Continuing Committee of Ministers of the Constitution, Powers over the Economy: Securing the Canadian Economic Union in the Constitution, Discussion Paper Submitted by the Government of Saskatchewan (22-25 July 1980)


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Date: 1980-07-22
By: Saskatchewan
Citation: Continuing Committee of Ministers of the Constitution, Powers over the Economy: Securing the Canadian Economic Union in the Constitution, Discussion Paper Submitted by the Government of Saskatchewan, Doc 830-83/005 (Vancouver: 22-25 July 1980).
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DOCUMENT: 830-83/003

POWERS OVER THE ECONOMY:

SECURING THE CANADIAN ECONOMIC
UNION IN THE CONSTITUTION

DISCUSSION PAPER SUBMITTED BY
THE GOVERNMENT OF SASKATCHEWAN

Continuing Committee of Ministers
on the Constitution

Vancouver, B.C.

July 22-25, 1980


[Page 1]

POWERS OVER THE ECONOMY:

SECURING THE CANADIAN ECONOMIC
UNION IN THE CONSTITUTION

1. INTRODUCTION

Our objectives with this document are:

– to review briefly the “economic union” problem and solution as suggested by the Federal Government;

– to outline our general concerns with the approach being suggested by the Federal Government; and,

– to suggest, in a bare bones way, another more positive route which would be founded on a real belief in co-operative federalism rather than placing our economic future in the hands of either an “umpire” — the courts — or the federal government.

2. THE FEDERAL VIEW

Essentially, the Federal Government is suggesting that we must introduce constitutional safeguards for the economic union by barring “undue impediments” to the free interprovincial movement of persons, goods, services and capital.

Such an approach, it is argued, will not only assure basic equality to all citizens, but will result in greater economic efficiency and, therefore, the country as a whole will be richer, more able to assist disadvantaged people and regions, and more able to compete in the international market place.

The federal proposition is not, however, a naive free-trade thesis insensitive to the realities of Canadian federalism and social objectives, as seen through their eyes.

[Page 2]

Indeed, the realities are stated rather well on p.25 of the discussion paper (830-81/036) as follows:

“…provisions to secure the Canadian economic union will have to allow governments to pursue other social and economic goals, such as redistribution of income and wealth among citizens and the fostering of economic development in lagging areas of the country.”

and continuing in the next paragraph:

“…provincial legislation and regulations must be capable of variation from province to province, and such variation will inevitably cause some impediments to economic mobility; but these must be kept within the bounds of necessity.”

The federal proposal then makes a major leap to assert that there must be significant safeguards secured constitutionally to prohibit discriminatory actions against persons, goods, services, and capital on a provincial basis. As well, federal regulatory powers would be enlarged so as to deal with other unwarranted obstacles to economic mobility within Canada. Only as a third approach does the federal government suggest co-operative arrangements among governments.

This federal view has led to the presentation of suggested wording for Section 8 of a proposed Charter of Rights and for new sections 121, 91(2) and (2.1) of the B.N.A. Act.

3. CONCERNS WITH THE FEDERAL VIEW

There is little need to debate many of the facts presented by the federal discussion paper. There is no doubt that barriers to mobility of factors of production and goods do exist in Canada and that all orders of government — as well as many other institutions — contribute to this situation. It is also likely that our economic efficiency could be improved with the removal of some of the barriers.

[Page 3]

But, and this point is made clearly by the federal government, the bulk of the impediments are purposefully created by both orders of government in the pursuit of other social and economic objectives that are seen by political leaders to have a higher priority. They are, quite simply, considered acts by responsible governments — the essence of our democratic system.

The flaws in the federal view, as we see them, are less in the presentation of facts, than in the sense of crisis adopted, in the lack of faith in the Canadian political system, and in the suggestion that political leaders should relinquish to the judicial system their responsibilities for maintaining the economic union.

Perhaps a more detailed review of various concerns would be the best approach at this point:

a) A Crisis? Apparently Not.

The need for constitutional safeguards against barriers to mobility has been expressed in language — “a priority; “a sense of urgency”; “critical” — suggesting a crisis is developing.

The details of the proposed changes have come to us very late in the process of constitutional review. As well, there has not been, to our knowledge, an agenda item for Finance or First Ministers entitled “barriers to mobility” or “the economic union”.

We seem to have a child growing to full adulthood in weeks rather than years.

Inconsistently, the federal government has also stated that while there are some present problems its real anxieties relate to potential provincial discriminatory actions.

[Page 4]

b) Extent of Effort to Improve Mobility

We have not been able to establish the extent to which section 121 in particular would invalidate provincial laws and regulations.

On the one hand, we are assured that “the new provisions would not prevent affirmative action programs, regional development policies, industrial incentives, income redistribution, etc.”.

Conversely, however, the federal discussion paper on pages 19 to 21 lines up for potential rehabilitation an awesome array of provincial government initiatives including, for example:

– subsidies and tax incentives to producers;

– provincial monopolies; and,

– labour standards.

If indeed the objective of the federal proposal is to improve mobility within Canada, then one must consider the total impact of numerous institutions and practices in Canada and not simply the explicit barriers.

Surely the levels of corporate, personal and other taxes in any province have a far greater impact on the mobility of resources than some of the barriers such as purchasing policy that are apparently under attack.

Surely, the national tariff and transportation policies have an immeasurably greater impact on relative prices, rates of return and ultimately the location choice for capital and labour.

[Page 5]

We see the federal aim being taken at the explicit barriers that obviously impede movements among the provinces. The “big” economic levers such as tax rates, tariff and transportation policies, would not be brought into question. But, these major economic levers are precisely the forces having the greatest impact on the mobility of resources and products in Canada. And, the richest provinces have the greatest capacity to use such instruments to attract business away from other provinces. The only defence available to a small province may be to take action which creates barriers to protect their competitive position within the economic union — and these would be struck down instantly by the proposed section 121.

The only obvious safeguard is to maintain a continuing sense of co-operation in Canada. Providing “safeguards” against some explicit barriers only changes the rules of the game — in favour of some — but it does little to safeguard the economic union.

c) The Role of the Judiciary

Under the federal proposal, much of the responsibility for managing the economy would be relinquished to the judiciary:

– the judgment on whether any law or practice discriminates in a manner “that unduly impedes the operation of the Canadian economic union” would be taken in the courts;

– the judgment on whether “such regulation or such standards are reasonably necessary for the operation of the Canadian economic union” would be taken in the courts.

[Page 6]

These are matters of economic judgment (often involving policies of two responsible governments), an area with which the courts are ill-equipped to deal.

It is our view that it would be irresponsible of Canadian governments to relinquish the responsibility for these difficult, various and changing economic decisions.

Responsible governments working co-operatively must accept the problems related to the economic union. It is unacceptable for these problems to be turned over to the judiciary.

d) Provincial Development

The implication that the federal government has sole responsibility for regional development is totally unacceptable. The draft section 121(3) would enable only Parliament and not the legislatures to introduce laws and practices based on regional development objectives.

Provincial governments must accept the responsibility for providing economic opportunity to Canadians residing in the province. This will involve policies pertaining to the entire province as well as to groups within the province.

Some provincial development policies are explicitly discriminatory, e.g., purchasing policies or labour residency requirements. Others such as low tax rates, subsidies, venture capital schemes and the like are less blatant but no less oriented to improving the relative position of the province within the Canadian economic union.

[Page 7]

Provincial responsibilities will not have changed but the instruments of economic policy available to provinces will have been significantly reduced. Greater use of available approaches, less likely to be overturned by 121, will be made. Perhaps the only certain result is that the federal and provincial governments would develop squads of highly paid bureaucrats adept at “getting around the courts”.

It is by no means certain that federal policies related to regional development are particularly effective. Provincial initiatives to take full advantage of growth opportunities can be effective complements to the policy of “helping the lagging regions”. Taking full advantage of the tremendous economic potential of the western provinces may be the most powerful means of assisting Canada’s lagging regions. Provinces, not the federal governments, are likely to be active in such developments and excluding them from such regional development activities may be detrimental to the economic union.

Imperfections in our economic union ought to be dealt with by responsible governments in the conference room, not by lawyers and judges in the court room.

4. ANOTHER OPTION

In its discussion paper, on page 25, the Federal government noted the following:

“Prescriptions which would be too detailed would run the risk of being circumvented, or of preventing governments from adapting their laws and regulations to changing circumstances…”.

It is our view that the federal prescriptions have gone far beyond the level of detail and specificity that is acceptable.

[Page 8]

But, we do not deny the importance of avoiding unnecessary impediments to mobility that reduce our economic efficiency.

Nor do we deny the need to implement “safety” systems that focus on squeezing such unnecessary barriers out of the system.

The Canadian Constitution should not contain the rules that govern the extremely complicated trade-offs between oft-times conflicting economic objectives of responsible governments.

Doing so would require political leaders to relinquish much of their authority to the courts — an entirely unacceptable change in our concept of responsible government.

The Government of Saskatchewan would prefer to see more faith in the co-operative spirit of responsible governments working towards a mutually acceptable economic union given the problems of the day.

Certainly there will be conflicts and trade-offs. Certainly barriers to mobility will exist that are not seen to be useful by all jurisdictions.

But responsible governments working with the on-going objective of improving the economic union can and should make these trade-offs and resolve the conflicts. Such economic decisions should not be made in the hushed chambers of the Canadian Courts.

We would see as preferable an option that places in the constitution a statement of commitment by the federal government and the provincial governments to the effective operation of the economic union. Such an approach could be similar to the one being considered for equalization.

This commitment could include a reference to an on-going review by federal and provincial Ministers to ensure that government policies are harmonized to enhance our economic union. Such an approach could deal not only with the explicit barriers to mobility, on which the federal approach concentrates, but also with governmental spending, taxation and structural policies that serve to influence the mobility of resources in our federation.

[Page 9]

How, you might ask, will such a co-operative approach resolve real differences of opinion among governments?

The question, of course, includes the answer. Only by working co-operatively towards harmonized programs and policies can governments minimize unnecessary barriers to mobility while still achieving various, and sometimes conflicting, social and economic objectives.

The alternative, the federal approach, would delegate much of the authority to the courts and would lead to an attitude of “how can we get around the law” rather than facing up to the need to co-operate.

The assumption in the federal approach seems to be that provinces are (or more correctly, will become) extremely naive and fail to recognize the costs related to a destructive competition among provinces for development. It is admitted in the federal discussion paper “that enlightened self-interest has largely prevailed so far”. We see no reason why “enlightened self-interest” will not prevail in the future.

In brief, we must commit ourselves to the concept of continually reviewing our economic union. We must, however, have faith in the co-operative spirit of present and future governments. Responsible governments cannot relinquish to the courts their job of managing the economic union.

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