COVER

JUDGMENT DAY

TURBULENT TIMES POLARIZED THE COUNTRY

MARY JANIGAN March 8 1993
COVER

JUDGMENT DAY

TURBULENT TIMES POLARIZED THE COUNTRY

MARY JANIGAN March 8 1993

JUDGMENT DAY

COVER

TURBULENT TIMES POLARIZED THE COUNTRY

In retrospect, Martin Brian Mulroney seemed an unlikely politician to tug Canada towards the stark realities of the 21st century. His honeyed voice was more suited to lavish promises than belt-tightening lectures. His exaggerated mannerisms suggested old-fashioned wheeling and dealing rather than idealistic commitment. But when Canada’s 18th Prime Minister announced his intention to resign last week, he could point to an astonishing record of change. The Canada of 1984—with its broad social programs and its high economic expectations—has vanished. Instead, nine years later,

Canadians reluctantly recognize that they must pay more to receive less—and they must work harder to maintain their declining standard of living. Says pollster Michael Adams, the president of Environics Research Group Ltd. of Toronto: “His government has a lasting legacy: the era of the free lunch is over. We have moved from the politics of affluence to the politics of sacrifice.”

That movement was massive and often painful. Indeed, under Mulroney, the federal government transformed the very role of the state in Canadians’ lives. It privatized huge Crown corporations such as Petro-Canada and Air Canada. It scaled back such revered but costly national symbols as Via Rail and the Canadian Broadcasting Corp. It focused attention on the size of the deficit. It slashed spending and raised taxes so that, in a major turnaround, the money earmarked for government programs no longer exceeded revenues. It abolished family allowances—and taxed back old-age pensions from wealthier recipients. It negotiated free trade pacts with the United States and Mexico, exposing once protected industries such as textile and food processing firms to fierce competition. Says Mulroney’s former communications director, economist Marcel Coté: “He steered the government away from the welfare-state mode, which was dragging us into bankruptcy.”

But Mulroney did far less to indicate how governments could spend more wisely. His ministers frequently imposed cutbacks and additional taxes, but rarely redesigned old programs to meet new needs. When the Free Trade Agreement, for one, took effect on Jan. 1,1989,

Ottawa did not devise major adjustment programs to assist displaced workers. When Ottawa revised the Unemployment Insurance Act in 1990, it put more emphasis on manpower retraining—but it also cut $1.3 billion from unemployment benefits by toughening the eligibility rules. As a result, Canadians have become increasingly polarized between those who survived the cold shower of change—and those who found themselves with diminishing prospects. Observes Thomas Courchene, senior fellow at the Queen’s University School of Policy Studies: “Our economy was not ready for free trade. We did not have an adequate set of social policies. As a result, we are seeing the beginnings of a dual economy where there is a shrinking middle class. Some people are getting richer, but a greater number are getting poorer.”

Mulroney’s old-fashioned style contributed to that sense of division. In person, the Prime Minister is warm and sensitive; his associates profess great loyalty to him. On television, however, his warmth ap-

peared effusive and his sensitivity often seemed insincere. To add to I those problems, the Prime Minister sometimes strayed from his own u rules. He railed against patronage during the 1984 election, but he fref quently appointed friends to government posts. He denounced pork| barrel politics, but he constructed a prison, which cost more than $60 5 million, within the boundaries of his former Quebec riding of Manicouagan. As a result, Mulroney frequently appeared as an impediment to his own government’s stated goals—and he often failed to receive credit for his government’s successes. As pollster Adams notes: “He has tried to teach us the limits of government. The problem is that, in the public mind, he does not have the qualities of consistency and sincerity.”

In the end, historians will likely view Mulroney as a transitional Prime Minister. Although he encouraged Canadians to reduce their dependence on government programs, he failed to put forward a positive vision of government’s role in an era of battered expectations. His successors, whatever their political affiliation, will have to grapple with Mulroney’s legacy: the deficit is at the top of the political agen-

da—and the public will no longer tolerate lavish public investment projects that increase that deficit. But future prime ministers must also help Canadians to deal with the impact of continental free trade. They will have to redesign and re-target social programs; they must do more with fewer resources. They must bridge the gulf between those who fear change and those who welcome it. Says University of Calgary historian David Bercuson: “Free trade might work, for example, if programs are put into place to cope with the situation. The next government is probably going to be able to reap the benefits of what this government has done.”

As a result, history will likely look upon Mulroney with more sympathy and more kindness than most Canadians now show. He was caught on the cusp of change; his tenure spanned a time of economic upheaval and growing political cynicism throughout the Western world. When he failed, it was often because he employed shopworn

solutions: many Canadians dismissed his two major proposals to amend the Constitution as old-fashioned attempts to broker interests. When he succeeded, it was because he fought, almost against his own political instincts, for an economic or social ideal. His success was incomplete and his approach was needlessly divisive and disruptive. But perhaps that is the price of radical change in turbulent times.

Maclean’s examines his legacy:

THE POLITICAL LEGACY

Before Mulroney’s victory in 1984, the Conservative party had spent most of the postwar era on the opposition benches. There were brushes with power: from 1957 to 1963 under John Diefenbaker and for nine months—from June, 1979, to February, 1980—under Joe Clark. But when Mulroney wrested the leadership from Clark in June, 1983, the Conservatives were in poor shape. Persistent differences over such policies as official bilingualism had created simmering party feuds— and the acrimonious leadership race had deepened those divisions.

To Mulroney’s credit, he united his squabbling party and piloted it to

two successive majority victories in 1984 and 1988, the first Conservative Prime Minister to do so—as Mulroney loved to point out—since Sir John A. Macdonald. Each time, the party won seats in Atlantic Canada, Ontario, Quebec and the West. (Until a byelection in 1987, the Tories also held all three seats in the Yukon and Northwest Territories.)

That harmony was difficult to maintain—and Mulroney was not always attuned to regional sensibilities. His efforts to please individual regions occasionally backfired. In 1986, Ottawa tinkered with its tendering rules to award a maintenance contract for CF-18 jet fighters to Montreal-based Canadair Ltd. instead of Bristol Aerospace Ltd. of Winnipeg.

That incident enraged westerners—and encouraged the rise of the Reform Party of Canada. Another regional party, the Bloc Québécois, had its origins in the June, 1990, collapse of the Meech Lake constitutional accord. Indeed, Mulroney’s very presence created difficulties for provincial Conservatives. Since 1984, the Conservatives have lost power in five provinces—Newfoundland, New Brunswick, Prince Edward Island, Ontario and Saskatchewan.

To a surprising extent, however, Mulroney has managed to preserve solidarity among his diverse national caucus. Says economist Coté: “There is nothing more dangerous in a diversified country than a federal government run by non-national parties: it pits one region against the other. Mulroney rebuilt the national [Conservative] party, bringing Quebec and Western Canada and Ontario into a fundamental coalition. That is one of his greatest achievements.”

But Mulroney also leaves formidable political problems for his party. The Prime Minister essentially viewed politics as a process of placating the regions: that is, to maintain Canadian unity, each region had to re ceive its share of federal spending. As a result, Mulroney propped up failing industries. In early 1985, for one, his government arranged a controversial $ 150-million interest-free loan to Quebec-based Domtar Inc. to modernize its paper mill. The Prime Minister also relied heavily on such support programs as payments to Prairie farmers and Atlantic fishermen to shore up his party’s popularity. But federal resources are scant in the 1990s, and his successors must find new ways to unite Canada. Argues pollster Adams: “Brian Mulroney was produced by the politics of brokering interests. But politicians today must speak to Canadians about our common relationship to such things as medicare.”

THE LEGACY IN FEDERAL-PROVINCIAL RELATIONS

Mulroney initially worked hard to improve the strained relations between Ottawa and the provinces. In late 1984, he settled a festering dispute over the oilfields in the continental shelf by ceding most of the potential revenue to Newfoundland. In March, 1985, his government concluded a new revenue-sharing agreement with the resource-rich western provinces that effectively dismantled the former Liberal government’s National Energy Program. Declares former Newfoundland premier Brian Peckford: “Mulroney was far more conciliatory than [former prime minister Pierre] Trudeau. He assisted the provinces in developing different economic and constitutional policies. He did not have [Trudeau’s] arrogance.”

But Mulroney did inherit one of the central problems that Trudeau faced: in a federation, the national government and the provinces nat-

urally compete for revenues and powers. It is extremely difficult to balance those diverse interests. When the Prime Minister concluded the Free Trade Agreement with the United States in 1988, he incurred the bitter opposition of Ontario and Prince Edward Island. And when he unilaterally limited the growth of federal transfer payments to the provinces in 1990, he provoked angry denunciations in every provincial capital. Notes Patrick Monahan, director of the York University Centre for Public Law and Public Policy: “If you look at the Mulroney years, you would conclude that the relationship between Ottawa and the provinces is worse than when he was elected in 1984. But you would also conclude that the relationship is going to get worse, no matter who is in power, because of Ottawa’s significant debt.”

Still, Mulroney’s personal rapport with the premiers remains better than Trudeau’s. Peckford claims that Trudeau “looked with disdain upon the provinces.” Adds former Ontario premier David Peterson: “Even when I was most angry at Mulroney and most violently disagreed with him on fundamental issues of policy, I never disliked him.”

THE LEGACY IN GOVERNMENT FINANCES

From the start, the growth in Canada’s deficit was a priority of the Mulroney government. In November, 1984, in a landmark statement, then-Finance Minister Michael Wilson outlined plans to curb the deficit’s growth, including spending cuts of $3.5 billion. Said Wilson: ‘We believe we must act now to avoid a future crisis.”

The government has struggled to keep that pledge. It cut spending. It dissolved 15 of the 57 Crown corporations and their 134 subsidiaries. It privatized an additional 20 corporations, including de Havilland Aircraft of Canada Ltd. and the overseas telecommunications firm Teleglobe. And Ottawa raised taxes, beginning with a five-per-cent surtax on income tax in its first budget in May, 1985. On Jan. 1,1991, over the protests of many Canadians, it even slapped a seven-per-cent tax on most goods and services, the widely reviled GST. Last November, economist Patrick Grady of Ottawa-based Global Economics Ltd. estimated that the annual tax burden on the average family was almost $1,900 higher as a result of Tory tax increases since 1984. Added Grady: “The tax increases since 1984 have been of unprecedented magnitude.”

Despite that fervor, the Tory record on the deficit is decidedly mixed. The actual size of the deficit has changed little: the 1984-1985 deficit was $38.5 billion, compared with the 1991-1992 deficit of $34.6 billion. To be sure, the deficit has declined as a percentage of gross

domestic product (GDP), to 5.1 per cent in 1991-1992 from 8.7 per cent in 1984-1985. As well, program spending no longer exceeds federal revenues. But the national debt continues to skyrocket. In 1984-1985, the national debt was $206 billion, or 46 per cent of GDP. In 1991-1992, it reached a whopping $457.5 billion, or 63 per cent of GDP.

Mulroney maintains that the debt has grown largely because of the need to borrow money to pay the interest on past deficits—an expense that reached $41 billion in 1991-1992 alone. As well, federal tax revenues have been squeezed because of the 1990s economic downturn, with 1.5 million Canadians on welfare, nearly 1.2 million on unemployment insurance rolls and corporate profits almost nonexistent in many industries. To some extent, those factors may have been beyond Mulroney’s control. But John Bulloch, president of the 83,000-member Canadian Federation of Independent Business, says that the Conservatives did too little to cut the deficit during the 1980s when the economy was booming. “When Mulroney had the time to do it, he did

not do it—and that was a weakness of leadership,” argues Bulloch. ‘We are paying very heavily for that.”

Still, the Prime Minister almost single-handedly turned the deficit into a cross-Canada concern. Says historian Bercuson: “The Tories put the deficit at the top of the political agenda—and everyone is addressing it, including New Democratic Party provincial governments.”

THE LEGACY ON THE ECONOMY

When the Conservatives took power in 1984, they were determined to dismantle their predecessors’ barriers to investment. Within three months, over the protests of Canadian nationalists, they dismantled the Foreign Investment Review Agency, which had screened most foreign investments to determine whether they benefited Canada. In its place, the Tories established Investment Canada, which generally examines only large foreign acquisitions of existing businesses to determine if they are of “net benefit” to the country. In December, 1984, Mulroney told the Economic Club of New York City that “Canada is open for business again.”

In retrospect, that confident, almost cocky assertion captures the Conservatives’ outward-looking economic approach. On Jan. 2,1988,

Mulroney and President Ronald Reagan signed the Free Trade Agreement (FTA), an historic pact that was designed to erase most protective tariffs between the two countries over a 10-year period beginning in 1989. The accord also provided for the creation of CanadaU.S. arbitration panels to settle trade disputes. Almost four years after the FTA took effect, on Oct. 7,1992, Canada, Mexico and the United States signed a North American free trade pact to phase out most continental trade and investment barriers, again over a 10-year period. (That treaty is not yet ratified.) Says Ottawa consultant Harry Near, the director of operations for the Conservatives’ 1984 and 1988 election campaigns: “The Prime Minister changed the mind-set from an insular Canada to a more international Canada. It would have been a real tragedy if we had continued to do the ‘small Canada’ thing while the rest of the world formed trade blocs.”

Those initiatives provoked fierce debate. Many Canadians accused the Mulroney government of compromising Canada’s autonomy,

keeping the value of the dollar uncompetitively high and exposing its fragile manufacturing sector to U.S. attack. They added that, under the FTA, Canada did not win exemption from the application of tough U.S. trade laws. Mulroney countered that Canadian exports required guaranteed access to international markets. Maureen Molot, a political scientist at Carleton University’s Norman Paterson School of International Affairs, says that the controversy was almost inevitable because the international economy changed so rapidly during the 1980s. Adds Molot: “All of the talk about competitiveness is a reflection of a country and a government trying to come to grips with a world that looks very different and where you have to struggle pretty hard to stay where you are.”

Through bad luck and worse planning, that struggle has been very hard in Canada. Trade disputes ranging from hogs to steel continue to disrupt relations with the United States. Canada’s economy grew by only one per cent in 1991-1992. Average family income, after adjusting for inflation, fell to $53,131 in 1991 from $54,537 in 1990—a 2.6-per-cent drop. The unemployment rate is 11 per cent. In part, the problem is beyond the Conservatives’ control: although Canada’s economy grew rapidly during the midand late-

1980s, recession gripped most of the developed world in the 1990s.

But the Conservatives also have to shoulder blame for putting extraordinary pressure on the Canadian economy. For one thing, Mulroney decided not to introduce programs to assist Canadian workers through the adjustment to free trade. Then, as the trade pact took effect, the Bank of Canada raised interest rates to wring inflation out of the economy. High interest rates, while successful in combating inflation, kept the Canadian dollar high, impeding Canadian exports. Finally, Mulroney introduced the complicated and controversial GST. Says economist Courchene: “You can do the right things at the wrong times. We had no choice with free trade, but we did have a choice when we moved towards zero inflation and the GST. We put them all into the same time frame. The hit was too hard.” Adds former Liberal premier Peterson: “It was like declaring war, but then unilaterally disarming.”

The resulting economic hardship has made it almost impossible to determine the precise effect of lower trade barriers. Instead, the debate over the treaty’s worth has pitted Canadians who have prospered against Canadians who have lost jobs. Belatedly, the Conservatives are preparing a major discussion paper on manpower retraining and education. If those initiatives work,

Mulroney’s successors will likely receive the credit. Says Bulloch: “The judgment will be that it was a historic initiative to force the restructuring of the Canadian economy.”

THE LEGACY ON SOCIAL PROGRAMS

The Mulroney government has rarely handled social policy issues with grace. The Prime Minister’s 1984 election platform included a pledge to safeguard the social safety net as a “sacred trust.” But when the Conservatives introduced their first budget in May, 1985, they partially removed the protection against inflation for family allowances and old-age pensions. After a public outcry,

Mulroney reversed the decision on pensions. But the damage was done.

As longtime Liberal strategist Hershell Ezrin notes, shrewd governments should not spring major reversals on their constituents. “We are a very small nation in a very difficult and changing world,” says Ezrin. “We should have a co-operative and consultative environment.”

Instead, the Tories were almost constantly embroiled in battles over social policy. The Conservatives argued that Canada could not afford to make payments like family allowances and old-age pensions to well-off Canadians. In 1989, they taxed back those payments from wealthier recipients. Last year, they simply abolished family allowances—although they instituted a supplement for poor working families. In response, opposition critics charged that the Tory government too often viewed social policy as an expense—instead of a tool to help the unfortunate and to bring the displaced back into the workforce. Charges the executive director of a major social agency: ‘That really has been the driving incentive for the government on the social policy side: how can we reduce our expenditures as opposed to how can we get a better bang for our buck.”

Belatedly, many Conservatives now acknowledge that Canada’s social policy requires a major overhaul. Federal officials are asking tough questions such as whether the government should provide benefits to people to remain in communities where there is little work.

They are also asking if unemployment insurance funds should be used to retrain workers for new jobs. Says Courchene: “We have been putting far too much emphasis on place and physical resources and not enough on human resources.”

THE LEGACY ON THE CONSTITUTION

Quebec did not assent when Ottawa and nine provinces agreed to bring home the Constitution from Great Britain in 1982 with a Charter of Rights and an amending formula. But Mulroney and his fellow first ministers twice tried to rectify that omission. The Meech Lake accord of 1987 recognized Quebec as a distinct society, changed the amending

formula to extend the requirement for unanimity and allowed the provinces to participate in the nomination of Supreme Court judges and senators. After the accord’s death in June, 1990, the first ministers met again and, after months of arduous negotiations, they produced the Charlottetown accord of 1992. The Charlottetown package recognized Quebec’s status as a distinct society, but it also replaced the appointed Senate with an elected chamber with equal membership from each province, and it recognized the aboriginal right to self-government. Canadians rejected that accord in a referendum last October.

Those two failures were wrenching for Mulroney and for the country. The long debate over the Constitution exacerbated regional tensions and provoked clashes among linguistic and ethnic groups. Says Peterson, who negotiated the Meech Lake accord: “We sure went through a lot of turmoil advancing to nowhere. But that is not just Brian Mulroney’s responsibility. There were a lot of other players.”

In the end, historians will ask if the effort was necessary or beneficial. The á process showed that it is probably impossible for any Prime Minister to o achieve consensus on a constitutional amendment. But it did provide a clearer view of the tensions that afflict Canada. Economist Coté maintains that the strains within Confederation would have been much worse if Mulroney had ignored Quebec’s constitutional complaints. “He tried to adapt Canadian federalism to the modem reality of Quebec,” says Coté. “For Quebecers, Canada is a partnership. In the rest of Canada, it is a more complex reality. Mulroney tried to reconcile those two views. That effort failed. But we understand each other a little more.” That is perhaps the best that any Prime Minister can expect to achieve.

Whoever succeeds Mulroney faces a perilous future. Quebec will almost certainly come back to the constitutional table with more demands. International trade pressures will buffet the economy. The federal debt will grow. And Canada’s creaky social safety net will sag further under increasing strain. Mulroney’s successor must be evenhanded and frugal, cutting old programs to pay for new priorities, wooing the public’s consent to change. It will be difficult to retain public approval. Says pollster Adams: “Anyone who presides over a radical transition in terms of the role of the individual and the state is bound to be unpopular. Any politician in power would suffer greatly.” It is to Mulroney’s credit that he tackled those problems. It will be his successor’s challenge to do more to solve them.

MARY JANIGAN