How Ottawa Spends, 2012-2013: The Harper Majority, Budget Cuts, and the New Opposition 9780773587786

Table of contents :
Cover
Copyright
Contents
Preface
1 - The Harper Majority, Budget Cuts, and the New Opposition
PART ONE - Politics and the Changing Macro Realities
2 - The Harper Election Victory, the Liberals, and Debate Over Corporate Tax Reform
3 - A Hobbesian Prime Minister and the Night Watchman State: Social Policy under the Harper Conservatives
4 - Playing Against Type? Regional Economic Development Policy in the Harper Era
5 - Science and Technology in Canada: Government Investment at a Crossroad?
6 - Toward a Perimeter: Incremental Adaptation or a New Paradigm for Canada-US Security and Trade Relations?
PART TWO - Selected Issues and Departmental Realms
7 - The Rise and Fall of Regulatory Regimes: Extending the Life-cycle Approach
8 - Public Private Partnership Canada and the P3 Fund: Shedding Light on a New Meso Institutional Arrangement
9 - Pharmacare and Federal Drug Expenditures: A Prescription for Change
10 - Public Policy as an Inquiring System: The Case of Canadian Health Care
11 - Federal Infrastructure Program Impacts: Perceptions at the Community Level
12 - How Ontario Was Won: The Harper Economic Action Plan in Ontario, 2009–2011
13 - Community Colleges and Applied Research in the Federal National Innovation Agenda
14 - Doing the North American Two-step on a Global Stage: Canada, its G8 Muskoka Initiative, and Safe Abortion Funding
APPENDIX A - Canadian Political Facts and Trends
APPENDIX B - Fiscal Facts and Trends
Contributors

Citation preview

How Ottawa Spends, 2012–2013

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the school of public policy and administration

at Carleton University is a national center for the study of public policy and public management. The School’s Centre for Policy and Program Assessment provides research services and courses to interest groups, businesses, unions, and governments in the evaluation of public policies, programs and activities. School of Public Policy and Administration Carleton University 10th Floor Dunton Tower 1125 Colonel By Drive Ottawa, on Canada K1S 5B6 www.carleton.ca/sppa

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How Ottawa Spends, 2012–2013 The Harper Majority, Budget Cuts, and the New Opposition Edited by

g. bruce doern and christopher stoney

Published for The School of Public Policy and Administration Carleton University by McGill-Queen’s University Press Montreal & Kingston • London • Ithaca

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© McGill-Queen’s University Press 2012 ISBN 978-0-7735-4094-1 ISBN 978-0-7735-8778-6 (EPDF) Legal deposit third quarter 2012 Bibliothèque nationale du Québec Printed in Canada on acid-free paper that is 100% ancient forest free (100% post-consumer recycled), processed chlorine free McGill-Queen’s University Press acknowledges the support of the Canada Council for the Arts for our publishing program. We also acknowledge the Fund for our publishing activities.

Library and Archives Canada has catalogued this publication as follows: How Ottawa spends. 1983– Imprint varies. Includes bibliographical references. Continues: How Ottawa spends your tax dollars, ISSN 0711-4990. ISSN 0822-6482 ISBN 978-0-7735-4094-1 (2012/2013 edition) 1. Canada – Appropriations and expenditures – Periodicals. I. Carleton University. School of Public Policy and Administration HJ7663.H69

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Contents

Preface

vii

1 The Harper Majority, Budget Cuts, and the New Opposition G. Bruce Doern and Christopher Stoney

3

pa r t o n e : p o l i t i c s a n d t h e c h a n g i n g macro realities

2 The Harper Election Victory, the Liberals, and Debate Over Corporate Tax Reform 35 Ian Lee 3 The Hobbesian Prime Minister and the Night Watchman State: Social Policy under the Harper Conservatives 53 Michael J. Prince 4 Playing Against Type? Regional Economic Development Policy in the Harper Era 71 Neil Bradford and David A. Wolfe 5 Science and Technology in Canada: Government Investment at a Crossroad? 89 Peter W.B. Phillips and David Castle 6 Toward a Perimeter: Incremental Adaptation or a New Paradigm for Canada-US Security and Trade Relations? 106 Geoffrey E. Hale

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vi

Contents

pa r t t w o : s e l e c t e d i s s u e s a n d d e pa r t m e n ta l r e a l m s

7 The Rise and Fall of Regulatory Regimes: Extending the Life-cycle Approach 127 Derek Ireland, Eric Milligan, Kernaghan Webb, and Wei Xie 8 Public Private Partnership Canada and the P3 Fund: Shedding Light on a New Meso Institutional Arrangement 145 Christian Bordeleau 9 Pharmacare and Federal Drug Expenditures: A Prescription for Change 161 Marc-André Gagnon 10 Public Policy as an Inquiring System: The Case of Canadian Health Care 173 Ruth Hubbard and Gilles Paquet 11 Federal Infrastructure Program Impacts: Perceptions at the Community Level 190 Scott Edward Bennett 12 How Ontario Was Won: The Harper Economic Action Plan in Ontario, 2009–2011 207 Patrice Dutil and Byoungjun Park 13 Community Colleges and Applied Research in the Federal National Innovation Agenda 227 Paul J. Madgett 14 Doing the North American Two-step on a Global Stage: Canada, its G8 Muskoka Initiative, and Safe Abortion Funding 242 Melissa Haussman and Lisa Mills Appendix A: Canadian Political Facts and Trends Appendix B: Fiscal Facts and Trends

261

273

Contributors 287

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Preface

This is the 33rd edition of How Ottawa Spends. As always, we are especially indebted to our roster of contributing academic and other expert authors from across Canada and abroad for their insights and for their willingness to contribute to public debate in Canada.* Thanks are also due to Brittney Fritsch and Mary Au at the School of Public Administration for their excellent research and technical support and to Adrian Galwin and his colleagues at McGill-Queen’s University Press for their always professional editorial and publishing services and expertise. None of this work would have been possible without the continuing support and scholarly stimulation provided by our colleagues at the School of Public Policy and Administration at Carleton University. G. Bruce Doern and Christopher Stoney Ottawa, July 2012

* The opinions expressed by the contributing authors to this volume are the personal views of the authors of individual chapters and do not necessarily reflect the views of the editors or of the School of Public Policy and Administration at Carleton University.

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How Ottawa Spends, 2012–2013

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1 The Harper Majority, Budget Cuts, and the New Opposition G . B ru c e D o e rn a n d Christopher Stoney

INTRODUCTION The political economy of Canada’s current and medium term budgetary agenda and politics is different from recent years because of three compelling features and forces: the presence of a Harper majority government following 7 years of minority governments since 2004; the scope and nature of austerity budget cuts in a still fragile and changing national and global economy; and the nature of the new opposition both in Parliament, where the NDP under its new leader Thomas Mulcair is for the first time in Canadian political history the official opposition, and outside Parliament where the provinces, interest groups, the courts, and social networks may be mobilized in new directions and with increased strength and volatility, including the greater presence of intergenerational politics, taxing and spending. Accordingly, in this year’s edition of How Ottawa Spends we look first contextually at the emerging Harper agenda as expressed before Budget 2012 was tabled on March 29th, and then at the changing structure of political power. This is followed by a look at the themes and content of Budget 2012 where arguably the Harper Conservatives with a fresh majority had their best and optimum opportunity to convey a longer term agenda for Canada rather than the short termism that almost inevitably characterized their minority government agendas since 2006. We then focus on three particular Harper and national agenda issues linked both to the Budget and also to some of the analytical themes in our authors’ chapters: (a) strategic review and budget cuts; (b) regulatory change centred on the Harper government as advocates of a night watchman state versus a red tape reduction state; and (c) the R&D,

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science policy and innovation record as forms of structural policy and in the context of the need for what Hubbard and Paquet’s analysis in Chapter 10 refers to as a better “safe fail” and more inquiring policy system.

THE EMERGING PRE-BUD GET HARPER AGENDA Three aspects of the Harper agenda since their 2011 election victory warrant emphasis (although some strands of these agenda items emerged earlier as well). These relate to: Canadian natural resource export promotion; mixed pre-budget messages about the severity of coming austerity; and early telegraphing of the need for pension reforms. Western Canada-led Natural Resource Export Promotion The prime minister’s efforts to promote Canadian exports abroad and natural resources in particular, has been a key feature of Canada’s recent economic, trade and foreign policy. Strong lobbying for the Keystone XL pipeline and Harper’s visits to China, Malaysia and Japan were aimed at increasing trade surpluses with these countries and underline the government’s strategy to use economic growth as a crucial means of paying down the deficit in time for the next election. As early as in a 2006 speech Prime Minister Harper set out his vision of Canada as a “global energy superpower”1 but his ambitions hit a serious roadblock when President Obama announced in 2011 the decision to delay the Keystone XL pipeline for at least a year. Soon after this setback, Harper established energy exports as the government’s new top strategic priority, with Asia seen as the key market to target, making Enbridge’s Northern Gateway pipeline to the seaport at Kitimat, BC an additional essential project.2 This context helps explain why environmental assessments have been streamlined and also the alacrity with which Prime Minister Harper appears to have backtracked in relation to China’s record on human rights. As Corcoran observes “His [Mr. Harper’s] previous issues with China appear to have been sidelined, replaced in part by some neo-Nixonian strategizing over potential economic advantage over the United States.”3 Heading to China, Mr. Harper set out his intentions and his hopes very clearly. “As you know, our country is looking for new markets for our goods and services and China and the entire Asia-Pacific region is an area of tremendous opportunity,” and added, “We hope to expand on our strategic partnership with China and, in particular, we hope to deepen the economic and trade ties between our two countries.”4 This represents a significant shift in policy by the government and it remains to be seen how the US will react and how deeper trade ties with China and Asia will develop. The related perimeter trade and security implications of changing USCanada relationships are the focus of Geoffrey Hale’s chapter 6.

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Pre-Budget 2012 Mixed Messages About the Severity of Austerity Given that the Harper Conservatives largely won the 2011 election for their perceived economic management skills, it is not surprising that they practiced the arts of mixed messaging regarding the state of the nation’s finances and the severity of the measures thought to be required. At times in late 2011 and early 2012, the coming 2012 budget was being touted as a major exercise in austerity as the government set about pursuing its stated aim of returning to a surplus by 2015–16. With savings to be identified by the strategic and operating review (see more below) Finance minister Jim Flaherty had suggested this could mean some departments facing more than 10 per cent in cuts, and could amount to between $4m to $8-billion in annual savings. On other occasions, Minister Flaherty seemed eager to play down speculation that he is planning a draconian budget. One month before the March 29th budget he made it clear that since Canada had not suffered from European-level debts, there was no reason to expect the same degree of austerity. He said “I think Canadians should realize our context, this is not an austerity situation in Canada.”5 The goal of the strategic and operating review of programs and spending was to find ongoing savings of at least $4-billion a year by 2014–15 from departments’ total $80-billion operating budget. This represents only one part of total federal spending and includes the cost of staff and benefits etc. The rest of the spending, including $150-billion in program spending and transfers, are not part of the spending review in part because of the Harper government’s earlier expressed view that they would not do what the ChretienMartin Liberals did in the mid-1990s, namely attack the deficit through cuts that directly impacted on the provinces. Consequently out of a total spending of almost $250-billion, including about $30-billion in interest on the federal debt, the government aims to cut spending by 1.5%. But this is set against a previous record of about 6 percent increases in spending since the Harper Conservatives came to power in 2006. More than 60 departments have submitted plans to Cabinet for either five or ten per cent cuts to their budgets, by finding operating efficiencies and examining the usefulness of programs.  Treasury Board President Tony Clement who is in charge of the strategic review process, acknowledged at the Commons’ government operations committee two weeks before the budget that it may take months for the impact of the March 29 budget cuts to unfold within federal departments, where bureaucrats are braced for up to 30,000 job losses, adding that details will be revealed in stages as “accurate” information becomes available between budget day and next fall.6 This has raised further criticism of the government’s purported lack of transparency in dealing with parliament. Liberal MP John McCallum said this “slow oozing” of information over months erodes transparency and accountability and silences any debate at committees on what programs and services Canadians may be losing. He also suspected this delay

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and “lack of transparency” around the reductions since Treasury Board recently ordered departments not to include details about the reductions in their annual planning and priorities reports to Parliament.7 Pension Reform and Intergenerational Politics The affordability of pensions in the context of both an aging population and the current fiscal fragility and austerity was bound to emerge as a socioeconomic issue in the Harper agenda. However inevitable, pension reform remains a politically sensitive and controversial matter representing, as it does, a threat to income security for many people and especially older voters. They also relate to the fundamental concerns of whether adequate pensions are sustainable and the role of the public and private sectors in their provision. Such concerns have appeared before on the federal political and policy agenda, linked inevitably to provincial and intergovernmental agendas.8 With the baby boom generation entering retirement, issues of pension plan coverage and retirement income are one of many kinds of temporal budgetary challenges.9 The post-election June 2011 Speech from the Throne, referred to demographic challenges to a secure retirement and unprecedented long-term pressures on pension systems but the 2011 election campaign had not flagged the issue or the Harper government’s policy and fiscal intensions. Prime Minister Harper’s, early 2012 announcement that the federal government was contemplating changes to old age security rules to reflect both an aging population and also a smaller workforce population to pay for such pensions immediately brought it to more focused attention as an intergenerational issue. The announcement implied that there were serious fiscal reasons for doing this but other players, including the Office of the Parliamentary Budget Officer (2012) argued that the status quo system was still affordable and feasible.10

T H E T R A N S F O R M AT I O N O F N AT I O N A L P O L I T I C S AND POWER Without doubt, the main transformational feature of Canada’s political power structure in the 2011 election was the emergence of the NDP as the official opposition largely because of the then NDP leader Jack Layton’s abilities to garner a historic electoral breakthrough in Quebec.11 This was followed by Layton’s death due to cancer in the summer after the election, an event whose aftermath garnered the NDP considerable further sympathetic national exposure. In electing former Liberal Thomas Mulcair the NDP now have a leader who is regarded as a sharp and skilled debater and someone who is expected to provide effective opposition in the House and through the media, in part because he has some of the same political attack instincts displayed by Prime Minister Harper. He is fluently bilingual and as a Quebec-based politician his

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first priority will be to shore up and build upon the NDP ’s unexpected gains in Quebec at the next election. Nevertheless this is a calculated strategy that is not without risk, especially if it results in the NDP being seen nationally as a Quebec-based party dominated by Quebec interests and agendas. By choosing Mulcair over Brian Topp the NDP was also seen to favour a leader who will move the party closer to the political centre and away from its traditional blue collar, left of centre roots. In many respects, this kind of shift has been a longer term feature of NDP and left-wing politics in Canada under previous NDP leaders.12 And of course it has also been evident in the context of how NDP governments have performed at the provincial level in Saskatchewan, British Columbia, Manitoba, Ontario and more recently Nova Scotia. Thus for many Canadians, an NDP government actually in office is not a radical experience. Ironically the long dominant Liberal party is now led by a former Ontario NDP leader, Bob Rae. Having had their fortunes devastated by the results of the 2011 election, the Liberal party has spent the last year licking its wounds and contemplating its future direction and leadership options, which is presenting the party with a dilemma. Although Bob Rae agreed to the position of interim leader on the basis that it would preclude him from running for the position on a permanent basis, his performance in the job, combined with the lack of obvious challengers, has made him an increasingly popular candidate for the position on a more permanent basis. Later, however, he declined to run. The Liberals are weak in Western Canada, the region that is increasingly most driving the national economy and they may have difficulty gaining any ground. In Ontario, as Ian Lee’s analysis of corporate tax reform shows, the Liberals lost key Ontario swing seats in 2011 largely on their stance opposing Conservative corporate tax reductions, even though the previous ChretienMartin Liberal governments had pursued similar policies.13 While the opposition inside Parliament is now reconfigured in a major way compared to the earlier Harper years in office, the Harper government’s otherwise considerable comfort zone as a strong majority government may face other sources of opposition or opposing political power. Some may come within the governing Conservative Party. Held under a chokingly tight leash by both minority party status and a combative and controlling prime minister, ordinary Tory MP s or Party members may now feel that they have room to manoeuver to raise issues publically and privately in their own caucus since the government is now secure in power. The provinces regardless of the party in power are always an actual and potential source of power against a Prime Minister and a federal Conservative party that will have been in office for a decade by the time of the next election. Some of this potential counter force was evident in the Ontario provincial election which saw the Liberals cling to office with a minority government which immediately faced its own draconian budget cuts and a politicaleconomic situation where the overall balance of economic power is shifting to

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resource rich Western Canada. The federal Conservatives, however, will find it difficult to separate their own cuts from provincial cuts in the austerity blame game, a political reality further encouraged by Finance Minister Flaherty’s penchant for going after the provincial Liberals well beyond the normal needs of intergovernmental political battle. The federal promise not to have their cuts focus on major federal-provincial programs is unlikely to be fully possible, especially since some pension and old age assistance reforms are bound to lead to pressure on the provinces to pick up some of the fiscal shortfall. The Alberta election of April 23, 2012 also brings a potentially different political calculus for the Harper government. While pollsters predicted a shocking upset by the Danielle Smith led ultra-conservative Wildrose Party, the Alberta Progressive Conservatives led by Alison Redford won a strong Conservative majority mandate with a high voter turnout and with her victory delivered by city voters in both Calgary and Edmonton.14 Redford’s political call for Albertans to “build bridges” rather than “build walls” was at some level endorsed as a central and pivotal choice and in this and other respects Redford can make a valid claim to be a “progressive” Conservative politician in the Alberta Peter Lougheed tradition. If not a newish “red tory” band, Alberta has without doubt elected new “Redford” Tories. The Alberta results thus have the potential to change the national political scene and even the way the Harper Tories function in the new political nexus somewhere between a Redford Tory Party and a Mulcair NDP federal opposition. Albertans are shrewd Canadians and certainly not for the first time in Canadian political history they appear to have flexed their political-economic muscle to influence both the local and national political stages. The political future of Quebec, provincially and federally also remains complex and mercurial and is difficult to predict with any confidence. In spite of Stephen Harper’s growing fluency in French, his appointment of a bilingual director of communications, Andrew MacDougall, recognition of Quebec as a Nation, respect for the constitutional division of powers, $2.2  billion in compensation paid to the province for harmonization of the sales tax and federal policies that protect jobs – including defending the mining and exportation of asbestos – support for the Conservative party is plummeting with only five federal seats and with the prime minister becoming a symbol for anti-federal sentiments within the province. Senior Conservative figures within the province are beginning to express concerns that the party’s policies on crime, the environment and democratic reform are creating “les conditions gagnantes” (winning conditions) for Quebecers to elect a Parti Québècois government that will plunge the country into a new referendum campaign and national unity crisis.15 Some of the recent policies and decisions include the nomination of unilingual anglophones to key positions such as the auditor general’s office, dismantling the long-gun registry – and destroying not sharing the data, the decision to pull out of the Kyoto Protocol on climate

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change, proposed criminal justice legislation, as well as Senate reform and plans to weaken Quebec’s representation in the House of Commons.16 As the province’s federalists gear up for an upcoming provincial election, veteran Quebec Conservative Peter White warned that “All the policies that Harper adopts or has done since the election seem to offend Quebecers ... every time (PQ leader) Pauline Marois attacks Harper, she asks “What are we Quebecers doing in this weird country of Harper’s?”17 The role of the courts and the concerted aggressive role of fast moving social network pressure may also play a greater role in the three years until the next election. Some of this has been present in Quebec’s court challenges regarding the limits of federal jurisdiction regarding assisted human reproduction, and regarding data collected by the now abolished federal gun registry. And social networks were quickly mobilized regarding the federal government’s planned Bill C-30 titled Protecting Children From On-line Predators but which was in fact a bill to significantly increase overall on-line surveillance by police and security services. Indeed, both conservative and liberal media went after the government for the anti-democratic excesses of the proposed legislation. (see more below).18

THE HARPER BUD GET 2012: A LONGER TERM S T RU C T U R A L AG E N DA REV E A L E D ? The first Harper majority government Budget on 29 March was titled and pitched as a Jobs, Growth and Long-Term Prosperity Budget, with links back to the Economic Action Plan from their Minority government years.19 Stressing that Canada has done relatively well in the global recession context and in job creation since 2009, Finance Minister Jim Flaherty stresses instead the structural problems that Canada must now address both for long-term prosperity and “to ensure the sustainability of public finances and social programs for future generations”20 The structural fundamentalism of the Budget, that is, its greater focus on steps needed to ensure the full potential of the economy is intended to be the main message.21 The Harper list of policies and initiatives (spending, tax and regulatory in nature) in their order of presentation include: • • • • •

• • •

Supporting Entrepreneurs, Innovators and World-Class Research Responsible Resource Development Expanding Trade and Opening New Markets for Canadian Business Investing in Training, Infrastructure and Opportunity Expanding Opportunities for Aboriginal Peoples to Fully Participate in the Economy Building a Fast and Flexible Economic Immigration System Sustainable Social Programs and Secure Retirement Responsible Expenditure Management22

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Budget 2012 forecasts a deficit of $21.1 billion in 2012–13, $10.2 billion in 2013–14, and $1.3 billion in 2014–2015 as the next federal election looms. The budget cuts of $5.2 billion, mainly referred to in the final “responsible expenditure management” section noted above are not highlighted although considerable attention is drawn in the Budget to the elimination of 19,200 civil service jobs. To ensure that the key structural themes in Budget 2012 are paramount, it is only later that departments will announce or reveal their program cuts (although many were dribbled out almost immediately as the press scoured the budgetary underbrush). Among the agencies mentioned in the Budget to be eliminated outright are Assisted Human Reproduction Canada (beset with constitutional and court challenges) and the National Roundtable on the Environment and the Economy (an advisory body not favoured by the Conservatives, in part because of its climate change policy advocacy). Further budget cuts are planned to reach about $5 billion a year by 2014–15 (see further discussion below of cuts and the strategic review process headed by Treasury Board President, Tony Clement). Under the above structural themes other key particular initiatives are announced (some of which had been hinted at in the run-up to Budget 2012). Among these are: •

•

•

•

•

•

Increase funding for research and development by small and mediumsized companies, including through a refocusing of the role of the National Research Council. In the resource development sphere, bring forward legislation to achieve the goal of “one project, one review” in a clearly defined period. Pursue new and deeper trading relationships, particularly with large, dynamic and fast-growing economies. Invest in First Nations education on reserve, including early literacy programming and other supports and services to First Nations schools and students. Move to an increasingly fast and flexible immigration system where priority focus is on meeting Canada’s labour market needs. Gradually increase the age of eligibility for Old Age Security (OAS ) and Guaranteed Income Supplement benefits from 65 to 67. This change will start in April 2023 with full implementation by January 2029, and will not affect anyone who is 54 years of age or older as of 31 March, 2012.23

The immediate discussion of austerity and specific cuts certainly occurred in the wake of the Budget but as we see later it involves and will continue to require a considerable amount of detective work and forensic accounting to find some of the details or to divine likely impacts. One of the more potentially revealing efforts was an Ottawa Citizen list which, based on federal budget planning data, showed cuts to federal departments over the next three

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fiscal years with a percentage shown revealing the difference between 2011–12 and 2014–15 fiscal years.24 The deepest cuts of around 10 per cent or higher were in Finance, Agriculture and Agri-Food Canada, Natural Resources Canada, the Privy Council Office, and Public Safety Canada. The lowest cuts in the 3 per cent range were in Aboriginal Affairs and Northern Development and in Human Resources and Skills Development, with other cuts in the middle range for other departments. Immediate post-Budget assessments and criticism were also affected to some extent by a scathing Auditor General of Canada report on the federal government’s handling, lack of accountability, and provision of grossly misleading cost data and projections on the purchase of new F-35 jet fighter aircraft by the Department of National Defence and its current minister Peter MacKay and his predecessors since 2006.25 Even though no money had yet been spent, the multi-billion dollar scale of this costing fiasco ran counter to the Harper government’s claimed fiscal managerial competence, a claim made both in the 2011 election and in the 2012 Budget just tabled.26 Otherwise, the Budget itself garnered think tank and media commentary of main kinds. Economic think tanks such as the Conference Board of Canada argued supportively that the government was well on track to eliminate the deficit by 2015–16 and indeed might do it sooner.27 Many focused on how the Budget’s long term prosperity agenda was actually quite timid and safe rather than bold regarding Tory-led structural change, although the Harper Conservative’s strong immigration policy agenda continued to receive positive assessment in economic terms. Otherwise, the structural discourse used in Budget 2012 bore a strong resemblance to the Chretien agenda of January 2001 when a then re-elected and dominant Chretien government Throne Speech and later Budget Speech gave a rare precedence to an innovation and S&T agenda and related policies, just after it had soundly beaten the then Alliance Party of Canada, the major wing of the soon to be established and renewed Harper-led Conservative Party.28

ISSUES IN THE HARPER MAJORIT Y AGENDA Strategic Review, Budget Cuts and the Politics of Austerity The key question for the Conservatives was how not whether to implement cuts. To this end much emphasis is being placed on its internal strategic review which included the government investing a reported $20m for advice from consultants Deloitte Touche on how to find cuts and how best to implement the Deficit Reduction Action Plan (DRAP ). Moreover, 40 per cent of “at risk” bonus pay for senior government managers is now based on how much they cut and contribute to helping the government find billions of dollars in annual savings.29

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In Canada, “program reviews” that check all government spending have been a feature of public sector managing since the late 1970s. At that time these reviews were infrequent and usually responded to political promises that spending would be kept to a minimum. It was not until the late 1990s that such reviews became a routine feature of Canadian public management culminating in “strategic reviews” introduced in 2006, and now “operational reviews” (not the same thing) introduced in 2011. These latter reviews are intended to find significant one-time cuts in services, rather than ongoing and permanent cuts as in the case of the former. “Strategic reviews” were introduced to force departments and agencies to find critical savings and to use these savings to align with key government priorities. Such reviews are conducted every four years with the objective of finding five percent savings from low performing, low priority programs and services. The decision to avoid cuts in services is attractive to governments because it reduces the political fall-out with the electorate and provides the opposition and critics with less ammunition. As the Department of Veteran Affairs case demonstrates, cuts can be very emotive and can galvanise opposition. The demographics of Canada’s Veterans mean it is inevitable that fewer resources will be needed in the future. However NDP MP and Veteran’s Affairs critic Peter Stoffer claimed that the proposed cuts will mean the loss of an additional 500 jobs at the Veterans Affairs department, which will mean a loss of 1,800 positions from a department that originally employed 4,100 people. If that transpires, he predicts that “this will be the greatest cut to any department in the House of Commons.”30 The government responded by promising to maintain benefits for veterans and spokeswoman for the minister, Codi Taylor, added “We will be asking the NDP to amend their motion to recognize the important difference between providing critical services and benefits to veterans and spending on inefficient bureaucracy.” Thus, politically the government’s strategy is to present cuts as targeting inefficiency, red tape and redundant “back room” bureaucrats rather than services and benefits to veterans. However it is not always possible to distinguish clearly between the two and this is something that opposition MPs have been quick to seize upon. As Stoffer claims it’s not possible that the cuts to the department’s budget will have no effect on the services provided to the veterans “Veterans are already being told they have to wait months to find out if they qualify for benefits and in some cases workers are handling more than 900 people. Veterans say that, in 2006, it took an average of two minutes for their calls to the department to be answered but now it takes an average of 10 minutes and sometimes much longer so many of them are being denied benefits.”31 Clearly the definition of what cuts mean and what impact they will have is a key rhetorical device in shaping public opinion to the cuts. Finance Minister Flaherty stressed that the details of the cuts would not be in the March 29 budget because they will be scattered over scores of

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departments and spread out over several years. He called them “the weeds” of federal spending control.32 Treasury Board President Tony Clement maintained that the details about the cuts will be unveiled in the same way the government released information about reductions from the strategic reviews departments have gone through since 2006. Details of those cuts emerged in dribs and drabs over the course of months. In addition to these tactical strategies, Clement said he is concerned about the impact of the process on anxious public servants who have been waiting for months to find out where the axe will fall, but he added that the government has an obligation to taxpayers and the downsizing will be fair and “consistent with obligations to public servants and whatever collective agreements they have.”33 In this public service context Gary Corbett, CEO of the Professional Institute of the Public Service of Canada, argues that while the Conservatives’ approach drags out the waiting it also “buys time” for departments to manage cuts to ensure they keep the right mix of workers. He acknowledges that managers need time to move people around, find them other jobs or retrain them to reduce the number of layoffs.34 His key point is that while a slower approach creates more anxiety in the workplace, “we don’t want to see the public service decimated at the same time as it’s downsized. We don’t want the best and brightest to go out the door.”35 This was seen as a major drawback of the program cuts in the program reviews of the mid-nineties and the government and public service managers are eager to avoid repeating a process that drains the public service of talent and potential. Comparisons between the current round of strategic and program reviews and the Paul Martin- led program reviews of the mid 1990s reveal some interesting differences and provide useful context. In 1994, Martin as Liberal Minister of Finance was facing a deficit of $38.5-billion and federal debt was approaching 70 per cent of the country’s annual economic output, a level considered unsustainable at the time and more than double today’s ratio.36 His cuts resulted in $17-billion in savings and 45,000 public servants eventually lost their jobs. As one commentator observes, the 1995 Liberals had no choice but to make sizeable cuts and “that’s the real difference between the desperate budget of former Liberal finance minister Paul Martin and the less draconian edition due to be handed down next year by his Conservative counterpart, Jim Flaherty.”37 Martin revealed departmental budgets were to be cut an average of 19 per cent over three years. Some – such as Transport and Natural Resources – would be cut by 30 per cent and the civil service would shrink by 14 per cent with over a third of those based in the national Capital Region. Other portfolios significantly impacted by the cuts included Agriculture, Environment, Industry, Fisheries, National Defence, Public Works, and Treasury Board Secretariat.  In addition to cutting deeply into the civil service, Mr Martin also privatized several major Crown corporations such as Petro-Canada and CN Rail,

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and reduced subsidies to business by up to 60%.38 According to Bagnall, the Liberals were helped in their task by a number of factors. One was the recovery of the US economy, tumbling interest rates and the rapid growth of hi-tech sector jobs in the national capital region which helped to alleviate public service job losses in the capital. Surveys conducted at the time also suggested that the majority (two-thirds) of the public perceived the cuts to be “fair” and believed that the deficit and public debt were the cause of Canada’s poor economic performance and not merely a symptom.39 As a result of these factors the Liberals managed to eradicate a $36.6-billion federal deficit in three years and with many departing civil servants able to return quickly to employment in the public sector. On paper Flaherty faces a simpler but still daunting challenge because the federal debt is less than half of what it was in 1995 as a percentage of the country’s annual output, but slaying the deficit this time around may be more difficult especially if the US economy continues to struggle, interest rates begin to rise and/or private sector growth fails to provide the employment opportunities that it did in the 1990s due to international competition and/or a lack of confidence about the broader economic outlook.40 Flaherty may also have fewer tools at his disposal given the absence of obvious privatization targets, the stated commitment to lower, not raise, taxes and to not cut transfer payments, unlike the Martin cuts which reduced transfer payments by $5 billion a year. Hence Flaherty’s need to focus disproportionately on achieving cuts from $80 billion in annual federal program spending. Further perspective on the current spending cuts is also provided by a broader analysis of spending under the Harper government which reveals some interesting trends since they first came to power. In spite of criticism in some quarters that a Conservative government has engaged in massive Keynsian spending a partially alternative interpretation is possible.41 The infrastructure components of the stimulus measures in Canada were approximately $40 billion (CAD ) over two years.42 The largest portions of the infrastructure measures were tax credits for households – e.g., home renovation and energy efficiency tax credits administered through the Canada Revenue Agency.43 These tax incentives to households accounted for approximately 28 per cent of all infrastructure related stimulus spending.44 The second largest proportion was allocated to social housing, First Nations Housing and Northern housing at approximately 15.4 per cent of total infrastructure related funding and administered through the Canada Mortgage and Housing Corporation (CMHC ) and Aboriginal and Northern Affairs Canada (ANAC ) in some cases.45 The third largest component of funding was allocated to a mixture of provincial, municipal and First Nations, Territorial and some federal infrastructure – amounting to approximately nine per cent out of total infrastructure related investments.46

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Consequently, the stimulus focused mainly on tax cuts and infrastructure spending that, in the main, required significant contributions from other levels of government – in chapter 11, Scott Bennett examines the complexity of infrastructure funding programs from the perspective of communities while in chapter 12 Dutil and Park examine Conservative Economic Action Plan spending in Ontario. As a result, the size of Canada’s stimulus package was relatively small compared to many other countries. In addition to spending we also need to look at government revenues since the Harper government came to power. As one would expect, the recession is reflected in the government’s public accounts. Program expenses increased as a percentage of GDP while revenues decreased. However, part of this revenue decline comes from the Government’s decision to reduce taxes in a number of areas, for example the decision to drop two percentage points off of the GST and reduce the corporate tax rate in stages, from 20 to fifteen percent. The impact on fiscal revenues has of course been compounded by a contraction in economic growth over the same period. While federal Government revenues as a percentage of GDP have steadily decreased over the past decade (from 18.1 per cent in 2000–01 to 14.6 per cent in 2010–11), program expenses as a percentage of GDP saw increases in the 2009–10 and 2010–11 periods (at 16.0 and 14.7 per cent respectively). This is a slight increase from the previous three years where program expenditures as a percentage of GDP were steady at 13 per cent. In the past two years there has been an operating deficit (2009–10 and 2010–11). Over the past three year period there has been a budgetary deficit (between 2008–09 and 2010–11) and, importantly, this increasing size of the deficit (both budgetary and operational) has been instrumental in the narrative of austerity. While the Conservatives express a preference for smaller government and limited spending, there are inconsistencies in the expression of these preferences across portfolios – as indicated some ministries and departments have grown considerably while others have diminished in revenue and policy importance. Growth in the areas of natural resources and trade particularly is interesting and highlights the way that public policy has focused on promoting an energy based export agenda – a continuation and yet, new manifestation of Harold Innes’ staples theory of Canadian development. Here, Harper’s open federalism’s tenets are somewhat relaxed, as the federal government takes a strong interest in resource extraction and the development of infrastructure to support Canada’s export markets – areas of major government expenditure and intervention in provincial affairs. In this area, as we have seen above, the prime minister has been eager to exploit opportunities to sell Canada’s oil, gas and other natural resources abroad with particular attention focused on the giant US and emerging Chinese markets.

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The Night Watchman State Versus the Red Tape Reduction State While How Ottawa Spends naturally focusses on spending and taxing, there are also regulatory policy and governance issues aplenty as revealed in three of our chapters and when linked to Budget 2012 and to Harper era regulatory policy and decisions. At a minimum, they raise issues regarding the law and order and public safety-centred revival of the Harper era’s night watchman state as analysed by Michael Prince in Chapter 3 and the Harper government’s red tape reduction state as revealed by the report of its Red Tape Reduction Commission.47 The first characterization easily evokes a very controlling state and implies red tape increases for some people and not others in the name of Harper-style public safety-centred social policy whereas the latter proposes red tape reductions for business, especially small business. Similar issues and trade-offs emerge in Geoffrey Hale’s account in Chapter 6 of the the USCanadian Beyond the Border Accord of February 2011 and the subsequent Action Plans of December 2011 which centre around ongoing discussions for border facilitation, security, and regulatory cooperation. These agreements and discussions are also a double-edged dilemma regarding state security and control since 9/11 in 2001 with red tape reduction was also involved although rarely expressed in red tape discourse per se but rather as border facilitation and related terms. On the other hand, the analysis in Chapter 7 by Ireland, Milligan, Webb and Xie of the life cycle of regulatory regimes adds a further temporal dimension to regulatory government which will also without doubt impact on any modern government. While red tape is one of the main modes of overall analytical discourse there are also now concerns expressed about so-called green tape when environmental industries are added to the equation, in this case with the need both to reduce it and to increase it depending on the particular green issue or technology involved.48 As we have seen in Chapter 3 Prince argues that the Harper Conservatives see a social world of “law-abiding Canadians,” yet a world beset with problems of border security, child pornography, citizen’s arrest, elder abuse, foreign criminals living in Canada, illicit drugs, gangs and youth-at-risk, human trafficking, money-laundering, prisons with drug problems, sex offenders, smuggling of tobacco, terrorism, white collar crime, and victims of crime. He argues that in some senses, the federal criminal power has supplanted the federal spending power as the preferred Conservative central social policy instrument. The Harper law and order agenda involves a policing of the state as well as a policing of society.49 This means new laws but new laws also contain what some might easily call new red tape but red tape not for business but for various actors and interests ranging from judges, to many individuals in diverse circumstances facing complex practical situations which may or may not be criminal in nature or

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which require large amounts of wise discretion. All red tape analysis is caught up in the fact that many laws and rules produce good rules or aspects of good rule-making but the focus is in practical terms on excessive red tape which is built in to the very definition of what actual red tape is. This is certainly the way red tape is treated/defined by the Harper Red Tape Reduction Commission.50 It seeks mainly to determine what excessive or unnecessary red tape is. This is also the seeming motivation behind the Harper Budget 2012 priority to reduce regulatory obstacles for natural resource development through the above mentioned “one project, one review” regulatory time limit reduction measure. This is not illegitimate as far as it goes but it also centers on who or which interests are doing the determination of what is excessive and how, in the natural resource case it was accompanied by aggressive ministerial attack politics and rhetoric about claimed disloyal environmental groups funded partly by foreigners. This policy led to further changes in the budget that would increase the policing and audits of charities (especially environmental charities) to determine whether they becoming too political as opposed to doing good works. In short, again this was more red tape for some, less red tape for others. The Harper Red Tape Reduction Commission was created to deal with red tape reduction affecting business but almost half of its membership was composed of back-bench Conservative MPs, a highly unusual structure for most federal study or review commissions. On the law and order and public safety side of the excessive red tape determination question, it is mainly Harper’s circle of law and order ministers and advisors rather than any broader array of Canadians, interests or professionals that have had the final say. This has continued in early 2012 in the previously mentioned debate that followed the federal Public Safety Minister Vic Toews’ introduction and defence of the Harper government’s lawful access legislation, Bill C-10, which has been given the title of Protecting Children From Online Predators Act. The bill would allow police to access basic personal information about Internet users as a way to track and catch persons who prey on children without a warrant from the courts. The minister initially and bombastically labeled any critics of his bill as being on the side of the child predators, a belligerent discourse which then generated a fierce counter-attack from any number of civil liberties advocates including critics in normally Conservative media such as the National Post.51 Some commentators also saw the counter attack as itself over the top because some of the provisions in the legislation had been in a similar earlier 2004 Martin Liberal government bill which was later withdrawn.52 The discussion of regulatory regime life-cycles in Chapter 6 adds a note of sensible caution and complexity about matters regulatory and indeed about what red tape might mean in real terms for governments of any persuasion. Ireland, Milligan,Webb, and Xie show that regulatory regimes in Canada and many other developed and emerging market economies are facing difficult

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and unpredictable pressures and challenges including dramatic market, structural, technological, institutional and attitudinal changes; changing political economy philosophies and realities; and conflicting pressures and expectations from politicians, businesses, consumers, voters and other stakeholders. Hence they caution that regulatory analysis needs to recognize how regulatory enforcement capacities, compliance, and achievement of objectives can vary depending on whether the regulatory agency or regime is in its infancy, high growth, mature, or declining stage. The R&D, Science Policy, and Innovation Record as Structural Policy We have already noted some of the real and supposed structural focus of Budget 2012. But, in combination, our authors’ chapters also suggest an interesting reinforcement of the Hubbard and Paquet argument in Chapter 10 of the need for a much better and needed “safe fail” and inquiring federal policy system so that often repeating policy failures amidst changing circumstances can be caught and remedied more readily and effectively in the larger public interest. They relate this to complex health care policy needs in Canada but they also sight other areas such the longer history of periodic mandated review processes such as those dealing with Bank Act reviews. Three other chapters indirectly bring this lack of safe fail processes to bear in the R&D and science policy as a structural policy domain, first in Phillips and Castle (Chapter 5), but further aspects of it as well in the community college sector as analysed by Paul Madgett (Chapter 13) and also less expectedly its manifestation in regional policy, the focus of the Bradford and Wolfe analysis (Chapter 4). The core of the Hubbard and Paquet argument stresses the centrality of a new broader inquiring policy system with more robust safe-fail mechanisms. They show that it is through a mix of competition, greater personal responsibility and cost-sharing, and collaboration and experimentation that one can hope to ensure the best of social learning in different policy fields. This is necessary given the dynamic “small c” conservatism of key players intent on defending their narrow corporate or institutional interests or ideological tenets. The other three chapters bring out some of the possible relevance of this kind of “safe fail” argument about institutional reform in the R&D and science policy field writ large. Thus Phillips and Castle in Chapter 5 probe the sluggish nature of federal science and technology (S&T) investments at a crucial national crossroad in both budgeting and economic development. They show that since 2008, the federal government, a number of provinces, most of the research granting agencies, many firms, and a number of sectors are undergoing a period of introspection and evaluation. The Harper government has signaled its

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impatience with a science focus that is not yielding the commercialization of R&D or transformative technologies that could strengthen Canada’s economy structurally. Phillips and Castle conclude that in the run up to the 2012 federal budget there is a widening gap between expectations and reality that has yet to be bridged by any of the processes so far and may very well be too wide to close in any one budget cycle. But this is basically what has been said repeatedly in different ways since the 1960s in various studies.53 So, in effect, there has been no or very limited “safe-fail” capacity, given that it is private sector R&D underperformance and failure that lies at the heart of this broken record of similar and repetitive structural policy malaise. This does not mean that corporate R&D has exhibited no improvement at all over 50 years but it does mean that the policy failure charge is far too often aimed at a much better performing public science sector rather than where the critical focus ought to be. Paul Madgett explores the federal government’s growing interest under the Harper Conservatives in how to expand and change the role of Canada’s provincially run community colleges and institutes in the innovation economy, particularly regarding applied research. He shows that while previous Liberal governments have pursued various innovation strategies including a focus on universities, the Harper Conservative government has focused on greater commercialization goals and has provided more support for community colleges/institutes.. Madgett also shows, however, that while the colleges/institutes have enhanced their lobbying presence nationally and provincially, they still need to find a way to create a strategic plan to clearly map out their and local-regional business goals, objectives and outputs and outcomes for the next ten years. He also ponders whether the college/institutes are too diverse to all focus on this applied research mandate and perhaps a more tempered approach is required at the provincial level and nationally. While community college gaps have been studied over a much shorter period than overall R&D and science policy, they too may be too often out of sight, out of mind in serious national S&T and innovation policy consciousness. The Bradford and Wolfe chapter on regional policy deals with a field that is often not at all seen in relation to R&D and science policy. They trace the ways in which the Harper Conservatives have been “playing against type” when it confounded expectations by launching in 2009 two new regional development agencies, one for the North and one for Southern Ontario. These bring to six the number of agencies in the long standing 50 year history of regional economic development policy in Canada. But within its account, this chapter also shows how R&D, science policy and innovation were indeed becoming a much more frequent part of the internal funding and programming of these agencies. Again, this final example raises questions about how federal (and provincial) governments draw the boundaries for inclusion and exclusion when reviewing policy fields in a safe-fail and more inquiring policy system way.

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A N OV E RV I E W O F T H E C HA P T E R S Ian Lee examines the role of corporate income tax (CIT ) reform in determining the Harper Conservative election victory in 2011 and the related demise of the Liberal Party. He argues that CIT reductions became the proxy policy for a suite of policies supportive of business and economic growth and as such, CIT became the defining issue which catapulted the Conservatives to a majority victory. The chapter examines the origin of the CIT reduction policy in Paul Martin’s 2000 budget and enhancements in following Liberal budgets. When the Conservatives formed a minority government in 2006 and implemented more aggressive cuts to CIT , it was welcomed not only by the business community but by centrist Canadians concerned about the economy. The irony in this was that the Liberals and NDP were so focused on alleging the Harper Conservatives had a hidden, right-wing social policy agenda that it allowed Harper to move the party more to the centre (without alienating his social base) by focusing on the economy. The positive reception by the business community undermined the fear factor of the Conservatives promoted by the Liberals and NDP . By 2010, it was becoming apparent that while previously unnoticed, the Tories had made significant inroads into Bay Street and the big business community. Meanwhile, the Liberal Party increasingly faced policy encroachment from the NDP as NDP leader Jack Layton incrementally moderated NDP policies to attract support from the centre-left. While the blue-business Liberals remained loyal for another 3 years, the 2011 campaign crystallized the growing gulf between the red and blue liberals that became a bridge too far. Liberal Party contempt expressed from 2010 and throughout the 2011 campaign for “tax cuts, jets and prisons,” juxtaposed with the Conservatives’ consistent track record supportive of business and economic growth, took its toll. Evidence is provided that this recognition culminated in large numbers of “blue” or “business liberals” in the Greater Toronto area who switched in the final 72 hours of the campaign to vote for the Conservatives, to ensure a Conservative majority in order to prevent a Liberal-NDP coalition government that was assumed if the Conservatives only won a minority. Michael J. Prince explores social policy under the Harper Conservatives by characterizing Harper as a Hobbesian prime minister influenced by earlier historical conceptions of the “night watchman state” He shows that while historically and in contemporary times, law and public order are core functions and activities of the Canadian state. He argues, however, that Harper approaches these functions in a manner both politically and philosophically different than his recent predecessors. For Paul Martin, Jean Chrétien and Brian Mulroney, issues of law and order were obviously important but certainly were not a defining issue for their governments or persistently dominant items on their public policy agendas to the extent they have become under

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Harper’s leadership. Prince argues that the Harper Conservatives see a social world of “law-abiding Canadians,” yet a world beset with problems of border security, child pornography, citizen’s arrest, elder abuse, foreign criminals living in Canada, illicit drugs, gangs and youth-at-risk, human trafficking, money-laundering, prisons with drug problems, sex offenders, smuggling of tobacco, terrorism, white collar crime, and victims of crime. An older, more traditional conception of the state as a night watchman state is required to appreciate in both the contemporary scene and in historical context the nature of Harper’s leadership and of Conservative social policy. He shows that in large part, the federal criminal power has supplanted the federal spending power as the central social policy instrument. The Harper law and order agenda involves a policing of the state as well as a policing of society. Conservative social policy is producing shifts in intergovernmental relations and in the nature of social citizenship. Following Prime Minister Harper’s agenda of “open federalism,” leadership on key social policy areas as demonstrated by the later Chrétien and Martin Liberal governments has all but gone, effectively decentralizing social citizenship to the provinces. With the increased attention by the Harper governments to matters of security and law and order, relations between citizens and the federal state have become more legalistic and procedural in nature; from social entitlements to public enforcements. Neil Bradford and David Wolfe trace the ways in which the Harper Conservatives have been “playing against type” on the long standing issue of regional economic development policy in Canada. The substantive ideas informing regional development policy design and the inter-governmental dynamics shaping implementation are explored and how, somewhat surprisingly, they also show no signs of abating today as the Harper government confounded expectations when it launched in 2009 two new regional development agencies, one for the North and one for Southern Ontario, bringing pan-Canadian coverage to the federal government’s regional economic development activity. The authors identify and track the three waves of regional economic development policy that have resonated with federal governments dating back to the early 1960s. In particular, they consider the current third wave known as the “new regionalism” that has gained considerable policy momentum across OECD member countries in recent years which have influenced decisions taken by the Harper Conservatives, specifically the creation of two new RDA s. Given the Prime Minister’s well-publicized aversion to such federal activism, his government’s efforts in this field require explanation and the authors offer an interpretation linked to the work of the six RDA s, mapping both common strategies and tools as well as distinctive initiatives. The chapter closes by revisiting the debates and controversies surrounding federal regional economic development policy, and identifying several key issues that will shape future directions.

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Peter Phillps and David Castle probe the sluggish nature of federal science and technology (S&T) investments at a crucial national crossroad in both budgeting and economic development. They show that since 2008, the federal government, a number of provinces, most of the granting agencies, many firms, and a number of sectors are undergoing a period of introspection and evaluation. The Harper government has signaled its impatience with a science focus that is not yielding transformative technologies that enhance Canada’s economy. The federal Expert Panel on Federal Support to Research and Development, attempting to build upon the dialogue generated by studies from the Council of Canadian Academies, the Science, Technology and Innovation Council (STIC ) and the Conference Board of Canada, undertook a major review of federal R&D priorities and programs that, albeit belatedly, caught the attention of researchers, industry and the provinces. The results of that review were released in fall 2011 but do not appear to have influenced federal budgetary decisions yet. Meanwhile, a number of federal agencies, led by the National Research Council, took this issue into their own hands, by redirecting funds away from upstream science to downstream technology transfer and commercialization. After a review of the current context, the chapter examines four successive developments in 2011: the federal budget which was in effect a non-event, with little or no indication of how S&T plans might change; the virtual absence of any focus in the 2011 election on innovation or research policy; how the departmental operating plans of key agencies are responding in the absence of political direction; and the inputs to the comprehensive R&D expenditure review and how the Expert Panel took the disparate threads of advice from their review and past investigations and knit a programmatic vision and plan. Phillips and Castle conclude that in the run up to the 2012 federal budget there is a widening gap between expectations and reality that has yet to be bridged by any of the processes so far and may very well be too wide to close in any one budget cycle. Geoffrey Hale examines the political and policy contexts for initiatives announced in the US-Canadian Beyond the Border Accord of February 2011 and the subsequent Action Plans of December 2011. It explains the factors that have shaped ongoing discussions for border facilitation, security, and regulatory cooperation, along with proposals for policy change that have emerged from inter-governmental discussions and consultations with assorted interest groups. It summarizes and evaluates policy developments announced in the Beyond-the-Border and Regulatory Cooperation Action Plans, and their ongoing prospects for implementation. Hale shows that the December 2011 documents are clearly works-in-progress rather than definitive policy shifts – however welcome some of their measures may be to Canadian governments and business groups seeking to reverse the post-9/11 thickening of the US-Canada border. They reflect the extensive development

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of transgovernmental relations in specific policy and industry sectors since the border cooperation agreements of the 1990s, but also the “stop-start” politics of Canada-US relations which co-exist with multi-dimensional bureaucratic and market-driven worlds of ceaseless activity. As such, the current “perimeter security” and “regulatory cooperation” processes appear likely to proceed in the world of perpetual instrumentalism that frequently characterizes the operational dimensions of bilateral relations. For Americans, such activities may resemble “weeding the garden,” as described by Reaganera Secretary of State George Schulz, or attending meetings of a condominium association – a description attributed to Condoleezza Rice. However, “Canadian” issues generally receive high-level attention in Washington only to the extent that they are seen to affect the interests of significant numbers of Americans, whether for good or ill. The Harper government, like most Canadian governments before it, recognizes the continuing dependence of many Canadian industries on US markets and integrated North American supply chains, and their inherent vulnerability to political and administrative ambushes in the continuing crossfires of American special interest politics. Derek Ireland, Eric Milligan, Kernaghan Webb, and Wei Xie explore the rise and fall of regulatory regimes in relation to the life-cycles of regulatory agencies and regimes, particularly on how regulatory enforcement capacities, compliance, and achievement of objectives can vary depending on whether the regulatory agency or regime is in its infancy, high growth, mature, or declining stage. This is examined from the perspective of various regulatory actors: the regulatory agency, regulatees, intended beneficiaries, other businesses, consumers, and other groups. The context for this chapter is provided by: (i) the significant budget cuts and related pressures to increase efficiency and reduce the burdens of regulated companies now being faced by many regulatory agencies and regimes in Canada and elsewhere during the next decade – as illustrated by the work of Red Tape Reduction Commission of the Canadian federal government in 2011–12; (ii) the maturity of many regulatory agencies and regimes that were established decades ago; and, (iii) the special challenges faced by more mature agencies and regimes in accommodating budget reductions and other “external shocks.” Many of them have already implemented the more obvious efficiencies during previous periods of fiscal restraint. Their ability to adapt to external shocks can be further hindered by over-confidence, institutional inertia, and dwindling support from politicians, voters, and other stakeholders. The major argument is that applying this “regulatory regime life-cycle” approach provides important insights at the present time when regulatory regimes in Canada and many other developed and emerging market economies are facing difficult and unpredictable pressures and challenges. These go beyond the regulatory and compliance budget cutbacks of governments and regulated businesses to encompass: the

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globalization of markets, businesses, technologies, and regulatory standards and institutions; dramatic market, structural, technological, institutional and attitudinal changes; changing political economy philosophies and realities; and conflicting pressures and expectations from politicians, businesses, consumers, voters and other stakeholders. Christian Bordeleau analyzes the creation and early stages of the Harper Conservative’s Public Private Partnership Canada (PPP Canada) created in 2008 and the Fund it administers. The chapter’s two-fold purpose is: (1) to describe this new middle level or meso-institutional Crown Corporation arrangement – and how it came about – in a systematic way; and (2) to build on this to develop an analysis augmented by general public administration knowledge and related PPP literature to understand what might be the consequences of this development. Bordealeau argues that there is a “public administration malaise” with the way this meso institutional arrangement has been drafted and how it operates. The analysis points to the fact that PPP Canada as a Crown Corporation is not only working on the “technicalities” of the PPP s, but is in the business of policy diffusion as well. The Corporation is playing an important role in increasing the volume of deals, working toward isomorphing the process for the PPP industry and allowing it to keep high margins in the current market fluctuation. At the same time, it is giving a new way for the government to increase the use of its spending power under the radar of public scrutiny. Several malaises are found in this institutional arrangement and in the way the corporation operates. The rules that PPP Canada requires its “clients” to respect are troubling. That traditional procurement is eluded and replaced with lower, if not loose, requirements for financial accountability in the process of public procurement is alarming. This problem is worse because the assumption about the way expertise would be transferred to public servants in the hub that the Corporation is supposed to be is extremely weak, if not to say, mostly wrong. This in turn affects the idea that “in any case” a public service ethos will provide a safeguard inside the Corporation in its administration of the Fund because it is mainly private sector individuals who populate the organization at the top. Again, like in a chess game, by moving this piece, we move de facto another one; if individuals are in some way on “secondment” from the industry, decisions might correspond more to the market’s needs that the general population’s interest. Marc-André Gagnon examines current federal drug expenditures in relation to the need for a national pharmacare plan. Canada has no national drug plan in spite of repeated recommendations in favour of universal pharmacare. He shows that, for Ottawa, the cost argument put forth against implementing a national drug plan is simply not a valid one when one considers the total current federal involvement via both direct expenditures and tax

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expenditures. Gagnon argues that universal pharmacare with first dollar coverage would not only improve access and health outcomes, and enhance equity, it could generate huge savings for all Canadians on the costs of prescription drugs. The will of the Federal Government, however, remains a first requirement to go forward with any national initiative to implement a national drug plan. The main narrative restraining Ottawa to go forward with a national drug plan is the one about the costs that would be incurred by the Federal government in the context of the federal deficit reduction strategy. The question of costs is certainly an important issue and any discussion about the implementation of a national drug plan should analyze carefully the different available scenarios to make sure that the equity in access to prescription drugs for all Canadians is paralleled with equity in financing between various actors and levels of government. While it is rational for Ottawa to refuse to disproportionately bear the costs of provincial jurisdictions, the analysis shows that the current costs paid by Ottawa for prescription drugs under the current inefficient and inequitable system are already very high. With the existence of different scenarios that could even create significant savings, there are no convincing financial reasons for Ottawa to oppose the repeatedly recommended implementation of a national drug plan. There is no reason for Ottawa not to find a way to implement a national drug while respecting provincial jurisdictions as it does for Medicare. Ruth Hubbard and Gilles Paquet probe the foundations on which the public policy process as an inquiring system can be built, and why, with this approach, safe-fail mechanisms are so crucially important, given the complex dynamics of organizations. They then discuss very briefly the challenges of one broad policy issue, health care policy, and show evidence of flagrant policy failures, and argue that failures can be ascribed to a significant extent to the flaws of the traditional public policy process, and suggest that the reframed public policy process framed as an inquiring-system-cum-safe-fail mechanism might indicate ways forward in Canadian health care. The authors sketch a rough prototype of this new approach insisting on the centrality of inquiring system and safe-fail mechanisms, and showing that it is through a mix of competition, greater personal responsibility and costsharing, and collaboration and experimentation that one can hope to ensure the best of social learning. In the health care field, given the dynamic conservatism of key players intent on defending their narrow corporate interests or ideological tenets, the only way to ensure continuous experimentation is to force a periodic review of the framework regime and of its key components onto the system as Hubbard and Paquet suggest for the Canada Health Act. It would force the system into a process of periodic renewal that would encourage experiments and might generate more courage as the status quo becomes by definition contingent.

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Scott Bennett examines different personal perceptions of the federal Infrastructure Stimulus Fund (ISF ) impact at the community level in those places nationally which did receive some ISF funding. He argues that there are a number of dimensions to community evaluations of ISF impacts. Further, he argues that these perceptions are a systematic function of both the location and background of those providing evaluative responses. Describing these as formal expectations or hypotheses is important and informative as complements to other ways of assessing and looking at such impacts. In the budget of 2009, the Conservative government introduced the ISF as an element of its Economic Action Plan. It directed $4 billion toward infrastructure projects at the provincial and local levels. The distribution of responses to the impact questions, while generally favourable toward ISF , showed substantial portions of people who had unfavourable or neutral views of ISF . In addition a dimensional analysis of 6 indicators showed that the structure of the set of indicators was multi-dimensional. So, the programme impacts were viewed through a critical but not generally unfavourable set of lenses. As expected, approval of more general indicators such as general welfare and environmental quality proved to be the most positive while evaluations of more specific technical aspects of programme impact were more cautious or skeptical, but not overwhelmingly negative. Perceptions of ISF impact on unemployment were particularly strongly represented in neutral or negative evaluations. Bennett also expected that the jurisdiction/location in which respondents functioned, and their education and occupational positions impact on evaluation. People with more or less technical levels of training and work see programmes through different filters. Furthermore, these educational and occupational influences are reflective of different cultures of opinion and evaluation just as different jurisdictions may have their own cultures for administering policy and assessing its impact. This was basically confirmed in that 5 of the indicator variables were significantly influenced by jurisdiction, 3 were significantly influenced by education and 3 were significantly influenced by type of occupational position held. Patrice Dutil and Byongjun Park explore how the Harper government’s 2009–11 Economic Action Plan (EAP ) helped the Conservatives in Ontario to win seats that helped secure a majority government in 2011 mainly because it helped demonstrate overall competence in economic management. The plan united a number of existing programs with new initiatives in public infrastructure spending that, together, would provide an economic stimulus. The authors explore the EAP ’s administration in relation to the prior expected charges of pork-barrel spending and politics. The chapter’s evidence indicates that, as far as the Canada’s Economic Action Plan funding distribution in Ontario was concerned, the results between ridings held by the opposition and the government hardly showed significant differences, on average. A bias in favour of government-held ridings was indeed present when the massive

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investments in federal buildings (located in the NDP riding of Ottawa Centre) were included in the total funding, but the result was less clear-cut when they were excluded. Overall, when all infrastructure projects that stimulate the local economy were included, the distribution was not significantly biased in partisan terms. Not all ridings were treated equally, of course. Some of the ridings in tight contests were the subject of massive funding, but many were not. It is clear that government ridings benefited to a certain degree from the “infrastructure spending” component of the EAP , but it was hardly systematic. For most categories of spending, however, the money was evenly divided showing very little indication of favouritism. There might be a question as to whether money spent on “infrastructure” as opposed to another category might be more valuable in the long run, but the point remains moot when considered in a time-span of less than 24 months. In sum, the evidence presented in the chapter shows that generally, the government of Canada was fair in its dispensing of stimulus funding and that the general impression of a competent government was probably the key factor that led to its impressive growth of popularity in Ontario which in turn led to its re-election with a majority. The authors argue that this is no small accomplishment that also speaks to the ability of the public service in rapidly identifying projects, working with governments at all levels, and in ensuring that the stimulus funding was as fairly spread across the territory as possible. Certainly, the fact that the average spending between ridings held by the opposition and those held by the government is practically equal demonstrates the level of precision that was brought to bear by the public service in a few short months. Paul Madgett explores the federal government’s growing interest under the Harper Conservatives in how to expand and change the role of Canada’s provincially run community colleges and institutes in the innovation economy, particularly regarding applied research. He shows that while previous Liberal governments have pursued various innovation strategies including a focus on universities, the Harper Conservative government has focussed on greater commercialization goals and has provided more support for community colleges/institutes. Overall, this current situation provides a window for the Conservative majority government to fulfill its objectives and promises from the 2011 election campaign on strengthening Canada’s economy by implementing the recommendations from various government reports to improve innovation with changes to the current policies and programs. Madgett shows that while the colleges/institutes have enhanced their lobbying presence nationally and provincially, they still need to find a way to create a strategic plan to clearly map out their goals, their objectives and their outputs and outcomes for the next ten years. For this evolution to be successful, the author advocated that the colleges follow, Moodie’s six overarching points: (1) emphasize innovation and eschew research; (2) develop a distinct role in the national innovation system; (3) act locally, learn globally; (4) form multiple partnerships (5) establish a

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national network of vocational education innovation institutes; (6) act in the long term. These strategies and actions would allow for the colleges to expand their presence with both a short and long-term strategy aimed at developing their distinct role in the business community, in higher education and in innovation. However, in line with other analyses, Madgett also ponders whether the college/institutes are too diverse to all focus on this applied research mandate and perhaps a more tempered approach is required. Melissa Haussman and Lisa Mills examine the evolution of Harper government policies on foreign aid for Sexual and Reproductive Health (SRH ) in light of domestic electoral considerations, and international women’s health documents, including the Millennium Development Goal 5 on Maternal Health. Re-elected in May 2011 for its third term, with its first majority, the government appeared to take a harder line towards reproductive rights in the spring of 2010, leading up to the Canadian-hosted G8 summit. The Harper government initially announced it would not fund abortion-based programs abroad, but then stated that it would fund contraceptive provision. The chapter shows (1) shifts in the global aid posture since the 1990s on increasing the “accountability” of, but not necessarily money for, recipient countries; (2) the Harper government’s specific interest in accountability since first elected on January 23, 2006; (3) the federal government’s commitment to contraception and safe, legal abortion funding as part of the well-publicized maternal and child-health initiative; and (4) the difficulty in achieving “accountability” for maternal health when reproductive health services, including safe, legal abortion, are not being provided, and the government has withdrawn aid funding from the African states where rates of unsafe and illegal abortion are highest. The authors argue that a multilevel two-step dance has played out across the international and national stages since at least the UN ’s Cairo International Conference on Population and Development in 1994. In this dance, NGO s and international organizations have advocated measures to improve sexual and reproductive health, sometimes with (very limited) reference to abortion. Then, between 2000 and 2006, sexual and reproductive health fell off the international agenda, returning in 2006, but with no mention of abortion. On the abortion issue, therefore, the Harper government has not been out of step with the global community, which has not reached consensus on this issue. In initially rejecting even contraception as part of its maternal health plan, however, it was roundly condemned, and had to backtrack on this issue.

notes 1 Paul Wells and Tamsin McMahon “Oil Power,” Maclean’s Magazine, April 2, 2012. 2 Paul Wells and Tamsin McMahon “Oil Power.”

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3 Terence Corcoran, “Panda politics: It’s trickier than you think,” National Post, Feb 10, 2012 4 Terence Corcoran, “Panda politics.” 5 Jessica Bruno “The majority governing Conservatives are having a difficult time deciding what to cut, what to keep, and where to reallocate the scarce funds,” The Hill Times, February 27, 2012. 6 Kathryn May, “Budget won’t reveal details of PS cuts” Ottawa Citizen March 14, 2012. 7 Kathryn May, “Budget won’t reveal details of PS cuts.” 8 James Rice and Michael J. Prince, Changing Politics of Canadian Social Policy, Second Edition (Toronto: University of Toronto Press, 2012). 9 Bruce Doern, Allan Maslove, and Michael Prince, Canadian Public Budgeting in the Age of Crises: Shifting Budgetary Domains and Temporal Budgeting (McGill-Queen’s University Press, in press). 10 Office of the Parliamentary Budget Officer, Federal Fiscal Sustainability and Elderly Benefits (Office of the Parliamentary Budget Officer, 2012). 11 See David McGrane, “Political Marketing and the NDP’s Historic Breakthrough”, in Jon H. Pammett and Chrisopher Doran, eds. The Canadian General Election of 2011 (Dundurn Press, 2011), 77–110. 12 David McGrane, “Political Marketing and the NDP’s Historic Breakthrough.” 13 See also Brooke Jeffrey, “The Disappearing Liberals: Caught in the Crossfire” in Jon H. Pammett and Chrisopher Doran, eds. The Canadian General Election of 2011 (Dundern Press, 2011), 45–76. 14 See Josh Wingrove, “Redford’s Vision Prevails as Alberta PC’s Hold Their Majority”, Globe and Mail, April 23, 2012, 1, and Sheila Pratt, “Reford’s Victory Signals Tory Move to the Centre,” Edmonton Journal, April 24, 2012, 1. 15 Mike de Souza, “Quebec Tories say Stephen Harper creating ‘winning conditions’ for referendum,” Postmedia News, April 6, 2012. 16 Ibid. 17 Ibid. 18 See Lawrence Martin, “The ‘Freedom’ Show on the Rideau,” Globe and Mail, February 24, 7. 19 Canada, The Budget in Brief (Finance Canada, March 29, 2012), and James M. Flaherty, The Budget Speech, (Finance Canada, March 29, 2012). 20 Canada, Budget in Brief, 5. 21 On structural fundamentalism, see Bruce Doern, Allan Maslove and Michael Prince, Canadian Public Budgeting in the Age of Crises, Chapter 3. 22 Canada, Budget in Brief, 5–11. 23 Ibid. 24 Ottawa Citizen, “Budget Cuts By Department,” March 29, 2012. 25 Office of the Auditor General of Canada, 2012 Spring Report of the Auditor General of Canada (Office of the Auditor General of Canada, April, 2012, Chapter 2. 26 See Andrew Coyne, “MacKay’s Defence of F-35 Price Gap Doesn’t Add up,” National Post, April 9, 2012.

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27 See Pedro, Matthew Stewart and Ksenia Bushmeneva, Feds on Track to Balance the Books: Numerous Other Measures Announced but No Big Surprises, Conference Board of Canada, Budget Analysis, March 29th, 2012. 28 For analysis, see, Bruce Doern,ed. How Ottawa Spends 2002–2003: The Security Aftermath and National Priorities (Oxford University Press, 2002) 1–19, and Geoffrey E. Hale, “Innovation and Inclusion: Budgetary Policy, The Skills Agenda, and the Politics of the New Economy,” in Bruce Doern, ed. How Ottawa Spends 2002–2003: The Security Aftermath and National Priorities (Oxford University Press, 2002) 20–47. 29 Jason Fekete, “Future of public service in hands of nine parliamentarians,” Postmedia News Friday, March 16, 2012. 30 Gloria Galloway, “Spare veterans from budget axe, opposition says” Globe and Mail, March 5, 2012. 31 Gloria Galloway, “Spare veterans from budget axe.” 32 National Post, “Where Flaherty can begin,” National Post editorial, March 6, 2012 33 Quoted in National Post, “Where Flaherty can begin.” 34 Jason Fekete, “Bureaucrats must shift to efficiency and constraint: Clement,” Postmedia News March 10, 2012 35 Quoted in Jason Fekete, “Bureaucrats must shift to efficiency and constraint.” 36 James Bagnall, “Afraid of 2012? Remember the Budget of 1995”, The Ottawa Citizen, June 10, 2011. 37 Ibid. 38 Ibid. 39 Ibid. 40 Ibid. 41 National Post, “Where Flaherty can begin”. 42 This figure is the sum of total reported stimulus measures for 2009 and 2010. This figure does not include funds leveraged by other orders of government – e.g., through the creation of stimulus programs requiring matching grants, which, in the Canadian case are a significant amount. Source: Department of Finance Canada. 2009. Budget 2009: Canada’s Economic Action Plan Backgrounder. Ottawa: Government of Canada. http://www.fin.gc.ca/n08/09-011-eng.asp 43 This information has been compiled from an assessment of the 2009 Budget. Knowledge infrastructure has been excluded. Department of Finance Canada, “Budget 2009” 44 Calculation includes funding for the programs Home Renovation Tax Credit; Enhancing the Energy Efficiency of Our Homes; increasing withdrawal limits under the Home Buyers’ Plan and; First-time Home Buyers’ Tax Credit as a proportion of all infrastructure-related funding measures. This figure excludes Knowledge Infrastructure.Department of Finance Canada, “Budget 2009”. 45 Department of Finance Canada, “Budget 2009.” 46 Ibid. 47 Canada, Cutting Red Tape: Freeing Business to Grow. Recommendations Report of the Red Tape Reduction Commission January 2012.

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48 Economist, “Tangled Up in Green Tape,” Economist February 18, 2012, 37–8. 49 See also Lawrence Martin, “The ‘Freedom’ Show on the Rideau,” Globe and Mail, February 24, 2012. 50 For discussion of notions of red tape, see, Canada, Cutting Red Tape and Freeing Business to Grow (Red Tape Reduction Commission) Consultation Discussion Paper. Treasury Board of Canada Secretariat. January 2011, Bruce Doern, Strengthening The Governance Oversight of Regulation and Red Tape Reduction: Improving Transparency, Predictability and Accountability. (A paper prepared for the Red Tape Reduction Commission, September 2011), and Bruce Doern Red-Tape, Red-Flags: Regulation in the Innovation Age (Ottawa: Conference Board of Canada 2007). 51 See Chris Selley, “We Won’t Let C-30 Limit Our Freedoms Without a Fight,” National Post, February 22, 2012. 52 See Andrew Coyne, “Same Old Bill, New Hysteria,” National Post, February 20, 2012. 53 See for example, Bruce Doern, Science and Politics (McGill-Queens’ University Press, 1972), National Advisory Board for Science and Technology, Industry Committee Report (Ottawa NABST , 1988), John de la Mothe, “Ottawa’s Imaginary Innovation Strategy: Progress or Drift?”, in Bruce Doern, ed. How Ottawa Spends 2003–2004: Regime Change and Policy Shift (Toronto: Oxford University Press, 2003) 172–86.

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pa r t o n e Politics and the Changing Macro Realities

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2 The Harper Election Victory, the Liberals, and Debate Over Corporate Tax Reform Ian Lee Corporate income taxes are the most harmful for growth as they discourage the activities of firms that are most important for growth: investment in capital and productivity improvements.1 Lowering statutory corporate tax rates can lead to particularly large productivity gains in firms that are dynamic and profitable, i.e. those that can make the largest contribution to GDP growth. It also appears that corporate taxes adversely influence productivity in all firms except in young and small firms since these firms are often not very profitable.2

INTRODUCTION The 2011 Canadian federal election is now well understood as a “tectonic shift.” Not only did the Conservative Party finally achieve its majority under Stephen Harper but Canadians witnessed the astonishing collapse of the former “natural governing party,” the Liberal Party and its replacement with the NDP as Her Majesty’s Official Opposition. The reasons for this transformation have been widely debated since the election. This chapter provides another contribution to theories that attempt to explain the transformation through an examination of the hotly debated corporate tax issue before and during the campaign. I argue that corporate income tax (CIT ) reductions became the proxy policy for a suite of policies supportive of business and economic growth and as such, CIT became the defining issue which catapaulted the Conservatives to a majority victory. The chapter reviews scholarly evidence over the past thirty years in Canada, the US and Europe undertaken by scholars, central bank research departments, finance ministries and think tanks culminating in the landmark 2010 OECD study, Tax Policy Reform and Economic Growth, that demonstrated a near unanimous view that: “corporate taxes are the most harmful type of tax for economic growth, followed by personal income taxes and then

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consumption taxes, with recurrent taxes on immovable residential property being the least harmful tax.”3 The summary review of the scholarly research concerning the economic efficiency of CIT effectively invalidates the frequently expressed view by some pundits, analysts, academics, and NGO s that while the Liberal and NDP policy positions (i.e. CIT cuts) were evidence-based and grounded in research, the Conservatives instead relied on intuitions, prejudices and perhaps even religious beliefs as the foundation of their policies to appeal to the voting base of the Conservative Party. The corporate income tax policy debate influenced the outcome of the 2011 election because of the twists and turns of the Liberal Party on this issue. It has long been a political truism that while the Liberals “campaigned left,” “they governed right.” While the Liberals maintained they were the only authentic Canadian party representing all Canadians, including what Chretien famously called “the little guy,” the Liberal Party in fact had very close ties to Bay Street and big business for the past century. This wing of the party was known as the “blue liberals” or “business liberals.” The chapter examines the origin of the CIT reduction policy in Paul Martin’s 2000 budget and enhancements in following Liberal budgets. When the Conservatives formed a minority government in 2006 and implemented more aggressive cuts to CIT , it was welcomed not only by the business community but by centrist Canadians concerned about the economy. The irony in this was that the Liberals and NDP were so focused on alleging the Harper Conservatives had a hidden, right-wing social policy agenda that it allowed Harper to move the party more to the centre (without alienating his social base) by focusing on the economy. The positive reception by the business community undermined the fear factor of the Conservatives promoted by the Liberals and NDP . By 2010, it was becoming apparent that while previously unnoticed, the Tories had made significant inroads into Bay Street and the big business community. Meanwhile, the Liberal Party increasingly faced policy encroachment from the NDP as NDP leader Jack Layton incrementally moderated NDP policies to attract support from the centre-left. This chapter locates the Liberal Party shift on CIT to Dion’s cleverly titled Green Shift policy during the 2008 federal election. Following Dion’s resignation, the Liberals, now under Ignatieff, found themselves, in the words of Harvard business strategy professor Michael Porter, “stuck in the middle with no competitive advantage.”4 In an effort to shore up and save his left flank in this now two front war, Ignatieff reversed Liberal Party policy on CIT and developed attacks that eventually led to the 2011 promise to end “tax cuts, jets and prisons” in order to fund additional social spending. In so doing, the Liberals betrayed the blue or business liberal base of the party who now were motivated to defect as they witnessed the traditionally centrist Liberal Party attempt to reinvent itself as a centre-left party.

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While the blue-business Liberals remained loyal for another 3 years, the 2011 campaign crystallized the growing gulf between the red and blue liberals that became a bridge too far. Liberal Party contempt expressed from 2010 and throughout the 2011 campaign for “tax cuts, jets and prisons,” juxtaposed with the Conservatives’ consistent track record supportive of business and economic growth, took its toll. Evidence is provided that this recognition culminated in large numbers of “blue” or “business liberals” in the Greater Toronto area who switched in the final 72 hours of the campaign to vote for the Conservatives, to ensure a Conservative majority in order to prevent a Liberal-NDP coalition government that was assumed if the Conservatives only won a minority.

S C H O L A R L Y R E S E A R C H O N C O R P O R AT E I N C O M E TA X One important policy question on which most economists appear to agree, however, is that there is very little to be said in favour of taxing corporations. Many would agree, for example, that the title of a recent paper – “The Corporate Income Tax and How to Get Rid of It” (Vickrey, 1991) – adequately conveys the main message of the extensive economic literature on this subject. The reason for such unanimity is primarily the substantial economic costs associated with taxes on corporations.5 Before proceeding to a summary of the empirical research, it should be noted that the populist view amongst the general public has long held the opposite view to the quote above. The populist view was humorously summarized succinctly by Professor Stephen Gordon in the leading Canadian economic blog, Worthwhile Canadian Initiative:6 1 2 3 4 5

Corporate taxes are applied on profits. Profits go to capitalists. Corporate taxes are paid by capitalists Capitalist = rich person, therefore Corporate taxes are paid by rich people

As Gordon acidly noted, while the first two statements are of course true, everything else is wrong. There has been a great deal of research by economists and policy scholars over the past fifty years in universities, central bank research departments, finance ministries, think tanks and the OECD . A review of the voluminous scholarly peer-reviewed literature since the 1980s reveals near unanimous agreement amongst economists and policy scholars (with the

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critical exception of those employed in unions and NGO s). The research findings show that while corporations are statutorily responsible for the remittance of corporate taxes, firms do not bear the burden of corporate incomes taxes because they are passed in the price of the goods or services or through lower wages paid to employees. This is referred to as the “incidence of taxation.”7 Until the 1970s, researchers assumed a closed economy which limited the supply of capital. Under these conditions, the incidence of taxation fell on the owners of capital. However, with the emergence of globalization, researchers replaced the closed economy assumption with an open economy assumption and this in turn produced very different results. In a country with a small, open economy, research has consistently demonstrated that the incidence of CIT falls on workers via lower wages (as do payroll taxes). As Prof Gordon noted, “higher corporate taxes reduce the after-tax rate of return on investment, and this in turn reduces investment, employment and income below what they might otherwise have been.” 8 We can see that statutory corporate income tax rates have been declining amongst OECD countries due to the dissemination of this evidence and its acceptance by policy makers. In 2010, the OECD published its landmark study summarizing years of research concerning taxation and the OECD ’s conclusions concerning the relationship between economic growth and tax structures: This report discusses how tax structures can best be designed to support GDP per capita growth. The analysis suggests a tax and economic growth ranking order according to which corporate taxes are the most harmful type of tax for economic growth, followed by personal income taxes and then consumption taxes, with recurrent taxes on immovable residential property being the least harmful tax. A revenue-neutral tax reform that shifts the balance of taxation more toward consumption and recurrent residential property taxes could thus strengthen the growth of output over the medium term.9 The graph, Statutory Corporate Income Tax Rates, 1981, 1994, and 2010, reveals that the tax rate for corporations has steadily declined over the past 30 years in OECD countries. Figure 2, Tax Structure in the OECD Area, 1965–2008, reveals that although corporate income tax rates declined dramatically over the past 30 years (previous graph), nonetheless, the amount collected Figure 1 – as a percentage of total tax revenues increased over this period. This is supported by OECD research that has shown that lower corporate income tax rates lead to an increase in the tax revenues collected (elasticity of tax).

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Debate Over Corporate Tax Reform

Figure 1 Statutory corporate income tax rates

1981

% 70

2010

1994

60 50 40 30 20 0

jpn usa fra bel deu aus mex nzl esp can lux nor gbr ita prt swe fin ndl aut dnk kor grc che tur cze hun pol svk chl isl irl

10

Source: oecd Tax Database, www.oecd.org/ctp/taxdatabase.

Table 1 Tax Structures in the OECD -area10   Personal income tax Corporate income tax 2

Social security contributions

1965

1975

1985

1995

2000

2008

26

30

30

27

25

25

9

8

8

8

10

10

18

22

22

25

24

25

(employee)

(6)

(7)

(7)

(9)

(9)

(9)

(employer)

(10)

(14)

(13)

(14)

(14)

(14)

Payroll taxes

1

1

1

1

1

1

Property taxes

8

6

5

6

6

5

General consumption taxes

12

13

16

19

19

20

Specific consumption taxes

24

18

16

13

12

10

2 100

2 100

2 100

3 100

3 100

3 100

3

Other taxes Total

1. Percentage share of major tax categories in total tax revenue. 2. Including social security contributions paid by the self-employed and benefit recipients (heading 2300) that are not shown in the breakdown over employees and employers. 3. Including certain taxes on goods and services (heading 5200) and stamp taxes. Source : Tables 11, 13, 15, 17, 19, 21, 23, 29, and 31 in Section II.A.

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E M P I R I C A L R E V I E W O F PA S T 1 0 Y E A R S ’ P R A C T I C E C O N C E R N I N G A C T UA L C I T R AT E S Throughout the first decade of the 21st century, the Liberals and the Conservatives advocated and implemented cuts to corporate income tax, justified on the basis of increasing Canada’s attractiveness to business and its competitiveness in the world. We can date Chretien Liberal Government support for corporate tax cuts to the February 2000 federal budget,11 when they announced they would focus on supporting small business: •

•

•

beginning in January 2001, small businesses currently paying tax at the general 28-per-cent rate will benefit from the new 21-per-cent corporate tax rate on business incomes between $200,000 and $300,000 reduce the income inclusion rate of capital gains from three-quarters to two-thirds; and allow a tax-free-rollover of capital gains on qualified small business investments where they are reinvested in another small business.

After their third majority government election in November 2000, Finance Minister Paul Martin adopted an even more aggressive policy concerning corporate tax reductions. “As a result of the actions of the government, our corporate taxes, in a couple of years, will be lower than the United States. Those are the kinds of policies that will lead to increased productivity.”12 Before the 2004 federal election, the Alliance Party and the Progressive Conservative Parties merged to form the new Conservative Party of Canada. In the 2004 Federal Election, the Liberals, now led by Paul Martin, were only able to achieve a minority government notwithstanding their commitment to lower taxes because there was little difference between the two parties on taxes. The Conservatives promised they would cut corporate subsidies in order to lower taxes for all businesses while the Liberals pointed to their decision to eliminate the capital gains tax for smaller businesses. The NDP continued to maintain that they would reverse corporate tax deductions. In the following Budget speech of February 23, 2005, Finance Minister Ralph Goodale laid out the Liberal plan for “Achieving a Productive and Growing Economy.” Specifically, the government stated: Over the past few years, we have given our Canadian businesses a modest but strategic tax rate advantage vis-à-vis the United States. Over that same period, the Canadian private sector generated more than 1 million new jobs. However, recent tax reductions in the U.S. will gradually erode our margin. To maintain it, this budget proposes to reduce the statutory corporate income tax rate by 2 percentage points – from 21 per cent to

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19 per cent by 2010. We also propose to end the corporate surtax, which was introduced in 1987 as a deficit reduction measure. This will help all businesses in Canada, especially small and medium-sized enterprises (SME s).13 The 2005 Budget was supported by both the Conservatives and the NDP . During the 2006 Federal election campaign, the Liberal Party promised to continue reducing general corporate tax rates and the scheduled phase out of the corporate surtax. This position was echoed by the Conservatives. However, in a clever decision to differentiate themselves from the Liberals, the NDP announced they would cancel the corporate tax cuts promised by the Liberals and invest the funds collected from higher corporate income taxes into education and healthcare – characterized as priorities for people that should be addressed first. The NDP theme of “putting people first” must have scarred the Liberals upon their defeat by the Conservatives in 2006, for as we will see below, this message was resurrected by the Liberals under Ignatieff. Upon winning a minority government, the Conservative Budget of 2006 “Focusing on Priorities”14 upheld its election platform and proposed: •

• •

Reduce the general corporate income tax rate to 19 per cent from 21 per cent by 2010 Eliminate the corporate surtax for all corporations as of January 1, 2008 Eliminate the federal capital tax as of January 1, 2006, two years ahead of schedule

Contrary to promises by both Liberal and NDP opposition parties to oppose the Conservative Party’s 2006 Budget, no opposition members stood to speak on third reading in the House. The lack of speakers led to the Budget being declared to be passed by unanimous consent.15 The following year on March 19, 2007, the Conservative minority government tabled their next budget which provided additional reductions to corporate income taxes. Specifically, the Budget speech stated: For Canadian businesses, the Government will be: •

•

Reducing the general corporate income tax rate to 15 per cent by 2012, starting with a 1-percentage-point reduction in the rate in 2008 beyond the already scheduled reductions. Reducing the small business income tax rate to 11 per cent in 2008, one year earlier than scheduled.

“We are putting business taxes on a five-year track downward to help stimulate further economic growth and create even more jobs. We are

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Table 2 Federal Corporate Income Tax Rates, 2006–201016 Proposed Rates (per cent) General corporate income tax rate Corporate surtax

2006

2007

2008

2009

2010

21.0 1.12

21.0 1.12

20.5 0.0

20.0 0.0

19.0 0.0

ushering in a new era of declining business taxation in Canada. It will be a steady, predictable decline that businesses can count on and can plan on. With these reductions, Canada’s general federal corporate income tax rate will fall by one-third between 2007 and 2012, and Canada’s corporate tax rate will become the lowest among the major industrialized economies.17 Although the Liberals and the NDP opposed the Budget, it was passed with the support of the Bloc Québécois party. During the 2008 election, the NDP maintained they would rescind the corporate income tax reductions the Conservatives had implemented.18 However, the election of 2008 was a watershed for the Liberal Party concerning corporate income taxes. During the election, despite opposing the Conservative 2007 Budget which included reductions to corporate income taxes, the Liberals promised they would speed up planned corporate tax cuts, reducing the general business tax rate to 14 per cent by 2013. The Liberals also promised to reduce the small business tax from 11 per cent to 10 per cent. Liberal Leader Dion also introduced the “green agenda” as the central plan of the platform. Although, the Liberals still supported corporate income tax cuts, their economic policies centred on “the encouragement of a green economy through the development of environmentally-friendly industries and jobs.”19 This sent a very contradictory message to blue/business Liberals for green initiatives and fostering business and economic growth have long been at loggerheads. This set the stage for a confrontation between social Liberals and blue/business Liberals. After the October 2008 election, the Liberal Party – which had dropped to only 77 seats (and from 36% in 2004 to 30% in 2006 and now to 26% in 2008) – was again faced with selecting a Leader after the resignation of Stephan Dion. However, Dion promised to remain as Leader until the Convention scheduled for May, 2009. But there were more surprises. On November 27, 2008, the Conservative Party introduced its Economic and Fiscal Update entitled “Protecting Canada’s Future.” The opposition parties denounced the short-term plan and vowed to defeat the bill. All three parties argued the Conservatives underestimated the impact of the global recession and instead advocated an aggressive economic stimulus package to

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encourage employment and economic growth. The defeat of any eventual motion in the House would have represented a vote of non-confidence and the defeat of the minority Conservative Government. Despite concessions from the Conservatives, the opposition parties maintained their promise to defeat the government. On December 1, 2008, it was announced Liberal Leader Dion signed an agreement with the NDP to lead a coalition government with the support of the Bloc Québécois. In the Agreement, Dion was designated to become Prime Minister.20 Dion advised the Governor General Michaëlle Jean in a letter that he had the confidence of the Commons to form the government if the Conservatives were defeated. Dion stated that “We are ready to form a new government that will address the best interests of the people instead of plunging Canadians into another election.” The three Liberals running for the Liberal leadership: Michael Ignatieff, Bob Rae and Dominique Leblanc threw their support behind Dion. Future Liberal Leader Michael Ignatieff stated: “I support the accord because it’s fiscally responsible, it provides responsible economic leadership in tough times and it also conserves the basic principles of national unity, and equality that our party has always believed in.”21 The reaction to the Coalition from the Conservatives was furious. On December 2, 2008 during Question Period in the House of Commons, Prime Minister Harper stated: Mr. Speaker, the highest principle of Canadian democracy is that if one wants to be prime minister one gets one’s mandate from the Canadian people and not from Quebec separatists. The deal that the leader of the Liberal Party has made with the separatists is a betrayal of the voters of this country, a betrayal of the best interests of our economy and a betrayal of the best interests of our country, and we will fight it with every means that we have.22 Although the vote was initially scheduled for December 1, 2008, the Conservatives delayed it until December 8th. On December 5th, when it seemed that the Conservative Government would be defeated, Prime Minister Harper asked the Governor General to prorogue Parliament in order to give parliamentarians time to “calmly review recent events.” When the Governor General agreed to prorogue Parliament, the opposition parties decried the move as an affront to democracy. The proposed coalition with the NDP , backed by the Bloc, badly damaged the Liberal Party and in particular, Stephane Dion. For a hundred years, the Liberals had occupied what Trudeau famously called “the radical centre” and what Mackenzie King had said was: “lean to the left, lean to the right and straddle the center.” A coalition with the NDP – and the separatist Bloc – signaled they were shifting away from their core values and policies in an

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attempt to gain power. In an Op-Ed in the Globe and Mail23 widely reported in the national media, John Manley, former Liberal Deputy Prime Minister and Minister of Finance – and more importantly the most well-known voice of “blue liberals” or business liberals stated: “The notion that the public would accept Stephane Dion as prime minister, after having resoundingly rejected that possibility a few weeks earlier, was delusional at best. Mr. Dion had seemed to accept responsibility for the defeat (although somewhat reluctantly), and should have left his post immediately.”24 This public denouncement by a former Deputy Prime Minister – to his own party – essentially characterizing the Liberal Party caucus as delusional for supporting the coalition, is unheard of in Canadian politics. Shortly after, Michael Ignatieff was confirmed as the new Leader of the Liberal Party of Canada. Although the House of Commons remained raucous throughout 2009, no opposition party seemed to want to defeat the government. While the opposition parties warned Canadians about Conservative social policies, the Conservatives adroitly adopted many of the promises in the Liberal party platform concerning economic issues, corporate income tax reductions being just one (a technique successfully practiced by the Liberals for many years). The Conservatives repeatedly emphasized their financial stewardship and competence regarding the management of the Canadian economy. This approach was confirmed by a Strategic Counsel Poll on October 25, 2009 that identified the economy as the most important issue to Canadians (including unemployment) at 43%.25 In March 2010, the Liberals held their Canada at 150 Conference, where Liberal Leader Ignatieff announced changes to Liberal policy concerning corporate income tax cuts when he committed to: “freezing corporate income tax rates to their current level until Canada can afford to lower them further…Thanks to Liberal fiscal responsibility in the 1990s, we can keep our corporate taxes among the most competitive in the G7 … We have a clear choice: tackling the Conservative deficit and starting to invest in our future, or giving further tax cuts to corporations before when we can afford them.”26 Notwithstanding the attempt to justify the changed policy, it was an abrupt about face and radical departure from the Liberal Party’s position on corporate income tax for the last decade. In January 2011, Michael Ignatieff responded to questions from the media after his party’s winter caucus retreat: If we’re going to have a big argument here about how to create jobs, how to create a future for the Canadian economy, this is a debate that we welcome,” he said. “You can cut corporate taxes when you’re in a surplus. Cutting it in a deficit adds to Canada’s financial woes and we think the way to create jobs is invest in post-secondary education and help small and medium enterprises to become more competitive and take on more workers.27

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The Liberal backtracking on CIT did not go unchallenged. In January, 2011 on CBC ’s Power and Politics, Former Deputy Prime Minister and Former Finance Minister John Manley told Evan Solomon: We’re not just competing against the G7 … we’re competing particularly in the OECD , we’re in the middle of the pack, barely, in the OECD . We’re not exemplary by any stretch … Who thinks that if you take the money out of the businesses that are producing profits in Canada, that that money couldn’t be used for further investment, for job creation, for doing R and D, for doing other things. Is it better in the hands of the Government?28 But the Liberals ignored these arguments from blue Liberals for reducing CIT . Indeed, on February 8, 2011, the Liberal Party of Canada proposed a motion in the House of Commons calling on the Conservative Government to reverse $6 billion in tax cuts for Canada’s largest corporations and return to 2010 corporate income tax levels in the upcoming Budget. The motion stated: “That, in the opinion of the House, the Government’s decision to proceed with cuts to the tax rate for large corporations fails to address the economic needs of Canadian families, and this House urges the Government to reverse these corporate tax cuts and restore the tax rate for large corporations to 2010 levels in the upcoming Budget.”29 This position would become part of the Liberal Party platform for the May 2011 Federal Election. These strategic interventions by the voice of the blue business liberals clearly evidenced a rift in the Liberal Party: red Liberals wanted to increase spending on social programs through increased taxes on “big business” while blue liberals believed that supportive business policies would lead to improved economic growth for Canada. In the space of three years – from 2008 to 2011 – the political landscape had been transformed from two centre right parties to a single centre-right party and two centre-left parties. The policy issue that led this transformation was corporate income taxes. No longer was the NDP alone in its fight against lower corporate income taxes while the Conservative Party now solely occupied the position that supported business and economic growth that previously attracted business liberals for the entire period the Liberal party was the “natural governing party.”

T H E 2 0 1 1 E L E C T I O N C A M PA I G N On March 25, 2011, opposition parties defeated the Conservative Government Budget and the federal election was set for May 2, 2011. The party platforms presented no surprises concerning corporate income taxes. The Conservatives maintained their plan to reduce corporate taxes to 15% in 2012 would create

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more jobs while any increase to that rate would result in job losses. The NDP Platform30 committed to: • keep Canada’s corporate tax rate competitive by ensuring that our combined federal/provincial Corporate Income Tax rate is always below the United States’ federal corporate tax rate. • reduce the small business tax rate from 11 per cent to 9 per cent to support a sector of our economy that creates nearly half of all new jobs in Canada. • introduce a Job Creation Tax Credit that will provide up to $4,500 per new hire The Liberal Party of Canada committed to “cancel tax cuts for large corporations that already enjoy low rates compared to other countries” which meant the corporate tax rate would return to 18%. The Liberals explained they would: cancel the Harper government’s corporate income tax cuts of January 1, 2011 and January 1, 2012, restoring the 2010 level for Canada’s largest firms. That will still maintain a 25 percent advantage over the United States, and one of the lowest rates in the G-7. Given that Canada’s corporate tax rate is very competitive, using borrowed money to cut it further is not a prudent policy. Our action will ramp up to yield over $5 billion by the second year of our plan, rising to nearly $6 billion within four years.31 The Conservative strategy throughout the campaign never wavered for Harper continued to focus on the stable stewardship his Government maintained concerning the economy. Harper told reporters in Brampton, Ontario that: “We obviously think it’s a pretty clear choice: stability and low taxes or instability and high taxes.”32 To underscore that the Liberals had abandoned their traditional values, Harper launched a second line of attack, reminding Canadians that the Liberals would willingly enter into a second coalition with the NDP and the Bloc if the coalition would allow them to seize power. Harper stated: “Everyone knows their record they will deny it during the election they will do it after if they can get away with it. The only way Canadians can be sure it does not happen if to elect a stable national government the only way they can get that is to elect a stable national Conservative government because we are the only ones that can form that kind of government.”33 The NDP , while it had expanded its position on corporate tax cuts to favour small businesses, did not receive the resounding endorsements they had expected. Catherine Swift, President of the Canadian Federation of Independent Business stated that “This is presented a little disingenuously … It’s not just the big banks, but an awful lot of mediumsized businesses that will also be affected by the tax hike.” Swift also said she welcomed the focus on the small business sector, but noted the CFIB supported the Conservative Government’s attempts to reduce Canada’s overall tax rate.34

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As noted earlier, the Liberal Party renounced its support for a further lowering of corporate income taxes in an effort to support increased spending of 6 billion dollars on social programs for Canadians. During the election leaders debate of April 12, 2011, Liberal Leader Ignatieff called the Conservative corporate tax cut “corporate giveaways.” And throughout the campaign, Ignatieff and the Liberals focused relentlessly on their opposition to “tax cuts, jets and prisons.” Liberal Leader Ignatieff continued to assert the Harper Conservatives had a hidden, right-wing social agenda and alleged that he would decimate Canadian “sacred cows” such as healthcare. For example, during the election campaign he stated that he: “could only conclude the Tories will end up cutting health-care transfers to the provinces and territories, despite Flaherty’s insistence the transfers would remain untouched even after the current federal-provincial accord expires in 2014.”35 In very sharp contrast, Harper stuck to his economic agenda and argued the Liberal plan to restore higher corporate taxes would send a chill through Canada’s business community and derail the economic recovery.36 Harper continued to focus on making stronger gains in Ontario; in particular, the Toronto area. CTV ’s Ottawa Bureau Chief Robert Fife said the Conservatives were eager to make gains in the City of Toronto, where the Liberals held significant support: “Forty per cent of the Liberal seats are in the Toronto area, so they are trying to really do a Mao Tse Tung strategy, which is get the countryside first and then take the city.”37 Increasingly, the Liberals found themselves fighting a 2-front war against the NDP and the Conservatives.38 In response to allegations that the Liberal Party was becoming much more similar to the NDP , Liberal Senator David Smith said “the party is hoping that voters will be drawn to its centre-leaning policies and its past record of governance … We’ve never represented the far-left, we’ve never represented the far-right. We’re the party of the middle.”39 Mr. Harper, confident that his strategy was working was quoted as saying: “And now, when we look at the Liberal Party, Mr. Ignatieff, as you know, has taken that party away from its traditional roots. And the consequence is that the best he can now hope for is to be a back-seat passenger in an NDP government … So let’s be clear to everybody: A vote for the NDP is not a protest vote. A vote for the NDP is a vote for an NDP government. A vote for the Liberals is now a vote for an NDP government.”40 And, the Nanos overnight tracking polls41 (Figure 4) showed that Mr. Harper’s message had hit its mark. While the Conservatives had been fairly steady at 38% in the polls throughout the campaign – which suggested a minority government to many analysts and pollsters – a surge in support for the Conservatives in Ontario in the final 72 hours of the campaign ultimately increased their overall national vote by almost 2% and gave them 20 more seats in Ontario.42

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This was confirmed in a conversation with defeated Liberal MP from Willowdale, Toronto Martha Hall Findlay (now an Executive Fellow with the University of Calgary School of Public Policy) in the Green Room of Global TV “The West Block with Tom Clark,” Jan. 22, 2012 when Ms Findlay advised that in the final 72 hours of the election campaign, it was clear that voters were turning against her party, both from comments at the door in her riding and on the phones with Liberal Party canvassers because of the fear that Jack Layton and the NDP would become Prime Minister. In Ms Hall Findlay’s words, “we were being hit by the orange wave, but in the last 72 hours it was a blue backwash.” She felt that this is what defeated a significant number of Liberal MPs in the GTA . In hindsight, it is reasonably clear that significant numbers of blue liberals chose to defect to the Conservatives rather than risk a Conservative minority government, which voters increasingly understood would be defeated and replaced with a Liberal-NDP coalition.

CONCLUSIONS The three years prior to the 2011 Canadian federal election and then the election itself dramatically restructured and rearranged the political landscape of Canada. While this is widely understood, many critics do not yet understand more precisely how the Conservative Party achieved this transformation. The single most important vehicle was corporate income tax policy, used by the Liberals as a wedge against the Conservatives. There are multiple ironies for the Conservatives have frequently been accused of using policy issues as “wedge” issues against the opposition parties. Yet, ironically it was the Liberals who used this issue as a wedge issue and found themselves “wedged” by their attempt to use it for it eventually caused large numbers of their business base to desert them. Not only did this attempt to win the election fail, but in so doing they gave up a significant part of their base – the blue or business liberals – that was part of the Liberal coalition and competitive advantage for the century of their dominance as the natural governing party. At the same time, the Conservative corporate tax policy position was consistent with their fiscal conservative philosophy that emphasized economic growth. Moreover, the extant literature reveals the near unanimity of OECD , Federal Reserve and peer reviewed studies, concerning the incidence and efficiency of corporate income taxes that supported the Conservative Government position on CIT . Restated, the Conservatives were philosophically consistent while their position on corporate tax cuts was supported by a very large body of scholarship. While many pundits have given Harper the credit for winning his majority, equal, if not more credit should be given to the Liberal Party for they wandered off into NDP territory and tried to out-NDP the NDP . It was only with the shift of the blue/business Liberals that Harper was able to win his

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Figure 2 Ontario Ballot43

50 Conservative 40

Liberal

Percent

30

20 ndp

10 Green

E-Day 2011

Apr. 30

Apr. 28

Apr. 26

Apr. 24

Apr. 22

Apr. 20

Apr. 18

Apr. 16

Apr. 14

Apr. 12

Apr. 10

Apr. 8

Apr. 6

Apr. 4

Apr. 2

Mar. 31

Mar. 29

E-Day 08

0

Table 3 Nanos Tracking – Final Weekend of Election (Percent)44 Two-day tracking Saturday one day Sunday one day Election April 30 – May 1 April 30 (n= 352, May 1 (n= 702, results (n= 1,054, decided voters) decided voters) decided voters) Conservative Party New Democratic Party Liberal Party Bloc Québécois Green Party Margin of error (19 times out of 20) Undecided voters

37.1 31.5 20.5 5.7 3.8

33.8 33.8 19.9 7.1 4.0

38.7 30.5 20.9 5.0 3.7

±3.0 12.2

±5.3 12.2

±3.7 12.2

39.6 30.6 18.9 6.1 3.9

Source: oecd Tax Database, www.oecd.org/ctp/taxdatabase.

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Table 4 Vote % by Political Party45 Year

Liberal

Conservative

NDP

Bloc

2011 2008 2006 2004

18.9 26 30.2 36.7

39.6 37.7 36.3 29.6

30.6 18.2 17.5 15.7

  6.1 10.0 10.5 12.4

Source: compiled by author from Elections Canada website

majority government. The table below shows that since 2006 Harper had been previously unable to get to the 40% vote believed to be necessary to achieve a majority. Since his election in 2006, Harper carefully cultivated two legs of a threelegged stool in his attempt to win a majority. The first leg of the stool was to reinforce his base in western Canada. The second leg of the stool involved expanding his base in the lower middle class communities in the rural, semirural and suburbs across Canada. However, the third leg – the Bay Street big business community had a very long relationship with the Liberal party – and had not warmed to the Conservative Party notwithstanding its position on corporate taxes. Thus, it was not Stephen Harper who deviously drove Bay Street business liberals into the arms of the Conservative Party. It was the Liberal Party who first took the business liberals for granted and then subsequently frightened the blue liberals into voting for Harper due to their about face reversal on corporate income taxes. Moreover, the constant barrage from critics including the Liberals alleging a hidden, right-wing Conservative social agenda, ironically allowed Harper to move to the centre, secure in the knowledge that the critics were cementing the unwavering commitment of his social conservative base. In the final analysis, it was the Toronto elites of the Liberal Party of Canada that provided Harper with his elusive majority by repudiating policies supported by blue business liberals which drove them away into the welcoming arms of the Conservatives.

notes 1 2 3 4 5

OECD , Tax Policy Reform and Economic Growth, Paris: OECD , 2010, 22 Ibid. , 24 Ibid. , 3 Michael Porter, Competitive Strategy, Free Press, NY , 1980.

Professor Richard Bird, Why Tax Corporations,” p. 1, Working paper 96-2, International Centre for Tax Studies, University of Toronto, December 1996.

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6 Stephen Gordon, “Economic Advice for the NDP : Part IV Corporate Income Taxes,” Worthwhile Canadian Initiative, August 19, 2009. 7 Arulampalam, Wiji, Michael P. Devereux, and Giorgia Maffini (2007), “The Direct Incidence of Corporate Income Tax on Wages,” Working Paper 07/07, Oxford University Centre for Business Taxation, July; Arnold, J. (2008), “Do Tax Structures Affect Aggregate Economic Growth? Empirical Evidence from a Panel of OECD Countries,” OECD Economics Department Working Papers, No. 643; Auerbach, Alan J. (2006), “Who Bears the Corporate Tax? A Review of What We Know,” in James M. Poterba, ed., Tax Policy and the Economy, vol. 20. Cambridge, MA : MIT Press; Devereux, M.P. and P.B. Sorensen (2006), “The Corporate Income Tax: International Trends and Options for Fundamental Reform, European Commission,” Economic Papers, No. 264; Desai, Mihir A., C. Fritz Foley, and James R. Hines Jr. (2007), “Labour and Capital Shares of the Corporate Tax Burden: International Evidence,” Working Paper, Harvard University, December; Felix, R. Alison (2007), “Passing the Burden: Corporate Tax Incidence in Open Economies,” Working Paper, Federal Reserve Bank of Kansas City, October; Felix, R. Alison and James R. Hines Jr. (2009), “Corporate Taxes and Union Wages in the US,” NBER Working Paper 15263, August; Feldstein, M. (2006), “The Effect of Taxes on Efficiency and Growth,” NBER Working Paper, No. 12201, NBER , Cambridge; Gentry, William M. (2007), “A Review of the Evidence on the Incidence of the Corporate Income Tax,” Office of Tax Analysis, OTA Paper 101, December; Johansson, Å. et al. (2008), “Taxation and Economic Growth,” OECD Economics Department Working Papers, No. 620, OECD Publishing; Myles, G. (2008), “Economic Growth and the Role of Taxation,” OECD Economics Department Working Papers, No. 713, No. 714 and No. 715; Schwellnus, C. and J. Arnold (2008), “Do Corporate Taxes Reduce Productivity and Investment at the Firm-Level? CrossCountry Evidence From the Amadeus Dataset,” OECD Economics Department Working Papers, No. 641; Vartia, L. (2008), “How Do Taxes Affect Investment and Productivity? – Industry Level Analysis of OECD Countries,” OECD Economics Department Working Papers, No. 656. 8 Stephen Gordon, “Economic Advice for the NDP , Part IV: Corporate Incomes Taxes,” Worthwhile Canadian Initiatives, Aug. 19, 2009. 9 OECD , Tax Policy Reform and Economic Growth, 2010, 3. 10 OECD, Revenue Statistics, 1965–2010 Paris: OECD. 11 Department of Finance, Better Finances, Better Lives, The Budget Plan 2000, February 28, 2000. 12 2002, House of Commons, Oral Questions. 13 Ralph Goodale, Minister of Finance, The Federal Budget Speech: Delivering on Commitments, February 23, 2005, 15. 14 Department of Finance, “The Federal Budget Plan: Focusing on Priorities, May 2, 2006.” 15 CBC News, “Federal budget passes unopposed on mix-up,” June 6, 2006. 16 Department of Finance, “The Federal Budget Plan: Focusing on Priorities, May 2, 2006.” 17 Department of Finance, A Stronger, Safer, Better Canada, The Federal Budget Speech, March 19, 2007.

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18 New Democrat Party, 2008 Party Platform. New Democratic Party. 19 Liberal Party of Canada, 2008 Party Platform: Richer, Fairer, Greener: An Action Plan for the 21st Century. Liberal Party of Canada. 20 An Accord on a Cooperative Government to Address the Present Economic Crisis, signed by the Honourable Stephane Dion, Leader of the Liberal Party of Canada and by the Honourable Jack Layton, Leader of the New Democratic Party on December 1, 2008. 21 CBC News, “Liberals, NDP, Bloc sign deal on proposed coalition,” December 1, 2008. 22 December 2, 2008, Hansard, Oral Questions. 23 John Manley “The First Liberal Step: Replace Dion,” Globe and Mail, December 5, 2008 24 Ibid. 25 Strategic Counsel, “A Report to the Globe and Mail and CTV: Most Important Issue Facing Canada Today,” Oct. 25, 2009. 26 Liberal Party of Canada, “Michael Ignatieff sets out fiscally responsible approach to invest in Canada’s priorities,” Press release. March 28, 2010. 27 Bill Curry, “Education creates more jobs than corporate tax cuts,” Ignatieff argues Globe and Mail, January 26, 2011. 28 Power and Politics with Evan Solomon, January 21, 2011. 29 Hansard, February 8, 2011, House of Commons, Business of Supply, Opposition Motion – Tax Rate for Large Corporations. 30 New Democratic Party, 2008 Party Platform: Giving your family a break, Practical First Steps New Democratic Party. 31 Liberal Party of Canada, Federal Election Platform: Your family. Your Future. Your Canada, March 2011. 32 CTV.ca, “News staff, Harper touts low taxes, Ignatieff vows Pension Boost,” March 30, 2011. 33 Steve Chase, Gloria Galloway, and Jane Taber, “Federal Election called for May 2nd,” Globe and Mail, April 14, 2011. 34 Money (Canoe), “NDP’s small biz measures a double-edged sword,” March 30, 2011. 35 CBC News, “Ignatieff blasts $11 billion “hole” in Tory Platform,” April 9, 2011. 36 National Post, “Harper challenged on corporate tax cuts in debate,” April 12, 2011. 37 CTV, Canada AM, Robert Fife reports, March 30, 2011. 38 Globe and Mail, “Ignatieff brave in face of failing support,” Globe and Mail, May 1, 2011. 39 CTV, “With NDP surging, leaders prep for frantic final week”, April 24, 2011. 40 National Post, “Harper looks to woo blue Liberal voters,” May 1, 2011. 41 CTV/Globe/Nanos Research, 2011, Figure 4: Ontario Ballot. CTV/Globe/Nanos Research. 42 Nanos, IRPP , “From a Nothing Election to a Seismic Shift,” June 2011. 43 Ibid. 44 Ibid. 45 Elections Canada, “Federal election results, Voter percentage by political party.”

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3 A Hobbesian Prime Minister and the Night Watchman State: Social Policy under the Harper Conservatives Michael J. Prince

INTRODUCTION Historically and in contemporary times, law and public order are core functions and activities of the Canadian state. The argument of this chapter is that Prime Minister Stephen Harper approaches these functions in a manner both politically and philosophically different than his recent predecessors. For Paul Martin, Jean Chrétien, and Brian Mulroney, issues of law and order were obviously important but certainly were not a defining issue for their governments or persistently dominant items on their public policy agendas to the extent they have become under Harper’s leadership. At the national level, social program areas include health care; income support programs to families, to some of the unemployed and to seniors; postsecondary education; First Nations; veterans; immigrants and refugees; housing and homelessness. These are important responsibilities of the federal government and major elements of how Ottawa spends and raises taxes each year. Most of these areas, however, are not core priorities of the Harper social policy agenda. Over the Harper years, law and order issues have defined much of Canadian parliamentary business and federal social politics. The Harper Conservatives’ crime agenda is based on a particular philosophical viewpoint which leads to certain interpretations of the Canadian state, law enforcement and corrections, the relation between federal and provincial governments, and the nature of civil society. The Harper Conservatives see a social world of “lawabiding Canadians,” yet a world beset with problems of border security, child

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pornography, citizen’s arrest, elder abuse, foreign criminals living in Canada, illicit drugs, gangs and youth-at-risk, human trafficking, money-laundering, prisons with drug problems, sex offenders, smuggling of tobacco, terrorism, white collar crime, and victims of crime. To understand social policy decisions by the Harper Conservatives we need a different perspective (or perspectives) of the federal state than the conventional ones in recent times of the “social union,” the “social investment state” or other concepts. Changes in federal social policy by the Harper governments are not adequately described in terms of a neo-Keynesian stimulus, a social investment paradigm, or even the neo-liberal state, although each of these captures some aspects of social politics and programming by the Conservatives. An older, more traditional conception of the state is required to appreciate in both the contemporary scene and in historical context the nature of Harper’s leadership and of Conservative social policy. A nineteenth century concept of the state applies to this twenty-first century Conservative administration. In other words, the Harper Conservatives favour a classic image of the social role of the state which they have been enacting, namely the Night Watchman or law and order state. To think of Harper’s Night Watchman state as a minimal state, exercising limited authority is to mistake an idea from the past with its contemporary application in governing. It is more akin to the Leviathan than to less government. In large part, the federal criminal power has supplanted the federal spending power as the central social policy instrument. The Harper Conservatives have altered the social policy priorities, objectives and directions of the federal government, in large degree reflecting the preferences and preoccupations of the prime minister. Since 2006, when the Harper Conservatives took office, a significant shift has been taking place in the ideas and discourse that dominate federal social policy making. The Harper record on social policy is a distinctive intermingling of policy cancelations, new interventions, program reductions and non-decisions on many issues. The pecking order of purposes in social policy has been rearranged, with an expanded emphasis on regulatory functions by the federal government. This regulatory governance is selective in focus emphasizing judicial, correctional and policing more than occupational health and safety, pay equity or human rights. In brief, the Harper law and order agenda involves a policing of the state as well as a policing of society. Conservative social policy is producing shifts in intergovernmental relations and in the nature of social citizenship. Following Prime Minister Harper’s agenda of “open federalism,” leadership on key social policy areas as demonstrated by the later Chrétien and Martin Liberal governments has all but gone, effectively decentralizing social citizenship to the provinces. With the increased attention by the Harper governments to matters of security and law and order, relations between citizens and the federal

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state have become more legalistic and procedural in nature; from social entitlements to public enforcements. The rest of the chapter proceeds as follows. The next section looks at the beliefs, policy preferences and policy style of Prime Minister Harper, and contends that fundamentally he is a Hobbesian political thinker and political leader. The second section provides an overview of the night watchman state as it is reflected in recent Conservative policy efforts and legislative measures. The third section offers concluding observations.

HARPER AS A HOBBESIAN THINKER AND POLITICAL LEADER Not since Pierre Trudeau has there been a Canadian prime minister like Stephen Harper, with an explicitly and candidly expressed philosophy of politics, federalism, the national party system and civil society.1 Popular depictions of Harper as a political leader emphasize his intense partisanship and bullying style; a predilection for tight control of his caucus and cabinet plus his government’s policy agenda and overall message; and, his skills as a shrewd political strategist. In terms of political ideology, Harper is usually described as remaking Canada, taking the country on a vigorous right turn in policy, toward social conservatism, and other times is described, mistakenly, as a libertarian or, more arguably, as a lapsed fiscal conservative. So what is this turn to the right? What does social conservatism mean for social policy? In a major speech shortly after the May 2011 federal general election, Harper declared that “the long Liberal era is genuinely, truly ending. We are moving Canada in a Conservative direction, and Canadians are moving in that direction with us. Canadians have found that through a costly 40-year experiment with liberalism that big government is not an instant answer to everything.”2 Harper’s political philosophy and policy preferences as well as his leadership style, perhaps most reflect core ideas of the seventeenth-century English political theorist Thomas Hobbes.3 As with any successful politician and effective prime minister, Harper is an ardent doyen of power with a strong desire for authority and influence. In the Hobbesian sense, Harper is principally concerned with public order, the rule of law, civic peace and national security. He is especially mindful of threats around the world, for which Canada should, when necessary, play an important and leading role militarily. Harper expresses a keen awareness of the unruliness and unrest of our age; the multiple disorders and global dangers which characterize our times; which appear in the Conservative government’s throne speeches and budget plans. Arctic sovereignty demonstrated by a military presence, alongside scientific and economic development activity, is a distinctive feature of his

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government’s northern strategy. A Hobbesian motif is clearly evident in the daily references in political discourse and media coverage of risks, dangers, and uncertainties. A strong sovereign state is thus required with powers of command and control, along with law abiding citizens, to ensure “commodious living” in private property rights, personal liberty and community safety. Taxation is necessary for the wages due to those that hold the “public sword” to defend individuals and families. On the State and Sovereign Power For Harper, the nation state, in moral terms, cannot and should not be governed as some neutral arena or as some relativistic broker of ideas and interests. Government, rather, must take clear stands on social issues and make strong commitments to deep-seated values and core traditions. To be sure, a role of the Harper governments has been to revive certain institutions or monarchical symbols, to highlight the significance of historic events such as the war of 1812, and to figure the armed forces more prominently in materials pertaining to citizenship tests for new Canadians. To do so, the federal government, as the central state of the country, demands the exercise of sovereign powers to establish and enforce order, to exercise punishments, and to maintain security. In a federal system, this does not mean that power is absolute, although Harper’s governments display a deep preoccupation with rule making powers of the federal government and far less an interest in collaborative undertakings with the provinces and territories in areas of social policy. Moreover, there seems to be reluctance if not resistance by the Harper Conservatives, the apology on residential schools notwithstanding, to Indigenous self-determination within Canada via comprehensive treaties and the recognition of an inherent right to self-governance as a third order of government in the federation. The Harper preference is for smaller, more concrete initiatives; far less about a vision of rights and more about provision of services or infrastructure, which are undoubtedly essential in light of the continued deprivations and poverty bedeviling many Indigenous communities. This policy approach dovetails with provincial government agendas of attracting international private investment, expediting resource development projects, and creating jobs.4 It need not, however, be at the expense of continuing to advance reconciliation, and a new relationship of mutual respect within a re-confederated Canada. Much has been written of Harper’s centralizing of power within the Prime Minister’s Office – a complaint leveled at virtually every prime minister since Trudeau – but certainly for Harper, his span of control means an authority more dominant than has been the case in relation to judges, correctional and

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police officers, and the military, with citizens ceding a certain degree of civil liberties to public authorities for protection and security. On Society and Citizenship When Prime Minister Harper speaks about the nature of Canadian society and citizenship he routinely references, in addition to ethnic diversity and economic opportunity, the rule of law, notable past military contributions and achievements of the armed forces, Canada as the “courageous warrior”; far more frequently so than other symbols such as the Charter of Rights and Freedoms, national public health insurance or social programs that are also representative of Canadian values or the bonds of nationhood. The Hobbesian conception of society emphasizes a tension or dialectic between community and criminality, between the mainstream and margins of the social order, between safe communities and disorderly conduct, between public responsibility and personal risk, between domestic security and global evils and threats, such as terrorism. This is a noteworthy shift from the role of the federal government conveyed by notions of social cohesion, social investment or social capital in social policy; or, in foreign policy, of middle power, human security and soft power discussed and promoted by previous Liberal administrations. Running through the Harper government’s law and order agenda are images of a harsh, dangerous social world, with a focus almost entirely upon criminal, legal, correctional, judicial and policing matters; in short, the political idea of fear.5 The risks and dangers of environmental deterioration, economic dislocations, and income poverty and wider social insecurities receive far less attention. There seems little room in Harper’s social policy for these pressing issues facing families and communities across the country, despite Conservative discourse on families. In this context, citizenship is a social contract of sorts between individuals and the political community. It stresses basic civil and political rights as key elements of citizenship and “the security of one’s life under the authority of the state.”6 Social rights of citizenship to entitlements and redistributive programs Harper views as part of the “costly 40-year experiment with liberalism” and “big government.” The way to strengthen Canadian citizenship, for the Conservatives, is through highlighting responsibilities and rights of people in relation to tackling crime and supporting legislation on security.

T H E N I G H T WAT C H M A N S TAT E : P O L I C E , ORDER, AND STRONG GOVERNMENT Mr. Harper … comes as close as any prime minister ever has to embracing the concept of the night-watchman state.7

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The night watchman state suggests minimal intervention of a legal and economic kind in an earlier age. Of the Canadian state of the 1860s at the start of Confederation, Judith Maxwell has written: “The state served as a glorified night-watchman. It provided defence, it meted out justice, it regulated foreign trade, and it helped private agents to build railways and canals.”8 If we substitute combat ships and fighter aircrafts for railways and canals, this description remains apt for the Harper government. Today, the night watchman state certainly does not involve token exercises of public authority.9 The deviant, the criminal, the law-breaker: these are emblematic figures of the Conservative’s night watchman state. So too are police officers, border security personnel, correctional guards, and members of the armed forces. Associated with this state of affairs, is a shift from rehabilitation and social reintegration to punishment and social control in penal policy and practice. We are some distance here from the minimal state, “invisible hand” and consumer sovereignty of market liberalism. Instead, the political space contains a strong state, the “iron fist” of the law and citizen obligations. Moreover, program spending under the Harper governments has grown, specifically in night watchman roles of the state. A Persistent and Imposing Policy Style In the law and order domain, the Harper government’s policy style is active, persistent, controversial and impositional. The agenda has been initiated largely from within the federal government by the prime minister and his party as compared to outside interest groups, the provinces or other institutions. In fact, the relationship between the government and other state actors and societal groups has been contentious. This is in contrast with the punitive streak in penal policy constructed in the United States by conservative think tanks and media outlets.10 In Canada, many observers, including most in the journalism field, believe that the Harper government is imposing a highly restrictive law and order agenda on other governments, on judges, on prison guards, and various groups in civil society.11 A central aspect of the antagonistic debate in this domain is the lack of consensus on the necessity or efficacy of most of the measures introduced by the Harper government. The federal policy tool kit deployed relies heavily upon regulatory and criminal law which also has significant and disputed expenditures. Another feature of the Harper government’s policy style in law and order is their reliance on a strict moralism over systematic empiricism in understanding issues and framing responses. There is a failure to temper moralistic and retributive sentiments in light of actual evidence, an approach to penal policy which jurisdictions in the United States are moving away from. How can we account for this disconnect between the empirical evidence on declining and historically low crime trends and the Harper government’s insistence on more

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punitive and coercive measures? Why do statistical data and policy research seem to have so little privilege and weight in this government? And, how have the Conservatives managed this marginalization of knowledge in law and order policy making? “The more the question of crime is posed in dichotomous terms geared to electoral games in the public sphere, the less relevant the empirical knowledge produced by experts and the technical constraints faced by correctional administrators become to the conduct of penal policy.” Thus, as expertise and evidence is discounted, “moral entrepreneurs in … politics can shape the mission of the police, courts and prisons to suit their own agendas.”12 This is a government which insists upon the right to determine the truth and in which the power to punish is openly asserted, and prisons are unquestionably advanced as a desirable solution in the apparatus of justice. Night watchman policies represent social policy through the authoritative enforcement of norms, rules and sanctions by legislation and regulations. For Prime Minister Harper, public policy is a crucial vehicle for shaping and promoting a set of moral purposes. In the case of law and order policy making, it is a matter of developing a safer, law abiding community, by protecting the innocent and vulnerable, punishing swiftly and harshly, when warranted, wrongdoers, and addressing the needs of victims. The main risks to the wellbeing of individuals, families and communities are violence, sexual exploitation, property theft, commercial fraud of various sorts, including by immigration consultants, hate-motivated crime, and fear of personal insecurity. Criminal acts, victimization, and other issues of law and public order have complex economic, social, psychological and health causes and antecedents as well as consequences.13 Longstanding policy objectives and program activities in the federal correctional and justice domain include reducing and preventing crime, incarcerating offenders, preparing offenders to return to society, and compensating victims of crime.14 Under the Harper Conservatives, key elements of their policy agenda include asserting a more explicit moral order through state authority; strengthening powers of the police; narrowing the discretion of judges along with a hardening of certain sentences and punishments; shortening paroles; and, expanding prisons and prison populations. One of the important effects of this agenda, to be discussed later in this chapter, is the opportunity cost of fewer resources available for programs in the social investment and social security roles of the federal state. The main institutional sources of well-being, in a law and order regime, thus come from police services, prosecutors and the courts, correctional services, border security and surveillance. Policing, courts, correctional and probation services, as human services, are labour intensive services which involve interactions between official state providers and identifiable clients or target groups. Within the federal government, the institutional base of the night watchman is anchored in two cabinet portfolios: Justice and the

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Attorney General, and Public Safety and Emergency Preparedness. The Justice portfolio includes the department and eight other organizations, which include the Canadian Human Rights Commission, the Office of the Director of Public Prosecutions, and the Office of the Federal Ombudsman for the Victims of Crime, and the Supreme Court of Canada. Spending on the public safety and security as well as justice and legal programs tend to be highly personnel-intensive expenditures in wages and salaries and, in corrections among other activities, capital intensive in the operation and maintenance of numerous facilities. The Department of Justice may be said to be the centre of this regime. It is a horizontal portfolio with a clear mandate with unmistakable jurisdictional responsibility, a professional body of expertise and working culture, powerful support from the prime minister and other members of the government, and relatively high status as a public function in Canadian society. The Public Safety portfolio includes the department plus eight other organizations as well, including the Canada Border Services Agency, Canadian Security Intelligence Service, Correctional Service of Canada (CSC ), the National Parole Board, the RCMP and the Office of the Correctional Investigator, among others. In addition, under the mandate of the Correctional Service are 57 federally managed institutions, 16 community correctional centres and more than 80 parole offices and sub-offices across the country. Human resources allocated to CSC are projected to have grown by more than 25 per cent and financial resources by more than 38 percent over the period 2009–10 to 2012–13. Most of these organizations are long established government agencies, although a few have recently been established by the Harper Conservatives, such as the Office of the Director of Public Prosecutions and the Office of the Federal Ombudsman for the Victims of Crime, or by Liberal administrations, such as the Canada Border Services Agency and the Public Health Agency of Canada. At the same time while introducing new organizations, the Law Commission of Canada ended operating as of 2007. Even this simple listing of the federal organization in this policy field, indicate the elements of a strong state. This is not an inactive or weak sector of government. Core program activities are border management, corrections, crime prevention, emergency management, law enforcement, and national security. Table 1 offers a portrait of the ideas, investments and priorities in budget plans over the Harper governments in relation to night watchman functions of the Canadian government. The theme of protecting families and communities has persisted through all the budgets and throne speeches of the Harper years. Without doubt, law enforcement and security is intentionally a core priority of the Conservatives. As the 2006 budget plan asserted: “Canadian streets and communities are increasingly threatened by gun, gang and drug violence. As these threats grow, so must the capacity of Canadian law enforcement to respond and protect Canadians.”15

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Table 1 Harper Budget Plans on Protecting Families and Communities, 2006 – 2011 Federal Budget May 2006

Discursive Themes • • • •

March 2007

• •

New resource commitments

“Cracking down on crime” “Securing safe and open borders” Preparing for emergencies Enhancing security of the financial system

$524 million over two years on crime measures $404 million over two years on border security $73 million over two years on financial system reforms

A safer Canada: keeping Canadians secure “We cherish our safety and security and must keep it that way.”

$286 million over two years on security, intelligence and corrections

February 2008

•

“Tackling crime and bolstering security”

$400 million in 2007–08 for police officer recruitment fund $230 million over two years

January 2009

•

Investments in federal infrastructure projects

$80 million for border service facilities $296 million over two years for aviation security plans

March 2010

•

“Protecting Canadian families and Communities” “Increasing support for victims of crime” “Strengthening law enforcement tools” “Supporting the vulnerable”

$7 million over two years on the Federal Victims Strategy $56 million over two years for CSIS , the RCMP and other activities $10 million over two years for addressing violence against Aboriginal women

“Supporting Families and Communities” “Steps to keep our communities safe by investing in crime prevention and the justice systems”

$118 million over two years on public safety, security and justice

• • •

June 2011

• •

Systems within the policy sector which have received considerable attention in terms of political discourse and budget resources are policing, corrections, air transport, border security, and victims of crime. Relatively speaking, less attention has been devoted to crime prevention, intelligence, justice and law reform systems. The pattern of growth in some of these areas began in the Chrétien and Martin governments, in the wake of the 9/11 security aftermath, and their continuance in the Harper era is not surprising given the Conservatives’ law and order agenda. In the 2008 budget, for example, the Harper government committed $630 million for a police officers’ recruitment fund, as part of a Safer Communities strategy, to assist provincial and territorial governments in recruiting 2,500 new front-line police officers. More recently, the 2011 budget includes an investment of $30 million in the First

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Nations Policing Program for the continued support of the over 1,000 officers across the country who serve under this activity. In the six Conservative budgets from 2006 to 2011, about $2.5 billion in new expenditures on law enforcement and public order were generated, and two-thirds of that new spending was done in the first two budgets. Interestingly, in the 2009 budget, with its focus on immediate action to build infrastructure as part of the Economic Action Plan, only a small fraction (about three per cent) of the federal funds allocated that year for infrastructure, was allocated directly to night watchman arrangements of security. The regulatory side of this budgetary domain involves multiple pieces of legislation, regulations, sanctions and rule-based punishments. During their minority governments of 2006–08 and 2008–11, the Harper Conservatives took the following actions on law and order: • • • • • • • • •

• •

• •

Toughened sentencing and bail for serious gun crimes Imposed mandatory jail time for drive-by and reckless shootings Ended so-called “sentence discounts” for multiple murders Ended early parole for murderers Cracked down on street racing and drug-impaired driving Raised the age of sexual consent to 16 years from 14 years Stopped two-for-one credit for time served in pre-trial custody Ended early parole for white-collar criminals Made it mandatory for sex offenders to be included in the National Sex Offender Registry Imposed tougher sentencing for child traffickers Made it mandatory for Internet providers to report information they receive about child pornography Hired 1,000 new RCMP personnel Imposed longer wait period for certain offenders seeking a pardon.16

From a public budgeting perspective, the Truth in Sentencing Act of 2009, in effect since February 2010, is especially noteworthy. The aim of this law, via an amendment to the Criminal Code, is to limit the credit for time spent in pre-trail custody which a judge can allow when imposing the punishment at sentencing. As a consequence of this new law, there is an increase in the number of inmates in Correctional Service of Canada (CSC ) facilities and in the average stays in sentenced custody as well as an increase in the annual operating and capital budgets of the federal government. In fact, the CSC ’s 2011–12 budget is $524.2 million higher than the previous fiscal year, a 20 per cent increase; most of which is due to $458 million in new spending associated with the Truth in Sentencing Act. The federal government estimates the legislation will cost approximately $2 billion over five years, a figure notably lower than that estimated the Parliamentary Budget Office (PBO ).17 In addition,

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analysis by the PBO indicates that the Truth in Sentencing Act will create significant new finding requirements over the next several years for the correctional departments of the provinces and territories and a shift in the share of annual funding requirements between the two orders of government. In comparing federal and provincial/territorial funding requirements on corrections, a PBO analysis suggests that “total funding requirement for correctional departments in Canada is thus projected to rise to $9.5 billion by FY 2015–16, a factor of 2.15 increase over the FY 2009–10 expenditures of $4.4 billion. The federal share of this funding requirement is estimated to decline to 44 percent whereas the provincial share is estimated to rise to 56 per cent.”18 In the years of Conservative majority government, from 2011 to 2015, the question of spending levels and trends on law and order is somewhat uncertain of course, but most likely substantial and definitely contested by federal opposition parties and several provincial governments, as a result of Bill C-10, the omnibus crime legislation. The June 2011 Speech from the Throne stated: “The Government of Canada has no more fundamental duty than to protect the personal safety of our citizens and defend against threats to our national security.”19 For Hobbes, the Office of the Sovereign consists, in the end, the bringing about or procuration of the safety of the people. As promised, the Harper government moved quickly and reintroduced comprehensive law and order legislation. In addition, the Throne Speech presaged further legislation on self-defense, defence of property and citizen’s arrest: “Our Government has always believed the interests of law-abiding citizens should be placed ahead of those of criminals. Canadians who are victimized or threatened by crime deserve their government’s support and protection, and they should have the right to take reasonable steps to defend themselves and their property when the police cannot be there to assist them.”20 What follows, government endorsement for vigilante justice? At work here is a Hobbesian interplay of liberty, fear, necessity, sovereign power and law-enforcing citizens. The Safe Streets and Communities Act, Bill C-10, represents the most striking and most important legislative expression to date of the Harper Conservatives’ night watchman approach to social affairs and governing. As an omnibus piece of legislation, Bill C-10 includes nine bills all formerly introduced in the House or Senate, in minority government, and never passed. Table 2 lists the legislative initiatives which comprise this comprehensive bill. The initiatives involve amendments to the Criminal Code, Controlled Drugs and Substances Act and Youth Justice Act, under the responsibility of Justice Canada; the Corrections and Conditional Release Act, Crime Records Act, International Transfer of Offenders Act, and State Immunity Act under the Minister of Public Safety; and, the Immigration and Refugee Protection Act under Citizenship and Immigration Canada. The stated objectives of these reforms are fourfold: ensuring the safety and security of Canadians and, in certain cases of immigration, foreign nationals; holding young offenders

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Table 2 Omnibus Bill C-10: The Safe Streets and Communities Act, 2011 The statutes Protecting Children from Sexual Predators Act

Key elements • • • •

Increasing Penalties for Organized Drug Crime Act

•

•

Protecting the Public from Violent Young Offenders Act

• • • •

establishes new mandatory minimum penalties for seven existing offences increases existing mandatory minimum penalties for nine existing offences creates two new offences creates new restrictions for offenders mandatory minimum penalties for serious drug offences (cocaine, heroin, methamphetamine, and cannabis and marijuana) and for the manufacture of drugs, from seven to 14 years allows a court to suspend a sentence where the offender is an addict and agrees to undergo a drug treatment program approved by the province Highlight the protection of society as a fundamental principle of the Youth Criminal Justice Act Reduce barriers to custody for violent and repeat young offenders Ensure adult sentences are considered for youth who commit serious violent offences Require police to keep records when informal measures are used to be better informed of past incidents

Ending House Arrest for Property and Other Serious Crimes by Serious and Violent Offenders Act

•

Restrict the list of offences for which conditional sentences, that is, a sentence of imprisonment of less than two years that may be served in the community

Increasing Offender Accountability

•

Enshrine in law a victim’s right to participate in parole board hearings Authorize police officers to arrest, without warrant, an offender who appears to be in breach of a condition of any conditional release Increase the maximum number of full-time Parole Board of Canada members from 45 to 60

•

•

Eliminating Pardons for Serious Crimes Act

•

Extend ineligibility periods for applications for a record suspension (pardon)from three to five years for summary conviction of offences, and from five to 10 years for indictable offences

International Transfer of Canadian Offenders back to Canada Act

•

Adds additional criteria of public safety and offender accountability for the Minister to consider in deciding whether an offender be granted a transfer to Canada

Supporting Victims of Terrorism Act

•

Allow victims of terrorism to sue the perpetrators and supporters of terrorism, including foreign states listed by the Government of Canada as providing support to terrorist entities

Protecting Vulnerable Foreign nationals against Trafficking, Abuse and Exploitation Act

•

Enable ministerial instructions to immigration officers to deny issuing work permits to applicants who would otherwise be entitled, yet are vulnerable to abuse or exploitation

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and criminals fully accountable; supporting victims of crime and acts of terrorism; and, in matters of corrections and parole, giving greater emphasis to the principle of “the protection of society.” The political significance of these legislative actions – and many more on crime and public order are planned by the Conservatives – has three interconnected aspects. One aspect is substantive, with these legislative measures shifting the nature of correctional policy and practice away from preventive and rehabilitation, and more toward retribution and punishment, and, perhaps, an element of restorative justice focusing on victim rights. Different types of social policy correspond to different notions of social time. Programs based on recognition of past harms or good deeds are a form of restitution and compensation. Similarly, law and order policy that emphasizes criminal sanctions, incarceration and victim rights are a form of retributive justice. Such is the Harper Conservative point of view. An equally significant substantive feature is constitutional in nature; here I am not thinking so much of provincial governments raising concerns over the additional costs to their budgets for youth justice and corrections that will follow from Bill C-10 and other federal legislation. Rather, the Conservatives’ agenda on crime raises a constitutional issue, one usually in the background of Canadian politics, of the relations between government and the judiciary: the role and independence of the courts, including the discretion of judges in hearing cases, weighing evidence, and sentencing. Independence of the judiciary is central to the impartial application and equal observance of laws by governments and public officials, law enforcement agencies, and citizens. As moral entrepreneurs, the Harper government is directing judges to impose certain sentences and enforce certain sanctions so that, in the valuation of this majority government and parliament, punishments fit the crime and the offender “does the time.” Other kinds of behaviour, such as protecting one’s property and attempting a citizen’s arrest, are specified as good and proper behaviours, which federal legislation can and should recognize. For the moralizer in power, there are many wrongs to be righted, vices to be suppressed and offenders punished, and virtues of law abidingness to be promoted. A second aspect of these legislative actions is politically strategic. The extensive scope and persistent focus on justice and public safety issues defines much of the agenda and business of parliament, the stuff of Question Period, the work of several committees, and of press releases, sound bites and news stories. Partisan and parliamentary dynamics are set, in large part, by this narrative set by the government. Opposition parties are drawn into issues and debates selected and framed by the Harper government. This also has the effect of displacing time and attention from other social issues such as poverty, homelessness, income inequality; issues also squeezed by fiscal imperatives of program review and deficit reduction. It follows that this agenda reflects and reproduces a policy context in Ottawa which limits federal spending on many

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areas of human and social development in favour of personal and family care, local volunteerism, and municipal or provincial responsibility.21 A third aspect of the Conservatives’ anti-crime agenda is symbolic and cultural. Tougher sentencing may send a message to potential and actual offenders, but it is likely more directed at public opinion and at defining what society is about. Such messages entail generating a risk consciousness among the general population and feelings of anxiety, bewilderment and indignation; projecting a conception of communities as risky and unsafe, as threatening places to people as well as to property, especially urban Canada; and projecting an image of a federal government prepared to protect citizens and the streets. A legalistic approach to problem solving and to relating to one another is emphasized. The fabric of Canada can be strengthened through a robust military and immigration system, and by the defence of sovereignty and national security. Law enforcement officers, the courts, prison guards, parole boards and even victims are to be armed with legal tools to fight criminals. What is occurring is the refashioning of the Leviathan, the law and order sovereign.22

CONCLUSIONS For the better part of three decades, Canadian governments have been influenced by neoliberal ideas and techniques. With the election of Stephen Harper as prime minister, initially in 2006, and most recently in 2011 with a majority government, Ottawa has become subject to another distinctive set of beliefs and interventions, more of a Hobbesian worldview. If neoliberalism interprets every public issue as a potential market opportunity, the Hobbesian outlook regards public issues in terms of threats (or supports) to social order, citizen obedience to laws, public safety and national sovereignty. For Hobbes, a crime is a sin; a transgression of a law, contempt for the legislator and an attack on community. The policy response is to create new laws and to intensify existing modes of regulation, and the infliction of punishment and incarceration on offenders. In general, law is not advice and counsel but command and control.23 In Harperland, the most fascinating story of control is not necessarily that of the command exercised by the prime minister and his central agencies. This chapter has suggested it concerns the deployment of criminal law powers and related legislative authorities and sanctions over the past several years and into the next few years at least. We need to examine the prime minister as a Hobbesian politician and his governments as a night watchman state that flows from Harper’s own deeply held philosophy, social preoccupations and policy preferences. What “the social” means has been changing in Ottawa and in intergovernmental relations. The current period in federal politics exhibits a diminished societal attentiveness and a narrow understanding of the public good. In

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contrast, stands the social politics in several provincial jurisdictions in which new developments in economic participation and community inclusion are underway; concrete anti-poverty reduction plans, many based in provincial legislation, are also in motion. A particular social policy dynamic is at work: one less national and more partial in scope; one less federal and more provincial in citizenship. For the time being, redistributive social programs of past Liberal and Progressive Conservative administrations seem shackled at the federal level by the insistent Hobbesian concerns of the Harper government for an ordered society. On most areas of Canadian social policy, “open federalism” is the Harper government’s operative doctrine in intergovernmental relations, with little federal interest, leadership or collaborative activity. In the criminal justice sector, the style of intergovernmental relations in effect is more akin to what may be called “obligation federalism.” This involves unilateral action by Ottawa, in this case through Bill C-10 and numerous other criminal and correctional-related legislative measures, such as the 2009 Truth in Sentencing Act, which as a result imposes considerable spending obligations onto provincial and territorial governments. The interdependency between the two orders is underscored as is a hierarchical relationship driven by the unilateral action. This kind of intergovernmental regime as practiced by the Harper government in criminal justice, compromises the values of partnership, transparency and accountability, pivotal to effective federalism and responsible government. The regulatory side of the social domain is obvious in the traditional law and order functions of justice and public safety. Legislatures, courts, police, law offices, prisons, and parole boards are the primary institutions concerned with law and order. Government acts as lawmaker, umpire and enforcer. Harper’s social state is a strong state highly active in certain policy areas and governing instruments, and less involved in other policy areas and governing instruments. The Conservative agenda on crime and public order is augmenting federal criminal law powers; strengthening the authorities and numbers of police forces; and, by establishing mandatory penalties and lengthening sentences, hardening the purposes of correctional and parole services. It is also fettering the discretion of parole boards and judges on particular offences, while, at the same time, widening the discretion of police and immigration officers on particular situations. For how Ottawa spends, this means the construction of new penal facilities and the upgrading of existing penitentiaries; a growing inmate population, one beset with mental health and substance use issues as well as overcrowding and increased risks of riots; and significant increases in federal expenditures and human resources devoted to crime and punishment. It means substantial new funding obligations for provincial and territorial governments in operating and maintaining correctional services, much more than for the federal public purse.24 It also means, for how and on what Ottawa makes policy,

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further legislative measures on the government’s agenda dealing with elder abuse, human trafficking, internet surveillance, repeat offenders, and youth crime. These are classic night watchman functions of the state. But the one operating in Ottawa is not some small, limited and distant state harkening back to a bygone age. Under a Hobbesian prime minister, the night watchman state is an expansive, conspicuous and forceful state in what is seen as a dangerous and brutish world. NOTES I would like to thank Ken Hatt and the editors for critical advice on criminal justice issues, and helpful comments on the ideas in this chapter. 1 Stephen Harper and Tom Flanagan, “Conservative Politics in Canada: Past, Present and Future,” in W. Gardiner, ed., After Liberalism: Essays in Search of Freedom, Virtue, and Order, Toronto: Stoddart, 1998, 168–93; Stephen Harper, “Rediscovering the Right Agenda,” Citizen Centre Report, June 2003, 72–7; William Johnson, Stephen Harper and the Future of Canada, Toronto: McClelland and Stewart, 2005; Paul Wells, Right Side Up: The Fall of Paul Martin and the Rise of Stephen Harper’s Conservatism, Toronto: McClelland and Stewart, 2007; Tom Flanagan, Harper’s Team: Behind the Scenes in the Conservative Rise to Power, Second Edition, Montreal and Kingston: McGill-Queen’s University Press, 2009; Gregory Millard, “Stephen Harper and the Politics of the Bully,” The Dalhousie Review, Autumn 2009, 89(3), 329–36; Bob Plamondon, Blue Thunder: The Truth about the Conservatives from Macdonald to Harper, Toronto: Key Porter Books, 2009; Laurence Martin, Harperland: The Politics of Control, Toronto: Viking Canada, 2010; Christian Nadeau, Rogue in Power: Why Stephen Harper is Remaking Canada by Stealth, Toronto: Lorimer Press, 2010; John Ibbitson, “Harper and Ignatieff: Two leaders, two visions of Canada,” The Globe and Mail, Toronto, March 25, 2011, p. A 4; Chris Varcoe and Jason Fekete, “Harper declares ‘long Liberal era’ over,” Calgary Herald, Postmedia News, July 10, 2011; and, Prime Minister Stephen Harper in conversation with Kenneth Whyte, “How he see Canada’s role in the world and where he wants to take the country,” Maclean’s, Vol. 124, Nos. 25&26, July 4 & 11, 2011, 16–19. 2 Quoted in Varcoe and Fekete, “Harper declares ‘long Liberal era’ over.” See also Paul Wells, “Harper’s hard right turn: social conservatism is on the rise in Ottawa and across Canada,” Maclean’s.ca, March 19, 2010. http://www2.macleans.ca/2010/03/19/ harper%E2%80%99s-hard-right-turn/ 3 Thomas Hobbes, Leviathan, or The Matter, Forme, & Power of a Commonwealth, Ecclesiastical and Civill (First published 1651), Edited with an Introduction by C.B. Macpherson, London: Penguin Books, 1968. See also Philip Resnick, “In the Shadow of Hobbes: The Challenge to Democratic Theory,” in P. Resnick, Twenty-First Century Democracy, Montreal & Kingston: McGill-Queen’s University Press, 1997, 47–62; and, on the Hobbesian character of Canada’s constitution, Frederick Vaughan, The

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4

5 6 7 8

9

10 11 12 13 14

15 16

17

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Canadian Federalist Experiment: From Defiant Monarchy to Reluctant Republic, Montreal and Kingston: McGill-Queen’s University Press, 2003. On political goals in one province (British Columbia) with respect to treaty negotiations and Aboriginal relations, see Justine Hunter, “Clark points to new course on native strategy,” The Globe and Mail, Toronto: November 4, 2011, A1, A4. See Corey Robin, Fear: The History of a Political Idea, New York: Oxford University Press, 2004. Bryan S. Turner, Citizenship and Capitalism, London: Allen & Unwin, p. 106. See also Peter Dwyer, Understanding Social Citizenship, Bristol: Policy Press, 2004. Ibbitson, “Harper and Ignatieff,” A4. Judith Maxwell, “The Social Role of the State in a Knowledge-Based Economy,” in P. Grady, R. Howse and J. Maxwell, eds., Redefining Social Security, Kingston: School of Policy Studies, Queen’s University, 1995, 3. Concepts related to the night watchman state model in political science and sociology are the law and order state or the minimal state; in political economy, the coercive and legitimation functions of welfare under capitalism; in public administration, the regulatory state; and, in critical social policy studies, the disciplinary welfare state. Loïc Wacquant, Prison of Poverty, Expanded Edition, Minnesota: University of Minnesota Press 2009. See, for example, Martin, Harperland; Nadeau, Rogue in Power; and, Wells, “Harper’s hard right turn.” Wacquant, Prison of Poverty, p. 155. See also, Irwin Waller, Less Law, More Order: The Truth about Reducing Crime, Ancaster, ON : Manor House Publishing, 2008. Lorne Tepperman, James Curtis and Albert Kwan, Social Problems: A Canadian Perspective, 2nd Edition, Toronto: Oxford University Press. Though dated, see the still insightful articles by Sharon L. Sutherland, “The Ministry of the Solicitor General: Correctional Service of Canada,” in G. Bruce Doern, ed., Spending Tax Dollars: Federal Expenditures 1980–1981, Ottawa: School of Public Administration, Carleton University, 1980, 163–97; and, “The Justice Portfolio: Social Policy Through Regulation,” in G. Bruce Doern, ed., How Ottawa Spends, The Liberals, the Opposition & Federal Priorities, 1983, Toronto: James Lorimer, 1983, 173–207. The Budget Plan 2006, Ottawa: Finance Canada, May 2, 2006, 128. This list is from Kathryn Blaze Carlson, “Crime and punishment: Inside the Tories’ plan to justice system,” National Post, Toronto: May 21, 2011. http://news. nationalpost.com/2011/05/21/crime-and-punishment-inside-the-tories-plan-tooverhaul-the-justice-system/ Bill Curry, “The cost of one Conservative crime bill for one year: $458-million,” The Globe and Mail, Toronto: September 27, 2011. http://theglobeandmail.com/news/ politics/the-cost-one... Office of the Parliamentary Budget Officer, The Funding Requirement and Impact of the “Truth in Sentencing Act” on the Correctional System in Canada, Ottawa: Canada. http://www.parl.gc.ca/pbo-dpb/documents/TISA_C-25.pdf, 12.

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19 Speech from the Throne to Open the First Session of the 41st Parliament of Canada, Here for all Canadians: Stability, Prosperity, Security, June 3, 2011, 12. 20 Speech from the Throne, 2001, 12. 21 See James J. Rice and Michael J. Prince, Changing Politics of Canadian Social Policy, Second Edition, Toronto: University of Toronto Press, 2012. 22 Wacquant, Prison of Poverty, 175–6. Wacquant writes: “The police, courts, and prisons are not mere technical implements whereby the authorities respond to crime – as in the commonsensical view enshrined by law and criminology – but core political capacities through which the Leviathan both produces and manages inequality, marginality, and inequality.” 23 Hobbes, Leviathan, Part II, chapters 27 and 28. 24 See Office of the Parliamentary Budget Officer, The Funding Requirement; JeanMikael Michaud and Guillaume Hebert, Couts et efficacité des politiques correctionnelles fédérales Institut de recherché et d’informations socio-économiques. Décembre 2011. http://www.iris-recherche.qc.ca/wp-content/uploads/2011/12/ Note-Crime-web2.pdf; Kim Mackrael, “Provinces, territories in the dark about bill’s final costs,” The Globe and Mail, Toronto: December 6, 2011, p. A7; and Marianne White, “Controversial crime bills will cost $19 billion: study,” Times Colonist, Victoria: Postmedia News, December 9, 2011, B10.

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4 Playing Against Type? Regional Economic Development Policy in the Harper Era N e i l B r a d f o r d a n d D av i d A . W o l f e

INTRODUCTION Regional economic development is a policy field that offers a fascinating window on the evolving interplay of politics and policy in Canada. For more than five decades, the federal government has mounted ambitious strategies variously designed to reduce regional disparities, support community resilience, and encourage local business innovation. The spatial target for such interventions has likewise varied over time, beginning in the early 1960s with a focus on remote areas and rural communities and then expanding to include urban centres and their inner city neighbourhoods and surrounding towns. Yet, the multifaceted federal regional engagement has never been without controversy, or indeed without challenges to its legitimacy. What is the appropriate role of a national government in development matters substantially directed by provincial governments and increasingly in partnership with their municipal and community networks? What is the proper relationship between states and markets in shaping the economic geography of development? What is the contribution of public policy to regional development and how can the different modes of intervention and instruments be assessed? These questions engage both the substantive ideas informing regional development policy design and the inter-governmental dynamics shaping implementation. They have long informed debates about federal interventions. Somewhat surprisingly, they also show no signs of abating today as the Harper government confounded expectations when it launched in 2009 two new Regional Development Agencies (rda s), one for the North and one for Southern Ontario, bringing pan-Canadian coverage to the federal effort.

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The purpose of this chapter is to explore these questions through a stocktaking of the federal government’s regional economic development activity. We offer both historical discussion of the policy trajectory and analytical commentary on the shifting idea sets that structure the field.* The presentation is organized in three parts. First, we identify and track the three waves of regional economic development policy that have resonated with federal governments dating back to the early 1960s. In particular, we consider the current third wave known as the “new regionalism” that has gained considerable policy momentum across OECD member countries in recent years. Second, we relate this discussion of influential policy ideas to the regional development decisions taken by the Harper Conservatives, specifically the creation of two new RDA s. Given the Prime Minister’s well-publicized aversion to such federal activism, his government’s efforts in this field require explanation and we offer an interpretation. This section also outlines the work of the six RDA s, mapping both common strategies and tools as well as distinctive initiatives. The chapter closes by revisiting the debates and controversies surrounding federal regional economic development policy, and identifying several key issues that will shape future directions.

CANADIAN REGIONAL ECONOMIC D E V E L O P M E N T : T H R E E P O L I C Y WAV E S 1 Regional economic development is a Canadian policy field with a rich and contested history, marked by an evolving interplay of theoretical models, policy practices, and governance structures. Since the early 1960s, three distinct waves of federal regional development activity can be identified. Each wave defines a particular policy period, with transitions across periods driven by new ideas and practical lessons. The result is a cumulative body of policy knowledge establishing the context for the recent activism of the Harper government. The 1960s and 1970s: Regional Disparities and Centralized Government In the late 1950s the Canadian economy entered a new spatial phase as cities emerged as the engines of national growth, while rural and resource-based regions fell behind. Trend-lines for the hinterlands moved in the wrong direction: high unemployment, low educational achievement and literacy rates, poor housing and outdated infrastructure, and limited adoption of

* The authors would like to acknowledge the excellent research assistance of Scott Sams in the preparation of this chapter.

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new technologies. The result was an out-migration of people, and political demands from several premiers in have-not provinces for federal redress. Taking stock, the Royal Commission on Canada’s Economic Prospects found that neither strong national economic growth nor redistributive transfer payments were sufficient. By the early 1960s, the stage was set for a concerted federal effort to eliminate economic disparities across Canadian regions. The challenge, former Prime Minister Trudeau once declared, was as important to Canadian national unity as “the Quebec question.”2 Across the 1960s, the federal government acted in a quite unilateral fashion, intervening directly in rural areas designated for assistance based on various indicators, and in urban centres identified as “growth poles” for lagging regions. Designed in Ottawa through federal sectoral departments for agriculture or industry, the first wave of regional development policy was top-down and centralized. It was soon recognized, however, that the federal government faced major constraints in acting from above on its own, the most salient of which related to shared jurisdiction with the provinces in key aspects of regional development. Without provincial involvement, federal interventions could not effectively integrate support for economic sectors, business or agricultural producers with crucial land use and infrastructure planning, nor credibly direct regional interlocutors such as local governments and development agencies. While a new Department of Regional Economic Expansion (DREE ) was established in the 1970s to coordinate federal programming and align with the provinces, Canada’s first round of regional development policy was judged harshly. Leading planner Len Gertler described a “pathetically fragmented effort”3 and the Economic Council of Canada reported “the stark fact remains that the historical mix of forces and public policy has not resulted in any significant narrowing of regional income disparities.”4 Explanations for the weak performance included federal reliance on overly abstract theoretical models that were of limited use in guiding practice, failure to engage provincial and local actors in planning, and continued reliance on sectoral programming rather than territorial strategies that integrated and aligned efforts. Despite the considerable amounts expended on regional development, the return on investment was in question as evidence mounted that the programs failed to reduce inter-regional disparities. The 1980s and 1990s: Regional Opportunities and Decentralized Government By the 1980s, Donald Savoie observed that “regional development policy was losing the perception war.”5 Traditional strategies to attract individual firms to a region or locality, frequently by emphasizing the economic value of cheap factor inputs and by affording the target firms direct subsidies or tax

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reductions, were discredited. In the 1980s, across Europe and North America, a second wave of regional development policy took shape, focused on building the educational and technological infrastructure to provide the knowledge base for indigenous firms and investment attraction. Numerous policies and programs were introduced by various levels of government, including efforts to fill gaps in capital markets, modernize small and medium-sized enterprises, and accelerate the transfer of technology from universities to industry. However such interventions were typically limited in their regional impact by coordination failures, and by the absence of direct linkages with local initiatives such as planning science or industrial parks and promoting business networks. Not surprisingly, in the 1980s, an increasingly vocal group of critics took broad aim at the entire regional development “industry,” arguing for the market’s primacy in reducing disparities and allocating scarce resources.6 Governments, it was asserted, only made things worse in lagging regions by postponing the inevitable creative destruction and efficient flow of factors of production to new spaces. Indeed, the 1980s was a critical decade for Canadian regional development policy. Critique and reflection produced a significant refocusing and recalibrating of policy. Basic goals shifted: regional development was no longer about eliminating disparities between leaders and laggards but rather about enabling regions facing particular challenges to realize their full potential, not by focusing on needs but by developing assets and building capacities. The new orientation emerged against the backdrop of the deep recession in the early 1980s, as the federal government introduced several employment and industrial adjustment programs that worked directly with a host of subnational partners in hard hit rural and urban communities. Academic support came from new schools of regional development emphasizing communitybuilding and local economic development. Even the long skeptical Economic Council of Canada offered support, issuing a major study titled “From the Bottom Up… The Community Economic Development Approach.”7 Responding to these dynamics, the federal government introduced in 1987 a substantially new structure for regional development policy. Regional Development Agencies, with separate departmental structures and Ministers of State, were established for Atlantic Canada and Western Canada: the Atlantic Canada Opportunities Agency (ACOA ) and the Western Economic Diversification Canada (WED ) respectively. A few years later, similar agencies emerged for Quebec regions (CEDQ ) and in Northern Ontario, an entity located within Industry Canada, FedNor. With head offices in the regions, the decentralized framework aimed at a stronger regional presence and profile for Ottawa as well as more collaborative governance whereby development initiatives reflected local priorities and accountability for investment outcomes was shared among governments and their policy partners in the private and community sectors.

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Yet, broad agreement that good regional development policy was neither “closing disparities” nor “one size fits all” still left open challenging questions about how the different levels of government could find complementary roles and about the criteria to guide federal investments in “bottom-up” regional development. While the policy target shifted from chasing smoke stacks to building research infrastructure and filling market gaps through decentralized agencies, concern remained about a plethora of new programs administered by discrete departments with little integration or coordination. Tackling these issues became the focal point in formulation of today’s third wave of regional development policy. 21st Century “New Regionalism”: Regional Innovation and “Place-Based” Governance Questions about the “value proposition” in regional development investments and the “value added” of the federal government in regional development policy have become especially urgent in the first decade of the 21st century. Economic globalization, the knowledge-based economy, the worst recession and downturn since the 1930s, and intense government budgetary pressures have all converged to reframe and focus the regional development agenda. The third wave of regional development policy begins from the premise that regions need to maximize investments in local assets that cannot be easily replicated or moved to other parts of the globe or country. Rather than playing in a zero-sum competition for inward investment, the most successful places generate economic knowledge that drives innovation and export success. This new approach emphasizes that governments can’t continue to layer new programs on existing ones in a disjointed fashion. Instead, regional development strategies must engage in a process of collaboration across different levels of government, and between public and private actors at the local scale to identify and cultivate assets which are unique to the region and constitute its enduring source of jurisdictional advantage. As Maryann Feldman and Roger Martin perceptively note,“constructing jurisdictional advantage takes the will of all the actors – a consensus vision and vision of uniqueness.”8 The key issue is how firms, sectors, and institutions in particular geographic contexts reconfigure their existing knowledge base and localized capabilities to develop new areas of commercially viable specialization and competence. While this approach does not eschew support for physical or research infrastructures, it assumes that returns on such hard investments depend on the quality of local workers and management, and the efficiency of community-based networks in transmitting ideas and delivering services. The imperative in regional development policy’s third wave is innovation – generating and applying new ideas to production processes and good and

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services – across all regions and sectors of the economy. In some places the specific priority might be upgrading traditional manufacturing, in others diversifying resource-based economies or growing leading-edge technology firms. In all cases, new forms of collaboration among business, research institutions, education and training providers, venture financiers, and government are critical for the knowledge flows – not only formal research but equally the informal or tacit know-how – that drive innovation. For regions and communities, emphasis shifts to asset-based development that empowers local actors to manage transitions by mapping their own resources and then building networks to leverage place and project-specific resources. For governments, regional development policy is increasingly about partnerships to enable locally-driven business innovation, talent growth, and community resilience.9 This third wave of regional development policy has taken shape through a growing international body of theoretical and applied research known as the “new regionalism.”10 A particular focus of the OECD ’s Public Governance and Territorial Development Directorate, the “new regionalism” has three policy pillars. C l u s t e r s a n d R e g i o n a l I n n o vat i o n S y s t e m s The foundation for success in the knowledge-based global economy resides in businesses that generate high-value-added goods and services to become leaders in the marketplace. Such firms must invest in their knowledge assets including worker skills, technological capabilities, and logistics and distribution. To stay ahead of the competition, firms can benefit from geographical co-location if they exploit the available synergies among organizations and policies. Clusters grow in regional innovation systems that blend different forms of knowledge in partnerships joining industry and educational institutions, venture capitalists and commercialization incubators, anchor firms and start-ups, and skills centres and business associations. Synergies help translate new ideas into marketable products, and clusters can take the form of both high-technology concentrations of firms, which often centre around research-intensive universities or institutes, as well as those based in older industries applying knowledge to transform traditional products and processes. Cluster-building dynamics are central to the economics of the new regionalism, making it easier for firms to access ideas, source parts, recruit talent, and for communities to attract public investment in the infrastructure of innovation. P l a c e - b a s e d P o l i c y a n d M u lt i - l e v e l G o v e r n a n c e There is no automatic process or linear pathway that connects the worlds of research, commercialization, and business. Regional innovation systems that grow clusters do not pop up anywhere. Governments must invest in the

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knowledge infrastructure, catalyze networks, and enable local actors to sustain their “innovative milieu.” They must devolve power to the geographic scale where organizational synergies and policy interdependencies play-out, and they must align their investments with local priorities. Such targeted intervention is now known as “place-based policy” and its close attention to context and community is central to the multi-level governance of the new regionalism. In Canada, federal and provincial governments have the resources to establish innovation frameworks and invest in programs for business development, knowledge deepening, and capacity-building. But these macro level offerings must connect with community-based networks articulating specific priorities. OECD studies document the use of various framework agreements and contracts for regional development policy that establish multi-partite planning tables for joint strategies setting out goals, roles, and accountabilities.11 Importantly, such interaction acknowledges the strategic importance of local knowledge about “who knows what do where and when.” As the OECD summarizes “problems do not just get solved with grand strategies, but also on a day to day basis through knowing the right people to achieve what you want to get done.”12 Policy Learning and Knowledge Transfer A unifying theme in the new regionalism is the importance of knowledge, whether for firms seeking to innovate, communities mapping their assets, or governments exploring how to work together. There are four specific ways in which social learning is integral to innovation. First, there is a need for systematic analysis of local and regional economies, their evolving comparative advantages, to specify investment opportunities. Second, recognizing that there are no cookie cutter templates in place-based approaches, good policy depends on research that tracks which strategies and tools work best, where and why. Third, given the long term nature of regional development, the multiple actors engaged, and the uncertainty of policy impacts, evaluation is a key priority. New regionalism research is developing indicator systems to benchmark progress, specify outcomes, and institutionalize feedback loops to inform program adjustment and policy change. The most dynamic and resilient regions are expert in “local social knowledge management” that enables communities to cultivate their assets, undertake collaborative change, and embed a collective mindset fostering innovation.13

THE NEW REGIONALISM IN CANADA: UNEXPECTED ACTION IN THE HARPER ERA Over the past decade, the ideas and institutions of the new regionalism have shaped the economic and community development work of the federal RDA s. Indeed, Canada’s RDA s have been favourably profiled in several OECD studies

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of the new regionalism. Certainly, in the late 1990s and the early 2000s, the Liberal governments of both Jean Chretien and Paul Martin positioned the RDA s as important vehicles for bringing together federal objectives and subnational priorities through various vertical and horizontal collaborations.14 Experiments in multi-level governance included tri-level urban development agreements orchestrated through WED , a federal-provincial-community sector partnership for social economy financing in Quebec delivered through CEDQ , formation of novel inter-municipal networks at the meso-regional scale facilitated by FedNor and WED for rural and remote community broadband access, and ACOA ’s leadership in economic clustering strategies alongside four provincial governments and multiple local industry networks in Atlantic Canada. Indeed, the federal government, particularly under Paul Martin, utilized the RDA s in a fashion consistent with what was termed “deep federalism” – an inter-governmental approach that saw Ottawa connect directly with municipal authorities and community organizations across several policy fields including economic development, social infrastructure, neighbourhood revitalization, and sustainability planning.15 Of course, such federal development activities, framed by the bold idea of a New Deal for Cities and Communities and designed to “figure out the interaction between sectoral and spatial interventions,” were rather insensitive to formal constitutional power allocations between levels of government.16 Federal leadership in these place-based interventions rested less on jurisdictional authority, and more on a quite ad hoc mix of policy unilateralism, negotiated compromise, and bilateral or multilateral deals with one or more provinces. Perceptions of the desirability of such interventions – and certainly prospects for their viability – depended on a federal government with a rather expansive and flexible view of Ottawa’s role in shaping the development trajectories of regions and localities across the country. In the early 2000s, the political conditions were favourable for just such an orientation and the RDA s acquired considerable policy momentum. However, in 2006, the context changed quite dramatically with the arrival in power of the Harper Conservatives.17 Ideas about federal policy leadership in regional and local development were suddenly in question on two key axes: first, inter-governmentally, the Conservatives offered a vision of open rather than deep federalism adhering to the “letter and spirit” of the constitution, and second, economically, the Conservatives declared their preference for market forces rather than government policy in shaping the geography of development. Indeed, when campaigning for the leadership of the newly formed Conservative Party in 2004, Stephen Harper stated “I don’t believe in these industrial subsidy programs for business, I don’t believe they are effective.”18 In particular, he viewed the RDA s as a form of “corporate welfare” and advanced a fourfold critique of their activities and consequences. First, he argued with

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specific reference to ACOA that it contributed to a “culture of defeatism” in Atlantic Canada that limited entrepreneurialism and created a dependency on government. Second, he associated them with political pork barreling with the Liberal government flowing money and cutting ribbons in preferred constituencies. Third, he saw them as embodying misguided economic policy, assuming that bureaucrats in Ottawa were better able than market forces to allocate resources. Finally, Harper objected to the RDA ’s inter-governmental implications, as he would later put it, they were examples of where “Ottawa has stuck its nose into provincial and local matters into areas where they don’t have much expertise.”19 With these themes part of the Conservative economic message, the newly elected Conservative leader entered the 2004 federal election. Losing to the Paul Martin Liberals, Stephen Harper and the Conservatives began a policy rethink to recast the party more in the moderate middle of the political spectrum.20 Incendiary musings about the Charter of Rights and Freedoms or immigration and multiculturalism were officially expunged from party discourse. Along the same lines, the regional economic development message was altered for the 2006 election. Stephen Harper reassured Atlantic Canadians that ACOA would continue under a Conservative government and with resources similar to those provided by the Liberals. Winning their own minority government, the Conservatives maintained all four RDA s, with members of the government caucus supporting investments in programs for their regions and cutting ribbons for projects in their constituencies. Following the 2008 election, returning the Conservatives to another minority government, political and economic dynamics converged to supply a further boost of momentum behind the regional economic development file. From a political perspective, the Harper government was focused on a “Northern Agenda” designed both to address immediate concerns about Arctic sovereignty and more broadly position the government in a Conservative nation-building tradition that the Prime Minister associated with Sir John A. Macdonald and John Diefenbaker.21 Ideas about federal development strategies and supports for the Yukon, Northwest Territories, and Nunavut were on the policy agenda. At the same time, in a different political context, Conservative Party strategists began to believe that the pathway to a majority was through Ontario more than Quebec. Finally, intense economic pressures in the wake of the 2008 Global Financial crisis raised urgent calls for federal intervention, especially in traditional manufacturing belts such as Southern Ontario. The combined effects of these forces made 2009 a banner year for advocates of an active, formal role for the federal government in regional development. Prime Minister Harper announced formation of two new RDA s – the Federal Economic Development Agency for Southern Ontario (FedDev) and the Canadian Northern Economic Development Agency (CanNor). With

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FedDev, the Prime Minister emphasized the global recession and the need for the new agency to integrate short term stimulus spending with longer term investments diversifying the regional economy into a “wider range of value added and technology driven products and services.”22 Cambridge Ontario MP , Gary Goodyear was appointed Minister of State responsible for FedDev, with a $1 billion budget over five years. Ontario Premier Dalton McGuinty was reported to be “delighted that the federal Tories agreed to his longstanding demand for a regional economic development agency to help southern Ontario.”23 In the case of CanNor, the Prime Minister allocated a five year $50 million budget while also highlighting the joint policy imperative of immediate anti-recessionary projects and longer term innovation investments. A priority for CanNor would be Aboriginal economic development, with key programs transferred from other federal departments. In announcing CanNor’s formation, the Prime Minister raised broader themes related to his government’s Northern Strategy and its view of appropriate regional economic development policy: “Ladies and gentlemen, the era of benevolent yet ultimately ineffective paternalism is over. The days of development decisions being made in a city thousands of kilometers away are passed. With the creation of CanNor, our Government wants to empower Northerners and ensure that this region’s unique challenges are addressed with input from those right here with their boots on the ground.”24 Here Prime Minister Harper was indicating how he situated the RDA s in the evolving Conservative policy universe, and indeed, rationalized his conversion to the cause of regional economic development. Most important was the decentralization thrust and the concomitant distrust of the federal bureaucracy. The emphasis was on the district offices in the regions, local consultations on plans and priorities, and the need for each RDA to “tailor its activities and programs to the unique needs … and the differing circumstances” in the regions.25 These same themes were repeated in the 2011 campaign as the Prime Minister made his pitch to rural voters. In Beaupre Quebec he announced that the administrative offices of CEDQ would be relocated from Montreal to regional centers based on his meetings “with many regional stakeholders” who “want the decisions regarding their economic development to be made in their region.”26 In this light, the Harper government was endorsing its own version of the new regionalism paradigm, emphasizing bottom-up processes and the facilitative rather than directive role of the federal government, and a tighter focus on the growth of small and medium-sized enterprises. Thus, the quite remarkable transformation – or what many long time critics of federal regional development saw as a blatant flip flop – by Stephen Harper between 2003 and 2011 on the policy value of the RDA s can be explained by an evolving mix of political strategy, economic conditions, and ideological adaptation. With this Conservative conversion, the existing and new RDA s

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are set for another five year run of activity. The next section highlights the work of the RDA s, their institutional mandate, policy instruments, and flagship initiatives.

T H E W O R K O F RDA S : VA R I AT I O N O N T H E T H E M E Mandate The RDA s are fundamentally mandated to bring a regional policy lens to federal economic development policy.27 Such a lens achieves “double representation,” translating national goals into regional and community settings, while also promoting those same sub-national interests in federal policy making. It guides federal departments’ engagement with their provincial counterparts and with various local networks of businesses, community associations, and municipalities. While both federal and provincial governments can claim jurisdiction in regional economic development, it is apparent that the provinces are advantaged in terms of authority, capacity, and networks. As such, the RDA s increasingly seek alignment with provincial/territorial development priorities and initiatives, while also identifying matters where the federal government has particular interest or obligation, for example, with constituencies historically underrepresented in mainstream development such as Aboriginal peoples, ethno-cultural minorities, and youth. Here the RDA s have been leaders in the Canadian practice of multi-level governance, making creative use of what the OECD terms “relational contracts” for coordinating the actions of several governments and multiple organizations in joint projects ranging from infrastructure supply to urban revitalization and capital formation. Instruments The common policy goal for the RDA s is to deliver integrated programming for job creation and economic diversification, thereby bridging short term pressures with longer term innovation. To this end, the agencies utilize numerous policies, programs, and services are deployed across the regions. A complete description of these initiatives is beyond the scope of this chapter, but they all fall under four key policy instruments animating the work of all the RDA s. F i n a n c i a l A s s i s ta n c e RDA s rely heavily on transfer payments to provide financial assistance for economic and community development to private businesses, non-profit organizations, and other levels of government. Such loans and grants flow through various mechanisms including inter-governmental partnership agreements

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and contribution agreements with local organizations. The guiding principle of RDA investments is that they are targeted to finance commercial and noncommercial development initiatives that would otherwise have been postponed or abandoned if left solely to market criteria. K n o w l e d g e M o b i l i z at i o n RDA s have been active in policy research and advocacy. This has taken various forms including partnerships with prominent think tanks reporting on region specific trends and priorities, working with educational institutions to promote youth entrepreneurship and scientific learning, and positioning regional firms in the global marketplace through development of community-based strategic plans and international benchmarking of economic performance. Lo cal Governance RDA s support the local activities of the Community Futures Development Corporations. Dating back to the mid 1980s, CFDC s combine volunteer boards and RDA staff to plan and deliver business services, investment funds, and community strategies in all of non-metropolitan Canada. Joined together in a pan-Canadian learning network, the CFDC s have been “singled out by the OECD as one of the most innovative and successful rural-oriented policies anywhere in the world.”28 I n f r as t ru c t u re Pro g r a m m i n g RDA s have worked with Infrastructure Canada in delivering infrastructure in partnership with provinces, territories, municipalities, and First Nations. Beginning in the mid-1990s with the Liberal infrastructure initiatives, these partnerships became a focal point for the RDA s in the context of the 2008 global recession. Using their existing networks and managerial capacities, the RDA s helped implement the Canada Economic Action Plan’s “shovel ready” programs – the Community Adjustment Fund, Recreational Infrastructure Program, and the Building Canada Fund.

Intiatives The RDA s all work through the regional lens and with the four basic policy instruments, and are required to report regularly to Parliament on activities and performance. Beyond these common elements, there are differences in specific priorities and programs. To capture this operational variation, notable projects can be identified that distinguish the individual RDA s. ACOA At l a n t i c I n n o vat i o n F u n d Introduced in 2001, the AIF has committed over $700 million to projects to increase research and development and its commercialization in new

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products, processes and services. It acts as a catalyst for R&D networks to support cluster formation in the region’s emerging sectoral strengths, including ocean technologies, acquaculture, bio-technology, and environmental technology. Partnerships are central to AIF work, for example, multi-disciplinary teams for commercialization of research and the multi-sectoral investment Advisory Board making recommendations to the Minister. CEDQ S o c i a l E c o n o m y F u n d The Quebec RDA faces special challenges operating in a policy context where respect for provincial jurisdiction and direct federal engagement with local organizations is an especially sensitive political issue. Leveraging its relationship with key actors in Quebec’s social economy, CEDQ established in 2005 a “patient capital fund” for social enterprises that complemented and supplemented existing venture capital sources from the provincial government, credit unions, and organized labour. F e d N o r I n t e r - c o m m u n i t y C o l l a b o r at i o n Through its flagship Northern Economic Development Program and Community Futures Program, FedNor has enabled innovative sub-regional collaborations to deliver projects beyond the scope of individual municipalities or counties. These collaborations have enabled significant investments in renewable energy, tobacco agriculture adjustment, Aboriginal business, an eco-industrial forestry park, and electronic health networks for remote communities. F e d D e v P r o s p e r i t y I n i t i at i v e FedDev’s major funding envelope is the $210 million Prosperity Initiative targeted at strategic investments for enhanced productivity, regional diversification, and competitiveness. A flagship project is the $60 million Southern Ontario Water Consortium created in 2011 where FedDev leveraged seed investments from the provincial government and private business to create a platform across eight universities, 60 industry partners, and multiple municipalities for world-scale clean water research, testing, and technology development. WED Urban Development Agreements Working across four provinces, WED has been innovative in its use of different forms of multi-level agreements. Between 2000 and 2010 WED led Urban Development Agreements in five cities, most notably Winnipeg and Vancouver. Signed by the federal, provincial, and municipal governments, the UDA s work with business and community organizations to plan, fund, and deliver integrated services and revitalization projects in cities. While not renewed by the Harper government, the UDA s in Vancouver and Winnipeg were recognized for their governance innovation both nationally and internationally.

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CanNor Northern Project Management Office This office is an interesting example of the increasingly important convening and coordinating role played by the RDA s. In the particular case of the North, complex regulatory issues at the intersection of the environment and economy arise in resource-based development projects, and the project management office is mandated to provide centralized expertise and guidance, convene dialogue among industry, Aboriginal representatives and relevant federal departments, and ensure public reporting on project developments. RDA S M O V I N G F O R WA R D ? D E B AT E S

AND CONTROVERSIES

Despite the Harper government’s new found enthusiasm and the impressive range of activities undertaken by the RDA s, controversy continues to surround their mandate, and the broader issue of the federal role in regional economic development. Evidence of the RDA s’ net benefit to regional economic fortunes remains elusive. In recent years positions in the debate have crystallized into two coherent frameworks, each conceptualizing the proper relationship between states and markets in quite distinctive packages. First, there are the critics who stress the informational and political failures in state-led design and delivery of regional development assistance.29 On the one hand, civil servants lack the business information to be confident that investments would not have happened in the absence of government subsidies, and on the other hand, politicians operating in the electoral marketplace have incentives to allocate scarce resources to places and projects of greatest political advantage. Governments should therefore “focus on creating the right economic environment for all businesses to succeed through lower taxes, minimal red tape, prudent government finances, and the maintenance of adequate infrastructure.”30 The second position – what we have termed the new regionalism – doesn’t deny these risks to good public policy. However, its supporters highlight another set of barriers – institutional and market failures – to maximizing competitive assets in the context of the knowledge-based global economy that now frames prospects for all regions. Emphasizing innovation, this position emphasizes the value of multi-sectoral collaboration in research, development, and commercialization, and the strategic importance of networking in crucial developmental functions such as venture finance or global marketing. The simple co-location or spatial concentration of resources does not automatically translate into economic innovation. Rather, the key is how such resources are aligned to exploit the synergies of ideas and organizations. Market forces undervalue such joint ventures and the various institutional actors will require support and assistance to mobilize around a longer term shared

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agenda. Governments can use regional policy for “high impact interventions that address next generation challenges and seed solutions to transform businesses and communities.”31 Not surprisingly, this debate has heated up against the backdrop of the global recession, the Conservative’s launching of two new RDA s, and the mounting government deficits and debts. Indeed, the RDA s are presently at a moment of transition. On the hand, the stimulus funding that animated much of their work over the past three years has wound down, and on the other hand, the federal government’s Strategic and Operating Review promises further budget reductions. Since 2010, the operating budgets of the RDA s have been frozen or cutback. In October 2011, the government announced that ACOA had eliminated 42 positions in a $15.2 million budget cutting exercise. Citing evidence of an uncertain economic recovery, opposition parties argued that it was “the very wrong time to be cutting these programs.”32 Beyond the partisan arena, the analytical policy discussion resumed as high profile think tanks contributed to different sides of the debate. Linking the RDA s to the new regionalism the Ontario Mowat Centre for Policy Innovation presented a “transformative agenda” for FedDev. Internationally, the OECD published several studies of the new regionalism describing innovative governance mechanisms and policy instruments deployed by the RDA s. In contrast, the Fraser Institute made a case for putting the RDA s on the “chopping block” to save what it estimated was $8 billion over four years. Along similar lines, the C.D. Howe Institute argued that the federal government “should replace existing grants and tax credits to businesses with a broad-based reduction of corporate taxes in the region.”33 Taking stock of this debate, there are three key issues that will be central to both the intellectual exchanges and political contestation over federal regional development efforts. First, there are challenges of inter-governmental policy alignment, and more pointedly, determining the federal niche in increasingly crowded sub-national economic development fields. Complementarity rather than duplication is the watchword, acknowledging that the federal agencies are comparatively small economic development players in their respective regions. They lack the financial resources and policy capacities of provincial ministries and operate without the fine-grained local knowledge available to community-based actors. As such, the optimal federal role involves what European scholars term “metagovernance” – a deft kind of steering that targets investments leveraging provincial or municipal/community strategies, orchestrates partnerships for multi-level and inter-sectoral collaboration, and fills critical information or knowledge gaps.34 In many jurisdictions, regional development agencies, embedded locally and externally networked, act as focal points for multi-level governance, convening the players, negotiating framework agreements, and

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monitoring outcomes. As the above discussion of the work of the RDA s indicated, there is evidence of organizational learning as each of the agencies pursues its own pathway to complement, facilitate, and leverage existing subnational activities and investments. Identifying this federal policy niche and working it creatively, relates directly to the second key issue moving forward – ensuring that the substantive focus of policy interventions is on transforming business and community capacities for innovation as distinct from “business as usual” sorts of ad hoc expenditures that often duplicate or work at cross-purposes to programming from other governments. This issue is especially relevant as the RDA s transition from the “shovel ready” Canada Economic Action Plan spending to identify investments in longer term economic development and community resilience. A related challenge here involves balancing legitimate organizational needs for the visibility and credit that comes with direct expenditures with the broader forms of shared responsibility and profile associated with joint governance. The examples cited above of FedDev’s role in the Southern Ontario Water Consortium and CanNor’s project management office suggest a degree of progress in institutionalizing a collaborative niche for the federal government and in supporting transformative development projects. Finally, there is the third large issue of impact and the degree to which an evidence base can be built to demonstrate the policy “value-added” or that the RDA s are sharpening their focus and adapting their work through performance monitoring. Assessments from the Auditor General of Canada as well as other audits and evaluations identify several concerns including the absence of specific measurable outcomes for programs and results based funding, criteria to ascertain business impacts of non-commercial partnerships, and implementation weaknesses related both to skill sets of local program officers and overlap with provincial programming. In each of these areas, all of the RDA s over the past several years have implemented more rigorous evaluation frameworks to strengthen their accountability and organizational learning. Of course, the public policy debates won’t be resolved through analytical exchange among policy experts. If the history of federal regional development has taught anything it is that government choices in this field emerge through a complex and unpredictable mix of political calculation, economic pressures, and shifting ideas. As this chapter has demonstrated, the Harper Conservative conversion fits squarely within this pragmatic regional development policy tradition. As global economic uncertainties continue and government fiscal pressures mount, the RDA s’ collective policy challenge is to ensure that their interventions contribute to the regional resilience of the Canadian economy and communities rather than the policy clutter and program entanglement of the Canadian federation.

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Notes 1 This discussion of the three waves of regional economic development policy draws on Neil Bradford, “Regional Economic Development Agencies in Canada: Lessons for Southern Ontario” (Mowat Centre for Policy Innovation, June 2010), and David A. Wolfe, “From Entanglement to Alignment: A Review of International Practice in Regional Economic Development (Mowat Centre for Policy Innovation, June 2010). 2 A. Careless, Initiative and Response: The Adaptation of Canadian Federalism to Regional Economic Development (Montreal: McGill-Queen’s University Press, 1977). 3 G. Hodge and I.M. Robinson, Planning Canadian Regions (Vancouver: UBC Press, 2001), 174. 4 Economic Council of Canada, The Challenge of Growth and Change (Ottawa: Queen’s Printer), 177. 5 D. Savoie, Regional Economic Development: Canada’s Search for Solutions (Toronto: University of Toronto Press, 1992), 113. 6 T. Courchene, “A Market Perspective on Regional Disparities,” Canadian Public Policy, 7:4 (1981), 506–18. 7 Economic Council of Canada, From the Bottom Up: The Community Economic Development Approach (Ottawa: Queen’s Printer, 1990). 8 M. Feldman and R. Martin, “Constructing Jurisdictional Advantage,” Research Policy (October, 2005) 34:8, 1245. 9 Charles Conteh “Policy Implementation in Multilevel Environments: Economic development in Northern Ontario,” Canadian Public Administration 54:1 (March 2011) 122–41. 10 OECD , Building Competitive Regions: Strategies and Governance (OECD : Paris, 2005); OECD , Investing for Growth: Building Innovative Regions (OECD : Paris, 2009). 11 OECD , Linking Regions and Central Governments: Contracts for Regional Development (OECD : Paris, 2007). 12 F. Froy and S. Giguere, Breaking Out of Policy Silos: Doing More with Less (OECD : Paris, 2010), 14. 13 M.S. Gertler and D.A Wolfe, “Local social knowledge management: Community actors, institutions and multilevel governance in regional foresight exercises” Futures 36 (2004), 45–65. 14 N. Bradford, “Place-based Policy: Towards a New Urban and Community Agenda for Canada” (Ottawa: CPRN Research Report F/51, 2005); N. Bradford, “Whither the Federal Urban Agenda? A New Deal in Transition” in R. Laforest, ed., The New Federal Policy Agenda and the Voluntary Sector: On the Cutting Edge (Montreal: McGill-Queen’s University Press, 2009) 81–107. 15 C. Leo, “Deep Federalism: Respecting Community Difference in National Policy,” Canadian Journal of Political Science 39:3 (September 2006) 481–506. 16 A. Juneau, “Notes for an address to the Canada-UK Colloquia: Cities and National Success” (Cardiff Wales, 25 November, 2005). 17 Bradford, “Whither the Federal Urban Agenda?”

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18 Free Dominion: The Voice of Principled Conservatism, “Stephen Harper has work to do to win votes in the east!” Accessed: http://freedominion.com.pa/phpBB2/ viewtopic.php?t=18153 19 Right Honourable Prime Minister, “An Address by the Prime Minister on Commitments to Communities,” Montreal, Quebec, 2 June, 2006. 20 B. Doskock, “The evolution of Stephen Harper and his party” CTV .ca News. Accessed: http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20060119/ elxn_reform_tories2_060117/20060120?s_name=election2006 21 “Prime Minister Harper Announces the New Canadian Northern Development Agency” Prime Minister of Canada News Release, Iqaluit, Nunavut, 18 August, 2009. 22 “PM Launches New Economic Development Agency for Southern Ontario,” Prime Minister of Canada News Release, 13 August, 2009. 23 R. Benzie, “Budget a windfall for Ontario, McGuinty says,” Toronto Star, 29, January 2009. 24 “Prime Minister Harper Announces the New Canadian Northern Development Agency.” 25 “Backgrounder Canada’s Economic Action Plan: Regional Development Agency for the North” Prime Minister of Canada News Release, 18 August, 2009. 26 “A Government that Listens to Rural Communities” Saint Boniface Conservative Association, 14 April, 2011. 27 The descriptions that follow of the work of the RDA s draw on N. Bradford, “Regional Economic Development Agencies in Canada.” 28 Standing Senate Committee on Agriculture and Forestry, “Beyond Freefall: Halting Rural Poverty, Final Report” (Ottawa: 2008). 29 J.M. Mintz and M. Smart, “Brooking no Favorites: A New Approach to Regional Development in Atlantic Canada” C.D. Howe Institute Commentary, December 2003. 30 N. Velduis and C. Lammam, “The Chopping Block: 2. Business Subsidies” Financial Post, 29 September, 2011. 31 N. Bradford and D. Wolfe, “Toward a Transformative Agenda for FedDev Ontario” (Mowat Centre for Policy Innovation, June 2010), 8, 32 B. Curry, “Ottawa’s $1.7 billion cuts target regional development,” Globe and Mail, 3 May, 2010. 33 J. Mintz and M. Smart, “Brooking no Favorites,” 1. 34 S. Bell and A. Hindmoor, Rethinking Governance: The Centrality of the State in Modern Society (Cambridge University Press, 2009).

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5 Science and Technology in Canada: Government Investment at a Crossroad? P e t e r W. B . P h i l l i p s a n d D av i d C a s t l e

INTRODUCTION Overshadowed by the global financial crisis, the federal election and a range of domestic reviews and investigations, the main changes related to science and technology policy in 2011 were administratively driven rather than politically managed. Those interested in science, technology and innovation policy in Canada have been waiting with rising impatience for Ottawa to indicate if, or how, the system will re-engage with science policy and begin more proactively managed spending. After a strong increase in federal spending during 2000–08 that improved national investments in research and development (as measured by the gross expenditure on research and development or GERD ), the global recession and then fiscal restraint caused expenditures to plateau. At the same time, hopes that R&D would have translated into technological change, innovation and productivity gains, were waning. Increased R&D expenditures have not improved Canada’s absolute or relative position and there is some early evidence that Canada has slipped relative to other countries in recent years.1 The R&D mood music has changed over the last decade. Since 2008, the federal government, a number of provinces, most of the granting agencies, many firms, and a number of sectors are undergoing a period of introspection and evaluation. The federal government has signaled its impatience with a science focus that is not yielding transformative technologies that enhance Canada’s economy. The federal Expert Panel on Federal Support to Research and Development2 attempting to build upon the dialogue generated by studies from the Council of Canadian Academies, the Science, Technology and

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Innovation Council (STIC ) and the Conference Board of Canada, undertook a major review of federal R&D priorities and programs that, albeit belatedly, caught the attention of researchers, industry and the provinces. The results of that review were released in fall 2011 but do not appear to have influenced federal budgetary decisions yet. Meanwhile, a number of federal agencies, led by the National Research Council, took this issue into their own hands, by redirecting funds away from upstream science to downstream technology transfer and commercialization. After a review of the current context, this chapter examines four successive developments in 2011. First, we examine the federal budget situation. Following three budgets where S&T expenditures leveled-off, the 2011–12 budget was in effect a non-event, with little or no indication of how plans might change. Second, we investigate and analyze the virtual absence of any focus in the 2011 election on innovation or research policy. Third, we investigate how the departmental operating plans are responding in the absence of political direction. Fourth, we examine the inputs to the comprehensive R&D expenditure review and investigate how the Expert Panel took the disparate threads of advice from their review and past investigations and knit a programmatic vision and plan. We conclude that in the run up to the 2012 federal budget there is a widening gap between expectations and reality that has yet to be bridged by any of the processes so far and may very well be too wide to close in any one budget cycle.

THE CONTEXT FOR 2011 During its first mandate, the Harper Conservative government launched Mobilizing Science and Technology to Canada’s Advantage (2007).3 The strategy seeks to create world-class excellence in science and technology by sustaining and increasing financial support for intramural research, the three federal granting councils, the special research agencies, various research chairs and scholarships programs and, as part of the fiscal stimulus package, an incremental $2 billion Knowledge Infrastructure Program to support infrastructure repairs and enhancement at Canadian universities and colleges. The strategy also identified four specific sectoral priorities: environmental science and technologies; natural resources and energy; health and related life sciences and technologies; and information and communications technologies. Ultimately, the strategy signaled the government would engage more as a partner rather than simply as a funder in many grant-based systems. The impact of this nearly four year old policy is being questioned in light of three underlying themes: the fiscal crisis and a renewed concern about the efficacy of S&T outlays; the frustration with limited outcomes of what is largely a science policy; and the shift from deductive to inductive reasoning

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and investigation in S&T policy. These three trends raise levels of angst and frustration about S&T spending and make for disjointed debates about how to proceed. First, the economic performance of the global economy and the S&T sector focused minds. In the first instance, the global financial crisis largely overshadowed the S&T policy, but drew attention to the role of S&T spending as a major line budget item and as a potential contributor to a stronger economy. After almost a decade of accelerating investment in R&D, spending plateaued and dipped slightly after 2008.4 While some might simply attribute that drop to straitened fiscal conditions, there appear to be two more fundamental factors that have taken the wind out of federal support for S&T. One headline story that kept the S&T story simmering was the continuing efforts to wind up Nortel Networks Corp. The news that Rockstar Bidco, a consortium led by Apple and including Microsoft Corp., EMC Corp., Ericsson LP, Sony Corp. and Canada’s Research In Motion Ltd., bid US $4.5 billion for a portfolio of Nortel’s patents galvanized the Canadian ICT community into pressing Ottawa to engage in the sector. Leading ICT entrepreneurs have been working with the Canadian International Council (CIC ) to raise the issue in Ottawa and across Canada. Meanwhile, the STIC concluded, in State of the Nation for 2010, that Canada did not improve on its strengths during the review period. Canada’s relatively strong and well-educated labour pool is undermined by relatively weak and retreating business expenditure on R&D.5 The result is higher levels of unemployment for science-based doctoral-level graduates than other OECD countries. From 2008 and the current 2010 report, STIC concluded that many key indicators of performance were worsening in absolute and relative terms, including GERD and Business Enterprise Expenditure on Research and Development (BERD ), and forcefully attributes the decline to falling Canadian labour productivity relative to the US (from 77% to 72% over the 2002 to 2007 period). Canadian mining, oil and gas, utilities, manufacturing and nine of 11 service industries saw declines in labour productivity relative to the US. Venture capital (VC) has been particularly hard hit – the VC to GDP ratio fell more than 30%, from 0.12 per cent in 2007 to 0.08 per cent in 2008. In contrast, the global VC to GDP ratio continued to rise in 2008 – the major global decline did not occur until 2009. VC financing for Canadian equity financing and angel investors accounted for 90 per cent of the total equity financing received by innovative SME s in 2004 and as much as 42.3 per cent of financing for non- innovative SME s.6 VC investments as a percent of GDP in Canada ranked 17th in the OECD in 2008, a decline from 2003–05 when Canada ranked in the top 10. The result is weak total factor productivity, which rose only 0.7% per annum in the 1995–10 period, compared with 1.4% growth in the US in the same period.7

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Table 1 S&T Indicators, Canada, US, and OECD Canada 2010 Gross expenditure on R&D, US $ billion PPP $ per capita % GDP % GDP , average 2005–08 % financed by – industry – government % performed by – industry – higher education – government fte researchers, 000, 2008 – per thousand total employment

US 2008

OECD 2008

$24.0 $398.2 $965.6 $703 $1306 $793 1.84 2.79 2.33 1.97 2.66 2.26 48 34 51 38 11 149 8.6

67 27

64 28

73 70 13 17 11 11 1,412 4,200 9.5 7.6

Source: OECD, 2011, Main Science and Technology Indicators 2010–11, http://www.oecd.org/dataoecd/9/44/41850733.pdf

The second theme for 2011 is the disconnect between federal science policy and innovation policy. While the 2007 science strategy did not cite Lundvall8, it clearly drew upon his scholarly advice on the appropriate relationship between science, technology and innovation policy. Science policy generally focuses on the production of scientific knowledge, using a range of research-related instruments, such as competitive public research grants, public research institutes, tax incentives to firms, investments in higher education and intellectual property rights. Innovation policy, by contrast, focuses on advancing the commercialization of the resulting sectoral technical knowledge, through such instruments as procurement, public aid to strategic sectors, bridging institutions between research and industry and a range of more centralized planning tools, such as labour force training, standardization, technology forecasting and sectoral benchmarking. The science policy is having effects, just not the ones that policy makers seem to be expecting. Canada ranks fifth in terms of the number of universities in the top 100 and sixth in terms of the number of universities in the top 500.9 In 2008 Canada produced 3.3% of the scientific publications in the world, to rank eighth in the world (with only 0.5 % of the world’s population). Moreover, Canadian publications ranked fourth for citations, one common measure for quality. The expectation that these investments will trigger innovation via general purpose technologies10 is going unanswered; applied research and development is not being triggered and new technologies and innovation are not being delivered.

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For the most part, federal effort has been concentrated on science policy and has ignored innovation policy. One gets the impression that federal ministers and key administrators are somewhat confused about what the science policy was meant to deliver. After four years of the policy, they are expressing frustration at being unable to identify new technologies and to track their uptake and use in the economy. That is, they appear to expect science policy to deliver the outputs that come from innovation policy: overall performance of the economy; competition policy; capacity of clusters to adopt new technologies; and accelerated growth in total factor productivity. This frustration is being directed at the research granting councils, Genome Canada, the intramural scientific effort in NRC and the line-departments and the Scientific Research and Experimental Development (SR&ED) tax credit program, but the disconnect is not being bridged. The third major trend is federal resistance to theoretically grounded, evidence-based policy. Research into innovation using established methods involving theoretically-grounded refutable hypotheses has produced some specific advice on how and where governments should intervene.11 In recent years, key S&T departments have relied less on experts and more on the advice of individuals experienced with parts of the S&T system. While this at times can identify critical factors that might have major influence on the fit and outcomes of policy, it runs the risk of identifying and responding to symptoms rather than underlying causal factors. The creation of STIC from the ashes of a number of expert advisory processes a few years ago, and the comprehensive R&D expenditure review committee of “experts” exemplify this trend.

THE PRE-ELECTION, MARCH 22, 2011, BUD GET On March 22, 2011, Minister of Finance Jim Flaherty tabled his final Budget of the minority conservative government elected in 2008. The plan, entitled A Low-Tax Plan for Jobs and Growth, sought to preserve Canada’s advantage in the global economy and foster economic recovery in an uncertain world, in part by offering a range of small, targeted tax measures to support families and firms.12 Given the short-term focus of the budget – especially given the expectation that the government would use the budget to trigger a federal election – science, technology and innovation were not a key focus. Most noted were the two-year extension of the temporary, 50 per cent, straight-line accelerated Capital Cost Allowance for manufacturing or processing machinery and equipment, the Targeted Initiative for Older Workers program extension to 2013–14, and the expansion of eligibility for Canada Student Loans and Grants for full- and part-time post-secondary students. A few highly specific enhancements or new programs for S&T initiatives were mentioned, designed as teasers for what a re-elected government might

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do rather as firm indicators of new or renewed priorities. More than $410 million was to be directed over the next two years to new innovation funds for research, development and demonstration projects related to clean energy and energy efficiency ($100 million), agriculture ($60 million), forestry ($60 million), brain research ($100 million) and new media ($100 million). In addition, the budget proposed to provide $80 million in new funding over three years through the Industrial Research Assistance Program to help small and medium-sized businesses accelerate adoption of information and communications technologies through collaborative projects with colleges, $37 million more per year for the three federal research granting councils, $10 million per year more for the Indirect Costs Program, $53.5 million over five years to support creation of 10 new Canada Excellence Research Chairs, support for 30 new Industrial Research Chairs, $65 million for Genome Canada, $4 million to support construction of a cyclotron for the production of medical isotopes at the Thunder Bay Regional Research Institute, $35 million over five years to NSERC for climate and atmospheric research, $50 million to the Perimeter Institute for Theoretical Physics and $45 million for the National Optics Institute. The budget also proposed to help to bridge between science, technology and use by creating a new Idea to Innovation Program (by allocating $12 million over five years) to support joint college-university commercialization projects and by providing $40 million over two years to Sustainable Development Technology Canada to support development and demonstration of new clean technology projects. The major science and technology items in the federal portfolio, namely the intramural research efforts and the SR&ED tax credit, were untouched and unmentioned. The combined effect of all of the announced plans, if they rolled out as planned and were all incremental and not simply repurposed funds that might otherwise lapse, would be less than $500 million annually over the first two years, an increase of perhaps 3% on a base estimated at almost $15 billion (for 2008, the latest numbers, Statistics Canada estimated the federal budget provided approximately $10.4 billion for R&D while the department of Finance calculated the tax benefit of the SR&ED tax credit at approximately $4.4 billion). The vast majority of federal spending was untouched. In essence, the pre-election budget was merely a place holder for the government seeking re-election.

I N N O VAT I O N — T H E M I S S I N G I S S U E IN THE 2011 FEDERAL ELECTION Many recent commentators have attempted to raise innovation policy in the context of the national economic policy debate by engaging parties and pundits during national elections. While there was some hope that innovation might actually crack the top five electoral issues in the 2011 federal election, every

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political party largely ignored it, despite the fact that the impact of innovation on the long-term vibrancy of the national economy was the elephant in the room. Some parties referred to innovation policy in their platforms, but references were embedded in discussion of the economy or job growth. As the campaign progressed, innovation got lost as an issue. None of the formal or informal debates or dialogues effectively engaged the issue, and the media and pressure groups involved in the electoral debate ignored innovation as a policy issue. The three parties vying to form the government had quite different approaches to innovation. The incumbent Conservative government stood on its Science & Technology Strategy and the measures introduced in the March 22 budget.13 The term “innovation” was sprinkled about the platform, but there were no specifics beyond the earlier announcements and proactive party campaigning focused elsewhere, primarily on job creation, deficit elimination, support for families, national security and getting tough on crime. The NDP platform never used the term “innovation.”14 Most of the NDP ’s key platform pledges were traditional macroeconomic stabilization programmes offering incentives for firms to invest or hire and other policies related to supporting working families. One specific innovation-related policy pledge was to provide support for clean energy and green power research and technology commercialization. The underdeveloped proposals were not formally costed, making predictions about their impact difficult. The Liberal party platform had the most ambitious proposal to reconfigure national policy into five thematic areas, two of which had new policies and programs related to innovation.15 The economic platform proposed to focus sustained research and development efforts on three ‘champion’ sectors: clean resources (including heavy oil); health and biosciences; and digital technologies. In addition, the platform offered a new 15% innovation and productivity tax credit, extend flow-through shares to firms in the champion sectors, and to create a Digital Canada initiative to enhance Internet access and use. The Liberal platform had many innovation friendly statements but failed to gain adherents in the pressure cooker of electoral politics. When the writs were dropped on March 26, the election promised to be a rerun of previous federal elections since 2004 that resulted in a succession of minority Liberal and then Conservative governments. But the whole tenor and focus of the campaign changed as Bloc Quebecois popular support started to crumble and NDP popular support surged. By April 20, less than two weeks before the May 2 vote, the NDP started to outpoll the Liberals nationally, with the result that the focus of the media and the other parties shifted. The Conservatives and NDP , both with relatively modest innovation platforms, began to set their sights more fully on each other and the Liberals were forced to divide their focus between the two leading parties. As a result, innovation was pushed out of the debate and no new ideas and no substantive discussion on innovation was generated.

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Following the general election in which the Conservatives gained a majority, Parliament reconvened quickly and on June 6, 2011, Minister of Finance Jim Flaherty re-tabled the March 22 Budget. While there were some contextual changes in the document, the themes and plans remained unchanged from before the election. Regarding innovation policy, the budget and related spending plans matched virtually word-for-word what had been presented in March. In short, the election had no effect on the fiscal plans for the new majority government or on the state of the debate about innovation in Canada.

D E PA R T M E N TA L B U S I N E S S P L A N S A rarely discussed action of the Chretien Liberal government in 1994 was the introduction of departmental business planning. Changes to Standing Orders of the House of Commons in 1994 expanded parliamentary scrutiny beyond one “estimates year,” creating the need for departmental information on expenditure trends and priorities. In January, 1995, Cabinet agreed to a revised Expenditure Management System in which departments produce Plans for Treasury Board and where departmental Outlooks are submitted to Standing Committees of the House of Commons. In the 2007–08 Public Service Renewal Action Plan integrated business and human resources planning became a core priority for the government. Deputy Ministers were asked to distribute their integrated plans to employees and to put them on their websites by March 2008.16 In the absence of formal reforms presented in legislation or key policy statements that are then debated and decided in Parliament in the full light of the press gallery, these business plans can be used to identify trends and opportunities and to reveal how the bureaucracy is adapting over time. It is worth examining the integrated business plans (IBP ) for five lead federal agencies – Agriculture Canada, Health Canada, Industry Canada and two of its special operating agencies, the National Research Council and the Canada Foundation for Innovation. Together, these five entities account for about 27% of federal direct investments in R&D and most of the industryfocused investments, are mandated to try to leverage private sector, university or foundation support and set many aspects of S&T policy. Agriculture and Agri-Food Canada’s 2010–11 business plan targets: an environmentally sustainable agriculture and food-based sector; a competitive agri-food sector that proactively manages risk; and an innovative agri-food products sector that effectively commercializes value-added agriculturalbased products, knowledge-based production systems, processes and technologies.17 Each would contribute to agri-food innovation, but the focus on innovative products reveals how the organization is responding to pressures. While the staff complement of the department was forecast to hold steady at 6,086 FTEs in the 2010–13 period, the planned financial resources were

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budgeted to decline about 42%. While the plan identifies some aggressive targets for increasing the percentage of revenues invested in private R&D (+10% by 2014) and adding revenue through value-addition (+7% by 2014), the investment pool for an innovative agriculture is forecast to drop sharply over the planning period. Program activity for science, innovation and adoption jumped 15% in 2010, but is forecast to decline 25% by 2014, while activity related to agribusiness development will drop 50% and rural and cooperative development will drop 20%. Overall, spending on innovation is forecast to drop 57% from $2.5 billion to $1.1 billion, broadening the gap between rising expectations and diminished effort. Health Canada’s Business Plan targets cost containment and creation of a high-performing system that delivers quality care, improved access to services and clinical coordination among many providers.18 While innovation for its own sake is not a formal goal of the department, a range of innovative technological fixes to meet the disparate needs of the national health system are sought. A key priority was the role of electronic health records to facilitate efficiencies and effectiveness. Health Canada is pursuing Infoway as a partnership of 14 governments. Started in 2001 with a $500 million investment by the federal government, the provinces have engaged with different levels of effort using different technologies for different purposes. At the end of the 2009–10 fiscal year, Infoway received an additional $2.1 billion from the federal government. The goal is to have electronic health records for 50% of Canadians by 2011 and electronic health records for 100% of the population by 2016. Support for innovation adoption, infrastructure, patient access to quality care and EMR integration and consumer health is included, but there is no substantive discussion of how procurement policy could help translate this strategic public investment into economic and commercial opportunities for domestic industry. The Industry Canada 2010–11 business plan is “organized around three independent and mutually reinforcing key strategies”: fostering the knowledgebased economy through investment in science and technology and skills and training; supporting business innovation and productivity; and advancing the marketplace through economic framework policies that promote competition and innovation.19 The departmental plan asserts that Canada’s gap in GERD is due to weak investment in research and development in the private sector, which leads to an “innovation gap.” Industry Canada has created and nurtured two largely independent key actors in the national innovation system to try to bridge that gap. The Canada Foundation for Innovation’s 2010 business plan offers an analysis of its investments in research infrastructure.20 The plan presents the results of a range of surveys and analyses of the impact of the CFI on innovation outcomes, concluding that the $5.5 billion invested in more than 7,370 projects since 1997 led to the creation of 4,153 academic, private and public sector jobs, development

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of 979 new or improved products, processes or services, development of 689 best practices in manufacturing, organizational structure, and healthcare, creation of 399 new or improved public policies or programs, development of 901 invention disclosures, patents and licensing agreements, 435 patents filed and 62 granted and creation of 44 CFI -linked spin-off companies. In a related survey, 98% of project leaders reported that the availability of CFI -funded infrastructure was at least somewhat important in their decision to join the institution. Overall, 12,658 researchers advanced their research using CFI -supported infrastructure and 1,356 new researchers were recruited. Facilities use, formal collaborative research agreements; and facilities use supporting informal research collaborations were attributed to CFI . While the main take-home message from the CFI is that the program is working, a less emphasized but still important consideration is that these investments rapidly depreciate and may need almost constant renewal to remain state-of-the-art. Clearly capital renewal must be part of the program parameters if the innovation agenda is to be sustained. Lastly, the National Research Council of Canada is the single largest research organization in Canada. Its 2010–11 Report on Plans and Priorities attempts to align its 19 institutes and their activities into the four federal government priorities areas (economic growth, healthy Canadians, clean environment and the knowledge-based economy) and with the four specific sectoral priorities (environmental science and technologies; natural resources and energy; health and related life sciences and technologies; and information and communications technologies).21 While technically possible, the budget raises concerns. The gross budget was set to fall from $749 million to $606 million and the staff complement to drop by 210 or 6% by 2013. More revealing is the mismatch between priorities and action. A relatively unequal distribution of allocations exists within the budget. Manufacturing technologies may not be sectoral priorities, but continue to get the single largest investment in 2010–11 ($149 million); health and life sciences were a close second and ICT and energy and environmental technologies were funded at a much lower level. Program review is actually accentuating the differences. By 2013, the highly-linked IRAP and manufacturing programs will have been cut 11% and 13% respectively, while the environmental, ICT and health outlays will drop by 15%, 17% and 25% respectively. At the same time, investment in the ‘national science and technology infrastructure’ will be cut by only 9% while the infrastructure related to medical information (a priority in the Health department) will suffer a 36% cut (it is unclear whether the two agencies have coordinated their plans). Interestingly, the agency is not conserving its core at the expense of its clients since internal services are forecast to drop by 25% over the same period. While the NRC business plan asserts it is following a steady state, the reality is quite different. NRC president John McDougall, appointed in 2010,

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promised by public announcement in August that the NRC will change. He asserted that the reason Canada does not get full value out of the billions it pours into research is that it spends nearly half of the resources in health, which produces relatively few spinoff benefits because Canada is not a global player. “We don’t have a health industry, other than a consuming one. So it’s not really a surprise we don’t get much out of it.” 22 McDougall announced his intention to get a better “return” on the nearly $1-billion a year Ottawa spends at the NRC by restructuring the business model for the agency. Currently the bulk of the funds are invested annually in one of the 19 NRC Institutes and a handful of on-going multi-year programs of research. The new plan is to shift the organization away from institutes and programs and towards a clutch of short to medium term technology development and commercialization projects. The NRC would have four core business lines – delivering strategic R&D that leverages private capital; offering technological services financed through cost recovery; and delivering management for IRAP and large scale infrastructure, but not advocating for the programs themselves. Following a 20% reduction of the budget from other activities to support ‘flagship’ projects, the plan is to develop the new business model around “strong value propositions, unique positioning in the value chain, market-pull and timely deployment paths, with clear targeted outcomes within a timeframe of 3 to 8 years – delivering in a time scale relevant to our clients and collaborators.”23 The goal is to move from “curiosity research” toward work on a cluster of key scientific challenges that are client and market driven. By the end of the summer, four flagship projects, or “big ideas,” had emerged, including research into higher-output wheat strains, printable electronics, composite materials made from biomass and CO2-ingesting algae. By November a multi-year $25 million wheat research project was under development in Saskatoon, a two-year pilot plant in partnership with industry for bio energy was being talked about and it was announced that the NRC Institute for Information Technology in New Brunswick would be restructuring. Significant concerns exist among NRC staff and traditional clients and partners of the NRC institutes. Critics assert that the institutes have been core parts of the national and regional innovation systems, delivering some world-scale research results that would not otherwise have emerged. Many cite groundbreaking inventions that resulted from the NRC institutes, including canola, which is now a billion dollar a year crop, the infant meningitis vaccine, novel animation software used in the movie business, corrosion resistant concrete used in construction, the Canadarm and contributions to the national construction building standards. Long-term stability of the institutes creates innovation and avoids a transient workforce that would undercut the critical absorptive capacity the institutes offer for adapting and adopting technologies. The concern is that centralization of the NRC structure will concentrate

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power in Ottawa at the expense of the regions which many argue are the source of innovations and value added sought by federal policy. This review of business plans offers insights into the divide between national policy and administrative efforts and into the gaps between expectations and delivery. None of the agencies is obviously fully in line with the S&T Strategic Objectives of accelerating innovation through strategic investments. In AAFC , IC, and NRC , investments are decreasing or are directed toward a different range or in different proportions than the strategy implies. Moreover, even when the funds seem aligned, as in Infoway investments, there are no clear plans revealed of how that investment might both enhance program delivery and generate economic activity. The two special operating agencies are intriguing for what they say or do not say. In essence the CFI report suggests that while the build-up phase has gone well and is clearly contributing to knowledge generation, training and attraction of high quality personnel, there is both a problem of generating and commercializing inventions and a growing problem of the obsolescence of the infrastructure itself. Meanwhile if the changes at NRC are implemented they could radically alter the innovation landscape in Canada without any political debate or engagement with key stakeholders.

E X PE RT REV I EW OF F E DE R A L SU PP ORT TO RESEARCH AND DEVELOPMENT In Budget 2010, the government announced a comprehensive review of support for research and development (R&D). A six member panel of businesspersons, scholars and academic leaders was appointed in October 2010; the panel was chaired by Tom Jenkins, Executive Chairman and Chief Strategy Officer for Open Text Corporation of Waterloo, Ontario. The panel issued a call for submissions with 15 questions that especially probed the role of firms in the innovation process, undertook some primary research, engaged in a range of face-to-face consultations and commissioned a survey of more than 1000 R&D performing firms. The consultation elicited 228 submissions, each set at a maximum of five pages, which offered a wide range of views.24 A review of more than 170 of the submissions showed that they were received from a diverse group. About 28% of the submissions reviewed came from national organizations with equal shares from Western Canada and Ontario. Quebec and the Atlantic provinces engaged less in this process. About 38% of the 170 briefs reviewed were submitted by groups or individuals interested in the R&D in the four federally identified strategic sectors, another 15% represented more traditional Canadian sectors. Interestingly, there was little or no special pleading for regions or specific technologies or sectors, except perhaps for patent restoration to assist those firms with technologies that require extensive regulatory

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processes. While there was significant diversity of those engaged, the messages tended to blend into some key general themes. From a business perspective, respondents suggested that one barrier to effective R&D is the relatively slow and difficult process for developing collaborations between publicly funded research organizations and the private sector. The OECD ranks Canada on the bottom in terms of business-university collaboration because of the nature of public research, which lacks a focus on business interests and serves scholars who are neither entrepreneurial nor focused on tangible outcomes. Meanwhile respondents noted another mismatch is that industrial research is hard to link to the universities that get much of the federal support because industry does not work on the premises of explicit hypotheses and needs to work on a much shorter timelines. Ultimately, industry and universities operate as solitudes, with few researchers from universities or public labs taking up positions within private companies. A range of recommendations ensued. One suggestion from McGill University is to reorient university commercialization offices to “create and share” rather than “own and protect” models of development. Others suggested universities should make more effort to disclose and market their research results to business. Some simply wanted to redirect some effort to bypass the current system and instead invest in R&D parks to serve as “incubators for SME s.” Red tape generated significant discussion. There was a general view that there is a lack of transparency in funding processes, that the restrictive definition of eligible investments excludes some critical activities (especially in the SR&ED tax credit) and that the tax credit programs are too directed towards funding profitable firms. Moreover, many noted that the regulatory system generally burdens innovators, especially SME s. Others pointed to small domestic markets compounded by a lack of domestic pre-commercialization and market expansion support. Moreover, there is a general lack of foreign S&T and multi-sectoral partnerships involving Canadian and foreign firms. One common concern is that by default we defer commercialization to our neighbors. There seemed to be general if not universal support for an open and competitive regulatory and market system, involving opening markets through trade liberalization, “smart” regulation and policies that actively encourage foreign direct investment. The perceived lack of an innovation-valuing culture in Canada concerned many. Respondents pointed to shortening planning horizons, a paucity of industrial clusters within defined geographic areas and a lack of regional or national networks, linkages and collaboration. There was some support for the philosophy of spreading funding widely and evenly. This has benefits in terms of diversity and idea generation but fails to identify and adequately reward priorities with the potential for commercial success. The Panel submitted its final report to the Minister of State (Science and Technology) on October 11, 2011 and issued it publicly the same day.25 The

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Panel focused on a number of high level recommendations mirroring their guiding principles – government should offer transformative programs that deliver positive net benefits, are national in scope, are broadly applied, build strategic sectors collaboratively and require commercial success, both regionally and nationally. The Panel offered five core recommendations in pursuit of that goal. First, government should create an Industrial Research and Innovation Council (IRIC ), with a clear business innovation mandate to enhance the impact of programs through consolidation and improved wholeof-government evaluation. The hope is that the proposed IRIC , paired with a high level ministerial appointment and an on-going External Innovation Advisory Committee, would establish a federal voice for innovation and engage with the provinces to improve coordination and impact. Second, the Panel suggested the SR&ED program be simplified, by basing the tax credit for small and medium sized enterprises (SME s) on labour-related costs, which would narrow the range of support and would reduce payments for third-party consultants. The government could then redeploy those and other savings from the tax credit to a more complete set of direct support initiatives to help SME s grow into larger, competitive firms. One potentially controversial recommendation is that the refundable portion of the tax credits be reduced, so that the bulk of benefits would go to profitable firms. Many respondents to the panel’s discussion document actually suggested that the non-profitable nature of start-up and high-growth SME s requires greater refundable or flow-through provisions. Third, the Panel asserted that high-growth innovative firms need more access to startup and late-stage risk capital than is currently available, and they recommend new funds be developed and delivered through the Business Development Bank of Canada (BDC ) with private sector participation and leadership. Fourth, the Panel reaffirmed the recent announced changes at the NRC , and recommended transforming the institutes into a ‘constellation of large-scale, sectoral and collaborative R&D centres involving business, the university sector and the provinces’; all NRC public policy related research activity would be moved to the appropriate federal line departments while those institutes with more of a basic research focus would become ‘affiliates’ of universities. Finally, the Panel wants the government to proactively use procurement to support business innovation by institutionalizing the current pilot phase of the Canadian Innovation Commercialization Program. While the Conservative Party election platform committed to “take action on the findings of the Research and Development Review Panel,” as with all expert advice, governments have the prerogative to pick and choose which advice it will accept and implement. The 2012 budget may finally reveal whether this period of introspection leads to anything tangible—the portents are not overly good as even before the Jenkins report was released the federal

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Minister of Industry commissioned the Council of Canadian Academies to set up two further expert panels, one to assess the state of science and technology and other industrial research and development in Canada.

CONCLUSIONS Vannevar Bush’s 1945 report to the US President, Science: The Endless Frontier, provides the intellectual and political underpinnings for much of the science and technology policy in the last 65 years.26 Few dispute the capacity of the state to act as a critical funder, as a partner and as an early and demanding buyer for both big and small science. As the state signals where and how to fill the research, development and commercialization pipeline, it is assumed that the flow of new products, processes, technologies, markets and organizations will ultimately accelerate the rate of growth in economic productivity and social welfare. The coincidence of the global financial and fiscal crisis and new compelling evidence that S&T expenditure does not create outputs and outcomes as predictably as envisaged by Bush has precipitated introspection. In the absence of effective political debate or leadership, new voices with new views have engaged at the administrative, community and industrial levels. The current Science and Technology Strategy is the only plan, in spite of significant frustration by politicians, bureaucrats and many clients that it has little economic impact. While the two 2011 budgets did nothing to dispel this, efforts both inside and outside government have attempted to push the debate on. Regrettably, the election was an opportunity wasted for generating debate and ideas that might form part of the innovation agenda. For a host of reasons, innovation never made headlines or engaged leaders. Internally, agencies have begun the slow and incremental process of shifting resources and energy towards a few more focused priorities, but more often than not their efforts simply confirm the limits of government action and the lack of resources to redirect to priorities. For the most part, however, the debate has ignored the major items of SR&ED tax credits and intramural research. The NRC is the exception, with the new president promising a complete overhaul of the business model and a major restructuring of NRC activity on the ground and in communities. Meanwhile, the Expert Panel on federal support to R&D took a more radical approach, directing the government to undertake major surgery to the policy system and three key program areas—NRC , the SR&ED and procurement. If some of their recommendations make the transition to policy, the innovation landscape in Canada will be significantly different in coming years. As with most structural change in government, however, the results in terms of outputs and outcomes will only be realized and assessable well beyond the planning horizon of most current leaders in industry and government.

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Notes 1 Science, Technology and Innovation Council. State of the Nation 2010 – Canada’s Science, Technology and Innovation System. Science, Technology and Innovation Council Ottawa: 2011. Available at: www.stic-csti.ca (accessed 29 November 2011). 2 Expert Panel on Federal Support to Research and Development (Jenkins Report). 2011. Innovation Canada: A Call to Action. Ottawa: 2011. Available at: http://rdreview.ca/eic/site/033.nsf/eng/h_00287.html (accessed 29 November 2011). 3 For discussion, see David Castle and Peter W.B. Phillips. “Science and Technology in Canada: Innovation Gaps and Productivity Traps.” in Christopher Stoney and Bruce Doern, eds. How Ottawa Spends, 2011–12: Trimming Fat or Slicing Pork? Montreal: McGill-Queen’s University Press. 2011, 163–79 and Peter W.B. Phillips and David Castle. “Science and Technology Spending: Still No Viable Federal Innovation Agenda. in Bruce Doern and Christopher Stoney eds., How Ottawa Spends 2010–11:Recession, Realignment and the New Deficit Era. Montreal: McGill-Queen’s University Press, 2010, 168–86. 4 David Castle and Peter W.B. Phillips. “Science and Technology in Canada: Innovation Gaps and Productivity Traps.” 5 Science, Technology and Innovation Council. State of the Nation 2010 – Canada’s Science, Technology and Innovation System. 6 Science, Technology and Innovation Council. State of the Nation 2010 – Canada’s Science, Technology and Innovation System, 41. 7 OECD . Statistics: Labour Productivity Growth in the Total Economy. Paris: OECD 2011. Available at: http://stats.oecd.org/Index.aspx?DatasetCode=PDYGTH (accessed 29 November 2011). 8 Bengt-Ake Lundvall. “Innovation System Research and Policy: Where it Came From and Where it Might Go.” Paper presented at CAS Seminar, Oslo, December 4. 9 Science, Technology and Innovation Council. State of the Nation 2010 – Canada’s Science, Technology and Innovation System. 10 T.F. Bresnahan and M. Trajtenberg, “General Purpose Technologies: ‘Engines of Growth’?.” Journal of Econometrics, Annals of Econometrics 65, 1996, 83–108. 11 See OECD . The OECD Innovation Strategy: Getting A Head Start on Tomorrow. Paris: OECD . 2010. http://www.oecd.org/dataoecd/14/32/42095821.pdf(accessed 29 November 2011), and J. Gaisford, W. Kerr, P.W.B. Phillips, and C.D. Ryan. 2011.”High-tech Clustering in Canada. in Zhiqi Chen and Marc Duhamel (eds), Industrial Organization in Canada: Empirical Evidence and Policy Challenges. Montreal: McGill-Queen’s University Press. 2011. Chapter 6. 12 Canada. The Budget Speech 2011. Government of Canada. March 22, 2011. 13 Conservative Party of Canada. Here for Canada: Stephen Harper’s Low-Tax Plan for Jobs and Economic Growth. 2011. Available at: http://www.conservative.ca/media/ ConservativePlatform2011_ENs.pdf (accessed 29 November 2011). 14 New Democratic Party of Canada. Giving Your Family a Break: Practical First Steps. 2011. Available at: http://ndplondonarea.ca/sites/ndplondonarea.ca/files/ ndp2011platform_en_web.pdf (accessed 29 November 2011).

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15 Liberal Party of Canada. Your Family, Your Future, Your Canada. 2011. Available at: http://www.liberal.ca/platform/canada-world (accessed 29 November 2011). 16 Clerk of the Privy Council. Sixteenth Annual Report to the Prime Minister on the Public Service of Canada, 2008 Annex D: Integrated Business and Human Resources Planning. Available at: http://www.clerk.gc.ca/eng/feature. asp?featureId=19&pageId=227 (accessed 27 November 2011). 17 Agriculture and Agri-Food Canada. 2010–11 Estimates: Part III Reports on Plans and Priorities. 2010. Available at: http://dsp-psd.pwgsc.gc.ca/collections/collection_2010/sct-tbs/BT31-2-2011-III-1-eng.pdf (accessed 29 November 2011). 18 Canada Health Infoway. Unlocking the clinical value of health information systems. Corporate Business Plan, 2010–11. 2010. Available at: https://www. infoway-inforoute.ca/flash/lang-en/bp2010-2011/docs/Business_Plan_20102011_ENG.pdf 19 Industry Canada. Industry Canada Business Plan 2010–11. 2010. Available at http://ic.gc.ca (accessed 6 July 2011). 20 Canada Foundation for Innovation. 2010 Analysis of Investments in Research Infrastructure (final report). 2010. Available at: http://www.innovation.ca/ docs/accountability/2010/2010-Report-on-Results-FINAL-EN.pdf (accessed 29 November 2011). 21 National Research Council Canada. 2010–11 Estimates: Part III: Report on Plans and Priorities. 2010. Available at: http://www.tbs-sct.gc.ca/rpp/2010–2011/inst/ nrc/nrc-eng.pdf (accessed 29 November 2011). 22 Quoted in B. McKenna, “John McDougall: Hungry for better ‘return’ on research.” Globe and Mail, August 5, 2011. Available at: http://www.theglobeandmail.com/report-on-business/careers/careers-leadership/the-lunch/ john-mcdougall-hungry-for-better-return-on-research/article2121223/page2/ (accessed 29 November 2011). 23 Ian Potter.“NRC ’s Support of Canada’s Energy, Environment and Natural Resources Sectors.” Presentation to the Standing Senate Committee on Energy, the Environment and Natural Resources, 15 November, 2011. Available at: http:// www.nrc-cnrc.gc.ca/eng/news/speeches/111115.html (accessed 29 November 2011). 24 Review of Federal Support to Research and Development. Submissions. 2011. Available at: http://rd-review.ca/eic/site/033.nsf/eng/h_00006.html (accessed 29 November 21011) 25 Expert Panel on Federal Support to Research and Development (Jenkins Report). 26 V. Bush. Science The Endless Frontier, A Report to the President by the Director of the Office of Scientific Research and Development. 1945. Available at: http:// www.nsf.gov/od/lpa/nsf50/vbush1945.htm (accessed 29 November 2011). (accessed 29 November 2011).

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6 Toward a Perimeter: Incremental Adaptation or a New Paradigm for Canada-US Security and Trade Relations? Geoffrey E. Hale

INTRODUCTION In December 2011, Prime Minister Stephen Harper and US President Barack Obama signed a bilateral agreement, the “Beyond the Border Action Plan,”1 as part of an ongoing process to enhance security cooperation and trade facilitation between the two countries. Building on a statement of principles announced in February 2011, the two governments agreed to extend measures for coordinating security and law enforcement at and beyond national borders, streamlining rules and processes governing cross-border trade and travel, including shipments and travellers originating outside North America. In a separate process, they outlined several measures to increase regulatory cooperation in the automotive, food processing and transportation sectors to reduce reducing regulatory barriers for firms with integrated operations and supply chains between the two countries.2 The twin agreements spelled out a series of actual and potential policy shifts while extending several existing areas of cooperation. Not surprisingly, media and public attention given to these negotiations in each country have reflected the relative political and economic importance of bilateral cross-border relations to Canadians, and their limited profile for Americans – particularly with the intensified focus of US domestic politics on President Obama’s campaign for reelection. The demands of electoral cycles and competing domestic agendas highlight the different policy contexts that shape cross-border policies in each country – not least the limited openings of “policy windows” for new initiatives that require high-level political commitments. Rather than the paradigm shift

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towards a new model of “perimeter security” suggested by some observers in initial discussions of a new border management accord, security, border and regulatory cooperation talks appear to have reverted to the pattern of cautious, if more systematic incrementalism dominated by bureaucratic politics and other domestic considerations that has characterized bilateral relations on these issues in previous years. This pattern is consistent with theories of policy change advanced by political scientist John Kingdon – who notes that the cluttered agendas of American governments require a convergence of “problem streams” – issues competing for recognition by senior policy-makers as significant problems requiring significant policy changes, and “policy streams” – ideas for policy change which circulate in the “soup” of broader or specialized policy processes of governments, with the political stream – significant electoral, partisan and pressure group calculations that shape the priorities, initiatives, and responses of senior political actors.3 This chapter summarizes the political and policy contexts for initiatives announced in the Beyond the Border Accord of February 2011 and the subsequent Action Plans of December 2011. It explains the factors that have shaped ongoing discussions for border facilitation, security, and regulatory cooperation, along with proposals for policy change that have emerged from intergovernmental discussions and consultations with assorted interest groups. It summarizes and evaluates policy developments announced in the Beyondthe-Border and Regulatory Cooperation Action Plans, and their ongoing prospects for implementation.

THE CONTEXT FOR BORDER MANAGEMENT A N D R E G U L AT O R Y P O L I C I E S : N AV I G AT I N G THE P OST-9/11 WORLD Canada’s broader economic policies since the late 1980s have been structured around maximizing tariff-free access to American markets to help Canadian manufacturers and other industries achieve the economies of scale and other efficiencies necessary to compete internationally with large firms from other major trading nations. As a result, many large- and medium-sized Canadian firms have become fully integrated within North American and broader international supply chains: the series of value-adding production facilities, services, processes, information and financial flows that generate final products and distribute them to end users.4 This structural economic integration has greatly increased the importance of efficient cross-border flows of goods and business travellers in many sectors. Among the most prominent examples are the automotive sector’s “just-in-time” inventory control and component distribution systems, the extensive interdependence (and often vertical integration) of firms in the food processing and distribution sectors, and the strategic

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cross-border alliances which have reshaped North American rail, truck and, to a lesser degree, air transportation networks since the early 1990s. However, patterns of deep integration, while extensive in particular industries, typically do not extend to government policies. Growing economic and societal interdependence coexist with continuing differences in size, power, institutional structures, and relative economic openness among the three countries of North America. As a result, different patterns of policy relations have evolved in different economic and policy sectors and sub-sectors. These patterns are reflected in the continuum of policy cooperation noted by Gattinger and Hale that is diagrammed in Figure 1. American policy developments relevant to micro-economic, environmental, and security regulation (among other areas relevant to cross-border relations) usually occur independently of Canada. American policies towards Canada may take a number of different forms. These range from variations on policies towards allies, to “exceptionalist” or “exemptionalist” policies intended to accommodate Canadian interests due to their overlap with or importance to domestic American interests, to the inadvertent effects of domestic policy choices on Canada or Canadian interests, to unilateral exercises in power intended to protect the US (or domestic interest groups) from foreign threats (real or perceived), or enforce American policy preferences in relations with other countries.5 The realities of interdependence – and, in some cases, outright dependence – on American markets for Canada’s prosperity and economic security makes Canadian governments extremely sensitive to policy developments in the United States which affect their interests. As a result, both federal and some provincial governments have developed extensive cross-border relationships intended to influence American policies towards Canada, often paralleled by (and supportive of) Canadian business and other societal interests. These relationships range from ongoing bilateral and transgovernmental contacts among working level officials, to regular meetings between Canadian cabinet ministers and their US counterparts, to the careful cultivation of relations of Prime Ministers (and their central agency officials) with their counterparts in the White House and National Security Agency. The wider the range of US government or societal interests affected by particular policy decisions, the more important these political and central agency linkages become in order to navigate the politics of cross-cutting interests in both countries, which enable Canadian, not just American governments to retain some capacity for choice in their policy decisions.6 Consequently, cross-border policy relations often resemble a series of two-level and multilevel games as policy actors in each government engage in negotiations with their opposite numbers while competing for policy attention and resources in their own country. This process frequently involves seeking to build coalitions with other governmental and societal stakeholders to advance their policy

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Figure 1 The Continuum of Policy Relations Conflict ---------------Independence ----------------------------------------------Harmonization |-- Parallelism--|--Coordination--|--Collaboration--| Source: Gattinger and Hale (2010), Borders and Bridges: Canada’s Policy Relations in North America (Toronto: Oxford University Press), 13.

goals, anticipating or responding to countervailing pressures from other governmental and societal stakeholders with competing objectives.7 Ottawa’s balancing act between managing interdependence and maintaining policy discretion – responding in both cases to the many domestic interests affected by cross-border relations – has become significantly more complex since terrorist attacks of September 2001 resulted in a significant “thickening” of the US-Canadian border. The Smart Border Accord of December 2001 sought to create a broader political framework for coordinating a wide range of new security measures which were introduced at all ports-of-entry to North America and along American borders with Canada and Mexico. The Accord reflected the post-9/11 opening of a high-level political window to cross-border cooperation that brought together the “policy streams” of officials in each government’s law enforcement and border agencies that had been exploring opportunities for several years following the Shared Border Declaration of 1995, but without the high-level support necessary to overcome institutional inertia and work through key political trade-offs necessary to address the “problem streams” associated with post-9/11 security fears and supply chain dislocations. The Smart Border process resulted in ongoing efforts to assist larger firms to introduce supply chain security and traveller screening measures in return for more efficient processing at the border. However, growing policy differences, dislocations resulting from large-scale reorganizations associated with the creation of the US Department of Homeland Security and Public Safety and Emergency Preparedness Canada, and related challenges in administrative coordination undermined both the political momentum and mutual trust necessary for effective administration of the Smart Border process.8 At one level, these factors contributed to significantly increased costs, delays and unpredictability of cross-border shipments and travel,9 leading business groups and trade policy experts to pressure Ottawa to seek the closer coordination of security measures, including movement towards a shared security perimeter around North America to allow more efficient processing at the border.10 At another level, some US security officials and experts began to question Canadian governments’ commitment to core US security interests, despite the Harper government’s best efforts to “reset” the tone of the relationship.11

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One policy stream created to channel these efforts was the trilateral Security and Prosperity Partnership (SPP ) process, which repackaged the efforts of multiple governmental and industry-government working groups to address regulatory cooperation and border management issues arising from NAFTA ’s implementation in the 1990s. Initiated in March 2005 at the first of a series of North American leaders’ summits, the SPP provide a trilateral veneer for numerous bilateral discussions between the Americans and their neighbours on separate issues – a process typically described by Canadian officials as “three can talk, two can deal.” Annual leaders’ meetings provided political windows to focus the SPP ’s otherwise cluttered agendas, although the trilateral North American Competitiveness Council triggered accusations from NAFTA sceptics that these processes were serving corporate interests at the expenses of broader societal interests in each country.12 However, two major problem streams emerged that effectively submerged SPP processes as effective channels for closer cooperation on security and border management, as well as ongoing efforts at sectoral regulatory cooperation. The politicization of US-Mexico border issues due to concerns over largescale illegal immigration, drug trafficking, and the Mexican narco-insurgency that has claimed about 48,000 lives since 2006 contributed to intense media and political pressures to fix America’s “broken borders.” Their impact on US-Canadian border relations can be seen from the prolonged debate over implementation of the Western Hemisphere Travel Initiative (WHTI ) requiring passports or other “secure identification.”13 Moreover, stagnant or declining living standards for most Americans prompted growing resentment of NAFTA ’s trade links with Mexico, prompting the Democratic-controlled Congress elected in November 2006 to refuse President Bush renewal of “trade promotion authority,” and leading candidates Obama and Clinton to challenge NAFTA when campaigning for the Democratic presidential nomination in 2008. US and Canadian business groups, quietly supported by the Canadian government, responded by attempting to decouple US northern and southern border policies.14 At the same time, the growing importance of supply chain integration has increased concerns among Canadian business groups over persistent differences in regulations and technical standards between the two countries that hinder cross-border trade.15 However, broader political environments of divided or minority governments and growing economic insecurity in all three countries precluded the emergence of substantive processes for policy change – especially those requiring parliamentary or Congressional approval. The weakness of political incentives to move these processes forward were reinforced by the fragmentation of bureaucratic processes and the weakness or effective absence of central processes for policy coordination in each government.16

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The Obama Administration’s decision to kill the SPP in early 2009 and its subsequent failure to develop a new North American policy amid its overloaded domestic and international agendas subsequently allowed US relations with Canada and Mexico to evolve along separate if often parallel tracks. These realities led to a flurry of research initiatives and conferences promoted by think tanks on both sides of the border in pursuit of new approaches to border management.17 The recession of 2008–09 led to a sharp drop in both Canadian and US international trade – including a drop of more than 20  per  cent in trade between the two countries. The effects of the recession also contributed to a sharp drop in illegal immigration to the United States – and with it, political pressures to toughen enforcement measures on both borders. Even so, the Obama Administration initially extended the Bush administration’s “security first” policies rather than responding to Ottawa’s overtures for closer coordination of security and trade facilitation policies and processes. Speaking at a conference on bilateral relations in March 2009, Homeland Security Secretary Janet Napolitano emphasized the need for a “real border” between the two countries, whatever efforts might be made to improve border infrastructure and trade facilitation.18 However, the bilateral security relationship took a more cooperative tone over the next eighteen months as officials of the two governments continued to meet regularly. The US Homeland Security and Canadian Public Safety departments released a joint threat assessment report in mid-2010.19 Some observers credit Alan Bersin, Napolitano’s newly appointed Commissioner of Customs and Border Protection, for a more flexible approach to both domestic and cross-border discussions on border management. Officials from both countries’ border agencies met regularly during 2010 in efforts to develop a high level “border vision” that could shape the evolution of border policies and services over the next decade. At the same time, American officials were meeting with their Mexican counterparts to develope a “twenty-first century border management” strategy that marked a constructive shift in relations between the two countries – suggesting American willingness to move away from the post-9/11 “one border” process towards a “two-speed” approach.20 The political opening for broader initiatives came with American voters’ sharp rebuke of the Obama administration in the 2010 Congressional elections, largely in response to high unemployment levels and a slow recovery from the 2009 recession. Although the Democratic Party retained control of the Senate with a reduced majority, it lost more than 60 seats – and control – of the House of Representatives. The Obama administration initially responded by developing several new initiatives to increase business competitiveness, streamline regulations, and promote exports – key factors suggested by Christopher Sands in allowing Washington to give a higher priority to negotiations with Canada. Others included progress in talks on bilateral

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border issues, “increasing criticism of border management,” the potential for Canada to share information with US border agencies to close the gaping hole in the latter’s entry-exit monitoring systems as part of a broader “northern border strategy,” and media leaks on these negotiations in Canada which increased pressures on the Harper government to clarify the nature and purpose of the talks.21 These factors reflect Kingdon’s “multiple streams” approach to policymaking in Washington – and the predominance of American domestic policy considerations in evolving border policies. US officials did not appear to view the “thickening” of their northern border as a “problem” as long as security issues continued to take priority over economic and trade issues. The weakened American economy and the devaluation of the American dollar increased the competitiveness of American industries exporting to Canada (especially those in border regions) – and thus the potential benefits of closer cooperation with Canada. Promoting exports and streamlining business regulations had become higher priorities in response to the voter backlash over the economy. Extending existing security cooperation arrangements with Canada would close a gap in US security arrangements – and allow for the more efficient use of resources if Congress made good on threatened spending reductions. For the Harper government, the key factor appeared to be the Obama administration’s willingness to invest the President’s political capital on issues that had long been at or near the top of Ottawa’s priorities in cross-border relations. These factors helped to open a small policy window for improved bilateral cooperation – if only senior officials could hold it open long enough to flesh out and implement the proposed changes.

T H E WA S H I N G T O N A C C O R D S O F F E B R UA R Y 2 0 1 1 : S P I N O R S U B S TA N C E ? President Obama and Prime Minister Harper announced the two “accords” – essentially, agreements to negotiate – on perimeter security and related border management issues and regulatory cooperation on February 4, 2011. The Accords received wide publicity in Canada and, as usual, relatively little notice in the United States. The first agreement, Beyond the Border: A Shared Vision for Perimeter Security and Economic Competitiveness,22 explicitly sought to link the respective priorities of the two governments in language that reflected the “risk management” perspectives of early post-9/11 security policy analyses rather than the “risk avoidance” perspectives which dominated DHS and Congressional perspectives of border policy after the formation of the Department of Homeland Security.23 The four core themes of this “vision” statement were to develop systems and processes to “address threats early,” promote “trade facilitation, economic growth and jobs,” expand “integrated cross-border law

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enforcement,” and work together to strengthen “critical infrastructure and cyber-security.” A number of these initiatives, discussed below, reflected measures taken during the past few years, but were repackaged to expand the number of “deliverables” as well as providing political impetus for their ongoing implementation and extension. In the second agreement, the two governments committed themselves to forming a bilateral Regulatory Cooperation Council “to reduce red tape by making regulations in a range of sectors more compatible and less burdensome in both countries.”24 The leaders’ communiqué marked a significant departure from the “one border” policy which, at least in principle, committed DHS officials to a uniform approach to managing US borders with Canada and Mexico. The concept of “perimeter security” also departed from the language of post-9/11 discussions on border issues although several elements of the “Beyond the Border” process had been initiated as part of the earlier Smart Border Accord. Commitments to pursue “compatible, interoperable and, where possible, joint measures and technology,” engage in “greater information sharing,” “improve screening of individuals,” and develop “common technical standards for the collection, transmission and matching of biometrics” reflected measures on which the two governments had already cooperated, to varying degrees, for almost a decade. Similarly, commitments to develop “joint privacy principles” and protect civil liberties reflected existing domestic political realities in both countries, as did a commitment to extend the “health security partnership” on public health issues initiated under the SPP process, and ongoing implementation of the 2008 Agreement on Emergency Management Cooperation that allowed local first responders to cross borders in response to localized emergencies. The most significant policy development was a commitment to “work towards a common entry-exit system” – especially in the “land environment, so that documented entry into one country serves to verify exit from the other country.” Although American officials had approached their Canadian counterparts periodically with similar objectives since Congress had renewed their mandate to implement entry-exit in 2004, concerns over differences between Canadian and US privacy laws, along with broader political considerations, had precluded agreement. Another commitment, responding to suggestions from practitioners and academics for greater responsiveness to border communities and stakeholders, provided for the creation of “bi-national port-ofentry committees” to “coordinate planning and funding, building, expanding or modernizing shared border management facilities and border infrastructure where appropriate.”25 The second agreement, providing for the creation of a bilateral Regulatory Cooperation Council (RCC ), provided a means of reviving past discussions of NAFTA and SPP working groups had ceased with the SPP ’s demise. Discussions would focus on specific sectors with existing bureaucratic processes and/or fairly high levels of consensus between major industry actors on both sides of

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the border – notably the automotive, food processing, chemical, and alternative energy sectors. Sands suggests that, in addition to providing a substitute for cross-border discussions under the SPP , the RCC provided Canadian industry groups with a means of identifying and countering potential actions under the Obama administration’s existing regulatory review processes that might be detrimental to Canadian industries.26 The two bodies tasked with implementing the agreement: the Beyondthe-Border Working Group of officials from the two governments, and the Regulatory Cooperation Council were given three and two year mandates respectively with annual reporting requirements to the President and the Prime Minister. Critics noted that, as with previous SPP processes, the 2011 Accords made little provision for stakeholder engagement and no provision for formal consultations with either Parliament or Congress27 – although officials interviewed by the author indicate that any measures contained in the action plan released in December 2011 requiring formal legislative or regulatory changes would be subject to normal procedural requirements. The US government later made submissions that it received from its subsequent consultation processes publicly available, while the Canadian government published summaries of similar processes in Canada.28

PURSUING POLICY STREAMS: PROCESS, P OLITICS, PULLBACK? The processes for negotiating a detailed perimeter security, border management and regulatory cooperation agreement following the February 2011 accords had a limited public profile in Canada until a flurry of publicity around the release of Joint Action Plans in December 2011, and an almost subterranean one in the United States. Although Canadian opposition parties initially received the February agreements with cautious scepticism, the negotiations did not become a significant issue during the federal election campaign which followed the Harper government’s defeat on a non-confidence motion in late March 2011.29 Upon winning its majority, the Harper government initiated an abbreviated, low profile public comment process which elicited feedback from major business groups and anti-NAFTA civil society groups, but with very limited broader public discussion. Both governments set up working groups to coordinate the two sets of negotiations and meet selectively with stakeholders through the Privy Council Office and National Security Agency, respectively. Both Canadian and American officials involved in these processes indicated during these consultations that their initial objectives were to identify easily implemented consensual measures for an early report to leaders during the late summer of 2011 to create momentum for the process, with a second report to follow the 2012 Presidential elections. Differences over technical issues and processes

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were often addressed by the expedient of agreeing to pilot projects to test the feasibility of proposed policy changes. Limited public discussions suggested that the automotive, food processing, alternative energy, chemical and health and consumer product sectors were most active in advancing specific regulatory changes, while horizontal business groups such as the CEO Council and Canadian Manufacturers and Exporters provided broader proposals for regulatory cooperation.30 Comments emerging from policy makers suggest the presence of four different policy streams: law enforcement – reflected in US Attorney General Eric Holder’s comments on plans for expanded cross-border law enforcement cooperation, dubbed “NextGen”;31 border operations, traveller and cargo screening practices, which in turn overlap with trade facilitation measures: and sector-specific regulatory initiatives. In early October, Canadian government officials hinted at difficulties in making room in the President’s agenda for a high profile “signing ceremony” with Prime Minister Harper, rather than a quiet announcement more in keeping with the negotiations’ minimal political profile in the United States – although this impasse was resolved before the two leaders met at the AsiaPacific summit in Hawaii in mid-November.32 At the same time, public statements on elements of a pending agreement by CBP Commissioner Bersin, Attorney General Holder, and Deputy Secretary of State Thomas Nides suggested plans for more extensive policy changes.33 The Beyond-the-Border Action Plan unveiled in early December 2011 provided twenty-nine proposed initiatives and a timetable to move towards them, but left a number of open questions as to the political will and resources necessary to implement them.

THE BEYOND-THE-B ORDER ACTION PL AN: F R O M FA C I L I TAT I O N T O “ A C C E L E R AT I O N ” ? The 30-page Beyond-the-Border Action Plan (BTBAP ) provides a helpful reminder of the size, diversity and complexity of border management issues in each country, along with the legal and administrative complications of coordinating different legal and administrative processes. The plan is organized in five sections: “Addressing Threats Early,” “Trade Facilitation, Economic Growth and Jobs” (with some overlap between these two sections), “CrossBorder Law Enforcement,” “Critical Infrastructure and Cyber-Security,” and “Managing Our New Long-Term Partnership,” which addresses issues of coordination and privacy rights.34 Several elements of the plan’s security-driven elements involve extensions of existing policies, including “joint integrated threat assessments” and “information sharing” measures which allow police and intelligence forces to conduct risk assessment processes together and allocate resources accordingly. Security policy analysts view this kind of information sharing as vital both

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to building (or maintaining) mutual trust among security and police forces, and to conducting the kind of effective risk management activities that allows supply chains to function efficiently in North American and international trade.35 The plan also extends cooperation measures on “counter(ing) violent extremism” – bureaucratic code for measures to limit and counter movements towards radicalization in communities vulnerable to Salafist jihadism and other groups that advocate violence in pursuit of political objectives.36 However, the BTBAP also provides for phased extensions of several new initiatives. These include the exchange of information on persons crossing land borders, something long sought by Department of Homeland Security officials to close gaps in their entry-exit monitoring system on land borders, and which also allow tracking of persons overstaying visitors visas or subject to removal orders under immigration laws – a long-standing gap in both countries’ immigration systems.37 It also standardizes electronic travel advisory provisions for foreign travellers entering Canada and the US under each country’s visa waiver policies, thus sidestepping long-standing debates over Canada’s extension of visa waiver privileges to a wider range of countries, particularly with those with Commonwealth links.38 Canadian airlines may be less enthused about provisions requiring passenger lists to be submitted to Canadian authorities as part of expanded exit monitoring systems – which remain separate for travellers outside North America. These measures will be phased in between mid-2012 and mid-2014 respectively. To address privacyrelated criticisms on both sides of the border, the two governments committed to developing a “joint statement of privacy principles” within six months to govern information sharing under each country’s respective laws and constitutional protections.39 In return for developing these complementary and parallel systems, the two governments have agreed to expand the pre-screening and inspection of rail and air cargo to eliminate the rescreening of cargo shipments through Canadian ports to American destinations: a major goal of Canadian railroads and trucking firms. Pilot projects will be initiated to test these new systems for container freight arriving at Prince Rupert and multimodal shipments through the Port of Montreal to American destinations.40 The plan also provides for closer coordination of “trusted trader” (supply chain security) and “trusted traveler” program qualifications in each country to move towards one-window application processes that will streamline processes for crossborder trade and travel and address criticisms about bureaucratic complexities that have reduced incentives for business and public participation. The plan also increases thresholds for “low value shipments” to be exempted from NAFTA rules of origin – a longstanding irritant for many shippers.41 In a measure long-championed by business and tourism interests in both countries, the two governments agreed to negotiate an agreement to allow pre-clearance and pre-agreement of trucks, rail and air cargo, and cruise ship traffic by the

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end of 2012. While details remain to be determined, these measures addressed much of the unfinished business arising from the Smart Border process initiated after 9/11 and subsequent negotiations on border facilitation. The plan provides for closer coordination of border infrastructure planning, establishing a process for coordinating infrastructure improvements on a five-year planning cycle, and the roll-out of technology improvements to expand the number of passenger “ready lanes” capable of processing the enhanced driver licences and other “smart ID ” at major crossings. As part of the five-year plan, all small and remote ports of entry will be required to subject joint operating plans within six months. However, these measures are subject to normal budget processes in each country – including the vagaries of Congressional log-rolling and the potential for “sequestration” in case of persistent political gridlock over the reduction of the trillion-dollar US budget deficit.42 The BTPAP also extends cross-border cooperation under the Shiprider program to locations along the land border. This program, initiated several years ago to combat water-borne drug smuggling on the West Coast and subsequently expanded to the Great Lakes / St. Lawrence region, enables crosstrained officers from each country to engage in joint operations to combat cross-border criminal activities, with host-country officers taking the lead in enforcing that country’s laws.43 To sum up, the Beyond-the-Border Action Plan is an ambitious document that addresses many concerns about border thickening raised by Canadian government and economic interests during the past decade and offers the potential for significant improvements in border management over the next few years. However, it remains to be seen whether the political will, cross-border bureaucratic cooperation, and budgetary capacity to implement these proposals can be sustained through and beyond the current Presidential election cycle – and the intense budgetary challenges likely to beset US and Canadian policy-makers over the next several years.

R E G U L AT O R Y C O O P E R AT I O N : I L L U S I O N OR REALITY? The Washington Accords of February 2011 also provided for the creation of a Regulatory Cooperation Council intended to encourage the development of “compatible approaches” to national regulations of sectors “characterized by high levels of integration, significant growth potential and rapidly evolving technologies.”44 Following extensive stakeholder cooperation, four major sectors have emerged as the focus of proposed changes: •

agri-food and food safety related measures on crop protection, veterinary drugs, and the marketing of food products;

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transportation systems, including rules governing motor vehicle safety standards and “intelligent transportation systems,” marine transportation security and safety, and rules governing the packing of dangerous goods; health and personal products and workplace chemicals – including the harmonization of reporting requirements and mutual recognition of testing standards; and environmental issues – including emissions regulations for light-duty vehicles and locomotives, and expansion of the US-Canada Air Quality Agreement.45

Most of these initiatives involve the extension or acceleration of issues long under discussion between the two countries involving extensive cross-border communities of interest based on the deep integration of specific sectors. It remains to be seen whether these agreements will have any broader effect given the rather substantial differences between national regulatory processes.

CONCLUSIONS: P OLICY IN SEARCH OF A WIND OW? Most assessments of the Beyond-the-Border and Regulatory Cooperation processes have suggested that the fleshing-out and implementation of the February 2011 agreements would be contingent on two major factors: the degree to which centralized White House guidance would accommodate or counteract the vagaries of internal bureaucratic politics within major US executive departments and agencies: and the degree to which partisan and presidential politics would accommodate or pre-empt bilateral arrangements with Canada. These assessments remain valid as officials in both countries work towards the implementation of the action plans released in December 2011. These documents are clearly works-in-progress rather than definitive policy shifts – however welcome some of their measures may be to Canadian governments and business groups seeking to reverse the post-9/11 thickening of the US-Canada border. They reflect the extensive development of transgovernmental relations in specific policy and industry sectors since the border cooperation agreements of the 1990s, but also the “stop-start” politics of Canada-US relations which co-exist with multi-dimensional bureaucratic and market-driven worlds of ceaseless activity. Issues may be discussed and managed at the margins of political activity for extended periods, only to achieve momentary prominence and profile when the agendas and timetables of senior political leaders coincide. They then resume routine cycles of inter-governmental activity, punctuated by periodic meetings of cabinet-level officials to refresh and refocus the agendas of individual departments and agencies, until some incident or “focusing event”

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inserts a new urgency into some dimension of the relationship. For nonspecialists, the whole process may resemble the mating dances of a colony of amoebas – unless it is their particular interests that are caught within the policy labyrinth, or shoved out into the cold of an unresponsive political climate. As such, the current “perimeter security” and “regulatory cooperation” processes appear likely to proceed in the world of perpetual incrementalism that frequently characterizes the operational dimensions of bilateral relations. For Americans, such activities may resemble “weeding the garden,” as described by Reagan-era Secretary of State George Schulz, or attending meetings of a condominium association – a description attributed to Condoleezza Rice. However, “Canadian” issues generally receive high-level attention in Washington only to the extent that they are seen to affect the interests of significant numbers of Americans, whether for good or ill. The Obama administration appears to have revisited perimeter security, border facilitation and regulatory cooperation – perennial cross-border issues with Canada – because it served its interests to address the unfinished business of developing a coherent border management strategy within the Department of Homeland Security, and to allow Canada to piggy-back on its current interests in regulatory reform. However, like the Security and Prosperity Partnership processes which these initiatives resemble, it is not clear whether they enjoy authoritative political sponsorship or a sustained political constituency as an embattled administration focuses its attention on the systematic pursuit of re-election. The Harper government, like most Canadian governments before it, recognizes the continuing dependence of many Canadian industries on US markets and integrated North American supply chains, and their inherent vulnerability to political and administrative ambushes in the continuing crossfires of American special interest politics such as those symbolized by the political challenges that greeted the proposed Keystone XL pipeline in 201146 or the ongoing threat of expanded Buy American policies.47 For that reason, just as the Shared Border process of the 1990s was followed by the Smart Border process of the post-9/11 era, the Martin government’s efforts to secure a “Security and Prosperity Partnership” with the Americans (and Mexicans), have morphed into “Beyond-the-Border” and “Regulatory Cooperation.” The outcome of the 2012 US presidential and congressional elections remains a matter of conjecture. However, it is a foregone conclusion that, immediately thereafter, Canadian diplomats will be laying the groundwork in Washington for a new “prosperity agenda” recycling the subjects of the past two years’ negotiations in packaging appropriate to the program of a re-elected President Obama or a newly-elected President Romney. While the Border Action Plan provides a useful roadmap for ongoing action, these proposals will still need the support of policy champions within the new (or renewed)

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administration – along with that of senior members of Congress, making the “new border vision” an appropriate topic for discussion in future editions of How Ottawa Spends. Notes 1 United States. Department of Homeland Security and Canada. Privy Council Office, United States-Canada Beyond the Border: A Shared Vision for Economic Security and Economic Competitiveness (Washington and Ottawa, December 7, 2011); online at: http://www.dhs.gov/xlibrary/assets/wh/us-canada-btb-action-plan.pdf; accessed December 14, 2011. 2 United States. The White House and Canada. Privy Council Office, United StatesCanada Regulatory Cooperation Council: Joint Action Plan (Washington and Ottawa, December 7, 2011); online at: http://www.whitehouse.gov/sites/default/files/ us-canada_rcc_joint_action_plan3.pdf; accessed December 14, 2011. 3 John W. Kingdon, Agendas, Alternatives and Public Policies, Updated Second Edition (Boston: Longman, 2011). 4 Guy Stanley, “Borders and Bridges: Free Trade, Supply Chains and the Creation of a Joint Trading Platform: Industrial Development in Canada and the United States since 1980,” in Monica Gattinger and Geoffrey Hale, eds., Borders and Bridges: Canada’s Policy Relations in North America (Toronto: Oxford University Press, 2010), 306–23. 5 Edelgard Mahant and Graeme S. Mount, Invisible and Inaudible in Washington. Vancouver (UBC Press and East Lansing, MI : Michigan State University Press, 1999), 14; Geoffrey Hale, So Near Yet So Far: The Public and Hidden Worlds of Canada-US Relations (Vancouver: UBC Press, 2012). 6 Hale, So Near Yet So Far; Geoffrey Hale and Monica Gattinger, “Variable Geometry and Traffic Circles: Navigating Canada’s Policy Relations in North America,” in Gattinger and Hale, Borders and Bridges, 361–81; George Hoberg, ed., Capacity for Choice: Canada in a New North America (Toronto: University of Toronto Press, 2002). 7 For example, see Geoffrey Hale, “Canada-US Relations in the Obama Era: Warming or Greening?” in G. Bruce Doern and Christopher Stoney, eds., How Ottawa Spends: 2010–2011 (Montreal-Kingston: McGill Queen’s University Press, 2010), 48–67. 8 Hale, So Near Yet So Far, Chapter 10. 9 Danielle Goldfarb, Is Just-in-Case Replacing Just-in-Time? How Cross-Border Trading Behaviour Has Changed Since 9/11 (Ottawa: Conference Board of Canada, June 2007); Canadian Chamber of Commerce and United States Chamber of Commerce, Finding the Balance: Reducing Border Costs While Strengthening Security (Ottawa, Washington, DC , February 2008). 10 North American Competitiveness Council, Building a Secure and Competitive North America: 2007 Report to Leaders. (Washington, DC : August 2007); Bill Dymond and

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Michael Hart, “Navigating New Trade Routes: The Rise of Value Chains, and the Challenges for Canadian Trade Policy,” Commentary # 259 (Toronto: C.D. Howe Institute, March 2008). Geoffrey Hale, “Getting Down to Business: Rebuilding Canada-US Relations,” in G. Bruce Doern, ed., How Ottawa Spends: 2007–2008 (Montreal-Kingston: McGillQueen’s University Press, 2007), 65–86; Paul Rosenzweig, “Why the US doesn’t trust Canada,” Macleans, October 5, 2009. John Kirton and Jenilee Guebert, “Soft Law, Regulatory Coordination and Convergence in North America,” in Gattinger and Hale, Borders and Bridges, 59–76; Greg Anderson and Christopher Sands, Negotiating North America: The Security and Prosperity Partnership (Washington, DC : Hudson Institute, September 2007). Geoffrey Hale, “People, Politics and Passports: Contesting Security, Trade and Travel on the US–Canadian Border.” Geopolitics 16:1, 2011, 27–69. Allan Gotlieb, “Bring back the special relationship,” National Post, August 17, 2007, A17; John Manley and Gordon Giffin, “A table for two, not three,” The Globe and Mail, May 5, 2009; Derek Burney, “Canada-US Relations at 150,” paper presented at “Canada @ 150: Rising to the Challenge” Conference (Calgary: Canadian Defence and Foreign Affairs Institute, March 28, 2010); David Dyment, “Canada’s NAFTA Two-Step,” Globe and Mail, March 14, 2011. Dymond and Hart, “Navigating the New Trade Routes”; Kelly Johnson, remarks to Border Executive Seminar, University at Buffalo, St. Catherines, ON , June 18, 2011. Anderson and Sands, Negotiating North America. For example, see: Michael Kergin and Birgit Mathiessen, Border Issues Report: A New Bridge for Old Allies (Toronto: Canadian International Council, November 2008); Christopher Sands, “Towards a New Frontier: Improving the US-Canadian Border” (Washington, DC : The Brookings Institution, July 13, 2009). Hon. Janet Napolitano, “Transcript of remarks to ‘Towards a Better Border: the United States and Canada” (Washington, DC : The Brookings Institution, March 25, 2009). United States. Bureau of Customs and Border Protection, Canada Border Services Agency and Royal Canadian Mounted Police, “United States-Canada Joint Border Threat and Risk Assessment.” Washington and Ottawa: July 2010; http://www. publicsafety.gc.ca/prg/le/oc/_fl/jbtra-eng.pdf; accessed March 10, 2011. United States. The White House. “Declaration by the Government of the United States of America and the Government of the United Mexican States concerning Twenty-First Century Border Management” (Washington, DC : Office of the Press Secretary, May 19, 2010); online at: http://www.thewhitehouse.gov/the-press-office/ declaration-government-united-states-america-and-government-united-mexicanstates-c; accessed November 8, 2011; Christopher Sands, The Canada Gambit: Will It Revive North America? (Washington, DC : The Hudson Institute, March 2011), 2. Sands, The Canada Gambit, 2. Canada. Prime Minister’s Office and United States. The White House, “Beyond the Border: a shared vision for perimeter security and economic competitiveness” (Ottawa and Washington: February 4, 2011).

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23 Stephen E. Flynn, “The False Conundrum: Continental Integration vs. Homeland Security,” in Peter Andreas and Thomas Bierstecker, eds., The Rebordering of North America, eds., (New York: Routledge, 2003), 110–27; Edward Alden, The Closing of the American Border: Terrorism, Immigration and Security since 9/11 (New York: Harper, 2008); Hale, “People, Politics and Passports.” 24 Canada. Prime Minister’s Office, “PM and US President Obama announce shared vision for perimeter security and economic competitiveness between Canada and the United States” (Ottawa: February 4, 2011). 25 Sands, “Towards a New Frontier”; Canada. Prime Minister’s Office and United States. The White House, “Beyond the Border.” 26 Sands, The Canada Gambit, 13. 27 Sands, The Canada Gambit, 27–28; Mark Kennedy, “’Flawed’ border security consultations slammed,” Gazette (Montreal), June 1, 2011. 28 Hon. David Jacobson, “Excerpts from remarks by Ambassador Jacobson to the American Chapter of Commerce, Western Chapter, Calgary, AB, June 8, 2011” (Ottawa: US Embassy: June 27, 2011); Canada. Foreign Affairs and International Trade Canada, “Perimeter Security and Economic Competitiveness: What Canadians Told Us” (Ottawa: August 29, 2011); Canada. Foreign Affairs and International Trade Canada, “Summary Report on Consultations with Canadians on Regulatory Cooperation between the Canada and the United States” (Ottawa: August 29, 2011). 29 Tim Harper, “Canada-US relations out of sight, out of mind,” Toronto Star, April 22, 2011, A6. 30 Luiza Ch. Savage, “The US and Canada – singing in harmony?” Macleans, May 2, 2011; Canadian Manufacturers and Exporters et al, “Recommendations to the Canada-US Beyond the Border Working Group,” Letter to Simon Kennedy and Daniel Restrepo (Ottawa, Washington: May 18, 2011); Canadian Council of Chief Executives, “From Vision to Action: Advancing the Canada-United States Partnership” (Ottawa: May 19, 2011); Carl Meyer, “Chemicals, food ‘low-hanging fruit’ in border talks,” Embassy, July 13, 2011. 31 Josh Gore, “North Border Plan Introduced,” The Journal, Ogdensburg, NY , September 15, 2011. 32 Bronskill and Blanchfield, “Border security deal reached.” 33 Gore, “North Border Plan Introduced”; Alan D. Bersin, “Lines and Flows: The beginning and end of borders,” Ira M. Belfer Lecture, Brooklyn Law School (Washington, DC : Bureau of Customs and Border Protection, US Department of Homeland Security, Oct. 6, 2011); Thomas Nides, “Remarks at US-Canada Innovation Conference,” Ottawa (Washington, DC : US Department of State, November 2, 2011). 34 United States. Department of Homeland Security and Canada. Privy Council Office, Beyond the Border Action Plan. 35 Flynn, “The False Conundrum.” 36 Mitchell D. Silber and Arvin Bhatt, Radicalization in the West: The Homegrown Threat (New York: NYPD Intelligence Division, New York City Police Department, 2007); online at: http://www.nyc.gov/html/nypd/downloads/pdf/public_information/

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NYPD_Report-Radicalization_in_the_West.pdf; accessed December 15, 2011; Marc Sageman, “The Next Generation of Terror,” Foreign Policy (March–April 2008) “Coming, going and knowing,” Editorial, Globe and Mail, December 8, 2011, A18. Hale, So Near Yet So Far, Chapter 11. Gar Pardy, “Canada will pay a steep price in border talks,” Ottawa Citizen, September 12, 2011, A9; Tim Harper, “Border pact backlash could have been avoided,” Toronto Star, November 29, 2011; Beyond-the-Border Action Plan, 27 Beyond the Border Action Plan, 5–6. Canadian and US Chambers of Commerce, Finding the Balance; Beyond the Border Action Plan, 11–16. Beyond-the-Border Action Plan, 17–19; Christopher Sands, “Sequestering USCanadian Relations,” The Huffington Post, November 22, 2011. Beyond-the-Border Action Plan, 21. United States. The White House and Canada. Privy Council Office. “Joint Statement by President Obama and Prime Minister Harper of Canada on Regulatory Cooperation,” in United States-Canada Regulatory Cooperation Council – Joint Action Plan, i. United States-Canada Regulatory Cooperation Council – Joint Action Plan, 7-16. Associated Press, “President Obama implies he will rule on Keystone XL pipeline,” Los Angeles Times, November 2, 2011; Tim Devaney, “Canadian pipeline to Texas on hold until 2013,” Washington Times, November 11, 2011; Sheldon Alberts, “New Keystone route planned,” National Post, November 15, 2011, FP1; Juliet Eilperin and Steven Mufson, “Republicans turn Keystone XL into election issue,” The Washington Post, December 15, 2011, A11. Mike Blanchfield, “Buy American policy ultimately good for Canada, envoy says,” The Canadian Press, October 18, 2011.

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pa r t t w o Selected Issues and Departmental Realms

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7 The Rise and Fall of Regulatory Regimes: Extending the Life-cycle Approach Derek Irel and, Eric Milligan, Kernaghan Webb, and Wei Xie “During the last budget reduction exercise, we largely exhausted the more obvious and implementable methods for improving efficiency and passing on more of the compliance responsibility to regulated companies.” “When the agency was first created, we gave first priority to training, information sharing, and voluntary compliance targeted at regulated companies.” “Since the agency was first established about 25 years ago, the growing number of regulatees and negative changes in their composition and compliance attitudes have increased the agency’s enforcement burden, but this has been offset to some degree by technological change.” “Through time, the big box stores and other major retailers are playing a more proactive role in protecting the environment and promoting sustainability, energy and materials efficiency and product safety in order to build their reputations for corporate social responsibility.” “Rebuilding a regulatory regime in decline can be very expensive.”

INTRODUCTION Extensive research has been conducted on the life-cycles of products, technologies, firms, industries, markets and many other institutions and organizations. As indicated in the above para-phrased quotes from our interviews, managers of regulatory programs often implicitly apply a holistic and dynamic life-cycle approach in describing how their programs have changed from inception to the present time and also the impacts these changes have had on regulatory enforcement and outcomes. However, to date, little theoretical and empirical research has been conducted on the life-cycles of regulatory agencies and regimes, particularly on

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how regulatory enforcement capacities, compliance, and achievement of objectives can vary depending on whether the regulatory agency or regime is in its infancy, high growth, mature, or declining stage. The purpose of this chapter is to address this gap in our understanding of the introduction, evolution and “rise and fall” of regulatory agencies and regimes from the perspective of various regulatory actors: the regulatory agency, regulatees, intended beneficiaries, other businesses, consumers, and other groups. The chapter applies a more dynamic and holistic “whole of the regulatory regime” approach in order to capture how the interactions between and the activities and “strategic games” of various regulatory actors influence the evolution of regulatory outcomes. The context for this chapter is provided by: (i) the significant budget cuts and related pressures to increase efficiency and reduce the burdens of regulated companies now being faced by many regulatory agencies and regimes in Canada and elsewhere during the next decade – as illustrated by the work of the Red Tape Reduction Commission of the Canadian federal government in 2011–12; (ii) the maturity of many regulatory agencies and regimes that were established decades ago; and, (iii) the special challenges faced by more mature agencies and regimes in accommodating budget reductions and other “external shocks.” Many of them have already implemented the more obvious efficiencies during previous periods of fiscal restraint. Their ability to adapt to external shocks can be further hindered by over-confidence, institutional inertia, and dwindling support from politicians, voters, and other stakeholders. The major argument is that applying this “regulatory regime life-cycle” approach provides important insights at the present time when regulatory regimes in Canada and many other developed and emerging market economies are facing difficult and unpredictable pressures and challenges. These go beyond the regulatory and compliance budget cutbacks of governments and regulated businesses to encompass: the globalization of markets, businesses, technologies, and regulatory standards and institutions; dramatic market, structural, technological, institutional and attitudinal changes; changing political economy philosophies and realities; and conflicting pressures and expectations from politicians, businesses, consumers, voters and other stakeholders.

L I F E - C Y C L E S I N T H E R E G U L AT O R Y L I T E R AT U R E The regulatory literature addresses a number of life-cycle approaches. 1 Life-cycles of products, firms, industries, and technologies over the longer term from creation, initial development/commercialization, high growth period, maturity, decline and in some cases virtual or total disappearance.1 2 Life-cycle of a single product, leading to its regulation under environmental, product safety, hazardous product and other laws over a shorter time

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period from e.g. the farm/other primary producer and transport to processors, through primary and secondary processing and final manufacturing and transportation to the market, distribution and retail sale, ending with final consumption and recycling or disposal of the waste product. 3 Political life-cycle of regulatory agencies and regimes, whereby the interactions between regulators and their political masters through time are more complex and dynamic than presumed by the conventional principalagent relationship. At the beginning, political, stakeholder and/or voter enthusiasm and support provides the agency and regime with considerable leverage to increase its budget, enforcement capabilities, reputation and mandate – often beyond what was initially intended by government. However, over time, support and interest may diminish because: ideology, private and public interests, and governments change; or the agency develops a reputation for being ineffective, unresponsive, too burdensome or captured by the regulated population or another stakeholder group.2 4 Life-cycle of a new or amended regulation or set of regulations or single regulatory program: from early policy development and analysis and the detailed designed and regulatory impact/benefit-cost analysis stage; through implementation, administration, enforcement and compliance; ending with monitoring, evaluation, and at times major changes to or (more rarely) the elimination of the regulation or set of regulations.3 5 The approach adopted for this chapter, the life-cycle of regulatory agencies and regimes, which encompasses the links and interactions between regulatory budgets and other resource inflows, stocks of tangible and intangible resources and capabilities, enforcement and compliance activities/outflows, regulatory outcomes, and the achievement of regulatory objectives.4 This chapter focuses on the fifth life-cycle approach but the similarities, differences and interactions between these five approaches are also addressed.

EXTENDING THE LIFE-CYCLE APPROACH T O R E G U L AT O R Y A G E N C I E S A N D R E G I M E S Extending the life-cycle approach to regulatory agencies and regimes is conceptually quite simple. A new regulatory agency or regime requires a larger budget in the early years in order to build-up the stocks of strategic resources that determine its productive capability. Broadly speaking, these strategic resources include human resources, institutional knowledge, capital assets, and intelligence networks. Once the appropriate and desired level of stocks has been achieved, annual regulatory budget inflows can be adjusted to correspond more closely to the annual rate of expenditure outflows on rulemaking, compliance promotion and monitoring and enforcement activities (i.e., operational activities), plus

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whatever additional investment is required to compensate for the normal, ongoing outflows from each strategic resource stock. These outflows are driven by losses in physical, human, social, reputational and relationship capital through depreciation, retirement and other mechanisms. The life-cycle of regulatory agencies and regimes corresponds quite closely to the life-cycle of firms under approach 2 above, and has some features in common with the evolutionary firm similar to the “survival of the fittest” concept of Darwin.5 Under this approach, firms – and any organization established to achieve an economic or social purpose and administer formal and informal institutions – are created, expand, reach their mature steady state stage, and often but not always decline and disappear because of e.g., an inability to accommodate and adapt to internal pressures and external shocks, including financial and other resource constraints and economic, social, technological and institutional change. Just as the firm produces goods and services and attempts to maximize its revenues and profits from its stock of tangible and intangible resources and assets, the regulatory agency and regime “produces” rules, monitoring, compliance promotion and enforcement activities using their stock of strategic resources and capabilities, in order to achieve regulatory objectives of various kinds such as: safer products, work places, transportation systems and communities; improved human and animal health and eco-systems; and fairer, more efficient, competitive and innovative markets, industries and economies. Firms that under-invest in their tangible and intangible strategic resources will, over time, produce lower quality goods and services. Governments and businesses that under-invest in their stock of regulatory capabilities will, over time, undermine their ability to achieve regulatory objectives. The consequence for both firms and regimes are evolutionary decline and, ultimately, their elimination. The process can be brutally quick for firms that operate in a competitive environment. Competition is typically much weaker and the extinction process much slower for regulatory organizations. The life-cycle of regulatory agencies and regimes can be assessed in two ways. The analysis could focus solely on regulatory budget and other resource inflows, the regulator’s stock of productive capabilities, and the activity outflows of the regulatory agency. Alternatively, the analysis could apply a more holistic, total society model, which encompasses the resource inflows, stocks, activity outflows, outcomes and objectives of all regulatory actors.6 Both models are relevant and important. However, the more holistic approach allows the analysis to address more explicitly the resource inflows and outflows of non-government actors and the trade-offs, complementary aspects and possible conflicts between them. Therefore, this chapter adopts the more holistic approach, and uses the term “life-cycle of the regulatory regime” to capture the activities and related strategic resource stocks of all regulatory actors.

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BRIEF DESCRIPTION OF A DYNAMIC SYSTEMS-BASED INSIGHT MODEL Figure 1 depicts in simplified form, a dynamic systems-based insight model7 that integrates the life-cycle issues and exogenous and endogenous forces and pressures which, in a generic sense, influence the evolution and life-cycle of a regulatory regime. The model encompasses separate, but conceptually similar, resource inflows, strategic resource stocks, and resource outflows for government/the regulatory agency, regulatees (firms, industries and industry associations) and other affected parties (e.g. other businesses, consumers, civil society groups). This structure provides a conceptual framework that allows us to gain insight into the evolution through time of the strategic interactions, trade-offs, complementary aspects and possible conflicts between different regulatory actors; such as how co-regulation by the private sector and the contributions of other groups can help to maintain a reasonable degree of equilibrium between inflows, stocks and outflows during periods of restraint or major technological or institutional change. Strategic resource “stocks” include: physical assets; human capital; institutional learning and knowledge; various kinds of social, relationship and reputational capital; and the “operating capital” of regulators, regulatees and other stakeholders. The model recognizes that additions to, and depletion of, various strategic resource stocks take place at different rates. By definition, operating resources must be replenished each year for enforcement and compliance capabilities and related outflows to be maintained. Physical assets depreciate though time in the normal manner and therefore require both annual maintenance expenditure “inflows” and replacement when needed. Annual inflows to maintain the stocks of human capital, institutional learning and knowledge, and social, relationship and reputational capital can be quite modest for an extended period. However, these forms of capital can experience significant and sudden erosion because of predictable and unpredictable events such as: (i) departure through retirement or promotion of key personnel; and (ii) negative external events covered by the media that hurt the reputations of regulators and regulatees, make recruitment and retention of key personnel more difficult, and cause politicians, consumers, voters and other groups to lose confidence in the regime. The insight model also helps us to explore the interactions, complementary aspects and network effects among different types of strategic resource stocks. The loss of human capital through retirements and promotions may require rebuilding institutional knowledge and social, relationship and reputational capital that are associated with the departed personnel. The insight model can also be used to assess how a combination of external and internal

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Figure 1 The Life Cycle of Regulatory Agencies, Programs, Regimes and Budgets

pressures and forces – such as increasing stress on regulator and regulatee staff to “over-achieve” with a limited stock of “operating capital” and other strategic resources – will affect different stocks in different ways. For example, institutional knowledge and reputational capital may erode more slowly than human resources and physical capital, but once depleted, knowledge and reputational assets can be more difficult to re-build. The model as well takes account of feedback effects whereby the performance of regulators and regulatees influences the level of reputational capital and related stocks. Rulemaking, enforcement and compliance failures reduce the value of strategic resource stocks, necessitating increased resource inflows by government and the regulated population in order to rebuild their levels. In this manner, the resource stocks vary over time depending on the relative rates of resource inflows vs. outflows, as influenced by the feedback effects that operate within the system. Finally, the complementary aspects among different resource stocks, when combined with “asset mass efficiencies” (essentially economies of scale and scope) and feedback effects indicate that, in certain situations, small increases in resource inflows by regulators, regulatees and other stakeholders can result

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in proportionally much larger increases in the stock of capabilities which, can then support much higher rates of enforcement and compliance activity. Complementarity, asset mass efficiency and feedback effects can also operate in the opposite direction. Small decreases in resource inflows due to budgetary cutbacks can have proportionately larger negative effects on the levels of strategic resource stocks and outflows. Moreover, once a strategic resource stock starts to decline feedback effects can make the negative dynamic selfreinforcing. Reversing the decline and rebuilding the stock back to its desired level can take substantial time, effort and resource inflows. 8 In sum, the “whole of the regulatory regime” approach, encompasses the following components. 1 Financial, technical, and other non-financial resource inflows of governments build the strategic resource stocks that support the rule-making, monitoring, compliance promotion and enforcement activities of the regulator. 2 Financial and non-financial non-recurring and recurring expenditures/inflows of companies, their industry associations and other regulatees similarly build compliance (or non-compliance) capability stocks to support their activities. If the capacity for compliance declines (or if capacity for non-compliance is purposely built), maintaining the overall compliance capacity of the regulatory system requires increased resource inflows by the regulator, consumers and other affected parties to offset the diminished contributions of regulatees. 3 Resource inflows, stocks and activity outflows of consumers, competitors, business customers and other interested and affected parties can have positive impacts on regulatee compliance and thereby reduce the required resource inflows, resource levels, and activity outflows of government. 4 Resource inflows and the stocks of regulatory capabilities include investments in “intangibles” such as social and reputational capital and building relationships of cooperation, information sharing, and shared learning and “mental models” between regulatory agencies, regulatees, intended beneficiaries, other businesses, civil society groups, and other regulators in the same and other regulatory environments. 5 Building social, reputational and relationship capital is particularly important in a new regime’s growth stage. Erosion of these forms of capital through e.g., overly aggressive and unresponsive enforcement activities and unproductive competition with other regulators can play a major role in the decline and fall of a regulatory agency and regime. 6 External forces and pressures and their evolution through time can have either positive or negative impacts on the extent to which resource outflows and activities of regulators, regulatees and other actors are translated into desired regulatory compliance and policy outcomes. These external forces

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include: social norms, compliance culture, market structure and business conduct, product characteristics, extent of co-regulation, and changes in the domestic and global regulatory landscape including overlap and duplication with similar regulatory regimes in the same or other jurisdictions.9

MAJOR INSIGHTS AND FINDINGS F R O M A P P L Y I N G T H E R E G U L AT O R Y R E G I M E LIFE-CYCLE APPROACH Challenges of the Start-Up and Growth Stages The first baby steps of the regulatory regime “infant” are full of opportunity and danger. The wrong steps can place the regime on a development path from which it may never recover. The inflows of financial and non-financial resources should be sufficient to support visible, credible and effective activities in the short term, while building the stocks of strategic resources that are required for long term sustainability. For some regulators with a strong enforcement mandate, a few highly visible enforcement cases at the outset will build reputational capital that will motivate regulatees and other stakeholders to expand their compliance capability stocks. These cases do not necessarily have to be “victories” for the regulator, but should be carefully selected, well analysed and credible in order to receive significant attention from the media and other regulatory actors.10 Over the same start-up period, highly visible and effective education, training and voluntary compliance programs directed at regulatees and other stakeholders, combined with the recruitment of highly qualified personnel, will build relationships with regulatees and other affected groups, and send a strong signal that the new agency is serious, has government support, and that compliance by regulatees is feasible and desirable. Market conditions and institutional context when a new regulatory regime is first established and starting to build its stock of resources and capabilities can also play a major role in determining its development trajectory, life-cycle and performance over the longer term. A new regulatory regime is often introduced during a period of significant market turbulence when e.g. (i) market demand is high and regulated businesses have little time for compliance activities; (ii) market demand is falling and regulatees are cutting corners and laying off compliance personnel; or (iii) markets are experiencing significant turbulence because of mergers, industry consolidation, new suppliers, technologies and supply chains, more complex and innovative products, and increasing imports from emerging market economies with more permissive regulations and limited enforcement capacity. The “trigger” for introducing a new regulatory regime is often provided by one or more safety, security or other high profile negative events associated

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with market turbulence and uncertainty. Under these circumstances, the resource inflows supporting enforcement and compliance activities/outflows of regulators often need to be much greater compared with a more normal period when regulatees and other stakeholders have the personnel, time and other resources needed to learn how to comply with the new regulatory regime. More generally, creating regulatory regimes during periods of turbulence could place the new regime on a life-cycle trajectory that could challenge and compromise regulatory performance when economies and societies return to normal. Steady State Equilibrium or Mid-Life Crisis? Under this life-cycle approach, achieving the steady state equilibrium as a mature well-established and respected regulatory agency and regime should be the “best of all possible worlds” for the government, regulator, regulatees and other stakeholders. The resource inflows are lower than during the growth stage, especially if positive feedback effects are augmenting social, reputational and related resource stocks. Enforcement and compliance promotion programs are well established and accepted, and should require only fine-tuning from time to time. And strong, mutually beneficial relationships and networks have been established between the regulatory agency, regulatees and other stakeholders and regulators in a manner that builds the stock of social, relationship and reputational capital of all regulatory parties. Over the past decade or so, the number of new laws, regulations and regulatory agencies that are being established each year in Canada and many other OECD countries are much lower than in the last three decades of the twentieth century. Therefore, many of Canada’s regulations (life-cycle approach 4) and regulatory agencies and regimes (approach 5) are at the mature, steadystate stage of their life-cycle. This could be perceived as a desirable stage for Canadian and many other OECD governments, which will be attempting to reduce regulatory budgets/inflows, while maintaining an adequate level of regulatory performance. However, the work of the Red Tape Reduction Commission in Canada, similar regulatory performance initiatives in other OECD economies and the regulatory literature indicate that there are a number of significant and often less obvious dangers to the mature steady-state.11 Similar to businesses and other non-government organizations, a mature regulatory regime can become too confident, self-satisfied, set in its ways and complacent and therefore less able to accommodate and find innovative solutions to new challenges. In some cases, regulatory agencies and other parties are less able to recognize and address internal and external threats, such as: (i) slow erosion in institutional knowledge, human, social, reputational, relationship capital, and other intangible assets; (ii) slow, incremental but significant

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changes to the regulatee population, market environment, compliance culture and political support; and (iii) year to year relative declines in enforcement and compliance capabilities because of inflation, and increases in the volume of regulated activity and the expectations and demands of regulatees, intended beneficiaries and other groups including politicians. Because of repeated interactions between the regulator and the regulatee population over an extended period, the risk of regulatory capture can be higher for more mature regulatory regimes. A related but more subtle risk is that a mature regulatory agency, which has a long history of “successfully serving” the same regulatee group for an extended period, may become too “client focussed” and lose sight of the public interest and the ultimate objectives of the regulatory regime. Mature regimes can be taken for granted by governments, politicians, voters and the media – resulting in gradual reductions in resource inflows that sustain enforcement and compliance capabilities. Regulatees, other affected parties and regulators focus more on irritants and negative interactions than on often low-profile favorable interactions and the absence of “problems.” The accumulation through time of negative interactions and outcomes and the resulting loss of goodwill, collegiality, cooperation, and related capital can undermine the “compliance culture.” Governments at times expand the mandates and add to the responsibilities of regulatory agencies and regimes that are mature, well-established and have good reputations for performance. Red tape creep through adding new and amended regulations, implementation processes, compliance programs and related responsibilities and functions to a mature regime may appear to be relatively modest. However, such additions, when not supported by sufficient increases in resource inflows by government, regulatees and others, may divert significant resources from current activities, damage relationships between regulators, regulatees and other stakeholders, and trigger a dynamic that erodes the regulatory regime’s strategic resource stocks and performance. The resources of a mature regulatory regime may include implementation processes, compliance programs, rulemaking capacities, and cultural, technical, and technological legacies of the past that are poorly adapted to the current regulatory, technological and economic environment. These legacies may be difficult to change because of resource and knowledge constraints, institutional inertia, and path dependence, including the increasing number of agency and regulatee employees who are nearing retirement and may be reluctant to learn new methods and systems. Slow erosion of regulatory capabilities and performance because of overconfidence, benign neglect, slow adaptation to changing regulatory environments and dynamics, and other factors associated with mature regulatory regimes in “mid-life crisis” may help to explain some of the negative reports

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on regulatory performance from the Federal and Ontario Environmental Commissioners in the last quarter of 2011. As stated by the Ontario Environmental Commissioner: “Know this: there is a tipping point beyond which bad things happen if we’re not watching, we’re not measuring, we’re not inspecting, we’re not on top of … I don’t know where that tipping point is, but I have 35 years’ experience in environmental protection, and I’m nervous about our current situation.”12 The capabilities of a mature regulatory regime cannot be taken for granted. Strategic resource stocks must be maintained in a proactive manner through: •

•

•

•

continual learning, training, and improvements to rule-making, monitoring, compliance promotion and enforcement functions, service standards and other implementation processes; mutually beneficial interactions and relationship building across all regulatory actors; continuous monitoring, evaluation and foresight activities on how the market, economic, social and compliance environments are changing and what these changes mean for the regime’s strategic resource stocks; and the challenge functions of central agencies of government, industry associations and civil society groups in order to counteract the risk of regulatory inertia, complacency, capture, drift, red tape creep, stock erosion, and over- confidence in the ability of self-regulation and markets to solve all regulatory problems.13

Many of the better established federal regulatory departments and agencies are implementing these and other measures to sustain regulatory performance. These initiatives are in response to the Cabinet Directive on Streamlining Regulation, Strategic Review, the Red Tape Reduction Commission, and their consultations and joint work with regulatees and other stakeholders. At the same time, some have already picked the “low hanging fruit” of efficiencies, co-regulation and other measures to accommodate previous budget reduction exercises. The next budget reductions may involve greater risks for sustaining strategic resource stocks and regulatory performance. Positive external developments can, at times, help to offset some of the negative dynamics noted above. Technological change can result in safer production processes and products. Mergers, acquisitions, exit and other structural changes can remove non-compliant companies and reduce the number of regulatees to be monitored and inspected. Demographic, social, product, and industry changes can increase the ability of consumers to protect themselves and decrease workplace injuries and other safety, security and environmental hazards. These external developments can reduce the required stock of capabilities; or at least offset the impacts of inflation and growth in the volume of regulated activity and demands.

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Regulatory Regimes in “Evolutionary Decline” A regulatory regime in “evolutionary decline” poses a very different set of challenges for government, the business community and other interested groups. The regulatory agency and regulatees and others who benefit from the regulations may fight very hard to increase net resource inflows and place the regime on the road to recovery. Before deciding that recovery is the preferred option, governments must first determine the reasons for the erosion of the stock of regulatory capabilities. Recovery through major increases in government resource inflows may be warranted if: the rationale is still sound; objectives continue to be worthwhile and achievable; and the regime continues to have the support of intended beneficiaries, the regulatee population and other groups including political elites. Otherwise, a quick death may be better than slow death by a thousand cuts through small, year-to-year reductions in resource inflows. Regulatory Regime Life-Cycle, Cumulative Burden and a Cluttered Regulatory Landscape A regulatory regime can be in evolutionary decline because, since its inception, other overlapping regulatory agencies in the same or different jurisdictions have been added to create a highly layered, complex and “cluttered” regulatory landscape.14 A more mature agency and regime may be at a relative disadvantage compared with newer regulators with rulemaking, enforcement and compliance promotion capabilities that are better adapted to the evolving regulatory environment and are better able to compete for support from governments, the business community and other stakeholders. The introduction of a new regulatory regime into a regulatory space characterized by overlapping regulatory agencies provides a different set of challenges. The new agency and regime will be under considerable pressure from regulatees and others to harmonize their regulations, rules, implementation processes and compliance programs with the better established regulators and regimes. More generally, frictions between regulatory agencies and the regulatory risks, costs and burdens of regulatees can be much higher when regulators in a cluttered regulatory landscape are at different stages in their regulatory agency life-cycles. These additional frictions and burdens can emerge when experienced regulatory agencies in more advanced economies are interacting with their counterparts in developing economies. Typically, the latter have been established recently, are in their early growth stage, are under resourced, have limited experience and capabilities, and have not yet established reputations for independence and competence. This situation is now found in many regulatory regimes such as investigations of

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international mergers, dominant positions and cartels under competition laws, consumer product safety regulations, patent and other IP laws, and fisheries, transport, health, agrifood, financial services, and other regulations that have cross-border implications. The concept of red tape creep by mature regimes is particularly relevant to a regulatory landscape with multiple overlapping regulatory agencies. Regulatory agencies often pay little attention to other regulators when introducing new regulations, rules and implementation processes. As a consequence of increases in cumulative burden and additional frictions and coordination requirements with other regulators, the new regulations and implementation processes may in fact hurt regulatory compliance and performance across the cluttered regulatory landscape. Interactions and Frictions between Different Life-Cycle Approaches Interactions and frictions between the life-cycle of the regulatory regime and the other life-cycles discussed previously can also provide special challenges and help to explain the evolution through time of a regulatory regime. Regulatory inflows and the required stock of enforcement and compliance capabilities under the regulatory regime life-cycle will vary depending on whether the regulated product, market, industry and/or technology is at its creation, high-growth, mature or declining stages under life-cycle approach one. For example, a mature regulatory regime in its steady state may face special challenges when technological, political or other changes expand its mandate to include new transformative technologies. The resource inflows and related stocks of enforcement and compliance capabilities would need to be greater, or at least very different, if the life-cycle product “cradle to grave” approach (see approach 2 above) is given priority in the regulatory regime – especially compared with situations where the manufacturing, waste disposal, retail sale, and other stages of the product life-cycle are under separate regulations and regimes. Interactions and frictions with the political life-cycle under approach 3 are important to understanding the evolution and life-cycle of the regulatory regime. A new regulatory regime can capitalize on strong political, stakeholder and public support when first established, in order to increase regulatory budgets and other resource inflows at the outset and achieve the mature steady state more quickly. Political and stakeholder support can be enhanced through taking on high profile cases, policy issues and other activities in the early years. A successful political strategy may result in an array of regulatory capability stocks that are much larger than what is needed over the longer term. This could be viewed as an inefficient allocation of scarce inflows and stocks.

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However, this could also provide a “buffer” to address unanticipated increases in regulatory risks and demands and other external shocks in the future; and to counteract possible declines in political, stakeholder and public support and interest in the years ahead, especially during periods of fiscal restraint, deregulation and disinterested governments. The interactions and frictions between the regulation life-cycle under approach four and the regulatory regime life-cycle under approach five are very important. Major changes and additions to the regulations require corresponding additions to the regime’s resource inflows and stocks in terms of quantity and quality. The experience of the Canadian Food Inspection Agency over the last two decades demonstrates that the establishment of a new regulatory agency to administer a large number of “mature” regulations and implementation processes that in the past were administered by one or more other agencies can be a major challenge for the new agency for a long period of time.15 A different set of challenges arise when a mature agency needs to administer and enforce a new law or set of regulations. Health Canada is facing this challenge with the new Canada Consumer Product Safety Act, which has replaced the Hazardous Products Act which had a very different scope and philosophy. Recent amendments to the law and regulations on pardons are providing similar challenges to the Parole Board of Canada. The 1986 reform of the Competition Act left the Competition Bureau with the challenge of enforcing a “mixed bag” of old provisions based on criminal law, and new merger, abuse of dominance and other civil provisions based on the rule of reason and more rigorous economic analysis. Similar challenges emerge when a regulator is forced by either smaller budgets or changes in regulatory philosophy and policy to become a more cooperative and collegial and less aggressive enforcer.16 Mature regulatory agencies and regimes that are enforcing new laws and regulations or adopting a new more cooperative and compliance oriented enforcement philosophy require new learning and training, changes in enforcement and analytical methods, and major changes and additions to “corporate culture” and the stock of enforcement and compliance capabilities with emphasis on social, reputational and relationship capital. The increases in resource inflows from government and the regulatee population required to effectively administer the new regulations, methods and philosophies can be seriously under-estimated. Institutional knowledge and reputation for understanding the regulated industry and market are important components to the capabilities of a regulatory agency and regime. Learning, reputational and relationship capital includes the regime’s understanding of how the design and implementation of its regulations under approach four and the life-cycle of the regime under approach five can result in frictions and conflicts with the other three lifecycles discussed above. Rulemaking, enforcement and compliance promotion

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and monitoring activities need to be appropriately aligned with business planning, product and technology life-cycles, the investment cycles of regulated and other affected businesses, and the business cycle of the industry, market and regional and national economy.17 Consistency with the product, technology and investment life-cycles of the firm and industry reduce regulatory compliance costs and promote greater compliance by regulatees. Taking account of the business cycle allows the regime to respond to situations when regulatees and other businesses reduce their own resource inflows and compliance activities when a market downturn hurts revenues and profits. Life-cycle inconsistencies that result in frictions, costs and enforcement and compliance challenges have received some attention by regulators but little attention in the regulatory literature. As noted earlier, these challenges and frictions have emerged over the past thirty years when the responsibilities of mature agricultural, health, environmental, intellectual property and other agencies and regimes were expanded to encompass the regulation of new and unfamiliar biotechnology and nanotechnology products and processes, and start-up and other firms that were attempting to create and commercialize these products and processes. In short, “clashing life-cycles” and their implications for regulatory performance and outcomes can play an important role in explaining the life-cycle, evolution and “rise and fall” of regulatory regimes, and why some regulatory regimes can be facing a “mid-life crisis.” Life-cycle Stage and Reductions in Enforcement and Compliance Budgets Reductions in the enforcement and compliance budgets and “inflows” of governments and regulated businesses can have very different consequences depending on the life-cycle stage of the regime. Regimes in their infancy or growth stages may never achieve their desired steady state and “asset mass efficiencies” if they are forced to absorb major inflow reductions at this critical early stage. Regimes in decline that need to absorb major reductions may go from sub-optimal effectiveness to a rapid downward spiral that will end with the complete erosion of its resource stock, activities and performance. Early elimination of the regulatory regime may be preferable to slow death by a thousand cuts. Mixing the old with the new can also result in a “toxic brew” when reductions are being implemented. Clashing life-cycles suggest that: (i) mature agencies and regimes enforcing new regulations; (ii) mature agencies and regimes applying old regulations to new technologies, goods, services and production processes; and (iii) new agencies and regimes administering old regulations inherited from one or more erstwhile regulators; may be more vulnerable to reductions in resource inflows and other external shocks.

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The more mature steady state regimes, which encompass well-established regulations, implementation processes, products, and companies at broadly similar stages of their life-cycles, are often in a better position to absorb reductions in their resource inflows from governments and regulatees. However, this depends on a host of factors that were addressed earlier in this chapter and in previous research.18 Governments may be tempted to target their budget reductions on regulatory regimes with a strong compliance culture, performance record, and reputation among the regulatee population and other stakeholders. However, regulated businesses are under similar pressures to reduce their compliance budgets and activities in order to control costs and maintain profitability during a difficult period in the global economy. Mature regulatory agencies and regimes that have exhausted the more obvious and implementable efficiencies, co-regulation and other methods for doing “more with less” could also be placed at performance risk during a period of fiscal restraint and global economic uncertainty. Transferring more responsibility for compliance and the achievement of regulatory objectives to the private sector may add to perceptions of regulatory capture, especially if the regulator’s remaining stock of strategic resources is deemed to be inadequate to protect the public interest. The consequent loss in credibility and support among other stakeholders could lead to reductions in compliance related inflows and activities by non-regulated businesses, regulatory beneficiaries, and civil society groups. To summarize, significant reductions in inflows, stocks and outflows by regulators, regulatees, and other actors can transform a mature steady state regime into one in evolutionary decline. The increases in resource inflows needed to reverse this process later may often be much greater than the resource savings achieved during the budget restraint period.

CONCLUSIONS The life-cycle stage of a regulatory regime is important to regulatory compliance, achievement of desired policy outcomes, and its ability to absorb external shocks, including major reductions in the inflow of financial and non-financial resources from government, the regulated population and other stakeholders. Applying in an explicit manner a systems-based, dynamic and holistic approach to the life-cycle of regulatory regimes can assist governments and stakeholders to assess the impact of reductions in resource inflows and other external shocks to regulatory capabilities and performance. Complex, time-sensitive issues of regulatory enforcement, compliance, performance and budgets become more understandable and tractable when the life-cycle of the regulatory regime is understood.

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This chapter however has only scratched the surface of a very complex and under-researched topic. More theoretical and empirical research and practical policy and regulatory analysis tailored to the needs of specific regimes are needed to further explore the many regulatory life-cycle issues that are introduced and briefly assessed in this chapter. This research would benefit from improved information on regulatory costs, compliance, and performance that is shared throughout the regulatory community. notes 1 M. Levy (2007) “Life-cycle Approaches to State and Local Regulation – California Experience.” Presentation to: InLCA/LCM 2007 Conference Portland, Oregon Oct 2–4, 2007; and C. Beaudrie Emerging Nanotechnologies and Life-Cycle Regulation: An Investigation of Federal Regulatory Oversight from Nanomaterial Production to End of Life (The Center for Contemporary History and Policy, The Chemical Heritage Foundation 2010). Environmental and fisheries regulation of a single stock or species of fish could also fall under this category. 2 D. Coen, “Managing the Political Life-cycle of Regulation in the UK and German Telecommunication Sectors” Annals of Public and Cooperative Economics 76(1): 59–84 2005; and, T. Büthe and G. Swank “The Politics of Antitrust and Merger Review in the European Union: Institutional Change and Decisions from Messina to 2004,” Center for European Studies Working Paper Series #142 2007. 3 See e.g. Government of Canada, Cabinet Directive on Streamlining Regulation 2007, which indicates on page 1 that this Directive is to be followed at all stages of the regulatory lifecycle – development, implementation, evaluation, and review. 4 D. Martimort “The Life-cycle of Regulatory Agencies: Dynamic Capture and Transaction Costs” Review of Economic Studies 66: 929–47 1999; which adopts a similar approach but for a different purpose and from a different perspective; S. Withane “A Cycle of Organizational Strategy: The Adaptation Process in U.S. Regulatory Agencies” Organization Studies 9(4): 573–97 1988; which explores the actions, adaptations and “agency” of regulatory agencies within a life-cycle context; and R. Eckert “The Life-cycle of Regulatory Commissioners” Journal of Law and Economics 24(1): 113–20 April 1981. 5 D. Mueller “A Life-cycle Theory of the Firm” 20: 199–219 July 1972; Maug Ernst “Ownership Structure and the Life-Cycle of the Firm: A Theory of the Decision to Go Public” Humboldt-Universität zu Berlin http://www.wiwi.hu-berlin.de/~maug March 29, 2001; and R. Nelson and S. Winter, An Evolutionary Theory of Economic Change (Cambridge Mass. and London England: The Belknap Press of Harvard University 1982). 6 G.B. Doern Red Tape, Red Flags: Regulation for the Innovation Age The Conference Board of Canada Ottawa Ontario 2007; and G.B. Doern “A Regulatory Budget

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and a Strategic Regulatory Agenda.” Regulatory Governance Initiative, Regulatory Governance Brief No. 1 – January 2009. This model was developed using System Dynamics methodology and modeling notation. I. Dierickx and K. Cool “Asset stock accumulation and sustainability of competitive advantage” Management Science 35: 1504–13 1989, which discusses time compression diseconomies, asset mass efficiencies, interconnections of asset stock/capabilities, and asset erosion from the perspective of the life-cycle of the firm. D. Ireland, E. Milligan, K. Webb and W. Xie “Regulatory Agency Budget Cuts: Public Interest Support Through a Better Approach” in G. Bruce Doern and Christopher Stoney, Editors, How Ottawa Spends 2011–12: Trimming Fat or Slicing Pork? (Montreal and Kingston: McGill-Queen’s University Press 2011), 106–26. Note, however, that undertaking prosecutions of untested laws can be expensive. For example, in the first significant prosecution under the Corruption of Foreign Public Officials Act by the RCMP (R. v. Niko Resources, 2011), the RCMP is reported to have incurred close to $870,000 in investigation and related expenses. P. Hampton “Reducing administrative burdens: effective inspection and enforcement.” Prepared for HM Treasury Government of the United Kingdom March 2005. M. Paris “Environment Canada struggling to enforce law” CBC News Dec. 13, 2011; and, The Canadian Press, “Ont. Environment commissioner ‘nervous’ about the situation” Nov. 29, 2011 D. Ireland and K. Webb “Consumer Protection through Free Markets” in G. Bruce Doern How Ottawa Spends 2007–2008: The Harper Conservatives – The Climate of Change (McGill-Queen’s University Press 2007), 273–94; D. Ireland and K. Webb, “The Canadian Escape from the Subprime Crisis? Comparing the U.S. and Canadian Approaches,” in G. Bruce Doern and Christopher Stoney, Editors, How Ottawa Spends 2010–2011: Recession Realignment and the New Deficit Era (McGill-Queen’s University Press, 2010), 87–108; and J. Hacker “The Hidden Policies of Social Policy Reform: Uncovering and Explaining Retrenchment in America’s Public-Private Welfare Regime” forthcoming in W. Streek and K. Thelen eds. Continuity and Discontinuity in Institutional Analysis 2003. Under regulatory drift, the regime is not able to adapt to economic, social, technological, and institutional changes through updating mandates and securing the additional resource inflows needed to modify its stock of capabilities. Hacker 2003. The CFIA experience is consistent with insights from the merger and acquisition literature, which indicates that post-merger success is largely dependent on the extent of integration planning, and the careful assessment of corporate culture and other differences and constraints, before the merger is completed. J. Braithwaite, J. Walker and P. Grabosky “The Enforcement Capacity of Regulatory Agencies” Law and Policy (July 1987), 323–50. Ireland et al 2011. Ibid.

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8 Public Private Partnership Canada and the P3 Fund: Shedding Light on a New Meso Institutional Arrangement C h r i s t i a n B o r d e l e au

Public-Private Partnerships are en vogue in Canada. From bridge to highway and school to hospital, the number of PPP s – completed, underway and in the project pipeline – is impressive. “Canada is a blooming market for PPP s” advised the Finance minister at an industry dinner organized by the Canadian Council for Public Private Partnerships in 2008. While it is clear that the project pipeline is growing, most of those deals are at the provincial level. Since 1987, when the Department of Public Works published a request for “expressions of interest” regarding the construction of a fixed link to Prince-EdwardIsland, institutional development was driven mainly by a few provincial leaders. But that would change with the creation of Public Private Partnership Canada (PPP Canada) in 2008. This chapter analyzes PPP Canada and the Fund it administers. Its two-fold purpose is: (1) to describe this new middle level or meso-institutional Crown Corporation arrangement – and how it came about – in a systematic way and (2) to build on this to develop an analysis augmented by general public administration knowledge and related PPP literature to understand what might be the consequences of this development. We find that there is a “public administration malaise” with the way this meso institutional arrangement has been drafted and how it operates. The analysis points to the fact that PPP Canada is not only working on the “technicalities” of the PPP s, but is in the business of policy diffusion as well. The Corporation is playing an important role in increasing the volume of deals, working toward isomorphing the process for the industry and allowing it to keep high margins through market fluctuation. At the same time, it is giving a new way for the government to increase the use of its spending power under the radar of public scrutiny.

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F I N A N C I N G T H E P U B L I C P R I VAT E F I N A N C E I N I T I AT I V E : T H E P 3 F U N D In 2007, the Building Canada Plan was announced as a 7 year, 33B$ plan for investment in infrastructure. The Minister of Transport, Infrastructure and Communities, Lawrence Cannon in the Building Canada policy paper said that “since Confederation, national governments have built infrastructure to allow Canadians to travel, communicate and do business across our vast country. Government investments in infrastructure created Canada’s early canals, national railway, the telegraph system, the St. Lawrence Seaway, ports, airports and the Trans-Canada Highway – the very foundation for building a nation and helping it grow and prosper.”1 From there, Cannon stressed that “It is as true today as it was when Canada was built … the time has come to exercise leadership by working effectively with provinces, territories and communities to build a modern Canada founded upon world-class public infrastructure” (Ibid). To realize this, “Canada’s Government is making an historic infrastructure investment of $33 billion under the new Building Canada plan [to] invest in infrastructure that will support a stronger economy, a cleaner environment and more prosperous communities. In short – a stronger, safer, and better Canada” (Ibid). The 33B$ Building Canada Plan (2007–14) is comprised of several categories: Municipal GST Rebate Gas Tax Fund • Building Canada Fund • Public-Private Partnerships Fund • Gateways and Border Crossings Fund • Asia-Pacific Gateway and Corridor Initiative • Provincial-Territorial Base Funding Total • •

5.8B$ 11.8B$ 8.8B$ 1.25B$ 2.1B$ 1.0B$ 2.275B$ 33.0B$

Source: Canada, Building Canada 2007.

The P3 Fund is created by the Government of Canada, it is argued, because “Private capital and expertise can make a significant contribution to building infrastructure projects faster and at a lower cost to taxpayers” (Ibid). This is why PPP s have been “expanding rapidly” around the world and why “many countries [are] taking practical steps toward the development of programs aimed at fostering stronger P3 markets” (Ibid). Canada would be “lagging behind” other jurisdictions, the document states, and “as a result of a lack of P3 opportunities to be found within Canada … Canadian pension funds are often investing in public infrastructure projects in other countries” (Ibid). For those reasons, the Government needs to “take a leadership role in developing P3 opportunities” (Ibid). This “leadership role” is exercised through 2 venues:

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(1) the P3 Fund itself through disbursement and (2) the creation of a “P3 Office [that] will facilitate a broader use of P3s in Canadian infrastructure projects” with the help of a requirement prescribing that it consider the “viability of a P3 option” for all projects involving more than 50M$ from the “federal partner” (Ibid; 27).

THE SYMBOLIC PROTECTION OF A CROWN C O R P O R AT I O N : FAV O R I N G A N I N D U S T R Y According to the first annual Report Public-Private Partnerships: Building Infrastructure, tabled in 2008, the Governor-in-Council approved PPP Canada’s Corporate Plan, thus allowing the Corporation to move forward with its initial staffing and administration.2 This is a new “Parent Crown Corporation for the purposes of Part X, (except section 90) of the Financial Administration Act and reports to Parliament through the Minister of Finance” (Ibid). More specifically, PPP Canada is made accountable through a “five-year Corporate Plan” that the corporation submits to the Treasury Board “60 days before the beginning of the fiscal year” and “All financial statements included in the Annual Reports are audited by KPMG and the Auditor General of Canada” (Ibid). On February 12, 2008 an interim Board of Directors was constituted. Among other things, “The interim Board of Directors oversaw the development of PPP Canada’s inaugural Corporate Plan” (Ibid). On January 19, 2009, the Minister of Finance, Jim Flaherty, “appointed Mr. Gregory Melchin as Chair of the Board of Directors for PPP Canada” (Ibid). Mr. John McBride was also appointed by the Minister in the position of Chief Executive Officer of PPP Canada and ex-officio member of the Board of Director, on the 16th of February 2009 (Ibid). A few months later, four individuals were appointed to the Board of Director of PPP Canada. The former President and Chief Executive Officer of SNC -Lavalin Group Inc., Mr. Jacques Lamarre was nominated alongside the former President and CEO of BMO Financial Group, Mr. Tony Comper, Ms. Carol Pennycook from Davies Ward Phillips & Vineberg and the founder, Executive Chair and Chief Executive Officer of the Armstrong Group, Mr. Peter Armstrong. Those nominations were justified by the fact that they “come with a remarkable depth and breadth of knowledge and experience, whether from the public sector or as leaders in their respective industries” (Ibid, my emphasis). Moreover, “Their direction will ensure the Corporation can fulfill its mandate to make strategic recommendations on policy development and provide best-practice advice based on their corporate and public-sector experience” (Ibid, my emphasis). Considering the responsibilities that the Board of Directors of PPP Canada has in concomitance with the administration of the P3 Funds of 1.2B$, the fact that industry’s representative (former and actual) are in charge create a

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public administration malaise. To be sure, the Board’s responsibilities are – among other things – overseeing “PPP Canada, including the management of its resources (such as the P3 Canada Fund) and its personnel; developing certain by-laws for the conduct of its affairs; ensuring accountability for the prudent use of financial resources; making recommendations regarding infrastructure projects under the P3 Canada Fund; and overseeing issues of risk management for the Corporation” (Ibid). PPP Canada is not only a Crown Corporation that advises the government; it also has at its disposal a Fund to “stimulate” PPP s materially. As the Corporation acknowledges, the Fund is “one of its most important instruments … a $1.2 billion fund designated to support the innovative application of P3 procurement across Canada.” (Ibid 16). The P3 Fund is part of Building Canada Plan, announced in 2007, and PPP Canada had a clear mandate in 2008 to “move forward with investment” as this was and still is “a high priority for PPP Canada” (Ibid). Officially, PPP Canada proclaims that it: “will work to foster the growth of a P3 policy framework to improve interactions between the public and private sectors. By developing and advising on a federal policy framework, PPP Canada can facilitate bringing federal P3 projects to market which would further support the overall growth of Canada’s P3 market” (Ibid). What is intended is for the government to adopt the P3 policy framework developed by PPP Canada to “ease” the flow to the “project pipeline” and to “facilitate the implementation of P3 projects at a federal level” so that the industry offering P3 on the “marketplace can further grow and diversify” (Ibid). In its second annual report, Public-Private Partnerships: Improved Infrastructure Delivery PPP Canada’s rhetoric is more apparent and is already getting more in tune with what has been used in other jurisdictions in the preceding decades. PPP s are advocated as a way of “Improving the delivery of public infrastructure by achieving better value, timelines and accountability to taxpayers.”3 The Chair of the Board, Greg Melchin, states clearly that PPP Canada “aspires to be a national leader and focal point for P3s in Canada” and the Corporation is working hard to gain “credibility in the P3 market” by working with the “P3 industry” – with a particular interest “in the increasing engagement of a new market segment” – so as to bring “their perspective to bear on policies and processes” to foster PPP s (Ibid, my emphasis). PPP Canada will “broaden the application of P3s” by “encouraging the use of P3s by provinces, territories, municipalities and First Nations” though the bearing of “its [own] influence and expertise.” (Ibid, my emphasis). The CEO of the Corporation, John McBride, acknowledges that “The input and ideas of the P3 industry are an important element of shaping PPP Canada’s strategies and plans.” and that “many industry players … have shared their views” (Ibid 4, my emphasis). The CEO will personally look, it is being said in the CEO ’s Message, “to broadening and deepening PPP Canada’s engagement with all elements of the P3 industry” (Ibid).

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During this first full year of operation, the Corporation’s team was engaged in a learning experience “about the opportunities and the hurdle for private sector developers, builders, financiers, and others that operate in the Canadian P3 Market, in order to support better P3s” (Ibid). PPP Canada wants to develop itself to become a “hub” for a “dialogue” aimed clearly at homogenizing policies regarding P3s in Canada; something that the industry strongly desire here and abroad. This policy diffusion role that PPP Canada desires to play with each “jurisdiction across the country” is aimed at establishing “their needs” so as to offer “solutions to support their development of knowledge and capacity to implement P3s” (Ibid). Plans have been made for the launch in 2011–12 (not yet completed at time of writing) a “business line” that will be used to give “advisory services” aimed at bringing the “client” to consider the corporation’s “internal expertise in P3 procurement through recruitment of experienced staff ” who have the industry’s “know-how” (Ibid). “Let us help you,” says PPP Canada candidly, to: • • • • • • • • • • •

Screen project for P3 suitability [for you] Create a project development plan [for you] Follow best-practices [for you] Procure advisory services [for you] Design your research plans, methodologies and presentation [for you] Undertake a robust value for money assessment & risk analysis [for you] Develop an options analysis [for you] Determine the optimal analysis [for you] Determine the optimal P3 structure for your project [for you] Package analysis for decision-makers [for you] Plan project communication [for you]4

The business line’s strategy is to create “strategic partnerships with key federal policy leaders to create clarity and consistency in decision-making and P3 procurement practices” (Ibid). What is really intended here is to create an informal network that will then be used to ease the flow of projects in the industry’s pipeline. This informal network should bring the “flow of P3 project” to a “reasonable” level, hence, permitting the industry to benefit from “the largest opportunity in the federal market” that the “P3 procurement of services, and other non-traditional P3 arrangements” represents. (Ibid). The Corporation, hence, does more than inform departments on “best practices,” it lobbies it to foster the PPP enterprise through the promotion and diffusion of ideas.

T H E P R O C E S S I N M O T I O N : I S T H I S R E A L LY A C R O W N C O R P O R AT I O N On May 10, 2010, “Canada’s first [PPP ] investment from the P3 Canada Fund of up to $50 million to support the implementation of the Maritime Radio

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Communication Initiative.” was announced by Minister of Finance, Jim Flaherty in the presence of Nova Scotia’s Transportation and Infrastructure Renewal Minister Bill Estabrooks and Prince Edward Island’s Attorney General, Doug Currie.5 The second project in which the Corporation was involved was the RCMP “E” division headquarter PPP in Surrey, BritishColumbia. PPP Canada has also been highly involved in an advisory function aimed at fostering P3s through the Public Health Agency of Canada, Public Works and Government Services Canada, Indian and Northern Affairs Canada and Library and Archives Canada. PPP Canada truly “believes that the increased value and accountability generated by more and better P3 procurements, in addition to the budget certainty they provide, will leverage savings for taxpayers, far beyond the operations of the organization” (Ibid). As we will see, those assertions are highly questionable, since some other public administration malaises can be found in the new institutional arrangement that PPP Canada’s creation put forward. To be sure, PPP Canada “has entered into Standing Offer Agreements with the following firms” (Ibid) to assess the PPP formulae on behalf of their clients (federal departments, provincial and municipal organizations), but it is done through the symbolic auspices and cover of PPP Canada’s logo. Those firms are: • • • • • • • • • • • • • • • • • • • • • • •

CPCS Transcom CRG Consulting Deloitte and Touche Ernst & Young KPMG MMM Group PWC Raymond Chabot Grant Thornton Rockliffe Asset Management Deloitte & Touche with Morrison Hershfield Opus International GBC Group Mott MacDonald Opus International Consultants Perley-Robertson, Hill & McDougall Raymond Chabot Grant Thornton Deloitte & Touche with PMX Inc. MKT Arkle Development Turner & Townsend ZW Group A.W. Hooker Associates BTY Group Dessau

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Hanscomb Marshall & Murray Turner and Townsend

Standing Offer Contracts6 have been organized around a “5 work stream” framework; (1) Infrastructure Finance & Business Case Analysis (IFBC ); (2)  Cost Consultants & Quantity Surveyors (CCQS ); (3) Procurement & Contract Management (PC); (4) Infrastructure Sector Specialities (IF); and (5) Project Management (PM). Those “SO Contracts” have been “negotiated” in a way that extend the terms of the “PPP Agreement” to “PPP Clients on the same or equivalent terms and conditions” that PPP Canada has (ibid). “Clients,” the Corporation states, are “encouraged” to follow “the same steps outlined below” (Ibid). “Clients” need to fill two “templates” and then determine the work stream to be used. How the “client” has to behave has been already established by the Corporation: “If the main body or work is more then 40% in a given work stream, the entire requirement can go to a firm listed within the work stream that covers the main body of work” (Ibid). While this is troublesome, the rule to “identif[y] how many firms within the SO are to be approached” is even more problematic: anything under 100,000$, “clients” should “direct a contract to the firm considered to be the best qualified for the requirement, from the list of the firms awarded a standing offer within a given work stream” (Ibid). For requirements over 100,000$, but below 400,000$, the “clients” will consider, from the list of SO contracts, 3 firms who are “considered to be the best qualified” (Ibid) and then a Request for Proposal will be sent. Only in the case of a requirement “estimated” to be over 400,000$ will RFPs be sent to all the firms in a particular stream, but not all of the SO contracts firms. The RFP s are a template to be completed and then those templates are sent to specified individuals in the “Contact List PPP -006” “to solicit proposals” (Ibid). As soon as “the proposals have been reviewed and a decision made by the contracting authority,” clients are required to contact the Corporation and to disclose the “prices and resources.” An agent collects that information and PPP Canada assures that they will be used to “secure even more competitive rates and terms.” (Ibid). A form can be filled by the clients to disclose how they have evaluated the work being done by SO Holders so that PPP Canada can manage its lists against its SO requirements.

F O U R WAY S O F T R Y I N G T O E X P L A I N T H E S A M E PHENOMENON OR HOW CAN IT BE JUSTIFIED I N T H E ORY While this description, and the malaise it depicts, is very valuable and timely, the only way to make sense of this development is to place this particular case in the broader theoretical discussion on P3s. This discussion is aimed at

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understanding why P3s exist and why they are getting used at an increasing pace in different jurisdictions, mainly developed countries (i.e., Canada, USA , UK , Australia). The literature on public-private partnerships is recent and has mainly been concerned since the beginning with normative ahistorical justifications for the enterprise. Comprehensive explanations of the phenomenon in theoretically driven narratives are non-existent and no discussion exists on the type of Corporations we are describing in this chapter7. Four broad types of explanation can be found in the literature, but they are not equal in quality and depth. The most ancient – in an historical perspective – is what I have termed elsewhere the “fiscal constraint of the state” explanation.8 In the coarsest version, the state is “fiscally paralyzed” and has no other choice than to accept private capital included in the PPP formulae. This narrative is implicitly positive posing that the state, in this story, didn’t choose this “regretful” – to some – course of action, but was forced by its budget deficits to do so; hence P3s are a timely benediction. The “efficiency” class of explanation came a few years later, when states were not “financially paralyzed” anymore. This emphasis on a new efficiency explanation was a way to adjust the narrative with the empirical reality so as to keep the legitimacy of the enterprise high. Slowly, the core of the narrative was reconstructed around efficiency and most of the proponents’ stories were solely focusing on “gains” to be ripped from PPP s. At the same time, the consulting management industry was having its way with this justification and started to produce stand alone reports that were fostering the P3 model and the analysis needed to “make them work.” Efficiencies explanations revolve around arguments such as “Value for Money,” which is sometimes composed explicitly of “innovations,” a “faster turnabout,” a “better use of capital” and the technology of ‘risk sharing and direct and indirect benefits it brings about. At other times, innovation is treated implicitly without any discussion.9 As civil society, particularly unions, was increasingly attacking efficiency arguments, an historical legitimacy account was getting used more and more to support the enterprise. This latter argument proposes that “public-private partnerships have always existed.” References to other points in history are made as a way to legitimize P3s today. For example, some suggest that private turnpikes were being constructed “back in Adam Smith’s time” and that P3s are simply a “return to normal.” The goal is to frame the welfare state era, where public capital was used, as an anomaly, hence, legitimizing the PPP enterprise as a “natural phenomenon.” Lastly, an ad hoc explanation, unrelated to the chronological development of the first three was advanced. It states that the independent variable explaining why we are doing PPP s is the ideological position of political parties. In this vision, PPP s were the fruit of conservative ideologies. In the UK , it

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would have been a child of Thatcher’s ideas, then acted upon by John Major. In Canada, specifically in Québec, it was seen as an idea imported by Premier Jean Charest and his “Réingénierie de l’État” (The Reengineering of the State) since he was at the federal level a Conservative minister before taking the leadership of Quebec’s Liberal party in 1998. In Ontario, it would have been simply a Conservative idea pushed by the Harris government and its common sense revolution. The story portrayed by this ad hoc explanation is more or less the same in other provinces. Elsewhere, in the USA, in Australia and at the local level in the UK , this line of argument has been used to explain the enterprise mostly by unions. But are those stories real? Is there one more convincing than the others?

A P P E A L I N G S T O R I E S L E G I T I M I Z I N G PPPs : WEAKNESSES AND GAPS While the above explanations and the independent variables they put forward look attractive, they don’t meet an empirical test. While there is some truth in those explanations, they are not strong on either the theoretical or empirical sides. Empirically, the idea that the fiscal constraint of the states would create a powerless government who would have no other choice than to create the conditions for the usage of private capital is false. To be sure, some states – like Canada, USA , and UK – have been through some turbulent times, financially speaking, but they have always been able to keep their credit rating higher than any private consortia. To be sure, PPP s were still advocated for a while under the fiscal constraint rhetoric even when the same states were recovering and having to manage fiscal surplus. In any case, states have to finance either way (i.e., traditional or PPP ) and credit rating agencies compute it the same way, even if some states have the pretention, against good governance practices, of accounting for PPP s off-budget. When the rhetoric became too disjointed from the empirical reality, the emphasis was shifted to the efficiency argument. The efficiency argument evolved rapidly into what managerial consulting firms and some auditor generals have dubbed “Value for Money” analysis. Innovation was played rhetorically at the beginning of the efficiency argument, but then was replaced in emphasis by “risk sharing” and “risk transfer.” Rapidly, this rhetoric was under attack from unions, which were not seen as “impartial” since they were badly affected by the PPP enterprise and their criticisms didn’t “stick.” While most of their early criticisms were true, it was only when auditor generals from several jurisdictions started to look into managerial firms’ analysis that the efficiency argument became weakened; they didn’t find the proclaimed or advertised efficiency.10 In several cases, the analyses were flawed or “tuned” with unrealistic assumptions or the usage of bogus discounting rates to “create” efficiencies. A comprehensive review

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of those findings shows that efficiency is not automatic, at best, and rarely achieved, even when transaction costs (the material cost of proceeding with a transaction and the intangible cost of moral hazard and imperfect information imbued in the contracting process) are not calculated.11 Moreover, the PPP model, as it is developed by international consortia tend to create standardization and thus tend to remove any contextual innovation that could be reached with original “on site” design. On the historical argument, the comparative basis used to proclaim that public financing was an anomaly is not scientifically valid. To be sure, it is highly normative. Comparing the pre-democratic Romanesque empire or even monarchic states of the middle age, with the modern democratic states cannot be a valid base to support the judgement in any rigorous manner. Finally, the pure party ideological argument does not meet the test of empirical investigation. To be sure, in Québec, the social-democratic Parti Québécois was inclined to PPP s before the Charest Réingénierie. In Ontario, McGuinty’s government was opposed while in opposition but expanded the enterprise when sitting on the other side. The same was true in the UK with Blair’s New Labor which was strongly opposed – using a very harsh discourse before taking power and then became a proponent of the phenomenon to an extent unknown at that time in any OECD countries. This highly synthesized review of the types of PPP literature “explanations” highlights the fact that there is no substantive discussion on the role of formal and informal structures. This includes institutions put in place to foster the PPP enterprise including a Crown Corporation organization like PPP Canada. The same is true for the PPP Fund. Hence, this leaves us with the following question: what is the motivation behind this meso-institutional arrangement and what might be the consequences attached to those new arrangements.

MESO-INSTITUTIONAL ARRANGEMENTS: IDEAL TYPES AND ASSUMPTIONS There are several ways to look at this and ideal-types can be used to help understand the assumptions behind the creation of this arrangement and, at the same time, help us understand the shortfalls included in this mental picture. It might be argued that those types of organizations, like PPP Canada discussed here, are hubs of excellence. In this vision, PPP Canada would be the guardian of the public interest because it possesses a great deal of valuable expertise that can be used to keep the private sector in line with best practices regarding the use of public money. The argument would suggest that public servants would be detached from their “home department” and put on, what has been called, “secondment” inside the Corporation. The idea here, is this: by putting those public servants into a hub like this, they will do enough transactions to become “experts” and the process will move from an ad hoc

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one to an institutionally driven routine operation incrementally “ratcheting” processes toward excellence. This scheme would reduce tangible transaction costs, by way of standardization and would also reduce intangible transaction costs à la Williamson, since the expertise of those expert civil servants would help improve the monitoring function and, hence reduce the moral hazard cost.12 This is a very interesting argument, but it does not apply to the PPP fund per se. If one would like to stretch the argument a bit, the civil servants’ expertise line of argument could be used to argue that the funds is “safe,” but this does not help explaining why it has been created in the first place. A similar, but somewhat different argument could be framed like this: PPP Canada is an interconnection between two realms; public and private. It is a bridge into the private sector market and the fund it administers is available to help the public servants steer the market in the right direction or, at least, to incentivize the private sector in a way that gives the ability to the Corporation to get the best for the citizenry. By funding publicly the private finance initiative, they have a stick that can be used to discipline unethical or uncooperative business conglomerates and consortia of all sorts. The Corporation, through the Fund, would have those powers. At the same time, the Corporation could be seen as a school where civil servants on “secondment” get their training and then bring “home” this practical “know-how” to other departments or their own who would be in constant need. Provincial civil servants and individuals from the local level would benefit from this “private sector dealings” experience gained while on “secondment” and would help their own organization in getting better deals from the private sector to the benefits of their citizenry. If one finds those arguments appealing, again the problem is that they don’t match the empirical reality. The idea that PPP Canada is the nest of the civil service’s expertise in PPP is flawed. Most of the expertise that PPP Canada possesses and markets is coming from the private sector. The board of directors is mostly influenced by the private sector experiences that the individuals have gained there. Jacques Lamarre, ex-CEO of SNC -Lavalin is an iconic example. While it is clear that tangible transaction costs are reduced by this scheme because of the centralization and standardization that the Corporation creates, it is not clear who is benefiting the most from this. For the transactional moral hazard discussed above, it would theoretically be higher since, as the argument shows, disinterested experts from the civil service were at the core of that ideal type; if this is not the case, the public service ethos will be weaker, if present. The other argument about disciplining the market has the same problem as the first one. If the Corporation is not directed, as assumed in the original argument, by experts from the civil service, the idea that they will be able to use the 1.2B$ fund to steer the market so as to get the best for the citizenry might not hold. If in fact, the director approving the projects and the general

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guidelines are somehow on “secondment” from the industry – not from the civil service – the public interest might not be as protected as in the original idea. This is an obvious theoretical postulate. Finally, the last argument about the “school” seems to be true, but not for the civil servants. Instead it is mostly the industry who gets the insiders’ knowledge necessary to get a grip on the PPP processes. To be sure, it is a lot simpler to deal with a small group of individuals who share fully or are at least are sensibilized to the business ethos than to deal with traditional department and classical civil servants and their public service ethos; the Corporation can be seen as a way to get around this very real problem. If the ideal-types above, and the assumptions derived from them, do not seem to help us much in getting the beginning of an explanation for why the Corporation and the Fund institutional mix was selected, they, at least, helped us in removing some mental pictures from the explanatory landscape, which, at this point, seems fairly cleared. This will help us in putting forward a new explanation.

INTERNAL CONTRADICTIONS OF THE HIDDEN AS SUM P T I ON S SU PP ORT I N G T H E RH ETORI C OF THE ARRANGEMENT The core idea behind the application of P3 project finance to public infrastructure project was that private capital’s usage brought the “discipline of the market” that the traditional procurement was lacking.13 What is troubling in the new meso institutional arrangement that the Fund and the Corporation’s creation bring about is that they incarnate elements which are in contradiction with the core ideas behind the enterprise. When PPP s first appeared system-wide – in the UK – they were called Private Finance Initiatives (PFI s). With time, public sector involvement was requested by the private sector. Depending on the context, when the private sector was finding the project “too risky,” public sector capital was requested, if the PFI was to happen. Already, this was problematic, but the financial crisis made this conceptual problem more apparent. In 2008, the “big credit freeze” literally froze all of the industry’s projects pipelines simultaneously. To keep the projects flowing in the pipeline on which firms gets their revenues, states like the UK , Canada and Australia, among others, started to finance publicly private project finance PPP s. In Canada, this was mainly happening at the provincial level. The P3 Funds is the institutionalization of this “credit crisis,” since the goal is to “ease” projects forward that would not proceed if left to the private finance initiative. But this obviously raises the following question: if the benefit was to finance privately infrastructure project when the private sector was interested, why would a State be interested in financing publicly a project that the private sector does

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not find interesting in a pure project finance perspective? Technically, the State could just go back to the traditional procurement method if it is to finance a Private Finance Initiative with public monies. It appears that active investment in PPP s by different governments made it possible for the industry to keep reasonable revenues, even when the financial turmoil was at his peak. This contention highlights the role of the industry in institutionalizing the enterprise to reduce risk and to control and to control better the project pipeline deals flow. PriceWaterhouseCooper, in a report on the state of the credit market for infrastructure investors report argues that the public support keeps the investment opportunities and revenues interesting even through the credit freeze: “The severe contraction in debt availability has led to concerns over the viability of business models across the listed fund sector and has seen a number of asset deals either postponed or cancelled. Similarly the debt contraction within the PFI sector has made for significantly more challenging times, and diminishing returns for some investors.”14 The report goes on to say that “despite economic and financial pressures, most available evidence suggests that infrastructure investment remains a viable long-term proposition, still providing investors with opportunities”15 in large part because of the injection of public capital in private project finance. This viewpoint has been strengthened by recent trends towards government intervention and active investment in infrastructure projects. Hence, the P3 Fund might be seen as a reaction to the industry’s needs in the context of a very special crisis. But, if this might be true, there is no plan to “pull the plug” on the P3 Fund. In fact, when one looks at the private funds’ growth post-2008, the need seems already gone: “Recent fund raising has been higher than ever, with the latest figures showing more funds “on the road” than at any time in the sector’s history, despite contractions in financial markets.”14 Obviously, the P3 Fund can still “ease” deal flows, even if the “real” need is absent. At the same time, the P3 Fund might be seen as an isomorphing force. By providing those funds, PPP Canada can set standardized guidelines and create a unified market for the firms involved. This feature helps raise profit margins by reducing the firms’ internal transaction cost. KPMG voiced this desire on behalf of the industry in other markets, such as Australia, as shown by the National PPP Working Group’s response to the industry on that particular request.16 The same force has driven the UK experience too. This raises very important public administration accountability questions. If the P3 Fund is not supervised by disinterested public servants as discussed above and if the industry has ways to stay in touch with its “secondees,” there might be the potential for influencing some part of the process, such as the guidelines, for example. For the government, the P3 Fund might be another way of using its “spending powers” but without their usage being noticed as they clearly are in other federal spending fields. Under the cover of a PPP , the

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federal government can “flagship” many local or provincial projects, but in this context projects might not be selected solely on the economics of them. The possibility that “secondees” could be influenced not only by their respective industries and former colleagues but by the political class is real. The Fund might not be as protected as it would be under the surveillance and management of career public servants and there is no mechanism in place as of now to reassure us that this possibility has been mitigated to the maximum extent.

CONCLUSIONS It is hard to pose a definitive judgment on this particular arrangement at this time, since the phenomenon is fairly new and the data available is sparse (this is an important problem of the PPP enterprise per se). For Hubbard and Paquet, we would still be “at a stage of development akin to the one stage where biology still classified animals according to the number of their legs.”17 But while a “judgment” might not be possible, we were able to identify, through an in-depth analysis of this new meso-institutional arrangement, contradictions and problematic situations or what I have termed “public administration malaise.” Firstly, it seems clear that the diffusion of the phenomenon and the way it has been operationalized in Canada demonstrate that PPP s is an enterprise that has more than only technical and accounting virtues attached to it. Public Partnerships Canada and the P3 Fund analyzed here are not simply innovations imported by the Government from some provinces’ best practices – who themselves have imported the concept from the UK – to cope with real problems, but it is part of the diffusion effort done by the industry itself. To be sure, it is to protect the market after the credit freeze that governments across all jurisdictions have risen their public spending into PFI /PPP s. This might be a legitimate political choice, but it might not be as good a public policy choice. Recognizing that the driving force is not the technical superiority of PPP per se, but the industry itself might be fruitful for understanding the phenomenon, but to analyze specific arrangement such as the one described here too. By having this reading in mind, it is possible to understand why governments use public monies to support PFI /PPP s and what might be the implication of this policy in particular and in general. However this is only one part of the “problem.” Several malaises are found in this institutional arrangement and in the way the Corporation operates. The rules that the PPP Canada requires its “clients” to respect in their usage of the SOC are troubling. That traditional procurement is eluded and replaced with lower, if not loose, requirements for financial accountability in the process of public procurement is alarming. This problem is worse because the assumption about the way expertise would be transferred to public servants in the hub that the Corporation is supposed to be is extremely weak, not to say,

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mostly wrong. This in turn affects the idea that “in any case” public service ethos will provide a safeguard inside the Corporation in its administration of the Fund because it is mainly private sector individuals who populate the organization at the top. Again, like in a chess game, by moving this piece, we move de facto another one; if individual are in some way on “secondment” from the industry, decisions might correspond more to the market’s needs that the general population’s interest. One has to acknowledge without doubt these conceptual and practical possibilities. While for the industry PPP Canada is working to “isomorph” the market for PFI /PPP and, hence, reduces transaction cost for firms and while the Government can extend its spending power into provincial jurisdiction under the radar, the question is “what does this bring to Canadians?” It might be that by reducing their transaction costs, firms somehow transfer the “saving” to their “clients” and, in the end, the taxpayer, but this has never been substantiated. In fact, evidence from the UK shows that firms skirt their “public partner” whenever they are able to refinance their loans. If the public sector is not strong and “in charge” of the Corporation and if traditional accountability mechanisms (macro democratic and micro financial) are not respected (which is not the case here) the industry reaps all of the benefits – present and future – that the isomorphic process will bring. So what? Firstly, for public policy’s sake, if the Government is investing and taking active steps to foster benefits that ultimately the public will never see, the public policy should be revised. Secondly, for research’s sake, we have attempted to highlight the hidden assumptions used to support the particular project of funding publicly PFI /PPP s and to flag some of the problems found in this particular case, but this will have to be fostered elsewhere. Finally, for democracy’s sake, the public should be informed that PPP s are not “simply” more efficient or technically superior and that they are put in place for reasons that are not covered by the rhetoric. notes 1 Canada, Building Canada: Modern Infrastructure for a Strong Canada. I. Canada. Ottawa, PWGSC , 2007. 2 Canada, Annual Report. Ottawa, PPP Canada, 2009. 3 Canada, Public-Private Partnerships: Improved Infrastructure Delivery. Annual Report. Ottawa, PPP Canada, 2010. 4 Canada, “What Can PPP Canada Do For You?” Retrieved 26 June, 2011, from http:// www.p3canada.ca/what-can-ppp-canada-do.php. 5 Canada, Public-Private Partnerships, 2. 6 Canada, P3 Services Standing Offer Client Information. PPP Canada. Ottawa: PPP Canada 2010.

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7 C. Bordeleau, “Re-Building States’ Infrastructure Privately: The Politics of PublicPrivate Partnerships in Canada, United-Kingdom and the United-States of America.” School of Public Policy and Administration. Ottawa, Carleton PhD, Thesis, forthcoming. 8 Ibid. 9 Ibid. 10 J. McCarter, Annual Report. OAGO . Toronto, Office of the Auditor General of Ontario. 2008, R. Lachance, Rapport spécial portant sur la vigie relative aux projets de modernisation des centres hospitaliers universitaires de Montréal. B.q.e.A.n.d. Québec. Québec, Vérificateur Général du Québec: 2010, 90 and J.R. Lapointe, Report to the House of Assembly. OAGNS . Halifax, Office of the Auditor General, 2010. 11 O.Williamson, “Transaction-Cost Economics: The Governance of Contractual Relations.” Journal of Law and Economics 22:1979, 233-261, J.L. Loxley, Public Service, Private Profit: The Political Economy of Public-Private Partnerships in Canada, Fernwood Publishing 2010, and C. Bordeleau, “Re-Building States’ Infrastructure Privately.” 12 O.Williamson,” Transaction-Cost Economics.” 13 Ruth Hubbard and Gilles Paquet, “Public-Private Partnerships: P3 and the Porcupine Problem,” in Bruce Doern, ed. How Ottawa Spends, 2007–2008: The Harper Conservatives Climate of Change (Montreal: McGill-Queen’s University Press 2007), 254–72. 14 PriceWaterhouseCooper. Infrastructure Funds. PWC . London. 2009 15 Ibid. 16 N.P.W. Group, Review of Barriers to Competition and Efficiency in the Procurement of PPP Projects, Infrastructure Australia: 2010, 12. 17 Ruth Hubbard and Gilles Paquet, “Public-Private Partnerships: P3 and the Porcupine Problem,” 5.

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9 Pharmacare and Federal Drug Expenditures: A Prescription for Change Marc-André Gagnon*

INTRODUCTION Canada has no national drug plan in spite of repeated recommendations in favour of universal pharmacare. As far back as 1964, the Royal Commission on Health Services (the Hall Commission) recommended that a universal drug insurance plan be established for all Canadians.1 In 1997, the National Health Forum recommended universal pharmacare with first dollar coverage, meaning that Canadians would not have to pay any co-payment just like in the case with Medicare.2 In 2002, in its final report, the Commission on the Future of Health Care in Canada (the Romanow Commission) injected new life into the proposal for Canada-wide pharmacare with catastrophic coverage for those spending over $1,500 a year on medications.3 To follow through on the Romanow Commission recommendations, the provincial premiers and the federal government agreed in 2004 on A 10-Year Plan to Strengthen Health Care, including the implementation of a National Pharmaceuticals Strategy (NPS ) in order to implement a national pricing and purchasing system as well as a national drug plan based on catastrophic coverage.4 None of these objectives have been achieved yet, and the diversity of private and public drug plans creates serious inequity among Canadians.5 In short, Canadians’ access to prescription drugs is still determined by where they work or where they live, and not by their medical needs. The Harper Conservative * The author would like to thank Bruce Doern, Christopher Stoney, Joel Lexchin, Paul Grootendorst, and Anne Holbrook for their comments. The author retains full responsibility for any errors or weakness that remain.

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Government seems unwilling to go forward with the NPS , arguing that health is a provincial jurisdiction and that the Federal Government has nothing to do with this issue. The NPS is now completely stalled, and we find no federal political will to revive it.6 A report making The Economic Case for Universal Pharmacare,7 however, demonstrated that universal pharmacare with first dollar coverage could save up to 43% on the costs of prescription drugs for all Canadians. While Ottawa’s leadership would be central for implementing and coordinating a national drug plan as recommended by various commissions and as required by the goals of the NPS , it seems that the Federal Government has little to gain since most of the costs are paid by provinces. Two main reasons are thus put forth to explain the lack of initiative from the Federal Government on the issue of national pharmacare: (1) the fact that health is a provincial jurisdictional matter; and (2) the cost factor for prescription drugs if Ottawa gets involved in the implementation of a national drug plan. The latter reason is lodged as well in the context of the current recession and the federal plan to eliminate the fiscal deficit. This chapter examines both these pro-offered reasons and finds them unconvincing. To deal with these issues, the chapter examines the full direct expenditure and tax expenditure aspects of federal involvement in prescription drugs and also its involvement through regulatory and related measures that support the drug industry by artificially inflating drug prices in the name of innovation policy. The Conservative Government argues that Ottawa should not play any role in reforming pharmaceutical policy because health is a provincial jurisdiction. For example, the Minister of State, Maxime Bernier clearly called for Ottawa to stop intervening in health services, even ridiculing Liberals for wanting to implement a national pharmacare program:8 Clearly, our goal should be to bring back the balanced federalism envisioned by the Founders. It should be to restore our federal union, as Wilfrid Laurier and most people understood it back then. This would be done by putting an end to all federal intrusion into areas of provincial jurisdiction. Instead of sending money to the provinces, Ottawa would cut its taxes and let them use the fiscal room that has been vacated. Such a transfer of tax points to the provinces would allow them to fully assume their responsibilities, without federal control. The same point was also defended and refined by Kenneth J. Boessenkool, an advisor to Harper and a Tory election strategist, suggesting Ottawa should transfer GST entirely to provinces and withdraw entirely from healthcare.9 This first argument against a Federal role in the implementation of a national drug plan is problematic because Ottawa is already playing a central role in the regulation and access to prescription drugs in Canada. Patent policy and

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pricing policy for prescription drugs are determined at the federal level, and the Federal Government offers different public drug plans, and provides as well important tax credits to promote private drug plans. The quality and costeffectiveness of new drugs are assessed by Federal agencies such as Health Canada regarding drug assessments and approvals and the Canadian Agency for Drugs and Technologies in Health that advises on the determination and approval and reimbursement of new drugs under provincial formulary plans. Provinces do not oppose the role of the Federal Government in the regulation of prescription drugs and they even call for a more important role, for example by calling for the establishment of a national bulk-purchasing agency to reduce the price of drugs.10 The question of costs is certainly the main factor explaining the Harper Government’s reluctance to follow up on the recommendations in favour of a national drug plan. During the 2011 electoral campaign, Conservatives attacked Liberals and New Democrats for their proposition for a national pharmacare system, by explaining that such system would mean between $6.6 billion and $10.3 billion in increased spending for Ottawa.11 This argument sounds rational since, in the case of Medicare, the Federal Government contributes about 20 cents of every dollar the provinces pay on healthcare.12 Considering that Canadians paid $25 billion on prescription drugs in 2009 and that costs for prescription drugs are among the fastest growing cost components of health care spending,13 introducing prescription drugs inside Medicare could mean extra costs of $5 billion for Ottawa. However, building on earlier research (see n7) the author further argues that such a national drug plan (universal, public with first dollar coverage for all Canadians) would not only improve access and health outcomes, but could achieve savings up to 43% on prescription drugs for all Canadians. Even under this most optimistic scenario, one could consider that a national drug plan would still incur an additional cost of $2.85 billion for the federal government … Or would it?

A F U L L C O S T I N G O F F E D E R A L I N V O LV E M E N T I N PRE S C RI P T I O N D RU G S Ottawa’s argument against a national drug plan because of costs can be justified only if we compare potential costs with current costs paid by the Federal Government for prescription drugs. Accordingly, this chapter investigates all current costs paid by Ottawa for prescription drugs. It identifies the costs of federal drug plans, the costs incurred by the private coverage of federal public employees and tax expenditures that arise from the non-taxation of private expenditures for prescription drugs. By summing up these elements, and by building on previous research about the costs and benefits of the implementation of a national drug plan, it is possible to develop a more accurate analysis

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and discussion of the cost argument restraining Ottawa in moving forward with the implementation and coordination of a national drug plan. Federal Public Drug Benefit Programs Ottawa provides prescription drug coverage for about one million Canadians who are members of eligible groups. The eligible groups are First Nations and Inuit (through the Non-Insured Health Benefits Program provided by Health Canada’s First Nations and Inuit Health Branch), inmates in federal penitentiaries (through Correctional Service of Canada), refugees (through the Interim Federal Health Program), members of the military (through the Department of National Defence), members of the RCMP (through the RCMP ), and veterans (through Veterans Affairs). In 2009, Ottawa spent $642 million in prescription drugs through these different programs (see n13). With 815,800 members of First Nations and Inuit benefiting from federal drug coverage, they represent the bulk of federal expenditures on prescription drugs. The amount spent on drugs, however, does not include the administration costs of these programs. Administration costs for the largest program, the Non-Insured Health Benefits Program, represented 3.8% of Benefits in 2008-2009.14 Since other programs are smaller, administration costs are likely higher, but the numbers were not available. It is thus a conservative assumption to consider that the administration costs for all federal drug programs was 3.8%, representing an additional expenditure of $24 million. Including administration costs, Ottawa thus spent $666 million to directly provide prescription drugs to different eligible groups in 2009. Private Coverage of Federal Public Employees Another important federal spending component on prescription drugs relates to the provision of private coverage for federal public employees. Until 2011, no public information was available in terms of the overall cost of the private coverage of public employees. Following a question asked in Parliament by MP Claude Gravelle on December 14, 2010, more information was sought about how many Federal public employees were covered and how much was spent for them in prescription drugs. Information was released in January 2011.15 According to the document, in 2009 Ottawa provided drugs benefits to 603,572 federal public employees and to their dependents through its Public Service Health Care Plan (PSHCP ). The number of dependents of privately insured federal public employees is estimated at 900,000 for a total of around 1.5 million Canadians covered through this specific private plan paid for by the Federal Government. The plan covers 80% of all prescription drug expenditures by federal public employees and their family, after a yearly deductible of $60 per person or $100 per family, with no maximum amount that can be

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claimed by each employee. If the employee’s co-payment amounts to more than $3000 per year, the full cost of prescription drugs are covered by PSHCP . Total claims of federal public employees for prescription drugs amounted to $521 million in 2009. This amount, however, understates the spending of the Federal Government on prescription drugs for public employees. The private insurer administering PSHCP , SunLife, must also cover its costs to administer the claims. The premiums paid to Sunlife by Ottawa and federal public employees are in fact higher than the total amount of claims to include administration costs. When compared to public insurance, the administration costs of private insurers are normally very high because private insurers must include the costs for marketing and underwriting, as well as the cost for billing, product innovation, distribution and contracting with providers. It is not surprising that private insurers thus face much higher overhead costs than public insurers. According to the OECD , administration costs for private healthcare coverage is 13.2% in Canada,16 as compared to 1.3% for public healthcare coverage.17 It is thus possible to estimate the overhead administration costs for the private coverage of federal public employees to be around $69 million. Total cost for the private coverage of federal public employees can thus be estimated at $590 million. Tax Expenditures for Drug Coverage Another element that needs to be taken into account is tax expenditures for prescription drugs. Tax expenditures are not direct expenditures. They are the amount of tax revenues lost because the Government refused to tax specific elements for policy or other reasons. The tax expenditures for prescription drugs are due to the fact that Ottawa does not tax dental and health benefits provided by employers to employees, and out-of-pocket expenditures for prescription drugs can obtain a 15% non-refundable tax credit. N o n Ta x at i o n o f P r i vat e D r u g P l a n s As a general rule, health and dental benefits provided by employers to employees are considered to be non-taxable income for employees. This rule applies everywhere in Canada, except for provincial income tax in Quebec. The rationale for this rule is to encourage employers to provide private health benefits. Such a rule, however, is problematic because, as with many tax expenditures, it makes taxation more regressive. For example, $2000 obtained in drug benefits represents a different tax saving depending on the level of income of the employee. For an employee gaining $39,000 per year (plus health benefits) in Ontario, tax savings on $2000 of drugs benefits due to the non-taxation of the employer’s drug plan would be $401 because the marginal tax rate applied is 20.05%. For an employee earning $133,000 per year with a marginal tax

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rate of 46.41%, it represents tax savings of $928.20. Marginal tax rates for the same salaries would vary between 15% and 29% for federal income tax alone. It is possible to determine the absolute amount of total tax expenditures by Ottawa to promote the private provision of dental and health benefits. According to Tax Expenditures and Evaluations 2010,18 Ottawa alone spent $2,800 million in 2009 for “Non-taxation of business-paid health and dental benefits.” In order to evaluate the amount it represents for prescription drugs, it is necessary to break down health benefits by types. According to consulting companies analyzing private insurance, drug benefits represent 43% of total dental and health benefits.19 Figure 1 breaks down the elements of Dental and Health Benefits. Since prescription drugs represent 43% of total tax expenditures on dental and health benefits, the total amount of tax expenditures on prescription drugs in 2009 was thus $1,204 million. Considering that total expenditures for prescription drugs by private insurers for that year were $8,981 million (see n15), it thus means that Ottawa paid through tax expenditures 13.4% of the total bill for private drug coverage in Canada. N o n - Ta x at i o n o f O u t - o f - P o c k e t E x p e n d i t u r e s f o r Pre s c ri p t i o n D ru g s Ottawa provides tax credits for medical expenses, including for out-of-pocket expenditures for prescription drugs. For federal income tax purposes, individuals may claim through the Medical Expense Tax Credit a non-refundable tax credit of 15% for all out-of-pocket medical expenses over $2,024 or over 3% of the individual’s net income.20 An additional federal credit, the Refundable Medical Expense Supplement, increases the tax credit rate by a further 25% for low income individuals, for a maximum of $1067. The total amount of federal tax expenditures for the Medical Expense Tax Credit is $1.01 billion, while it is $130 million for the Refundable Medical Expense Supplement. Total tax expenditures for out-of-pocket medical expenses are thus $1.14 billion. While it is impossible to determine the exact proportion of tax expenditures for medical expenses that are for prescription drugs, it is possible to arrive at an estimate by comparing out-of-pocket expenditures for prescription drugs and out-of-pocket expenditures for all healthcare expenditures. According to Canadian Institute for Health Information, total out-of-pocket expenditures for prescription drugs in Canada in 2009 amounted to $4.3 billion. Total out-of-pocket health expenditures amounted to $25.7 billion, but it included $2.7 billion in over-the-counter drugs, which are not eligible medical expenses.21 It can thus be estimated that out-of-pocket drug expenditures represent $4.3  billion of the $23 billion of total eligible medical expenses, which represents a proportion of 19%. It can be estimated that 19% of the $1.14 billion in tax expenditures for out-of-pocket medical expenses was spent for prescription drugs, which amounts to $217 million.

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Figure 1 Average Distribution of Dental and Health Benefits Costs in Canadian Private Drug Plans, 2009-2010 Other; 5% Vision; 5%

Dental; 34%

Prescription Drugs; 43%

Hospital; 2% Paramedical; 10% Out of Canada; 1%

Source: Martinez 2011, Group Universe Report, Fraser Group, Mercer Database

A N A L Y S I S A N D C AV E AT S Table 1 summarizes the different types of expenditures by the Federal Government on prescription drugs. Total expenditures on prescription drugs in Canada were $24.95 billion in 2009, while Ottawa spent around $2.68 billion in prescription drugs for that year. Since Ottawa spent more than 10% of the total for that year and since Ottawa also pays in supplement for 13.4% of the total bill for private drug coverage in Canada, it is difficult to argue that the Federal Government has no significant financial role to play in the access to prescription drugs. Furthermore, because of its current spending in prescription drugs, Ottawa has significant leeway if it decides to reform Canadian pharmacare in order to improve access and reduce costs. The author’s 2010 report, building on an analysis of inter-provincial and international differential cost-drivers for prescription, showed that universal pharmacare with first dollar coverage for all Canadians, if implemented jointly with health technology assessment to ensure the rational use of medicines, could save Canadians 11.7% on the total costs of prescription drugs (see n7). Health technology assessment is a central feature for a successful national pharmacare program capable of containing the increase of drug costs. It must be kept in mind that around 80% of new patented prescription drugs that are introduced on the Canadian market do not represent any significant therapeutic advance as compared to drugs that already exist,22 while newer drugs

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are normally more expensive. Health technology assessment, based on both clinical assessment and pharmaco-economic assessment, provides the institutional capacity to bargain for lower prices by putting new patented drugs in competition with cheaper and as efficacious older drugs. Furthermore, it is important to understand that one of the most important cost drivers for prescription drugs in Canada is a series of innovation policies that artificially inflate the price of prescription drugs to create a favourable business environment. It has been estimated that, because of these innovation policies to promote pharmaceutical research and development (R&D) in Canada (excluding patent policy), Canadians pay a yearly supplement for prescription drugs up to $6 billion,23 while generating only $662 million in net private pharmaceutical R&D expenditures. These innovation policies are not only very costly, they are plainly inefficient. By eliminating these inefficient innovation policies, Canadians could save up to 42.8% on the total costs of prescription drugs. Such savings on the total costs of prescription drugs, from 11.7% to 42.8% depending on the possible elimination of inefficient innovation policies, could thus represent significant savings for Ottawa as well. Under these circumstances, the financial argument against Ottawa leadership in the implementation of a national drug plan is unjustified since current costs are already high for Ottawa, and national pharmacare could in fact mean interesting savings for the federal budget. In looking at these direct expenditure and tax expenditure totals, some partial caveats warrant mention due to the complexity of the package and possible future choices. The total cost in Table 1 is partly problematic because the implementation of universal pharmacare with first dollar coverage, whatever the new costs for the Federal Government, might not completely eliminate the listed previous costs. For example, one should not take for granted that the elimination of tax expenditures on prescription drugs would directly translate into equivalent additional tax revenues for the Federal Government. Assuming the implementation of universal pharmacare with first dollar coverage, it is not clear if the previous cost of private drug coverage would simply be transferred into additional (fully taxable) salary for employees, or if the elimination of private drug benefits would simply reduce the cost of labour. In the latter case, textbook economics suggests that the savings would be used by employers to hire more employees due to the now reduced cost of labour, which would increase the income tax base but would not fully achieve the potential savings on tax expenditures. Using the same logic, if the previous costs for private coverage of federal public employees simply translate into additional salary, it would mean that there will be no saving for Ottawa on the costs of private coverage, even if it would increase its tax revenues due to higher taxable salaries of public employees.

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Table 1 How Ottawa Spends on Prescription Drugs, 2009 Type of expenditure Federal Public Drug Benefit Programs Private Coverage of Federal Public Employees Tax Expenditures for private drug plans Tax expenditures on out-of-pocket drug costs Total

Amount (millions of $) 666 590 1,204 217 2,677

Source: Author’s calculations as discussed above.

In the case that, with the implementation of a national drug plan, previous costs for private drug coverage were to be simply added to the salary of employees (federal public employees and others), one would need to consider that the $590 million spent by Ottawa for the private coverage of public employees would not be recouped by Ottawa if a national public drug plan was introduced, reducing potential recouped costs to $2,087 million. If, on the contrary, previous costs for private drug coverage were not transferred to employees, the cost of labour would be reduced, increasing employment and increasing the income tax base. Using the very conservative assumption that the increased income tax base would allow to recoup only half of previous tax expenditures, it would still mean potential recouped costs for Ottawa to be $2,075 million. These numbers remain estimations since a lot would depend on the details of the implementation and funding of a national drug plan. Nevertheless, these numbers show that Ottawa is currently paying more than $2 billion a year to maintain the current system for the provision of prescription drugs to Canadians. Supposing the implementation of universal pharmacare with first dollar coverage without any modification to reduce the artificially inflated price of prescription drugs due to different innovation policies, total costs for prescription drugs in 2009 would have been $22.2 billion (see n7). If Ottawa accepted to pay 20% of that total bill, as it does for Medicare, total costs for the federal government would be $4.4 billion, instead of a little more than $2  billion. Nevertheless, Ottawa could offer to the provinces that it would participate in the funding of a national drug plan by paying only 10% instead of 20%, which would reduce Ottawa spending to almost the same amount it was already paying. By supposing that a national drug was implemented while eliminating inefficient innovation policies artificially increasing the price of prescription

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drugs, total costs for prescription drugs in 2009 would have been as low as $14.4 billion (see n7). If Ottawa participated in the implementation of a national drug plan under these conditions, and accepted to pay 10% of the bill instead of 20%, the cost for Ottawa Federal Government would be $1.44 billion, which would mean savings of around $600 million for Ottawa while still providing the necessary incentives for all provinces to join a national drug plan. Many other possibilities could be explored, for example the possibility to slightly raise income tax. While increasing taxes is not a popular political choice, on this issue a tax increase could be easily defendable for any federal political party especially if the tax increase is lower than the increase in the salary of employees because they do not have to pay privately for drug benefits anymore. Even without considering the elimination of deductibles and copayments, total net income available for Canadians could still be higher even if taxes were slightly increased to fund the national drug plan. Another possibility to be explored is the creation of a social insurance fund for the financing of a national drug plan.24 Other possibilities include reducing costs for the government by limiting the drug plan to catastrophic coverage or by arranging reimbursement in tiers for essential and non-essential drugs, as is the case in France. Exploring at length these possibilities is beyond the scope of this chapter.

CONCLUSIONS This chapter has demonstrated that, for Ottawa, the cost argument put forth against implementing a national drug plan is simply not a valid one when one considers the total current federal involvement via both direct expenditures and tax expenditures. Universal pharmacare with first dollar coverage would not only improve access and health outcomes, and enhance equity, it could generate huge savings for all Canadians on the costs of prescription drugs. The will of the Federal Government, however, remains a first requirement to go forward with any national initiative to implement a national drug plan. The main narrative restraining Ottawa to go forward with a national drug plan is the one about the costs that would be incurred by the Federal government in the context of the federal deficit reduction strategy. The question of costs is certainly an important issue and any discussion about the implementation of a national drug plan should analyze carefully the different available scenarios to make sure that the equity in access to prescription drugs for all Canadians is paralleled with equity in financing between various actors and levels of government. While it is rational for Ottawa to refuse to disproportionately bear the costs of provincial jurisdictions, the analysis has shown that the current costs paid by Ottawa for prescription drugs

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under the current inefficient and inequitable system are already very high. With the existence of different scenarios that could even create significant savings, there are no convincing financial reasons for Ottawa to oppose the repeatedly recommended implementation of a national drug plan. There is no reason for Ottawa not to find a way to implement a national drug plan while respecting provincial jurisdictions as it does for Medicare. notes 1 Royal Commission on Health Services. Royal Commission on Health Services: 1964: Volume I, Ottawa: Royal Commission on Health Services 1964, and Royal Commission on Health Services: 1965: Volume II, Ottawa: Royal Commission on Health Services 1964. 2 National Health Forum. Canada Health Action: Building on the Legacy. Vol. I: Final Report. Ottawa: National Health Forum 1997, and Canada Health Action: Building on the Legacy: Vol. II: Synthesis Reports and Issue Papers, Ottawa: National Health Forum 1997. 3 Commission on the Future of Health Care in Canada. Building on Values: The Future of Health Care in Canada, Ottawa: Commission on the Future of Health Care in Canada 2002. 4 First Minister’s Meeting on the Future of Health Care 2004. A 10-year plan to strengthen health care, 2004: http://www.hc-sc.gc.ca/hcs-sss/delivery-prestation/ fptcollab/2004-fmm-rpm/index-eng.php (accessed January 15 2012). 5 Virginie Demers, “Comparison of provincial prescription drug plans and the impact on patients’ annual drug expenditures.” Canadian Medical Association Journal 178 (4), 2008 February 12: 405–9; Gillian Hanley, “Prescription drug insurance and unmet needs for healthcare: A cross-sectional analysis.” Open Medicine 3 (3), 2009: 178–83; Jamie Daw and Steve Morgan. “Stitching the gaps in the Canadian public drug coverage patchwork?” Health Policy 104, 2012. 6 Health Council of Canada. Progress Report 2011: Healthcare Renewal in Canada. Toronto: Health Council of Canada 2011. 7 Marc-André Gagnon, The Economic Case for Universal Pharmacare. Ottawa: Canadian Center for Policy Alternatives and Institut de Recherche et d’information Socio-économiques, 2010. 8 Maxime Bernier, “Restoring our Federal Union.” Speech at Albany Club. October 13, 2010. 9 Kenneth J. Boessenkool, “Fixing the Fiscal Imbalance; Turning GST revenues over to the provinces in exchange for lower transfers.” SPP Research Paper 3(10), December 2010. 10 Karen Howlett. “Provinces to team up on drug purchases.” Globe and Mail, August 6. 11 Conservative Party, “Harper reaffirms low-tax plan for jobs and growth.” Press release. April 2011.

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12 Canadian Press, “Atlantic premiers are calling for a new deal that would see Ottawa pay 25 per cent of provincial health care costs.” December 5, 2011. 13 Canadian Institute for Health Information. Drug Expenditure in Canada: 1985 to 2010. Ottawa: Canadian Institute for Health Information, 2011. 14 First Nations and Inuit Health Branch. Non-Insured Health Benefits Program; Annual Report 2009–2010. Ottawa Health Canada, 2011. 15 House of Commons. Order/Address of the House of Commons #Q-752. Released January 31 2011. 16 Francesca Colombo and Nicole Tapay. Private Health Insurance in OECD Countries: The Benefits and Costs for Individuals and Health Systems. Paris: OECD , 2004. 17 Stwffie Woolhandler, Terry Campbell and David U. Himmelstein. “Costs of Health Care Administration in the United States and Canada.” New England Journal of Medicine 349, August 21, 2003: 768–75. 18 Department of Finance Canada. Tax Expenditures and Evaluations 2010. Ottawa: Department of Finance. 2011 Available online: http://www.fin.gc.ca/taxexpdepfisc/2010/taxexp1001-eng.asp#tocpart1-06 (Accessed January 15, 2012). 19 Barbara Martinez. Assessing Equity in Access to and Financing of Medicines in Canada. Presentation for Pharmaceutical Policy Research Collaboration. Ottawa: October 2011. 20 Ling Chu, Alan Macnaughton and Nicole Verlinden. “Curtailing Income Tax Relief For Cosmetic Medical Expenses.” Canadian Tax Journal 58 (3): 2010, 529–75. 21 Canadian Institute for Health Information. National Health Expenditures Trends, 1975 to 2011. Ottawa: Canadian Institute for Health Information, 2011. 22 Patented Medicines Price Review Board. Annual Report 2010. Patented Medicines Price Review Board. 2011. 23 Marc-André Gagnon and Richard Gold. Public Financial Support to the Canadian Brand-Name Pharmaceutical Sector. Report prepared for Health Canada, 2011. 24 C. Flood and M. Stabile and Carolyn Tuohy, eds. Exploring Social Insurance: Can a Dose of Europe Cure Canadian Health Care Finance? Montreal: McGill-Queen’s University Press 2008; Mark Stabile and Jacqueline Greenblatt. “Providing Pharmacare for an Aging Population: Is Prefunding the Solution?” IRPP Study, Montreal: Institute for Research on Public Policy, February 2010.

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10 Public Policy as an Inquiring System: The Case of Canadian Health Care R u t h H u b b a r d a n d G i l l e s Pa q u e t Fail better. Samuel Beckett

INTRODUCTION Public policy often fails. In the regalian world of command-and-control policies of the era of Big G Government, these failures were ascribed to external shocks and surprises preventing well-designed policies from nudging complex social systems in preferred directions, without ever really questioning the validity of the policy process as traditionally conceived. In the new turbulent, more complex and diverse world of small g governance1 (in which power, resources, and information are widely distributed, and where nobody is regarded as fully in charge), such ad hoc explanations for governance and policy failures are no longer persuasive. Policy appears to fail mostly because of the flaws in the public policy process. These flaws are the unrealistic assumptions of the “goal-setting and control view” of public policy about (1) public policy makers being informed enough to elicit clear goals and stable means-ends relationships (when policy issues pose “wicked problems”2); (2) governing being a top-down process (when it is of necessity more and more horizontal and collaborative); and (3) the requisite amount of collaboration for effective public policy either being inconsequential or materializing organically if and when required (when it is blatantly not the case). As a result, the public policy process mostly fails because the problématique is flawed: it is based on grossly incomplete basic information, simplistically sketched models, and the challenge of ensuring the requisite collaboration is irresponsibly ignored.3 Except in trivial circumstances, the public policy process is at best a matter of trial-and-error that must routinely fail, and a prudent attitude calls for

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action ab ovo to put in place a robust and quick adaptive social learning apparatus, and the requisite fail-safe and safe-fail mechanisms.4 Given the ever greater complexity and wickedness of policy areas, the greater importance and extent of the megacommunities5 that need to be actively or passively involved in collaboration for the policies to succeed, and the faster pace of change that requires continuous adjustments, the focus of the public policy process has to be shifted from goals and controls to intelligence and innovation:6 the public policy process has been redefined as an inquiring system,7 adapting constantly through serious play8 with prototypes,9 and equipped with as many self-correcting, learning, transformative and new-direction-seeking mechanisms as possible, since error and failure correction is likely to be the name of the game.10 In this chapter, we first probe the foundations on which the public policy process as an inquiring system can be built, and why, with this approach, safefail mechanisms are so crucially important, given the ecocyclical dynamics of organizations. Secondly, we discuss very briefly the challenges of one broad policy issue (health care policy), show evidence of flagrant policy failures, argue that failures can be ascribed to a significant extent to the flaws of the traditional public policy process, and suggest that the reframed public policy process as inquiring-system-cum-safe-fail mechanisms might indicate ways forward in this issue domain.

INQUIRING SYSTEMS, SO CIAL LEARNING, A N D S A F E - FA I L M E C H A N I S M S Inquiring systems are processes that ensure improvement in on-going and transformative cross-sectional and inter-temporal coordination (when power, resources and information are widely distributed) through the operations of an ever improving kind of “automatic pilot” (if one can use this metaphor) in order to allow the organization or the socio-technical system not only to operate effectively, efficiently and productively at any point in time, but also to adapt innovatively to new circumstances, and to transform itself accordingly as this becomes necessary. The automatic pilot is a nexus of adjustment mechanisms that is constantly updated as the inquiring system acquires good and bad experiences that suggest modifications in the adjustment mechanisms. So, much of the wayfinding is the result of the vegetative functions of the automatic pilot, but there is a constant need for refurbishment of the governance process as an inquiring system that may not emerge only from self-organization but may require active redesign intervention as a result of the new social learning. There are common questions facing the designers of inquiring systems at all levels. How does the automatic pilot (as a nexus of adjustment mechanisms) define what is the problem? What are the non-negotiable constraints in the mega-community? What is the task at hand? Who are the stakeholders

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that cannot be ignored if the system is to be nudged collaboratively? What can be done to mobilize the support of collaborators? What instruments might be used, and conventions or moral contracts negotiated, to maintain the active commitment of members to the partnership? What about the shared valueadding expected and the requisite evaluation mechanisms? And how does one ensure that the learning loops necessary for social learning proceed aptly and that the fail-safe mechanisms are in place and are modified as necessary? Most importantly, since it is presumed that this inquiring system is bound to fail often, it is crucial to design ab ovo the safe-fail mechanisms for the system to cope effectively with extreme failures, and to have in place the required capacities and competencies to transform, so that the organization can emerge renewed and not destroyed from “creative destruction” experiences. Emerging Wayfinding The shift from goal setting and control to intelligence and innovation means that policy is no longer a bow-arrow-target game. An inquiring system is a pro-active search and exploration process fuelling social learning. The likelihood that experiments will fail is ascribable to the socio-economic system to be nudged being so complex, and the art of public strategy-making being so imperfect.11 The new approach to public policy in terms of intelligence and innovation delves much more deeply into the workings of issue domains. Intelligence refers to the problem of gathering, processing, interpreting and communicating the technical and political information and knowledge needed for a modicum of effectiveness in the decision-making processes. Innovation is tinkering with the system at the meso and micro level – for this is where the rubber hits the road – through modification of the collective intelligence of the community of practice.12 The new public policy process as inquiring system proceeds in ways that are in keeping with the megacommunity,13 gropes with the mission of shared value-adding that is pursued,14 and appreciates the challenges of mobilizing the required collaborative and catalyzing learning loops to ensure quick reactions to dysfunctions, as well as the competencies required for self-transformation. Whatever stewardship emerges is not entirely the outcome of a deliberate strategy, but in the nature of “emerging wayfinding” as a result of a variety of gestures and actions (as the experience unfolds) with the result that additional knowledge accrues and triggers yet more gestures and actions. Public policy is not mainly about managing resources to some advantage (even though it has been reduced to this by managers as a matter of convenience), but about “attaining and sustaining a set of organized relationships nested within wider systems in order to experience the possibility of doing things differently and, potentially, better.”15

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Figure 1 captures the ambit that the process has to span. What may not be clear from such a depiction is the extent to which, in a small g governance world, engagement with the environment and the partners entails “local adaptations and ingenuity in everyday practical coping … acting purposively to deal with immediate concerns at hand but doing so in habituated ways …” (159). Wayfinding is “reaching out into the unknown and developing an incomplete but practically sufficient comprehension of the situation in order to cope effectively with it. Prospective rather than retrospective sensemaking is involved … (and wayfinding) is continuously clarified through each iterative action and adjustment and not through any predetermined agenda” (159). Social Learning at the Cognitive and Information Diffusion Level An inquiring system has no safe and assured pathway ahead: it is a pro-active probing and exploration system that is on the look out for anomalies, their sources and causes, for cumulatively clarified problem definition, for the identification of who needs to be involved in dealing with the issue, for ways in which micro-reactions might be cast in more general moulds, for groping instruments as well as for alliances and moral contracts with other parties that might help in the process, and finally for anything that might help in accelerating the process of social learning and experimentation and in opening new vistas. The success of the operation should be gauged not only by reference to myopic measurable temporary outcomes (that may often be quite misleading) but mainly by the modification of habituations and belief systems, and by the effectiveness of the mechanisms in place to modify the very nature of the game if and when the inquiring system gives signs of being derailed or of being guided out of the corridor defined by acceptable norms.16 In an effort to help identify the major failures and obstacles to social learning (and therefore to guide the process of intervention), Max Boisot has suggested a simple mapping of the social learning cycle in a three-dimensional space – the information space – which maps the degree of abstraction, codification, and diffusion of the information flows within organizations: the farther away from the origin on the vertical axis, the more the information is codified (i.e., the more its form is clarified, stylized, and simplified); the farther away from the origin laterally eastward, the more widely the information is diffused and shared; and the farther away from the origin laterally westward, the more abstract the information is (i.e., the more general the categories in use). The social learning cycle in Figure 2 may be decomposed in two phases, with three steps in each phase: phase I emphasizes the cognitive dimensions of the cycle; phase II the diffusion of the new information. In phase I, learning begins with some scanning of the environment in order to detect anomalies and paradoxes. Following this first step (s), one is led in

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Figure 1 X-ray of the public policy process as inquiring system

I Mega community

II +

Value adding and risks

III +

Process, design, instruments conventions

IV +

Monitoring, evaluation, learning

step 2 to stylize the problem (p), posed by the anomalies and paradoxes, in a language of problem solution; the third step of phase I purports to generalize the solution found to the more specific issue to a broader family of problems through a process of abstraction (at). In phase II, the new knowledge is diffused (d) to a larger community of persons or groups in step 4; then there is a process of absorption (ar) of this new knowledge by the population, so as to become part of the tacit stock of knowledge in step 5; in step 6, the new knowledge is not only absorbed, but has an impact (i) on the concrete practices of the group or community. Figure 2 allows one to identify the different potential blockages through the learning cycle. In Phase I, cognitive dissonance in (s) may prevent the anomalies from being noted, inhibitions of all sorts in (p) may stop the process of translation into a language of problem solution, and blockages in (at) may keep the new knowledge from acquiring the most effective degree of generality. In Phase II, the new knowledge may not get the appropriate diffusion because of property rights (d), or because of the strong dynamic conservatism which may generate a refusal to listen by those most likely to profit from the new knowledge (ar), or because of difficulties in finding ways to incorporate the new knowledge (i). Figure 2 may be interpreted as making possible a checklist of potential sources of failures of the inquiring system. Interventions to remove or attenuate the negative effects of learning blockages always entail some degree of interference with the mechanisms of collective intelligence,17 relational transactions, and therefore the psycho-social fabric of the organization. Social Learning at the Collaborative Process Level A crucial component of this inquiring system is collaboration. For if power, resources and information are widely distributed amongst many hands and heads, no effective wayfinding can emerge without collaboration. Yet participants are different and invited to stay connected and to engage with persons

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Figure 2 Learning cycle and potential blockages.

Phase II

d a r

at R ST

AB

C O D I F I C A p T I O N

N IO

T AC Phase I

i

s SION

U DIFF

Source: Max Boisot, 1995, p.190.

with different belief systems. This cannot be accomplished without some modicum of trust, sharing, belonging and respect in this co-creation process, even though the only truly shared sentiment to begin with may be discomfort with the status quo.18 Collaboration entails recognizing that one cannot do it alone, that one must take a step beyond individual needs “to call forth possibilities from an unknown and not-yet-possible future,” and such a courage to collaborate translates into a way of being. This will be instituted in a variety of conventions: some explicit and legal, others tacit and quasi-emotional. Collaboration is meant to broaden the problem definition and to widen the potential responses to problems that emerge from silo thinking, but it is never clear that these possibilities will materialize. It requires the capacity to keep going and to endure when things look not too promising, but also the capacity to change course when the original arrangement proves ineffective: as Chia and Hold would put it, the right balance would be the freedom “from both the obstinacy of the commonplace and the iridescent glare of the new” (212).

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The ecology of the inquiring system at work entails a cycle of social learning in four phases that might be regarded as the standard learning process in normal times:19 •

•

•

•

an observation and cognitive phase in which the issue domain is examined to determine the nature of the megacommunity involved, which features of the issue domains are salient, what the causal mechanisms are that are at work, whether there are any detectable anomalies, and who the stakeholders are that hold such a significant amount of power, resources and information that they must be deeply involved in any process intended to design or redesign the collaborative governance regime; an investigative phase that focuses on defining (1) the problem and the task at hand more precisely, (2) the non-negotiable constraints imposed by the mega-community or by the ethos of the milieu, and (3) the nature of both the sort of value-adding aimed at in dealing with the problem and the minima of harms one might want to avoid. The sort of upper and lower bounds in what is aimed at would also be articulated more or less clearly with respect to the nature and distribution of risks and other material, financial, human, psychic and emotional costs that could act as boundaries one would like not to transgress if at all possible; a design-cum-moral contracts phase that unfolds in two parallel but intricately integrated processes: first, ensuring that both the necessary rules of the game and basic institutions required for collaboration, and the instruments, arrangements and affordances necessary for effective social learning are put in place; second, ensuring that, in parallel, an array of conventions and moral contracts (but also legal arrangements and incentive-reward systems) are put in place to mobilize the collaboration and commitment of all the significant stakeholders and to ensure that the collaboration will last; fourth is an evaluative and social learning phase that focuses not mainly on the outputs and outcomes (as is the case in the goals-and-control approach) but on the extent to which sustained organizational relationships have ensured that the intelligence and innovation functions have performed well: whether the learning loops required for social learning proceed aptly, and what results were accomplished in terms of terms of learning and progressivity (i.e. in terms of capacity to transform) and in terms of changes in attitudes and behaviour of key stakeholders and their improved coefficient of effective and fruitful collaboration.

Finally, there must be in place explicit mechanisms of conflict resolution when the differences of opinions and interpretation emerge. Since most policies are likely to fail, the inquiring system has to be equipped with the requisite mechanisms to ensure that the system can minimize the

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costs of failure: routine fail-safe mechanisms (FSM ) aiming at ensuring resilience i.e. keeping the organization within a corridor constrained by certain bounds in normal times. The FSM may be simply formulated in terms of resilience or sustainability à la Geoffrey Vickers,20 or in the form of basic conditions for the public policy to be acceptable à la Carl Taylor (a test to determine if what is proposed is technically feasible, socially acceptable, implementable, and not too politically destabilizing).21 Social Learning at the Dynamic Organizational Level However, organizations and systems are also periodically hit by shocks that threaten the very existence of the original setting. A set of essential variables is affected triggering step-mechanisms that command fundamental transformations if the system is to survive. Safe-fail mechanisms (SFM ) are meant to trigger effective renewal when the organization experiences dramatic forms of creative destruction events that command self-transformation and selfreinvention as the only way to survive. Buzz Holling and other experts have suggested that both natural and human organizations go through somewhat periodic eco-cycles of the sort sketched in Figure 3. According to this view, organizations move from situations of exploitation of existing resources (phase 1 – low potential, loose connectedness, entrepreneurial) to moments when more tightly connected forms of organization (institutionalized and more strongly connected in order to take advantage fully of a higher potential) bump onto constraints due to the very rigidities brought forth by institutionalization (phase 2 – bureaucratization, rigidity); this leads to vulnerability to the kind of changes that can be a threat to inflexible organizations when facing Schumpeterian shocks and crises created by innovations as a result of environmental pressures or technical breakthroughs (phase 3 – crisis, fragmentation); then the organization either cannot cope (with the result that it disappears or is dramatically wounded) or reacts by renewal that mobilizes resources in new configurations, often much more loosely connected, as a result of creative tension (phase 4 – diverse paths to renewal, high potential, weak connectedness); and the cycle starts again as this new potential gets diffused in start-ups and projects of various sorts.22 SFM s create something tantamount to a state of exception that temporarily suspends the normal course of affairs, and play a key role in the transition from Phase 3 to Phase 4, to prevent crucial loss of potential, and possible implosion. In order to be effective, SFM s require an early warning system capable of detecting the existence of “black swan phenomena”: either some observatory charged with intelligent environmental scanning or particular moments when mission reviews are mandated. Required as well are fora for deliberation and

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Little

POTENTIAL

Much

Figure 3 The organizational ecocycle

4

Mobilization

• Networking • Dissipative Structure

1

Exploitation

• Pioneer • Opportunist Weak

2 Conservation • Cyclical Climax • Dissipative Structure

Creative Destruction

3

• Crisis • Far-From-Equilibrium CONNECTEDNESS

Strong

Adapted from Holling 1987 and Hurst & Zimmerman 1994, 349

negotiation capable of (1) providing a refinement of the problem definition, (2) suggesting ways in which improved collaboration might be generated, and (3) proposing mechanisms through which newly discovered impediments to such collaboration might be neutralized. Finally, there must be real possibility of experimentation on the road to renewal in full awareness of the tentative nature of the experiments.23 Such mechanisms need not necessarily result in explicit, drastic glorious revolutions. Often, in environments crippled with a culture of entitlements and powerful mental prisons, draconian moves can only lead to confrontations from which little can emerge except stalemates. As a result, much change occurs underground, petit à petit, with as little controversial public discussion as possible but not necessarily in a less effective way – to the despair of those obsessed by the need for explicit deliberation theatrics.

T H E C A S E O F H E A LT H P O L I C Y AS AN INQUIRING SYSTEM Canada’s universal public health care insurance system for hospital and “necessary” physician services (governed by the 1984 Canada Health Act [CHA ])

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is seen as requiring fundamental reform by half of the Canadian population (Health Council of Canada (HCC ) 2010).24 The CHA -governed system generates steep cost increases (circa 8% per year, i.e., at a pace higher than the growth of the GDP 25), quality that is patchy and not comparatively good overall, and a mode of production that is not efficient. International comparisons show that, based on the most-recent data, Canada ranks 10th out of 16 peer countries in terms of getting what she pays for in health care. Despite spending being the second highest, it ranked dead last for timeliness and overall quality, and second to last on efficiency.26 The cost increases have been declared essentially unsustainable.27 Yet this under-performing system absorbs an ever-larger portion of provincial/ territorial budgets, extinguishes the possibility of addressing other key issues, forces rationing of specialized service and de-listing of some services covered, and makes some desirable expansions of the system on which all agree simply unaffordable. Problems The goal-and-control approach has led to obsession about certain quantitative indicators (like wait time or the percentage of public sector budgets going to health care), and has often allowed these guideposts to become policy targets while leaving the flawed health care system undisturbed. In fact, the major force behind the growth in health expenditures is not necessarily or mainly abuses of the system (although they bear a portion of the blame), or the aging of the population, or the like. The main factor behind this increase in demand, according to some experts, is the fact that the income elasticity of demand for health care in advanced countries is quite high:28 as family income rises by 1%, health care consumption rises by 1.6%. As a result of this craving for health care, innovations and productivity gains that reduce the cost and the intrusiveness of certain procedures may not necessarily reduce expenditures on health care: they reduce the unit cost and price of the procedure, and, as a result, demand increases as price goes down. Consequently total health expenditures increase further. This dynamic cannot be tamed with superficial interventions focusing on symptoms. One must focus on the causes and sources of the dysfunctions, and on experiments with plausible mechanisms to correct them as well as to adapt to evolving circumstances.29 The challenge is to find ways to control costs, while expanding patient access, and improving care quality. The broad objective is to eliminate what has been estimated as a 30 to 40% waste of the total health care spending through systemic underuse, overuse, and misuse ascribable to coordination failures.30 While such estimates have been made for the United States, there are no reasons to believe that the same waste due to coordination failures does not apply to Canada.

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Why Such Failure? The problem with the existing CHA regime is the existence of coordination failures at many levels: among providers, between payers and patients, but also within the health care production system per se. The CHA regime has mandated that there should be a public monopoly on the supply of basic health services. This prevents citizens from obtaining services elsewhere. The difficulty therefore does not reside with the demand for health care services but with (1) a CHA that prevents the demand from being satisfied by other private/not-for-profit providers paid for by private citizens; (2) the assumption that citizens have a sacred right to receive “basic” health care services free from the public sector monopoly; (3) the immense power of corporatist groups that prevents the modification of the production process; and (4) a general failure of accountability in the whole system.31 As a result governments are faced with citizens who wish to pay the lowest possible taxes, and providers who act as if their services were costless and have little acknowledgement of the central importance of collaboration amongst them. The state can only respond to the demands of both consumers and providers by increasing the resources available for this sector, and reduce expenditures accordingly in less electorally sensitive issue domains like infrastructure. Corporatist health professionals obviously want to protect their turf in the current system: this stands in the way of necessary collaboration and potential innovations that could generate real improvements,32 and there is little taste for government to nudge unionized health care professionals (who can take the population hostage) too firmly in order to ensure the optimization of production and service delivery. The Way Out The inquiring system likely to refurbish the health care system needs to repair the coordination failures and this cannot be accomplished without myriad changes to the incentive reward systems, the collaboration of providers, better use of standardized proven and effective care protocols, and more engagement from patients in their own care. At the core of these changes are two major challenges: (1) to rebuild responsibility and accountability relations within the health care system (in order to contain, among other things, the present sense of unlimited entitlements to free services from the public sector); and (2) to transform the structure and functioning of the health care system by injecting the requisite amount of competition necessary to stimulate innovation and continuous productivity gains. On the first front, experts are clear: even if there were unprecedented efficiency and effectiveness improvements, Canadians “face difficult but necessary choices as to how we finance the rising costs of healthcare and manage

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the rising share of additional income devoted to it.”33 This is not only inevitable but urgent. This calls for (i) an acceptance that the consumers must shoulder a greater portion of the financial burden of health care by various forms of copayments; this has occurred innocuously recently in the form of governments delisting services or ingenious circumventions of the CHA rules;34 and (ii) an acceptance of new collaborative relations among governments and with other stakeholders (including the private sector). It has been shown by the World Health Organization that the French health care system (with user’s fees for most services and a significant portion of the hospitals are in private hands) has been ranked as the best health care system in the world. There is no reason to believe that, if the existence of user fees on most services and the cohabitation of public and private providers have been accepted widely in France, they could not, if properly explained, be found acceptable in Canada – where, for the moment, these issues are taboo topics.35 What will prepare Canadians to accept these new realities is the clear message that a transformation (as a result of a Schumpeterian shock) is essential if Medicare is to survive. This message that there are limits on the proportion of public spending to be devoted to healthcare, if governments are to attend to other needs of Canadians, has been heard but has not been understood or accepted. Nothing less than a brutal awakening as a result of massive delisting of covered services will break the hold of the culture of entitlements and lead Canadians to face the fact that they will need to use complementary private insurance for the growing segment of health care services that will not be covered in the future by the “basic protection” provided by the state.36 The second front would entail collaborative care delivery approaches to redesign the production system of health care. It cannot be done globally. Experiments should be carried at the meso-level through pilot projects that can show what will work or not.37 This would entail both a new division of labour among health professionals and with other partners, and the redesign of health care organizations as a result of these experiments. To accelerate social learning on this front, it is imperative to relax the existing constraints on experimentation imposed by corporatist groups. This would encourage various communities to launch alternative ways to get the full range of their health care in the way the Sault Saint Marie and Algoma District Group Health Centre (SSM ) – an acknowledged “poster child” for effective alternate ways to organize the health care system – did it. This arrangement is a the result of collaboration between a community not-for-profit organization and an independent quality health medical group that has grown to providing primary care to 80% (some 62,000 persons) of the patients in the area by 2010. It has thrived since 1963 (when it was spearheaded by locals of the United Steelworkers of America)38 despite systematic active obstruction from both government and corporatist groups.39

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Given the difficulties in initiating always-difficult conversations on these topics in the face of both deeply ingrained mental prisons and immense financial considerations at stake for health professionals and other stakeholders, the only way to ensure that such issues are going to be raised regularly is to decree – as a safe-fail mechanism – that such legal frameworks as the CHA should be statutorily reviewed in depth every ten years. A looming decennial review would encourage experiments and pilot or demonstration projects in preparation for crucial moments when reforms would have to be considered openly. While not a panacea, this would provide a momentum for action and a source of political courage. It might also provide a forum that would contribute to eroding ever so slightly the culture of entitlements and the mental prisons in good currency. One may even anticipate that such processes of review would accelerate somewhat the subterranean process of adjustment in the inter-decennial period, because of the fact that the canonical act would not be any longer perceived as non-negotiable.40

CONCLUSION In summary, the traditional paradigm of public policy has been based on an overconfident philosophy of goal and control that has proved more and more ineffective in dealing with turbulent issue domains. In such a world, where problems are wicked and the ground is in motion, the conventional public policy process is bound to fail. The alternative view of the policy process as inquiring system (based on intelligence and innovation) has slowly emerged over the last 50 years, and would appear to be much better adapted to the modern context where power, resources and information are more widely distributed in many hands.41 We have sketched a rough prototype of this new approach insisting on the centrality of inquiring system and safe-fail mechanisms, and shown that it is through a mix of competition, greater personal responsibility and costsharing, and collaboration and experimentation that one can hope to ensure the best of social learning. But, given the dynamic conservatism of key players intent on defending their narrow corporate interests or ideological tenets, the only way to ensure continuous experimentation is to force a periodic review of the framework regime and of its key components onto the system as we suggest for the CHA . It would force the system into a process of periodic renewal that would encourage experiments and might generate more courage as the status quo becomes by definition contingent. Whether this alternative approach should be restricted to wicked policy problems (where probing search processes would appear to be the only way) or whether it should be more broadly used is a moot point. However the question may become somewhat irrelevant if (as we suggest) all non-trivial public policy fields are in the process of becoming more and more wicked.

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notes 1 Gilles Paquet, “Innovations in Governance in Canada” Optimum 29(2–3) 1999, 71–81. 2 Wicked policy problems have two major characteristics: the goals are not known or are very ambiguous, and the means-ends relationships are highly uncertain and poorly understood (Horst W.J. Rittel, and Melvin M. Webber “Dilemmas in a General Theory of Planning” Policy Sciences, 4 (2) 1973, 155–69; Gilles Paquet, Governance Through Social Learning. Ottawa: The University of Ottawa Press 1999, Ch. 2. 3 There have been many attempts in the past to free the public policy framework from these strictures. The works of Harold Wilensky, Geoffrey Vickers, Charles Lindblom, Amitai Etzioni, and many others have provided a much more realistic view of the policy process. But the shadow of “policy science” with its goal-and-control focus has remained omnipresent in policy discussions, especially with the new focus on marksmanship and quantophrenia in policy analysis, in economics but also elsewhere. Gilles Paquet, Scheming Virtuously: the road to collaborative governance. Ottawa: Invenire Books 2009, ch. 1; Ruth Hubbard, Gilles Paquet, The Black Hole of Public Administration. Ottawa: The University of Ottawa Press 2010, Ch. 4. 4 Fail-safe mechanisms are simple normal add-on precautionary measures that due diligence calls for when a relatively safe process may be derailed on occasion; safe-fail mechanisms are essential measures that are called for as part of the core policy design because it is assumed that the process is most likely to fail as a result of the very dynamics of the organization that evolves in cycles of exploitation of resources, containment, creative destruction, and renewal (C.S. Buzz Holling, Lance H. Gunderson, “Resiliency and Adaptive Cycles” in Gunderson & Holling (eds) Panarchy: Understanding Transformations in Human and Natural Systems. London: Island Press, 2002, 25–62). 5 Mark Gerencser et al, Megacommunities. New York: Palgrave Macmillan 2009. 6 Harold L. Wilensky, Organizational Intelligence. New York: Basic Books 1967; Paquet, Scheming Virtuously Ch. 1. 7 C. West Churchman, The Design of Inquiring Systems. New York: Basic Books 1971. 8 Michael Schrage, Serious Play. Boston: Harvard Business School Press 2000. 9 Alicia Juarreno, “Complex Dynamical Systems Theory” www.cognitive-edge.com 2010; C.S. (Buzz) Holling, “Resilience and Stability of Ecosystems” in Eric Jantsch, C.H. Waddington (eds) Evolution and Consciousness in Transition. Reading, Mass.: Addison-Wesley 1976, 73–92. 10 This is in no way the same as attempts to relax the goal-and-control model by suggesting that it might operate through circuitous and oblique ways, while remaining in a goal-and-control mode strict sensu (John Kay, Obliquity – Why our goals are best achieved indirectly. New York: The Penguin Press 2011). 11 Geoff Mulgan, The Art of Public Strategy. Oxford: Oxford University Press 2009. 12 Communities of practice are the relevant units that both can learn and transform as they learn (Étienne Wenger, Communities of Practice. Cambridge: Cambridge

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14 15 16 17 18 19 20 21

22

23

24

25

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University Press 1998). For an exploration of the processes underpinning the rearrangements of the governance as social learning proceeds, see Gilles Paquet, Scheming Virtuously, ch. 2, 5. “A megacommunity is any large ongoing sphere of interest where governments, corporations, NGO s and others intersect over time. The participants remain interdependent because their common interest compels them to work together, even though they might not see, describe, or approach their mutual problem or situation in the same way” Mark Gerencser et al. Megacommunities, 54. Michael E. Porter, Mark R. Kramer, “The Big Idea: Creating Shared Value” Harvard Business Review, 89, 1–2, 2011, 62–77. Robert C.H. Chia & Robin Holt, Strategy without Design – The silent efficacy of indirect action. Cambridge: Cambridge University Press 2009, ix, 112. Max H. Boisot, Information Space. London : Routledge 1995; Gilles Paquet, Scheming Virtuously … ch. 5. Gilles Paquet, “Collective Intelligence” Lac Carling Governments’ Review, June-July 2001, 28-29. Alycia Lee and Tatiana Glad, Collaboration: The courage to step into a meaningful mess. Berkana Institute 2011. Gilles Paquet & Christopher Wilson, “Collaborative Co-Governance as Inquiring Systems” www.optimumonline.ca. 41 (2) 2011, 1–12. Geoffrey Vickers, The Art of Judgment. London: Chapman & Hall 1965. These questions are derived from a general framework developed by Carl Taylor, “The ACIDD Test: a framework for policy planning and decision making” Optimum, 27 (4) 1997, 53–62. C.S. Buzz Holling, “Simplifying the Complex: The paradigms of ecological function and structure” European Journal of Operational Research 30 (1987) 139-46; David K. Hurst & Brenda J. Zimmerman, “From Life Cycle to Ecocycle: A New Perspective on the Growth, Maturity, Destruction and Renewal of Complex Systems” Journal of Management Inquiry 3 (4) 1994, 339-354. A general approach has been sketched in Ruth Hubbard & Gilles Paquet, “Réinventer notre architecture institutionnelle” Policy Options 27 (7) 2006, 57–64; Joseph McCann, John Selsky, James Lee “Building Agility, Resilience and Performance in Turbulent Environments, People & Strategy, 32 (3) 2009, 44–51. Health Council of Canada, “How do Canadians Rate the Health Care System? Results from the 2010 Commonwealth Fund International Health Policy Survey,” “Canadian Health Care Matters” Bulletin 4, November 2010. See Brett J. Skinner and Mark Rovere, “Canada’s Medicare Bubble: Is Government Health Spending Sustainable Without User-based Funding,” Fraser Institute, “Studies in Health Care,” April 2011. See “Mirror, Mirror on the Wall,” Commonwealth Fund, 2010 Update. David A. Dodge & Richard Dion, “Chronic Healthcare Spending Disease: A Macro Diagnosis and Prognosis,” C.D. Howe Institute Commentary, No. 327, April 2011.

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28 Based on 120 years of data by Robert W. Fogel co-holder of the 1993 Nobel prize in Economics from his book The Fourth Great Awakening and the Future of Egalitarianism Chicago: The University of Chicago Press 2000 (quoted in Gérard Bélanger, “Faut-il dénoncer le gouffre des dépenses des soins de santé?” www.optimumonline 41(4) December 2011 (in press). Bélanger argues persuasively that this sort of growth in demand for health care in quite normal, and that the alarmist writings on the unsustainability of the growth of public health care expenditures has little to do with abnormal growth in demand but much to do with the demand being prevented from finding its supply by artificial impediments. 29 Jens Ludwig, et al “Mechanism Experiments and Policy Evaluations,” Journal of Economic Perspectives, 25 (3) Summer 2011, 17–38. 30 Joyit S. Choudhury et al., “Transforming Healthcare Delivery,” Strategy + Business, issue 64, Autumn 2011 5p. 31 Douglas E. Angus & Monique Bégin, “Governance in Health Care: Dysfunctions and Challenges,” in Transactions of the Royal Society of Canada, Series VI, Volume X, 1999, 171–93. 32 Sholom Glouberman and Henry Mintzberg, “Managing the Care of Health and the Cure of Disease – Part I: Differentiation” and “Managing the Care of Health and the Cure of Disease – Part II: Integration” in Health Care Management Review Vol. 26 issue 1 56-69 & 70–84, winter 2001. 33 David A. Dodge & Richard Dion, … 2011, p. 11. 34 Some call for a new explicit moral contract that normalizes this process, but what is more likely is a slow, surreptitious and irreversible processes are being carried by citizens through the constraints of the CHA being enforced less and less to the point of it becoming irrelevant and not just obsolete. See Vandna Bhatia, “Health Care Spending and the Politics of Drift” in Christopher Stoney and G. Bruce Doern (eds) How Ottawa Spends 2011–12: Trimming Fat or Slicing Pork? Montreal: McGillQueen’s University Press, 2011, 180–97. 35 Even though co-payments, cohabitation of government with private and not-forprofit producers, and collaborative care delivery remain taboo topics, this may not be the case for long since experts are now coming forth with proposals that call for a major overhauling of the healthcare system along these lines (Don Drummond, Therapy or Surgery? – A Prescription for Canada’s Health System. Toronto: C.D. Howe Institute 2011. 36 One recent poll found that two out of three Canadians would accept a change that allowed them to buy private insurance in non-publicly funded facilities (Canadians warm up to medical user fees: poll, Kate Allen, Globe and Mail June 7, 2010, A2). Quebec tried to introduce a $25 fee for medical appointments but backtracked a few months later saying the province wasn’t ready for it. 37 Amy C. Edmondson, “Strategies for Learning from Failures,” Harvard Business Review, 89(4) 2011, 48–55; for a succinct review of on-going experiments in the U.S. (accountable care organizations, patient-centered medical homes, etc.) see Joyit S. Choudhry et al. “Transforming Health Care Delivery.”

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38 Its early history and struggles are documented in Jonathan Lomas, First and Foremost in Community Health Centre (Toronto: The University of Toronto Press 1985). 39 Although in 1975, health services organizations (Health Service Organizations (HSO ’s) of which SSM is one) were considered as experimental pilots and then touted as “part of mainstream health care services” by the then health minister in 1982, in 1990 the Ministry of Health issued a moratorium on development and applications for HSO s. SSM ’s mid-80’s evaluation was described as “hampered by medical and governmental attitudes as well as difficulties in attempting to compare fee-for-service payment with more of a capitation process.” Review by W.B. Spaulding of (Lomas 1985) http://www.cbmh.ca/index.php/cbmh/article/viewFile/155/154 accessed July 27, 2011). 40 The next occasion for introducing such a safe-fail mechanism and to ensure it is robustly put in operation is the expiration of the Canada Health Accord in 2014. Instead of continuing to transfer financial resources to the provinces to perpetuate a system that everyone agrees is costing a lot and not delivering value for money, this might be an occasion to reform health care in the 2010s in a way that is similar to the reform of welfare in the 1990s. In that case, it lead to a reduction of the welfare dependency rate (the percentage of the population on welfare) from 10.7% in 1994 to 5.1% in 2009. This would require that the Canada Health Transfer be reduced and certainly not increased, that the federal government allow the provinces the maximum amount of flexibility to design, regulate, and provide healthcare to citizens, and that the Canada Health Act be amended to provide the provinces with the requisite amount of flexibility, and to facilitate innovation and experimentation. A prototype of what might be done along these lines has been sketched by Jason Clemens, Reforming the Canada Health Transfer. Ottawa: The Macdonald-Cartier Institute, October 2011. 41 Gilles Paquet, Scheming Virtuously, ch. 1.

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11 Federal Infrastructure Program Impacts: Perceptions at the Community Level S c o t t E d wa r d B e n n e t t 1

INTRODUCTION This chapter examines different personal perceptions of the federal Infrastructure Stimulus Fund (ISF ) impact at the community level in those places which did receive some ISF funding. The central argument is that there are a number of dimensions to community evaluations of ISF impacts. Further, I argue that these perceptions will be a systematic function of both the location and background of those providing evaluative responses. Describing these as formal expectations or hypotheses is important and informative as complements to other ways of assessing and looking at such impacts. In the budget of 2009, the Government of Canada introduced the ISF as an element of its Economic Action Plan. It directed 4 billion dollars toward infrastructure projects at the provincial and local levels. Initially, it was intended that this money was to be spent by March 31, 2011. However, it was ultimately extended to October 31, 2011.2 According to Infrastructure Canada, the purpose of the programme was: “To provide short-term stimulus to the economy, construction readiness was a key project selection criteria; for example, the rehabilitation and retrofit of existing assets to improve safety or extend their useful life. Eligible projects include water, wastewater, transit, roads, culture, parks, trails and community services infrastructure.” ISF is a cost-sharing programme. It directs federal funds to provinces, territories, municipalities and certain types of private organizations (profit and non-profit). This is explained by Infrastructure Canada as follows: The program provides up to 50 per cent of funding for provincial and territorial assets and not-for-profit private sector assets, 33 per cent for

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municipal assets, and 25 per cent of eligible costs for for-profit sector assets. Where possible, the Government of Canada partners with provinces and territories for the management and delivery of the Infrastructure Stimulus Fund. Funding for projects will flow through a streamlined agreement with provinces and territories where they are funding projects. To ensure that the program provides economic stimulus quickly, and to ensure partnership with the provinces and territories, the Infrastructure Stimulus Fund is being delivered in a flexible manner. Proposals from municipal and non-governmental organizations were considered through different selection processes depending on each province and territory, to build on existing programs where possible and avoid duplicative application processes. For example, projects may have been identified through applications to the Building Canada Communities Component, by partnering through new or existing programs that can be enhanced to undertake incremental projects, or through specific calls for proposals for stimulus projects using a short form and accelerated process. One important point that emerges from this description is that intergovernmental relations are a major dimension of the ISF . This is particularly true with respect to federal versus provincial/territorial relations, but it can extend into even more complex three level relations when extended to the local level. A second important point is that there was some cross-jurisdictional variation in the way projects were selected and administered. This was the case not because of a lack of concern for consistency and standards. Rather, it was the case because existing relationships, provincial preferences and a desire for responsive flexibility were important factors in the design of the ISF . We return to some of the implications of these points in our subsequent analysis and discussion. Adding to the complexity of the ISF ’s environment is the fact that any infrastructure funding programme is introduced against the backdrop of previous and ongoing infrastructure programmes. Often, this network of programmes is closely linked to interest or stakeholder groups. While such groups are seldom part of the lead bylines that dominate conventional media, they do have enormous importance in the shaping of certain types of policy. In infrastructure policy the Federation of Canadian Municipalities (FCM ) is of particular interest.3 Organizations such as this play a critical, and often helpful, role in knitting together aspects of this multi-level, intergovernmental policy area. Because the ISF was an aspect of the government’s overall Economic Action Plan (EAP ) and because certain goals are associated with the EAP the ISF was often viewed in terms of its possible impact on the economic health of the country. During much of the time ISF has been active, the country was

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gripped by a recession or near recession economic situation. Anything that the Government of Canada set in motion during this time would be scrutinized in terms of its possible economic impact, and, to some degree, this was consistent with government intentions. The Economic Action Plan contained many components above and beyond the ISF . According to initial estimates it would produce 60 billion dollars in expenditures over a 2 year period beginning in July of 2009. One Economic Action Plan description follows: The first phase of Canada’s Economic Action Plan is steering the Canadian economy on a recovery from the deepest global recession since the 1930s, and is supporting economic growth and job creation. As a result, while the fragile global recovery poses risks to the Canadian outlook, Canada remains in an enviable position, posting the strongest employment growth among G-7 countries since June 2009. Moreover, Canada has now more than fully recouped all of the loss in output experienced during the recession. The introduction of Canada’s Economic Action Plan was timely and its implementation is on track. In the first year of implementation, close to $32 billion in timely support was provided to individuals and businesses most affected by the economic downturn. An additional $28 billion is being delivered in the second year. Through the Economic Action Plan, more than 26,000 projects have been completed or are underway. These projects are putting Canadians to work across the country and have contributed to a strong labour market recovery, with close to 400,000 jobs created since July 2009.4 Thus, it can be seen that there is a strong link between this overall economic plan, of which ISF is a part, and a concern with economic recovery. There is particular concern with some of the labour force aspects of recovery. However, it is also true that government statements on the employment and income goals of the Economic Action Plan have generally been cautiously stated. As time passed, one has the impression that descriptions of the programme have become increasingly nuanced so as to not over emphasize the direct incremental impact of economic action on employment and earned income. There were several sources of critical commentary on the Economic Action Plan in general and the ISF in particular. One stream was the usual question and debate in the House of Commons. A second was the more analytic aspects of journalistic commentary. A third was the reporting of various oversight and auditing agencies. In this chapter, our only major interest among these is in some of the commentary of the oversight and auditing agencies. This is primarily because this commentary is relatively thoughtful and has a direct relation to some of the data we use. However, a few very brief comments on the other sources are in order.

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Basically, questions and comments in the House of Commons tended to focus on the extent to which the ISF was being implemented quickly enough to have the desired impact on the economy. The government had been required by opposition parties to engage in periodic reporting of progress, and this provided a basis for frequent questions in the House regarding the progress of rolling out projects under the ISF .5 Frankly, this sort of critique is of limited usefulness for several reasons. First of all, the data in the ISF administrative system can shed little light on the impact of a programme as opposed to the speed of its implementation and similar factors. Second, like any administrative data base, the ISF data must be interpreted against the backdrop of all sorts of subtle administrative and operational influences. For example, based on personal exposure to the data, the author can note that the relatively slow initial implementation of the ISF in some jurisdictions often had little to do with anything under the control of the federal government. The slow initial implementation of ISF in Quebec is one example in this respect. This had as much to do with the desire of the government of Quebec to impose some kind of central direction on infrastructure within its domain. The second source of analysis and critique mentioned was from the journalistic realm. Some newspapers did devote considerable attention to the partisan political aspects of the distribution of ISF funding. An argument was presented that the funds were disproportionately directed to Conservative ridings or ridings of some strategic importance to them.6 While there may be some truth to this, it is hardly of great importance or note. If the findings are basically true, it may be the result of a whole set of factors that have little to do with partisan political intent. For example, one would have to control for some notional aspect of infrastructure deficit at the riding level in any statistical analysis purporting a link between partisan intent and project expenditures. Even if some intentional link did exist between partisan purposes and funding, it would hardly be a surprise or worthy of great note in the history of policy design in Canada.7 The third source of information and analysis is of some importance because various auditing and oversight agencies did try to look at ISF in very specific terms to address questions of efficiency and effectiveness. This has a direct relation to the focus of this chapter. Indeed, the data being used here are a product of one of those agencies. The three agencies of note are the Office of the Auditor General of Canada,8 the Office of the Parliamentary Budget Officer9 and the Officer of the Auditor General of Ontario.10 To some extent, certain think tanks were involved in this sort of analysis as well.11 Having said that, it is also true that Canadian data requirements for the ISF were not particularly demanding. So, no Canadian official agency had the kind of data that one might have found, for example, in the USA with respect to similar programmes.12 The Auditor General of Canada released a report indicating that the Economic Action Plan (and components such as ISF ) was reasonably well run in administrative terms. However, the report also indicated that that there

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was really no sound program data to assess the impacts of the programme on such things as employment. The alleged partisan nature of the allocation process was beyond the terms of reference of the Auditor General. The Auditor General of Ontario later released a report which, among other things, critiqued the lack of a sound methodology for estimating job related impacts.13 Immediately before the release of the report by the Ontario Auditor General, the Parliamentary Budget Officer (PBO ) released a report that was based on some of the readily available data used by other agencies as well as new data specially generated for the PBO . In general, the PBO analysis agreed with the Auditor general’s results that, given time constraints, the ISF was reasonably well run. However, it provided independent estimates of job creation and unemployment effects that suggested that the ISF funded projects may well have created or preserved jobs. Yet, it was not perceived to have a major impact on unemployment. Several other results provided insight into other aspects of the impact of ISF , and this was based on data that were not otherwise available. It is this data to which most of the analysis in this chapter is devoted.14

HYPOTHESES AND METHODOLOGY As stated from the outset, we are concerned with examining personal perceptions of ISF impact at the community level in those places which did receive some ISF funding. Our basic contention is that there are a number of dimensions to community evaluations of ISF impact. Further, these perceptions may be a systematic function of both the location and background of those providing evaluative responses. First of all, we expect that certain dimensions of ISF impact will be seen as conclusively beneficial while others will be viewed in a more skeptical or cautious manner. This is actually a point that was not brought out very clearly in media commentary on the programme. In general, we expect that the most general indicators of community welfare will be seen as being strongly and positively impacted by ISF . Alternatively, indicators that have a more specific technical meaning (such as unemployment, income and price effects) will be viewed in a more restrained but not necessarily negative manner. This may well be reflected in the dimensional structure of the indicators. We are not aware of any previous work that has examined this in detail in the past. However, our reasoning here follows from the idea that community officials have sufficient experience and training to see that while a programme may be an important part of maintaining the fabric of community welfare, its immediate technical effects may be modest. Second, we expect that the different provincial/territorial jurisdictions in which communities are located will have some consistent effects on evaluations of programme impacts. There is compelling initial evidence that assessments of programmes such as ISF may vary distinctly across jurisdictions.

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Here, we begin to see a part, but only a part of the complex sub-national governmental influences on administrative cultures. These cultures are embedded, in complex, multi-level webs of relations that can only be partly addressed here. Third, the educational and occupational backgrounds of respondents will impact the assessments of ISF . Generally, people with specific technical backgrounds will bring a different set of tools to evaluating a programme impact than those with more general background. In some ways, this is also an aspect of the complexity in which local policy is embedded. Occupational, professional and educational linkages will draw evaluations in certain directions. Just as there can be jurisdictional public administration cultures influencing evaluations, there can also be occupational and educational cultures with such influence. Finally, it is likely that the combined influence of variables such as jurisdictional location, occupational position and education will have distinct influences as well. We do not have highly specific expectations about this more complex set of relations, but we do expect that the importance of these predictors will vary across the impact indicators when the predictors are combined. Let us now consider the way our main data were generated. In a unique undertaking for the examination of this type of programme, the Parliamentary Budget Officer used the services of Phoenix Strategic Perspectives to conduct a survey of all organizations administering ISF projects. There were 1,129 such organizations. In most cases they were municipalities, but in some instances direct administration was in the hands of another form of organization such as a not-for profit entity or a provincial agency. The survey was designed as a census of relevant organizations. However, census is a general term relating to an attempt to cover 100 percent of a sampling frame. While that may be the intent, 100 percent response rate is seldom achieved in such designs unless the implementation of research is backed up by statutory penalties. In the case of the PBO survey, 644 organizations responded on a timely basis, and, once various minor complexities are taken into account, this amounts to a 57 percent response rate.15 This is actually quite an excellent response rate for this type of undertaking. If one were to make a notional comparison of this to a similarly sized random probability sample (taking into account a finite population correction), the 95 percent confidence interval for basic estimates from such a survey would be plus or minus 2.2 percent. As is typically the case, some weighting variables were developed to use in analysis, and these dealt with any obvious non-response problems. There can be little doubt that the sample is a precise and accurate representation of the population of interest, communities receiving ISF grants and the associated projects. However, it is worth noting that there are other populations that might be of interest. For example, there is the population of all communities in Canada. There is also the population of all communities that received grants plus those that applied for grants but did not receive them.

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Each population definition has different analytic implications. Interestingly, eligibility for ISF grants was determined in such a way that Infrastructure Canada officials claim it is not possible to determine the number of communities that applied for grants but did not receive them.16 If this is in fact correct, it may be because various streams, formal and informal, seem to have been used to identify appropriate projects. Would our results be different if we had communities that were not interested in ISF grants or which were interested and did not get them? Perhaps, but there is little reason to believe that results would consistently differ from this chapter’s results. As we shall see, the existing sample and population of interest indicated a balanced critical perspective on ISF and was not uncritically positive. In general, if non-recipient communities had been questioned in the way recipient communities were questioned, the big difference would probably be one of relative ignorance of programme characteristics on the part of ISF non-recipients. The questionnaire itself was developed through a series of planning sessions, cognitive testing and pretesting. It was administered in a multi-modal fashion in that respondents were given a choice as to how they wished to provide their responses (initial contact by telephone and distribution and return of questionnaires by email or fax). The administration of the survey proceeded without major problems. Indeed, it went much better than many comparable projects. Perhaps the only downside to the survey was that the instrument was a bit more complex than a typical piece of polling or public opinion research. For this reason, some public commentators may have had difficulty grasping the overall set of purposes which it served. However, the respondents did not evidence any significant difficulties in responding to the instrument. There are many sets of indicators in the data, and each one of them could be used to represent some aspect of the perceived efficiency or effectiveness of ISF as seen by officials at the community level. In order to keep our comments within reasonable bounds, we have decided to concentrate our analysis on a set of questions that tapped the most general perceptions of ISF impact. These are: Table 1 Questions for Main Perceived Impact Indicator Variables Compared to what would have been the case in the absence of ISF funding, what impact has ISF funding had in each of the areas listed in the table below? … the general welfare of your community. … unemployment levels in the community. … earned income in the community. … the environmental quality of the community. … prices in the construction sector and related sectors. … the infrastructure deficit of your municipality/organization.

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Increased

No net impact

☐ ☐ ☐ ☐ ☐

☐ ☐ ☐ ☐ ☐

☐

☐

☐

☐

Decreased ☐ ☐ ☐ ☐

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At times, we may touch on other indicators, but the above will be our main focus of analysis. In analyzing these indicators, we proceed through a series of stages from fairly simple to slightly more complex. We begin by simply displaying the basic distribution of responses to each of the items noted above. We then move on to show how the indicators were influenced by jurisdiction/location and respondent background. This can be viewed as basic bivariate analysis in which we determine whether or not the province/territory in which a community was located influenced responses. Similarly, we see whether or not the type of position or education a respondent had tended to influence responses. Finally, we look at some additional complexities that arise when we try to consider multivariate relations. Apart from the basic sample estimates of various statistics, significance levels will be presented. These are presented as notional significance levels as they have a somewhat different meaning in the case of a census as opposed to a random probability sample.

R E S U LT S Simple Results for Each Impact Indicator Let us first consider the response to each of our primary indicators of perceived impact. This is presented in Table 2. This table has a direct bearing on our primary hypothesis that there will be clear examples of indicators that were overwhelmingly seen as beneficial while others would be viewed in a more cautious or skeptical way. There is overwhelming support for the view that the general welfare of the community was improved by ISF . There is slightly weaker, but still high, support for the view the environmental quality of the community was improved by ISF . The is a similar level of support for the view that ISF projects did not have an impact on local construction pricing, and that would be seen as a beneficial perspective given the wording of the question. There is fairly strong level of support for the comparable category relating to infrastructure deficit-reduction. There is a similar level of support for the view that earned income in the community increased as a result of ISF . However, the results for unemployment impacts are much more mixed. A plurality of respondents indicated that ISF projects had no net impact on unemployment in their situation. About a third thought that it had a beneficial or reducing impact. Fully 20.6 percent felt that it had a negative or increasing impact. Since the government’s economic stimulus stressed jobs to such a great degree, this result occasioned some comment in the media. More will be detailed on that below. For now, the important point is that there are two types of impact that are seen as overwhelmingly beneficial, thee types that were reasonably beneficial and one type that was viewed as being less likely to have a clear beneficial impact. This generally confirms our expectations.

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Table 2 Distribution of Percentage Responses on Main Perceived Impact Indicator Variables Compared to what would have been the case in the absence of ISF funding, what impact has ISF funding had in each of the areas listed below in the table below? Increased … the general welfare of your community. … unemployment levels in the community. … earned income in the community. … the environmental quality of the community. … prices in the construction sector and related sectors. … the infrastructure deficit of your municipality/ organization.

No net impact

No Usable Decreased Response

87.2 20.6 55.9 68.9

8.4 43.3 38.8 26.9

2.5

1.9

33.3 2.1 1.1

2.8 3.2 3.2

28.7

62.4

4.7

4.1

15.4

22.7

57.9

4.0

It is also consistent with our expectation that there might be a greater positive aura attached to very general perspectives on impact (general welfare and environmental improvement) while other impacts with the potential of more precise technical definition might be viewed more cautiously. The dimensionality of these 6 indicators was further examined using a principal components analysis. The results indicate that respondents organized these indicators in a fairly complex way. Three reasonably strong dimensions are extracted in this analysis, and the overall measures of the fitness of this solution are mixed. In any event, the strongest dimension is primarily based on the general welfare and environmental quality impact indicators. The next strongest dimension is primarily based on the unemployment and infrastructure deficit impact indicators, and the weakest dimension is based largely on the construction price sector impact indicator. The indicator of impact on earned income has modest loadings on a couple of dimensions but is the least well reproduced by the solution. The second dimension may be reflecting the specific technical areas where the ISF was most expected to have an impact. The final dimension reflects an area of impact which may have been a source of uncertainty simply it is difficult to estimate and not directly connected with positive portrayals of ISF . The relatively weak fit of the earned income impact indicators is probably the results of people not making an immediate connection between an infrastructure programme and its many tiered impacts on income. As is evident from the above there are various ways to evaluate ISF , and what is reported here reflects only a small portion of the possible dimensions of evaluation. The Fraser Institute commented on impact issues at an early time indicating that the ISF and similar stimulus were programmes were really not that effective in general.17 Their report concentrated not so much on the specifics of job creation but rather on GDP impact.

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In the fall of 2010, the Office of the Auditor General of Canada released a report in which one chapter was devoted to the Economic Action Plan of which ISF is a part.18 This report did provide an overview of various aspects of the relevant programmes, but it did not consider economic impacts or similar phenomena. The basic conclusion was that the Economic Action Plan was reasonably well managed and administered give the time frames and constraints involved. Just shortly after this, the Parliamentary Budget Officer (PBO ) released a report that focused specifically on ISF .19 It was, in large part, based on the data set that we are using in this chapter. The report contained an assessment of many aspects of ISF . However, the aspect of the report that drew the greater part of media commentary concerned the ambiguous impact of the programme in creating jobs and/or reducing unemployment, and this seemed to determine the focus of much subsequent commentary on ISF in general.20 As we saw in our results table, a plurality of respondents felt that the programme had no net impact on unemployment. While it is true that this may be a surprising result, it does not necessarily mean that the programme had no beneficial labour force impacts. In fact, one of the less discussed areas of the PBO report examined in some detail the average number of jobs respondents estimated were created by various types of ISF projects. In effect, projects can be perceived to create jobs while, at the same time, having no dramatic effect on perceived unemployment. Unemployment, of course, depends on the number searching for jobs who are out of work as well as the number of those who are actually employed and is a function of all parts of the labour market. Therefore, even if there is a net creation of new jobs in one sector, its effect on unemployment may be dampened by events in others sectors or by increases in the number of those unsuccessfully looking for work. Many of the respondents in the study would have sufficient technical understanding of indicators to be aware of this. Of course, it is also true that some respondents may have had aberrant views of what constitutes incremental job creation.

P r i m a r y B i va r i at e R e s u lt s : L o c at i o n , E d u c at i o n , a n d P o s i t i o n `As indicated in Table 3, jurisdiction in which a community was located had significant (but relatively weak) impacts on all indicators except for the one pertaining to general welfare. So province/territory of location does generally make a difference in the distribution of perceived impact. To look at this in a bit more detail: •

In the case of unemployment, the significance is primarily due to the fact that respondents in New Brunswick and the Northwest Territories were

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Table 3 Summarizing Statistics for the Influence of Province/Territory on the Indicator Variables

Indicator Variable … the general welfare of your community. … unemployment levels in the community. … earned income in the community. … the environmental quality of the community. … prices in the construction sector and related sectors. … the infrastructure deficit of your municipality/organization.

•

•

•

•

Significance Level

Cramer’s V

.415 .000 .000 .000 .000

.150 .256 .213 .246 .210

632

.000

.217

625

N 630 625 629 621

more likely than most to think that ISF had decreased unemployment while Alberta and Saskatchewan respondents were much less likely than most to have that view. In the case of earned income, respondents in New Brunswick, Nova Scotia and the North West Territories are more likely than most to think that ISF increased earned incomes in the community while Quebec respondents are least likely to think this. In the case of environmental quality, respondents from New Brunswick, North West Territories and Quebec were most likely to think there were beneficial impacts from ISF while respondents from Newfoundland, Nova Scotia, Nunavut (1 case), PEI and Saskatchewan were least likely to see beneficial effects here. In the case of prices effects in the construction sector, respondents in Nova Scotia, Saskatchewan and the Yukon were more likely to think that ISF projects had increased construction prices while respondents from Alberta, North West Territories, Nunavut and PEI were least likely to see such increases. In the case of infrastructure deficit, Alberta, New Brunswick and Nunavut respondents were most likely to see decreases as ISF impacts while Newfoundland and Quebec respondents were least likely to have this view.

The next variable of interest is levels of respondent formal education, and the results for that appear below. Basically, 3 out of 6 indicators are impacted in significant or near significant manner by education. So, education is a less important influence than province/territory at this simple level of analysis. Looking at the underlying patterns in more detail, we see that: •

Those with university degrees were much more likely than others to think that unemployment had decreased due to ISF while those with trades education were much less likely to have that view.

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Table 4 Summarizing Statistics for the Influence of Education on the Indicator Variables Indicator Variable … the general welfare of your community. … unemployment levels in the community. … earned income in the community. … the environmental quality of the community. … prices in the construction sector and related sectors. … the infrastructure deficit of your municipality/organization.

•

•

Significance Level Gamma

N

.273 .035 .047 .746 .061

–.135 .119 –.192 .061 –.191

588

.383

–.016

576

582 583 584 579

The earned income relation is non-linear with those at the extremes of the education spectrum thinking that ISF had increased incomes while those in the middle (particularly the certified trades) less likely to have that view. In the case of construction price sector effects, those with high school education were more likely to think that there was no net impact while those with post graduate degrees were less likely to think that and other groups were intermediate in their views on this.

We also considered the type of position that respondents occupied in local government or other administering organization. The perspective of local officials may depend on whether they are involved in finance, engineering, planning, intergovernmental affairs (in which some large municipalities now have specialists), general administration or some other area. In Table 5, we see that 3 out of 6 of our indicators were significantly impacted by respondent’s position type. So, position type has a similar magnitude of impact to education. The underlying patterns are as follows: •

•

•

People in intergovernmental affairs positions (only 4 in the whole sample) and “general other” types of positions were much less likely than others to think that general welfare was increased by ISF and much more likely to think that it had no impact. Intergovernmental affairs specialists and policy analysts were more likely than others to think that ISF had increased unemployment levels. General municipal administrators and managers were more likely than others to think that ISF had no net impact on unemployment. General municipal administrators, intergovernmental affairs specialists and general managers were much less likely than other to think that ISF decreased community unemployment. General municipal administrators and intergovernmental affairs specialists were much more likely than others to think that ISF increased environmental quality of the community.

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Table 5 Summarizing Statistics for the Influence of Position Type on the Indicator Variables

Indicator Variable … the general welfare of your community. … unemployment levels in the community. … earned income in the community. … the environmental quality of the community. … prices in the construction sector and related sectors. … the infrastructure deficit of your municipality/organization.

Significance Level

Cramer’s V

.017 .002 .247 .008 .513

.166 .185 .135 .174 .121

601

.275

.134

589

N 594 594 591 589

So, it would appear that those involved in general administrative or policy positions stood out from others in terms of their response patterns. For the most part, these are probably people who are not at the very highest level of recipient organizations but, perhaps, a step or two below that. The author finds it interesting that engineers did not have particularly extreme views one way or another regarding the nature of ISF impacts. Furthermore, aspects of the qualitative responses they provided suggested that they had a fairly realistic understanding of projects and their likely impacts above and beyond purely technical matters.

S o m e C o m p l e x i t i e s i n U n d e r ly i n g R e l at i o n s h i p s Originally, the next step in our analysis was to use all of our predictors, jurisdiction/location, education and organizational position, and to use them simultaneously to predict each of the 6 impact indicators. In effect, these would be multiple regressions where the predictors were turned into sets of dummy variables. This was tried using various approaches to regression (particularly OLS and multinomial logistic research). The results were not particularly bad, and they were not particularly good. No matter what approaches were tried there seemed to be some problems with the underlying assumptions of the techniques in respecting relations among the predictors themselves. Taking this as a cue for further exploration, when the relations among the predictors were examined, we found results which are, in some ways, more informative than what could have been produced by our originally intended approach. Basically, there is a significant relationship between jurisdiction and education of respondents and a significant relationship between jurisdiction and organizational position of the respondent. In effect, the types of people involved in administering ISF projects differ significantly across provinces and territories. Similar variables such as professional accreditation of respondents

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also differed significantly across jurisdictions. This, of course, means that the profiles of the people who evaluate the impacts in our data also differ across jurisdictions. Knowing this, a new dimension of analysis is opened that sheds some light on other aspects of our data. While it cannot be explored in detail within the limits of this chapter, it is apparent that communities in some jurisdictions are more likely to be able to design, pursue and administer large scale infrastructure projects than are other communities in other jurisdictions. It is interesting to note that the open-ended verbatim responses in our survey often contained references to the need for more early stage assistance to communities seeking to design infrastructure projects and pursue funding of such projects.

CONCLUSION To examine personal perceptions of the federal Infrastructure Stimulus Fund (ISF ) impact at the community level, we set out with a number of working hypotheses that have been partially confirmed. First, we did think that there would be considerable variation and complexity in the way that people perceived ISF impact. We find this to be true. The distribution of responses to the impact questions, while generally favourable toward ISF , showed substantial portions of people who had unfavourable or neutral views of ISF . In addition a dimensional analysis of the 6 indicators showed that the structure of the set of indicators was multi-dimensional. So, the programme impacts were viewed through a critical but not generally unfavourable set of lenses. As expected, approval of more general indicators such as general welfare and environmental quality proved to be the most positive while evaluations of more specific technical aspects of programme impact were more cautious or skeptical, but not overwhelmingly negative. Perceptions of ISF impact on unemployment were particularly strongly represented in neutral or negative evaluations. We also expected that the jurisdiction/location in which respondents functioned, their education and occupational positions impact on evaluation. People with more or less technical levels of training and work will see programmes through different filters. Furthermore, these educational and occupational influences are reflective of different cultures of opinion and evaluation just as different jurisdictions may have their own cultures for administering policy and assessing its impact. This was basically confirmed in that 5 of the indicator variables were significantly influenced by jurisdiction, 3 were significantly influenced by education and 3 were significantly influenced by type of occupational position held. These are simply bivariate results looking at variables two at a time. When we examined the multivariate prediction of our impact indicators, some anomalies were encountered that led us down a slightly different

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analytic path. We examined the relationships among our predictors in more detail and found that there were significant differences across jurisdictions with respect to the education and position of the types of people involved in ISF projects. This is indicative of a situation in which initially apparent differences among jurisdictional cultures may well depend in part on the fact that jurisdictions tend to differ on the educational and occupational profiles of community and municipal employees. Apart from the way this may affect evaluations of ISF projects by community officials, it also means that some communities may be more prepared than others to effectively participate in infrastructure programmes such as ISF . Given the limits of this chapter, we do not wish to extrapolate too much into the realm of policy suggestions arising from the analysis. However, it would appear that some communities and provinces would be better served in programmes such as ISF if more attention were given to enhancing the educational and occupational competencies of those involved in applying for and administering ISF type projects. Even temporary enhancements to community expertise might be valuable. Provincial government departments and large cities probably do not need too much help in terms of enhanced staffing and guidance, but it is likely that this is a consideration in smaller communities. In fact, other aspects of our data indicate that many of our respondents thought that communities could benefit from greater expertise or early stage design financing of projects. Apart from that, our findings respecting the distributional and dimensional complexity of the perceptions of impact suggest that there is work to be done in finding better ways to evaluate these programmes and to set up better evaluation in advance. As noted earlier, this was also at least a partial theme in the comments of various public evaluators who have examined ISF and its resultant projects. Certainly, it is clear that the design, administration and funding of infrastructure projects will continue to be on the public policy agenda and will require meaningful evaluation.21 notes 1 The author would like to thank the Office of the Parliamentary Budget Officer for permitting use of the main data used in this study and for the opportunity to participate in its generation. 2 Infrastructure Canada, “Infrastructure Stimulus Fund,” 2011 http://www.buildingcanada-chantierscanada.gc.ca/creating-creation/isf-fsi-eng.html. 3 http://www.fcm.ca/home.htm 4 Government of Canada, “Canada’s Economic Action Plan,” 2011, http://www.actionplan.gc.ca/eng/feature.asp?featureId=16.

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5 Campbell Clark and Jane Taber, “Ignatieff okays budget, with conditions,” Globe and Mail, January 28, 2009, http://www.theglobeandmail.com/news/politics/ article968692.ece. 6 Cynthia Münster and Harris Macleod, “Feds Should Say How Stimulus Projects Were Selected, Says Top Expert,” Hill Times Online, November 02, 2009, http://hilltimes. com/news/2009/11/02/feds-should-say-how-stimulus-projects-were-selected-saystop-expert/22707?page_requested=1. See also, Glen McGregor and Stephen Maher, “Tory Ridings the Winners from Stimulus-Analysis Reveals More Than Half of BigMoney Projects Went to Blue Districts,” Ottawa Citizen, October 20, 2009, A1. 7 For a recent confirmation of the persistence of this theme in various governments at various levels see a recent commentary on the Ontario provincial government: Lee Greenberg and Glen McGregor (with files from Joanne Chianello), “Grit Ridings Get Lion’s Share of Ontario Development Fund: Almost 80% of $40.5 million in grants went to Liberal-Held Constituencies, Citizen Analysis Shows,” Ottawa Citizen, September 27, 2011, http://www.ottawacitizen.com/business/Grit+ridings+lion+ share+Ontario+development+fund/5462265/story.htm. 8 Office of the Auditor General of Canada, “2010 Fall Report of the Auditor General of Canada (Chapter 1),” 2010, http://www.oag-bvg.gc.ca/internet/English/parl_oag_ 201010_e_34282.html. 9 Office of the Parliamentary Budget Officer, “Infrastructure Stimulus Fund-Survey of Recipients,” December 1, 2010, http://www.parl.gc.ca/PBO-DPB/documents/ ISF_Survey_Findings.pdf. 10 Office of the Auditor General Ontario, “2010 Annual Report,” December 6, 2010, Chapter 3.07, http://www.auditor.on.ca/en/reports_2010_en.htm. 11 Amela Karabegovic, Charles Lammam and Niels Veldhuis, “Did Government Stimulus Fuel Economic Growth in Canada? An Analysis of Statistics Canada Data,” The Fraser Institute, March 2010, http://www.fraserinstitute.org/research-news/ display.aspx?id=15912. Also see the following for a comparative economics based perspective: Bev Dahlby, “Once on the Lips, Forever on the Hips: A Benefit-Cost Analysis of Fiscal Stimulus in OECD Countries,” C.D. Howe Institute Backgrounder No. 121, December, 2009, http://www.cdhowe.org/pdf/backgrounder_121.pdf. 12 For an interesting overview of administrative and information issues in several countries involved in infrastructure stimulus spending programmes see: Christopher Stoney and Tamara Krawchenko, “Transparency and Accountability in Infrastructure Stimulus Spending: A Comparison of Canadian, Australian and US Programs,” a paper presented at the annual conference of the Canadian Political Science Association at the University of Waterloo, May 16–19, 2011, http://www.cpsa-acsp. ca/papers-2011/Stoney-Krawchenko.pdf. As an example of the kind of data rich activity that could be supported by the relative USA emphasis on data and information, as opposed to rapid implementation, see: Congressional Budget Office, “Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output from January 2011 Through March 2011,” May, 2011,

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13 14 15

16

17 18 19 20

21

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http://www.cbo.gov/ftpdocs/121xx/doc12185/05-25-ARRA.pdf. This does show some positive economic impacts of stimulus spending but is based on a much more broadly defined set of programmes than what serves as the focus of this chapter. Office of the Auditor General of Canada, “2010 Fall Report of the Auditor General of Canada (Chapter 1).” Office of the Parliamentary Budget Officer, “Infrastructure Stimulus Fund-Survey of Recipients.” Note that the author permanently excluded 3 cases from the subsequent analysis. So, the real maximum number of cases is 641. The 3 cases were, by and large, without problems. However, on a few important variables they had extreme values that appeared to be out of place with the magnitude of other responses. There was no way to verify the true values for these cases, and, as a matter of caution, they were consistently excluded from analysis. Other cases may not be used in specific analyses due to isolated missing value issues. In email exchanges with officials in Infrastructure Canada, it was claimed that they were unable to track organizations that wanted to have ISF grants but did not receive them. Amela Karabegovic, Charles Lammam, and Niels Veldhuis, “Did Government Stimulus Fuel Economic Growth in Canada? An Analysis of Statistics Canada Data.” Office of the Auditor General of Canada, “2010 Fall Report of the Auditor General of Canada (Chapter 1).” Office of the Parliamentary Budget Officer, “Infrastructure Stimulus Fund-Survey of Recipients.” See for example: CTV News (with files from Canadian Press), “Stimulus Plan ‘Not So Good’ at Job Creation: Watchdog,” December 2, 2010, http://www.ctv.ca/ CTVNews/TopStories/20101202/ottawa-stimulus-deadline-101202/. Bill Curry, “Stimulus Cash Didn’t Create Many Jobs, Budget Watchdog Concludes,” Globe and Mail, December 1, 2010,http://www.theglobeandmail.com/news/politics/ stimulus-cash-didnt-create-many-jobs-budget-watchdog-concludes/article1821112/. Mike De Souza, “Stimulus Billions Didn’t Dent Backlog,” Ottawa Citizen, A1, A4, October 14, 2011.

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12 How Ontario Was Won: The Harper Economic Action Plan in Ontario, 2009–2011 Pat r i c e D u t i l a n d B y o u n g j u n Pa r k

INTRODUCTION The Harper government had barely been re-elected in October 2008 when it faced a constitutional crisis triggered by its minimal response to the economic slowdown of that fall. Within weeks, the government’s position had galvanized the collective opposition into agreeing to form, or support, a coalition ready to assume government and implement a vigorous plan of economic stimulation. The coalition informed the Governor General of its readiness, but its plans were foiled. The Prime Minister convinced her to prorogue Parliament until the government presented another economic plan to the House of Commons. Thirty months after surviving the constitutional crisis, the Conservative Government called an election and campaigned on a platform of economic and political stability. It maintained its support in most parts of the country but was elected to a majority largely because of massive gains in Ontario. Did the Economic Action Plan, its stimulus spending program, make a difference? Where was the money spent? Was more money spent on those ridings that had been lost, or won, by slim margins in 2008? Were the new victories in the other 21 ridings “bought” by pork barrel government largesse? Our answer is no. While some ridings were indeed showered with stimulus money far beyond the provincial average, most were not, and indeed many of them received far less than the average. The Conservative government won its majority in Ontario by convincing voters that, by and large, it was economically competent and had wisely spent stimulus money and that, on average, it had treated ridings held by the opposition and by the government equally.

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Responding to public opinion that supported government spending,1 the Harper cabinet reversed its position against heavy stimulus spending and introduced Canada’s Economic Action Plan (EAP ) on January 27, 2009 and put the federal government on a deficit path for the foreseeable future.2 The plan united a number of existing programs with new initiatives in public infrastructure spending that, together, would provide an economic stimulus. It took little time for the opposition to see a threat in the spending plan and within months the EAP was criticized as a “pork barrel” initiative that would primarily serve as an instrument for the government to buy the support it so desperately needed to form a majority. Liberal leader Michael Ignatieff argued that the Conservative government was distributing an average of 15 per cent more money to the Conservative-held ridings compared to the Liberal-held ridings,3 while Bloc Québécois leader Gilles Duceppe likened the funding distribution to the politics of former Quebec premier Maurice Duplessis.4 In June 2010, the Auditor General’s Office published a report criticizing the lack of transparency in the G8 Legacy Infrastructure Fund projects that had been funded to support the hosting of the G20 summit in Toronto and Muskoka in June 2010 and ministers such as Tony Clement (also the MP for Parry SoundMuskoka) continued to attract the lightning bolts of the opposition. One journalist argued that the Conservative-friendly 905 region surrounding the City of Toronto (but still mostly held by Liberals) appeared to receive more funds for transit than the City itself, where the Liberal or New Democratic Party had won seats handily.5 For its part, the Conservative Government argued that the federal government spending was being allocated in collaboration with other levels of government to ensure that funds were spread out evenly.6 There was a rationale for the suspicions that government spending could be determined by electoral considerations. In the federal election of 4 October 2008, the Conservatives were elected in 143 of 308 ridings, only twelve seats short of securing enough members to form a majority government in Parliament. Given their lock on Western seats and their limitations in Quebec and Atlantic Canada, the Conservative Party could only win a majority if it won Ontario. Conservative support had gained steadily over the years in that province, but had always fallen short of expectations. The Conservatives took 51 of Ontario’s 106 seats,7 but a substantial number of seats also seemed winnable. Thirty had been won by the opposition by less than ten percent margins and nine of those were lost by the Tories by less than around 5 percent: Brampton-Springdale (lost by 1.71 percent), Brampton West (.43 percent), Don Valley West (5.3 percent), Eglinton-Lawrence (4.73 percent), Guelph (3.04 percent), Mississauga South (4.64 percent), Sault Ste-Marie (2.71 percent), Sudbury (4.94 percent), Welland (.58 percent). In addition, the Conservatives also had a stake in protecting slim pluralities: London West had been won with only a 3.68 plurality, Kitchener Centre (.75 percent), Kitchener Waterloo (.3 per  cent), Mississauga-Erindale by .71, Oak Ridges-Markham

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by .72. In a political calculus complicated by the sudden need to spend stimulus money, therefore, these ridings loomed large. The study of “pork barrel”, which refers to the practice used by politicians to allocate public money in a way that is primarily designed to maximize their support, has seldom been done in Canada.8 (This is certainly true in comparison with the United States, where both in the academic and public sphere, the debate concerning pork barrel has raged because the CongressionalPresidential political system has provided an incentive for members of the Congress to “earmark” local pork-barrel projects in the budget.9) The study of the EAP , however, creates a new opening, one that points to relatively good governance on two fronts. The results discussed in this paper are only possible because the government of Canada—albeit prodded by the opposition and the Auditor General—made a commitment to transparency in distributing stimulus funding and reported its projects in detail on its website. It must also be acknowledged that the bureaucracy also lent a helpful hand in this remarkable venture of speedy allocation. In May 2011, the Conservative Government achieved its objective: The Tories won 21 new seats in all areas of the province except Eastern Ontario, and lost none. They took eight seats in Toronto, ten in the wide 905 belt, one in Southwestern Ontario, and two in Northern Ontario. Six of the nine Liberal-held targets were taken: Brampton-Springdale, Brampton West, Don Valley West, Eglinton-Lawrence, Mississauga South, and Sault Ste-Marie. The Tories also protected their narrow gains in London-West, Kitchener Centre, Kitchener Waterloo, Mississauga-Erindale and Oak Ridges-Markham. More importantly, they also won neighbouring ridings: Don Valley East, Etobicoke Centre, Etobicoke-Lakeshore, Scarborough Centre, Willowdale, York Centre in Toronto; Ajax-Pickering, PickeringScarborough East, Bramalea-Gore-Malton, Mississauga-Brampton South, Mississauga East-Cooksville, Mississauga-Streetsville, Richmond Hill in the 905 area. The riding of London North Centre was taken in Southwest Ontario and Nipissing-Timiskaming and Sault Ste. Marie in the North. In all, the Conservatives won 73 of the 106 seats (the Liberals lost massively to both Conservatives and New Democrats, retaining 11  seats, while the NDP lost one seat to the Tories but increased its take by five seats to 22). The Conservatives also boosted their popular vote in Ontario, going from 39.2 percent of the vote in 2008 to 44.4 percent in 2011. The voter turnout was 62.2 percent (5,532,288 of 8,892,714 registered voters).

METHOD OLO GY: EXAMINING STIMULUS FUNDING AS MORE THAN P ORK BARREL Our objective was to see if the “target ridings” as well as those that were eventually won by the Conservatives in 2011 benefited more from stimulus

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funding than the average. We used the “Projects Map” in the Action Plan website that identified each project, federal funding amount, total project value (total contribution from all levels of government), the particular program initiative funding the project, and description. In order to analyze spending trends, a database was created to collect all of the above information (except total project value which was not relevant for this analysis) and to tabulate it according to riding. This allowed the database to calculate the total amounts that have been distributed into the government-held and opposition-held ridings respectively. The database identified 4,395 individual projects in Ontario receiving federal contribution totalling about $5.3 billion (last checked on 15 August 2011). This amount did not include certain program initiatives that were not earmarked to specific projects, such as the Home Renovation Tax Credit or subsidies to the forestry industry. In addition to calculating the total funding for each program, the database also categorized each project based on which political party’s ridings and which forms of infrastructures (ex. roads, utilities, recreations, etc.) received the funding. It should be noted that despite our best effort to categorize all infrastructure projects accurately based on their geographic/partisan and functional patterns, the funding amount would not be completely accurate because of certain factors. First, the information in the government website could, on occasion, be inaccurate due to flaws in map design. Most of these problems were corrected by verifying the data from different sources (by using Infrastructure Canada data, where the list of infrastructures was more geographically accurate). Second, the government posted a few additional projects during the creation of the database, though most of these late additions tended to be relatively minor adjustments (often worth less than $100,000 per project). Third, certain projects (usually roads) were challenging to assign to specific electoral ridings, as they were shared between two or more electoral ridings. For the vast majority of such projects, the funding amount was evenly split between all the electoral ridings that shared these projects. For a few major projects such as the GO Transit and Sheppard East Light Rail (each received $250 million and $330 million respectively), the amount was split based on information from media coverage (reports funding allocated for each transit station) and estimates (calculating kilometres of light rail to be constructed for each electoral district). While a certain degree of inaccuracy in funding amounts will be inevitable due to the aforementioned issues, it is expected that the margin of error would not be significant. Similarly, certain infrastructures can be rather ambiguous on what functions they would serve upon completion. For example, many road projects tended to include watermain repairs (utilities), while a community centre (generally recreation) in a small community could also house a library, city hall, and even private business concerns. In this case, descriptions for each

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project were examined to discover which objective was emphasized the most and assigned the primary function it served (the community centre in the above example, for instance, would likely be still categorized under “recreation” since other functions tend to be secondary and incidental in comparison). For some projects that were especially ambiguous (for example, the description simply stated “repairing of roads and watermains”), the first function in the description was chosen, as there is a better chance a primary function would have been mentioned first. Again, since few of these ambiguous projects received a significant amount of federal funding, the margin of error is expected to be relatively small.

INVESTING THE ECONOMIC ACTION PL AN COMPONENTS Thirty-five programs were part of Canada’s Economic Action Plan in Ontario, of which eight were relatively major components in terms of publicity and federal funding. (Note: for the functional distribution of infrastructure spending, the following tables only include infrastructure categories – ex. roads/bridges, utilities, recreations, etc. – that consisted of at least 5 per cent of the total program funding.) When all projects in Ontario were counted, there was no apparent bias in terms of how ridings were treated (see table 1). Of the $5.3 billion allocated ($396.21 per capita),10 about $2.6 billion was distributed to 51 governmentheld ridings while the other $2.7 billion was invested in 55 opposition-held ridings. On average, this represented $50,685,016 for each government-held riding and $49,060,637 for each opposition-held riding. Averages can be useful, but they can also be misleading, and in this case one program created significant distortions. The most notable example was “Investing in Federal Buildings,” which allocated $190 million for repairs and upgrades of the federal government’s own buildings in the province (held mostly but not entirely in the NDP riding of Ottawa-Centre). The riding of Welland, won by the Liberals by the slimmest of margins in 2008, became a Tory target and received almost double the average stimulus spending. It is worth noting that no seat changed hands in Eastern Ontario, so it is fairly clear that if the Economic Action Plan had any effect in the region, it was slight. Welland, however, did switch parties in 2011 and voted Conservative. The bias in favour of safe opposition ridings was driven by a small number of ridings (mostly in downtown areas of major cities across Ontario) that received amounts significantly more than average in federal funding (as high as $220 million for the top safe opposition riding). Indeed, among the top 10 ridings that received over $90 million, seven had voted decisively for the opposition, two had voted for the government but by a small margin, and one was represented by the opposition, but also with a small margin. Considering

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Table 1 Total of All Earmarked Projects in Ontario (35 Programs) Category Total Partisan Function

Total Gov. ridings Opposition ridings Education/Training Utility Transit Recreation/Culture Roads/Bridges Government

Total Funding

Funding %

$5,283,270,822 100.0% $2,584,935,791 48.9% (51 ridings) $2,698,335,031 51.1% (55 ridings) $1,024,747,219 19.4% $885,664,162 16.8% $849,141,691 16.1% $827,490,160 15.7% $733,802,426 13.9% $410,527,703 7.7%

Funding/Riding $49,842,178 $50,685,016 $49,060,637 N/A

this, it may be necessary to look at the number of ridings that fell under certain categories in terms of federal funding received as well. This might reveal if a larger number of leaning opposition ridings actually received a significant amount of funding once the exaggerated influence of top ridings were minimized. How Was Money Generally Allocated, Given 2008 Election Results? For the sake of calculation, ridings were classed according to their 2008 election results in four categories: as tentatively supporting the government party by giving it less than a fifteen percent plurality, or as a “safe seat”, meaning support of more than 15.1 percent. The same was done with ridings that had supported either the Liberal or the New Democratic Party. When the numbers of leaning and safe opposition ridings were compared in terms of funding brackets, it is clear that ridings that gave the opposition tentative support as a group received less stimulus spending (see table 2). Indeed, 15 out of 25 of them (60 per cent) received less than $30 million while 22 out of 25 (88 per cent) received less than $50 million. There were not as many safe opposition ridings in lower brackets, as 12 out of 30 (40 per cent) received less than $30 million and 18 out of 30 (60 per cent) received less than $50 million. For government-held ridings, only 9 out of 51 ridings (17.6 per cent) received less than $30 million, while 28 out of 51 ridings (54.9 per cent) received less than $50 million. Three conclusions can be reached from this finding. First, ridings that were narrowly won by the opposition in 2008, as a group, under any measure, did not benefit as much from the stimulus funding. Each of these ridings received about $15 million less than average in federal funding, and only 3 out of

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Table 2 Funding allocations to government and opposition seats Funding

Gov (≤15%)

Safe Gov (≥15.1%)

Total Gov

Opp (≤15%)

Safe Opp (≥15%)

Total Opp

$90M+

2 (11.1%)

0

2 (3.9%)

1 (4%)

7 (23.3%)

8 (14.5%)

$70-90M

1 (5.6%)

$50-70M

4 (22.2%)

3 (9.1%)

4 (7.8%)

2 (8%)

2 (6.7%)

4 (7.3%)

13 (39.4%)

17 (33.3%)

0

3 (10%)

$30-50M

5 (27.8%)

3 (5.5%)

14 (42.4%)

19 (37.3%)

7 (28%)

6 (20%)

13 (23.6%)

$0-30M Total

6 (33.3%) 18

3 (9.1%) 33

9 (17.6%) 51

15 (60%) 25

12 (40%) 30

27 (49.1%) 55

25 ridings received funding above average (slightly above $47 million).11 It is clear that the Conservative Government did not conclude that these ridings could be convinced to switch votes with more generous stimulus spending. Second, several “safe” opposition ridings benefited greatly from the infrastructure funding, but not all. While 30 per cent of safe opposition ridings received considerably more than average in federal funding (over $70 million) 40 per cent also received amount well below average (under $30 million). Therefore, it would be inaccurate to conclude the safe opposition ridings as a whole necessarily benefited more than government ridings did. Third, it should be noted that among the ridings that did support the government, two received dramatically more money than the average (about $160 million and $140 million respectively). Once these two ridings were excluded from calculation, on average, ridings that were more tepid in their support received less funding than safe government ridings. This suggests that the Conservative Government did not specifically target leaning government ridings with extra funding, since the benefits were not broadly distributed across all vulnerable government-held ridings.12 While the lack of significant difference between safe and leaning government ridings was largely expected, it is clear that the government did not systematically seek to “buy” the ridings that only tepidly supported the opposition. Did the Ridings Narrowly Lost or Narrowly Won by the Conservative Party in 2008 Benefit From EAP Spending? It is possible to focus on ridings that were more hotly contested, i.e. those that were won or lost by five percent pluralities or less. The government spent $608,369,303.00 in these fifteen ridings and was more generous on average in spending money in ridings it held itself by a narrow margin than in those of the opposition (see table 3). Of the nine ridings held by

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the opposition, four ridings received far more per capita than the $396.21 average: two in Northern Ontario and two in Southwestern Ontario. Two of the five ridings held by the Government also received extremely generous stimulus funding. The wins in the Greater Toronto Area could hardly be attributed to government largesse in the riding, although there is a concentration factor that may have played a role in swaying some voters. The same could be said of two narrowly-held Conservative ridings, London West and Oak Ridges-Markham, which received far less than the average. The two Brampton ridings, for instance, received considerable amounts of money as did their neighbours. In other words, the collective impact of government spending in the region may have played a role in convincing voters to change sides. The same could be said about the Kitchener ridings, two of which were held by the Conservative government by narrow margins. The Kitchener-Waterloo riding received almost three times more spending per capita than the average, even though its neighbour of Kitchener Centre received .66 of the provincial average. It is clear that the government’s wins of seats from the opposition was hardly indicative of lavish spending. Indeed, those ridings received $50 less per capita than the average. The Conservative Government’s wins in the fifteen ridings where it had no special advantage as a result of the 2008 election were telling. Collectively, the ridings received an average $105 less per capita than the average. Only three received more than the average $396.21 per capita. The rest received much less, and in some cases dramatically less. The wins, therefore, can hardly be explained by a specific funding strategy. Were the New Government Wins Attributable to EAP Funding? The government also earned the support of fifteen seats that in the past had not been hotly contested in 2008 (see table 4). Did those ridings receive more money than the average? Collectively, they collected far less than the average per capita, although three benefitted far more. Two of them were in the Pickering area ridings. Arguably, Don Valley East’s funding might have an impact on the voters of Don Valley West (see above). Was the Funding Distribution to Individual Cabinet Members’ Ridings More Generous Than the Average? The Opposition often made the accusation that the ridings of Ontario cabinet members received a great deal more money than the average. While there certainly is truth to the claim in regards to five of them, it cannot be said of all of them (see table 5). Seven received far more EAP funding for their ridings than the average, on a per capita basis. Six received less.

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Table 3 EAP contribution to ridings won with pluralities of 5.3 percent or less. Ridings Won by Opposition in 2008 by 5.3 % or less Brampton-Springdale (1.71 percent) Brampton West (.43 percent) Don Valley West (5.3 percent) Eglinton-Lawrence (4.73 percent) Guelph (3.04 percent) Mississauga South (4.64 percent) Sault Ste-Marie (2.71 percent) Sudbury (4.94 percent) Welland (.58 percent) Total Average per riding/per capita Percentage of Total spent on Target Ridings

EAP contribution to riding Per capita $33,757,191.00 $26,309,925.00 $10,137,156.00 $3,586,681.00 $48,515,800.00 $24,515,800.00 $58,083,016.00 $38,659,884.00 $98,860,070.00 $342,425,523.00 $37,823,961.78 56.28

$256.13 $154.38 $86.58 $32.59 $422.00 $219.06 $652.41 $419.48 $875.83

$9,742,265.00 $25,286,739.00 $144,574,262.00 $64,658,104.00 $21,682,410.00 $265,943,780.00 $53,188,756.00 43.72

$82.32 $236.24 $1,140.70 $451.02 $127.81

$346.50

Ridings won by Conservatives in 2008 by 5.3 or less London West (3.68 percent) Kitchener Centre (.75 percent) Kitchener Waterloo (.3 percent) Mississauga-Erindale ( .71 percent) Oak Ridges-Markham by (.72 percent) Total Average per riding Percentage of Total spent on Target Ridings

$407.62

Table 4 EAP contribution to ridings newly won by the Conservative Party in 2011. Riding Don Valley East Etobicoke Centre Etobicoke-Lakeshore Scarborough Centre Willowdale York Centre Ajax-Pickering Pickering-Scarborough East Bramalea-Gore-Malton Mississauga-Brampton South Mississauga East-Cooksville Mississauga-Streetsville Richmond Hill London North Centre Nipissing-Timiskaming Average

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Funding per riding

Per Capita

$52,891,583.00 $18,300,602.00 $17,430,251.00 $11,328,380.00 $10,880,906.00 $20,545,821.00 $74,840,767.00 $91,479,552.00 $38,661,983.00 $9,523,636.00 $49,752,757.00 $26,772,815.00 $11,785,611.00 $45,392,975.00 $27,000,891.00 $506,588,530.00 $33,772,568.67

$482.41 $164.35 $152.04 $104.88 $84.12 $181.09 $638.67 $858.14 $253.19 $69.79 $392.86 $205.89 $92.04 $393.87 $296.83 $291.34

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Table 5 EAP contribution to Ontario Members of Cabinet Cabinet Member

Portfolio

Tony Clement (Parry Sound-Muskoka) John Baird (Ottawa West-Nepean) Gordon O’Connor (Carleton-Mississippi Mills) Jim Flaherty (Whitby-Oshawa) Diane Finley (Haldimand-Norfolk) Rob Nicholson (Niagara Falls) Gary Goodyear (Cambridge)

Industry

$78,898,518

874.92

Transport & House Leader

$64,735,042

589.92

Secretary of State & Government Whip Finance

$67,866,647

522.38

$70,228,039

516.79

Human Resources

$46,271,330

429.33

Justice

$52,038,279

410.73

State (Tech) + FedDev Ontario1

$52,279,822

403.91

–

$49,842,177

396.21

N/A2

$28,826,634

228.82

Labour

$33,581,899

221.02

State (Seniors)

$30,270,974

196.30

International Cooperation

$13,464,129

113.62

$12,572,197

95.26

$10,681,160

88.74

ont. average Helena Guergis (Simcoe-Grey) Lisa Raitt (Halton) Julian Fantino3 (Vaughan) Bev Oda (Durham) Peter Kent (Thornhill) Peter Van Loan (York-Simcoe) 1 2

3

State (Women) Natural Resources

State (Americas) Public Safety

Funding

Environment

International Trade

Per capita

Gary Goodyear later assumed FedDev Ontario portfolio in addition to his initial portfolio. Helena Guergis was expelled from the cabinet and the Conservative Party caucus on April 9, 2010. However, since most of the spending announcements had been already made while she was still in the government cabinet, Guergis will be treated as a cabinet member in the analysis. Julian Fantino became the Minister of State in charge of Seniors on January 4, 2011, soon after winning the by-election on November 29, 2010. Most of the spending announcements were made before he joined the cabinet.

The top group that received about 27 to 55 per cent more than government average in funding included arguably the most powerful Minister in cabinet (Finance) and the heads of major line departments that played a significant role in administering public infrastructure projects (e.g. Industry and Transportation). Much of the funding in the riding of Parry Sound-Muskoka was to prepare the area in hosting the G20 in June 2010. It is clear that Tony Clement, John Baird and Jim Flaherty had been prominent cabinet members in the Ontario government for many years before entering into federal politics and thus able to secure agreement with the provincial and local

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governments in ensuring that “shovel ready” projects be listed. In contrast, the bottom group that received only 25 to 75 per cent of the average included Ministers of State (“junior” ministers often in charge of specific, rather minor responsibilities in support of “senior” ministers), Ministers of less prominent foreign affairs portfolios, and individuals with little government experience. The middle group that received close to average amount in funding also included one Minister directly responsible for one of major infrastructure program in Ontario (albeit not as well-funded as many other programs) and the Minister of Justice, as head of a relatively major department. Besides, while junior ministers may be relatively powerless in today’s government, it is rather difficult to believe that they would be deliberately treated poorly to the point where even powerless backbenchers (who should logically have less clout than junior ministers) were rewarded significantly better in comparison. Still, in terms of relative status in cabinet, there seemed to be merit to the argument that being members of cabinet in charge of the most influential portfolios did provide a higher chance of bringing back more funding for their own ridings. Was the “Infrastructure Stimulus Fund” Component of the EAP Spent Differently? In terms of the total funding committed under the EAP , the Infrastructure Stimulus Fund was the largest component among all infrastructure-spending programs in the Action Plan. The program funded 1,886 (known) projects worth about $1.45 billion in Ontario. While the Fund was a general infrastructure program that had not been limited to funding a single form of physical infrastructure, over 50 per cent of the total funding was spent on roads, bridges, and utilities. This is expected as the program explicitly emphasized construction-readiness and the extent to which the funding would maintain the safety and prolong the life of the asset. On average, the distribution of funding slightly favoured the government-held over the oppositionheld ridings ($13,996,589 to $13,378,834 – almost 5 per cent more funding to government-held ridings). Was the “Accelerating Approval Processes for Building Canada Fund Major Projects” Component of the EAP Spent Differently? This program was designed to speed up high-profile infrastructure projects across Canada. In Ontario, sixteen such projects (e.g. GO Transit improvements, the Sheppard East Light Rail construction in Toronto, and the Eastern Ontario Regional Broadband Network) received federal funding of just over $1  billion under this program. The Action Plan website described them as “projects that are of national or regional significance” and stated that the fund was particularly of interest to larger cities. Since the most expensive items under this program tended to be the transit projects in opposition-dominated

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Table 6 “Infrastructure Stimulus Fund” Component of EAP

Total Partisan Function

Category

Total Funding

Funding %

Funding/Riding

Total Government Opposition Roads/Bridges Utility Recreation/Culture Transit Government

$1,449,661,928 $713,826,052 $735,835,876 $439,915,228 $339,361,731 $266,929,852 $133,700,911 $88,238,704

100.0% 49.2% (51 ridings) 50.8% (55 ridings) 30.3% 23.4% 18.4% 9.2% 6.1%

$13,676,056 $13,996,589 $13,378,834 N/A

Toronto (and the surrounding Greater Toronto Area to a lesser degree), the distribution of funding heavily favoured the opposition-held ridings (see table 7). Was the “Knowledge Infrastructure Program” Component of the EAP Spent Differently? This program mostly funded physical infrastructures in the post-secondary educational institutions. In Ontario, 56 projects received almost $800 million in federal funding. The program somewhat favoured opposition-held ridings, reflecting the fact that many of the colleges and universities were located in urban areas that were less inclined to vote for the Conservative Party (see table 8). Was the “Communities Component of the Building Canada Fund” Component of the EAP Spent Differently? The program targeted infrastructures in smaller communities with populations smaller than 100,000. The program funded 457 projects worth over $500 million in Ontario. Compared to the Infrastructure Stimulus Fund, this program invested more heavily in the utilities and recreational projects of smaller towns and municipalities. Because the program favoured Conservative-friendly rural areas by the nature of its design, the overall share of the money distributed overwhelmingly favoured the government-held ridings (see table 9). This part of the spending allocation may have had an impact. Was the “Recreational Infrastructure Canada” Component of the EAP Spent Differently? Recreational Infrastructure Canada was a program that specifically supported recreational facilities such as parks, sports fields and arenas, and fitness trails. There were 753 projects across Ontario receiving close to $250 million in federal funds

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Table 7 Spending of the “Accelerating Approval Processes for Building Canada Fund Major Projects” Component of the EAP

Total Partisan Function

Category

Total Funding

Funding %

Funding/Riding

Total Government Opposition Transit Roads/Bridges Utility Communication/IT

$1,028,548,667 $296,742,000 $731,806,667 $716,000,000 $138,967,000 $59,481,667 $55,000,000

100.0% 28.8% (51 ridings) 71.1% (55 ridings) 69.6% 13.5% 5.8% 5.3%

$9,709,893 $5,818,471 $13,305,576 N/A

Table 8 Spending of the “Knowledge Infrastructure Program” Component of the EAP

Total Partisan Function

Category

Total Funding

Funding %

Funding/Riding

Total Government Opposition Education/Training

$797,481,946 $318,220,908 $479,261,038 $797,481,946

100.0% 39.9% (51 ridings) 60.1% (55 ridings) 100.0%

$7,523,415 $6,239,626 $8,713,837 N/A

Table 9 Spending of the “Communities Component of the Building Canada Fund” Component of the EAP .

Total Partisan Function

Category

Total Funding

Funding %

Funding/Riding

Total Government Opposition Utility Recreation/Culture Roads/Bridges

$518,085,652 $450,098,689 $67,986,963 $197,637,127 $178,522,161 $112,279,823

100.0% 86.9% (51 ridings) 13.1% (55 ridings) 38.1% 34.5% 21.7%

$4,887,600 $8,825,464 $1,236,126 N/A

under the program. While the funding was nominally available to all communities across Ontario, the particular program had been apparently more inclined to subsidize recreational infrastructure projects in rural and smaller communities (see table 10). This trend was also reflected in the fact that the government-held ridings received more funding in this program than the opposition-held ridings. Was the “Green Infrastructure Fund” Component of the EAP Spent Differently? The Green Infrastructure Fund was a program that specifically targeted energy, wastewater, and solid waste infrastructure projects that would increase the quality of the environment. Among the 17 projects across Canada, eight

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Table 10 Spending of the “Recreational Infrastructure Canada” Component of the EAP

Total Partisan Function

Category

Total Funding

Funding %

Funding/Riding

Total Government Opposition Recreation/Culture

$237,315,152 $149,423,163 $87,891,989 $237,285,152

100.0% 63.0% (51 ridings) 37.0% (55 ridings) 99.99%

$2,238,822 $2,929,866 $1,598,036 N/A

of them receiving close to $250 million were located in Ontario. Since the fund focused on “a few, large-scale, strategic infrastructure projects,” the distribution of funding was heavily influenced by a couple of mega-projects (see table 11). Since the single largest project ($100 million in federal funding) that greatly outweighed other projects was in an opposition-held riding, the overall distribution reflected relatively larger distribution to the oppositionheld ridings as a whole. Was the “Community Adjustment Fund” Component of the EAP Spent Differently? The Community Adjustment Fund was designed specifically to assist smaller communities in Canada. The communities had to meet specific criteria including high job losses and unemployment rate and a population of less than 250,000. The program provided close to $250 million in federal funds to support 431 projects across Ontario. Since the introduction of the program, much of the funding had been spent on small- and medium-sized businesses, small-scale projects for colleges and universities, and largely (but not exclusively) recreational infrastructures in smaller municipalities. The program, like the Communities Component of the Building Canada Fund, distributed its funding overwhelmingly in favour of the government-held ridings because of the program’s focus on rural communities (though slightly less so since the population requirement was less than 250,000 instead of less than 100,000) (see table 12). Federal Economic Development Agency for Southern Ontario Spending In August 2009, the Government of Canada created the Federal Economic Development Agency for Southern Ontario (FedDev Ontario) to “meet the unique needs and realities of Southern Ontario” in providing regional economic stimulus. As the name suggested, only the businesses and communities in Southern Ontario (where most of the Ontarians lived and where 90 per cent of all electoral ridings in Ontario are located) were eligible for program

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Table 11 Spending of the “Green Infrastructure Fund” Component of the EAP Category Total Partisan Function

Total Government Opposition Utility*

Total Funding

Funding %

Funding/Riding

$233,833,000 $94,000,000 $139,833,000 $233,833,000

100.0% 40.2% (51 ridings) 59.8% (55 ridings) 100.0%

$2,205,972 $1,843,137 $2,542,418 N/A

* Funding amount for utility comes from projects that were administered under the Green Infrastructure Fund, which was designed specifically to fund environment friendly energy, water, and wastewater plants.

Table 12 Spending of the “Community Adjustment Fund” Component of the EAP

Total Partisan Function

Category

Total Funding

Funding %

Funding/Riding

Total Government Opposition Business/Industry Education/Training Recreation/Culture “Unspecified” Utility

$234,717,139 $184,854,616 $49,862,523 $95,375,580 $37,631,121 $33,134,928 $14,884,500 $12,650,637

100.0% 78.8% (51 ridings) 21.2% (55 ridings) 40.6% 16.0% 14.1% 6.3% 5.4%

$2,214,313 $3,624,600 $906,591 N/A

funding. $125 million was used to support 302 projects. The general design of the program was very similar to the aforementioned Community Adjustment Fund, except that the funding was available to the larger communities such as the City of Toronto as well (see table 13). Thus, on average, FedDev Ontario actually distributed somewhat higher amount of funding to opposition-held ridings ($1,226,271 to $1,067,639 – about 15 per cent more on average). Were the Other Earmarked Individual Projects (27 Programs) Spent Differently? Aside from the eight major programs, 27 other programs in the Action Plan provided over $650 million in federal funding to infrastructure projects in Ontario. These programs included targeted infrastructure spending on varied projects such as the federal government’s own properties, First Nations’ education and utility needs, national historic sites, and certain individual projects such as the Blue Water Bridge Canadian Plaza and Bridge and the Institute for Quantum Computing. Funding for the other programs as a whole was almost evenly distributed between the government-held and the oppositionheld ridings, as the former only received about 3 per cent more on average ($6,339,623 to $6,152,947). However, a significantly higher portion of the

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Table 13 Spending of the Federal Economic Development Agency for Southern Ontario

Total Partisan Function

Category

Total Funding

Funding %

Funding/Riding

Total Government Opposition Business/Industry Education/Training Air Transport

$121,894,482 $54,449,577 $67,444,905 $83,807,059 $20,178,303 $8,181,040

100.0% 44.7% (51 ridings) 55.3% (55 ridings) 68.8% 16.6% 6.7%

$1,149,948 $1,067,639 $1,226,271 N/A

federal funding for the opposition-held ridings came from programs that invested in the federal government’s own properties (see table 14). Therefore, the distribution of funding for the miscellaneous programs can be actually regarded as more friendly towards government-held ridings than the overall numbers suggested. Other Programs Not Tied to Specific Individual Projects The EAP website also listed various program initiatives that either presented their funding amount in a lump sum without allocating it to any particular project on the Projects Map or earmarked money only to projects outside Ontario. The funding for these initiatives was not included in the following total, since the vast majority of them did not specify how much was spent on certain projects based on location (in fact, they usually did not even specify how much was spent on Ontario) or was not relevant to Ontario. There were also certain projects such as social housing that actually earmarked funding to individual projects but were administered by independent agencies instead of ministries.13 These projects were not included in the total, since it is assumed the Government would have relatively little control on directing specifically where the money should be funded. The total amounts of nationwide funding for these initiatives, however, could be examined in the later part of the paper to assess socioeconomic priorities of the Government in making its spending decision.

CONCLUSION The evidence indicates that, as far as the Canada’s Economic Action Plan funding distribution in Ontario was concerned, the results between ridings held by the opposition and the government hardly showed significant differences, on average. A bias in favour of opposition-held ridings was indeed present when the massive investments in federal buildings (located in the NDP riding of Ottawa Centre) were included in the total funding, but the result was less

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Table 14 Spending on the Other Earmarked Individual Projects (27 Programs)

Total Partisan Function

Category

Total Funding

Funding %

Funding/Riding

Total Government Opposition Government Education/Training Recreation/Culture Utility

$661,732,856 $323,320,786 $338,412,070 $305,301,373 $130,272,554 $78,818,067 $46,607,700

100.0% 48.9% (51 ridings) 51.1% (55 ridings) 46.1% 19.7% 11.9% 7.0%

$6,260,338 $6,339,623 $6,152,947 N/A

clear-cut when they were excluded. It must be acknowledged that, when all infrastructure projects that could stimulate the local economy were included, the distribution was not significantly biased in partisan terms. Not all ridings were treated equally, of course. Some of the ridings in tight contests were the subject of massive funding, but many were not. It is clear that government ridings benefited to a certain degree from the “infrastructure spending” component of the EAP , but it was hardly systematic. For most categories of spending, however, the money was evenly divided and showed very little indication of favouritism. There might be a question as to whether money spent on “infrastructure” as opposed to another category might be more valuable in the long run, but the point remains moot when considered in a time-span of less than 24 months. The results also showed that the ridings of many key ministers, though not all, benefited from important investments—far more than the average—and two of them, Tony Clement and John Baird, are still under tremendous pressure to account for the amounts spent. Countless studies and commentaries have pointed out that Ministers tend to benefit the most from government patronage, and this study confirmed the trend. There is little evidence indicating a systematic approach by the Government to target vulnerable opposition-held ridings by distributing extra money into these ridings to gain advantage in an upcoming federal election. As far as the EAP was concerned, it seemed that targeting particular ridings prior to a prospective election was not a high priority for the Government, at least in terms of actual commitments in funding. One explanation behind this is that the Government’s election strategy might have been more geared toward appealing to voters across broader target region (the Greater Toronto Area), than any set of individual ridings. For example, one of the main projects in Toronto in terms of funding amount was a $250-million investment in GO Transit, which would likely appeal to commuters in suburban Toronto areas including close to two-thirds of the vulnerable opposition-held ridings. The evidence shows that, among the total of

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$250 million, $168 million was spent on train stations, parking lots, and a rail junction that only benefited several ridings greatly ($62 million to leaning opposition), and that left only about average of $1.7 million in remaining fund per 48 Toronto-area electoral ridings (15 leaning opposition). Nonetheless, when presented as a $250-million package to the voters in the region broadly, it would have had a great potential to impress commuters in leaning opposition ridings, even if a disproportionate amount of money was sent to those particular ridings. In any case, however, it was clear that the Government did not distribute more money to leaning opposition ridings. In sum, the evidence presented in this chapter shows that generally, the government of Canada was fair in its dispensing of stimulus funding and that the general impression of a competent government was probably the key factor that led to its impressive growth of popularity in Ontario which in turn led to its re-election with a majority. This is no small accomplishment that also speaks to the ability of the public service in rapidly identifying projects, working with governments at all levels, and in ensuring that the stimulus funding was as fairly spread across the territory as possible. Certainly, that the average spending between ridings held by the opposition and those held by the government is practically equal demonstrates the level of precision that was brought to bear by the public service in a few short months. notes 1 McAllister Research. November 27, 2008. “National Poll: Canadians Support Federal Deficit Spending to Bolster Economy; Weak Support for Automaker Bailouts, Even in Ontario.” CNW Group. visited on August 19, 2011. 57 per cent of Canadians in the poll agreed that the federal government should boost spending to stimulate economy even if it means running a deficit. 2 Leslie Pal, “Into the Wild: The Politics of Economic Stimulus” in Bruce Doern and Christopher Stoney (eds), How Ottawa Spends, 2011–12: Trimming Fat or Slicing Pork? (Montreal and Kingston: McGill-Queens University Press, 2011), 39–59. 3 Paul Morse, “Stimulus Money Not Just for Tory Ridings: Ignatieff.” Hamilton Spectator, 25 September 2009. 4 Andrew Mayeda, “Tories Use Stimulus Cash as Political Weapon on Campaign Trail.” Postmedia News, 10 April 2011. 5 Rob Roberts, “Harper Ventures into Ignatieff Territory, with a Little Cash for GO Transit.” National Post, 17 February 2009. 6 Bruce Campion-Smith, “Spending Being Earmarked for Tory Ridings, Liberals Say.” Toronto Star, 6 February 2009. 7 Between the elections of 2008 and 2011, two ridings in Ontario changed party (Conservative Party expelled one member from the caucus on April 2010 and gained

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9

10 11

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The Harper Economic Action Plan in Ontario, 2009–2011

one seat in a by-election held on November 2010). This chapter still uses the initial partisan composition throughout the analyses, since it can be assumed that most of the funding decisions have been already made before these particular changes took place. See Leslie Pal, op cit. The only other notable Canadian study on the subject was conducted by Kevin Milligan and Michael Smart, “Regional Grants as Pork Barrel Politics” (CESifo Working Paper Series No. 1453, The Centre for Economics and Public Affairs, University of Toronto, 2005) to investigate the factors influencing the allocation of regional development grants in Quebec and the Atlantic Provinces between 1988 and 2001. The paper concluded that spending was indeed targeted toward competitive electoral constituencies held by the opposition parties and to members of the government, especially those in the Cabinet. Otherwise, despite the renewed emphasis on politicization of public spending in light of alleged mismanagement of grant programs such as the Sponsorship Scandal, academic studies have paid little attention to the ‘pork barrel’ aspect of the programs. One notable article supporting this line of argument was written by former Saskatchewan Finance Minister Janice MacKinnon. She argued that the biggest political concern of the Conservative Government in infrastructure spending was to minimize complaints about regional discrimination before the upcoming election. See Janice MacKinnon, “The Prospect of a Hanging? The Political Context for the 2009 Federal Budget” in Eds. Charles M. Beach, Bev Dahlby, and Paul A.R. Hobson (eds.) The 2009 Federal Budget: Challenge, Response, and Retrospect (Kingston, Ont.: John Deutsch Institute for the Study of Economic Policy, Queen’s University, 2010), 23–34: 30. Robert M. Stein and Kenneth N. Bickers, Perpetuating the Pork Barrel: Policy Subsystems and American Democracy (New York: Cambridge University Press, 1995). James M. Ridenour, The National Parks Compromised: Pork Barrel Politics and America’s Treasures (Merrillville, IN : ICS Books, Inc. 1994); John A. Ferejohn, Pork Barrel Politics: Rivers and Harbors Legislation, 1947–1968 (Stanford, CA : Stanford University Press, 1994); Linda R. Cohen, Roger G. Noll, and Jeffrey S. Banks et al. The Technology Pork Barrel (Washington, DC : The Brookings Institution, 1991). The population of Ontario, according to the Government of Ontario, was approximately 13,372,996 in 2011. The fourth highest in terms of funding received among the leaning opposition ridings was $46,531,165. Thus, all of the other 22 ridings indeed received belowaverage amount of funding. One of these two ridings was arguably most vulnerable for the Conservatives, as the Party won by only 17 votes (0.03 per cent) in 2008, but 3 other ridings with less than 1 per cent margin and another riding with less than 5 per cent margin did not receive anywhere near as much amount. In fact, 2 of these 4 ridings received significantly less than average (about $22 million and $10 million).

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13 For example, the Canada Mortgage and Housing Corporation website has Projects Map for direct funding and low-cost loans to social housing projects. These projects were initially posted on the main Economic Action Plan website but later moved to a separate website in the course of creating the database.

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13 Community Colleges and Applied Research in the Federal National Innovation Agenda Pau l J . M a d g e t t

INTRODUCTION This chapter explores the federal government’s growing interest under the Harper Conservatives in how to expand and change the role of Canada’s provincially run community colleges and institutes in the innovation economy, particularly regarding applied research. To do this, three questions are addressed: (1) What is the current state of applied research in colleges/institutes? (2) How are colleges/institutes improving research innovation and student knowledge skill-sets? and (3) In what manner do federal agencies support applied research and infrastructure? These questions provide a broad template to examine the current institutional, and federal government involvement in community colleges/institutes with their applied research mandate. For more than a decade, colleges have been moving in this new direction with the intention of exploring another facet of their potential role. However, these types of endeavors have never become a financial panacea for universities and this will probably be so for other postsecondary institutions as well. Furthermore, the pan-Canadian sector of colleges and institutes is vast and has varying characteristics, willingness and inherent abilities to partake in these plans.

CONTEXT Several contextual features need a brief initial mention. The first and broadest is the obvious search in any modern economy over the last two decades for policies, funding and regulations that will help produce innovative and

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knowledge-based economies that create jobs and prosperity. This task is all the more difficult but also necessary in the context of the current recession, banking crisis, and sovereign debt crisis affecting countries throughout the world. Second, while previous Liberal governments have pursued various innovation strategies including a focus on universities, the Harper Conservative government has focussed on greater commercialization goals and has provided more support for the community colleges/institutes. Overall, this current situation provides a window for the Conservative majority government to fulfill its objectives and promises from the 2011 election campaign on strengthening Canada’s economy by implementing the recommendations from various government reports to improve innovation with changes to the current policies and programs. For example, the government has published Compete to Win, Mobilizing Science and Technology to Canada’s Advantage: Progress Report 2009, State of the Nation 2008 and 2010 and recently Innovation Canada: A Call to Action.1 All these reports are focusing on improving innovation with the creation of new technologies, processes and products all in an effort to increase productivity2 (Council of Canadian Academics, 2009). For most of the last decade, the government has centralized their efforts on the tertiary education systems dealing with research and development and educating human capital, namely at universities.3 Thirdly, regarding the community college sector, the key starting point is that it is a large and complex system comprising of 157 publicly funded institutions represented by the Association of Community Colleges of Canada and other non-ACCC member higher education institutions. The colleges and institutes are involved in over 900 communities with close proximity to the regional businesses.4 They provide vocational, applied degrees and re-training to most geographical points in Canada and are under the direct control of their respective provincial and territorial governments but also via related contractual negotiations and arrangements.

T R A DI T I ONA L A N D C U RRE N T PRI M A RY ROL E S O F C O L L E G E S A M I D S T I N C R E A S E D I N N O VAT I O N M A N D AT E I D E A S Before exploring our three central questions, we need to have a brief sense of their traditional and their current primary role and some of the innovation mandate ideas and pressures. In Madder’s view, their historical role “has been to support economic development, providing graduates to the public and private sectors that would support the development of production, sales, delivery and maintenance of products and services.”5 This grouping of institutions has also had many successes in dealing with innovation. For example, the province of Quebec has been able to successfully integrate twenty-three

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College Centers for Transfer of Technologies (CCTT ) associated with their distinct CEGEP college system for regional/sectoral economic development.6 The community colleges and their hopes for innovation focus on applied research is not a panacea to solve the innovation and productivity problems in Canada and definitely not a replacement for university research. These institutions are not the single solution to improving Canada’s “D” grade performance and our 14 out of 17 ranking vis-à-vis our peers in innovation as assessed by Conference Board of Canada.7 Canadian community colleges have the ability to fill-in gaps in the research spectrum and work in cooperation with universities and different levels of government. The college sector has an ability to provide a slightly different focus on applied research leaning towards: proof of concept, testing, benchmarking, development, prototyping and modelling.8 This provides a strategic opportunity to be exploited in the Canadian economy to provide the skills and services to business in these areas that may not have the internal capabilities of doing so, especially small and medium-sized enterprises (SME s). Hence, there will be growing pains while the capacity and infrastructure are being developed due to the lack of experience.9 In the early part of the twenty-first century, the community colleges in Canada were being overlooked nationally with reference to stimulating research and development, particularly applied research for industry and defining a set role in the innovation spectrum. Overall, this sector now aspires to create a role similar to the polytechnics (in the UK which later became universities), instituts universitaires (in France) and fachhochschulen (in Germany) which were firstly established to accommodate the broadening of post-secondary education. However, in my view this aspiration should seek to avoid an extended mission creep or vocational drift that would expand to create another grouping of “New Universities.”10 Codling and Meet similarly surmise that university and colleges in many higher education systems are converging via competitive funding and client forces toward the same end-point, similar to the occurrences in New Zealand and Australia.11 Madder analysed the sector to evaluate the state of infrastructure and institutional policy to determine what changes would need to occur in order to expand from their original mandate of vocational training.12 With this in mind, the colleges would be more suited in focusing on the above definition of applied research in the development and the demonstration phases of research while creating institutional support and rewards for those involved in these projects. In the early stages, very few community colleges and provinces recognized applied research or rewarded those involved.13 In 2006, to diffuse this applied research knowledge to other institutions a mentorship program was under discussion to allow for other institutions to partake and benefit from applied research.14 Since the publication of these reports, the college

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sector has continued on this path but to determine whether it has succeeded in achieving set goals and objectives we need to address the three questions posed above.

THE THREE KEY QUESTIONS What Is the Current State of Applied Research in Colleges/Institutes? The college sector in the higher education system has been and is the vocational training center for rural, urban and isolated regions of Canada. Consequently, when commencing the development of new strategic areas, there are indeed many unexpected revelations and elements that need to be created and later refined. The institution must have the infrastructure in place, the organizational capacity and the proper procedures identified to move forward. This aligns with 3 of Peterson’s 7 factors relating to this strategy: fiscal change, increased competition for students, and the need to transform the institution to handle new mandates for teaching and learning.15 These elements are necessary to understanding the focus and reasoning behind the dialogue regarding this strategic change. For a more complex organization, the planning and leadership will begin to play a larger but tempered role. Thus “leadership is not an end in itself-nor is strategic management. Both are processes toward realizing needed change within an organization.”16 Therefore, it is reasonable to conclude that we need human, physical and organizational capital to succeed. Nor will it be easy to adapt institutions into these new streams of learning and research.17 In higher education, when funds are limited, mission creep and expansion occurs, in many cases in order to diversify their income stream and to become more connected with the marketplace.18 The strategy has expanded since its “early days” which in part was based on improving the prestige of their institutions, increase their status vis-à-vis universities and to provide an opportunity for students to participate in research19 while offering opportunities to enhance individual competitiveness20 and becoming a stakeholder in the dialogue about innovation. Madder completed an evaluation of the readiness and ability for colleges and institutes to partake in applied research by defining four categories of innovation readiness: (1) institutions with no formal innovation policies and structures; (2) novice innovation institutions; (3) established innovation institutions, and; (4) integrated innovation institutions.21 These criteria were modified by the Conference Board of Canada for its analysis of Ontario and found only 19 colleges with the relevant and accessible information and only a mere four were more established, with three in the early to mid-phase established innovation institution and one established

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innovation college.22 Unfortunately, this also illustrates that despite the innovation agenda debate of the last two decades and despite the plethora of college reports dealing with applied research there has not been a strong engagement by these institutions to commit to this mandate. There is also a required investment of time and monies to foster and attract the proper research faculty, to assess physical infrastructure needs in order to provide the appropriate research environment.23 In the current environment of federal government austerity and the growth in expenditures for health care and elementary and secondary education, will there be financial and political capital available to fund these needs? My research suggests that the colleges/institutes have been able to integrate themselves into the dialogue on national innovation. However, there continues to be a lack of independent research conducted on the various facets of their strategy with the majority of findings arising from the ACCC or research financially supported by them. Furthermore, there seems to be such a wide variety of institutional characteristics even for colleges that are “integrated innovation institutions” involved in applied research. Perhaps, this lack of engagement or focus is caused by limited capital allocated to these endeavours, internally by the institution or externally by the different levels of government. Unfortunately, another possibility may be an underlying lack of interest in becoming mecca’s of applied research with most institutions wishing to focus on their traditional mandates centred on training, skill development and vocational trades. How Are College/Institutes Improving Research Innovation and Student Knowledge Skill-sets? The community colleges need to outline and focus on explaining how their products and services made their partners more competitive by initiating new developments to improve the efficiency, productivity, and quality of the business enterprise. This section thus explores some literature examining their collaborations with SME s and their ability to integrate themselves as the external researcher for these enterprises and also looks at how they are contributing to the betterment of knowledge skill sets of their students for employment in the marketplace. I m p r o v i n g R e s e a r c h I n n o vat i o n The emphasis on SME s is linked to Canada’s recent loss of major corporations such as Inco, Falconbridge, Alcan, etc. leaving us with a grouping of smaller entities that may not have the internal capacity to focus on developing new technology.24 The developing BRIC economies are those regions that have the population and the economic profile to allow businesses to expand and grow through exports; unfortunately, most SME s in Canada adopt proven

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technologies and do not have the infrastructure in place for internal research and development.25 In order to achieve economies of scale allowing for internal research to proceed, the firms need to be a certain size and employ a large number of people on site.26 This type of external research allows for the integration of new technologies and the related knowledge into the firms’ human capital; however, it is considered more of an outsourcing model where collaboration provides a partnership with research entities sometimes even replacing tacit knowledge.27 With these types of collaborations, Love and Roper found in Germany and the United Kingdom a greater level of benefit for external research in the early stages of the innovation process.28 Currently, the best example of this type of collaboration occurs with the previously mentioned Colleges Centres for the Transfer of Technology (CCTT ) developed in the province of Quebec. These centers were created in 1983 and specialize in specific industries.29 By 2004–05, the CCTT had 3,000 business clients, 84% SME s, revenue of over $37 million and only $9.7 million in government subsidies.30 These types of expertise and connectivity with the business community could allow for this type of model to be incorporated vis a vis other Canadian colleges/institutes in order to further develop regional strengths. Student Knowled ge Skill Sets The various types of knowledge can be distinguished by the different types being created by postsecondary institutions. The first, frontier knowledge, is generated and created by R&D while the second, transferrable knowledge, is learned through experience and education.31 This transferrable knowledge can be undertaken by enhancing the quality and pertinence of knowledge created with applied research and its integration into the classroom. The development of this knowledge may foster many learning concepts such as: personal development, critical thinking, moral reasoning, judgment and personal mastery and systems thinking.32 This type of strategy, in the majority of the cases supported by the government, has been linked to an increased number of more knowledgeable individuals. These initiatives can be linked to two policy tools for which education has been deemed essential to improve human capital based on greater productivity output from workers33 or based on a more social development tool to improve the living standards of specific groups or individuals.34 Both of these options have the ability to foster changes in the social demographic landscape but their uses depend on the lens or the framing of the issue by government in order to achieve their needs. For this new applied research strategy, student involvement has been highlighted in many publications as being essential to achieving their objectives.35 Such student integration plans focus on the following aspects: “integration

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of research into the curriculum of the college/institute; financial support for student research projects; and student employment opportunities in research initiatives and projects.”36 Overall, these types of training would provide the skills to respond to the new types of expertise being required by the economy. The OECD concludes that “As a consequence of the rising demand for higher level skills many nations experience skill shortages across a broad range of occupations that typically require university or other post-school qualifications for entry.”37 Therefore, the learning opportunities with community colleges may provide an advantage to those students who later partake in the job market where advanced skills are essential for success.38 The Government of Canada also argues that “As a country, we must build on this strength to create a strong People Advantage – ensuring that the next generation of Canadians has advanced skills in S&T and business to spark innovation and sustainable growth to the benefit of all Canadians.”39 The previous paragraphs discussed some of the opportunities available to college/institutes to improve the innovation for businesses, the skills and employability of their graduates. This strategy has the potential of benefitting our competitiveness through collaboration by aiding the “supply-push” of research and discoveries with the “demand-pull” of firms seeking to exploit the commercial potential of new ideas.”40 In retrospect, it would benefit to increase the integration and collaboration between colleges/institutes and the private sector with a view to improving the competitiveness of our SME s in the national and international marketplace. In What Manner Do Federal Agencies Support Applied Research and Related infrastructure? The federal government has an array of programs that are directly and indirectly focused on improving innovation. Creutzberg distinguished: R&D programs, research tax incentives and a mix of public and private collaborative funds and projects.41 The majority of institutes and colleges vie for specific R&D programs, commercialization or testing funding and infrastructure support for research and state of the art labs. The number of college/institute programs specifically designed for the sector has increased in monetary terms. This segment of the higher education system has grown since these institutions began focusing on applied research and innovation. Overall, the lobbying efforts from ACCC have been successful in helping gain recognition for some of the inherent abilities and accessibility to the business community while also providing a complementary innovation tool to universities. Overall, these entities are finding a niche that could be exploited in the research spectrum for a number of their institutions to partake in the process. Ivany stated the reason for the extension of their mandate: “Just as the colleges’ customized training functions grew out of a real and demonstrated

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business need, the above circumstances have led to a marked increase in the demand for colleges to play a more active role in applied research.42 For this applied research focus to continue, the sector must ensure that they sustain a strategy that strengthens their core expertise without expanding too far into new realms for which success is not guaranteed. It seems that the Harper Conservative government has heard their calls for change for an investment in applied research. Meanwhile, the provincial governments have legislated R&D as part of the college mission in British Columbia, Alberta, Ontario, Quebec, Yukon, Northwest Territories, and Nunavut, but with the Saskatchewan, Manitoba, and Atlantic Region having only the mandate approved by the College Board of Directors.43 The federal government in 2009–10 funded approximately $28 million for applied research through 23 agencies with the Natural Sciences and Engineering Research Council (NSERC ) being the largest. Since 2005–06, private sector funding has grown from $4.2 to $45 million.44 During this time period, the government has created or re-established funds directed to helping the colleges/institutes. For example, NSERC has established the College and Community Innovation (CCI ) program which has four underlying types of grants (Innovation Enhancement, Applied Research and Development, Applied Research Tools and Instrument and Technology Access Centre) supporting innovation and the Canada Foundation for Innovation (CFI ) has refocused a new fund towards improving research capacity in colleges.45 The CCI ’s fund main focus is improving innovation and regional development with local SME s by supporting research and technology transfer.46 Also in 2009, the federal budget committed $2 billion which will be leveraged to another $2 billion to help maximize the level of frontier knowledge produced. The current slate of government research that directly supports applied research is relatively small but has been leveraged with their private sector partners to have greater monetary and economic value. Creutzberg is correct to conclude that there needs to be more focus with less confusion between the various levels of government.47 It is perhaps time to find one level of government to lead this strategy in order to have the same ideals, objectives and assessment tools.48 What Should We Expect in the Future? This chapter has highlighted the federal government’s growing interest under the Harper Conservatives in how to expand and change the role of Canada’s provincially run community colleges and institutes in the innovation economy, particularly regarding applied research. The colleges/institutes need to find a way to create a strategic plan to clearly map out their goals, their objectives and their outputs and outcomes for the next ten years. For this evolution to be successful, the author would hope that the colleges follow, Moodie’s six overarching points: (1) emphasise innovation and eschew research; (2) develop a

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distinct role in the national innovation system; (3) act locally, learn globally; (4) form multiple partnerships (5) establish a national network of vocational education innovation institutes; (6) act in the long term.49 These strategies and actions would allow for the colleges to expand their presence with both a short and long-term strategy aimed at developing their distinct role in the business community, in higher education and in innovation. However, in line with other analyses the author also ponders whether the college/institutes are too diverse to all focus on this applied research mandate and perhaps a more tempered approach is required.50 For these types of discussions to occur, community colleges/institutes need greater focus and definition relating to applied research. In addition, has there been progress in identifying how this applied research mandate can benefit Canada’s economic and social prosperity short and long-term? How are the federal government agencies adding inputs through their contribution and support in order to develop and foster the necessary applied research capacity? There continues to be some issues about the participation of colleges/institutes in applied research. For example, a 2006 study from the ACCC garnered only a 42% response rate from its 140 members leaving some unknowns about information omitted by the non-respondents.51 Fisher believes these institutions have been growing research in an irregular fashion without a concrete plan and believes: “the transformation of a community college from a teaching-only institution to a teaching-and-research institution will necessarily entail adjustments and modifications related to, among other considerations, the research experience and expertise of both the institution and its faculty.”52 With these types of changes required, questions arise on the conceptual and practical issues surrounding research. For example, do these institutions have research ethics boards? The author knows that in their yearly applied research conference there were some presentations dealing with the creation of fast-track and more arduous ethical reviews for research. These changes could be further extended to ensure that contracts with external entities are clearly presented and understood by all parties, including students and other non-faculty workers. Universities have experience dealing with the intricately important issue of confidentiality that is sometimes against some of the core fundamental principles of the institution. Also, there are no illusions of these institutions hoping to follow the entrepreneurial path that have affected universities globally; partly because these institutions do not have the capacity to fulfill most if not all of the 20 criteria ascertained by Burke on this topic.53 For example, can colleges become independent from government funding, develop extensive alumni activities, compete for campus infrastructure, and attract endowments etc.54 The creation of college applied research centres, similar to those in Quebec, would be essential in providing a foundation for a tech transfer based strategy which would allow for a base comparison between different colleges on more concise output measurements. A need exists

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to truly define applied research projects because there seems to be a varying range of examples of what colleges consider to be innovation activities. In 2004, one college administrator discussed better tourist strategies, hospitality, tourism business management etc. as being knowledge-based.55 However, as one author stressed, there is an underlying issue that continues to persist, namely that “awareness and understanding of colleges’ applied research is low among potential business clients. Many in government are also still unsure about how to measure and assess the outputs and outcomes of the research.”56 Currently, the colleges are attempting to use a logic model for evaluating applied research which have generalized headings but require more focus on the outputs needed to make these investments a success.57 In short, if their mandate is to increase innovation, there should be measurable outputs and outcomes in order to illustrate the success of a project. Without having a clearly defined product and service to sell, it would prove difficult to market the concept to business, students and faculty. The colleges have some very interesting successes such as the CCTT system in Quebec and the substantial increase in number of Research Centers since 2005. Projects dealing with better cutting edge techniques for manufacturing, wireless remote industrial data measuring systems, hydrogen hybrid bus for cold climates are also successes.58 All these are promising endeavours but there needs to be a strategic plan to help manage these more complex institutions and the related internal and external systems.59 However, in Canada’s provincial and federal hybrid jurisdiction for higher education, there are elevated costs of increasing the level of research with new infrastructure and other policy and program costs. The question that needs to be asked is whether the cost of creating a slew of unique research institutions has a relative value to the large public funds needed to support these changes. The community colleges/institutes currently have the ability to provide a specific expertise to the innovation agenda but we must be wary not to transform these institutions administrative, organizational and strategically into universities; consequently, for in this type of mission creep, these highly valued core competencies that initiated these changes will be lost. Although, there would need to be some changes in order to protect the workers, the students, the companies and any individual involved in these projects. But to what extent would governance, ethical aspects and changes to organizational structure be needed and at what point would these hamper the ability for colleges to quickly react to the ever changing marketplace.

CONCLUSIONS This chapter has investigated the current status of applied research in Canadian colleges and has found that increased support exists at the federal

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and provincial levels but also that some gaps in the implementation and delivery of this strategy are still present. My underlying belief that community college/institutes have an ability to provide something extremely special to the higher education landscape is nonetheless strong. Gibbons foretold this emergence: “Alternative institutions like the polytechnics in England, once firmly regarded a second-tier, have grown to rival the universities. The socalled corporate classroom has assumed greater importance as the advanced training needs of knowledge-oriented companies have increased. R&D has flourished in an industrial environment. All, or most of, these arenas of intellectual activity can reasonably be embraced within the extended university.”60 He continues by commending these institutions because colleges are effective and react more quickly to the applied demands and changing environment for intellectual ideas and professional requirements.61 There is, however, an underlying belief that the education in colleges must not converge into the universities path and that their new degrees and research will help to develop a unique student with problem solving ability that is marketable in the economy. Furthermore, these abilities could be linked with increasing analytical and social intelligence skills that enhance creativity.62 Hence, this strategy if successful will provide a profound experience and job opportunities for the student, and enhance the reputation of the college while improving its standing within the business community and economic development. Consequently, some colleges may find maintaining the basic vocational programs difficult due to the various environmental factors they have to respond to. Also, many of the more northern or rural colleges are the sole providers of postsecondary education but are also located in regions with only one specific industry limiting the opportunities to partake or attract talent to this area. Perhaps, it is time to consider creating a complete slate of polytechnics in Canada that are colleges with an applied research and degree focus but will continue to differentiate themselves from universities but also from institutions solely focusing on the vocational and training programs. This topic of applied research has interested me for many years but I do hope that more research emerges on this topic because the current findings are still often too anecdotal. There is a need for additional independent research to further define areas for future research in institutional management, research, technology transfer and the student experience. notes 1 Government of Canada, Compete to Win. Ottawa: Industry Canada 2008; Government of Canada, State of the Nation 2008. Ottawa: Science, Technology and Innovation Council Secretariat, 2009; Government of Canada, Imagination to Innovation: Building Canadian Paths to Prosperity. Ottawa: Science, Technology and

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Innovation Council Secretariat 2011; Government of Canada. Innovation Canada: A Call to Action. Ottawa: Industry Canada, 2011 Council of Canadian Academies. Innovation and Business Strategy: Why Canada Falls Short. Ottawa: Council of Canadian Academies, 2009. Heather Munroe-Blum,“Higher education and innovation: The Canada-US Story.” Policy Options, Vol 10, No. 3, 2011, 7–10. Charles H. Belanger, Joan Mount, Paul Madgett, and Ivan Filion. “National Innovation and the Role of the College Sector.” The Canadian Journal of Higher Education 35, 2005, no. 2, 27–48; D.J. Madder. Innovation at Canadian Colleges and Institutes. Ottawa: Association of Community Colleges of Canada, 2005; Association of Community Colleges of Canada. Applied Research at Canadian Colleges and Institutes. Ottawa: Association of Community Colleges of Canada, 2006 John Madder. 2005, Innovation at Canadian Colleges and Institutes, 10. John Madder. Innovation at Canadian Colleges and Institutes; Charles H. Belanger, Joan Mount, Paul Madgett, and Ivan Filion, “National Innovation and the Role of the College Sector”; The Conference Board of Canada. Innovation Catalysts and Accelerators: The Impact of Ontario Colleges’ Applied Research. Ottawa: The Conference Board of Canada, 2010. The Conference Board of Canada. How Canada Performs: A Report Card on Canada. Ottawa: The Conference Board of Canada, 2010. The Conference Board of Canada. Innovation Catalysts and Accelerators. Ibid. Charles H. Belanger, Joan Mount, Paul Madgett, and Ivan Filion. “National Innovation and the Role of the College Sector”; G. Bruce Doern. Polytechnics in Higher Education Systems: A Comparative Review and Policy Implications for Ontario. Toronto: Higher Education Quality Council of Ontario, 2008. Andrew Codling and V. Lynn Meek. “Twelve Propositions on Diversity in Higher Education.” Higher Education Management and Policy 18, 2006, no. 3, 31–54. John Madder, Innovation at Canadian Colleges and Institutes. Charles H. Belanger, Joan Mount, Paul Madgett, and Ivan Filion. “National Innovation and the Role of the College Sector”. Association of Community Colleges of Canada. Applied Research at Canadian Colleges and Institutes. Marvin W. Peterson. Change and Transformation in Higher Education: An Annotated Bibliography. Ann Arbor: Center for the Study of Higher and Postsecondary Education, University of Michigan, 2001. J. Douglas Toma. Building Organizational Capacity Strategic Management in Higher Education. Baltimore: The Johns Hopkins University Press, 2010. The Conference Board of Canada. Innovation Catalysts and Accelerators: The Impact of Ontario Colleges’ Applied Research. Thomas Estermann & Enora Benetot Pruvot. Financial Sustainable Universities II: European universities diversifying income streams. Brussels: European University Association, 2011; John S. Levin. “The Revised Institution: The Community College

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Mission at the End of the Twentieth Century.” Community College Review, 2000, 28, no. 2, 1 -25; Marvin W. Peterson. Change and Transformation in Higher Education: An Annotated Bibliography. Charles H. Belanger, Joan Mount, Paul Madgett, and Ivan Filion. “National Innovation and the Role of the College Sector”. Thomas Estermann & Enora Benetot Pruvot, Financial Sustainable Universities II: European universities diversifying income streams. John Madder. Innovation at Canadian Colleges and Institutes. The Conference Board of Canada. Innovation Catalysts and Accelerators: The Impact of Ontario Colleges’ Applied Research. Ibid. Ibid. Government of Canada, Compete to Win. James H. Love and Stephen Roper, “Internal Versus External R&D: A Study of R&D Choice with Sample Selection.” International Journal of the Economics of Business, 2002, 9, no. 2, 239–55. Christoph Grimpe and Ulrich Kaiser. “Balancing Internal and External Knowledge Acquisition: The Gains and Pains from R&D Outsourcing.” Journal of Management Studies 2010, 47 no. 8, 1483–509. James H. Love and Stephen Roper. “Organization the Innovation Process: Complementarities in Innovation Networking.” Industry and Innovation, 2009, 16, no.3, 273–90. Claire Boule. “Small- and Medium-Size Enterprise Innovation Reseau Trans-tech in Quebec.” College Canada, 2006/2007, 11, no. 1, 11–13. Claire Boule. “Small- and Medium-Size Enterprise Innovation Reseau Trans-tech in Quebec.” Huw Loyld-Ellis and Joanne Roberts Twin Engines of Growth. Accessed April 20, 2006 at http://www.chass.utoronto.ca/ecipa/archive/UT-ECIPA-JOROB-00-02.pdf James J. Duderstadt, “The Future of Higher Education in the Knowledge-Driven Global Economy of the Twenty-first Century.” In Creating Knowledge, Strengthening Nations: The Changing Role of Higher Education, edited by Glen A. Jones, Patricia L. McCarney and Michael L Skolnik, 81–97, Toronto, ON : University of Toronto Press 2005; Arthur Chickering. Education and identity. San Fransisco: Jossey-Bass 1969; Peter M. Senge. “The Fifth Discipline: The Art & Practice of The Learning Organization.” New York: Doubleday, 1990. Gary S. Becker, Human Capital. New York: Columbia University Press, 1964 Edward P. St. John and Eric H. Asker, “Refinancing the college dream: access, equal opportunity, and justice for taxpayers.” Baltimore: The John Hopkins University Press, 2003. Charles H. Belanger, Joan Mount, Paul Madgett, and Ivan Filion, “National Innovation and the Role of the College Sector”; John Madder. Innovation at Canadian Colleges and Institutes; Association of Community Colleges of Canada. Applied Research at Canadian Colleges and Institute, 2006s; Association of Community

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Colleges of Canada. Productivity Through Innovation Applied Research at Canada’s Colleges and Institutes. Ottawa: Association of Community Colleges of Canada 2011; Association of Community Colleges of Canada . Accelerating Innovation Colleges, Institutes and Polytechnics: Applied Research for Economic and Social Development. Ottawa: Association of Community Colleges of Canada, 2011. Association of Community Colleges of Canada 2006. p.vi Philip Toner, Workforce Skills and Innovation: An Overview of Major Themes in the Literature. Paris, France: OECD , 2011 James J. Duderstadt, “The Future of Higher Education in the Knowledge-Driven Global Economy of the Twenty-first Century”; Linda Quirke and Scott Davies, “The New Entrepreneurship in Higher Education: The Impact of Tuition Increases at an Ontario University.” The Canadian Journal of Higher Education, 2002, 32 no. 3, 85–110. Government of Canada, Mobilizing Science and Technology to Canada’s Advantage. Ottawa: Industry Canada. Government of Canada, Innovation Canada: A Call to Action. Ottawa: Industry Canada, 2011. Tjis Creutzberg, Canada’s Innovation Underperformance Whose Policy Problem is it? Toronto: Mowat Centre for Policy Innovation, 2011. Ray Ivany. “Economic development & a new millennium mandate for Canada’s community colleges.” College Canada, 2000 5, no.1, 10–13. Association of Community Colleges of Canada, Productivity through Innovation Applied Research at Canada’s Colleges and Institutes. Ottawa: Association of Community Colleges of Canada, 2011. Ibid. Ibid. Ibid. Tjis Creutzberg, Canada’s Innovation Underperformance Whose Policy Problem is it? Ibid. Gavin Moodie, “Vocational education institutions’ role in national innovation.” Research in Post-Compulsory Education 11, no. 2, 131–40. Bruce Doern, Polytechnics in Higher Education Systems: A Comparative Review and Policy Implications for Ontario, 2008. Association of Community Colleges of Canada, Applied Research at Canadian Colleges and Institutes. Roger Fisher, “A Framework for Research at Canadian Colleges.” College Quarterly 12, 2009, no. 4, 1–31. Allan N. Gjerding, Celester P.M. Wilderom, Shona P.B. Cameron, and Adam Taylor. “Twenty Practices of an Entrepreneurial University.” Higher Education Management and Policy 2009, 18, no. 3, 83–110. Allan N. Gjerding, Celester P.M. Wilderom, Shona P.B. Cameron and Adam Taylor. “Twenty Practices of an Entrepreneurial University.”

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55 William Berry Calder. “A Rural College’s Role in the Economic Development.” College Canada 9, 2004, no.1, 10, 16. 56 The Conference Board of Canada. Innovation Catalysts and Accelerators: The Impact of Ontario Colleges’ Applied Research. 57 Association of Community Colleges of Canada, Productivity through Innovation Applied Research at Canada’s Colleges and Institutes. 58 Ibid.; Association of Community Colleges of Canada, Accelerating Innovation Colleges, Institutes and Polytechnics: Applied Research for Economic and Social Development. Ottawa: Association of Community Colleges of Canada, 2011. 59 J. Douglas Toma, Building Organizational Capacity Strategic Management in Higher Education. 60 Michael Gibbons. Higher Education Relevance in the 21st Century. Paris: UNESCO World Conference on Higher Education, 1998 61 Ibid. 62 Institute for Competitiveness and Prosperity. Opportunity in the Turmoil. Toronto: Institute for Competitiveness and Prosperity 2009.

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14 Doing the North American Two-step on a Global Stage: Canada, its G8 Muskoka Initiative, and Safe Abortion Funding M e l i s s a H au s s m a n a n d L i s a M i l l s

INTRODUCTION This chapter discusses the evolution of Harper government policies on foreign aid for Sexual and Reproductive Health (SRH ) in light of domestic electoral considerations, and international women’s health documents, including the Millennium Development Goal 5 on Maternal Health.1 Re-elected in May 2011 for its third term, with its first majority, the government appeared to take a harder line towards reproductive rights in the spring of 2010, leading up to the Canadian-hosted G8 summit. The Harper government initially announced it would not fund abortion-based programs abroad, but then stated that it would fund contraceptive provision. This chapter’s main points discuss: (1) shifts in the global aid posture since the 1990s on increasing the “accountability” of, but not necessarily money for, recipient countries; (2) the Harper government’s specific interest in accountability since first elected on January 23, 2006; (3) the federal government’s commitment to contraception and safe, legal abortion funding as part of the well-publicized maternal and child-health initiative; and (4) the difficulty in achieving “accountability” for maternal health when reproductive health services, including safe, legal abortion, are not being provided, and the government has withdrawn aid funding from the African states where rates of unsafe and illegal abortion are highest. We argue that a multilevel two-step dance has played out across the international and national stages since at least the UN ’s Cairo International Conference on Population and Development in 1994. In this dance, NGO s and international organizations have advocated measures to improve sexual

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and reproductive health, sometimes with (very limited) reference to abortion. Then, between 2000 and 2006, sexual and reproductive health fell off the international agenda, returning in 2006, but with no mention of abortion. On the abortion issue, therefore, the Harper government has not been out of step with the global community, which has not reached consensus on this issue. In initially rejecting even contraception as part of its maternal health plan, however, it was roundly condemned, and had to backtrack on this issue. As will be shown, sometimes one actor in the dance (national or international NGO s, or government) cautiously steps out ahead of the official international position adopted in 1994, not to press for the extension of legal abortion, but to acknowledge that legal and safe abortion is helpful to women’s health; but this organization then suffers a backlash from other actors. The organization which has made the strongest statements about providing legal abortion, the International Planned Parenthood Federation (IPPF ), routinely has suffered funding cuts by both the US and Canadian (2009-2011) governments.2

T H E P R O B L E M AT I C I S S U E F O R F O R E I G N A I D OF U N S A F E A N D I L L E G A L A B ORT I ON IN THE GLOBAL SOU TH Between 1990 and 2008 there was a decrease in the number of maternal deaths worldwide, from an estimated 500,000 per year to 343,000.3 However, in the last 20 years, deaths declined at a rate of approximately 1.4% a year, well below the rate needed to achieve the MDG targets, which only 23 countries are likely to meet.4 Part of the problem is a lack of access to family planning and abortion services. Unsafe abortion is responsible for 13% of maternal deaths worldwide.5 Access to family planning helps to reduce the number of pregnancies and births, and thus the number of times women are exposed to the risk of mortality from complications associated with pregnancy, abortion, and childbirth.6 Such access, however, is limited in much of the developing world. The World Health Organization (WHO ) estimates that each year there are more than 80 million unwanted pregnancies, 50 million induced abortions, and 20 million unsafe abortions.7 The median abortion rate has remained stable, at about 29 abortions per thousand in reproductive-age women (15–44).8 However, the rate of unsafe (usually illegal) abortion has increased from 44% in 1995 to 49% in 2008.9 The rate of unsafe abortion in developing countries (Global South) increased from 78% of the total abortions performed there in 1995, to 86% in 2008. The Guttmacher Institute states that the preponderance of unsafe abortions occurs in Africa, accounting for 97% of illegal, unsafe abortions globally.10 It also shows a major difference between African regions, where Southern Africa, largely due to South Africa’s liberalization has an average prevalence

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rate of 15 per 1,000 women. However, Eastern Africa has a much higher abortion prevalence rate of 38 per 1,000. From a view toward accountability and effectiveness in reducing maternal mortality, the Conservative move away from some eastern African countries in 2009 seems strange. Regarding the need to increase funding for contraception to avoid unsafe abortion in the scenario of no legal reform, the Guttmacher Institute states that: Roughly doubling the current global investments in family planning and pregnancy-related care, from $11.8 billion to $24.6 billion, would reduce maternal deaths by more than two-thirds, from 356,000 to 105,000; newborn deaths by more than half, from 3.2 million to 1.5 million; unintended pregnancies by more than two-thirds, from 75 million to 22 million; and unsafe abortions by almost three-quarters, from 20 million to 5.5 million.11

T H E H I STORY OF T H E G L OBA L T WO - ST E P BET WEEN WOMEN’S NGOs AND THE FRAMING O F M AT E R N A L H E A LT H I N I N T E R N AT I O N A L H E A LT H D O C U M E N T S The prevention of maternal mortality has been a reasonably high priority on the international agenda since 1987, when a group of international agencies and the international NGO , Family Care International, launched the Safe Motherhood Initiative in Nairobi, Kenya.12 It is important to discuss this initiative briefly, for it foretold the difficulties faced by international agencies in defining maternal health, sharing power in the issue area, and defining solutions. An Inter-Agency Group was established, because “unlike child survival or family planning, which fell clearly within the mandates of specific UN agencies, safe motherhood was a cross-cutting issue. WHO , UNFPA , UNICEF , UNDP (UN Development Program) and the World Bank all felt ownership and included it within their institutional mandates.”13 According to Ann M. Starrs, the 1987 conference also included the articulation of a 50% reduction in maternal mortality by 2000 (increased to 75% in MDG 5a).14 Ann Starrs and Jill Sheffield are credited with co-founding Family Care International in 1986, which then guided the inter-agency creation and dialogue process. Family Care International states that it was the first international NGO concerned primarily with maternal health, a position that could be contested by the International Planned Parenthood Federation, founded in 1952.15 These types of statements seem to be routine in the women’s health NGO and agency world, where there can potentially be a lot of government funding. The stakes for differentiating one NGO from another are high: one way in which organizations can be differentiated is according to their advocacy of legal abortion.

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Two major conferences in the 1990s, the 1994 International Conference on Population and Development (ICPD ) in Cairo (the Cairo Conference), and the 1995 Fourth World Conference on Women in Beijing (the Beijing Conference), also advocated improving maternal health, in the context of meeting individuals’ rights to sexual and reproductive health. These conferences advocated access to family planning methods, but neither overtly advocated for the legalization of abortion. The goal of improving maternal health was incorporated into the Millennium Development Goals (MDG s), a set of eight goals proclaimed by the United Nations General Assembly in 2001, but improving reproductive health was not. The MDG s, which have guided development thinking and practice since their promulgation, had 18 specific numerical targets and 48  indicators to measure progress towards their achievement.16 MDG 5 addresses maternal health specifically: its target is “to reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio.”17 The eight MDG goals were drawn from the September 2000 Millennium Declaration. Neither this document, nor the Secretary-General’s Millennium Report which preceded it, included a recommendation on reproductive health.18 The lead authors of the Millennium Declaration had wanted to streamline the process as much as possible in order to avoid controversy. Unfortunately, they often excluded non-government organizations (NGO s) which would have supported reproductive rights.19 Barbara Crossette attributes the exclusion of reproductive health from the MDG s as a result of three factors. First, with encouragement from the Vatican, the group of developing nations, the G-77, has always split over the issue and therefore opposed it. Second, the United Nations’ Secretariat rightly observed that the new Bush Administration indicated a hostile political climate on abortion rights. Third, NGO ’s did not have information on what their exclusion from the MDG drafting process represented, and when they did it was too late.20 The reaction from NGO s, particularly the International Planned Parenthood Federation, was to campaign for a ninth MDG goal addressing reproductive health. In 2002, the Millennium Project, headed by Jeffrey Sachs, with assistance from the UNDP and Stan Bernstein of the UNFPA , commissioned ten task force reports which emphasized women’s rights and gender equality.21 The report on MDG 5 recommended that the target of universal access to reproductive health be included within this goal.22 These reports were published in January 2005; in September, the UN General Assembly met at the World Summit to re-commit to the MDG s. At the Summit, it declared its commitment “to achieve universal access to reproductive health by 2015, as set out at the International Conference on Population and Development +5 in 1999.”23 In August 2006, the Secretary-General of the United Nations recommended that the reproductive health target be incorporated in MDG  5.24 This occurred in October of 2006, with MDG 5a calling for a 75% reduction in

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maternal mortality, and 5b calling for universal access to reproductive health services (left unspecified) by 2015. In a UN Statistics Division publication on the “Official List of MDG Indicators,” effective January 2008, the four benchmarks for 5b are: contraceptive prevalence rate, adolescent birth rate, antenatal care coverage and unmet need for family planning.25

T H E C O N S E R VAT I V E S ’ D O M E S T I C “ I N C R E M E N TA L I S T ” S T R AT E G Y S I N C E 2 0 0 6 Prime Minister Harper and his electoral tacticians have kept both social and economic conservatives in the Conservative tent since coming to power in January 2006.26 To increase its votes, the party has signalled conservatives about planned changes, but publicly framed itself as “moderate.” The Prime Minister consistently has reassured the public that there are “no plans to reopen” hot button issues such as abortion or Lesbian, Gay, Bisexual and Transgender (LGBT ) rights. Part of his strategy has been to allow backbenchers, including the Parliamentary Pro-Life Caucus, to float “trial balloon” bills on numerous occasions, some of which have made it to second reading in the House.27 The Harper theme has been described publicly by one of its framers, Political Science Professor and former Conservative and Harper strategist Tom Flanagan, as “incrementalist.”28 Quietly, however, the Harper record has been one of passing a legislative and budgetary framework to undermine international pro-choice efforts in the name of “accountability,” such that until the authors’ analysis in this chapter many of these efforts have gone unremarked. One exception was in media attention to the Harper government’s reinstatement of funding to IPPF in September 2011. These accounts published the fact that of the five new countries announced for IPPF projects, four were those where abortion was illegal (Afghanistan, Bangladesh, Mali, Sudan) and the fifth, Tanzania had exemptions only for women’s health and lives.29 The Tanzanian abortion regime is the most restrictive type of pseudo-legality, only allowing for narrow exemptions which many doctors will never uphold. From January 23, 2006 to May 2, 2011, the number of anti-choice MP s (but not percentages) has grown as the overall Conservative Government caucus has increased. After the 2006 election, 95 members of the 127-member caucus were identified as “pro life”, for a total of 73 percent; after the 2008 election, these numbers moved up to 98 members, but of a caucus of 143, so the percentage declined to 68%. Finally, after the May 2, 2011 election the number of identified pro-life members went up to 102 of 166 caucus members, for a percentage of 62%.30 These results point to a successful combination of the “incrementalist” strategy in building up votes from both conservative newer immigrants in Ontario and retaining longer-term voters in Alberta. The rate of increase in anti-abortion MP ’s has not been sharp (from 95 in 2006 to 102

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in 2011) but often get support from the Government caucus such as on the Muskoka Initiative.31

CHANGES TO FOREIGN AID SINCE THE 1990S Overall, there have been three sets of changes to the “ODA ” (overseas development assistance, or foreign aid) framework by donor countries since the 1990s which impact this discussion. The first is that increased global attention has focused on making foreign aid more “effective” and “accountable” since the 1990s. The second is a large increase in the role of private-sector partners in providing and overseeing the aid, and the final one, tied to the first two, is a shift away from the traditional “horizontal” aid to particular sectors towards the newer process of “vertical aid.” The context for this, Sridhar and Tamashiro state, is the shrinking public sector share of the aid pie since the 1990s and donors’ desires to restructure foreign aid. The older “horizontal” funding models were “broad-based, integrative, and offer(ed) long-term public improvements in overall health outcomes delivered through primary care services.”32 An example given was the WHO ’s various health-system strengthening initiatives in various countries. In contrast, vertical funding “targets resources for particular diseases, services, or interventions in the health sector of a given country and usually focuses on interventions that are considered cost-effective with measurable results.”33 They also state that “about half of all international aid from private sources is invested in global health,” and that “the majority of international health aid” became invested in specific programmes (vertical aid).34 Another relevant observation is that “philanthropic vertical funding in the health sector adheres to businesslike values with problem-oriented strategies that focus on performance goals.”35 When speaking of horizontal versus vertical aid, it is certainly possible to frame the International Planned Parenthood Federation (IPPF ) as an example of the older model that has worked with horizontal strategies of improving sexual health across sectors, using the primary care system. Indeed, one of its leaders, Margaret Sanger, founded birth-control clinics in the US. The more recent Family Care International (1986) and Women Deliver (2007) work along the lines of specific maternal health goals, in specific countries. It is also clear that the MDG ’s were framed according to vertical aid considerations, to let donors fund a certain goal or goals. Providing specific indicators for the MDG ’s also fits this characterization. The concepts of “accountability and effectiveness” for foreign aid have been adopted by countries, foundations and organizations at multilateral fora since the end of the twentieth century. What seems odd about using these concepts as policy drivers is that the multilateral documents adopted on women’s health show no effectiveness nor accountability to women if they do not address the lack of availability of safe, legal, abortion.

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The Organization for Economic Co-Operation and Development (OECD ) began hosting “High-Level Fora on Aid Effectiveness,” starting with a Rome meeting in 2003, continuing with Paris in 2005, Accra (Ghana) in 2008 and Busan, South Korea in 2011. The Rome meeting, attended by 28 recipient countries and more than 40 donor countries and international aid organizations, set out criteria for benchmarking further aid, including that “development assistance be delivered based on the priorities and timing of the countries receiving it; that donor efforts concentrate on delegating cooperation and increasing the flexibility of staff on country programmes; and that good practice be encouraged and monitored, backed by analytic work to help strengthen the leadership that recipient countries can take in determining their development path.”36 A clear sign of Canadian interest in changing its aid policies can be found in the 2002 Canadian International Development Agency (CIDA ) document, Canada Making a Difference in the World: A Policy Statement on Strengthening Aid Effectiveness.37 The shift, reiterated by Prime Minister Martin in 2005, called for: “a greater focus in bilateral aid programming towards enhanced partnership countries;” greater targeting of aid to specific sectors; an increase in overall Canadian coherence in its goals for foreign aid, and an interest in more effective delivery procedures.38 This document was prepared in response to the G8 meetings, the UN -sponsored Monterrey (Mexico) meeting of 2002 and in line with then- upcoming OECD -sponsored High Level Forum on Aid Effectiveness of 2003. The next meeting in the high-level series was in Paris in 2005, attended by more than 100 countries and donor organizations. It produced the 2005 Paris Declaration on Aid Effectiveness, centered on five principles to increase accountability for foreign aid. They were: ownership (by recipient countries of the processes by which to distribute aid); alignment (of donor and recipient patterns and priorities for aid); harmonization (of donor efforts on planning, funding and reporting); managing for results; and mutual accountability between donors and recipients.39 In 2003, another accountability signal was the creation of the World Health Organization (WHO )-World Bank joint “High-Level Forum on the Health Millennium Development Goals.” The first “high-level” meeting of the WHO -sponsored group was in Geneva in 2004.40 In the overall framework of “recognizing that progress toward the health-based MDG ’s was occurring too slowly,” the meeting promised to work towards similar endpoints as the OECD Aid Effectiveness Fora. The topics of the 2004 Geneva forum included: “Human Resources for Health; Resources, Effectiveness and Harmonization; and “Maintaining and Benchmarking” (progress).41 In 2007, the OECD stepped into this configuration by forming what was called the “Health Tracer Sector” (HATS ) study to check the “progress towards implementation of the health MDG ’s, and to make recommendations on

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bottlenecks towards implementation of the Paris Goals for Aid Effectiveness on realization of the MDG ’s.”42 Upon its election in 2006 the Harper minority government demonstrated an immediate interest in the criterion of “accountability” for nearly every government function. Legislation to this end was the first act of the new government, introduced by Treasury Board Secretary John Baird on May 30, 2006. A statement on foreign aid to this effect was included in the 2007 budget statement by the Finance Minister, that “we need to make our existing aid resources work more effectively….Canadians want to know what our aid is intended to do and to see results.” Three priorities were listed to “improve the effectiveness” of Canadian foreign aid. They included reducing the number of recipient countries while increasing Canadian government scrutiny and practices for accountability by cutting administrative costs and “independent evaluation of and more frequent reporting on Canadian aid programs.”43 What was also seen in 2007 at the Berlin G8 Summit was a Conservative government re-thinking of the Liberals’ “priority” African countries, including those in “la francophonie.”44 While that change, publicly announced in 2009 may have been viewed as good politics by some Conservative strategists, it also withdrew aid from other African countries making progress on reproductive health, including Kenya.45 The by-now famous aid shift, revealed by International Co-operation Minister Beverley Oda in February 2009, shortened the list of priority countries for Canadian aid to twenty (one of those “countries” was the Caribbean region). Many viewed the change as not only unconscionable but also probably not effective, given a wholesale shift away from the neediest African countries to some Latin American and Middle East countries.46 The Conservative government passed two other important pieces of legislation purportedly related to increasing accountability in foreign aid, particularly that of health-based aid. The first was the “ODA Accountability Act” of 2008, which required, among other things, Ministers to report regularly to Parliament on development assistance efforts. Included in the 2008 budget was a $225 million “Development Innovation Fund” which was earmarked entirely to health care “innovation” and poverty reduction as per the ODA Accountability Act to be shuffled entirely through a new organization created in 2009, Grand Challenges Canada.47 Grand Challenges Canada has as its first Chair Joseph Rotman, an oil and gas entrepreneur and funder of the McLaughlin-Rotman School of Public Health at the University of Toronto. The  think tank also has the heads of the Canadian Institute for Health Research and the International Development Research Centre on its board, and the three are tasked with working collaboratively to solve the grand health challenges of the world. However, the money went directly to Grand Challenges Canada.48 On its website, Grand Challenges Canada states that it is “dedicated to improving

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lives in the developing world through innovation.”49 This organization is the Canadian version of the “Grand Challenges” program launched by the Gates Foundation in 2003.50 The Gates version lists 16 such “grand challenges” for global aid, while the Grand Challenges site lists 5 but has of yet only come up with four.51 Since Melinda Gates is of the Roman Catholic faith, no Gatesfunded initiative can support abortion.52 Since Grand Challenges Canada was formed in 2009 with public funds (as well as Gates money) the Harper government must have had a clear idea at the start of the Muskoka process that Canadian grants would not be going towards abortion. In 2008, the countries and groups which had supported the 2005 Paris Declaration of Aid Effectiveness met at the next High Level Forum at Accra, Ghana. One key outcome of that conference was to include gender-based analysis and data disaggregation for the five central measures in the Paris Declaration of Aid Effectiveness. This was viewed as a remedy for the Paris Declaration, which only included one reference to gender.53 Another important change was an acknowledgement that recipient country NGO ’s had important roles to play in helping to formulate aid priorities and distribute it. When (and if) twenty-first century G8 documents mention the MDG   5 commitment to maternal health, it is usually done briefly, in passing. For example, from the Hokkaido Summit documents of 2008, there was a clause referring to the fact that in many “developing” nations the target reductions of MDG  5 were not likely to be met, and another to better integrate services between HIV prevention and family planning.54

T H E C R E AT I O N O F A G E N D E R - B A S E D I N F R AS T RU C T U RE O N A I D E F F E C T I V E N E S S AND WOMEN’S EMP OWERMENT Accompanying the high-profile OECD 2005 Paris Declaration on Aid Effectiveness and its progeny, G8 conference resolutions on those five goals, and the framing of the UN Millennium Development Goals, was a set of supranational and international agencies and groups to address “gendered” questions in the accountability process. What again leaps out as an oddity is the continued insistence on women’s empowerment, although the barriers to women’s health have been identified as systemic institutional ones. Women Deliver was formed in 2007, as its homepage suggests, to “work globally to generate political commitment and financial investment for fulfilling Millennium Development Goal 5.”55 In this respect, it can be viewed as part of the newer vertical funding framework, since it is working in a very specific area. It is self-described as a “global advocacy organization.” The site also mentions that the group was formed “two years after the UN Partnership for Maternal, Newborn, & Child Health (PMNCH ) was launched as a larger, broader successor to the Safe Motherhood Inter-Agency Group, and twenty years

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after the Inter-Agency Group was founded.” Women Deliver identifies “three core strategies to save lives,” which are nearly word for word from UN Statistics Division’s “official indicators” for MDG 5b except for the addition of postnatal care to antenatal care and provision of contraceptive supplies and counselling.56 Unlike the twenty-five years or so of women’s health groups preceding it, Women Deliver has a “Corporate Forum” section on its homepage, where it states that “Women Deliver is committed to working with the commercial private sector to improve the health of girls and women.”57 Jill Sheffield, one of the co-founders of Family Care International, formed Women Deliver in 2007. Ann Starrs of FCI co-chaired the PMNCH Board from 2005–11.58 The World Bank announced its “Reproductive Health Action Plan, 2010– 2015.”59 From 2009–2010 a representative from the World Bank chaired the UN Partnership on Maternal, Newborn and Child Health. As quoted in the International Planned Parenthood Federation’s “Scorecard on the World Bank’s Reproductive Health Action Plan,” the bank framed its desire to get involved because “major stakeholders, including the Bank, have been working together to address serious concerns about aid effectiveness in health – the fragmentation of funds across programmes and projects… and the neglect of reproductive health and the wider health-care system.60 The World Bank claimed it was pressed to action since it noticed that the share of health ODA (overseas development assistance) going to RH (reproductive health) “has declined in the past decade. A similar trend is evident at the World Bank, where the share of RH in the health portfolio has declined from 18 percent in 1995 to 10 percent in 2007 … the reduced focus on RH within the Bank is not limited to financing: a recent evaluation, for example, found that substantive analyses of RH issues rarely figured in the Bank’s poverty assessments, even in high-fertility countries.61 The UN Conferences on Population and Women have generally taken a rather safe line. The reason for this, as described by international rights activist Charlotte Bunch, is that the consensus-based procedure for the non-binding final documents of necessity yields an ambivalent bottom line that most of the 190-some countries can accept.62 While, on the one hand, the language of the 1995 Beijing Platform had aspirational language about the “universality and indivisibility of women’s human rights,” it also, on the other hand, did not call for an increase in legal abortion around the world. International documents since then have followed that line, as did the Muskoka Initiative and the HarperKikwete Commission. Lest we think that language of “empowerment” only started in the twenty-first century around the MDG ’s, the 1995 Beijing Platform language is shot through with references to women’s empowerment.63 This language was repeated in the gender-based infrastructure and most recently in the World Bank’s “Reproductive Health Action Plan.” While empowering women sounds positive, it is the systematic lack of access to contraception and safe abortion facilities that is killing women, particularly in Africa.

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T H E M U S K O K A I N I T I AT I V E A N D G 8 CONFERENCE, JUNE 25–27, 2010 Anticipating Canada’s leadership of the G8 summit in June 2010, a coalition of Canadian NGO s began lobbying Prime Minister Harper to “put maternal health at the top of the agenda.”64 In January 2010, Harper had stated that he would be announcing a major initiative to improve women and children’s health. It was unclear, however, whether such an initiative would include funding for family planning, or abortion, services. When questioned at a House of Commons committee hearing in March, Foreign Minister Lawrence Cannon said that the initiative would not include funding for contraceptives, because “the purpose of this is to be able to save lives” and insisted that family planning projects that include abortion as an option would not be included.65 Development NGO s and opposition parties immediately condemned the government’s stance. Within two days, Prime Minister Harper backtracked on contraception (but not abortion), stating that: “We are not closing the door to any option, and that includes contraception, but we do not want a debate, here or elsewhere, on abortion.”66 One month later, during the last week of April, the Prime Minister repeated a similar statement in the House of Commons. “We understand that other governments, that other taxpayers, may do something different,” Harper said. “We want to make sure our funds are used to save the lives of women and children and are used on the many, many things that are available to us that frankly do not divide the Canadian population.”67 However, Liberal MP Glen Pearson (London North Centre) contradicted the government’s position when he said that preventing abortion funding seemed not to be a high priority: “The word abortion never came up once, although there was a bit of talk … that each country has to recognize the political difficulties each would have in its own country,” said Pearson, who as the opposition critic for international co-operation was invited to sit in on the working sessions.”68 Similarly, that week at a news conference on the issue, International CoOperation Minister Bev Oda brought a senior State Department official for backup. This was Rajiv Shah, head of the US Agency for International Development (USAID ). Seemingly, his expertise was brought to somewhat mute the public statements made by his boss, Secretary of State Hillary Clinton at the Foreign Ministers’ preparatory conference for the G8 at the beginning of April 2010. Her statement, based on her own understanding and experience, as she put it, was that “maternal health includes access to contraception, family planning and safe, legal abortion.”69 Minister Oda and Mr. Shah stated a position of Canadian-US agreement on a “definition of family planning that advocates control over the timing of childbearing – which includes the use of contraceptives but does not specifically address abortion – and that the U.S.

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will support Canada’s initiative.” Moreover, Mr. Shah stated that this definition was consistent with international law.70 Another likely reason for the confusion accompanying the Canadian government’s position is that the Muskoka Initiative was prepared “in consultation with” the WHO and related organizations, including the “Countdown to 2015” initiative, headquartered at the WHO . The Countdown to 2015 group includes many of the partners in either Women Deliver or the Every Woman Every Child Innovation Working Group.71 Its key report of the same name was released at the June 7–9, 2010 Women Deliver Conference, weeks before the G8 summit.72 Interestingly, the nearly-50 page report mentions abortion exactly twice, once on page 10 in the context of “improving access to safe abortion care in countries where abortion is legal,” and one on page 17, discussing the reduction of teen pregnancy and mortality and access to unsafe abortion services.73 In fact, if one were to base an estimate of importance on the number of mentions in the document, infant diarrhea wins many times over, having many more mentions as a factor in infant mortality, although it is about the same in importance to infant mortality as unsafe abortion is to maternal mortality, rated one of the top 3 or 4 factors. At the G8 summit in June 2010, Prime Minister Harper announced $1.1 billion in new funding for maternal and child health programming in the next five years, in addition to $1.75 billion in existing funding over the same period. The aid would be focused around three strategies: strengthening health systems; improving access to vaccines and medicines; and improving nutrition. These strategies would be applied in ten priority countries: Afghanistan, Bangladesh, Ethiopia, Haiti, Malawi, Mali, Mozambique, Nigeria, Sudan, and Tanzania.74 By September 2011, Canada had pledged $800 million in funding for 51 projects in these countries. Most of the projects involved health system strengthening, including the building of hospitals in South Sudan and Haiti, and training of community health practitioners in Afghanistan. Most of the projects were conducted jointly with multilateral agencies. None, however, included contraceptive or abortion services.75 Overall, the Muskoka document was less than earth-shattering, repeating Paris Declaration Aid Effectiveness Principles of “measurable and reportable financial commitments” and using the language of women’s empowerment consistent with women’s international agencies and some NGO s.76 From March 2010 through September 2010, other high-profile events occurred at the UN which affected Canada. In March 2010, UN Secretary General Ban Ki Moon announced the creation of the Every Woman, Every Child Innovation Working Group to “support the Global Strategy for Women’s and Children’s Health” (which was strangely not announced publicly until the following September).77 What is of interest here is that CIDA has held a Board seat since the group was formed. In September 2010 Prime Minister Harper

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addressed the UN MDG Summit “urging countries to pay direct attention to goals 4, 5 and 6, which are aimed at reducing maternal and childhood mortality. Over half a million woman die during childbirth and 9 million children die before the age of five because of lack of access to factors such as clean water and immunizations.”78 After the UN MDG Summit, on September 23, 2010, Secretary-General Ban Ki Moon rolled out the “UN Global Strategy for Women and Children’s Health,” including the Commission on Information and Accountability, the co-chairs of which were not to become known until December 2010. However, it is interesting that at the forefront of his remarks was the by-then customary “accountability and effectiveness” statement that, “by empowering women, we empower society.”79 What the events of September and then December 2010 also showed was that Prime Minister Harper and Canada were key players in the UN network on the MDG ’s.

T H E U N C O M M I S S I O N O N I N F O R M AT I O N A N D A C C O U N TA B I L I T Y W I T H P R I M E M I N I S T E R H A R P E R A N D TA N Z A N I A N P R E S I D E N T K I K W E T E AS CO-CHAIRS The appointment of Harper and Kikwete, neither of whom has been a public supporter of abortion rights in his own country, to head the Commission on Accountability for Women’s and Children’s Health was a strong signal that MDG 5b would not be implemented in a way to increase legal abortion access. The May 2011 Final Report of the WHO Commission on Information and Accountability for Women’s and Children’s Health, co-chaired by Prime Minister Harper and President Jakaya Kikwete of Tanzania, contained reports from two working groups, one on “Resources” and another on “Results.” In the first, the word “abortion” never appears. In the “results”-based document it appears once, in the by-then accepted language on “strengthening the provision of abortion services where already legal.”80 Consistent with the presumed necessity of international organizations being coy about the demonstrated link between illegal and unsafe abortion and maternal harm and death, there is language recognizing the problematic persistence of “laws preventing women’s equal access to services.”81 The Harper-Kikwete Commission’s final report contained ten recommendations, all of which addressed how to ensure accountability for results, and none of which addressed how to ensure accountability for providing funds pledged.82 Accountability has been even more illusory since the European debt crisis. Although the G8 countries pledged US $5 billion at the G8 meeting in 2010, by the time of the 2011 summit in Deauville, France, European countries were providing amounts only in the hundreds of millions.83 In March 2011, a new partnership was announced, that on “Saving Lives at Birth,” including Grand Challenges Canada, the World Bank, the Gates

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Foundation, US AID and the Norwegian Foreign Ministry. Its complete title, playing on the Gates Foundation’s “grand challenges” wording, is “Saving Lives at Birth-a Grand Challenge for Development.”84 Also, the Every Woman, Every Child Innovation Working Group continues its work after being formed in 2010. Its website url is hosted at the WHO ’s Partnership on Maternal, Child and Newborn Health. Prime movers and shakers in the Innovation Working Group include the private sector (a Johnson & Johnson Vice President is co-Chair) and the Global Health Adviser to the Norwegian Prime Minister. Other key program providers include Siemens, Merck, and Novartis.85

CONCLUSIONS Since 1987, international organizations and national governments have become more aware of the maternal mortality problem, which achieved even greater recognition with its inclusion among the eight MDG s in 2001. In order to address this issue adequately, governments need to ensure access to a full range of reproductive health services, including contraception and safe, legal abortion. While international declarations, national governments and NGO s have professed great concern over maternal deaths, particularly in parts of Africa, none has advocated for access to legal abortion there. Even contraceptive services were not included under MDG 5 until 2006. Given the lack of consensus on abortion, the Harper government was not out of line with the international community on this issue, and was in concert with its Conservative base. It was, however, out of line with the majority of Canadians.86 This discussion has thus shown the two step that actors, including Canada, are playing on a global stage while maternal deaths continue, particularly in Africa. While scholars posit the existence of new, leaner, more accountable and “vertical” foreign-aid paradigms, none of the recent efforts at the UN , nor by the newer NGO s, such as Women Deliver, will “talk the talk” of increasing legal abortion around the world. The only one to do so is the “older,” player in the previous world of horizontal funding, the IPPF , which is routinely punished by loss of government aid, including from Canada. These actions and this history do not speak well of the desire for “accountability” and “effectiveness “ in foreign aid, to which the world has given much attention and the private sector and foundations many dollars of late. notes 1 It should be noted that although we tried to obtain interviews with CIDA officials for this chapter, we were unable to do so. We contacted CIDA in August 2010 to request an interview or interviews, and were asked to provide the questions via email. As of February 2012, we have not received a reply.

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2 Laura Payton, “Planned Parenthood’s Canadian Funding Renewed,” www.cbc.ca, September 22, 2011. 3 Margaret Hogan et al., “Maternal mortality for 181 countries, 1980–2008: A Systematic Analysis of Progress Towards Millennium Development Goal 5,” The Lancet, vol. 375, Issue 9726, 1609–23, 8 May 2010. 4 Margaret Hogan et al., “Maternal mortality for 181 countries.” 5 Lisa B. Haddad and Nawal M. Nour, “Unsafe Abortion: Unnecessary Maternal Mortality,” Review of Obstetrics and Gynecology, 2:2, Spring 2009, 122 6 J. Stover and J. Ross, “How Increased Contraceptive Use Has Reduced Maternal Mortality,” Maternal and Child Health Journal, 14:5, September 2010, 687. 7 “Unsafe abortion: global and regional estimates of incidence of unsafe abortion and associated mortality in 2003,” fifth Edition (Geneva: World Health Organization, Department of Reproductive Health and Research, 2007). 8 Gilda Sedgh, Susheela Singh, Iqbal H Shah, Elisabeth Åhman, Stanley K Henshaw, Akinrinola Bankole, “Induced abortion: incidence and trends worldwide from 1995 to 2008” (New York: Guttmacher Institute), accessed on line February 10, 2012. 9. Ibid. 10 Ibid. 11 “Facts on Investing in Family Planning and Maternal and Newborn Health,” 2010, Guttmacher Institute, www.guttmacher.org, accessed online February 10, 2012. 12 As described by Ann M. Starrs for Family Care International, the agencies included the WHO , UNFPA and World Bank. Starrs also mentions groups which joined later, such as the United Nations Children’s Fund (UNICEF ) and NGO s such as the International Planned Parenthood Federation (IPPF ), and the Population Council. Ann Starrs, The Safe Motherhood Action Agenda: Priorities for the Next Decade, Report on the Safe Motherhood Technical Consultation (New York: Inter-Agency Group, 1997). The Family Care International website, www.familycareintl.org, credits the organization with formulating the idea for the Safe Motherhood Initiative. 13 Family Care International, Ann M. Starrs, “Safe Motherhood Initiative: Twenty Years and Counting,” September 28, 2006, accessed online January 25, 2012. 14 Starrs, “Family Care International”. 15 Family Care International, www.familycareintl.org, accessed February 5, 2012. 16 Barbara Crossette, “Reproductive Health and the Millennium Development Goals: The Missing Link,” Studies in Family Planning, Vol. 36, Issue 1, (2005), 77. 17 See the UN Millennium Development Goals, at http://www.un.org/millenniumgoals/ maternal.shtml The maternal mortality ratio is defined as “the number of maternal deaths in a population divided by the number of live births,” usually measured per 100,000 live births. World Health Organization (WHO), Maternal Mortality in 2005: Estimates developed by WHO, UNICEF , UNFPA and the World Bank. (Geneva: WHO , 2007). 18 Crossette, “Reproductive Health and the Millennium Development Goals,” 73. 19 Ibid., 72. 20 Ibid., 72–77.

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21 Ibid., 77. 22 Mindy Jane Roseman, “Bearing Human Rights: Maternal Health and the Promise of the ICPD ,” in L. Reichenbach and M.J. Roseman eds. Reproductive Health and Human Rights: The Way Forward (Philadelphia: University of Pennsylvania Press, 2009). 23 United Nations, 2005 World Summit Outcome, Document A/RES/60/1, Paragraph 57 (g) (New York: United Nations, 2005). 24 Stan Bernstein and Lindsay Edouard, “Targeting Access to Reproductive Health: Giving Contraception More Prominence and Using Indicators to Monitor Progress,” Reproductive Health Matters, Vol. 15, No. 29, (2007), 187. 25 United Nations Statistics Division, “Official List of MDG Indicators,” effective January 2008, accessed at http://un.mdgs.org January 25, 2012. 26 Melissa Haussman and L. Pauline Rankin, “Framing the Harper Government: ‘Gender-Neutral’ Electoral Appeals while Being Gender-Negative in Caucus,” in Allan M. Maslove, ed., How Ottawa Spends, 2009-2010: Economic Upheaval and Political Dysfunction (Montreal: McGill-Queen’s University Press, 2009), 241–62. 27 Haussman and Rankin, “Framing the Harper Government,” 242. Ibid. 28 Tom Flanagan, Harper’s Team: Behind the Scenes in the Conservative Rise to Power (Montreal: McGill-Queen’s University Press, 2007). 29 Laura Payton, “Planned Parenthood’s Canadian Funding Renewed,” www.cbc.ca, September 22, 2011. 30 Haussman and Rankin, op cit., 242; Abortion Rights Coalition of Canada, “Updated List of Anti-Choice MP’s,” www.arcc-cdac.ca, May 14, 2011. 31 For instance, MP Brad Trost of Saskatchewan claimed in September 2011 that the pressure of the pro-life caucus had caused the Conservative stance on the Muskoka Initiative regarding abortion and the shift to funding IPPF only in anti-abortion countries. See Brad Reeves, “Conservative MP Warns Abortion Debate has been Reopened in Canada,” Digital Journal, September 28, 2011, accessed on line January 29, 2012. 32 Devi Sridhar and Tami Tamashiro, Background Paper on Education for All Global Monitoring Report, UNESCO, “Vertical Funds in the Health Sector: Lessons for Education from the Global Fund and GAVI,” 2009, Final Draft, p. 2, accessed on line February 5, 2012. 33 Devi Sridhar and Tami Tamashiro, 2009, Final Draft, p. 1.. 34 Ibid. 35 Ibid. 36 www.OECD.org, Development Co-Operation Directorate, “High-Level Fora on Aid Effectiveness: a History,” accessed January 25, 2012. 37 Canada’s International Policy Statement (re: the G 8 Kananaskis Summit), “Canada Making a Difference in the World,” www.acdi-cida.gc.ca. 38 Alison Goody, “International Development: the Aid Effectiveness Debate,” Parliamentary Information and Research Service, Library of Parliament, PRB 09-07E, June 24, 2009, accessed on the Library of Parliament website January 25, 2011, 1.

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39 OECD , “Paris Declaration on Aid Effectiveness,” accessed at www.oecd.org January 25, 2011. 40 World Health Organization, “High-Level Forum on the Health Millennium Development Goals,” accessed via the web on January 25, 2011. 41 “High Level Forum on the Health Millennium Development Goals.” 42 OECD , Development Co-Operation Directorate, “HATS : the Origins,” n.d., accessed via the web January 25, 2012. 43 Discussed in Goody’s excellent analysis, 1–2. 44 David A. Black, “Canada, the G8 and Africa: the Rise and Decline of a Hegemonic Project,” at www.nai.uu.se/ecas, accessed February 10, 2012. 45 Center for Reproductive Rights, “Beijing + 15” Document, n.d. , www.reproductiverights.org, accessed February 2, 2012. 46 Speaking Notes for the Honourable Minister for International Co-Operation Beverley Oda, “A New Effective Approach to Canadian Aid,” www.cida-adic.gc.ca, May 20, 2009, accessed January 20, 2012. 47 Grand Challenges Canada, “Global Access Policy,” accessed at www.grandchallenges. ca, February 8, 2012. 48 Ibid. 49 Ibid. 50 William and Melinda F. Gates Foundation, “Grand Challenges,” www.grandchallenges.org , accessed February 9, 2012. 51 www.grandchallenges.ca, and www.grandchallenges.org, accessed February 9, 2012. 52 Patricia Sellers, “Melinda Gates Goes Public,” CNN Money, http://money.cnn.com, January 7, 2008, accessed online February 8, 2012. 53 Goody, “International Development: the Aid Effectiveness Debate,” 7. 54 www.g8.Utoronto.ca, “Hokkaido Summit: 2008,” accessed January 30, 2012. 55 Women Deliver, “About,” www.womendeliver.org, accessed January 30, 2012. 56 The Women Deliver Site mentions “three core strategies to save lives”: 1. Access to family planning – counselling, services, and supplies; 2. Access to quality care for pregnancy and childbirth: antenatal care; skilled attendance at birth, including emergency obstetric and neonatal care; immediate postnatal care for mothers and newborns; 3. Access to safe abortion services, when legal. At www.womendeliver.org, accessed February 2, 2012. 57 Women Deliver, “Corporate Forum,” www.womendeliver.org, accessed February 2, 2012. 58 www.familycareintl.org, accessed February 9, 2012. 59 “The World Bank’s Reproduction Health Action Plan, 2010-2015,” April 2010, p. 1, http://siteresources.worldbank.org, accessed February 2, 2012. 60 International Planned Parenthood Federation (IPPF ), “The Scorecard: Monitoring and Evaluating the Implementation of the World Bank’s Reproductive Health Action Plan, 2010-2015,” 2011, p. 7, accessed at www.ippf.org February 2, 2012. 61 “The World Bank’s Reproduction Health Action Plan,” 2. 62 Charlotte Bunch and Susana Fried, “Beijing ’95: Moving Women’s Human Rights from Margin to Center,” Signs, 22, 1 (Autumn 1996), 200-4.

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63 Aruna Rao, “Empowering Institutional Change,” Signs (Autumn 1996), 218–21. 64 Geoffrey York, “Why Has It Taken So Long?” Globe and Mail (January 30, 2010) F1 65 John Ibbitson, “Contraception a part of maternal health plan, Harper says,” Globe and Mail (March 18). 66 John Ibbitson, “Ottawa Changes Course in Wake of Birth-Control Backlash: Contraception Will Be Part of G8 Initiatives to Protect Mothers, PM Says,” Globe and Mail (March 19), A1. 67 Joanna Smith, “Canadians Don’t Want Money for Aid Spent on Abortion: Harper,” in www.thestar.com, April 27, 2010, accessed on line January 28, 2012. 68 Joanna Smith, “Canadians Don’t Want Money for Aid Spent on Abortion: Harper,” April 2010. 69 “Clinton Backs Contraception for Maternal Health,” www.cbc.ca, March 31, 2010, accessed January 27, 2012. 70 Joanna Smith, “Canadians Don’t Want Money for Aid Spent on Abortion.” 71 “Countdown to 2015: Taking Stock of Maternal, Newborn and Child Survival,” accessed at WHO website January 29, 2012; the groups included Aga Khan University, AusAID , the Bill & Melinda Gates Foundation, DfID , Famil Care International, the Global Health Workforce Alliance, ILO , the International Federation of Gynecology and Obstetrics, International Pediatric Association, Johns Hopkins University, the Lancet, London School of Hygiene and Tropical Medicine, Norad, PMNCH , Save the Children, UNFPA , UNICEF , Universidade Federal de Pelotas, the University of Aberdeen, USAID , WHO , and the World Bank. 72 “The G8 Muskoka Flagship Initiative: Maternal, Newborn and Under-Five Child Health,” n.d., accessed on the web, January 29, 2012; WHO , Countdown to 2015: A Decade Report 2000-2010, Taking Stock of Maternal, Newborn and Child Survival, WHO and UNICEF , June 7–9, 2010. 73 WHO , Countdown to 2015, 10, 17. 74 CIDA , “Maternal, Child and Newborn Health,” at http://www.acdi-cida.gc.ca/ acdi-cida/ACDI-CIDA.nsf/eng/FRA-127113657-MH7 75 Prime Minister’s Office (PMO ), “Implementing Canada’s commitments under the Muskoka Initiative,” Press Release, (September 20, 2011), at http://www.pm.gc.ca/ eng/media.asp?id=4342 76 “The G8 Muskoka Flagship Initiative: Maternal, Newborn and Under-Five Child Health,” op cit. 77 “Thematic Report: the Global Campaign for the Health Millennium Development Goals (4, 5, 6): Innovating for Every Woman, Every Child,” July 2011, accessed from un.mdgs.org February 8, 2012. 78 Laura Ghali, Margaret Clarke, and Chelsea Ritchie, “Making the Most of the Muskoka Initiative,” Policy Options, December 2010–January 2011, 61. 79 “Statement by HE Mr. Ban Ki-Moon, Secretary General of the United Nations, September 23, 2010,” accessed at www.un.org, January 29, 2012. 80 Commission for Information and Accountability for Women’s and Children’s Health, Working Group on Accountability for Resources, “Final Paper,” May 2011; Working Group on Accountability for Results, “Final Paper,” May 2011. Both accessed at

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http://www.who.int/pmnch (Partnership for Maternal and Child Health Section), January 29, 2012. For this discussion, the relevant organizations of multilevel governance have included various parts of the UN , including: the World Health Organization (WHO ) and World Bank; the UN Fund for Population Assistance (UNFPA ); the Organization for Economic Co-operation and Development (OECD ); the OECD ’s Directorate for Development Cooperation (DCD ) and Development Assistance Committee (DAC ), including the “Health as a Target Sector” (HATS ) initiative; regional initiatives such as the African Charter on Human and Peoples’ Rights, also known as the Banjul Charter (which took effect in 1986) and its related Protocol on Women’s Rights; and the Maputo Charter on the Rights of Women in Africa, which took effect in 2005. Multilateral pro-choice NGO ’s in the framework include the International Planned Parenthood Federation (IPPF ), the Population Council, Family Care International, and “Women Deliver,” formed in 2007 to follow up on links made from the Beijing + 10 Global Women’s Conference and to help advocate for the inclusion of strong statements to implement the gender-based MDG ’s (particularly MDG 5 on maternal health) by the 2015 MDG deadline. See the Commission on Accountability for Women’s and Children’s Health, Keeping Promises, Measuring Results (Geneva: WHO , 2011) 4–5. Campbell Clark and Doug Saunders, “European Debt Crunch Delays Harper’s G8 Initiatives on Maternal Health,” The Globe and Mail, May 26. “Saving Lives at Birth,” www.savinglivesatbirth.net, accessed February 9, 2012. www.who.int/pmnch, accessed February 9, 2012. A 2010 Ekos survey found that “52% of Canadians describe themselves as ‘prochoice,” Bill Curry, “Majority Backs Abortion Rights,” The Globe and Mail, Thursday April 1, 2010, at http://www.theglobeandmail.com/news/politics/ottawa-notebook/ majority-backs-abortion-rights/article1519823/

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appendix a Canadian Political Facts and Trends

June 18, 2011 The federal Liberal Party votes at its post-election “virtual convention” to postpone a leadership vote on a successor to Michael Ignatieff until sometime between March 1st and June 30th, 2013. June 25, 2011 The House of Commons passes a Canada Post back-to-work bill which ended a 56 hour marathon filibuster launched by the opposition New Democratic Party. J u ly 1 8 , 2 0 1 1 A Postmedia report, drawing on federal data and studies indicates that spending on the federal prison system has increased by 86% since the Harper government took office in 2006. J u ly 2 1 , 2 0 1 1 Statistics Canada reports that Canada’s crime rate is at its lowest level in almost 40 years. Au g u s t 1 0 , 2 0 1 1 A study by the Canadian Medical Association (CMA ) concludes that Canada’s health care system “is fractured to such a degree that it is, in some ways a system in name only … it does not provide patient-centred care-the care people need when they need it.”

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Appendix A

Au g u s t 2 2 , 2 0 1 1 NDP Leader and Leader of the Opposition Jack Layton passes away at age 61 after a long battle with cancer. The country goes into an official state of mourning for the very popular politician. September 2, 2011 Angelo Persichilli, a 63 year old Toronto-based journalist is appointed as Prime Minister Stephen Harper’s new communications director, replacing Dimitri Soudas. September 7, 2011 A Conference Board of Canada study concludes that Canada has dropped to 12th place (a drop of two places in the previous year) in the global competitiveness rankings. September 8, 2011 The federal NDP changes the privileged role for unions in its upcoming leadership race by shifting to a one member, one vote system. September 15, 2011 A study by the C.D. Howe Institute on Impulse Spending shows that federal, provincial and territorial governments have a track record of spending much more than they publicly budget. The excess spending amounts to $82 billion over the last decade and constitutes about 14 percent of current spending. September 19, 2011 The first bill in the Conservative’s legislative agenda for its new majority is introduced in the House of Commons as the omnibus Safe Streets and Communities Act. Canada’s Chief of Defence Staff Walter Natyncyzk defends his use of government-owned Challenger jets for travel after media reports released earlier had accused him of misusing the jets for sports games and family vacations. Harper says the expectation is that VIP s pay for their private use of government aircrafts at commercial rates. September 28, 2011 A report by the federal National Council of Welfare shows that poverty costs taxpayers more than $24 billion a year but that the federal government should make a billion dollar investment now to eradicate the root causes of poverty. It would help reduce costs to taxpayers in later years. The Parliamentary Budget Officer Kevin Page releases a report saying that current five year budget forecasts of the federal and provincial governments fail to address longer-term issues including the combined federal and provincial debt (as opposed to deficits).

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September 29, 2011 The federal government tabled the copyright legislation it introduced last year without any changes. Canada’s copyright legislation has not been updated since 1988. The new legislation is most controversial for its stance on bypassing digital locks. September 30, 2011 In a unanimous decision the Supreme Court of Canada ordered the federal government to abandon its attempts to shut down Vancouver’s downtown safe injection site as well as pay for its legal fees. The federal government said that it would revisit the decision but would comply. October 1, 2011 Alison Redford wins the Leadership of the Alberta Progressive Conservative Party and becomes Alberta’s first female Premier. October 4, 2011 The government tables its budget implementation bill required to enact measures contained within the federal budget passed in June. The bill includes measures to end taxpayer-funded subsidies for federal political parties. Scott Vaughan, commissioner of the environment and sustainable development, released his 2011 report that was highly critical of the federal government’s ability to achieve its commitments on various agreements and plans including the Federal Sustainable Development Strategy, the Copenhagen accord, and the Kyoto Protocol Implementation Plan. The report also commented that although $9 billion is allocated to climate change initiatives, the government does not have a good system in place to track the spending or the results of the initiatives. The Manitoba NDP under Premier Greg Selinger wins the Manitoba provincial election, the fourth in a row for the NDP , in office since 1999. October 5, 2011 Transportation Minister Denis Lebel announced the government’s plan to replace Montreal’s Champlain Bridge. The minister announced that the government is looking into a public-private partnership for the project which will likely result in a toll system. October 6, 2011 Health Minister Leona Aglukkaq announced regulations targeting energy drinks. Against expert panel advice, the regulations change the classification of energy drinks from “natural health products” to “food” which will require labelling containing ingredients, allergens, and nutritional information. The new requirements will not take effect for 2 years.

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The Ontario Liberal Party under Premier Dalton McGuinty wins the Ontario election, his third mandate but this time with a minority government. October 11, 2011 On his second trip to Libya, Foreign Affairs Minister John Baird announced that Canada is committing $10-million to help Libya recover arms stockpiles that have gone missing since the collapse of the Moammar Gadhafi regime. October 12, 2011 The Progressive Conservative government under Premier Kathy Dunderdale wins the Newfoundland and Labrador election with a solid but reduced majority. October 14, 2011 The Mowat Centre for Policy Innovation issues a report calling for major cuts to federal R&D tax breaks which are not doing the job in terms of innovation and instead should use greater amounts of targeted grants for business. October 17, 2011 Stephen Harper nominated two new judges, Mr. Justice Michael Moldaver and Madam Justice Andromache Karakatsanis, to the Supreme Court of Canada. The nominees, both Ontario Court of Appeal Judges, appeared before a Parliamentary Committee of MPs. The committee, though not able to affect the decision, could raise questions if they believed the nominations to be ideological or politically based. Some have criticized the process for being too rushed. October 18, 2011 Agriculture Minister Gerry Ritz tabled legislation, Bill C-18, which would end the Canadian Wheat Board’s 60-year monopoly on western wheat and barley. The law would eliminate the 10 farmer-elected positions from the board leaving the 5 government appointees on the board to create a business plan to privatize a restructured, voluntary board by 2016. Ritz also announced $5 million a year to encourage farmers to ship grain through Churchill, Manitoba as well as $4 million in improvements to the port to assist the region in adjusting to the Wheat Board changes. October 19, 2011 François Guimont, the top civil servant from Public Works and Government Services, announced the largest ship building procurement package in Canadian history. A team of bureaucrats was responsible for making the decision, an attempt to depoliticize the selection process. Irving Shipbuilding in Halifax and Seaspan Marine in Vancouver were successful bidders while Davie Shipyard in Lévis, Que. was not successful.

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October 20, 2011 In a press announcement, Prime Minister Harper announced that he expects Canada will withdraw its military involvement from Libya within two weeks. The announcement comes after Moammar Gadafhi was killed in Libya. October 25, 2011 The Conservative government tabled legislation to abandon the long gun registry act. The bill would also require that all data collected over the last 16  years be destroyed to prevent future governments from reviving the registry. October 26, 2011 The Canadian Wheat Board files a lawsuit against the federal government over legislation to end the Canadian Wheat Board monopoly over western wheat and barley citing that the government was legally obliged to consult the producers prior to introducing Bill C-18. October 27, 2011 The Minister of State for Democratic Reform Tim Uppal announced the Fair Representation Act, which would add 30 seats to the House of Commons. It is estimated that the reform will cost an estimated $14.8-million per year. The new costs will begin after the next election expected in 2015. November 1, 2011 The Quebec and Ontario governments have both announced that they should not be forced to pay the costs of the federal Conservative government’s crime bill. November 2, 2011 Treasury Board President Tony Clement faced a parliamentary committee to answer questions regarding his role in the $50-million G8 legacy fund. Opposition MP ’s have accused Clement of unfairly using those funds in his Parry Sound-Muskoka riding when he was industry minister. November 3, 2011 The House of Commons voted Michael Ferguson as Canada’s Auditor General for the next ten years. The opposition is criticizing the appointment saying that Ferguson is unqualified because he does not speak French. The Liberal caucus boycotted the vote. November 7, 2011 The Saskatchewan Party under Premier Brad Wall wins the Saskatchewan provincial election with a landslide victory both in seats and in the popular vote.

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November 8, 2011 Environment Minister Peter Kent announces that the federal government will spend $148.8 million over the next five year to expand existing programs that help the country deal with the impacts of climate change. November 8, 2011 Finance Minister Jim Flaherty’s annual fall Economic Update indicates that because of the U.S. and Euro debt crises and their impacts on Canada the federal deficit may not be eliminated until at least 2015, a year later than the last federal budget had indicated. Flaherty also announced that the government is extending a work-sharing program by 16 weeks and reducing planned hikes for EI premiums. November 10, 2011 The Liberal Party proposes to choose its next leader through a series of U.S. –style primary contests. Federal Conservatives reach a deal on Election Act charges made in February 2011 regarding the “in-and-out” financing case from the 2006 elections. Charges against four tory campaign insiders were dropped. The Conservative Party and fundraising arm pleaded guilty to two lesser charges of incurring election expenses exceeding the maximum allowable and filing election records that didn’t set out all expenses. Environment minister Peter Kent announces that the polar bear is now considered a species of special concern under Canada’s Species at Risk Act. The designation requires a comprehensive management plan to be completed within three years. November 15, 2011 Prime Minister Stephen Harper announces that Canada will engage in TransPacific Partnership trade talks broadening Canada’s options for selling oil and gas to Asian countries. The announcement comes as the U.S. delays approving the Keystone XL pipeline until 2013. Harper says he will continue to push the US government to approve the pipeline. The NDP ’s transport critic Olivia Chow introduces a bill that would require trucks to have side guards in order to protect cyclists and pedestrians from being trapped in the space between a truck’s wheels. The CRTC decides that established internet providers may charge smaller independent internet providers at a flat rate or at a rate based on capacity. The CRTC had initially approved Bell’s request to charge independent providers on a usage basis in January 2011 effectively raising prices. The conservative government pushed back and asked the CRTC to take another look.

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November 17, 2011 Manitoba NDP MP Pat Martin is criticized for using off-colour language in a tweet after the Conservatives moved to end a debate on a bill to implement last spring’s federal budget. Martin defended his use of language as a legitimate expression of frustration towards the Conservative government’s behaviour in parliament. This is the seventh bill this session that the Conservatives used a motion for time allocation to limit debate. Minister of State for Finance Ted Menzies and Industry Minister Christian Paradis announced a plan to offer pooled retirement pension plans (PRPP s) at news conferences in Toronto and Montreal. The PRPP s operate similarly to RRSP s where returns are not guaranteed. November 21, 2011 The Canadian Press obtained details through the access to information act revealing that the federal government paid over $2 million to renovate Deerhurst Resort during the G8 summit in Canada. Deerhurst was sold nine months after the conference to Skyline Hotels and Resorts for $26 million. November 22, 2011 The interim Auditor General John Wiersma releases the annual fall report saying the government has diligently monitored the spending and progress of three of the programs under the Economic Action Plan. However, the report raises concerns regarding how Citizenship Immigration hands out visas, about planned spending by National Defence, and about delays on drug and safety at Health Canada. November 24, 2011 The federal government held a ceremony on Parliament Hill honouring Canada’s mission in Libya. Harper has faced criticism for using the ceremony as an expensive publicity stunt during a time of where they should be showing fiscal restraint. It cost more than $500,000 for the fly over alone. Harper is also criticized for not having ceremonies for other important Canadian missions. November 27, 2011 Finance Minister Jim Flaherty announces that the government is eliminating $32 million in annual tariffs on some of the goods used in Canadian manufacturing. December 1, 2011 On October 28, 2011 Attawapiskat First Nations Chief Theresa Spence calls a state of emergency regarding the reserve’s housing conditions. The federal government claims that Attawapiskat has received $90 million over the past

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five years in federal funding that has not been accounted for. The federal government places Attawapiskat under third party management on December 8, 2011. The private sector consultant will cost the reserve $1,300 per day. In response Chief Theresa Spence files for a court injunction to block the government-appointed manager. The Canadian Forces combat mission in Kandahar, Afghanistan ends. New documents released under federal access to information laws reveal that the 2010 helicopter trip taken by Peter MacKay was under the ‘guise’ of a search and rescue mission. December 5, 2011 Edmonton MP Peter Goldring voluntarily withdraws from caucus after being charged with refusing to take a breathalyzer test. In 2009 Goldring opposed legislation that would allow police to conduct breathalyzer tests on all drivers regardless of suspicion. December 6, 2011 Attawapiskat First Nations Chief Theresa Spence meets with the Assembly of First Nations in Ottawa. They pass a resolution declaring support for the leadership and citizens of Attawapiskat First Nation and request that the United Nations bring in a “special rapporteur” to determine whether the federal government is meeting its legal obligations towards Canada’s aboriginal peoples. Federal Privacy Commissioner Jennifer Stoddart released guidelines on behavioural online advertising during a keynote speech to the Marketing and Law conference in Toronto. Behavioural online advertising allows companies to target advertisements to a person’s preferences based on web-browsing history. The guidelines require that information about behavioural advertising be clear, understandable, and obvious giving people the ability to easily opt out of the practice. December 7, 2011 Prime Minister Stephen Harper and US President Barack Obama announced a new perimeter security and trade agreement to facilitate cross border movements. The new plan will post wait times at border crossings, facilitate the approval of consumer health products by sharing information between regulatory bodies, share information about citizens and non-citizens, offer more customs pre-clearance for air and land cargo, and fast-track movement across borders for trusted travellers and companies. Federal Court judge Justice Douglas Campbell announced his court decision finding that Agriculture Minister Gerry Ritz breached the Canadian Wheat Board Act by not consulting producers on whether or not to abolish the Wheat Board. Ritz responded that the government plans to appeal the

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ruling and attempt to pass the legislations planned. On November 28, the House of Commons voted 153-120 to end the monopoly held by the Canadian Wheat Board on western wheat and barley. December 8, 2011 Bob Paulson is sworn in as the 23rd Commissioner of the RCMP . He replaces outgoing Commissioner William J.S. Elliott. December 9, 2011 Aboriginal Affairs Minister John Duncan announces that the federal government has purchased 15 new modular homes for Attawapiskat. The number of module homes is later revised to 22. The homes will be delivered as soon as the ice roads become open. He is unclear as to who will pay for the modular homes meaning that the reserve could ultimately pay the bill. December 11, 2011 MP Daniel Paillé is chosen as the new leader of the Bloc Québécois. December 12, 2011 Immigration Minister Jason Kenney announces a ban on face coverings when individuals take the oath of citizenship. The ban takes effect immediately. Environment Minister Peter Kent announces that Canada is formally withdrawing from the Kyoto Accord set to expire at the end of 2012 which will save the government $14 billion in penalties. The announcement was made shortly after his return from a 13-day UN summit in Durban, South Africa. The 194-party conference agreed to initiate negotiations on a new accord that would take effect by 2020 at the latest. December 13, 2011 Green Party Leader Elizabeth May accuses the Harper government of disobeying the law by withdrawing from the Kyoto Accord, a treaty ratified by the House of Commons in 2007, without parliamentary discussion. December 15, 2011 Foreign Minister John Baird announces a voluntary evacuation for the 5,000 estimated Canadians still in Syria. December 19, 2011 Finance Minister Jim Flaherty surprises the provinces by announcing a 10-year health-care plan. Under it, increases in federal transfers for health-care will continue at 6 percent until 2016–17. After that transfers will be based on a system that ties increases to the growth in nominal gross domestic product.

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December 22, 2011 Minister of State for Transport Steven Fletcher along with other Conservative MP s held events at several airports across Canada to advertise the changes that the government has made to make air travel easier. Nexus card holders will be able to enter dedicated lines to be processed through customs faster and be exempt from duplicate luggage screening allowing them to get through airport security quicker and make tighter connections. The changes will be rolled out in February at eight major airports: Halifax, Montreal, Ottawa, Toronto, Edmonton, Winnipeg, Calgary and Vancouver. The Supreme Court of Canada announced its unanimous decision that the government’s plan for a national securities regulator is “not valid” under the Constitution and that the federal government would be out of its jurisdiction. The Court was asked for its opinion of the validity of the Proposed Canadian Securities Act back in May 2010. However, the decision did recognize that Ottawa might have a role to play in managing systemic risk related to the national interest. In response, Finance Minister Jim Flaherty said that the government would not pursue its current plan to create a national securities regulator. December 23, 2011 Foreign Affairs minister John Baird announced further sanctions against Syria including a ban on imports with the exception of food, a ban on exports and investment to Syria, and an asset freeze on supporters of President Bashar al-Assad and his regime. Baird also encouraged Canadians in Syria to leave as soon as possible. A delegation of the Syrian National Council met with Baird later in the day seeking recognition from the Canadian government and assistance in securing support internationally. J a n ua r y 9 , 2 0 1 2 Natural Resources Minister Joe Oliver released a letter criticizing those groups opposing Enbridge’s Northern Gateway pipeline saying that they are blocking trade and undermining the Canadian economy. J a n ua r y 1 2 , 2 0 1 2 Justice Minister Rob Nicholson announces that he will be looking at options to clarify the law regarding divorces for same-sex marriages performed in Canada. The legality of same-sex divorce became an issue through the case of a lesbian couple who, married in Canada in 2005, attempted to get a divorce despite the federal Divorce Act’s one year residency requirement, which they do not meet. Prime Minister Stephen Harper has insisted that the federal government does not want to reopen the debate over same-sex marriage.

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J a n ua r y 1 3 , 2 0 1 2 Minister of State for Democratic Reform Tim Uppal announced that the federal government would release legislation to repeal the ban on announcing election results before polls close. J a n ua r y 2 4 , 2 0 1 2 At an historic meeting between the government and Assembly of First Nations, Prime Minister Stephen Harper states that the government would introduce new mechanisms to modernize the Indian Act including a promise to remove barriers to self-determination. J a n ua r y 2 9 , 2 0 1 2 In a news release the federal government announces that it is cancelling the ecoEnergy program two months early because it has reached its 250,000-applicant limit. While the program has not reached its $400 million budget, Natural Resources Minister Joe Oliver says that the budget is expected to be reached with the program fully subscribed. F e b r ua r y 3 , 2 0 1 3 Environment Minister Peter Kent and Alberta Environment Minister Diane McQueen unveil a 3-year plan to improve monitoring of water, air, and habitat in the Albertan oil sands. The plan will cost up to $50 million per year and will be paid by industry. F e b r ua r y 8 , 2 0 1 2 During his second official visit to China, Prime Minister Stephen Harper signed a declaration of intent on a foreign direct investment protection agreement (FIPA ) as well as more than 20 commercial deals worth over $3 billion. While Stephen Harper raised issues regarding human rights, no official progress was made. As a symbolic gesture of the warming relationship between China and Canada, Beijing will loan Canada two giant pandas to Canadian zoos. F e b r ua r y 1 4 , 2 0 1 2 Public Safety Minister Vic Toews reintroduces a bill in the House of Commons that is designed to give police and intelligence agencies the ability to access telecommunications subscriber data such as names, IP addresses, and phone numbers without a warrant. The bill is similar to legislation introduced by both Liberal and Conservative governments. Critics are being characterized as soft on child pornography.

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F e b r ua r y 1 7 , 2 0 1 2 Immigration Minister Jason Kenney announces changes to Canada’s refugee system which contains measures allowing the immigration minister to decide which countries are safe (instead of an expert panel), no appeal for rejected claims, and shorter times to make a refugee claim. F e b r ua r y 1 8 , 2 0 1 2 Public Safety Minister Vic Toews confirms that the online surveillance bill, Bill C-30, will go to committee prior to second reading to provide the opportunity for it to be amended beyond its scope. The bill will cost at least $80 million to implement including $20 million a year for the first 4 years and $6.7 million per year after that. The confirmation comes after Toews realized during an interview with CBC that the proposed bill could give police powers to obtain private information from internet service providers without a warrant. Toews and the Bill have received significant social media pushback and opposition from within the House. F e b r ua r y 2 3 , 2 0 1 2 Prime Minister Stephen Harper defends the Conservative government over accusations that they were behind “robocalls”, automated telephone calls, that lead voters to inaccurate polling stations during the 2011 federal elections. The Conservatives were linked to the Edmonton company Racknine, a service provider for automated telephone calling, where the fraudulent calls were traced to. Opposition MP’s have a list of 45 ridings they claim have been the target of robocalls. Both Elections Canada and the RCMP are investigating but neither have commented so far. Michael Sono, a Conservative staffer, resigned following the announcement; however, no evidence has been made public linking Sono to the robocalls. F e b r ua r y 2 4 , 2 0 1 2 The Truth and Reconciliation Commission releases its interim report which makes over 20 recommendations related to education, health, and commemoration. Specifically, the report recommends that the Federal Government embark on a public information campaign as well as changes to provincial education curricula to inform Canadians of the history of residential schools. The report also recommends setting up a mental health facility in Nunavut or the Northwest Territories as well as restoring funding to the Aboriginal Healing Foundation. The report also asks that a framed copy of Prime Minister Stephen Harper’s apology be distributed to every residential school survivor and secondary school in Canada. It is anticipated that the Commission’s final report will be delivered when their mandate expires in 2014.

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appendix b Fiscal Facts and Trends

Figure B.1 Sources of Federal Revenue as a Percentage of Total, 2010–11

Other Revenue 12% Indirect Taxes 18%

Personal Tax 57%

Corporate Tax 13%

Source: Department of Finance, Fiscal Reference Tables 2011, Table 3.

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Table B.1 Federal Revenue by Source 2000-01 to 2010-11 As a Percentage of Total Fiscal Year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Personal Taxa

Corporate Tax

Indirect Taxesb

Other Revenuec

Total Revenue

Annual Change (%)

58.8 58.5 58.1 57.2 56.4 56.1 56 55.7 59.7 57.7 57.5

14.6 13.2 11.7 13.8 14.1 14.3 16 16.8 12.6 13.9 12.6

18.4 20.2 21.7 20.8 20.2 20.8 19.2 18.2 17.1 18.6 18.1

8.2 8.2 8.6 8.1 9.3 8.8 8.8 9.2 10.6 9.9 11.9

100 100 100 100 100 100 100 100 100 100 100

10.2 -5.4 3.6 4.2 6.7 4.8 6.2 2.7 -3.8 -6.2 8.5

Source: Department of Finance, Fiscal Reference Tables 2011, Table 3 and 5. Revenue by Source is on a net basis. (a) Employment Insurance and other income taxes are included in the total. (b) Consists of total excise taxes and duties. (c) Consists of non-tax and other tax revenue

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Figure B.2 Federal Expenditures by Ministry 2011–12 Estimates

National Revenue 1.9% National Defence 9.3%

Foreign Affairs and International Trade 2.7% Regional Agencies (f) 0.4% Social and Citizenship Programs (a) 29.5%

Industry and Transport 5.7% Justice and Corrections (b) 0.7%

Finance (e) 37.4%

Resources and Environment (c) 4.7% Government Operations and Administration (d) 7.9%

(a) Social Citizenship programs include departmental spending from Canadian Heritage, Citizenship and Immigration, Human Resources and Social Development, Veterans Affairs, Health, and Indian Affairs and Northern Affairs (b) Justice and Corrections includes spending from the Department of Justice (c) Resources and Environment includes departmental spending from Agriculture and Agri-Food, Environment, Fisheries and Oceans, and Natural Resources (d) Government Operations and Administration Spending includes that from Public Works and Government Services, the Governor General, Parliament, the Privy Council, and the Treasury Board (e) Finance expenditures include but are not limited to, spending on public interest charges and major transfers to the provinces. (f) Regional Agencies includes Western Economic Diversification, the Atlantic Canada Opportunities Agency and the Economic Development Agency of Canada for the Regions of Quebec Source: Treasury Board Secretariat, Main Estimates, Budgetary Main Estimates by Standard Object of Expenditure, Part II, 2011–2012

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Figure B.3 Federal Budgetary Expenses by Type of Payment 2000–01 to 2010–11

Billions of Dollars (current) 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 Social Transfers to Governments 10.0 0.0 00-01 01-02 02-03 03-04 04-05

Other Expenses

Social Transfers to Persons

Public Debt Charges

National Defence 05-06

06-07

07-08

08-09

09-10

10-11

Source: Department of Finance, Fiscal Reference Tables 2011, Table 7.

Figure B.4 Federal Revenue, Program Spending, and Deficit as Percentages of GDP 2000–01 to 2011–12 Percentage of gdp 25 20

Budgetary Revenue

15 Program Spending

10 5

Budgetary Balance

0 ) (a 12 11 -

-1 1

20

10

0

20

-1 09

-0

9 20

08

8 -0 07

20

7

Fiscal Year

20

-0

6

06 20

-0 05

5 20

-0 04

-0

4 20

3

03 20

-0 02

2 20

-0 01 20

20

00

-0

1

-5

Source: Department of Finance, Fiscal Reference Tables 2011, Table 2; Department of Finance, Budget Plan 2011. Note: Budgetary revenue and program spending are based upon fiscal years, while GDP is based on the calendar year. Revenues, program spending, and the deficit are on a net basis. Program spending does not include public interest charges. GDP is nominal GDP. (a) Figures for this year are estimates.

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Figure B.5 Federal Revenue, Expenditures, and the Deficit 2000–01 to 2011–12 Billions of Dollars (current) 280

Budgetary Revenue

245 210 175

Total Expenditures

140 105 70 Budgetary Surplus / deficit

35 0 -35

(a 12 11 -

-1 1

20

0

10 20

-1 09

9 20

-0 08

-0

8 20

7

07

-0

Fiscal Year

20

6

06 20

-0 05

5 20

-0 04

-0

4 20

3 -0

03 20

02

2 20

-0 01 20

20

00

-0

1

)

-70

Source: Department of Finance, Fiscal Reference Tables 2011, Tables 1 and 7; Department of Finance, Budget Plan 2011. Note: Expenditures include program spending and public interest charges on the debt. (a) Figures for this year are estimates.

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Figure B.6 Growth in Real GDP 2000–2010

Annual Change (Percentage) 6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 2000

2001

2002

2003

2004

2005 Year

2006

2007

2008

2009

2010

Source: Statistics Canada, CANSIM, Table 380–0017: Gross Domestic Product (GDP), expenditure-based, annual (Constant 2002 Prices).

Figure B.7 Rate of Unemployment and Employment Growth 2000–2010 Per cent 12.0 10.0 Unemployment Rate

8.0 6.0 4.0

Employment Growth Rate

2.0 0.0 -2.0 -4.0 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Year Source: Statistics Canada, CANSIM, Tables 109-5004, 109-5304, 109-5324, 281-0024. Note: Employment growth rate and the unemployment rate apply to both sexes, 15 years and older.

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Figure B.8 Interest Rates and the Consumer Price Index (CPI) 2000–2010 Rate (per cent) 10 8 6 Prime Rate 4

Bank Rate

2 CPI 0 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Year Source: Bank of Canada, Bank of Canada Review, Banking and Financial Statistics, Table F1, various years; Statistics Canada, CANSIM, Table 326–0021. Note: The Prime Rate refers to the prime business interest rate charged by chartered bank, and the Bank Rate refers to the rate charged by the Bank of Canada on any loans to commercial banks. Note: The Prime Rate and Bank Rate are rates effective at year end. Note: The Trend line for the CPI shows annual percentage change in the index.

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Figure B.9 Productivity and Costs 2000–2010 Annual Change (per cent) 6.0 5.0

Unit Labour Costs (b)

4.0 3.0 2.0 1.0 0.0 -1.0

Labour Productivity (a)

-2.0 -3.0 -4.0 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Year Source: Statistics Canada, CANSIM, Table 383–0008 (a) Labour Productivity is the ratio between real value added and hours worked in the business sector. This trend shows the annual percentage change in the index. (b) This is a measure of the cost of labour input required to produce one unit of output, and is equal to labour compensation in current dollars divided by real output. This trend shows the annual percentage change in the index.

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Figure B.10 Balance of Payments (Current Account) 2000–2010

Billions of Dollars (Current) 80 Bilateral (Canada/US) 70 60 50 40 30 20 10 0 -10 -20 -30 -40 -50 -60 2000 2001 2002 2003 2004

Total

2005

2006

2007

2008

2009

2010

Year Source: Statistics Canada, cat.# 67–001, various years.

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Figure B.11 Growth in Real GDP Canada and Selected Countries 1998–2013 Annual Change (per cent)

United States Japan Germany U.K. Canada

7.0 5.0 3.0 1.0 -1.0 -3.0 -5.0

13 20

11

10

12 20

20

20

08

07

09 20

20

20

06 20

04

03

05 20

20

20

01

00

99

02 20

20

20

19

19

98

-7.0 Year Source: Organization for Economic Cooperation and Development (OECD), Economic Outlook, no. 90, Nov. 2011, Annex Table 1.

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Figure B.12 Standardized Unemployment Rates: Canada and Selected Countries 1998–2013

Standardized Unemployment Rate (per cent)

United States Japan Germany U.K. Canada

14.0 12.0 10.0 8.0 6.0 4.0 2.0

13 20

11

12 20

10

20

20

09

08

20

07

20

20

06 20

05

03

04

20

20

20

01

02 20

00

20

20

99 19

19

98

0.0 Year Source: Organization for Economic Cooperation and Development (OECD), Economic Outlook, no. 90, Nov. 2011, Annex Table 13.

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Figure B.13 Annual Inflation Rates Canada and Selected Countries 1998–2013 Inflation Rate (per cent) 6 5

United States Japan Germany U.K.(1) Canada

4 3 2 1 0 -1 -2 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year Source: Organization for Economic Cooperation and Development (OECD), Economic Outlook, no. 90, Nov. 2011, Annex Table 18. (1) Known as the CPI in the United Kingdom.

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Appendix B

Figure B.14 Labour Productivity Canada and Selected Countries 1998–2013

13

12

20

11

20

10

20

09

20

08

20

07

20

Year

20

06

05

20

04

20

20

03

02

20

20

20

01

United States Japan Germany U.K. Canada

00

99

20

19

19

98

Annual Change (per cent) 6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0 -5.0 -6.0

Source: Organization for Economic Cooperation and Development (OECD), Economic Outlook, no. 88, Nov. 2011, Annex Table 12. Note: Labour productivity is defined as output per unit of labour input.

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Contributors

Frances Abele is professor in the School of Public Policy and Administration at Carleton University. Scott Bennett is Associate Professor in the Department of Political Science at Carleton University. Christian Bordeleau is a Doctoral Student in the School of Public Policy and Administration at Carleton University. He is the founder of the IGO certification program in governance and the norm IGO 9002. Neil Bradford is Associate Professor, Department of Political Science, Huron College, University of Western Ontario. David Castle is Chair of Innovation in the Life Sciences, ESRC Innogen Centre at the University of Edinburgh. G. Bruce Doern is Professor in the School of Public Policy and Administration at Carleton University and in the Politics Department at the University of Exeter in the UK . Patrice Dutil is Associate Professor in the Department of Politics and Public Administration, Ryerson University. Marc-Andre Gagnon is Assistant Professor in the School of Public Policy and Administration at Carleton University.

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Contributors

Geoffrey Hale is Associate Professor of Political Science in the University of Lethbridge. Melissa Haussman is Associate Professor in the Department of Political Science at Carleton University. Ruth Hubbard is senior fellow of the University of Ottawa’s Graduate School of Public and International Affairs, and also its Centre on Governance. Derek Ireland has a BA in Economics and Asian Studies from the University of British Columbia and an MA in Economics and Phd in Public Policy from Carleton University. Dr. Ireland has worked as an economist, policy analyst and manager in the Canadian public and private sectors for over 38 years. He also teaches in the School of Public Policy and Administration at Carleton University. Ian Lee is Assistant Professor in the Sprott School of Business, Carleton University. Paul Madgett is fulfilling his aspiration of completing a Ph.D. and continues to do research on higher education issues dealing with innovation, student affairs and institutional research. He has presented and published at national and international conferences while recently opening his own consulting firm. Eric Milligan is President of the Regulatory Consulting Group Inc in Ottawa. Lisa Mills is Associate Professor in the School of Public Policy and Administration at Carleton University. Byongjun Park has worked as an economic policy analyst at the Government of Ontario’s Ministry of Finance and Ministry of Revenue. He completed his MA in Public Policy and Administration at Ryerson University in 2011. Gilles Paquet is Professor Emeritus at the University of Ottawa, a senior research fellow with its Centre on Governance, and an associate with its Graduate School of Public and International Affairs. Peter W.B. Phillips is Professor in the Johnson-Shoyama Graduate School of Public Policy, University of Saskatchewan. Michael J. Prince is Landsdowne Professor of Social Policy in the Faculty of Human and Social Development, University of Victoria.

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Contributors

Christopher Stoney is Associate Professor in the School of Public Policy and Administration at Carleton University and Director, Centre of Urban Research and Education (CURE ). Kernaghan Webb is Associate Professor, Faculty of Business, at Ryerson University. He has published extensively on policy implementation and legal issues. Prior to joining Ryerson, he was Senior Legal Policy Advisor and Chief of Research at the Office of Consumer Affairs, Industry Canada, and Adjunct Research Professor in Carleton University’s School of Public Policy and Administration, and Department of Law. David Wolfe is Professor of Political Science at the University of Toronto in Mississauga. Wei Xie is a doctoral student in the School of Public Policy and Public Administration at Carleton University.

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