Conflict in Canada; H. Sennholz

The people are chafing from ram pant inflation, confiscatory taxation, soaring interest rates, and the worst recession since 1962. Ontario, the home for 90 per cent of Canada's auDr. Sennholz heads the Department of Economics at Grove City College in Pennsylvania. He's a noted writer and lecturer on economic, political and mone tary affairs. Hans F. Sennholz Conflict •In Canada tomotive industry and wealthy heartland of Canada, is suffering the harshest impact of the recession. A host of corporations have collapsed, leaving investors impoverished and workers facing a grim future. West ern Canada is coping with its own brand of economic disaster. A seri 0us drought is hurting the grain farmers, causing feed prices to soar and the cattle industry to suffer painful losses. But above all, the West is locked in a bitter political struggle with Ottawa about energy production which both levels of gov ernment, the federal as well as the provincial, are anxious to tax at ever higher rates. It's an ugly political fight about redistribution of income and property by political force.

Canada is a federal parliamen tary state and member ofthe British Commonwealth of Nations. It came 671 672 THE FREEMAN November into existence as a federal union of British North America at a confer ence of political leaders in Quebec in October 1864. The British Parlia ment legalized the federation by the British North American Act of 1867, making it a subordinate and allied kingdom of the British crown as of July 1, 1867. In 1931, the Statute of Westminster declared Canada to be a partner nation with Great Britain, equal in status, and bound together only by a common crown. For PeacefulCooperation The founding fathers of the Ca nadian federation acted in the belief that the establishment of a federal union would assure peaceful coop eration and association. A few pow ers were given to the union govern ment, the rest remained with the provincial governments or with the people. The plan of government was modeled not so much on that of the United States, which was believed to be flawed as evidenced by the out break of the Civil War, as on that of the British empire as it was orga nized during the middle of the 19th century. The imperial government retained a supreme and overriding authority, but the colonies had wide powers of self-government.

The federal system was a political product of the philosophy of individ ual freedom and economic laissez faire. It functioned rather well wherever government did not interfere with the daily lives of its citi zens. The federal powers were lim ited to the preservation of order and peace, establishment of a small mil itary force, a unifying judicial sys tem, and the imposition of fiscal cus toms duties. In every other respect the Canadian people were free to run their own affairs. This peaceful equilibrium of polit ical powers was upset in Canada, as it was in all other federal unions, by the advent of economic interven tionism and socialism. Central plan ning and redistribution by political force brought a simultaneous ex pansion of the jurisdiction of the fed eral government, generating a bit ter political conflict about provincial rights and central power. The absence of interprovincial trade barriers limits the power of provincial governments to conduct interventionistic policies. It makes it very difficult, if not impossible, on a provincial level to raise goodsprices and production costs or otherwise hamper economic activity. Eco nomic regulation and control are en acted uniformly on a national basis, which prevents the flight of capital from one province to another and permits government to protect the regulated industries from foreign competition through protective tar iffs and many other import restric tions.

In constitutional law, Canada may still be classified as a federation, but 1981 CONFLICT IN CANADA 673 in reality it is becoming a unitary state with Ottawa as a capital in the true sense of the word. The prov inces, like the states in the U.S. or the cantons in Switzerland, are be coming mere administrative agen cies of the central government. This transformation of the Cana dian federal system began in ear nest after World War II. To avoid a postwar depression the federal gov ernment, without much opposition, instituted a number of social secu rity measures, such as unemploy ment insurance and family allow ance. It introduced a system of federal payments to all provinces to enable even the poorest to maintain a minimum level of social services. It embarked upon economic redistri bution and established what is com monly called the "welfare state." But regulation and redistribution by their very nature create economic, social, and political conflict not only be tween the victims and beneficiaries, but also between the various groups of beneficiaries themselves. They give rise to endless power struggles that divide society into pressure groups and social classes, jeopardiz ing peaceful cooperation.

Autonomy for Quebec Until the 1970s it would have been unthinkable to most Canadians that separatist movements would threaten the cohesion of the Cana dian federation. But on November 15, 1976, the people of Quebec dem ocratically elected a separatist gov ernment with a strong majority of 71 seats in the Quebec National As sembly of 110. It elected a Parti Quebecois administration with its political platform favoring indepen dence for Quebec and economic as sociation with the rest of Canada. The election shattered the tradi tional image of peace and brought into the open the great tensions and conflicts that are rocking the politi cal structure of the country. Canada is not merely a union of ten provinces, but also the home of two major linguistic and cultural groups, an English-speaking com munity and a French-speaking com munity. According to the 1976 cen sus, 61.1 per cent of the Canadian population declared English to be their mother tongue, and 26 per cent French, of whom some 80 per cent live in the province of Quebec com prising some 88 per cent of the Que becan population.

From the very beginning in 1867, the Quebec government has spoken and acted consistently on behalf of the French-speaking minority in Canada. There were a few inner ten sions in the province, no causes of conflict that strained the relation ship with other provinces. But since the end of World War II and the be ginning of the socioeconomic trans formation from a free economic or der to a system of central· command 674 THE FREEMAN November and control, a vibrant form of French nationalism began to dominate po liticallife in Quebec. With dependable regularity the Quebec administrations, regardless of political party, have taken strong nationalistic stands against Federal encroachments. They have fought tenaciously against every federal ef fort to pre-empt functions and poli cies that were assigned to the prov inces by the British North America Act. They are insisting now on a di vision of responsibilities, a sharing of powers between governments, in order to permit the French popula tion to preserve its cultural identity.

Numerous political slogans reflect the thrust of their demands: "Maitre chez-nous" (Master in our own house), "Quebec d'abord" (Quebec first), "1'Autonomie Provinciale" (Provincial autonomy), or "Souver ainete culturelle" (Cultural sover eignty), and so on. In short, French Canadians do not care .to entrust their economic, social and cultural lives to a government in which their representatives are in the minority and which is subject to the aspira tions and ambitions of English speaking majorities. Is Quebec separation likely or possible? The answer depends en tirely on the economic order that will evolve in the coming years. If the majority of the Canadian people continue to opt for ever more gov ernment intervention, which in the end leads to all-round Ottawa con trol over the economic lives of the people, that is, to socialism, the po larization of opinion will intensify until, in the end, an eventual Que bec separation becomes a distinct possibility. Linguistic and cultural nationalism will prevail over the confederation that no longer confed erates, but commands, divides, and redistributes by majority vote.

A Power Struggle It is unfortunate that the Parti Quebecois as well as the other par ties in Quebec fail to consider indi vidual freedom as an alternative to federal regimentation. They are not opposing the command system per se; on the contrary, they are in full agreement with the basic principles of the welfare-transfer order and frequently favor yet more govern ment intervention as, for instance, the expropriation and nationaliza tion of important industries. The al tercation between Quebec and Ot tawa does not deal with the basic principles of the social and political order, but merely with the alloca tion of political power. Who is to be in charge of the transfer system, Ot tawa or Quebec? The government representing the English-speaking majority in Ottawa or the govern ment representing the political ma jority in French Quebec? In final analysis, the dispute reveals a feud over the administration of social and 1981 CONFLICT IN CANADA 675 economic power wielded by the transfer state.

This awareness, together with the fear of losing billions of dollars of federal equalization grants and oil price subsidies, may have caused the issue of separation to wane since 1976. As time went on the Quebecan government made no overt moves toward separation, but submitted the question to a referendum on May 20, 1980. On the proposal presented by the Parti Quebecois of enacting their own laws, imposing their own taxes, and establishing relations with for eign countries, while forming an economic union with the rest of Canada, 59.6 per cent of the Quebec electorate voted "No." Even among the French-speaking people, a small majority voted "No" to separation. For the moment, the union has sur vived the divisive forces that are gnawing at its foundation in the East. Hostilityin the West In the West the conflict about cen tral power and provincial rights is going from bad to worse. Western Canadians always have been suspi cious of federal regulation that tends to benefit the more populous prov inces, Ontario and Quebec. When Eastern Canada is calling the tunes of the transfer order the West is ex pected to pay the piper. At least, that's how the people in the West are looking upon Ottawa. In AIberta, the westernmost of the three Prairie provinces, the confrontation has led Premier Peter Lougheed to speak of "a declaration of war" by Ottawa.

Since 1947, when oil was first dis covered in the Leduc Field, Al berta's production of crude oil and natural gas has transformed this frontier pastoral province to a bur geoning industrial center. The rise in energy prices by OPEC since 1973 then magnified the value of Al berta's energy production, causing the center of economic gravity and prosperity to shift westward. Cana dian population and investment capital are leaving the old indus trial centers in the East and seeking employment and return in Alberta. With just 2 million people, or 8 per cent of Canada's population, Alberta is generating 12 per cent of the country's GNP, growing larger ev ery year. The neighboring province of Saskatchewan is enjoying a simi lar petrodollar boom although it has smaller deposits of primarily heavy oil. So does British Columbia, which has considerable reserves of natural gas. Before 1973 those provinces ben efited from a federal two-price sys tem that protected and promoted do mestic exploration by forcing all of Canada west of Kingston, Ontario, to use domestic oil at a price as much as $1 higher per barrel than im ported crude. As the price of crude 676 THE FREEMAN November oil soared after 1973 and Canadian crude became cheaper than foreign oil, the government of Alberta was anxious to have domestic oil priced at world market levels. But the fed eral government proceeded to hold it down for all of Canada in order to give Canadian industry an interna tional advantage at the expense of oil producers.

Oil exported to the U.S. was sub jected to a federal tax that brought U.S. costs up to OPEC levels, and provided the federal revenue to sub sidize the importation of foreign oil in the Canadian East so that there would be one low price for all of Canada. In fact, the federal govern ment is extracting and then distrib uting its "fair share" of what it calls the "windfall" in Alberta's oil prof its. Toward that end it is even refus ing to allow oil companies to treat royalty payments made to provin cial government as business costs when they are calculating federal tax obligations. ConflictingInterests When the U.S. was considering a pipeline through Canada to bring Alaskan natural gas to industrial markets, Alberta producers offered to sell some gas on short-term con tracts. But the National Energy Board in Ottawa refused to issue the export permits. In an effort to pre serve resources for Canadian use and to create new markets in Ontario and Quebec it restricted the expor tation and thereby depressed the price of natural gas for Canadians, again at the expense of producers.

Such policies obviously are gen erating serious economic and politi cal conflicts that are shaking the foundation of the Canadian federa tion. The provincial governments that represent the population vic timized by these crude schemes of federal intervention are fighting back in the political arena, in federal courts, the halls of Parliament, and wherever they can thwart the fed eral machine. But unfortunately they rarely, if ever, argue for individual freedom and the private property or der. They themselves would like to be in the driver's seat of the provin cial economy. Like the oil sheiks of Arabia they like to plan and de velop, invest and build, promote and encourage, tax and spend as they see fit for the economic well-being and greater future of their subjects. With billion dollar royalties roll ing into the provincial coffers they are financing "social improvements" of long-term benefit, such as low-cost medical insurance and service, in vestments that "establish a solid economic base," favors and subsidies for research and development, the construction and direct ownership of petrochemical plants and facilities, the purchase of Pacific Western Air lines, and so forth and so on. In short, they are pursuing the very system 1981 CONFLICT IN CANADA 677 of radical government intervention they are fighting so vigorously when conducted in Ottawa. The friends of individual freedom are waiting in vain in the Provincial capitals for the dawn of another day.

Will Canada survive this bitter battle about the petrodollars on the prairie? It probably will. The politi cians in Ottawa, Victoria, Edmon ton, Regina, Winnipeg, and so on sooner or later will arrive at a com promise that permits them all to take a little more from the produc ers. After all, contemporary politics is the most practical of the arts by which property rights are sacrificed to the demands of the majority. The ConstitutionalDilemma It may well be that Canada has entered the stormiest period in its history. Many ascribe the blaze of discord to the lack of a Canadian constitution. The British North America Act of 1867, which estab lished the Canadian confederation and gave the country its basic gov ernmental structure, is decried as alien and outmoded. Therefore, the federal and provincial governments are struggling to reach agreement on a formula that would revoke the BNA Act and permit Canadians to write their own constitution. With out such an agreement the Trudeau administration is prepared to act unilaterally, that is, on the strength of its parliamentary majority without the approval of the provinces.

The provinces, on the other hand, are provoked and exasperated about what they consider a blatant federal power grab. The federal drive for repeal of the British North America Act and its replacement by a "Canada Act" is, of course, merely another aspect of the continuous power struggle. The forces of centralization are anxious to remove the few remaining obsta cles to their power over the national economy. With Pierre Trudeau it is also a personal matter: unilateral adoption of his proposals of a consti tution would be a bold stroke that would assure him a place in Can ada's history. At least, that's what his followers in Ontario and Quebec want us to believe. To his numerous detractors he is just like so many other rulers around the globe who, in their moment of power and glory, busy themselves with rewriting their countries' constitutions. A Formulafor Socialism The Trudeau constitutional changes, as submitted to Parlia ment on October 6, 1980, offer a ba sic charter of human rights care fully formulated to perpetuate the transfer state. It would guarantee the freedom to move about in the country for individuals, but not for their property. It would confirm the key central government role in the equalization ofprovincial wealth, and 678 THE FREEMAN November adopt an amending formula for the constitution that would safeguard the eminent positions of Quebec and Ontario. It would give new controls over natural resources to the central government and redirect energy tax revenues to Ottawa. It would grant language rights to English-and French-speaking people, but not to other linguistic groups, and force Quebec and Manitoba to practice of ficial bilingualism. And finally, all fundamental freedoms would be made subject to "generally ac cepted" community standards and conditions.

To the Canadian people the Tru deau proposals are presented as a sincere attempt at creating a "re newed federalism." To the student of government they merely reflect the ongoing transformation of an old political structure that was built on individual freedom and the private property order to a modern struc ture more consistent with the eco nomic command system as it evolved during the past 30 to 40 years. All modern states are endeavoring to replace their federal constitutions with unitary structures. Consis tently socialistic states are brushing aside all vestiges of federalism. The basic charter of human rights as submitted to Parliament must be viewed in the same light. A govern ment that seeks control over the production process needs working control over all factors of production: land, capital and labor. It can not tolerate for long individual free doms that would jeopardize or obstruct control over economic pro duction. Therefore, it must subject all individual rights to "generally accepted" standards of which gov ernment itself is the final inter preter and arbiter. The constitu tional freedoms, in final analysis, become duties and obligations the violations of which are severely punished by government.

Can Canada survive its constitu tional dilemma? The answer de pends entirely on the power and strength of the political forces that are locked in the constitutional struggle. Ideological conviction to gether with political passion are the great movers of social change. When men's passions are strongest they may accomplish a great deal, but they also may commit their greatest blunders. Facingthe Eighties To no one's surprise, the political upheaval is leaving its mark on the Canadian economy. The Canadian dollar is losing ground against its U.S. counterpart, now selling at 81¢ in Canadian money markets. Al though the Canadian central bank is intervening frequently to support its ailing currency, it continues to fall amidst rumors of a large south ward flow of funds and sizeable com mercial liquidations. Analysts are 1981 CONFLICT IN CANADA 679 pointing to the huge Canadian gov ernment deficit which may exceed $12 billion in 1981. By comparison, a similar deficit in the U.S., with a population ten times larger than that of Canada, would amount to $120 billion.

Canada's inflation rate now sur passes 12 per cent, according to Ot tawa statistics, and its international payment account deficit is estimated to exceed $6 billion. The officialbank rate of the Bank of Canada now stands at 19.89 per cent and is ex pected to go even higher. The eco nomic trend is very bearish, and it is difficult to foresee a change of trend. Canada is enmeshed in a deep recession with declining economic output, falling purchasing power of wages and levels of living, and ris ing unemployment. The capital markets, which attracted many bil lions of dollars of U.S. venture and exploration capital during the 1950s and 1960s, are depleted and ex hausted by huge federal deficits. The political hostility toward capital re turns and business profits is chasing liquid American as well as Cana dian capital across the border. Moreover, in an effort to achieve "Canadian control," i.e., govern ment control, over the petroleum in dustry, the federal government is restricting foreign ventures and purchasing foreign-owned oil com panies through its own $5 billion oil company, Petro-Canada. The pur chases obviously aggravate the drain of capital from Canada and com pound the problems of deficit financ ing. The government of Alberta, which is strenuously opposing the Ottawa policies, has in retaliation curtailed Alberta's production of oil and prohibited further work on new oil sand development.

The Powerof Example Canadians are looking to the fu ture; the present does not satisfy them. There is always the possibil ity that another political party, in particular, Joe Clark's Conservative Party, may return to power, which could lead to some decentralization of Canadian federal power along with a withdrawal of federal influence over business. Social transfer pro grams constructed by liberal gov ernment may someday be curtailed, which would reduce the horrendous deficits and alleviate the ravaging inflation. After all, hope springs eternal in the human breast. Canadians are probably reluctant to admit that there is transcendent power in the example set by their only neighbor, the U.S. An Ameri can example may, in the end, be more forcible than political precept. This is why the trends and policies of the U.S. during the 1980s may have a significant bearing on the fu ture of Canada. If the U.S. succeeds in solving its economic and social 680 THE FREEMAN problems, which in many respects are similar to the Canadian issues, the light that will shine in the U.S.

will radiate immediately across the border. If it is demonstrably true that, in November 1980, the Ameri can people embarked upon a new road to economic expansion and prosperity~ our Canadian neighbors will not be far behind. But if, in the coming years, the American examRights for Robots pIe proves to be merely another road in the same old direction, the desti nation, which is all-round govern ment control, will be the same in Canada as in the U.S. The world is a scene of changes. In the coming years there will be countless changes in human affairs because our thoughts and works will change. By suffering much we may yet come to see our faults and follies. @) IDEAS ON LIBERTY MILLIONS of our people now look to the government much in the same fashion that their fathers of Victorian times looked to God. Political authority has taken the place of heavenly guidance. Herbert Spencer in that wonderful prophecy, The Man Versus the State, explained in detail what would happen. He foretold with exacti tude the present rush of the weaklings for jobs as planners and permit ters, telling other people what not to do.

You will have noticed that while we are all under the thumb of au thority, authority becomes composed of those who, lacking the courage to stand on their own feet and accept their share of personal responsi bility, seek the safety of official positions where they escape the conse quences of error and failure. Active, energetic, and progressive persons, instead of leading the rest, are allowed to move only by the grace and favor of that section of the population which from its very nature lacks all the qualities needed to produce the desired results. Authority is the power to say no, which requires little or no ability. On a broad view, the all-important issue in the world today is individ ualism versus collectivism. The Individualist thinks of millions of single human souls, each with a spark of divine genius, and visualizes that genius applied to the solu tion of his own problems. His conception is infinitely higher than that of the politician or planner who at best regards these millions as material for social or political experiment or, at worst, cannon fodder.

SIR ERNEST BENN LIFE, it seems, is one problem after another. Where do we turn for help? Most of us, at one time or another, look to the government. Do our children need an educa tion? We ask the government to pro vide schools. Do we need medical care? We ask the government to pay the bills. Is our neighborhood run down? We ask the government to re build it. There seems to be no end to the solutions we seek from govern ment. There are, however, a few people who believe that government doesn't have all the answers. Those of us who favor free enterprise would pre fer that people look to the market economy to solve more of their prob lems. But we proponents offreedom work at a seeming disadvantage. Unlike the government bureaucrat, we don't offer what seems to be the solution. We don't draw up the master plan to revitalize our city. We don't propose the rationing plan to allocate fuel.