commitment from the highest political and public service levels. Ce chapitre discute les réformes récentes et en cours de la Fonction publique fédérale. L’auteur soutient que malgré la rhétorique du changement et du renouvellement dramatique, les réformes réelles ont été instaurées, au mieux, de façon graduelle et au coup par coup. La présence de plusieurs variables et dynamiques a souvent produit un conflit qui empêche la transformation globale de la fonction publique. Cela a permis aux pathologies et problèmes existants de continuer, malgré le renouvellement important de personnel survenu au cours des dernières années. Ce chapitre donne des arguments en faveur d’un effort plus concerté pour développer une prochaine génération de fonctionnaires, en vue d’assurer une nouvelle excitation et un renouvellement réel au sein de la fonction publique fédérale. La clé de cet effort, c’est la réforme continue du système de recrutement ainsi qu’un leadership et engagement forts aux niveaux les plus élevés du gouvernement et de la fonction publique. Luc Julliet

th e o f f i c e o f e t h i c s c o m m i s s i o n e r , a c c o u n t a b i l i t y, a n d p u b l i c tr u s t In March 2004 the Martin government gained parliamentary approval for the creation of a new independent Office of the Ethics Commis-

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397 Abstracts/Résumés

sioner to replace the discredited Office of the Ethics Counsellor. In an attempt to strengthen integrity and bolster public trust in government, the new commissioner will report to the House of Commons and have the authority to review the conduct of both members of Parliament and public office holders, including cabinet ministers. In this chapter, the author argues that, while some changes could be made to improve its credibility and legitimacy, the Office of the Ethics Commissioner represents a significant improvement over the Office of the Ethics Counsellor and could contribute to strengthening government accountability. However, given the complex factors underlying trends in citizens’ confidence, it is unlikely that a new institutional mechanism to deal with allegations of ethical misconduct by parliamentarians and public office holders will do much to bolster trust in government. En mars 2004, le gouvernement de Paul Martin gagnait lapprobation du Parlement canadien pour la création dun nouveau poste de commissaire à léthique. Ce poste plus indépendant se rapportera à la Chambre des communes et remplacera le controversé conseiller en éthique. Présenté comme une mesure devant accroître lintégrité du gouvernement et la confiance du public envers ses institutions, le nouveau commissaire aura lautorité nécessaire pour examiner le comportement des députés et les titulaires de charges publiques, y compris les ministres. Dans ce chapitre, lauteur avance que, bien que certaines modifications seraient susceptibles daccroître sa crédibilité et sa légitimité, le commissaire à léthique constitue une amélioration sur le système précédent et quil est susceptible de contribuer à une plus grande imputabilité du gouvernement. Par contre, considérant les facteurs complexes affectant la confiance des citoyens à légard des institutions politiques, il est peu probable que la création de ce nouveau poste contribue à modifier les attitudes des citoyens sur ce plan. Evert Lindquist, Ian Clark, and James Mitchell

r e s h a p i n g o t t aw a ’ s c e n t r e o f government: martin’s reforms in historical perspective This chapter reflects on how the central institutions of the Canadian government have evolved during the modern era, and it evaluates recent initiatives to reshape central machinery and processes, particularly those introduced by Prime Minister Paul Martin. It first outlines a framework for assessing the dynamics of the central institutions of government and then identifies the distinctive features of Canada’s centre,

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398 Abstracts/Résumés

including the role of the prime minister, factors affecting institutional design, and how the centre effects change in the system. The authors then review four eras of reform, identify broad patterns of reform and institutional change, and review the key challenges that the Martin government must address. The chapter goes on to assess Martins decision to establish a new expenditure management system and to narrow the focus of the Treasury Board Secretariat and to reassign its responsibilities to other central agencies and departments. It concludes by setting out the preconditions that will enable these new central arrangements to work. Ce chapitre se penche sur l’évolution des institutions centrales du gouvernement canadien au cours de l’ère moderne et il évalue les initiatives récentes visant à refaçonner la machinerie et les processus centraux, en particulier celles introduites par Paul Martin. D’abord, le chapitre présente un cadre pour évaluer la dynamique des institutions gouvernementales centrales et identifie les traits distinctifs du centre canadien, dont le rôle joué par le premier ministre en dirigeant ce centre, les facteurs affectant le schéma du centre, et la façon dont le centre effectue des changements dans le système. Les auteurs examinent ensuite quatre ères de réforme, identifient les tendances globales de la réforme et du changement institutionnel, et examinent les défis clés à relever par le gouvernement Martin ainsi que les implications en vue de la conception et des capacités des institutions centrales. L’article évalue ensuite la décision de Martin d’établir un nouveau système de gestion des dépenses et de réduire les pouvoirs du Secrétariat du Conseil du Trésor en attribuant certaines de ses responsabilités à d’autres organismes centraux et ministères. Il conclut par résumer les conditions nécessaires à la réussite de ces nouveaux arrangements centraux.

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Contributors

Andrew Bjorn is a PhD student in Urban Design and Planning at the University of Washington. Neil Bradford is a professor at Huron University College at the University of Western Ontario and is a research associate with the Canadian Policy Research Networks in Ottawa. Tyler Chamberlin is a lecturer at the School of Management, University of Ottawa. Ian D. Clark is president and ceo of the Council of Ontario Universities and was formerly the deputy secretary of the Treasury Board in the Government of Canada. John de la Mothe is the Canada research chair in innovation strategy in the School of Management at the University of Ottawa. G. Bruce Doern is chancellor’s professor in the School of Public Policy and Administration at Carleton University and holds a joint research chair in public policy in the Department of Politics at the University of Exeter. He is also the director of the Carleton Research Unit on Innovation, Science and Environment. Carey Frey is a master’s student in the School of Public Policy and Administration at Carleton University. Michael Hart is the Simon Reisman professor of trade policy in the Norman Patterson School of International Affairs at Carleton University.

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400 Contributors

Luc Juillet is associate professor and associate director of the School of Political Studies at the University of Ottawa. Karine Levasseur is a PhD student in the School of Public Policy and Administration at Carleton University. Evert Lindquist is director of the School of Public Administration, University of Victoria. Douglas MacDonald is director of the Environmental Studies Program, Innis College, University of Toronto. Jonathan Malloy is an assistant professor in the Department of Political Science at Carleton University. James Mitchell is founding partner in the policy consulting firm Sussex Circle and is a former assistant secretary to the Cabinet, Machinery of Government. Gilles Paquet is professor emeritus and senior research fellow at the Centre on Governance at the University of Ottawa. Stephanie Paterson is a PhD student in the School of Public Policy and Administration at Carleton University. Michael Prince is the Landsdowne professor of social policy and an associate dean in social development at the University of Victoria. James Rice is professor of social policy in the School of Social Work at McMaster University. Stephan Schott is assistant professor in the School of Public Policy and Administration at Carleton University. Tatyana Teplova is a PhD student in the School of Public Policy and Administration at Carleton University. Brian Tomlin is professor of international affairs at the Norman Patterson School of International Affairs at Carleton University. Glen Toner is a professor in the School of Public Policy and Administration at Carleton University and in the Carleton Research Unit on Innovation, Science and Environment. Debora L. VanNijnatten is an associate professor in the Department of Political Science at Wilfrid Laurier University Michael Wenig is a research associate with the Canadian Institute of Resources Law and an adjunct professor at the Faculty of Law, University of Calgary.

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the school of public policy and administration at Carleton University is a national centre for the study of public policy and public management. The school’s Centre for Policy and Program Assessment provides research services and courses in the evaluation of public policies, programs, and activities to interest groups, businesses, unions, and governments.

School of Public Policy and Administration Carleton University 10th Floor Dunton Tower 1125 Colonel By Drive Ottawa, on Canada K1S 5B6 www.carleton.ca/sppa

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The How Ottawa Spends Series How Ottawa Spends 2003–2004: Regime Change and Policy Shift Edited by G. Bruce Doern How Ottawa Spends 2002–2003: The Security Aftermath and National Priorities Edited by G. Bruce Doern How Ottawa Spends 2001–2002: Power in Transition Edited by Leslie A. Pal How Ottawa Spends 2000–2001: Past Imperfect, Future Tense Edited by Leslie A. Pal How Ottawa Spends 1999–2000: Shape Shifting: Canadian Governance Toward the 21 Century Edited by Leslie A. Pal How Ottawa Spends 1998–99: Balancing Act: The Post–Deficit Mandate Edited by Leslie A. Pal How Ottawa Spends 1997–98: Seeing Red: A Liberal Report Card Edited by Gene Swimmer How Ottawa Spends 1996–97: Life Under the Knife Edited by Gene Swimmer Ottawa Spends 1995–96: Mid–Life Crises Edited by Susan D. Phillips How Ottawa Spends 1994–95: Making Change Edited by Susan D. Phillips How Ottawa Spends 1993–94: A More Democratic Canada…? Edited by Susan D. Phillips How Ottawa Spends 1992–93: The Politics of Competitiveness Edited by Frances Abele Ottawa Spends 1991–92: The Politics of Fragmentation Edited by Frances Abele How Ottawa Spends 1990–91:Tracking the Second Agenda Edited by Katherine A. Graham How Ottawa Spends 1989–90: The Buck Stops Where? Edited by Katherine A. Graham How Ottawa Spends 1988–89: The Conservatives Heading into the Stretch Edited by Katherine A. Graham

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How Ottawa Spends 1987–88: Restraining The State Edited by Michael J. Prince How Ottawa Spends 1986–87: Tracking The Tories Edited by Michael J. Prince How Ottawa Spends 1985: Sharing the Pie Edited by Allan M. Maslove How Ottawa Spends 1984: The New Agenda Edited by Allan M. Maslove How Ottawa Spends 1983: The Liberals, The Opposition & Federal Priorities Edited by Bruce Doern How Ottawa Spends Your Tax Dollars: National Policy and Economic Development 1982 Edited by Bruce Doern How Ottawa Spends Your Tax Dollars: Federal Priorities 1981 Edited by Bruce Doern Spending Tax Dollars: Federal Expenditures, 1980–81 Edited by Bruce Doern

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