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History Table of Contents
1992 Summer Conference
Summer Conference 1992
Competitiveness and Social Justice: How Can Canada Have Both?

Panel: The Canadian Crisis

MARCEL CÔTÉ, Senior Partner, SECOR
PETER NICHOLSON, Senior V.P., The Bank of Nova Scotia
FRED POMEROY, President, Communications & Electrical Workers Canada

After moderator Yves Desjardins-Siciliano had introduced them, the three panelists made set speeches. Desjardins-Siciliano is Vice-President, Canadian and Business Development, ISM.

Opening was Peter Nicholson, Senior Vice-President, The Bank of Nova Scotia. Wasting no time on softening up his audience with jokes, he began with definitions, arguing that "obviously" economic competitiveness and social justice were not absolute concepts. He went on to develop the line that there was a certain point at which they reinforced each other-Competitiveness in the common sense view came down to productivity; social justice involved fairness and equality of opportunity, and in Canada, to some extent, equality of outcomes also. Social justice was a form of insurance, in which the premiums for all were paid by those best able to afford them. Nobody in the room would deny that Canada was a country where social justice was valued and practised.

"I sense that most people are here today," Nicholson said, "because we sense there is a conflict brewing between social justice and competitiveness, a conflict which Canada had been reluctant to face." Some would argue that there was no trade-off between the two concepts and that to take another view was pernicious. Some countries, though, had succeeded in having a measure of both. To the extent that social justice could be measured by income distribution, Japan was an example of such a country. (Nicholson gave no details of Canadian income distribution.) He believed there was no meaningful trade-off between a competitive economy and a just society. A healthy economy was the only source from which social services could be financed, and without justice there was no motive to work productively or accept the risks involved in adapting to new technology.

Why then was there any anxiety about possible conflict between the two goals? The banker thought it might be because some of us feared that too much security might kill ambition, hence undermining productiveness. Too much social justice could "dampen the animal spirits." Re cited well-intentioned measures such as pay equity, affirmative action and employee rights. They could sometimes conflict with the realities of running a business.

Again, the democratic welfare state seemed to lack the discipline to constrain social spending, for which the demand tended to be insatiable. Redistributive spending by government tended to get out of control. Praising Canadian achievements in ethnic tolerance and social justice, Nicholson remarked that our own income distribution, while not so equitable as that of ethnically homogeneous countries like Japan, Germany and Sweden, showed much less disparity between the top and bottom categories than, say, that of the U.S., Australia, the U.K., or even Switzerland.

Nicholson showed charts to demonstrate the trend over time. From 1973-89 the incidence of poverty had declined from about 22 per cent to about 12. By market income measures of poverty, though, the incidence had been constant at about 30 per cent. This was the result of policy, taxes and transfer payments.

Similarly, in economic performance we compared favourably with our international competitors. We ranked just behind the U.S. in G.N.P. growth. Nevertheless there was a pervasive fear that our nation was slipping, a fear (shared by the speaker) that ours was the first generation whose children would end up poorer than their parents. The question was whether a cyclical recovery would be strong enough to sustain the down4rends in poverty.

Citing anxieties about competitiveness in Canada and the U.S., Nicholson spoke of the drive to create competitive, market-based economies in Europe, Mexico City, Korea, and southern China. International competitiveness had reached a qualitatively new level of intensity.

The economics of free trade cut one way, its politics another. The developed countries had not developed strategies for easing the transition from domestic to global competition. Finding economically sane and politically workable ways to adjust to the new conditions was an urgent priority.

Canada was hobbled by structural weaknesses. By a further use of charts, the speaker demonstrated trends and outlook, especially the exponential growth of foreign debt and the relatively high levels of Canadian wages. These high levels were not accompanied by correspondingly high productivity. For this failure, management had to share the blame. The downward trend of profitability was more than cyclical. Canada’s tale of woe, as Nicholson told it, was complicated by the fiscal mess of every government in Canada, by Ottawa’s most of all.

One way or another we needed to regain control of public finances. Could Canada have both a competitive economy and a just society? "I can only say that we are going to have both or we’ll have neither, said Nicholson. Social services, though, would have to conform to a tight budget.

Union leader Fred Pomeroy spoke next. In contrast to the banker’s oracular manner, he was friendly and ingratiating. President of the Communications & Electrical Workers, Canada, he suggested he’d been scheduled between Nicholson and Côté to create a short pause in which we could detect the difference between a liberal and a conservative. "And just in case you get the sense that I’m anti-business," he added, "I want you to know that at breakfast I negotiated away a few minutes of my time to Peter. This has absolutely nothing to do with the fact that I’m looking for a loan to be able to go out and organize one of his competitors!"

Pomeroy believed that social justice was necessary to becoming a competitive society.

It was true there was a crisis which would have to be solved, and in short order. But Pomeroy was an optimist. Social equity issues were an integral part of the solution.

These issues were related to unemployment or underemployment. To look back briefly, the ‘80s had been an era of fast-buck artists, of greed and conspicuous consumption. One of the banks – not Peter’s – had paid no tax at all, while telephone operators and other union members had paid a heavy proportion of their income. That might have had something to do with the trouble governments had in paying their bills.

As we entered the ‘90s, we had been sold the Free Trade Agreement. There had been a lot of hype about jobs, jobs, jobs, over and over, and the promise from none other than our prime minister of the finest adjustment assistance program in the world. Instead we had ended with thousands of lost jobs – the best paying jobs in the country – a cutback in the unemployment insurance program, and an offloading of the costs to employers, employees and the provinces. The Mexican deal would have further adverse effects on workers, and again little attention was given to adjustment. Even if free trade was a good idea (Pomeroy was not sure about that) it was badly executed. It was as if your daughter got married, everyone was invited and no arrangements had been made for catering.

Programs of privatization and deregulation had been touted to make our economy more competitive, but in the event what we got was poorer service and neglect of safety. We were on the verge of having one unregulated airline, no competition, and a number of different telephone companies in regulated monopolies. Pomeroy could not see the logic of that. He referred to the endless constitutional debate, which had diverted attention from more urgent economic and social problems facing us. Worst, we’d been living through an all-out war on inflation and the deficit, which had resulted in casualties across the country, most heavily among the poorest people.

"As you travel across this country you meet more and more poor people," Pomeroy said. "I don’t agree with statistics that say we’re getting better and better." Noting that many of the poor were women and single mothers, the speaker thought we were creating a serious problem for the future. The result was that our society had become much less fair. There was no shared vision for the future. This was the result of the conservative agenda, which was mean-spirited and destructive.

On the other side, unions were becoming more constructive in working with management to pursue interests common to both. It was not just the corporate structure that needed to re-examine its practices, but the trade unions as well. In the past unions had not shown much interest in wealth creation, concentrating instead on getting fair shares of the pie. Some were coming to realize that they could not do that anymore.

Unions had to get involved in issues like competitiveness and job security. There was a tremendous amount of controversy on these questions within the labour movement. Unions now had democratic resolutions to become involved in these matters, cooperating with management, though many members felt strongly that they were being co-opted.

We were living in the industrial heartland of the country, the wealthiest part of Canada, yet over ten per cent of the population was living on welfare. Many other provinces were even worse.

We should pursue full employment, a high wage, high value-added strategy, accompanied by high social justice. Confronting the dilemma outlined by Peter Nicholson, we should take this path. Better organization of the workplace and genuine policies of retraining had been achieved in other countries and could be achieved here.

The U.S. had been pursuing low wage, low value policies, doing its best to becoming a third-world country. Just because we were doing business with them did not mean we should imitate their policies. If we followed our own line we would do a lot more business with them.

In Canada unions were not disappearing. They were not going away. They were growing stronger. We had to act quickly to solve the problems. But Pomeroy held a positive view of the future.

After a ten-minute coffee break, Marcel Côté offered his own form of optimism, from a conservative and French-Canadian viewpoint. He began by describing the Canadian crisis with something like glee.

"There is a Canadian crisis," he said, "in fact we should say there are Canadian crises"

Fortunately Canada was mostly a Malade Imaginaire. Affluence and tranquillity bred neurosis, and one of these days Canada would have its Molière to dramatize its farcical aspects. Meanwhile the crisis was given serious analysis, like this morning’s, which might do it too much justice. Côté gave his own analysis in these terms:

"Consider the following nine facts: Fact number one. Canadians have the second highest standard of living in the world, which has grown both in relative and absolute terms over the past 50, 40, 30, 20, ten years. Fact number two. Most Canadians just do not believe that we have the second highest standard of living in the world. Even generally well informed participants in the public debate do not believe that the O.E.C.D. statistics are correct. Fact number three. The Canadian economy has had one of the best growth records of all major industrial countries over the past 40 years. Since 1960, in every five-year period, Canada’s economic growth and G.D.P. has been second only to Japan’s. Fact number four. Most Canadians do not believe these statistics either. Fact number five. This year, 1992, Canada is likely to have the best growth performance of all G7 countries. And next year, Canada is expected to have the best growth performance of all 24 O.E.C.D. countries. Fact number six. Most Canadians, again, do not believe it. They believe it’s probably propaganda generated by uninformed statisticians at the O.E.C.D. Fact number seven. Canada has the second highest productivity in the world, after the U.S. You all know fact number eight. Canadians do not believe it! Fact number nine. Canadians generally believe that we have one of the lowest productivity growths among major countries. What they do not know is that this has been the case since the early ‘60s, and yet, despite chronically low productivity growth for 30 years, we have been consistently in the winner’s circle of G.D.P. growth."

This, Côté said, was a very important question to understand. Since it shed some light on our imaginary sickness we usually preferred not to know why we were doing so well while the numbers told us we should be doing badly. We did well with low productivity growth because Canada had created a lot of new jobs. This was what Canadians wanted most and this was what the economy had delivered. Canada’s real growth had been among the highest of all industrial countries.

If a country scored high on job creation and even higher on G.D.P. growth, it was most likely to score low on productivity growth. This inverse relationship was mathematical, it was the way we defined productivity. Output versus factor cost – if you’re doing very well on factor, very well on growth, by definition productivity cannot be that growth. So we should leave high productivity growth to those countries that could not do well on job creation and on G.D.P. growth.

Economic Cassandras would say Côté was right in what he said, but what he was talking about was the past. The future was weak. Had Côté cited the above nine facts in 1982, he would have been proved right for the ‘80s. The Cassandras of 1982 would have said, "Yes, but how about the future?" They all said the same thing: the future looked bleak.

Côté now derided R&D, slighting its importance in a country like ours. We did very well without winning the R&D game. There was no correlation between R&D spending and economic growth for industrial countries. (Canadians naturally did not believe it.) Côté poured scorn on R&D numbers. General Motors spent more on it than all the pharmaceutical companies together. In fact it was innovation, not R&D that generated what economists called technological change.

First and foremost, our economy did so well because our service economy was very competitive, very innovative. Basically it was what we did for ourselves – and we were doing it very well. And we were always improving our service economy.

Ours was also a small economy when small was getting more and more beautiful. Flexibility and adaptiveness were more important than low production costs. Our production was tailored to short runs and fast adaptation to fluctuating markets. This was a very important aspect of our productive system.

As an example of how specialized our economy had become, Côté cited a conference in Chicago on businesses that depended on the 911 telephone number. One thousand persons attended.

He spoke favourably of the free trade arrangements that gave us access to the American market, and even about the beauty of our taxes that extracted 45 per cent of our wealth and recycled it. He denounced monetary measures aimed at reducing inflation, which had cost the country heavily.

Côté talked next about the constitutional crisis. English Canada had effectively deserted the contract of 1867. We should understand what this meant for the future. If Quebec were forced to choose between Canada and Quebec, they would automatically choose Quebec. There were conflicting visions of constitutional arrangements. Withdrawing Quebec from the federal system could take three or four years. Support for continuing the endeavour would face increasing costs and economic pain.

"My own assessment of such a divorce is that it would probably fizzle out in the face of mounting hostility that would sap the political will to carry it through," he said. We would not be able to cut the knot that was tied by 300 years of history.

Our structure of compassion, which would remain as long as our values remained, would have to adapt, to evolve as society and economic structure change. But change excited fear and suspicion. There was a broad consensus that the Canadian social safety net has to be changed. Built in expansive times on progressive enlargements of the government’s share of national income, it could not continue on that path. The public sector had allowed a very inefficient system to take root. There were more efficient ways to provide a safety net.

We had to move away from program dependency, which had grown and grown. But there was still no doubt that we could afford a system of social compassion.

The Canadian crisis was a crisis of confidence, of widespread misunderstanding of what we had in common, of our assets and shared values.

There was little time for questions.

If Marcel Côté saw Canada as Molière’s farcical hypochondriac, he himself sounded like Voltaire’s Dr. Pangloss in Candide for whom everything was for the best in the best of all possible Tory worlds. Five of his nine "facts" were really expectations.

The first question for the panel was aimed at him. In light of Côte’s sunny economic outlook was it churlish to feel gloomy about Canada’s prospects? Peter Nicholson, replying, thought that if Côté was right in finding us neurotic, maybe that was what fired us up to work. Moreover, there was just as much pessimism in other countries which did not happen to share the Canadian penchant for whining.

Marcella Munro from Carleton University was concerned because what she thought she was hearing from Nicholson and Côté was that we should be withdrawing from some social services. How would cutting social services to women affect her ability to compete?

Côté: "I didn’t say that. I didn’t say that. I did not say that. I didn’t say it! I didn’t say it. I didn’t say that." Having rung a full peal of changes on emphatic denial, Côté claimed his right to speak about dependency problems he knew about.