If Canada's economic and political centre of gravity continues to drift west over the next decade, the national public policy agenda will inevitably shift as a consequence.
It is likely that over the next decade Canada’s economic centre of gravity will continue to drift west and that to a degree it will pull demographic heft and political power in its wake. Of course, this is only an assumption; if we have learned anything over the past few years, it is that economic forecasting has all the accuracy we would expect from tossing bones on the cave floor. The manufacturing sector in central Canada could well rebound, shrugging off Asian competition and slumping American markets. Demand for western Canadian resources could decline if the American and global economies falter, and commodity prices could fall sharply if new continental supplies of oil and gas continue to be found, and if a more rapid transition to a low carbon economy erodes hydrocarbon demand. Nonetheless, even the possibility of an ascendant West raises three important questions. First, would it alter the existing national policy agenda by shifting priorities or creating new solution space for ongoing policy challenges? Second, would it bring new issues onto the policy agenda? Third, would either of these impacts be of sufficient magnitude to awaken the slumbering beast of national unity?
There are many policy issues for which regional coherence across the four western provinces is limited and for which regional differences, even if present, are little more than minor differences in taste and preference. There is no distinctive western Canadian approach to health care, Afghanistan or military hardware, and there are many other policy debates where it doesn’t matter a whit if the West is ascending or descending. However, there are contemporary challenges that could be brought into sharper focus by a national policy environment shaped by an ascendant West.
Although chronic labour shortages are a growing national concern, they are and will be particularly acute in the high-growth West, where unemployment rates are relatively low. Provincial governments in the West are therefore likely to attach greater priority to labour shortages and to push for national policy changes that would increase labour mobility (e.g., changes to employment insurance) and give them a greater say in the recruitment of immigrants and temporary foreign workers. At the same time, their policy leverage is relatively slight when it comes to labour shortages, and solutions are more likely to be found on the demand side, where private-sector innovations (e.g., self-checkouts) may have far greater impact than public policies designed to increase supply.
In the past, the redistribution of wealth came about through national programs underpinned by the good fortune that Canada’s most populous province, Ontario, was also its wealthiest. In the future, wealth may accumulate in relatively small provinces, and the mechanics of redistribution from small to big are vastly more complicated than the mechanics of redistribution from big to small.
The economic uncertainty brought about by unresolved Aboriginal treaty and land claims will be particularly acute in western Canada, where a large share of the Aboriginal population lives and where resource developments are inevitably entangled with Aboriginal claims. It can be expected, therefore, that western Canadians will be the most likely to push for policy resolutions and a greater degree of certainty. However, it would be foolish to expect that the status quo will change much by 2020. Indeed, First Nations themselves may come to the conclusion that their strategic position with respect to resource development is stronger when land claims are unresolved than when they are resolved; the interest in definitive policy settlements may thus decline with time.
We should expect western Canadians to bring a much greater sense of priority, even urgency, to the potential growth of Asian trade and investment. In the West, Asia means markets and investment opportunities, not increased competition. An ascendant West will therefore mean more policy pressure to strengthen the hard and soft infrastructure linkages connecting Canadian resources to Asian markets (see the Asia Pacific Foundation/ Canada West Foundation’s 2012 report, Securing Canada’s Energy Future). Expanding Canada’s gateway to Asia is seen in unabashedly positive terms in the West, whereas in the central Canadian provinces the possibility of greater and more unfettered Asian trade is at best a mixed blessing for a manufacturing sector already struggling with international competition.
The emerging national conversation about the need for and potential shape of a Canadian energy strategy has been largely led by governments (particularly Alberta), think tanks and industry associations in the West, while enthusiasm in other regions has been decidedly more restrained. An ascendant West will continue to provide impetus for this initiative, although success will depend on crafting a strategy that reaches well beyond the region’s energy resource base.
The tension between resource development and environmental protection will play out with particular force in western Canada, even though no region will be exempt. The current imbroglio over legislation to reduce the role of federal environmental oversight and to put time limits on the environmental assessment process is only a harbinger of policy disputes to come. The conflict does not stem from regional differences in environmental values, for it is difficult to demonstrate that Canadian Grand Prix spectators in Montreal are stronger environmentalists than are ranchers in southern Alberta. Rather, it comes from the varying importance of resource development across regional economies and the desire of environmental groups inside and outside the West to have more effective leverage on western Canadian resource development. An ascendant West will provide greater fuel for this conflict without necessarily dictating its outcomes.
Finally, Senate reform will rumble on as western Canadians provide ongoing if not necessarily enthusiastic support for it and elected Senate nominees continue to trickle out of Alberta. Although there is no strong regional consensus on Senate reform, its supporters are still found disproportionately in the West. The implicit and loosely articulated strategic goal between now and 2020 may simply be to provide enough momentum so that a new government will find it difficult to turn the clock back to an entirely appointed Senate. There are, then, a number of issues currently on the national policy agenda for which an ascendant West would provide enhanced political impetus. This regional impact will not rewrite the national policy agenda but could shape it in significant ways. The transformative potential of an ascendant West stems from new issues that may be pulled onto the policy agenda between now and 2020.
An ascendant West will pose two almost existential challenges for Canada. The first is how to confront the potential failure of the 1879 National Policy designed to promote a modern industrial economy led by a manufacturing sector able to compete in American and global markets. Canadians, we declared at the time and ever since, must resist being mere hewers of wood and drawers of water. Indeed, the National Policy was broadly successful, even if its regional impact was very uneven. How, then, do we handle a future where the western Canadian hewers of wood and drawers of water seem to be doing very well, and where the manufacturing sector struggles? The second and closely related challenge is how to handle the potentially disproportionate accumulation of wealth in the West, regardless of whether this brings in its wake the dreaded “Dutch disease.” In the past, the redistribution of wealth came about through national programs underpinned by the good fortune that Canada’s most populous province, Ontario, was also its wealthiest. In the future, wealth may accumulate in relatively small provinces, and the mechanics of redistribution from small to big are vastly more complicated than the mechanics of redistribution from big to small.
The prospects of a sustained resource boom in the West pose very significant policy challenges for provincial governments in the region. Continued reliance on resource extraction will make the Holy Grail of economic diversification even more elusive, government revenues will continue to fluctuate with volatile commodity prices and tensions between resource development and environmentalists will escalate. Some provinces, particularly Alberta, will need to grapple with the disposition of budget surpluses. Should these be spent on social services, used to reduce taxes or saved for the future? The larger conceptual challenge will be to position resource economies within an increasingly knowledge-based global economy, and to ensure that provincial residents have full access to the opportunities of the latter.
The national policy challenge will be whether to resist or accept this “revenge of the hewers and drawers.” Will we try to turn back the clock to the 1950s and 1960s, or will we learn to profit from a future where global markets express more interest in Canadian resources than in our manufactured products? What steps, if any, should be taken to shore up the traditional manufacturing sector in order to resist the drift toward higher reliance on resource extraction? If the decision is taken to resist the commodification of the Canadian economy, what policy tools are available to the federal government?
This debate has recently been framed in terms of the Dutch disease, and here it is important to realize that there are two very different sides to this medical diagnostic. The first is whether the affliction is real. To what extent can declines in the manufacturing sector be attributed in whole or in part to the strength of the resource economy? If the effects are significant, then the second question relates to the appropriate policy response, which could range from “Such is life” to aggressive policies designed to weaken the resource economy, strengthen the manufacturing economy or both. Should the federal government attempt to protect the manufacturing sector from international competition by driving down the value of the Canadian dollar, and if so, by what means? A subsidiary and important question is to what value would the Canadian dollar have to fall to ensure the manufacturing sector is adequately protected from international competition. Would a 90cent dollar suffice, or would we need a dollar closer to 80 or even 70 cents? The lower the dollar threshold, the more draconian the policies would have to be in order to suppress production and investment in the West. These questions take us directly to the challenges of wealth redistribution that arise from the uneven geographical distribution of resource wealth.
Canadians across the board have accepted the need for at least modest redistribution of wealth through a progressive income tax and the equalization of provincial financial resources, in order to ensure that provincial governments can offer approximately the same level of public services for approximately the same level of taxation. None of this is perfect, but this modest redistribution of wealth is part and parcel of the Canadian political culture and, not surprisingly, has found constitutional expression. Unfortunately, the traditional mechanisms through which redistribution is achieved, and particularly redistribution across provincial communities, may no longer be up to the task. Programs designed to restrict labour mobility, to bring jobs to people rather than people to jobs, will be contested by the West, where labour shortages will be acute. The equalization formula is essentially driven by differences in personal income among federal taxpayers resident in different provinces. As currently designed, it does not touch the accumulation of wealth that may build up within provincial governments in an ascendant West, and it only indirectly addresses provincial differences in resource revenues. Moreover, as noted above, the future of the equalization formula is cast into doubt when Ontario is a net recipient, and the net contributors are the relatively small provinces in western Canada. The math simply doesn’t work.
But are other policy tools available? This question takes us directly to the issue of carbon pricing. It is unlikely that by 2020 Canada will be able to avoid adopting some form of carbon pricing, assuming that global pressure in this direction continues and that the United States moves toward a coherent carbon pricing strategy (a big assumption, to be sure). If carbon pricing is on the 2020 policy agenda, the critical issues will be its design and intent. If the primary goal is to reduce the country’s carbon footprint and thereby meet international greenhouse gas emission reduction targets, this would suggest pricing mechanisms that would be applied to both production and consumption. In blunt political terms, this would mean mechanisms that would apply to both the oil sands and commuters on highway 401. Mechanisms of this sort would not be designed to redistribute wealth from regions that are heavy on the production side to regions that are heavy on the consumption side, and could likely be sold in western Canada. However, if the explicit or implicit intent of carbon pricing is to address the Dutch disease by throttling the western Canadian economy to the point where the value of the Canadian dollar would plunge to allow central Canadian manufacturers to compete with low-wage countries in the developing world, then the political risks would be much, much greater. If national carbon pricing is little more than a green-wash for policies designed to redistribute wealth, then the reaction in western Canada could be ferocious.
Can we find means to ensure some reasonable equalization of wealth that do not rely on policy measures to curtail economic growth in western Canada and work when the most populous provinces are redistribution recipients?
Here the political context of 2020 could be particularly important. The year 2020 will mark the 14th anniversary of the 2006 election of a minority Conservative government under the leadership of Stephen Harper, and the historical odds suggest that a change in government will have taken place by 2020. Although at this time it is difficult to see what the outlines of a new government might be, and thus what the impact of that government might be on an ascendant West, we cannot rule out a government with strong representation from Ontario and Quebec but minimal representation from western Canada. This would set up a critical test for the federation: Would the economic clout of the West be sufficient to ensure that the region’s interests are addressed regardless of the partisan complexion or regional composition of the federal government?
Speculation about the national policy agenda in 2020 raises some very large policy questions. Is there a new industrial development model for Canada that takes into account new global realities and a new era of sustained prosperity for the country’s hewers of wood and drawers of water? Can we find means to ensure some reasonable equalization of wealth that do not rely on policy measures to curtail economic growth in western Canada and work when the most populous provinces are redistribution recipients? Can we find ways to harness rather than curtail economic growth in western Canada? And can we do so without exacerbating regional and intergovernmental conflict?
Fortunately, the incremental changes to the existing policy agenda discussed in the first part of this article are unlikely to trigger concerns about national unity. However, debates about industrial policy and the redistribution of wealth are fish from a very different kettle. And, when the two are rolled together, the national unity concerns could become acute. Here I would argue that NDP leader Thomas Mulcair has only lifted the corner on what could be a very acrimonious debate about Canada’s future. Western Canadian perspectives on industrial policy and redistribution could very well challenge our basic understanding of Canada. But there again, this is precisely what western Canadians have been trying to do since the get-go of the agrarian frontier at the turn of the last century. The only difference is that by 2020 western Canadians will have the economic and political clout to walk the talk.