For a fleeting moment there seemed to be a vague prospect of progress. Just three months after national harmony appeared possible with the signing of the constitutional accord, Ottawa and the provinces met last week for their first economic summit since 1978. But they emerged more morosely divided than ever. Mere trust in mutual goodwill seemed crushed. And a normally benign Saskatchewan official warned that not only are there serious economic problems but the system itself has ceased to function. The dreary spectacle of their leaders blaming each other for the nation’s economic woes was no solace for Canada’s 1.2 million unemployed or three million mortgage holders.
Not only were the 11 first ministers unable to agree on a common strategy to protect an already prostrate economy, they could not even decide how best to divide the tax spoils that accrue to their governments (page 22). An adviser to Ontario Premier William Davis fumed that Trudeau is deliberately destabilizing provincial spending in social programs in a way that will prevent the provinces from administering them efficiently, giving Ottawa an excuse to step in. Such a distraught analysis seems unlikely to find a receptive audience among those who suffered through the closing speech on primetime television. “They’re just trying to save their own asses” snapped Mel Beck, 45, an unemployed Edmontonian. “They’re just passing the buck from one to the other.”
None of the premiers arrived with a magic formula to replace the highinterest policies of Bank of Canada Governor Gerald Bouey. Most seemed to agree with Saskatchewan’s Allan Blakeney when he described the conference goal as being to “generate a public discussion on monetary policy.” The absence of any provincial solution was
clear from day one, when Davis and John Buchanan of Nova Scotia declared themselves open to “modest” declines in the value of the dollar in order to reduce interest rates. But neither premier offered a level. “I couldn’t tell you that at the moment,” Buchanan advised. When asked to define what he meant by “affordable interest rates,” Bill Bennett of British Columbia would only reply, “Everybody has a different number.”
The B.C. premier, likely facing an imminent election, did ask for some degree of economic magic from Ottawa in the way of job-creation programs plus lowered government deficits. It was left to Peter Lougheed to answer the tough question and suggest a currency devalued to 75 cents in relation to the U.S. dollar, a decline from the present 83 cents.
Other premiers swiftly assumed the same position, but without recognizing publicly that the Alberta treasury stands to gain roughly $30 million for
every one cent the dollar falls since its rich natural gas exports are priced in U.S. currency. To make matters better for the province, Ottawa has renounced its right to tax such exports as part of the price for the September energy pact. Already Alberta is able to spend more per capita on social programs than any other province, while at the same time maintaining the lowest provincial debt.
Fresh from a Barbados vacation, Lougheed reasoned that the lower dollar would force Canadians to switch to cheaper Canadian-made products. Ottawa economists dismissed his logic as ersatz economics and pointed to the suntans of Lougheed, Blakeney and Richard Hatfield as examples of the luxuries Canadians cling to despite a devalued dollar. One finance department number-cruncher said that only if Canadians stopped buying orange juice and started eating cabbage for breakfast would devaluation be effective. Purchasing foreign goods with devalued dollars simply adds fuel to inflation and drives interest rates still higher.
Thomas Courchene, the new chairman of the Ontario Economic Council and a stern critic of Bouey policies, shared provincial concerns about “fighting inflation on the backs of mortgage holders and small businessmen.” But, conceded Courchene, today’s alternatives “don’t look very good. The reason I think the government and the bank will get away with this is because people can’t seem to come up with consistent alternatives.”
Trudeau and his dour finance minister, Allan MacEachen, made it clear throughout the three days that they envisioned no alternative but to lie stolidly on the procrustean bed of Reaganomics. Economic development was discussed only in terms of the megaprojects that Trudeau’s Liberals obdurately view as paving the road to recovery. Even provincial bureaucrats who are serving long-term sentences in federalprovincial relations could not remember a conference where feelings were so bitter and the preparations so minimal. Not even a schedule for discussion had been prepared, giving some credence to the notion that no one really wanted anything more than the appearance of a debate.
Canada is the least immune of any industrialized nation to Reagan’s efforts to apply the hot poultice of high interest to draw out the fever of inflation. Billions of dollars move back and
forth weekly across the common border. With every hiccup in U.S. interest rates, corporations move money into U.S. interest-bearing accounts, and thus knock the Canadian dollar down a notch. If you move Canadian interest rates markedly below the American ones, Bouey warned, he could not pre-
dict how low the dollar would fall. “For one thing,” he said flatly, “it can’t be allowed to happen.”
Preventing it might mean tracking U.S. interest rates back up to a 20-percent prime rate shortly, if Reagan follows through with plans to widen the U.S. deficit by refusing to raise taxes to
cover vastly higher defence spending. MacEachen admitted he has no alternative plan. He has also discounted the idea of currency controls. “If you think we have economic problems now, just wait until you try to bring in currency controls,” says Douglas Peters, senior vice-president of the Toronto Dominion Bank. “Nothing could convince people faster that Canada is an LDC [less-developed country].”
With unemployment at record levels and industrial activity at just 79 per cent of capacity, people may need little convincing. What may seem more incredible, however, is Ottawa’s insistence that it get more credit for its assistance or, in Herb Gray’s convoluted description, “a higher degree of accountability in the visible sense.” One of the more bizarre suggestions has been to put the Canada “word mark” (Canada with a Maple Leaf over the final “a”) on Air Canada jets. The provinces have their own ideas as to how such display might be rendered after cuts in federal transfer payments. One angry provincial delegate wondered about putting up red-and-white signs saying, PIERRE TRUDEAU CLOSED THIS HOSPITAL.
With Ottawa’s post-budget credibility already extremely low, senior Trudeau officials have given scant thought to such draconian measures as wage and price controls—at least until the finance department can wipe the egg off its face. Because of that, it was curious that Trudeau told the disastrous final session of the conference that “we have worsened that economic environment a thousand times more than the budget might allegedly have done by showing that we are unable to come to grips with the cause of inflation and [leaving]here with the message . . . there is no collective leadership emerging from here.”
Trudeau was alluding to Ottawabashing, but the provinces tend to view such rhetoric as artificial drama, an attempt to create an emergency atmosphere that can best be met by federal government action. “The first one of us who goes to the polls is going to get it in the neck,” one premier told the others, according to René Lévesque.
That may bring some joy to one father of two waiting in the Canada Employment Centre in downtown Vancouver. “If there’s an election, I might get some work,” he said. “Politicians always throw money around then to keep people happy.” With such cynicism abounding in the land, some political leaders do stand to get it in the neck. Or lose their heads altogether.
With files from Anne Beirne, Peter CarlyleGordge, Michael Clugston, Parker Donham, Peter Gorrie, Malcolm Gray, Mary Janigan, Randolph Joyce, Robert Lewis, William Lowther and Anthony Whittingham.
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