Divided we stand

Western Canada’s place as the country’s economic engine isn’t changing anytime soon. That puts the onus on policy makers to take a new look at their priorities—for all Canadians’ sake
By Ian McGugan

Nearly 70 years ago, a novel by Hugh MacLennan captured the struggle that then weighed on many Canadian minds. Two Solitudes told the story of a young writer torn between French and English cultures.

If that quintessentially Canadian novel were to be written today, it would be radically different. The title would more likely be Three Solitudes and the protagonist would be a federal finance minister struggling to knit together the competing demands of a struggling Ontario, an increasingly marginalized Quebec and a booming Western Canada.

The tension between the three regions has been building since at least 1980, when Ottawa imposed its draconian National Energy Plan on an unwilling oil patch. The regional animosity has festered ever since but has taken on a new urgency at a time when Ontario’s manufacturers are slipping into what may well be long-run decline and Quebec’s economy continues to swoon due to an aging population and protectionist economic regime. Without a prosperous centre to hold together the national economy, Canada is becoming a nation divided between Western haves and two Eastern have-nots, each with serious problems of its own.

The split involves culture, history and politics, but fundamentally it’s about money and the tough choices that are being forced upon decision makers as the economic logic that once supported Confederation begins to pull against it.

Canada Inc. has long resembled a diversified portfolio, with the West providing exposure to energy and raw materials, Ontario offering manufacturing and financial expertise, and Quebec throwing in access to hydroelectric power and the key transportation link of the St. Lawrence Seaway. This Confederation portfolio didn’t always run smoothly but it did have a certain sense to it.

The tensions that emerged in this arrangement arose because the West perceived—quite correctly—that its economic contribution outweighed its political power. But two factors prevented the West from pushing its case forward. One was the relative affluence of Ontario, which regularly contributed the most to the national bottom line and acted as a counterweight to the wealth of the oil patch. The other was the ballot box. Viewed as a group, the combined population—and voting power—of Manitoba, Saskatchewan, Alberta and British Columbia was just about exactly even with Quebec’s in 1980.

Neither factor holds true any longer. Today, the combined population of Manitoba, Saskatchewan, Alberta and British Columbia totals about 11 million compared to roughly 8.2 million Quebecers. Just as importantly, there is no longer a prosperous Ontario to act as a bridge between the West and Quebec. Until the 2009-10 fiscal year, Ontario was the only province to have never received federal equalization payments; that year it officially became a have-not province and it has since gobbled up huge amounts of federal money. The auto plants that once made the province rich are now facing tough times.

Canada’s three most westerly provinces now underwrite the nation’s equalization program, with a minor assist from Newfoundland’s sudden oil riches. As the West emerges as the undoubted economic engine of the country, policy makers will have to take a new look at their priorities. Consider:

Monetary policy: If the oil patch boom continues apace, it is likely that the Bank of Canada will soon face the challenge of putting a lid on inflationary pressure in the West, where home prices are mostly booming and unemployment barely registers. The challenge for the central bank will be trying to gently cool the West’s red-hot economy without crushing the East’s far more fragile fortunes. An interest rate hike suitable for a booming West would be crushing for the embattled East. On the other hand, an easy money policy appropriate for the East would only feed the West’s incipient inflation.

Agricultural policy: Canada’s supply management system, which controls production of milk, cheese, eggs and poultry, saddles all Canadians with prices that are higher than international levels. Yet the system survives—a tribute to the enduring power of the Eastern agricultural lobby.

That power may crumble, however, if Western provinces decide that gaining access to Asian markets in international trade talks such as the Trans Pacific Partnership is more important than defending the incomes of a dwindling number of farmers. The political calculus is shifting, as the fortunes of dairy and chicken farmers—a disproportionate number of whom live in Ontario and Quebec—no longer loom so large in the national economy.

Equalization policy: With Ontario’s economic slide, the West has been forced to take on nearly sole responsibility for funding the equalization program. It’s not a situation that will go unchallenged for long. “The biggest economic problem facing Western Canada today is actually the Ontario economy,” Dylan Jones, president of Canada West Foundation, told CBC in a recent interview. “Ontario’s now getting about $3 billion a year in equalization payments. The provinces that are supporting equalization for the whole country are British Colombia, Alberta and Saskatchewan, and so the reality is, if the economy in Ontario continues to struggle, that presents huge challenges to the rest of the country.”

The toughest challenge of all may be growing used to the notion that central Canada is no longer the fulcrum for the national economy. Like it or not, we are now a country that looks West for job creation, for economic growth and for equalization payments. It’s only natural, then, to expect the West to set the political agenda as well in an era where three solitudes, not two, are the national norm.

Ian McGugan is an award-winning business journalist in Toronto and the founding editor of MoneySense magazine. E-mail: imcgugan4@ gmail.com.

Sidebar:

High times, heavy lifting: Alberta and Saskatchewan are where it’s at for jobs, population growth and the burden of equalization payments

Bank of Canada governor Stephen Poloz calls it a “two-track” economy. And you get the sense it’s got policy makers feeling seriously stretched trying to straddle both sides. On one track, Saskatchewan and Alberta; the two provinces lead the country in rate of population growth and provincial employment growth. (See charts, image below.) On the other track, the rest of the country, with Ontario and Quebec—still a bit awkward among the have-nots—being  undercut by losses in the manufacturing sector. How pronounced is the  imbalance? In the 12 months ended June 30, Alberta was responsible for all of Canada’s (paltry) net employment growth, gaining 81,800 jobs while the rest of the country, even including Saskatchewan, lost 9,500.

Click to enlarge

 

 


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