Montreal, October 25, 2003  /  No 131  
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Chris Leithner grew up in Canada. He is director of Leithner & Co. Pty. Ltd., a private investment company based in Brisbane, Australia.
by Chris Leithner
          Once called the "Switzerland of the North", as late as 1968 it was the world's second-richest country. Today, in terms of GDP per capita ($29,300), it ranks ahead of Australia ($27,500) and Britain ($26,400) but just below the G7 average ($30,100) and well behind the U.S. ($35,200). Accompanying – one is tempted to say causing – Canada's relative economic decline has been the rise of many and various interventionist schemes: high taxes, big deficits, growing debt, nationalisation of "key" industries, attempts to control consumer prices, regulation of investment, regional development and transfer payments from the wealthier provinces to the poorer ones (such as Manitoba). Alas, these policies have done nothing either to enrich the country as a whole or to narrow the gap between its wealthy and not-so-wealthy areas. (As in Australia, so too in Canada: no social program ever fails – it is simply "underfunded.")
          For as long as Canada has existed, Canadians have compared themselves to Americans(1). But for the past 30-40 years they have done so in a curious and disturbing way: their point of reference is invariably the disastrous set of social policies enacted since the 1960s(2) and their conclusion is invariably that, whether it takes the form of the subsidisation of unemployment, medical expenses or university academics' standards of living, Canadian governments have always intervened in the market more extensively than their American counterparts. That was true for the quarter-century after 1970, but it is arguable today – and was certainly not true in the more distant past. The Canadian and the American, in other words, are quite alike in one respect: each is appallingly ignorant of his own history. On both sides of the border, misconceptions and costly mistakes have sprung from that ignorance. 
          Many Canadians probably know (or could venture a reasonable guess) that in the mid-1990s Canadian governments were about seven percentage points of GDP larger than American governments. Few, however, know that Canadian and U.S. governments were of similar size in 1970 and that until the 1960s Canadian governments were smaller than their American counterparts. Despite their neighbours' incessant and boisterous rhetoric about "freedom," in order words, for most of the century after Confederation in 1867 Canadians enjoyed smaller governments and a greater degree of economic liberty.  
          To redress their ignorance and rediscover their classical liberal heritage, Canadians should read The Government Generation: Canadian Intellectuals and the State, 1900-1945(3) by Doug Owram, Globalization and the Meaning of Canadian Life(4) by William Watson and "The Socialist Wind from the South" by Martin Masse. To do so is to recognise that in 1900 the typical Canadian was a staunch individualist in the classical liberal mould. Indeed, according to Masse "the real interventionists and socialists at heart are the Americans, and [...] the real Canadian tradition is one of rugged individualism being slowly frittered away under the overwhelming influence of American collectivism [...] The anti-Americans among us have a point: we should protect ourselves from the nasty winds coming from the south. But they are wrong about the rest. The Canadian identity that should be cherished and the Canadian tradition that should be upheld are based on individualism, small government and the free market." 
          During the first decade of the 20th century, academics (particularly in the fledgling social science departments of the country's few universities) noted the old age pensions and workers' compensation schemes in Europe and other parts of the British Empire and wondered "why Canada was so far behind other jurisdictions." The main reason, says Owram, was that the Dominion Government of Sir Wilfrid Laurier interpreted the 19th century British constitutional tradition "in more anti-statist terms than [...] any other government in Canadian history." It is true, for example, that Laurier's Liberals introduced old age pensions; critically, however, their scheme was voluntary, the state subsidised only the plan's administrative costs (which Sir Wilfrid ensured would not be burdensome), the pension was paid only at age 70 – and at that time the average life expectancy in Canada was less than 60 years. Accordingly, between 1908 and 1927 only 7,713 annuities were issued. 
          According to Sir Wilfrid, "the role of government [is] [...] not to force action in any one direction but to remove barriers to man's own efforts to undertake personal and social improvement [...] Man must be free to seek his own improvement and be responsible for his own destiny." Watson notes that tentative departures from the Laurier government's laissez-faire principles were attempted by its young minister of labour. But Mackenzie King's efforts to settle a strike by threatening legislation against the Grand Trunk Railway were quashed by the prime minister, who regarded them as "a very unfortunate and dangerous precedent." Further, King's 1910 reforms to the Combines Investigation Act were denounced by a caucus member in unequivocal terms: "as a Liberal of the old school [...] I regret very much [...] to hear a young Liberal approach the subject of state control in so light-hearted a manner because I recollect the fact that the progress of true Liberalism has been associated in the history of England with the diminution of state control." Importantly, however, King's disagreements with his prime minister and political hero were infrequent. According to Owram, King "retained his belief in the preferability of leaving the individual alone to work out his own destiny, wherever possible." 
Canada's Glorious Years  
          Unlike the Progressive Era in the U.S., in Canada the decades before and after the First World War were marked by a revulsion against the state's power. The inter-war governments of Mackenzie King (1921-26, 1926-1930, 1935-1940) abandoned the Dominion's wartime economic powers and to the greatest extent possible returned the country's domestic affairs to provinces, municipalities and markets. It therefore cut taxes and expenditures and repaid debt aggressively. As a result the Liberal government's budget of 1929, $C385m, was less than that of the Conservatives in 1914. Even so, Stephen Leacock, a sometime economist and full-time humorist at McGill University in Montreal, stated in The Proper Limitations of State Interference (an address to the Empire Club of Canada delivered on 6 March 1924), "we are moving towards socialism. We are moving [...] nearer and nearer with every bit of government regulation, nearer and nearer through the mist to the edge of the abyss over which civilisation may be precipitated to its final catastrophe. [...] What I am saying, then, if I might put it in simple, almost prosy, business-like speech, is this – that we need to get back to a sane capitalism." When he wrote those words, Canadian governments spent approximately 11% of the country's GDP (versus 17% in the U.S.). According to Watson, "with the important exceptions of mothers' pensions and old age pensions [...] minimum wage legislation was the sole evidence of a welfare state in Canada in the 1920s."  
          The Great War, then, did not give rise to leviathan government in Canada. Nor (thanks to the British North America Act, in this respect a sturdier document than the U.S. Constitution) did the Great Depression generate as much big government in Canada as it did in the U.S. King, in the words of his ablest biographer, Bruce Hutchison, regarded the Crash of 1929 and the slump of 1930 as "a passing adjustment, a stern but necessary purge of an inflated world economy." (He did not foresee the catastrophic errors of the Federal Reserve and Bank of England that turned the slump into the Great Depression.) As opposition leader in 1930, King denounced as unconstitutional the Conservatives' provision of funds to the provinces in order to finance unemployment relief – and for good measure denied that there was an unemployment problem to finance. In 1931 and 1932, he ridiculed the proposition that the state could cure a depression by creating and spending money; condemned the Tories' "wild extravagance;" demanded lower taxes and a balanced budget; and lauded the gold standard. In 1933 and 1934 he denounced as "mad experiments" the New Deal measures being enacted across the border. He also offered a penetrating analysis of socialism as the doctrine on the left that begat the bureaucratic, centralised and unworkable state apparatus that Canada's Tories were trying to erect on the right. "Socialism and Toryism [were thus] sisters under the skin, both moving towards the same dead end." 
          During these decades, government in Canada was smaller than in the U.S. partly because King, prime minister continuously from 1935 until 1948, was in most matters very cautious. It was also partly because one of his political bases was in Quebec (whose voters at that time viewed government intervention in education, hospitals and welfare with admirable suspicion) and the other was on the Prairies (whose disproportionately agricultural voters stoutly opposed preferences and subsidies to Eastern industry). Finally, and as Owram and Watson show, King was cautious about the growth of government partly because his outlook and actions on most matters were, despite his occasionally and increasingly Fabian rhetoric, essentially classically liberal. When he returned to office in 1935, King retained a diluted but nonetheless marked bias towards orthodox economics, and was in no particular hurry to implement his "New Liberalism."  
     « The Great War did not give rise to leviathan government in Canada. Nor (thanks to the British North America Act, in this respect a sturdier document than the U.S. Constitution) did the Great Depression generate as much big government in Canada as it did in the U.S. »
          King regarded President Roosevelt "with public adulation and privately with a mixture of admiration, amazement, scepticism and some merriment. He thought many of Roosevelt's policies quite crazy [and] looked on much of the New Deal as mere political hokum." Hutchison recounts King's recollection of a wartime meeting with FDR. "'I said to Roosevelt last time we met, how do you expect to go on spending all these billions out of deficits? The President said, well, Mackenzie, my family has held French securities since before the Revolution and they're still paying interest; why can't we do the same?' At this revelation of Roosevelt's economic adolescence, King raised his hands in a gesture of friendly despair. It was hard, he confessed, to see what would come out of this dizzy sort of financing."  
          Equally importantly, during the 1920s and 1930s Canada's external relations were commendably limited and non-interventionist. The Dominion, according to King, was "not inclined to organise or join in crusades on other continents [...] We are not asking and will not receive any help from outside in meeting [our] difficulties and we are unlikely to have any surplus of statesmanship or good fortune to bestow elsewhere." On the eve of war in 1939 he affirmed that "the idea that every twenty years this country should automatically and as a matter of course take part in a war overseas [...] to save, periodically, a continent that cannot run itself, and to these ends risk the lives of its people, bankruptcy and disunion, seems to many a nightmare and sheer madness." In that year Dominion, provincial and municipal governments consumed 19.5% of Canada's GNP; in the U.S., the corresponding levels of government consumed 22.5%. 
          Jack Pickersgill, a Winnipeg-born historian who worked in the Prime Minister's Office from 1938 to 1952, recalled in My Years with Louis St Laurent: A Political Memoir(5) that in 1943 King was extremely reluctant to introduce family allowances. The Prime Minister "said no Canadian government would dare to start providing family allowances [...] He felt family allowances would be a greater threat to national unity than any other measure he could think of except [military] conscription." Watson chronicles the long debate about family allowances during the late 1920s and early 1930s, with much opposition expressed and nothing enacted, and staunch opposition continued into the 1940s. Similarly, after the end of fighting in Europe in May, 1945 and a comprehensive Liberal victory at the polls in June, King's Liberals trod the path of intervention very cautiously and half-heartedly. In April 1946, for instance, after making a formal pre-budget presentation, the forerunner of the Canadian Labour Congress "was sharply rebuked by Finance Minister [James] Ilsley for its costly demands. [...] Ilsley [stated] that the government's priorities were for reducing taxes, balancing the budget, and retrenchment." In 1948, when King left office, Canadian governments consumed 24.6% of the country's GNP. In the U.S. the equivalent figure was 35.2%. 
          King's successor, Louis St Laurent, was also no enthusiast of the leviathan state. Donald Creighton wrote in The Forked Road: Canada 1939-1957(6) that "St Laurent was not an advocate of the welfare state in any serious sense." In his memoirs, Pickersgill tells how it took a three-year campaign to persuade the prime minister that self-employed fishermen should be eligible for unemployment insurance. St Laurent objected that the measure "would not be actuarially sound" (which was true) and that "it might prompt costly demands from other groups" (which of course it did). In his memoirs(7), Lester Pearson (Liberal prime minister 1963-1968) criticised St Laurent's refusal to build the South Saskatchewan dam. St Laurent declined because the dam had not passed a cost-benefit test. St Laurent also won the hostility of many artists (and applause from classical liberals) because he took six years to act upon the recommendation of the Royal Commission on National Development in the Arts, Letters and Sciences (commonly called the Massey Commission) to establish the Canada Council. According to Watson, St Laurent opposed "subsidising ballet dancing." When "Uncle Louis" lost office in 1957, Canadian governments consumed 24.5% of the country's GNP – very slightly less than when he took office. In the U.S. the equivalent figure had grown to 37.3%. 
Affection and Strong Misgivings 
          What, then, has happened to Canada? What was once a Duke of Edinburgh country has since the late 1950s degenerated into a Prince of Wales country (see in particular Oh Canada! by Adam Young). When Canadian élites argue that big government is the Canadian tradition (as they have done virtually without exception since the 1960s) they betray their bias that that tradition is synonymous with the erection of an intrusive welfare state.  
          A member of British Columbia's Legislative Assembly, in the midst of a constitutional debate, put this point nakedly on 21 October 1992: "across Canada, Canadians [are saying] 'This is what we're about. This is why we're different. This is what we want to say as a statement of our values in our constitution.' I think it's really important for me to be specific about the social union, for people who have not read the agreement. The social union talks about comprehensive, universal medicare. Surely that's a Canadian value. Surely that's something that every Canadian is proud of and is prepared to say 'yes, that's our value.' Adequate social programs, high-quality education, protecting the rights of workers to organise and bargain collectively and protecting, preserving and sustaining the integrity of the environment for present and future generations – surely those are values of a modern society. As Canadians we would be proud anywhere in the world to say: 'this is what we stand for.' At a time when we are pressured by international economic pressures, when we need to preserve our sovereignty as a country and very clearly say that these are our values and this is what we stand for, it's worthwhile having that in the constitution." The British North America Act of 1867 facilitated the economic development of the northern half of the continent and enabled Canada's two founding peoples and migrants from many lands to live together in peace, liberty, steadily increasing prosperity and (for the most part) harmony. These salutary things occurred precisely because during Canada's first ninety years the Dominion and provinces remained small enough to fit inside the Constitution. Alas, since the late 1950s Canada's élites have utterly bastardised governments into instruments of economic warfare; and in the 1980s and 1990s they enshrined plunder into the Constitution.  
          One of the purposes of history is to distinguish what does from what does not promote human liberty, harmony and prosperity. Today's Canadians would therefore do well to recognise that for ninety years after Confederation their forebears affirmed and successfully practised the idea that a free people must be self-reliant and cannot depend upon the state. If Canadians can re-establish this essential link with their ancestors, then perhaps they can reclaim that fundamental part of their history that the Diefenbaker, Pearson, Trudeau, Mulroney and Chrétien governments have so comprehensively erased. "Until recently," as William Watson summarises, "individualism – not socialism – defined Canadians." They may or may not decide that their classical liberal heritage merits resuscitation: but it is unquestionably a fundamental part of their history. 
          From the 1940s to the 1980s, Bruce Hutchison was one of Canada's most perceptive and eloquent journalists. In 1952, members of the British Columbia Legislative Assembly were so outraged by one of his editorials that they came within a few votes of summoning his publisher before the bar to apologise. Hutchison responded by reprinting the editorial on the front page – just in case anyone missed it the first time – and for good measure wrote a follow-up that congratulated the parliamentarians for averting their "ridiculous" censure(8). The offending editorial was one of a series that won the National Newspaper Award for 1952. In 1943, his book The Unknown Country: Canada and Her People(9) won the Governor General's award for non-fiction. With a world war raging in distant lands, Hutchison wrote from the relative solitude of Vancouver Island that "we Canadians can probably claim the distinction of being the most rugged surviving individualists [...] The best Liberals, in their hearts, still believe in free trade, the play of natural economic forces, the sanctity of enterprise and the evil of monopoly. They behold on all sides precisely the opposite [...] but they hope that a better day will dawn, that the world will come to its senses, trade again, reduce government interference, abolish monopoly." Canada's calamity is that this hope presently beats in so few Canadian hearts. Its greatness is that it once did in so many. 
1. See, for example, S.F. Wise and R.C. Brown, Canada Views the United States: 19th Century Political Attitudes, University of Washington Press, 1980.  >>
2. See in particular Charles Murray, Losing Ground: American Social Policy, 1950-1980, Basic Books, 2nd ed. 1995, ISBN: 0465042333 and Eric Schansberg, Poor Policy: How Government Harms the Poor, Westview Press, 1996, ASIN: 0813328241.  >>
3. University of Toronto Press, 1986, ASIN: 0802066046.  >>
4. University of Toronto Press, 1998, ISBN: 0802042201.  >>
5. University of Toronto Press, 1975, ISBN: 0802022154.  >>
6. McClelland & Stewart, 1976, ASIN: 077102360X.  >>
7. Mike: The Memoirs of the Right Honourable Lester B. Pearson, Quadrangle Books, 1972, ASIN: 0812902998.  >>
8. Bruce Hutchison, The Unfinished Country: To Canada with Love and Some Misgivings, HarperCollins, 1986, ASIN: 0888945124.  >>
9. Greenwood, 1942, 1977, ISBN: 0837194512.  >>
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