National Post, 5 october 2009

What Really Caused Canada’s ‘Fearful’ Evolution

Brian Lee Crowley’s thesis in his book Fearful Symmetry: The Fall and Rise of Canada’s Founding Values (excerpted in the Post on Sept. 18 and 19) sets forth the proposition that Canada broke with its past from the 1960s onward. He relates this “fearful” evolution to two factors: first to the surge in the labour supply in the 1960s following the baby boom after the Second World War. Canada repudiated its pro-market tradition to assume the statist responsibility of finding jobs for the baby boomers. The second force in action was the rise of Quebec separatism and the consequent attempt by the federal government to appease Quebec by creating the welfare state through its transfers.

Growth of governments and the welfare state

As a rough measure of government growth, the share of public expenditures in the GDP have surged in most countries since the early 1930s. In Canada specifically, total government expenditures as a share of GDP gained as much from 1926 to 1939 as in the 1970s. They rose more rapidly in the 1950s than in all previous and following decades. The empirical record is inconsistent with the author’s position that government growth was caused by the concern for creating jobs for baby boomers after 1960.

In the years preceding the war the composition of the voting majority had changed. In most democracies including Canada, until after the first decades of the 20th century, numerous restrictions were placed on the voting franchise, including owning property and being 21 years of age. These conditions implied that, over more than a century of democratic implantation in the Western world, the per capita income of the majority of voters was higher relative to the rest of the population. This condition ruled out this “great fiction through which everybody endeavoured to live at the expense of everybody else.” The surge of government budgets in the decade before the war and after 1950 was mostly to enlarge favours to an emerging majority that had below average income because it was younger, composed of more women (also excluded from the vote) and less propertied. Finding jobs for the baby boomers came later as a political concern and only as one of several favours to a new majority. Diversification of the economy also led to a wider range of interest groups.

Federal transfers and separatism

All provinces seek more money they do not have to earn. The equalization program began in 1957; separatism for its part did not appear as a political force until the 1970s. A related fact is that over the period covered by the book, the Maritime provinces were more addicted to federal largesse than Quebec. In 1976, when the separatist Parti Québécois was first elected, the share of equalization payments as a percentage of provincial revenues was of 15% in Quebec, and 24% to 34% in the Maritimes. Per-capita equalization in those provinces was not only two to three times higher but in some decades increased more rapidly than in Quebec. From 1976 to 2005-06, per-capita equalization payments were multiplied by 3.9 in Quebec and by 4.7 to 6.0 in the Maritimes. The proposition that separatism caused the federal government to abandon its laissez-faire principles in favour of budget and transfer expansion to appease Quebec is not empirically validated.

Statism more widespread in Quebec

Except for the survival of the French language, the left-wing message in Quebec does not essentially differ from the one in English Canada, in Europe or even in the U.S. In 1972, the late Irving Kristol wrote that “in the New Politics” emerging in the U.S., we must “care” and “be concerned” and “be committed,” with little concern for positive results. As widespread anti-Americanism confirms, English-speaking Canadians have not hesitated to define themselves as caring more about social justice.

But Crowley is right in holding that faith in the role of government as promoter of the common good became more widespread in Quebec in the 1960s? As French Canadians, we have only a short tradition of classical liberal institutions and practices. Prior to the 1960s, we were more committed to the rule of our authoritarian church than, as Crowley suggests, to limited government and the rule of law. For most of our history, we have lived first under the “ancien régime,” then as a minority in a rural environment. In an extension of our French origin, we were more prone to believe in top-down bureaucratic design, rather than bottom-up spontaneous order arising from social interactions. When Quebec became an industrialized province after the first decades of the 20th century, it was only natural, in conformity with the fashion of the time, to opt for another authoritarian system but this time with power embodied in the state. This may explain the higher growth rate of Quebec interventionism. As an important component of Canada’s electoral basin, Quebec may have contributed to the rise of welfarism in Canada, but Crowley’s thesis that the threat of separatism caused the explosion in federal budgets and transfers is not empirically sustained.

Regional growth and convergence of real income

Economists can hardly disagree with the picture that Crowley paints of the disastrous statist landscape built by Quebec over the last half century. On the other hand, interregional adjustments in the integrated Canadian economy take the form of people mobility rather than regional price or per-capita income changes. Differential growth is simply capitalized in the price of land. This adjustment process continues until real per-capita income is equalized across all regions. This conclusion is validated in all integrated national economies that we have examined, including the U.S., England, France and Canada. Thus, it is true that in terms of published GDP per capita, Quebec lags behind Ontario by 10% to 16%, but the cost of living in 2006 in Montreal was 14.7% below Toronto. In spite of Quebec’s dismal growth over the last half century, the lower cost of living in Quebec almost perfectly compensated for the lower nominal GDP per capita. Because there is no significant gap in real per capita income between slow-growth provinces and other regions, equalization programs have no basis in analysis.

How is this reasoning relevant to Crowley’s thesis? The author holds that per-capita income declined in Quebec relative to the rest of Canada, because federal funding programs magnified regional income disparities by preventing workers from moving to their most productive location. But observed real income convergence invalidates the conclusion that interregional income disparities were changed by such practices. What this all means is that residents of a province do not bear the full cost of provincial policies that hurt them. Quebec’s policies have contributed to its low overall growth, but outmigration maintained its per-capita income at the Canadian level.

While income convergence occurs whether there are federal transfers or not, the fact remains that receiving provinces have more resources at their disposal. Federal aid encouraged receiving provinces to evolve more rapidly toward spending more on welfare policies, on language restrictions, on everything. The distribution of the population across the country was arbitrarily altered, but in the final analysis, separatism did not cause the rise in government budgets and transfers. Rather, the reverse causation took place: Federal transfers encouraged the rise of separatism and other costly policies in Quebec and other receiving provinces. Competitive federalism in the presence of federal aid programs is not as powerful as traditionally assumed in containing government growth.

National Post

Jean-Luc Migué is senior fellow, Fraser Institute.

Gérard Bélanger is economics professor, Laval University.