|Montreal, August 31, 2002 / No 108|
by Harry Valentine
The Austrian economist Ludwig von Mises made the point that protectionist behaviour in a nation's economic policy is a prelude to animosity with its trading partners. The US government recently enacted a tariff on Canadian lumber entering their country. The people who benefit from this trade tariff are a small group of politically favoured cronies in the American lumber industry. But there are two groups of people who will be hurt by such action.
On this side of the border are the employees of Canadian lumber companies, who will feel betrayed by Canada's partner in free trade because many of them will lose their jobs and suffer some economic hardship. And in the United States, American home builders and other industries dependent on lumber as a resource will be required to pay higher prices for their raw materials, while American consumers will pay higher prices for products that use wood or are made from wood.
Most Canadians will be able to understand the harmful effects the US lumber
tariff will have on communities located in the lumber producing regions
of the country, all because of high-handed protectionist political behaviour.
Citizens living in these regions of Canada have now become aware that instead
of the lumber tariff winning their hearts, this hurtful action against
them has instead incurred their dismay, their distrust, their anger and
their resentment. These feelings could last for many years, depending on
the long-term economic impact they will endure. The example of this lumber
tariff is something recent. It has occured across international borders
and it is something quite hurtful. It is something that could cause a segment
of the Canadian population to be cautious when seeking to sell something
to American customers in the future.
Trade barriers and their effects
The American lumber tariff example can be compared to interprovincial trade restrictions that are in force within Canada. In the past, provincial premiers have actually defended this practice, despite the resentment it has bred amongst Canadians living outside their own provinces and even within. None of the premiers are in any great hurry to dismantle these interprovincial trade barriers, for purely political reasons. While their politically favoured business allies may benefit from such intranational trade restrictions, there are two groups of Canadians who would be adversely affected. First are the customers who live in the province where barriers are in force. They will have to pay higher prices for Canadian products being produced within their home province, as well as products from other provinces that have become subject to interprovincial trade restrictions. The other group is composed of Canadian citizens living in other regions of the country, the producers, who will have to suffer denial of economic opportunity or hardship as a result of expedient political behaviour occuring elsewhere in Canada. The impact on this group is comparable to the impact of the American lumber tariff on Canadian lumber producing regions.
Successive premiers from various provinces have actually upheld and defended their interprovincial trade barriers while similtaneously claiming that they stood for a united Canada. This political behaviour is comparable to someone publically professing to love his wife, while at the same time she bears welts and scars on her body from the beatings he has inflicted on her. He claims that he does not understand why the wife wants to leave him, to begin a new life on her own. In a similar manner, the provincial premiers seem to be oblivious to the hurt and harm that their protectionist trade policies have inflicted on other Canadians living both outside as well as inside their jurisdictions. All they need to do is look at the negative and hurtful effect the US lumber tariff is having on people living in the lumber producing regions of Canada. They will not only gain some understanding as to how their interprovincial trade barriers have impacted negatively on their fellow Canadians, but also why sentiments of secession prevail in some regions.
The Canadians directly affected by this US tariff may feel let down, betrayed and hurt by Canada's trading partner. Interprovincial trade barriers are achieving essentially the same result. It is one of the causal factors behind the disdain and contempt that some Canadians living in one region hold toward other Canadians living in another part of Canada. During South Africa's apartheid era, trade barriers known as sanctions were imposed against that nation as a punitive measure, aimed at inflicting economic welts and economic scars on an otherwise repulsive political regime. In a similar manner, interprovincial trade barriers inflict economic welts and economic scars on otherwise peaceful and productive Canadians living elsewhere in Canada. Provincial enforcement of trade barriers and protectionist behaviour is tantamount to one provincial administration imposing economic sanctions against the citizens of another province.
Divisive trade barriers
By regulating the economic activities of Canadian citizens living inside as well as outside provincial boundaries, provincial governments have indirectly restricted their political rights and freedoms. By enforcing interprovincial trade barriers, each provincial administration is engaging in a practice of exclusion against Canadians living outside that province. They are essentially recognising that some Canadians will have certain economic rights based on where they live within Canada, while other Canadians will be denied the same economic rights, despite the Canadian constitution stating that all people are to be equal before and under the law. By asserting economic sovereignty in this manner, successive premiers in several provinces have already taken the first subtle steps along the road to eventual political sovereignty.
If this type of protectionist behaviour continues over the long term, it has the potential to slowly weaken and gradually erode the integrity of the Canadian federation. The possible slow breakdown of confederation would be in marked contrast to the possibility of a rapid break-up of confederation that would follow a majority pro-sovereignty vote taken in a Quebec-style independence referendum. Long before the founding of the independence movement in Quebec, the federal government of Canada may have actually taken the first steps that would eventually lead toward the weakening of the confederation. Ottawa did this by first robbing Canadian citizens of their economic autonomy and freedom in areas of production, commerce and trade, then handing this power and control to successive provincial premiers, their administrations and their politically favoured cronies. Ottawa essentially empowered this elite group to initiate forcible coercion against the productive and creative economic efforts of otherwise peaceful Canadian citizens.
Ottawa further undermined the integrity of confederation by creating a tax system designed to transfer revenues from some regions into other regions. This later policy has often fallen far short of achieving any of its original aims in creating economic prosperity in the lesser developed regions. Like interprovincial trade barriers, this policy has also bred feelings of resentment and disdain held by citizens living in the more economically self-sufficient regions, toward citizens living in the recipient regions. It has created cliques, politically funded old boys' networks who assert control over economic development in these recipient areas, even delaying and curtailing new, independent and privately initiated economic development action in areas where such action most urgently needed. Ottawa's policies may have greater potential to harm the long-term future of confederation than any plot any Québécois separatist could have devised. The threat of national break-up will continue as long as economic regulation remains in force. Such continued regulation could further incite future independence movements in Quebec and Alberta. At present, Ottawa has neither the interest nor the inclination in either scrapping the practice of fund transfers amongst regions, or returning economic control directly to the citizens, where it rightly belongs.
Tear down these walls
The premiers recently had their annual meeting at Halifax, Nova Scotia. Not one took the opportunity to demonstrate their commitment to a united Canada by unilaterally declaring an end to their province's trade barriers against Canadians living elsewhere in the country. This would have been the ultimate stand in support of a united Canada. A unilateral declaration to end internal trade barriers is not without political risk. Ending trade barriers across provicial borders would set a precedent for similiar action to be enacted within provincial borders.
Such action could start a process that would result in more economic deregulation within provincial economies and involve more economic sectors. It has the potential to result in an end to market-entry restriction of new players in several economic sectors that are presently subject to regulation. The constitution of Canada does state that "all people are equal before and under the law." Any provincial trade barrier that denies Canadians from other provinces the right and freedom to trade with other Canadians living in any other province is in disagreement with "all people are equal before and under the law." In a previous article (see CANADA'S CONSTITUTIONAL REMNANT,
Credible academic evidence does exist to suggest that none of Canada's federal nor provincial economic regulations may be achieving their original aims. They are essentially a copy of almost identical economic regulations which originated in the United States and in some cases still are in effect. In 1974, University of Chicago economist F. A. Hayek (The Road to Serfdom) received the Nobel Prize in economics for his work illustrating how government intervention in the economy causes a worse state of affairs than would otherwise have occured had the state not intervened. In 1982, Chicago economist George Stigler was awarded the Nobel Prize in economics for having undertaken an intensive, comprehensive, multi-year study of American economic regulation.
Stigler had illustrated conclusively that virtually none of America's economic regulations had ever achieved any of their original aims. In later years, Chicago economist and 1991 Nobel Laureate in economics Ronald Coase also provided an academic case showing that most economic regulations were failing to achieve their original objectives. Stigler and Coase were of one school of economic thought and had used econometric methods to arrive at their conclusions. Hayek was of a totally different school of economic thought and used a more philosophical approach to develop his conclusions. Despite the existence of the research of Hayek, Stigler and Coase, Canada's provincial premiers still remain firmly committed to their intraprovincial economic regulations along with their interprovincial trade restrictions. Such economic control administered by government cronies, combined with Ottawa's ill-conceived wealth redistribution schemes, has the long-term potential of eventually weakening confederation. The calamity of confederation's break-up may ultimately be precipitated by the behaviour of the governments' own bureaucrats and their politically favoured cronies.
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