The incoming chair of the Council of the Federation, Premier Darrell Dexter of Nova Scotia, says that it’s a fascinating time to take over as chair of the council. This is because, he says, the Conservatives are adopting a “classical approach to Confederation” and making “a significant departure from what we have seen.” According to the Premier, the federal government has decided that it is going to stick to its knitting and the provinces must stick to theirs. Dexter claims this is a dramatic change from what we have known. The federal government is unilaterally retreating behind a firewall of its own making, a sort of mirror image of what Stephen Harper once infamously called on Alberta to construct.
The Prime Minister has been quick to agree with the main thrust of Dexter’s argument. While not resurrecting the idea of firewalls, he is happy to restate the same point in different words. For example, he says that, unlike in the past, future transfers to the provinces will be unconditional, since social programs are exclusively the provinces to manage. The federal government both “trusts the provinces to do the job” and insists that it “is theirs to do” on their own. It is, he suggests, a matter of ideology, and it brings to an end the long period of federal dominance in provincial affairs.
Jeffrey Simpson of the Globe and Mail was quick to agree, claiming that the next health financing agreement will be a radical break with what has come before. By turning over money without asking for anything in return, he says, the Harper government is “breaking with 55 years of federal policy.” We are now, he suggests, to be governed by strict constitutional principles. The federal and provincial governments from now on will each take care of their own business and stay out of the hair of the other.
I argue that whatever their rhetorical merits, these claims involve a gross oversimplification of the historical reality. The long mythologized belief that the development and maintenance of the Canadian social safety net are largely attributable to a strong, dominant federal government pushing and cajoling relatively weak and recalcitrant provinces is misinformed, at best, and simply wrong, at worst.
It ignores much of reality of the dynamics of federal-provincial relations over the last 55 years to which Simpson refers. These relations can best be understood as an ongoing contest between the provinces and the federal government for power and influence. The primary interest of the provinces has been to maximize dominance and control over social policy, while at the same time maximizing financial transfers from the federal government. The primary interest of the federal government, on the other hand, has been to maintain a credible presence in national social policy, while keeping as much control as possible over the fiscal consequences of attempting to achieve this impression. While some provinces, particularly the less well off, have pursued slightly divergent strategies at times to achieve some fiscal advantage, the strategies of the provinces as a collective have consistently been in accord with these objectives. None have for any period of time lost sight of their primary objective to maximize control over policy and programs, and over time they have learned to be very effective in pursuit of this goal.
The contest with the federal government has never been a fair fight, if by a fair fight one means that each has roughly equal resources and capacity to achieve their ends. The provinces have consistently outmanœuvred and overachieved in pursuit of their interests. The federal government has always been on the defensive, desperately attempting to use money and influence to maintain a meaningful foothold in substantive policy. But, as is always the case in an unfair contest, the federal government has continually been forced to pursue defensive strategies with relatively weak results.
I specifically argue two things. First, contrary to popular myth, there was not in fact a prolonged period after the Second World War during which the federal government played the defining role in the creation of the modern social programs that are thought by many to define Canada today. Claims that there was such a time are based on illusion rather than fact. And while it has been in the interests of the federal government to legitimize and sustain the illusion if possible, it is a difficult thing to do. Second, contrary to the belief that the growth of the welfare state was almost entirely attributable to strong federal leadership, the federal government has been continuously forced into the defensive as a result of circumstance and effective provincial strategies. By that I mean that the last 50 years has been largely the story of a federal government desperately attempting to maintain a foothold in social policy-making in the face of highly energized and highly effective provinces. Even during the period of greatest federal activity — the last half of the 1960s — the federal government was concerned more about provincial dominance than it was about the welfare state per se. Understanding this helps put the claims made today in perspective.
The long mythologized belief that the development and maintenance of the Canadian social safety net are largely attributable to a strong, dominant federal government pushing and cajoling relatively weak and recalcitrant
provinces is misinformed, at best, and simply wrong, at worst.
Let me make two observations about the methodology I use in coming to these conclusions. First, for good or bad, I rely to some considerable extent on observations based on direct experience. Having spent more than three decades at the senior political and executive levels in provincial and territorial governments, I have had privileged access to the relevant strategizing and engagements that have dominated federal-provincial relations over the period. Most of these are never open to direct observation by analysts and academics.
Second, those who are familiar with rational-choice theory will recognize that my analysis is very much within that tradition. This should not be taken as a broad-based endorsement of rational-choice theory in framing studies of the policy process. However, just as the rational-choice method has been found to have been informative in understanding relations between states, so too, I argue, does it have considerable explanatory power with respect to modern federal-provincial relations.
The idea that the federal government’s preoccupation with the national interest dominated the last 55 years of social policy in Canada is part of a Canadian myth. Of course, myths are not necessarily inconsistent with reality. But myths may or may not accord with reality. Myths take the form of systematic narratives constructed around heroes, great obstacles, heroic efforts, glorious successes and the triumph of virtue. The myth of the federal government’s dominant role in creating and sustaining the modern welfare state, as Simpson claims, has all of these and more. It has been widely embraced by academics, social policy activists, senior federal public servants and politicians, and the public.
The narrative starts with the Canadian reaction to the shocks of the Great Depression and the war that followed it. Canada, like many industrialized nations, faced a daunting task of reconstruction and modernization. A national effort was needed, but even though the provinces had primary responsibility for social programs, they were not able to respond effectively. Only the federal government was equipped to mount such an effort.
According to the myth, the provinces not only were unable to respond but indeed were often an obstacle to federal initiatives. Historically, provinces managed an array of postage-stamp programs and services, which varied greatly and failed to meet the standards required in a modern welfare state. The federal government struggled valiantly to make progress, but was constrained by limited constitutional authority and recalcitrant provinces. Some of the evidence of provincial resistance is legendary, including cases of the provinces joining in court actions contesting federal initiatives. Quebec created a special problem because of both its inflexible defence of provincial rights and its general resistance to modernization.
However, again according to the myth, progress was made largely as a result of federal commitment and determination. Federal unemployment insurance and a national pension plan are early instances of federally determined initiatives. So too is the creation of the national hospital insurance plan of 1957, which saw the federal government pay the provinces 50 percent of hospital costs, conditional on them accepting quite a number of conditions. The jewels in the crown were the Canada Assistance Plan in 1966 and Medicare in 1967. These measures ensured that people all across Canada are assured access to a comprehensive array of national programs that are governed by national standards.
The exact truth about federal and provincial roles in the so-called golden era of the second half of the 1960s is hard to unravel, given the intractability of the myth. The NDP claims a considerable degree of ownership over the ideas upon which the system was built, and the Liberals claim the part of the credit for putting them into practice. Both continue to speak of the dominant role played by the federal government. Without federal leadership and significant involvement, they agree, our welfare state would not have developed or survived. During the 1960s and early to mid-1970s, this myth was widely embraced within the federal government, particularly among the elites making up its upper echelons. Many prospective candidates for the public service coming out of the top universities will recall federal ministers, deputy ministers and senior civil servants dismissing the provinces as junior players plying the policy backwaters, largely ignoring the national interest and comparing unfavourably, of course, with the federal government, where all the creative ideas and initiatives to advance the national interest were concentrated.
But certain awkward questions arise. Was not the federal public urge to get involved more a response to public opinion, which strongly supported robust social programs all across the country, than to any carefully calculated national interest? Did not the federal government, if one is more truthful, engage to avoid becoming an irrelevant presence in the eyes of citizens? Were not the provinces much more actively engaged in setting the agenda and determining the shape and form of the postwar programs and services making up the welfare state than the federal elites let on? Indeed, had not most of the creative policies and programs that found their way onto the national agenda been tried in some form by some or all of the provinces?
To me, and to many others, provincial leadership appeared to be much more important than was being acknowledged. Some of the best political and professional talent in the country in the 1960s could be found in the provinces. Intelligent young premiers in waiting, and by the early 1970s newly elected or soon-to-be elected activist premiers, were to be found on the provincial scene, including Peter Lougheed, Dave Barrett, Allan Blakeney, Ed Schreyer, Bill Davis, Robert Bourassa, René Lévesque and Richard Hatfield. Highly skilled at asserting and securing provincial interests first and foremost, it appeared to many that much more of the initiative for change actually might rest with the provinces.
It is now clear that the provinces were active indeed. The provinces and the provincial leaders were vigorously pursuing a two-track strategy requiring deft management. One important objective was to maximize the amount of federal money coming into provincial coffers. The revenue-raising capacity of the provinces was constrained by the imbalance that we know as the fiscal gap. Another objective was to exercise the fullest possible control and jurisdiction over social programs, particularly health and education.
For many outside observers, it has been hard to unravel the influences these two objectives have had on federal-provincial relations. Provincial strategies to maintain control over social programs had to be carefully managed politically, not the least because provincial leaders needed to extract generous federal transfers to keep taxes low. Thus there was a need to appear to make compromises to maximize the flow of federal financing that could be claimed to be associated with social programs. The federal government was also forced to pursue complex and difficult to understand strategies. The appearance that the federal government might be irrelevant has always been feared because it would weaken the identification of citizens with the federal government. Thus even today Stephen Harper insists the transfers are to support provincial social programs, even though they simply supplement the general revenue of the provinces and are treated that way in provincial budgeting.
The federal government paid a very high price to keep up appearances. This was true in the case of the 1960s agreements to share half of the actual costs of programs, even though the degree of federal control was quite minimal and most of the standards were consistent with provincial beliefs about how the programs should be defined in any event (beliefs to some considerable extent based on public opinion).
The cost-sharing arrangements embedded in the agreements were neither rational nor sustainable. With a commitment to so-called 50-cent dollars, the federal government lost control over expenditures on these programs. The arrangements at the same time created a serious distortion in provincial decision-making by creating incentives to spend on the programs. The fact that the federal government ever agreed to such obviously flawed arrangements revealed its desperate fear of being left out in the rush to meet the public demands for a modern welfare state in Canada and undermined the already tenuous federal presence.
The 50-50 cost-sharing was prohibitively expensive for the federal government and gave it relatively little in meaningful results, compared to what would have been if it had not been adopted. The outcome was no contest. The provinces were the clear winners.
Further, the pattern was set. The federal government has always been vulnerable to the argument that it should bear a reasonable share of the burden of health and education costs, even though in reality its efforts have helped to close the fiscal gap while permitting the provinces to maintain control over expenditures. The fact is that the federal government has always been playing from a weak hand. It has always known that the rapid postwar growth in demand for social programs and services, which fall within provincial jurisdiction, was an overwhelming threat to federal government relevance and credibility. The fear of loss of legitimacy has loomed large over the federal government. As a result, it has continuously been on the defensive in a costly game, desperately wanting to be seen to be a major part of the action and having to pay a high price to be seen to be involved.
Going into the 1970s, this became a matter of considerable concern to the federal government. The reality that the financing system that was designed to sustain the myth of federal dominance was unsustainable meant something had to give. Few doubted what it would be. Fiscal management had to take priority.
This federal concern became clear as the federal government started sending signals that it wanted to reform the social programs transfer system. The most significant reform came in the financing arrangement agreement of 1977 known as Established Programs Financing (EPF). Cost-sharing was terminated and conditions were removed for health care and post-secondary education. Part of the transfers were converted from cash to tax points, and cash transfers were tied to GDP rather than spending.
Many prospective candidates for the public service coming out of the top universities will recall federal ministers, deputy ministers and senior civil servants dismissing the provinces as junior players plying the policy backwaters, largely ignoring the national interest and comparing unfavourably, of course, with the federal government, where all the creative ideas and initiatives to advance the national interest were concentrated.
The change in provincial budgeting practices was dramatic. As I was a minister of education in the years following the new arrangements, I can attest to that. Spending decisions on post-secondary education were delinked from federal transfers. While the significance of this has been much debated ever since, the fact is that it dramatically changed spending decisions. Federal transfers in health care and post-secondary education no longer had a meaningful impact on provincial spending allocations. One result was that the already weak position of the federal government as a legitimate policy voice was weakened.
For many of us, all of this represented a clear, concrete admission by the federal government that it could not and would not be a meaningful player in national policy on post-secondary education and other social programs. Whatever it thought its policy role had been, and from my time as minister of education I can attest to it being largely absent, it was clear that the long, drawn-out retreat from what was already largely a symbolic presence was well underway.
All of this simply confirmed once again that the power struggle over influence and control overwhelmingly favoured the provinces. So long as the provinces played their hand well, federal policy influence was minuscule. The reality was that the federal government was inherently in a weak and defensive position, with a badly exposed and vulnerable fiscal flank.
The 1980s and the first half of the 1990s saw little other change in federal roles, other than the introduction of various expenditure-control caps on federal transfers that further weakened the federal government’s legitimacy as a policy force.
As is well known, the fiscal situation changed dramatically in 1996, when transfers to provinces were drastically cut and the Canada Assistance Plan was terminated. Many observers, including the provinces, viewed this as confirmation that any federal ambition to have a role in the major social programs was finally being disavowed. It finally recognized that it had neither the capacity nor the will to maintain even the pretense of a roll.
The federal government, rather disingenuously, argued otherwise. It was an impossible case to make convincingly. As a general response, the provinces smelled blood and their own initiative established an interprovincial and territorial review of the social union. Provincial participants were never in doubt about where they stood. Inside the meeting rooms it was obvious that there was almost unanimous support for unfettered provincial responsibility for social programs. A few provinces argued for a strategic acknowledgement of the federal right to apply the spending power under certain conditions, but even that was a hard sell. An alarmed federal government, which had refused to acknowledge the provincial process, agreed to sit down with provincial premiers and territorial leaders to negotiate. The result was the social union agreement, which some humorists suggest would be better called the social deunionization agreement. Again the federal government was on the defensive — indeed embarrassingly so — federal representatives had a weak hand, and the federal side virtually had to beg the provinces to yield up some apparent federal “wins.” Thus it was that provincial public reporting was grasped upon. And mobility principles, which all provinces believed were needed in the world of an absent federal government, were included. But the agreement that was signed was a final federal capitulation to the long-established reality. The provinces modestly declined to celebrate too obviously this final acknowledgement of their dominance. But they got everything they really wanted, although Quebec, treated rather shabbily by the premiers in the process, was compelled to maintain political appearances by not signing on.
Events since have been anticlimatic. Transfers by the federal government since 1996 have been absent any enforceable conditions aside from rather loose requirements respecting portability of coverage, which the provinces insist upon among themselves. There have been attempts to create shared goals and outcomes, but the results have been negligible with regard to altering policy. A 2003 report from the Parliamentary Library sums up the role of the federal government in somewhat pathetic terms, stating that it “has retained its moral authority and political clout.” This of course is exactly the position the provinces have always wanted the federal government to be in, devoid of any tools other than the political tools available to any organization, governmental or nongovernmental. Political criticism by Ottawa is not something greatly feared by provincial premiers and ministers; indeed most rather relish it, since the public generally sides with its province.
In the area of social policy, the federal government has for the last 55 years and more been an insecure, anxious social policy outsider constantly on the defensive, fearful about its role and relevance. Not so with the provinces. Ever since it became clear that the future would be dominated by the demands for a modern welfare state, they have been confident about their relevance and role and energized about the future. The result has been a network of assertive, aggressive, confident provinces and long-term tension between the federal government and the provinces about leadership, standards and financing. The federal strategy over most of the period has been to maintain a toehold with respect to each of these in critical areas of policy. However, for each advance, it has had to stage a strategic retreat in the face of a number of realities that have assured the provinces a dominant role. By the time the Harper government came to power, there was little choice. The federal government was irrelevant other than as a source of treasure. The Harper denouement is the inevitable last step in a prolonged and at times agonizing retreat by the federal government from an always weak and largely ineffective role. The fact that Harper and his critics attempt to give it an ideological coloration attests more to the strength of the myth than to the reality.
The last 55 years represents not a period of continuous federal oversight and control of core social programs, as Jeffrey Simpson claims, but rather a long, drawn-out, unequal contest in which the provinces have emerged triumphant. The reality of the continuous unequal struggle between the provinces and the federal government over any federal presence in social programs was never really in doubt. It has always been dominated by successful provincial strategies and a weak federal hand. Federal government efforts to maintain a façade of minimum standards, political credit and public visibility have been poorly executed and doomed to fail in the face of a strong provincial position and smart and effective provincial leadership.
For those who were on the provincial train, it was a great ride. Now that the contest is acknowledged by the federal government to be over, provinces can devote much less energy to federalprovincial matters. The federal government has accepted the reality that its role can be no more than that of a banker to the provinces and it has no choice but to admit it. This is not, as Nova Scotia Premier Darrell Dexter claims, a significant departure. It is simply the acknowledgement of a reality that has always been dominant. As with all such realities, it has been obscured to some degree by strategic manœuvring by the parties. But in essence it has always been present.
The acceptance of the reality is the proximate reason why federal-provincial relations are so much more peaceful today. It also explains why the new fiscal arrangements are being presented as non-negotiable. However, presumably less federal-provincial conflict is a good thing. Of course, the provinces have not entirely withdrawn from the engagement. There is still always the hope for larger transfers from the federal government. That is no doubt why the chair of the Premier’s Council for Economic Strategy, David Emerson, publicly bemoans the federal government’s acknowledgement of its irrelevance. The claim by the provinces that there is an ongoing federal responsibility still has the potential to be used to lever larger transfers to the provinces. But of course, it must have no strings attached. In other words, national money but no national policies. But this is not new at all. Interest groups have always known that to affect health, education or welfare policy, you must focus on the provinces. Just as has always really been the case.