Mon Pays, c'est L'hiver: Reflections of a Market Populist

Mon Pays, c'est L'hiver: Reflections of a Market PopulistAuthor(s): Thomas J. CourcheneSource: The Canadian Journal of Economics / Revue canadienne d'Economique, Vol. 25, No. 4(Nov., 1992), pp. 759-791Published by: Wiley on behalf of the Canadian Economics AssociationStable URL: http://www.jstor.org/stable/135765 .

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Mon pays, c'est l'hiver: reflections of a market populist THOMAS J. COURCHENE Queen's University

I. INTRODUCTION

In 1980 I had the privilege of delivering the Innis Lecture ('Towards a protected society: the politicization of economic life'). Among the cornerstones of the analysis were the following elements: * the drive of special interest groups for increased security and protection and,

where possible, quasi-proprietary rights to the status quo; * the trade-off between this security-oriented conception of society and the

emerging challenges facing Canada on the economic front; * the conception of government, following Dales (1975, 502), as 'our most pre-

cious scarce resource and probably one of those special common pool resources' and the implications that arise because our approach to federalism has so encouraged rent seeking that we have 'overgrazed' the various Commons.

The challenge, as I perceived it in 1980, was rather straightforward - how to reconcile these emerging economic imperatives with the expectations of rising entitlements rooted both in a blinkered 'good old days' (1960s) perception of our

Presidential Address to the Canadian Economics Association, Charlottetown, PEI, 6 June 1992. It is a pleasure to acknowledge the valuable comments on earlier drafts from Tom Kierans, Bob Young, Paul Boothe, Doug Purvis, Mark and Teresa Chandler, Peter Howitt, David Laidler, and Art Stewart. Among those who provided helpful suggestions after the address were Jack Boan, Tom Rymes, Fernand Martin, Steve Poloz, and Andrew Sharpe. Given the very subjective nature of this paper, it is virtually certain that all of these people will have reservations about some of what follows - I have reservations about some of what follows! The reader should be aware that section vi, 'Political Canada,' was written well in advance of the Charlottetown Agreement and, obviously, of the October Referendum. Thus the usual disclaimer that the views expressed herein are those of the author holds with more than usual force. I am grateful to the SSHRCC for research support. Finally, my apologies to Gilles Vigneault for rearranging some of the words to his song 'Mon Pays' to serve as the title for this address.

Canadian Journal of Economics Revue canadienne d'Economique, xxv, No. 4 November novembre 1992. Printed in Canada Imprim6 au Canada

0008-4085 / 92 / 759-791 $1.50 ? Canadian Economics Association



760 Thomas J. Courchene

economic prospects and in an equally blinkered perception of the way that citizen- state relationship would (or ought to) evolve. Much of our socio-economic history over the decade of the 1980s can be viewed as the playing out of this philosophical confrontation in the political arena. While the 'protected society' gained additional momentum in the early 1980s with the NEP and generalized anti-Americanism (and indeed for the entire decade if reference is made to the mushrooming of debts and deficits largely in defence of existing entitlements), it is evident that, as of June 1992, economic imperatives are clearly in the driver's seat.

Intriguingly, far from resolving the underlying tensions, this has served primarily to ratchet up the stakes in our ongoing societal game. On one hand, the pendulum has swung so far that our policy authorities appear to have bought fully into a neo-conservative competitiveness/adjustment/globalization challenge. On the other, we are still mired in the excesses, inefficiencies, and entitlements of our old ways. If these forces are allowed to collide, the likely result would be the overwhelming of many of our hard-won, post-war gains on the socio-economic front and the progressive embracing of major aspects of the American Creed. Thus, the central theme of my address essentially turns the Innis Lecture on its head: Is there any scope, in the face of these pervasive global economic pressures, for harbouring a vision of a Canadian future that continues to be distinctive economically, socio- culturally, and institutionally in the upper half of North America? My answer will be a tentative 'yes,' provided that we embrace new attitudes and, in some areas, new paradigms. If, instead, we continue along existing policy paths our likely destiny is to become northern Americans. To be sure, this would hardly be a disaster from an aggregate income/wealth perspective, particularly for those of us in the privileged classes. But almost as effectively as the rending of the nation itself, it would draw the curtain down on the magnificent dream that began here in Charlottetown.

The analysis begins with a brief survey of the forces of international integration, both globally and continentally. Attention is then directed to four interrelated subsystems of Canadian society - Macro Canada, Social Canada, Industrial Canada and Political Canada. The focus in each of these areas goes beyond an assessment of the existing policy stance - it also attempts to draw out implications for how these subsystems interact with each other and with the forces of integration in terms of enhancing or reducing our ability to maintain those societal features that we have come to label as 'Canadian.' Rather than outlining the nature of the issues specific to each of these subsystems, I shall instead transpose parts of what really belong in Industrial Canada or Social Canada into this introduction, namely Robert Reich's concept of the evolving us socio-industrial society. This will serve to crystallize both the motivation for and the challenges inherent in what follows.

In his The Work of Nations (1991), Reich sounds the death knell of the economic nation state and economic nationalism. The well-being of Americans depends no longer on the profitability of the corporations they own or on the prowess of their industries, but rather on the value that Americans add to the global economy through their skills and insights. In examining the ways in which individual Americans can add value to the global economy, Reich focuses on three types of jobs - routine



Mon pays, c'est l'hiver 761

production services, in-person services, and symbolic-analytic services (which in Reich's terminology embody problem-solving, problem-identifying and strategic- brokering services). Reich's thesis is that with the increasing ease and speed of global communication the economic star of these symbolic analysts is rising dramatically, while it is falling for the other two groups, particularly for the 'routine workers,' as they are replaced by cheaper labour elsewhere. Moreover, these symbolic analysts tend to congregate in strategic zones (e.g., Silicon Valley and Route 128). The result will be not only a widening income gap but as well a magnification geographically of rich and poor areas. In Reich's view, these symbolic analysts are in the process of 'seceding' from America and linking themselves to the global economy; that is, their social and political bonds to America will tend to unravel as their economic bond unravels. In a sense, this thesis represents an integration of the American Creed with the forces of globalization, that is, an internationalization of 'rugged individualism.'l

This concept of u.s. socio-industrial culture may well explain some of the phenomenon of downward intergenerational mobility that Latouche (1991, 73) suggests has come to characterize the United States. Of far more concern for present purposes is that the calibration of Canada's key policy levers, on both the macro and social policy fronts, appears to be driving us headlong in the Reich direction. I harbour no illusions in terms of our ability as a nation to shelter ourselves from the forces of global change. Nor do I believe it wise or possible to rein in our own symbolic analysts, given their inherent mobility. But I also reject the notion that we have to opt into the Reich scenario of what effectively amounts to a dual economy and dual citizenship. However, what makes this a daunting challenge is that, as elaborated later, our regional economies are progressively becoming integrated north-south rather than east-west. From this perspective, the thiust of my address can be rephrased: Given that we may no longer be able to speak: meaning- fully about a single national economy, can we none the less maintain the essence of a unified Canadian society?

So as not at the outset to lose completely the attention of the theorists, particularly since the issues raised below are every bit as related to theory as they are to policy, I shall dignify the ensuing perspective with the label 'market populism' or, with obviously more trepidation, 'market nationalism.'

II. THE GLOBALIZATION/INTEGRATION BACKDROP

I begin by devoting attention to the manner in which the rapidly evolving global economic order is impinging on economic, social, and institutional Canada. In point form, what follows are my perspectives relating to the trends embodied in these pervasive economic forces:

1 In the last chapter Reich issues a call for 'positive economic nationalism,' by which he means a situation where a nation's citizens would take primary responsibility for enhancing the capacity of their fellow countrymen for full and productive lives (via public infrastructure, encouraging skill accumulation, etc.). Noble as this proposal may be, it is not convincing, because it runs counter to the thrust of his analysis.




* The nation state is undergoing substantial transformation. One need not go as far as Reich and proclaim that the nation state is dead economically, but I would certainly align myself with Daniel Bell (1987), who asserts that nation states have become too small to tackle the large things of life and too large to address the small things. Translated, this implies that economic power is being passed both upward and downward from nation states.

* In terms of the former, the issue is straightforward: economic space has tran- scended space. It is the international private sector (essentially the transnationals), not the international public sector, that is globalizing. In particular, features like national treatment under the FTA and the single passport under Europe 1992 have allowed multinationals (traditionally subject to host country constraints) to convert themselves to transnationals (not so subject). This has substantial implications for the later section on 'Social Canada,' since welfare states have been typically tied, incentive-wise, to their respective national production machines. What is the nature of the optimal national social contract when production becomes international?

* For their part, nation states are reacting in countervailing-power fashion by trans- ferring important regulatory functions 'upward' (e.g., to the Bank for Interna- tional Settlements for capital-adequacy rules for global banks) and by creating supranational institutions whether of the FTA or EC (or soon EMU) variety. Breton (1990) has reminded us that there can be different rationales for EC integration - for the British, this is driven more by the gains arising from a single market, while for France and Mitterrand the rationale could well be that the taxation of capital requires a supranational authority in an era when globalization dramatically enhances the mobility of selected tax bases.

* Economic power is also being transferred downward from nation states. One aspect of this is that the information revolution dramatically enhances 'citizen power.' Indeed, Ohmae (1990) in his global bestseller, The Borderless World, defines globalization as 'consumer sovereignty.' More important for present purposes is that what remains in terms of 'economic sovereignty' as we approach the millennium will likely have less and less to do with the role of nation states (because many of the key levers reside with supranational agencies) and more and more to do with how a society decides to 'live and work and play.' In Canada, at least, the powers related to these functions rest more with the provinces than with Ottawa. Enter the world of flourishing subnational 'distinct societies.' Thus, what might at first be an anomaly, namely, an integrating world economy and, in terms of these distinct societies, a splintering world polity, is in reality a rather direct consequence of the decline of the economic relevance of the nation state.

* There is yet another way in which powers will be transferred downward. I have argued (1992a, chap. 5) that to the extent that institutions are globalizing, this is taking place via the network of international cities - Montreal, Toronto, Vancouver for Canada. The economies of scale and scope associated with the concentration of the information and services infrastructure means that these



Mon pays, c'est 1'hiver 763

international cities become not only growth poles but the essential connectors outward towards the Londons and Tokyos and inward to their regional hinter- lands. Already, Barcelona, Toulouse, and Montpelier are forging economic links that will take them out from under Madrid and Paris and into and EC framework. Transferred to Canada, what this means is that for a distinct society to have meaning in an economic sense it must evolve around an international city: without Montreal, there would be no Bloc Quebe6ois! Now that I have broached aspects of the manner in which globalization affects

Canada, I want to focus on a few domestic forces that inform the ensuing analysis. * Interprovincial and international trade data indicate a rather dramatic shift from

east-west to north-south trade (Courchene 1991a). As this trend continues, it will imply, as already noted, that increasingly Canada will no longer be a single economy but rather a series of cross-border economies. What this means for 'Macro Canada' is, arguably, that we are no longer an optimal currency area in the Mundell (1961) sense. What this means for 'Social Canada' and 'Political Canada' is that what binds Canadians together east-west is less and less an economic policy 'railway' and more and more a social policy or values railway. (As an aside, the transportation system will also become regionalized to accommodate this north-south orientation and this includes the 'real' railway.) One way to appreciate this challenge is to frame the central question as follows: how can (or should) we maintain our east-west transfer system in the face of increasing north-south economic integration?

* While Quebec wants more control over economic and cultural levers in the 1990s, the likelihood is that BC (with Alberta and perhaps Saskatchewan) will probably need this same flexibility a few years from now as it attempts to wrestle with Pacific Rim integration and, perhaps, a Pacific Rim population. In this sense economic and constitutional renewal is inappropriately focused on Quebec - it is more in the nature of a national challenge to ensure that our very diverse regional economies maintain their international competitiveness. I think that it is inevitable that the European regional science literature (Catin and Djordang 1992; Camagni 1991) will come to play a major role in Canada. As the United Nations (1990, iii) has noted, 'national boundaries have become increasingly irrelevant in the definition of market and production spaces while regions rather than countries are emerging as key economic policy arenas.' Quebec has already largely bought into this concept, for example, the reference to the 'regional- international paradigm' in Martin (1992). Indeed, in the light of this, unless Ottawa adopts far more flexible policy frameworks, the inescapable result will be a substantial devolution of economic powers to the regions/provinces. This theme will carry throughout the analysis.

* These scenarios essentially set the original BNA Act on its head, as it were. The line functions - such as forestry, fisheries, oil, and gas - that largely via the spending power have come under federal control will, under globalization pressures, probably devolve to the various economic regions; while the traditional domains of the provinces - education, health, welfare, etc. - are increasingly




viewed (not necessarily appropriately, as will be detailed later) by many Cana- dians as the 'stuff' of national integration. Thus, what globalization and con- tinentalization are forcing on Canada is nothing less than a wholesale rethink of our conceptual and constitutional underpinnings. The 'Quebec Agenda' is bringing this to the fore, but the underlying issues clearly transcend the Quebec dossier. These are pervasive forces and their influence carries over to all facets of Cana-

dian society. Let me begin with some implications relating to Macro Canada.

III. MACRO CANADA

As backdrop to an analysis of Macro Canada, it is with special pleasure that I draw on some recent research undertaken by my daughter, Teresa Chandler (Toronto Dominion Bank, 1991) dealing with the interaction among exchange rates, Canadian and u.s. manufacturing unit labour costs, productivity and wages over the decade of the 1980s. See figure 1. Given that the exchange rate was in the 86-cent range in both 1980 and 1990, the magnitude of the 1990 gap in unit labour costs is effectively the sum of the gaps in productivity and wages. However, this masks the dramatic impact of exchange-rate fluctuations within the decade. Over the 1980-6 period, Canadian and u.s. unit labour costs tracked each other reasonably closely. Since productivity increases were also similar, this means that the sharp fall in the exchange rate was roughly offset by the higher pace of Canadian wages. However, it also means that the rather dramatic post-1982 u.s. industrial adjustment vis-a-vis the Europeans and the Pacific Rim, triggered by the sharp appreciation of the u.s. dollar (relative to the yen and mark, e.g.), did not really carry over to Canada. Given the fall in the Canada/u.s. exchange rate, the American domestic boom fuelled by Reagan's 'military Keynesianism,' and our own fiscal profligacy, there was little incentive for u.s.-oriented Canadian firms to undertake much adjustment. (Indeed, it was the resulting enhanced penetration of the u.s. market and the fear of impending u.s. protectionism that helped convert Canadian business to its pro-FrA stance). This lack of adjustment over the middle-1980s provides part of the answer to the so- called 'mystery' of flat Canadian productivity over 1985-90 - roughly a 20 per cent increase in the United States and just over 1 per cent in Canada. This inferior productivity performance, combined with a further deterioration in relative wages and the near-30 per cent appreciation of the dollar (from trough to peak) generated the colossal unit-labour-cost disparity in figure 1.2

2 Several readers indicated that revised u.s. data are expected to reveal lower u.s. rates of productivity than those underlying figure 1. Part of this discrepancy is an index number problem. The figure is based on 1982 price weights which, because of the change in relative prices particularly in computers and peripheral equipment, will not adequately portray the course of manufacturing in 1987. Likewise, 1987 weights will present misleading figures for the earlier period. These differences do matter. For example, the 1982-7 real gross product in manufacturing grew at annual rates of 6.0 per cent with 1982 weights and 4.5 per cent with 1987 weights. The u.s. Survey of Current Business (April 1992) recommends the use of a combination of the two, which it refers to as a benchmark-years-weighted index. This produces an annual growth rate over 1982-7 of 5.2




MANUFACTURING: UNIT LABOUR COSTS MANUFACTURING: PRODUCTIVITY IN US$ TERMS

60 Indexes: 1980=100 150 Indexes: 1980=100

1E0 - 150 - 150 cspe andin ola Idee: 0Canada1

140 - ~~~~~~~~~~~~~~~~~~United States 130.

130 120.

120 -United Cnd States 110. Cad

110.

100 __ - - 100.

g 1980 11981 1198 11,9831aala4 1 asIi; et19 ti51aliga I asI90 ,a1801 t811;a2119831 aI i8115 9 86IiaaI 871 19881;89IaaalaO

THE CANADIAN DOLLAR MANUFACTURING: WAGE RATES IN NATIONAL CURRENCY

90 US cents per Canadien dollar Indexes: 1980=h100

180 Canada 85

160

80 140. UnIted States

120 75,

100

m a 1j9o21 1983 19841 1in91 i8rionry r eftionar swIings,I 80 18stia98iaa92 1'9831 1w841 9851 198asei9 1988gree ofa9

Productivity: Real output per employee- hour

Sources:_ U.S. Bureau of Labor Statistics, Rank of Canada, and Tor-onto Domiinion Bank Department of Economic Research

Toronto Dominion Bank Department of Economic Research

FIGURE 1

Without attempting at this point to undertake any policy assessment of this episode, a general observation is in order: unless the United States is undergoing major inflationary or deflationary swings, continuing with the 1980s degree of exchange-rate volatility within an integrated Canada-u.s. economic space is increasingly inappropriate. There are several facets to this. Exchange rate volatility will increase the risk and uncertainty of investing in Canada,3 particularly if the invest-

per cent. The new data on gross product by industry (which will be based on 1987 weights) have not as yet been released. I have decided to leave figure 1 as is, in part because this information was 'policy relevant' over this period. However, the ULC 'gap' in 1990 would be reduced somewhat under the combined index, but the relative contribution of the exchange rate appreciation to the emergence of this gap would be enhanced. I am indebted to Teresa Chandler and Andrew Sharpe for providing background material for this footnote.

3 Thurow (1992, 241) argues that the u.s. exchange rate instability of the mid-1980s was also harmful to the u.s. economy: 'With such violent swings in exchange rates, it simply isn't possible to run efficient economies. Nobody knows where economic activity should be located; nobody knows the cheapest source of supplies. Wherever economic activities are located, they will be located in the wrong place much of the time. The result is a needless increase in risk and uncer-



766 Thomas 1. Courchene

ment is targeted to service North American markets. One should note in this context that our trade dependency on the United Sates in terms of both export and import shares exceeds the Ec-dependency of any EC nation (Wilkinson 1991, 54). More- over, this interdependence is growing in other dimensions as well. We are about to witness an increase in region- or province-specific cross-border arrangements, such as the recent formation of a Pacific Northwest Economic Region embracing three provinces and five states, an agreement between Alberta and Montana on reg- ulating trucks, etc. (Blank 1992). When combined with the earlier observation that provinces/regions will have to position themselves competitively in relation to their cross-border counterparts, it becomes much more difficult to view the exchange rate as an appropriate instrument to 'compensate' for terms-of-trade shocks, since agents in each province/region would as a result find themselves thrown offside vis-'a-vis similarly situated cross-border agents. What may have made economic sense when our currency area corresponded with our national boundaries is now far from obvious. Obviously, greater exchange rate fixity implies that accommodating adjustments must be made elsewhere in the policy arsenal. Fiscal policy in general will have to play an important role in terms of maintaining the exchange rate. With respect to deal with terms-of-trade shocks, wages will probably have to become more flexible across regions (but this is the way the system will evolve in any event) and a case can be made for encouraging provincial fiscal authorities to temper their economic booms (Courchene 1990a). My view is that greater exchange rate fixity is rather inevitable, and we shall have to alter our traditional modes of thinking and action to accommodate this paradigm shift. Some of this rethinking is already taking place (Harris 1992).

But this approach to the emerging exchange-rate paradigm runs counter to a price-stability monetary stance unless, of course, the United States is also targeting on zero or an appropriately low inflation rate. With paper titles such as 'Zero means almost nothing' (1992a, chap. 5) and 'One flew over the Crow's nest' (1991b), it should be fairly evident where I stand with respect to the bank's policy stance. I shall not repeat the range of arguments here, except for the following more general comment that relates to the larger societal challenge at issue in this paper. The unit- labour-cost gap is forcing a brutal restructuring of our economy. In terms of what the International Financial Statistics refers to as the relative unit labour cost measure of the 'real effective exchange rate,' the Canadian appreciation was larger than the

tainty, rising instability from protectionism, shortening time horizons as firms seek to limit risk and uncertainty by avoiding long-term commitments, reductions in major new long-term investments, large adjustment costs as production is moved back and forth to the cheapest locations, the expectation of future inflationary shocks when sudden shifts in currency values cause import prices to soar, and consequent instability of interest rates. Without clear signals to indicate where long-lived capital-intensive investments should be made, business firms have cut back on such investments. What company wants to make major investments in thirty-year facilities to find that unexpected currency swings have converted a profitable investment into an unprofitable investment?' Note that this is not necessarily an argument against the ongoing stance of the Bank of Canada, since the bank could move in the direction of minimizing future exchange-rate volatility. But the dollar's recoil to 83 cents from a high of 89 cents likely involves a level of production lower than that had the dollar been frozen at 83 cents initially. See Harris (1992).




early 1980s u.s. appreciation and, as far as I can discern, larger than any recent appreciation for a developed nation over a similar time frame. One implication of this was that the potential for utilizing the resource sector as a buffer for assisting the FTA transition towards more integration in terms of secondary manufacturing was effectively eliminated, since the 89-cent dollar essentially decimated much of the resource sector. Moreover, the timing was most unfortunate: setting aside any potential causal links, it coincided not only with the recession but also with the FIA,

with the offloading of the federal deficit to the provinces, with the introduction of the GST, with the syphoning off of billions of consumer dollars in u.s. border-town mega-malls, and, of course, with the ongoing constitutional clisis.

From an outsider's perspective, it appears very much as if our policy makers made two momentous economic decisions in the latter half of the 1980s. The first was to opt for the FTA. The second was, in essence if not intent, to say that the only way that the FTA is going to work is if we effectively Americanize our economy and society. This way of framing events should serve to remind Canadians that the ongoing macro stance is also having significant ramifications for the other subsystems. Indeed, even if a year from now we all were to agree that, in terms of the strength of the recovery, the overall macro stance was a success, a not unimportant issue in terms of this address is: successful for whom? The most obvious policy spillovers relate to Social Canada, to which I now turn.

IV. SOCIAL CANADA

Canadians are looking increasingly to the social envelope as the essential east- west glue in precisely the time frame that our social policy infrastructure appears to be in shambles. Whether the reference is to the EPF freeze, or to the selective cap on the Canada Assistance Plan for the 'have' provinces, or to the fears of the impact of a collapsed Ontario economy on Canada's ability or willingness to sustain the transfer system, the underlying concern is the same: the future of the social envelope.

However, while the current crisis in fiscal federalism may have been triggered by federal offloading (no doubt with ample help from the bank's price-stability stance), the underlying problems relating to our social envelope, per se, are not of recent origin. They date back to the Pearson years, when the basic building blocks were put in place. In a sense, we were too rich as a nation and the global economic environment was, from the perspective of the 1990s, incredibly benign and tranquil. In this climate we responded by implementing a comprehensive set of transfers to persons, provinces, and business that were all too frequently not only incentive incompatible with our economic and industrial imperatives but were, in several areas, explicitly designed to stifle the forces of natural adjustment or, in more familiar terms, to cater to 'place prosperity' rather than 'people prosperity.' To anyone who bothered to take a closer look, it ought to have been evident some considerable time ago that the combination of the emerging fiscal challenge, the global economic challenge and the altered socio-demographic needs of the 1990s




(as distinct from the 1960s) meant that the conceptual underpinnings of the social envelope had to be rethought. Indeed, in terms of the three general societal trade- offs - adjustment vs. entitlements, decentralization vs. centralization, and private sector vs. public sector - the social policy challenges were, and are, driving the social envelope progressively towards enhanced adjustment, greater decentralization, and a larger role for private sector participation. In effect, social policy has come full circle: whereas sustained economic growth of the 1960s provided the economic and fiscal cushion to develop a comprehensive network of transfers defined largely in terms of 'internal' social policy goals, the challenge today is to re-integrate the social and economic spheres in order to rekindle the failing engines of economic growth. Failure to address this challenge meant that aspects of the ongoing crisis on the social policy front were inevitable.

There are some further ironies in all of this. We Canadians are generous enough on the social policy front to compare ourselves favourably with the continental Europeans. But we are anything but European (e.g., German or Swedish) in the way in which social Canada interacts (or doesn't interact) with economic/industrial Canada. It is important to understand why this is the case. Part no doubt relates to the nature of our industrial structure. While this is the subject of the next section, it is instructive in the present context to focus on Mancur Olson's (1982) distinc- tion between those countries whose special interest groups are encompassing and those where they are narrow or fragmented. One example will suffice. The nature of collective bargaining in Canada - some 14,000 locals negotiating more than 20,000 contracts with different employers (Drache 1991, 251) means that it simply does not make any economic sense for individual unions and management to worry much about any externalities they generate - these will simply be passed on to the rest of society. This is not possible in countries where these interest groups are encompassing or nation wide: potential externalities have to be internalized because there are no 'third parties' (except foreigners) to pass them off to. Hence, migration, retraining, and the like have always been a more integral part of collective bargaining in countries like Sweden. If anything, the opposite is true in Canada: the social safety net exists not only to mop up the casualties of self-interested bargaining, but even to encourage the exercise of sec- toral and occupational self-interest. Phrased differently, this serves to exacerbate the inflation-unemployment trade-off; that is, Social Canada also has ramifications for Macro Canada.

Part also stems from sheer geography. Given our degree of economic integration with the United States, how do we maintain a more generous social contract in the face of the constraint emanating from level of u.s. tax rates? One aspect of this was the 'deficits do not matter' mentality of social policy advocates (and others) in the mid-1980s as a front line of defence against rethinking and, more particularly, reintegrating social policy and economic policy. Even more puzzling, now that it is clear that deficits do matter, is that one obvious answer to maintaining a more generous social contract - name, a competitively neutral tax such as the GST or some other VAT variant - is almost totally rejected by the social policy lobbies. Indeed,




much of the support for the social charter or social covenant probably relates to the fact that the situation has become so far offside that we appear to be heading for u.s. social policies at Scandinavian tax rates. But this is exactly where we will be headed if traditional social policy advocates have their way.

These points aside, there is something more fundamental that is driving all of this. As Banting (1992) points out, the typical European welfare state had its origins in class politics. Social classes are the main instruments of change in Europe and they have an important role in the determination of distributional outcomes. More- over, the advanced welfare states typically have strong labour movements, dominant social democratic parties, and corporatist modes of policy making. These features do not characterize the Canadian welfare state. Indeed, following Banting (1992) once again, the Canadian welfare state arose not so much as part of an inclusionary national social contract among citizens but rather as a way of addressing concerns relating to interregional and interprovincial equity; that is, it was driven more by 'territory' (fiscal federalism) than by 'class,' or perhaps more correctly, as Bob Young has suggested, fiscal federalism emerged in part to accommodate the Cana- dian welfare state. One result is that the constitution contains a guararnteed annual income, not for people, but for provinces! Thus, it should hardly be surprising that, as the social compact unravels, the tensions appear first in the federal-provincial or have- vs. have-not arenas.

Setting the latter issue aside for the moment, the existence of a substantial 'surplus' associated with our federation fostered the development of a very sophisticated and powerful theory of fiscal federalism. However, some of the essential building blocks of this theory - namely, horizontal equity with respect to the combined impact of all governments and the full equilibrating across provinces of net fiscal benefits - are, in my view, the antitheses of the federalist principle. Thus Kierans (1992), drawing on Wheare's terminology, speaks in terms of Canada's having embraced 'quasi-unitary federalism.' Paquet (1992, 87) takes this further by noting that 'democratic egalitarianism (in society) generates compulsive centralization (in the polity).' In other words Canada has likely latched on to the worst of both worlds: on the one hand we aspire to centralized visions of policies that stifle operations of competitive federalism (e.g., experimentation in design and delivery of social programs where obvious winning strategies would be quickly copied by other jurisdictions), and, on the other, we have convinced ourselves that federalism means the right of in situ transfers (a conception that few unitary states would countenance). Every Canadian should be encouraged to read Douglas House's Newfoundland Royal Commission on Employment and Unemployment in order to catch a glimpse of the resulting nature of the 'transfer dependency' that our system has spawned.

Yet despite all of this, we were able to become a high-wage/high-transfer economy, largely because of our resource endowments and the protective tariff. With the various GATT rounds and the ETA, the tariff is now gone. And while one may not buy into Drucker's (1986) claim that resources are now peripheral to economic success of the developed economies, the fact remains that the cushion of




resource rents has largely evaporated. As Paquet (1991, 83) notes, one of the side effects of the disappearance of the surplus generated by the Canadian federation may well be the erosion of the sense of solidarity and the taste for redistribution of real resources that are supposed to define Canada. Indeed, the political economy of east-west transfers may be markedly different now that the second-round spending effects of transfers could end up going south rather than being funnelled back to Ontario. And all of this is compromised further when the heartland itself is reeling economically.

It need not have been this way. We had ample time and warning that we needed to make the transition from a traditional resource-based economy to a high-value- added (which would include resources) and human-capital-based economy and society. We are quite willing to throw all sorts of welfare, ui, and short-term job creation money at low-income and low-skilled Canadians, but we are singularly in- capable of removing the anti-human-capital incentives in these programs, let alone of investing in their human capital.

The problem exists not only at the lower end. Given that knowledge is increasingly the cutting edge of competitiveness, it seems to me that the middle class in this era must be some version of a technologist. But Canada remains a professional society - few or no paramedics, paradentals, paralawyers, para-engineers, etc. It is one thing not to have in place an adequate skills-training or apprenticeship program for our youth. It is quite another to fail to integrate the institutions that are in place - as is the case in Ontario, where the universities and community colleges represent two solitudes when it comes to adult skills education upgrading.

In this critical sense Canada was and is unprepared for the new economic order. Combined with the FTA, the macro stance, and the recession, the not surprising result is not only a disappearing middle class but as well the generation of an underclass. This is clearly the route to a low-wage and eventually a low-transfer economy. We are danger of falling into the trap of 're-commodifying' labour and of attempting to compete with the 'bottom end.' This approach will tend to construe social programs more as a cost of production (Laux 1991, 289) than an investment in the future of Canadians. While competing with the bottom end may make some sense as a transitional strategy, over the longer term this is a mug's game, since there will always be somebody, somewhere, with a lower bottom. Moreover, it will lead to the sort of societal uncoupling consistent with the Reich vision.

We know what the long-term answer has to be: to move towards a society where we are competing with the middle and upper parts of the labour market on the one hand, and to provide both citizen upward mobility in terms of skills enhancement and an industrial system geared to high-value-added production. This is the only route back towards a high-wage and, if we wish, a high-transfer economy. Produc- tivity increases within such a system arise via technical change and by utilization of a labour force with a higher skill mix rather than from the commodification of labour (Myles 1991, 363). What this means in practical terms is a wholesale rethinking and restructuring of the social envelope, including primary, secondary, and post-secondary education and R&D on the one hand and, relatedly, the integration




of welfare, ui, apprenticeship training and the transition from school to work on the other. While this is an old theme, there are a few new twists. First, we no longer have any choice if we want to avoid a dual economy or, rather, if we want to extri- cate ourselves from the degree to which we have already embraced a dual economy. Second, the monies have to come largely from the existing social envelope and this must include savings from place prosperity transfers and from a rationalized ui based largely on insurance principles. Third, jurisdictional issues have to be sorted out. One aspect of this is that business and labour are emerging as important players in this arena. Indeed, via initiatives such as the Canadian Labour Force Development Board the process of business-labour consensus building is beginning to emerge. Another aspect, of course, is the old chestnut - federal or provincial? Given that the provinces control the education system and, increasingly, have the ability to integrate the welfare-work subsystem, overall coordination and integration is more easily effected at the provincial level. Quebec is already there, replete with its own personal income tax system as an integrating mechanism. Ontario has, in my view, little choice but to follow suit and, in the process, press Ottawa to allow rate-and-bracket flexibility in terms of Ontario's portion of the shared personal income tax system. In the ongoing constitutional round, Harcourt's BC iS the most supportive province in terms of Quebec's demand for additional powers, largely because BC wants the flexibility to embrace the Pacific Rim. All of this is fully consistent with the earlier analysis relating to the imperatives emanating from global integration. More difficult choices face Atlantic Canada: without substantially enhanced regional cooperation and coordination, it is unlikely that these provinces could or would seek these additional powers. Much the same applies to the prairie provinces. (The extent that Alberta and perhaps Saskatchewan integrate with BC

complicates the Manitoba position.) Should the provinces go this integration route, presumably the vehicles for delivering the requisite monies would be a transfer of tax points and a redesigned equalization program.

The reader will recall that I noted earlier that many Canadians appear to want an enhanced federal presence in the general social policy area. If by this they have in mind some single, inflexible vision emanating from the centre, this is effectively a non-starter.4 The needs and challenges of a Great Lakes economy are not the same as those of a Pacific Rim economy. However, Ottawa can play an important

4 Despite my preference for a devolution of social policy, integrated nationally via provisions relating to an economic and social union, one must recognize that there is another scenario that is developing. Notwithstanding the favourable economic forecasts emanating from zero-inflation op- timists, several provinces find themselves on the brink of depression. Saskatchewan has gone from bread-basket to basket case, Newfoundland has been forced by either economics or regulation to mothball lumber, oil, and cod. When combined with federal deficit shifting, it is not difficult to foresee imminent fiscal collapse in several provinces. This may, and likely will, lead to a request and perhaps an insistence by citizens in these provinces, if not by the provinces themselves, for an enhanced federal role in the delivery of the social envelope. Thus, our societal challenge is to come to grips not only with the potentiality of a dual citizenship, a la Reich, but also with a dual federalism with 'inside' and 'outside' provinces. Examination of this issue in all its ramifications (including migration) is well beyond the scope of this address, even though it is obviously very relevant.




overarching leadership role here, particularly for selected provinces/regions, and, if it were to contemplate greater flexibility, it could perhaps fulfil aspects of a policy role as well.5 At a minimum, however, the federal government should, in conjunction with the provinces, establish the basic parameters or principles within which this social policy integration will take place.

As we approach the millennium, we are in a world where social policy is effectively economic policy. The defining role for an enlightened nation state in this era is surely to privilege its citizens in terms of both the opportunity and the ability to enhance their human capital. Implicit in all of this is the assumption that, despite the shrinking surpluses accruing to our federation and the erosion of the willingness to continue with place-related transfers, the taste for people-related transfers remains alive and well.

The issue in this section centred on the need to develop a knowledge-intensive, social policy infrastructure in order that Canada and Canadians can develop a competitive cutting edge in the new global economic order. But do we have an industrial structure and industrial philosophy capable of utilizing a high-value- added, human-resource infrastructure? Or is there something inherent in the Anglo- Saxon model of industrial structure that discourages this sort of human capital emphasis? To these issues I now turn.

V. INDUSTRIAL CANADA

In the introduction, I outlined Reich's vision of the internationalization of the Amer- ican Creed, replete with its implications for social America. Michael Porter, in his Competitive Advantage of Nations (1990) and more recently in his Canada At The Crossroads (1992), takes a quite different approach. The competitive advantage of nations derives from capitalizing on their inherent advantages in terms of character, culture, institutions, and the like, in order to provide a home base for the operations of foreign and domestic firms: 'The location of the home base ... has the greatest impact on national prosperity. It is where the most productive jobs reside, and where the most fruitful linkages with other domestic industries are established. A nation's ability to upgrade its productivity over time is critically dependent on its ability to provide a good home base for international firms, both domestic and foreign-owned' (1992, 56). Underlying Porter's analysis is his so-called 'diamond,' that is, the four determinants of competitiveness - factor conditions; demand conditions; related and supporting industries; and firm strategy, structure, and rivalry.

5 Alternatively, the federal government could carve out a portion of the social envelope for itself. For example, Ottawa now plays a major role with respect to income support for the elderly. It could extend this role to children as well (Courchene and Stewart 1992b). Indeed, as Hunsley (1992) points out, were Ottawa to convert the Canada Assistance Plan to a refundable child tax credit, the way would be open for the provinces to integrate working-age adults into their training/welfare/work subsystems. Given that the so-called welfare trap, which embodies con- fiscatory taxes in the transition from welfare to work, is largely due to the presence of children, if the support for children were under Ottawa's wing, then integration of welfare/working-poor subsystem on a provincial or regional basis could become much easier.




A successful diamond implies that there will be 'clusters' of firms and activities related in various ways such as buying from, selling to and competing with each other. These and other mutually reinforcing activities create externalities and increasing returns in areas such as spillovers of knowledge and expertise and the generation of a competitive and innovation-compatible local milieu. Ideally, 'the best situation is if the nation is the location of both the home base and ownership, because here profits flow to the nation as well,' although Porter recognizes that the 'profit stream may often be less significant than the other benefits' (1992, 73). While Porter's preference is for a Canadian-based rather than a North-American based diamond, it seems inevitable that many of these clusters will straddle the border, given the nature of the integration that will develop under the FrA.

These, then, are two quite different visions of industrial/institutional structure, of the importance of ownership and head offices, and, ultimately I believe, of the nature of optimal integration between the industrial and social spheres. One should note that these visions are not likely to be as antithetical in the United States as they are in Canada, because the United States already has a huge stable of corporate home bases (both domestic and foreign). For Canada, however, I believe that they represent rather stark alternatives with substantial implications for the nature of Canadian society.

What heightens interest in these and other models of the manner in which industry is structured is that, as Canada reacts to the tumbling of protective bar- riers and international integration, our approach to industrial philosophy seems to be heading in two quite different directions. English Canada appears to be embracing the individualist American or Anglo-American approach, while Quebec is moving towards a Porter-type or continental-European or quasi-corporatist conception. From the perspective of the present paper, two issues arise. Given that both of these approaches have proved successful in various parts of the world, the first issue is whether they differ in their ability to accommodate or encourage the attempt to develop an integrated human capital network or infrastructure (as outlined in Social Canada). I shall argue that the 'Jeuro' (Japanese and European) model is superior in this regard. Given that one cannot simply import the Jeuro model, since it is seeped in culture, history, etc., the second issue is whether there is any scope for tilting our industrial philosophy in a way that would remain market oriented but at the same time would be more accommodating in terms of maximizing the advantages of a substantial investment in the human capital of Canadians.

One approach to all of this is provided by C.D. Howe's Tom Kierans (in his comments on an early draft of this address), namely, that were Canada to replicate aspects of, say, the German-type human capital infrastructure, then financial capital, managerial expertise, and the like would fall into place, replete with appropriate clustering 'a la Porter. This is the financial-capital-will-follow-human-capital scenario which, in a knowledge intensive era, must have considerable validity. None the less, my view is that the Anglo-American model of industrial structure has some limits in this direction and, indeed, it is probably antithetical to the skills development of the lower part of the labour market. In the remainder of this section I




shall elaborate on this theme and then present one example of how we might alter our own industrial structure.

Towards this end, it is instructive to compare and contrast aspects of 'individualist' and 'communitarism' capitalism:

In the Anglo-Saxon variant of capitalism ... since shareholders want income to maximize their lifetime consumption ... firms must be profit maximizers. For profit-maximizing firms, customer and employee relationships are merely a means to the end of higher profits for the shareholders. Wages are to be beaten down where possible and, when not needed, employees are to be laid off ... Job switching, voluntary or involuntary, is almost a synonym for efficiency.

The communitarian business firm has a very different set of stakeholders who must be con- sulted when its strategies are being set. In Japanese business firms employees are seen as the number one stakeholder, customers number two, and the shareholders a distant number three. Since the employee is the prime stakeholder, higher employee wages are a central goal of the firm in Japan. Profits will be sacrificed to maintain either wages or employment. Dividend payouts to the shareholders are low.

Communitarian societies expect companies to invest in the skills of their work forces. In the United States and Great Britain, skills are an individual responsibility ... Labor is not a member of the team. It is just another factor of production to be rented when it is needed, and laid off when it is not. (Thurow 1992, 32-3)

Obviously, these represent exaggerated stylizations of the respective models, since all of us can point to exceptions, on both sides. None the less, these observa- tions do drive home the point that the nature of the industrial structure can matter in terms of how it interacts with all segments of the labour market.

Two other aspects are also significant - the nature of capital and ownership. In Anglo-Saxon financial systems, the source of long-term corporate finance is sup- plied competitively by capital markets. The Jeuro system tends to be credit-based rather than equity-based (Zysman 1983). While these differences are narrowing under global financial integration it still remains the case that the Jeuro system is characterized by what Lipsey (1991, 227) terms 'patient capital.' In the Canadian context Marcel Cote (1991, 133-5) has focused on this issue in terms of whether institutional investors (e.g., pension funds) operate in an 'exit' or 'voice' mode. In a voice mode the institution is a loyal investor. Voice behaviour reacts by attempting to change the situation and to eliminate the cause of any rate-of-return problem. Exit behaviour implies selling out when things go awry. Voice is fighting, exit is fleeing (ibid., 133). The critical point here is that the whole philosophy of North American institutional investment essentially demands that institutions operate in an exit mode. An institutional investor has only one loyalty - a fiduciary loyalty towards those who supply the funds. However, as Cot6 points out, there is little evidence that over the medium term a voice mode is less profitable than an exit mode. The finding relates closely to Thurow' s point (consistent with the Reich analysis) that in individualist capitalism no one worries about preserving institutions.




Since the group is not important, preserving any particular firm is not important (Thurow 1992, 142). The obvious manifestation of this was the LBO frenzy that swept America in the 1980s.6

This leads into the other issue - ownership. One characteristic of the Anglo- American model is that its assets are more or less continuously on the auction block. This is simply not the case in Germany, where universal banking holds sway, or in Japan with its near-dozen Keiretsu and their complex web of overlapping ownership. If we integrate continentally within the framework of the Anglo-American industrial structure, Canadians will presumably continue to own their share of aggregate Canada/u.s. assets, say 10 per cent, but this ownership will become more dispersed and almost surely implies that control over many of our 'heritage firms' will fall to foreigners. This will trigger a rather dramatic domestic political reac- tion, since critics will revive their view of the FrA as the 'Sale of Canada Act.' But does this matter economically or socio-economically?

As long as we were largely resource based, I think that we economists were correct in arguing that ownership does not matter or does not matter much. After all, the resource is still here, the labour and much associated activity will likely remain Canadian, the head office will probably remain here as well, even if ownership is elsewhere, and, in any event, we know how to tax resource rents irrespective of who controls the production. Does this non-importance of ownership carry over to a human-capital-based or high-value-added economy and society? Will head offices and all they imply in terms of associated goods and services follow the nationality of ownership, particularly since the knowledge sector is much more footloose than the resource sector? If so, how do we tax or capture human capital rents? Will resulting decisions be consistent with a continued emphasis on human-capital investment?

The issue that brought this to the fore, particularly for the Canadian scientific community, was the takeover of the world-class laser firm, Lumonics, by the Sum- itomo Kieretsu. Concerns arose that the Canadian industrial philosophy was oriented against science-based innovation and more generally against high-value-added enterprises - there were gaps in the ability of the capital markets to raise sufficient funds to bring such firms beyond a given capital threshold; the banks' lending activities were still mired in a resource-based mentality (Dome, Campeau, O&Y) and had little expertise and even less inclination to extend loans to the knowledge sector: Dotential Canadian buyers were shortsighted in that the horizon was not

6 Many analysts were quick off the mark to associate a rise in stock prices with a gain in efficiency and, therefore, to lend their blessing to the LBO phenomenon as an integral part of remaking America industrially. No doubt some of these LBOS were efficiency enhancing. But as Krugman (1992) points out, share prices can also rise because the LBO process redistributes income to shareholders and away from others. Drawing on the work of Summers and Shleifer, Krugman suggests that the bulk of the rise in stock prices in some of these takeovers comes from 'breach of contract' - from breaking promises made by the original owners or management for past favours. This represents a redistribution towards shareholders and away from workers (who find themselves without jobs or their wages slashed) and from existing bondholders (who find that the new debt burden exposes them to an unanticipated risk of bankruptcy) (Krugman 1992, 156). To the extent that the latter explanation has merit, it represents another aspect of the difference between the operations of individualist vs. communitarian capitalism.




long enough to comprehend the benefits of potential supplier-buyer relationships, let alone the positive spillovers for the scientific and knowledge community. These are critical issues in the context of moving towards a more knowledge-intensive economy and society, and I am pleased to see that all of them have found their way on to Lipsey's (1991) impressive research agenda for the Canadian Institute of Advanced Research.

Quebec Inc. In Quebec, however, many of the concepts of communitarian capitalism are well beyond the research agenda stage and are fully incorporated into the constella- tion of policies typically referred to as Quebec Inc. In terms of formal structure, Quebec Inc. does not resemble the Japanese industrial system: the Keiretsu model (a few hundred companies centred around a large trading bank) is probably not transferable across societies. But much more mobile across national boundaries are the analytical underpinnings of the Japanese system. As Courtis (1992) has noted, these Keiretsu are really a series of networks or 'constellations of interlinked services' - supplier-buyer networks, personnel networks, information and marketing networks, R&D networks, risk-sharing networks, all linked together by a complex web of cross-ownership and, therefore, a ready supply of patient long-term capital for group companies. This is the way that I tend to view the evolution of Quebec Inc. I,recognize that the typical English Canadian (and in many cases, even the Quebe,cois) concept of Quebec Inc. is that it is one or all of (a) a development scheme along the lines of our spectacular failures under DRIE and its forerunners; (b) a subsidization scheme spearheaded by the Caisse; (c) a turning inward of the Quebec society; and (d) a tilting of public policy towards social (i.e., ownership) goals rather than economic goals. These dangers do exist (Kierans 1990), but they mask the essence of Quebec Inc., namely, that it is fundamentally a series of networks - financial/commercial, telecomputational, buyer-supplier, socio-economic - linked to the Montreal economy and its environs. In more detail, the following features of Quebec Inc. are integral: * Government is still an active player, but its role has shifted from that of entre

preneur to that of catalyst for private sector entrepreneurship; * The public sector still plays a role in developing a strong capital base, either via

the Caisse de depot or more indirectly via the Quebec Stock Savings Plan and the union-based Fonds de solidarite (which now total nearly $500 million);

* On the regulation front, Quebec has aggressively pursued a very open policy. This is particularly the case in the financial sector where (a) Quebec has privileged its indigenous institutions - the mutuals and the caisses populaires - so much so that the Laurentian Group and the Desjardins Movement became the first two Canadian institutions to operate in all four financial pillars; and (b) more recent proposals will allow major joint venturing in Quebec with foreign financial institutions, a situation not possible outside Quebec. This is simply levering off one's strengths, a subject that I shall treat later.

* Further, Quebec is moving to the comingling of the real and financial sector,




creating what former Quebec cabinet minister Pierre Fortier (1992) refers to as 'mammoth corporations,' whose rationale is to advance Quebec's competitive position domestically and internationally as well as to ensure that where possible commercial 'stars' remain under Quebec control and, therefore, within the network. This is not particularly novel in the Quebec context, since the Desjardins Movement has long had a portfolio of commercial firms, but it is novel in the more general Anglo-American context.

* Not surprisingly, accompanying these developments has been a movement towards, if not corporatism, then at least tripartism. This has the potential for ameliorating the inflation-unemployment trade-off. It was best illustrated recently when Atlas Steel was enticed to move its headquarters from Toronto to Montreal, replete with a five-year no-strike guarantee and the establishment of a training facility. Quebec's industry minister, Gerald Tremblay, referred to this deal as the dawning of the new Quebec 'social contract.'

More recently, Tremblay was immediately off the mark in designating a series of Quebec 'industrial clusters' following the release of the Porter Report (1992). Actually, this particular aspect of Quebec Inc. is a bit troublesome because it may well be an attempt to pick winners. (As Sylvia Ostry has quipped, governments are not particularly successful in picking winners but losers are incredibly adept at picking governments!) On the whole, while mistakes will no doubt occur, I believe that Quebec Inc. can and should be viewed not only as largely market oriented but also as an experiment designed to combine features of both individualist and communitarian capitalism.

The link between Quebec Inc. and Quebec's demands on the constitutional front is obvious. After all, the 'distinct society' is, at base, every bit as much as economic as a socio-cultural concept. The aim is to enhance the ability of Quebeckers to earn a North American living standard operating in French. Hence, Quebec's demands in the current constitutional round focus on obtaining enough powers to make the networking aspects of Quebec Inc. operative. However, the critical point, particularly in terms of the relationship between the social and industrial spheres, is that the Quebec Inc. industrial strategy is closely linked to what Quebec is attempting to do on the socio-economic front, including its innovative policies with respect to labour-force entry and training.

To be sure, Quebec is probably a long way from accomplishing its goal. But aspects of the model are catching on. As I have argued elsewhere (Courchene 1992, chap. 8), despite an ominous start, this is really what Bob Rae's Ontario is all about, although it may be cast more as a German-type social democracy rather than mirroring Quebec Inc.

1. Unleashing the banks My earnest hope was that when I reached this point in the paper I would be able to offer some concrete proposals for structuring our industry to lever off our inherent strengths, that would be market oriented and would be consistent with the thrust of the earlier analysis. This task turned out to be considerably more




difficult than I had anticipated, so that beyond the earlier references to Quebec Inc. and the recommendations embedded in the analysis of the previous subsystems, I shall limit myself to one proposal - unleashing the latent power of the Canadian banking system. I recognize that my timing here leaves a lot to be desired. Given the magnitude of their recent loan loss provisions, many Canadians would probably prefer that the banks were on a much tighter leash! However, a large part of the problem here is that the banks too must move off their traditional resource-based mentality.

Recent changes in financial institution regulation now allow integration across the so-called 'four pillars' - banking, trusts, insurance, and securities. But the banks still cry foul, because, for example, the financial arm of Ford, one of the top-ten u.s. financial institutions, can engage in Canadian activities like leasing which are not fully open to the banks. Likewise, the banks have been fighting a rearguard action with respect to the purchase of Montreal Trust by BCE Inc., because of the potential synergy that could result from the integration of banking and telecommunications and the fear that innovations would be kept within the Montreal Trust / Bell Canada network. But surely the banks have got this exactly backwards. Over the last decade banking has rapidly evolved into a sophisticated information and telecomputational network. If we do not permit the development of such synergies in this and other areas, we shall end up importing the innovations from countries that have a more flexible policy. The fear alluded to above is also unfounded. In this competitive environment Bell Canada would be foolish to restrict access to any innovations. In any event, this is a competition policy issue, not an issue relating to the powers of banks. The appropriate response to the banks, and one adopted by the 1990 Report of the Senate Committee on Banking, Trade and Commerce (for which I was a consultant and scribe) is not to constrain others but to expand the powers of the banks. The particular recommendation envisions the creation of a bank holding company which, under one arm, would contain the banking and financial activities and, under the other, would allow the holding company to engage in any and all non-financial activity. Two alternative approaches to this appear in figure 2. Both these approaches maintain the 10 per cent rule for the holding company, but this could and, I think, should be jettisoned in favour of larger ownership blocs, with cabinet approval (as in Britain) for holdings larger than 10 per cent to ensure that ownership remains in Canadian hands.7

Note that this is not the German banking model, because a leasing subsidiary, for example, would not be financed by insured deposits; that is, it would be a subsidiary of the holding company, not the bank itself. What this means is that the banks could, independently or via joint ventures, establish leasing companies, factoring operations, computer software companies, information companies, travel insurance companies and so on at both a domestic and a global level. For regulatory and prudential purposes, under the present framework, one would probably have

7 This could run afoul of the FTA. However, virtually every nation takes measures to ensure that the bulk of domestic deposit-taking remains under the ownership and control of nationals.




PANEL A

PUBLIC

10% Rule

BANK HOLDING COMPANY

COMMERCIAL SCHEDULE 1 TRUSIT INSURANCE |SEUTIES| HOLDING COMPANY BANK

AND/OR COMMERCIAL SUBSIDIARIES

PANEL B

PUBLIC

10% Rule

BANK HOLDING COMPANY

COMMERCIAL BANK HOLDING COMPANY

B

AND/OR COMMERCIAL SUBSIDIARIES

TRUST INSURANCEI [CURITIE

FIGURE 2 The bank holding company model: alternative structures

to forbid asset transactions between the financial and commercial arms (a BCE Inc. corporate by-law prevents asset transactions between Bell and Montreal Trust), but networking and fee-based transactions would be allowed. However, under a more sophisticated approach to corporate governance, some of these restrictions might well be able to be relaxed.

Combined with their traditional networks (e.g., geographical and personnel) this would allow the banks as well as other financial institutions to bring substantial synergy to any commercial sector initiatives. There would also be synergy or networking of another sort. In Germany, the three largest banks vote 70 per cent of the shares of the largest 425 firms and have representatives on the supervisory boards of most of them (Cote 1991, 134). Contrast this situation to the case in Canada, where the banks lend billions to the likes of Dome and O&Y and then invite the CEOS of these corporations to sit on banks' boards! At first blush this practice appears perverse, and if one thinks about it for even a few minutes, it be-




comes downright hilarious. Imagine the quantum leap in the expertise that would be brought to private sector boards of directors, particularly of smaller corporations, if the upper echelons of the banks' personnel were permitted to be directors. The banks and some of our other large conglomerates are the closest thing we have in this country in the nature of nationwide employment and career-training institutions. The result would effectively amount to a sophisticated incubator system. For example, a bank could buy 10 per cent of a small firm and put one of its people on the board of directors. If the enterprise looked promising, the bank could acquire greater control or arrange joint venturing in order to nurture the company. If not, it could simply exit. This is what the French merchant bankers do. Obviously, this incubator model is not restricted to banks. There should be a further benefit. Earlier I reflected the scientific community's concern that the banks have little expertise or inclination to lend money for 'soft' assets (e.g., human capital or knowledge-based enterprises), preferring to focus where they always have - on land, mines, oil and gas, and manufacturing. Opening up the system to allow an ownership stake in a broad range of enterprises would serve to inform banks of the nature and culture of non-resource-based activities. As an added advantage, the banks are among the most widely held institutions in the country, so that such a system provides a way of countering our historical tendency towards family and/or closely held companies.

One objection to this initiative is that it could run counter to u.s. anti-trust and competition policy. So what - provided we adhere to 'national treatment' under the FTA. And in any event, the Americans are sure to be rethinking their financial institution arrangements, especially since much of their S&L sector is effectively 'nationalized.' Intriguingly, Thurow (1992) also recommends the creation of 'group banks' for the United States along the lines of the above proposal.

2. Analytical reflections I want to conclude this focus on Industrial Canada with a few remarks along more analytical lines. What has motivated the above discussion is really a concern about our 'institutional' framework, where I am using 'institutional' in the Douglass North sense: 'institutions are the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction' (1990, 3). The constitution, the charter, the common- law tradition, the property-rights regime, competition policy, and the myriad regulations, such as the one that banks cannot own non-financial companies, all are part of our institutional framework. Now there is nothing in economic theory that suggests that these institutions are efficient. Indeed, the neo-classical model is a product of a particular set of institutions. As North points out, in a world where there are no increasing returns and markets are competitive, institutions do not matter (95). But with increasing returns and imperfect markets, institutions clearly do matter, as Arthur's (1989) work on path dependence reveals.

While the institutional framework will 'shape the direction of the acquisition of knowledge and skills' (North 1990, 78), this can also be a two-way street: maximizing behaviour by economic agents may also trigger appropriate evolution



Mon pays, c'est /'hiver 781

in the institutional framework. But, almost by definition, some institutions cannot evolve except by fiat. Much of the above analysis has focused on the implications of entertaining alternative institutional environments. The details may be wrong, but the underlying message is correct: we economists are, in our research, far too uncritical when it comes to these institutional underpinnings of our economy and society.

My second background analytical point is somewhat related. Transaction-cost analysis has brought industrial organization to the fore. Specifically, 'transactions costs determine whether industrial organization will be coordinated by "markets" (dispersed and contingent interactions based on price signals alone) or by "hier- archy" (the substitution of intermal administrative coordination for external exchange)' (Gordon 1991, 176-7). Essentially, networking can be defined as set of arrangements mid-way between coordination via markets and coordination via organizations or hierarchies. While the various writings by Oliver Williamson on this side of the Atlantic were critical to the development of this 'intermediary' structure, the European regional science literature has taken this networking concept much further. The emphasis here is on the importance of local milieus or 'milieux innovateurss.' Lecoq (1991, 329) is typical:

Alors que les formes interm6diaires combinent par d6finition des 6l6ments de march6 et de hi6rarchie 'a des degr6s divers, la r6f6rence a des formes hybrides nous permet d'int6grer des 61ements de nature diff6rente (flexibilit6, acquisition et transmission du savoir-faire, processus d'apprentissage, confiance entre les partenaires, reciprocit6, solidarit6). Les r6seaux n'apparaissent pas seulement pour pallier les defaillances du march6 et de la hi6rarchie, mais 6galement pour faire face aux insuffisances que ces deux formes polaires d'organisation manifestent principalement dans le cadre des processus d'innovation, c'est-'a-dire dans une perspective de creation de ressources. Autrement dit, l'organisation r6seau n'apparait pas seulement comme un mode alternatif d'allocation optimale de ressources, mais surtout comme le mode principal de creation de ressources.

This approach leads to at least two implications or hypotheses that are, I think, quite offside with North American thinking. The first of these is that innovation may well be more in the nature of a 'collective good,' in the sense that its success depends on the originating and adaptive capacities of the entire milieu (including, for example, the nature of the feedbacks to education and training) and not solely on the characteristics of business organizations. To be sure, aspects of this are beginning to appear in the recent growth literature. The second is that while we recognize markets as critical societal coordinating, signalling, and integrating institutions, we none the less harbour the view of markets as 'impersonal.' This European literature appears to conceive of markets, at least in the context of local milieus, as much in terms of their 'social' as their 'impersonal' characteristics. I leave to the theorists whether these hypotheses merit attention in the North Amer- ican context. As a parting comment, however, I think that much of what underlies Quebec Inc. has been influenced, directly or indirectly, by this literature.

To return to the underlying theme, the principal avenues by which Canada will regain its former high-wage status is to substitute human capital for the diminishing




rents associated with our resource endowments. What I am positing is that in a knowledge-intensive or high-value-added era, the manner in which we organize and structure Industrial Canada is not neutral in terms of achieving this goal. In particular, it probably matters a great deal to the interaction between Industrial and Social Canada whether we maintain an appropriate share of head offices and ownership of firms. In a situation where our industry is composed primarily of atomistic firms producing wholly or largely for the u.s. market, social policy will almost of necessity come to be viewed more as a cost of production and less as an investment in the future of Canada and Canadians. One of the defining characteristics of the FTA is the 'national treatment' provision which, in effect, means that we have combined international free trade with national sovereignty. While there are obvious limits to our ability to manoeuvre in this area, we must be prepared to use this flexibility to lever off traditional strengths rather than engage the Americans only in terms of their set of institutional norms.

At this moment in our nation's history, Canadians' attention is riveted on constitutional and political renewal rather than on the imperatives emanating from globalization or from Macro, Social, and Industrial Canada. But is Political Canada likely to evolve in a manner consistent with the above analysis?

VI. POLITICAL CANADA

One defining feature of Political Canada has been its ability to accommodate external forces. With virtually no change in the written constitutional word, we were able to centralize in the Second World War and its aftermath, to decentralize through to the late 1970s, to recentralize during Trudeau's Second Coming, and since then once again arguably to embark on a more decentralized course. Indeed, we were incredibly creative in terms of our ability to manoeuvre within the existing constitutional framework - we utilized the federal spending power to convert provincially designed and delivered social programs into national ones, we accommodated the need for asymmetry through such vehicles as 'opting out,' we were able to alter the division of powers, de facto, by altering the nature and magnitude of intergovernmental transfers, and so on. However, at this juncture in our history, we have apparently convinced ourselves that nothing less than a wholesale reworking of our political and constitutional underpinnings will suffice. Given that most, although admittedly not all, of this process is cast largely in terms of political and constitutional principles, the issue arises as to whether the outcome will mesh with other imperatives impinging on Canada. Toward this end, I shall focus on four areas - the first addresses issues like decentralization, asymmetry, and more generally the underlying nature of the federalism; the second deals with reconstituting fiscal federalism; the third directs attention to the economic union; and the fourth contains my reflections on the future of central institutions.

1. Rethinking the federalist principle The political/institutional/constitutional arena was clearly not exempt from the mo-




mentous changes ushered in in the 1980s. If it was not already apparent, the Con- stitution Act, 1982 dispelled once and for all for Quebeckers the concept that Canada functioned as a process of accommodation between French and English elites. The most important constitutional amendment since Confederation (and one that reduced Quebec's manoeuvrability and powers within the federation) was en- acted without the consent of one of the two 'founding nations.'8 Beyond this issue, directly or indirectly the Constitution Act, 1982 unleashed three powerful and con- tradictory forces that lie at the core of our ongoing constitutional tensions. The first of these is the recognition by Quebeckers, particularly given their falling population and voting share, that henceforth their future within Canada can be secured only by some combination of 'distinct society' status and enhanced powers. The second is the rapid emergence in many quarters of the rest of Canada (ROC) of the concept of our nation as a compact based on the equality of provinces. While this concept is obviously reflected in the call for a Triple-E Senate, one earlier embodiment took the form of unanimity for the ratification formula in the Meech Lake Accord. This set the stage for one of the most intriguing debacles in Canada's constitutional history - Newfoundland (or Manitoba, take your pick) utilized this new-found equality or symmetry to veto the attempt to give asymmetry (distinct- society status) to Quebec. The further irony here is, of course, that of and by itself the distinct society clause required the consent of only seven provinces with 50 per cent of the population.

However, both of these forces fall within the traditional concept of a federation, where the tensions are along federal-provincial or interprovincial lines. Not so for the third, and by far the most powerful, force unleashed by the Constitution Act, 1982, namely, the Charter of Rights and Freedom. The charter is an incredibly complex institution. At one level it is highly decentralizing in that it empowers citizens, via the courts, at the expense of all governments. To this extent it acts as a check on our parliamentary system. It is also Americanizing in another sense - despite the presence of some collective rights, it is at base an individual-rights document with 'fundamental justice' of the charter substituting for 'due process' of the u.s. Bill of Rights. While most of us would view most of these rights as inalien- able, it is important to note that the charter would probably be inconsistent with the manner in which many continental European nations have chosen to organize their society and economy.

At another level, the charter is not only centralizing, but nation building, particularly for what I have referred to, influenced by the various writings of Alan Cairns, as 'charter nationalists,' namely, the various groups that the charter has brought directly into the constitution. There is no question that for many English Canadians the charter is redefining the very nature of our federation. The vision here is one of

8 In what follows, I am aware that I devote insufficient attention to the self-government aspirations of the First Nations. This is particularly the case, since efforts in the direction of enhancing their self-determination are clearly consistent with the thrust of the paper. Unfortunately, there were limits to how wide I was able to cast my net. For one approach to the political and fiscal dimensions of aboriginal self-determination, see Courchene and Powell (1992).




pan-Canadian rights - rights that should be national in scope, not subject to provincial legislative preferences. As Kierans (1992) has noted, this coalition of interests is seeking to expand the scope of the charter by attempting to commit both levels of government to a much broader (and uniform) set of constitutionalized entitlements. This is in effect a non-territorial concept of Canada and is quite inconsistent with the traditional federal vision that the cleavages in Canada are interregional or interprovincial. One reflection of this view came to the fore in the Calgary Consti- tutional Conference, first with the almost immediate rejection of the proposal for a 'Council of the Federation' (which would be yet another federal-provincial or executive-federalism institution), and second with the call for a reformed Senate to be based on ascriptive categories (women, aboriginals, disabled, etc.) with little concern as to the provincial distribution of seats.

Not surprisingly, these two visions of Canada come to very different approaches in terms of how to accommodate Quebec. Briefly, the charter nationalists are now, unlike their Meech Lake stance, tending to favour formal asymmetry which, with Quebec then out of the way, clears the way to mount a more centralized, uniform- rights, social-charter ROC. Indeed, fully consistently, some now argue for three distinct 'nations' - Quebec, aboriginals, and the Rest of Canada (McCall 1992). They are not high on economic union concerns, in part because they view a more thorough-going economic union as both a precursor to greater decentralization and an extension of the philosophy underlying the FTA.

On the other hand, most of the premiers remain in their new-found symmetry mode - Quebec can have extra powers, but these should be available to all provinces. However, not all premiers are in favour of generalized decentralization. What is not yet clear is where the preferences of individual Canadians lie.

Not surprisingly, the earlier analysis does constrain these options somewhat. As noted, the different Canadian economies will need flexibility in policy implemen- tation on both the economic and the socio-economic front. If the centre wants to play a key role here, it will perforce have to adopt framework policies, presumably with some institution for managing jurisdictional interdependence on the policy, economic union, and social covenant fronts. Nationally imposed programs are no longer a possibility, at least in the short run. But this merely amounts to a recognition that asymmetry has always been with us, both in principle and in practice. The original BNA Act contains much that is asymmetrical across provinces. So does the document that brought Newfoundland into confederation. Asymmetry is also inevitable at the practical level. Ontario has eighty times more people than PEI; it is absurd to suggest that Ontario can do only what PEI iS willing or capable of doing. Our federation has never worked along these lines. Consider Newfoundland (arguably the most articulate proponent for full symmetry) and Quebec. Quebec has its own separate personal income tax, its own corporate income tax, its own pension plan, its own stock market, its own deposit insurance corporation, and on and on. Moreover, Quebec has taken over much of the manpower area. Newfoundland has the right to do all of these activities, but it chooses to do none of them. De facto, this constitutes what I have earlier called 'concurrency with provincial paramountcy.'




For whatever reason, Newfoundland chooses not to exercise its 'paraniountcy' in these and other areas. My preferred constitutional solution has been formally to extend concurrency with provincial paramountcy to those areas that are critical to the 'networking' needs of Quebec. As long as Ottawa does not make it profitable to exercise paramountcy, the end result will probably not be a wholesale devolution of powers. Thus, this has the compromise feature of generating 'symmetry in principle' and 'asymmetry in practice.' While constitutional renewal may not embody these phrases, it does appear that flexibility will be maintained, because, as I read the most recent developments, the proposed additional provincial powers need not to be taken down by the provinces and because provision is being made for future interdelegation in either direction. This flexibility is critical, since, despite my obvious preference for greater decentralization, whether Canada is more decentralized in 2002 will have more to do with what is appropriate in that environment than whether a particular function is assigned to the provinces in 1992.

2. Fiscal federalism From the perspective of one of the underlying thrusts of this paper, niamely the necessity to shift from place to people prosperity, reconstituting the fiscal basis of the federation will probably prove to be the most challenging issue. It could not be otherwise, since the provincial premiers and legislatures wear two hats, as it were: they represent both the long-telrm welfare of their citizens as individuals and the long-term interests of their citizens collectively, that is, the long-termn interests of their respective provinces. More to the point, at least four of the 'have-not' provinces have to come on side before a constitutional deal can be struck. Thus, my first concern is that the first ministers (and representatives of territorial and aboriginal governments) will strike an overall deal that will resurrect much of 'old- style' fiscal federalism. This may well get us by a political referendum or referenda later this year, but it will ultimately fail an 'economic referendum' a few years down the road.

My second concern will no doubt be labelled as centralist imperialism. None the less, I believe it inevitable that our future as a viable distinct society in the upper half of North America requires that Atlantic Canada and parts of western Canada move from transfer dependency towards greater economic self-sufficiency. This has to imply a significant rationalization of socio-economic policies, programs, and infrastructure across provinces in these regions. I really cannot see any economic alternative. If these provinces commit themselves to such rationalization, it ought to be fully accommodated by the rest of Caniada - for example, relaxing economic union provisions to allow them to reap any and all economies of scale and scope as they attempt to position themselves vis-'a-vis the Americans and the rest of Canada. If place prosperity is to characterize Canada in the millennium, it will have to come from the 'bottom up' rather than the 'top down.' Understandably, this is a difficult message to deliver to the reconfedera- tion process, but I am only a surrogate for the real messenger - the new global economic order.




3. The internal economic union From the perspective of an economist, there is an important sense in which the process of constitutional renewal has gone strangely and disturbingly off the rails. Front and centre in the original proposals were provisions relating to (a) preserving the 'negative integration' aspects of the economic union, such as an enhanced section 121 of the constitution; (b) promoting the 'positive integration' aspects of the economic union, which are obviously critical to any attempt to enhance human capital; and (c) developing institutions (e.g., the Council of the Federation) to manage or monitor the policy interdependence between the two levels of government, particularly if the future entails greater decentralization. All of these provisions were early casualties in the constitutional conference process. To the extent that these issues are overlooked in any final agreement, the system will obviously have to in- novate to recreate them because it is inconceivable that a meaningful reconstitution of our federation could ignore such fundamental precepts.

A major part of the underlying problem here is that the federal government as- sumed that enhancing the economic union was such a 'winner' in the constitutional process, particularly since it had been endorsed in the various Quebec reports, that it would provide a very convenient vehicle for advancing federal powers in the federation. The wording of the original federal proposals implied a federal power grab, whether or not this was the intent (Government of Canada 1991, 42-3). Ob- viously, this misfired completely. However, it is illustrative of one of the themes in this paper, namely, that the rethinking and reworking of Political Canada (and the other subsystems as well) have become strategic contests unto themselves, ignoring not only the imperatives emanating from the other subsystems but the high stakes of the societal game that is afoot.

4. Central institutions My final comments on Political Canada relate to the future of our central institutions. The issue that is emerging centre stage in the ongoing countdown to the constitutional renewal deadline is the nature and function of a reformed Senate. Apart from the obvious political principles and practical considerations relating to the 'effective' and 'equal' components of a Triple-E Senate, there are at least two further issues at stake here. One relates to bringing provincial or regional interests more directly into the decision making of the centre. What I have in mind here are matters like the ratification of Supreme Court justices or the governor of the Bank of Canada which would lend a 'national' rather than a central tinge to these institutions. The other has to do with the operations of the party system and the frustration, particularly in the west, that MPS tend to vote in their party not their constituency interest. In this sense, a Triple-E Senate could serve as a check or balance on the power of parties and, more generally, the power and the interests of the populous centre.

However, as economists would readily understand, the system itself has been adapting and innovating over the years to compensate for these deficiencies. The most obvious of these is that the absence of a u.s.-style Senate has meant that




provincial interests on many national issues have come to be articulated through the premiers and provincial governments. These interests come to impinge on the centre by what has come to be referred to as executive federalism, the apex of which are the first ministers' conferences (FMcs). These FMcs are clearly triple-E in nature. One obvious alternative (suggested by University of Western Ontario's John McDougall), is to convert this process of 'summitry' into our new Senate, along Bundesrat lines. But apparently we are intent on reforming the existing Senate. We may well need one triple-E institution: it is far from clear what we will do with two, particularly since precious little thought has been given to reconciling these two versions. The presumption must be that a Triple-E Senate will eventually undermine executive federalism and the role of the premiers on the national scene. But this is a heroic assumption, given that executive federalism has literally dominated recent Canadian politics, with still more to come. With the four aboriginal national associations and the territorial governments now fully involved in the summitry process, it will, I think, prove difficult to unwind its influence. The more likely casualty will be aspects of parliamentary democracy.

This is also the case in terms of the second area where the system is responding to perceived deficiencies. While the elite accommodation system no doubt served us well in the past, we have now entered an era where these accommodating elites have been replaced by powerful special interests. It is far from obvious that our traditional parliamentary system, replete with a high degree of party discipline, can function well within a regime dominated by special interests. What has concerned many Canadians is that their federal MPS routinely vote the party line rather than constituency interest. Since individual Canadians cannot trigger changes in the parliamentary system, they are embarking on the next-best route - bypassing the national parties. Hence, one rationale for the Reform Party, the Bloc Quebe6ois and the Confederation of Regions. Again, trouble for parliamentary democracy or at least with the traditional way in which it has operated in Canada.

While these concerns may seem a bit removed from the earlier analysis, they are relevant in several ways. One result of the introduction of greater checks and balances at the centre is that they should counter what Breton (1985) has referred to as the extremely high degree of 'policy reversals' in the Canadian system. These policy swings are, in my view, the political equivalent of excess volatility on the exchange-rate front and neither is appropriate in an integrated and integrating world. The second point is more subjective: with all these checks and balances we may be in the process of dramatically complicating the operations of parliamentary government. Should this occur - and the issue is not whether but how much - the implications are far from clear. For example, should gridlock come to characterize the central institutions, will it serve almost by default to transfer further powers to the provinces? And so on. This leads to my final point. Given that the Canadian political science community appears unwilling to embrace the public choice model, the way appears open for economists to play an influential role here.




VII. CONCLUSION

Mintzberg (1992, citing Josh Freed) is probably correct: 'Canada works in practice, it just doesn't work in theory.' And we have practised federalism well! We are on the verge of becoming the world's first truly multinational and multicultural federal nation. We celebrate our diversity, yet we have developed a sense of concern for the well-being of our fellow citizens that is entirely unique in the western hemisphere, let alone in North America. We appear at long last to be willing to address with dignity the aspirations of the original Canadians. All of these are centre stage in our ongoing societal effort to maintain the political integrity of our nation. However, we have been wrestling so long with our internal tensions that we frequently neglect the fact that there are powerful external forces that cannot be ignored. These forces, too, have the power to rend our nation or, in the language used above, to relegate Canadians to the status of northern Americans. In rethinking Canada, we cannot lose sight of the fact that we have to accommodate the economic as well as the social and political imperatives. And this may require paradigm shifts in terms of how we approach no only Macro Canada, Social Canada, and Industrial Canada, but Political Canada as well. Much of the above analysis reflected my concern that these subsystems are marching to their own internal drummers, as it were, with inadequate recognition of the significant (and frequently negative) spillovers to the other subsystems. In recent years, the focus on 'increasing returns' has become a veritable growth industry in our profession, particularly for macro theorists. It seems to me that there are also societal increasing returns if the various subsystems are mutually supportive. Moreover, the required rethinking to ensure that the overall system pulls together is, I think, also appropriate policy for the individual subsystems.

In this context, it is instructive to recall that Quebeckers are attempting to build a distinct society, economically and culturally, within North America, not just within Canada. Likewise a renewed Canada must also work, economically and culturally, within North America, not only along an east-west axis. As the Mintzberg quotation suggests, there is probably no magical theoretical model that will get us where we want to go. We simply have to muddle through, as the British would say. None the less, my plea in this paper is that we Canadians approach this challenge with all our citizens in mind: we must not fall into the grasp of the American Creed where the full privileges of citizenship attach principally to the 'symbolic analysts.'

There is no obvious way to conclude this address. I concluded my Innis Lecture with a quote from the philosopher of summer, Yogi Berra: 'If you don't know where you're going, you may end up somewhere else.' This obviously remains pertinent. Given the title, several colleagues have suggested that I should invoke Shelley's 'if winter comes, can spring be far behind.' However, because the issues addressed above, although cast in a policy perspective, are inherently theoretical in nature, I have opted for something equivalently trite and hackneyed, namely to 'twist Thorstein,' as it were, and express the hope that the above ideas might occupy some of the leisure of our theory class.




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Mon Pays, c'est L'hiver: Reflections of a Market Populist