Canadian federalism has always been a work in progress. The reason is that as federal states go,  Canada is a relatively complex one. The British North America Act created a set of complex balances within our Constitution: unity versus diversity, the reconciliation of national with regional interests, and federal and provincial autonomy of responsibility in some areas of jurisdiction, accompanied by shared responsibility in others. When the British North America Act was written in 1867, most of the public services we have come to regard as necessary today simply did not exist and could not have been foreseen. As social needs grew throughout the 20th century, provincial governments did not have the financial resources to respond, with the result that the federal government stepped in with its superior fiscal capacity to create national programs in health care, social services, post-secondary education and pensions.

Until late last year, most observers of Canada’s federalprovincial scene expected that the next two years would be dominated by one huge issue " the negotiation of the successor to Paul Martin’s 2004 Health Care Accord, which was running out at the end of 2013-14.

Well, not so much. On December 19, 2011, Finance Minister Jim Flaherty caught everyone by surprise by announcing a significant future federal financial commitment to health care. The current 6 percent annual escalator would be extended for an additional three years to 2016-17, after which the Canadian Health Transfer would grow in line with the three-year moving average of nominal GDP growth, with a guarantee of no less than 3 percent each year. After some half-hearted complaints, the premiers vacated the field, recognizing the challenge of arguing they had been hard done by when many observers were marvelling at the generosity of the federal commitment.

For the last half-century, these social programs have collectively been the elephant in the room of federalprovincial relations, so Flaherty’s announcement last December was just the latest development in the long evolution of Canada’s social union. This writer and others have noted that the new federal approach on social programs represents a departure from executive federalism as we have come to know it and a return to a more traditional approach to the exercise of constitutional powers. Health care is important to the future of the federation, but the federal government has essentially turned the page " it will provide ample fiscal support, but the provinces will have to sort out how to reform the system to make it more efficient and sustainable; otherwise, it will eat them out of house and home.

So, what comes next? What are the other issues that will occupy the space at federal-provincial ministerial meetings over the next few years? How are these issues being handled by the respective levels of government, and what insights do they provide into the changes that are taking place in the structure of federal-provincial relations?

First, the hot issues today and for the future are economic as opposed to social. They are about how Canada will adapt to globalization, and how we can build an innovative and competitive knowledge economy that supports greater productivity and long-term prosperity. Second, leverage and return on investment are the new orders of the day. Federal spending commitments are nowadays increasingly expected to drive collaboration not only among the three levels of government, but also among different groups " universities, colleges and research institutes, and the private and voluntary sectors as well.

By far the most complex of these issues is labour market management. Beneath the surface, it involves areas of federal jurisdiction, provincial jurisdiction and shared jurisdiction " all mixed up, often overlapping and frequently at odds with each other. At stake is a critical component of our national economy, the flexible and efficient matching of people with employment. As the Fraser Institute reminded us in 2008, ”œLabour markets are among the most important components of an economy. They are the mechanism through which human knowledge, experience and creativity are traded for compensation.”

It all sounds pretty simple, but actually it is not. In reality, several glaring inefficiencies now dominate the management of Canada’s labour market. These inefficiencies are hugely damaging to our productivity, wasteful of human resources and regionally divisive.

Consider the evidence:

  • Thousands of high-paying jobs regularly go wanting in high employment areas of the country, while our Employment Insurance system chokes labour mobility by paying people not to work instead of moving to areas of job needs;

  • Canada admits thousands of temporary workers from outside the country every year, many of whom are approved to work in areas of high unemployment; and

  • Our immigration system is overwhelmed by 460,000 people waiting to come to Canada " a backlog that our grindingly slow system would take eight years to clear, but only if we stopped taking new applications.

If we look more closely at these issues, we see a federal-provincial system that is belatedly coping with the need for reform, but that needs a lot more creativity and hard work to meet the needs of the modern knowledge economy. Three challenges dominate the scene: our woefully outdated Employment Insurance system (federal jurisdiction), the selfish and self-serving provincial determination of work credentials (provincial jurisdiction) and our national immigration system (joint jurisdiction) that was designed for an era that has long since departed.

As noted recently by the Mowat Centre (Making It Work: Final Recommendations of the Mowat Centre Employment Insurance Task Force, 2011):

Today’s EI program is an outcome of decades-long inertia and tinkering. It is built on a foundation designed for the labour market of the 1970s. Many pieces were introduced at different times, by different governments, and with different priorities. Many EI components have aged poorly and/or do not work well together. The program is no longer consistent with the objectives of a modern income support program for the unemployed. Overall, the system’s design cannot be defended on a principled basis.

As the Mowat report details, not only does EI fail to meet the needs of some key unemployed groups (immigrant workers, youth, Aboriginals and persons with disabilities), but it also treats Canadians as citizens of supposedly depressed or advantaged regions as opposed to citizens of a country entitled to a common set of standards and benefits. This may have been a great idea for the 1970s, when workers spent their entire lives in one industrial sector, when edu-cational attainment was weak and labour mobility was rare, but it is woefully inadequate today.

The good news is that the traditionally poorer regions are doing much better than they used to do, but the bad news is that EI has not adapted and modernized. The long-standing discrepancy in GDP per capita has closed between the Atlantic provinces and Ontario. Saskatchewan, not Ontario, is now the second-wealthiest province in the country, and overall, the gap between the richest and poorest provinces has narrowed by 20 percent since 1981. Today, the highest percentage of working-age individuals with low incomes lives in Ontario and British Columbia; the lowest percentage in Atlantic Canada.

Moreover, the redistributive aspects of EI have now become perverse, both regionally and occupationally. For every dollar Newfoundland and Labrador puts into the scheme, it takes out about $5, while Ontario gets about 60 cents on the dollar. And the inequities are not just regional. Benefits of EI accrue disproportionately to primary industries whose older, rural and seasonal workers get preferential treatment from the basic structure of the system. And the system is hopelessly complex. As the Mowat Centre report points out, ”œTo decipher how long benefits will last, a Canadian needs to consult 12 categories of rates of unemployment (across…58 regions) and no less than 41 categories of hours of insurable earnings.”

Budget 2012 began the process of rationalizing these complexities.

Effective April 7, 2013, the new ”œBest Variable Weeks” measure will collapse the current 58 EI regions down to nine, and enable the value of EI benefits to be calculated using the best weeks of earnings during the qualifying period, usually 52 weeks. The new system will reduce the existing disincentives to taking all available work prior to going on EI, and will also increase regional fairness by ensuring that all people living in areas with similar labour market conditions receive similar benefits. It is an important step toward modernizing an outdated program, and enabling it to support a more efficient labour market.

Provinces in this country regulate the qualifications and licensing required by various professions to practise within their borders: doctors, teachers, lawyers, physiotherapists, agronomists, dietitians, accountants, massage therapists, pharmacists, land surveyors, embalmers, speech language pathologists, naturopaths, etc. Province by province, and territory by territory, all of these professions have their own standards and requirements, and they are all just a little bit different from each other. National Post editor Marni Soupcoff captured this perfectly in a recent column ”œWhy so many immigrant professionals are driving cabs. And what Jason Kenney can do about it”:

Someone who wants to work as an accountant [in Ontario] must become a member of the Institute of Chartered Accountants of Ontario. To do that, they need to determine if they have been a member of a foreign accounting board that is ”œrecognized” by the International Qualifications Board. If they have, they must pass a reciprocity examination and complete (or be exempted from) a three-year practical work experience requirement. Then they must pay a fee. If they have not been a member of a foreign accounting board that is ”œrecogized” by the International Qualifications Board, they must have their qualifications and experience evaluated by the Institute; complete an approved course in Canadian business law; complete the Institute’s Professional Program, including the Core Knowledge Examination (CKE), and the School of Accountancy (SOA) which includes the End-of-School Examination; pass a uniform evaluation; complete the three year work experience requirement. And then pay a fee.

Got all that? Right. The fact is that  provinces and territories are in the thrall of their professions, and the result is pure and simple protectionism. Of course, professional and public safety standards are important and need to be maintained, but much of this bureaucratic overburden represents nontariff barriers to labour mobility both for domestic workers and for foreign-trained professionals. It’s stupid and we all pay the costs for this nonsense.

Some progress is being made. In 2009, the Pan-Canadian Framework for the Assessment and Recognition of Foreign Qualifications was created by the federal/provincial/territorial governments. They are beginning to work through the various existing certification systems and move toward common standards. In 2010, service standards were established to enable internationally trained professionals in eight priority occupations, including accountants and engineers, to have their qualifications assessed anywhere in Canada within one year. The next priority is an additional six target occupations, including physicians and dentists. It is slow and painstaking work, involving all 14 governments and hundreds of stakeholder groups as well, but it’s a start.

The third issue in labour market management is immigration and it is an area of joint jurisdiction. For many years, the principal objective of Canada’s immigration system was family reunification, but now the focus is moving quickly to meeting Canada’s labour force requirements. The new impetus is clear. As federal immigration minister Jason Kenney said in a recent speech, ”œWe announced in our budget a couple of weeks ago that we will be reforming Canada’s immigration programs to better align them with our labour market needs in this country to fuel our economy.” There are a number of elements to these reforms:

  • Reconfirming the planning range of roughly 250,000 permanent new residents per year for the foreseeable future;

  • Transforming Canada’s economic immigration programs to create a ”œjust-in-time” system that recruits people with the right skills to meet our labour market needs, fast-tracks their immigration and gets them working in months as opposed to years;

  • Eliminating the backlog of some 280,000 applicants under the Federal Skilled Worker Program, to allow a tighter focus on those who have applied to come to Canada under the current eligibility criteria;

  • Creating a Web site that will enable employers to more readily access information on federal programs, to help them hire permanent or temporary workers when no Canadians are able to fill a position;

  • Creating a pre-arrival system of foreign credentials assessment to enable potential economic immigrants to gain a more accurate sense of how employers will value their education; and Continuing to work with the provinces and territories and professional associations on streamlined credentials recognition, as well as the future creation of thirdparty credential assessment organizations later this year.

If we summarize these developments, it is clear that constitutional jurisdictions are still important, and when national issues such as the need to fix labour force management emerge, they can be barriers to progress. Employment insurance is within federal jurisdiction, but premiers are beginning to weigh in on the perverse effects the program is having on their respective economies. The federal government cannot ”œmake” the provinces deal with the inefficiencies of credentials recognition, but it can use its moral suasion to highlight issues, provide encouragement and support and work with them collaboratively to make the system more responsive. The provinces already have a say in immigration policy, and it is clear the federal government is not only listening but also pursuing a collaborative approach to the benefit of all. If Canada is to have a more effectively coordinated labour market, all three elements " EI, credentials recognition and immigration " need to be working in tandem instead of at cross purposes. Finally, progress is being made.

Another area that provides insight into the evolution of federalprovincial relations is innovation.

Perhaps the starting point is the relative ease with which both levels can agree to the premise that innovation is the enabler of greater productivity, which, in turn, benefits employers and employees, producers and consumers, and governments and citizens. The more we innovate as a society, the more productive our economy will be, and the more our quality of life will improve.

These are pan-Canadian and pangovernmental themes and there are no jurisdictional assignments to worry about, so it is interesting to see how the two levels of government are learning to work together. Beginning well over a decade ago, the federal government began putting in place a number of national agencies with mandates directed toward various parts of the innovation enterprise.

These included the following:

  • CANARIE (Canada’s Advanced Research and Innovation Network), whose mandate is to build a national network of fibre optic cable to link researchers and innovators across the country;

  • Genome Canada, with a mandate to develop and implement a national strategy for genomics and proteomics research projects; and

  • The Canadian Foundation for Innovation, which invests in research infrastructure " the stateof-the-art facilities and equipment in Canada’s universities, colleges, research hospitals and nonprofit research institutions.

Equally important to their respective mandates has been the strong federal government expectations that these organizations would work cooperatively and collaboratively with provincial governments, universities and colleges, and research institutions and the private sector, that they would leverage federal investments with contributions from these partners, all with an eye to maximizing return on investment.

All three of these organizations have been significantly successful in building out their respective mandates in cooperation with provincial governments. CANARIE has partnered with 12 provincial and territorial advanced network partners to create advanced fibre optic infrastructure. Genome Canada has built a network of six regional centres to facilitate access to leading-edge technology for researchers, allow for different approaches to project development and fundraising, and provide opportunities for public outreach programs at a regional level. Since its inception in 1997, the Canadian Foundation for Innovation has invested $5.4 billion in 7,100 research infrastructure and equipment projects, leveraging another $6.6 billion in additional contributions from provincial government, research institution and private-sector partners.

What is interesting about how these developments on the innovation front have rolled out is that they have been marked by a distinct lack of federal-provincial controversy or argument. At least part of the reason is the shared belief in the value of supporting the development of infrastructure and ”œbig science” to build a more innovative and competitive economy. Another important factor is the flexible approach taken by these agencies. They do not tell the provinces what to do or how to do it, and wherever possible, they share the priority-setting process. Most importantly, they build in lead time to enable provincial, university and private-sector contributions to be planned and phased. On this file, the result is what we used to call ”œcooperative federalism.”

The examples of labour force management and innovation show how federal-provincial relations are evolving. Jurisdictional responsibilities can still be barriers to efficiency, but they can be overcome when there is recognition of national needs that transcend the details of sections 91 and 92 of the Constitution. It is perhaps important to note that these issues are no longer being worked out at highprofile First Ministers’ Conferences, but at the lower levels of cabinet and agency responsibility.

It remains to be seen whether and how this new ”œnetworked federalism” will bear fruit and whether it will be extended to other sectors such as energy, where there are growing calls for a new national strategy. Most important, it appears, on these two fronts at least, people are getting on with it. They are finding new ways to make the Canadian federation work more effectively and efficiently. And that’s a good thing for all of us.