Federalism, Social Policy and the Welfare State 1

Federalism, Social Policy and the Development of the Welfare State: Critical Response Paper

Vishnudan Vivegananthan

POLC57 – Professor H. Gibbs

University of Toronto Scarborough

Word Count: 1 517

 Federalism, Social Policy and the Welfare State 2

The types and forms of social programs that have come into existence throughout

Canadian history are constructs of the relationships between the federal and provincial

governments as well as the extent to which the federal principle is respected. The delivery of the

programs, as outlined in section 92 of the constitution, is primarily a provincial responsibility. It

is this division in authority that accounts for regional variation in the format and quality of the

programs between Canada’s provinces. In reality, however, the federal government often

exercises its fiscal superiority (i.e. spending powers) to influence or even control the

development of these social programs. Take for example, health care. Despite being defined as a

policy area under the provincial jurisdiction, Ottawa is able to develop and maintain a national

system by attaching standards – outlined by the Canada Health Act – to the financial support it

grants the provinces for health care. In this paper, I will analyze relevant academic literature and

follow with my vision of federalism with respect to the social union.

Analysis

Banting (2008) describes the federal-provincial relationship in the case of health care as a

consequence of shared-cost federalism. He argues that this model of federalism shaped the

development of major sectors of the welfare state that include health care, post-secondary

education, and social assistance (p.139). Of the three types of federalism evaluated, the other two

being classical and joint-decision making, Banting suggests that the potential for unilateral action

underlying the shared-cost model will provide the greatest difficulty in policy formulation and

program administration (p. 158). Consequently, the performance and effectiveness of social

programs cannot find stable grounds due to the lack of budgetary predictability for the provinces.

Although Banting states that all three models will continue to affect the welfare state and does

not explicitly state which is best, he implies that shared-cost federalism will shrink in relevance
 Federalism, Social Policy and the Welfare State 3

to the joint-decision making model, which requires a formal agreement on both levels of

government, as a shaping factor to the social union.

Telford (2003), on the other hand, illustrates federal-provincial relationships as

instruments of nation-building and nation-destroying. Notwithstanding the encroaching of the

provincial jurisdiction, the national framework of the health care system set up by the federal

government instils pride amongst Canadians who often identify it as one of Canada’s defining

features. In this sense, the use of the federal spending powers over the provinces is described as

an instrument for nation-building. Almost simultaneously, however, this federal interference

breeds resentment amongst some provinces that feel like they are losing autonomy. Thus, the

federal spending power is an equally effective instrument of nation-destroying. In describing

federalism this way, Telford argues that Ottawa is in a political bind and that achieving a balance

between the two extremities is a growing dilemma.

Similar to the previous authors, Bakivs, Baier & Brown (2009) also explore the role of

federalism in the social union; specifically its involvement in the creation of the Social Union

Framework Agreement (SUFA). The severe budget cuts during Chrétien’s reign strained federal-

provincial relations in the social policy area. Thus, SUFA played a central role in the pursuit by

both orders of government to manage the social union and regain public trust (p. 170). In

investigating the process and outcomes of the negotiations between the federal and provincial

governments, Bakvis et al. argue that SUFA has been rather limited as a policy instrument

because of Ottawa’s lack of enthusiasm towards reducing its spending powers and the provinces’

reluctance to accept a fiscal reporting requirement. As a result, both orders of government

distanced themselves from the agreement once it had been signed and the health care money that

the provinces wanted began to transfer more freely (p. 182 – 183). Therefore, the shape of the
 Federalism, Social Policy and the Welfare State 4

social union is less a function of intergovernmental relations and agreements, and more of public

opinion and the fiscal policy framework of the day.

In an international system where external influences can affect or even manipulate

domestic politics, it is difficult to respect the federal principle entirely. Policy spillover and fiscal

imbalances, for example, are two issues that the Canadian Fathers of Confederation could not

foresee and has led to the complications in the federal-provincial relationship of today. However,

it is not wise to return complete autonomy to the provinces to compensate for this flaw. Such

action will create strongly independent and self-interested regional units only bound to each

other by the constitution. In the face of American culture and media, free trade, supra-national

governing bodies and institutions, Canada’s goal should instead be to create a unified national

identity. One way to achieve this is through exercising federal spending power over policies

affecting the social union.

With respect to Banting’s evaluation of the three models of federalism, I disagree that the

shared-cost model will fade from relevance in the future. Indeed, the joint-decision making can

buffer against the shifting currents of politics. However, this very buffer can create a relatively

unresponsive state with multiple veto points (Banting, 2008, p. 144). Moreover, based on

Canada’s political history, it is unlikely that the federal government will give up its fiscal

superiority. The federal spending power is an instrument of coercion but more importantly, it is

the hammer used to build national standards in the social union. In this way, the shared-cost

model is here to stay.

The reality of this fact is reflected in an exploration of SUFA’s origins and outcomes.

Intergovernmental negotiations promote individuality and self-interest. Provinces arrive at the

table with personal agendas which contribute to a watered-down response to the issue at hand.
 Federalism, Social Policy and the Welfare State 5

The ulterior motive driving the provinces in SUFA negotiations was acquiring freer flowing

health care money. Once that had been achieved, the provinces distanced themselves from

SUFA. The result of these agreements then became invisible, limited and ineffective in repairing

a damaged social union (Bakvis et al., 2009, p.182).

The federal spending power prevents too many cooks from spoiling by reducing the

number of actors and interests involved in the formulation of social policy. In doing so, this

fiscal superiority empowers mobility rights, fosters a national identity, and provides Canadians

with security knowing that they are being taken care of.

Mobility Rights

Mobility rights are entrenched in section six of the Canadian Charter of Rights and

Freedoms: a Canadian citizen or permanent resident has the right to move to and take up

residence in any province. Since Canadians are free to move within Canada, they will expect to

have access to the same standard and quality of social programs anywhere within its borders.

This expectation should not be compromised by regional variation and the consequential

horizontal fiscal imbalance. Of course, it can be argued that equalization payments were created

to offset these fiscal differences so that social services achieve a set standard throughout Canada.

However, these transfers are unconditional and do not have to be spent in policy areas where a

province may be underperforming. A shared-cost model, where federal spending powers attach

conditions to transfers, will ensure that provinces direct their money towards a particular social

program and ensure that its equality of service is on par with the rest of the country.

National Identity

As mentioned by Telford (2003), Canadians take pride in their health care system and

often use it to distinguish themselves from the Americans. What is more important is that the
 Federalism, Social Policy and the Welfare State 6

system is a consequence of the federal spending power (p.23). By creating one set of standards

and regulations for each social program, instead of having ten, Canadians are more likely to

identify with each other. Moreover, it allows the federal government to focus its efforts both

political and fiscally on one model of service for each social program rather than multiple

models. This can increase responsiveness to the performance of the social union and

consequentially, create pride amongst Canadians in the advantages and benefits of their

programs.

Security

Most Canadians are not familiar with the constitutional division of powers. So, even if

the majority of social programs under provincial jurisdiction, blame for underperformance in one

sector of the social union will ultimately land upon the federal government. Using the federal

spending power to create and maintain a strong and stable social will infuse the feeling of

security amongst Canadians that their government has their interests in mind and also develop an

attachment to the federal government and their principles of what being Canadian should entail.

Conclusion

The ‘union’ in social union implies a pan-Canadian vision of what the federal and

provincial governments’ responsibilities are to their citizens. This vision is best achieved through

the use of federal spending powers. The idea, however, is not to rob the provinces of their

autonomy but to guide them in how to utilize their powers and responsibilities in a manner than

can contribute positively to the whole rather than to the self – much like how parents manage a

family. Nonetheless, as Telford (2003) states, a balance must be met in how this fiscal power is

used so as to promote nation-building but not to the extent that it creates provincial resentment

(i.e. nation-destroying).
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References

Bakvis, H., Baier, G., & Brown, D. (2009). The Social Union, SUFA, and Health Care.
Contested Federalism: Certainty and Ambiguity in the Canadian Federation. Don Mills:
Oxford University Press.

Banting, Keith. (2008) The Three Federalisms: Social Policy and Intergovernmental decision
making. In Bakvis and Skogstad (Eds.) Canadian Federalism: Performance,
Effectiveness, and Legitimacy (2nd ed. Chapter 7). Don Mills: Oxford University Press.

Canadian Charter of Rights and Freedoms, s. 15, Part I of the Constitution Act, 1982, being
Schedule B to the Canada Act 1982 (U.K.), 1982, c.11.

Telford, H. (2003) The Federal Spending Power: Nation-building or Nation-destroying. Publius

33:1, p 23-44

Questions
1. Banting (2008) observes that the Canadian welfare state favours regional variation while virtually
all other federal states among advanced democracies give more weight to equal treatment of
citizens. This means that social programs between provinces may qualitatively differ in standards
and performance. A possible rationale for this quality is the federal retreat from social policies
and that more programs fall into the domain of provincial jurisdiction. Keeping in mind that
Canadians are free to move anywhere within Canada (i.e. mobility rights), should regional
variation factor into the framework of social policies? Based on your answer, what model of
federal-provincial relationship should be followed to best accommodate Canadians?

2. Telford (2003) notes, that our health care system is a product of federal spending power and that
this system is often cited by Canadians as one of Canada’s distinguishing features. In this way,
this power is being used as a tool for nation-building. However, it often breeds resentment
amongst provinces, especially Quebec, who feel that they are losing their autonomy. Thus,
federal spending power may simultaneously contribute to nation-destroying. Considering that
international influences endlessly bombard Canadian society, economy and politics, do you think
that the federal government is justified in using its fiscal powers to create national frameworks
and to foster a national identity? How can a balance between nation-building and nation-
destroying be achieved?

3. Bakvis, Baier & Brown (2009) argue that if SUFA, although limited and nearly invisible right
now, were to become an effective instrument for promoting social policy, it would likely be safer
for the federation in the long run. As an intergovernmental agreement (without a constitutional
basis), what are some of the positive impacts SUFA can have on the social union? What are some
of the negative impacts? How can this affect the consistency and stability of the social services
for Canadians?