Why the Nordic social democratic model can’t be implemented from Ottawa

BroadbentInstitute.ca – Blog
August 25, 2017.    Posted by TOM PARKIN

The Broadbent Institute’s new project, Change the Game, takes a critical look at the history of social democracy in Canada, with the intention of learning from the successes and challenges of the past in order to build the best possible path forward. We invite you to join us in rethinking and renewing social democracy by reading other entries in this series.

It’s common for Canadian social democrats to model themselves after the so-called Nordic countries—Denmark, Finland, Sweden, Norway and Iceland. Those societies have achieved a high degree of social solidarity, economic prosperity and personal freedom. They have strong educational outcomes, lower levels of inequality and good health. They have an internationalist outlook. They are happy.

We should import the Nordic model, say many Canadian social democrats. But—is it coincidental?—the Nordic countries all have a fundamentally different political constitution than ours. They are all unitary nations without provinces, states or territories. Canada is a federation with powers constitutionally divided between two levels of government.

Social democrats at the head of a unitary state have all policy levers and pulleys close at hand. A single Cabinet runs economic ministries, training, health care, education and welfare. It sets laws to shape and encourage—or not—collective bargaining. It runs capital and credit organizations such as the central bank, public pension funds, development banks and housing market credit agencies. In unitary states, a Cabinet can co-ordinate policies that adopt and adapt the social democratic model. We don’t.

Indeed, at times when the Parti Quebecois appeared as a social democratic force, a strong left-wing argument for Quebec separation was that social democracy was unachievable within a federalist framework—or at least with Liberals and Conservative federal parties constantly in power. A separate, unitary Quebec state, so went the argument on the Quebec left, would move all levers and pulleys to Quebec City where they could be used to build a social democracy. Quebec’s more full use of its jurisdictional powers for social democratic aims has been elsewhere discussed by Peter Graefe.

For progressive Quebecers, a movement toward social democracy may have existed under the cooperative federalism of the 1950s and 1960s, when federal Liberal and Conservative governments both used federal spending power to advance socialized health care, pensions and build supports for low-income Canadians. But, as Tom Kent has pointed out, in the mid-70s when Liberals reversed course and started cutting federal fiscal support, provincial leaders—Quebec and elsewhere—quickly became reluctant to jump on board with any further national cost-shared plans. Development of the social democratic federal state ground to a halt.

The massive cuts to the cost shared social programs by Prime Minister Chretien in February 1995 were just the stake in the heart of cooperative federalism and pan-Canadian social development. And surely it should be no surprise that, seven months after his deep cuts came Chretien’s near-disaster in the 1995 referendum. Federal Liberal cuts to social programs reinforced the view on the Quebec political left that Quebec could never be a social democracy while it remained in Canada.

Without doubt, the election of a federal New Democratic Party could take many progressive steps in areas of exclusive federal jurisdiction. In foreign affairs and defense, social democrats would be stronger on peacekeeping and nation-building while steering clear of ‘regime change’ appeals. To address poverty, it could improve low-income support transfers. In tax policy, New Democrats could break up destructive wealth concentration and limit obscene executive compensation. On infrastructure, social democrats would decouple infrastructure construction from privatized project financing. On reconciliation, New Democrats could immediately improve education, remove inexcusable barriers to health care and start good faith discussions about putting a nation-to-nation relationship in place.

The challenge of Federalism

In other areas, particularly major areas of social policy, it’s not so simple.

Health care is an instructive example. Canada’s constitution puts health care under exclusive provincial jurisdiction. A 1946 First Ministers conference aimed at creating a national health care plan failed. So, in 1947, CCF-led Saskatchewan started universal public hospitalization insurance while the federal government used its spending power to support provincial construction of public hospitals. During the next decade several provinces created hospitalization plans. In 1957, the Diefenbaker government passed legislation allowing the federal government to fund provincial hospitalization plans and by 1960 all provinces operated plans. Taking the next step in 1961, the Saskatchewan CCF/NDP introduced legislation expanding universal public health insurance to cover physician visits. In 1966, the Pearson government’s Medical Care Act allowed Ottawa to fund half the cost of a province’s physician care coverage. Within a few years all provinces had joined.

All in all, it was a 20 year struggle led by Saskatchewan’s CCF and NDP governments and supported by federal governments. That was co-operative federalism.

Not being clear about the challenges of federalism to social democratic reforms has a price, particularly in an era in which cooperative federalism has been so deeply undermined. In the 2015 federal election, the NDP assembled an ambitious plan for a national child care program. The NDP campaign produced timelines and investment schedules showing that one million child care spaces would be created within four years. But it was an overpromise because it failed to address the prospect of provincial disagreement or opposition—which the Liberals quickly exposed. Ontario Premier Kathleen Wynne, allied to federal Liberal leader Justin Trudeau, announced her province would not participate in a NDP-led national cost-shared childcare program. Thud.

NDP strategists may have believed they had Wynne cornered—that the self-proclaimed social justice premier could never kill childcare. But as so many do, the strategists underestimated the deepness of Liberal partisanship and the shallowness of their proclamations. On childcare, the Liberals used federalism and NDP over-reach to win the point, undermining a central NDP commitment. The Liberals went on to win the election and kill child care—again.

More recently in the NDP leadership race, there has been talk of a plan to eliminate university and college tuition fees. Those plans have also run face-first into the awkward reality that any steps forward would require provincial support—which doesn’t exist.

But it’s not just a problem of social programs. The Nordic model isn’t just a capitalist-run economy with social programs and a progressive tax system wrapped around it. The economies of Nordic social democracies are run by a social partnership between employers and labour that by its nature creates greater equality. And as with social programs, creating and embedding such social partnerships into the Canadian economy runs head-long into the problem of federalism.

A different approach to labour markets

Stefan Löfven is the leader of the Swedish Social Democratic Party and Prime Minister. In December 2014, Löfven, only two months after becoming Prime Minister, gave a presentation at the New York University law school on the Nordic model. Löfven described the Nordic model of social democracy as resting on three pillars: an economic policy focused on full employment, a universal and generous welfare system and an organized labour market.

Perhaps the most powerful pillar is the organized labour market which creates the basis of economic social partnership. National laws set out some employment law. But wages and work conditions are freely negotiated by the social partners, employers and labour, without government interference.

Unlike the Canadian system in which bargaining units are typically based on a workplace, Swedish collective bargaining is highly centralized. National sector agreements are established between sectoral unions and sector employer associations that apply to all workplaces and workers in the sector, regardless of union membership status. These contracts even establish sectoral minimum wages and therefore Sweden law sets no minimum wage. Löfven argues this system gives the social partners the flexibility to innovate by sector.

Sweden’s centralized national sectoral agreements help boost workers’ wages and ensure fair treatment in the workplace. But they do something far more transformational: they embed worker representatives in the economy with a key role in deciding how productivity gains and income distribution should be balanced with investment and innovation needs.

This system brings flexibility and greater equality—but also stability. And with the social partners bringing stability to the economy on wages and investment, other policy levers don’t have to be activated. In Canada, without this core stability, periods of economic growth are routinely choked-off by the Bank of Canada, using interest rate policies, out of fear that falling unemployment will trigger wage-driven inflation. The Canadian policy is to maintain joblessness, squelching growth if required. Sweden, on the other hand, has had long periods of unemployment at two or three per cent concurrent with low inflation.

Around the Nordic model’s core stability, the Social Democrats can array policies to promote high labour force participation. Training, apprenticeship, child care and other programs have resulted in Sweden’s enviable labour force participation rate, which has ranged between 70 and 74 per cent in the past ten years. The Canadian labour force participation rate has never broken 68 per cent and currently stands at about 66 per cent. When three-quarters of the working-age population contributes to the economy, more wealth is generated than if just two-thirds of them do.

The Nordic model isn’t social democratic government. It’s an economic structure constituted through the contracts between the social partners, independent of the government of the day. It survives even when the Social Democrats are out of office.

But it can get sick—and when it does, it requires the active support of politicians who understand and support the model. In Sweden the Nordic model has taken several shocks, the most recent being in 2007 when the centre-right were in government. And that they failed to prepare for the shock—or repair the model from it—explains, to some degree, the growth of the far-right and anti-immigrant Sweden Democrats party.

In a key case, a Latvian company, Laval, brought Latvian labourers to work on a construction project in Sweden, which it is entitled to do under EU labour mobility laws. The workers were covered by a collective agreement, bargained in Latvia, paying far below the standard set by the Swedish building trades union. The Swedish labour movement picketed the work aiming to bring the Latvian workers under their agreement terms. However, a judgement by the European Court ruled that the Latvian contract could stand. The episode unleashed considerable anti-foreigner and anti-Europe emotions, fueling the popularity of the anti-immigrant Sweden Democrats.

Structural barriers to change

Creating social partnership in the Canadian economy faces the structural challenge of federalism. The Canadian constitution’s ‘works and undertakings’ clause gives provinces jurisdiction over most labour markets, with only certain sectors—interprovincial operations (such as transportation), finance, telecommunications, etc.—under federal jurisdiction. As a result, about 90 per cent of Canadian workers are employed in operations under provincial jurisdiction.

If an organized labour market with centralized bargaining is core to social democratic model, the path to social democracy runs through the provincial capitals, not through top-down policies set in Ottawa. That path may lie quite at odds with a party that has historically taken a centralizing view, as explained by Walter Young in Anatomy of a Party.

So the question shifts. The issue is not how a federal government can create a Nordic-style social democratic economy—it can’t. The challenge for social democrats in Ottawa is to encourage provincial social democrats and help them build their social democratic economy. The path to Canadian social democracy runs through the provincial capitals.

Some of the discussion in the current federal leadership race has begun to struggle with this strategic problem. A couple of candidates have drafted policies that would help provinces transition to clean-energy economies. These policies focus on training, labour force adjustment, carbon tax policy and public investment—and hope to do so in co-operation with provincial capitals.

Think through how such a plan would work politically. There have been times when the biggest wish of a NDP Premier for the federal NDP leader is that he or she doesn’t visit or say anything to fuel provincial conservative opposition. A federal NDP strategy that views provincial NDP governments as the hothouses of Canadian social democracy and themselves as the caretakers would create positive political alignment.

For example, a clean energy economic diversification strategy of the sort that has been discussed in the NDP leadership race would likely be warmly greeted by NDP Premier Notley, who is struggling to diversify her economy and shut down coal-burning electrical generation. If would also likely be embraced by the Saskatchewan and Newfoundland and Labrador NDP sections, which aim to join Notley in governing energy-rich provinces in need of diversification. But it’s not likely to be embraced by Saskatchewan’s current right-wing government, or the Alberta right-wing, neither of which seem interested in transition away from coal or implementing carbon pricing.

The Canadian constitution, through it’s equalization clause, considers the idea that Canadians, regardless of province of residence, should enjoy roughly equal levels of social programs such as health care and education. This, at least in spirit, requires a federal government to assist each province’s social programs equally. But that logic has never applied to economic projects. If right-wing provincial governments don’t want to participate in economic diversification projects funded by the federal government, they are perfectly entitled to not participate. The rest of the country can march forward.

A challenge for the federal NDP

Understanding federalism and getting the alignment right means a federal NDP leader who is constantly bolstering provincial NDP sections and always has something to say that will be well-received in provincial capitals—at least among social democrats, whether in government or opposition.

Such a stance could also support the NDP’s recent and hard-won success in Quebec. A helpful federal partner that encourages the social democratic development of Quebec—rather than blocks it—could provide a pathway to reorient the Quebec left—regardless of language—to the project of Canada, rather than separation.

But what none of the current federal leadership campaigns have talked about—not specifically, anyway—is how clean energy transition and diversification (or another strategy) could help develop an economy based on social partnership and the stability the unitary Nordics have developed.

The policies and options on that frontier are a subject for full discussion another day—after the NDP has a permanent leader who can start the dialogue with provincial counterparts. But, as an introductory idea, an access point could lie in labour market transition strategies. The construction and building trades have built multi-employer bargaining arrangements in which the union plays a key role in training and redeploying workers. With their employers, these trade unions have studied anticipated skill demands and, through their training centres, prepare their members to arrive at a worksite qualified and ready to work. Advocating federally funded strategies that strengthen these existing social partnerships and expand them into other sectors could be early steps in building Canada’s federal Nordic model.

The problem of federalism is not an intractable one. But the challenges of federalism cannot be ignored. It’s not simply that New Democrats need to be honest with voters about what social democrats propose. It’s not just that federal New Democrats need to avoid setting themselves up for counter-attacks from their opponents’ provincial allies. It’s not even that over-reach would get bogged down in federal-provincial skirmishing and struck down by courts.

The point is that to achieve what social democrats hope for, federal New Democrats need to understand and leverage Canada’s federal structure. Water cannot run uphill. Time cannot go backward. And social democracy cannot be implemented from Ottawa.

Creating the social partnership that is the core of social democracy—in the Nordic model, anyway—is a provincial undertaking which can greatly benefit from a strong federal ally. Federal New Democrats need to be social democratic federalists, constantly looking for ways to support provincial social democratic projects in ways that will strengthen social partnerships. It means being powerfully strategic and bold in the places where the opportunities for structural economic change lie.

Social democratic federalism would not only politically align the federal party and provincial sections while setting out a path to social democracy. It may also create an enduring bond among progressives in Quebec and across Canada through an attractive and practical alternative to both separatism and neo-liberalism. It’s time to look with clear eyes about how social democrats make change. Our federal constitution has been a brake on success. But perhaps, with the right strategy, it can become an engine for change.

Tom Parkin is a Postmedia columnist and frequent media commentator.

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