Harper and McGuinty should look to Sir John A. on debt

TheGlobeandMail.com – news/politics/second-reading/andrew-steele
Posted on Thursday, April 12, 2012.   Andrew Steele

For Stephen Harper, Dalton McGuinty, Jean Charest and our other first ministers, the temptation when public finances are bad is to think small.

Let’s cut a little here, trim back our vision there, and eventually things will be okay.

But Confederation provides a stirring example of why thinking big is exactly what we need to do in the face of public debt.

The 1860s were a stomach-churning time for Canadian colonialists, one of the most unsettled and exciting periods in our existence. The world was bending into shapes previously unimagined, and British colonists in North America needed to think bravely or collapse.

Forcing our hand, the British were changing from doting imperial parents to neglect.

Canada’s early colonies grew up with the privilege of British mercantile policy. In other words, Canadians had privileged access for our goods to the largest, wealthiest market in the world: the United Kingdom. Just about everyone else on the planet – American, French, Argentina – faced steep taxes on their products if they were sold in London.

With the advent of free trade and responsible government, the age of infant Canada ended and our colonial forbearers had to face the cold hard world on their own.

Losing our privileged access to Britain, Canada entered into a free trade agreement with the United States beginning in 1854. We wanted access to the American market, now that the British one no longer gave us preference.

However, the American Civil War exposed Canadians to the full terror of total war to their south, and the growing American imperialism of the 19th century was no longer aimed at Mexico but squarely at subsuming the vast territory of the North-West between the tiny British Columbia colony and those in the East.

Free trade with the Americans was a dangerous game, and one that the Americans were increasingly unwilling to play.

British footsie with the Confederates turned Northern attitudes against Canada, and calls for invasion were not rare. Irish-American raiders were marauding across the border to wreck and plunder. The Americans began to erect tariff walls against Canadian goods, ending free trade for a hundred years.

Worst of all, Canada lost the race to open the new markets in the American Midwest, and practically went bankrupt in the attempt.

As Rotman lecturer and colleague J.C. Bourque recently noted, the Rowell-Sirois Report from 1940 includes a fascinating chapter on Canada’s pre-Confederation economic origin as a collection of over-extended debtor colonies.

Commercial interests in Montreal pressed to create a seaway along the St. Lawrence River that would allow the Great Lakes to serve as the highway to the American interior. With free trade, our passageway would become the transit point on the future North American economy, creating vast wealth and opening up our own landlocked farmers to the global economy.

It would be Montreal, they thought, not New York that would be the new port to the world, a glittering financial capital growing fat on cargo and credit.

Instead of this vision, New York beat them to the punch. First the Erie Canal from Buffalo to the Hudson River opened up the Midwest to the port of New York. Then the railways consolidated the Empire State’s hold on global trade from the American interior even further.

As Rowell-Sirois state: “Successive colonial governments had been inspired by this dream with the result that government policy and public finance had been harnessed to the grandiose conception of the St. Lawrence as a trade route. In ambitious but always futile efforts to realize this great plan, the Province [of Canada] had accumulated a set of public works and a crushing public debt, both too massive for an economy limited by its own boundaries.”

Compounding the problem were a succession of expensive railway failures in the Maritimes and Upper and Lower Canada that spread this financial catastrophe across the British colonies in the East.

“The attempt at commercial integration with the interior of the continent had irretrievably failed and left behind it a burden of debt which weighed oppressively on the economy.”

The colonies were stuck.

Saddled by debt, they could have thought small and pulled back into their individual interests, allowing the Americans to open up the lands of the Hudson’s Bay colony and leaving BC an isolated naval outpost of the British Empire.

Instead, Canadians made a bold leap.

They doubled-down in betting on themselves and united the British colonies in North America into one country with the financial strength to beat the Americans into the North-West.

The decision was financially risky and not without its costs. Confederation and the National Policy of high tariffs and East-West trade increased prices and lowered our ability to compete. But it was the crucial decision that developed a new nation, separate from the United States and eventually wealthy beyond the dreams of our founders.

Now is not the time for a new National Policy, per se. Canadians have built the infrastructure that links us together and are willing and able to take on the world.

But our current financial challenges should be viewed as an opportunity to think that big.

Canada needs an Asia strategy, both to hedge our economic bets with the Americans and leverage our own cultural ties to Asia to find new markets.

We need a coherent pan-Canadian foreign direct investment strategy to maximize our attractiveness as a job creation and investment hub for global capital, involving the federal government, provinces, municipalities and business.

We need to encourage entrepreneurialism and venture among Canadians, find ways to bridge the investment gulf between start-ups and lenders, and get our corporations to put less cash on their balance sheets and more into productivity enhancement.

We need to confront the pockets of hopeless poverty in our cities, rural areas and reserves, collapsing outdated social programs that aren’t working and finding new ways to end intergenerational privation.

We need an innovation strategy that promotes excellence in our universities, investment in R&D by our companies, and makes rock stars of our leading researchers.

Canada has proven in the past it can buck the odds and build despite debt.

Let’s follow the example from Sir John A. Macdonald, George Brown and Etienne Cartier and take a gamble on ourselves again.

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