MACDONALD'S MESS

The Canadian economy also suffers from Macdonald's Mess, otherwise known as Confederation. It's supposed to be a holy topic for Canadians and no-one outside Quebec is allowed to question or criticize it, but why not?

In feudal days the common people were expected to be loyal to the nobles but the nobles were not loyal to the commoners. Now the question is whether we should be loyal to the government of Canada or to the country itself. The federal government would like to claim my loyalty but I see no evidence that federal politicians and civil servants are loyal to me, or to other Canadians. As a Canadian I owe my loyalty to the welfare of my fellow Canadians, not to the government that takes my money to pay politicians and civil servants the kind of salary and benefits that most of us will never have.

It was by taking our money that the federal government gained more power than the fathers of Confederation intended it to have. Federal taxes provide more money than the federal government can spend -- or even waste -- by itself, so the feds pass some of the take along to the provinces in the process they call "re-distribution". In a further re-distribution municipalities get up to half of their revenue from provincial governments.

The theory is that re-distribution ensures that Canadians everywhere get the same level of public service and that is partly true, but the more important effect is that it makes the provinces dependent on the federal government, and municipalities dependent on the provinces. That's good for the senior governments because it gives them power, but it's bad for Canada because it encourages waste.

If all taxes were spent by the government that collected them citizens could hold each level of government responsible, and we could reasonably expect civil servants and politicians to try to get the best value for each dollar.

But with re-distribution one government collects money that it does not spend and others spend money they do not collect. None of them are accountable to the public, and it may be a virtue for local governments to spend money on projects that are obviously wasteful.

Suppose someone in Toronto gets the idea to dig the world's deepest hole, as a tourist attraction. The hole will cost a billion dollars and be of no use to anyone and no responsible city council would spend city money on it -- but what if they can do it with federal or provincial money?

The money will be taken from the citizens anyway and it will be spent somewhere, so the question for city council is whether the money will be spent in Toronto or somewhere else. Even though the money will be wasted it's better to have it wasted in Toronto than elsewhere, so City Council will approve the hole. It will still be a waste, but now it represents jobs for citizens.

This example is intended to be ridiculous but sometimes fiction is hard-pressed to keep up with reality. In the winter of 1995-96 the federal government offered grants to help municipalities develop "infrastructure".

In itself infrastructure is {cost} goods but because roads, bridges, power grids, sewers, water lines and other infrastructure systems make us more productive they lower our cost of living and thus qualify as {benefit} goods.

And we certainly need them. Ontario needed the Highway 407 bypass around Toronto so badly, for example, that a socialist provincial government begged private industry to build it as a toll road.

Any municipality in Canada could have put a federal infrastructure grant to good use, but the grants the feds offered in the winter of 1995-96 were not intended for good use. The feds insisted that they could not be used for works already planned.

That was worse than stupid because any responsible organization makes some kind of plan for everything they really need, whether they have the money to build it or not. Because the new "infrastructure" grants could be used only for projects that had not entered the planning stage municipalities had to shelve the projects they really needed, and find new ones to benefit from the federal "giveaway".

Any project that had already been planned was disqualified so, by default, the grants could be used only for projects that no-one had seen any practical use for.

The City of North York spent $31 million dollars to build bocce courts and Edmonton spent $10 million to put luxury boxes in sports arenas. In Nova Scotia the city of Shelburne needs a municipal water system but they spent their money on underground wiring. Lunenburg needs sewers but they spent $1 million on an 18-hole golf course. Montreal spent $9 million for a circus school, Toronto spent $180 million on a "trade center," Hamilton spent $12 million on a museum that displays old military aircraft and Mississauga spent $55 million on a "living arts center"

Interviewed on TV, North York Mayor Mel Lastman said contractors charged premium prices for their work because the federal government was paying most of the bill.

Billions of dollars were wasted, and municipalities were still desperately short of money to pay for the infrastructure improvements they actually needed.

That's the kind of problem our federal government creates. The advantage is that it ties ten provinces and two territories together into a single large "nation" which is supposed to give us some kind of economic advantage -- but does it? When I look around the world I see that the rich countries-- Holland, Japan, Switzerland, Singapore, Hong Kong and others -- have very little territory and that almost all counties with big geographic area -- like Russia, China, Brazil and India -- are poor.

In fact history shows us no large geographic area that has ever become uniformly developed and wealthy under unified economic control. The one apparent exception to the rule is the United States, but the exception is an illusion.

The United States developed the strongest economy in the world in the 19th and early 20th Centuries, while interstate banking laws sub-divided the country into 48 local economies.

While interstate banking was illegal US banks could operate in only one state. When a farmer deposited his savings in a local bank in Idaho, for example, the bank had to lend that money within Idaho. Because there was money to loan in every state entrepreneurs could raise capital anywhere in the United States, and major companies developed in every state.

Since Roosevelt centralized the American economy in the 1930's it has done well only in time of war, or when war threatened.

Now Europe is trying to form a single big economy and the problems are already showing up. Before the Common Market was formed most European countries had labor shortages and they had to import "guest workers" from the middle east and North Africa. Now even Germany has serious unemployment.

The final nail in the coffin of Europe's economy may be a common currency, because that will remove the last obvious warning sign of economic problems.

While each country has its own currency they all have a built-in and highly public economic indicator. If the German Mark rises against the French Franc the French have a warning that something is wrong with their economy, and if the Swiss Franc rises the Swiss know they are doing something right. Every day the money markets of the world offer a careful and highly public assessment of each country's economic performance.

With a common currency this is lost because bad management in one country will be offset by good management in another, and the value of the currency can't reflect either. Even prices can't change much to reflect problems, because they will also be stabilized.

Without the early warning provided by money markets some areas could fall into hopeless economic traps.

Small countries are easier to govern than big ones, and it may well be impossible to develop a country as big as Canada. Sir John A. Macdonald was knighted for managing Confederation but knighthoods are granted for services to the British Crown, not to the Canadian people.

England wanted the Canadian colonies to unite because the British Colonial office was afraid we might join the States or that the Americans might take over Canada. Both were real possibilities because many Canadians liked the American idea, and in the 19th century Canada had more emigrants moving to the US than immigrants coming from England. Further, Britain had backed the south in the American Civil War and there was a serious danger that the North would retaliate by taking over Canada.

No one of the five Canadian colonies could support an army big enough to control the colonists or deter the Americans, so the British had to keep their own troops here. If the five Canadian colonies confederated they could raise and maintain an army, and the British armies that defended Canada could be brought home. It's also cheaper to administer one colony than five.

And England wanted to keep the land we now call the Canadian west. It's cut off from Canada's west coast by mountains and from the east by the Canadian shield and geographically it's a natural extension of the American west, but England wanted to keep it British.

To be fair the idea of Confederation looked good in the 1860's. In those days Canada consisted of a few small islands of civilization and a huge hinterland that cost nothing to administer -- mostly because it was not administered -- but which could be plundered for natural resources. In the context of the 1860's Confederation made economic sense for the people who lived in the east and plundered the west.

Confederation also gave the backers of the Canadian Pacific Railway access to a virtually bottomless pork barrel. The CPR got 25 million acres of land as a down payment and for more than 100 years after Confederation it was able to tap Canadian taxpayers for unending subsidies. Between them the Canadian Pacific, the Grand Trunk and several smaller railway companies got about 25 per-cent of all the land in the Canadian west. Most of the small railways failed, and their remains were merged into the Canadian National Railway in 1923.

Supporters of the CPR like to pretend that the railway made Confederation possible because it provided cross-country transportation, but in fact it made it impossible for Confederation to work.

Before Confederation the west was a remote and wild land, to be plundered by anyone who could get there, but it was hard to get there and few people came to stay. After the west was settled the needs of people who lived there had to be considered, and that created a series of problems.

One was the CPR, which held a monopoly on transportation and which charged monopoly rates. The railway held western settlers to ransom until the 1890's, when American railways threatened to move in to new mining districts in the Kootenay Mountains.

Rather than build new lines with its own money the CPR asked for federal aid. In exchange for $3.3 million in cash the railway agreed to peg eastbound rates on wheat and flour and westbound rates on specified "settlers' effects" at the 1897 level forever. The rate reduction made mass settlement of the west possible and the "Crow Rate" was enshrined in Canadian mythology.

The agreement was suspended and the railways allowed to raise rates during the inflation of World War I, and the CPR resisted attempts to re-impose it after 1922. In 1927 the rates for grain and flour were reinstated on all CP lines.

In 1983 the Crow Rate agreement was replaced by the Western Grain Transportation Act which allowed grain shipping prices to increase gradually, and the federal government paid hundreds of millions of dollars -- $675 million on 1987 -- to subsidize the shipment of grain.

The railway and the government both pretended that the agreements were for the benefit of Canadian farmers, but in fact they were not. The real purpose of the Crow Rate was to keep the grain in Canada, and to tie Canadian farmers to the Canadian railway and Canadian grain merchants.

Then and now the obvious way to ship grain from the Canadian west to world markets is through the United States, because that's the way the land lies.

To ship grain from the prairies to the west coast you have to haul it over five ranges of mountains. The route to the east crosses about 500 miles of the Canadian shield -- said to be the toughest railroading country in the world -- to Thunder Bay. There grain can be stored in winter and shipped by lake freighter in summer to Toronto or Montreal, or it can be shipped over another 1,000 miles of the Canadian shield direct to the big cities. Either way is very expensive.

The shortest route from the prairies to tidewater heads north from Winnipeg to the port of Churchill, on Hudson's Bay. It's a short run to the water but often a long wait for a ship, because Churchill is frozen solid much of the year. When the port is open shipping is still a problem because ships coming to Churchill have to cross the Labrador Sea near the head of "iceberg ally" -- the route icebergs take south from Greenland to plague warmer waters farther south.

But south of the Canadian prairies the land rises gently for a few miles, then slopes down the Mississippi valley to New Orleans. If you ship by rail the train can almost coast most of the trip, or you can ship most of the way by barge. Either way, it's cheap and easy access to a big port that never freezes.

And the route to the south was practical even in 1867. River steamers cruised the North and South Saskatchewan rivers before the railway was built, and the year before the CPR reached Calgary a steamship out of Winnipeg was sunk at Medicine Hat. As late as 1909 trains passing through Saskatoon fueled up on coal that came from Medicine Hat by river steamer. Edmonton had steamer service from Lloydminster until 1923, when the last five steamers burned at their docks in a sensational fire.

In 1872 the Red River Transportation Company, later to become a partner in the CPR, ran river steamers from Winnipeg to the United States border. When the CPR started work in the west they had a steam locomotive delivered to Winnipeg by river steamer from the Mississippi.

Almost any time after about 1820, western Canadian farmers could have shipped grain to New Orleans by river steamer.

The Crow Rate subsidy kept western grain in Canada and it virtually created the twin cities of Fort William and Prince Arthur -- now amalgamated as Thunder Bay. It also made a fortune for the railways, but it stifled industry in the west.

The problem for the west was that the Crow Rate subsidized the shipment of grain and flour, but not of products made from grain.

Major distilleries in the United States developed in Tennessee, because it takes several pounds of grain to make one pound of whiskey. Because whiskey is expensive, the cost of shipping it is relatively lower than the cost of shipping grain. Farmers could not afford to ship raw grain very far, but distillers could afford to ship whiskey.

In Canada it worked the other way, because the shipment of grain was subsidized and the shipment of liquor was not. Canadian distilleries developed in the east, and taxpayers across Canada paid the subsidy that robbed the west of industrial development.

Feedlots, slaughter houses and packing plants for Canadian meat should also have been built in the west -- where the calves were born and the grain grown -- but again the Crow Rate upset the scales. Because the shipment of grain was subsidized and the shipment of meat was not calves born in the west were shipped to the east. There they were fed grain grown in the west, then slaughtered and packed -- and some of the meat was shipped back to the west. Because of the Crow Rate the west lost the feedlot and other industries.

Even now, under the Western Grain Transportation Act, the subsidy is paid direct to the railways and western industry works under a handicap.

Confederation also destroyed most of Nova Scotia's industry. At the time of Confederation Nova Scotia and New Brunswick were about as heavily industrialized as Ontario, with established markets in the Caribbean. In 1865 12% of Nova Scotia's exports and 13% of New Brunswick's were manufactured goods. In 1871 the per-capita industrial output of New Brunswick was about the same as that of Ontario and Quebec.

Most of the Maritimes' trade ties were with the United States, Europe and the Caribbean, and there was no significant trade with Ontario and Quebec. The Maritimes didn't want to join Confederation because they were afraid Canada would demand high tariffs, which would damage their manufacturing businesses, but they did want a railway to Upper Canada. Upper Canadians did not want the railway, but they did want Confederation.

After Confederation the Intercolonial Railway was built as a combined government\private venture, but it never covered its own costs.

Confederation did not change the Maritimes' markets but it did change their finances because Canadian banks were given national charters, and eventually they concentrated their head offices in Toronto.

Workers in Nova Scotia deposited their wages in the local bank but the Bank of Nova Scotia centered its operations in Toronto. Because the executives were in Toronto the big loans were approved in Toronto, and the money that workers in Nova Scotia deposited in their local banks helped finance business in Toronto while business in Nova Scotia was starved for capital.

Taxpayers across the country have paid billions of dollars in subsidies to restore the balance but, with a federal system that centralized the economy in Ontario, Nova Scotia and other maritime provinces are still at a disadvantage.

Confederation also created a continuing monetary crisis because of conflicting economic needs. Manufacturing economies like Ontario need a cheap dollar that will make imported manufactured goods expensive and help local goods compete in home and world markets. Resource economies like the west need an expensive dollar that will make their exports worth more and their imported goods cheap.

Canada's monetary policy wavers one way or the other as different politicians gain or lose power and, as the policy is adjusted to benefit one part of the country and penalize another, the federal government tries to balance the books with subsidies. That never works because the areas that benefit from the policy of the day are taxed to pay the subsidy, and the subsidy is never enough to compensate other areas for their losses.

But through all this some Canadians did very well from Confederation. The railways, obviously, because they were subsidized to make it work and other big companies because it offered them a bigger market. The Bank of Nova Scotia, for example, had more room to grow in Toronto than it had in its home market of Nova Scotia.

And confederation is a bonanza for civil servants. With two levels of government to co-ordinate and dozens of assorted subsidy programs to administer both federal and provincial governments developed huge and very comfortable bureaucracies. Some body counts suggest that more than half of all federal and provincial civil servants are there to co-ordinate the workings of the federal and the provincial governments.

Among the provinces the big winner in Confederation is Quebec, especially since Trudeau forced bilingualism on English Canada but not Quebec. Now Francophones have a distinct advantage over Anglophones.

The first advantage is in Ottawa, because federal employees must be bilingual. Because most Francophones are bilingual and few Anglophones are, Francophones get first run at federal government jobs. The advantage continues partly because Francophones now control the federal civil service. We all know that they are completely impartial and that they give no more consideration to Francophones than to others, but we also know that politicians are honest.

Even if there were no bias in the civil service bilingualism would still give Francophones an edge because it's much easier for a Francophone to learn and practice English than for an Anglophone to learn and practice French.

Most Canadians live hundreds or thousands of miles from any French-speaking center, and the few who live close to the Quebec border don't cross it very often because much of the Quebec population is hostile.

Most Quebecers live within a few hours' drive of either the Ontario or the United States border, and tens of thousands of them go to the States for winter vacations in the sun or for cheap shopping. That means most of them can practice English in an English-speaking environment, but few Anglophone Canadians have any opportunity to practice French.

Given the Francophone dominance of the federal civil service and the federal government's habit of "helping" selected Canadian businesses, it's not surprising that some Quebec-based companies find it easier to get federal help than companies based in other parts of the country.

Quebec's suspicion of the rest of Canada is also a unifying force, and it gives the people of Quebec an economic and cultural advantage. As a Canadian I resent Quebec's power and the way they abuse minorities, but my resentment is partly envy.

If Canada, or even Ontario, were more cohesive Quebec's divisive tactics would not work, and we would gain some advantages.

But French or English, all Canadians lose from Confederation. The economy of the Maritimes was destroyed by it and the economy of the west was not allowed to develop. Even Ontario and Quebec suffered because they were taxed for the subsidies that in some cases damaged the Canadians they were supposed to help, and we all have to support a bloated civil service that serves mostly its own ends.

Some federalists talk about the benefits of a big market area, but that's just bafflegab. Confederation does not allow tariffs between provinces but it does allow other barriers. Through most of history there have been more trade barriers between Canadian provinces than there have been between Canada and other countries. Some of the most successful economies of the world have about the same population as the province of Ontario.

The last straw for the Canadian economy and for Confederation may have been the election of one-time Quebec nationalist, now overt federalist, Pierre Trudeau as Prime Minister in 1967.

Born rich and educated by priests he was the archetype of the dilettante dreamer with no practical experience. Unfortunately for Canada he was also a charismatic speaker and a master manipulator.

His pro-French policy allowed him to load the federal civil service with Francophones, who in turn made it virtually impossible for a prime minister from any province other than Quebec to hold office.

Politicians from Quebec already had a head start at the prime minister's office because Quebec voters tend to vote for the Quebec candidate, while voters from the rest of Canada tend to vote for the best candidate no matter where he comes from. After Trudeau's French-first policy loaded the federal civil service with Francophones, politicians from Quebec had a second edge because the civil service helped get rid of leaders from any other part of Canada.

When Alberta's Joe Clark won the office in 1979 he managed to hold it only nine months. Some say he was tricked into calling an election he could not win.

Trudeau came back for another four years. When he retired his party -- which has a tradition of alternating French and English national leaders -- elected Ontario's John Turner to replace him.

Turner won the election in 1984 but Trudeau double-crossed his own party by openly supporting conservative Brian Mulroney. With Trudeau's knife in his back Turner lasted only three months, to be replaced by Quebec's Brian Mulroney. Canadians might be forgiven for wondering if Trudeau's loyalty to Quebec against the rest of Canada might be deeper than this loyalty to the party that put him in power and supported him for years.

British Columbia's Kim Campbell may have been a sacrificial lamb, because no-one could seriously expect the Conservative party to win another election after Mulroney. After Campbell was disposed of, the Conservatives chose a Quebec Francophone as leader.

Now we have Jean Chretien, a Quebec-based Francophone with a staff of Francophone civil servants, representing Canada in negotiations with Quebec; and we wonder why Quebec seems to win most points.

Trudeau also made it possible to turn Canada into a dictatorship, by "patriating the constitution." The words have a fine nationalist ring but in fact the old system, in which the Canadian government could not change the constitution on its own, was close to ideal.

If the government can't change the law, freedom is safe. When a government can change its own laws, it is not bound by law. We saw that in the free trade debate when Brian Mulroney packed the Senate with his supporters to ensure passage of a pact that most Canadians didn't want. Thanks to Trudeau a prime minister with a majority can now act as a virtual dictator, and we have a political system that could easily be taken over by a real dictator.

Trudeau also takes public credit for the "bill of rights", which was proposed and passed soon after the public discovered that the RCMP was illegally opening mail. Publicity about the bill of rights helped smother public concern about federal police breaking the law, and about the creation of a new federal security force that was actually authorized to break laws.

And for all the fooferaw about a so-called "bill of rights" the federal government has never seen a way or a reason to enforce the rights of English speaking people in Quebec. The world court found Quebec's Bill 101, which forbids the use of any language but French for public signs, to be a violation of human rights; but Canada's federal government still allows Quebec to trample the rights of minorities.

But Trudeau's greatest damage may have been in the field of economics. With lots of school-book learning but no practical experience he believed in Marshall's Fallacy, and he convinced a whole generation of Canadians that the time had come for a significant portion of the population to live on welfare.

He may have destroyed our economy with his moves in education and immigration. With no practical training or experience himself he didn't understand the need for practical training, and it was partly his influence that helped spur the creation of dozens of arts colleges while Canada was in desperate need of trained technicians.

Our need for technicians was partly the result of Trudeau's immigration policy, under which he closed Canadian immigration offices in Europe and opened new ones in the third world. It's generally believed that the new offices were opened in areas where Liberal party tacticians thought they would attract immigrants who would vote Liberal in thanks for admission to Canada, but the secondary effects were more important.

When Trudeau closed the doors to European immigrants he cut off the supply of skilled tradesmen who could have kept the Canadian economy working. When he opened them to immigrants from the third world -- most of them educated in colonial schools which stressed arts rather than technology -- he brought in well educated but un-skilled immigrants who could and would demand highly-paid non-productive jobs.

Trudeau's official policy of "multi-culturalism" also encouraged new immigrants to keep the cultures and ideas of their former home lands rather than become part of a new one. The policy fragmented so-called "English Canada" -- which is no longer "English" -- and increased the relative power of Quebec, where it was not applied.

We have seen in Russia, Yugoslavia and other break-ups the end result of holding an artificial country together too long, but with luck Canada still might achieve the kind of peaceful agreement that separated the Czeck Republic from Slovakia.

But before we break up Canada we have a moral obligation to break up Quebec, to protect the minorities whose civil rights are trampled even while they are supposedly protected by the Canadian Bill of Rights.

In a free world English Canadians have no right to hold the French-speaking area around Quebec City as part of Canada. By the same token, Quebec has no right to hold the 42 municipalities that have already declared that they would stay with Canada if Quebec separated, or the English speaking areas of Montreal, the Ottawa and the South Shore, or the First Nations Territories of the north.

If Quebec were allowed to secede as a unit, ruled by racist and xenophobic extremists who have no regard for human rights, it would probably be involved in a bloody civil war within 20 years. Because Canada would be unable to stop it the US would be forced to intervene, and perhaps to take control of Quebec as a protectorate.

The logical alternative is a gradual re-structuring of the country we now call Canada into a series of autonomous regions in which people with common interests can manage their own affairs, and perhaps share some services in common.

And these regions need not be identical with the existing provinces. Some areas of Labrador, for example, have closer ties to and get more service from Quebec than from Newfoundland, and they might choose to join Quebec.

Native groups might choose to form their own independent region, either allied or not allied with the rest of Canada, and the English-speaking South Shore of Quebec might choose to join Ontario, or to form another independent region.

Northern Ontario might choose separate status, or perhaps most of Ontario west of Thunder Bay might choose to join Manitoba. By the same token most of Eastern BC has closer ties to Edmonton and Alberta than to Vancouver and Victoria, and the people of that area might choose to join Alberta.

Whatever happens, the operative word is choice. Civil servants in Toronto may think they have a divine right to control the destiny of a town like Kenora, but the people of Kenora might have their own ideas. In a free society, those ideas would be respected.

A sudden breakup of Canada would be a shock to all but a gradual breakup, by agreement, would allow us to rebuild the country we now call Canada as a loose confederation of cohesive regions which would co-operate on matters of mutual interest but which would otherwise manage their own affairs.

Quebec would be allowed to join such a federation too, provided it agrees to honor the civil rights of minority groups. If not, the English speaking areas of Quebec would be spun off into a separate province that would probably want to join the Canadian union, and native groups would be allowed to join the union if they want to.

In a new confederation the Atlantic provinces would lose the subsidies that keep them dependent on Ottawa, but they need not be cut off immediately. They proved before Confederation that without federal interference they are well able to support themselves, and if they were allowed to re-establish their economic independence they would not need subsidies for long.

Ontario would lose control of western resources but it would also lose the millstones of the federal government and dependent Atlantic provinces. The prairies would probably maintain ties with Canada but they might well move their grain trade from the inefficient Canadian route to the logical American route.

As independent regions all parts of Canada could hope to join Switzerland, Hong Kong, Sweden, Singapore, Holland, Japan and the other wealthy nations of the world. As one large country we must expect to join Brazil, Russia, China, Nigeria and India -- and perhaps some-day the United States -- among the poor nations of the world.

The one advantage of a big country is that it provides a big tax base for big government to extract big money from. The federal politicians and civil servants who struggle against de-confederation are not trying to preserve a great country, but to protect their power base.

And they will protect it, as civil servants always protect their jobs. We saw them in action when Ontario premiere Mike Harris tried to cut some of the fat out of Ontario's civil service, and again when he tried to simplify Toronto's administration.

With hundreds of thousands of plush jobs on the line, we can expect both federal and provincial civil servants to fight tooth and nail to prevent the breakup of Canada. Confederation has been good to them, but the artificial union that keeps them fat has been poison to most Canadians.

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