AND WHY IT CAN’T HAPPEN

A hard-nosed appraisal of the costs of separatism

Blair Fraser December 1 1967

AND WHY IT CAN’T HAPPEN

A hard-nosed appraisal of the costs of separatism

Blair Fraser December 1 1967

AND WHY IT CAN’T HAPPEN

A hard-nosed appraisal of the costs of separatism

Blair Fraser

THIS AUTUMN, for the first time, there are responsible men in Ottawa who begin to despair of saving Confederation. The revival of separatist thinking in Quebec, of which the De Gaulle visit was both a cause and a symbol, brought a new chill of pessimism in upper levels of the federal civil service, and Canada's survival as a nation ceased to be taken for granted.

Nevertheless, the optimists, who still call themselves the realists, remain a majority. They are convinced that Quebec will not separate from the rest of Canada — certainly not soon, and probably never. They hold this opinion for three main reasons, two positive and one negative:

First, the evident decline of separatist thinking in English Canada, with the result that the worst injustices against the French Canadians outside Quebec are being removed.

Second, the introduction of a new tax-sharing formula whereby Quebec is receiving, for the first time, its fair share of the central revenues — about $86 million more than it had been getting under the old formula, even though that too had been enriched over previous years.

Third, a belated but general realization by Quebec's political leaders that whatever they might like to do, they simply cannot afford separation now. Its immediate result would be economic catastrophe.

For the short run, it is the third reason that is decisive. In spite (or in part because) of René Lévesque’s protestations, both major parties now perceive the material costs of setting up an independent Quebec, and they are staggering. For the time being at least, Quebec would have no way of meeting them other than a massive sacrifice of its current standard of living, which nobody is prepared to accept. The problem has two aspects, the fiscal and the economic — both a loss of tax revenue at current rates, and a loss of the economic base from which revenue is derived.

Eric Kierans, the former president of the Montreal Stock Exchange, who was revenue minister in the Lesage government, and who is now president of the Quebec Liberal Federation, gave an outline of the fiscal losses in a recent speech to the Reform Club in Sherbrooke, Quebec. Kierans pointed out that Quebec receives about 35 percent of federal expenditures, and pays only 25 percent of federal taxes (even when full allowance / continued on page 69

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is made for “opting out“ of shared programs. etc.). Therefore. said Kierans. Quebec by cutting itself off from Ottawa would lose this net benefit. which he estimated in absolute figures at something more than $200million a year. As a recent minister of revenue. Kierans is in a position to know what he is talking about, and Ottawa officials agree that his appraisal is about right.

René Lévesque disagrees violently. In a long statement of rebuttal, he admitted Quebec would suffer a certain net loss of revenue (he put it even higher, at $350 million a year), hut he insisted this would be more than offset by savings of “needless" expenditure, notably on defense. (He estimated Quebec's share of the present defense budget at $500 million, and said an independent Quebec could finance an adequate force of its own for no more than $150 million.) Other such retrenchments would bring a total reduction in expenditure, he said, of at least $615 million.

Lévesque takes it for granted that other federal services—icebreakers in the St. Lawrence, family allowances, old-age pensions, diplomatic representation abroad, etc.—could all be financed out of the taxes now paid to Ottawa, which under his system would be paid to a sovereign Quebec. Kierans could have pointed out that this is not necessarily so. Experience of other newly independent countries indicates that all these things are more expensive, in practice, than their planners anticipated. But Kierans apparently felt his more limited, less detailed analysis was conclusive enough.

Laymen need not bother trying to figure out which of the two Liberal ex-ministers is right in this argument (though Eric Kierans sounds a lot more convincing). The real weakness in René Lévesque's case is not fiscal, hut economic. He makes two assumptions.. both fundamental to his plan for an independent Quebec, and neither supported by any evidence of probability:

First, he assumes a common currency that would be backed, as the Canadian dollar is now. by the Bank of Canada—but a Bank of Canada in which the Quebec government would have an equal share of control, and of the gold and foreign-exchange reserves. and thus a veto power over monetary policy.

Second, he assumes a “Common Market” wherein Quebec and Canada would have no trade harriers against each other, hut Quebec would exercise a veto power on external tariff changes.

There is no reason to suppose any central government, present or future, would make such concessions. But if a sovereign “State of Quebec" tried to issue its own currency, it would encounter awesome difficulties. Robert Bourassa. the young MLA who is the Quebec Liberal Party’s economic expert. outlined some of them in a widely publicized speech:

"There would be a problem of confidence. especially during the period of transition that would he necessary to inspire the confidence of the public and especially of investors. The

WHY IT CAN’T HAPPEN continued

“Companies are moving out of Quebec—but not saying so”

temptation would be strong to get rid of Quebec securities for Canadian dollars, it would be quite easy for owners of capital to transfer assets, simply by moving them from bank branches in Quebec to branches outside." Thus the new Quebec government would soon be forced into exchange control. In short, a new currency could not be introduced without risking “enormous pressures on exchange reserves, and the consequences that would follow: devaluation of the money, austerity measures, flight of capital, problems of borrowing on foreign markets, a rise in the cost of our imports.”

Douglas II Fullerton, a well-known financial counselor who is serving on a Quebec government-appointed committee to study financial institutions in the province, has pointed out that these difficulties have already begun. In an open letter to his good friend René Lévesque. Fullerton said:

“In the past five years. Quebec’s borrowings have risen to $500 million a year, the amount required to meet the costs of investment and the operating deficits of the province. Today, it is practically impossible to sell Quebec provincial or municipal bonds in Canada, outside Quebec . . . Exceptionally high interest rates, added to the considerable volume of Quebec loans, have depressed the price of the bonds by as much as 20 percent . . . What would be the consequences for Quebec independence? In my opinion, the first result would be a considerable selling-off of Quebec bonds—at no matter what price—and consequently, a radical drop in Quebec’s credit ... In these circumstances. how can we think of monetary union with the rest of Canada, when one of the two partners will be in a more serious deficit position than the other? . . . [Yet] without monetary union, the Quebec dollar will depreciate more than the new Canadian dollar."

The combined indebtedness of the Quebec government and the govern-

ment-owned Quebec Hydro is already $.3.6 billion. On top of that is the City of Montreal debt. $765 million, for a total of $4.3 billion—without even counting the debts of other Quebec cities and towns. The slippage in Quebec’s credit rating, noted by Douglas Fullerton, makes the refunding of this debt more and more difficult.

Troubles of public financing can also be observed in the private sector. A study by the Economic Council of Canada shows that annual private investment in Quebec is only $81 per capita compared to $104 in Ontario. $135 in British Columbia and $161 in Alberta. A 30-man committee of the Chambre de Commerce recently

reported a perceptible movement of companies out of the Province of Quebec. “Companies arc moving out of the province, but they arc not saying so." committee chairman Claude Genest said. For one example, the Bell Telephone Company is quietly transferring its long-distance headquarters from Montreal to Ottawa, a move for some 350 employees. Mutual funds have been quietly selling off Quebec securities. The operative word is "quietly"—nobody wants to

be accused of putting economic pressure on Quebec, nor does anyone wish to depress the price of the securities that are being sold.

These untoward developments presumably account for the almost frantic declarations by Quebec Premier Daniel Johnson (from Hawaii, where he was recuperating from phlebitis) and Acting Premier Paul Dozois. who proclaimed that “Quebec is better off within Confederation" and that the Union Nationale government has no

thought of separation. By no coincidence it was Jean-Noël Tremblay, who is the nearest to an outright separatist of all Union Nationale ministers, who was summoned to stand at Dozois' side and declare. “I share the opinion of my colleague."

Costs of separation have been increased. and the reasons for it somewhat diminished, by the new' tax-sharing formula that went into effect this year. Originally, federal taxes were divided among the provinces by a

formula based on corporation and income levies. The theory was that provinces in which corporate head offices were located had an unfair advantage, being able to tax profits that had been earned all over Canada. One result of this approach was that Alberta, so rich with oil royalties that its government had no financial problems whatever, continued to get “equalization payments" as a “havenot" province, while Quebec, the poorest province outside the Atlantic

region, got little or nothing because Montreal has so many corporate head offices. By the new formula, the whole “fiscal capacity" of each province is taken into account, and Quebec thereby gets $86 million more this year than last.

But the wiser of Canadian statesmen. in Ottawa and the Englishspeaking provinces, know that these material factors will not alone subdue the threat of separatism. Awareness that they now lack the capability of declaring independence w‘H increase, not diminish, the sense of frustration among French Canadians, and their resolve to find or make a way out of the trap that holds them. At most, these material circumstances may assure us some time—perhaps no more than a few years—in which to remove the grievances and satisfy the aspirations that created separatist feeling in the first place. Therefore, the strongest of the three reasons for optimism, in the long run. is the first one 1 mentioned—the decline of the separatist attitude among English Canadians.

Not that am Enulish Canadian has ever called himself a separatist. Indeed. the most implacable of them are the very ones who most stridently call for "one Canada, one nation sea to sea" (apparently unaware that the slogan of the R1N. Pierre Bourgault’s separatist party in Quebec, is also “one country, one flag, one language"). Consciously or not. they share with French-speaking separatists one fundamental doctrine: that Quebec is the only homeland in which a French Canadian can be free to exercise the rights of language, culture and education that he has been defending for 200 years.

The English - speaking separatist would not. of course, allow the alien Province of Quebec to break away and become an independent sovereign state. He prefers to keep this “conquered" region in a mild form of colonial subjection, wherein EnglishCanadian "rights" would continue to he respected without any obligation to extend, or even consider, similar rights for French Canadians outside Quebec.

French Canadians would be free to

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emigrate to other parts of Canada, hut only on the same terms as immigrants from Germany, Italy, Hungary or any other ex-enemy country—or, tor that matter, from any foreign land, friendly or hostile. They are all free to come provided they leave their own cultural heritage behind, and adopt ours for themselves and their children. The immigrants from foreign lands have made this painful choice, voluntarily and knowingly, when they decided to conic to Canada. But only a separatist could argue that the same sacrifice should be imposed upon a native Canadian moving to another part of what, we assure him. is his own country.

Until fairly lately this penalty was in fact imposed on French Canadians who left Quebec for any Englishspeaking province. It was illegal for their children to be taught in their own language in the public schools. In six of the nine English-speaking provinces it still is (though the laws vary in rigor and are not always strictly enforced).

But for the past several years in New Brunswick, and starting next year in Ontario and Manitoba, the last remnants of this sorest grievance are removed. The French-speaking minority in each of these provinces will enjoy in full, at last, the rights of language and education that Quebec's English-speaking minority has always taken for granted.

Three provinces out of nine may not sound like a very impressive score. However, according to the 1961 census, of the 1.3 million French Canadians who live outside Quebec, nearly four fifths (963.000) live in those three provinces. Thus the worst of the injustice is corrected for the time being, until more French Canadians take advantage of the new Canadian mobility to move farther cast and farther west.

Meanwhile, another, similar grievance is being redressed within Quebec itself, and in the national capital—the fact that any French Canadian who hopes to rise above the rank of assistant foreman must do his daily work in the other official language. In the federal civil service, and increasingly in private corporations doing business in Quebec, men in senior positions are being required to speak and understand both languages. so that each of their subordinates may be able to work in his own.

None of these changes can yet be found in the three provinces farthest cast, nor in the three farthest west. Particularly in the west there is still an angry hostility and resistance to them. But even in these areas some change has begun, and more rapid change is clearly imminent.

More and more, the conventional wisdom of English-Canadian separatism is becoming quaint. Its clichés are already the dowdy symbols of rusticity and old age. Mere fashion, if nothing else, has put them on the defensive.

Whether change will come quickly enough is still, perhaps, an open question. but the optimists believe it will. So far, the optimists about Canada have always turned out to be right. ★