Regional Economic Development: Canada's Search for Solutions (2nd Edition) 9781487579456

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Regional Economic Development: Canada's Search for Solutions Second edition

Billions of dollars are committed every year in Canada to regional development through a variety of programs: federal-provincial shared-cost agreements, freight rate assistance, tax credits, and more. In his widely acclaimed first edition of this book, published in 1986, Donald Savoie shed some welcome light on the Canadian experience of regional development policy. With this second edition he brings the analysis up to date. Savoie considers the various political and economic forces, past and present, that have shaped the development of policy. He offers a balanced and perceptive assessment of the appropriateness of our objectives for regional development and evaluates the effectiveness of successive phases of policy in meeting those objectives. New chapters in this edition report on all policy and program changes introduced since 1985. These include the elimination of a large federal government department responsible for regional development and the establishment of two new regional development agencies headed by their own ministers and deputy ministers. Savoie also updates the progress made in alleviating regional disparities and documents changes in the public policy environment in the past few years stemming from factors such as free trade, the growing federal deficit, and the constitutional crisis. DONALD J. SAVOIE is Executive Director, Canadian Institute for Research on Regional Development, Universite de Moncton. He is also the author of The

Politics of Public Spending in Canada.

DONALD J. SAVOIE

Regional Economic Development: Canada's search for solutions 2nd edition

UNIVERSITY OF TORONTO PRESS Toronto Buffalo London

First edition © University of Toronto Press 1986 Second edition © University of Toronto Press 1992 Toronto Buffalo London Printed in Canada Reprinted in 2018 ISBN 0-8020-2781-4 (cloth) ISBN 978-0-8020-6830-9 (paper)

9

Printed on acid-free paper

Savoie, Donald J., 1947Regional economic development 2nd ed. Includes bibliographical references and index. ISBN 0-8020-2781-4 (bound) ISBN 978-0-8020-6830-9 (paper) 1. Regional planning - Canada. 2. Canada - Economic conditions - Regional disparities. 3. Canada Economic policy - 1971.• I. Title.

HC115.S85 1992

338.971

C91-095117-9

Contents

PREFACE TO THE SECOND EOffiON PREFACE TO THE FJRST EOffiON ABBREVIATIONS

PART I

vii

ix

xi

BACKGROUND

1 Introduction 3 2 Regional economic development and federal-provincial relations 14

PART II

THE EFFORTS

3 Shaping OREE 25 4 OREE - The early years 38

5 OREE and the General Development Agreements 50 6 Three aborted policy reviews 68

7 New policies, structures, and programs 84 8 A new government - Changing direction 98 9 ACOA - Looking east 117 10 WO, FEDNOR, DIST- Looking everywhere 140 11 Other regional development efforts 162 PART III

AN ASSESSMENT

12 An assessment 189 13 Regional economic development reconsidered 226 14 Prospects 242

vi Contents APPENDIX A Synopsis of federal assistance available in regions of

Canada 267 APPENDIX B Signed GOA subsidiary agreements 270 APPENDIX c Signed ERDA subsidiary agreements 274 APPENDIX D Signed ERDA and Cooperation subsidiary agreements as of 30 August 1990 277 NOTES

279

SELECTED BIBLIOGRAPHY 309 INDEX 331

Preface to the second edition

There is probably no other policy field that lends itself to such dramatic shifts in direction as regional development policy. The nature of Canadian regional policy is such that the federal government can carry on with the status quo if it so wishes, suddenly launch new programs, or, just as suddenly, backtrack or reverse its actions. Canadians have witnessed all three postures time and time again, ever since the first regional development measures were introduced in 1960. We have seen regional development measures come and go over the years in rapid succession. I reported on these changes in the first edition of this book. Though the book was published in 1986, several substantial changes have since been made to Canadian regional development policy and efforts. A large federal department charged with regional development responsibilities has been disbanded and new regional development agencies have been established. When one looks to the future, one can easily speculate that still more important changes are in the making. The challenge and discipline of the global economy and the tight fiscal situation confronting the federal government are shaping future regional development efforts. This second edition reports on recent changes to regional development efforts and looks to the future to see how we may best plan our efforts. I have broken the book down into the same three parts I did in the first edition and have left virtually intact chapters 3, 4, 5, 6, and 7. I have added three new chapters, which report on the various changes the Mulroney government introduced to Canadian regional development policy. These changes were far-reaching. Two new regional development agencies with large expenditure budgets were established for Atlantic Canada and the West. In establishing these agencies, the federal government took the unprecedented step of locating the head offices outside of Ottawa Both agencies are headed by ministers and deputy ministers and both were given full authority to design new policies and programs. In addition, the federal government's regional develop-

viii Preface to second edition ment efforts in Quebec were completely overhauled and a new federal regional development agency was also established for northern Ontario. The new chapters report on the political and economic forces that led the Mulroney government to introduce sweeping changes to Ottawa's regional development policy and on the success of the changes. I have also made substantial revisions to the three concluding chapters. It was necessary to update the progress being made in reducing regional disparities. I employed the same criteria to measure the level of regional disparities as I did for the first edition. In addition. I introduced a number of new ways to measure the level of 'disparities• and 'development' including the development of a regional 'entrepreneurship' index. I also seek to cast Canada's regional development in the emerging public policy environment found in Canada. This environment is fast changing in light of the demise of the Meech Lake agreement, the requirements of the global economy, and Ottawa's difficult fiscal situation. The book concludes with new suggestions for strengthening Canadian regional development policy. I incurred many new debts in the course of preparing the second edition. I met with many government officials to gather new data and to seek new insights in regional development programming. They again gave freely of their time and a good number of them made key government documents available. A number of government officials, in particular a former official with the Department of Regional Economic Expansion (DREE), contacted me after the first edition was published to offer their observations and suggestions. Their insights proved extremely valuable in preparing this edition. In the concluding chapter of the first edition, I wrote about the need for establishing a federal agency responsible for promoting regional development As fate would have it, the Canadian prime minister asked that I prepare a report on establishing such an agency for Atlantic Canada I did and the report led to the establishment of the Atlantic Canada Opportunities Agency (ACOA). In preparing the report, I consulted with over eighty federal and provincial government officials and with representatives of the private sector, the academic community, and interest groups. I was able to secure new information and gain some new insights into the history of Canadian regional development efforts from those directly employed in the field and also from those benefiting from these efforts. These also proved valuable in preparing this work. I want to thank Ginette Benoit for having typed this edition. As she did for the first edition, she worked diligently and with good cheer. I also want to thank the Social Sciences and Humanities Research Council of Canada for providing financial assistance in support of new research for this book. Finally, I would like to thank once again my wife Linda and our children Julien and Margaux for their support.

Preface to the first edition

This study repons on Canada's effons at promoting regional development. By and large, these efforts are planned and implemented outside the public view, so that one must turn to elected and to permanent government officials to gather the facts and to gain an appreciation of the circumstances under which the efforts were launched. Without the willing co-operation of a number of government officials, this study would clearly not have been possible. They must as always remain anonymous, but no doubt they will be able to recognize their valuable contributions to the this book. It remains gratifying to note, however, that only one request for information met with a blank refusal. I also incurred a great number of other debts in undenaking this study. I am especially grateful to Tom Kent, who read the first draft and who provided valuable insights, and to Professor Ben Higgins, who read the entire study and made a number of important suggestions. Harvey Lithwick provided valuable advice and assistance in revising the work. I also wish to thank Ginette Benoit for having typed all this book with willingness and dispatch. Despite all the help that I have received, I must reserve to myself responsibility for all errors or omissions. In the preface of my first book, I thank my wife Linda and our two children, Julien and Margaux, for their support. I wish to thank them again, but this time even more emphatically. They respected with tolerance and good humour the discipline that I imposed on myself after the decision to write this book. Certainly Linda's unwavering support was crucial to the completion of the study.

Abbreviations

ACOA ADA ADD ADC

ADIA AEP AOP

APEC ARDA

CBITC CEIC CFIB

CRIB DEVCO DIPP DIST

DIT&C OREE ORIE

EAGGF ECB ECBC EDA EDP Ell. ERC

ERDA ERDF

Atlantic Canada Opportunities Agency Area Development Agency Atlantic Development Board Atlantic Development Council Area Development Incentives Act Atlantic Enterprise Program Atlantic Opportunities Program Atlantic Provinces Economic Council Agricultural and Rural Development Act Cape Breton Investment Tax Credit Canadian Employment and Immigration Commission Canadian Federation of Independent Business Canadian Regional Industrial Board Cape Breton Development Corporation Defence Industry Productivity Program Department of Industry, Science and Technology Department of Industry, Trade and Commerce Department of Regional Economic Expansion Department of Regional Industrial Expansion European Agricultural Guidance and Guarantee Fund Enterprise Cape Breton Enterprise Cape Breton Corporation Economic Development Agreement Enterprise Development Program Equalization of Industrial Loans Expenditure Review Committee Economic and Regional Development Agreement European Regional Development Fund

xii Abbreviations European Social Fund Fashion Design Assistance Program FEDC Federal Economic Development Co-ordinator FEDNOR Federal Economic Development Northern Ontario Fund for Rural Economic Development FRED Footwear and Tanning Industry Assistance Program Fl1AP GAAP General Adjustment Assistance Program GDA General Development Agreement IDAP Industrial Design Assistance Program Industrial and Labour Adjustment Program ILAP Industrial and Regional Development Program IRDP Industry, Science and Technology Canada ISTC Industry, Trade and Commerce rr&c Local Economic Development Agency LEDA MOSST Ministry of State for Science and Technology MSED Ministry of State for Economic Development MSERD Ministry of State for Economic and Regional Development OECD Organization for Economic Co-operation and Development PCO Privy Council Office PFRA Prairie Farm Rehabilitation Act PMO Prime Minister's Office Promotional Projects Board PPB Regional Development Incentives Act RDIA Registered Home Ownership Program RHOSP STP Strategic Technologies Program SYSCO Sydney Steel Corporation WD Western Diversification Department WTID Western Transportation Industrial Development Program ESF

FDAP

PART I

BACKGROUND

1

Introduction

Among the countries currently classified by the United Nations as 'industrialized market economies,' Canada is surely one of the most highly regionalized, and its economy is accordingly one of the most badly fragmented. In such a country the 'free market' does not function well for all regions simultaneously, and macroeconomic policies applied uniformly throughout the nation will not suffice to eliminate the faults in market performance. Federal politicians have realized this fact intuitively for some time, and national economic policy has been to some extent regionalized: witness policies regarding freight rates, revenue sharing, unemployment insurance, and the operations of the former federal Department of Regional Economic Expansion (DREE). They went a step further in 1987 when they unveiled new regional development agencies and departments for Atlantic Canada and the West. There is probably no other field of government expenditure in which so much public money is committed but so little is known about the success of the policy. There exist very few objective research studies on regional development efforts in Canada. 1 Not only are considerable amounts of public funds spent every year on regional development, but many Canadians view striking an appropriate regional balance. in the country's economic development as an important tenet of national unity. Former Prime Minister Pierre Elliott Trudeau stressed that the problem of regional development is as threatening to national unity as the language issue. 2 But students of Canadian politics and economics have not given it anywhere near the attention they have given the English-French conflict or the place of Quebec in the federation. The last comprehensive study specifically concerned with the federal government's efforts at promoting regional development was published in 1969. That study unfortunately antedates even the establishment of DREE, which was disbanded in early 1982.3 This lack of research has not, however, prevented politicians and observers of Canadian politics and public policy from taking a keen interest in regional

4 Background development or from engaging in debates on the matter. People from economically disadvantaged areas frequently argue that national economic policies are largely responsible for the economic underdevelopment of their respective regions and that much more should be done in regional development. Meanwhile, those from more developed regions are as likely to argue that far too much public money is committed to inefficient economic activity in slow-growth regions. As a result, the debate on regional development has tended to lack the information essential to discussion of such an important and potentially divisive issue. In turn, this has given rise to wildly exaggerated claims. A widely read newspaper columnist, for instance, has suggested that Ottawa's program of regional industrial incentives cost taxpayers billions of dollars over several years; in fact, slightly more than $1 billion was spent over the program's entire fourteen-year life span. The former premier of British Columbia, Bill Bennett, often claimed that federal policies for regional development were ineffective and should be dropped. The Ontario government, at least until Bob Rae's New Democratic Party came to power in 1990, urged the federal government time and again to stop 'distorting' Canada's industrial structure in the name of regional development.4 Other political leaders argue with equal conviction that not enough is being done for regional development Former Premier Hatfield of New Brunswick has said that regional development efforts are in reality only compensation for 'the bad policies or the policies that favoured them [i.e., the more developed regions] years ago, and still do.' He maintains that 'there is an attitude here in Ottawa that there are certain things that we cannot do down there because we are not so capable of doing them, that there are only certain things that we can do and we should stick with them.' 5 It appears that when it comes to regional development policy, provincial premiers, no matter their political affiliation, stand where they sit Premiers from slow-growth provinces consistently argue for greater federal regional development efforts, while premiers from the more developed provinces consistently argue for less federal-government intervention in the name of regional equity. When Premiers Hatfield and Peckford, for example, left the political scene, their successors, Premiers McKenna and Wells, from different political parties, quickly picked up the mantle and adopted virtually the same position on federal regional development policy that their predecessors had held. At his first federalprovincial conference on the economy, for example, Premier McKenna simply echoed the points that Premier Hatfield had made time and again at such conferences throughout his seventeen years in office. He urged Ottawa to adopt a stronger commitment to regional development and to look to federal-provincial agreements as the main instrument of regional policy. Premier Wells, mean-

Introduction 5 while, also picked up exactly where Premier Peckford had left off and argued that the federal government has an obligation to reduce, if not eliminate, regional disparities. Indeed, his views on this matter explained in part his opposition to the Meech Lake constitutional accord. 6 A number of economists and specialists on public policy have also commented on Canada's regional development problems with deep concern. Grant Reuber argues that 'achieving an acceptable and widely accepted reconciliation of national and regional interests poses perhaps the most difficult issue confronting Canadians today. ' 7 Others have echoed his sentiment, but few have in recent years attempted a comprehensive look at Ottawa's regional development goals and at the various programs tried and efforts made, or considered the issues of government organization surrounding the promotion of regional development. There are understandable reasons why regional development has not received the kind of attention one would expect from the academic community. The subject falls naturally into no single discipline. It is of interest to students of economics, public policy, public administration, political science, sociology, geography, and demography. A number of specialized studies on specific issues in regional development have been carried out, but most have failed to look at regional development from a broad perspective. Perhaps more important, however, efforts at promoting regional development have, by and large, been conducted through federal-provincial programs. Information on intergovernmental programs has not always been readily available to researchers. Further, federal-provincial programs have now become, in their own right, a proper area of specialization. The advantages of a comprehensive study of Canadian regional development are clear. It can bring together a number of important considerations and shed some light on the total picture. A comprehensive approach can clarify the interdependence of problems in policy-making. No major public policy development is the product of a single linear progression of events and ideas. There are many rivulets of thought. Heroic assumptions are required if one hopes to study any kind of economic policy-making issues in isolation of political considerations or government organizational issues. Thomas Brewis emphasized the need for a comprehensive approach: 'Those who forget this [need] are lilcely to find themselves engaged in speculation of little relevance to the world around them. ' He explained that 'political economic administrative considerations' lie at the root of regional development programs.• Conversely, a study that seeks to consider the full range of issues in regional development holds potential drawbacks. The specialists will invariably be more familiar with some issues raised in the study. A number of points and suggestions offered will require additional analysis. But the price is worth

6 Background paying, if the study encourages further research on regional development. The subject remains large and relatively unexplored. I hope that this book will stimulate more research and look at regional development from a broader perspective than has been attempted in the past. SOME THEORETICAL CONSIDERATIONS

Regional development economists agree that no single economic theory explains regional disparities. There is no consensus on the appropriate theoretical approach to the question. Richard Lipsey has observed: 'For all the concern about regional area development and regional problems in Canada, we don't really have an underlying theory. We don't know what we would have to do, what are the conditions under which there would be regional equality, however we define equality. ' 9 There have been attempts to develop a theory, or at least an agreed-upon approach to the study of regional disparities. The Economic Council of Canada sponsored several studies designed specifically to define a theoretical approach to the problem. However, the Council concluded its major effort in this area (Living Together) in 1977 without producing a suitable theoretical framewortc.10 Earlier attempts at defining a theoretical approach formed the basis for regional development programs in Canada. For example, the 'growth pole' concept inspired the first policy and program structure of the Department of Regional and Economic Expansion (OREE). French economist Fran~ois Perroux had argued that economic activity tends to concentrate around certain focal points. Growth, he argued, 'does not appear everywhere and all at once; it reveals itself in certain points or poles, with different degrees of intensity; it spreads through diverse channels.' 11 Efforts to strengthen these focal points in slow-growth regions can start a process of self-sustaining economic growth. These efforts can take the form of incentive grants to businesses to locate there, the provision of land-servicing for industrial and housing developments, and so on. Another French economist, J.R. Boudeville, expanded on the theory and suggested that 'a regional growth pole is a set of expanding industries located in an urban area and inducing further development of economic activity throughout its zone of influence.' 12 Like Perroux, he argued in favour of polarization around certain growth points; any difference between the two authors is essentially one of definition. Boudeville suggested that the growth pole incorporates both the designated urban centre and the growth area; it induces development 'throughout its zone of influence.' However, his development poles are permanent (as growth poles need not be) and seek to adopt methods of production found in the highly developed regions so that they can pass on any

Introduction 7 success to the rest of the region. Boudeville used the growth pole to explain regional inequalities in geographic areas. He sought to assess the impact of polarized development on regional inequalities. The concept of the growth pole has evolved considerably since Perroux first wrote on the subject. Boudeville is only one of a number of authors who have developed the concept further. For instance, we now invariably refer to growth centres rather than growth poles. The growth centre implies a much more spatial framework. Analysts are now calling for a more detailed look at potential growth centres concerning the type of industries that should be attracted and the order in which investment decisions should be made. Since new industries and linkages cannot be established overnight, supporters of growth-centre development now urge that new invesunents be timed so as to establish an efficient growth sequence. 13 Other authors look at growth centres from a broad perspective, embracing all the factors - cultural, economic, and political - that contribute to regional growth, and examine the results of induced urban industrialization."' The 'development' approach also influenced early formulations of Canadian programs for regional development. It holds that regional disparities are caused by the market and that government intervention is essential. It suggests that economic failure breeds other failures and that a region will not be able to attract new economic activities unless it can break away from this vortex. 15 Governments should intervene to break this self-perpetuating cycle of regional disparities. They can prop up demand through transfer payments and can ensure an adequate level of public services through fiscal equalization designed to support provincial governments in the less-developed regions of the country. The development approach views regional disparities from a broad perspective and calls for a host of measures designed to stimulate growth. These measures include: encouragement of capital accumulation; assistance in creating an adequate industrial infrastructure; an increase in the educational level of the workforce; promotion of the application of new technology; and assistance in modernizing agricultural methods and in constructing new roads, harbours, and sewer systems. This approach requires a multidimensional intervention by government. It deals with problems of regional disparity on a number of fronts, through economic and social initiatives. Just as the symptoms and causes of regional economic disparity vary, so must the instruments to deal with them. 16 The development approach was largely inspired by the study of underdeveloped countries and accordingly draws attention to infrastructure, educational facilities, productivity, agriculture: and so on. The approach has fallen out of favour in Canada among both students and practitioners of regional development. They stress that given the progress made in Canada over the past twenty years, the problems of the underdeveloped countries are now so different from

8 Background those of slow-growth regions that the development approach is no longer applicable. In more recent years. many regional development planners have looked to the trade theory to gain an appreciation of the regional problem and to come up with new measures. Though developed to deal with the movement of goods and money between nations. the theory has also been adopted to explain the movement between regions within the same nation. 17 It suggests that a region will maximize its economic potential by concentrating its efforts on its economic strengths. If. for example. a region has much capital and little labour. then it promotes economic activity that requires a great deal of capital but little labour. A by-product of this theory is the notion of a region's 'comparative advantage.• There are numerous examples of regional comparative advantages in Canada. One example is fish processing. The four Atlantic provinces. Quebec. and British Columbia will obviously wish to specialize in this sector because they have the resources. Quebec's hydro power should enhance industrial opportunities in that province; Ontario's comparative advantage lies in its diversified industrial base and its mature urban structure. In short. the trade approach would see Canada's regions specialize in their areas of strength and comparative advantage. With each region building from its strength. market forces would make the necessary adjustments in labour. Quite apart from which development approach offers better prospects for success. we know that mainstream economics has traditionally considered space in four ways: 18 1. Although much of mainstream (neoclassical) economics explicitly or implicitly assumes that space is homogeneous. and therefore abstract from spatial considerations altogether. when working at a level closer to reality. mainstream economists do recognize that different spaces have different resource endowments. physical and human. These differences create opportunities for geographic specialization. according comparative advantage. Recognition of the existence of these opportunities which gives rise to the theory of interregional and international trade. 2. Similarly. while much of mainstream economics abstracts from transport costs and assumes. implicitly or explicitly. completely costless and instantaneous mobility of all factors of production at a higher level of reality. it is recognized that the different resource endowments of different regions that provide a basis for interregional trade also entail the existence of distances between spaces. Transport costs and limited mobility must therefore be taken into account in any analysis that purports to be realistic enough to provide a basis for policy recommendations. Nonetheless. much neoclassical analysis treats transport costs and immobilities essentially as nuisances that detract from the ele-

Introduction 9 gance of the analysis, and neither is the subject of thorough analysis in most of the mainstream literature. 3. Since neither people nor resources are spread evenly through space, there are necessary choices and decisions to be made as to what economic activities should be carried out where. Proximity to market (people) and to resources, production costs, and transport costs will be considerations in these decisions. More recently, access to infonnation and to innovations has been added to the list of considerations. The aggregation of these decisions will determine the location of industry and other economic activities, and thus the location of population, the location and size of cities, and the urban hierarchy. These very complex interactions gave rise to the theory of location, which became one of the most abstract, most abstruse, and least satisfactory branches of neoclassical economics. 4. The boundaries of political units are defined in space: nation-states, states and provinces, municipalities, districts, etc. These units have varying degrees of power in various fields of policy: monetary, fiscal, trade, foreign exchange, wage-price regulation, land use, and so on. Thus in the analysis of public policy, neoclassical mainstream economics was obliged to recognize the existence of differentiated spaces. As a rule, however, it did not take account of specific social, cultural, or political differences among these spaces. All in all, it is fair to say that mainstream economics has never dealt adequately with space as such. A free market with sensible monetary and fiscal policy to maximise the level and rate of growth of national income would maximise the welfare of all social groups, regions, and countries. Regional disparities could not persist. Indeed, 'regions' would have little meaning in a neoclassical perspective. They are simply artificial subdivisions of national economies, and any intervention in the market in the name of regional policy is at the cost of a reduction of efficiency in those national economies. Implicit or explicit in the standard neoclassical analysis is a 'natural' tendency of unhampered economies towards equilibrium, and to return to equilibrium if disturbed. In short, the neoclassical approach applies standard methods of economic analysis to regional problems: market forces should be free to set the necessary equilibrium. If unemployment is particularly high in a region, then let the market forces deal with the problem with a minimum of government intervention. 19 Essentially, unemployment, according to the neoclassical view, is a failure to equate labour supply with demand. The solution, as with other market commodities, is to reduce surplus labour by lowering wages, so that the market can take advantage of lower productivity cost. New economic activity will create employment, albeit perhaps with lower wages than elsewhere in the country. If new economic activity is not created, then worker out-migration becomes the

10 Background appropriate adjustment mechanism. This will trigger the necessary regional adjustments and bring about regional balance. The neoclassical approach in Canada, for example, questions the appropriateness of federal transfer payments to slow-growth regions: rather than promote self-sustaining economic activity, they may do the opposite. They serve to blunt necessary economic adjustments. Proponents of this view argue that traditionally we have been looking at regional development from the wrong angle. Thomas J. Courchene maintains that Canada is approaching regional policy with 'a concept of gap closing rather than a policy of adjustment accommodation. We see disparity out there ... and we rush to remove it with one set of funds or another rather than letting it adjust itself on its own. ' 20 On the whole, Marxists have paid little more attention to space than the neoclassical economists. When they do, it is usually in the guise of some variant of the 'dependency theory' with space in the form of a 'centre' where the international monopoly capitalists have their headquarters, and a 'periphery' in the form of regions or countries where abide the people they systematically exploit. In this theory, interregional or international disparities persist because the capitalists, who have the power, want them to persist, to keep wages down and profits up. Thus regions or spaces are defined in terms of the interregional and international power structure and the distribution of income that results from it. I hold that the real world is very different from the pictures painted by either the neoclassical or Marxist schools, and that space plays a far more vital role in economies and societies than either school allows. There are a number of factors that lead me to this view. For one thing, all societies live in particular places; cultures are often defined in terms of space. This fact is readily recognized by other social scientists, but seldom explicitly by economists. These spaces are almost always smaller geographically than a nation-state. Indeed, in most countries, there are sharply differing or even conflicting interests among various societies occupying various spaces within them. There is scarcely a region or province in Canada, for example, that does not have its own cultural and social characteristics and its own special interests, which are often in conflict with those of other provinces and regions. Indeed, one only has to take a cursory look at Canada's constitutional developments since the early 1980s to gain an appreciation of this reality. People do develop strong loyalties and attachments to spaces. Family, friends, institutions, landscapes, climates, a general sense of belonging and of knowing how to behave in a particular society - these exercise a very strong pull on most people. And this pull means that mobility could never be costless, instantaneous, and painless even if transport were free, and if houses, churches, hospitals, schools, power plants, and so on could be transported, instantaneously and costlessly, along with the people. Many people have a passionate desire to

Introduction 11 go on living and earning their living where they are; and that desire is a factor that must be given its proper weight in the calculation of the impact of any policy on the welfare of a particular society. Moreover, most people do not think of 'welfare• in terms of nation-states. They may have enough national pride to be pleased when they read that the per capita income of their countty has surpassed that of a neighbouring countty; but their pleasure in that fact is not likely to be strong if they live in a retarded region. It seems clear that where social welfare is concerned, much smaller spaces than the nation-state must be used as the criterion. There is also an overlap between structural adjustment and regional development Indeed, there is throughout the world today more fluidity in the location of economic activity than ever before and, consequently, more rapid and more unpredictable changes in patterns of regional development: the continued movement towards the southeast of the United Kingdom despite all efforts to halt it; the economic strength of Paris despite efforts to slow its growth; and the return to the biggest metropolitan centres of Japan after a decade of 'polarization reversal.• The speed of diffusion of innovation is also unprecedented. In short, it is not possible to understand what is going on in any of these national economies without knowing what is going on in the various regional economies of which they are composed. THE CONCEPT OF REGION AND REGIONALISM

The terms regions, regionalism, and regional differences are of vital importance in Canadian policy-making to some analysts, while to others they are unnecessary. Many scholars believe that there should be much more work done in defining such key concepts. Others view regionalism as a gimmick promoted by governments to serve their own self-interests and not those of the Canadian population. Governments, it is suggested, are less concerned with what is being done than with who is doing it and who gets the credit. Some analysts argue that regions, as opposed to communities or nations, play a predominant role in the economic and social activities of Canadians. In many cases they have 'probably replaced communities as the territorially based unit of group affiliation which arouses in their residents a consciousness of kind and which they regard simply as home.• David Alexander claimed that for Canada to survive as a countty it must define goals 'which support and encourage the survival of the region. •11 Richard Simeon suggests that our political institutions serve to reinforce regionalism and maintains that 'federalism is not only a response to regionalism, but also ensures that it will continue ... It provides an institutional focus for loyalty and identity ... Cleavages which reinforce the territorial divisions [are] highlighted. •22

12 Background Yet some students of public policy have suggested that in the economic development field the region may not be a valid concept for analysis. They argue that our attention should be directed to 'people prosperity' as opposed to 'place prosperity.' A change of economic activity from one area to another is relevant only in the context of its consequences for individuals. It certainly ought not to be the primary concern. After all, the argument goes, potential opportunities cannot be limited to particular places in which individuals find themselves. Consequently, the appropriate objective is to maximize potential opportunities and economic well-being for individual citizens, not for individual regions. This view certainly has merit from the perspective of economic efficiency. However, stronger arguments can be made for government concern with 'place prosperity.' In a federation, it is unlikely that all regional or provincial governments will subscribe fully to the view of people prosperity rather than place prosperity. Nova Scotia's government, for example, may well be primarily concerned with people prosperity, or the well-being of all residents within its jurisdiction. Viewed from the perspective of the country as a whole, however, this constitutes an emphasis on place prosperity. Province-building (provincial governments stimulating growth within their jurisdiction) has become a fact of life in Canada. Canada's population is not perfectly mobile. For many Canadians there are significant cultural costs associated with moving from one region to another in search of economic opportunities. French Canadians, for example, may well have to sacrifice their culture and language (or, at least, that of their children) should they move outside Quebec or a few areas in New Brunswick and Ontario. Thus, though they may question the wisdom of regionally oriented economic-development measures, most opponents accept that such measures will be advanced and implemented. Thomas Courchene has stated: 'I have no illusions that governments will stand idly by and allow the unfettered market to call the adjustment tune. They will intervene; ' 23 CONCLUSION

A brief look at the various theories and approaches to the study of regionaldevelopment leads one to conclude that regional development policy analysts are in disarray. In an uncharacteristic fashion, the Economic Council of Canada summed up the situation this way: 'Doctors used to try to cure syphilis with mercury and emetics. We now know that mercury works but emetics do not and, moreover, that penicillin is best of all. We suspect that the regional disparity disease is presently being treated with both mercury- and emetic-type remedies, but we do now know which is which. Perhaps one day an economic penicillin

Inb'Oduction 13 will be found. ' 24 The Economic Council did not discover such an economic penicillin, nor has one been discovered to date. Certainly considerable confusion still exists on the most appropriate theoretical approach to regional development. Yet it is in this confusion that Canadian regional development policy has been defined and updated throughout the past three decades. Students and practitioners of regional development have had to work under very difficult circumstances, with very little theoretical framework within which to formulate plans and initiatives. This study is aimed at defining and analysing regional development programs and policies in Canada over the years. It will then be possible to assess these efforts and make suggestions for the future. The first part of this study looks at federal-provincial considerations in regional development. Everyone - federal or provincial politicians, public servants, or students of regional development - agrees that federal-provincial cooperation is essential in promoting regional development Yet this has not always been evident, and I will consider why this is so and in what kind of institutional context federal-provincial cooperation must operate. The second part of this study explores various government programs in regional development and the forces that have shaped these efforts. It starts with the first explicit regional development initiative; reviews pre-DREE efforts, examines all of DREE's programs, and assesses the organization of the federal government's institutions for economic development. It also looks at recent efforts in the field, including the establishment of special regional economicdevelopment agencies for eastern and western Canada and northern Ontario. In addition, it considers the extensive promotion of regional development, including the role and contribution of provincial governments. The third and concluding part of the study attempts to assess the effectiveness of these various regional development programs and to propose new ways of studying regional economic disparity. With close to thirty years of experience to draw on, we can now ask fundamental questions about the nature of the problem, appropriate objectives, and policy directions and initiatives that might offer more promising prospects. Economic circumstances, both nationally and internationally, have also changed dramatically in those twenty years. Regional development policy is not immune to changes in political and economic circumstances and must now find its place in a new order of things. This study seeks to assist in this process.

2

Regional economic development and federal-provincial relations

As in most federal systems, Canada's constitution does not assign to either level of government explicit responsibility or powers for economic development or for combatting regional economic disparities. Provincial governments have a major function in economic development because they own natural resources and control most determinants of human resources and land use. The federal government has created for itself a major role, essentially on the basis of its spending power. Equalization payments, income transfers, and shared-cost agreements with the provinces all derive from Ottawa's spending power. In addition, the federal government holds jurisdiction over such matters as foreign and interprovincial trade, and chartered banking, and it shares with the provinces jurisdiction over agriculture and immigration. Thus, from a constitutional perspective, close federal-provincial coordination is required simply because both levels of government have assumed important roles in regional development. Nevertheless, many students of regional development tend to put aside these 'constitutional niceties,' arguing that a classical view of federalism may be appropriate for other policy fields, but not for regional development. 1 As regional development becomes more complex, they point out, so does the interdependence of governments' actions. Measures to promote regional development must be multidimensional and, by their very nature, cut across jurisdictional lines; otherwise, the efforts of one government could well work at cross purposes to those of the other. The federal government's responsibility for economic development involves the advancement of the country as a whole, just as that of a provincial government is the advancement of the province. The responsibilities of both governments invariably overlap, as do their activities, which flow into one another. It is no longer possible to speak of two levels of government as if everything were neatly divided into hermetically sealed jurisdictions. No one questions the importance of federal-provincial cooperation in regional development. Federal and

Federal-provincial relations 15 provincial politicians and officials all stress the benefits of close relations in this area. This was true even in the early 1980s when federal-provincial tension was particularly high over such issues as constitutional reform, the Quebec referendum, and the National Energy Program. 2 But the discussion of regional economic development, regional disparities, and the regional impact of national policies and programs often becomes an occasion for intergovernmental and interregional debates. Federal-provincial relations have certainly contributed to the notion of an equitable regional distribution of the economic benefits of Canadian federalism and have ensured that our economic debates would not simply be concerned with the functional efficiency of national economic policies. But they have also fuelled resentment between the sparsely populated peripheral regions of the country and the heavily populated and highly industrialized centre. In other words, the centre-periphery dichotomy of the Canadian economy has created among the country's residents different perceptions of their own economic interests, and federalism has created a framework that has served to promote these differences. Western Canadians and their provincial governments favour free ttade; Atlantic Canadians see a need for special measures to correct regional economic imbalances, and so do their provincial governments. Many centtal Canadians do not readily see the need for Senate reform to capture better the regional dimension in national policy-making. The same is true for governments in centtal Canada. It is for these reasons that the problem of regional development becomes part of a larger issue of federalism and federal-provincial relations.3 FEDERAL-PROVINCIAL COOPERATION IN PRACTICE

Reaching agreement on the need for close federal-provincial cooperation in regional development is easy. What is considerably less simple is reaching a consensus on how to achieve such cooperation. Numerous forces shape federal-provincial relations. Regional economic development is often a high-profile activity, more often than not placing governments in a positive light. Richard Simeon writes of 'status, goal and political competition' in federal-provincial relations: 'The federal and provincial governments compete to gain credit, status and importance, and to avoid discredit and blame. They have, in Anthony Downs' metaphor, a territorial sensibility.' 4 Regional development thus provides an attractive target for government competition for status. Not only is it highly visible, but it is also an area where the roles of each level of government are determined more often by politics than by formal jurisdictions. Regional development has often been a pawn in the continuing struggle between 'nation-building' and 'province-building.' Nation-building held sway for a number of years, particularly between the end of the Second World War and

16 Background the mid-1960s, leading, some claim, to a number of 'national' projects - the building of the railways, the construction of the Trans-Canada Highway, and the establishment of Air Canada and the Canadian Broadcasting Corporation. By the early 1960s, however, province-building was in the ascendancy, producing expensive educational facilities, modem and competent provincial public services, and extensive involvement in economic development.' A brief look at government revenues illustrates very well the extent of provincial activity. Over a twenty-year period (1959-79) the federal share of total government revenues in Canada declined from over 58 per cent to about 45 per cent, while the provincial share increased from 42 to 55 per cent. The decline of the federal share is even more dramatic when one considers intergovernmental transfers. In 1959, Ottawa had over 52 per cent of the total revenue after such transfers had been accounted for; in 1979, it had less than 34 per cent. In addition, over the same period, Ottawa more than quadrupled the amount of 'tax room' for the provinces in personal income tax.6 Shortly after its return to power, the Trudeau government served notice in 1980 that the emphasis on province-building had gone too far and that excessive decentralization was now becoming a threat to the country's survival. It fought successfully in the Quebec referendum and then proceeded to check the general trend toward decentralization with a series of measures designed to strengthen the national government. Competition between the provinces and Ottawa has been fuelled also by competitive political and bureaucratic ~lites at the two levels of government possessed of tenacious instincts for their own preservation and growth.7 These ~lites, it has been suggested, have continually sought to advance either their own interests (invariably bigger budgets, larger programs, more person-years) or their respective views of Canadian society. Those in Ottawa tend to believe that the interests of Canadian society are best served by nation-building, while those who sit in provincial capitals usually espouse province-building. Another important consideration is the extensive involvement of both levels of government in economic development. Motivated by a firmly held belief that discriminatory federal policies are at the root of their economic woes, the four Atlantic provinces and Quebec are bringing forward initiatives to close the economic gap between them and Ontario. Convinced that any growth in their regions is occurring in spite of, rather than because of, federal policies, the western provinces are also intervening to spur economic development within their borders, so as to reduce their dependence on natural resources and to diversify their economies. Ontario, seeing its industrial base increasingly under pressure from international competition, is also intervening in various economic sectors to promote growth. Ottawa, meanwhile, has not sat idly by. It too has views and initiatives that it considers of vital importance to economic devel-

Federal-provincial relations 17 opment.• The activist approach taken by the various governments makes intergovernmental cooperation considerably more difficult, and it also increases the likelihood of conflict. VISIBILITY IN FEDERAL-PROVINCIAL PROGRAMS

A further complicating issue in regional economic development is the importance or the visibility of government spending and activities. Federal politicians, in particular, argue that governments must continually compete to win the support of Canadians. Unless a level of government can demonstrate its importance in the political and economic life of the community, people will tum to the other for leadership. An excellent example is Quebec, where it is felt, by federalists at least, that the provincial government is continually seeking ways to discredit Ottawa's efforts to promote Quebec's interests. Federal politicians point also to other provinces, notably Newfoundland and Alberta, for examples of sustained campaigns to discredit the federal government. To counter these provincial activities, Ottawa is concerned to get due credit for federal money spent. Although its spending power appears to be unconstrained by constitutional limitations, federal money often is allocated to federalprovincial agreements, by which the provinces deliver the programs. This arrangement gives provincial governments an opportunity to claim credit for projects, even when the federal government has paid a major part of the costs. A survey showed that when Ottawa, on its own, delivers a program, 95 per cent of respondents are aware that the federal government is responsible for it, but when the program is delivered through a federal-provincial agreement, only 15 per cent know that the federal government has been involved.9 Constant jockeying for visibility, therefore, makes federal-provincial cooperation difficult. Projects are assessed in terms of their contribution not simply to the regional economy, but also to the political advancement of a particular government. Attempts to arrive at an amicable, long-term arrangement to share the public stage have not proved successful, at least from Ottawa's point of view. Between 1975 and 1979, the prime minister signed agreements with the premiers of five provinces to cooperate in informing citirens about participation by both levels of government in federal-provincial programs. The press release accompanying the signing of one of these agreements stated: 'It is often not clear which government is responsible for certain programmes and they [citizens] are therefore not clear as to the amount of contributions made by their provincial or federal tax dollars. •10 These agreements have had only limited effect Even though the basic ground rules have been respected - both governments are mentioned in all standard press releases announcing a new project - many federal politicians believe that

18 Background this arrangement has not prevented provincial governments from taking credit for any given project on a long-term basis. Canada's then deputy prime minister, Allan MacEachen, in his 1981 presentation to the Breau Task Force on Fiscal Federalism, remarked: 'A number of important public services are jointly financed by the federal government and the provinces ... The federal government has a particular problem of programme visibility ... because [the programs] are delivered by the provinces and because little is done to acknowledge publicly the important federal role.' He added: 'In a federal state, the exercise of political power is always the object of some competition between the two orders of government. ' 11 The problem of visibility is not made easier when governments of different political persuasion hold power in Ottawa and in the provinces. That said, there is no assurance that even when the same political party holds power in Ottawa and in the provinces all will be well. When Brian Mulroney's Progressive Conservative party came to office in 1984, the party held power in several provinces, including the four Atlantic provinces, Ontario, Alberta, and Saskatchewan. Mulroney made ' national reconciliation' and close federalprovincial cooperation a top priority of his government's agenda. Initially, at least, there were genuine efforts to cooperate. Both levels of government agreed to establish a joint federal-provincial task force on regional development. In addition, the federal government made plans to transfer much of the responsibility for delivering regional cash-grant programs to the provinces. However, harmonious federal-provincial relations, at least in the case of regional policy, were short-lived. To be sure, the task force was established and a report was tabled. It has had, however, no visible impact on federal regionaldevelopment programming. The idea of transferring responsibility for delivering incentives programs to the private sector to the provinces also proved shortlived. Key cabinet ministers like the Honorable John Crosbie began to oppose the transfer of program delivery to the provinces after only a year in office. As before, the issue ofpolitical visibility or whether Ottawa would still get due credit for federal money spent proved the decisive factor in preventing the transfer. This prompted a senior federal-government official to observe 'plus ~a change, plus c'est pareil.' 12 PERSONALITIES IN FEDERAL-PROVINCIAL RELATIONS

Personalities also shape federal-provincial relations. The Standing Senate Committee on National Finance recently produced a special report on government policy and regional disparities that underlined this point: 'Effective intergovernmental cooperation requires interpersonal cooperation at the political and bureaucratic levels. ' 13 The effect of particular people on federal-provincial relations can be crucial to regional development, where responsibilities and

Federal-provincial relations 19 jurisdictions are not neatly compartmentalized. With the rules of negotiation always changing, individuals can exert considerable influence on both the fonn of the process and the resulting programs. OREE's first minister, Jean Marchand, had both a strong personality and the complete confidence of the prime minister. Consequently, he took an aggressive posture toward provincial governments. 14 The provinces approached negotiations with him with some uneasiness: the potential for friction was high, and the atmosphere was not as hannonious as the provinces would have liked. A later OREE minister, Marcel Lessard, a junior cabinet minister with a relaxed personality, emphasized rapport with provincial governments. Several provinces publicly applauded his approach, and conflicts over OREE programs were neither as frequent nor as intense as they were before or after his tenure.15 The personalities of pennanent officials can also influence relations. Senior federal officials Tom Kent, Robert Montreuil, Donald McPhail, and Mike Kirby each had a different approach to intergovernmental negotiations, and each affected relations between the provinces and the federal government.16 Much depends on whether a senior official has an open or a cautious and bureaucratic approach to federal-provincial negotiations. Other officials will adjust their negotiating strategy to fit his personality. Admittedly, the effect of personality on federal-provincial relations is difficult to detennine, and students of regional development do not always have access to the actors. Yet it remains a crucial variable. Personality is also an important variable for regional development policy itself. Anyone even remotely familiar with federal regional-policy efforts in the late 1960s and early 1970s knows well the impact Jean Marchand and Tom Kent had in securing a large budget for regional development programming. One senior federal official who worked with OREB in its early years now reports that 'the challenge for us back then was to find ways to spend what Kent would get for us from the Treasury Board.' 17 In contrast, things went badly for OREB later, as we will see in chapter 5. Marcel Lessard, a junior minister, and Doug Love, an official without the intellectual or political clout of Tom Kent, were appointed minister and deputy minister. One federal-government official with a long and distinguished career in a line department and central agencies in Ottawa explained that 'if you are looking for reasons for the doing away of OREB look at the personalities involved. Lessard was a fine man but lacked a strong political base in Cabinet. Love never worked well with senior ministers and he never explained or even protected well his department before key regional ministers and central agencies. Simply put, he was never able to secure the kind of solid, lasting support for OREE from the Ottawa system that was required. Eventually, OREE paid the price.' 18 As we will see, there were a number of forces at play that led the federal government to rethink its approaches to regional development

20 Background and to do away with OREE. It would of course be unfair to lay the total responsibility for the undoing of OREE at the feet of either Marcel Lessard or Doug Love, or both. Still, the personalities of key government players in regional development are important for the success of the policy and no one should lose sight of this fact. ACCOUNTABILITY IN FEDERAL-PROVINCIAL RELATIONS

The structure of Canadian federalism has necessitated frequent interaction among governments. The constitution is ambiguous on important jurisdictional issues, and the financial resources available to governments do not correspond with their responsibilities. Further, national institutions do not adequately accommodate regional interests. Canadian governments have responded to the need for frequent interaction by setting up a variety of federal-provincial coordination mechanisms. At the top stands the annual Federal-Provincial Conference of First Ministers. Under its aegis is an array of ministerial-level conferences and meetings, ministerial committees, and permanent and ad hoc committees of officials, many of which coordinate and implement policies and programs. Perhaps no area has seen more of these committees than regional development. Under OREE's General Development Agreements alone, some 1,000 committees of officials were established.19 Most governments have established special organizations - even ministries - simply to deal with intergovernmental relations. Frequent consultation can allow interested agencies to participate in strategic planning for regional development. It can also permit flexibility in setting up federal-provincial programs - a highly valued feature. There is, however, a price to pay for this flexibility. A number of politicians and scholars have argued that recent developments in federal-provincial relations have weakened considerably the accountability of governments to their respective legislatures and to the public. 20 Regional development has not escaped this criticism; in fact, in it the criticism has gone beyond the issue of accountability. Cabinet ministers at both levels of government have complained that they have lost the ability to control new initiatives. One provincial minister said that trying to determine who proposed what under GOA programs 'is like grabbing smoke.' A federal minister added: •Attempting to stop a proposed subsidiary agreement by the time it comes to me is like attempting to perform an abortion nine months after conception. ' 21 Officials operating federal-provincial regional development programs must provide for more effective accountability of their efforts. This is true not simply because of the criticism on this point, but also because the public sector

Federal-provincial relations 21 generally has been asked to become more open and accountable. As a result of this demand a Freedom of Information Act now exists in Canada, and a Royal Commission on Financial Management and Accountability was established in 1976. This growing concern for accountability may lessen the flexibility of federalprovincial relations and the ability of officials to plan and implement a regional development plan that cuts across jurisdictional lines. Though there are clear advantages to those involved in throwing 'constitutional niceties' out the window, political circumstances no longer permit such a free-wheeling approach. This is yet another dimension that officials must consider in planning regional development. PROVINCIAL FISCAL CAPACITY

Provincial fiscal capacity has a profound effect on how a government will approach relations with Ottawa. A poor province may not always be able to pull together the necessary expertise to contribute fully to the formulation of policies and programs. In addition, a provincial government unable to 'go it alone' may tum to federal-provincial programs for new initiatives much more readily than will the more self-sufficient. Poorer provincial governments are at a disadvantage when competing with wealthier ones or, more important, with the federal government, in shaping new federal-provincial initiatives. Some openly admit this. For instance, when commenting on the establishment of Canada's pension plan, a New Brunswick official revealed that 'we just went neutral on [it] ... We just eased out of it. We just didn't have the capacity to tackle it.' 22 The federal government has recognized this situation and at one point attempted to resolve it. To build up the planning capacity of the less-affluent governments; Ottawa in the mid-1970s offered to subsidize the salaries of newly hired public servants in selected provincial governments. In addition, it offered to sign agreements with some provincial governments to give them the ability to plan new initiatives. In both instances, the intended focus of the strengthened capacity was regional development. 23 Provincial governments welcomed this assistance. They feared that if they did not have adequate analytical and planning capacity, the federal government, with its enormous human and financial resources, would simply dictate what initiatives it considered best. A weak fiscal position can also force a provincial government to discard initiatives it favours for others that have lower priority but are eligible for federal cost-sharing. Some analysts have suggested that the economic weakness of Atlantic governments conditions their response to federal initiatives. Certainly this is so for regional development. A detailed study of the Canada-New

22 Background Brunswick General Development Agreement revealed the attractiveness of a '20-cent dollar': with Ottawa contributing 80 per cent of the cost of a particular initiative. a twenty-cent invesbllent by the province buys a dollar expenditure within the province. The study revealed also that provincial governments are quick to replace an initiative that does not qualify for the twenty-cent dollar with one that does.:u CONCLUSION

In Canada. regional development and federal-provincial cooperation are ineluctably linked. Effective efforts at regional development are simply not possible without effective federal-provincial cooperation. A provincial minister recently put it this way: 'If the feds are going to tell us where they're going to build a bridge. fine. We'll then tell them afterwards where we're going to put the road.' 25 A study of Ottawa's regional development programs is thus largely an analysis of federal-provincial attempts to cooperate - something that everyone agrees is crucial to success. That said. few observers share the same view as to the most effective means to achieve such cooperation, and there have been a variety of approaches brought forward and tried. There is recognition, however. that the nature of Canadian federalism promotes regional conflicts over economic development and that a wide number of factors influence and shape federal-provincial cooperation in regional development. By and large, these factors make federal-provincial cooperation in regional development more difficult rather than less difficult. This will be clear in our review of the various policies that have been developed to deal with Canada's regional development problems. Improving federal-provincial cooperation for regional development is in many ways as important as defining new policy instruments and new programs.

3

Shaping OREE

During the period from Confederation to the mid-1950s. the federal government had no explicit policy of regional developmenL It directed its economic policy essentially toward the development of the national economy. The prevailing belief was that a strong national economy. based on east-west trade, would benefit all regions. Regional programs. such as the Maritime Freight Rates Act (1927) and the Prairie Farm Rehabilitation Act (1935). were designed to overcome specific problems. Problems in the fiscal capacities of some provinces started to manifest themselves shortly after Confederation. Ottawa made a number of special and even supposedly final federal subsidies and grants to the provinces. In the 1920s it established a royal commission to look into the financial difficulties of the Maritime provinces. The commission recommended special grants to assist the Maritime provincial governments with their budget deficits and based this proposal on the need for greater equality among the provinces. 1 But, here again. the federal government's concern was not so much with the pace of regional activity as it was with a specific problem - government deficits in the Maritime provinces. In short, the principal motivation behind national economic policy remained growth. not regional balance in the country's economic growth. THE BEGINNING

Only after the Second World War did the federal government show greater concern for a regional balance in economic activity. perhaps because regional differences became much more apparent in these years. Shortly after the war. the federal Department of Reconstruction called a Dominion-Provincial Conference on Reconstruction. The federal government's submission revealed a total faith in Keynesian public-works planning and in the need for federal control over fiscal policy. 2 The federal government offered generous subsidies to provincial

26 The efforts governments for planning and implementing public works, provided that the provinces agreed to place fully planned projects into a reserve or 'shelf' to be implemented at a time to be designated by the federal government. Ottawa felt that this plan would enable it to mount a concerted attack on inflation and unemployment by directing projects to selected areas of the country. For a variety of reasons, including continuing prosperity, little came of Ottawa's plan. What brought the federal government to recognize regional economic imbalances was the fiscal weakness of the poorer provinces. In a very harsh manner, the Depression years had revealed this weakness. The Rowell-Sirois Commission had been established in 1937 to re-examine 'the economic and financial basis of Confederation and the distribution of legislative powers in the light of the economic and social developments of the last seventy years.• Essentially pessimistic about the capacity of governments to work together efficiently in joint activities, the commission had favoured a clear delimitation of power. It had concluded that the Canadian fiscal system should enable every province to provide an acceptable standard of services, without having to impose a heavier-than-average tax burden. It had recommended a strengthening of the federal government's economic powers and a series of national grants to the poorer provinces so that they could offer public services broadly equivalent to those in the richer provinces.3 Two decades later, in 1957, the federal government set up the fiscal equalization program. It was intended to reduce disparities between regions, to achieve a national standard in public services, and at the same time to equalize provincial-government revenues. Ottawa thus undertook to ensure that all provinces would have revenues sufficient to offer an acceptable level of public services. Payments under the equalization schemes were and are unconditional, and eligible provinces need not spend the resources on economic development.4 The payments help poorer provinces provide services, but do not necessarily assist them in integrating their economies more successfully into the national economy and in supporting regional growth from within. This limitation does not in any way minimize the importance of the equalization payments. These payments constitute regular commitments on the part of Ottawa to equalizing the fiscal capacities of all provincial governments. In tum, provincial governments in slow-growth regions can provide a level of public service roughly comparable to that available elsewhere. The payments also offer financial stability to provincial governments so that a competent public service can be retained and some degree of forward-looking and longrange planning can be undertaken. In itself, however, the equalization program does not earmark special funding to put in place measures to stimulate selfsustaining economic growth. Another royal commission was to come forward with suggestions about

Shaping OREE 27 establishing special development plans. The Royal Commission on Canada's Economic Prospects (the Gordon Commission) reported in 1957 that ' a bold and comprehensive and coordinated approach' was needed to resolve the underlying problems of the Atlantic region, which required special measures to improve its economic framework. Those measures included afederally sponsored capital-project commission to provide needed infrastructure facilities to encourage economic growth. The commission called also for measures to increase the rate of capital investment in the region. In many ways the commission was breaking new ground in advocating special measures to involve the private sector in promoting development in slow-growth regions. Perhaps for this reason the commission remained cautious in its recommendations. It argued: 'Special assistance put into effect to assist these areas might well adversely affect the welfare of industries already functioning in most established areas of Canada. ' 5 As with the Rowell-Sirois Commission, the Gordon Commission's recommendations were to play an important role several years after being made public. The Gordon Commission was a creation of Louis St Laurent's Liberal government and reported its findings in 1957. However, 1957 also saw a Progressive Conservative government elected in Ottawa. The new Diefenbaker government did not immediately embrace proposals inspired by a Liberal-appointed commission. The new government, however, was confronted by a recession and went quickly in search of innovative solutions. The recession once again underlined the persistence of regional imbalances. All regions felt its effects, but nowhere was it as severe as in the four Atlantic provinces. This helped convince the federal government that undirected financial transfers in the form of equalization payments were simply not sufficient to bring about structural changes in the slow-growth regions. Certain ministers in Ottawa were also pointing to what they viewed as unacceptable levels of poverty in numerous rural communities and arguing for special corrective measures. 6 The 1960 budget speech unveiled the first of many measures Ottawa has developed to combat regional disparities. The budget permitted firms to obtain double the normal rate of capital-cost allowances on most of the assets they acquired to produce new products - if they located in designated regions (with high unemployment and slow economic growth).' Shortly after this measure was introduced, Parliament passed the Agriculture Rehabilitation and Development Act (ARDA). It was an attempt to rebuild the depressed rural economy and represented Ottawa's first 'regional' development program. ARDA began as a federal-provincial effort to stimulate agricultural development in order to increase income in rural areas. It aimed to increase small farmers' output and productivity by providing assistance for alternative use of marginal land, creating work opportunities in rural areas, developing water and soil resources, and setting up projects designed to benefit people

28 The efforts engaged in natural-resource industries other than agriculture, such as fisheries. Later, in 1966, the program was renamed the Agricultural and Rural Development Act, and its objectives were adjusted. ARDA was expanded to include nonagricultural programs in rural areas, designed to absorb surplus labour from farming. Thus, reducing rural poverty became ARDA'S overriding objective.• Notwithstanding these adjustments, however, some Ottawa decision-makers believed that ARDA still had one serious drawback: it lacked an appropriate geographical focus. It was, in the words of one federal official, 'all over the Canadian map.' The Fund for Rural Economic Development (FRED), introduced in 1966, would deal with this concern.9 The program could be applied only in designated regions, with widespread low incomes and major problems of economic adjustment. In the end, five regions were identified under FRED: the Interlake region of Manitoba, the Gaspe peninsula in Quebec, the Mactaquac and northeastern regions of New Brunswick, and all of Prince Edward Island. Separate 'comprehensive development plans' were then formulated for those five regions to develop infrastructure and industry. The FRED plan for northeastern New Brunswick, for example, consisted of three elements: industrial-development services, employment-development activities, and industrial infrastructure. The first element was designed to lay the groundwork for industrial initiatives by providing essential research, technicians, and staff. It included the establishment of three regional industrial commissions that were set up to help residents promote the industrial potential of their areas. It also provided support for studies to identify and pursue vigorously specific development prospects and for the provision of management advisory services and training to improve both existing and proposed enterprises. A more direct stimulus to job creation was provided by the second component of the plan, which was responsible for developing public facilities and providing inducements to private enterprise. Under this heading, assistance was given to projects that were considered capable of creating long-term employment in the natural resources and tourism sectors, but that could not be carried out without some form of public assistance. The program also provided special incentives to selected business enterprises not eligible for assistance under existing programs. An interest-free forgivable loan of 50 per cent of approved capital costs of up to $60,000 for new manufacturing or processing industries and up to 30 per cent for modernizations or expansion was available. The program was explicitly designed to encourage new entrepreneurs and further expansion of small existing businesses. A third component provided assistance to residents to relocate to selected centres that offered better employment opportunities.10

Shaping OREE 29 The federal government introduced in 1962 yet another development initiative - the Atlantic Development Board (ADD).11 Unlike other regional development programs, this board would be active only in the four Atlantic provinces, as its name implied. Largely inspired by the Gordon Commission, the ADD was initially asked to define measures and initiatives for promoting economic growth and development in the Atlantic region. A planning staff was put together, mainly from within the federal public service. Considerable research was undertaken on the various sectors of the regional economy, and some consultations were held with planners at the provincial level. Shortly after its creation, the board was given an Atlantic Development Fund to administer. By and large, the fund was employed to assist in the provision or improvement of the region's basic economic infrastructure. Over half of the fund, which totalled $186 million, was spent on highway construction and water and sewerage systems. Some money was spent on electrical generating and transmission facilities and in servicing new industrial parks at various locations throughout the region. The fund did not provide direct assistance of any kind to private industry to locate new firms in the region. On this point, the ADD was criticized, notably by the Atlantic Provinces Economic Council, in a report on the Atlantic economy published in 1967. It was criticized also on other points. Some argued that ADD spending was uncoordinated, in that it was never part of a comprehensive plan gearing expenditures toward specific targets. Some said that spending was politically inspired and that in the end it simply became a tool of Jack Pickersgill, a powerful Liberal federal cabinet minister who represented a Newfoundland riding in the House of Commons. The ADD never did deliver a comprehensive regional development plan for the Atlantic provinces, despite its mandate to do so in 1963. There are a variety of reasons offered for this failure. Some observers suggest that the board was never given the political green light to deliver the plan, while others insist that the ADD was disbanded in 1969 too early or precisely when it was on the verge of coming up with a comprehensive plan.12 The federal government introduced still other measures to promote regional development in the form of the Area Development Incentives Act (ADIA) and the Area Development Agency (ADA) within the Department of Industry. Legislation establishing ADIA was passed in 1963. 13 The central purpose behind these initiatives was to tum to the private sector to stimulate growth in economically depressed regions. This was to be done by enriching existing tax incentives and by introducing capital grants in designated areas. Regions of high unemployment and slow growth were the target of these measures. Only regions reporting unemployment rates above a specified threshold level would become eligible. Manufacturing and processing firms

30 The efforts were then invited to locate or expand operations in these regions. Three kinds of incentives were applied sequentially: accelerated capital-cost allowances, a three-year income-tax exemption, and higher capital-cost allowances. In 1965, a program of cash grants was introduced over and above the capital-cost allowances. Assistance was provided automatically on a formula basis. It was applied in a non-discretionary manner to areas chosen solely on the basis of unemployment levels, and Ottawa quickly discovered that it had limited potential as a development tool. Vutually no opportunity existed to relate assistance to development planning. In addition, because of the program's regional formula, the areas eligible for assistance did not include main population or industrial centres within slow-growth regions, where new manufacturing initiatives could be expected to have a better chance of success. Throughout the 1900s, the federal government also sought to develop human resources. 14 It set up manpower training plans as well as mobility schemes. The Technical and Vocational Training Assistance Act (TVTA) called for agreements to be signed with each province for technical training of youths or for adult retraining. Essentially, the agreements enabled provincial governments to construct training and vocational schools, as well as to develop new manpower training and upgrading courses. The federal government followed with another manpower development initiative - the Occupational Training Act (OTA). This act included both manpower training and mobility measures designed to deal with the country's structural unemployment. The federal government also sponsored other manpower mobility initiatives through such special development plans as FRED. This brief outline of regional development initiatives by the federal government during the 1960s suggests that Ottawa was prepared to intervene directly to stimulate growth in lagging regions. Up until 1957, regional economic disparities had only been analysed by royal commissions and had received little attention in terms of concrete federal initiatives. Within ten years, Ottawa had moved in a very dramatic fashion away from its cautious, conservative, and frugal approach to economic policy to a preoccupation with slow-growth regions. 15 It stacked one development initiative upon another in the belief that these would correct the country's substantial regional disparities. THE NEED FOR COORDINATION

It became obvious by the mid-1900s that the proliferating regional development programs were largely unrelated. Each new initiative was designed to address a specific problem of economic development, and much of the planning was

Shaping DREE 31 carried out fairly independently by separate federal departments.16 Consequently. each program tended to have a different objective and was attached to a different agency. which meant that overall coordination of the various programs was impossible. Several departments and agencies were involved in some fashion or other in regional development. These included. to name only a few. the Area Development Agency. the Atlantic Development Board, the Department of Agriculture. and the Department of Forestry and Rural Development. Occasionally. a central agency such as the Department of Finance would attempt to promote some degree of coordination. but the efforts were largely unsuccessful. Interdepartmental coordination. to the extent that it occurred, resulted from individual deals being struck between the various agencies rather than encouraged coordination from the top down. There was also a problem of coordination at the federal-provincial level. Ottawa was increasingly concerned with individual line departments making arrangements on their own with provincial counterparts. With any one province. the federal government could have several unrelated development plans. Thus it could not pursue common goals with individual provinces. and Ottawa and the provinces could not work out strategies for overall economic development. 17 Thus there was a need for a new institution to bring order and a central purpose to the various agencies and existing regional development programs. Other forces at play also favoured establishment of such a new department. A PERIOD OF ECONOMIC GROWTH AND REDISTRIBUTIVE POLICIES

It is important to remember that the mid- and late 1960s saw strong but uneven growth in the national economy and. relatively speaking. a burgeoning federal treasury. The government moved toward explicit redistributive priorities. as seen in the Canada Pension Plan, the Medical Care Act (Medicare). the Canada Assistance Plan. 18 and programs for economic development, some of which I have just described. Keynesian thinking in Ottawa was clearly dominant, and so was its notion of balance in the national economy. Strengthening national unity was also a priority with the federal government. The Royal Commission on Bilingualism and Biculturalism tabled a series of reports from 1965 on and called for measures to increase national unity and improve English-French relations. French Canadians. it pointed out. were disadvantaged not just from a cultural perspective. but also from an economic one. The commission's report on official languages. published in 1967. concluded: 'We believe the notion of equal partnership connotes a vast enlargement of the opportunities for francophones in both private and public sectors of the economy. •19 The Economic Council of Canada, in its third annual report, in 1966, con-

32 The efforts eluded that 'a favourable national environment may not in itself ensure balanced regional participation.• It called for a stronger commitment on Ottawa's part to developing slow-growth regions. It suggested closer federal-provincial cooperation in regional development matters and recommended that new administrative machinery be set up in Ottawa to take charge. It looked at the advantage of establishing a new line department, but recommended against such a course, opting instead for a strong coordinating capacity 'within the central machinery of government.' This, it felt, would enable Ottawa to mount a comprehensive attack on regional disparities, involving numerous government policies and programs. This new capacity, suggested the council, might be best located in the Treasury Board.20 But even that would not be sufficient, it concluded; special regional development programs were also required. It also urged the federal government to 'deconcentrate' federal activities within the regions. In 1968 Pierre Elliott Trudeau became leader of the ruling Liberal party. He made national unity his central preoccupation and described it as the single motivating force for his involvement in public life. National unity would dominate the agenda of his new government, and it would extend beyond English-French relations. He boldly declared: 'Economic equality .. . [is] just as important as equality of language rights ... If the underdevelopment of the Atlantic provinces is not corrected, not by charity or subsidy, but by helping them become areas of economic growth, then the unity of the country is almost as surely destroyed as it would be by the French-English confrontation. ' 21 Shortly after assuming office, Trudeau called a general election and campaigned vigorously on the theme of national unity. The Liberal party was returned to power with a strong majority after five years of minority rule. There was no doubt that the new Trudeau government would give increased priority to regional development, but it was unclear how it would do so. Early in its policy deliberations, the cabinet decided to direct its regional development priorities toward eastern Canada. The minister responsible for defining the policy, Jean Marchand, stated that for some years to come something like 80 per cent of new expenditures earmarked for regional development should be spent east of Trois-Rivieres. Only 'modest and controlled' expenditures should be directed to the slow-growth northern and northwestern areas of Ontario, Manitoba, and the northern parts of the three most western provinces. This decision was inspired not simply by the political thinking of the new Trudeau government, but also by economic circumstances. Even cabinet ministers representing constituencies between Windsor and Quebec City saw merit in the argument that national unity was threatened when heavy and persistent unemployment plagued some regions at the same time that the economy in central Canada was buoyant, to the point of strong inflationary pressure. 22 It was relatively easy to subscribe to the new regional development goal of dispensing

Shaping OREE 33 economic growth widely enough to bring employment and earning opportunities in the slow-growth regions as close as possible to those in the rest of the country without substantially slowing national growth. The cabinet decided also that the 'growth-pole' concept would define the new policy.23 The rationale was simple. The main difference between, say, Ontario and the Maritime provinces, according to Marchand, was that Ontario had major urban centres with vigorous economic growth to which people from northern Ontario could move. The Maritimes had few cities capable of strong growth and of providing employment; consequently, many people remained in economically depressed rural areas. The growth-pole concept, it was believed, could create new opportunities at selected urban centres. Economic growth would take place through movement and change within regions, rather than between regions. Ottawa would implement the growth-pole concept through two new programs: the special areas program and the Regional Development Incentives Act (RDIA). 24 The two shared the same objective: to encourage manufacturing and processing industry in the slow-growth regions. Industrial centres with the potential for attracting manufacturing and processing firms would be chosen. A special area agreement with the relevant provincial government would then be signed. This would provide for construction or improvement of the infrastructure - roads, water and sewer systems, and schools - within which industrial growth could occur. With the infrastructure in place, the regional industrial incentives program, through cash grants, would be able to attract new manufacturing industry to the selected centres. The cash grants would lower the cost of setting up production, compensating the investor for locating in economically weak regions. The grant would be sufficiently large that the new production facility would generate the same return on investment that it would have had the finn located in southern Ontario without the grant. Cash grants constituted a tried and proven approach (under the ADA program) and provided the entrepreneur a basis from which to detennine whether the new facility would be economically sound. The new government discarded other possibilities because of important shortcomings. Continuing government assistance - interest subsidies, private-sector loans, or large transportation subsidies for finished goods - were considered both too difficult to administer and politically unacceptable. The government felt also that income-tax credits or tax allowances were of limited benefit to new or smaller finns generating only modest profits in their early years. 25 There were a number of decisions about policy still to be taken and new programs to be considered. As well, decisions were required on the host of existing regional development programs, notably ARDA and FRED. Before turning to

34 The efforts these issues, the government had to establish an appropriate administrative structure to deliver the new programs, to gain intergovernmental cooperation, and to promote the concept of regional development within the federal government. DEFINING OREE: CENTRAL AGENCY OR LINE DEPARTMENT?

Prime Minister Trudeau turned to his trusted Quebec lieutenant, Jean Marchand, to spearhead the government's regional development priority. Trudeau, Marchand, and Gerard Pelletier had all come to federal politics largely because of what they saw as unacceptable cultural and linguistic inequalities and regional economic disparities in Canada. Once he became prime minister, Trudeau turned to Pelletier, his secretary of state, to oversee the government's language policies and to Marchand to implement the new regional development policy. Marchand became minister of forestry and rural development after the 1968 election. Work began immediately on laying the framework for a new department. On Marchand's advice, Trudeau appointed Tom Kent deputy ministerdesignate of the proposed new department. Kent was a powerful figure in Ottawa. He had played a key policy role in the Liberal party when the party was in opposition and later became principal secretary to Prime Minister Pearson. Essentially, three options were considered for the new department. The first was a super department of regional development with the necessary clout to get other federal departments to contribute to regional development through their own programs, a program-delivery capacity of its own, and an ability to deal with provincial governments. The second option would have brought together all the various regional development agencies and programs into the Department of Manpower and Immigration, renamed Manpower and Regional Development. The third option was a typical line department, able both to deliver programs and to negotiate with the provinces, but with an uncertain ability to influence other federal departments and agencies. Marchand reports now that the first option was preferred until the very last moment. He states that both he and the prime minister saw merit in the position taken by the Economic Council of Canada outlined above. They were also deeply impressed with the success of la DATAR (Delegation al 'Amenagement du Territoire et a I' Action Regionale) in France. Established in 1963, it had substantial coordination ability and influence over line departments in the French government in creating special measures to bring development to slow-growth regions. It could, for example, define regional development plans to which line departments were expected to contribute, look at the budget from a regional perspective, and, correspondingly, influence spending.26 No doubt, one im-

Shaping OREE 35 portant reason for its strong coordinating ability was the fact that it reported to the prime minister. With this in mind, Trudeau and Marchand saw two distinct functions for the new department and, initially, two distinct but supportive organizational structures. Research analysis and planning would enable the minister and the cabinet to direct federal departments to tailor their programs for regional development purposes. This function would be located inside the Prime Minister's Office (PMO) but would report to both the prime minister and Marchand. The other function - program delivery - would be lodged in a typical federal line department reporting only to Marchand. The proposal, not unexpectedly, met with stiff opposition from the Ottawa bureaucracy, more specifically from officials in the Privy Council Office (PC0). 27 To a purist, the proposal was organizationally untidy, since there would be two administrative structures located in separate organizations, but with one reporting both to the prime minister and to a cabinet minister. 21 This situation was simply unheard of in Canadian public administration, and, given the traditionally incremental bias of PCO officials, it was viewed with a great deal of suspicion. It is the conventional view in Ottawa that a minister cannot be responsible for programs and their fund-seeking while at the same time having coordination authority over the programs of his cabinet colleagues. Such a situation would give the minister an unfair advantage over his colleagues in that he could 'put on his coordination hat' to promote his own programs. It is precisely for this reason that the minister of finance, the president of the treasury board, and, more recently, when the Policy and Expenditure Management System (PEMS) was in place in Ottawa, ministers responsible for 'expenditure envelopes' have had no programs to administer. Marchand now reports that both the prime minister and he were prepared to overlook these administrative 'niceties' in order to ensure that regional development would be given the intended priority. In the end, they rejected the proposal for quite another reason. It was clear to everyone that Marchand would wield considerable power in the new administration without any kind of special coordination authority over his cabinet colleagues. Apart from assuming responsibility for regional development, he was named the regional minister responsible for Quebec. Regional ministers have considerable influence over political decisions and patronage. Cabinet ministers responsible for the two larger regions, Ontario and Quebec, are even more influential, not simply because of the political and economic weight of their regions, but also because of the number of seats they have. Trudeau's principal political advisers feared that adding still more to Marchand's prestige and power by having part of his department located within

36 The efforts PMO and PCO and by giving

him a special coordinating role over the policies and programs of his cabinet colleagues would divide the cabinet. It 'would, in their view, place the prime minister in a very difficult position with his cabinet and lead to personality conflicts that would be particularly difficult for him to resolve.' In the end, it was agreed that the new department would be a traditional line department. It would still retain its research-analysis function and encourage other federal departments and agencies to contribute to federal regional development efforts. It would, however, use persuasion rather than impose coordination. Given Marchand's easy access to the prime minister and the priority the new government gave to regional development, Marchand, Trudeau, and others involved in the decision were confident that coordination could still take place. The second option - integrating regional development agencies and programs within Manpower and Immigration - was also rejected. PCO disapproved, and Marchand and Kent, who initially supported the option, chose not to push the concept 'all the way' to the prime minister. Marchand and Kent had spent the previous two years establishing a strong mandate for the Department of Manpower and Immigration. They felt that the department's one weakness was that it could not 'target' or 'direct' its programs to provinces with high unemployment. Incorporating regional agencies and programs would have given it such a capacity. There were other reasons why Marchand and Kent initially favoured this option. A strongIy entrenched and weighty line department would be better able to lead an interdepartmental effort than a new central agency or partial central agency. What was envisaged was the kind of industry department that C.D. Howe had turned into the effective power centre in Ottawa and indeed in the Canadian economy. Moreover, an established department would provide a ready-made capacity and strength to plan and deliver programs quickly and avoid reliance on weak and diverse units of the old regional groups. Officials from PCO and other central agencies 'rang every possible warning bell against a department being so powerful.' Accordingly, Marchand and Kent did not press this option very strongly. They recognized that such a large department would entail a terrible administrative burden. More important, however, they did not want to be drawn into an ongoing bureaucratic fight over such issues as classifications for senior personnel. Choosing an organizational structure that would have been opposed by Ottawa central agencies would have invariably led to frustrating battles over administrative issues. Marchand and Kent believed that they could win these battles, but at a cost. Such battles would have distracted them and other senior officials from getting on with regional programs.

Shaping DREE 37 At this stage, there was only one issue left to resolve. Various suggestions had been brought forward for a name for the new department. One popular suggestion was the Department of Regional Development. In fact, before the legislation establishing the proposed department was introduced in the House of Commons, it was widely referred to as such in Ottawa. Marchand resisted this suggestion. He felt that the term regional development was already too widely employed in Ontario and in Quebec. The new department's efforts, he insisted, would have to be largely directed outside Ontario and southern Quebec. So that there would be no confusion and no false expectations in these two provinces, Marchand opted for the Department of Regional Economic Expansion (DREE). With the prime minister in full agreement with this suggestion, Marchand could turn to developing his programs and to building his new department.

4 DREE -

The early years

Jean Marchand and Tom Kent had a number of important tasks to carry out and decisions to talce in setting up OREE in the summer of 1968. New legislation was urgently required. a new organization had to be established. and an adequate budget had to be struck with the Treasury Board. New programs had to be defined and finely tuned and old ones either discarded or revised to fit the new policy. Marchand respected Kent's formidable talents for getting things done. and Kent respected Marchand's political acumen and status in the new government. Both had the confidence of the prime minister. Together they made a powerful team in Ottawa. something the federal bureaucracy quickly understands and respects.1 THE OREE LEGISLATION

Marchand expected little difficulty from Parliament in getting new OREE legislation passed. and on this he was correct. If anything. the Opposition urged him to go even further than the proposals he presented to Parliament. The new Progressive Conservative leader. Robert Stanfield. was a former premier of Nova Scotia His home province had long been plagued by slow growth. and he reportedly entered federal politics because of his commitment to regional development. To the extent that one is able to do so in the usually highly partisan House of Commons. Stanfield was generally supportive of Marchand's proposals. He expressed concern. however. that OREE would be left alone to carry the entire load of promoting regional development. while other federal departments simply went on with their own sectoral responsibilities. Said Stanfield: 'There may very well be a tendency on the part of other Ministers to say "Let Jean do it" .. . This bill does not assure anything like the degree of coordination which there must be among the departments of the government if

OREE - The early years 39

regional disparity is to be attacked effectively.' The New Democratic Party offered little in the debate. Its leader, Tommy Douglas, lamented the lack of new and specific goals in establishing OREE. These ill-defined goals, he insisted, did not require a government reorganization. 'There is little advantage in tallcing about government reorganization,' he said, 'unless we know what it is the government is seeking to accomplish. ' 2 Both the prime minister and Marchand dismissed these suggestions. Trudeau argued that the establishment of OREE was necessary 'to achieve real coordination ... of our endeavours and undertakings in such a worthy and vital sphere in respect of our country's future.' Marchand added that his new department 'was the only way to secure the coordination of federal efforts' in regional development. 3 Political criticism of OREE and its new policy direction came more often and with more conviction from government back-benchers than from the Opposition. Members of Parliament representing economically depressed constituencies of rural Quebec and northern New Brunswick, many of whom were Liberals, feared that the emphasis on growth centres would leave their regions with little federal funding for development initiatives. The new approach represented a clear departure from the old regional development policy, in that ARDA and FRED had been expressly designed for their regions or for rural slowgrowth regions. Marchand sought to allay MPs' concerns by arguing that his policy would put in place the urban and industrial structures required to give their provinces a new economic depth and strength. Once this was done, attention could then be given to the economically depressed rural areas, or, more specifically, to their constituencies. In short, Marchand assured them that with time their tum would come.4 The legislation introduced shortly after the Trudeau government was retlD'Jled to power and labelled the Government Organization Act was passed in 1969. The OREE Act was short, incomplete, and, from a long-term perspective, hopelessly inadequate. This Marchand knew full well. However, his first priority was to get legislative approval quickly and to provide for the continuation of some existing programs while new ones were being developed. The new legislation repealed both the ADB and FRED. It did not, however, do away with ARDA, ADA, or the Prairie Farm Rehabilitation Act (PFRA). It introduced the Special Areas Program and established the Atlantic Development Council. Within the year Marchand introduced another piece of legislation, the Regional Development Incentives Act. The Atlantic Development Board (ADB) was replaced by the Atlantic Development Council (ADC), because with OREE capable of delivering infrastructure projects to the Atlantic provinces, the ADB was no longer required.

40 The efforts Fearing, however, that Atlantic MPs might feel betrayed by the loss of the ADD, Marchand made provisions for a new body on economic development (the ADC) that would be exclusively concerned with the Atlantic.provinces. On paper, the new advisory body resembled the early ADD, except that it could not recommend specifically how money should be spent or have its own staff. Two points in the new legislation need to be highlighted. Curiously, it said little about the goals of the new department. There was no indication, for example, of whether an increase of income levels in slow-growth regions, greater productivity, or even higher employment levels should be specifically pursued. The wording said merely that special areas could be designated when an area 'in .. . [a] province is determined to require, by reason of the exceptional inadequacy of opportunities for productive employment special measures to facilitate economic expansion and social adjustment. ' 5 The geographical dimension of special areas was not laid out, even in broad terms. There was no mention of the targets to be reached, or when the special-area designation would no longer be necessary. Defining areas or regions, or, to put it more crudely, deciding who is •in' and who is 'out' of development schemes, is always politically explosive. There was no doubt a political explanation for Marchand's not defining clearly in the legislation which regions would qualify for the special-areas program. He had already been told in no uncertain terms by many Liberal MPs that they were not pleased with his policy direction. A minister quickly discovers that such debates, particularly when they involve party colleagues, are more suited to the government lobby behind the House than inside, in full view of the Opposition and journalists. Why then invite such a possibility by naming designated regions in a bill before the House? This would only serve to force certain government members to defend the interests of their constituencies and thus openly speak against a government bill. Similarly, ministers and permanent officials are never keen on laying out before Parliament or the general public specific indicators that reveal to what extent goals are being reached. 6 If results fall short of the stated goal, the minister and his department are politically vulnerable. Partisan politics being what they are, it is always preferable to be rather vague about objectives. The OREE legislation provided flexibility - which was precisely what Marchand was seeking. As we saw earlier, special areas could be designated after simply 'consulting' the relevant provincial government. The format for federal-provincial consultation was not defined, and there were no restrictions placed on the kind of projects that OREE could sponsor in a designated area. Marchand had a free hand to set the tone for these negotiations and for the kind of projects deemed acceptable by OREE.

OREE - The early years 41 DEVELOPING THE SPECIAL AREAS PROGRAM

Before they could rum to their new programs, Marchand and Kent had to deal with those that the department had inherited. Some decisions were simple. The new regional incentives would replace the Area Development Incentives program, which in tum would be left to wither away. Initially at least, it was decided to terminate ARDA and FRED programs as quickly as possible. Marchand declared them 'almost dead' one year after the DREE legislation was passed.7 On this issue the new department met stiff opposition from a number of provincial governments. Manitoba, Quebec, Prince Edward Island, New Brunswick, Ontario, and British Columbia reacted sttongly to DREE's position on both ARDA and FRED. They sttessed the valuable contribution those programs had made to certain regions and insisted that suddenly terminating them would play havoc with their economies.• 1n some instances, this opposition bore fruit. Both Ontario and British Columbia, for example, signed new ARDA agreements with OREE in 1970. Later, and after numerous representations on the part of native associations, Marchand and Kent agreed to expand the ARDA concept. The Special ARDA Program had first been introduced in 1971 and consisted of federal-provincial cost-sharing of development projects in rural areas. 9 The program covered incentive grants and related services to assist disadvantaged people, mainly of native ancestry, including status and non-status Indians and metis in rural areas, to undertake commercial ventures from primary-sector producing activities. Advisory committees in each province or territory review and make recommendations on all projects. These committees have equal numbers of members from the federal government, provincial or territorial governments, and native associations. The program has been particularly well received by native associations and by some provinces, notably Saskatchewan and Manitoba. From its early beginnings under Marchand and Kent, the Special ARDA Program has grown and, more remarkably from a regional development perspective, withstood for a number of years various new policy directions, program changes, and government reorganizations. The program was expanded to provide for training, social adjustnient, assistance to primary producers, and infrastrucwre. Relative to other programs, however, expendiwres under Special ARDA were modest. In 1980-81, for example, OREE spent just over $11 million for Special ARDA initiatives. 10 The program was finally replaced in March 1989 with a new set of native economic development programs. Despite new Special ARDA initiatives, however, DREE's basic policy direction remained unchanged. The ARDA and FRED programs were slowly winding

42 The efforts down. OREE, it became apparent, favoured industrialization and strong urban growth centres and was moving away from schemes to alleviate rural poverty and encourage rural-based development. The cornerstone of this new policy direction was the Special Areas Program, which, together with the new regional incentives program, would encourage industrialists to move into regions where they would not otherwise go. True to its stated preference, DREE would look primarily to eastern Quebec and the four Atlantic provinces in its attempt to encourage industrial growth. Before much could be accomplished, it was essential to gain the cooperation of the provinces. They were, according to an observer, told 'Talce it or leave it.' DREE had scarcely consulted the provinces at all in developing its new policy direction, in fonnulating the growth-pole concept, or in detennining how it ought to be implemented.1 1 In short, DREE's position was clear, and the provinces were well aware of it: if provincial governments wanted federal funding, they had to accept, as given, the new policy. Accept they did, but not without criticism. Designating areas for special consideration is politically difficult for any government, including provincial governments. Confronted with this situation, they called on Ottawa to designate several communities in their respective provinces rather than the handful that an effective growth-pole approach requires to be successful. In this way, they could at least shift the blame to Ottawa for the non-designation of certain areas. However, Marchand and Kent stood finn. Marchand explained: 'The more you extend it - special areas - the more you wealcen it ... We have to stick to our guns. ' 12 They were prepared to malce some concessions, but not to compromise the effectiveness of their new policy. Marchand did malce one concession that was important to the provincial governments, especially those from the Atlantic region, which are well known for their penchant for highway construction. Provincial politicians stressed time and again to Marchand the importance of highways for regional development; previous regional development schemes, such as FRED, had provided for new routes. DREE finally agreed to provide for highway construction outside the special areas in the case of New Brunswick, Nova Scotia, and Newfoundland. 13 However, the provinces found cooperation with Ottawa difficult throughout DREE's early years. They were not consulted on general policy or on important decisions about programs. They won what they considered minor concessions on certain projects, but felt these insufficient. In the end, DREE was able to limit the number of designated special areas to about what it had initially envisaged. Twenty-three such areas were identified, and each became the subject of a federal-provincial agreement. Six of the special areas were expected to realize substantially faster industrial growth than the other designated areas as a result of the incentives programs, and were

OREE -

The early years 43

singled out in order to provide the infrastructure needed to support this growth. These six areas consisted of St John's, Halifax-Dartmouth, Saint John, Moncton, Quebec City, and Trois-Rivieres. Because of their locations, Regina and Saskatoon were also designated to assist in financing surrounding community development. In Newfoundland, the Burin Peninsula, Gander, Stephenville, Hawke's Bay, Come-by-Chance, and Goose Bay (Happy Valley) were designated in order to make them more attractive as 'receiving centres' under the Newfoundland Resettlement Program. The Pas and Meadow Lake in Manitoba and Lesser Slave Lake in Alberta were designated for industrial incentives to promote the development of resource industries, and to improve community facilities, particularly to the advantage of the Indian and metis populations. The Renfrew-Pembroke area in Ontario and Lac St-Jean in Quebec were designated for industrial incentives, for which they were not eligible under the regular incentives program. Finally, the Ste-Scholastique area, outside Montreal, was designated, as a result of the federal government's decision to construct a new international airport in the area. 14 In this case, assistance was provided to the province to put in place the extensive infrastructure that was required. These special-area agreements sponsored a great variety of projects: highways, water and sewage systems, industrial parks, tourist attractions, servicing of industrial land, and schools. The federal government covered 50 per cent of the cost of certain projects plus a loan for part or all of the remainder. In the case of highway construction, Ottawa paid up to 100 per cent of the cost. The great majority of projects involved infrastructure. A new industrial park was built in St John's, as were new water and sewer systems, a new arterial highway, and a new high school. Similarly, in other special areas of the province, nearly all the OREE funds were allocated to new water and sewer systems, roads, industrial parks, and schools. The pattern established in Newfoundland was followed elsewhere. The Halifax-Dartmouth area, for example, saw some sixty-five projects exclusively for roads, sewer and water systems, and school construction. Special-area agreements supported the same kind of initiatives right across the country. New access roads were built to new industrial parks, as in St John's, or to new tourist facilities, as in Trois-Rivieres. An engineering building was built for Memorial University in St John's, while a seminary was rebuilt in Quebec City. New water and sewer facilities were constructed in Manitoba's The Pas area, in the Lesser Slave Lake area of Alberta, in Levis, Quebec, and in Saint John, among others.1 5 All special areas called for the establishment of a federal-provincial liaison committee composed of an equal number of representatives of each government. The role of these committees was to monitor and report on all stages of the planning, design, and implementation of the projects. 16 In other words, these

44 The efforts committees had a very limited role in fonnulating policy or even programs. They were there simply to oversee implementation of projects. Other federal departments and agencies were consulted or kept infonned during development of the agreements. Most showed little interest in participating in fonnulating the agreements or in implementing them. Consultation was not initiated at the appropriate levels, with both Marchand and Kent preoccupied with setting up the new department and developing strategies and programs. Federal departments saw little merit in contributing to the objectives of another department, perhaps at the risk of compromising their own. In the end, the special-areas program became exclusively DREE's responsibility, with only Centtal Mortgage and Housing and the Department of Public Works involved in the implementation of certain projects. 17 THE REGIONAL DEVELOPMENT INCENTIVES PROGRAM

The second major initiative to be developed was the new regional development incentives program. This would be built from the existing ADA program by taking from ADA most of its positive attributes and discarding its less desirable features. Two of the latter were rejected outright. The new program would be discretionary and no longer automatically available to all new production facilities locating in designated areas. Grants would now be available for selected sectors only. The program would also be available over a much wider area, by providing incentives in growth centres and in selected urban areas. Other features were added. The new program would confine itself to development grants; would set a maximum level, but also provide for offers at less than the maximum if circumstances warranted; and would establish a two-part grant sttucture, one for capital costs and the other according to the number of jobs created. Maximum levels for both were also more generous for the Atlantic provinces. 18 The part of the grant calculated on the basis of jobs created would not in any way be automatic: large discretionary power was left to the minister. He could require a company 'to demonstrate' that a grant, over and above what was available for capital cost, was necessary to make the project 'viable.' He could also assess the project's contribution to the economic development of the region and then decide whether or not a grant should be offered. These provisions were to guard against windfall profits for companies locating in regions for reasons other than an incentives grant. In addition, they would pennit the minister and depart.mental officials to refuse aid to companies which, in their view, could not stand on their own feet in the long tenn, regardless of whether a grant was awarded or not. 19 Perhaps as a result of criticism directed at Ottawa over its lack of consultation

OREE -

The early years 45

with provincial governments, the cabinet requested Marchand and his departmental officials to inform the provinces of the new program before introducing the proposed legislation in Parliament. This they did, and they found the provinces generally supportive. In particular, the three Maritime provinces applauded the proposed program. Newfoundland expressed disappointment that it would not receive some form of additional incentives, beyond that available to the other Atlantic provinces or to the 'mainland.' The province stressed time and again to OREE officials that unless the program were considerably more generous for Newfoundland, new industrial activity would locate on the mainland, notably in Halifax. Not surprisingly, the most contentious issue confronting the new program was its geographical applicability. Marchand and Kent were adamant on two points: first, that the regions designated be sufficiently limited so as not to dilute the effectiveness of the program to help slow-growth regions, and, second, that unlike the ADA program, the new program should apply in growth centres Halifax, Moncton, Saint John, and St John's, among others. Their reasoning was tied to the thinking underpinning the growth-pole concept, which suggests that 'nothing succeeds like success.' New enterprises would have strong economic reasons for preferring to locate where other firms already existed, since these would help to finance all kinds of overhead for transportation and community service. A business, particularly if its technology is sophisticated, may run into difficulties by locating in an area with little other industrial activity. These obvious facts, argued Marchand, are the basis of the 'growth centre' or 'industrial centre' approach to development; the chances of starting a growth process that will become self-sustaining depends largely on whether industrial incentives can be concentrated on the stimulation of 'families' of projects at relatively few localities, rather than a series of projects spread over countless little communities.20 Regions designated for the program thus included all the Atlantic provinces, eastern and northern Quebec, parts of northern Ontario, and the northernmost regions of the four western provinces. Thus, regions were designated in all ten provinces, and this for a three-year period ending 30 June 1972. The regions designated accounted for about 30 per cent of the Canadian labour force, and the average per capita income within them was approximately 70 per cent of the national average. On the face of it, this coverage may appear excessive in terms of the program's regional applicability, considering the purpose of the growthpole concept. However, initially at least, Marchand and Kent got what they wanted. They now report that they were successful in limiting the program's coverage to areas they had first envisaged. Parts of Ontario, Alberta, and British Columbia were designated more as a gesture to ensure that these provinces would not feel

46 The efforts completely left out of a federal government program. Marchand and Kent feared that these provinces, given their relatively strong fiscal positions, might establish their own incentives programs, thereby greatly inhibiting the new federal initiative. In any event, the regional incentives program would be complementary to the larger, more expensive special-areas program. With the benefits of these two programs combined, it was felt, industrialists would dismiss smaller communities out of hand and opt for the growth-pole areas to locate new plants. Certainly, viewed with the benefit of hindsight, regional designation of DREE's industrial incentives program in 1969 was highly restrictive. It was not long before strong political pressure was exerted on Marchand to extend the program's regional designations further. Cabinet ministers and MPs from the Montreal area frequently made the point that Montreal was Quebec's growth pole and that if DREE were serious about regional development, then it ought to designate Montreal under its industrial incentives program. Ministers from other regions did not share this view and did not hesitate to say so to Marchand and to the full cabinet. Montreal's growth performance rate was not keeping pace with expectations, particularly those of the large number of Liberal MPs from the area. The city's unemployment rate stood at 7.0 per cent in 1972, compared with 4.6 per cent for Toronto. Further, Quebec's economic strength, it was argued time and again, was directly linked to Montreal, and, unless new employment opportunities were created there, little hope was held for the province's peripheral areas. Montreal required special measures, it was argued, to return to a reasonable rate of growth. In the end, Marchand chose to designate Montreal as a special region, known as 'region c .' In this newly designated region, which consisted of southwestern Quebec, including Hull and Montreal, and three counties of eastern Ontario, the maximum incentive grant was lower than elsewhere. The grant could not exceed 10 per cent of approved capital cost, plus $2,000 for each direct job created. Elsewhere in the designated regions of Quebec and Ontario, the maximum incentive grant was fixed at 25 per cent of approved capital costs and $5,000 for each new job created. A third level of assistance was established for the Atlantic region, which called for a maximum grant of 35 per cent of capital cost and $7,000 per job created. Finally, the changes stipulated that region e's special designation was to be for two years only. This, it was felt, would be sufficient to help Montreal return to a 'reasonable rate of growth. ' 21 The changes, however, extended coverage of the designated regions to about 40 per cent of the population and almost 45 per cent of manufacturing employment and established a three-level hierarchy of incentive grants. The two-year designation for Montreal quiclcly generated strong interest and a high number of applicants. During the 1971-72 fiscal year, the 360 incentive

OREE-The early years 47 grants accepted by different firms in the new region c involved capital expenditures of over $225 million and the creation of some 14,000 new jobs. By comparison, 129 OREE incentives grants were accepted by firms in the four Atlantic provinces, involving capital expenditures of over $48 million and the expected creation of slightly less than 5,000 new jobs during the same period.22 Marchand also modified his department's industrial incentives program. An amendment to the Regional Development Incentives Act (RDIA) provided for the introduction in 1971 of a loan-guarantee program. OREE discovered that its incentives program was 'hampered from time to time by the inability of applicants to raise the long-term financing necessary to establish' new facilities. 23 The new program would enable OREE to deal with this lacuna whenever it was considered appropriate. The program's aim was to encourage lenders to invest loan funds in businesses wishing to locate in economically depressed regions by providing a partial guarantee. Unlike the incentives program, which was limited by legislation to manufacturing and processing businesses, the loan-guarantee scheme could also support businesses in the service sector. The legislation establishing the new program required that the minister of finance concur in any loan-guarantee decision. Over time, this provision served to limit the program's effect, in that decision-making became notoriously bureaucratic and slow. It took such inordinate lengths of time to get the ministers of OREE and finance to concur on loan-guarantee decisions that OREE officials became reluctant to promote the program. In a ten-year period, less than forty loan-guarantee offers were made. 2A The legislation for the incentives program provided for a termination date; projects had to come into commercial production by 31 December 1976. This was to ensure that a review of the program would take place no later than 1974. As has already been noted, the legislation did not establish the designated regions clearly. Changes could and in fact were introduced through orders-incouncil, thus simply requiring cabinet approval. This gave the minister the same kind of flexibility in designating new areas that he had for the Special Areas Program. In formulating the two new programs, OREE had to meet the requirements of Ottawa's central agencies and its expenditure-control process. This OREE did by providing some rather rough calculations of its financial requirements. 'Money was simply no problem in those days,' Marchand and former OREE officials report. Marchand and Kent had secured from the Treasury Board all the funds they required - and then some. In fact, it soon became obvious that the department would not be able to spend fully its allocated budget. Special projects were approved from time to time to prop up the department's expenditure level. As we have already seen, special short-term highways agreements were signed with the Atlantic prov-

48 The efforts inces. This is not to suggest that such projects were supportive of DREE's growth-pole policy. They simply accommodated some concerns on the part of the Atlantic provinces and enabled DREE to spend its allocated budget. DREE, because of Marchand and Kent, could get projects through the government's expenditure approval process with relative ease and alacrity, because the prime minister had made it clear that regional development held a strong priority in the government's scheme of things. Money was simply no problem for DREE, and everybody in Ottawa was made aware of this. Moreover, DREE's spending gave the federal government a great deal of favourable visibility. DREE's two major programs were designed in part to attract maximum public awareness to federal spending. In the case of the special-areas program, the federal government had clearly taken the lead, with the provinces adjusting their priorities to reflect the program's requirements. Marchand took an aggressive posture with the provinces, and this did not go unnoticed by the press. The regional incentives program meanwhile lent itself quite readily to placing the federal government in a favourable light. It allocated grants directly to private investors, thereby bypassing provincial governments. This enabled the federal government to occupy the limelight. The program also offered countless opportunities for government ministers and MPs to go back home on weekends to announce that x number of jobs would be created through a government grant and subsequently to attend ribbon-cutting ceremonies. However, after three or four years, it became obvious that all was not well. In fact, by late 1971, a fair amount of public criticism was being hurled at DREE. Regions not designated as special areas were arguing more and more that they too could use federal financing for economic development. To many in the nondesignated regions, it seemed that the federal government was, in effect, saying that only selected regions should grow and that Ottawa's economic development efforts would be concentrated there. Criticism was also voiced that far too much federal money was earmarked for infrastructure projects such as water, sewage, and highway construction. One former DREE official reports that there was a widespread saying in Ottawa that 'DREE had too much money chasing too few good projects.' Yet despite such large expenditure budgets, there was no strong evidence to suggest that DREE was making progress in correcting regional economic imbalances. Standard economic indicators were not pointing to any kind of trend toward more balanced growth. DREE also had no solid evaluation prepared to demonstrate that its programs had contributed to the economic development of eastern Quebec and the Atlantic provinces. 'We knew it in our hearts that progress was made,' insists an official, 'but we could not demonstrate it on paper.' A solid evaluation of DREE's efforts was not possible because insufficient time had elapsed to assess their

DREE - The early years 49

impact. Moreover, analysts argue that too many variables were at play in designated urban centres to say whether any growth was a direct result of DREE spending.25 Most, if not all provincial governments were also critical of DREE. The nononsense ' take it or leave it' approach adopted by Marchand and Kent did not sit well with the provinces. The call for a closer form of federal-provincial cooperation was made time and again. The federal government needed a new, more imaginative approach in combating regional disparities. Marchand did not deny that a new approach would probably be desirable, and he informed the cabinet during the summer of 1972 that a review of DREE, its policies, and its programs was necessary. He told the cabinet that no stone should be left unturned and that a 'question mark' should be placed on all DREE activities. Before the review progressed very far, a general election was called.

5 and the General Development Agreements OREE

The Liberal government regrouped in Ottawa after the 1972 election, badly shaken and barely clinging to power. It had won lOCJ seats to the Conservatives' 107, losing over forty seats in English Canada and suffering some humiliating defeats in traditionally safe Liberal seats.1 Its clear parliamentary majority had been reduced to an almost untenable minority position. The government's objective was to win back the support of the electorate and, given its position in Parliament, to win it back in a hurry. Adjustments were required, and Trudeau quickly made them. During the campaign much had been made of the so-called excessive 'French power' in Ottawa. In his new cabinet, Trudeau moved Gtrard Pelletier from Secretary of State to Communications and Jean Marchand from Regional Economic Expansion to Transport. As well, the cabinet immediately called for new policy initiatives. THE

1972-73 OREE POLICY REVIEW

The prime minister appointed another powerful political figure to head OREE, Don Jamieson from Newfoundland. A year earlier, he had named J.D. Love, a career public servant, as deputy minister. 2 Jamieson jumped at the opportunity to continue the policy review initiated by Marchand- and now with a sense of urgency. A group of officials from OREE and other federal departments was brought together under the direction of an assistant deputy minister for planning and coordination inside OREE. The scope of the review was all-encompassing. It would ask questions about goals, policies, programs, legislative framework, and government organization. Early on, a decision was taken to inform the provinces that a general policy review had been launched. Consultations with the provinces on the appropriate direction of the review would also be possible, but great care would be taken not to 'lose control of the review' to the provinces or through them to the press.

OREE and the General Development Agreements 51 Fifteen major policy papers were prepared. They were all written inside the federal government, under the guidance of OREE's assistant deputy minister responsible for the review. The policy review reached several major conclusions and came forward with a number of sweeping recommendations. The most important, and one that was stressed time and again, was that in regional development close federal-provincial cooperation was essential. To ensure this, it was recommended that OREE decentralize its operations to provincial capitals. The concept of 'identification and pursuit of development opportunities,' the policy review suggested, should guide OREE's new policy approach: each region was unique and required special measures formulated so as to take full advantage of the opportunities presented. Federal and provincial departments and agencies should also participate in a comprehensive fashion in promoting regional development. 3 Detailed reviews of the economic circumstances and opportunities of the ten provinces were prepared.4 These reviews later became widely known as OREE's 'yellow books' on provincial economic circumstances. One was also prepared for the Atlantic provinces as a whole, and another for the four western provinces, as well as one for each province. OREE found that the economic structure of the four Atlantic provinces was still quite weak and that it remained the most 'desperate in the country.' A strong federal commitment to stimulate development in the region was still necessary. The review argued that wide-ranging development opportunities nevertheless existed and suggested that the appropriate federal agencies and the provinces jointly try to develop the •Atlantic Gateway Transportation Concept. ' 5 The rationale was that Saint John, Moncton, and Halifax and the ports of Canso and Come-by-Chance would, if properly developed, be able to exploit the Atlantic provinces' strategic location midway between two industrial giants, the United States and western Europe. With fully developed air, sea, rail, and road systems connecting the two markets, the region could become an important transportation, packaging, and distribution centre, serving both North America and Europe. Individual provincial reviews also revealed that the Atlantic provinces offered a number of sectoral opportunities. Agriculture, fisheries, forestry, mining, and tourism, in particular, held promise for growth. However, they all had problems requiring government initiatives if they were to be resolved. Forestry, for example, had always played a role in New Brunswick's economic development. Now, the sector faced critical resource depletion and inadequate management practices.6 Quebec's secondary sector was found to be far too heavily concentrated in slow-growth, low-wage industries.' Consequently, Quebec would find it increasingly difficult to create new manufacturing jobs and to keep its wage rate from falling further behind Ontario's. Vitality in the Quebec economy, suggested

52 The efforts the review, required renewed vigour from Montreal. Accordingly, efforts should be made to identify developmental opportunities to revitaliu that city. It was felt that the new international airport at Ste-Scholastique could provide such opponunities. Although Ontario's unemployment rate had crept up from 3.1 per cent in 1969 to 4. 7 per cent in 1972, no one was suggesting that the province's economy could not respond adequately to market forces or that it would not continue to grow.• Nonetheless, the policy review put forward two important recommendations for Ontario: first, that efforts be made to develop a strong liaison on economic development issues between the federal and the Ontario governments; and second, that OREE focus on the socioeconomic problems of northern Ontario. Initiatives ought to be developed for the region and the provincial government encouraged to panicipate in the process. In the west, the review pointed out that British Columbia and Alberta and, to a lesser extent, Saskatchewan and Manitoba have renewable and non-renewable natural resources in substantial quantities from which development opponunities could be exploited. All four provinces also had well-developed urban centres or growth poles that could encourage and sustain development.9 But there were problems, too. Manitoba and Saskatchewan were witnessing outmigration: population growth in Manitoba was virtually static, and Saskatchewan had seen an absolute decline in its population since 1968. British Columbia's population meanwhile was growing annually, but at a cost. Having to absorb a heavy migration of job-seekers from Saskatchewan and Manitoba, British Columbia's unemployment stood at over 8 per cent. In addition, major regions in the western northlands required substantial improvements in their standards of living and in job creation. The native population in panicular was subjected to unacceptable socioeconomic conditions and was not panicipating in and benefiting from economic activities at play in the region. Opponunities nevenheless were found to exist in all western provinces. Saskatchewan and Manitoba would benefit from initiatives designed to achieve greater value from the processing of agricultural products. Alberta could realize opponunities if efforts were directed to the mineral and agricultural sectors. British Columbia had considerable opportunities for growth in the forestry sector and in its forest industries. The northwest region of the province was identified as one requiring special OREE-led efforts. All in all, Canada's ten provinces each had peculiar economic circumstances and offered a variety of opponunities for development. All the staff papers on each province and on the western and Atlantic regions were released to the provinces in the form of yellow books. These books, OREE hoped, would pave the way for federal-provincial consultation and ultimately close cooperation. The message of the policy review was clear. OREE would now be present in

OREE and the General Development Agreements 53 all provinces and would be looking for close intergovernmental cooperation. Certainly, the Atlantic provinces and eastern Quebec would remain OREE's principal client regions, but they could no longer lay claim to 80 per cent of OREE's budget. 10 From an economic perspective, the growth-pole concept was now out of favour in Ottawa; the new password to OREE funds was 'developmental opponunities.' OREE would pursue 'viable' opponunities whether they were in urban or rural areas, though it would be preferable if they were located in slowgrowth regions, and priority status would still be given to these. Politically, the outcome of the policy review held strong appeal. Badly mauled in the west in the recent election, the Liberal government would be able to increase its presence there in the high-profile field of economic development. In fact, OREE's policy review and the yellow books prepared for the western provinces were deliberately associated with the highly publicized Conferenee on Western Economic Opponunities, held in 1973. Under the direction of Justice Minister Otto Lang (Saskatchewan's regional minister in the cabinet), the conference was designed to give Ottawa a better understanding of western opportunities and economic problems and the Liberal party increased political visibility in the West. A delivery mechanism, or a new administrative structure, was now required to implement the new policy. It had to be flexible. Developmental opportunities would not, in some instances, provide long lead-time for planning purposes. They could surface spontaneously, and an ability to respond to them in a flexible manner was essential. The structure should also facilitate federal-provincial consultation, as well as the active involvement of numerous federal agencies and departments. Exploitation of development opportunities would invariably cut across jurisdictional lines and bureaucratic structures. In his report on the policy review to the House Committee on Regional Development, OREE's new minister pointed out: 'I have become increasingly impressed by the range of opportunities for economic development .. . and by the large number of public policies and programmes that bear, or could be brought to bear, upon a concentrated effort to realize some of these opportunities. ' 11 THE ODA AND REGIONAL DEVELOPMENT

The policy-review group came up with a new decision-malcing approach with all the features the new policy required. It was remarkably flexible, capable of supporting any imaginable type of government activity. It provided for the participation of any interested federal department and for close federal-provincial liaison, with either level of government able to propose initiatives.

54 The efforts Negotiated by Ottawa with any province, a General Development Agreement (GDA) provided a broad statement of goals for both levels of government to pursue, outlined the priority areas, and described how joint decisions would be taken. 12 GDAs were enabling documents only and did not in themselves provide for specific action; projects and precise cost-sharing arrangements were instead presented in subsidiary agreements that were attached to the umbrella-type GDAS. From a strictly administtative point of view, all nine GDAs were basically similar. Each had a ten-year life span; each stipulated that OREE and the provincial government in question would, on a continuing basis, review the socioeconomic circumstances of the province; and each outlined a similar process for joint federal-provincial decision-making. They differed only in cost-sharing for subsidiary agreements. Under the GOA approach, OREE was granted the following authority to share the cost of a subsidiary agreement: up to 90 per cent for Newfoundland, 80 per cent for Nova Scotia and New Brunswick, 60 per cent for Quebec, Manitoba, and Saskatchewan, and 50 per cent for Ontario, Alberta, and British Columbia. The flexibility recommended by the yellow books was provided by schedule A attached to each ODA and by subsidiary agreements. The schedule presented a brief socioeconomic description of the province, as well as a statement of objectives geared to local economic circumstances. It also outlined a broad development strategy that the two governments agreed to pursue jointly to meet the objectives of the GDA. Once signed, the GOA provided for three kinds of subsidiary agreements: 'those which coordinate existing federal and provincial programmes in support of a particular development opportunity; those which provide specific support not available through other government programmes; and those which establish continuing programmes to fill gaps in the existing range of government development programmes.• Since they were not restricted to specific geographical areas or to particular policy areas, subsidiary agreements could thus be developed to fit the needs of any given province or to pursue any type of development opportunity. They were described by OREE as a means of providing maximum flexibility to the policy-makers and as 'action pacts ... [encompassing) development which the federal government and the signatory province agree will lead to greater economic and social growth in a particular area of the country. ' 13 The GOA required the federal minister and the relevant provincial minister to designate officials who would jointly coordinate 'the action to be taken under this agreement.• In many instances, an ongoing Canada-province development committee, consisting of the provincial director-general of OREE, representing the federal government, and a senior official representing the provincial gov-

OREE

and the General Development Agreements 55

emment, oversaw fonnulation of new agreements. The committee met on a regular basis to accept or reject recommendations submitted by a series of joint subcommittees or work teams, which, in tum, were established to undertake detailed studies and to identify specific projects to which governments could commit funds in developing various subsidiary agreements. After a subsidiary agreement had been signed, a joint-management committee was established to oversee its implementation. These committees consisted of senior federal and provincial officials. As with the development committee, a management committee acted as a fonnal decision-making body and, in this capacity, reviewed and approved the annual expenditure budget It also assessed all programs and projects sponsored by the subsidiary agreement and often amended some, discarded others, and came forward with new ones. These management committees had considerable decision-making authority and could identify new projects even after the agreement had been signed. 14 In introducing the GOA approach, OREE devised measures to encourage other federal departments to tailor their programs and activities to complement those supported by the various subsidiary agreements. For the Atlantic region, OREE planned an annual conference at which federal departments, including central agencies, could discuss Ottawa's efforts at promoting regional economic growth. In short, then, the GOA approach was intended to encourage wideranging federal participation in federal-provincial decision-making, rather than having it solely a OREE enterprise. There were a number of legal and administrative requirements incorporated in all GOAS and in all subsidiary agreements. All GOAS had sections that dealt exclusively with coordination: the federal and provincial ministers responsible for the agreement were to meet each year, and 'consult together at such other times as may be mutually agreed; to review the general operation of this Agreement; to consider development opportunities that might be pursued; and to review existing or proposed subsidiary agreement. ' 15 Representatives of interested federal and provincial departments were to meet at least once a year to review the development strategy being pursued under the GOA. All subsidiary agreements were to include an evaluation clause providing for periodic assessment of the programs to detennine whether they were meeting the stated objectives of the agreements. Subsidiary agreements were presented in the same format as was the GOA. One section outlined the administrative-legal requirements of the agreement, another required that both levels of government develop and implement a program of public information about projects and activities under the agreement, and yet another stipulated that the two levels of government must fully exchange infonnation on 'any and all aspects of the work undertaken under the agreement. ' 16 Moreover, all subsidiary agreements had a schedule (A) that presented

56 The efforts the estimated cost as well as the federal-provincial cost-sharing arrangement, and some had a schedule (e) detailing the strategy and the projects of the agreement. THE DECENTRALIZATION OF OREE

In announcing DREE's new decision-making approach in 1973, Don Jamieson stated that decentralization of DREE 's operations and decision-making authority was not only desirable but indeed made necessary by the demands that the GDAs would invariably generate. The GDAs were to involve joint decision-making and required OREE to participate in joint federal-provincial analyses of regional and provincial economic circumstances and opportunities. Such work, it was felt, would be superior and economic circumstances better understood if federal officials lived in the regions. Thus designed to complement the GOA, OREE's 1973 reorganization substantially reduced the size of the Ottawa head office, established four regional offices, and considerably strengthened the ten existing provincial offices. Leaving only two assistant deputy ministers in Ottawa - one responsible for planning and coordination and the other for administrative and financial services - the reorganization relegated the head office to 'coordination and support of field activities.' With some modifications made for the Quebec and Ontario regional offices, since these two regions consisted of single provinces, a basic organizational sttucture was developed for the six regional offices. They had little in the way of programs to deliver and were there simply to provide staff support to provincial OREE offices and to conduct general economic analysis and research of their regions. Action and authority were delegated to the ten provincial offices. In fact, under the reorganization, these received nearly complete authority in program implementation and 'most of the responsibility for programme formulation. ' 17 Unlike the early days of OREE, when the Ottawa planning division negotiated agreements directly with provincial governments and afterward delegated some implementing authority to the local offices, the provincial director-general and his office would now represent the focal point of contact on 'all issues' involving OREE and the provincial government. In other words, OREE provincial offices would in future lead all OREE activities affecting their respective provinces. Regional and Ottawa-based OREE officials would have to channel their development relations or policy ideas through the provincial offices and refrain from contacting provincial governments directly. Thus OREE's part in jointly identifying and pursuing development opportunities with provincial govern-

OREE and the General Development Agreements 57 ments was, at least in an operational sense, the exclusive responsibility of the provincial OREE offices. The decentralization of OREE was designed to transform the Ottawa head office into a 'staff' one and to transfer much of the decision-making authority to the field offices, which were to assume 'line' responsibilities for developing and implementing the department's policies and programs. The intention was to reverse the ratio of head office staff to field office staff from 70:30 to 30:70. Such a massive decentralization of decision-making authority was unparalleled in the history of Canadian public administration. OREE could not draw on past experience in establishing its new organizations. As one former senior OREE official observed, decentralization 'involved a move into uncharted water. ' 11 The potential benefits of decentralization are numerous, and some have already been noted. It can be added that decentralization enables a department to undertake on-site studies and examinations of provincial and local problems and makes program delivery much more sensitive to local conditions and circumstances. Moreover, in OREE's case, decentralization was regarded as an effective way of promoting better relations with provincial governments at the policy level and as indispensable in making the process of joint decision-making under the GOA approach meaningful to them. Conversely, decentralization also entails potential drawbacks. At the management level, it means establishing new positions and patterns of relations between offices within the organization, as well as obtaining staff commitment to change. At the policy level, decentralization can lead to inconsistencies in program delivery across the country and raise new problems of control and accountability in program formulation and decision-making. Face-to-face contact, for example, is disrupted by the distance separating the various offices. The decentralization of OREE involved a large-scale ttansfer of decision-making authority to the provincial offices, which had full responsibility for all stages of programs from research analysis to program formulation and implementation, and thence to evaluation and revision. The establishment of formal information and reporting systems became imperative. Otherwise, it was feared, staff in regional offices and in head office would quickly lose touch with current issues and problems facing the department, and OREE provincial offices might operate and formulate programs in isolation from senior departmental management and relevant federal departments. Some of these potential difficulties were recognized, and a number of systems and procedures were introduced in an attempt to increase interdepartmental consultations, to involve officials from other OREE offices in program formulation, and to ensure that the information requirements of senior OREE officials were met. 19 Provincial OREE officials were encouraged to involve those in re-

58 The efforts gional and head offices in the identification of development opportunities. a computerized infonnation system was established. and precise procedures were outlined for the development of subsidiary agreements and submissions to the Treasury Board. At the same time that OREE decentralized its operations. interdepartmental consultation gained greater importance. The GOA approach involved other federal departments. but interdepartmental consultation would become more difficult to promote and monitor because of the distance between the actors. Infonnal contacts. for example. would invariably be less frequent. and it would become more difficult for officials in provincial offices to attend regular interdepartmental committee meetings in Ottawa. However. OREE was never granted any extraordinary authority to ensure the full participation of other federal departments in GOA activities. Don Jamieson made this clear to the House committee when he stated: 'Both the Prime Minister and I ... feel that the main co-ordinating instrument is the cabinet committee system. Rather than try to set up some kind of super ministry or give OREE a dominant role vis-ll-vis other departments in the operational sense. •20 Thus. in developing its comprehensive and coordinated approach to regional development. OREE had to rely on traditional methods of promoting interdepartmental relations rather than on a position of authoritative supremacy over other departments. Mainly for this reason. during the early months of decentralization. officials in the provincial offices were often reminded. through staff conferences and departmental position papers. to involve other OREE offices and other federal agencies systematically in formulating new initiatives. To ensure that this would take place. elaborate computerized information systems were developed to alert other OREE offices and relevant federal agencies when a new initiative was being contemplated, so that they too could contribute to its development. Other special coordinating measures were put in place. For instance. OREE promised an annual interdepartmental meeting of federal agencies under the various GOAs to ensure the participation of all concerned federal departments. IMPLEMENTING THE GOA APPROACH

With the GOA concept approved by the cabinet and with the new procedures for federal-provincial cooperation defined. Don Jamieson began a cross-country tour to negotiate individual GOAs. Considerable consultation between OREE officials and provincial government officials had already taken place. and the substance of the proposed GOAs was fairly well defined. Provincial governments by and large reacted favourably to the new approach. They were relieved

OREE and the General Development Agreements 59 to see OREE move away from the Special Areas concept and, at least publicly, commit itself to close federal-provincial liaison. Nevertheless, the provinces foresaw potential problems. Those in the East feared that by moving into all regions of the country, OREE would lessen its commitment and its efforts in Atlantic Canada. Jamieson sought to reassure them by insisting in public and in private meetings with the premiers that 'areas of naturally high growth will not be the concern of OREE.' This of course did not exclude large areas of northern Ontario, Manitoba, and northern Saskatchewan, Alberta, and British Columbia. British Columbia and Alberta did not know quite what to make of OREE's sudden interest in the economic health of their provinces. OREE officials there have reported that initially they had considerable difficulty in starting a dialogue with provincial officials on the problems of the less-developed regions of their provinces, let alone bringing about intergovernmental cooperation and new program initiatives for these regions. In addition, a number of provincial governments, both east and west, at first were not quite sure what to make of OREE's intention to establish large offices in provincial capitals. Would it lead, they asked, to joint efforts or was it another attempt by the federal government to dictate the priorities of provincial governments? Jamieson and his officials were understandably anxious to sign the various GOAs and to get new initiatives introduced. Provincial governments sensed this, and some, particularly in the East, jumped at the opportunity to get federal funding for projects they had long wanted to implement. In the case of New Brunswick, for example, it meant highways agreements. The minister of OREE signed six GOAs with the provinces in an eight-week period between early February and late March 1974. The other three were signed later that year. No GOA was signed with Prince Edward Island, since that province had already signed a fifteen-year development plan with Ottawa in 1969. The premiers of Newfoundland and New Brunswick signed the GOAs; in all other provinces, a cabinet minister did so. Virtually every economic sector was covered by the GOAs. 21 In Newfoundland, the GOA sponsored initiatives in tourism, forestry, recreation, fisheries, highways, special projects for Labrador, ocean research, special projects for St John's, mineral development, industrial development, rural development, agriculture, and federal-provincial planning. Nova Scotia's GOA supported mineral development, special projects for the Halifax-Dartmouth area, the Strait of Canso, and Cape Breton, agriculture, industrial development, forestry, tourism, energy, dry-dock development, and special measures for Sydney Steel Corporation and for Michelin Tires. The Quebec GOA led to some fifteen subsidiary agreements, which in tum

60 The efforts gave rise to numerous projects: establishment of newsprint mills. including one in Amos; industrial studies; mineral research and exploration; construction of a number of industrial parks. including one near Mirabel airport; highway construction; and new tourism facilities. Ontario signed several subsidiary agreements. One was designed to sttengthen the urban system of northern Ontario by providing for new industrial parks and new water and sewer systems in Parry Sound. Timmins. Sudbury. and North Bay. A forestty subsidiary agreement promoted projects to improve forest management. accelerate reforestation. and construct new forest access roads. Community and rural resource development became the subject of another subsidiary agreement: the Upper Ottawa Valley and Kirkland Lake areas benefited from industrial land development studies. goo-scientific surveys. and hardwood-forest renewal schemes. A $180-million subsidiary agreement for strengthening the competitive position of the province's pulp-and-paper industty was also signed. The western provinces set up a number of subsidiary agreements with DREE. Manitoba's concerned development of the province's northlands. its industrial sector. agriculture. tourism. water development. and drought-proofing. and the development of the Winnipeg core area. Saskatchewan signed agreements for the northland. for development of a major tourist attraction in the Qu •Appelle Valley. for water development and drought-proofing. and for long-term development of its forest industty. Alberta signed six subsidiary agreements with DREE. They involved processing of nutritive products; attempts to improve incomes. living standards. and community facilities in northern Alberta; and further development of the northern transportation system. In British Columbia. the GDA gave rise to numerous initiatives in highway construction. support of the northeast coal industty. industrial development. agriculture and rural development. tourism. forest management. and development of the Ridley Island port facility. The federal government signed a GDA with the Yukon government in 1977. It later signed two subsidiary agreements. a $6.6 million renewable-resource agreement and a $6.0 million tourism agreement. In 1979. the federal government signed new five-year GDAs with the Government of the Northwest Territories. DREE's activity began there in 1977-78 with the introduction of special. if modest, ARDA-type programs to assist people of native ancestry to start commercial ventures. DREE's expenditures in the Northwest Territories were $800,000 for the period 1978-79. 22 The GDAs earmarked relatively modest amounts for community economic development in the Northwest Territories. The list of GDA projects goes on and on. Over 130 subsidiary agreements were signed between 1974 and 1982, with a total financial commitment of close to $6 billion. The federal government's share was over $3.3 billion. Appendix e

OREE and the General Development Agreements 61 provides a complete list of the GOAs and subsidiary agreements, as well as the amount of public funds involved. There is little doubt that the strength of the GOA system was in its flexibility. One senior OREE official remarked that the problem of regional economic disparity 'is economic and not constitutional.' 'Jurisdictional lines,' he went on, 'ought to be blurred so that appropriate, viable and coordinated measures to stimulate economic development [could] be brought forward. ' 23 The GOAs certainly did this. Provincial governments grew particularly fond of the GOAs. They applauded their flexibility and the kind of cooperation that they promoted. They had strong reasons to do so. An opportunity presented itself in Halifax with the possible development of a world-class dry-dock facility. OREE and the province simply got together and signed an agreement, and the project went ahead. No program limits existed to restrict their activities. Similarly, Quebec felt that a series of recreational parks would help its tourist industry. OREE agreed, and an agreement was signed involving $76 million of public funds. Ontario, wanting to diversify and stabilize the economics of single-industry communities, turned to OREE and signed a $20-million agreement to put in place a series of infrastructure projects. Shortly after the introduction of the GOAs, it became clear that the relation between Ottawa and the provinces had been reversed. Unlike the situation under Marchand and Kent, when Ottawa had presented projects in a 'take it or leave it' fashion, provincial governments were now proposing initiatives, and the federal government reacting. Admittedly, poorer provinces, contributing only 20 per cent of the cost, were never in a position to adopt a cavalier posture vis-avis the federal government. Nevertheless, even they were in an enviable bargaining position, preparing initiatives to which the federal government would respond. If OREE refused to support a particular proposal, the province simply came back with another. Though the GOA system also allowed the federal government to make proposals, this did not occur often. Another attractive feature of the GOA approach for the less-developed provinces was the cost-sharing formula. With Ottawa contributing 80 to 90 per cent of the cost, virtually any kind of economic initiative became viable. In many ways, Ottawa acted like the Treasury Board- it reviewed proposals from provincial governments, accepting some and rejecting others. The one recurring criticism levelled at GOAs by less-developed provinces was that OREE had spread its efforts too thinly and had moved away from its firm commitment to the Atlantic provinces. If one compared OREE spending with the pattern established by Marchand and Kent, then this criticism had some validity. By 1977-78, DREE was spending 39 per cent of its resources in the Atlantic provinces, 31 per cent in Quebec, 5 per cent in Ontario, and 21 per cent in the

62 The efforts western provinces. In 197~71. the breakdown hadgready favoured the Atlantic provinces, which received over 50 per cent of OREE funds, with Quebec following at 23 per cent; Ontario received less than 5 per cent, and the western provinces about 16 per cent.24 Criticism of the GOAs was heard frequently in Ottawa. Many thought that provincial OREE officials had become too imbued with local attitudes. They were simply echoing provincial governments' priorities and were unable to bring a national, or even interprovincial, perspective to their work.25 How else could one explain the 'hodge-podge' of projects OREE was supporting? From an Ottawa view, not one of the GOAs pointed to an overall development strategy. They supported rural development if a provincial government favoured it, or tourism projects, or highways construction. Simply put, no one could discern a central and coherent purpose in any of the GOA strategies. Viewed from Ottawa, provincial OREE and provincial government officials employed the concept of development opportunities to justify whatever project they wanted approved. Building from a region's strength was not evident in the proposals put forward. Over 50 per cent of OREE's expenditures in the Atlantic provinces went for the provision of infrastructure facilities, in particular, highway construction.26 This was hardly the kind of spending that Finance and Treasury Board officials had expected to see in OREE's pursuit of developmental opportunities or in its mandate to build on the strength of regional economic circumstances. The Newfoundland GOA combined a sectoral with a spatial approach - with no apparent link between the two. That is, it supported development initiatives for key economic sectors of the province and then went on to support special 'regional' development packages for selected areas of the province. It supported projects in forestry, including forest protection and the construction of access roads. It did the same for industrial development, with substantial funds committed to the construction of an industrial park and new highways linking the park to a community and to another highway. The GOA gave rise also to a rural development agreement that, among other things, provided administrative grants to development-arid regional councils. A subsidiary agreement for Labrador covered street improvement in certain towns, an auxiliary sewage collector system, a student dormitory for a vocational school, and a new industrial park. GOA-sponsored initiatives in one province could be in direct conflict or competition with another in a neighbouring province. Eugene Whelan, former minister of agriculture, put it this way: 'When I was .. . in New Brunswick, one thing they [farm organizations) were raising Cain about was the fact that OREE was setting up another operation in another [province) of the Maritimes to produce cabbages ... when they already had a surplus of cabbages ... which they could not get rid of. •n

DREE and the General Development Agreements 63 Ottawa-based officials believed that cost-benefit evaluation of proposed GDA initiatives rarely preceded an agreement. Evaluations on shortcomings and accomplishments of projects were also spotty and frequently incomplete. All agreements called for evaluation, but funds for this were often left unused. Some evaluations simply concluded that it was far too early to attempt assessment. Considerable time was necessary before the full impact of the projects could be felt in the economy, and thus a thorough evaluation would not be possible for several years. The imprecise nature of the goals and objectives of the GDAs and subsidiary agreements further hindered evaluation. The BC GDA had as one of its objectives 'to promote balanced development among areas of British Columbia.' The New Brunswick GDA called for increasing 'per capita incomes while minimizing net immigration from the province.' A subsidiary agreement with the Ontario government for the Cornwall area aimed 'to create a long-term expansion in employment and income opportunities in the Cornwall area.' Given these imprecise objectives, rigorous and clear-cut evaluation of DREE activities was practically impossible. There was another problem with the GDAs. Not long after they were signed, it became evident that they were not evolving into comprehensive and 'coordinated application ... of federal and provincial ... policies and programmes.' DREE was alone in negotiating subsidiary agreements; other federal departments and agencies were simply not participating. Nor were they supporting the various GDA programs. The elaborate systems that DREE had called for to involve other departments simply broke down. The computerized information system was never fully developed and never consulted by other departments. In fact, few departments knew that such a system existed. Interdepartmental conferences contributed little to programs: they were not held annually and did not attract enough senior-level officials to make them worthwhile.28 The hope that the GDA system would constitute a total federal presence and not simply a DREE one was never fulfilled. Most subsidiary agreements were developed by provincial DREE officials and provincial government officials, with little contribution even from other DREE officials. DREE, and the GDA concept in particular, were also soon confronted with strong opposition from other federal departments, which charged that DREE was moving into their fields of responsibility with initiatives it was ill-prepared to carry out. They claimed also that interdepartmental consultation was not taking place. One federal minister maintained that DREE went ahead and signed a subsidiary agreement with a provincial government in a sector for which she was responsible, without having the courtesy to inform her or even her departmental officials. 29 If federal-provincial agreements were required to promote growth in a given sector, line departments in Ottawa argued that the relevant sectoral depart-

64 The efforts ment should negotiate the agreement. Some argued also that federal-provincial agreements were not always necessary and that they could just as easily deliver the projects. On this point, departments were highly critical of DREE, and some of this criticism was voiced in public. For example, Romoo LeBlanc, federal fisheries minister, said: 'I resisted the DREE agreement in fisheries because I found it difficult .•. [to accept that] ... what I could not do in my defined area of responsibility, I find another department •.. [doing].'30 Smaller provincial governments, however, looked at GDA planning differently. In fact, they criticii.ed what they considered the overly elaborate planning involved in developing GDA initiatives.31 The GDAs represented more coherent planning than they had been accustomed to, given the size of their governments and the traditionally strong involvement of cabinet ministers in all ·aspects of government decision-malcing. After the 1974 election that returned the Trudeau government with a clear majority of seats, Marcel Lessard replaced Don Jamieson as the minister responsible for DREE. Lessard did not wield the kind of political clout that Marchand or Jamieson had done. He was not a regional minister, as were the first two, and he was new in the cabinet, and thus a 'junior minister.' This fact is important in terms of DREE credibility in the Ottawa 'system.' It is doubtful, for example, whether cabinet colleagues would have been as critical of DREE in public as LeBlanc and Whelan were if Marchand or Jamieson had been in the portfolio. Lessard did not alter significantly DREE's policy direction or the kind of programs supported under the various GDAs. He kept busy visiting provincial capitals to attend the annual GDA meetings and to sign new subsidiary agreements. While minister of DREE, Lessard signed more than ten subsidiary agreements each year. Occasionally, OREE would issue staff papers on the economic circumstances and potential of each province. These papers did not always lead to new initiatives under the various GDAs. Rather they made for good reading, pointed to specific economic difficulties, and commented on the growth rate of each province, as measured by public and private investment, unemployment levels, and gross provincial product. For example, a staff paper in 1976 on the Adantic provinces, 'Climate for Development,' described how difficult 1974 and 1975 had been for the fishery industry. The paper underlined the problem of wealc u.s. markets and the serious question of resource depletion. However, no new initiatives to remedy this situation emerged from DREE. Particularly toward the end of Lessard's mandate in DREE in 1978, pressure was put on provincial DREE offices and provincial governments to carry out objective evaluations of GOA-sponsored initiatives. These were undertalcen but, as always, did not prove very useful. Evaluations were prepared of the highways

OREE and the General Development Agreements 65 agreements in the Atlantic provinces. Much of the benefit from the New Brunswick agreement was found to be non-quantifiable and non-economic. New highways had, however, opened up the northern part of the province and had served to establish closer links between the relatively isolated and poor northern regions and the more populated and prosperous southern half of the province. Evaluations of a number of sectoral agreements were also carried out. Their findings soon became highly predictable: it was much too early to assess fully the impact of a given agreement. They also frequently concluded that a new agreement should replace the expiring one being evaluated: signs were encouraging, progress was being made, efforts should be sustained. A number of evaluations gave rise to 'second-generation' subsidiary agreements. That is, an agricultural subsidiary agreement for New Brunswick, for example, was replaced by a new agricultural agreement. All in all, there were numerous such second-generation agreements signed under the various GOAs. Rarely were evaluations conducted from an interprovincial perspective; GOA programs were, by nature, provincial in scope and design. One exception was an extensive evaluation carried out in 1979 on the effect of OREE's efforts at developing industrial parks in the Atlantic region. Not unexpectedly, a major theme of the evaluation was that their full impact could not yet be fully assessed. More time was considered necessary, and, with this in mind, a data bank was developed so that another evaluation could be undertaken in 1982. The evaluation revealed also that OREE had invested $31 million in industrial parks in the region; some 5,000 acres were serviced, of which slightly over half were occupied; some 769 firms had located in OREE-assisted parks, creating some 18,000 person-years of employment; and 68 per cent of the firms were new to the communities in which they were now located.32 Several important questions were left unanswered about the life expectancy of the firms surveyed and about the turnover frequency of those occupying a given building. In addition, no attempt was made to determine where the firms would have located had new parks not been constructed. The proposed evaluation for 1982 was never carried out, and there are no indications that the data bank, which was developed, is serving any useful purpose in program evaluation. THE REGIONAL DEVELOPMENT INCENTIVES PROGRAM

The regional development incentives program was revised slightly with the advent of the GOA approach in the mid-1970s to make it compatible with the new system. New regions were designated; the program was extended in Manitoba, Saskatchewan, Yukon, the Northwest Territories, Quebec (excluding the Montreal-Hull corridor), and northern Ontario and British Columbia. Provisions were made to offer specialized incentives through the GOA system to

66 The efforts support developmental initiatives affecting non-designated areas. The GOA policy review also decentralized the administration of the program down to the provincial-office level. Provincial directors-general were given authority to approve incentive grants of up to $670,000.33 By and large, however, the incentives program continued to operate much as it had in the past, and it never became an integrated part of the GOA approach. By 1976, Montreal-area MPs were pressing Marcel Lessard to designate their city under OREE's incentive program. Unemployment in Quebec had risen to 300,000, half of it in the Montreal region. The election of the Parti Qu6Mcois in November 1976 resulted in a sudden downturn in private investments in the province and the widespread fear that head offices of major companies would leave Montreal because of proposed language legislation. Montreal is also Quebec •s industrial heartland. The basic economic strength of the province, many believe. is ineluctably linked to Montreal. Many Quebec economists were stressing the importance of the Montreal region to the overall development of the province. A fairly extensive body of literature by Quebec scholars now exists on this issue.34 When Lessard first went to the cabinet with the proposal to designate Montreal, he met with stiff opposition. If OREE could justify a presence in Montreal, why could it not also justify one for Vancouver and Toronto? Fundamental questions were asked about OREE's mandate and its role in alleviating regional disparities. Cabinet ministers from the Atlantic provinces remembered well Marchand's comment about the necessity of spending 80 per cent of OREE's budget east of Trois-Rivieres. How would a Montreal designation affect other regions? Would it still be possible, for example, to attract firms into depressed regions if they could obtain a cash grant for starting new production in Montreal? Lessard now reports that, with considerable help from seven ministers from the Montreal region, he was finally able to convince the cabinet to designate Montreal under the RDIA program. In June 1977, OREE introduced, under the authority of the OREE Act, a discretionary incentives program for selected highgrowth manufacturing industries for the Montreal region, with only projects involving a minimum of $100,000 being eligible. Unlike in the Atlantic region. not every new manufacturing or processing facility was to be eligible. Only selected high-growth industries could qualify, including food and beverages, metal products, machinery, transportation equipment, and electrical and chemical products. Projects would be limited by a lower maximum grant than elsewhere: 25 per cent of total capital cost.35 In obtaining cabinet approval for Montreal designation. Lessard promised his colleagues to look at the possibility of designating other regions, including northern areas of British Columbia and the Northwest Territories. He also com-

OREE and the General

Development Agreements 67

mined OREE to undertake special development efforts in eastern Ontario. notably the Cornwall area.36 But the changes introduced by Lessard to Canada's regional development policy were relatively minor and piecemeal. As we shall see. emerging political and economic circumstances would move Lessard and his senior departmental officials to launch a much more ambitious review of OREE policies and pro-

grams.

6

Three aborted policy reviews

By 1978, DREE was being assailed from all sides in Ottawa. The provinces were still generally supportive, although even from them some criticism could be heard. Smaller provincial governments were finding the ODA process highly bureaucratic and cumbersome and probably better suited to a large bureaucracy like the federal government 1 In any event, even if provincial governments had been fully supportive, it is not to them, but rather to central agencies in Ottawa, that DREE had to tum for funds and person-years, and in the end to the cabinet for political support. Canada was entering a difficult period, both politically and economically. Quebec had elected a separatist government in the fall of 1976. Firmly committed to political sovereignty, the new provincial government had views in direct conflict with those .of the prime minister, who was firmly committed to a strong central government The large Quebec Liberal caucus in Ottawa, with few exceptions, endorsed the views of the prime minister. The election of the Parti Qu~~ois signalled an out-and-out 'battle for the hearts and minds' of Qu~~ois.2 OREE was to be caught in this political crossfire, as Quebec was an important client and DREE's major program in the province required close federal-provincial cooperation to be effective. The country's economic picture had also changed dramatically since DREE was first established. Then few had doubted that the economy would continue to prosper. By 1976, however, the economy was stagnant, unemployment was high, and so was the inflation rate. The term stagflation had crept into our vocabulary.3 Given modest growth, high unemployment, and inflation, many were asking whether Ottawa should continue to prop up slow-growth regions through transfer payments. Were federal cost-sharing agreements inhibiting rather than promoting prosperity in slow-growth regions? 4 There was widespread concern in Ottawa that the GDAs had failed to present the national perspective to pro-

Three aborted policy reviews 69

vincial governments. The GOAs seemed a one-way street: provinces got what they wanted, but not so the federal government. OREE was well aware of all these forces at play. In its 1978 annual report, the department noted 'Quebec's vulnerability to ... increasing competition from foreign manufactures' and 'the apparent softness of the Ontario economy.' It also revealed that a policy and legislative review had been launched, 'another stage in the evolution of regional development policy. ' 5 THE LESSARD REVIEW

'Regional economic balance,' OREE argued in its 1978 review, 'has been shifting ... particularly since the middle of this decade. ' 6 This shift necessitated a fresh look at the federal government's regional development policy. OREE's last major policy review, in 1973, had foreseen a buoyant Canadian economy that would permit national policies to enhance economic development in slowgrowth areas and reduce disparities between regions. Yet by 1978, despite considerable public funds invested in slow-growth regions, regional disparities seemed virtually unchanged. In fact, a marked shift in private investment toward the western provinces was apparent, and closing the disparity gap would now be even more difficult. OREE officials now looked south of the border for a better understanding of regional imbalance in Canada, on the assumption that similar historical patterns of regional growth and economic fortunes are found on both sides of the border. The New England states, excluding Massachusetts, were found to be remarkably similar to Atlantic Canada in their long-term decline in population and their below-average incomes. The western border states, it was determined, had grown at rates roughly comparable to those of Canada's western provinces. Finally, the Great Lakes states of Michigan and Ohio had exhibited a pattern similar to that of both southern Ontario and Quebec. These findings suggested that regional economic development was influenced more by the continental forces of resource endowment and proximity to markets than by government policy. The policy review suggested that Ottawa should reorient its regional development policy, changing its basic approach. OREE had directed a relatively high proportion of its funds into various forms of infrastructure. Expenditures of this kind had been useful, and many of the requirements of slow-growth regions had been met. However, the policy review recommended that OREE should be highly selective in such support, tying it to specific investments with strong potential for growth and employment. Marcel Lessard, accompanied by senior OREE officials, explained this new emphasis to the Senate Standing Committee on National Finance: '[OREE is not] a welfare agency ... Our pri-

70 The efforts mary objective ... is to help each region of Canada nurture and cultivate those areas and prospects with the best potential for development.' This could be best accomplished by 'intensive analysis ... [to identify] the comparative advantages of each region. ' 7 A call for updating DREE's yellow books was made by the minister. This time, the books were prepared in close cooperation with the provinces. The review proposed taking advantage of the Atlantic provinces' available natural resources and geographic location with an eye to future development. Self-sustaining growth seemed possible in the fishery and fish-processing, minerals, and forest-based industries. A new sector with significant growth potential was also identified around the emerging 'ocean industries.•• With the extension of the national fisheries jurisdiction to 200 miles in 1977, the Atlantic region could develop the full potential of this sector. However, it needed a wider range of better-quality products; markets abroad, notably in Europe and Japan; and a rebuilt fishing fleet. The review noted that the fishing industry, together with defence-related activities, environmental research, and, especially, off-shore oil and gas exploration, would offer new development opportunities, providing a comparative advantage to the Atlantic region. It was hoped that a nucleus of medium- and high-technology ocean manufacturing and service industries would subsequently develop. The Atlantic provinces held other comparative advantages. The mineral sector was expected to grow in relation to the rest of the economy, with additional production of coal in Nova Scotia and potash in New Brunswick and of base metals and iron ore, particularly in Newfoundland and northern New Brunswick. As well, the recent devaluation of the Canadian dollar would help the sector. A devalued Canadian dollar would also stimulate the region's pulp-and-paper industry, important in terms of employment. However, to ensure advantage over foreign competitors, firms would have to modernize their plants and counter resource depletion and serious budworm infestation, which were reducing the quality and volume of harvestable timber. An aggressive government plan to protect the forests seemed necessary. Quebec's economy was facing difficult structural problems: persistently high unemployment, poor productivity, a shortfall in private investment, and the decline of the Montreal urban area. The policy review nevertheless identified a number of comparative advantages in the Quebec economy on which to build real economic growth.9 The revised DREE yellow book pointed out that Quebec not only had an important domestic market, but was also well positioned geographically to penetrate the American and western European markets. Its major comparative advantage was its relatively inexpensive hydroelectric power. Industry could be attracted simply on this basis, DREE argued. In addition, the

Three aborted policy reviews 71 province's mineral resources were important and would continue to enhance industrial opportunities. Important deposits of uranium, gold, peat, and asbestos fibre were available. Quebec needed industrial rationalization, however, in the textile, knitwear, clothing, and footwear industries which, for the most part, were no longer internationally competitive. OREE suggested that they rationalize production, consolidate operations, and modernize. OREE's new book on Ontario's economic circumstances concluded that sustained, strong economic growth could no longer be taken for granted. 10 The increasing cost of energy and the westward movement of investment capital had weakened Ontario's economic performance. During the 1970s Ontario's economy had not performed as well as the rest of Canada's. Though narrowing regional disparities was a noble objective, 'the fact that it is occurring more by means of Ontario's weakening position rather than through other regions' growing strength, with the possible exception of Alberta and British Columbia, should be a matter of national concern.• A weakened Ontario would 'have negative implications for the whole country. ' 11 OREE's review revealed that between 1970 and 1978, Ontario had one of the slowest growth rates of all the provinces: the third lowest in manufacturing investment and the lowest in residential construction and per capita disposable income. Ontario's share of the country's newly arriving immigrants declined from 58 per cent in 1974 to 49 per cent in 1978. Ontario's population growth rate exceeded the national average only once in the same period. Clearly, continuing growth in Ontario could no longer be taken for granted. OREE stressed the difficult problems of industrial adjustment in southern Ontario. The provincial government had stimulated slow-growth areas within the province, but now, OREE insisted, 'Ontario must ... be even more conscious of the overall development of the province itself. ' 12 OREE maintained that significant elements of Ontario's manufacturing industry required adjustment and restructuring in light of changing demands and international competition. The manufacturing sector needed assistance to make the required adjustments on a timely and economically efficient basis and to seize new opportunities in a rapidly changing international markeL In the automotive industry, product lines would have to change, and plants be completely re-equipped. Farm machinery was facing an uncertain future due, in part, to its international orientation and its vulnerability to wide cyclical swings. Since it is linked to these two industries, Ontario's steel industry would also need to adjust to changing circumstances. Ontario needed to seize new opportunities for its manufacturing sector, for example, by linking its capacity to major new energy projects in eastern and western Canada. The prospects for three of the four western provinces looked promising. In line with North America's basic economic trends, the growth of the Canadian

72 The efforts western economy had surpassed the national average. Personal income had increased 57 per cent between 1971 and 1978, as compared to 46 per cent nationally; employment had grown by 33 per cent, and the labour force by only 30 per cent. 13 The main economic challenge for the four western provinces was one of managing growth. The energy sector and associated pipeline projects would offer numerous opportunities. OREE outlined a number of these, including the development of northern oil and gas reserves in the Arctic and the Mackenzie Valley. Four synthetic and heavy-oil projects were planned for the mid-1980s, as was the development of Saskatchewan's high-quality uranium reserves. These projects and others, OREE concluded, would bring substantial private investment to the area and create employment. The food-and-beverage-processing industry looked promising, and markets for the region's pulp-and-paper industry were expected to improve. The shift of financial services westward would continue and further strengthen the region's service sector. There were, nonetheless, problems in the region that OREE would seek to resolve or have resolved by other government agencies. Manitoba would require stronger economic ties with its three western neighbours to ensure growth. Otherwise, unprecedented growth from resource-related investment in the other western provinces would sharpen the contrast between them and Manitoba. OREE believed that Manitoba could become a regional manufacturing base, and it signed a special industrial development agreement with Manitoba in 1978 to promote industrial activity.14 OREE also signalled other western problems that needed attention. An adequate supply of water to meet growing demands for industrial development, agriculture, and expanding municipal services was not as secure as it should be. The policy review predicted that a major shortfall in precipitation over a oneor two-year period would result in a serious water-supply problem - and diversification of the agricultural and industrial base of the western provinces would require a secure water supply. Problems with soil quality were becoming more and more evident, and additional research and improved soil management were required.1 5 OREE noted regional imbalance in the western economy. Dramatic changes to the economic structure of Canada's North would necessitate adaptation in the West and increased native participation in western development. The western boom seemed unlikely to do away with pockets of regional poverty. In fact, OREE noted with concern that growth was highly concentrated in specific parts of Alberta, British Columbia, and, to a lesser extent, Saskatchewan. All in all, the policy review revealed that Canada's regional economic circumstances had changed considerably since the review in 1972. OREE would

Three aborted policy reviews 73 seek to adjust its programs to reflect these changes, and Lessard so infonned his cabinet colleagues. OREE concluded that the GOAs still constituted the best possible delivery mechanism. The GOA 's most important characteristic, Lessard insisted, was its flexibility. A wide range of approaches and initiatives was possible, and development measures could be tailored to circumstances and to the development priorities of provincial governments. GOAs had proved effective as a tool for federal-provincial cooperation, as witness the broad endorsement that they received at the First Ministers' Conference in February 1978. 16 OREE acknowledged, however, that the GOAs were not without 'possible drawbacks.' They had not, for instance, been successful in dealing with multiprovince issues. All GOA programming was structured on a bilateral basis, and OREE had been incapable of promoting regional or multi-province solutions in such areas as energy, fisheries, and transportation. Also, other federal departments had not become involved in promoting regional development, and the GOAs remained essentially a OREE-only instrument. 17 The difficulty was that GOA initiatives were developed by provincial governments in consultation with provincial OREE offices. Authority for setting up new programs had effectively been decentralized at that level. However, such authority in other federal departments had remained centralized in Ottawa, inhibiting cooperation. These problems were not insurmountable, OREE insisted. The low level of support for the GOA process shown by a number of federal departments stemmed from the fact that they were not involved sufficiently early in designing subsidiary agreements. OREE would therefore in future make special efforts to involve federal sectoral departments, invite them whenever appropriate to co-sign and perhaps co-fund agreements, and request that they sit on the various federalprovincial implementation committees. OREE also undertook to adhere more closely to the elaborate interdepartmental consultation procedures laid down when the GOA approach was introduced. THE REGIONAL INDUSTRIAL INCENTIVES PROGRAM

A review of OREE's regional incentives (RDIA) program found it well established and widely supported by industry. The review proposed minor adjustments: that OREE be allowed to authorize more than one development incentive grant for the modernization of a facility, revision of ceilings so that incentives grants could be adjusted for past inflation, and new payment procedures and schedules for grants. Marcel Lessard reports that he approved the policy review and the proposed legislative package based on it and submitted them to the cabinet in early 1979•18

74 The efforts However, before discussion could take place, a general election was called. The cabinet was in no mood, reports Lessard, to approve new policy directions and a new legislative package a few months before facing the electorate. THE CLARK GOVERNMENT

The Progressive Conservative government of Joe Clark came to power in June 1979. Elmer MacKay, a popular Nova Scotia politician, was named OREE minister. Clark had talked about regional development throughout the election campaign, insisting that 'the fight against regional disparity will be central to our policy as it is central to the Progressive Conservative 's concept of national unity. ' 19 Curiously, however, MacKay was excluded from Clark's inner cabinet Thus, changes to OREE were expected to be structural in nature and likely to involve other departments. During the campaign, the Conservatives had been critical of OREE programs. OREE's difficulties, in the minds of Conservative politicians, '[were] rooted in the obsessive concern with developing such infrastructure as sewer and water systems that do not offer continuing economic benefits.' The new OREE minister favoured a strong commitment to the four Atlantic provinces and to large projects. He signalled to his colleagues and departmental officials that OREE efforts should be concentrated 'east of the Ottawa river.' 20 MacKay went outside the department for counsel on regional policy and on OREE's future role. One economist from Dalhousie University offered controversial proposals for restructuring the department. He reported that 'OREE, during the latter part of the 1970s, has given the impression of being an expensive, inefficient and secretive bureaucracy'; it 'should essentially be transformed into a small, very senior policy agency.' 21 The department gave MacKay essentially the same policy and program proposals it had presented to Lessard. Little had changed in terms of economic circumstances at the regional level, and OREE officials saw no need to change significantly their basic policy orientation. The GOAs still represented, in their opinion, the most effective tool for federal-provincial coordination and would be particularly well suited to Clark's vision of Canadian federalism. The updated OREE yellow books, initially approved by Lessard, were released during MacKay's tenure - in blue covers - and renamed blue books. Before MacKay and the Clark government could reorient Ottawa's regional development policy, however, the country was plunged into yet another general election. The only change of any significance the Clark government brought to OREE was a change in deputy ministers. J .D. Love was replaced by Robert Montreuil, another career public servant, who had been OREE's assistant deputy minister for the Quebec region.

Three aborted policy reviews 75 THE DE BANe REVIEW

First elected in 1968, Pierre De Bane made regional development his main field of interest in caucus and in Parliament. Though never a resident of the area, De Bane had been parachuted into the Liberal stronghold of Matane in the economically depressed Gaspe region. He was first named to the cabinet as minister of supply and services in late 1978, only a few months before the Trudeau government was defeated. During that brief period, he sought to reorient that department's policies to promote regional development. He initiated a program to identify the eight poorest regions in the country and sent a team of specialists to those regions to find out what local industries produced that the government buys in its day-to-day operations. While in opposition, he had been shadow critic of OREE. In that capacity, he wrote a paper on regional development policy that he circulated widely. It called on OREE to evaluate the regional effect of all federal programs, to take a direct interest in community development, to establish a special regional development fund, and to develop special tax concessions for businesses locating in slow-growth regions. 21 When the Liberal party returned to power, De Bane specifically asked the prime minister for the OREE portfolio.23 Immediately after being appointed, he called for a major policy review, feeling strongly that the government's regional development policy needed to be completely overhauled. The guiding principle of the review was that the federal and provincial governments could do more, a great deal more, in promoting regional development At the same time, De Bane sought to strengthen OREE's position in Ottawa. He declared that it was unrealistic for the federal government to expect OREE to 'alleviate regional disparities with a budget which in total represented less than 2 per cent of Ottawa's expenditure budget.~ He publicly informed the deputy prime minister and the minister of finance that OREE would need a great deal more money if Ottawa was serious about combating regional disparity.2A De Bane called a OREE staff conference, to which he invited every departmental official down to relatively junior levels, and he asked them to contribute suggestions for a stronger policy. Those reluctant to voice their views before senior management he invited to write him in complete confidence. At the conference, De Bane echoed the views on regional development that Prime Minister Trudeau had voiced some twelve years earlier: 'Unless the federal government can put in place measures to extend to those people living in slowgrowth regions hope and opportunities to tum the economy of their regions and communities around, then the future of the Canadian federation will be bleak indeed.' 25 De Bane informed the conference that he would not accept the review that the department had submitted to him - essentially the same review that OREE

76 The efforts had submitted first to Lessard and then to MacKay. He labelled that review the 'status quo• and rejected it out of hand. He also urged the department to do likewise. He recognized. he said. that a great deal of opposition to DREE existed at both the political and bureaucratic levels. 'To preserve the status quo.• De Bane stated. 'I would have to devote all my efforts and energies over the next twelve months to convince my colleagues of the appropriateness of DREE as we now know it. A very fundamental problem here is that I am not prepared to do that.' He urged his officials to put aside their 'bureaucratic inhibitions• and to come up with new measures 'to alleviate regional disparities.• No effort should be spared to bring about regional balance in economic growth. De Bane insisted. In line with this thinking. he outlined again all the measures he had identified in his paper on regional development. In particular. he stressed community-level development. 26 Early in his tenure. De Bane embarked on a tour to view at first hand what western European countries were doing in regional development. He called for the establishment of a special study committee inside the Organization for Economic Co-operation and Development (0ECD) to look at the issue. a suggestion that the organization later accepted. He also signed a special protocol agreement with the Italian minister responsible for regional development.17 The accord called on Italy to support De Bane's request for a special 0ECD meeting on regional development and on both countries to cooperate and exchange views on regional development policy. In these ways. De Bane served notice to his officials that he wanted DREE to adopt an aggressive posture in defining a new regional policy for Canada. Senior departmental officials. however. remained sceptical that De Bane could deliver a bigger budget and a stronger mandate for the department. Opposition to DREE in Ottawa was still strong. and senior department officials were reluctant to seek a stronger mandate. especially if it gave DREE the authority to assess the regional policies and programs of other departments. They were well aware that De Bane was a junior minister with a reputation in the press for being unconventional. a 'party maverick.• and a 'black sheep. •21 De Bane certainly raised eyebrows in DREE when he publicly rebuked veteran cabinet minister Allan MacEachen, deputy prime minister and minister of finance. for holding DREE's expenditure budget down to what he felt was an unacceptable level. Senior DREE officials also saw no evidence for De Bane •s claim that regional development held a priority status in Ottawa. The prime minister had made it clear that constitutional renewal and a new energy policy were at the top of the agenda. As he had in 1968. Prime Minister Trudeau turned to two senior Quebec ministers to undertake these tasks. Jean Chretien. a seasoned politician. was appointed to Justice, and Marc Lalonde, the regional minister for Quebec and a long-time adviser to Trudeau, was named to Energy.

Three aborted policy reviews 77

DREE officials remained convinced that had the prime minister and the new government been serious about regional development, he would have appointed a senior cabinet minister to head the departmenL Nevertheless, they prepared a new policy and legislative package to accommodate at least some of De Ban6's views. DREE sponsored a series of public conferences and seminars on local development in an effort to define new development instruments for the department. Senior DREE officials made a number of public speeches stressing comprehensive federal involvement in the promotion of regional developmenL Pierre De Ban6 resisted anything less than a complete overhaul of the federal government's regional policy. He remained convinced that a stronger mandate for DREE was both essential and possible. But there were other forces at play. His cabinet colleagues and government back-benchers, including those from the Atlantic provinces, were highly critical of the GDAs, which they viewed as instruments substantially financed with federal funds but clearly favouring the political profile of provincial governments. On this issue, the criticism of federal ministers and government MPs became more and more vocal. De Ban6 explained that he would not renew a subsidiary agreement with Manitoba because Ottawa was not getting sufficient political credit for its expenditures.29 The GDA approach was no doubt beuer suited to times of quiet federalprovincial cooperation, such as prevailed when it was first introduced. However, by the early 1980s, competitive federalism had come to replace cooperative federalism. A bitter referendum campaign over the future of Quebec had just been fought by both Ottawa and the Quebec government. In addition, not one provincial government was of the same political persuasion as was the federal government. It was thus difficult for government MPs to see DREE funds simply transferred to provincial governments that used them to put in place popular economic-development initiatives for which they took the credit. MPS went home to their ridings on weekends only to see members of the Parti Qu6b6cois highly critical of Ottawa, the Prince Edward Island government labelling Trudeau on-Canadian because of his position on the constitution, or Premier Peckford of Newfoundland insisting that the policies of the federal government were working against the best interests of his province. They also saw these same governments claiming credit for a host of GOA-sponsored initiatives for which the federal government had contributed up to 90 per cent of the costs. How then, they asked De Ban6, can DREE tum around and agree to finance even more subsidiary agreements? Well aware of this opposition, and convinced that marginal improvements in DREE's activities would not suffice, De Ban6 wrote to the prime minister to ask for support for a complete review of federal policy on regional development. He suggested that 'DREE's responsibilities - to ensure that all Canadians have an equal chance to make a living with dignity - can't be handled by one department

78 The efforts with one per cent of the federal budget. ' 30 Sadly, he reported to the prime minister, the OREE experience had been a failure because of OREE's inability to muster a concerted federal effort in promoting regional development. The solution, De Bane reasoned, was a much stronger DREE. Defining depanmental mandates is the prerogative of the prime minister. He alone, not the cabinet, must decide which minister will have authority to do what. Frequently mandates overlap and ministers and their departments will jockey to enhance their positions and their spheres of influence. However, only the prime minister can resolve jurisdictional conflicts. Thus, when De Bane wrote to request a stronger mandate for DREE, the prime minister naturally turned to his own officials inside the Privy Council Office for advice. With the mandate issue in the hands of the prime minister and his advisers, De Bane turned to OREE for new regional development programs. He did not dismiss the GDA approach out of hand, but he asked his department to come up with initiatives that the federal government could finance alone and deliver directly, without the participation of provincial governments. His efforts were strongly endorsed by his cabinet colleagues, a number of whom had publicly called for such an approach. The Prince Edward Island comprehensive development plan presented an excellent opportunity for De Bane to test this manoeuvre. The plan, signed on 7 March 1969, was divided into three phases, with the last scheduled to come into force on 31 March 1981. Each phase was the subject of new negotiations and new initiatives. Phase I, which ran from 1969 to 1975, dealt with basic infrastructure facilities, such as roads and schools. Phase n, from 1975 to 1981, aimed to strengthen the province's important economic sectors, such as agriculture and fisheries, through incentive grants and marketing studies. Phase m was to continue along the lines established in phase n. De Bane did not attempt to reorient the strategy. Instead, he sought to change the project delivery mechanism. He called for federal departments to deliver a number of projects with OREE funds and to decrease federal funding of provincially delivered projects. He pledged that overall federal support for development projects would not decrease in Prince Edward Island. Under phase m, however, nearly half of the federal funds would be earmarked for direct delivery projects.31 De Bane's proposals met with strong opposition from Prince Edward Island's government. Its representatives sought to delay what they referred to as 'unilateral federal initiatives' at least until the end of the comprehensive plan. Changing the rules of the game now, they suggested, would violate the spirit of the fifteen-year accord. It would also mean a substantial loss of jobs in the provincial public service. With the federal government assuming responsibility for delivering initiatives, a number of provincial officials would become redundant. 32

Three aborted policy reviews 79

Notwithstanding these objections, De Bane pressed ahead with his new format for phase m. Confronted with his adamant position, the provincial government finally agreed to De Bane's terms. A group of federal cabinet ministers went to Charlottetown to sign the plan's last phase on behalf of the federal government. OREE and the federal departments of Fisheries, Agriculture, Energy, and Industry, Trade and Commerce would deliver, through federal programs, a number of the plan's initiatives. At a press conference, De Bane explained that the federal government would deliver specific projects because 'regional disparities are the responsibility of both governments.' Joint planning and coordination were still possible, he insisted, even if some of the programs were administered through various federal departments. The plan would not be simply a 'one-shot' federal effort at direct delivery, De Bane vowed. OREE quickly followed with a special five-year $IO-million special development plan for southeastern New Brunswick. In this case, however, all the funds were allocated to federal programs. The province could contribute to the plan through its own programs and with its own resources. A number of direct-delivery projects were also earmarked for Quebec. The need for direct delivery was much more urgent there than elsewhere. The provincial government and OREE were not able to agree on a sufficiently large number of new subsidiary agreements to sustain OREE's traditional level of expenditure in Quebec. Confronted with a provincial government that was lukewarm at best on federal-provincial programs and a federal Liberal caucus openly hostile to any transfer of federal funds that would place the Parti Quebecois in a favourable light, De Bane sought to entice his cabinet colleagues to do more in Quebec, employing, if necessary, OREE funds. One such example was a special agreement between OREE and the Department of Fisheries and Oceans that saw a transfer of OREE.funds for the construction and renovation of port facilities in eastern Quebec. In announcing this special agreement, De Bane remarked: 'This transfer of funds is a good example of interdepartmental cooperation [and] achieving our goal of reducing regional economic disparities.' 33 However, OREE had not abandoned cost-sharing with the provinces under the various GOAs. In fact, De Bane did sign a number of traditional subsidiary agreements while in OREE. A new forestry agreement with New Brunswick did not alter the forestry development strategy first introduced under two earlier subsidiary agreements. De Bane also signed a standard subsidiary agreement with New Brunswick to redevelop a portion of the downtown core of Saint John, a forestry subsidiary agreement with Newfoundland, and a water-development and drought-proofing subsidiary agreement with Manitoba. OREE also negotiated a number of pulp-and-paper subsidiary agreements or major modifications to existing ones with several provinces to modernize and reduce costs in older mills in eastern Canada. The objective here was not to

80 The efforts create new jobs, but to protect existing ones. These standard agreements had only one adjustment made to enable the federal government to make payments directly to the companies rather than having to channel funds through provincial governments. The only major departure from the original GDA approach was the way in which the federal government cooperated with provincial governments. During his stay in DREE, De Bane signed some twenty-one subsidiary agreements that did not constitute a new direction in program substance. De Bane saw little reason for redirecting GDA programs while work was proceeding on a more radical policy and program change. DREE officials also saw that the cabinet was in no mood to support the GDA concept as a federal-provincial tool and saw little hope in being able to reorient Ottawa's regional development policy through the GDA process. In addition, hardly any work had been done in assessing the effectiveness of past DREE efforts. A senior DREE official said: 'It was difficult to get very serious about assessing the impact of our programs when we were not sure where we were heading or even if we would be around much longer.' De Bane's new approach to federal-provincial cooperation served to lessen criticism from other federal departments: federal cabinet ministers were no longer hurling charges at DREE. It did little, however, to improve regional development. Though standard GDA programming was less and less popular with De Bane and his cabinet colleagues, De Bane sought a larger budget for DREE. He campaigned for more funds in public as well as in the cabinet and cabinet committees, and DREE gained a substantial increase in its budget. De Bane informed the House Standing Committee on Regional Development in March 1981 that DREE's budget for 1981-82 was much higher than the previous year's, with a net increase of$143 million - a 25 per cent increase- to 'be focused on needy areas. ' 34 He noted that this increase compared remarkably well with the budgets of other departments. Perhaps his colleagues were confident that funds would no longer simply be transferred to provincial governments; indeed, more DREE funds could well mean more funding for their own programs. THE REGIONAL DEVELOPMENT INCENTIVES PROGRAM

Bringing about fundamental changes to the GDA approach and its programs extended, however, beyond De Bane's mandate. It raised questions about government organization, which is the responsibility of the Privy Council Office, and about economic policy, which is the responsibility of the cabinet and, more specifically, the minister of finance. The one program that De Bane and his officials could alter and suggest new measures for without going outside the department was regional incentives.

Three aborted policy reviews 81 De Bane wanted at least two important changes in the program. First. he was concerned about its regional designation. By the time he was appointed minister, the program covered fully 93 per cent of Canada's land mass and over 50 per cent of the population. He wanted designations better focused so as not to dif. fuse Ottawa's efforts. Accordingly, he unveiled a plan to collect and analyse data down to the community level. He reported to the House Standing Committee: 'When I became Minister of OREE I insttucted the department to upgrade its data base for small areas. ' 35 OREE needed more detailed information so that it could more accurately measure disparities and develop special 'regionally-targeted' measures. De Bane planned to use this new database to develop a regionaldisparity index for Canada, which would help OREE designate regions under the industrial incentives program, which would in turn become more generous to the least well-off regions, as defined by the index. De Bane was successful also in convincing the minister of finance that a new tax-credit program was necessary to attract investment to slow-growth regions. The minister of finance reported in his 1980 budget speech that he had agreed to introduce a new special investment tax credit after repeated representations from the minister of OREE. The program was aimed at the 5 per cent of the Canadian population living in regions suffering the most from high family unemployment and low per capita income. Most manufacturing and processing activities that would qualify under OREE's regional incentives program would qualify also under the new program. Expansions, modernizations, and new facilities were eligible, and no project size limits were to be imposed. The program would be in force for a five-year period, commencing 29 October 1980. The investment tax credit of 50 per cent would be applied to the eligible capital costs of assets acquired for manufacturing and processing. 36 Second, De Bane wanted to make the incentives program more proactive or di,igiste in relation to the private sector. The Bureau of Business and Economic Development was set up to identify, through such techniques as import substitution, export analysis, industry profiles, and corporate and economic intelligence, attractive investment opportunities for the private sector in slow-growth regions. 37 Attempts would be made to select only high-growth-potential manufacturing sectors and dynamic industries, so that new activities would sustain themselves. Once it identified opportunities, OREE would go to firms to outline opportunities and offer federal assistance in the form of grants or tax credits. Such representations would always be done at the highest level. The first sector looked at was high technology. And the first development opportunity the bureau identified was for a small, rural, economically depressed community in Kent County in eastern New Brunswick. With much fanfare, OREE announced that Mitel, a Canadian high-tech company that had enjoyed

82 The efforts tremendous growth during the 1970s, would locate two new manufacturing plants in Bouctouche, New Brunswick. The plants were expected to create some 1,000 new jobs. OREE would contribute a $15.7-million incentive grant to the Mitel project, which involved a total capital investment of $48 million. 38 The project was strictly a federal initiative; the provincial government first learned of the project through the news media, as did the residents of the province. Meanwhile, De Ban6 and Herb Gray, the minister of industry, trade, and commerce, were exchanging strong words in public over Volkswagen's decision to locate a new parts plant in Barrie, Ontario, in order to take advantage of Ottawa's duty-remission program, under which the duty on automobile imports was waived if a company established a plant in Canada.39 At De Ban6's urging, a delegation of federal officials was sent to Germany to meet with Volkswagen. OREE selected two sites, Montreal and Halifax, and offered a cash grant to Volkswagen to locate in either one. The company rejected the one-time grant, arguing that it would need a yearly operating grant to compensate for the fact that parts suppliers were located mainly in southern Ontario. De Ban6 suggested that the federal government should refuse the duty remission for Volkswagen if the company pressed ahead with its Barrie location rather than a OREE-designated region. If regional development were to be effective, De Ban6 had said many times, it requires many instruments. One of them clearly was the duty-remission program. Herb Gray rejected De Ban6's argument, suggesting that it was better to have Volkswagen locate in Canada, even in southern Ontario, than have the company pick a site in the United States. When the De Bane-Gray exchange became public, the Quebec government jumped into the debate and urged Ottawa to insist on a Quebec site. Quebec cabinet ministers argued that the province never received its 'fair share' of the Canadian automobile-production industry. Quebec's minister of industry, Rodrigue Biron, said that if Ottawa was truly serious about regional development and the promotion of 'real' economic growth in the province, it ought to insist on a Quebec site.40 Volkswagen was unmoved by this public debate and remained committed to Barrie. The president of Volkswagen Canada issued a statement that it would not locate anywhere else in Canada, notwithstanding a generous OREE grant41 As for duty remission, Volkswagen simply assumed that it would be available, regardless of where it chose to locate in Canada. In the end, the federal cabinet sided with Gray and did not choose to employ duty remission as a means of directing Volkswagen away from southern Ontario. With the economy in a deep recession, a number of ministers were in no mood to call Volkswagen's bluff. For De Ban6, the Volkswagen episode simply confirmed his view that regional development should be the responsibility of all federal departments, not simply OREE, and that a great variety of regional development tools was nee-

Three aborted policy reviews 83

essary. Duty remission was but one of them. But before De Bane and DREE could amend their regional development incentives program and define new regional development tools. the prime minister unveiled a major government reorganization. DREE would be disbanded. Its policy role and the GDAs would be transferred to a strengthened Ministry of State for Economic and Regional Development. Its regional incentives program would be incorporated into the programs of a new Department of Regional Industrial Expansion (DRIE). Herb Gray was named minister responsible for DRIE. and De Ban~ was moved to a newly created portfolio in External Affairs. De Ban~•s attempt to give DREE a stronger mandate had failed. Only time would tell if a more effective regional development policy would emerge from this new organization.

7

New policies, structures, and programs

On 12 January 1982, Prime Minister Trudeau unveiled a major government reorganization for economic development. The reason for doing so, he pointed out, was that 'it is no longer enough that one department alone is primarily responsible for regional economic development.' The new organization also reflected the new policy direction for promoting Canada's economic development described in detail by the minister of finance in his 1981 budget speech. At that time, Allan MacEachen had spoken about a new economic reality in Canada and consequent changing prospects at the regional level. Substantial opponunities now existed in every major region in the country, suggesting that the federal government should adopt a new policy orientation. 1 MEGAPROJECTS -

THE ROAD TO PROSPERITY

During his 1981 budget speech, Allan MacEachen tabled a document titled 'Economic Development for Canada in the 1980's' which maintained that regional balance was changing as a result of buoyancy in the West, optimism in the East, and unprecedented sofbless in key economic sectors in central Canada. Underpinning this view were the economic prospects associated with resourcebased megaprojects. The Atlantic region, in contrast to historical economic trends, was expected to enjoy a decade of solid growth, largely as a result of offshore resources. The West, meanwhile, would capture over half of the investment in major projects. Ontario and Quebec would face problems of industrial adjustment, brought about by increased international competition. Yet, opportunities were thought to exist there as well. If properly managed, the economic spin-off from major projects could create numerous employment opponunities in central Canada. Some 60,000 person-years of employment would be created in Ontario from major pipeline projects in western Canada. Thus, the regional challenge in the

New policies, structures, and programs 85 1980s would take a new direction. Regions that had previously enjoyed strong growth were now confronted with special problems of adjustment, while those that had traditionally lagged behind were now enjoying prospects for expansion. All in all, both problems and opportunities existed in all regions. Accordingly, the minister of finance stated, 'regional economic development will be central to public policy planning at the federal level. ' 1 The policy direction would take advantage of major economic forces working on the Canadian economy. The policy document pointed to some $440 billion of potential projects, predominantly in energy and resources, that would be launched before the end of the century. By and large, these major projects would be located in the West, in the North, and on the east coast and were expected to bring about a new set of comparative advantages and economic growth not seen in these regions in this century. They would provide an important source of income, improve provincial revenues, and generate new economic activity. Cabinet ministers began to voice a similar message of economic optimism, notably for the future of the Atlantic provinces. The minister of energy, Marc Lalonde, commented: 'What offshore oil and gas provides [in Atlantic Canada] is the opportunity for an accelerated, more dramatic economic turnaround than would otherwise have been thought possible. The basic strength is here. And now we must build on that strength. ' 3 Added to this was anticipated growth in income from grains and other food products, including fisheries. The Department of Finance's policy document noted that 'rapid population growth in the world is placing new demands on food, and in response to rising world prices further expansion and modernization of the agricultural and food sectors throughout Canada is in prospect• This development, it was felt, would also favour the western and Atlantic provinces. In central Canada, the competitive pressure on manufacturing would require adaptation and regeneration. The policy document thus stressed reorienting and restructuring this sector. The restructuring 'must both reduce the pressure for costly support to less competitive industries and at the same time provide alternative employment opportunities in higher productivity and higher wage sectors.' Much like the argument in the policy document, ministers also suggested that megaprojects could help restructure Ontario manufacturing. Senator Bud Olson, minister of economic and regional development, maintained: 'There is a significant underlying base of major project investment that must be looked at, and the cumulative impacts of those projects will and are having significant beneficial impacts in many parts of the country, not only in the provinces where the mega projects are situated. ' 4 In summary, anticipated major projects would enhance the economies of the West, the North, and the Atlantic region. In economic terms, these regions would be able to 'take care of themselves.' The new regional problem was weakening

86 The efforts manufacturing in central Canada. It was there that new employment opportunities ought to be created. Many manufacturers producing standard products, such as automobiles and appliances, as well as clothing and footwear, were losing their comparative advantages to foreign competitors. Even if they substantially improved productivity, however, competition would remain strong. The process of economic growth in central Canada and the peripheral regions would thus be quite different In the latter, growth would result from the infusion of new capital and labour. Atlantic Canada had a large reservoir of untapped labour to draw from. All that was required for growth in the West and East, then, was a good investment climate, market access, and an adequate supply of labour. In central Canada, however, growth would come about only by drawing resources from declining industries and moving them into growth sectors - in other words, by managing both industrial decline and industrial growth. In 1969, much had been said about alleviating regional disparities and focusing federal efforts east of Trois-Rivieres, and about the importance of regional development for national unity. In 1982, the prime minister's lengthy statement and the finance minister's policy document said nothing about regional disparities. Although regional development would be central to policymaking, it involved something significantly different from what it had been fourteen years earlier. Now regional development referred less to alleviating regional disparities than to development at the regional level. The prime minister did comment on the DREE experience, but simply to say that the federal government would build from the groundwork laid by the department.5 DREE, it was felt, had helped ensure adequate infrastructure in all regions: every region had not only roads, water, and sewerage, but also schools, medical facilities, and housing. Some regions with inadequate infrastructure now had prosperous and fast-growing urban centres, such as Calgary, and were no longer slow-growth regions. NEW GOVERNMENT STRUCTURE

With a new policy in hand, the cabinet had to decide how to structure the government. Could DREE deliver the policy, or was a new organizational structure required? Regional development would now be central to policymaking in Ottawa Could an ordinary line department such as DREE ensure that this would occur? Conventional wisdom suggested not. A line department can hardly rise above the day-to-day competition among departments for new funds, new person-years, and greater influence. It cannot pretend that it is above this competition while seeking funding for its own programs. The cabinet decided that a central agency with no program of its own would be better able to influence other departments. It could assess changing economic

New policies. structures. and programs 87 circumstances and follow up on crucial policy and program decisions. And it could ensure that regional development became part of the whole fabric of government policies and programs. The cabinet established a new central agency, the Ministry of State for Economic and Regional Development (MSERD). by adding regional policy and coordination to the functions of the existing Ministry of State for Economic Development. The ministry was established in late 1978 to coordinate and direct economic development policy and to manage the economic policy 'expenditure envelope.• The envelope system integrated into a single process the separate functions of setting priorities, establishing spending limits, and making specific expenditure decisions. Within the envelope system the ministry was to advise deputy ministers and ministers on Ottawa's economic development budget and recommend allocation of funds between programs.6 In addition. MSERD was to see that 'regional concerns are elevated to a priority position in all economic decision-making by Cabinet.• Because of this added responsibility, the new ministry had to decentralize part of its operations. Offices comprising eight to twelve person-years were established in every province. These offices were directed by a senior executive, called the federal economic development coordinator (FEDC), who advises Cabinet, coordinates the activities of the federal government in the region, promotes cooperation with the provincial government, labour. business, and other economic-development groups, ensures that information about government policy is available in the field, and works with other federal departments. The ministry would. whenever appropriate, also appoint special project directors in the region 'to cut red tape on mega projects and avoid undue delay in project planning, approval and completion. ' 7 The FEDC, however, would direct activities in his region, keeping federal officials in the field informed of the activities and decisions of the Cabinet Committee on Economic and Regional Development. He would also coordinate the federal presence in the regions, and 'serve as the chairman of a committee of economic development departments in the region.• Through this committee and from his own staff work, the FEDC would propose an economic development plan for his province. In tum. this plan would be the basis for federal-provincial negotiations for economic development and also assist in making federal departments and agencies more sensitive to regional circumstances. The importance of having all federal departments play a more active role in regional development was stressed by the prime minister and MSERD's minister, Senator Olson. While announcing the appointment of the FEDC for Prince Edward Island, for example, Senator Olson declared that the Cabinet Committee on Economic and Regional Development had 'launched a process of review of

88 The efforts all existing economic development programmes to determine if they can be further directed toward regional objectives.•• Largely because of the expected role of the FEDC, the new ministry was described by Ottawa as a 'decentralized central agency.' It would provide the full cabinet with regional information developed by federal sectoral departments in the regions or by on-site research and analysis with MSERD. Thus, the information would not, as with DREE, be based almost solely on federal-provincial discussions under the various GDAs. The agency would, however, remain largely Ottawa-based. The head office would increase its allocation of person-years (originally established in 1978 at more than 100) by almost 200, and the new regional offices received 100 producing a head-office to regional staff ratio of 2 to 1, considerably higher than DREE's ratio of 3 to 7. The rationale for a substantial increase in person-years was built around the need for ensuring that the 'regional dimension' was incorporated in the federal government's decision-making process. To do this, MSERD required an enhanced information system on regional issues. A new position, that of associate secretary or associate deputy minister, was set up. Around it the regional information network would be built, including the regional offices. Moreover, approval was given for the Ottawa office to establish a major-projects branch to facilitate a government-wide approach to the development and management of the various major projects.9 Nearly two years later, the MSERD legislation was finally amended to incorporate the regional responsibility that was added to MSERD's responsibilities. The legislation was no more explicit on objectives than was the old DREE legislation; it said nothing about goals. It was not clear whether regional balance in economic growth or reducing regional disparities was to be paramount. MSERD's concern, the new legislation stated, was 'expansion Qf the economy through the development of productive enterprise in every region of Canada.' 10 ECONOMIC AND REGIONAL DEVELOPMENT AGREEMENTS (ERDAS) The prime minister declared at the time that he announced the new organization for economic development that 'existing General Development Agreements with the provinces will continue until their expiry date,' to be replaced then by a 'new and simpler set of agreements with the provinces, involving a wider range of federal departments.' The new Economic and Regional Development Agreements (ERDAs) would be formulated under the direction of the relevant FEDC. The reorganization reflected Ottawa's new approach to federal-provincial relations. The policy paper tabled by the minister of finance during his 1981 budget speech made it clear that 'joint implementation of economic development programming may not always be desirable.' ERDA agreements would

New policies. structures. and programs 89 reflect this new approach. The most positive characteristics of the GDAS would be retained. and less desirable features discarded.11 The Cabinet thought that the federal government was not obtaining its share of visibility under the GDAs. Accordingly. the new ERDAs, following the plan adopted for Prince Edward Island and subsequently for other DREE initiatives. would stress direct delivery by the federal government. The Cabinet believed that the GDA process had given rise to a process that lacked political control and direction. GDA initiatives were prepared and agreed to through a host of federal-provincial committees staffed exclusively with permanent officials. By the time they surfaced at the political level. planning was so far advanced that little change was possible. Under the new ERDAs. Ottawa would deliver directly certain projects under the aegis of the various subsidiary agreements. The respective responsibilities of the federal and provincial governments were to be much clearer. In future. Ottawa would much sooner employ subsidiary agreements than cost-sharing initiatives delivered by provincial governments as a mechanism for program coordination between governments. ERDAs were designed also to encompass all federal depanments and agencies, which were invited to contribute to the various ERDAs, either by signing new subsidiary agreements with the provinces or by delivering specific initiatives. ERDAs were to respect interprovincial considerations and the needs of the national economy. Federal line departments would thus be better able than DREE had been to counter overreliance on a provincial perspective of economic development. The Cabinet hoped that the ERDAs would give rise to joint planning, with parallel delivery of projects. Future subsidiary agreements might be planned jointly, but with each government delivering its own programs. These types of arrangements were already being signed under GDAs when ERDA was unveiled: under the Canada-Nova Scotia Ocean Industries Agreement and the Northeast British Columbia Coal Agreement, Ottawa and the provinces were to deliver their own programs directly. ERDAs would also be developed under close political scrutiny. The legislation (Bill c-152) establishing MSERD spelled out the joint planning process: 'Detailed negotiations ... of any subsidiary agreement shall not be undertaken .. . unless a plan for economic development to which the draft agreement relates has first been approved by the Minister in concert with other Ministers.' Federal ministers would not be asked to approve proposed agreements when it was too late to affect their contents. Apart from these changes, the ERDAs were remarkably similar to the GDAs they replaced. Like the GDAs, they were ten-year umbrella-type agreements that did not provide for specific projects. 12 They simply offered a broad statement of

90 The efforts goals, outlined priorities, and described how joint decisions would be taken. They were, in short, enabling documents, with projects to be presented in subsidiary agreements. The similarity between ERDAs and GOAs extended even to wording. Several 'whereas' clauses were followed by a section on definitions, a statement of objectives, a section on subsidiary agreements, and so on. A schedule A was attached to the EROAs outlining the economic circumstances of the relevant province. As with the GOAs, federal and provincial ministers were asked to meet annually 'to review the economic and regional development environment of the province.' With a new negotiation process defined, MSERO's new minister, Donald Johnston, embarked on a cross-country tour to meet his provincial counterparts. Johnston found some governments less than enthusiastic over the new approach. They viewed it as a move away from federal-provincial cooperation. In addition, the Atlantic governments argued that EROAs signified an end to Ottawa's commitment to regional development. Premier Peckford said that his province was being short-changed on federal monies for regional development under Ottawa's new approach.13 Nevertheless, the provinces had little choice but to enter into new negotiations with the federal government. MSERD and the FEDCs had replaced OREE and OREE's provincial directors-general. The GOAs were being replaced by the ERDAs, and no provincial opposition or criticism could change that. Shortly after their appointments, the FEDCs initiated discussion with the heads of federal departments and agencies in their respective provinces to identify initiatives that they could deliver as part of the new ERDAs. At the same time, the FEDCs approached their provincial counterparts about the ten-year development agreements. And, one by one, the provinces signed new ERDAs with the federal government Manitoba was the first, on 25 November 1983. 14 Both the federal and the Manitoba governments publicly applauded the agreement. Donald Johnston remarked: 'This ERDA represents a new kind of federal-provincial cooperation, based on a shared understanding of Manitoba's economy.' His provincial counterpart added that it 'encourages a much wider coordination of federalprovincial activities in the economic development field than ever before.' The two ministers announced that they had also agreed to sign two subsidiary agreements. The first, the Canada-Manitoba Economic Planning Agreement, provided funding for cost-shared studies on the provincial economy. It was patterned on the subsidiary agreements that OREE had signed. The second subsidiary agreement was designed to strengthen Manitoba's mineral industry. It provided funding for a series of goo-scientific studies to identify promising new sites for exploration. It called for measures to improve productivity and

New policies, structures, and programs 91 safety in the industry, as well as marketing studies and development schemes. Both governments were to invest close to $25 million over a five-year period in a series of complementary programs. The scheme resembled DREE's agreements, except that both governments, rather than just the province, were to deliver the programs. Attached to the Manitoba ERDA was a memorandum, prepared jointly by the provincial MSERD office and the provincial government, identifying future priority areas for both governments. It called for, among other things, improved transportation, development of human resources, and strengthening of small business. Saskatchewan was the second province to sign an ERDA. 15 Premier Grant Devine pointed out that the new agreement was the result of 'a cooperative process.' Donald Johnston stated that the agreement was designed to build upon 'the existing strength of Saskatchewan's economy.' Both governments also signed a five-year subsidiary agreement similar to Manitoba's. In addition, they signed a memorandum of understanding concerning a new technology strategy, whereby both governments would examine the need for industrially oriented research centres, identify innovative sectors with major growth potential, and help industry effectively manage technological change. The Saskatchewan ERDA also identified three other priority areas for the provincial economy. Both governments would attempt to improve the international competitive situation of the province's minerals, heavy oil, forestry, and agriculture; to diversify the provincial economy; and to bring people of native ancestry into the various development opportunities. At the time Newfoundland signed its ERDA agreement, Premier Peckford was publicly less positive about the new approach than the western premiers had been. He declared: 'We must ensure that regional development funding is properly directed to priority areas. It is also crucial that the federal government understand the full dimension of our economic disparities and the appropriate way to solve them.' 16 Two subsidiary agreements covered planning and minerals development and were inspired by previous agreements for these same sectors. In signing New Brunswick's ERDA, Premier Hatfield agreed to sign a planning subsidiary agreement and spoke of 'the successful joint effort under the General Development Agreement (GDA) to develop the New Brunswick economy.'17 He hoped that the new agreement would continue the GDA efforts. He later informed the legislative assembly that the province could bid farewell to an "outstanding decade of federal-provincial cooperation in regional development [the ten-year GDA] but that it was highly unlikely that the new approach would be as successful'; 'the federal government may in the new agreements be less generous.' Further, he declared, 'under the new ERDA, the province will be

92 The efforts in constant negotiation with a number of different federal departments, each with its own policies, philosophies and priorities. ' 18 Shortly afterward, the province signed subsidiary agreements on agriculture, on mineral development, and on forestry, similar to past GDA subsidiary agreements on these sectors except with direct federal delivery in some. Nova Scotia agreed to proceed with the ERDA signing, modelled on the GDA, after receiving some assurance that the federal government would maintain 'funding at DREE levels under the GDA.' Its subsidiary agreements echoed those under the GDA. One on the Strait of Canso was designed to 'provide for a second phase of activity necessary to fully capitalize the infrastructure completed under the first agreement.' The new agreement also called for a number of infrastructure-type projects of the kind sponsored by the first agreement Funds were earmarked for 'wharf construction, an all-weather highway and various small scale infrastructure projects.' Another subsidiary agreement, on minerals, continued along the lines of two earlier GDA subsidiary agreements, of 1974 and 1982. Specifically, a number of programs in the new agreement, notably the goo-scientific and the mineral-development studies programs, were identical to those of the earlier 1982 agreement. A planning agreement, modelled on GDA arrangements, made funds available for research and studies into economic conditions and prospects for Nova Scotia. 19 Prince Edward Island signed an ERDA and six subsidiary agreements, on alternative energy, agri-food development, fisheries, transportation, and planning. These agreements involved a total commitment of both governments in excess of $121 million. Premier Jim Lee and federal cabinet minister Bennett Campbell indicated that subsidiary agreements for industrial development, marketing, and tourism would soon follow. 20 The sectors affected by Prince Edward Island's ERDA were precisely those in the earlier comprehensive plan. Further, programs under the various subsidiary agreements were also identical to those sponsored by the comprehensive plan. In the new transportation program highway improvements and port development reappeared, as did technology development, marlcet development, and livestock and crop health in the agricultural program. The energy subsidiary agreement made provision for 'completion of the Prince Edward Island energy alternatives study,' started by the comprehensive plan. Alberta signed an ERDA, a one-year extension to the existing subsidiary agreement on nutritive processing, and memoranda of undertaking for tourism and agriculture. These memoranda outlined principles and a process that would guide both governments in defining future subsidiary agreements for these two sectors. The ERDA identified other sectors holding promise for economic development - forestry, transportation, and science and technology - on which

New policies, structures, and programs 93 Ottawa and Alberta would concentrate efforts. Finally, it suggested that ORIE and the provincial government jointly consider possible development initiatives for northern Alberta. The federal government and the government of the Northwest Territories concluded a new five-year $21-million Economic Development Agreement (EDA) on 21 December 1982. At the same time, they agreed to support three subsidiary agreements - one on Human Resource Development, another on Natural Resource Development, and a third on Domestic Market Development. The latter agreement was designed to stimulate new businesses and improvements to the tourism sector. These agreements, like those for the Yukon, were cost-shared on a 90: 10 federal-territorial cost-sharing ratio. 21 In terms of contents and decision-making processes, the GDAs and EDAs for both the Yukon and Northwest Territories resembled those found in the South. The federal and the Yukon government also agreed to a new five-year agreement-the Economic Development Agreement (EDA)-in June 1984. They also unveiled their intention to sign new subsidiary agreements for renewable resources, mineral resources, economic development planning, and tourism. 22 Some provinces (for instance, Ontario) never got around to signing their ERDA before the fall of the Liberal government in Ottawa. In addition, the Quebec government proved reluctant to enter into an ERDA arrangement under the Trudeau administration, having fought Trudeau head-to-head in a bitter referendum campaign on sovereignty association for the province and having seen Trudeau move to repatriate Canada's constitution from the United Kingdom without its agreement. Ottawa grew impatient over Quebec's refusal to sign an ERDA. Treasury Board President Donald Johnston explained: 'They [Quebec] seem to want to continue with the old system.' Finance Minister Marc Lalonde added that Ottawa would 'continue to have enough flexibility to conclude a future agreement with the province.' In the meantime, both ministers unveiled a series of new federal projects worth $109 million to be delivered directly. The projects were earmarked for tourism, agriculture, mineral development, communications, transportation, and research and development - sectors similar to those in the Quebec GDA. 23 THE REGIONAL FUND

At the same time that he announced the new policy and the new government organization, Prime Minister Trudeau declared that a regional fund would be established, such as had been called for by former OREE minister Pierre De Bane. The prime minister stated: 'Money freed up as the existing GDAs expire

94 The efforts will be used ... to create a regional fund.' This fund would 'support regional economic development efforts and should reach $200 million by 1984-85.' 24 Shortly after the new government organization was unveiled, several federal ministers referred to the new regional fund and spoke about its importance to regional economic development. Initially, at least, some confusion existed over the size of the fund and how it would be financed. Responsibility for the various subsidiary agreements was ttansferred to a number of federal line departments and agencies, which added to the confusion. Further, the new line department ORIE, now responsible for the old OREE programs, was understandably reluctant to transfer part of its unallocated resources to a new regional fund over which it had little control. The problems with the regional fund, however, were more fundamental. The term region was never been properly defined. Consequently, it was unclear whether the fund was to apply to sub-provincial regions, to provinces, or to multi-province areas. More important, it was not clear whether the fund was to apply exclusively to disadvantaged regions. Could the fund be employed exclusively to support projects that would not otherwise be developed in a disadvantaged region? Those who have called for a regional fund have consistently warned that it should not support projects that a line department should initiate through its ongoing programs. Line departments would then simply tum to the regional fund for total funding whenever an initiative came forward from a disadvantaged region. The department's ongoing program and budget would finance projects from more developed regions, while the regional fund would finance those in other regions. More simply put, the question was whether or not expenditures from the regional fund should be above and beyond the normal program responsibilities of departments in all regions. Unless they were, the purpose of a regional fund would be negated. This issue remains unresolved. Equally important, the regional distribution of the fund was not made clear. Given that the fund was being financed from 'money freed-up as existing GOAs expire,' one could assume that its regional distribution would have been based on OREE's historical spending pattern under the various GOAs.25 These questions have never been properly answered. Indeed, little was said about the fund after it was announced. We know that, initially at least, some projects in Manitoba and Atlantic Canada were funded. But that is all we know, or for that matter anyone knows, including federal government officials in the regional development field. No mechanism was put in place to ensure a proper accounting of the fund's spending pattern. With the arrival of John Turner as prime minister in June 1984, the fund disappeared and nothing has been heard about it since.

New policies, structures, and programs 95 THE DEPARTMENT OF REGIONAL INDUSTRIAL EXPANSION (DRIE)

The government reorganization also established a new line department - the Department of Regional Industrial Expansion (DRIE) - through the amalgamation of the regional programs of DREE with the industry, small-business, and tourism components of the Department of Industry, Trade and Commerce (IT&c). The trade component of rr&c moved to the Department of External

Affairs. 26 The integration of DREE and rr&c, it was hoped, would capture the most positive characteristics of both DREE's decentralized and regionally sensitive organization and rr&c's centralization and ability to gather industrial intelligence and conduct relations with industry and government In short, DRIE would not be as decentralized as OREE or as centralized as rr&c. DRIE was to set up provincial and sub-provincial offices to deliver its programs. These offices became the new department's principal contact point for DRIE clients applying for assistance under the department's programs. Unlike in DREE, however, they had little say in formulating policy or programs. These functions, along with gathering of industrial intelligence, became the responsibility of new sectoral branches in the ORIE Ottawa office. DRIE's Ottawa-region staff ratio has been set at 6:4, compared with DREE's 3:7. Nevertheless, compared to other federal departments and agencies, DRIE was highly decentralized and 'regionally sensitive.• It represented the 'leading edge' in Ottawa's new economic development orientation and the model on which other departments were encouraged to pattern themselves.27 The new department was expected to integrate regional and sectoral interests, be highly visible in the regions, and emphasize efficient program delivery. In the new DRIE organization, provincial offices were directed by a senior official who held the same rank or job classification established under the DREE organization. The offices, however, reported directly to Ottawa and did not go through regional offices as was the case under DREE. Typically, a provincial DRIE office could implement programs and had units for economic analysis, development (to identify new opportunities at the local level), public information, and administrative services. THE INDUSTRIAL AND REGIONAL DEVELOPMENT PROGRAM

The first DRIE minister was Ed Lumley, who rose in the House of Commons on 27 June 1983 to explain Ottawa's new industrial and regional development program. Lumley cautioned that 'combatting regional disparities is difficult even in good economic times ... It is much more difficult in a period when,

96 The efforts because of a worldwide downturn, [Canada's] ttaditional industries are suffering from soft markets, stiff international competition, rapid technological change and rising protectionism from the countries that make up our market.' A new program to meet these circumstances would have to be one that he could •clearly recommend to the business community, to the Canadian public and to Members of Parliament.' DRIE, Lumley reported, had come up with such a program. It was a •regionally sensitized, multifacet programme of industrial assistance in all parts of Canada ... This is not a programme to be available only in certain designated regions. Whatever riding any Member of this House represents, his or her constituents will be eligible for assistance.' The program was also able to accommodate a variety of needs, including investment in infrastructure, for industrial diversification, for the establishment of new plants, and for the launching of new product lines. 28 An important distinguishing characteristic of the new Industrial and Regional Development Program (IRDP) was the •development index.' Patterned on De Ban6's earlier collection of data on small areas, it was to establish the needs of individual regions, as far down as a single census district. All regions were arranged in four tiers of need. 29 The first, for the most developed 50 per cent of the population, covered districts with a need for industrial restructuring. In this tier, financial assistance was available for up to 25 per cent of the cost of modernization and expansion. At the other end of the spectrum was the fourth tier, which included the 5 per cent of the population living in areas of greatest need (based on level of employment, personal income, and provincial fiscal capacity). In this tier, financial assistance was available for up to 60 per cent of the cost of establishing new plants. The program could provide financial assistance to both business and nonprofit organizations through cash grants, contributions, repayable contributions, participation loans, and loan guarantees. The assistance was available for the various elements of •product or company cycle': economic analysis studies; innovation (including product development); plant establishment; plant modernization and expansion; marketing (including exact development measures); and restructuring. Tier 4 regions were eligible under all program elements; tier 1 regions were not. Financial assistance under tier 4 could amount to 70 per cent of costs, while tier I varied from 20 to 50 per cent. Reactions to the program were mixed. Provincial governments in the Atlantic region suggested that they were losing their preferential access to DREE funds. The Atlantic Provincial Economic Council expressed the fear that instead of narrowing the application of regional development schemes, DRIE was extending it. The Senate Committee on Regional Development argued that the poorest regions of the country could well wind up worse off with DRIE. However, provincial governments elsewhere and some MPs from Ontario and the

New policies, structures, and programs 97 western provinces applauded the new DRIB program. Private-sector representatives said very little and remain largely non-committal.30 WINDING UP MSERD

In naming his Cabinet in June 1984, Prime Minister John Turner announced that one of his most important objectives was to ensure a more streamlined and leaner federal government. The federal government, he insisted, had become 'too elaborate, too complex, too slow, and too expensive.' He unveiled several measures to 'streamline' cabinet decision-malcing. The number of cabinet committees was reduced from 13 to 10, and the number of cabinet ministers from 36 to 29. Two central agencies, the Ministry of State for Social Development and the Ministry of State for Economic and Regional Development, were 'wound up.' In announcing his new cabinet structure, Turner mentioned regional development only to say that 'steps [would be talcen] to strengthen the regional development role of the Department of Regional Industrial Expansion.'31 Specifically, Turner transferred the Federal Economic Development Coordinators (FEocs) from MSERD to DRIB. Accompanying the FEOCs to DRIE were the various ERDAs. The Office for Regional Development was established within DRIB. A junior minister, for all practical purposes reporting to the minister of DRIB and operating under the aegis of the DRIB portfolio, was appointed minister of state for regional development. Remi Bujold, representing a Gaspe riding, was promoted from the back benches to fill the post. The industrial and regional development program was left untouched by the Turner reorganization.32 There is no doubt that Turner's winding up of MSERD was prompted by a strong commitment to streamline government, not by any desire to strengthen Ottawa's regional development policy. Little was said, for example, by either Turner or any of his senior ministers about the federal government reorienting its regional development policy.

8 A new government - Changing direction

Prime Minister Brian Mulroney led his Progressive Conservative party to a sweeping victory in the 1984 general election. They won 211 seats, the largest number ever won in any general election in Canada. During the election campaign and immediately on assuming office, Mr Mulroney served notice that his government had a new political agenda that represented a fundamental break with the Trudeau Liberal past. The new agenda involved four broad policy fronts: national reconciliation, economic renewal, social justice, and constructive internationalism. 1 Regional development was a key feature of two of the four themes - notably, national reconciliation and economic renewal. Indeed, Mulroney had mentioned regional development time and again during the election campaign as a necessary element in strengthening national unity. In one of his campaign speeches in Atlantic Canada, he announced that he would 'have no hesitation to inflict prosperity on Atlantic Canada.' 2 On federal-provincial relations, he explained that 'our first task is to breathe a new spirit into federalism. I am convinced that the serious deterioration of federal-provincial relations is not exclusively the result of the constitutional deficiencies. Centralistic and negative attitudes are much more to blame. ' 3 In short, his government would look to the provinces for solutions to regional development rather than impose centrally designed policies and pro-

grams.

If one assumes that 'to inflict prosperity on Atlantic Canada' would invariably entail new spending, as many - at least in Atlantic Canada - surely did, then, Mulroney's regional development objective ran squarely up against another key objective of the new government. He himself had pledged while in opposition that, if elected prime minister, the federal government 'would get a better handle on government spending. ' 4 And, indeed, within a few weeks of coming to office, his senior ministers brought the point home. The minister of finance, Michael Wilson, in his first major economic statement in Parliament,

A new government 99 explained: 'In each of the past ten years, the expenditures of the federal government have exceeded its revenues ... Unless we begin now to put our fiscal house in order, the burden of debt will continue to mount rapidly. •s Turning to regional development policy, he added that 'we must also review the effectiveness of existing tax and grant incentive programs, particularly in terms of their impact on business investment decisions and their contribution to regional competitiveness. Their cumulative impact, and the expectations raised by their availability may retard rather than facilitate adjustment to market forces. They may be unduly blurring the market signals that the private sector needs for decisionmaking purposes. ' 6 This statement and many others from several senior ministers may not have pointed the way for defining new measures for regional development policy, but they did make one thing clear - past policies and efforts had not worked and something new had to be attempted. Still, Mulroney and his party had taken a number of positions on regional development in the months leading to the election campaign and again during the campaign. The Progressive Conservative party issued a policy paper arguing that 'when the Liberals dismantled DREE in 1981, they left Canada's least developed regions without their traditional voice.' The paper also suggested that the winding up of MSERD 'further reduced the importance attached by the federal government to the task of com batting regional disparity.' DR.IE, it added, 'is likely to neglect Canada's poorest regions. ' 7 It also reported that two principles would guide the new government: consultation, and fair and equitable distribution of regional development funds. The paper, however, was less forthcoming on specific policy goals or directions. It spoke of offering 'rewarding careers' to young people in Atlantic Canada in their home provinces - or 'place prosperity' as opposed to 'people prosperity.' The paper referred specifically to 'regional disparities' more than the Trudeau government had, particularly toward the end of its mandate. Brian Mulroney further outlined a number of new measures during the 1984 election campaign. DR.IE would receive a 'specific legislative mandate to promote the least developed regions,' and 'every department will be required to submit to the Standing Committee of Parliament on Economic and Regional Development annual assessments of the effect of departmental policies on specific regions.•• DR.IE would get a wide range of new policy instruments, including tax incentives. In the four Atlantic provinces, efforts would be made to improve the economic infrastructure, including facilities for transportation and communications, as well as training programs and improved market research. Commitments were also made to assist communities suffering from chronic unemployment and little economic activity. Though the Conservative party was highly critical of the Liberals for having 'dismantled' DREE, it did not reestablish the department when it came to power.

100 The efforts In naming his Cabinet. Prime Minister Mulroney appointed no one to be responsible for regional development. He dropped the regional portfolio that John Turner had introduced only a few months earlier, despite having a record forty ministers in his Cabinet, several of whom were made responsible for specific fields. Mulroney, however, did retain the ministers of state first introduced by the 1982 government reorganization that did away with OREE, such as those for trade and for external relations. He also introduced new ministers of state for tourism and for forestry, among others. The Mulroney government was also slow off the mark in introducing new regional development measures, although it did move quickly to limit IRDP's scope, in line with the election pledge to direct ORIE toward the least developed regions. ORIE minister Sinclair Stevens announced, within two months of his appointment, important restrictions to tier 1 regions, or the most developed regions of the country: 'modernization' and 'expansion' projects would no longer be eligible for assistance. Stevens also served notice of the government's intention to transfer to the provinces the responsibility for much of IR.DP. Ottawa would administer large grants to national or multinational firms and let provincial governments deal with small and medium-sized businesses.9 We saw earlier, however, that after less than a year in office the government began to reverse its position. The fear that Ottawa would lose all visibility in its spending on such grants led to a change of heart and the federal government continued to deliver all facets of incentives to the private sector. The change of government did not dampen the federal desire to sign ERDAS with all provincial governments. Shortly after the Mulroney government came to office, Sinclair Stevens signed an ERDA with Ontario. The format established for earlier ERDAs was not disturbed and Ontario welcomed the opportunity to sign one. Larry Grossman, the provincial treasurer, spoke about coordinated efforts for 'economic growth and permanent job creation in Ontario.' Both governments agreed also to a $2-million planning project, designed ' to support cooperative decision-making and improved coordination.' In addition, they announced that they would also shortly sign agreements covering forestry and tourism - and then went on to identify priority areas for future efforts: industrial revitalization, resource management and production development, service-sector stimulation, human-resource development, and community development. 10 Soon afterward, Sinclair Stevens signed an ERDA with Don Phillips, British Columbia's minister of industry and small-business development. In doing so, Stevens echoed the sentiment of his Liberal predecessor Donald Johnston when he said: 'ERDA, unlilce the former GDA, covers all the departments and ministries which influence economic development and is intended to make sure that a wider range of federal policies and programs will be tailored to the priorities

A new government 101 of each province.' He added that '[we] intend to identify the initiatives and opportunities which will strengthen British Columbia's economy and help it reach its full economic potential.' Both ministers also outlined a 'course of action [that] was agreed upon for implementation.' It would include agreements in forestry, minerals development, agriculture, and food development. Other priority areas were to be tourism, transportation development, aquaculture, and human-resource development. 11 Quebec was the last province to sign an ERDA, on 15 December 1984, and the provincial justice minister, Pierre-Marc Johnson, explained the delay: 'Negotiations had bogged down with the previous Liberal government, but things changed radically when the Progressive Conservatives came to power this fall.' The new government, he added, had 'a different way of looking at things and [respects] Quebec's jurisdiction.' Johnson and Sinclair Stevens announced that the two governments would commit $1.6 billion over five years to tourism, culture, forestry, and industrial development. New projects and possibly new sectors would be identified at a later date for the last five years of the ERDA.12 The terms of the Quebec ERDA are similar to those in the nine earlier ERDAs. Moreover, the sectors identified for joint government action are essentially the same ones found earlier in Quebec's GDA. The one difference between Quebec's ERDA and the others is that no provision is made for any joint planning agreement. 13 The Quebec government refused to enter into such a subsidiary agreement, arguing that it preferred to arrive at joint action through consensus rather than through joint planning. Thus, one by one, the federal government - whether under Trudeau or Mulroney - signed ERDAs with the provincial governments. The ERDAs and GDAs were identical in format, and similar in objectives pursued and types of programs and initiatives sponsored. The ERDAs, however, did provide for the federal government to deliver directly initiatives that had been previously delivered by provincial governments under the GDAs. The Mulroney government continued to sign ERDA subsidiary agreements with the same regularity that the Trudeau government had. By January 1987, Ottawa had committed $2.5 billion of its own resources to ERDA agreements. The focus remained a sectoral one and there is a remarkable similarity between the types of subsidiary agreements signed under the GD As and ERDAs. As some ERDAs expired, they were simply renewed. For example, Canada and the Government of the Northwest Territories signed a new Economic Development agreement in June 1987 to replace the four-year EDA* that had been signed in 1982. This time, the territorial government accepted a 70:30 federal territorial •

The agreement the federal government signed with the government of the Nonhwest Terriiories and the Yukon to replace the ODAs have been labelled Economic Development Agreements (l!DAS). ·

102 The efforts cost-sharing ratio. Both governments also quiclcly agreed to six new subsidiary agreements, most of which are strikingly similar to previous subsidiary agreements signed with the GNWT or, for that matter, with the provinces. The six include renewable-resource development, mineral development, arts and crafts, economic planning, tourism development, and small-business development. 14 The Newfoundland ERDA continued to provide for new subsidiary agreements in forestry, minerals, environment, transportation, tourism, industrial development, and planning. The Prince Edward Island ERDA, meanwhile, provided still new subsidiary agreements for agriculture, forestry, minerals, energy, fisheries, transportation, tourism, industrial development, and planning. The Manitoba ERDA continues to support subsidiary agreements in agriculture, forestry, minerals, communications, transportation, tourism, industrial development, and planning. The other seven ERDAs also provide for many of the same sectoral-type agreements (see appendix B). Indeed, at the risk of overstating the point, the programs supported by the various subsidiary agreements bear a remarkable resemblance to those supported earlier by GOA sponsored agreements. The Mulroney government, however, made one important change. The provinces jumped on Mulroney's desire to bring about 'national reconciliation' and requested that the program delivery revert to the provinces, as in the past. Federal ministers agreed and essentially did away with the federal direct-delivery component found in earlier GOA and ERDA subsidiary agreements. It quickly became apparent, however, that all was not well. Indeed, the government's fiscal objectives led to serious new challenges on the regional development front. In his first budget speech, Finance Minister Wilson reported on the government's intention to close down Cape Breton's two heavy-water plants that employed some six hundred people. The plants represented, the minister argued, 'a symbol of waste and mismanagement.' He explained that 'they cost the taxpayers of this country more than $100 million per year to produce a product for which there is no demand. We will move immediately to close the plants, but we will not abandon the people or the region of Cape Breton. ' 15 In the same year that the minister announced the decision to close the plants, a fire at one of DEVCO's largest and most productive mines dealt a harsh blow to employment levels in the coal mines, resulting in the loss of 1,200 jobs.16 Cape Breton was plunged into a crisis, a situation it had experienced many times before. The federal government responded by appointing a private-sector advisory committee to recommend new initiatives to the federal and provincial governments to promote economic development and productive employment in Cape Breton. In addition, the minister of finance unveiled an enriched taxincentive scheme for new investments in the area. The advisory committee reported in September 1985 and presented thirtyfour recommendations. 17 The great majority of these were approved and

A new government 103 implemented. The committee called for the establishment of a new one-stop agency for business incentives (to be called Enterprise Cape Breton - ECB). for modifications to the tax-incentive program introduced earlier by the minister of finance. for the modernization of the steel mill at Sydney. and for amendments to several federal-provincial regional development agreements. Enterprise Cape Breton was established in 1985. A program of special incentives was also quickly announced for the island. including a new Investment Tax Credit and a new Cape Breton Topping-Up Assistance program. This program was designed to provide cash grants of up to 60 per cent of eligible capital costs. compared to a maximum of 30 per cent elsewhere in the country. ECB became a part of the Atlantic Canada Opportunities Agency (OCOA) in 1987.18 All in all. Sinclair Stevens took up the Cape Breton challenge with determination; he subsequently turned to other slow-growth regions with the same commitment. To be sure. some criticism had been heard in slow-growth provinces when Mulroney first appointed Stevens as minister of DRIE. A Torontoarea politician. he had developed a reputation while in opposition and during his brief tenure as president of the Treasury Board in 1979 in the Clark government as a right-of-centre politician with little appreciation for slow-growth regions. He became known in Ottawa as 'Sine the slasher' after his announcement in 1979 that he would cut 60.000 positions in the federal public service. 19 In the early weeks of the Mulroney administration. some premiers from Atlantic Canada quietly reported their concerns about Stevens to the prime minister at every opportunity. Perhaps to prove his commitment to regional development. Sinclair Stevens sought to establish himself early on as a friend of Cape Breton. Atlantic Canada. and regional development generally. Certainly. he endeavoured very early in the government's first mandate to assure slow-growth regions that the Tories would not abandon them. Although he announced restrictions to IRDP that cut into program spending in more developed regions of the country. he promoted the signing of many new subsidiary agreements in Atlantic Canada.211 Stevens also led the charge with his provincial counterparts in developing an 'intergovernmental position on regional economic development' and chaired a meeting of regional development ministers on 21 January 1985. during which he sought to establish an agreement on a number of fronts. He and his colleagues agreed to (a) promote equal opportunities for the well-being of Canadians; (b) further economic development to reduce disparity in opportunities and; (c) provide essential public services of reasonable quality to all Canadians. 21 He was also successful in getting all ministers to agree to a set of nine 'fundamental' principles to guide all governments in Canada in their efforts to promote regional economic development. 22 These principles stated: - The federal and provincial governments view regional economic development as a high priority among national and provincial economic goals.

104 The efforts - The overall objective of regional development is to improve employment and income through sustainable economic activity based on realistic opportunities in each region. - Initiatives should be developed through consultation and discussion to assist Canadians in the less-developed regions to achieve greater economic security based on economic opportunity. - Closer federal-provincial cooperation should be achieved by harmonizing all regional economic development efforts. - All major national policies should be judged, in part, in tenns of their regional impact. And, so far as is possible, those policies should reinforce the goal of fair and balanced regional development. - Particular emphasis by governments should be given to improving the investment climate, to removing impediments to growth, and to creating opportunities for the private sector to contribute to maximum economic growth in all parts of Canada. - Continuing consultation with the private sector should focus on policies in areas such as innovation, exports, marketing, productivity, and training with the overall purpose of developing concerted strategies for growth and adjustment - Governments should explore opportunities for increasing interregional trade and eliminating barriers between provinces. - Transportation is recognized as a key to regional economic development. Though the guiding principles were quite general in nature and still hardly constituted a clear guide for action, one ought not to dismiss their importance. It was the first time all ministers reached an agreement, however broad, on regional development. Moreover, some participants at the meeting now report that Sinclair Stevens would have gone further and outlined specific measures but that some provincial governments resisted. As it was, Sinclair Stevens was able to secure an all-government agreement that ERDAs would remain the key instruments to deliver regional development programming, that new efforts would be launched in support of small and medium-sized businesses, and that all governments would instruct their officials to prepare, among other things, a series of options that could attract investment in all regions of the country. 23 If nothing else, the intergovernmental agreement finnly established Sinclair Stevens as a friend of regional development and the slow-growth regions. Stevens needed all the credibility he could muster. Quite apart from his earlier reputation, the Mulroney government, only eighteen months into its mandate, began to hear criticism from slow-growth regions about its regional development efforts. This was true not only at the provincial level, but also within the government caucus in Ottawa, notably from Atlantic and some western MPs.

A new government 105 The first signs of disenchantment involved the closure of the heavy-water plants in Cape Breton. This sent signals throughout Atlantic Canada and the region could no longer count on political heavyweights in Cabinet, like Allan MacEachen or Romoo LeBlanc, to protect federal spending in the region. Moreover, some began to ask why the region was being singled out for spending cuts. in addition, while the country was coming out of the deep recession of the early 1980s, economic growth was largely concentrated in central Canada. Indeed, by the mid-1980s, some observers were already pointing to the likelihood, that the economies of southern Ontario and Quebec would overheat. Meanwhile, the Atlantic economy, where unemployment rates had only fallen slightly, was still in the doldrums. To make matters worse, the four Atlantic provincial governments were now taking dead aim at Ottawa's regional development efforts, even though they were all partisan allies of the Mulroney Progressive Conservative party. The press was reporting that the bulk of spending under DRIE was being directed to Ontario and Quebec. For example, over 70 per cent of DRIE's spending under the Industrial and Regional Development Program was going to Ontario and Quebec. By contrast, under DRIE's predecessor, DREE, at least 40 per cent of its budget had been consistently spent in Atlantic Canada.24 DRIB had other problems. It was viewed as a large, cumbersome, and bureaucratic department, largely insensitive to the economic circumstances of Atlantic Canada. Both the local business community and provincial governments in Atlantic Canada became openly critical of the slowness and bureaucratic nature of the DRIB approval process. One official revealed that a decision under a signed DRIB subsidiary agreement on a given project had to go through some twenty-two federal 'vetting centres. ' 15 In fairness to DRIB, it must be noted that there was a tendency to compare the effectiveness of DRIB to DREE, which was not just. It was much like comparing oranges and apples. One major difference, of course, was that DRIB did not have the clear unencumbered mandate to promote regional development that OREE had had. This difference probably explains the main criticism that was directed at DRIB: that it was essentially an industry department and not a regional development department. Provincial government officials insisted that DRIE's main focus and funding was directed toward industry, primarily manufacturing, and to some extent tourism. They further argued that the department's only involvement with regional development was as the host organization for the Federal Economic Development Coordinators (FEDCs). Many federal officials were very candid about the seemingly inherent conflicts in DRIE's dual mandate to promote industrial and regional development. The 'shotgun wedding' of DREE and rr&c was often referred to, and many concluded that the marriage had not worked. One frequently heard about the

I06 The efforts pulling and shoving inside DRIE over whether to concentrate on high-growth industries and to build on Canada's existing industrial strength (often located in central Canada) or on regional development concerns. Former rr&c officials in DRIE were convinced that DREE issues dominated in the department, while former DREE officials were equally convinced of the opposite.26 It did not take long for the Atlantic and western premiers to point to DRIE as part of the problem rather than part of the solution. The point was even made that DRIE programming had, in fact, increased regional disparties rather than contributing to their alleviation. The programs for which DRIE controlled the funds, such as IRDP (Industrial Regional Development Program) and DIPP (Defence Industry Productivity Program), applied to a far greater extent in southern Ontario and southern Quebec than they did in Atlantic Canada. A province like Prince Edward Island, for example, had virtually no hope of talcing full advantage of these programs because it lacked the appropriate economic and industrial base. Some provincial government officials in Atlantic Canada also began to report that on occasion, firms, thinking of establishing a plant in either Atlantic Canada or southern Ontario, received more generous offers from DRIE to locate in southern Ontario.27 It was true that under IRDP's tier system, the slow-growth regions were favoured. Since the tier system only established maximum levels of federal assistance, however, it was possible for DRIE to offer a more generous grant to set up in a more developed region simply by offering the maximum level available under that particular tier and less than the maximum under other tiers that apply to slow-growth regions. The Mulroney government attempted to respond to this criticism in several ways. It unveiled a new interest buy-down program, through the Atlantic Enterprise Program (AEP), as well as a commitment under the Atlantic Opportunities Program (A0P) to ensure that the federal government would buy more of its goods and services from Atlantic Canadian firms. AEP provided for two types of support - loan insurance and interest buydowns. The buy-downs proved particularly popular. The benefit was available for loans of $25,000 or more and provided for a contribution reducing the cost of a loan by as much as 6 per cent. The loan-insurance component, meanwhile, offered 85 per cent insurance on loans for new capital investment on projects in an eligible sector. AEP was made available to all of Atlantic Canada, the Magdalen Islands, and the Gas¢ Peninsula. The program was delivered directly by the federal government and was geared exclusively to the private sector. In addition, AEP was directed by a 'private sector' board. 28 A0P sought to bring the value of federal government contracting to Atlantic Canada from $1.6 billion (projected 1986-90) to $2.2 billion over the same period. The extra $600 million was to be made up of $200 million in increasing

A new government 107 purchasing of goods and services to meet the ongoing requirements of federal departments and $400 million through selective opportunities arising from major procurement projects, as identified by Cabinet. 29 The program was designed exclusively for the region's private sector. The Mulroney government's commitment to regional development would thus be different from that of the Trudeau one in at least one respect the private sector would be seen as the main 'engine of growth,' not just in the developed regions, but also in the slowgrowth areas. No matter what new initiative the federal government introduced, it seems that it could never successfully divert the attention of the slow-growth provinces, the media, and even members of its own party away from ORIE and its ongoing programs. In addition, as more and more Liberals came to office at the provincial level, Mulroney cabinet ministers grew increasingly restless with ORIE, in particular with the ERDAs. Just as the issue of visibility had led Trudeau ministers to revise the GOA approach, many Mulroney ministers similarly began to hang question marlcs on the ERDA process. Increasing numbers of them began to voice deep concern about the lack of visibility for federal spending and the inability of EROAs to reflect 'federal' priorities. They were dismayed that the federal government appeared to be continually on the defensive in responding to provincially packaged initiatives. In addition, many officials in Ottawa, particularly those in the Department of Finance, increasingly questioned the value of ERDA-sponsored programs. These concerns came to a boil in the late fall of 1986 and the Cabinet Committee on Economic and Regional Development declared a moratorium on new ERDA initiatives. At this time, the committee also directed ORIE to launch a review of its regional development efforts. The purpose of the review was to determine 'the extent to which ERDAs and their instruments address current federal economic development priorities and how ERDA implementation is proceeding. ' 30 The review found a number of weaknesses, both with the existing approach and how it was being implemented. It found that there was 'considerable preoccupation in simply responding to ERDA proposals put forward by individual provinces and using the ERDA as a vehicle to provide incremental funds. ' 31 Several reasons were found to account for this situation. Federal officials who had negotiated the ERDAs admitted that 'the objectives contained in the EROAs are very broad in nature, and in some cases vague. ' 32 They also added that the Schedule A of EROAs that outlines strategic development priorities as still sufficiently broad to support virtually any type of activities. There were, of course, ways to remedy the situation. For one thing, ERDAs provide for an annual meeting between federal and provincial ministers to review long-term priorities, and the joint objectives and priorities for the

108 The efforts TABLE 1 Schedule of ERDA annual meetings (status: January 1987)

Province

ERDA

Date of signature

Fint annual meeting

Manitoba

November 25/83 January 30/84 April 13/84 May4/84 June 3/84 June 11/84 June 13/84 November 2/84 November 23/84 December 14/84

April 3-4/85 June 24/85 May 11/85 July 30/85 August 12/85 June 14/85 May 20/85

Saskatchewan New Brunswick Newfoundland Alberta Nova Scotia Prince Edward Island Ontario British Columbia Quebec

Second

annual meeting

October/86

February 21/86

provinces, as specified in Schedule A. A course of action for the coming year was expected 10 be established in light of these priorities. Still, in spite of the fact that some unusual developments occurred (for example, sharp movements in oil prices) as well as political ones (such as the election of new governments in Ottawa and some provinces), no significant amendments have been made to any ERDA Schedule Apriorities since the ERDAs were signed in 1984. Nevertheless, federal officials argued in the paper that amendments to Schedule A could be 'utilized as a proactive means of effecting federal priorities on ERDA initiatives, rather than reacting to provincial proposals as has generally been the case 10 date.' 33 The federal government has, of course, the opportunity to influence Schedule A priorities at the annual meeting of ministers called for under the ERDAs. Despite their potential importance, however, governments do not appear to have attached much weight to them. There were widespread delays. Though the ERDAs were signed in 1984, only one province held two annual meetings between then and January 1987 (see table 1) and two provinces did not even hold any meetings from 198410 1987. The lack of interest in setting new priorities - or at least in reviewing existing ones annually - entailed obvious consequences. The ORIE review revealed one. It reported that there was a standard approach to signing new subsidiary agreements in the ten provinces. That is, the emphasis was a sectoral one. Forestry, transportation, and industrial development, followed by agriculture, minerals, and tourism, dominated the distribution of total government spending under the ERDAs. Every province had in the first three years of the ERDA approach concluded both a forestry and a tourism initiative, and nine provinces

A new government 109 had negotiated minerals and industrial-development agreements. The ORIE review noted that 'only a small proportion of federal funds appeared to be directed to emerging industries. compared to expenditures in the resource sectors. •34 The review pointed to other shortcomings. It made clear that other federal departments and agencies were not turning to the ERDA process to tilt or tailor their policies and programs to capture regional circumstances. This. it will be recalled. was one of the main reasons leading to the 1982 government reorganization that sought to place regional considerations at the centre of national policy-making. The result. however. was much less than satisfactory. Federal policies and programs were left intact and new programs were launched in isolation of the ERDA process. The review reported that, if anything. 'the ERDA system has in fact fueled competition amongst federal departments, and encouraged the formation of alliances with provincial counterparts. in seeking limited amounts of federal funds. Funding of new ERDA initiatives. especially during the current period of fiscal restraint. has therefore become separate and apart from federal and provincial priorities established for the ERDA system. •3.s The provinces. however. were better able to organize and integrate their policy and program decision-making process under the ERDA approach. The size of many provincial governments obviously lends itself to the integration of a new approach to the existing machinery of governmenL Still, the ORIE review reported that 'provincial officials are inclined to promote traditional low profile initiatives through the cost-shared ERDA system. thereby freeing up funds for more attractive. exciting initiatives to be undertaken by that province alone. In other cases. provincial governments attached highest priority to renewing expiring agreements in the traditional sectors where they consider the chances of maximizing federal cash flows into the provinces are greatesL ' 36 In addition, it reported that provincial governments are always reluctant to redirect existing funds in ERDA programming to new emerging priorities because they are always hopeful that 'there will be new money found by the federal government for new/ changing priorities. especially if there is any reason to believe that the federal government would be embarrassed if the initiatives were not realized. •37 No internal review of federal regional development efforts would be complete without a close look at the federal 'visibility' issue. This review was no exception. Indeed. as noted earlier. the issue was a key factor pushing ministers to declare a moratorium on new ERDA activities. This was true even though the Mulroney government had been elected only thirty months earlier on an agenda to promote national reconciliation and with a promise to do away with federal direct delivery of projects. The government had said early in its mandate that it was little concerned with the visibility issue. By contrast. the previous Trudeau government had been so concerned that it had included a special clause in the ERDA legislation that read: '[The ERDA will] provide for the development of a

110 The efforts public information program that will provide, wherever possible and in a manner satisfactory to the Minister [of ORIE], for the permanent recognition of the contribution of the federal government under ... any subsidiary agreement ... ' 38 As noted earlier, it did not talce long for the Mulroney government to change its tune. In June 1986, it put together a new ERDA guide for public information. The guide reported that ERDA communications objectives should now, among other things, 'seek to ensure that in two or three years time the federal government be clearly perceived in each province as having made a substantial contribution to regional economic development through the ERDA process. ' 39 The ORIE review concluded that there was substantial room for improving federal visibility under ERDA programming. It revealed that - with some exceptions - subsidiary agreements were meeting 'minimum' public-information requirements. It defined minimum requirements to mean - that the subsidiary-agreement management committee has established a communications subcommittee; - that a communications plan has been developed; - that announcements are made jointly; and - that a sign or plaque is installed where a project involves a physical site. There was little doubt that the public-information objectives laid out in the ERDA guide were not being met. The review claimed that the decision 'to revert to the conventional provincial delivery approach' did not help matters. It reported what Trudeau ministers had argued in the early 1980s: 'When provincial agencies deliver joint programs, there is a tendency for the public to develop the impression that the investment involved is exclusively provincial. ' 40 The internal review, however, was no more revealing or helpful in reporting on the success of federal-government regional development efforts than similar earlier reviews had been. Indeed, it adopted the same basic line that the earlier reviews had taken. It simply reported that 'because ERDAs and their instruments have been in effect for no more than three years, and in some cases much less than that, there has been insufficient time for any real impacts to manifest themselves, even if mechanisms were in place to determine these outcomes. '"1 The review, however, did go on to report that few federal or provincial line departments had taken seriously its requirements to evaluate the effectiveness of all subsidiary agreements. Federal departments did not allocate the necessary human resource to the task, while provincial governments largely ignored the requirement or simply went through the motions of 'evaluation.' It nevertheless argued that a number of subsidiary agreements did not relate to the stated ERDA priorities. Some of these agreements included an initiative to improve the water-supply system in Port aux Basques, Newfoundland. This subsidiary agree-

A new government 111 ment was not designated as a priority for the Newfoundland ERDA, but was recognized at the political level as an initiative requiring attention from an economic-development point of view. In other cases, subsidiary agreements were signed, but were not identified as supporting economic development or as having a long-term economic benefit Cultural-industries agreements in Quebec and Ontario were given as examples.41 The report was submitted to ministers but they did not in turn drop the moratorium. DRIE did not only look back to see what it had accomplished in regional development. Sinclair Stevens called on his provincial counterparts to join him in establishing a federal-provincial Task Force on Regional Development to plan ahead on what should be done jointly at the regional level. His provincial colleagues agreed. The task force brought together seventeen federal and provincial officials to coordinate the work and a number of others to undertake specific tasks. The task force sought 'to identify approaches and measures which have been and will be effective in achieving the goals of regional development, in the past and for the next decade. ' 43 The review was all-encompassing. The task force was asked to look at regional development programs; the effect of Canada-wide growth and investment policies on regional development; the regional impact of sectoral policies and programs; the influence of fiscal and personal transfers on regional development; and experiences from other jurisdictions.44 It was also asked to submit an interim report by September 1986 and a final report by the end of the year. The final report was submitted to a Conference of First Ministers in Toronto, but not until November 1987. The task force made a number of sweeping observations, including: - Despite regional development efforts, regional disparities remain much the same. - The principal mechanism for reducing regional economic disparities has been personal and fiscal transfers from governments, but these are directed at symptoms, not causes. - Fiscal and personal transfers are now so expensive that significantly higher levels (i.e., greater reliance on transfers) appear unlikely. - Recipients of these transfers do not want more dependence (transfers or make-work) but more opportunity for self-reliance. - Regional development efforts have been either insufficient or ineffective in increasing the capacity of lagging regions to generate wealth. - Efforts to attract huge-scale 'investment-in' have not been cost-effective, and benefits from such investment have generally been short-lived. - Development efforts have been pursued in the absence of a 'level playing field' because national and sectoral policies tend to build on the economic

112 The efforts strengths of wealthier regions; as those strengths become vulnerable to international competition, industrial-policy interventions exacerbate this problem. - Development should be a long-term process; by contrast, development efforts have often been ad hoc and subject to frequent change in the absence of a regional development policy that focuses on specialization within and among regions. - 'Ad-hocery' in development efforts encourages competition among regions in which economic and political factors are determinants. - Expectations about what governments can achieve to reduce regional disparities are markedly out of line with economic reality and experience.45 The task force sought to wrestle with some key issues in regional development policy. One of the first it looked at was the resource-allocation process. It examined trends in allocating federal funding and also at the European experience. It assessed the merits of funding on the basis of fiscal resources through such instruments as tax points, tax transfers to the provinces, and the equalization formula. The task force cautioned that, in allocating financial resources on this basis, one must first establish that regional economic need exists. The difficulty, of course, is that there is no single indicator of economic need that is widely accepted. The task force also looked at historical allocations or trends to allocate further regional development funds. It rejected this option, arguing that the approach simply begs the question of whether existing historical allocations conform to widely accepted criteria. Another option it considered was a regional-wide basis or a grouping of provinces. This approach was thought to hold some merit, particularly in the ability it afforded to set an overall regional planning framework with the flexibility that entails. The difficulty, however, was in defining an appropriate supra-provincial region (for instance, Atlantic Canada or the Maritime provinces?). Ad hoc allocations, meanwhile, were thought to hold some appeal, because of their flexibility. The downside, however, is obvious. Ad hoc allocations always open up regional development funding to political pressure and the risk of seeing the bulk of the funding going to shonterm crises in specific areas. The Europeans, the repon argued, have also not come up with what they consider to be a viable solution. The European Community's Regional Development Fund is allocated to the members of a 'needs' basis, involving the per capita GDP of disadvantaged regions and their population size. The task force gave little merit to this arrangement, insisting that, among other things, the process was not sufficiently flexible for funds to be moved around to suppon the most promising development opponunities. Though the task force pondered the merits and disadvantages of various options, it did not clearly come out in suppon of any one approach. Instead, it

A new government 113 recommended that governments keep an open mind and choose the criteria to correspond to the objectives at hand and policy choices.46 Where should governments place their regional development efforts in future? The task force did not offer any specific recommendations for new policy and program designs. Rather, it opted for a broad 'agenda' requiring further work. It urged all governments to look at the unemployment insurance program with a view to updating it considerably, claiming that it was creating havoc with attempts to promote economic development 'because of the pervasive effects of the UJ. system on patterns of work and behaviour. ' 47 It also urged new efforts in the area of education and training, in innovation and technology, in entrepreneurial development and small business, and in urban growth. The task force endorsed the 'joint planning and programming approach between the federal and provincial or territorial governments' (that is, ERDAs) to plan and deliver regional development initiatives,48 and urged the decentralization of decisionmaking authority to regional managers. 49 It concluded by arguing that the resources applied to regional development during the past twenty-five years had been small in relative terms, or less than 3 per cent of total federal spending. More spending, it argued, could well have had significantly greater results. The task force was not the only government body looking at economic development policy. It will be recalled that the former Trudeau government had established in 1963 a Royal Commission on the Economic Union and Development Prospects for Canada. The commission - commonly known as the MacDonald Commission because of its chairperson, the former minister of finance Donald MacDonald - reported in 1985. The commission did not spend much time on regional development policy, but when it did, it was hardly positive. It concluded that 'there has been no discernible progress with regard to regional development. This finding alone would appear to be a serious indictment of the many policy efforts, and very large public sector outlays that, it was argued, could achieve that goal.' 50 The commission also borrowed from the neoclassical school of economics and reported on the 'transfer dependency' syndrome. It argued that the syndrome creates •a vicious circle in which economic misfortune begets transfers which, in turn, father poor economic policies which beget further economic misfortune ... This situation causes increasing expense to the economic union as a whole. ' 51 Despite the pessimistic conclusions on efforts thus far, the commissioners argued that 'regional development must remain one of Canada's primary policy goals. ' 52 It applauded the federal-provincial ERDA process and concluded that 'the total federal financial commitment to regional development, which would combine the Regional Economic Development Grants [sic] with funds spent through ERDAs should increase significantly over the next few years. ' 53 The main public focus on the MacDonald Commission's report, however, centred

114 The efforts around its recommendation to move ahead with a free-trade arrangement with the United States. Perhaps as a result, the report only had a limited impact on the country's regional development agenda. Mulroney had also established a royal commission - the Forget Commission - on the unemployment insurance program less than a year after coming to office. The Forget Commission did not hesitate to take a number of finn positions on the UI program. It called for wide-ranging changes, including a $3 billion cut. The recommendations were aimed at cutting back benefits for seasonal workers and the 'ten and forty syndrome' workers. 54 The latter, it has been argued, are those who work for only enough weeks to qualify for UI - those who work for ten weeks and collect UI for forty, year in and year out. The reception of the Forget report in slow-growth regions was very cool. The federal government was soon on the defensive, with even the business community in Atlantic Canada voicing highly critical concerns. John Crosbie, the federal cabinet minister from Newfoundland, cut short the controversy when he went to his home province and declared 'Forget in English spells forget, so let us all forget Forget.' The report was quietly shelved.55 Attempts to strengthen federal regional development efforts received a major setback when Sinclair Stevens was forced to resign as ORIE minister over charges that he had been in a serious conflict of interest. Nora Stevens, his wife, had obtained a $2.6 million loan to rescue the financially strapped family business at a favourable interest rate from a firm that had secured $68 million in incentives from ORIE while Sinclair Stevens was minister. 56 Stevens, it will be recalled, had launched ambitious new regional development schemes for Cape Breton and Atlantic Canada. He had also been the main driving force behind the establishment of a federal-provincial task force on regional development. In short, he had been able to establish himself both in slow-growth regions and in the federal cabinet as one of regional development's most effective spokespersons. One of the first casualties of the Stevens resignation was the intergovernmental Task Force Report on Regional Development. The report had lost its champion and by the time the final draft was submitted, it was hopelessly overtaken by a number of events, as we shall see. All indications suggest that, like the Forget report, it was quietly shelved. Certainly, it has had no visible impact on federal regional development policy and efforts. Stevens's resignation in May 1986 opened up a new wave of criticism about ORIE from slow-growth regions. Prime Minister Mulroney met the Atlantic premiers on his way to a special Priorities and Planning Committee meeting in Saint John the following September. He heard firsthand the criticism directed at ORIE. Better to have no federal regional programming at all, he was told, than to have ORIE programs. ORIE, with its programs favouring central Canada, it was argued, only served to exacerbate regional disparities. 57

A new government 115 DRIB was criticized on other points. It was again widely condemned as overly bureaucratic. Atlantic Canada's business community publicly hurled accusations at the department's bureaucratic tendencies, suggesting that they had to wait months for the local office to get a reply from the Ottawa head office on their applications. The prime minister himself got into the act when he mocked DRIB's many layers of bureaucratic decision-making before the New Brunswick Economic Council. The most widely heard criticism, however, was again that DRIB was not a regional development department at all but, rather, an industry department, mainly concerned with southern Ontario and Quebec. The prime minister returned to Ottawa from his Atlantic tour resolved to revamp completely the government's regional policy. Shortly afterward, the federal government announced in the 1986 Speech from the Throne that it would establish the Atlantic Canada Opportunities Agency. The government declared: 'Regional disparity remains an unacceptable reality of Canadian life ... It is time to consider new approaches, to examine how our considerable and growing support for Canada's regions can be used more efficiently, more effectively and with greater sensitivity to local conditions and opportunities. ' 511 Mr Mulroney wanted above all a 'new' approach, one that would constitute a complete break from the past. He also wanted a hand in shaping the new agency and went outside federal government for advice on its design, commissioning a report on the mandate, structure, and programs for the new agency. 59 The new ORIE minister, Michael Cote, made a plea for ORIE to house ACOA.150 It was quickly decided by the prime minister, however, that the new agency would not be a part of DRIB or associated in any way with the department. DRIB, with its tier approach to industrial development, had by early 1987 been largely discredited. To add to the department's woes, Treasury Board discovered that ORIE was going to overspend its 1986-87 grants and contributions budget by nearly $350 million. Two reviews were launched, one internal and the other by the accounting firm Price Waterhouse. 61 The bulk of the new financial commitments were made under both the various ERDAs and the department's incentive program - IR.PP - when Stevens was minister. To add still more to DRIE's woes, Michel Cote was also forced to resign from Cabinet over a conflict of interest. He had secured an undeclared loan from a friend while in Cabinet, which was in violation of the government's conflict-ofinterest guidelines.62 The establishment of a new regional development agency outside its jurisdiction, combined with the department's financial and political difficulties, spelled the end of ORIE. Few would deny that it lived a rather tortuous existence from its beginnings. Special review committees, departmental task forces, and working groups had been set up to review departmental policies, mandates, programs, program cohesion, services, and so on. Some of these reported on the

116 The efforts department's two distinct mandates, observing that 'many perceive ORIE's image as blurred, with its distinguishing competence eroded,' and virtually all reported on the dual and, at times, conflicting mandates of national industrial development and regional development. 63 Added to this was the fact that from 1982 to 1987 ORIE had had four ministers, four deputy ministers, and numerous other changes of senior-level personnel. It was left, however, to the House Standing Committee on Regional Industrial Expansion to pass the final verdict. On 30 June 1987 the committee tabled a report on ORIE that called on the federal government to commit itself to new efforts to promote regional development in slow-growth regions. It reported on the criticism that members of Parliament had heard directed at ORIE's IROP. Its first recommendation constituted a strong vote of no confidence in ORIE's ability to look after slow-growth regions. It reads: 'In order to provide a more effective service to Canadians, the Committee recommends that the federal government efforts to promote industrial growth and to reduce regional disparities be carried out by separate responsibility centres, each with its own programs. ' 64

9 ACOA -

Looking east

Brian Mulroney has long professed to have a deep attachment to Atlantic Canada. He did his secondary schooling in New Brunswick, completed his undergraduate degree at Saint Francis Xavier University and began his law studies at Dalhousie University. He received solid support from the region for his successful leadership bid for the Progressive Conservative party, even though there was a strong native-son contender in John Crosbie. Mulroney was also first elected to Parliament in a Nova Scotia constituency. As mentioned in the previous chapter, on his way to the September 1986 Priorities and Planning (P&P) Cabinet Committee meeting in St John's, Mulroney stopped in Fredericton to meet with New Brunswick Premier Richard Hatfield. Hatfield outlined the region's economic woes, pointing out that, contrary to what was happening in central Canada, the region had been unable to bounce back from the deep recession of the early 1980s. He then gave the prime minister a brief calling for the establishment of a new economic development agency for Atlantic Canada.' The paper outlined how such an agency should be structured and what it ought to do. Discussions at the P&P meeting, as well as at other informal meetings with local business groups and regional associations, also confirmed what the prime minister had been hearing from his own Atlantic caucus about the plight of the Atlantic economy. Mulroney returned to Ottawa with firm intentions of doing something for Atlantic Canada. To be sure, his government had already introduced some new measures for the region - notably, the Atlantic Enterprise Program (AEP) and Atlantic Opportunities Program (AOP) and a special initiative for Cape Breton. But it had not initiated any sweeping changes to the way ORIE had been operating since its establishment in 1983 by the former Trudeau government Mulroney had not even made good on his election campaign promise to give ORIE a specific legislative mandate to promote the least developed regions, which was to entail every department submitting to the Standing Committee on Econom-

118 The efforts ic and Regional Development annual assessments of the effect of their policies on specific regions. Shortly after the prime minister's visit to the region, the federal government decided to hold an open conference on economic development in Atlantic Canada. Labelled the 'Atlantic Focus Conference,• the conference was attended by federal cabinet ministers from the region, who heard a barrage of criticism directed at Ottawa's economic policies, which, they were told time and again, were in large part responsible for the region's underdevelopment. They were also told that past efforts to rectify the situation had not been successful, largely because they had been designed in Ottawa. Premier Hatfield, in particular, requested to meet the federal ministers in camera. He made a plea for new measures, specifically designed for Atlantic Canada, and again argued that they be delivered by a new agency, located in the region. In coming to terms with this challenge, the prime minister decided to look elsewhere than ORIE. For one thing, as we have already seen, ORIE was plagued with political, policy, and administrative problems. For another, the prime minister became convinced, in light of what many people had told him, that ORIE had become part of the problem and could no longer form part of a possible solution for Atlantic Canada. He embraced Hatfield's suggestion that a special agency devoted to Atlantic Canada was required. Hatfield's views were also strongly endorsed by Dalton Camp, who had just joined the Privy Council Office as senior adviser to the Cabinet. Camp, a close friend of Hatfield and a fellow New Brunswicker, was a long-standing member of Mulroney's party. He held firm views on regional development and Atlantic Canada, and now reports that he quit the Liberal party over the issue in the 1950s.2 The prerogative to establish new agencies and departments or to abolish existing ones in the Government of Canada belongs exclusively to the prime minister. 3 Some key cabinet ministers may be consulted, but it is up to the prime minister to decide whom he should consult and when. Full cabinet and even P&P are often briefed on government changes only after the decision has been made to reorganize and often only after an announcement has been made. OREE was a good case in point. Trudeau consulted only his two most senior ministers, Marc Lalonde and Allan J. MacEachen, before deciding to abolish OREE. The then minister of OREE, Pierre De Ban~. and the minister of industry, trade and commerce, Herb Gray, were simply informed the evening before the announcement that the two departments would be merged. Other ministers, including senior regional ministers, learned of the change through the news media like everyone else. The Privy Council Office explains that it is necessary for the prime minister to have a free hand in such decisions because cabinet could never properly take on the task. Ministers and their departments could hardly be expected to look

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at such matters in a detached and objective fashion. To put it briefly, they could not be expected to put aside their self-interest to look at the broader context or at the interest of the government as a whole in organizing government departments or in reallocating program responsibilities between departments. In any event, Mulroney decided that he would have a direct hand in shaping ACOA. To the extent possible, he did not want the public service involved in the planning process. The reasons for this were varied. For one thing, it was nawral for a party out of power for forty-two of the last fifty years to distrust the permanent public service. Many ministers were convinced that it was largely staffed by Trudeau Liberals who would inevitably come up with Trudeau-like solutions. For another, Mulroney came to accept - as, indeed, many ministers under Trudeau had - that the Ottawa-based public services were biased against regional development He felt that, left to their own judgment, public servants would simply come back with a recommendation that would see ACOA integrated in some way in the DRIB apparatus. As noted earlier, Mulroney went outside of government for advice on how to structure ACOA. He gave the adviser free reign on what issues to look at and what kind of recommendations to bring forward, and only asked that Atlantic Canadians be consulted and that Dalton Camp be kept informed of the progress. Over one hundred Atlantic Canadians were consulted, including provincial premiers, federal cabinet ministers from the region, senior provincial officials, a cross-section of business people, labour, academics, and voluntary associations. The consultations confirmed that DRIB was not well regarded in the region and that Ottawa was perceived to be far more concerned with promoting economic development measures in Ontario and Quebec than in Atlantic Canada. The consultations, however, pointed to other concerns.4 The region's business community was highly critical of the federal bureaucracy and almost to a person argued that they preferred working with their provincial governments than with the federal government That said, however, they reported that provincial governments are often less likely than the federal government to make tough policy decisions and some also argued that all too often partisan political considerations guide the development of new projects. In addition, a number of business representatives, academics, and federal officials argued that the four provinces are incapable of taking a broad regional view of economic development and invariably look to their provincial respective interests fust Still, they argued, provincial bureaucracies can get things done quickly and competently at the program level. The federal public service, meanwhile, was considered to be overly bureaucratic and hopelessly inadequate in 'delivering the goods' and in getting things done. When asked what was needed, the response - again, almost to a person - was

120 The efforts that there was no need for any 'more cash grants programs and the government would do well to cut back or streamline existing ones. ' 5 The business community did, however, acknowledge the need for limited, one-time cash grants to those wishing to start new businesses. They added a qualifier to the effect that any such program for would-be entrepreneurs should be delivered by the provincial - not the federal - government. Apart from urging that cash-grant programs be moved over to the provinces, business people also made a strong plea for both orders of government to streamline existing programs, one remarking that existing programs constituted a veritable 'tower of Babel. ' 6 He added that there was such a variety of federal, provincial, and federal-provincial incentive schemes that even a good number of senior government officials, themselves in the economic development field in Atlantic Canada, do not know the full range of government assistance available to the private sector. It should thus not come as a surprise, he observed, that the business community has lost track of what is available to them. In terms of what could be done, the business community and the private sector identified several steps that governments could take to assist in the creation of new businesses or the expansion of existing ones.7 For one thing, they argued for more and better information on markets. Many were critical of present efforts in this area. One observed that 'often we are brought along on a ttade junket, we meet the ambassador or a third secretary, we go to a banquet, drink champagne, do a bit of shopping and we come back home wondering what was accomplished.•• A good number called for special information sessions on trade, on how to gain access to foreign markets, and on 'hard data' about what sells and where. They also stressed their strong preference for dealing with nongovernment agencies and wondered if governments could not support some existing associations (such as the Atlantic Chambers of Commerce, the Newfoundland Economic Council, Atlantic Canada Plus, and le Conseil &:onomique du Nouveau-Brunswick) to assist them in tapping into new markets outside the region. A number reported that the moment they tum to the federal government for assistance on ttade or marketing, they are told to fill out a form of some kind. Meanwhile, most government officials consulted supported the ERDA approach, acknowledged DRIE's shortcomings, and urged that the proposed agency be given enough clout to deal effectively with large federal departments.9 Provincial officials expressed the hope that the agency would have the capacity to review the impact of existing national policies and programs on the region. They insisted that many of the negative consequences of national policies on Atlantic Canada are inadvertent and that large spending would not be required to correct them. Many business people spoke about the need for greater access to new tech-

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Looking east 121

nology, new knowledge, and new ways of doing things and, more specifically, for a research capacity geared to new product development and packaging techniques. They reported that Atlantic businesses are too small to have such expertise in-house and that, frequently, they have nowhere to tum to in the region for assistance. A number insisted that, by and large, the universities had not responded well to their research needs and that there was insufficient two-way communication between the universities' research facilities and the private sector. University administrators readily acknowledged that the links between universities and the private sector, particularly those with small business, were not as strong as they could be. They insisted, however, that the weak financial position of Atlantic universities had effectively prohibited them from launching new activities in support of the region's business community. Indeed, some professors spoke about a 'crisis of confidence' in the region. They reported that a good number of their students talk about leaving once their studies are completed and that, in the end, a lot do. One former professor of business at the University of Prince Edward Island reported on a survey he had carried out with his first-year business students in which he asked them what were their career aspirations. Over half of his seventy-two students answered that they wanted to work with a government department or agency of one kind or another. Only five said that they wanted to start a new business.10 A professor at Memorial University reported that the Business School carried out a sophisticated survey of its graduates to see what career options they had decided on. Something like only 20 per cent of the respondents either had their own business, or partly owned the one they were working with. It is important to stress that these students had been in graduate business studies, rather than economics, sociology, politics, or other fields one might expect to lead to careers in government or large institutions.11 The report on establishing ACOA submitted to the prime minister pointed to endogenous development as the key to the future of Atlantic Canada. It is Atlantic Canadians themselves who 'will have to provide the energy, the skills and the imagination to conceive and organize economic activity if the region is to prosper. ' 12 The reason for this view was made clear: No longer can hopes for economic development be tied solely to the ability of governments (particularly the federal government) to lure to the region major investors in the manufacturing sector with cash grants and other schemes. This approach failed in the best of economic times; there is little reason to believe that it could work now or in the foreseeable future. It has become very difficult to argue that economic activity should be diverted from one region to another on the grounds of economic or national efficiency. Excess manufacturing capacity now exists in the traditionally developed regions of

122 The efforts the country and international competition for new manufacturing jobs is far more intense than at any time in the past. In addition, large industrial enterprises both in North America and Europe are now shedding jobs at a rapid rate as a result of a concentration on productivity and competition from newly industrialized countries. 13

The report went on to suggest how ACOA should be structured and also to identify what new measures it should introduce. It recommended that AC0A should be a 'stand apart' agency and completely divorced from existing federal departments and agencies. 14 The report considered whether it should have a crown-corporation status, thus enabling it to operate independently; however, while there were advantages to this model, the report concluded that the drawbacks were more important. It was felt that it would be unlikely that a crown corporation could exercise much influence in the ongoing federal-government policy and decision-making processes and that, in the long run, the inherent isolation of a crown corporation would inhibit federal regional development efforts. It was difficult to imagine how the agency, if it were a crown corporation, could gain easy access to central agencies and cabinet committees, which is necessary if it is to influence federal policy and decision-making. The report recommended an organizational model that sits on the boundary between a government department and a crown corporation. The agency must have the capacity, it was argued, to bring its activities and policy recommendations into the mainstream of parliamentary and cabinet affairs. It must have the capacity to seek advice and guidance from Atlantic Canadians, particularly from the private sector. It must also be able to respond quickly, in tandem with the provinces, to emerging economic opportunities in the region. Accordingly, it was concluded, it must be a stand-apart agency operating in full autonomy from any one federal department and with easy and unencumbered access to effective decision-making authority in Ottawa - that is, to cabinet and cabinet committees. 15 The report also recommended that the head of the agency be equal to a senior deputy minister, appointed for a minimum of five years, so as to give him or her a sense of independence in directing the work of the agency and in making policy and program recommendations. It also proposed that the agency's head office be located in Atlantic Canada, with offices in Ottawa and in each of the four provincial capitals. The provincial offices, it was recommended, should be headed by senior-level federal officials. The report urged that the agency assume responsibility for the four Atlantic ERDAs and also take over the four FEDC operations in the region since they were already in place and knew intimately the workings of the provincial governments. They would come to the agency, the argument went, with a strong knowledge of the provinces and local economic circumstances. Such an arrangement would also avoid the situation

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whereby costly offices parallel to the FEDC operations would be set up in each province. The agency, the report also insisted, itself should not operate programs. 16 Rather, it should rely on existing federal and provincial departments and agencies for program delivery. The reasons for this recommendation were varied. It was felt that the agency could not, on the one hand, manage a new Atlantic Canada Fund and, on the other, operate programs that would be eligible to draw resources from the fund. In addition, it was felt that the management of programs would likely consume too much time and energy of the agency's most senior officials and inhibit the emergence of the necessary multi-disciplinary perspective on the region's economic problems and opportunities. To be involved in setting up a program-delivery capacity would entail unnecessary costs at a time when there were already more than enough such mechanisms in place. The report went on to recommend a strong emphasis on entrepreneurship, the development of new endogenous companies, the enhancement of existing business, the development of new products, and the expansion into new national and international markets. 17 It called for the establishment of a small number of Centres for Entrepreneurial Development in the region. Their purpose would be to encourage universities in the area to develop entrepreneurship and smallbusiness courses in their business schools, to put in place an outreach program and contact-referral services, and sponsor a series of seminars on entrepreneurship. The report also urged the federal government to replace its IR.DP programs with business-development agreements with all four Atlantic provinces. Through these agreements, the federal government could turn over to the provinces the responsibility for delivering incentives to the aspiring entrepreneurs and to the small and medium-sized business community. In addition, it was urged that the agency put a clear emphasis on market development for the region's business community, on research and development, on human-resources development, and on community development. It also recommended that the agency develop a strong capacity to ensure that national policies and programs be made more regionally sensitive. As a first concrete step, it was proposed that ACOA assess a selection of national programs from the perspective of their regional impact In time, ACOA should be able to assess all new policy and program initiatives for their impact on Atlantic Canada. Lastly, it was recommended that the agency have the capacity to promote coordination between federal and provincial departments and the private sector to capture for the Atlantic Canada economy as many benefits as possible flowing out of large projects, such as the frigate-construction program in Saint John or the fixed-link crossing between New Brunswick and Prince Edward Island. 18

124 The efforts The report recommend that AC0A be given DRIE's 'A' base budget for Atlantic Canada, including funding for the four ERDAs ('A' base provides the resources required to continue existing programs into the next fiscal year at the same level of operation). To ensure continuity of effort, the report urged Ottawa to give the agency a ten-year life expectancy. In addition, the government was asked to give it an initial budget of $250 million of new money. The report suggested that the new funding could be secured by cutting back on regional development programming in the more developed regions of the country. Lastly, it recommended that an advisory council be established to guide the work of the agency. Representatives on the council, it was argued, should be non-governmental, drawn from all four provinces, and appointed by the federal government on the recommendation of the head of the agency. The council, it was recommended, should be composed of prominent, highly respected, and knowledgeable citizens of the region.19 UNVEILING ACOA

Prime Minister Mulroney picked 6 June 1987 and St John's, Newfoundland, to unveil AC0A. He boldly declared, 'We begin with new money, a new mission and a new opportunity,' and went on to argue that 'the Agency will succeed where others [had] failed. •M He invited the four Atlantic premiers and a crosssection of Atlantic Canadians to attend his press conference, which was greeted with enthusiasm then and in the media the next day. The Fredericton Daily Gleaner, for example, ran the headline 'Atlantic Economy Gets Big Boost' on its front page.21 The local cec wondered whether this would not end 'red tape• in economic development in Atlantic Canada.22 The agency was even applauded by Liberal politicians from the region. In New Brunswick, for example, then Opposition leader Frank McKenna warmly welcomed the announcement and observed: 'I believe with this composition of the Agency and terms of reference, there is reason to be optimistic. ' 23 Nova Scotia Liberal leader Vmce MacLean echoed his belief that the announcement was very positive for the region. 24 While accepting many of the recommendations in the report, the prime minister also rejected a number of important ones. He did announce that the agency's headquarters would be located in Atlantic Canada (in Moncton, New Brunswick); that it would be headed by a deputy minister; that it would have an independent advisory board of prominent Atlantic Canadians; that it would be more autonomous than a typical government department but that it would not enjoy crown-corporation status; that it would assume responsibility for the ERDAs; that FEDCs would be transferred to it; that it would have as its main focus the promotion of entrepreneurial development; and that it would have

AC0A - Looking east 125 three additional mandates - notably, those of playing an advocacy role on behalf of the regions before national policies and programs, promoting cooperation with the provinces through the ERDAs, and playing a coordinating role with other federal departments, the four provinces, and the private sector.25 When it came to new financial resources, however, Mulroney proved more generous than the report had recommended. He declared that AC0A would receive $1.05 billion in new money over five years.26 He also revealed that the 'A' base for the ERDAs and IRDP, currently earmarked for Atlantic Canada, would be transferred to AC0A. This amounted to nearly $1 billion over five years. However, it became clear early on that, rather than relying on the provinces or other federal departments, the agency would have its own program-delivery capacity with regard to aspiring entrepreneurs and small businesses. Nor did the federal government accept the recommendation that funding for ACOA be found by cutting back regional development programming in the most developed regions of the country. Still, Mulroney announced that 'two maritimers' would lead the agency. Senator Lowell Murray, a Cape Breton native with strong ties to New Brunswick from having served as deputy minister to Premier Richard Hatfield, was appointed minister. Donald S. McPhail, a career public servant who was Canadian ambassador to West Germany at the time of the AC0A announcement, was appointed deputy minister. A Halifax native, McPhail had left External Affairs briefly in the mid-seventies to head up the Atlantic component of DREE when its operations were being decentralized and the GDA approach introduced. Both Murray and McPhail made clear in their first interviews that 'the Agency will have no Ottawa bureaucracy to answer to' and both made it known that decisions, including policy decisions, would be made in the region. r, Perhaps as a way to kick-start the work of the agency, the prime minister had declared at the press conference that AC0A 'will be open for business Monday morning. ' 28 He also spoke about the new services and programs that would quickly be made available to the region's business community. As McPhail was wont to say often after the announcement, 'Monday morning came awfully fasL' There are of course a number of things the new head of a new agency must do before he can open for business.29 For a start, he must find office space, hire staff, draft legislation, establish policies, set up programs, and put together financial controls and administrative policies. McPhail was asked to do this in Moncton, far removed from any support structure usually found in Ottawa where new federal agencies are usually born. Setting up a new agency in the region, particularly one concerned with promoting regional development, is doubly difficult because expectations are inevitably very high and because small businesses are impatient with government bureaucracies, especially the federal public service. AC0A faced yet other challenges, in part because it was viewed

126 The efforts by the permanent public service in Ottawa as a highly 'political' agency, but also because it had to secure some of its funding from another department - ORIE. Worse still, ACOA was being asked to move in on DRIE's turf - its areas of responsibility. In any event, the first task at hand for McPhail was to find staff. This proved to be no easy matter. For one thing, Moncton does not have hordes of ambitious young public servants on tap, unlike Ottawa. For another, some DRIE officials, fearing that they would lose their current jobs, hoped to move to ACOA. Many observers, including politicians in Ottawa and in the provinces, expressed strong reservations over having ACOA staffed by former DRIE people.30 Yet the Public Service Commission in Ottawa, as well as the Treasury Board Secretariat, were applying pressure on ACOA to take DRIE staff. The difficulty, however, was that DRIE had come under such strong criticism for being ineffective and overly bureaucratic that some employees were regarded with suspicion. The newly elected premier of New Brunswick, Frank McKenna, summed up the views of many when he reported his concerns that 'staff holdovers from previous programs will cause apprehension in the business community about program deliveries. ' 31 While Senator Murray and Don McPhail pondered how best to staff the agency and how to strike new policies and programs, the region's business community and the four provincial governments became increasingly impatient. They wanted programs and initiatives in place at once - and frequently reminded ACOA that the prime minister had said that it would be open for business within twenty-four hours. Those who had initially applauded the establishment of ACOA began to question its ability when, several months after its establishment, nothing much had happened. Nova Scotia Premier John Buchanan, for one, accused the agency of 'taking too long to get results. ' 32 The chairman of the Atlantic Provinces Chamber of Commerce argued that ACOA 'seems to be taking a long time to get off and running, leaving the region stalled in a development void. ' 33 Even some members of the agency's advisory board began to express publicly their impatience with the delay. 34 The besieged senior ACOA officials resolved to move as quickly as they could on four fronts: staffing the agency; drafting the new legislation; establishing a new program for the region's business community; and, finally, working toward closer federal-provincial cooperation.35 McPhail explained to the Legislature Committee on Bill c-103 (the ACOA bill), on 2 February 1988 that 'designing and launching a ship takes time and perseverance and we have been designing our programs and building our organization at the same time. ' 36 He could report, however, that the agency had been able to secure from the Treasury Board a staff complement of 320 people, that it had filled well over eighty positions

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after only several months, that it had integrated the four FEOC offices in the new organization, that it had set up its advisory body, and, finally, that it had tabled a bill before Parliament seeking a legislative base for ACOA. Senator Murray announced the composition of a nineteen-member advisory board. All were drawn from Atlantic Canada, mostly from small and mediumsized firms. There were, however, some appointed from provincial governments and the unions, as well as some with obvious ties to the governing Progressive Conservative party - and this was noted by a good number of people in Atlantic Canada. In addition, the region's private sector was quite critical of the fact that the board only enjoyed an advisory status and had no authority to make decisions. 37 Many business people urged the government to turn over effective decision-making authority to the board. The legislation establishing ACOA, however, makes clear that the board's mandate is 'to assist the Agency in the exercise of its powers and the performance of its duties and functions. ' 38 No decision-making authority whatsoever is delegated to the board. The agency's deputy minister is designated its chairperson. This is because it is not possible under our system of parliamentary government to ask the government and, in particular, the minister heading up the agency to be accountable for its spending while at the same time turning over decision-making authority to an independent board of business people. The legislation gives considerable authority to ACOA to plan, coordinate, and implement economic development measures in the region, including full authority to promote 'economic opportunities and development in Atlantic Canada over which Parliament has jurisdiction. ' 39 It adds that ACOA •shall coordinate the policies and programs of the Government of Canada in relation to opportunity for economic development in Atlantic Canada. ' 40 With regard to program authority, the legislation enables ACOA to 'enter into agreements with the government of any province or provinces in Atlantic Canada respecting the carrying out of any program or project of the Agency. ' 41 In addition, it reports that the agency 'may, by order, establish as a designated area, for the period set out in the order, any area in Atlantic Canada where, in the opinion of the Minister, exceptional circumstances provide opportunities for locally based improvements in productive employment. ' 42 The ACOA legislation was relatively well received both by members of Parliament and by outside groups invited to appear before the special house committee established to consider the proposed legislation. The bill did, however, run into some controversy when it sought to deal with the various federal regional-development agencies operating in Cape Breton. Quite apart from DRIB, two other important federal agencies were operating in Cape Breton at the time ACOA was established. DEVCO, it will be recalled, had been established in the late 1960s to deal with the 'coal' problem and it set about to close inefficient

128 The efforts mines. At the same time it established a unit - the Industrial Division - designed to attract new manufacturing industries to the island. The ID division in DEVC0 went through several phases - attempts, first, to attract footloose industries; next, to promote local development; and, finally, yet again, to encourage import replacements. Though few Cape Bretoners would argue that any of these initiatives had met with a great deal of success, fewer still wanted to see them stopped. The other federal agency operating on the island was Enterprise Cape Breton, which, it will be recalled, was established by the Mulroney government shortly after it closed Cape Breton's two heavy-water plants. The AC0A legislation sought, however, to deal both with DEVC0's industrial-development efforts and with Enterprise Cape Breton. The legislation proposed to remove the former from DEVC0 and to place it in a new crown corporation to be name Enterprise Cape Breton Corporation (ECBC). The legislation laid out ECBC's purpose as follows: 'the objects of the Corporation are to promote and assist, either alone or in conjunction with any person or the Government of Canada or of Nova Scotia or any agency of either of those governments, the financing and development of industry on the Island of Cape Breton to provide employment outside the coal producing industry and to broaden the base of the economy of the Island. ' 43 Significantly, the legislation reported that the head of ECBC would be the deputy minister of AC0A, with a vice-president located in Sydney, Nova Scotia. acting as chief operating officer. The opposition Liberals strongly felt that this was not necessary, that DEVC0 should be left alone and that ACOA should be established without reference to it. Many felt that the Mulroney government was simply emasculating the popular DEVC0 mandate to get at the Allan J. MacEachen Cape Breton legacy. The opposition Liberals in the Commons voted against the AC0A legislation because of the so-called DEVCO provision. The Senate, led by MacEachen, held the bill up for a few months and then attempted to split the legislation between AC0A and DEVC0. The Commons, however, succeeded in keeping it as one bill and in the end the AC0A act not only established the agency but also created a new crown corporation for Cape Breton (Ecec). The legislation was finally given formal assent on 18 August 1988. The establishment of AC0A also raised questions about the future of Enterprise Cape Breton. It will be recalled that ECB was established by Sinclair Stevens as a result of recommendations from a private-sector advisory group to deal with the sudden closure of the two heavy-water plants. It was hoped that it would become a 'one-stop window' for firms looking for assistance to locate in Cape Breton. ECB also provides, however, generous financial assistance to the private sector through its own programs. At the time it was established, it reported directly to ORIE Ottawa. However, under the new AC0A arrangements,

ACOA - Looking east 129 ECB now reports to the Nova Scotia ACOA office. This development added to concerns in Cape Breton that the changes brought about by ACOA would in the long run work against the island's economic interest.44 Legislation was only part of the challenge that senior ACOA officials faced. The pressure on them to come up with new measures was intense. Given the findings of the report that led to the establishment of ACOA, one thing was clear. Any new measures would have to be geared toward the private sector, with a strong emphasis on small businesses and established, as well as aspiring, entrepreneurs. ACOA saw little merit in continuing or even adapting DRIE's IRDP program in Atlantic Canada. It believed the program was not sufficiently flexible for the region's business community and that the tier system, in particular, was difficult to administer. The agency pointed out that because the Atlantic region as a whole was seriously disadvantaged in comparison to the rest of the country, it made little sense to vary the level of contribution within the region. It also argued that the tier system was not without its own inequities. A community suffering from adjustment problems but located in a relatively more prosperous census division was treated differently from a similar community in a poorer census division. In this instance, the agency often referred to the town of McAdam, New Brunswick, which suffered important economic problems but was located in the same census division as Fredericton, the province's capital, which was classified as a tier 2 area.45 Still, given the strong pressure to get a program in place quickly, ACOA looked at adapting existing government programs. It first turned to the Atlantic Enterprise Program introduced in 1986. AEP, as mentioned in the previous chapter, did not have a tier system and it offered loan insurance and interest buydown to the private sector on the same basis across the region. But AEP has restrictions that ACOA felt would seriously inhibit its ability to carry out the agency's mandate. ACOA wanted to work with aspiring entrepreneurs, not just existing businesses, and it wanted a capacity to work with non-profit organizations, like the universities. AEP did not lend itself to this. It also did not provide for cash grants to aspiring business persons. The agency thus went to Cabinet to secure numerous changes to AEP. The first thing it sought was a new name for the program and recommended that it be called the Action Program. It then urged that the terms and contributions of AEP be radically amended: - To provide grants and contributions to non-profit organizations, including municipalities and other agencies, that provide specialized services in support of entrepreneurship and small and medium-sized businesses. - To provide contributions for a broader range of manufacturing, processing,

130 The efforts and repair and maintenance activities, including primary or initial processing activities and contributions for those service industries already eligible for loan insurance and interest-rate buy-down. - To extend eligibility to projects that attract intra-provincial, inter-provincial, and international tourists. - To provide cash contributions toward eligible costs for business establishment, new product expansion, modernization, and expansion; for innovation projects, including financial support to innovators who licence their innovative product or process; and for studies and technical assistance, such as the development of market and business plans, feasibility studies, and venture-capital search and for hiring a qualified person to implement a marketing plan. - To provide a single maximum level of contribution by type of activity for the Atlantic region as follows: 50 per cent toward eligible capital costs for establishment, new-product expansion, modernization, and expansion; 60 per cent toward eligible costs for innovation projects and for financial support to innovators who licence their innovative product/process; 75 per cent toward eligible costs for development of marketing and business plans, feasibility studies, and venture-capital search; and 50 per cent toward the costs of hiring a qualified person, for a maximum of one year, to implement a marketing plan. - To provide progress payments toward authorized contributions to eligible applicants for eligible activities under the program so as to lessen the financial burden associated with bridge financing for small and medium-sized companies. - To raise the maximum level of government support to 75 per cent for commercial operations and 100 per cent for non-commercial operations and modify the calculation procedure for tax credit so that only the cash-refundable portion, currently 40 per cent for small firms and 20 per cent for large firms, is used. - To remove the policy that makes provincial crown corporations, their wholly owned or effectively controlled subsidiaries, and companies effectively controlled by provincial governments ineligible for federal financial assistance. The Cabinet agreed to these changes and ACOA launched an extensive public-relations campaign to promote the 'new' Action Program throughout Atlantic Canada. It bought TV and radio ads, as well as a flood of special advertisements in daily newspapers and magazines. The message was simple. Anyone with an idea that would lead to new economic activities in Atlantic Canada was asked to see ACOA and support would likely be forthcoming. The agency also announced that it would provide 'personalized assistance' through a new concept

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Looking east 131

- account managers - to help applicants get 'viable ideas into action. ' 46 It also said that all proposals would be reviewed and approved in the region and that, contrary to previous practice, progress payments would be made before the project became fully operational. Finally, the agency laid out the eligible sectors under the Action Program. Very few were excluded, and the following sectors were named as qualifying: aquaculture, business service industries, some agricultural industries, commercial research and development facilities, freight forwarding, logging, manufacturing and processing, mining and related services, repair and maintenance services, storage and warehousing services, and tourism.47 The basic tests applied by ACOA in reviewing applications under its Action Program are fairly straightforward. It first assesses a project's commercial viability to determine whether it has a reasonable chance of success. It then looks to see whether the project will result in economic benefit for Atlantic Canada and, finally, it reviews the need for assistance for the project to proceed. The only caveat is that those projects involving more than $20 million in capital costs would have to go through ORIE, which would retain responsibility for large industrial projects, even in Atlantic Canada. The Action Program was formally introduced on 15 February 1988. The response was overwhelming - no doubt, in part, because so many types of economic activities became eligible; in part, because of the high-profile publicity campaign heralding its introduction; but also because the region was finally coming out of the deep recession of the early 1980s. For whatever reason, the Action Program was quick off the mark. After a little over more than a year, ACOA had reviewed over 34,000 inquiries, processed 6,800 applications, and approved 2,700 projects under the Action Program.48 Applications, initially at least, came in at ten times the rate of any predecessor programs, such as those under RDIA or IR.DP. The Action Program was in full swing by fiscal year 1988-89 and during that year alone applications totalled 9,634, of which nearly 5,000 were approved. The greatest number of approved offers involved modemi:zation and expansion, followed by the establishment of new facilities and studies (see figure 1). ACOA also reports that the program assisted over 400 first-time entrepreneurs. While only about 80 innovation projects have been supported, this level of assistance is reported to be five-fold the rate of support provided by previous programs.49 Over 15 per cent of approved projects fall under the Business Support element of the program or activities aimed at improving the quality of entrepreneurial skills in Atlantic Canada, including business-database improvement, Atlantic case studies, and counselling. About 80 per cent of all swdies supported under the Action Program are valued at less than $25,000.50 On a sectoral basis, the manufacturing sector generated the greatest number

Approved projects Total= 4701

312

1193

■ Business support ■ ■ ■

D

Establishments Modernization/expansion Innovation Studies

Authorized assistance in $millions Total = $523.52

FIGURE 1 Action Program, approved projects, 1988-89 (source: Report of the Minister for fiscal year 1988-89, Atlantic Canada Opportunities Agency)

ACOA - Looking east 133 of applications, and received the most significant share of assistance (see figure 2). On the basis of size, small projects - those valued at less than $200,000 - comprised the lion's share of applications approved. However, projects valued at more than $2,000,000 in eligible costs, while accounting for less than 5 per cent of the number of approved projects, received a relatively larger share about half - of committed funding. 51 In aggregate, ACOA's Action Program committed $523.5 million from its inception to March 1989 and is reported to have leveraged an estimated $1 .3 billion in private-sector investment in the region. This, in turn, ACOA claims, will support the creation of an estimated 12,500 full-time jobs and the maintenance of another 15,000 positions.52 ACOA also sought to implement a number of other recommendations contained in the report that led to its establishment. It funded a new Atlantic Entrepreneurial Institute that brings together Memorial University, Universite de Moncton, Acadia University, and the University of Prince Edward Island. The institute provides assistance to aspiring entrepreneurs to go into business. It offers business seminars, 'how to' workshops, a business library, computer assistance, and the like.53 The agency also decided early on to place a strong emphasis on promoting greater cooperation with the four Atlantic provinces. Senator Murray went to his cabinet colleagues to lift the moratorium on new ERDA initiatives in Atlantic Canada. In doing so, he pledged that ACOA would do three things: first, it would only approve new ERDA initiatives if they were clearly supportive of broader ACOA efforts in promoting regional development; second, the new initiatives would have to be part of an agreed-upon financial framework:; and third, ACOA would strengthen its communications strategy to give proper visibility and recognition for federal spending. Murray acknowledged that there had been a tendency for the region's provincial governments to announce projects as being 'subject to obtaining federal participation,' thus placing federal ministers in the difficult position of either going along with the provincial demands or being pointed to as the reason the project could not proceed. This, he insisted, would stop in the next round of ERDA initiatives.54 Murray also reported that a primary focus for new ERDA subsidiary agreements would be to strengthen the private sector and create new permanent jobs. He also reported that new initiatives would be required to stimulate entrepreneurship, which, he claimed, was becoming more evident in many parts of the region, and noted a need to ensure that new and existing entrepreneurs have access to a wide range of quality business services and advice in order to ensure as many as possible achieve success. Finally, new programs would focus on improving the ability of entrepreneurs to develop, adapt, and commercially exploit new technologies.55 Murray told his Atlantic colleagues that the resource sectors would contin-

Approved projects Total= 4389

2321

211

Manufacturing

■

Repair service

■

Tourism ■ Business services Others

■

D

$263.9

Authorized assistance in $millions Total= $438.74

FIGURE 2 Action Program, approved commercial projects by eligible sector 1988-89 (source: Report of the Minister for fiscal year 1988-89, Atlantic Canada Opportunities Agency)

ACOA - Looking east 135 ue to be an important source of jobs and income for the foreseeable future and that they were critical to the long-term health of the regional economy. He assured them that, while it would be necessary to consider a second generation of resource-sector subsidiary agreements to replace those due to expire. programming would be focused more clearly on sectoral strategies and priorities. such as productivity improvement. technology development and transfer. international competitiveness. and facilitating adjustment Infrastructure investments would now be strictly limited and focused primarily on a few strategic priorities in areas such as transportation and energy. or on projects clearly required in support of a specific economic-development priority.56 Murray proposed that an Atlantic Cooperation Fund be set up to support new ERDA initiatives. He reminded his colleagues that in establishing ACOA the prime minister had given the agency over $1 billion of new money and all the funding available under oRIE•s •A• base for Atlantic Canada for IRDP and for the ERDAs. This kind of funding amounted to about $973 million over five years. with spending expected to peak at $228.4 million in 1988-89. Murray proposed to allocate the bulk of the new money to the Action Program and to employ the old ORIE 'A• base for ERDA agreements. He reminded his colleagues that the signed ERDA subsidiary agreements were for a five-year period and that the majority were scheduled to begin to expire in 1989. In the absence of a new arrangement. Murray pointed out. the expiry of the agreements would leave no provision for future funding of the ERDA initiatives of line departments within the fiscal framework. He proposed that the Atlantic Cooperation Fund eventually provide for the maintenance of around $1 billion in federal funding for new ERDA initiatives in the region. and that the name of the ERDAs be changed as they expired to 'Cooperation Agreements.• Funds would begin to accrue at the end of the 1988-89 fiscal year. with major new commitments possibly beginning the following year. when most existing subsidiary agreements would have expired. He reported that priority-setting for new initiatives should begin and be guided by a predictable financial planning framework. Interim financing that he and his colleagues were prepared to support could start right away and come from departmental A-bases, the policy reserve. or ACOA itself. in the case of initiatives falling clearly within its mandate.57 In late 1987. Cabinet agreed to lift the moratorium on new ERDA initiatives. Indeed. it decided to give the green light to sign new ERDA subsidiary agreements everywhere in the country. ACOA was quick off the mark and. within a few months. Murray had his senior officials initiate intense negotiations on a new round of ERDA subsidiary agreements. Agreement was reached with all four provinces that the key elements of future ERDA subsidiary agreements would be entrepreneurship. innovation and technology transfer. marketing and trade development, human-resource development. and the environment.

136 The efforts However, it is one thing to secure a broad inter-governmental agreement on what ought to be done but quite another to carry it out - and some of the subsidiary agreements signed by ACOA since the lifting of the moratorium have had little to do with the themes listed above. For example, ACOA signed a $196million subsidiary agreement with Nova Scotia to clean up Halifax Harbour. It also signed a series of new subsidiary agreements in forestry with Newfoundland, New Brunswick, and Prince Edward Island that resemble similar agreements signed earlier by ORIE and OREE. There have also been new subsidiary agreements for Labrador - for rural development, agriculture, fisheries, and transportation - all covered in earlier subsidiary agreements going back to the GOA approach. ACOA admits that it has been much less successful than it hoped in pursuing its mandate to improve coordination between the various economic actors in the region. It now reports that it will concentrate its efforts on two major projects - the Hibernia oil project and the fixed Prince Edward Island-New Brunswick crossing - to ensure that the Atlantic economy benefits from the activities that they will generate.58 Similarly, ACOA reports little success with its 'advocacy' mandate. Indeed, it now reports that it 'may appear somewhat unusual for an Agency that is part of a federal system to be given a statutory role in advocating the interests of a particular region within that system. ' 59 It adds, however, that past experience has shown that 'regional interests cannot be adequately protected without an effective ongoing direct link to the central decision-making structure. ' 60 The agency reports that it has had little success on either the coordination or advocacy fronts because, it insists, it was never given the resources to be effective in these areas. ACOA argues that obtaining new money was only part of the equation. It also requires sufficient staff or, in the parlance of bureaucracy, a sufficient number of person-years, to carry out its four mandates. ACOA was given 320 person-years. This, the agency argues, is barely sufficient to implement the Action Program properly. Indeed, ACOA now reports that it has to hire some fifty people on special contract to deal with the backlog in applications under the Action Program. Central agencies, in particular Treasury Board, resisted time and again, any attempt by ACOA to secure more staff. Treasury Board had another agenda to pursue. It had to implement a 15,000-person-year cut in the federal public service that the Mulroney government had announced as part of a broad policy of restraint in government spending.61 In any event, relations between central agencies in Ottawa and ACOA have rarely been smooth. It will be recalled that, initially, some thought had been given to establishing a crown corporation so that the agency could operate at arm's length from the bureaucratic requirements of the federal bureaucracy. Later, attempts were made to position the agency somewhere between a central

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Looking east 137

agency and a typical government department This is one of the reasons why the head of ACOA is called president rather than deputy minister and that the h ~ of the provincial offices are vice-presidents rather than assistant deputy ministers. But the differences between ACOA and a typical line department are only superficial and ACOA has had to deal with central agencies in the same way that all other federal departments do. It is clear, however, that the 'Ottawa system• has had more difficulties dealing with ACOA than it usually has with a typical government department. Regional policy, as we will see, has never been popular in Ottawa. This has been true dating back to DREE's early days. It appears, however, that the situation is worst with ACOA. For one thing, its headquarters are not in Ottawa. Many Ottawa-based officials feel that they have lost control and that several relatively independent regional agencies are operating outside of the national capital often at cross purposes or in direct competition with one another without regard to national policies. For another, the idea of establishing ACOA came from the prime minister, and not from the public service. In addition, national departments like DRIE and, more recently, the Department of Industry, Science and Technology look at ACOA as somewhat of an upstart, often playing havoc with their national perspective and national economic development efforts. The return of a majority Mulroney government in the 1988 national election saw some changes to the Ottawa decision-making process. PEMS, or the envelope system for allocating funds, was replaced by a new process geared to restraining growth in government spending and to recommending areas where spending cuts could be made.62 A new cabinet Expenditure Review Committee (ERC), chaired by the prime minister, was set up to 'ensure that the Government's expenditure control continues to contribute to deficit reduction. ' 63 The committee had its first meeting only a few days after it was established and initiated a thorough review of the government's expenditure budget. The ERC was assisted in its work by central-agency officials from the Privy Council Office, Finance, and the Treasury Board Secretariat. These officials expressed deep concerns after reviewing ACOA •s spending plans. They argued that the agency was quickly overcommitting its budget, much as ORIE had done a few years earlier. They also argued that the agency's spending was out of control, that the Action Program had not only generated far too many applications but, more seriously, far too many approvals. Indeed, they argued that ACOA has initiated 'indiscriminate' spending. Their views had some impact. The committee directed ACOA to spend its $1.05 billion of new resources over seven years, rather than five.64 This obviously played havoc with ACOA •s spending plans and agency officials were forced to rethink many of their initiatives. It meant, for one thing, that the ACOA budget was fully committed for fiscal year 1989-90, thus leaving no room to

138 The efforts approve new initiatives. As a result, AC0A announced in May 1989 an important modification to its Action Program. The agency imposed a new ceiling of $200,000 - down from $20 million - in eligible costs under the Action Program. 65 In addition, the minister of finance announced in his budget speech that in future the federal government would make all cash grants and contributions to the private sector to promote industrial and regional development repayable.66 In June 1989, Don McPhail was removed as president of AC0A and replaced by Peter Leseaux, a career public servant and long-time personal friend of the prime minister, having attended Saint Francis Xavier University with him in the 1950s. Leseaux came to AC0A from a central agency, the Public Service Commission. Elmer McKay was also appointed AC0A 's new minister in the spring of 1989. McKay, it will be recalled, had been minister of DREE during Joe Clark's brief stay in power in 1979. He immediately called for a special consultation meeting to be held in September 1989, to which key observers and associations from Atlantic Canada would be invited to voice their views on AC0A. Nine groups or associations attended the session. While many of them praised AC0A and its efforts, some were critical on two fronts. First, they -almost to a person - were highly critical of the decision to impose a $200,000 ceiling on the Action Program. Second, some called on AC0A to develop a broad strategic plan for the whole of Atlantic Canada. They argued that the agency's perspective was too provincial; that it appeared to be content to simply react to what provincial governments wanted under the ERDAs. They also called on the agency to pay more attention to trade opportunities, particularly those flowing out of the Canada-u.s. Free Trade Agreement (;7 The criticism had some impact, particularly that directed at the new $200,000 ceiling under the Action Program. The prime minister went to Halifax a few months later and announced a new ceiling that was set at $10 million in eligible costs and a $500,000 maximum contribution for any project. He also declared that direct contributions under the Action Program under $100,000which he argued represented 80 per cent of all projects in the region - would be exempt from Ottawa's new repayment policy announced by the finance minister.68 Elmer McKay also announced that two new activities would be eligible under an expanded Action Program. Under a new supplier-development element, AC0A will pay up to 75 per cent of eligible costs associated with bid preparation and 50 per cent of eligible costs of other related activities. In addition, ACOA now provides up to 50 per cent of the cost of promoting marketing development, including such items as design, new packaging, and promotional material.69 Notwithstanding these changes, there were plenty of reasons for concern as AC0A celebrated its third anniversary in the summer of 1990. Some observers still felt that the agency was being employed as a political 'slush fund' by the

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Mulroney government.70 There were lingering doubts that •ACOA had reemerged as a re-configured version of DRIE. staffed to its previous level by many of the same individuals who previously worked to make the system appear complicated and complex. •71 Others expressed concern that ACOA was putting far too much of its efforts and funding into cash grants. The Action Program. they felt, was too open-ended and supported far too many projects. creating an over-capacity in many sectors. Some new businesses supported by the Action Program, it was argued. simply put existing businesses. which did not have government-supported modern facilities. out of business.72 Meanwhile. Dalton Camp. now a columnist with the Toronto Star. took an opposite view. He argued that ACOA had become so successful operating outside of the Ottawa system that senior mandarins were out to do it in. He insisted that McPhail 's firing was a result of 'a bureaucratic coup in the national capital.• He added 'The small bores in Finance, Treasury Board and latterly in the Prime Minister's Office, who have opposed ACOA from the outset. should not be allowed to make McPhail the first victim in their long campaign to destroy the Agency.' 73

10 WD, FEDNOR, DIST -

Looking everywhere

The regional factor is perhaps one of the most decisive forces shaping Ottawa's expenditure budget. As one keen observer of Canadian politics recently observed, 'The first thing a foreign observer must learn about Canadian politics is that it is not about right and left, it is about east and west. ' 1 Certainly, the decision to establish ACOA generated a great deal of interest among key regional ministers in Ottawa WESTERN DIVERSIFICATION (WD)

One of the most powerful regional ministers in the Mulroney Cabinet is Don Mazankowski, the deputy prime minister. One of his most important goals has been to do for western Canada what Trudeau, Marchand, and Pelletier had done for Quebec. He is determined to place the 'western• agenda front and centre on the national political agenda His agenda is an economic agenda, not a language one, as in the case of Quebec, and he has sought to put in place measures to diversify the western economy. He, like other westerners, is convinced that the West needs to develop sectors other than agriculture, oil, and gas. Mazankowski saw little prospect for success in working with ORIE, which was no more popular in the West than in Atlantic Canada Both regions regarded ORIE as basically concerned with the economic interests of central Canada. When Mazankowski saw the direction the wind was blowing in Atlantic Canada, he immediately pushed for a similar agency for the West. Dalton Camp explained: 'Only a couple of weeks after work began, we started to hear that Maz was making a strong pitch for a western based agency. ' 2 His 'pitch' was successful. To be sure, he was able to make a convincing political case to the prime minister. The West had been loyal to the Progressive Conservatives even when the Liberals, under Trudeau, won majority mandates in 1968, 1974, and 1980. Indeed, the West only elected two Liberal MPS in the 1980 election, both from

WD, FEDNOR, DIST- Looking everywhere 141

Manitoba. Again, in the 1984 election that brought the Mulroney government to power, the West again elected only two Liberals and one of these was the Liberal leader and incumbent prime minister, John Turner, who would be expected to win the loyalty of his constituents. Yet, by early 1987, the Mulroney government was in serious political difficulty in the West. 3 Public-opinion polls showed that the government was struggling to maintain a narrow lead and that, at one point, it ttailed the NDP. In 1986, the government nearly lost a by-election in Pembina, Alberta, hitherto regarded as one of its safest seats in the country. Worse still, that same year, the government had awarded the CF-18 maintenance contract to a Quebec firm, although a Winnipeg firm had submitted the lowest bid. The public outcry in western Canada against this decision was very vocal. A general election was expected in 1988 and it was important for Mulroney to solidify his western base quickly if he was to have any hopes of winning a second mandate. Apart from the electoral loyalty of the West, Ma7.81lkowski was also able to point to economic concerns in making a case for a western development agency. The region had not recovered from the deep recession of the early 1980s as quickly and as strongly as central Canada had. It will be recalled that when the world economy began to recover after 1982, the demand for most western primary resources worsened. Prices fell sharply. Traditionally in the West, when demand for one of its important commodity plunges, demand for another usually increases. By 1986, however, demand for oil, gas, and agricultural products had all dropped. In that year, there was a decline in world oil prices and the growing international agricultural-subsidy war played havoc with grain prices. Now, perhaps more than ever, Mazankowski could argue that there was an urgency to put in place measures to diversify the western economy. The West has long held that its •ability to withstand a downturn in the resource sector has been limited by federal government policies which inhibited the development of secondary manufacturing and service industries in the region. Historically, federal trade, transportation and procurement policies did little to promote economic development and diversification in western Canada. The continued dependence on the resource sector and consequently, a narrower economic base, has left western Canada vulnerable to the boom-and-bust cycles of international commodity markets. As a result, the impact of the recession and the continued decline in commodity prices were more seriously felt in the West than in other parts of the country. ' 4 The prime minister decided early on that there would be no public consultation and no commissioned report on what ought to be done in the West. In any event, the ACOA report had already advised on how best to structure a regional development agency. Thus, there was no risk that a western agency would be part of DRIE. The question then involved not so much the machinery of gov-

142 The efforts emment but, rather, defining what ought to be done. This, it was decided, would be best done in-house. It was also decided that the Privy Council Office (PCO) would coordinate the effort. PCO invited a number of federal departments and agencies to prepare an overview of their sectors and outline the problems and constraints to future growth, as well as any opportunities they foresaw for development. Overviews were prepared on agriculture, energy, forestry, minerals, coal, fisheries, the service sector, tourism, transportation, manufacturing, and high-technology industries. PCO officials found many of them unsatisfactory and set out to rewrite them in consultation with the departments concerned. It was important that they be as comprehensive as possible because the hope was that the new western agency would turn to these overviews in planning its economic development efforts. Not surprisingly, the reviews concluded that the West's large endowment of natural resources would continue to drive the economy.5 The review of the agriculture sector reported, for example, that western agriculture generates 9S per cent of Canada's wheat sales, 93 per cent of barley sales, and nearly 100 per cent of granola sales. The difficulties the sector was encountering were largely due to international trade distortions brought about by an international subsidy war. The way ahead for western agriculture, the review concluded, was to widen the range of commodities produced, increase efficiency, improve soil- and water-management practices, and promote a greater value-added capacity. The new agency was urged to invest in 'projects with high economic payoffs that lead to new levels of international competitiveness. ' 6 Other sectors were examined in much the same way. First, the sector's importance to the economy was noted. Then, the problems and constraints were identified. Finally, the review would suggest what could be done. In the case of the oil and gas sector, it was reported that the Westaccounts for about 99 per cent of Canada's crude oil and natural gas production. The conclusion, however, was that the region remains much too dependent on this sector 'as an engine of growth. •7 It was important, the review argued, to secure access for Canadian oil and gas, particularly to the us market, and to explore other sources of energy, notably hydroelectric power. The review on forestry called the sector a 'success story,• and pointed to it as a key vehicle to diversify the western economy. On the minerals sector, it urged the new agency to expand the 'dissemination of research efforts in geoscience, product or process development, and marketing.•• Coal was also considered to hold strong potential for the western economy, although the review underlined several difficulties. There was, for instance, a reduced global demand for steel and new coal-export competitors. As well, the decline in oil and gas

WD, FEDNOR, DIST- Looking everywhere

143

prices had reduced the incentive to switch to coal and new environmental guidelines forced users of coal to comply with new emission limits. Still, the review was optimistic because western coal has a low sulphur content, reserves were plentiful, and the transportation facilities in the region were 'world class. ' 9 The review recommended that the new agency build on these strengths by promoting the region as a reliable and low-cost supplier and educating the public on the attractiveness of coal as an energy source. The tourism review reported that the sector had shown robust growth in recent years. It suggested that the agency should concentrate its efforts in this area by establishing new attractions, increasing skills, and sttengthening marketing strategies.10 The review on the fisheries suggested that the sector offered a variety of opportunities for future growth in British Columbia, for recreatimal fishing, aquaculture production, and the exploitation of underutilized species. It went on to argue that British Columbia was also the home of a strategically important oceans industry and suggested that new efforts be undertaken to develop 'oceans science and technology.' 11 Underpinning future growth in these and other sectors, the review insisted, was an efficient and modem transportation sector. The review reported that Canadian transportation policy had long favoured 'manufactured products moving into Western Canada,' presumably from central Canada. 12 The agency was asked to make every effort to put transportation in western Canada 'on an even footing with the rest of the country [to] encourage the development of secondary industries and [to] broaden the economic base of the West. ' 13 The reviews, however, identified three key sectors where the new western agency should concentrate its efforts: the service sector and the manufacturing and high-technology industries. The first was considered important for a host of reasons, including the fact that it is more recession-resistant than many other sectors and it encourages urbanization, and also because a good part of the region 's service industries have strong export potential. As a result, the review recommended that the new agency concentrate its efforts in service industries that operate at the international level, in promoting new research-and-development activities in the West, in providing opportunities for individuals in midcareer to update their skills, and in market development abroad. 14 The West, the review reported, has 30 per cent of the country's population but contributes only 16 per cent of Canada's manufactwing ouq:,uL Worse still, only 10 per cent of the jobs in western Canada are in manufacturing. For the West to have a diversified economic base, it must strengthen existing manufacturing industries and promote the development of new ones. Though the review was short on ideas on how the West could develop its manufacturing sector, it did report that the region's industries were becoming more and more successful in

144 The efforts securing federal defence contracts. It urged the new agency to work with others in promoting 'a dialogue with Westerners about how revitalized federal programming can best promote Western objectives. ' 15 The review was very positive on the future of the high-technology sector, which was showing solid growth in all four western provinces and creating a large number of new jobs for westerners. The best was still to come in this sector, it argued, since the West has 'a large untapped pool of entrepreneurial expertise. ' 16 The review urged the agency to develop new policies that would strengthen - the quality and quantity of the infrastructure supporting technology development, including the university system, R&D and financial services; - cooperation between the western provinces in high-technology endeavours; - the university-industry linkages; and - knowledge of international competition. The review concluded with a call for close federal-provincial cooperation in promoting a more diversified western economy. It urged the agency to welcome all forms of cooperation from the provinces and to take the lead in securing coordinated efforts on a number of fronts, notably in international trade and in promoting government procurement as a tool of economic development. 18 Armed with the results of the sectoral reviews, the prime minister went to Edmonton to announce the details of the new Western Diversification initiative (wo). 19 He announced that the agency would administer a $1.2 billion fund of new money, and that, like its sister agency, AC0A, wo would assume responsibility for DRIE's 'A' base in western Canada and for the western ERDAs. The prime minister made it clear, however, that the agency would be responsible for a great deal more than managing the fund. It would also have a mandate to pursue the findings of the sectoral reviews and to - coordinate and communicate all federal programs and activities that contribute to the economic development and diversification of the West; - support the business infrastructure to further the economic development and diversification of the western economy; - undertake activities that will facilitate the creation of new enterprises and businesses consistent with Canada's evolving international trade policy; and - represent the interests of western Canada in the development of national policies and the design of national programs, and ensure that western Canada is effectively linked to decision-making in Ottawa.1.0 He explained that his government's regional policy was designed to provide 'federal leadership for each region, tailored to its unique potential and needs. At the same time, we want to ensure that regional perspectives are front and centre in the development of national priorities, and that regional economic develop-

WD, FEDNOR, DIST- Looking everywhere

145

ment is backed by strong national centres of industrial and technological expertise. •11 The prime minister appointed Bill McKnight, minister of Indian Affairs and Northern Development, and a close friend of Don Ma7.81lkowski, to be minister responsible for Western Diversification. As deputy minister he named Bruce Rawson, an experienced federal deputy minister who had served in several departments, notably Health and Welfare, Indian Affairs and Northern Development, and the Ministry of State for Social Development. In addition, he transferred the offices of the four FEDCs in western Canada to lhe new agency. WD would have offices in Vancouver, Saskatoon, Winnipeg, and Ottawa, but its head office would be in Edmonton. Unlike ACOA, however, the western agency would not have an independent advisory board guiding its work. The prime minister could not hide his enthusiasm for the new agency when he met the media. He spoke about lhe West's long-held goal of diversifying its economic base and insisted that one of lhe main constraints to its realwltion was that for far too long lhe key decisions about the West had been made in places and by people far removed from the region - by bureaucrats in Ottawa or bankers on Bay Street. Things will now be different, he insisted, because 'now, for the first time, the tools are in place to do the job .•. [WD] ••• has the money and clout to get things done. ' 11 The initiative was well received in the West, much like ACOA had been in the Atlantic region. Saskatchewan Premier Grant Devine described his reaction to lhe announcement as 'like waking up after twenty years and having a good dream. ' 23 Premier Don Getty of Alberta observed that 'we see the program as a very large help to Western Canada and to Alberta. •?A Manitoba Premier Howard Pawley added, 'We've poured lhe concrete today in order to bring about a strong foundation. ' 25 Private-sector representatives present at the announcement, however, were much more guarded in their response. One observed that 'the major shortcoming is that we have no idea what the program really is.' 26 Deputy Prime Minister Mazankowski explained the rationale behind the establishment of WD. He reported that it would be similar in many ways to ACOA, and that it represented in reality the second phase of a multi-step redefinition of Ottawa's regional development policy. 'We think it is very important,' he went on, 'to develop economic programs that fit a particular region and for the decision-making to take place in that region. We believe that to establish a uniform policy across the country, administered out of Ottawa is not lhe answer. Clearly, the approach we' ve had in the past, in terms of addressing regional economic expansion, has not worked. •n The prime minister also made clear in his announcement that there would be far-reaching changes to DRIE. For one lhing, as noted earlier, he announced that

146 The efforts a major part of DRIE programs in western Canada, including the four western ERDAs, would be moved to the new department. He also declared that DRIE would be reorganized under a new name - the Department of Industry, Science and Technology (DIST). Suffice to note here that DIST would consist of a merger between what was left of DRIE after the births of AC0A and WD and elements of the Ministry of State for Science and Technology. As in the case of AC0A, the prime minister announced that the new Western Economic Diversification Department would be operational immediately. Also, as with the Atlantic agency, within a few months, there was an increasing impatience with WD's lack of action, with some asking whether the new fund in fact represented 'new money and a new commitment to the West. ' 28 Again; as with AC0A, WD quickly discovered that the programs and authority transferred from DRIE were inadequate for the task at hand, let alone the three-pronged mandate the prime minister had given WD. The new department argued that existing programs could not provide the flexibility to do 'new things.' DRIE's IRDP was felt to have important limitations. For one thing, as with AC0A, WD was told that it could support projects with eligible capital costs of $20 million or less. It argued that there were many promising projects that would invariably involve much more than that. WD also had deep concerns with IRDP's eligibility criteria that excluded non-profit associations or groups from qualifying for assistance. It also felt strongly that IR.DP was too restrictive in insisting that all assistance be provided as contributions, thus eliminating the option of loan guarantees and stock-option equity. Lastly, it argued that many projects that the background reports had identified as important, such as energy projects, resource processing, mineral extraction, and services, were not eligible for funding under IRDP. 29 WD pointed to another existing program that it felt held more promise to implement its mandates. The federal government had introduced in 1983 a Western Transportation Industrial Development Program (wrm) as compensation for the Crow rate change. Officials felt that WTID was much more supportive of Western Diversification initiatives than IR.DP, mainly because it had a far broader scope. Indeed the WTID program could participate in - the enhancement of research-and-development activities in western Canada; - studies or long-term industrial development strategies; - industrial incentives for food manufacturers and processors for the establishment, expansion, modernization, or enhancement of the productivity of operations; and - industrial development incentives for (a) suppliers of the railways, food manufacturers and processors, and major resource projects; (b) projects leading to industrial diversification in western Canada; and (c) the enhancement of R&D activity related to (a) and (b).

WD, FEDNOR, DIST - Looking everywhere 147 TABLE2 W11D assistance level (percentages) IRDP

n

m

JV

tier

Studies

Innovation

Plan establishment

Expansion modernization

60

60 75

25 35

25 35

15 15 15

15 15

so so

so so

Moreover, the program could also support various types of projects, including proposal development, identification of new products, product development and design, productivity improvement, and facility projects. The scope of WTID was such that in many ways it had already replaced IRDP in western Canada. Under IRDP's tier structure, much of the West was designated for the lowest permitted level of assistance. The permitted levels under WTID in a given tier were significantly higher than those under IRDP so that the practical consequence of WTID was to move the prairies up one tier in terms of IRDP criteria The result was that in Saskatchewan, for example, WTID was used approximately three times as often as IRDP. 30 Given the attractiveness of WTID, wo officials recommended to Cabinet that the program be amended to launch the Western Diversification initiative as quickly as possible. Cabinet agreed and WTID was renamed the Western Diversification Program. Officials also urged Cabinet to change the contributions limit set under WTID (see table 2). They argued that the above arrangement did not permit sufficient flexibility to allow higher levels of assistance in instances of higher risk on the part of the private sector or where it is evident that substantial direct public benefits will result from the project. They recommended that the maximum assistance levels for commercial operations for physical-plant establishment, expansion, and modernization be set at up to 50 per cent of eligible costs and at up to 75 per cent of eligible costs for other projects (such as studies and innovations), while all projects from non-commercial applicants in all parts of western Canada should be eligible for assistance of up to 90 per cent of eligible costs. They also recommended that the service sector - which, they pointed out, had accounted for 80 per cent of all new jobs in western Canada in the past twenty years - be now eligible for assistance. WD officials were quick to stress that the proposed assistance levels would be the maximum and would be applied only in exceptional cases. They insisted that one of the key characteristics in implementing the Western Diversification initiative would need to be flexibility. The program, they argued, had to

148 The efforts be able to assess projects on their merits, and they would respond according to need and the benefits to be achieved in terms of economic growth and diversification. They reJX>rted that assistance would be based on established market criteria, such as risk-sharing, contribution to technology transfer, contribution to diversification, and economic linkages.31 Indeed, wo officials made it clear that they would consider a number of initiatives or projects as non-starters. They established a long list of ineligible activities which, among others, included the following: - projects that represent no prospect for exJX)rt development, expansion into supply-deficient regional markets, or diversification of the economic services or goods produced in the region - projects whose economic or employment benefits would accrue primarily outside the western provinces - projects whose purpose is to sustain a business (e.g., bail-outs, restructuring, recapitalizing, refinancing through operating loans) or to transfer plant or workers, or ownership, without generating additional business activity or employment in the western provinces - projects which are eligible for other federal, provincial, or municipal financial-assistance programs that are not fully subscribed {proJX>nents must first seek maximum funding from other programs for which they are eligible before seeking wo funds or topping-up assistance) - projects designed to create municipal infrastructure or projects - projects to assist the commercial operations of financial institutions - projects that would unreasonably fragment an industry or create overcapacity - projects that are not scientifically, technologically, or economically feasible, taking into consideration the technical risks involved, the capacities of the firm, the availability of relevant expertise, and so on - commercial or industrial projects in which the proponent's net equity JX)sition in the specific project is unreasonably low - projects that, while they may diversify the products, processes, or services of a particular producer or firm, do not offer significant diversification potential for the regional economy It became clear early on that a revised WTID program, targeted to the private sector and having a number of ineligible criteria, would be the centerpiece of wo's efforts to diversify the western economy. Like ACOA, wo did inherit the ERDA process, but it was much less enthusiastic about its prospects. Officials simply informed ministers that they were unclear on the future direction of the ERDA process, that they would undertake an assessment of the process in western Canada and would proJX>se an appropriate plan of action as part of the general ERDA review. Normally, they argued, funding for any commitments for new subsidiary agreements would fall to the department with direct line res-

WD, FEDNOR, DIST- Looking everywhere 149

ponsibilities in the particular program area.32 Like ACOA, wo experienced considerable difficulty in securing from Treasury Board what it regarded as sufficient staff. Again, Treasury Board resisted and gave wo 320 person-years - about the same number it gave ACOA. 33 WD appealed time and again for more staff, but with no success. Still, the department organized itself in a fairly innovative fashion. It located its sectoral analysis teams where the appropriate expertise happens to reside. For example, the head of agriculture analysis is in the Saskatoon office, with support from other analysts in Vancouver, Edmonton, and Winnipeg. Energy, forestty, mining, services, technology, taxation and fiscal policy, trade, transportation, tourism, and manufacturing are also organized under a matrix system. In addition, the department has told firms that they need not worry about application forms. Bill McKnight explained that ' applicants are asked to briefly describe, preferably in writing, their projects and the expected benefits.' The purpose is to present 'a business-like, non bureaucratic approach. ' 34 Businesspeople are invited to come in and talk to WD officials about their projects without having to incur any costs. This is very different from DRIE, the minister explained, where, 'if you put information on the wrong line, you'd get the form back and have to fill it out again. ' 35 WD has attached considerable importance to its advocacy mandate, which it describes in this way: 'it involves the responsible representation of western interests in the development and delivery of national programs, including their design, within the federal system. It entails linking the interests of western Canadians directly to the decision-making process in Ottawa. ' 36 One of the first initiatives it undertook in this respect was to pursue jointly with the federal Department of Supply and Services a 'western procurement initiative.' The initiative seeks to increase by $600 million over a four-year period high valueadded discretionary procurement, to be located in the West and to work toward setting aside for the West a greater portion of major crown projects.37 Legislation establishing WD was proclaimed on 28 June 1988. It is a brief piece of legislation but it gives wo sweeping powers. The wo minister is given the authority to •guide, promote and coordinate the policies and programs, including those related to industrial benefits, of the Government of Canada in relation to the development and diversification of the economy of Western Canada and lead and coordinate the efforts of the Government of Canada to establish cooperative relationships with the provinces constituting Western Canada, business, labour and other public and private organizations for the development and diversification of the economy of Western Canada. ' 38 It also gives WD substantial program authority by delegating to the minister - subject to conditions approved by the Treasury Board and the minister of finance authority to 'make loans to any person with respect to the establishment or de-

150 The efforts velopment of enterprises. and more particularly, small and medium-sized enterprises, in Western Canada; and guarantee the repayment of, or provide loan insurance or credit insurance in respect of, any financial obligation undertaken by any person in respect of the establishment and development of enterprises, and more particularly, small and medium-sized enterprises, in Western Canada; and make grants and contributions in support of programs and projects. ' 39 WD reports that, much like AC0A, its new program has met with considerable success in the view of the private sector. In the first few months of operation, for instance, there were about 50,000 inquiries and 2,600 proposals for grants.40 By the end of June 1990, the department had approved a total of 1,827 projects, both large and small, involving nearly $800 million of government funding.41 One of the larger projects wo supported was a submission by Canadian Helicopters Ltd (CHL) to establish a $11.6-million international motorcraft centre at the Vancouver International Airport. CHL plans to integrate and expand its maintenance facilities at the new centre, then launch an aggressive campaign to attract more helicopter repair and overhaul business. The company also intends to establish a research and development laboratory to test new repair techniques. causes of engine failure. and effects of vibration; an aircraft paint facility; a computer-aided design lab; and facilities for testing dynamic components.42 On a much smaller scale, WD has also given a $37,000 repayable contribution to Sun Ray Products to manufacture epoxy-based infrared radiant-heat panels. This firm is the only Canadian manufacturer of portable infrared heaters of this type.43 Unlike AC0A. wo has often insisted that when it makes assistance available to the private sector it be in the form of a repayable contribution. The result is that something like 70 per cent of all assistance wo provides is repayable. WD explains that 'if the project is successful, the government is repaid. If it fails, then government shares the loss.• It also adds that 'the concept of repayability has been welcomed by western business people, whose philosophy is that they are seeking a hand, not a handout. ' 44 The department fought long and hard to ensure that revenues received from the program be credited to the Western Fund for future use. Central agencies, however, successfully resisted and revenues received by wo are deposited in the general 'Consolidated Revenue Fund.' 45 wo has proven much less enthusiastic about signing ERDA subsidiary agreements than AC0A has. While AC0A was successful in lifting the moratorium on the Atlantic agreements, WD did not pursue negotiations for a new round with any intensity. It has continued to manage ERDAs and subsidiary agreements signed before it was established, but has proven reluctant to enter into new such agreements - so much so that when the federal government instructed wo to spend its $1.2 billion fund over seven years rather than five. as it had

WD, FEDNOR, DIST-Looking everywhere 151 ACOA, WD responded by recommending that the whole ERDA process in western Canada be scrapped. Cabinet, however, rejected this recommendation.46 By the summer of 1990, WD had yet to sign one new subsidiary agreement. Its officials essentially argue that provincial governments in western Canada or federal departments operating there should promote economic development They see only limited need for them to tum to WD for support:" Still, Cabinet had rejected the notion that ERDAs should be scrapped in the West and it expected some recommendations on how to proceed to put in place a new generation of subsidiary agreements. This is not to suggest for a moment that ministers were eager to sign new agreements. Many again expressed deep concern with the visibility issue, which, as we have seen time and again, has made subsidiary agreements unpopular with federal politicians. This held true for western ministers, even though three out of four provincial governments in the region were led by the same political party that held power in Ottawa. Despite the concern with visibility, $240 million, over and above the Western Diversification Fund, was made available in early 1990 for new subsidiary agreements in western Canada, to be spent over five years. Though the government likes to refer to the amount as new money, it really replaces the money DRIE would have made available to western ERDAs over the same period. WO has decided to split the $240 million, with half going to federal departments and the other half to provincial governments. In tum, it decided to divide the provincial allocation equally among the four western provinces and declared that it would particularly favour assisting forestry, minerals, and communications.49 wo claims that it has had more success on the advocacy front than its sister department, ACOA. It reports that it has promoted western interests in a number of key areas. It has, for instance, secured $600 million worth of additional procurement through Supply and Services Canada, and it was instrumental in ensuring that a substantial portion of the Tactical Command Control Communications System project, now named IRIS, will be located in western Canada It is envisaged that this Department of National Defence project will result in a contract valued at approximately $800 million for the West.so It also reports that it played an important role in having Hughes Aircraft look to the West after the finn secured the winning bid on the $380-million Transport Canada contract for the Canadian Automated Air Traffic System. The winning bid guaranteed Canada a comprehensive package of industrial benefits - including transfer of technology, investment, sales, and contracts with Canadian companies of approximately $500 million in 1989 dollars. This package will reap significant benefits for the West, since the company decided to establish its Canadian corporate headquarters in Calgary. The company also plans to operate three divisions: systems, in Richmond, BC; telecommunications, in Calgary; and acoustic technology, in Winnipeg.st

152 The efforts All in all, Cabinet appears pleased with the WD experience. On its second anniversary, Deputy Prime Minister Don Mazankowski declared that 'in the two years of its existence WD has already proved that it is a Ministry which represents the interests of the West. ' 52 Charles Mayer, the new WD minister, reported to the Standing Committee on Industry, Science, Technology and Regional and Northern Development that 'the government established the Department of Western Economic Diversification in response to the special needs of Western Canadians. This government recognized that the economic challenges in each region of the country differ and that a new and innovative way of dealing with economic development was needed. Western Diversification reflects this new approach. Western Diversification has come of age, has a recognized role within government and the West and has a positive track record that provides a good base for consolidating our past achievements and moving forward with new initiatives to strengthen the economy in the West. ' 53 Not everyone, however, is pleased with WD. The western provinces certainly expected considerably more progress under the ERDAS than WD has realized thus far. Indeed, on this front, WD has noc kept pace with even DRIE standards. The region's business community is also not always supportive of WD. The Canadian Federation of Independent Business (CFIB), for example, reports that a 'survey of its Western Canadian members in 1989 found that 59 per cent were not even aware of the department, and a further 36 per cent were not interested. The CFIB found that 38 per cent of its Western members wanted to scrap the diversification program. ' 54 Others suggest that the department is building up communities and businesses already succeeding on their own. They reveal that 63 per cent of the projects approved under the diversification program are located in major cities like Vancouver, Calgary, and Winnipeg. In addition, the great majority of the remaining 37 per cent are located in what are described as 'rural communities' but that include large towns such as Red Deer and Moose Jaw. Rural western Canada, some observers argue, needs help and a more diversified economic base, but, they report, the area has been essentially overlooked by WD.55 As well, an opposition MP, Liberal David Walker, insists that 'the department is staffed by the same bureaucrats who worked for discredited programs such as DRIE. ' 56 FEDNOR : LOOKING TO NORTHERN ONTARIO

On 15 July 1987, the federal government unveiled yet another special agency to promote economic development - this time in northern Ontario. In making the announcement, the then federal minister for the region, James Kelleher, pointed out that the government had consulted the business community and

WO, FEDNOR, DIST- Looking everywhere 153

regional governments to detennine what was needed. Although the reaction to the announcement was positive, it was much less so than that following the decisions to establish ACOA and wo had been. The Ontario government, for example, made it clear that it had not been involved in the consultations and, indeed, a deputy minister declared 'there haven't been any senior level discussions yet, and it is not clear what FEDNOR is for. ' 57 What was clear, however, was that the federal government would make $55 million available over five years. 1\vo years later, Ottawa allocated another $14 million in 'top up' funds to meet 'new commitments.' Shortly after that, the Cabinet allocated $40 million to a Resource and Technology Development Program and then a further $40 million for priorities emerging toward the end of the five-year planning period. At the time FEDNOR was unveiled, the federal government made clear that its work and its spending would be guided by a local private-sector advisory board and a secretariat located in northern Ontario. In fact, the government reponed that it expects FEDNOR 's secretariat and its advisory board to provide advice to the Cabinet 'regarding the kinds of programs which should be established with the resources of FEDNOR ••• [and] with respect to other federal policies and programs which have an influence on the economic environment of northern Ontario. ' 58 Early on, the agency decided to limit FEDNOR funding to small and medium-sized private firms. It assumed that larger finns could secure necessary funding from other federal and provincial programs. It also decided not to suppon not-for-profit institutions or public-infrastructure projects. FEDNOR launched two new programs on 8 May 1988 - the Rural Small Business Assistance and the CORE Industrial programs. Both offer grants against the capital cost of establishing, expanding, or modernizing projects. The first program offers assistance to a host of new or expanding businesses in rural northern Ontario. The program goes beyond the manufacturing sector to extend assistance to retail, wholesale, warehousing, repair services, tourism, and accommodation facilities, among others. Businesses with projects in the $15,000 to $135,000 range can apply for non-repayable grants.59 The CORE Industrial program targets businesses locating anywhere in northern Ontario. This program is also all-encompassing, with new and existing manufacturers, processors, and selected service industries able to qualify. Assistance is available for buildings, machinery, and research and development. Moreover, entrepreneurs can qualify for assistance to undertake feasibility studies and market research. FEDNOR 's contribution is non-repayable up to 35 per cent of eligible capital costs for the establishment, expansion, and modernization of projects; up to 50 per cent of the costs for marketing and feasibility studies; and up to 60 per cent of eligible costs for innovation projects.

154 The efforts TABLE3 Fl!DNOR statistics for the fiscal year ending 31 March 1989 Accepted offers

Fl!DNOR

assistance

Total capital

Created jobs

Rural Small Business Assistance Program Accommodation 39 Retail 31 Manufacturing 24 Marinas 14 Forestry 4 Repair services 3 Aquaculture 2 Computer services 1 Scientific services 1 Wholesale trade

$1,717,489 1,072,221 908,060 712,897 169,150 120,871 127,100 39,260 28,216 53,400

$4,188,998 2,749,285 1,932,043 1,549,776 367,717 223,835 186,912 98,150 56,432 133,SOO

52 68 60 22 8

Total

120

$4,948,664

$11,486,648

23S

Core Industrial Program Expansion Establishment Innovation (R&D) Marlceting Modernization Studies

21 6 3 4 4 4

$2,701,696 547,010 113,188 134,445 244,191 62,SOO

$9,068,024 1,909,500 214,866 270,111 874,832 158,800

165 49 0 0 14 0

Total

42

$3,803,030

$12,496,133

228

SOURCB: FEDNOR

s

8 2 6 4

Review, Department of Industry, Science and Technology, 1989

On 27 October 1988, FEDNOR introduced a loan-insurance program that provides up to 85 per cent coverage of loans granted by approved lenders to businesses seeking debt financing for projects amounting to between $100,000 and $15 million in capital costs. A variety of sectors are also eligible under the program, including resource-based economic activities, manufacturing and processing, aquaculture, tourism projects, and commercial research. FEDNOR later announced a new program designed to assist new and existing tourism-industry businesses. The program provides up to 35 per cent of eligible capital costs for the establishment, expansion, or upgrading of businesses operating tour boards, theme parks, tourist campgrounds, trailer parks and accommodation, and tourist-oriented ski centres and marinas. 60 FEDNOR has also launched other measures. It embraced the latest fad in regional development programming and turned to federal procurement of goods and services to stimulate development. Specifically, it secured an experienced

WO, FEONOR, DIST - Looking everywhere 155 official from Supply and Services Canada to develop a program to increase 'the opportunities for purchases by the federal government of goods and services provided by businesses in the FEDNOR area.' With offices in Sault Ste Marie, Sudbury, and Thunder Bay, FEONOR has been able to secure support in the region for its activities. It has, however, been plagued with criticism over its advisory-board members. There are no representatives from the native population or from several large areas of the region. Most of the members are or have been closely associated with the ruling Progressive Conservative party.61 It is important to bear in mind that FEONOR has nowhere near the kind of resources that ACOA and wo enjoy. With only twenty person-years, FEONOR is much too small to stand on its own. Thus, it must report through a line department. The government opted for DIST, the department replacing ORIE. DIST: LOOKING TO CENTRAL CANADA

The prime minister, it will be recalled, when unveiling WD, announced that ORIE would be disbanded and that a new Department of Industry, Science and Technology would be.created. The new department would obviously lose responsibilities for regional development in Atlantic and western Canada. It would, however, bring together the parts of ORIE that were not being transferred to the new departments, as well as parts of the Ministry of State for Science and Technology (MOSST), which was also being disbanded. Former Treasury Board President R. Robert De Cotret was appointed to lead the building of the new department. One of his first tasks was to develop a successor program to the Industrial and Regional Development Program (IROP); a second was to develop a regional development strategy for Ontario and Quebec and to accommodate FEONOR in its organization. DIST officials, of course, knew full well that neither IROP nor ORIE itself had been well received in most regions. They also knew that ORIE was a creation of the former Trudeau government and that the Mulroney government would welcome changes to the organization. In fact, cabinet ministers had, for some time, been calling for massive changes, including the scrapping of ORIE's tiersystem approach to industrial development.62 The new department thus happily rejected the tier system out of hand in shaping its new programs. The battle between the old OREE and rr&c officials that had been waged in ORIE since its creation came to an end when the regional development agencies were established. In future, the national perspective would hold sway and DIST was poised to take advantage of the restructuring to address the question of economic efficiency and Canada's ability to compete in

156 The efforts a global economy. In short, efforts should be made to build on Canada's economic strengths, rather than talcing a regional perspective. The Industry and Technology side of DIST has been leading the charge to put new programs in place. It has launched a number of initiatives, all reportedly designed to strengthen Canada's competitive trading position. One of these is the Strategic Technologies Program (STP), which supports pre-competitive research and development or pre-commercial technology applications in relation to advanced industrial materials, biotechnology, and information technologies. Others are the Sector Campaigns Program, which involves the design and implementation of measures to improve the international competitiveness of industry sectors deemed to offer positive development opportunities, and the Advanced Manufacturing Technology Applications Program, which assists companies in the identification of appropriate technologies to improve their production efficiency.63 DIST is also busy planning a wide range of new measures in a number of sectors ranging from tourism to surface transportation and machinery, to information technologies, aerospace, and defence. The perspective clearly is a sectoral one viewed from the national level. In short, the concern is clearly with the economic health of specific sectors rather than with the wellbeing of any one region. Meanwhile, officials in provincial governments and in the new regional development agencies argue that although the sectoral branches of DIST report no regional bias, they operate much as rr&c did, in that invariably their 'national' policies and programs favour central Canada. They point to DIST's Defence Industry Productivity Program (DIPP) as a case in point. Table 4 shows that in 1988-89 some $202.8 million out of $213.3 million of the program funding went to Ontario and Quebec. Still, DIST has not only a sectoral mandate. It has a series of native economic programs that are designed to promote entrepreneurship and economic development in native communities. These programs include the Northern Development Agreements (NDAs) and the day-to-day operations of the Native Economic Development Program (NEDP), which is a special business development program open to all metis, Inuit, status, and non-status Indian people in Canada. The strategy, which has a five-year life expectancy and involves $873.7 million of federal funds, is designed to pursue economic self-reliance for Aboriginal people by promoting the development of a network of economic institutions controlled by them, by increasing Aboriginal joint-venturing with mainstream business, and by looking for opportunities for employment and selfsufficiency among Aboriginal people who have chosen to live in urban areas. The strategy has a variety of initiatives including skills development, research and advocacy efforts, and the promotion of community economic planning and development. 64

WD, FEDNOR, DIST- Looking everywhere 157 TABLE4 Defence Industry Productivity Program: Accepted offers and authorized assistance, 1988-89 Province or territory Newfoundland Nova Scotia Prince Edward Island New Brunswick Quebec

Ontario Manitoba Saskatchewan Alberta

British Columbia Yukon and Northwest Territories Total

Offers accepted 0 0 0 2 49

65

2 0 7 7

0 132

Authorized assistance ($ millions)

0 0 0 0.4 100.6 102.2 2.8 0 5.8 1.5

0

213.3

AMual R~port 1988-89, Department of Regional Industrial Expansion and Ministry of State for Science and Technology, Minister of Supply and Services, 1990

SOURCI!:

Though regional development does not enjoy the priority in DIST that it once did in DRIE, the department still retains federal regional development responsibilities for Ontario and Quebec. Part m of DIST's legislative mandate gives the department the kind of authority for regional development in Ontario and Quebec that ACOA and WD have for the Atlantic provinces and the WesL It gives DIST the authority to 'promote economic development in areas of Ontario and Quebec where low incomes and slow economic growth are prevalent or where opportunities for productive employment are inadequate' and to 'fonnulate and implement policies, plans and integrated federal approaches to regional economic development in Ontario and Quebec. ' 65 Much as it did in the case of ACOA and WD, Parliament also gave DIST full authority to 'coordinate the policies and programs of the Government of Canada in relation to opportunities for regional economic development in Ontario and Quebec; and to lead and coordinate the activities of the Government of Canada in the establishment of cooperative relationships with Ontario and Quebec and with business, labour and other public and private bodies in relation to regional economic development in Ontario and Quebec. ' 66 The legislation also points to developing 'entrepreneurship ... (and) promoting small- and medium-sired enterprises' as the proper vehicle to promote regional development. DIST has sought to organize itself to carry out its regional development man-

158 The efforts date with a minimum impact on its human-resources requirements. Total personyears allocated to regional development amount to about 232, which account for only about 10 per cent of the department's total person-year complement. Of these, some 212 person-years are allocated to regional development efforts in Quebec.67 In addition, DIST has established a small regional development secretariat in its Ottawa head office.68 The secretariat provides a broad overview of the department's regional development efforts, with a special emphasis on FEDNOR activities. DIST: LOOKING TO QUEBEC

One can easily trace recent federal regional development efforts in Quebec to le Plan de I' Est that DREE initially put together and DRIE later implemented. The federal government unveiled a major regional economic development plan for eastern Quebec in May 1983. The region included what is commonly referred to as Gaspesie-Bas-St-Laurent and the plan was directed exclusively to this area. It comprised about 5 per cent of Quebec's total population, or about 350,000 people. This was one of the last efforts of the Trudeau government in regional development and it will be recalled that the Parti Quebecois then held power in Quebec. For this reason, and because of the strong importance placed on political visibility for federal-government spending, particularly during the later years of the Trudeau government, le Plan de I' Est was a federal directdelivery initiative. The provincial government was barely consulted and was oot asked to deliver the measures. The Plan de I' Est was given a budget of $264.7 million for the first five-year phase, which ended in March 1988. The plan concentrated its resources in seven sectors - agriculture, forestry, mining, transportation, fisheries, tourism, and industry. Its objectives were twofold: to create an environment favourable to the maintenance and development of jobcreating industries, and to remove the constraints that hamper economic development in the region. Table 5 provides a breakdown of the spending under le Plan de I' Est, by sector. The federal government launched a major review and evaluation of the Plan de I' Est on 12 June 1987. The evaluation reported that, though it was too early to provide a full assessment of the plan's impact on eastern Quebec, it had reached its operational goals and was making a substantial contribution to the region's economic growth. 69 The evaluation also suggested that the administration of the plan provided a definite 'regional orientation' to programs and argued that this was a highly desirable development and that it should be stressed even more in future. The authors of the evaluation concluded that 'the State's role in regional development is more effectively accomplished when it

WO, FEDNOR, DIST-

Looking everywhere 159

TABLES Eastern Quebec Development Plan: Financial balance (in millions of dollan)

Items Agriculture Forestry Mining Transponation Fisheries Tourism (ORIE) Tourism (Pare Forillon) Industry

Initial appropriation

Total

Expenses and commitments May 1983-Dec. 1986

7.0 19.0 3.0 49.1 71.0 14.0

12.3 28.5 9.0• 40.8• 94.3 16.5

11.0 18.6 2.6 31.5 82.4 6.1

31.0

14.3

30.4

34.0 3.0 0.7 1.9 18.7

224.5

264.7•

UQAR

Planning fund Administration Contingency reserve

1983-88 (revised)

s.o•

1.1 167.6

is based on measures that support decentralized local initiatives and combine public and private funds. •7o After the Plan de I' Est ran its designated five-year course, the government of Canada signed a five-year $820 million ERDA subsidiary agreement with the Quebec government to develop the province's regions. Ottawa agreed to contribute $440 million and Quebec $380 million. The funding was increased by an additional $283 million in 1989. The agreement divides Quebec's regions into two broad categories: the central regions and the peripheral or resource regions. The central regions were awarded a huger share of the funds - $486 million. The resource regions consist of eastern Quebec (e.g., Bas-St-Laurent, Gaspesie), the North Shore, the North-Centre (e.g., Lac St-Jean), the western region (e.g., Rouyn-Noranda), and the northern region (e.g., Abitibi). The central regions cover the rest of Quebec.71 This regional agreement differs from le Plan de I' Est in that it is a federalprovincial initiative rather than a federal one only. It is managed jointly by the federal Department of Industry, Science and Technology and by the Office de planification et de developpement du Quebec. The provincial government delivers the great majority of the projects under the agreement, which in fact operates much like previous spatial (or regional, as opposed to sectoral) subsidiary agreements did under ERDA and even under the GOA approach. The agreement also calls for 'horizontal' initiatives involving sectoral departments.

160 The efforts Specific initiatives are identified for each of Quebec's two major regions and, as under other subsidiary agreements, a federal-provincial management committee administers the agreement. However, in this case, two subcommittees have been established, one responsible for the resource regions and the other for the central regions. In addition, for each of the five resource regions, there is a consultative committee, made up of members from the private sector, which reports jointly to the minister of ISTC and the Quebec minister responsible for federalprovincial relations. The consultative committees advise ministers on major program and project proposals in their respective regions, each of which has an assigned envelope of funds under the agreement. The agreement promotes two distinct approaches to economic development: in the resource regions, it aims to reduce disparities by promoting the development of small business, while in the central regions it concenttates on increasing the competitiveness of the manufacturing sector. The programs under the agreement are all-encompassing. Indeed, it is difficult to imagine many types of economic activities that would not qualify. Assistance is provided for business development; productivity improvement; an agri-food strategy; studies, including feasibility studies; tourism development; research and technological development; aquaculture development; more efficient resource-management operations; infrastructure development; services for industrial and tourism development; and human-resources development.72 The one area not covered are measures designed to strengthen federal procurement practices such as other federal government agencies have taken elsewhere. DIST, however, has decided to come forward with 'a proposal to correct the situation. m The Quebec federal-provincial subsidiary agreement on economic development in the regions is the latest major revision of Canadian regional-development policy initiated by the Mulroney government. It differs from other Mulroney measures in that it is implemented under a federal-provincial agreement, while ACOA, wo, and FEDNOR are unilateral federal initiatives. The special political situation in Quebec, where both major provincial political parties are completely divorced from federal parties, and the particularly close working relationship that Mulroney and Premier Bourassa enjoy explains the apparent lack of concern with visibility on the part of federal ministers. The Mulroney approach has a number of characteristics. For one thing, it defines regional development to mean economic development at the regional level. It has put in place special measures for all regions with the exception of the North. The government of the Northwest Territories has, however, recently put a proposal to Ottawa for a federal agency for the North patterned on the ACOA

and WD model.74

The Mulroney approach has also been to turn to the private sector to lead the way in developing the region. Entrepreneurship is in and infrastructure is largely

WD, FEDNOR, DIST- Looking everywhere

161

out. Luring outside investors with large grants and special tax instruments is also out Programs designed to build on local strengths are in. In short, enttepreneurial-led development is the new fad and this is so everywhere in Canada. As a result, the focus is less on alleviating regional disparities and more on brealcing down the national and centralized policy approach of the past in order to introduce a decentralized framework, oriented to the circumstances of the regions. Yet, the goal is perhaps not so much to see the national pie grow as to divide it - witness the rush to see federal procurement of goods and services evenly distributed between the regions. As well, the top-down policy-development approach is being replaced by a bottom-up one premised on the need for consultations between the local private sector and the public sector. Instead of having one minister responsible for regional development for the whole country, each regional department has its own minister. There are four so far: ACOA, WD, and the ministers responsible for Small Business and Tourism and ISTC, who are responsible for FEDNOR and federal regional development efforts in Quebec. In addition, instead of regional development policies and operations being coordinated by a central agency or a line department (MSERD and ORIE, respectively), regional interests are now represented directly at the cabinet table.

11

Other regional development efforts

Attempts to achieve regional development in Canada have gone considerably beyond the activities of DREE, MSERD, DRIE, AC0A, FEDN0R, WD, and DIST. Certainly, in budgetary tenns, these latter have constituted only a small part of Ottawa's effort Virtually all government activities, except public-debt charges and government operations abroad, affect regional development. Provincial governments, similarly, have introduced regional measures supported by neither DREE, MSERD, AC0A, WD, or DIST. NON-OREE MEASURES

Ottawa has over the years introduced a number of measures to stimulate regional development. The Cape Breton Development Corporation (DEVC0) is but one example. As reported earlier, established in 1967, DEVCO was designed to fill the economic vacuum created by the decline of the coal and steel industries in the late 1950s and the 1960s on Cape Breton Island. Early on DEVC0 had concluded that Cape Breton should phase out coal mining by 1981, and its objective was to create jobs to replace those lost by mine closures. DEVCO's operations have evolved considerably since the corporation was first established. Initially, it sought to attract outside finns with generous incentive schemes to bring new jobs to the island. This phase was followed by new policy directions. In 1972, for example, DEVC0 decided to drop the original plan to phase out coal mining by 1981 and instead to modernize. It decided to build a modem coal-preparation plant with associated modemi7.ation of coal-handling. Moreover, negotiations with the Nova Scotia Power Commission led to a large coal-fired generating plant at Lingan. This in tum paved the way for opening up new coal mines such as Prince and Donkin. These developments were supported with federal funds. 1 The Donkin-Morin mine was launched in 1980 at a cost to the federal treasury of $55 million.

Other regional development efforts 163 DEVCO also launched a series of non-coal development projects, to encourage local entrepreneurship.2 It planned direct action as well as assistance to local entrepreneurs in the fonn of high-risk equity and secured loans. DEVCO acted as entrepreneur or direct operator of projects in tourism, fanning, and agriculture. Its intention was to broaden Cape Breton's appeal to tourists and also to investors generally by putting together projects that, though not in themselves commercially attractive, would draw enough people to give other private operations a chance to develop. DEVCO would become less involved over time. Nonetheless, the corporation continues to experience annual operating deficits. In 1989, for example, it lost $21 million. In addition, DEVCO has been granted a $32 million annual subsidy over five years beginning in 1990 for capital spending.3 As we saw earlier, DEVCO was split in two in 1988. DEVCO is now exclusively concerned with the coal sector and, as we saw, a new federal crown corporation - Enterprise Cape Breton Corporation (ECBC) - was established to promote non-coal economic activities. ECBC, it will be recalled, has a $10 million annual budget and it is asked to 'promote the financing and development of industry on the island of Cape Breton to provide employment outside the coal producing industry and to broaden the base of the economy of the island.'" The corporation has a host of program tools at its disposal to promote economic development ranging from cash grants and loans assistance to talcing equity positions in projects. It will also be recalled that the federal government put together generous tax incentives for the private sector locating new activities in Cape Breton shortly after it announced the closure of two heavy-water plants. The Cape Breton Investment Tax Credit (CBITC) has been widely reported in the media on many occasions. It is very difficult, however, for researchers to get at all the information required to carry out a proper analysis of the working of an investment tax credit. In particular, the date available on the types and actual value of projects approved for the tax credit is difficult to gather. With respect to CBITC, however, we do know two things. First, some 238 projects were certified for CBITC with a total value amounting to over $100 million over nearly a three-year period between 1985 and 1988. In addition, we know that the majority of the approved projects were in the resources sector.5 Second, despite a strong lobby in Cape Breton in support of the program, the CBITC was cut in July 1988. More is said about the success of the CBITC later in this study. Not all of Ottawa's regional development initiatives, however, have been designed for have-not regions. In the late 1970s and early 1980s Ottawa became concerned with industrial adjustment in southern Ontario and Quebec and introduced two new regional programs to deal with the problem. They offered assistance to the private sector and to industrial communities in much the same

164 The efforts fashion that DREE had done in its designated regions. The Industrial and Labour Adjustment Program (ll.AP) was launched in 1981. The minister of finance unveiled it in his 1980 budget speech and earmarked $350 million to it over four years. ll.AP was formulated for urban areas particularly hard hit by industrial adjustment 'to promote industrial restructuring and manpower retraining and mobility in areas of particular need. ' 6 Communities were designated on the basis of need, as measured by the number of lay-offs from an industry, whether the adjustment was recent or chronic, and whether the lay-offs were structural or cyclical. Communities with recent adjustment problems were favoured on the grounds that other programs existed to help those with more long-term problems. In the initial phase, Windsor, Ontario; Sydney, Nova Scotia; and Port-Cartier, Sept-Iles, and Tracy Sorel, Quebec, were designated for a minimum one-year period. Later, L'islet-Montmagny and McAdam, in New Brunswick, and Brantford and Chatham, in Ontario, were also designated. Still later, 'industry specific' restructuring initiatives were introduced.7 Under ILAP, the federal government provided assistance to firms wishing to locate or restructure in designated communities. The form of assistance varied. A non-repayable contribution of up to 75 per cent of consulting costs associated with development of a new project could be provided, or repayable interest-free contributions of up to 50 per cent of the capital cost of a new project. The program had mixed success, largely depending on the community. In a one-year period, close to thirty firms obtained Il.AP assistance in the Windsor area, ranging from a $77,000 non-repayable grant to a $6-million repayable loan. The program proved much less successful in Sydney, where, during a oneyear period, only one firm was able to qualify for assistance.• The labour-adjustment component was considerably more successful in all designated communities; in some industries laid-off employees could take advantage of several schemes. Special incentives grants for relocation were put in place, as were higher training and upgrading allowances. A portable wage subsidy, which provided $2 per hour to a new employer, was to facilitate re-employment of older workers. In addition, early retirement benefits for displaced workers were offered. The industry-specific restructuring initiative of II..AP assisted firms in designated sectors, wherever they were located. Assistance resembled that described above and applied to such sectors as the major appliance and components and the auto-parts industries. This part of the ll.AP program was thus not regional in scope, as were the others. Some observers suggest, however, that this assistance was in fact regional: over 80 per cent of the funds went to communities in southern Ontario, most of the balance to Quebec, and only negligible amounts to New Brunswick and Nova Scotia.9

Other regional development efforts 165 Yet another regionally oriented initiative was the Adjustment Assistance Benefit Program, which granted some $250 million over a five-year period. Funding was secured from ongoing DREE programs such as the RDIA and the GDAs, and from Industry, Trade and Commerce programs. Ottawa sought thereby to update its textile and clothing policy, last revised in 1978. At that time, it had negotiated nine bilateral restraint arrangements and had later concluded eight more. The seventeen arrangements were to expire on 31 December 1981, and Ottawa had stated its preference for freer trade and for the removal of special protection measures over the long term. The new program was 'to revitalize the economies of those communities most vulnerable to foreign competition' in the textile and clothing industries. A newly established Canadian Regional Industrial Board (CRIB), made up of senior business leaders as well as labour and government representatives, is responsible for implementing the program.10 The textile and clothing industries are largely concentrated in Quebec and Ontario.11 Forty-nine per cent of Canada's total employment in the textile industry is in Quebec and 45 per cent in Ontario. Sixty-nine per cent of the total establishments are in Quebec, and 22 per cent in Ontario. Manitoba is a distant third in both industries. The problem was as much regional as it was one of industry or of sectors. In fact, the need for adjustment was concentrated in some thirty cities and towns in Quebec and eastern Ontario, and so creation of new industrial opportunities focused on them. The CRIB program was largely inspired by ILAP. Contributions of up to 75 per cent of the costs of consultants for new development projects were available to firms, as were loans of up to $1.5 million, at preferential rates. Firms wishing to establish a new manufacturing and processing activity in a designated region could receive repayable interest-free contributions of up to 50 per cent of the capital costs and up to 50 per cent of pre-production expenses. The federal government sought to attract firms 'which will have a comparative advantage in the economy of the 1980's - high productivity, high-technology industries.' It was intended to go beyond the problem of an increasingly non-competitive industry and tum to the community level to deal with 'the economic and social roots of the regions in which these industries are concentrated.' Thus, the CRIB program provided for contributions of up to 100 per cent of consultants fees to analyse designated communities and produce plans to develop their full industrial potential. Like II.AP, CRIB facilitated early retirement for long-time textile and clothing workers who had been laid off. Manpower training and portable wage subsidies were also enacted. With the economy strengthening considerably in the mid-1980s, particularly in Ontario and Quebec, the Mulroney government decided not to renew the 11..AP and CRIB initiatives. In any event, ll.AP and CRIB were introduced by the

166 The efforts Trudeau government and the new Mulroney administration saw little reason to extend them. It did not take long, however, for the Mulroney government to introduce its own package of programs designed to assist communities facing economic difficulties, notably 'mass layoffs, plant closures, chronic unemployment or economic decline. ' 12 The then employment and immigration minister unveiled in May 1985 a $4 billion 'Canadian Jobs Strategy.' She pointed out that 'the Canadian Jobs Strategy is a departure from the previous hodge-podge ofmakework projects ... It represents a fundamental change in the way we develop and invest in our most important resource - the people of Canada. ' 13 The package provides funding for skills upgrading, for making it easier for young people to acquire a first job and for assisting private firms in training their workers. An important component of the package, however, is a new 'Community Futures' program. The program receives about $150 million in annual funding and provides a designated area a series of options. Under the program, a designated community is strongly urged to set up a local Community Futures committee bringing together representation from business, labour, government, and other interest groups. The committee then chooses from available program options the most suitable approach to their community's economic needs. The options are available for a five-year period and include a Business Development Centre that provides technical and advisory services to small businesses and loan investment assistance of up to $75,000 per firm. Other options include self-employment incentives, providing $180 a week for one year to enable unemployed individuals to start their own business; training assistance for the purchase of courses in approved institutions for training the employed, self-employed, or unemployed; relocation and exploratory assistance for individuals or groups of workers to relocate to jobs in other locales; and a community initiative fund that will match funds from other sources for local projects designed to generate new permanent jobs. 14 It is important to point out that a designated community can pick one, two, or even all of the options available. Not surprisingly, the great majority of the communities tend to pick all of the available options. The one option that is sometimes overlooked is relocation assistance. Though the Mulroney government rarely acknowledges it, the Community Futures program is in many ways an extension of the ILAP and LEAD programs, offering similar measures that both programs offered. The Community Futures program has proven highly popular with municipalities. Some would even argue that the government has lost control by accepting so many requests for designation. The program now covers over 80 per cent of the country's geographical areas, and some 6.5 million Canadians live in designated communities and areas. As a result, virtually all small labour market areas are now covered, including areas in ten provinces and the territories.

Other regional development efforts 167 Renfrew in Ontario, St Boniface in Manitoba, Medicine Hat in Alberta, St Anthony in Newfoundland, Bathurst in New Brunswick, Kamloops in British Columbia, Moose Jaw in Saskatchewan, and Summerside in Prince Edward Island join 207 other communities and areas in the country qualifying under the Community's Futures program. Central agency officials now report that when the program was first introduced, it was hoped that no more than 150 communities would be designated.15 ILAP, CRIB, and the Community Futures program represent recent ad hoc measures to respond to regional problems; other long-standing measures deal with regional structural problems. One is Ottawa's special freight-assistance program for the Atlantic provinces. The Duncan Commission concluded that Confederation had placed an unfair burden on the trade and commerce of the Maritime provinces and recommended a reduction in Canadian National Railway rates there, with the carrier compensated by federal subsidy.16 A special assistance program introduced in 1937 established Maritime rates at 20 per cent lower than rates elsewhere. It was revised in 1957 to 30 per cent and in 1969 extended to highway carriers. A further revision in 1974 provided an additional 20 per cent reduction for selected commodities moving to markets outside the Atlantic region. A federal-provincial committee determines which products are eligible for the rate subsidy. New products manufactured in the region may be added to the list. For example, wheel weights for automobiles were recently declared eligible when a firm in Nova Scotia began manufacturing them. Total payments under the freight-assistance programs amounted to $60 million in 1980 and $63,400,000 in 1981. By 1990-91, payments under the Maritime Freight Rates Act (railway) and under the Atlantic Region Freight Assistance Act (railway, marine, and trucking) amounted to nearly $100,000,000. 17 FEDERAL TRANSFER PAYMENTS

The federal government concentrates many of its transfer-payment programs on the slow-growing regions. The most important and best known is the equalization program that adjusts for regional variation in the revenue base for provincial taxes. It contributes about 25 per cent of provincial revenue in the Atlantic region and about 10 per cent in Quebec and 13 per cent in Manitoba. Federal transfers to individuals are considerably higher in slow-growth regions than in more developed areas. In the Unemployment Insurance (UI) program, for example, 50 per cent of benefits in 1987 went to residents of Quebec and the Atlantic provinces. The program itself is regionally differentiated in favour of areas of high unemployment in that there is a variable entrance requirement, which is lower, in terms of weeks employed, for areas of high

168 The efforts unemployment Over 7 per cent of the population in the Atlantic provinces received UI payments in 1976, compared with less than 2 per cent in Alberta and less than 4 per cent in Ontario. By 1987, the figures stood at 8.2 per cent in the Atlantic, 3.8 per cent in Alberta, and 2.5 per cent in Ontario. 18 Other federal transfer payments to individuals are of particular importance to slow-growth regions. Because of population composition, slow-growth regions have benefited more from Ottawa's Family Allowance and Old Age Security programs than the more developed regions. The four Atlantic provinces had over 35 per cent of their population qualify for Family Allowances and over 9 per cent for Old Age Security in 1976, compared with 30 per cent and 8.8 per cent, respectively, for Ontario. The figures, however, changed somewhat by 1987. In that year in the Atlantic provinces, 28 per cent of their population qualified for family allowance and 11 per cent for old age security, compared with 25 per cent and 11 per cent for Ontario. 19 OTTAWA'S GOVERNMENT RELOCATION PROGRAM

In May 1975, Treasury Board president Jean Chretien obtained cabinet approval to initiate a program for relocating units of the federal public service away from the National Capital Region and other major metropolitan centres. A key objective was to strengthen the federal government's commitment to regional development. Chretien explained: 'It is ... logical that serious thought be given to the possibility of using the relocation of federal jobs and salaries as another instrument for the promotion of economic activity in the less advantaged regions of this country. ' 20 Chr~tien established a task force to assist departments and agencies in identifying units that might be moved and to report on a detailed relocation program. The task force broke down its planning into two phases: the first for units that could be moved easily, and the second for major units with significant economic impact, but requiring close examination and ministerial direction. The first phase proposed relocation of 24 federal units: 4,600 full-time and 5,500 part-time jobs were to be moved from the National Capital Region to 24 communities in all 10 provinces between 1977 and 1982. A substantial number of these jobs would be filled through local hiring in the receiving communities rather than through a transfer of personnel from Ottawa. Total capital spending was projected at $190 million. The jobs were to be distributed in this manner: 2,235 permanent and 630 temporary for the Atlantic, 1,091 permanent and 1,900 temporary for Quebec, 626 permanent and 1,680 temporary for areas of Ontario outside the National Capital Region, and 551 permanent and 1,870 temporary for the western provinces.21 The task force sought also to direct units to areas of slow growth within

Other regional development efforts 169 provinces. For instance, in New Brunswick Bathurst in the northeast and Shediac in the east were allocated federal units involving some 880 jobs. In Quebec, Matane in the Gas¢ area was given a unit with 260 jobs. In Nova Scotia, Yarmouth, Sydney, and Antigonish were all designated as receiving communities. In Ontario, a large number of jobs were earmarked for Thunder Bay, North Bay, and Sudbury in the north. DREE officials who were consulted strongly favoured communities in economically depressed regions. The relocation was planned over a long period so that employees occupying positions being moved outside Ottawa would have sufficient time to find other work in the event they chose not to move. Staggered moves would also minimize the economic impact on the city of Ottawa. A number of unforeseen issues surfaced that required resolution to ensure the program's long-term success. For instance, employees were resisting the moves. It had been hoped that enough workers would move to ensure continuity of service. Some employees were reluctant to move to communities that did not provide schooling for their children in both official languages. In addition, new management information and control systems had to be set up to provide access by ministers and senior officials in Ottawa to the newly located units. 22 While these issues and others were being resolved, decentralization was proceeding as planned. Units for Matane and Bathurst, for example, were operational on schedule. Others, like that for Shediac, were set up in temporary accommodation while construction for permanent quarters was undertaken. The program became the subject of heated political debate. Opposition MPs charged that far too many units were being relocated in Liberal ridings and that the selection process was politically inspired. The government pointed out that some units went to cities with opposition MPs, including Charlottetown and St John's; the great majority of units went to Liberal-held ridings because economically disadvantaged regions tended to vote Liberal. A principal objective of the program, the government insisted, was to strengthen Ottawa's commitment to regional development. When the Progressive Conservative party was elected to power in 1979, the new government immediately announced a review of the decentralization program. The review, insisted Treasury Board president Sinclair Stevens, was prompted by government restraint: 'It was necessary to review the decentralization programme in the context of the government's expressed priority to restrain government spending and to eliminate all but the most urgent discretionary expenditures. ' 23 He announced the cancellation or deferral of thirteen projects that Jean Chr~tien had already unveiled, and a resulting $76million saving. Uncancelled projects were in advanced stages of development, with substantial monies already spent. When the Liberal party returned to power after only nine months in opposi-

170 The efforts lion, the cabinet asked the new Treasury Board president, Donald Johnston, to make recommendations on the decentralization program. A few cancelled or deferred projects were reactivated, notably the Revenue Canada Taxation Data Centre to Jonquiere, Quebec. Johnston declared that the federal government was committed to the principle of organizational decentralization, which would continue, but subject to new guidelines.24 Johnston, like Stevens, considered the program expensive in times of government restraint. Actual costs had proved considerably higher than projected expenditures in most of the relocations. The program also continued to meet stiff opposition from affected public servants and from unions and local associations. In light of these considerations, Johnston announced that future relocations would be negotiated between individual line departments and the Treasury Board secretariat. The task force on decentralization was disbanded on 31 March 1981. There is little evidence that work has continued on identifying new units for potential allocation or that the second phase of the original program, which had called for long-term planning, has progressed since then. The Mulroney government, however, did look to decentralization in May 1990 in its attempt to deal with the closure of the Canadian Forces Base in Summerside, Prince Edward Island. It did not, however, look to locate an existing government unit. Rather, it decided to locate in Summerside a new administrative unit being established to process the goods and services tax. The prime minister explained that the move will 'create approximately 400 direct jobs and up to 100 indirect jobs in Summerside. It will be an accounting centre for the new goods and services tax where the returns of the business community will be processed.' 25 The Summerside announcement was not the only Mulroney decentralization initiative. We know that many government backbenchers pressed the government in caucus meetings, time and again, to reactivate the decentralization program. The government has, however, consistently refused to do so, arguing that it would be too costly. Still, the Mulroney government does announce from time to time new measures to decentralize some units. It moved the Canadian Space Agency to Montreal and relocated a medical laboratory from Ottawa to Winnipeg. The Quebec caucus and some key ministers in the Mulroney cabinet were adamant that the space agency be located in Montreal in part, they argued, because the city was the natural choice but also to begin to shift some federal spending in science technology away from Ontario, where it has been traditionally concentrated. The move to Winnipeg, meanwhile, was widely perceived to have been part compensation to that start for losing the CF-18 maintenance contract to a Montreal firm, even though Winnipeg-based Bristol had submitted the lowest tender. 26

Other regional development efforts 171 FEDERAL PROCUREMENT POLICY

The federal government purchases over $20 billion worth of goods and services annually. Although 'each province has now come to view a fair share as nothing less than a divine right,' western and Atlantic governments maintain that the bulk of federal purchasing goes to firms in Ontario and Quebec - and they are correct About 80 per cent of all federal contracts are placed with firms in central Canada. The Department of Supply and Services, argues Allan Tupper, 'seems rather resigned to the continuing pre-eminence of centrally-located firms.' He suggests that 'Ottawa does not appear to have consistently employed purchasing policy as a regional development tool. ' 27 In instances where the federal government is, for all practical purposes, a firm's only client, Ottawa can exert some influence on where such firms would locate new industrial activities. An excellent case in point is Canada's munitions industry. The federal government is its principal client, and federal grants and special shared-cost agreements with selected firms have helped modernize and upgrade a number of production facilities. Despite this dependence on Ottawa, however, over 90 per cent of the 3,000 jobs in the industry are located in Ontario and Quebec.28 Defence-generated spending in the aircraft and parts industry primarily benefits Ontario and Quebec.29 In the 1982-83 fiscal year, for example, it gave Ontario over 1,600 person-years of employment, and Quebec over 1,400 personyears. Nation-wide, it produced 3,952 person-years. Offset contracts associated with two major aircraft purchases, the CP-140 and CF-18, are to go by and large to Ontario and Quebec. Ontario received about two-thirds of the contracts, and Quebec about one-quarter. New Brunswick and Nova Scotia fare much better in defence spending in the shipbuilding and repair sector. Though the impact of defence spending is considerably less important in this sector than it is for the aircraft and parts industry, Nova Scotia and New Brunswick together account for nearly 30 per cent of the 1,000 or so person-years generated. Saint John shipbuilding is in the middle of a major contract to construct twelve new navy patrol frigates. As a result, when including contracts, defence expenditures amount to about $4,300 per capita in New Brunswick, more than ten times the national average. Excluding contract spending, defence expenditure in New Brunswick amounts on a per capita basis to about the national average. Direct defence-related activities are also attractive to the regions, often offering long-term employment. Though it is more difficult to obtain information on defence spending than on other government activities, available data permits us to draw some conclusions on the importance of defence expenditures and their regional effects.

I 72 The efforts As a proportion of total government spending, defence expenditures have declined steadily from 42 per cent in 1953 to about 8 per cent in recent years, and a major part (more than 20 per cent) of defence spending occurs outside Canada. Canada's total defence budget in 1982-83 amounted to $6.9 billion; $5.4 billion was spent in Canada, half of it in Ontario. Ontario received about 47 per cent of the 1982-83 defence budget, and accounted for close to 32 per cent of total national economic activity. Nova Scotia received 10.4 per cent of the defence budget while accounting for only 2.2 per cent of national economic activity. New Brunswick got 4.3 per cent of the defence budget, and 1.8 per cent of national economic activity. Provinces that did not fare well included Quebec, with only 18 per cent of the defence budget and 22.5 per cent of national economic activity; Alberta, with 6.4 per cent and 14.4 per cent; British Columbia, with 7.6 per cent and 14.1 per cent; Saskatchewan, with 1.3 per cent and 4.2 per cent; and Newfoundland, with 0.7 per cent and 1.3 per cent. In direct defence-generated employment Ontario leads again, with over 30 per cent. Nova Scotia has about 15 per cent. Provinces that have less direct defence employment than their share of the national population include Saskatchewan, with less than 2 per cent, and Newfoundland, with about 1 per cent. Recent defence-spending patterns reveal that they favour three traditional economically underdeveloped provinces - New Brunswick, Nova Scotia, and Manitoba. The least favoured provinces on a per capita basis are Saskatchewan, Quebec, and Newfoundland Table 6 (pp. 174-5), however, shows that on an aggregate basis, Ontario still leads the provinces in defence spending, and by a wide margin when one excludes defence contracts. Ontario accounts for over 30 per cent of all non-contract defence spending. It is also important to remember that contract spending is allocated by province where the prime contractor for a particular project is allocated and does not accurately reflect the actual regional distribution of expenditures. Though the precise figures are not available, we know that Ontario- and Quebec-based subcontractors secured the bulk of the work in the New Brunswick-based frigate program. No information is available to break down the defence budget on a subprovincial basis. However, the bulk of defence spending in Nova Scotia is concentrated in the Halifax region, and a large part of defence spending in New Brunswick centres on Fredericton. Defence officials report that the bulk of their spending in Ontario is in the south and east. We saw that the federal government has often of late pointed to its procurement of goods and services as a means of promoting regional development. It will be recalled, for example, that Ottawa established the Atlantic Opportunities Program in February 1986. It was hoped that the program would result in a total value of $2.2 billion worth of federal contracts sourced in Atlantic Canada, over the four-year period of the program. This represented a $600 million

Other regional development efforts 173 increase over what would have resulted from current levels of purchasing from the region ($406 million was sourced in 1984-85). The extra $600 million was to be made up of a $200 million increase in purchasing to meet the ongoing requirements of federal departments and agencies and $400 million in procurement-related and industrial-benefits opportunities associated with major procurement projects. The federal government reported on 31 March 1990 that it had exceeded both targets, having secured over $900 million in new contracts. 30While this is true, it is important to bear in mind that new procurement can go to Atlantic firms that have limited impact in promoting economic development. For example, automobiles can be purchased from a dealer in Atlantic Canada, with all of the industrial benefits still going to the automobile industry located in southern Ontario. Officials report that some such practices did occur to inflate the numbers, notably the purchase of large new oil shipments from Atlantic Canada dealers. They also readily admit that the weakness of the manufacturing base in Atlantic Canada and that 'leakage of contract dollars out of the region continues to be a problem. ' 31 They also add that politicians and the media give too much attention to the 'numbers game' and not enough to building up the long-term capacity in the slow-growth regions 'to the development of a more competitive supplier base in these regions.• They readily admit that government procurement as a tool of regional development is viewed inside government as 'an accounting exercise rather than a program to strengtben the manufacturing and productive capacity' of slow-growth regions. ' 32 THE ROLE OF THE PROVINCES

Depending on how one defines 'region,• all of Canada's provinces may be said to be either highly involved in regional development or practically not at all. If one views an entire province as.a region, provinces make substantial efforts to develop provincial or regional economies. In fact, such efforts have prompted students of Canadian federalism to write about province-building. No provincial government is willing to let market forces and federal policy alone determine the economic health of its province. Particularly since the early 1960s, provincial governments have established agencies to stimulate economic development and to introduce a multitude of 'buy provincial' schemes and industrial assistance measures, in the form of grants and loan guarantees, feasibility studies, and the development of new industrial parks. DREE~supported subsidiary agreements have also contributed to provincial schemes to promote growth, supporting such initiatives as industrial commissions, provincially oriented tourism promotion, agricultural service centres, and pilot projects in forestry. Competition among provincial governments for development is intense and

TABLE6 Depanrnent of National Defence, expenditures by province (SOOOs) 1983/84

1984/85

1985/86

1986/87

1987/88

65,566 69,839 952,021 382,292 1,178,448 2,687,314 350,857 131,077 635,843 733,918 35,500 1,582

76,130 69,547 977,622 336,214 1,195,912 2,747,186 357,635 132,788 626,868 769,146 22.,365 1,523

123,262 87,637 12426S6 407,413 1,183,246 2,934,314 425,342 153,509 756,459 831,481 29,185 1,031

103,595 61,655 975,722

British Columbia Northwest Territories Yukon

52,806 89,973 761,033 352,922 1,071,377 2,326,574 289,714 115,764 526,113 611,470 31,630 1,439

CANADA

6,230,815

1,224,257

7,312,026

8,175,535

Newfoundland Prince Edward Island Nova Scotia New Brunswick Quebec Ontario Manitoba Saskatchewan

Alberta

1988/89*

1988/89t 103,699 51,018 898,713 267,315 830,403 2,393,279 305,430 90,499

2,258

103,930 51,032 961,179 3,073,604 1,134,721 3,536,836 467,66S 91,121 618,433 692,299 1,373 1,431

9,324,644

10,733,624

6,107,204

959,955

1,883,499 3,465,676 398,702 97,838 608,160 760,698 6,886

S41,665 616,9S1 923 1,303

Department of National Defence, per capita expenditures by province, 1988/89

Newfoundland Prince Edward Island Nova Scotia New Brunswick Quebec Ontario Manitoba Saskatchewan Alberta British Columbia Northwest Territories Yukon CANADA

(*)

(t)

183 395 1,087 4,299 170 373 432 90 257 230 26 56

182 392 1,012 374 124 250 282 90 227 205 25 36

413

SOURCE: Department of National Defence

• Includes 1987/88 contracts t Excludes contracts

176 The efforts at times bitter, as when Manitoba, Quebec, Ontario, and New Brunswick competed over a new helicopter manufacturing facility in 1983. In addition, competition among provincial OREE offices was at times as intense as that among the provincial governments themselves. The efforts of provincial governments to promote development and the resulting interprovincial competition for new economic activities have taken numerous forms other than those we have already seen under the various GDAs, ERDAs, and the subsidiary agreements. Often operating in secrecy, provincial departments of development, frequently supported by a provincial crown corporation, ttavel the country trying to snare investors. Frequently they arrive only a few days after a firm has been visited by a similar department or crown corporation representing another provincial government. Nova Scotia, with federal help, attracted Michelin and Clairtone. New Brunswick, in turn, enticed Malcolm Bricklin to set up an automobile manufacturing plant, and Newfoundland persuaded John Shehan to build an oil refinery at Come-by-Chance. Alex Campbell, former premier of Prince Edward Island, summed up the situation succinctly: 'We are four separate, jealous, and parochial provinces. We fight each other for subsidies.• Alan Tupper has shown that such intense competition is not found exclusively in the Atlantic provinces.33 Such provincial efforts have been only partly successful and have proved costly to provincial treasuries. The cost of maintaining a growing number of public servants to attract footloose economic projects to their provinces is considerable, not to mention subsidies and grants. Provincial governments are more reluctant to promote growth at the subprovincial level or in regions within provinces. By and large, they have attempted to remain geographically neutral in economic development, seeking to attract new economic activities to their provinces regardless of location. There have been some exceptions. Ontario has from time to time attempted to spur development outside its highly developed southwestern region. The Ontario Development Corporation was given such a mandate in 1963. In 1967, an Equalization of Industrial Loans (EIL) program was set up to provide forgivable loans to firms wishing to locate or expand in northern or eastern Ontario. This program was dropped in 1973 and replaced by a province-wide program of interest-free loans and deferred-payment schemes. The program was somewhat more generous for northern and eastern Ontario than elsewhere in the province. The direction of Ontario's economic development was updated in 1979 and again in 1980. The latest revision saw the establishment of the Board of Industrial Leadership, which was asked to develop a broad economic framework for industrial expansion. In light of the economic difficulties confronting the province in the early 1980s, the Ontario government became concerned primarily with attracting new growth to the province and less with

Other regional development efforts 177 directing such growth east or west of Toronto or to the more peripheral northern region.34 The Ontario government in the mid-1980s introduced new measures designed to promote development in northern Ontario. These measures are noteworthy because they did not involve federal-provincial programming or federal funding. Indeed, there is no evidence to suggest that the federal government ever encouraged Ontario to introduce the measures. That said, the province drew inspiration from the federal government's decentralization program which, it will be recalled, Ottawa had introduced in the mid-1970s. Then, Premier David Peterson announced a major 'Northern Ontario Relocation Program• on 30 July 1986. The program called for the relocation of 1,600 positions, involving eight different ministries and agencies, to four northern communities, notably Sudbury, North Bay, Sault Ste Marie, and Thunder Bay.35 Saskatchewan also at one time implemented measures to attract new economic activity to areas of slow growth. The government of Allan Blakeney established the Department of Northern Saskatchewan to oversee all programs in the North and to develop economic initiatives for the region. On the whole, however, provincial governments have not defined their economic development efforts within a regional context. Their bias in this respect is perhaps more sectoral than is Ottawa's, and certainly they are as concerned, if not more so, with the overall health of their provincial economies as Ottawa is with the national economy. Provincial governments by and large have made comprehensive effons at regional development at the sub-provincial level only after the federal government promoted the idea and had agreed to fund much of the cost. In fact, it is widely believed in Ottawa that the only area where DREE took the lead in directing GDA spending was in funds for special 'regional' agreements that were a package of projects designed to spur development in a given region. There are a number of such examples. The government of New Brunswick agreed to a $90-million economic development plan for the northeast only after DREE had agreed to pay 80 per cent of the cost.36 We know that New Brunswick resisted the idea of doing something special on such a scale for a long time and almost scuttled the agreement only a few weeks before it was signed. The same can be said in the case of Newfoundland about a development package for coastal Labrador. The federal government, through DREE and crown corporations, has always led development on Cape Breton Island, in Nova Scotia. DREE was instrumental, through GDA funding, in getting Ontario's government to come up with plans for the northern communities of Sudbury and Nonh Bay, among others. In western Canada, DREE negotiated a series of subsidiary agreements to direct development to the northlands. DREE also signed a nutritive processing

178 The efforts agreement with Alberta that provided funding to firms wishing to establish outside the major urban areas. In Quebec, it is the federal government that first introduced special measures for eastern Quebec and Gaspesie. It was again the federal government that put together le Plan de l'Est in the early 1980s, which also paved the way for the multimillion-dollar federal-provincial agreement for developing Quebec's regions in 1988. In some instances, the federal government signed agreements only after agreeing to consider funding sectoral-type subsidiary agreements with the provincial governments. Provincial governments have consistently favoured a sectoral, rather than a spatial or regional, approach to economic development under the various GDAs and ERDAs. When the federal government is not involved, provincial governments tend to ignore location. A good case in point is the nuclear power plant in New Brunswick. Recognizing that a decision on the plant's location was a provincial responsibility, the federal government nonetheless urged that a northern site be selected. DREE saw it as an opportunity to bring jobs to this underdeveloped area - and said so. The provincial government, however, decided that a southern site made good business sense and that it would be in 'the general provincial interest ' 37 Ironically, many in provincial governments see sub-provincial regional development as a drag on provincial economies, much as many argue that regional development constitutes a drag on the national economy. THE ROLE OF THE PRIVATE SECTOR

Government intervention in the economy, all the more pervasive in Canada because of two levels of government, has spawned a new dimension regarding decisions as to plant location. Market forces no longer dictate a firm's response to emerging opportunities and its decision on where to locate new or expanded production facilities. With their shareholders' best interests in mind, firms will search out government programs to see if public funds are available to assist in promoting their development strategy. Canadian Business magazine reports 'some firms are in the happy position of being able to employ staff or consultants whose sole function is to sniff out all the juicy morsels the politicians and policymakers throw into the public trough. ' 38 This is not to suggest that the private sector applauds all government programs. There is strong evidence that it would like much less government intervention in the economy, on the one hand, and much more consultation between government and industry, on the other. These two themes emerged constantly, for example, in the public hearings sponsored by Canada's Royal Commission on the Economic Union and Development Prospects for Canada.39

Other regional development efforts 179 The private sector's concern over government involvement in the economy may explain in part why most of Ottawa's economic development programs are passive. 'While clearly striving to influence the location of industry, federal incentives are firmly based on the view that corporate decisions must ultimately prevail and that the state must limit itself to offering lures to businessmen.•~ The state has never opted for a 'hands on' approach that 'directs' finns to a given location - 'or else.' Ottawa could, for example, 'black list' a firm and not permit any federal departments or agencies to award contracts to it, or refuse to grant a preferential duty, if the firm refuses to locate in a given community. Thus, by and large, firms will take advantage of government grants and subsidies to locate in a given region. Occasionally, a major Canadian bank, such as the Bank of Montreal, will publish articles in its monthly review on trends in regional development.41 Most such articles, however, are descriptive analyses of how well various regions are doing, and few offer solutions. The lure of government grants and the consequent 'shopping around' by the private sector can lead to 'bidding' wars between governments. This bidding for industry with public funds can in turn result in 'windfalls' for corporations. Governments have no assurance that a firm will not request assistance for a particular location, even after a corporate decision has already been taken to locate there. How is a government to know, for example, if McCain's located a number of production facilities in northwestern New Brunswick because of OREE grants or because the McCain family is from the area? More important, how is a government to know whether McCain's would not have located its plants in the area without OREE grants? Still, we know that the role of the federal government in the business community and in business decisions has increased by leaps and bounds since the late 1950s. The helping hand of the federal government can now be found in virtually all types of business activities, in all economic sectors, and in all facets of business decisions, from feasibility studies and market surveys, to being the lender (often the lender of last resort), to being responsible for the closing of redundant or obsolete plants, and even to holding off bankruptcies, if only temporarily. Of late, its helping hand can even be found in the setting up and financing of organizations and groups that trumpet the virtues of the business community in the economy. Some statistical comparisons are quite revealing. In 1961-{i2, federal-government grants to the manufacturing sector amounted to $8 million, or $11 million in constant 1971 dollars. By 1970-71, the total had shot up to $159 million, or $171.1 million in constant 1971 dollars. By 1979-80, it was $410 million, or $203.0 million in constant 1971 dollars. As a percentage of manufacturing investment, the grants amounted to 0.3 per cent in 1961-{i2, 3.8 per cent in 1970-71, and 3.6 per cent in 1979-80. A senior official in ORIE reports

180 The efforts that the total has nearly doubled from 1979-80 to 1987-88. It is worth repeating once more that data on tax incentives are not easily accessible. Still, it has been estimated that federal corporate tax incentives in the manufacturing sector alone went from $83 million in 1961, or $115.3 million in constant 1971 dollars, to over $1 billion in 1979, or $540 million in constant 1979 dollars. Another observer reports that total federal tax expenditures more than doubled from 1976 to 1979. By 1980, total corporate tax incentives amounted to $6.2 billion, while total federal corporate income tax collected in 1979 amounted to $7 .2 billion. Corporate tax revenues as a percentage of federal revenues declined from 15 per cent in 1951 to 13 per cent in 1977, and still further to 11.5 per cent in 1987.42 The question that jumps to mind is why would business seek out government grants and tax incentives and even employ staff and consultants to sniff out 'juicy morsels' that government 'throw into the public trough'? After all, the business community even in slow-growth regions is the most self-reliant group in Canada. Surely, if one group is capable of making it on its own without government help, it is the business community. Indeed, one frequently hears business people and private-sector groups calling for less government. They do not, however, always identify specific areas where cuts could be made. On the question of government grants and tax incentives for economic development, they are often silent. They have, however, often expressed a preference for tax incentives. They claim the tax incentives are more appropriate because they encourage profitability and efficient operations. A cash grant, the argument goes, favours all companies that apply and grants are awarded to firms whether they are efficient or not. Tax incentives, meanwhile, only benefit those able to compete in the market-place and to tum a profit. Accordingly, tax incentives encourage firms to reach maximum profitability and efficiency. In addition, tax incentives need little additional government personnel to administer, since they are merely adjuncts to the national tax system.43 Although the private sector is not wont to highlight this aspect of tax incentives, they are also often hidden from public view. Thus, they do not entail the stigma of admitting government aid to business. But this still does not answer the question: Why would the private sector seek out cash grants and tax incentives? I put the question to several business people. Though hardly a representative survey, their answers were revealing. Typically, their response was: We tum to these programs because they are there. One explained: 'If I don't take advantage of government hand-outs, my competitor sure will. The business game is one of survival and a good businessman can't let his competitors get a leg up on him.'44 A recurring theme from Atlantic Canada was that federal government grants to the region's business community hardly compare with what Ottawa makes available to business in other regions. They pointed to past cash grants and current tax incentives to the energy sector

Other regional development efforts 181 in western Canada and current ones to the manufacturing sector in Ontario and Quebec. A leading member of the New Brunswick business community suggested that 'the federal government can spend more in one day to keep one General Motors plant open in Quebec and on tax expenditures in Toronto than it does in one year on the whole manufacturing sector in all of New Brunswick. ' 45 A business person from Ontario observed that government grants are attractive for two reasons: 'first, they cut down substantially any risk in new investments, and second they are a great alternative to the equity market. Government grants can provide an infusion of capital without having to sell shares of your own company. ' 46 The majority, however, insisted that government spending in support of business is far more appropriate than in virtually every other policy field. One echoed the views of all the others when he claimed that 'compared to what the federal government wastes on purely political schemes, on hopeless causes and make-work projects inside government, we get very little. At least what we do get we put to good use. We create real productive jobs that generate wealth rather than consume wealth. ' 47 Not one business person, however, argued in favour of cash grants or even tax incentives on the basis of the programs' real or perceived merits. Although the business community seldom argues that government programs for the private sector are viable or even necessary in their own right and few outside observers believe that the programs meet their objectives, cash grants and tax incentives to business continue to expand. There was a momentary pause in their expansion in 1984 when the Mulroney Conservatives came to power. The new government made it clear that it was unhappy with the plethora of economic development programs it had inherited from the Liberals, arguing that 'some programs designed to assist investment have the perverse result of distorting investment decisions and leading to the establishment of companies that are viable only with continued tax payer support. ' 48 It will also be recalled that the government announced a series of cuts to ORIE during the first eighteen months of office. The cuts were to be spread throughout the department, and were to include major reductions in the IR.DP budget. However, some thirty months later, cabinet approved a series of special funding measures to replenish DRIE's budget because, it will be recalled, the department had seriously overcommitted its budget, particularly with respect to IRDP. In addition, early in the government's mandate, the then energy minister, Pat Carney, abolished the National Energy Policy, together with its generous incentives program to the oil and gas companies. She 'boasted that the Department of Energy would wither away because it was no longer necessary. ' 49 There would be no need for a large Department of Energy simply because from now on the private sector would be left on its own to develop the oil and gas industry. In short, 'never again (would the government) ... interfere in the sacred laws of the oil marketplace. ' 50 The

182 The efforts Department of Energy, however, is still very much in operation. By 1988-89, the department had nearly 5,000 person-years - about the same as it had in 198~ - and a budget close to $1 billion.51 Its budget is also destined to grow substantially in coming years as a result of the announced major energy projects on the east coast and in the west, all of which require government assistance. The Mulroney government has also continued and even expanded an approach that took hold in government in the early 1960s. Initially, the federal government had let the market-place operate where and when it liked the results, intervening with modest cash grants where and when it did not. Over time, however, virtually every sector was to receive ever more generous cash grants, new loan guarantees, and tax incentives. The motivating force is less and less the desire to correct the where and when of economic activity. How could it be, when programs apply everywhere and at all times? Rather, it has become a political game in which non-designated communities, regions, and sectors look enviously at the designated. Politicians representing the regions or constituencies with a large number of employees in a given sector have happily taken up the cause. Whether or not the programs being expanded were successful has mattered little. Grants to industry are highly visible and at times give rise to heated public debate over their value. Less visible, but often more lucrative for firms, are tax credits, which do not involve a direct transfer of money. They do represent, however, government revenue forgone. Canada's tax system is complex, and it is difficult to undertake a detailed review from the perspective of regional economic development. It is often difficult for even the officials operating incentives programs to determine precisely what kind of tax incentives a firm will enjoy once it has received a cash grant. The worlds of tax incentives and cash grants in the federal government are quite separate and work in near complete isolation from one another. Tax incentives are administered by Revenue Canada, and cash grants by a variety of departments and agencies. There is virtually no contact between the groups. Revenue officials treat all tax returns and correspondence with clients with the utmost confidentiality. They are even reluctant to release total tax expenditure figures for a particular region, such as Cape Breton, let alone information on a particular firm. Still, we do know that tax incentives and tax credits, though less visible, can be even more lucrative for firms than cash grants. Also know that tax expenditures are estimated to amount to at least $30 billion annually. Also, before the major tax revisions were introduced in 1988, tax expenditures for businesses were the second largest, trailing only those of Health and Welfare, which include items involving income maintenance and registered pension and retirement savings plans. The tax incentives available to businesses are varied, ranging

Other regional development efforts 183 from lower income tax on small businesses, to rapid depreciation allowances for buildings and modernization, to fast write-offs for Canadian exploration and development expenses. The Nielsen Task Force reviewed twenty tax expenditure programs for business and estimated that something like $7 billion of revenue had been forgone in one year alone. We know little about the success of tax incentives or whether tax credits are meeting their objectives. With only limited data available, few researchers have looked at their impact Those who have are less than enthusiastic about their likely success. Neil Brooks, for example, argues that •there is astonishingly little evidence that these tax breaks are effective.' He adds that corporate tax incentives in manufacturing amounted to $2.5 billion between 1972 and 1975, but the additional amount of investment only amounted to between $340 and $846 million.52 Nonetheless, it is possible to make some observations. A 1979 report from the Department of Finance reveals tax expenditures totalled over $21.5 billion in 1976 and $30 billion in 1979. This compares with a total federal expenditure budget of $50.0 billion for 1979.53 If one breaks down the total tax expenditure account by functional categories, one discovers that Health and Welfare is the biggest spender. In 1976, tax expenditures for this category amounted to close to $10 billion. This was made up of items involving income maintenance and housing, such as the tax advantage on savings in registered pension plans and retirement savings plans and the non-taxation of capital gains on principal residence. The next most valuable category was economic development and support. The largest expenditure item there is lower income tax on small businesses. Other important items included the two-year write-off on manufacturing and processing assets and a compository item consisting of the fast write-off for Canadian exploration expense and for development expenses and the 33 1/3 per cent earned depletion allowance. Total tax expenditure in this category for 1976 amounted to close to $4 billion. The Department of Finance updated its findings in August 1985. The pattern of tax expenditures revealed in the 1979 report continued throughout the 1980s, or until the federal government overhauled its taxation policies in the late 1980s. Health and Welfare remained the biggest spender. The •economic development and support' and the •corporate income day' categories remained the second most important categories. There was in the 1985 report a category on 'regional development,' but it simply reported that the •value' was included in the other 'categories' and thus indicated no tax expenditures.54 Sufficient information is also available to break down tax expenditures on a province-by-province basis. Ontario, Quebec, Alberta, and British Columbia earn the lion's share of tax expenditures- over 80 per cent of all corporate tax expenditures. On a per capita basis, Alberta leads all provinces in corporate tax

184 The efforts expenditures, while the four Atlantic provinces trail badly. In fact, corporations declaring taxable income in Yukon and the Northwest Territories received more tax expenditures than did any of the four Atlantic provinces. Lack of information prevents assessment of federal tax expenditures at the sub-provincial level. All in all, though tax expenditures constitute over 35 per cent of the total federal expenditure budget, they play only a negligible role in Ottawa's fostering of regional development. One federal finance official speculated that tax expendiwres with a specific regional development purpose never amount to more than 2 per cent of the total federal tax expenditure budget. One of the most well-known investment tax credits for regional development purposes has been the Cape Breton Investment Tax Credit (CBITC). It was introduced, it will be recalled, as a temporary measure in the 1985 federal budget following the closure of the two heavy-water plants. The program involved a 60 per cent tax credit for new investment and was geared to 'attracting new businesses to the region from elsewhere in Canada and abroad.' 55 Initially CBITC extended the 50 per cent tax credit already applicable to manufacturing and processing investments in designated regions, including Cape Breton, to investments in a broader range of production activities. The tax credit was extended to such activities as farming, logging, tourism, technical services to business, and storage and distribution facilities. The 50 per cent credit was also immediately increased to 60 per cent in Cape Breton. The federal Department of Finance carried out an assessment of cerrc and released its findings in August 1990. The review looked to two sources of evidence: case studies and econometric analysis. The case-study evidence was based on information obtained by a team of management consultants in interviews with actual or prospective CBITC recipients. The econometric evidence was derived from a statistical analysis of data indicating how firms in specific industries have actually responded in the past to changes in their input prices. The case studies were used to assess the impact of the CBITC on investment in Cape Breton, while the econometric analysis was used to measure firms' production structures in order to determine the changes in employment that would be consistent with the changes in investment predicted by the case studies. The case studies of cerrc applicants disclose that, out of the $3.4 billion worth of projectapplications received by 31 May 1988, roughly $1.1 billion in investment is eventually expected to be undertaken and to qualify for the credit. Applications worth a total of $6.6 billion were received by the 30 June 1988 deadline. This suggests that the amount of investment expected to qualify for the CBITC may ultimately be $2.1 billion. Of this $2.1 billion, it is estimated that 19 per cent (or about $400 million) will constitute incremental investment - that is, investment that would not have been undertaken in the absence of the CBITC. 56 As a result of the $2.1 billion worth of investment that is expected to quali-

Other regional development efforts 185 fy for the CBITC, it is envisaged that the federal government will forgo more than $500 million in tax revenue in addition to the regular investment tax credits that would have applied to investments in Cape Breton in the absence of the cerrc. Since roughly $400 million of the $2.l billion in total investment can be considered incremental investment, it is estimated that for every dollar of federal tax revenue forgone, 75 cents of new investment will be stimulated by the crediL This conclusion is also consistent with the fmdings of other studies on the effects of tax investment incentives in other jurisdictions. Over two-thirds (or almost $300 million) of the forecast incremental investment is expected to take place in manufacturing.57 According to the econometric analysis, the incremental investment stimulated by the csrrc will in the long run generate a total of 700 to 750 lasting new jobs. (This estimate does not reflect the additional temporary jobs created in the Cape Breton construction industry as a consequence of the incremental investment.) The average cost in forgone federal taxes of each of these jobs is equivalent to an annual employment subsidy of approximately $50,000. Although substantial, the Department of Finance points out that it compares with the annual cost of roughly $150,000 per job in the case of the two heavy-water plants.58 In concluding their review of the Cape Breton tax credit, Finance officials report that the decline in the unemployment rate in Cape Breton attributable to the csrrc is only one-eighth of the drop of almost 8 percentage points that actually occurred in the region between 1985 and 1988 as a result of both the cyclical upturn and growth in the country as a whole. Accordingly, they argue that the state of health of the national economy as a whole is critical to the magnitude of regional economic disparities within the country. Not surprisingly, they insist, that 'economic policies that contribute to the attainment of sustainable high employment levels in the long-run in the national economy appear to be a more promising method of mitigating regional income disparities than a regional investment tax credit such as the cerrc.' 59

12 An assessment

A substantial amount of public money has been spent in Canada over the last thirty years in the name of regional economic developmenL OREE expenditures alone amounted to over $7 billion during this period; under the equalization program, over $60 billion was spent. Every province except Ontario has at one time or another received equali7.ation payments. And even Ontario has benefited of late from regional development programs, notably under the Il.AP initiatives and the GOA and ERDA agreements. Federal crown corporations, such as OEVCO, have been set up solely to promote economic adjustment and development in a specific community or region. Special industrial and labour adjustment programs (with funding well in excess of $500 million) have been established with a similar mandate. Even national programs, such as Unemployment Insurance, have been adjusted so that they can be more generous to slow-growth regions. Special tax credits have been introduced exclusively for slow-growth regions, about the total costs of which we know virtually nothing. Ottawa also embarked on a major program to relocate public-service units from the National Capital Region to slow-growth areas. A number of questions come immediately to mind. What effect have these expenditures had on slow-growth regions? What have we learned from the various initiatives? And what are the implications of the recent reorientation of federal regional development policy and programs? Before turning to these questions, it is important to look again at the question of regional disparities. REGIONAL DISPARITIES REVISITED

There does not exist a widely accepted single indicator of regional disparity. The Economic Council of Canada has acknowledged this limitation, while intimating that 'a wide variety of facts suggest that individual well-being does differ from one region to another.' 1 Two indicators, income per capita and unem-

190 An assessment ployment rates, have been widely employed to measure regional disparity in Canada. Data under these two headings have been collected for some time on a regional basis, and they do provide a useful starting-poinL There was some progress in reducing regional disparities in per capita income between 1961 and 1981, and again between 1981 and 1988. The effects from personal income, ttansfers from governments (personal income), income received by family earners (average family income), and taxation of personal income (average family disposable income) serve progressively to reduce regional income inequalities. The largest reduction in income disparity occurred in average family disposable income - where income disparities appear smallest - while the least reduction was with respect to earned income per capita- where they are widest. The lowest-income provinces have somewhat caught up with the rest of the nation, in spite of real gains in national per capita income. In 1961, the four Atlantic provinces, Quebec, Manitoba, and Saskatchewan received less than the national average income, while Ontario, British Columbia, and Alberta were above average. In 1981, Alberta was leading, followed by Ontario. Between 1961 and 1981, Saskatchewan moved very close to the national average. Quebec and Manitoba also made important gains. The Atlantic provinces still ranked last. Newfoundland and Prince Edward Island remained the lowest-income provinces, despite showing the best performance in all income measures in the Atlantic region. New Brunswick also moved closer to Nova Scotia, which has the highest incomes in the Atlantic region, while the latter has generally maintained its income position relative to the national average. Some important changes, however, occurred between 1981 and 1988. Ontario now leads the nation, with Alberta second (see table 7). Both Manitoba and Saskatchewan have lost significant ground over the 1981-88 period, while Quebec has moved up. Quebec now ranks fourth among the ten provinces, while Saskatchewan ranks seventh trailing Nova Scotia for the first time since 1961. The four Atlantic provinces, however, continued to make progress during the 1981-88 period. Some have suggested that earned income per capita provides a better measure of a region's economic performance than per capita income. Earned income per capita excludes relative gains from interregional ttansfer payments. According to this measurement, regional disparities were more pronounced, and disparity has narrowed only slightly from 1961 to 1981, though Prince Edward Island and Saskatchewan made some gains during this period (see table 8). Again, however, important changes occurred in the earned income per capita among the provinces between 1981 and 1988. The four Atlantic provinces and Quebec continued to make progress toward the national average, but the four western provinces began to retreat. Saskatchewan lost all of the gains it made between 1966 and 1981 with a decline of over 22 percentage points. That saicl, Alberta

An assessment 191 TABLE7 Earned income per capita, by province and territories, selected years 1961-81: Relationship to national average (Canada= 100)

Newfoundland Prince Edward Island Nova Scotia New Brunswick .Quebec Ontario Manitoba Saskatchewan Alberta British Columbia Yukon and Northwest Territories Disparity gap (ratio of highest to lowest)

1961

1966

1971

1976

1981

1986

1987

1988

53.2 53.5 75.0 64.1 89.5 121.l 93.5 67.2 100.3 113.7

52.5 53.6 71.5 65.1 89.2 118.3 91.0 92.3 99.0 111.0

54.8 57.0 74.2 68.1 87.8 119.2 93.7 78.7 98.6 109.5

56.1 60.2 74.2 69.0 90.4 112.5 93.9 99.S 105.0 109.5

53.4 59.0 73.4 64.9 89.9 110.6 92.9 98.9 114.4 109.7

57.4 66.1 19.5 70.2 91.3 114.5 89.8 86.5 106.6 99.8

58.6 64.4 79.1 10.5 92.4 116.1 88.0 80.0 101.6 98.9

58.5 65.9 78.0 70.1 92.7 116.3 86.6 76.6 103.1 97.6

103.1

85.1

91.9

94.7

105.3

122.6

118.3

119.1

2.27

Canada (1961 = $1,514 = 100; current dollars) 100 SOURCE:

2.25

2.17

142.6 203.9

2.00 395.6

2.14 696.1

2.13

2.03

2.02

943.4 1,018.7 1,100.8

Statistics Canada, Provincial Economic Accounls, catalogue 13-213 annual

TABLES Personal income per capita, by province and territories, selected years 1961-81 : Relationship to national average (Canada = 100)

Newfoundland Prince Edward Island Nova Scotia New Brunswick Quebec Ontario Manitoba Saskatchewan Alberta British Columbia Yukon and Northwest Territories Disparity gap (ratio highest to lowest)

1966

58.2 58.8 77.8 68.0 90.1 118.4 94.3 71.0 100.0 114.9

59.9 63.8 60.1 63.7 74.8 11.5 72.3 68.9 88.7 89.2 116.4 111.0 91.9 94.1 93.1 80.3 100.l 99.0 111.6 109.0

96.6 2.03

Canada (1961 = $1,672 = 100; current dollars) 100 SOURCE:

1971

1961

80.8 1.94 141.1

86.8 1.83 208.5

1976

1981

68.1 64.9 67.4 68.2 78.47 7.9 75.3 71.3 93.3 93.2 109.6 107.7 93.1 93.0 98.8 99.5 102.4 110.2 108.8 101.7 91.4 1.60 410.9

101.7 1.69 720.0

1986

1987

1988

69.6 74.3 83.7 77.4 94.3 110.2 90.3 89.0 10S.9 100.4

70.7 12.5 83.4 77.4 94.8 111.8 88.8 83.4 101.8 99.6

71.1 73.9 82.S 77.3 95.0 112.2 88.1 80.8 102.4 98.4

116.5

112.8

114.0

1.67

1.S9

1.60

1,004.0 1,082.3 1,165.4

Statistics Canada, National Income and fu:pendilure Accounls, catalogue 13-201

192 An assessment remains above the national average and British Columbia very close to it On the whole, greater progress was made in personal income per capita, as the Atlantic provinces moved rapidly toward the national average. The fastest advances were made by Prince Edward Island and Newfoundland; Ontario showed least growth. The disparity in personal income per capita lessened from a ratio (highest to lowest) of 2.03 in 1961 to 1.60 in 1988 (see table 7). The reduction of differences in income per capita has been more pronounced in average family income and average family disposable income. Gains have been particularly significant among the two lowest-income provinces - Newfoundland and Prince Edward Island. For both family income indicators, Quebec has retreated the most, followed by Ontario. Greater disparities are observed in Gross Domestic Product (GDP) per capita in current dollars. Table 9 shows that during the period 1961-81 Ontario moved from first place to fourth, behind Alberta, British Columbia, and even Saskatchewan. However, by 1988 Ontario had regained second place, trailing Alberta only by a slim margin. Saskatchewan achieved the fastest growth rate in GDP per capita among all the provinces between 1961 and 1981, but by 1988 it had dropped to sixth place. Saskatchewan also displayed the most erratic performance over the years, no doubt because of its narrow economic base.

In unemployment, regional disparities are as persistent as in income per capita, and they favour the same regions. As the study by the Economic Council of Canada, Living Together, pointed out, there is one exception. British Columbia has had higher unemployment than the three prairie provinces over the past thirty years, even though it traditionally leads the same three provinces in per capita income.2 The Atlantic provinces, followed by Quebec, have consistently led the nation in unemployment levels, as table 10 indicates. The table also reveals that disparities in unemployment have converged, though they are larger than a straightforward comparison of conventional statistics would indicate. The Economic Council of Canada found that inclusion of discouraged workers (those who want to work, but have given up looking for employment) made unemployment in Newfoundland 50 per cent higher in 1978 than the official rate showed.3 SUB-REGIONAL DISPARITIES

Sub-regional differences in economic well-being in Canada are substantial. Income disparities within the Atlantic region, for example, are greater than those between that area and other parts of Canada. Some counties in Nova Scotia have an average per capita income less than 71 per cent of the provincial average,

An assessment 193 TABLE9 Provincial Gross Domestic Product at market prices, per penon, by province and territories, selected yean 1961-81: Relationship to national average (Canada= 100) 1961 Newfoundland Prince Edward Island Nova Scotia New Brunswick Quebec Ontario Manitoba Saskatchewan Alberta British Columbia Yukon and Northwest Territories Disparity gap (ratio of highest to lowest)

1971

1976

1981

1986

1987

1988

50.0 49.4 65.3 60.5 91.1 119.9 90.4 77.3 108.8 111.1

52.1 48.4 63.0 61.3 89.9 117.4 87.1 99.6 109.3 109.2

56.2 52.3 67.9 63.7 88.9 117.3 90.7 86.9 110.8 106.8

53.6 52.2 66.0 63.8 88.1 109.4 91.4 101.2 137.1 108.6

52.0 50.5 61.3 63.1 86.0 106.5 88.1 108.8 146.0 109.4

58.2 57.1 71.7 69.6 91.3 112.8 88.3 84.2 119.7 98.0

58.6 58.9 71 .0 69.3 93.2 113.1 86.6 79.4 115.7 98.3

58.2 58.4 69.7 69.0 93.8 113.7 86.2 78.1 114.1 97.0

99.9

105.8

97.7

88.9

112.1

140.0

136.2

134.0

2.42

Canada (1961 = $2,225 = 100; current dollan) 100 SOURCE:

1966

2.42 143.5

2.24 200.9

2.62 386.9

2.89 656.7

2.45 897.2

2.32

2.30

963.9 1,040.8

Statistics Canada, Provincio/ Economic Accounls, catalogue 13-213 annual

TABLE IO Provincial unemployment rate, selected years 1961-81: Relationship to national average (Canada= 100)

Newfoundland Prince Edward Island Nova Scotia New Brunswick Quebec Ontario Manitoba Saskatchewan Alberta British Columbia Disparity gap (ratio of highest to lowest)

Canada (1961 = $7.1 = 100; current dollan) SOURCE:

1961

1966

1971

1976

1981

1986

1987

1988

275

171

135

114 148 130 77 70

138 156 121 76 82 44 74 135

113 98 118 87 92

189 135 134 155 123 87 66

186 150 134 154 137 87 79 61

92 116

56 121

202.1 141.0 137.9 150.5 115.8 73.7 81.1 81.1 103.2 131.6

203.4 150.0 139.8 148.9 117.1 69.3 84.1 84.1 109.1 135.2

210.2 166.7 130.8 153.9 120.S 64.1 100.0 96.2 102.6 132.1

S8

66 120 4.74 100

3.88 47.8

S6

2.41 87.3

ss

3.43 100

so

88

3.72 107.0

2.74 133.8

Statistics Canada, TM Labour Force, catalogue 71-001 monthly

2.94 123.9

3.28 109.8

194 An assessment while others have an average of 118 per cent. The same is true also in Newfoundland, New Brunswick, and Prince Edward Island, where some counties also have an average per capita income of less than 80 per cent of the provincial average. Even the wealthiest regions of Canada have areas that do not share in the overall economic prosperity. Ontario, for example, has areas with an average per capita income below the national average, below the Quebec average, and below some areas of Atlantic Canada. Ontario's low-income areas are in Manitoulin, with its large native population, and Haliburton, with one of the oldest age profiles in Canada. Manitoba and Saskatchewan are provinces of extremes. There, census divisions with a large native population constitute some of the poorest regions in Canada in terms of per capita income. Yet census divisions that include Regina, Saskatoon, and Brandon have high per capita income, when compared with the national level. Some areas in the Atlantic provinces, notably the counties in which Moncton, Saint John, Fredericton, and Halifax are found, have incomes higher than the Canadian average. However, counties along the north coast in Newfoundland and in northern New Brunswick have particularly low incomes. Kent County in New Brunswick, for example, has the fourth-lowest income in all of Canada. Similar differences in economic well-being exist at the sub-regional level when unemployment rates are the indicator. Work is much scarcer in northern New Brunswick, northern Newfoundland, and eastern Nova Scotia than in central or southern New Brunswick, St John's, or Halifax County. Again, there are large areas in the wealthy regions of Ontario and western Canada that offer fewer employment opponunities than some areas in less developed provinces. The Department of Industry, Science and Technology (DIST) recently turned to the census divisions (co) to report on the state of regional disparities in Canada.4 The department looked to earned income per capita and unemployment rates and then grouped all census divisions under three categories - deep disparity, moderate disparity, and no disparity. Deep disparity was defined as being below 70 per cent of the Canadian average, moderate disparity as being between 70 and 90 per cent, and census divisions above 90 per cent of the national average as experiencing no disparity. In 1987, all provinces in Canada had at least one census division experiencing deep disparity, with the highest total population in Quebec, Newfoundland, Saskatchewan, and New Brunswick. As a proponion of provincial population, the incidence of deep disparity remains by far the highest in Newfoundland at 95 per cent, with Prince Edward Island and New Brunswick at 50 per cent. Ontario and British Columbia, by contrast, have less than 1 per cent and Alberta less than 7 per cent of their population in the deep-disparity category (see table 11 and figures 3 and 4).

TABLE 11 Summary: Population by level of disparity: Canada and provinces Deep disparity

No disparity

Moderate disparity Percent of

Population Population Population S~'l>

Province