Geoffrey Hale - Uneasy Partnership - The Politics of Business and Government in Canada (2018)

Uneasy Partnership
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Uneasy Partnership
The Politics of Business and
Government in Canada
Geoffrey Hale
Copyright © University of Toronto Press 2018
Higher Education Division
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Library and Archives Canada Cataloguing in Publication
Hale, Geoffrey, 1955–, author

Uneasy partnership : the politics of business and
government in Canada / Geoffrey Hale. — Second edition.
Includes bibliographical references and index.

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1. Industrial policy—Canada. 2. Business and politics—Canada. 3. Canada—Economic policy. I. Title.
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Contents
List of Tables vii

List of Boxes and Figures x–xi
1 Business, Government, and the Politics of Mutual Dependence 1
2 State, Business, and Society: The Political Roles of

Government 13
3 The Economic Roles of Government 39
4 Canada’s Economic History: Government, Business, and the

Politics of Development and Distribution 65
5 Corporate Power in Canada: Nature, Extent, and Limits 111
6 Canada’s Economic Structure: Diversity, Dynamism, and the

Political Economy of Business-Government Relations 143
7 Federalism, Regionalism, and Provincial Diversity 169
8 Globalization, Trade, and Business 205
9 Canada’s Crown Corporations and the Changing Face of State

Capitalism 233
10 The Political Marketplace: Interest Groups, Policy Communities,
and Lobbying 265
11 The Evolving Political Economy of Business Taxation 291
12 Putting the “Capital” into Capitalism: The Political Economy of

Canada’s Evolving Capital-Market Policies 319
13 Growth, Equity, and Sustainability: Pursuing Positive-Sum Policies
in a Shrinking World 345
Glossary 371
Bibliography 387
Index 423
v
Tables
2.1 Democratic Socialist and Social Democratic Parties in Canadian

Legislatures,Years in Power, Official Opposition 28
3.1 Canada-US Exchange Rate Cycles (1974–2016) 48
3.2 Government Budgetary Spending as Per Cent of GDP 52
4.1 Provincial Ruling Dynasties in the Late Nineteenth and Early
Twentieth Centuries 81
4.2 Federal and Provincial Fiscal Balances by Five-Year Period
(1985–2015) 102
4.3 Average Surplus/Deficit as Per Cent of Gross Domestic/Provincial
Product 102
5.1 Implementation of 2006 Competition Panel Recommendations
(2014–2015) 137
6.1 Canada’s 40 Largest Companies, Then and Now (1964–2016) 147
6.2 Sectoral Composition of Canada’s 40 Largest Corporations by
Revenue 149
6.3 Per Cent of Gross Domestic Product by Industry Sector 150
6.4 Employment by Industry 151
6.5 Ownership Structures of Canada’s 100 Largest Corporations by
Revenue 154
6.6 Foreign Control by Industry, Selected Industries (1999–2014) 155
7.1 Percentage of Voters Who “Identify Strongly” with Canada, Province,
or Both 175
7.2 Distribution of Government Revenues, Spending, Excluding Transfers
(2015) 176
7.3 Real GDP by Major Industry Sector, Canada and Provinces
(2000, 2015) 179
7.4 Household Income Measurements Relative to National Average
(2013) 180
7.5 Average Real Per Capita Disposable Income by Province
(2001, 2014) 181
7.6 Relative Trade Orientation, Dependence of Canadian Provinces
(1990–2014) 182
7.7 Alberta Non-Renewable Resource Revenues as Per Cent of Total
Provincial Revenues 187
vii
viii tables
7.8 GDP Growth and Broader Public-Sector Share of GDP, Canada

and Atlantic Provinces (1997–2015) 197
8.1 Canada’s Trade as Share of GDP 207
8.2 Composition of Canada’s Exports by Major Sector and Value
(1999–2015) 208
8.3 Canadian Foreign Direct Investment Stock as Per Cent of GDP 209
8.4 Sources and Destination of Foreign Direct Investment as Per Cent
of GDP 210
8.5 North America in Context 217
8.6 North American Exchange Rates (1990–2016) 219
8.7 Intraregional Trade as a Share of Total Two-Way Trade 220
9.1 Major GBE Privatizations since 1985 237
9.2 Federal and Provincial Crown Corporations: Cumulative Assets
and Incomes (2010) 237
9.3 Distribution of Major Privatizations by Sector (1985–2004) 238
9.4 Major Changes to Federal Crown Corporation Mandates since
2006 250
9.5 Barley Plebiscite Results: Farmers Divided along Provincial Lines 251
9.6 Economic Impact of Crown Corporations on Provincial Economies
(2010) 258
9.7 Governmental Stability,Variation by Province (2001–2017) 259
11.1 Finessing the Fiscal Dividend (1995–2008) 299
11.2 Marginal Effective Tax Rate on Capital Investment, Selected OECD
Countries (2005–2015) 303
11.3 Flow-Through Entities Market Capitalization 306
11.4 Long-Run Economic Well-Being from Revenue-Neutral Tax
Reductions 308
11.5 Provincial Corporate Income Tax Rates, by Category (1998–2016) 312
11.6 Marginal Effective Corporate Tax Rates for Canadian Provinces 313
12.1 TSX Market Capitalization as Percentage of Canada’s GDP
(1985–2014) 320
12.2 Domestic Long-Term Debt Outstanding by Issuer, December
2014 321
12.3 Major Canadian-Based Firms Listed on Foreign Stock Exchanges
(FP 500) 322
12.4 Publicly Listed Corporations by Population Size, Canada in
Comparative Perspective (2015) 327
12.5 Outward and Inward Takeover Activity (2010–2014) 329
12.6 Average CPI Inflation, Bank Rate, Real Interest Rates (1985–2014) 329
12.7 Major Canadian Public Pension Fund Managers (2015) 332
12.8 The 200 Largest Canadian-Based Nonfinancial Corporations,
Ownership Concentration, by Province/Region (2014) 336
Tables ix
12.9 M&A Transactions over $500 Million (constant 2007 $) Involving

Greater Than 50 Per Cent Ownership Stake (1994–2007) 340
13.1 Levels of Trust for Government, Business Leaders in Canadian
General Population (2011–2016) 347
13.2 Household Income by Income Group, Canada (2014) 349
13.3 Wealth Distribution, Per Cent of Individuals (2016) 349
13.4 Distribution of Permanent Immigrants by Category (1988–2015) 352
13.5 Unionization Rates by Sector 356
13.6 Total Income and Inequality in Canada 365
Boxes
2.1 Nationalism and the Politics of Identity 16

3.1 Why Use Performance Standards? 62
4.1 The Staples Theory and Economic Development 73
6.1 Federal Legislation Governing Economic Organization and
Business Ownership 153
6.2 The Competition Continuum 162
7.1 Canada as an Economic Union 172
7.2 The Federal-Provincial Division of Powers ( partial list relating to
economic policy) 173
8.1 The Economic Integration Continuum 216
8.2 Canada’s Bi/Plurilateral Trade Agreements 225
10.1 Coalition Building 275
x
Figures
4.1 Unemployment during the 1930s 83

7.1 Provincial Tax Burden on Businesses as a Share of Gross Output in
the Business Sector (2011) 196
8.1 Average US Freight Rail Rates Down since Deregulation 213
8.2 Evolution of the Western Canadian Grain Business 214
10.1 Policy Communities 281
12.1 Mutual Fund Industry Assets under Management (1990–
2016) 330
13.1 Employment Growth by Level of Education, Canada 368
xi
1
Business, Government, and the Politics of
Mutual Dependence
C anada stands out as a stable, prosperous country, particularly in light

of the frequent political and social upheavals in other parts of the world, yet
it is not a country without challenges, facing potentially disruptive changes. For
the moment, however, these pressures are less intense than those that have roiled
the politics of other advanced industrial nations and regions, not least the United
States and the European Union.They also pale beside the political and economic
disruptions that accompanied breakdowns of the international economic system
during the 1920s and 1930s and again during the 1970s and early 1980s.
At the same time, history teaches us that extended periods of compara-
tive stability and calm are relatively rare and that the successes of one era
inevitably contain the seeds of disappointment and disruption that sprout in
the next. Indeed, such cycles may well be built into the very nature of the
different types of capitalist systems that have emerged across the industrial
world since the eighteenth and early nineteenth centuries. Canada’s political
economy has evolved dramatically since the nineteenth century, as has its
broadly capitalist system, whatever the varying degrees of state intervention,
regulation, and ownership employed during that period. However, many of
the core themes that shaped that era are still relevant today.
The pursuit of economic growth, as with economic development in ear-
lier eras, remains central to both economic policy and the nature of relations
among businesses, governments, and other social groups. Development and
growth are not merely ends in themselves, however important they may be
in contributing to the material well-being of individuals and communities
across this large, diverse country. They also generate surpluses to be used
(and sometimes invested, in the sense of generating measurable economic
returns) for a variety of public benefits that include but transcend the ser-
vices provided by governments. However, the very framing of this objective
points to a second set of objectives: ensuring a roughly equitable distribution
of opportunities and a sharing of the benefits of growth among communi-
ties, regions, and social classes across the country (Laidler, 1985).
These two sets of activities and objectives in democratic capitalist systems
have been described as processes of accumulation, the mobilization of cap-
ital to support industrial growth and related investments, and legitimation,
the processes for securing widespread public acceptance and/or support for
1
2 uneasy partnership
economic and political systems (O’Connor, 1973). In the absence of growth,

the desires of different interest groups to protect or enhance their economic
and social positions can contribute to what economists call zero-sum or
negative-sum games.With the first, some groups only gain at the expense
of others with no net societal gain. With the second, most groups in society
are worse off. By contrast, if functioning effectively, both market processes
and public policies should result in positive-sum outcomes, in which both
society as a whole and most of its major elements are better off as a result
over the medium-term, even if they involve competition among or the bal-
ancing of various social interests and policy objectives.
The role and function of government in the economy have been shaped
by a third major feature—economic, political, and technological shocks,
particularly when they arise from Canada’s involvement with the interna-
tional economic system. Political shocks can include war; intense domestic
crises, such as major intergovernmental conflicts; the immediate prospect
of Quebec’s separation from Canada; or policy choices of domestic or for-
eign governments that adversely affect major Canadian economic interests.
Economic shocks can involve major disruptions in domestic or interna-
tional economic systems, such as the Great Depression of the 1930s, the great
inflation and energy crises of the 1970s, and the global financial crisis of
2007–09, or more localized or sector-specific sources of economic distress.
More subtly, economic disruptions can also result both from the “normal”
activities of capitalism—varied economic and cultural systems based on the
mobilization and investment of financial, human, technological, and other
economic resources (capital) to generate profits (surpluses) for the benefit of
their owners—and the efforts of governments to regulate them. Economist
Joseph Schumpeter (1950) has characterized the essence of capitalism as one
of creative destruction. The competition engendered by various forms
of capitalism, whether working independently of or in cooperation with
governments, produces a continuous stream of new technologies, products,
processes, organizational forms, and networks that challenge existing patterns
of consumption, production, and distribution of goods and services.
Sometimes, political and economic shocks are interrelated, particularly
when governments introduce fundamental changes to the workings of eco-
nomic systems. Prominent Canadian examples include the Trudeau govern-
ment’s attempts to impose federal state control over Canada’s energy sector
in the early 1980s as part of its intended industrial strategy and Ottawa’s
embrace of globalization and trade liberalization in a series of major trade
agreements between 1986 and 1994. Current proposals to shift Canada to
a low-carbon economy under international agreements by 2030 as part of
broader efforts to contain climate change could have even more significant
Business, Government, and the Politics of Mutual Dependence 3
effects. So could emerging proposals by American president Donald Trump

to force the renegotiation of US trade agreements with Canada and Mexico.
Some of these innovations and the technologies that go with them are
adaptive—finding new and more efficient ways of doing things that provide
those using them with an advantage in the marketplace. Other technological
shocks, such as the invention of the steam engine, electricity, the internal
combustion engine, and new information and computer technologies, to
name only a few, disrupt or marginalize existing methods of production and
the social and economic realities associated with them.They also create new
horizons for economic and social activity, fostering new social attitudes, pro-
cesses, and even conflicts as they do so (Appleby, 2010; Lipsey, 1996).
These developments are likely to have political as well as economic
effects. Individuals and groups with the potential to gain from them fre-
quently organize to seek legal and/or financial support from governments
and elected officials that may benefit politically or economically from their
success. Individuals or groups threatened by these developments—or placed
at a disadvantage by the way they are pursued—often organize to seek alter-
native outcomes.
Canada’s federal system has often made it possible for competing groups
to lobby different governments, seeking to mobilize political support for
their interests, or to check and balance other interests and the activities of
their political sponsors. Federalism also enables these governments to mobi-
lize support from varied economic and societal interests to support their
objectives (Cairns, 1977). Much of Canada’s constitutional law governing the
respective powers of federal and provincial governments and groups such as
First Nations has emerged either from legal contests between governments
or from the efforts of businesses and interest groups to challenge the use
of government power in the courts (Hausegger, Hennigar, & Riddell, 2014;
Stevenson, 1994). This has made federalism and regionalism critical factors
in the ways that different economic and social interests have an impact on
the political system.
These realities are enforced by different levels and patterns of develop-
ment in various provinces and the extent to which major economic sectors
are dependent upon or have diversified their external markets and sources
of capital in other provinces or countries. At different times, access to capital
and markets critical to Canada’s economic development have been shaped
as much by the decisions of Canada’s principal trading partners, especially
Great Britain and the United States, as by domestic developments in Canada.
These political and/or economic shocks have also influenced the direction
of Canadian public policies and Canadians’ expectations of governments and
economic systems decades later.
These expectations reflect a fourth dimension of the study of politi-

cal economy and business-government relations, that of cultural attitudes
toward economic and social activities. These attitudes include underlying
moral or ethical expectations: principles of right and wrong that inform
the behaviour of individuals, businesses, and governments and that help dis-
tinguish between private and public spheres and between centralized and
decentralized, voluntary and involuntary, and competitive and cooperative
approaches to community and/or collective action.
These cultural or “moral-cultural” dimensions of political economy have
long been vital in shaping the goals, limits, and trade-offs associated with the
interaction of businesses and governments, and of individuals and different
groups of citizens with both. Historian Joyce Appleby (2010) argues that
whatever its economic and political dimensions, capitalism is fundamentally
“a cultural system rooted around the imperative of private investors to earn
a profit” (pp. 25–26). By contrast, philosopher Michael Novak (1982) has
noted that various forms of democratic capitalism are premised on a
wider set of values often associated with liberal democracies, including the
rule of law, freedom of contract and association, widespread access to and
protections for private property, and the diffusion of both economic and
political power.
Canadian Capitalism in Historical and Comparative Perspectives
Studies in comparative economic history suggest that the particular nature

of capitalist systems has been largely derivative of the broader cultural envi-
ronments and imperatives of different societies at different times. Modern
democratic capitalism first developed in the open commercial society of
eighteenth-century Great Britain. It took somewhat different forms in the
very different cultures of Britain’s two great nineteenth-century industrial
competitors, the United States and Germany, and has taken a variety of
different paths reflecting the accumulated cultural heritage and interac-
tion of entrepreneurs, bureaucrats, and bankers in twentieth-century Japan,
Singapore, Korea, or early twenty-first-century China, Brazil, and other
industrial and emerging economies (Appleby, 2010; Fukuyama, 1995;
Gourevitch & Shinn, 2005).
Writing in the 1970s, the American sociologist Daniel Bell (1976) went
one step further, suggesting that the pursuit of continuing competition,
innovation, and the accumulation of wealth associated with successful capi-
talist societies tended to undermine the social and cultural mores necessary
for the successive adaptation and even survival of capitalism as an economic
system. However, the evolution of the political economies of Canada, its
regions, and, indeed, of most major industrial economies suggests that soci
eties that are open to self-examination, new ideas, and economic and policy
innovations can identify and at least partially overcome these challenges, if
often through extended periods of trial and error.
A second major dimension includes the maturing of financial capital-
ism and capital markets: the varied processes by which businesses secure
financing and investors (large and small) participate in the ownership of
larger corporations. Canadians’ interaction with the financial sector is
dominated by networks centred on Canada’s six largest banks, three largest
insurance companies, and two major credit union federations. However, the
rapid growth of financial entrepreneurship has changed the face of Canadian
capitalism since the 1980s, while expanding the range of opportunities—and
risks—associated with property and business ownership. Federal and provin-
cial governments are deeply involved in these processes as both regulators
and market participants through multiple (and sometimes overlapping) regu-
latory agencies and federal and provincial crown corporations and as spon-
sors of public-sector investment management funds charged with managing
public and public-sector pensions (and other public funds) in the interests of
their beneficiaries (Bédard-Pagé, Demers, Duer, & Tremblay, 2016).
Overlapping regulatory responsibilities create cross-cutting incentives for
governments to cooperate in defining the public interests to be served by
regulation. However, such powers can also be used to protect (or expand) their
regulatory authority to manage trade-offs between managing and controlling
public risks and to promote private-sector investment and economic devel-
opment in cooperation with the companies they regulate. At another level,
pressures on both corporations and financial managers to maintain or increase
rates of return (which in turn are linked to the long-term viability of pen-
sion plans and other public benefits in an aging population) have significant
implications for the distribution of income—among consumption, savings,
and taxes; among corporations, their shareholders, and workers; between pri-
vate and public sectors; within and across Canada’s regions; between domestic
and international activities of businesses and investors; and among generations.
A third major dimension of Canadian capitalism involves the persistence
of smaller-scale businesses, whether as sources of specialized innovation, eco-
nomic development, and job creation or as alternatives to employment in
the corporate sector. Most Canadian businesses are small or medium-sized
enterprises.These firms are generally owner-managed, although many func-
tion within broad corporate networks, not least through the proliferation of
franchised businesses, particularly in the service sectors of the economy.This
reality, reinforced by the political activities of many small business organi-
zations across the country, has contributed to the emergence of a “tiered”
approach to policies, including taxation and regulation, designed to support

small business development and accommodate the very different compliance
capacities of larger and smaller firms.
All these factors contribute to the decentralization and dynamism of busi-
ness activity and political influence in Canada. They also contribute to the
interdependence of businesses and governments on multiple levels as a central
feature of Canada’s political economy and of business-government relations.
Business, Government, and the Reality of Mutual Dependence
A fundamental characteristic of Canada’s political economy and of rela-

tions between businesses and governments is that of mutual dependence.
Businesses—large, small, and in-between—depend on governments for a
more or less stable set of rules to conduct business successfully. Major capital
investments, whether in new plants and equipment, technology, or infra-
structure, often take years to generate significant returns and often under
conditions of considerable economic uncertainty. Like many other societal
interests, business owners and executives often look to governments for pro-
tection against threats to their well-being, as well as rules favourable to their
interests. Throughout Canada’s history, these activities have contributed to
political competition among businesses, while also provoking competition
with other social and economic interests.
Conversely, governments at all levels depend on business investment for
the economic activity and growth vital to the prosperity and employment of
their citizens and the generation of tax revenues to pay for public services in
order to create enough public satisfaction to win them re-election. Although
the federal government and six provinces have banned business and union
contributions to political parties in recent years or announced plans to do so
(Henton, 2015; Taber, 2016),1 politicians in other jurisdictions often look to
businesses for the financial support necessary to win and hold public office
while seeking votes from other groups of Canadians.
Economic opportunities of businesses and governments are also shaped
by institutional and cultural factors influenced by the interaction of public
expectations and public policies. Such factors include stability and security
of contractual and property rights (and access to independent legal institu-
tions capable of providing them), widespread access to capital and credit to
finance business formation and expansion, and reasonable levels of probity
and trust in interactions between suppliers and customers, employers and
employees, citizens and public officials (Fukuyama, 1995; Warren, 1999).
Chapter 2 examines the political role of government in the economy.
Liberal capitalist democracies such as Canada and the United States approach the
distribution of social and economic opportunities among citizens (and busi-

nesses) through a combination of political and market mechanisms, although
the two countries’ very different political systems ensure that they often do
so in different ways. Opportunities and resources are generally allocated at the
discretion of elected politicians, bureaucrats, or quasi-autonomous regulatory
agencies, which are also used to establish the limits and conditions for political/
bureaucratic intervention. Market processes generally involve decentralized
choices and decision making, not only by businesses but by citizens as provid-
ers, investors, and consumers on the basis of their respective interests and on
the basis of known rules applied to various groups of market participants.
Governments frequently seek to promote a discernable public good
through their varied policies. However, they also attempt to define such
“good” in ways that link the perceived interests of a majority or sizeable plu-
rality of citizens with their policies and priorities. Competing ideas and ide-
ologies help to define and justify the ways that governments engage different
aspects of the economy, while also challenging them. These ideas are often
historically determined, reflecting past conflicts, compromises, and decisions
that shape existing institutions and public expectations.
Such policies have made economic prosperity and its equitable distribution
within society major factors in voters’ evaluations of government. Governments
that preside over sustained economic growth and rising prosperity for most
of their citizens tend to be re-elected. Governments that fail to address these
issues effectively are often not re-elected unless the alternatives are even less
promising in the eyes of the voters.
Citizens also look to governments to protect their interests from what
economists call the negative externalities of economic decision making:
the direct or indirect effects of economic activities that harm other people
or, increasingly, their environment. Alternately, these problems may emerge
from abuses of economic or political power by businesses, unions, interest
groups, or subgroups with particular interests within government. They
may result from negligence that affects the health, safety, natural environ-
ment, or property rights of others, or from the domestic impact of eco-
nomic and political forces originating outside Canada’s borders. Political
parties, social movements, and even business groups frequently champion
government regulations and interventions to soften the rough edges of the
marketplace; provide greater equity, fairness, and cohesion; or simply to
promote their members’ interests through the political process.
Chapter 3 examines major concepts of economic well-being that have
come to shape the objectives, design, and evaluation of economic policies
in Canada and their implications for competition among businesses and
interest groups inside and outside government. It reviews the role of firms,
mainly corporations of various kinds, supply and demand in the workings

of markets, along with ways that governments structure or influence the
marketplace activities of producers, consumers, and investors. It explores the
evolving role and interaction of macroeconomic and microeconomic poli-
cies used by governments to address swings in the business cycle and ongo-
ing shifts in the structures of national and regional economies in response
to technological changes and international economic developments. It notes
ongoing debates among competing approaches to economic policy, includ-
ing probusiness approaches that champion particular firms and economic
sectors, “state-led” approaches often characterized by detailed political and
regulatory intervention in particular policy fields, and promarket approaches
intended to promote increased competition, disciplined by even-handed
legal and regulatory frameworks.
Chapter 4 provides an overview of the historical dimension of Canada’s
political economy and relations between businesses and governments. The
“distributive” politics of development often served to provide political legiti-
macy, however contested, to broad economic development policies. Canadians
have usually expected their governments to play an active role in promoting
their economic well-being. In the nineteenth and early twentieth centuries,
patronage-driven governments (and the political parties that controlled them)
did so through the distribution of public works and contracts. After World
War II, Canadian governments used Keynesian economic policies to pro-
mote a dynamic market economy with strategic government participation,
along with a growing welfare state and a broader distribution of social oppor-
tunities.The breakdown of the Keynesian consensus during the 1970s and 80s
triggered intense competition among ideological and regional interests. The
failure of Trudeau’s nationalist policies in the 1980s led to a political reaction
that, in turn, led to the evolution of a new neoliberal paradigm.This evolving
approach is characterized by accommodation to globalization and market-led
economic development, greater fiscal discipline among governments, chang-
ing approaches to government regulation of the economy, and greater decen-
tralization of economic and political power.
When governments seek to introduce policy changes that affect large
segments of the economy or society, they usually require the cooperation
of major economic actors to make them work or mitigate serious politi-
cal conflict (Doern & Phidd, 1983; Hale, 2001). Chapter 5 examines the
contested topic of corporate power—the exercise of business influence
over government policies in competition with or at the expense of social
groups—and its nature, extent, and limits in contemporary Canadian politi-
cal and economic life. It explores institutional and ideological factors that
have both contributed to and constrained the exercise of business power,
particularly in federal politics. It notes the evolution of rules governing lob-

bying and political contributions by businesses and interest groups in recent
years, particularly in jurisdictions influenced by social democratic and popu-
list conservative parties. It also discusses ways in which governments exercise
their influence over policy processes to maintain their relative autonomy
from societal actors or favour the interests of some groups over others.
Chapter 6 explores the nature and implications of Canada’s economic
structure—the basic characteristics and divisions of economic activity,
including the complexity and diversity of business structures and owner-
ship, patterns of competition, and their implications for government poli-
cies. Modern Canadian capitalism takes a variety of forms. Most prominent
among capitalist organizations are large, publicly traded corporations whose
shares are traded in public markets. Company ownership may be closely
held by one or more major shareholders or widely held, with no controlling
group, often with the potential for corporate takeovers. Foreign ownership
is widespread, but sectorally diverse. Patterns of government ownership have
evolved in recent years, while smaller firms remain major sources of employ-
ment, especially in certain service sectors.
Policy decisions also reflect ongoing shifts in Canada’s federal system in
reconciling and balancing regional interests within national policies. Chapter 7
discusses the central reality of regional economic differences and Canada’s decen-
tralized federal system in shaping its continuing adaptation to globalization
and North American integration. Both senior orders of government attempt
to maintain autonomy and flexibility within their respective jurisdictions to
carry out their commitments to voters.The organization of business interests
frequently parallels the political and regulatory structures governing differ-
ent industries. As a result, the decentralization of business and economic
interests is very much a by-product of the institutional structures and juris-
dictional divisions created by the evolution of federalism.
At the same time, the openness of Canada’s market economy and its inter-
dependence with other countries both influences policy choices in Canada
and imposes practical constraints on policy options considered in its domestic
political processes. Chapter 8 examines Canada’s evolution within the inter-
national economic system between the mid-1980s and the mid-2010s, and the
ways in which Canadian governments and businesses have adapted to these
changes. It considers the implications of these changes for patterns of trade and
investment, Canada’s evolving position within the international economic sys-
tem and more particularly the North American economic region, the implica-
tions of varied patterns of economic integration for major Canadian domestic
policies and institutions, and their effects on relations among governments,
organized business, and societal interests.
Canadian governments of all political stripes have used government

business enterprises (GBEs), or crown corporations, to pursue public
policy goals. Chapter 9 explores the scale and scope of GBEs in various juris-
dictions and industry sectors, major factors that have influenced the evolu-
tion of federal and provincial crown corporations since the 1980s, along with
historical and contemporary rationales for their creation and evolving roles.
It notes the factors contributing to the commercialization of, or application
of cost-recovery and other business-like methods to, GBEs since the 1980s,
and the factors that have encouraged or constrained the conversion of such
firms to private ownership in various political contexts.
Chapter 10 examines the roles of interest groups and government relations
professionals in political processes and policy making. It notes the different func-
tions performed by industry, trade, and professional associations as they interact
with organized economic interests through policy communities and networks,
together with factors contributing to the emergence of an independent govern-
ment relations industry that advises clients on their dealing with governments,
the media, and public opinion. Finally, it considers the efforts of governments
to regulate lobbying in order to balance Canadians’ rights to access the political
processes with greater transparency and accountability for both government
decision makers and those who seek to influence their actions.
Chapter 11 explores the politics of business taxation since the 1990s,
particularly the effects of growing economic openness and international
competition on economists’ view of capital taxation, the resulting fed-
eral approaches to components and cumulative levels of business taxation,
and the interaction between personal and business tax systems and other
approaches that encourage business investment including government subsi-
dies, sometimes stigmatized as “corporate welfare.” It explains the incentives
of the political economy that both contributed to and sustained incremental
approaches to reshaping business tax systems since 2000 and the varying
regional politics of business taxation that have influenced efforts to restruc-
ture business and consumption tax systems, particularly in Ontario and BC.
Two major aspects of Canadian capitalism often neglected by political sci-
entists are capital markets and corporate governance. Canadian businesses and
governments have long depended on foreign (largely British and American)
capital to finance their expansion and bankroll public borrowing. However,
the growth of Canadian capital markets and their continuing integration in
global markets since the 1980s have contributed to the transformation and
international expansion of Canadian businesses, along with much broader par-
ticipation by Canadians in the ownership and profits of major corporations,
even if mediated by institutional investors. Corporate governance and secu-
rities laws and regulations require boards of directors of publicly traded firms
to consider the interests of all shareholders not just those of corporate execu-
tives or leading shareholders, thereby greatly expanding opportunities for cor-
porate takeovers and challenges to “underperforming” managers. Chapter 12
reviews the effects of changing patterns of corporate governance, reinforced
by the evolving market and regulatory contexts for the working of capital
markets, the activities of institutional investors and other market participants,
and changing patterns of competition for the ownership and control of many
corporations. It also considers the effects of policy shifts, including the Bank of
Canada’s low-inflation, low-interest rate policies, the emergence of public and
public-sector pension funds as major, independent market actors, and ongoing
debates over changes to corporate governance rules, including those influenc-
ing takeovers of publicly traded firms.
Uneasy Partnership concludes with a discussion of evolving debates affecting
the broader public acceptance of Canada’s economic system. It notes that trust
for major businesses, governments, and other large institutions is limited, con-
tingent on their performance, and increasingly intolerant of perceived abuses
of power and privilege. It contrasts the performance of Canadian governments
in encouraging economic growth, rising living standards, and citizens’ capacity
to adapt to changing social and economic circumstances with trends in other
countries that have contributed to populist rebellions against neoliberal and
globalizing policies in recent years. However, it also notes the continuing fragil-
ity of what has been described as the “permissive consensus” on globalization
(Mendelsohn, Wolfe, & Parkin, 2002). Continuing changes in both domestic
and global economies capable of generating disruptive new political, eco-
nomic, and technological shocks suggests that Canadians have little room for
complacency. These realities demonstrate that the interdependence of govern-
ments and businesses in providing economic well-being and opportunity for
Canadians remains an uneasy partnership, one whose capacity to adapt to
ongoing changes remains necessary in an uncertain world.
Key Terms and Concepts for Review (see Glossary)
Accumulation Interest groups

Capitalism Keynesian economic policies
Corporation Legitimation
Creative destruction Negative externalities
Democratic capitalism Negative-sum games
Economic shocks Political shocks
Government business enterprise Positive-sum games
(GBE) Technological shocks
Institutional investors Zero-sum games
Questions for Discussion and Review
1. What is meant by the interdependence of political and economic sys-

tems? What are some examples of this interdependence in contempo-
rary Canadian life?
2. How does growing state involvement in economic life contribute to
growing efforts by social and economic interests to influence the de-
cision-making processes of governments? What are some approaches in-
tended to link these activities to a broad concept of the public interest?
3. What are three kinds of shocks that can undermine political consen-
sus and create opportunities for ideological and policy changes in gov-
ernment? What are some recent examples of these shocks in Canadian
federal and provincial politics, Canada’s interdependence with wider
international economic and political trends, and business-government
relations?
Note
1 Quebec (1977), Manitoba (2000), Nova Scotia (2009), Alberta (2015), Ontario
(2016); see also Brock and Jansen (2015). BC announced plans to do so in 2017.
2
State, Business, and Society: The Political
Roles of Government
G overnment engagement in the economy is frequently justified in

terms of normative concepts of public good, national or collective
community interest, or on empirical or utilitarian grounds; that is, certain
policies are effective in achieving declared objectives. National interest has
come to be identified with the promotion of citizens’ greater economic and
social well-being or, in times of turmoil and rapid change, their protection
from political and economic shocks beyond their control (Iacobucci, Trebil-
cock, & Haider 2001; Laidler, 1985; Nordlinger, 1981). In practice, normative
grounds of public benefit often provide a cloak for narrower political calcu-
lations of self- or group interest.
This chapter outlines major political objectives of government inter-
vention in the economy, including historical and contemporary factors
governing the interactions of political and market-based decision-making
processes, and the roles played by shifting political ideologies. It summa-
rizes various elements of the neoliberal synthesis that has gained substantial
influence in shaping the role of the contemporary Canadian state, and
its principal challengers: populism and neocorporatism. It also discusses
this role in the context of three major functions of government: balanc-
ing competing concepts of equity, rule-making, and conflict adjudication.
Other functions of government more directly related to its economic roles
are discussed in chapter 3.
Political Roles of the State: Referee, Partner, Guide, or Master?
The history of economic development demonstrates that there are numer-

ous ways to structure economic decision making, with greater or lesser
degrees of politicization. Indeed, the concept of an economic marketplace
functioning more or less independently of political direction and control
only entered the mainstream of political and economic thought in the early
nineteenth century in response to abuses of power by ruling oligarchies
in Britain, the American colonies, and the monarchies of Western Europe
(Landes, 1998; Muller, 1993).
Many governments attempt to encourage economic development,
prosperity, and the loyalty and support of their citizens by using their
13
power to foster mutually beneficial alliances with major economic and

social interests in ways that generate sufficient prosperity to facilitate
their re-election. Groups disadvantaged by these policies often attempt to
form counter-alliances to capture political power and promote what they
view as more equitable distributions of income, wealth, and economic
opportunity.
Political debates over the means of legitimizing the structures and out-
comes of economic activity may be influenced by ideologies championed by
political parties or social movements.These debates also influence governing
elites’ intellectual and practical adaptation to political challenges. Donald
Johnston (1999) has described the balancing of economic growth, social
cohesion, and good governance as the “triangular paradigm of social pro-
gress” (p. 2).
The emergence during the twentieth century of large professional
bureaucracies to design and administer a growing assortment of policies and
programs has increased the capacity of governmental elites to influence the
economy, if not always effectively. However, the principles of democratic
government require some means beyond periodic elections to legitimize
the policy preferences of these elites. Those wielding political power may
attempt to resolve this challenge by using public policies to build alliances
with major economic and social interests. Governments may seek to “guide”
investment processes and other forms of economic development by using
subsidies and other incentives, as discussed in chapter 3, without attempting
to micromanage private-sector activity within established legal boundaries.
Alternately, governments may seek to exercise direct control over partic-
ular economic sectors, whether through direct ownership, as discussed in
chapter 9 or the exercise of highly prescriptive “command and control”
approaches to regulation. State power may also be used to redistribute eco-
nomic opportunities and benefits to particular groups, whether in the name
of equity or as a way of appealing to their self-interests in return for their
political support or acquiescence.
Mercantilist (or neomercantilist) approaches have long been used in
pursuit of these objectives. Such policies are based on open or tacit state
partnerships with private capitalist enterprises and economic sectors with
sufficient political clout to secure government support “in the national
interest.” Neomercantilism emerged as a strategy for political and eco-
nomic development in the early nineteenth century in the US and sub-
sequently in other countries, including Canada. The state sought to use
protective tariffs (taxes on imports) and regulations to promote emerging
(“infant”) industries, create shared economic interests between national
governments and commercial and industrial classes, finance public works,
State, Business, and Society:The Political Roles of Government 15
and support domestic economic expansion, often by developing the

sparsely settled hinterlands of the new nations. The high-tariff National
Policy (1870s–1920s) may have been the most prominent Canadian exam-
ple of a mercantilist economic strategy, but it was neither the first nor the
last (Bliss, 1985; Forster, 1986).
Neomercantilism subsequently influenced Canadian public policies
designed to foster Canadian control over economically strategic industries
such as banking, wheat marketing, interprovincial rail and air transporta-
tion, broadcasting, and other cultural industries. Such firms are sometimes
described as “national champions,” especially when they expand into inter-
national markets. Such policies may also be used to foster the growth (or
preservation) of technologically advanced industries, paralleling financial and
regulatory support provided by other countries. Historical examples have
included major firms in Canada’s aerospace, automotive, and steel industries
(Anastakis, 2013; Hadekel, 2004; Madar, 2009). Provincial governments have
used similar policy tools to promote their economic development and diver-
sification (Fraser, 1987; Pratt & Richards, 1979).
Canada’s initial development was a by-product of mercantilistic poli-
cies of European monarchies intended to foster positive balances of trade,
thereby strengthening their military power (Kennedy, 1989; Landes, 1998).
This in turn reinforced the dependence of colonial economies on the impe-
rial power for defence or internal security, capital to finance economic
development, and external markets for their products. This often left sub-
sequent legacies of economic nationalism and dependence on government
action or sponsorship to promote economic development (see chapter 4).
These patterns of dependence, sometimes perceived as exploita-
tion, were reproduced as colonies gained their political independence
and pursued greater economic self-sufficiency by settling and exploiting
their own frontier lands. These legacies have contributed to competi-
tion between federal and provincial governments to achieve autonomy
by fostering commercial and financial networks capable of financing new
economic activity and establishing more equal business relationships with
“outside” interests. At times, it has also spurred the growth of competing
political identities, whether buttressed by various forms of Canadian or
provincial economic nationalism or regionalism as political elites have
attempted to mobilize public support behind “nation-building” or “prov-
ince-building” strategies of becoming “masters in their own homes.”1
Box 2.1 summarizes the evolving focus of mercantilistic policies from
imperial to national to provincial levels of governance, while noting the
evolution of the international economic system during the twentieth and
early twenty-first centuries.
Box 2.1 Nationalism and the Politics of Identity
Dominant political/ Pursuit of autonomy/greater range

economic power of political and economic choices
Imperial Power Canadian Economic Nationalism

Britain (before 1945); • business + government (liberal
US (since 1945) nationalism)
Multinational capitalism, • government vs. business
linked to but independent (interventionist nationalism)
of international economic
system 1970s–1990s business + government +
Rapid growth of foreign state reciprocity with comparable national/
capitalism, sovereign wealth supranational governance regimes
funds, especially in energy, (mix of liberal nationalism,
financial sectors since 2000 neoliberal internationalism)
Central Canadian Regionalism/province building

Domination • make federal government more
responsive to regional interests
marginalized in national decision
making, usually through political
and economic decentralization.
• build strong provincial/regional
political and economic institutions
to serve needs of citizens, major
regional economic interests.
English-Canadian Domination Quebec nationalism

• strengthen autonomous decision-
making power of Quebec
governments in all areas of social,
economic, and cultural policy–
inside or outside Canada.
• build internationally competitive
French-speaking business class,
corporations.
These policies helped to create an environment of mutual dependence

between governments and favoured economic interests. This process may
have distinguished between the day-to-day working of politics and the
economy as suggested by some observers. However, as suggested by some
observers, it often implied distinct roles for business and government in
which business managers enjoyed substantial independence in decisions
related to investment and workplace organization (Atkinson & Coleman,
1989; Marchildon, 1996). This approach has heavily influenced scholars and
writers working from socialist and social democratic perspectives who argue
that business, as a class, has enjoyed a privileged position in its dealings with
governments (Atkinson & Coleman 1989; Coleman, 1988). It also continues
to influence policy elites outside major economic centres seeking to limit
their marginalization in the global, North American, and/or broader Cana-
dian economies (Savoie, 2001, 2013;Task Force on the Protection of Québec
Businesses, 2014).
Selective political favouritism may succeed in fostering economic devel-
opment for a time. However, it inevitably provokes resentment and politi-
cal competition from other social and economic interests (including other
business interests) that demand a more level playing field. Such levelling may
take the form of securing equal access to government subsidies, transfers,
and protective regulations. Alternately, it may encourage the development of
countervailing coalitions dedicated to reducing barriers to their economic
advancement or dismantling special privileges seen to benefit the few at the
expense of the many (as in the partial deregulation of telecommunications,
transport, and financial sectors in the 1980s).
Canada’s history has many examples of alliance building by social
groups to offset economic disadvantages through political action. Farmers’
groups organized political movements in Ontario and Western Canada in
the late nineteenth and early twentieth centuries in attempts to reverse or
offset the effects of protectionism on their livelihoods. Conversely, diverg-
ing interests among farm groups have been critical to major changes in
agricultural trade, subsidy, and related transportation policies since the
1980s (Kroeger, 2009; Skogstad, 2008). Trade unions have consistently
traded political support for favourable labour legislation and improve-
ments to social policies. Small businesses have pursued favourable tax and
regulatory environments to help them compete with large corporations
or to reduce the arbitrary power of governments over their day-to-day
business operations. However, social and economic changes can result in
economic and regulatory benefits conferred by governments in the name
of fairness during one era becoming examples of special privilege or rent
seeking in another.
Mercantilistic policies are in direct conflict with ideologies oriented

toward market liberalism. Derived from classical liberal political economy,
market liberalism stresses the importance of individual freedom and respon-
sibility, private ownership of property, the rule of law, and the diffusion of
political and economic power to maximize the well-being of individuals and
the broader community. It frequently stresses the promotion of competition
and other promarket (as opposed to probusiness) policies to support these
objectives (Mintz, 2001; Novak, 1982; Zingales, 2012).
These qualifications are important because they recognize the role of gov-
ernment in providing a stable and transparent legal framework to promote
the common good.Those who espouse market liberal principles like to think
of governments as impartial referees. However, the framing of state interven-
tion inherently involves political choices in determining whose interests are
accommodated or given priority, whether these decisions are made by tech-
nocratic experts or elected officials, with or without broad societal consulta-
tion. As Adam Smith has noted, many businesses voice support for market
ideologies when they serve their interests, while seeking protection or support
from governments when such policies work to their disadvantage.
The dominant political ideas that have shaped Canadian government
policies toward business and the economy since World War II have adapted
elements of market liberalism to public expectations of an active role for
government in enabling citizens to achieve greater economic security and
in promoting a more equitable distribution of opportunities and, some-
times, outcomes in society. However, the specific ways that governments
and competing political interests define these goals change over time. So do
the policies introduced by governments to pursue these goals in response to
changing circumstances, resources, and perspectives.
Support for greater state intervention often increases when govern-
ment policies are seen to benefit a relatively narrow cross section of eco-
nomic interests, particularly external ones, at the real or perceived expense
of the broader community. These attitudes have been reinforced in recent
years by the geographical fragmentation of the Canadian economy and
continuing disparities in growth and income levels across regions. Such
resentment becomes most politically salient when proposed initiatives or
projects are seen as likely to result in only temporary economic benefits
for particular groups or the subordination of established domestic inter-
ests to external interests. In recent years, such outlooks have influenced
debates over resource development policies, selected foreign takeovers,
and major resource development and infrastructure projects intended to
facilitate the resource exports of certain provinces (Asia Pacific Founda-
tion, 2014; Hale, 2014).
Distributive Politics
Governments also seek public support by using their power to redistribute

economic opportunities and benefits to particular groups, whether because
of their particular concept of equity and justice, various groups’ economic
self-interests, or both. Distributive politics may be practised in the name of
“public interest,” “fairness,” “equal opportunity,” or the “correction of mar-
ket failures,” often meaning the failure of private businesses or consumers
to produce economic outcomes desired by political leaders, bureaucrats, or
groups of voters.
Governments use distributive policies as a way of purchasing support for
medium- and long-term initiatives whose benefits might not be immedi-
ately apparent to many voters. Examples include the steady growth of tar-
geted child tax benefits by the Chrétien government over several years after
2000, intended to strengthen incentives to labour force attachment, which
were embedded within a larger multi-year package of personal and corpo-
rate tax reductions, and the Harper government’s highly visible reductions
to the goods and services tax (GST) to provide political ballast for ongoing
reductions in corporate income taxes (see chapter 11). However, distribu-
tive politics may simply be a way for politicians to purchase votes or reward
supporters.
The fragmentation of government decision making in a complex, diverse
society often results in commitments to competing, even contradictory, pol-
icy goals. Governments must balance rival concepts of equity and justice
based on different views of the public interest in defining these goals. Politi-
cal ideas of equity and justice are contested concepts whose articulation and
application are heavily influenced by ideological factors.
Social democratic egalitarianism is rooted in the concept of vertical
equity: the redistribution of income, wealth, and opportunities by govern-
ments from more economically favoured to less economically favoured seg-
ments of society. Critics of the capitalist system, whether in its liberal or
neomercantilist forms, have faulted it for contributing to an unequal dis-
tribution of wealth, income, power, and opportunity (as discussed more
extensively in chapter 5). These outcomes, in turn, are seen to lead to (or
result from) an excessive concentration of political and economic power.
Socialist critics once called on government to take ownership and control
of the means of production through the nationalization of major industries.
Today, populist attitudes are likely to encourage the use of state power
by both centre-left and centre-right governments to regulate economic
activity in the interests of the majority of wage-earning workers and, on
occasion, to prevent or break up “excessive” concentrations of economic
power. Examples include the Chrétien government’s 1998 veto on major

bank mergers and the Harper government’s 2014 overhaul of the Temporary
Foreign Worker Program against significant business opposition.
However, vertical equity is only one dimension of distributive equity.
Horizontal equity emphasizes the importance of comparable treatment
of persons or businesses in comparable circumstances. Many forms of gov-
ernment intervention result in individuals or businesses being placed at a
competitive economic or social disadvantage because of subsidies, taxes, or
regulations favouring particular groups. Apart from economic arguments,
many Canadians have strongly embraced arguments for legal and politi-
cal equality against government policies that artificially privilege particular
individuals or businesses at the expense of others. This normative preference
may be reinforced by utilitarian and public choice arguments that the pub-
lic interest is best served by policies that promote the greatest good of the
greatest number by “maximizing net gains and minimizing net losses,” and
not merely by an interest in redistribution for its own sake (Iacobucci et al.,
2001, p. 43; Richards, 1997; Trebilcock, 2014). However, such an approach
implies a shift from primarily political criteria for decision making to largely
economic ones.
Many forms of government regulation have been introduced in response
to social and economic inequities and abuses in efforts to anticipate and pre-
vent (or mitigate) future problems. Regulatory measures may address both
market failure (negative externalities created as a result of the undisciplined
workings of the marketplace) and government failure (the unintended or
destructive effects of otherwise well-intentioned government policies).
Distributive policies in Canada are often framed by appeals to a broad, ill-
defined, “middle class” whose membership is rarely defined with any degree
of precision. In practice, the concept of “middle class” has come to incor-
porate widely disparate groups of people ranging from those individuals or
households barely above the poverty line (however defined), to skilled, often
unionized, public- and private-sector workers with comfortable and rela-
tively secure incomes, to small business owners with modest to substantial
incomes, to two-income professional families in the public or private sectors
whose combined annual earnings place them among the highest-earning
10 per cent of households. For example, much of the so-called “middle-class
tax cut” promised by the federal Liberals during their successful 2015 elec-
tion campaign went to individuals earning more than $90,000 per year.
Equality need not imply uniformity. Government intervention is often
justified on the basis of “compensatory” or “corrective” justice. The first
approach, which is visible in some welfare-state, economic-subsidy, and “equal-
opportunity” programs, is intended to compensate for the absence of social or
economic advantages that enable individuals to compete in or contribute to

society on a comparable basis to that of “average” citizens or businesses. The
targeting of job creation and training subsidies to areas of high unemployment
or to assist unemployed workers are two examples of this approach.
Policies to enforce corrective justice are intended to compensate citi-
zens for specific injuries committed by other individuals, businesses, or
governments, including breach of contract, negligence toward others’
health or well-being, or abuses of economic or political power (Iacobucci
et al., 2001, pp. 51–58). Such corrective actions may result from political
decisions or court judgments in private or class-action lawsuits and may
require direct payments to individuals or businesses, as with legal awards
for breach of contract or unjust dismissal and legislative provisions for
severance pay, or punitive damages for unfair competitive practices such as
misleading advertising.
The effects of demographic changes, especially population aging, on pub-
lic finances have raised significant concerns over generational equity—the
relative economic well-being of individuals in different generations, usually
assessed based on the impact of decisions made by members of one gen-
eration on the living standards and opportunities of succeeding generations
(Corak, 1998; Simpson, 2013). During the 1990s and 2000s, these concerns
reinforced political efforts to maintain the sustainability of public services by
balancing budgets, reducing public debt relative to the size of the economy,
and pre-funding projected increases in public pensions and other forms of
social insurance through the creation of sizeable investment funds (Hale,
2001; Martin, 2009). These factors have also contributed to broad public
support for the continued growth of economic-class immigration in Canada
since the mid-1990s, in sharp contrast to the United States. More recently,
they have informed requirements that expanded public pension benefits be
fully funded by prior employer and employee contributions as with other
employment pensions.
Finally, no discussion of distributive politics in Canada would be com-
plete without acknowledging the regional aspects of Canadian economic
and social policies. Politicians are elected to represent particular geographic
areas, not just political parties or ideologies, and to ensure that their con-
stituents receive their “fair share” of benefits from governments in return
for taxes paid. Regional pressures for “equitable” access to improved trans-
portation and communications, public and private investment, government
projects, income transfers, and social services are reflected in the regional
orientations of political parties, the regional policies of federal and provin-
cial governments, and the complex web of federal-provincial relationships
embedded in the structures of Canadian politics.
Politics, Ideology, and the Economic Role of Governments
Political legitimacy does not rest simply on a foundation of raw power, polit-
ical will, or unvarnished appeals to group interests, significant as these fac-
tors are in the real world of politics. Popular appeals to justify or challenge
particular policies or the broad social and political order often reflect politi-
cal ideologies—simplified systems of ideas that enable politicians or interest
groups to mobilize voters around shared values, interests, and political goals.
Ideology is a means of shaping the content and limits of political discourse,
together with public expectations of the roles and limits of “acceptable”
government action.
Political theorists and ideologues often define ideologies as systematic,
coherent bodies of political vision or theory that describe the world as they
perceive it, as they believe it should be, and recommend steps necessary
to narrow differences between current realities and an idealized social or
political order. In practice, however, political ideologies tend to evolve as
composite agendas to advance overlapping goals and values of untidy coali-
tions of interests. These agendas often emerge from the challenges made
by social and political interests to policies and, sometimes, political systems
that have failed to respond adequately to their interests and concerns. Inter-
ests threatened by such challenges may develop ideological responses that
systematize values and beliefs previously taken for granted in order to jus-
tify existing social practices or to discredit ideological challenges to major
political ideas and institutions (Bradford, 1998; Christian & Campbell, 1990,
pp. 4–20; Hall, 1989).
Canada’s regional and cultural diversity both facilitates and frustrates the
use of ideological appeals by political parties and organized interest groups.
To become politically effective, coalitions must be flexible enough to engage
a broad cross section of social and economic interests across the country.
They must also be able to adapt to economic and social changes that have
made Canada one of the world’s most diverse, open economies and multi-
cultural societies.
Since the 1940s, ideological competition to shape governmental and eco-
nomic institutions and public policies has generally taken place within a
context of an embedded liberalism (Ruggie, 1995) that seeks to integrate
and reconcile within itself the central elements of Canadian nationhood and
economic and social progress. Such debates are as likely to feature disagree-
ments between different elements of the business community as they are to
become contests between business groups and social and economic interest
groups, including public-sector elites and unions. However, Canada’s inter-
dependence with other countries requires that international factors, not just
domestic political and economic issues, must be taken into account in such
debates. These realities are examined in greater detail in chapter 8.
The principal ideologies that have shaped Canadian political debates
and government-business relations have evolved in response to a mix of
political and economic shocks and policy failures. Political shocks may
result from the rise of new political movements or ideas that challenge
the reigning political consensus and compel some level of accommoda-
tion to their demands. Major political shocks that changed the focus of
Canadian politics during the twentieth century include the emergence of
a politically competitive socialist party in several provinces in the 1940s,
the challenges of the independence movement emerging from Québec’s
Quiet Revolution of the 1960s and 70s, and deep divisions over national
economic policies culminating in the 1988 Canada-US Free Trade
Agreement (CUSFTA) and Canada’s subsequent economic integra-
tion within North America. More recently, a series of Supreme Court
rulings on indigenous rights have changed the legal and political envi-
ronment for resource development and infrastructure projects in large
parts of Canada (Newman, 2014a; Tsilhqot’in v. British Columbia, 2014).
More recently, environmental movements strongly opposed to certain
forms of resource development—and not just the mitigation of their
effects—have come to exercise substantial influence in Québec, BC, and
parts of Atlantic Canada.
Domestic conflicts and policy shifts also result from external policy
shocks—changes to the international context for government policies
that threaten to destabilize major elements of the political or economic
systems. During the twentieth century, these shocks included the Great
Depression (1929–39), the post-World War II shift of global economic
leadership from Britain to the US, global energy price shocks during the
1970s and 80s, and the persistent, if episodic impact of US unilateralism
and protectionism on Canadian foreign economic policies. Since 2000,
post-9/11 US security policies have demonstrated the limits of North
American integration. The rising economic power of China and other
emerging industrial countries, combined with American decline, have
changed the context for global trade and investment relations. The global
financial crisis of 2007–09 demonstrated the fragility of international
economic and financial systems, increasing both national governments’
roles in economic policy and domestic political constraints on interna-
tional cooperation.
Internal policy failures—the inability of existing ideas or institutions to
adapt effectively to changing political, economic, and social conditions—
can discredit both individual governments and their approaches to the role
of government. For example, Ottawa’s embrace of a free trade agreement

with the US in the 1980s would have been politically inconceivable except
for the political and economic failures of the Trudeau government and its
embrace of state-centred economic nationalism. It remains to be seen how
proposals to promote a low-carbon economy and related climate change
policies can be integrated with broad public expectations that governments
continue to promote economic growth and broadly based improvement in
living standards, given the historically resource-based economies of several
Canadian provinces.
We will now examine evolving interpretations of liberalism, socialism
(and social democracy), conservatism, and populism as four major ideologies
that have influenced political debates over the role of government in the
economy and relations between businesses and governments.
Liberalism(s)
Liberalism has been the dominant political ideology in Canada at least since
the 1940s. However, Canadian liberalism is very much a composite ideology
or set of ideologies that has evolved significantly during this period. Scholars
identify different elements in the intellectual collage of Canadian liberal-
ism. Christian and Campbell (1990, pp. 41–96) note that the policies of the
federal Liberal Party have reflected a shifting balance between the expecta-
tions of business liberals and social or “welfare” liberals (see also Chrétien,
2010; Martin, 2009). However, just as the influence of liberalism has often
transcended the priorities of the Liberal Party, the partisan agenda of big-L
liberalism has often reflected current political conditions and challenges as
much as any coherent ideological program. This diversity may be seen from
the very different priorities and agendas of contemporary provincial Liberal
governments and the adaption of most major political parties to aspects of
liberalism.
Some scholars associate the concept of business liberalism with classi-
cal liberalism’s idealization of the minimal state as applying generalized rules
of public benefit to protect individual liberty from force, fraud, or govern-
mental favouritism while leaving as much room as possible for citizens to
act cooperatively for their own good and that of the communities to which
they belong (Christian & Campbell, 1990, pp. 6–7, 78–81; Hayek, 1944,
p. 13).This approach is useful as an intellectual cliché that serves the interests
of some advocates of a market economy and their ideological opponents.
However, it fails to describe the real-world behaviour of organized business
interests in attempting to secure or use government policies favourable to
their economic and political interests, including a stable social and political
climate, while accommodating agendas of other social groups that do not

conflict fundamentally with these objectives. Nor does it describe the typical
behaviour of politicians and governments in attempting to foster economic
development within a largely capitalist economy, balance competing inter-
ests, and pursue election or re-election.
The culture of business liberalism has long accommodated itself com-
fortably to policies that are incompatible with the limits on government
intervention prescribed by classical liberalism as long as they accommodated
the interests of established businesses consistent with other government
objectives. The common thread linking Keynesian economic policies, the
multiplication of selective tax preferences for particular industries and forms
of economic activity, and major increases in government regulation—none
of which are particularly associated with classical liberalism, free markets, or
the minimal state—is a pragmatic commitment to the fostering of private
enterprise and a favourable business climate (Atkinson & Coleman, 1989;
Taylor, Warrack, & Baetz, 2000, pp. 16–24, 61–68).
Canadian social or welfare liberalism has tended to emphasize the regu-
latory and redistributive role of the state in securing the common good.
Rather than equality of outcomes, its advocates support the incremental
extension of the welfare state and public services as a means to greater eco-
nomic security and equality of opportunity for all Canadians. Social liberals
also tend to see governments as a political counterweight to the concen-
trated power of particular social and economic interest groups by using the
fiscal and regulatory powers of the state to foster small business development,
the viability of the family farm, safe and equitable workplace conditions, and
various forms of social and environmental regulation. More recently, they
have adopted many ideas associated with social libertarianism: the assertion
of progressively broader horizons of personal autonomy in social relations
and lifestyles and their enforcement on dissenting elements in society. The
growth of redistribution and regulation may be encouraged as a matter of
principle or in response to concrete problems, for example, in the “Red
Toryism” once associated with certain aspects of historical Canadian con-
servatism. However, the expansion of the state has usually been constrained
by the need to encourage economic growth so that the costs of redistribu-
tion or public services do not result in a zero-sum society (Thurow, 1980)
that can undermine the political consensus sustaining Canadian liberalism.
The search for balance between their economic and social agendas has led
socialists like former New Democratic Party (NDP) leader T.C. Douglas to
satirize centrist Canadian liberalism as “getting money from the rich and
votes from the poor by promising to protect each from the other” (Mitchell,
1983, p. 391).
While maintaining a broad sphere of economic and social freedom,

liberal assumptions of selective state intervention to promote economic
growth, redress social concerns, maintain or expand public services, and alle-
viate poverty have been widely shared by supporters of most political parties
in the late twentieth and early twenty-first centuries. Political debates have
generally emphasized particular issues of distributive politics or the balance
between private and state initiatives, not the underlying assumptions of the
political and economic system.
The development of Keynesian economic policies between the
1940s and 1970s contributed to rising public expectations that govern-
ments would shield Canadians’ living standards from economic shocks
such as rising inflation. During the 1970s and 80s, these expectations
proved to be politically and economically unsustainable. Social liberals
and other beneficiaries of rising government spending resisted reductions
in public spending, while business liberals and related interest groups
resisted the tax increases necessary to pay for them. As a result, chronic
budget deficits, persistent inflation, and rising unemployment forced gov-
ernments to rethink the assumptions of Keynesian liberalism (Bradford,
1998, pp. 135–176; Lewis, 2003). However, enduring expectations of social
(or protective) liberalism can be seen in the commitment of governments
of all complexions to facilitate citizens’ adaptation to changing economic
circumstances while designing economic policies and public programs to
protect and enhance their living standards.
Another level of conflict within liberalism reflected debates over the extent
of government intervention in providing or protecting Canadian ownership
and control over the economy. Bradford (1998) identifies two major strands
of business liberalism—liberal nationalism and liberal continentalism
(or “internationalism,” as it applies beyond North America)—which
have co-existed for many years (pp. 6–8). Business support for nationalist
policies has often reflected competing expectations of, or dependence
on, the state to provide a favourable regulatory environment for business
activities, including restrictions on foreign investments. Business groups have
supported government ownership of specific industries, especially public
utilities, if it contributes to greater market stability or reduced business costs,
while opposing it if it imposes excessive costs or regulatory and competitive
constraints on their interests.
The evolution of Canadian liberalism has reflected a series of ideologi-
cal challenges. Keynesianism was a reformist response to the challenge of
democratic socialism in the 1940s. During the 1970s and 80s, liberalism
faced competing challenges from both left and right. The n eoliberalism
of the 1990s and 2000s responded to neoconservative critiques of an
“overextended” state while engaging in selective activism to facilitate

structural economic change and maintain the sustainability of valued
public services (Hale, 2001; Martin, 2009). Key elements of neoliberal-
ism include systematic efforts to accommodate international interde-
pendence resulting from economic globalization in trade, investment, and
regulatory policies; the pursuit of fiscal balance and sustainability; helping
Canadians adapt to changes resulting from globalization; and the expanded
use of market incentives and methods to the design of social programs
and delivery of public services. Such policies have reshaped and refo-
cused the nature of state intervention and governmental activism rather
than substantially reducing governmental involvement in the economy, as
alleged by some critics.
These ideas have strongly influenced conservative and “third-way”
social democratic governments. Contemporary liberal progressivism seeks
to take advantage of the blurring of distinctions between contemporary
social liberalism and “pragmatic” social democratic parties that attempt to
“manage” contemporary capitalist systems while promoting the interests
of groups whose incomes and social positions are heavily dependent on
public spending (Evans, 2012). It also attempts to synthesize various envi-
ronmental agendas with conventional regulatory and economic develop-
ment roles of government, using policy tools ranging from public health
and cost-benefit approaches to regulation (Jarvis, 2005) to broader systemic
approaches to economic and environmental adaptation (Simpson, Jaccard,
& Rivers, 2008).
Socialism, Social Democracy, and Progressivism
Democratic socialism and its reformist cousin, social democracy, provided

the most significant challenges to liberalism and capitalism between the
1930s and the 1980s. Traditional social democratic concepts of social justice
and democracy are closely linked to the promotion of egalitarianism, not
just equality of social or legal status, but of political and economic outcomes
(Broadbent, 1999). However, the means used to pursue these goals and the
extent to which they can be embedded in state-led, or state-dominated,
approaches to fiscal and economic policies rather than cooperation with
private business investment remain subjects of intense debate within the
Canadian left (Evans & Schmidt, 2012).
Social democratic approaches to economic policy, including a leading
role for state capitalism and extensive economic and social regulation of
the economy, historically have tended to take a more adversarial approach
to the market economy and private businesses. However, governing social
democratic parties since the 1980s have generally recognized the need to
come to terms with various aspects of capitalism.
Political scientists have noted three major factors in the influence of
social democracy on political discourse and the role of governments in
Canada: the structure of the party system, the capacity of trade unions to
mobilize their members in support of social democratic and left-Liberal
parties, and the effect of social democratic competition in strengthening the
influence of social liberals within Liberal and Progressive Conservative (PC)
governments.
Canada’s parliamentary and electoral systems have usually encouraged
the development of two principal parties capable of forming a government
in each jurisdiction.Third parties function at the margins, providing ideas to
the two major parties but rarely gaining enough strength to replace one or
the other as voters’ primary alternative. As noted in Table 2.1, social demo-
cratic parties have consistently formed either the governments or official
oppositions in BC, Saskatchewan, Manitoba, and Quebec for extended peri-
ods, often reshaping their political cultures, while occasionally holding the
balance of power in other jurisdictions.
The financial, organizational, and electoral support of organized labour
has been vital to the political success of social democratic political parties in
Canada. Provinces with effective social democratic parties are more likely
to have labour legislation favourable to the formation and growth of unions
Table 2.1 Democratic Socialist and Social Democratic Parties in Canadian

Legislatures,Years in Power, Official Opposition
Govt Opp BoP+ Govt Opp BoP Govt Opp BoP
1933–1960 1961–1990 1991–2017
Federal 0 0 0 0 0 6 0 4 3
SK 16 10 0 15 15 0 16 11** 0
MB 0 0 0 15 4 2 17 10** 0
BC 0 27 0 3 27 0 11** 16 0
QC* 0 0 0 9 8 0 11 16** 0
ON 0 5 0 0 5 6 5 0 2
NS 0 4 0 0 0 2 4 11 0
AB 0 0 0 0 4 0 2 3 0
NF&LB, NB,
0 0 0 0 0 0 0 0 0
PEI
* Parti Québecois, principal social democratic party in Quebec
** Status in mid-2017
+
Balance of power
that, in turn, have helped to shape their political culture and expectations of
government policies.
Persistent social democratic competition has often strengthened the
position of social liberals and populists within Liberal and small-c conserva-
tive governments. This process has contributed to what economist Anthony
Downs (1957) has described as the “median voter effect” in which two-
party competition tends to dilute parties’ ideological rigour as they pur-
sue nonideological swing voters in the political centre. As with socialist
movements in previous eras, the current antiglobalization movement has
encouraged neoliberals to place greater emphasis on the distributive aspects
of their policies.
Early socialist ideas were driven by a combination of moral fervour, out-
rage at economic and social conditions, and the belief that capitalism as
a system was doomed to disappear either as a result of evolutionary poli-
cies of social reform and government regulation or wholesale changes
imposed by governments in response to popular demands (Wiseman, 2001).
The Regina Manifesto of 1933, the founding platform of the Co-operative
Commonwealth Federation (CCF), predecessor of the NDP, proposed the
nationalization of major industries, systematic regulation of the rest, and a
comprehensive welfare state financed by heavily redistributive taxation on
income and wealth. While the CCF attempted to implement much of this
platform incrementally in governing Saskatchewan between 1944 and 1964,
its main effect was to spur liberal and conservative parties to support the
extension of welfare state programs and Keynesian economic policies dur-
ing that era.
Unlikely most European countries, Canada has never possessed a broadly
based national workers’ party committed to the systematic socialist reor-
ganization of society. The NDP, formed in 1961 as a political vehicle for
CCF organizers and the Canadian Labour Congress, has remained internally
divided over electoral strategies and the party’s relationship with a broadly
capitalist economy. During the 1970s and 80s, provincial NDP governments
and Quebec’s sovereignist Parti Québécois (PQ) government selectively
expanded state ownership while pursuing left (or progressive) Keynesian fis-
cal policies of extensive business regulation and somewhat expanded income
redistribution (Evans & Schmidt, 2012).
The shift of politically successful social democratic governments in many
Western countries to accommodation with the international market econ-
omy during the 1990s prompted politically competitive social democratic
parties in some provinces to follow suit. These trends have been reinforced
by social and economic changes: economic globalization; industrial reor-
ganization within Canada, including growing service-sector employment,
declining employment and unionization rates in manufacturing and

resource sectors; and the growing dominance of public-sector unions within
the labour movement (Evans & Schmidt, 2012; Giddens, 2000; Rae, 1998).
However, significant differences remain between centre-left elements who
believe in the state’s capacity to harness private corporations to serve the
needs of society in a mixed economy, sometimes called “coordinated market
economies” (Hall & Soskice, 2001), and other anticapitalist elements commit-
ted to transforming the capitalist system by imposing much more extensive
political direction on the economy (Eppler, 1999; Evans & Schmidt, 2012; Rae,
1998, pp. 165–94). Since the 1980s, these groups have sought alliances with
nationalist, feminist, environmentalist, and other anticapitalist social move-
ments to provide a more extensive ideological alternative to liberal market
capitalism, but with limited political success. In BC, these divisions have led
to the emergence of a strong Green Party competing to transform broad
policy discourses. In Québec, they have resulted in the emergence of Québec
Solidaire, an avowedly socialist, environmentalist, and feminist party rooted in
New Left social movements that has eroded PQ support (Directeur Général
des Élections du Québec, 2014; Rashi, 2012). In Ontario, they have led to the
emergence of a public-sector union coalition that has become a significant
force in provincial politics, reinforcing social liberal, corporatist, and statist
tendencies within that province’s Liberal government in recent years. Except
perhaps in Quebec, much of this activity appears to be aimed at the develop-
ment of a new progressive discourse attempting to synthesize various ele-
ments of the left, rather than a renewal of socialism or social democracy.
In Quebec, successive Liberal and PQ governments have created varied
corporatist structures to shape the cooperation of business, labour, and
other organized economic interests under provincial guidance, reflecting the
continuing legacy of the state-centred nationalism of the 1960s and 70s.
Unlike social democratic governments in other parts of Canada, PQ govern-
ments have often been able to secure business and union cooperation based
on a shared nationalist ideology and the use of strategic public investments
to foster the growth of private Quebec-based businesses (see chapter 12).
However, similar efforts to foster corporatist economic and social policies
in other provinces have failed to win lasting support from either unions or
business except on a limited sectoral basis.
Competing Concepts of Conservatism
Conservatism has often been described as an anti-ideology, historically con-

tingent, heavily influenced by particular local or national traditions, and
usually articulated in response to specific social, economic, or ideological
challenges (Kirk, 1993; Oakeshott, 1991, pp. 407–37). This characterization

has described different strands of what has passed for Canadian conservatism.
Contemporary Canadian conservatism remains a collage of different ten-
dencies that function both through nominally small-c conservative politi-
cal parties—the Conservative Party of Canada and various provincial parties
which may or may not have “conservative” in their names—and social groups
whose agendas overlap to varying degrees with prevailing neoliberal attitudes.
It includes elements of business liberalism, particularly among organized small
business groups committed to limited but fiscally responsible government;
libertarians who espouse doctrines of radical individualism, property rights,
and a broad hostility toward state intervention in economy and society; and
populists suspicious of social and economic elites of most descriptions, some
of whom are more oriented toward libertarian social attitudes and others
toward more traditionalist ideas of work, family, and the rule of law.
Historical Canadian conservatism, which atrophied after the 1950s, was
informed by a neomercantilism that emphasized an active role for the state in
economic development, allied with domestic business interests. Other major
elements included British empire loyalism in Ontario and the Maritimes,
Tory commitments to social order and cohesion (e.g., “peace, order, and
good government,”) and in Quebec, cooperation between French-Canadian
elites supportive of that province’s dominant Catholic culture and English-
speaking business interests. In parts of Western Canada, a more enduring
populist form of conservatism supportive of small producers and businesses
emerged during the 1940s and 50s. However, intellectual and political frag-
mentation meant that occasional federal PC governments were often little
more than disparate, relatively short-lived coalitions assembled to displace
worn-out Liberal governments (Flanagan & Harper, 1998, p. 174).
Much of Canadian conservatism was absorbed into the dominant culture
of postwar liberalism. Competition for popular support in expanding public
services and the welfare state resulted in the domination of federal politics
during the 1960s and 70s by two broadly centrist political parties differing
more on cultural issues and personalities than on views of government’s role
in the economy.
A neoconservative critique of liberal and social democratic govern-
ments emerged from the perceived overextension of governments during
the 1970s. Canadian governments, along with those of other countries,
were accused of pursuing policy goals beyond their capacity or compe-
tence, alienating many business people from the dominant liberal con-
sensus. Many conservatives criticized the growth of public-sector deficits
and debts, arguing that the spiralling costs of government were absorbing
resources that could be used more productively and responsibly by private
citizens and businesses (Simon, 1978). Their analysis drew heavily on the
ideas of neoclassical economists who distinguished between the role of
governments in providing a general framework for investment and eco-
nomic activity and the inherent limitations of politicians and regulators
attempting to substitute their “judgments … for the judgments of those in
the marketplace” (Wilson, 1984, p. 2; see also Economic Council of Canada,
1981). The Mulroney government elected in 1984 adopted some of these
ideas but was constrained by the political need to balance regional, eco-
nomic, and social interests in pursuit of re-election.
These trade-offs led to the emergence of a new neoliberal synthesis
involving an adaptation of federal economic policies to the effects of glo-
balization, particularly the negotiation of the Canada-US Free Trade Agree-
ment in 1986–88, increased targeting of tax and social benefits to individuals
and families in greatest need, selective economic deregulation of particular
sectors in response to initiatives taken in other countries, and the gradual
introduction of market-based incentives into the management of many gov-
ernment programs and public services. However, public expectations for
the maintenance of public services defied efforts at budget cutting before
the 1990s (Bercuson, Granatstein, & Young 1986; Hale, 2001, pp. 181–222),
although varied coalitions of populist and neoliberal groups emerged in
some provinces west of Quebec.The Harper government (2006–15) pursued
a somewhat opportunistic mix of neoliberal and populist distributive poli-
tics, initially under the constraints of minority parliaments, and subsequently
of deficit reduction after the 2008–09 recession. Harper’s successor, Andrew
Scheer, who defeated libertarian purist Maxime Bernier to claim the federal
Conservative leadership in 2017, appears to be oriented to a similar bro-
kerage rather than an ideologically driven style of politics. If anything, the
diverse constituencies needed to build a winning national coalition, reflected
in the divergent styles, emphases, and constituencies of small-c conservative
provincial parties across Canada, reinforce political incentives for such an
approach.
Populism
Populism provides another strand of Canadian political life that reflects a

disposition or temperament rather than a systematic set of political ideas
intended to change the organization of economy or society. It reflects the
reaction of social groups facing increased economic insecurity and social
marginalization against concentrations of political, social, and/or economic
power and privilege that are seen to exploit their positions at the expense
of “ordinary” citizens. During periods of broader economic decline, when
public policy involves the sharing of shortages rather than surpluses, pop-
ulism reflects visceral reactions against “selfish elite[s]that cannot or will not
deal with the problems of ordinary people” (The Economist, 2015). More
controversially, such movements may also be directed against social and cul-
tural outsiders, often immigrants, who are perceived to have received favours
or benefits from governments at the expense of “ordinary” citizens. Some
observers distinguish between rhetorical populism as a means of mobilizing
political support from groups that recognize themselves to have been politi-
cally and economically marginalized within the existing social order and
policies that actually enable greater inclusion and participation in political
or economic life by ordinary citizens.
Nineteenth- and early-twentieth-century populism consisted of protest
movements whose members organized against concentrations of financial
and economic power such as banks and railroads. Their influence was great-
est in the prairie provinces, where, in Manitoba and Alberta, they elected
relatively durable governments based on farmer support. Such movements
also supported the expansion of the cooperative movement in agriculture,
retailing, and finance, and sought to reduce political patronage in civil ser-
vice and the awarding of government contracts.
During the mid-twentieth century, populist appeals became part of the
stock-in-trade of both democratic socialist politicians such as T.C. Doug-
las and David Lewis and antisocialist politicians such as John Diefenbaker,
BC’s W.A.C. Bennett, and Quebec’s Réal Caouette. Whatever their ideo-
logical differences, these political leaders rose to prominence as antiestab-
lishment “outsiders” challenging established elites to expand economic and
educational opportunities for ordinary citizens, which often included an
expansion of the social safety net. Their appeal was greatest in regions that
did not share in the contemporary prosperity of major urban areas. During
the economically depressed 1980s and early 1990s, conservative populists
such as Bill Vander Zalm in BC, Ralph Klein in Alberta, and Preston Man-
ning in federal politics championed a middle-class populism that sought to
force governments to “live within their means” by balancing budgets and
expanding opportunities for popular consultation on government policies.
More recently, it is visible in the emergence of the Action Démocratique
du Québec (1994–2012) and Coalition Action Québec (since 2011) as post-
sovereignist alternatives to established parties in Quebec. Although Vander
Zalm’s mercurial style helped to destroy Social Credit as BC’s dominant
governing party, his Initiative and Referendum legislation allowing citizen-
initiated referenda on public legislation enabled a populist backlash of both
left and right to overturn that province’s introduction of a harmonized sales
tax in 2010 (Abbott, 2015). Similar populist backlashes against actual and
proposed tax increases and ethical self-indulgence by political elites helped

to defeat both Nova Scotia New Democrats in 2013 and the long-ruling
Alberta PCs in 2015 (Fildebrandt, 2015; Steele, 2014).
Populist appeals are most likely to be politically successful when sig-
nificant, geographically concentrated segments of the electorate have
been “left behind” amid broader trends to economic growth and pros-
perity, creating opportunities for political entrepreneurs either within or
outside established parties. Populist appeals are often most effective in
mobilizing support around symbolic issues that highlight gaps in cultural
as well as economic attitudes and priorities between ordinary citizens
in major urban (or suburban) and “hinterland” regions, such as those
expressed in the iconic bumper-sticker that circulated in Western Can-
ada in the early 2000s: “Defend the West: No Kyoto Accord, No Wheat
Board, No Gun Registry.” These realities help to explain why many parts
of Western Canada alternated for many years between supporting NDP
and populist conservative candidates, while federal Liberals dominated
major cities.
The effects of populism as an ideology can be seen in three major areas:
1) It focuses policy makers’ attention on the distributive effects of govern-
ment policies, providing politicians of all stripes with incentives to appeal
to broad middle-class interests and sentiments, along with their frequent
resorts to symbolic politics. 2) It creates increased public sensitivity to real
and perceived misuses or abuses of public positions by government officials
and other privileged groups at the expense of ordinary citizens. Moreover,
3) it has also contributed to the persistent alienation of large numbers of
Canadians from partisan politics and commitments, imposing tacit limits on
governments’ demands on citizens independently of the fiscal and regulatory
disciplines that policy makers place on the state.
The Political Roles of Government in the Twenty-First Century
Governments continue to play multiple political roles within society. These

roles reflect both broadly shared and highly disparate outlooks of the socie-
ties they seek to govern. Whatever the concentrations of power within indi-
vidual governments, governmental institutions in Canada reflect exceptional
diversity. This diversity is rooted in the decentralized character of Canadian
federalism, separate paths of institutional development within individual
governments, the fiercely guarded independence of the courts and many
regulatory agencies and tribunals from external political control, and the
highly technical character of many policies that privilege those with special-
ized expertise in selected policy fields.
Several institutional factors play major roles in shaping the multiple

levels of economic activity in Canada involving interactions among and
between individuals, businesses, and the state. Citizens frequently expect
governments to serve as referees among different groups in society. But
central to their capacity to do so is the principle of the rule of law:
governments, individuals, and businesses all function within the bounda-
ries of known laws, and the latter two must not be deprived of liberty
or property without due process of law, most notably the constitutional
boundaries established and enforced by an independent judiciary. Similar
principles of due process are established in the workings of most regula-
tory and administrative agencies under legal frameworks established by
federal and/or provincial law.
This balancing act is reinforced by the institutions and processes of feder-
alism and the division of powers between and among federal and provincial
governments, which are sovereign within their respective jurisdictions but
which are sufficiently intermingled to require most Canadians to deal with
at least two and often multiple governments including a growing number of
indigenous governments with varying treaty rights and land claims (Asch,
2014; Newman, 2014b; Papillon & Juneau, 2016). Furthermore, changes to
organizational structures and management practices have often led to the
decentralization of policy making and administrative activities, resulting in
hundreds of regulatory and administrative agencies and crown corporations
at different levels of government that groups of citizens, clients, and stake-
holders have to interact with.
In principle, rule-making processes within governments are defined and
circumscribed by legislation. In practice, the regulatory functions of gov-
ernments are often delegated to regulatory and administrative agencies and
quasi-judicial tribunals with varying degrees of autonomy from govern-
ments. Governments may also delegate responsibility for self-regulation to
various professions, with varying degrees of external oversight or public
involvement. In practice, regulatory agencies are usually subject to judicial
oversight on issues of due process and procedural fairness, but have wide
latitude on matters of substantive policy exercised within their legislative
mandates. Governments and their regulatory agencies may and often do
consult with stakeholder groups on the design of regulations that affect
them. However, such culture of public consultation varies widely across
jurisdictions and policy fields, again privileging groups with specialized
expertise and often placing groups without such expertise at a disadvantage
unless supported by authoritative political champions inside governments.
Taken together, these processes create significant political chal-
lenges for governments and for citizens. They have contributed to the
emergence of multilevel and network governance processes in which

responsibility for managing policy is diffused among actors with dif-
ferent levels of technical and financial capacities. Varying degrees of
multilevel governance exist across a wide range of policy fields,
including indigenous, environmental, financial sector, infrastructure,
postsecondary education, and transportation.
These factors interact with the continuing fragmentation of Canadian
society, blurring democratic accountability, while increasing the complexity
and opacity of policy processes for citizens. Such arrangements create a ready
market for interest groups and government relations consultants (lobbyists)
to enable particular groups of citizens and businesses to deal with specific
policies and organizations within government. These realities, which com-
plicate Canadians’ competing and overlapping expectations of governments
as referees and advocates, regulators, facilitators, and service providers, carry
over into their varied expectations of the economic roles of government in
a changing society.
Terms and Concepts for Review (see Glossary)
Business liberalism Liberal nationalism

Canada-US Free Trade Agreement Market failure
(CUSTFA) Market liberalism
Corporatism Multilevel governance
Embedded liberalism Neoliberalism
External policy shocks Neomercantilism
Generational equity Normative
Government failure Populism
Great Depression Rent seeking
Horizontal equity Social (or welfare) liberalism
Keynesian economic policies Vertical equity
Liberal continentalism
1. Compare and contrast neomercantilism and market liberalism as alter-

native approaches to economic development. In what ways has business
liberalism represented an eclectic combination of these approaches un-
der governments of various political affiliations?
2. What are four major concepts of equity that governments attempt to
serve through the exercise of distributive politics? How do different
concepts of equity create cross-cutting pressures on governments and
on relations between businesses, governments, and societal interests?
3.
What are three kinds of shocks that can undermine political consensus
and create opportunities for ideological and policy changes in govern-
ments? What are some recent examples of such shocks in Canadian
federal and provincial politics and in business-government relations?
Suggestions for Further Readings
Hall, P.A. & Soskice, D. (2001). Varieties of capitalism: The institutional sources of
comparative advantage. Oxford, UK: Oxford University Press.
Iacobucci, E.M.,Trebilcock, M.J., & Haider, H. (2001). Economic shocks: Defining a role
for government. Policy Study #35. Toronto, ON: C.D. Howe Institute.
Laidler, D. (Ed.). (1985). Approaches to economic well-being. Toronto, ON: University of
Toronto Press.
Lasswell, H. (1950). Politics:Who gets what … when … how? New York, NY: P. Smith.
Rae, B. (1998). The three questions: Prosperity and the public good.Toronto, ON: Penguin
Books.
Richards, J. (1997). Retooling the welfare state. Toronto, ON: C.D. Howe Institute.
Note
1 “Maîtres chez nous” (masters in our own home) was the slogan of nationalist
governments during Quebec’s Quiet Revolution of the 1960s and 1970s.
3
The Economic Roles of Government
T he purpose of economic policies, and of government intervention

in the economic decisions of individuals, businesses, and other social
organizations, is to foster conditions that enhance the economic well-being
of individuals, households, and the broader society. However, economic dis-
ruptions of recent years have reopened debates over the most effective ways
to achieve these goals.
Some economists argue that governments should promote increased
prosperity by more interventionist macroeconomic policies and industrial
strategies to redirect economic activity to favoured sectors or socioeconomic
groups. Others maintain that such policies have proven ineffective in the
past and that governments should provide a stable but adaptable framework
of rules that enable individuals, businesses, and other organizations to pur-
sue their own economic well-being in ways that contribute to the broader
well-being of communities and societies. Both sets of policies may be chal-
lenged by external economic and political shocks that challenge established
economic relationships and patterns of activity, for example, major shifts
in terms of trade, foreign currency exchange rates, disruptions of major
export markets or components for major domestic industries.
Economic policies that succeed in increasing overall national (or pro-
vincial) income levels (economic growth), improving living standards for
individuals and families while enabling most citizens to share in the ben-
efits of that growth, involve a multidimensional balancing act. However, the
functional organization of governments and the geographic concentration
of many industries often shift the focus of economic policy to emphasize
their effects on particular groups, whether regional or sectoral, sometimes
emphasizing distributive processes or outcomes at the expense of economic
growth and overall prosperity.
Continuing economic and social changes also demonstrate the impor-
tance of sustainability in economic policies. In macroeconomic policies
(government decisions related to overall levels and distribution of economic
activity), sustainability refers to the capacity to balance the current con-
sumption of goods and services with investments that will increase future
economic opportunities. (Such actions are complicated by careless or self-
serving reasoning over which activities constitute current consumption
as opposed to “investments,” and for whom.) Sustainability also seeks to
39
combine the maintenance or improvement of citizens’ material living stand-

ards with environmental preservation and related quality-of-life issues.
This chapter examines major concepts of economic well-being that have
come to shape the objectives, design, and evaluation of economic policies
in Canada and their implications for competition among business and other
interest groups inside and outside government. These ideas do not exist in
isolation from politics. Indeed, they may have considerable influence on
political discussions of the ways in which individuals, communities, and gov-
ernments can and should relate to one another through policy and in the
economic marketplace.
Major Concepts and Objectives of Economic Well-Being
The concept of economic well-being is debated by economists on both

normative and empirical grounds that reflect philosophical differences over
economic analysis, as does the debate on which policy choices would con-
tribute most effectively to economic growth and the widespread sharing of
its benefits among Canadians. The debate over living standards and the best
ways to define and improve them is also a debate between competing eco-
nomic and political orthodoxies and the efforts of governments to straddle
these outlooks (Fortin, 1999; Osberg & Sharpe, 2011).
Government economic policies have traditionally addressed four major goals:
• the promotion of sustainable economic growth and improved living

standards;
• the promotion of economic efficiency, including measures to offset the effects
of market or government behaviour that undermine the efficient operation
of the economy (market failure and government failure, respectively);
• the provision of public goods; and
• the promotion of fairness and equity, issues addressed in the previous
chapter.
Ongoing technological change, changes in forms of business organization,

and Canada’s economic openness to continental and global economic forces,
including unexpected shifts in commodity prices and exchange rates, con-
tribute to a dynamic economic environment that governments sometimes
anticipate, but to which they often have to adapt their economic policies.
Given the complexity and openness of modern economies to exter-
nal forces, economists suggest that governments do not create economic
growth as much as create the conditions in which individuals, businesses,
and organizations do so through their individual and collective efforts.
The Economic Roles of Government 41
Economists influenced by the neoclassical tradition tend to emphasize the

promotion of structural and institutional conditions necessary to achieve
economic efficiency and growth as a precondition of improved living
standards (see Mintz, 2001; Sala-i-Martin, Bilbao-Osorio, Blanke, Hanouz,
Geiger, & Ko, 2013).
Aggregate economic growth reflected in national income or gross domes-
tic product (GDP) statistics may result from any combination of growing
populations, rising participation rates in the paid labour force, increased lev-
els of capital investment, and increased efficiency in the use of labour, capital,
and technology. Economist Pierre Fortin (1999) writes that “there are only
four ways private households and corporations can get richer: by putting
more people to work, by producing more output per worker, by retaining
a larger fraction of domestic income after tax, transfers and net foreign pay-
ments, and by cashing in on higher relative export prices” (p. 12).
Aggregate economic statistics such as GDP combine multiple compo-
nents, including government purchases of goods and services; individual
consumption; corporate investment in plants, equipment, and technology;
and international trade (exports less imports). Canada is a medium-sized,
open, advanced economy characterized by considerable regional diversity.
The decentralization of economic decision making among governments,
businesses, investors, and consumers that reflects the diversity of their cir-
cumstances and interests largely precludes the kind of centralized policy
coordination potentially available to governments in more compact, homo-
geneous countries.
The long-term trend of population aging and lower overall employment
rates increases the importance of capital investment and human capital to
labour productivity (the value of output for each unit of labour input) and
standards of living (Poloz, 2014). Enhancing productivity (the capacity to
increase overall economic output relative to additional units of input, includ-
ing labour, capital, and technology) is important both in absolute terms and
relative to other countries that compete for investment and comparative
advantage within the global economy. This competition takes place at mul-
tiple levels of analysis, from the macroeconomic, sectoral, and regulatory
policy systems and decisions of governments to the investment and opera-
tional decisions of many thousands of businesses, managers, and investors
(issues addressed in chapters 6 and 10).
Increased productivity, including operational efficiency, is central to
improved living standards as it increases the range of choices available to
participants in the marketplace. Growing competition resulting from the
globalization of industrial and financial markets increases pressures on busi-
nesses and governments to increase productivity—but in different ways.
Businesses must adapt to competitive pressures or lose market share, profit-

ability, and the capacity to generate and maintain employment or face take
over or insolvency. For governments, policies that foster greater efficiency,
whether in private or public sectors, contribute to citizens’ living standards,
while supporting business competitiveness and increasing government rev-
enues to provide public services (Brander, 1995, p. 8; Sala-i-Martin et al., 2013).
However, they also contribute to shifts in economic activity and employment
that require governments to adapt their policies (education, training, etc.) and
social benefits to enable potential and displaced workers to adapt to chang-
ing market conditions.
Social democratic economists tend to emphasize the distributive effects
of economic policies, including their impact on employment levels and the
degree to which lower- and middle-income earners share in the general
prosperity (Osberg & Sharpe, 2011). Economic changes usually involve a
mix of gains and losses with some people being better off and others worse
off. Noting that economic losses weigh more heavily on those with less to
lose, many economists support philosopher John Rawls’s insistence that eco-
nomic policies give priority to improving the well-being of the least well-
off members of society (Osberg, 1985). However, political realities dictate
that economic policies also support the living standards of the middle-class
majority whose incomes derive largely from private- but also public-sector
employment.
Since WWII, governments’ promotion of greater economic equality has
taken four main forms:
• direct financial assistance through income transfer programs;

• a modestly redistributive tax system with varying degrees of “leakage”
resulting from various tax allowances to accommodate or encourage
particular activities;
• public services designed to provide basic social needs and improved
opportunities; and
• promotion of high levels of employment and job creation.
Redistribution of income, which focuses largely on tax and spending

measures applicable within annual fiscal cycles, differs from redistribution of
wealth, which focuses on financial and other assets that generate or support
the capacity to produce income. Canadian governments have moved away
from direct taxation of wealth (e.g., estate taxes) and capital to taxing profits
or net profits on their sale (e.g., capital gains taxes), although provincial land
transfer taxes and an element of business property taxes in excess of the value
of public services received remain exceptions to this rule.
Income redistribution can provide economic and social benefits. However,

emphasizing redistribution or other social goals over the promotion of eco-
nomic growth may reduce overall economic efficiency and output as a result
of high marginal tax rates or overly restrictive regulations, thereby impos-
ing greater economic costs than benefits. This phenomenon is known as
deadweight loss. Economists argue for designing tax and regulatory systems
in ways that benefit recipients while lowering related administrative costs and
tax-induced distortions in decision making. But the size and scope of gov-
ernments often creates incentives to politicize tax and regulatory decisions as
politicians, regulatory agencies, and economic and social interest groups com-
pete to include their priorities in relevant definitions of the public interest
(Bibbee, 2008; Doern, Prince, & Schultz, 2014, pp. 74–93; Kesselman, 2004).
The influence of neoclassical economics and the concept of market forces,
even in a context of extensive government spending and regulation, reflect
the understanding of economists that prosperity cannot be taken for granted
and that rational decision making requires the recognition of trade-offs in
choices among competing goods to make the most of available economic
resources and expand the economy. Contemporary Canadian governments
sometimes attempt to bridge economic and social policy differences so that
they can be made to complement and reinforce one another, rather than
mutually contradict each other. This approach addresses the challenge of
Pareto (or allocational) efficiency (assigning resources so that economic wel-
fare is increased without making some worse off). Such policies attempt to
promote both efficiency and fairness by using additional revenues generated
by economic “winners” to compensate those potentially worse off as a result
of policy changes (Trebilcock, 2014). Examples include sales tax reforms that
build in significant tax credits for low-income households and government
buy-outs of production quotas to compensate for major changes to trade
and regulation of agricultural and resource sectors, facilitating their produc-
ers’ transition to new forms of economic activity.
Firms and Profits, Supply and Demand
Moving toward these objectives in an ever-changing economy requires

an understanding of the economics of supply and demand along with the
theory of the firm. Economic markets involve not only individuals (and
governments) but companies or firms (legal entities of different sizes and
organizational forms through which individuals and groups carry on
business).
Most firms employing more than a few people are corporations
(organizations incorporated under the terms of relevant federal or
provincial laws). Incorporation limits the liability of the firm’s owners

or shareholders to the amount of capital invested in the firm rather than
making them personally liable for the company’s debts. Private business
corporations exist to produce goods and services for profit, the economic
surplus resulting from revenues being greater than the cost of carrying on
business. Shareholders seek rates of profit sufficient to provide them with
comparable or greater returns than those on other investments with simi-
lar risks. These returns are obtained from dividends or the accumulation
of capital gains realized when they sell all or part of their shares in the
corporation. Management also increases returns by selling assets or busi-
ness units to generate capital to expand other parts of the corporation’s
activities and/or reduce debt, by attempting to acquire control of other
businesses whose activities will strengthen their competitive position or,
as in recent years, by using some of a firm’s profits to buy back some (or
all) of its outstanding shares to increase earnings per share. The political
and economic implications of these approaches are discussed further in
chapters 5 and 6.
Economic markets involve a complex mix of actors who often perform
multiple roles—workers (or producers) and consumers, sellers and buyers,
borrowers and lenders (or investors)—while balancing risks and rewards
subject to principles of supply and demand. Market participants balance
risks and benefits in light of available information and their own priorities
in producing, distributing, and allocating goods, services, labour, and capital.
Increasing the price for a product, or a unit of labour, or the return on a
dollar of capital creates incentives for increased production (or supply) until
there are more products, workers, or investment capital than the market
can absorb, after which prices usually fall. Similarly, scarcities in supplies of
products or services, including labour, are likely to force up their prices as
consumer demand exceeds the available supply.
Governments can influence the activity of markets in many ways:
• by making rules that increase or decrease the costs of transactions or

shift them from one economic actor to another;
• by providing or requiring the provision of information that enables
market participants to make more informed decisions on the supply,
quality, and value of products and services;
• by altering the nature of regulatory systems to erect, remove, or redesign
barriers to the functioning of markets to protect or expose particular
activities from/to market forces;
• by providing incentives, such as subsidies or tax breaks, for certain eco-
nomic activities and disincentives for others;
• by direct government participation in the supply of goods and services

in ways that can either encourage or discourage innovation and compe-
tition from other suppliers;
• by rationing or subsidizing the supply of particular services, whether
through direct government provision or financing from (finite) public
funds; and
• by redistributing income between individuals or groups, or by balanc-
ing current spending or consumption with both voluntary and “forced”
savings, such as social insurance programs, to provide for current and
future income needs.
Cumulatively, these activities can help to increase or limit the competi-

tiveness of particular industries or economic sectors (the ability of a firm
(or sector) to offer products or services that meet the quality standards of
specific markets at comparable or lower prices than others while providing
adequate returns on resources employed or consumed in producing them
[adapted from www.businessdictionary.com]).
The capacity of a broadly capitalist economy to coexist with high
levels of public services to generate widespread prosperity is central to
the political legitimacy of private enterprise and the market system. The
central role of businesses in generating increased employment, higher
standards of living, and a stable stream of government revenues to finance
public services is critical to the influence of business groups over eco-
nomic and related social policies. The diverse and dynamic nature of the
market economy and of competing business interests, linked to those of
other groups in society, influences the policy tools available to govern-
ments in pursuing their objectives. It also increases the importance of
balancing competing interests and goals through the political process so
that governments can enjoy both broad public support and the support
of stakeholder groups whose interests are most likely to be affected by
specific policies.
The following sections examine each of the major objectives of govern-
ment policies in greater detail, along with some of their implications for
relations among governments, businesses, and interest groups.
Economic Growth and Stabilization
Economic growth provides the solvent by which governments allocate

income through taxes, transfers, and improvements to public services so
that such policies do not become a zero-sum game in which the benefits
received by some social and economic groups come at the expense of others.
The conditions necessary for growth also reflect the complex interaction
of individuals, businesses, organizations, and governments in pursuing a wide
variety of organizational and policy goals in the economic marketplace and
overlapping markets for political ideas and political influence or power.
These include macroeconomic policies intended to stabilize overall
levels of economic activity through the use of fiscal and monetary poli-
cies; structural adjustment policies intended to address sources of eco-
nomic rigidity and facilitate the adaptability of businesses, governments,
and individuals to changing economic (or social) circumstances, including
evolving international industrial structures, the effects of technological inno-
vation, migration patterns, and demographic shifts; and microeconomic
policies that affect the decisions and choices available to individuals as
investors, workers, savers, consumers, and managers.
Fiscal and Monetary Policies
Fiscal and budgetary policies include the major policy instruments that
shape the overall levels and distribution of government revenues and spend-
ing, as well as the levels and trends of budget balances (annual surpluses or
deficits) that result. Among other things, discretionary fiscal policies affect:
• overall levels of government spending resulting from deliberate policy

changes (as opposed to automatic stabilizers; see below, pages 50–51);
• particular tax rates or the tax mix (a government’s relative reliance on
certain revenue sources compared to others); and
• counter-cyclical decisions to offset market-driven changes in levels of
economic activity. This involves stimulating the economy through tax
reductions and/or spending increases, which result either in larger defi-
cits or smaller surpluses, and constraining the economy’s overall growth
rate to restrain inflationary pressures by pursuing the opposite mix of
policies.
Fiscal policies are usually presented to the public in the context of a gov-
ernment’s annual budget, although budget processes and the related political
marketing have become year-round in recent years. Most budgets involve
incremental changes to previous tax and spending decisions. However, while
influenced by the wider economic environment, fiscal policies rarely func-
tion in isolation from distributive political decisions of “who gets what …
when … how” (Lasswell, 1950). This reality fosters ongoing competition
among interest groups, including many competing business groups, to maxi-
mize benefits from governments whether through lower taxes or increased
spending, or to minimize or shift related costs to other groups (and vice

versa). Similar competition takes place within and between governments as
politicians and their senior officials seek discretion and control over budget-
ary resources, often to maximize the political benefits of spending increases
or tax reductions, and to disguise or shift the costs (and political risks) of
paying for these benefits (Hale, 2001; Hartle, 1988).
Governments may manage these trade-offs by incurring chronic deficits
to finance current spending, thereby shifting their cost to future generations.
If these decisions result in rising debt levels relative to GDP, undermining
fiscal sustainability, governments risk a future reckoning when they must
increase taxes, reduce spending, or both to pay for rising interest costs on
past borrowing, especially when foreign creditors demand changes to their
fiscal priorities (Sheikh, 2014). Economic policies that fail to account for
the effects of careless environmental, occupational, or public health practices
may also contain hidden price tags that generate long-term social and eco-
nomic costs.
The decentralization of government activities through the workings of
federalism and major regional variations in economic activity generally pre-
clude the effective coordination of short-term fiscal policies (with occasional
exceptions, such as the 2008–09 recession). As a result, since the mid-1990s
federal fiscal policies have emphasized the incremental pursuit of medium-
term objectives involving several budget cycles.
Governments may use monetary policies to manage interest rates
(affecting the cost of borrowing) and influence the money supply (affect-
ing levels of credit and inflation) and exchange rates (the relative value of
national currencies). However, in open economies like Canada’s, character-
ized by high volumes of trade and capital flows, central banks cannot manage
all these policy targets at the same time (Freedman, 2002). Since the early
1990s, Canada’s monetary policies have been focused on maintaining low
and stable rates of inflation (around 2 per cent) and, secondarily, on con-
straining or stimulating the rate of economic activity by raising or lowering
interest rates (Dodge, 2002; Ragan, 2007).
Canada’s strong fiscal policy position, reflected in significant drops in
both federal and provincial debt to GDP ratios between 2000 and 2008,
provided senior governments with greater flexibility in responding to the
2008–09 recession (Kodolov & Hale, 2016). However, prolonged low interest
rate policies pursued by central banks of major industrial economies since
2009 to stimulate economic recovery have encouraged Canadian consumers
to accumulate unsustainable levels of household debt (Ragan, 2014), placing
many families’ security at risk despite tighter regulatory standards on mort-
gage lending. Some economists suggest that such policies have encouraged
a shift of investment and employment from higher to lower productivity

sectors, undermining the economy’s long-term growth potential (Borio,
Khararroubi, Upper, & Zampolli, 2015; Capeluck, 2017).
Along with most other major industrial countries, Canada maintains a
floating exchange rate policy. The value of its currency fluctuates against
other currencies, reflecting relative volumes of trade, relative import and
export prices, interest rates, and capital flows. Given Canada’s economic
interdependence with the United States, exchange rate fluctuations influ-
ence the competitiveness of many export-dependent industries.
Falling resource prices during the 1990s lowered the value of the Cana-
dian dollar against its US counterpart, sparking a vigorous debate over
whether Canada should restore a fixed exchange rate with the US dol-
lar (Courchene, 2001a; Grubel, 1999; Robson & Laidler, 2002). These shifts
assisted the short-term post-NAFTA competitiveness of many Canadian
manufacturers, but also reduced incentives for businesses to increase their
productivity. Indeed, overall private-sector research and development levels
have been largely stagnant since 2005, while being located disproportion-
ately in a small handful of manufacturing and service industries (Statistics
Canada, 2017b). Rising commodity prices and capital flows and the weak-
ness of the US dollar subsequently contributed to a sustained increase in the
“loonie’s” value, which reached parity with the US dollar in 2007–08 and
again in 2010–13 (see Table 3.1). Collapsing global oil and other commod-
ity prices in 2014–2016 contributed to its rapid depreciation, falling below
70 cents, then rebounding above 80 cents after economic recovery enabled
Table 3.1 Canada-US Exchange Rate Cycles (1974–2016)*
Average Peak Trough

2015–16 0.769 0.825 (02/15) 0.703 (01/16)
2009–14 0.957 1.047 (07/11) 0.791 (03/09)
2004–08 0.871 1.034 (11/07) 0.811 (12/08)
1999–2003 0.669 0.762 (12/03) 0.625 (01/02)
1994–98 0.718 0.747 (11/96) 0.647 (11/98)
1989–93 0.836 0.887 (10/91) 0.751 (12/93)
1984–88 0.758 0.836 (12/88) 0.710 (01/86)
1979–88 0.833 0.872 (04/79) 0.784 (06/82)
1974–78 0.968 1.039 (05/74) 0.845 (10/78)
* USD equivalent of $CDN1
Source: www.data360.org; Bank of Canada. (2017). Monthly exchange rates. Ottawa, ON. Retrieved
from http://www.bankofcanada.ca/rates/exchange/monthly-exchange-rates/#download; author’s
calculations.
increase rate increases in 2017. However, more recent studies suggest that
financial flows, specifically trading related to price spreads between short-
term (two-year) Canada and US bond spreads, have replaced trade flows
as the most significant factor in shaping the value of Canada’s currency
(Barlow, 2016).
The relative autonomy of the Bank of Canada in setting monetary
policies tends to shift debates over varied regional and sectoral efforts of
exchange rate shifts on to other federal and provincial economic policies. As
most resource prices are set in global or North American markets, resource-
producing regions and sectors (and their suppliers) profit from higher
Canada-US exchange rates. Export-dependent manufacturers are often

more competitive with a “cheaper” loonie, although this often depends on
the flexibility of their supply chains in obtaining competitively priced com-
ponents and other inputs (Cross, 2013).
Sharp differences between the growth rates of the resource-based econo-
mies of Western Canada and Newfoundland and Labrador and the more
manufacturing-dependent economies of Central Canada between the
2008–09 recession and the collapse of many commodity prices since 2014
triggered debates over the impact of high resource prices and exchange rates
on the competitiveness of other sectors (Coulombe, 2013; Krzepkowski &
Mintz, 2013; Shakeri, Gray, & Leonard, 2012; Stanford, 2012). These debates
echo similar controversies over energy policies in the 1970s and early 1980s
(see chapter 4). However, memories of the divisiveness of these debates have
combined with the progressive decentralization of political and economic
power in Canada to reduce incentives for politicians to stoke such regional
divisions, although current policy debates over efforts to limit climate change
have similar potential for conflict given the varied energy endowments and
potential adjustment costs of different regions.
Stabilization Policies
Stabilization policies use fiscal and monetary policies to stimulate or constrain

the growth of aggregate demand, a country’s total consumption of goods
and services, to even out the peaks and troughs of the business cycle. During
the Great Depression of the 1930s, consumer purchasing power was inadequate
to purchase the potential industrial output of most national economies, lead-
ing to high levels of unemployment. As a result, most English-speaking coun-
tries, including Canada, Britain, and the United States, introduced Keynesian
stabilization policies during the 1940s and 1950s. In most cases, these poli-
cies gave governments the power to stimulate or constrain overall levels of
economic activity to promote economic growth, reduce unemployment, and
maintain price stability (low inflation). They also were intended to redistrib-
ute the benefits of economic growth to larger numbers of citizens through
expanded public services and income support programs, providing a social
safety net that would mitigate the hardships resulting from periodic unem-
ployment and thus stabilize economic activity. Right Keynesian policies typi-
cal of North America after WWII emphasized the use of counter-cyclical
fiscal policy to stabilize economic activity without extensive government con-
trol of day-to-day economic activity, often through the “judicious use of taxes
and subsidies” (Seccareccia, 1995, p. 43). Left Keynesian policies placed greater
emphasis on state coordination of economic activity to generate full employ-
ment and other social goals as part of a broad social democratic project, often
as a substitute for widespread state ownership of economic activity.While both
right and left Keynesians have advocated government intervention to correct
perceived market failures, the latter do so more extensively.
Some government policies are designed to respond to overall levels of
economic activity by serving as automatic stabilizers. For example, an eco-
nomic slowdown or recession (a significant decline in overall economic
activity, sometimes defined as two successive quarters of negative GDP
growth) usually results in lower corporate profits and related tax revenues
and a corresponding increase in social benefits paid through programs
such as Employment Insurance without any additional changes in govern-
ment policies. Conversely, periods of rapid economic growth usually result
in sharp increases in taxable profits, investment, and employment income.
Canada’s exchange rates with its trading partners, especially the United
States, can provide a stabilizing function, especially for commodity-based
regional economies, by adjusting prices of imports to balance shifts in
prices of major commodity exports. They also compensate for falling
commodity prices by increasing foreign currency returns to exporters.
However, these patterns do not apply consistently across all sectors, result-
ing in internal shifts in domestic demand for investment and labour across
different industry sectors, creating pressures for offsetting measures by
governments.
Discretionary fiscal policies (specific budgetary choices to increase spend-
ing and/or reduce taxes and vice versa) can reinforce stimulus or restraint,
although their effects are usually subject to fiscal lags of up to two years,
whether caused by normal administrative delays in implementation or trade-
related effects as businesses and consumers adjust their purchases of imported
goods and services. Conversely, groups that benefit from fiscal stimulus often
resent subsequent government efforts to “pull away the punchbowl” or exer-
cise fiscal discipline after an extended period of stimulus, contributing to
what some have called “one-armed Keynesianism.” However, the greater
the openness of national economies to international trade and investment

flows, the less likely fiscal stabilization policies will be effective in producing
desired effects without complementary monetary and other policies, and
vice versa (Dodge, 2002).
If governments run deficits during periods of recession or slow eco-
nomic growth, prudent fiscal policies suggest that some of the revenues
from increased economic growth should be used to reduce deficits or to pay
down previously incurred debt. Financing current transfer payments and
services through government borrowing over an extended period shifts the
burden of taxation necessary to pay for these benefits to a future generation.
Capital investments that contribute to increased productivity and output are
less subject to this critique, although they must still be paid for. Over time,
interest charges on public debt that grow faster than the economy as a whole
(debt service to GDP ratios) will reduce governments’ capacity to stimulate
the economy through discretionary fiscal and/or monetary policies during
the next downturn (OECD, 1999, pp. 137–49; Sheikh, 2014, pp. 233–37). For
these reasons, many economists recommend supporting counter-cyclical
policies with microeconomic structural policy changes to assist both workers
and companies adapt to ongoing changes in the global economy (Clark &
DeVries, 2016; Ragan, 2014).
Government policies may also seek to reallocate economic activity over
time to manage social and economic risk.These measures include provisions
for employment pensions, retirement savings plans and social insurance pro-
grams, public debt repayment, and incentives for private savings and invest-
ment. High savings and investment rates provide capital for new business
investment, job creation, and the financing of public infrastructure. They
also enable citizens to set aside current income to meet future expenses and
generate investment income to provide higher living standards and increased
security in retirement or in case of disability. However, domestic invest-
ment mandates for pension funds, while sometimes politically attractive, run
the risk of political interference, conflicting with broad policy mandates to
maximize investment returns and manage investment risks responsibly in the
interests of future pensioners and taxpayers (Hess, 2005).These risks have led
most Canadian governments to set up arm’s-length pension management
agencies to limit risks of crony capitalism and other forms of politicized
investing. Most major Canadian public pension funds now invest large shares
of their assets outside Canada to maximize returns and manage risks through
greater diversification (Boston Consulting Group, 2015; Nelson, 2017).
The success of Keynesian policies during the 1950s and 1960s led
many voters and interest groups to expect governments to serve as the
guarantors of economic growth and increased prosperity independently
of the business cycle. However, responding to these expectations contrib-

uted to chronic budget deficits during the 1970s and 1980s, contributing
to a vicious cycle of deficits, rising debts, high interest rates, and slower
growth that led to the collapse of the Keynesian consensus (Dodge, 1998;
Hartle, 1993). Although Keynesian policies may mitigate the effects of
major economic shocks, such as the financial crisis of 2008–09 or the
global commodity price crash of 2014–16, economists remain deeply
divided over their ability to counteract the long-term effects of such
shocks (Borio et al., 2015; DeLong, 2015).
Several factors have reduced the ability of Canadian governments to
manage the economy through short-term stabilization policies. Economic
forecasting is an inexact science at best and often subject to unforeseen
shifts in international and domestic activity. Structural economic changes,
particularly integration into larger continental and global economic systems,
have made it significantly more difficult for national governments to control
overall levels of short-term economic activity rather than trying to “steer”
its evolution over several years. Ottawa has accounted for a progressively
smaller share of overall government spending and taxes relative to provincial
governments, limiting its capacity for economic coordination (see Table 3.2).
An aging population has increased pressures on public spending at all stages
of the business cycle, limiting the extent to which governments can finance
current services with deficit spending without reducing the living standards
of the next generation.
Canadian governments actively coordinated their response to the 2008–09
recession both domestically and in cooperation with other major industrial
countries. Cumulative federal and provincial deficits fell from 5.2 per cent of
Table 3.2 Government Budgetary Spending as Per Cent of GDP
Federal* Provinces/ Total

Territories Government**
1990–91 18.9 19.8 (1990) 48.3
1995–96 17.4 20.5 (1995) 47.9
2000–01 13.6 18.2 (2000) 40.7
2005–06 12.0 18.0 (2005) 38.6
2010–11 13.3 20.8 (2010) 43.2
2014–15 11.0 19.2 (2015) 40.3
*Not including major transfers to other governments
**Also includes local government, C/QPP spending
Source: Department of Finance Canada. (2016). Fiscal Reference Tables 2016, Ottawa, ON.
GDP (3.5, federal) in 2009–10 after 11 years of (generally) counter-cyclical

surpluses, to 0.4 per cent in 2014–15 (0.1 per cent federal surplus) (Depart-
ment of Finance Canada, 2016), but with growing divergence of provincial
fiscal policies after 2010 (Kodolov & Hale, 2016).
Under these circumstances, monetary policies have played a significant
role in economic stabilization. All major central banks reduced their prin-
cipal interest rates to varying degrees in 2007–09 to offset the effects of
the global financial crisis and subsequent recession. Although the Bank of
Canada gradually increased its bank rate in 2010, independently of the US
Federal Reserve, and did not engage in unconventional policies such as
quantitative easing used by US and later by European central banks, real
interest rates remained well below historical levels, even before the Bank cut
rates again in 2015 in response to global commodity price shocks. Ottawa
used other policy tools to offset the resulting stimulus to housing prices in
Canada’s largest cities and increases in household debt levels. However, ris-
ing household indebtedness and potential for other financial distortions have
discouraged the Bank from following some other central banks in imple-
menting negative interest rates. Bank Governor Stephen Poloz clearly sig-
nalled the limits of the low-interest rate policies under such conditions in
2016, tacitly encouraging the federal government to return to deficit spend-
ing to offset slow growth (Robson, 2016).
While the uneven nature of cyclical economic recovery across Canada’s
regions is neither particularly unusual nor out of place with sluggish growth
in demand for Canadian exports in the prolonged aftermath of American
and European financial crises (Ragan, 2014), shifts in global economic activ-
ity and Canada’s competitive position in the world raise broader questions
about federal and provincial microeconomic policies and appropriate rela-
tionships between different approaches to government economic interven-
tion and sustainable economic growth.
Promoting Economic Efficiency
Neoclassical economic theory is based on assumptions that economic activ-

ity resulting from voluntary exchange among individuals and businesses,
whether involving labour, goods, services, or financial resources, results in
activities that both improve their own welfare and that of others. Moreover,
economic scarcity (the principle that human needs and wants are usually
greater than the resources available to fulfill them) lends itself to the pursuit
of economic efficiency (attempts to increase the value of outputs [e.g.,
goods, services, or capital] that can be obtained in exchange for a particular
value of inputs [e.g., labour, capital, or technology]).
Economists recognize that government policies can both promote and

impede the efficient operation of the market economy. Policies conducive
to greater efficiency include predictable, transparent rules that allow produc-
ers, consumers, and investors to make informed decisions in the midst of
uncertainty, based on assumptions that individuals and businesses engaged
in competitive markets use their own resources more efficiently than politi-
cians or government regulators. Other key factors include clearly defined
property and civil rights, including rights of contract, and the ability to
enforce those rights in civil or criminal law. They may also involve steps to
mitigate or correct market failures caused by imperfect competition, abuses
of market power, or perverse economic incentives. Consistent legal rules
and impartial institutions (e.g., courts) to enforce them are important in
protecting citizens from the effects of force or fraud and from the ability of
powerful or dishonest actors to abuse their powers to the disadvantage of
others, whether in the economic or political marketplace.They are also nec-
essary to limit the tendency of governments to display favouritism to certain
individuals or groups in ways that detract from overall economic and social
well-being. The principle of economic neutrality emphasizes the desir-
ability of avoiding government-induced distortions in allocating economic
resources, so that workers, managers, investors, and consumers will make the
most of the resources available to them. In practice, however, governments
regularly second-guess markets by providing incentives and disincentives for
many kinds of activities through taxation, regulatory and subsidy policies,
regardless of their impact on economic efficiency.
Information asymmetries (disparities in information available to buy-
ers and sellers) may distort prices or result in transactions unfairly weighted
to the advantage of one or the other. To address these concerns, consumer
and financial services legislation may require full disclosure of product risks
or available financial information to protect consumers against abuses of
market power, such as insider trading or the sale of substandard products.
Certain business practices create negative externalities (anticipated or
unintended outcomes that interfere with the rights of others or that impose
avoidable social costs), such as risks to the health and safety of others or sig-
nificant levels of social distress (e.g., large-scale layoffs in a single industry).
Governments can regulate such activities through consumer and product
safety legislation and social regulations. They may force particular businesses
to bear a greater burden of the negative externalities resulting from their
operations, as with programs such as Workers’ Compensation or rules gov-
erning the avoidance and clean up of pollution. They may also choose to
“socialize” these risks, for example, through mandatory insurance programs
or direct government provision of particular services.
Another structural problem that invites government intervention is

labour-market rigidity that creates barriers to entry in certain occupations
or hinders the adaptation of markets to changing demand for particular
occupations or skills, significant amounts of seasonal employment, and long-
term unemployment (Ragan, 2014). Governments also regulate anticom-
petitive practices through competition and consumer protection laws. But
there is little consensus on the degree to or conditions under which mergers
and corporate concentration contribute to economic efficiency, as opposed
to restricting competition, consumer choice, and innovation (Trebilcock,
Winter, Collins, & Iacobucci, 2002; see also chapter 6).
However, government policies intended to anticipate, regulate, or correct
problems resulting from business activities or individual actions can them-
selves result in unintended consequences that impose serious costs on the
economy, society, or the political system. For example, poorly designed regu-
lations can significantly increase costs to consumers, limit desirable inno-
vations, or create incentives for individuals or groups to beat the system.
They can also expand incentives for individuals and groups to invest scarce
resources in manipulating political and regulatory processes to their advan-
tage (rent seeking) rather than finding better or more creative ways of
generating profits by increasing their efficiency or providing greater value
(including innovative products and services) to their customers. Poorly
designed government transfers simply increase economic dependence and
stagnation, rather than enabling underdeveloped regions to compete more
effectively for investment and employment (McMahon, 2000). Economists
have come to describe such outcomes as government failure (as opposed
to market failure).
Productivity, Efficiency, and Microeconomic Policies
There is broad agreement among economists that increased productivity

is central to the improved living standards for Canadians over the long
term. Canada’s aging population, trends toward lower savings rates, and
the steady decline in the proportion of working Canadians to pension-
ers all underline the importance of increasing the productivity of labour
and capital if standards of living are not to decline substantially in com-
ing years (Dodge, 1998; Ragan, 2014). Key policies to support these goals
have included:
• enhancing competition and consumer/citizen choice, both in domestic

markets and by reducing barriers to the movement of goods, services,
investment, and (to a lesser extent) people across national borders;
• searching for more flexible, efficient approaches to organizing the activ-

ities of businesses, governments, workers, and consumers;
• greater use of incentive-based regulations to complement or replace
traditional “command and control” approaches;
• fostering innovation through research, invention, and the commerciali-
zation of new technologies;
• investing in education and marketable skills (human capital) that equip
citizens for more consistent, productive employment;
• increasing the efficiency of distribution systems (supply chains) through
cooperation among governments, infrastructure investments, and
improved regulatory coordination; and
• reducing tax rates on broader bases of income and consumption to reduce
the economic inefficiencies (deadweight loss) resulting from high marginal
tax rates and tax design while balancing budgets across the economic cycle
and reducing government debt levels relative to GDP (Brown & Mintz,
2012; Chen & Mintz, 2015; Courchene, 2001b; Rao & Sharpe, 2002).
International competition, along with the mobility of capital, goods,

and services across borders, makes national and regional standards of living
increasingly dependent on attracting and retaining capital, skilled manag-
ers, and workers, while matching or exceeding productivity improvements
resulting from innovation and new technologies. As government spend-
ing, including income transfers, accounts for 30 to 50 per cent of national
incomes in most industrial countries, the competitiveness of private-sector
businesses and workers is partly dependent on public-sector productivity,
especially in the efficient provision of goods and services and in balancing
claims of equity and efficiency.
The Provision of Public Goods
Public goods are defined as those services society considers necessary for
its well-being but which the market is not able to produce or distribute effi-
ciently or in desired amounts. Society benefits from the provision of many
goods or services that it is inefficient for individuals or small communities
to provide for themselves or that are subject to the problem of free riding
(unintended use by individuals who have not paid for the service).
Economists distinguish between pure and quasi-public goods. Pure
public goods are goods or services that all or most individuals in a par-
ticular market can obtain without having to pay for them directly (non-
excludable) and without diminishing the supply available to other persons
(nonrival; Strick, 1993, p. 24). Functioning currency systems and national
defence are examples of pure public goods. Clean air and water were once
considered pure public goods, until large-scale population growth, pollu-
tion, and health and environmental concerns created sufficient pressures
on the sustainability of these resources to require more extensive govern-
ment regulation.
Other goods and services, labelled quasi-public goods, provide signifi-
cant public benefits (positive externalities) above the returns that can be
captured by their producers and consumers under normal market conditions.
As a result, there is a significant public benefit from direct or government-
sponsored provision of these services. Current public policies, technologies,
and/or forms of economic organization can limit the extent that suppliers
can charge consumers directly for costs of quasi-public goods consumed, as
with fire protection, certain public utilities, public highways, or certain kinds
of scientific research, although new technologies also expand opportunities
to allocate costs directly to users of certain services.
However, the inherent limits on funds available to provide public services
suggest that as long as individuals and businesses can choose how much of a
service to consume, a significant part of the costs of providing such services
should be passed on to individual citizens through benefit-related taxes
or user fees.
Depending on markets to be serviced and the availability of capital and
technology, quasi-public goods include products such as the large-scale gen-
eration and distribution of electricity and telecommunications (especially to
remote or underdeveloped areas) and infrastructure development for major
roads, bridges, airports, water, sewage, and environmental management ser-
vices, although regulated markets have emerged in recent years for private
provision of most of these services.
Governments may or may not produce such products or services directly.
In many cases, they have the option of providing public goods directly
through arm’s-length agencies, under contract with private or cooperative
producers or through the regulation of private economic activity. In some
cases, the definition of public and quasi-public goods is a function of social
or political choice and cultural tradition. In nations with well-developed
civil societies, capital markets, and entrepreneurial cultures, cooperative or
private channels may provide a wide range of goods and services consid-
ered public goods in other countries. This gives governments the option
of filling market gaps through social insurance or direct state provision.
Changes in technology, business organization, and the capacity of capital
markets to finance infrastructure and public services have resulted in con-
siderable innovation in recent years.
Fiscal constraints have led some governments to sell public infrastructure,

including toll roads, electricity transmission systems, and prospectively, air-
ports, to finance new infrastructure investments. Such transactions are often
controversial, especially if resulting in higher costs to consumers. Monopo-
lies, whether publicly or privately owned, have considerable incentive to
abuse their power over prices and quality of service at the expenses of con-
sumers. The economic literature on public-private partnerships emphasizes
the importance of appropriate incentives, effective project design, and clear
contractual language to manage both the financial and political risks of
infrastructure projects to provide both governments and citizens with value-
for-money (Dachis, 2017; Poschmann, 2003).
Sectoral and Microeconomic Policies: Probusiness, State-Led,

Promarket
Modern economies are complex systems with multiple, interdependent

industry sectors and subsectors. However, competitive factors among
industries vary widely, leading governments to structure their economic
development policies and regulatory systems differently across sec-
tors, reflecting varied policy goals, sectoral conditions, and economic
philosophies.
Federal and provincial governments have used a mix of three broad
approaches to sectoral economic policies in recent years, with significant
variations across provinces and industry sectors. Some economists have
come to distinguish between what they call promarket and probusiness poli-
cies. The latter are designed to promote the competitiveness of particular
businesses or business subsectors through a variety of preferential regulatory,
subsidy (or financing), and tax policies. State-led policies, whether statist or
corporatist, seek to design and implement coordinated economic strategies
over significant parts of the economy through a mixture of directive regula-
tory and tax policies, the selective use of state enterprise or privately owned
“national champions,” and coordination of major societal and market actors.
Promarket policies take a very different approach, fostering increased com-
petition, reducing preferential (probusiness) regulatory and/or tax policies or
reframing them to favour greater consumer choice, and removing barriers
to innovation.
Probusiness policies are frequently variations of neomercantilist tools
used by government in previous generations to promote particular types of
business investment or support domestic firms and economic actors against
international competition or the effects of technological and economic
innovation. Significant examples include:
• regulatory barriers to business entry, which protect existing businesses

(large or small) from competition, while facilitating government regula-
tion to accomplish other social and economic (e.g., distributive) objectives.
Contemporary examples include supply-managed agricultural subsectors
(e.g., dairy, poultry), tobacco manufacturers, and municipal taxi industries,
the latter facing growing pressure from innovative services like Uber;
• industry-specific tax preferences, including lower rates, faster write-offs
for new investment, or other tax breaks not justified on terms of horizon-
tal equity by fundamental differences in structures of business activity;
• direct government subsidies or preferential financing of specific busi-
nesses or industry sectors, particularly if not determined by market cri-
teria; and
• disguised subsidies through preferential government purchasing policies,
whether for local- or domestic-based firms, or those selected to meet
arbitrary political or bureaucratic criteria.
Critics of probusiness policies argue that they result in higher prices for
consumers (and higher costs to taxpayers), especially if reducing competi-
tion. Such policies can also lead to higher tax rates than would otherwise
be necessary without foregone revenues from targeted tax breaks, frequently
forcing businesses to subsidize competitors (or other business sectors). In
doing so, they frequently create incentives for special interest rent seeking or
bureaucratic cronyism (e.g., Bagnall, 2014).
State-led economic policies are frequently designed to substitute for
or provide political and economic counterweights to market-driven eco-
nomic forces seen to privilege external economic interests at the expense of
national or provincial economic development. They include:
• the extensive use of crown corporations or direct state investment in

private-sector firms to channel investment to major industry or sector
development projects, frequently with provisions for preferential pur-
chasing or supply arrangement with local or regional businesses;
• highly directive regulatory systems that are fine tuned to support par-
ticular industry sectors to serve evolving government policy objectives;
• the pursuit of technological sovereignty through the development of
ground-breaking technologies that provide a source of future competi-
tive advantage in domestic and possibly international markets; and
• the negotiation of corporatist arrangements among major economic
and societal interest groups to share the benefits (and sometimes costs)
of protective and directive policies in return for ongoing political and
economic cooperation.
The principal distinctions between state-led and probusiness policies

are those of scale and scope of economic activity and regulatory interven-
tion. Governments of varied ideological outlooks have used crown cor-
porations to pursue both sets of objectives, as noted in chapter 9. While
probusiness policies are frequently incremental or transitional, state-led
policies attempt to catalyze the large-scale development of industry sec-
tors or major projects that would not be economically viable under nor-
mal market conditions, particularly for domestic-based businesses. They
also use state power and resources to capture or direct a disproportionate
share of economic benefits from such projects, if successful, to regional
or national economic actors as expressions of economic nationalism or
province building.
The viability of state-led development strategies depends largely on the
capacity of governments to maintain political and economic support for
such policies over extended periods, allowing for the maturing of these
projects and resulting patterns of economic activity. Their potential for
success may be curtailed by the effects of similar policies by larger, wealth-
ier countries, as in the aerospace and other strategic industries, down-
turns in commodity price cycles that undercut the economic viability
of resource-related megaprojects, and the emergence of competing tech-
nologies in other countries that succeed in achieving greater market pen-
etration or dominance. In recent decades, major national governments,
including Canada’s, have negotiated reciprocal limits on discriminatory
policies associated with state-led development projects in favour of recip-
rocal market and investment access in all but a limited number of protected
sectors. However, some provinces continue to make selective use of state-
led policies in key economic sectors, especially those related to the devel-
opment of provincially owned resources.
Promarket policies involve the dismantling of preferential policies
designed to support or protect particular companies or market actors in
favour of promoting increased competition and greater economic neutrality
in the design of tax laws and regulations. Such policies include:
• tax reforms that reduce industry-specific tax preferences or business

subsidies in favour of lower overall business tax rates;
• opening previously protected markets to increased international com-
petition while encouraging domestic incumbents to expand interna-
tionally, rather than allowing domestic mergers and takeovers, as in the
banking sector;
• removing regulatory barriers to the business activities of particular
industry sectors or subsectors in ways specifically designed to foster
increased competition, as in parts of Canada’s financial, telecommunica-

tions, and transportation sectors since the 1980s;
• forcing state-owned companies to function on a commercial basis,
with the phasing out or elimination of government subsidies and
regulatory preferences, often with shifts to arm’s-length regulation of
environmental, safety, and consumer issues on all competing market
actors; and
• compensating incumbents, particularly small firms, for the loss of state-
conferred economic benefits to facilitate transitions to more competi-
tive, sustainable business strategies (Trebilcock, 2014).
Market-oriented economists favour such promarket strategies, while rec-

ognizing to varying degrees the need for transitional arrangements to limit
disruptions resulting from the introduction of new business or regulatory
models. Although such transitions are easier when paralleled by similar poli-
cies among Canada’s major trading partners, especially the United States,
differences in market size, structure, and competitiveness usually require the
adaptation of foreign models to Canadian conditions. This sometimes cre-
ates conditions of trial-and-error that require governments to modify their
policy choices or take steps to correct other policy impacts and assist groups
disproportionately affected by these changes. The most difficult sectors in
which to introduce promarket policies have been telecommunication, air-
line, and public utilities characterized by high levels of industry concentra-
tion and significant economies of scale, which increases the challenges of
survival for new market entrants unless foreign ownership restrictions are
substantially relaxed.
The interaction among governments, businesses, and societal interest
groups over the economic role of government has always been fragmented
as a result of dispersed, often competing jurisdictional, sectoral, and geo-
graphic factors. The concept of public interest usually reflects the efforts of
policy makers and relevant stakeholders to balance the interests of particular
economic and social groups with economic analyses that indicate the prac-
tical and potential outcomes of various policy proposals at different levels
of analysis. The balancing of these goals and the methods used to attain
them reflect differences in political and economic structures, the priorities
of different actors, and their capacity to secure the support or acquiescence
of relevant policy makers and publics. The specific workings out of these
issues often depend on the historical contexts for particular policies and
the constellations of political and economic power through which they are
mediated.
Economic Benchmarks as Political and Policy Tools
Most people give limited thought to economic policy ideas that go beyond
their own immediate experience or what passes for conventional wisdom.
As a result, both governments and advocacy groups often use simple, easy to
understand measurements—benchmarks—as ways of communicating, pro-
moting, and evaluating policies and policy ideas.
Benchmarking helps politicians and the media communicate complex
economic and social issues in simple terms that can be expressed easily
in a newspaper headline or 30-second news clip. The emergence of the
Internet and other new media enables governments and advocacy groups
to package economic or social statistics for a wide range of audiences. Such
promotional activities can be competitive. For some years, when the Alberta
government trumpeted its “Alberta Advantage” of low individual and busi-
ness tax rates, successive Manitoba governments promoted their province
by showing that its much lower real estate costs more than offset its higher
(if declining) tax rates.
Recognizing that corporate income taxes now generate only a frac-
tion of total taxes paid by business, economist Jack Mintz and the C.D.
Howe Institute popularized the concept of the Marginal Effective Tax
Rate (METR) as a more inclusive measurement of cumulative taxation
that would allow comparisons across the “apples and oranges” of differ-
ent national and subnational tax systems. As noted in chapter 11, these
ideas later became the basis for major changes to federal and some pro-
vincial tax policies. The credibility of such approaches for government
Box 3.1 Why Use Performance Standards?
Governments Interest Groups/Think Tanks

• define goals/targets for • define goals, demonstrate gaps
government/societal action between actual/potential policy
• mobilize public or bureaucratic • mobilize public opinion,
support for government policy prompt government action
• simplify complex issues for • simplify complex issues for
public consumption public and media consumption
• obtain (or challenge) • challenge (or obtain) performance
performance legitimacy legitimacy of government and/or
competing interest group
policy makers and media commentators is strengthened when analyses

are based on solid research and when they avoid overt political or ideo-
logical partisanship.
The use of benchmarks and performance standards serve both political
and economic purposes. Governments are making increased use of perfor-
mance benchmarks to clarify the objectives of their economic policies and
to persuade citizens that these policies either have made or will make them
better off, both in absolute terms and in comparison with other jurisdictions.
Growing international economic linkages have increased the visibility and
public awareness of comparative economic performance and the factors that
contribute to it.
Benchmarking is also used in public administration to set standards
against which performance improvements can be measured and as a tan-
gible basis for awarding performance bonuses to senior public servants
(Kernaghan, Marson, & Borins, 2000, pp. 218–19). Interest groups and
think tanks also use the benchmarking of social and economic statistics
to mobilize public opinion and pressure governments to take action on
their concerns.
Aggregate demand Monetary policies

Automatic stabilizers Negative externalities
Benchmarking Positive externalities
Benefit-related tax Probusiness policies
Competitiveness Productivity
Deadweight loss Promarket policies
Economic efficiency Public goods
Economic neutrality Pure public goods
Economic scarcity Quasi-public goods
Fiscal policies Recession
Fiscal sustainability Rent seeking
Government failure State-led economic policies
Information asymmetries Structural adjustment policies
Keynesian stabilization policies Sustainability
Macroeconomic policies Terms of trade
Microeconomic policies
1. What are four major objectives of economic policies in Canada? What

are some of the principles used in balancing these objectives? How have
these trade-offs contributed to the integration of economic and social
policies in recent years?
2. How have changes in economic theory influenced the balance between
the use of macroeconomic and microeconomic policies to promote
economic growth and stabilization in recent years? How might these
changes in emphasis affect relations between business and government?
3. What is the difference between pure public goods and quasi-public
goods? What practical implications for the delivery of public services
result from this distinction? Do these distinctions have potential impli-
cations for relations between businesses and governments?
4. What is the role of performance benchmarks in economic policy mak-
ing? Suggest some reasons that governments and interest groups might
use benchmarks in their efforts to promote chosen policy preferences.

Dodge, D.A. (2002). The interaction between monetary and fiscal policies. Canadian
Public Policy, 28(2), 187–201.
Hall, P.A. (Ed.). (1989). The political power of economic ideas. Princeton, NJ: Princeton
University Press.
Kesselman, J.R. (2004). Tax design for a northern tiger. Choices, 10(1). Retrieved from
http://irpp.org/wp-content/uploads/assets/research/new-research-category/
new-research-article-2/vol10no1.pdf
Ragan, C. (2007). Why monetary policy matters: A Canadian perspective. Ottawa:
Bank of Canada. Retrieved from http://www.bankofcanada.ca/wp-content/
uploads/2010/06/ragan.pdf
Sala-i-Martin, X., Bilbao-Osorio, B., Blanke, J., Drzaniak Hanouz, M., Geiger, T., &
Ko, C. (2013). The global competitiveness index 2013–14: Sustaining growth,
building resilience. In Klaus Schwab (Ed.), The global competitiveness report 2013–
2014 (pp. 3–51). Geneva: World Economic Forum.
4
Canada’s Economic History: Government,
Business, and the Politics of Development
and Distribution
T he development of economic policies and the practice of business-

government relations are shaped by political, economic, and social
institutions that have emerged from the interaction and competition
of interests through political and market processes, often in response to
historical events.These factors emerge from the interaction and competition
of interests through political and market processes. This competition often
reflects different ideas about the role of government, the social aspirations
of diverse groups of Canadians, and various ways of identifying particular
interests—local, regional, sectoral, and class-based—with a broad vision of
the public interest.
The study of economic history helps to understand contemporary eco-
nomic structures and processes in the context of past economic events and
political decisions. It enables people to identify recurring issues and problems,
learn from past successes or failures in dealing with such problems, and rec-
ognize changes in social and economic environments that may require the
adaptation of past policies to new circumstances. It also provides pretexts for
fighting the ideological battles of the present through a selective scrutiny of
the past. History provides fertile sources to assist in framing imagined identi-
ties, regional and class grievances, or grand historical narratives that justify
contemporary policy agendas by appealing to a partial vision of the past.
Canada’s economic history since Confederation has passed through three
broad regimes, interspersed by extended transition periods in which politi-
cal leaders and economic interests alternately competed and colluded in
attempting to adapt national and regional policies to changing circumstances
and political and economic shocks. The National Policy of 1879 created the
overarching framework for the development of a national economy and the
initial European settlement of Western and parts of Northern Canada before
WWI. The Keynesian economic paradigm introduced following WWII
sought to break free of the boom-and-bust cycles that had characterized
the previous era, laying the foundations for Canada’s integration into the
postwar economic order and laying the foundations for its evolving welfare
state. After a period of economic and political turmoil, the federal govern-
ment’s embrace of economic globalization, symbolized by negotiation of the
65
Canada-US Free Trade and WTO Uruguay Round agreements, ushered in a

neoliberal paradigm of integration within broad North American and global
economic systems, the extensive restructuring of governments, and greater
political and economic decentralization within Canada. It is too early to
determine whether political shocks in the United States, Europe, and other
parts of the world since the financial crisis of 2007–09 mark episodes within
or fundamental disruptions of this paradigm.
Recurring Issues and Problems in Canada’s Economic History
This chapter examines four recurrent issues in Canada’s economic history

and their implications for the economic role of governments and for rela-
tions among governments, businesses, and societal interests, notably:
• evolving public expectations of governments’ roles in promoting eco-

nomic development and diversification;
• the response to economic and political shocks;
• the role of economic policies in promoting social harmony or cohesion;
and
• economic policies as tools of nation or province building.
Promoting Economic Development and Diversification
Canada’s small population, large land mass, and widely varying economic
conditions have made the promotion of economic development and diver-
sification central priorities of governments and business leaders since the
colonial era. The agricultural and resource riches of its enormous fron-
tier provided opportunities to thousands and then millions of ordinary
Canadians and to a more select group of empire-building entrepreneurs
and nation- and province-building political leaders. However, the depend-
ence of most regional economies on one or two dominant staple industries,
particularly at earlier stages of their development, has led governments to
promote economic diversification as a major priority.
However, resource dependence has often made Canada particularly
vulnerable to unilateral policy shifts by its major trading partners, initially
Britain, subsequently the United States, along with major shifts in global
market conditions. These realities led some observers to advance the sta-
ples theory of economic development to interpret the political economy of
economic dependence, promoting ongoing debates over how to encourage
managerial and technological innovation as significant drivers of economic
Canada’s Economic History 67
activity and international competitiveness, while facilitating the adaptation of

various social and economic groups to the disruptive effects of innovation. In
recent years, debates over how best to integrate environmental priorities with
the continued promotion of economic growth have reinforced these challenges.
Responding to Changing International Conditions
Throughout its history, international economic forces beyond the control

of Canada’s governments have often shaped their economic policies. Major
shifts in the commercial, trade, and investment policies of Canada’s chief
trading partners have repeatedly triggered adaptive responses on the part
of Canada. In particular, five significant turning points in its political and
economic history resulted from the failure of the economic system and of
governments to meet its citizens’ basic expectations.
The economic panic of 1837 was a catalyst for armed rebellions against
colonial rulers, and ultimately, the introduction of responsible parliamentary
governments (Creighton 1937/1967). Combined with Britain’s unilateral
introduction of free trade in the 1840s, the reorientation of other impe-
rial policies, and the Civil War’s contribution to centralizing national power
in the United States, these events contributed to Canada’s emergence as a
transcontinental nation.
Post-Civil War American protectionism and global depression during the
1870s influenced major policy changes introduced by post-Confederation
governments. The National Policy imitated US economic nationalism,
fostering domestic industries through high tariffs and major investments
in railroads and other infrastructure, generally financed by foreign capital,
to facilitate settlement of newly acquired western territories and create a
national Canadian market. While the new paradigm’s promised economic
benefits were slow to develop, the combined effects of innovation, corporate
expansion, and high levels of net immigration during the so-called Lau-
rier boom (1896–1913) contributed to record economic growth (Urquhart,
1988).
However, economic disruptions that followed WWI, culminating in the
Great Depression (1929–39), discredited both mercantilism and the lais-
sez-faire business ideology that was preached more than practised before that
time. Political responses after WWII, including the emergence of Keynesian
economic policies and the gradual extension of the welfare state, legitimated
the idea of government as guarantor of citizens’ economic opportunities
and security while opening Canadian markets to increasing levels of inter-
national trade and investment (Bradford, 1998; Simeon & Robinson, 1990).
These policies also facilitated Canada’s adaptation to international economic
changes through greater cooperation with the United States and active par-
ticipation in the growing network of international economic institutions
(Royal Commission on the Economic Union, 1985,Vol. 1, pp. 131–61).
However, closer economic integration with the United States provoked
growing Canadian nationalism between the late 1950s and 1980s, leading to
rising tensions between private- and public-sector elites. Global economic
shocks during the 1970s and 1980s disrupted the postwar economic order
and reinforced underlying regional, social, and ideological conflicts within
Canada. These events destroyed the Keynesian consensus underpinning
Canada’s postwar economic paradigm, leading to a systematic rethinking of
the role and scope of governments in both Canada’s economy and society in
response to a new era of emerging economic globalization.
Canada’s transition to the emerging neoliberal paradigm was marked by
bilateral, North American, and global agreements on trade and investment
(1986–95) and adaptation to major regulatory shifts within major trad-
ing partners, reinforced by major structural economic and policy changes
in Canada and around the world. However, since the 1990s, Canada has
experienced policy stability across successive governments despite con-
tinuing shocks to the post-Cold War order and the emergence of new
powers, especially China, to contest American and European leadership of
the international order. After 30 years of ongoing adaptation to an ever-
evolving global economy, populist and nationalist challenges to globaliza-
tion and the post-Cold War economic and political order are leading many
observers to wonder if Canada is approaching another major historical
turning point.
Promoting Social Cohesion
The success of any economic system, particularly in a democracy, depends

on its capacity to secure and maintain the support of the majority of citi-
zens and major social groups. Social harmony or cohesion has long been
fundamental both to the economic security of citizens and their property
and increased social and economic opportunities. Canada’s geographic size
and widely dispersed population reinforce the challenges of social cohesion
within and between provinces and regions.
Social insecurity is greatest during periods of rapid economic change,
particularly when major social groups bear what they view as dispro-
portionate burdens of adjustment. Social cohesion (or conflict) has been
closely linked to the balancing of social and economic interests and gov-
ernments’ failure to achieve such balance in ways satisfactory to major
social groups. Domestic conflict is also reinforced during periods in which
there are significant shifts in political and social power, particularly if newly
empowered groups are seen to use their influence in ways that reinforce
other forms of social disadvantage. The same logic that has consistently
prompted government initiatives to promote economic development and
diversification has also led Canadians to secure their interests through the
pursuit of favourable government intervention. Competition for eco-
nomic or regulatory benefits from government has also been a driving
force for federal-provincial competition in Canadian politics (Bliss, 1985;
Innis, 1956/2017, pp. 78–96).
Nation and Province Building
Historian H.G.A. Aitken (1967, 1990) has described the response of

Canadian governments to global and continental economic forces as a policy
of “defensive economic nationalism” (1990, p. 111) in which they promote
their policies as nation-building initiatives that will enable Canadians to
exercise greater control over their economic destiny.The persistent reality of
competing regional and provincial interests has prompted similar responses
from provincial governments (Stevenson, 1979; Wilder & Howlett, 2016). As
a result, Canadian governments have often pursued strategic alliances with
business elites as instruments of national or provincial economic develop-
ment, paralleling the neomercantilist practices of other industrial countries
(Black, 1976; Mitchell, 1983; Pratt & Richards, 1979).
Several factors have led Canadian businesses to pursue government sup-
port in creating a positive business environment. These challenges include
the boom-and-bust cycles of staples-based economies, the traditional vul-
nerability of major parts of Canada’s business community to economic
forces beyond their control, and the uncertainties of pursuing large-scale
or long-term economic projects in often unstable economic environments.
The emergence of new national economic strategies has often followed
periods of social and economic turmoil, usually prompted by external eco-
nomic shocks beyond the control of Canadian governments. Sometimes,
federal governments have responded to these uncertainties by expanding
their power, affirming Canadian or provincial economic sovereignty. At
other times, they have pursued reciprocal agreements with other countries
to establish more consistent rules for international economic activity, or
mixtures of both strategies. However, Aitken (1990) notes that while the
logic of private economic interests have usually driven tactical approaches
to economic development, governments have consistently provided strategic
political direction or guidance for the development and locational decisions
of key industries.
These issues have arisen during each era in Canadian history. The ways
in which they were resolved—or left unresolved to fester until subsequent
rounds of political conflict—have played major roles in shaping business-
government relations and those among other competing interests. Specific
challenges and conflicts have varied during each of the four historical eras
examined in this chapter, along with the priorities adopted by governments
in response.
Canada in 1867: The Politics of Development and the Staples

Economy
The 60 years following Confederation marked Canada’s emergence as a

nation state and largely integrated national economy. Historian Gordon
Stewart (1986) argues that “the key to understanding the main features of
Canadian national political culture after 1867 lies in the political world of
Upper and Lower Canada between the 1790s and 1840s” (p. 5). Five major
themes emerge from the historical literature on this period:
• colonial dependence on Britain as part of London-based imperial trad-

ing and financial systems;
• dependence on staple exports of natural resources and agricultural
products to finance economic growth and borrowed capital;
• the development of statist and clientelist approaches to relations among
governing elites, the business and professional classes that provided the
colony’s economic leadership, and the local communities composed
largely of primary producers and small merchants;
• government guidance and support for economic development, often in
partnership with regional economic elites, contributing to periodic fis-
cal and economic overextension; and
• the destabilizing effects of economic shocks, often contributing to major
political and policy changes.
European colonies in North America were treated as imperial dependen-

cies with limited autonomy.The influx of loyalist settlers and others hunting
for cheap frontier land after the American War of Independence prompted
the creation of several separate colonies in the remaining British territories.
Montreal thrived as the terminus of the continental fur trade, but the scat-
tered settlements of British North America depended mainly on subsistence
agriculture or fishing. An export-oriented lumber industry grew up in the
Maritimes and Lower Canada during the Napoleonic Wars to meet the stra-
tegic needs of the Royal Navy (Innis, 1956/2017, pp. 114–15).
Colonial resentments prompted growing political conflict contributing

to the Rebellions of 1837–38 in Lower and Upper Canada and widespread
agitation for responsible government in all the colonies. Ironically, the shift
of power to elected colonial governments after 1840 coincided with the
unilateral British adoption of free trade and the phasing out of preferen-
tial tariffs supportive of Canadian exports. Resulting disruptions created a
favourable political environment for negotiation of the Reciprocity Treaty
of 1854, expanding access to US markets.
After Confederation, economic policy debates gradually shifted. The
absorption of the Hudson’s Bay Company’s territories and treaty settlements
with their mainly indigenous populations, combined with the building
of three transcontinental railroads and the opening of Western Canada to
European settlement, turned Canada from a scattered series of British colo-
nies into a continental nation. But governments faced ongoing challenges
in balancing local and regional interests within broader national policies as
farmers’ interests often conflicted with those of merchants and industrial
workers in growing urban centres.
The widespread depression of the mid-1870s prompted the federal
Conservatives to answer the calls both of manufacturers for increased
tariff protection to strengthen Canadian industries and of many farm-
ers for protection against rising US grain imports (Forster, 1986, p. 10).
While most Canadians remained dependent on agriculture until WWI,
urban growth prompted increased attention to the development of man-
ufacturing industries. These policies prompted conflicts between farm-
ers, conscious of their declining influence after 1880, and manufacturers
and financiers concentrated in southern Ontario and Quebec. Industrial
consolidation during the Laurier era led to growing tensions among big
business, farmers, and labour. In retrospect, some scholars point to the
excessive dependence of the Canadian economy on a handful of agricul-
tural and resource staples to finance economic expansion, described in
the following section.
The Staples Theory of Economic Development
The staples theory of economic development pioneered by Harold Innis

and other early twentieth-century scholars has heavily influenced the study
of Canadian economic history. European settlement was closely linked to
the development of natural resources and agriculture. Innis noted colo-
nial dependence on dominant resource exports from each region: New
France of furs, Newfoundland and Labrador of fish, New Brunswick and
Lower Canada (Quebec) of timber. Wheat became the dominant export

of Canada West (formerly Upper Canada, now Ontario) after 1840 and of
Prairie provinces after 1890. BC’s initial settlement resulted from the gold
rush of 1857, followed by intermittent booms in BC’s emerging mining,
fish canning, and forestry sectors after Confederation (Norrie, Owram, &
Emery, 2007).
Frontier settlement required heavy investments in canals, railways, and
roads to link local producers and communities to wider markets. These
investments were generally beyond the unaided capacity of Canadian busi-
nesses or governments until the mid-twentieth century. The central eco-
nomic role of railway construction after 1840 prompted Canada West
premier Allan MacNab (1854–56) to comment that “railways became our
politics” (Skelton, 1966, p. 16). MacNab, who combined the chair of the leg-
islature’s standing committee on railways with the presidency of the Great
Western Railway, was the first of several leading politicians whose politi-
cal and business interests were deeply intermingled (Bliss, 1987, p. 185). The
blurring of public and private interests encouraged political leaders to use
their power and patronage to bind the interests of local leaders and their cli-
ents to those of governing elites (Bliss, 1985, 1987; Skelton, 1966). Legislators
often traded votes for railway projects, the regional development projects of
the era, and, sometimes, shares in railway companies.The financing, building,
and politics of railways were central to Canadian political life well into the
twentieth century.
Some historians have emphasized the role of staple dependence in
contributing to Canada’s economic underdevelopment and dependence.
However, others note that, over time, staples production generated for-
ward linkages (economic activity based on processing and adding value
to resources to obtain higher economic returns). These activities, often
linked to improved transportation systems and lower freight costs, gener-
ated sufficient savings to foster greater economic diversification in some
areas, less in others. As markets emerged to support local industries, staple
production could also result in backward linkages to domestic suppliers
of goods and services necessary for their operation, as noted in Box 4.1,
although the extent of development depended largely on the size and
stability of regional markets (Innis, 1956/2017; Watkins, 1963). While the
staples theory is persuasive in some ways, neoclassical economists suggest
that it oversimplifies the complexities of Canada’s economic history while
ignoring factors that do not fit the model. Dependency theorists have
argued that the patterns of economic (and, sometimes, political) exploita-
tion associated with this dependence were later translated into economic
Box 4.1 The Staples Theory and Economic Development
FISH Æ Fish processing GRAIN Æ flour milling

› Æ brewing/distilling
›
› Æ intensive livestock feeding
›
› Æ meat packing
›
› Æ value-added meat production
›
Railway (or truck) transport ¨ related
Shipbuilding and repair
Transportation equipment ¨ manufacturing
Ships’ supplies
Farm supplies & equipment ¨ activities at certain
Marine biology
Construction materials ¨ points in market
¨ growth
TIMBER Æ Sawmills
Æ Pulp and paper (after 1890)
›
Equipment manufacturing
Chemicals (after 1900)
Hydro-electric power (after 1900)
and political relations between central Canadian elites and residents of

other regions.
Nation Building and the Politics of Railroads
Confederation was a response to the political deadlock of the 1860s. It

placed most major levers of economic development, particularly control
over tariffs (taxes on imports), railways, banking, and the settlement of
new territories, in federal hands. To contain the linguistic and cultural
divisions of the era, it assigned control over education, social services, and
local economic development to the provinces, including jurisdiction over
property and civil rights, concepts that later acquired far more extensive
applications in constitutional law. Several major factors that contributed
to Confederation also lent themselves to what historian Hugh Aitken has
described as federal policies of defensive economic nationalism during
the two generations after 1867:
The government [was] compelled to accept responsibility for creating

and conserving a national economy. This … presented its political leaders
with the task of defining and continually redefining a strategy of national
economic survival sufficiently feasible and attractive to offset the ever-

present alternative of absorption by the larger and more powerful economy
to the south. The implementation of such strategies has led to very large
public investments and has brought the political leadership into intimate
alliance with influential business groups. (Aitken, 1990, p. 111)
The settlement of new territories acquired from the Hudson’s Bay Com-
pany and, subsequently, First Nations as potential markets for Canadian
products became increasingly important after the US Congress cancelled
the Reciprocity Treaty (1854–66), which had provided for free trade of many
goods and erected high tariff barriers to promote domestic industries. Most
of Ontario’s best agricultural land had been settled by the time of Confed-
eration. Steady population growth demanded more land, as well as outlets
for the production of its growing manufacturing sector. The lure of cheap
land on the US frontier and greater opportunities in American cities pro-
duced a steady stream of southward emigration from Central Canada that
consistently exceeded the flow of new immigrants until the early twentieth
century (Urquhart, 1988, p. 6). These factors, combined with the fear that
American settlers and commercial interests would flood into and ultimately
annex Canada’s new Northwest Territories, prompted government-led
expansion into the Canadian West.
The politics of railroads during this era reflected several major aspects of
business-government relations: the use of railroads to promote national devel-
opment, political and financial interdependence of government and business,
and the politics of economic nationalism and clientelism. The Domin-
ion lacked direct transportation links to the newly acquired provinces of
Manitoba (1870) and BC (1871), forcing travellers and shippers to go through
the United States. The federal government committed itself to build a trans-
continental rail link to BC as one of the conditions of that province’s acces-
sion to Confederation.
The first syndicate established to build the Canadian Pacific Railway
(CPR) fell apart amid political scandal, vicious infighting between Montreal
and Toronto businessmen, and widespread skepticism that an all-Canadian
project across more than 2,000 miles of wilderness populated almost entirely
by First Nations could be economically viable. Canada’s first prime min-
ister, Sir John A. Macdonald (1867–73, 1878–91) chose Montreal shipping
magnate Sir Hugh Allan over Toronto businessmen to head this syndicate.
The government insisted on an all-Canadian route across northern Ontario
to the Pacific coast, providing a $30-million subsidy and a sizeable land
grant.1 Although Macdonald’s Conservatives won the 1872 election with an
enormous injection of Allan’s cash, estimated as equivalent to $50 million

in 2017, Macdonald was forced to resign when details of these transactions
surfaced in the so-called Pacific Scandal (Creighton, 1955, pp. 210–12).
The subsequent Panic of 1873, one of several financial crises of the
nineteenth century to spill over from the United States,2 destroyed the mar-
ket for financing new railroads and pushed Canada into a prolonged slump.
Alexander Mackenzie’s Liberal government took a cautious, pay-as-you-go
approach to railroad building. It completed the Intercolonial Railway to the
Maritimes begun in 1867 as a condition of Confederation. However, cost
overruns and political interference with the line’s construction and opera-
tions made it a financial albatross for many years, encouraging subsequent
governments to rely mainly on private, if subsidized, capital and management.
Macdonald returned to office on a protectionist platform in 1878.
His government championed a new transcontinental railroad syndicate
headed by Bank of Montreal president George Stephen. To secure an
all-Canadian route, Ottawa provided a $25-million subsidy, 25 million acres
of free land along the railway’s right-of-way, and government construction
of the most technically difficult sections of the route west of the Lakehead
and inland from the Pacific coast (Bliss, 1987, pp. 214–16; Norrie et al., 2007,
pp. 199–200). It gave the CPR a 20-year monopoly on services between its
main line and the US border, along with emergency loans when bankruptcy
loomed before the end of construction in 1884.
The CPR profoundly influenced patterns of settlement and economic
development across Western Canada. Winnipeg became the region’s domi-
nant manufacturing and financial centre. The railway determined the sites
of Regina, Calgary,Vancouver, and other communities, influencing land val-
ues and economic opportunities for many years. Large federal land grants
encouraged its promotion of western settlement, although settlement
beyond Manitoba proceeded slowly until 1900. The CPR provided a major
outlet for Central Canada’s manufactured goods, along with BC’s emerg-
ing forest and mining industries. Until competing railroads were completed
almost 30 years later, it dominated the region’s transportation system. Its
monopoly contributed to federal-provincial tensions over railroad policy,
federal control over public lands (and natural resources), and enduring ten-
sions between western agriculturalists and central Canadian financiers and
manufacturers competing for government protection and support (Barman,
1991, pp. 107–14; Stevenson, 1994, pp. 150–53).
The Laurier government elected in 1896 responded to these pressures by
launching a massive program of new railroad construction. It capped freight
rates in return for allowing CPR construction of its Crowsnest Pass line to
serve BC’s Kootenay region. The resulting Crow Rate subsidy became a
mainstay of western agricultural production until the 1980s (Kroeger, 2009).

These policies reflected an evolving combination of brokerage politics with
the neomercantilist economic policies known as the National Policy.
The National Policy
The US government’s post-Civil War embrace of protectionism led

Canada’s political leaders to pursue new avenues for domestic economic
expansion. Macdonald returned to office in 1878 championing a new
National Policy that set the pattern for federal economic policies until the
1920s. The National Policy combined protective tariff policies, selective gov-
ernment subsidies, and railroad policies to create a national market and open
new lands for settlement, promote industrial development, and create employ-
ment for a rapidly urbanizing population. Advocates of protection argued that
it would encourage economic diversification, the growth of manufacturing
industries and wages, and domestic markets for other commodity producers.
They urged protection as a means of dealing with boom-and-bust economic
cycles that encouraged rapid business expansions during good times, only
to be followed by oversupply, falling prices, intensified competition, tighter
credit, business failures, and rising unemployment (Forster, 1986, p. 117).
Although the Ontario Manufacturers Association played a leading role in
the protectionist lobby, politicians—not a fragmented business community—
performed the vital political task of balancing competing interests. Post-
1879 tariff schedules favoured low tariffs on raw material imports and higher
ones on finished goods and many intermediate goods supplying other
manufacturers (Forster, 1986, p. 204; Forster, 1990). Selective tariff increases
resulted in the growth of average duties from 23 per cent in 1879 to 32 per
cent in 1891, before declining slightly under the Laurier government. Even
so, many imported goods continued to enter Canada duty free, particularly
in the absence or weakness of domestic producers.
The National Policy’s political significance was probably greater than its eco-
nomic impact during Macdonald’s lifetime. It enabled him to appeal to both
English-Canadian and French-Canadian nationalism by creating a common
external enemy, as he mobilized nationalist sentiments and self-interest fostered
by these policies to frustrate the demands of farmers and others championing
free trade with the United States, culminating in the 1891 election.
Reactions against Ottawa’s centralization of power, sometimes prompted
by partisan use of federal disallowance and reservation powers to over-
ride provincial laws, were largely limited to provincial politics until the
1890s. Provincial rights movements in Ontario, Quebec, Nova Scotia, and
Manitoba gained strength during the 1880s, challenging the federal
government’s colonial attitude to provinces and demanding greater auton-

omy and increased recognition of regional interests in federal policies.These
demands laid the foundation for a substantial decentralization of economic
power after Macdonald’s death in 1891 (Stevenson, 1994).
The vested interests created by the National Policy were left largely
undisturbed when the Liberals swept to power in 1896, although Laurier’s
conversion to free trade split his party in the 1911 election and confirmed
the Conservatives as champions of protectionism and Ontario interests for
the next generation. High tariffs remained central to Canadian economic
policies until the 1940s.
More significantly, the National Policy entered into the mythology of
Canadian economic history as a successful model for government leadership
of economic policy, although more recent historians have suggested that its
legacy is more ambiguous. The National Policy did contribute to moder-
ate rates of economic growth during the 1880s and early 1890s, laying the
foundations for the large-scale settlement of the Canadian Prairies during
the Laurier years. Responding to chronic American protectionism, it laid
the foundations for Canada’s second industrial revolution and the related
concentration of economic and political power, which provoked repeated
political challenges for much of the next century. Other concerns, such as
the effects of protectionist policies on business efficiency, competitiveness,
and incentives provided for foreign investment and control over Canadian
industries, became issues for future generations to debate.
The Second Industrial Revolution and Economic Disruption
Canada’s economic policy regime went through successive periods of

consolidation, transition, and disruption between 1900 and 1945, punc-
tuated by two world wars and the economic and political turmoil of
the 1920s and 1930s. The Laurier government (1896–1911) extended the
National Policy while adapting it to demands from emerging social, eco-
nomic, and regional interests. The Laurier Liberals were a federation of
provincial parties. Repeated court rulings since 1880 had provided a
constitutional basis for provinces’ sovereign equality with Ottawa (Ste-
venson, 1994). These trends reinforced a progressive decentralization of
regulatory authority, with provinces taking different paths toward indus-
trialization after 1900.
A continuing flood of immigration, reinforced by the opening of the
Prairies to large-scale European settlement, contributed to rapid population
growth. Canada’s population grew by 44 per cent between 1901 and 1914
(Bliss, 1987, p. 340). At 6.6 per cent, annual real economic growth during
the Laurier era was higher than in any other industrial or emerging econ-
omy (Marchildon, 1996, pp. 7–8). This growth was reinforced by a wave
of foreign investment, the spread of new technologies and manufacturing
processes, and the emergence of corporate enterprises capable of mobiliz-
ing and managing large-scale economic activity (Marchildon, 1996; Norrie
et al., 2007).
The wheat boom of this period is often cited as a major illustration of
staples-led development. Urbanization and population growth in Europe,
combined with falling domestic and trans-Atlantic shipping costs, vastly
increased demand for Canadian wheat and flour. Western settlement, rising
populations, and railway building also created significant new markets for
Canadian manufactured products, especially iron and steel (Norrie et al.,
2007, pp. 200–8).
Laurier continued Macdonald’s national railroad-building program, sub-
sidizing two national competitors to the CPR, the Grand Trunk Pacific and
Canadian Northern. It also built its own National Transcontinental Railway
through the forests of northern Ontario and Quebec, expanding access to
the transcontinental system for Quebec and the Maritimes. Provinces also
subsidized extensive railway building, opening up the northern regions of
Ontario, Quebec, and the BC Interior to mineral and forestry development
(Barman, 1991; Bliss, 1987; Sanford, 2011). Some scholars describe this pro-
cess as pure staples theory:
Federal railway policy ensured that grain would move east, through
Canadian handling and distribution facilities, and on Canadian rail lines,
rather than south, to join American supplies. Tariffs ensured that Canadian
manufactured goods could compete with imported ones, providing not
just revenue for central Canadian businesses, but also return traffic for the
railways. (Norrie et al., 2007, pp. 205–6)
These policies greatly expanded governing parties’ opportunities for

patronage, clientelism, and fundraising. Governments heavily subsidized rail-
way entrepreneurs and contractors, milking them for political contributions,
often skimmed from padded payrolls, and generating a flexible reserve of
votes. Outrage at the systemic corruption of the party system helped to fuel
populist movements for reform after WWI.
Other histories of economic development have emphasized the inter-
action of technological change and population growth with the rise of
professionally managed corporations requiring large-scale capital invest-
ment in a second industrial revolution. The diffusion and application
of major innovations such as the internal combustion engine, electricity,
and multiple electric-powered products transformed the ordinary lives of

millions of citizens, not just economic organization, improving both their
living standards and quality of life (Gordon, 2016). Sizeable manufactur-
ing, financial, utility, and industrial combines emerged with the capital to
pursue major economic ventures and the economic power to dominate
or eliminate smaller competitors. Corporate consolidation in the steel,
cement, mining, and forest industries came after the turn of the century:
275 individual firms were combined into 58 industrial enterprises between
1909 and 1912 (Bliss, 1987, p. 338), anticipating similar waves of mergers and
takeovers in the 1990s and 2000s.
Governments often cooperated with these financial and industrial barons,
who could help finance industrial activity in the hope of bringing benefits
from major investments and employment to all parts of Canada, not just
existing industries in southern Ontario and Quebec. In some cases, these
businesses proved highly efficient competitors who increased production
and reduced prices to consumers. In others, they became financially overex-
tended or abused their market power at the expense of suppliers and con-
sumers. Concern over the growth of corporate cartels to limit competition
prompted the federal government to pass combines (competition) laws in
1889 and 1910, but these measures proved relatively ineffective in control-
ling abuses of market power. As Canadian laws required high standards of
proof to establish criminal intent by corporate executives engaged in col-
lusive activities, governments gradually introduced other forms of economic
regulation intended to balance the competing interests of different producer
groups and consumers.
The growth of large corporations whose senior managers functioned at
considerable distances from employees also contributed to increasing labour
militancy. International craft unions spread from the United States into Can-
ada, taking control of the Canadian Trades and Labour Congress during
the 1890s. Industrial unionism emerged later in the mining and resource
industry towns of Northern and Western Canada in reaction to low pay,
economic insecurity, and poor working conditions. However, while fed-
eral law had recognized unions from 1872, both federal and provincial laws
still treated employment contracts as private matters to be resolved between
employers and employees. Union membership declined from 17 per cent
to 7 per cent during the prosperity of the Laurier boom, only to recover
sharply during the economic turmoil during and after WWI (Barman, 1991,
pp. 206–24).
Public opinion and elements of the business community demanded gov-
ernment intervention to limit or offset the power of the industrial combines.
Conservative business interests in Ontario, spearheaded by Adam Beck,
later chairman of Ontario Hydro, championed public power at cost as an

alternative to the exactions of private power monopolies (Freeman, 1996,
pp. 10–58). Alberta and Manitoba governments formed publicly owned tele
phone systems as an alternative to eastern monopolies. Ottawa created the
Board of Railroad Commissioners to regulate freight rates and limit profits
that railroads could extract from shippers. Ontario also introduced work-
men’s compensation legislation in 1915 to protect workers against the eco-
nomic risks of industrial accidents.
However, these innovations took place within the protectionist frame-
work of the National Policy. When Laurier bowed to pressure from Liber-
als in rural Ontario and Western Canada to negotiate another Reciprocity
Treaty with the United States in 1910, most businessmen and financiers
abandoned the Liberals, along with much of the urban working-class vote.
The forces of English-Canadian nationalism combined with corporate
interests to defeat Laurier in the federal election of 1911 (Brown, 1975,
pp. 170–96).
The economic disruptions of WWI led to increased demands for gov-
ernment intervention, particularly by farmers hard hit by rising prices and
federal regulation of grain prices for the war effort. Controls on freight rates
made it impossible for overextended railroads to finance debts accumulated
during the prewar boom. The Grand Trunk Pacific and Canadian Northern
systems went bankrupt and were nationalized by the federal government in
1917, later evolving into the Canadian National Railway.
This example of government economic development strategies, dubbed
megaproject-based development by later generations, creating top-heavy
corporate empires that were too big to fail, yet too indebted to succeed,
became a recurring effect of federal and provincial policies. Railway nation-
alization, while the least disruptive option available to Robert Borden’s
Conservative government, imposed huge debts on the federal government
that limited its capacity for new economic initiatives during the 1920s and
1930s (Bliss, 1985).
The economic, social, and political pressures unleashed by WWI seriously
disrupted both the Canadian economy and traditional elite-dominated pat-
terns of clientelism. A series of economic shocks, culminating in the social
and economic catastrophe of the Great Depression, undermined public con-
fidence in existing forms of economic and social organization, creating a
receptive environment for social reform and greater government interven-
tion in economic life. New political movements emerged to challenge the
status quo. Postwar agrarian populism challenged both the traditional party
system and its patronage-centred approach to politics and business.The Great
Depression spawned populist and socialist challenges to existing forms of
capitalist organization, prompting the established parties to endorse a larger

government role in the economy and lay the foundations of the welfare state.
The interwar years were marked by persistent economic turmoil. New
political parties and movements championed farmer, labour, and other pro-
ducer interests, especially in Western Canada. Agrarian protest movements won
provincial elections in Ontario (1919–23) and formed long-lasting govern-
ments in Alberta (1921–35) and Manitoba (1922–43), breaking up Canada’s
traditional two-party system. The Progressive Party, a populist farmer-labour
movement, formed the official opposition in the 1921 federal election.Agrarian
activists, often linked to social gospel movements for social and moral reform,
supported public ownership of utilities, government regulation of railroads,
and other forms of concentrated economic power (Allen, 1990). However,
they were often skeptical of government interference in day-to-day business
activities and supportive of decentralizing political and economic power. The
movement split into reformist and radical wings during the Depression.
Although prosperity returned to some parts of Canada, economic activity
varied widely across regions and sectors. Ontario experienced rapid expan-
sion, driven by foreign investment in its manufacturing and resource sectors.
The Maritimes began a period of economic decline, accompanied by sig-
nificant industrial strife. Requiring support from agrarian and labour MPs to
remain in office, Liberal Prime Minister Mackenzie King (1921–30, 1935–48)
made sharp tariff reductions on farm implements while maintaining high
tariffs on most other manufactured goods (Gillespie, 1991, pp. 145–67).
A series of court rulings enabled the emergence of several strong pro-
vincial governments committed to controlling the terms of economic
development within their jurisdictions. The longer these governments were
entrenched, the more likely they were to be protective of their own jurisdic-
tions and political power (see Table 4.1).
Table 4.1 Provincial Ruling Dynasties in the Late Nineteenth and Early
Twentieth Centuries
Party Years in Office # of Premiers
Nova Scotia Liberal 64: 1884–1925; 1933–56 5
Quebec Liberal 39: 1897–1936 4
United Farmers 13: 1921–35 3
Alberta
Social Credit 36: 1935–71 3
Saskatchewan Liberal 33: 1905–29; 1934–43 4
Ontario Conservative 25: 1905–19, 1923–34 4
Manitoba United Farmers 21: 1922–43 1
The Judicial Committee of the Privy Council (JCPC) continued to

favour decentralizing interpretations of the constitution, as in Toronto Elec-
tric Commissioners v. Snider (1925), which confirmed provincial jurisdiction
over labour relations as an extension of property and civil rights. Linkages
between government policies and services and economic development pro-
vided a fertile climate for patronage and machine politics and for populist
appeals to “throw out the rascals.” Even so, one set of rascals was likely to
replace another (Black, 1976; Saywell, 1991).
However, the patchwork quilt of national and regional subsidies could
not protect Canada’s economy from the shattering effects of the Great
Depression (see Figure 4.1). Average price levels dropped 22 per cent
and real GDP 26 per cent between 1929 and 1933. Per capita income in
Saskatchewan dropped 72 per cent during the same period (Bliss, 1987,
pp. 418–19; Smith, 1975, p. 204). Governments whose resources were stretched
to the limit by rising costs of unemployment relief lacked the financial or
theoretical resources to deal with the crisis. One provincial government after
another was thrown out of office by voters desperate for political remedies.
Conservative Prime Minister R.B. Bennett, elected in 1930, belatedly intro-
duced several initiatives comparable to Roosevelt’s New Deal in the United
States. Checked by the courts and provincial opposition, his government
was routed in 1935 as the Liberals returned to office on the slogan “King or
Chaos.”
The populist search for economic and social reform spawned several new
political movements during the 1930s. The Co-operative Commonwealth
Federation (CCF) was created in 1933 by the fusion of labour parties with
the left wing of the farmers’ movement to champion the nationalization
of large-scale economic activity, a planned economy, and a major expan-
sion of social welfare programs. By 1934, the CCF had formed the official
opposition in BC and Saskatchewan and was making significant inroads in
Ontario. Social Credit emerged as an inflationist response to the Depression.
It combined revivalist religion, direct democracy, demands for provincial
control over banks, and the large-scale printing and distribution of money
to increase consumer purchasing power. Swept to power in Alberta in 1935,
much of its program was ruled unconstitutional by the Supreme Court or
disallowed by the federal government before 1940 (Barr, 1974, pp. 107–12).
However, while its influence in neighbouring Saskatchewan was short-lived,
it re-emerged in BC during the 1950s as the party of populist individualism
and business development.
Traditional brokerage political parties in several provinces, ranging
from Duff Pattullo’s socialized capitalism in BC, to Maurice Duplessis’s
Figure 4.1 Unemployment during the 1930s
20
Unemployment rate (%)

15
10
0
1925 30 35 40 45 50
June of year
Adapted from D. Gower (1992), “A note on Canadian unemployment since 1921,” Perspectives on
Labour and Income 4.3, p. 2. This does not constitute an endorsement by Statistics Canada of this
product.
opportunistic mix of paternalism, corporatism, and populism in Quebec,

sought to co-opt leaders of reform movements into their organizations to
demonstrate their responsiveness to changing social and economic circum-
stances while diffusing demands for more radical reforms. However, the
renewed prosperity and optimism arising from WWII opened the door to a
new economic policy consensus that shaped Canada’s political economy and
business-government relations for most of the next generation.
Keynesian Political Economy and the Second National Policy
Canadian governments made major changes to economic policies during

and after WWII. Although these changes were heavily influenced by the
conventional goals of economic policy described earlier, they involved a
thorough rethinking of the major policy instruments that had characterized
the first National Policy of the 1870s to 1920s. After 1935, Ottawa initi-
ated several major policy reviews to recommend policy changes to mitigate
the effects of future economic upheavals. Although it took several years for
these initiatives, including the Rowell-Sirois Commission (1937–40) and
the Marsh Committee on Reconstruction (1941–44), to shape government
policy, they became the basis of what became known as the Second National
Policy (Bradford, 1998, pp. 35–51).
The Second National Policy was intended to prevent a recurrence of the
Great Depression and to address structural factors that had contributed to
economic instability between the wars. It had five major components. The
federal government reduced protectionist tariffs and regulations through a
series of international agreements that gradually opened Canadian markets to

foreign competition while fostering large-scale foreign investment. Second,
rather than allowing the business cycle to take its own course, Ottawa actively
adopted Keynesian demand-management policies to stabilize economic
activity and stimulate private-sector investment and job creation. Third, it
gradually expanded the welfare state to stabilize the economy, maintaining
consumer demand during economic downturns, promoting social cohesion,
and sharing benefits of economic growth. Fourth, federal and provincial gov-
ernments made it easier for unions to organize and use collective bargaining
to enable their members to share in benefits of their employers’ growth and
negotiate adjustments to future economic shocks. Finally, rather than intro-
ducing central government planning, as advocated by socialist academics and
advocates of greater state control, government intervention in the day-to-day
workings of the economy was more selective, focusing on strategic sectors
and creating a positive environment for business and employment growth
(Simeon & Robinson, 1990, pp. 113–15).The phasing out of postwar controls
and the subsequent emphasis on macroeconomic policies resulted in indirect
government guidance in most sectors rather than direct control over business
operations and investment decisions until the 1970s.
From Economic Nationalism to Limited Internationalism
Depression-era tariff increases after 1930 were widely perceived to have

contributed to the deepening of the Depression. With Britain nearly bank-
rupted by WWII, the Mackenzie King government sought closer economic
ties with the United States but rejected the domestic political risks of a free-
trade agreement in 1947. Instead, Canada gradually lowered tariffs through a
series of multilateral agreements under the General Agreement on Tariffs and
Trade (GATT). These and other international organizations enabled Canada
to play an active role in the international economic system while engaging
the United States in a “special relationship” through bilateral agreements
giving it wider access to American capital and markets (Hart, 2002).
Federal and provincial governments welcomed a flood of foreign, mainly
American, investment in Canada’s manufacturing and resource industries.
While regional economic disparities declined somewhat during the 1950s,
their persistence helps to explain the enduring appeal of Diefenbaker’s eco-
nomic populism in “outer” Canada, and the rise of the populist Créditiste
movement in rural Quebec during the 1960s. Postwar Liberal governments
encouraged Canada’s progressive integration within the North American
economy, negotiating a formal defence production sharing agreement with
the United States in 1957, allowing for the rationalization and more efficient
operation of related industries. The Auto Pact of 1965 permitted the full
integration of automobile manufacturing industries, although negotiated
safeguards required the production of one vehicle in Canada for every one
sold in the country. However, these trends provoked growing concerns
among Canadian nationalists over increasing US control of Canada’s econ-
omy (Bradford, 1998, pp. 61–66).
Some observers, especially on the left, have suggested that the Second
National Policy gave new life to business dominance over Canadian
economic policies between the 1940s and 1960s. Certainly business elites
enjoyed close personal and professional linkages with federal ministers
responsible for economic policy during this period. Provincial governments
in larger provinces were also strongly probusiness, although growing gov-
ernment bureaucracies began to change the nature of business-government
relationships in larger provinces and in Ottawa. However, other observers
have suggested that the greatest impetus for Canadian economic policy dur-
ing this era came from technocratic liberals within the federal bureaucracy,
led by federal Trade and Commerce Minister C.D. Howe (1945–57) and his
successors (Bliss, 1987; Bradford, 1998).
Keynesian Macroeconomic Management
The federal government’s adoption of Keynesian demand-management

policies was a direct response to the economic shocks of the 1930s and the
need for policies to encourage both business investment and social cohesion.
Until the early 1970s, Keynesianism provided the political and economic
balance to sustain economic growth and mitigate periodic business cycle
downturns, based on the federal Finance Department’s relatively centralized
control over macroeconomic policy levers.
Federal policies during this era mostly satisfied business groups that
desired the benefits of government leadership without undue restrictions
on day-to-day business activities.They also addressed the concerns of organ-
ized labour for government action to promote high employment and rising
living standards. Bradford (1998) has suggested that the highly decentralized
nature of business organization and disagreements among different business
groups on new approaches to economic policy left the federal government
with considerable policy discretion, although not as much as thought desir-
able by scholars on the left (Campbell, 1987).
The centralization of economic policy during and after WWII, espe-
cially federal control over most major revenue sources, greatly strengthened
Ottawa’s capacity to implement Keynesian policies. Postwar tax rental agree-
ments gave Ottawa command of the major levers of fiscal policy and enabled
it to establish conditions on many intergovernmental transfers. Successive

constitutional amendments also gave it control over unemployment insur-
ance in 1940 and national old age pensions in 1951.
However, by the 1960s, provincial resentment of federal paternalism led
Ottawa to allow more decentralization, giving provinces greater flexibility to
set their own priorities.While federal governments had enjoyed strong repre-
sentation from most parts of Canada during the 1940s and 1950s, post-1960s
governments faced growing Quebec nationalism and enjoyed only weak
western representation. These trends gradually undermined the legitimacy
of federal leadership in economic policy, reinforcing the slide toward dis-
tinct provincial economic strategies as business groups, especially in Quebec
and Western Canada, looked increasingly to provincial governments as their
economic champions.
Expansion of Welfare State Policies and Collective Bargaining
Centralized federal economic power after 1940 also helped to lay foun-
dations for the modern welfare state by creating national programs such
as family allowances and old age pensions and setting national stand-
ards for provincial social programs financed through federal transfers.
These policies, combined with rising living standards, mitigated postwar
demands for deeper economic changes.
The influx of American capital brought with it the rapid growth of US-
based industrial unions belonging to the Congress of Industrial Organiza-
tions (CIO). During the war, Ottawa had encouraged collective bargaining
to maintain industrial peace. Peacetime restoration of provincial control over
labour relations saw most provinces adopt the Rand Formula, which allowed
unions to collect membership dues from non-members as an alternative to
unionized closed shops. These policies enabled governments to reduce tariff
levels gradually for many Canadian industries without triggering greater
industrial conflict, while providing workers with the means to secure a larger
share of the benefits of prosperity.
American-style business unionism emphasized improvements in
worker rights and living standards through collective bargaining rather
than direct state control of industrial relations. Although most unions
supported welfare state expansion, they generally rejected state owner-
ship and planning, which was often viewed as substituting state exploita-
tion for capitalist exploitation of workers. In return, most governments
tacitly encouraged international unions to supplant communist-influ-
enced unions, which had gained substantial influence during the 1930s,
especially in single-industry resource communities.
Strategic Federal Intervention in Key Industries
Both business and labour mythologies have sometimes celebrated the 1950s
as a golden (or benighted) era of laissez-faire capitalism, largely due to the
close relations between C.D. Howe and leading corporate executives. Howe
promoted a positive business environment, fostering selected strategic indus-
tries through a combination of state ownership, preferential regulations,
and government procurement projects (Bothwell & Kilbourn, 1979). He
exercised particular influence over defence and aircraft industries, viewed
as critical to strengthening Canada’s technological and industrial capacity.
Howe also promoted the building of the Trans-Canada Pipeline during
the 1950s to bring western natural gas to central Canadian markets on
an all-Canadian route as a national project comparable to building the
CPR. However, his brusque political style and the leading role of American
investors disturbed Canadian nationalists and enabled opposition parties to
portray the St. Laurent government as an arrogant instrument of corporate
interests (Bliss, 1987, pp. 457–77; Bothwell & Kilbourn, 1979, pp. 299–320).
These factors contributed to the Liberals’ defeat in the 1957 election after 22
years in power and a resurgence of Canadian nationalism that challenged the
assumptions underlying the Second National Policy.
The sometimes erratic populism and nationalism of the Diefenbaker gov-
ernment (1957–63) confirmed the support of Canada’s business and public-
sector establishments for the federal Liberals as Canada’s “natural governing
party” (Newman, 1968). However, this consensus was undermined by the
rapid growth of government spending during the 1960s and nationalist
efforts to assert greater government control over the economy. These forces,
combined with international economic shocks during the 1970s, also under-
mined the political and economic consensus supporting Keynesian policies
and business liberalism as Canada’s dominant political ideologies. The result-
ing policy shifts contributed to unprecedented conflict between business
groups and the federal government and the search for a new national policy.
The Trudeau Era and the Crisis of the Keynesian State
The political environment for economic policy making and business-govern-

ment relations was transformed between the 1970s and 1990s as both domestic
events and international trends challenged many of the basic assumptions of
government policies. A series of political and economic shocks contributed
to widespread conflict among social and economic interests, destabilizing the
previous Keynesian consensus. Rapid increases in global energy prices, ris-
ing inflation, and growing unemployment disrupted most major industrial
economies, including Canada’s. Increased competition among interest groups

to influence the policies of a rapidly growing public sector and the centrifugal
forces of Canadian politics confronted the political and economic leadership
of the federal state. Governments were unable to meet public expectations
created by increased state activism without engaging in the zero-sum politics
of redistributing political and economic power, thereby undercutting their
political credibility (Hale, 2001; Thurow, 1980).
These circumstances forced both federal and provincial governments to
seek alternative policies capable of combining the traditional objectives of
economic development, nation building, and social cohesion. Economic
policies and approaches to business-government relations under both federal
Liberal and Conservative governments since the 1990s, if not necessarily of
their provincial counterparts, reflect a conscious rejection of the statist poli-
tics of the Trudeau era.
Competing Views: The Economic Role of the State
Peter Hall (1989) and others have suggested that governments and political
parties tend to work within existing frameworks of policies and ideas for
organizing public policy until they are no longer sufficiently adaptable to
contemporary challenges of governing to allow governments to fulfill the
main expectations of their fellow citizens.The 1970s and 1980s were an out-
standing example of such an era in Canadian economic history. Economic
development policies pursued by federal and provincial governments dur-
ing the 1950s and 1960s reflected a mix of liberal nationalism and what
Bradford (1998) describes as liberal continentalism. In response, successive
nationalist and left critiques provided much of the intellectual framework
for the emergence of interventionist nationalism to project active state
leadership in nation building and economic policies, radically challenging
the postwar status quo.
Liberal nationalist outlooks emphasized the promotion of national and
regional economic development and Canadian nationhood through active
government economic leadership, often in partnership with Canadian and
regional business interests, and through using state capitalism as a tool for
economic development. Federal and provincial governments of all political
persuasions used crown corporations and other government business enter-
prises as leading instruments of national or provincial industrial strategies.
Liberal “continentalist” outlooks, which later evolved into various forms
of neoliberalism, emphasized the central role of market economics, private
investment, and innovation as the main sources of wealth creation, economic
growth, and higher living standards. From this perspective, the economic role
of governments was to create a policy framework suited to private-sector

investment and job creation, the more efficient working of the marketplace,
and the correction of specific problems or abuses through legislation and
regulation. During the 1970s, market-oriented economists became increas-
ingly critical of government subsidies to business, the preferential regula-
tory treatment often given to crown corporations or favoured Canadian
businesses, and policies they determined to be unsustainable or destructive
of Canada’s competitiveness and living standards (Economic Council of
Canada, 1981).
Advocates of interventionist nationalism emphasized the necessity of
governments to assert greater Canadian control over the economy and to
correct its structural weaknesses. They attributed many of these weaknesses
to excessive foreign ownership, especially of resource and manufacturing
industries, the inefficiencies of branch plants organized mainly to serve the
Canadian market, and the tendency of many resource firms to export their
production rather than processing or manufacturing higher value-added
products (Levitt, 1970).
These ideas evolved gradually during the 1960s until they became the
dominant NDP policy discourse and obtained significant influence among
federal Liberals. Provincial governments in Quebec, Manitoba, and Saskatch-
ewan were at the forefront of interventionist nationalist policies. During the
1970s and early 1980s, advocates of interventionist nationalism encouraged
governments to take a larger share of resource rents, by both tax and regula-
tory means, to finance an ambitious industrial strategy intended to increase
domestic economic capacity and reduce dependence on foreign capital
(Bradford, 1998, pp. 85–90).
However, several factors limited the spread of nationalist policies. Both the
federal cabinet and senior bureaucrats were deeply divided over these issues
(Bradford, 1998, pp. 91–95). The Trudeau governments of the 1970s sought to
manage these differences by linking nationalist measures with the self-interest
of Canadian-based firms, rather than embracing radical change. However, per-
sistent regionalization of party support made it difficult for any political party to
claim a national mandate. Other factors constraining the more assertive pursuit of
nationalist policies, even after 1980, were Canada’s dependence on foreign capital
to finance growing government debts and the progressive decentralization of
political and economic power during the 1970s.
Centrifugal Forces in Politics and Economic Policy
Several centrifugal political and economic forces, particularly the spread of

Quebec nationalism and the subsequent demands of larger provinces for
greater fiscal autonomy, combined to force a steady decentralization of polit-

ical and economic power. Political parties became increasingly regionalized,
with Liberal strength concentrated in Quebec, PC support on the Prairies,
and effective competition limited to Ontario, Atlantic Canada, and BC. Pro-
vincial governments rather than Ottawa became the focus of regional inter-
ests for economic opportunities and political influence. Province-building
strategies reflected a mixture of state-centred approaches, as in Quebec or in
provinces with NDP governments, and cooperative partnerships with vari-
ous business interests (Chandler, 1983b).
Quebec governments had always strongly dissented from the postwar
centralization of power (Simeon & Robinson, 1990, pp. 176–86). After 1960,
Quebec voters gave a series of moderately nationalist governments clear
mandates to take control of the main levers of power to give French-speaking
Quebecers the same kinds of economic and social opportunities enjoyed by
other Canadians. These policies, known as the Quiet Revolution, asserted
Quebec’s claim to equal partnership as a founding nation within Canada and
an end to Québécois subordination within an economic system dominated
by Montreal’s English-speaking business elites.
Federal governments accommodated these aspirations by increasing
transfer payments and transferring increased taxation powers to provinces.
Between 1961 and 1978, provinces’ shares of government revenues (includ-
ing transfers) increased from 36.2 per cent to 54.7 per cent. Provincial
spending increased from 33.4 per cent to 48.6 per cent of total government
spending during the same period (Department of Finance Canada, 2000,
pp. 39–43). The maturing of provincial bureaucracies resulted in greater self-
confidence and a decline in deference to federal policy judgments. These
disputes were reinforced by conflicts over control of energy prices and rev-
enues during the 1970s.
The growing decentralization of political and economic power also pro-
vided a rationale for more assertive nationalist federal policies as a political
counterweight. In some cases, Ottawa used federal power and money to
encourage support from business and economic interest groups. In others, it
meant asserting the power of the federal state against provincial and business
interests to define itself as the sole legitimate arbiter of the national interest.
The culmination of these policies came in Trudeau’s efforts to introduce a
Third National Policy in 1980 (Milne, 1986; Smiley, 1987).
Economic Shocks, Political Turmoil, and the Third National Policy
A series of policy shocks during the 1970s undercut the postwar Keynesian
consensus and led to persistent conflicts between the federal government
and organized business interest groups and began an extended period of

policy transition. Sharp increases in global oil prices imposed by the Organi-
zation of Petroleum Exporting Countries (OPEC) in 1973 and 1979–81
encouraged an imitative resource nationalism in many countries, including
Canada, undermining the uneasy balance between liberal nationalism and
continentalism. It also triggered a global wave of inflation, leading to a com-
petitive scramble by organized interest groups to insulate themselves from its
effects. Political responses to these pressures disrupted government finances
and undermined the intellectual foundations of Keynesian policies. In
Canada, economic growth barely kept pace with inflation, and unemploy-
ment edged upwards, leading Ottawa to improvise a series of policy shifts
that gradually eroded public confidence in government economic leadership
(Hale, 2001). Large and small business had fought the Trudeau government
to a draw on proposed tax reforms in 1967–71, which rapidly unravelled as
successive finance ministers provided multiple tax incentives for investment
and job creation.
Rising inflation led Ottawa to index both social benefits and tax rates,
leading to a “scissors’ crisis” in public finance in which government rev-
enues could never catch up to rising spending levels (Hale, 2001;Tarchys,
1983). Rising inflation also led to record levels of strike activity as
workers sought to protect their living standards, only to see wage increases
passed on in higher prices. The Trudeau government responded by impos-
ing wage and price controls on major industries in 1975. Trudeau also held
Canadian oil prices below world levels, imposing export taxes to compen-
sate for rising prices of oil imports but causing bitter resentment among
energy-producing provinces.
The steady growth of governments and their regulatory intervention in
business activities clashed with business preferences for internationally (and
sectorally) competitive tax rates and greater freedom for businesses to carry
out their activities without what many viewed as undue or ill-informed
government interference. The screening of foreign investment and related
corporate takeovers for “net benefit” to Canada by a new Foreign Invest-
ment Review Agency was a gesture toward nationalist opinion, if one whose
practical effects remain contested decades later. The increasing bureaucrati-
zation of economic activity revealed the cultural gulf between the political
and economic expectations of businesses and those of a new class of policy
makers with a very different view of government’s role in promoting the
public interest (Campbell & Szablowski, 1979).
The 1980s marked a watershed in Canadian economic policies and their
effects on business-government relations comparable to previous para-
digm shifts such as the entrenchment of protectionism in the 1870s and
the Keynesian revolution of the 1940s. The Trudeau government returned

to office in 1980 seeking to transform Canadian political and economic life
through the active exercise of federal power. Its major initiatives, including the
National Energy Program (NEP), unilateral efforts at constitutional and
tax reform, and its stumbling efforts to introduce a national industrial strategy,
directly challenged many of the central interests of provincial governments and
large segments of the private sector. Smiley (1987) has described this strategy
as a Third National Policy, paralleling the nation-building efforts of Sir John
A. Macdonald in the nineteenth century and the efforts of post-World War II
Liberal governments to lay the foundations of the welfare state. Trudeau and
his advisors viewed the separatist government in Quebec (elected in 1976),
the province-building economic strategies of other provincial governments,
and the resistance of business groups to increased government control of the
economy in much the same light—as the encroachment of narrow interests
on Ottawa’s ability to pursue policies in the interests of the nation as a whole.
Smiley (1987) described Trudeau’s policies, which confronted a large number
of entrenched political and economic assumptions in rapid succession, as the
“political equivalent of a five-front war” (p. 183; see also Milne, 1986).
The NEP of 1980 was the Trudeau era’s most comprehensive expres-
sion of interventionist nationalism. Intended to challenge large-scale foreign
control of major oil firms and provincial oversight of resource develop-
ment, it was conceived as a pre-emptive strike on provincial energy revenues
and jurisdiction to give Ottawa the political and fiscal leverage it needed
to respond to the global energy crisis while continuing to protect energy
consumers in Central and Eastern Canada from the costs of rising global oil
prices. The NEP attempted to Canadianize the oil industry through a mix
of expanded state ownership and preferential tax and regulatory treatment
of Canadian-controlled firms. Trudeau had created Petro-Canada in 1975 as
an instrument of federal power in the oil and gas sector. However, the NEP’s
proposal to allow Petro-Canada to pre-empt ownership of 25 per cent of
newly discovered reserves on federal lands struck many in the business com-
munity as a precedent for future confiscation of property without adequate
compensation (Johnston, 1987, p. 77). The NEP encouraged foreign firms to
sell out to Canadian companies at the top of the market, leaving the latter
heavily indebted and at serious risk when oil and gas prices plummeted after
1983 (Bliss, 1987, pp. 541–560).
The NEP was only one of several initiatives that provoked conflict with
organized business interests. In its 1981 budget, Ottawa proposed major
reductions in tax preferences to reduce the federal deficit, financing prom-
ised improvements to federal social policies, and reducing record interest
rates (above 20 per cent) that were the result of efforts by US and Canadian
central banks to curb rising inflation. The budget also sought to substitute
targeted grants and subsidies for many tax breaks, giving federal officials
greater control but reducing business discretion. However, technical flaws
and minimal pre-budget consultations magnified business perceptions of
federal hostility and ineptitude, producing a serious backlash resulting in
significant budget revisions (Hale, 2001, pp. 162–69).
Trudeau’s ambitious agenda ran aground during the deep recession
of 1981–82. The recession prompted Ottawa to retreat to regain business
trust and support to create jobs, while resorting to all-out Keynesian
pump priming to stimulate economic recovery. Trudeau succeeded in
implementing significant constitutional reforms with grudging provin-
cial consent in 1982, if over the united opposition of Quebec’s provincial
political parties that severely undercut Liberal support in that province
for a generation (Banting & Simeon, 1983).3 After Trudeau’s retirement
in 1984, Brian Mulroney’s PCs succeeded in riding the resulting political
backlash into power by appealing to a wide range of social and economic
interests antagonized by the previous government.
The Trudeau restoration of 1980 has entered into the mythology of
Canadian nationalism as a “heroic delusion” (Clarkson & McCall, 1996)
that challenged the combined forces of business power, free market
ideology, and US hegemony in the interests of an independent, social
democratic Canada, but failed to overcome entrenched political and
economic interests. Although this description may contain elements
of truth, Trudeau’s Third National Policy was as much an improvised
response to a series of political and economic crises as it was a coherent
statement of political principle.
Under normal economic circumstances,Trudeau’s sweeping policy propos-
als might have succeeded had the government effectively mobilized the ben-
eficiaries of its proposed reforms. However, its confrontational tactics fostered
bitter and sustained opposition from organized business groups and provincial
governments threatened by the centralization of fiscal and economic power.
Combined with the worst recession since the 1930s, these conflicts isolated
the government from much of its middle- and working-class political support.
Instead, the short-lived Third National Policy discredited interven-
tionist nationalism for many voters, giving credibility to its opponents’
claims that government failure, not market failure, was the principal
cause of Canada’s economic woes. It also gave economic nationalism an
antibusiness tinge that made many Canadian businesses, large and small,
increasingly receptive to alternative policies, including a free-trade treaty
with the United States that provided the political and economic founda-
tions for a new economic paradigm.
Paradigm Shift: Free Trade and Regulatory and Fiscal Reforms

during the Mulroney, Chrétien-Martin, and Harper Eras
The Mulroney government took office in 1984 with sizeable and often con-
tradictory public expectations. Mulroney had promised to bring the govern-
ment’s finances under control, preserve Canada’s social programs as a sacred
trust, create a favourable climate for business and entrepreneurship, and
reconcile regional and middle-class grievances that had derailed Trudeau’s
Third National Policy. Initially lacking the means to reconcile these objec-
tives, Mulroney adopted a neoliberal economic agenda of free trade with
the United States, modest tax and social policy reforms, and constitutional
changes aimed at bridging growing regional differences. Ironically, much of
this agenda was designed by a royal commission headed by former Trudeau
minister Donald Macdonald, who abandoned his previous nationalism
to recommend a series of economic policy shifts centred on continuing
Canada’s opening to the global economy and a wholehearted embrace of
free trade with the United States.
Economic disruptions that accompanied these changes and the repeated
failure of efforts at constitutional reform resulted in the break up of a disparate
regional coalition that had helped Mulroney win successive majority gov-
ernments and the PCs’ electoral destruction in the 1993 election. However,
his Liberal successors Jean Chrétien (1993–2003) and Paul Martin (2003–06)
continued and extended many of Mulroney’s policies, adding major fiscal
reforms that laid the foundations for rising living standards within a more
decentralized political system that have persisted into the late 2010s.
The Macdonald Commission and the Coming of Free Trade
The Macdonald Commission, initially appointed by Pierre Trudeau, pro-

vided the central inspiration for Mulroney- and Chrétien-era reforms. It
called for rethinking business liberalism to achieve better coordination of
economic and social policies in an effort to assist Canadians in adjusting
to changing international economic conditions, thereby regaining public
trust for politicians and governments (Royal Commission on the Economic
Union, 1985; Courchene, 1991). Macdonald’s vision of liberalism emphasized
a narrower but more effective role for the state both in promoting economic
opportunity and enabling all citizens to take advantage of it, rather than
seeking to “dismantle the state” as charged by its social democratic critics
(see, e.g., McBride & Shields, 1997).
Macdonald’s 1985 report outlined proposals for large-scale policy change
that were too sweeping to be fully developed, let alone implemented by the
Mulroney government during its two terms in office (1984–93). The big-
gest exception was Mulroney’s decision to pursue a comprehensive free-trade
agreement with the United States. The traditionally protectionist Canadian
Manufacturers Association’s decision to support bilateral free trade in 1983
had removed a major political barrier (Doern & Tomlin, 1991, p. 20). Most
provincial governments perceived free trade as an opportunity to diversify or
protect markets for their major industries. Quebec, in particular, identified
free trade as an opportunity to strengthen provincial competitiveness and
reduce its dependence on English-Canadian markets and capital.Western and
resource-based provinces supported free trade as a means to expand exports
and constrain federal policies that could limit their ability to control their own
development. Many business groups also viewed the free-trade negotiations
as insurance against a recurrence of Trudeau-style interventionist nationalism.
Ottawa carefully organized the negotiations to mobilize support from
major business groups and most provinces, identifying opportunities and
managing political risks with systematic consultation through industry-
sector councils and policy-coordinating committees. It sold the eventual
Canada-US Free Trade Agreement (CUSFTA) to the public in tradi-
tional terms of more jobs, higher incomes, greater job security, and increased
economic opportunity (Doern & Tomlin, 1991, pp. 108–25).
Mulroney staked his government’s future on the deal and won a bitterly
contested election in 1988 against intense opposition. CUSFTA-imposed limits
on preferential regulations and subsidies constrained the use of many traditional
policy tools used to promote or protect Canadian industries, limiting future
governments’ capacity to reintroduce nationalist and neomercantilist develop-
ment policies. These rules, which appealed to CUSFTA’s business supporters
but aroused strong union and nationalist resistance, were later subsumed in
the North American Free Trade Agreement (NAFTA) with the United
States and Mexico, and reinforced by the 1994 multilateral Uruguay Round
agreement that created the World Trade Organization (WTO).
Free-trade implementation led to the rapid integration of many Cana-
dian industries in the broader North American economy, making policy
reversals practically impossible without massive economic disruption.
North American integration has made free trade central to the calcula-
tions of most Canadian businesses, workers, and investors. By the mid-
1990s, Canadian manufacturers and resource producers were exporting
more than half their production. By 1997, international expansion resulted
in the cumulative value of Canadian direct investment abroad (CDIA)
exceeding foreign direct investment in Canada. These trends have
continued to the present. Since 2000, most Canadian provinces’ inter-
national exports have consistently exceeded exports to other provinces,
providing a safety valve to deflect some interregional conflicts. Despite

periodic trade disputes, such as those over softwood lumber, expecta-
tions of tariff-free trade with limited regulatory barriers have become the
norm in bilateral trade relations, with broad, if fluctuating levels of sup-
port from the Canadian public.
However, the persistence of this support has been largely contingent on
a variety of domestic policy shifts that, after a painful decade of adjustments,
have resulted in higher living standards for Canadians, as discussed in chapter 13.
Among the most significant changes have been regulatory shifts, which have
changed the nature of competition in several major economic sectors.
Fiscal, Regulatory, and Structural Economic Change
The logical consequences of free-trade negotiations contributed to a process

of path dependence in which one set of policy changes was closely linked
to another in an increasingly dense network of interrelated policies and
institutions. These initiatives, including major changes to Canada’s Competi-
tion Act (1986), financial sector regulation (1987, 1992), corporate income and
commodity tax systems (1988, 1990), regulatory regimes governing transpor-
tation (1987) and telecommunications sectors, and the commercialization or
selective privatization of crown corporations, contributed significantly to
the restructuring of the Canadian economy in response to continuing trends
toward global economic integration and competition.
Federal governments have traditionally been attentive to the competitive
implications of business taxation, especially on trade-sensitive industries.The
prospect of continuing trade liberalization during the 1980s greatly increased
the political importance of tax and regulatory systems that supported, rather
than detracted from, the competitiveness of Canadian industries. Personal
and corporate tax reforms introduced in 1987–88, while the product of
careful consultation by federal officials, followed the pattern of other major
Western economies, including the United States, in lowering tax rates while
broadening the overall tax base.The bipartisan US tax reforms of 1986 made
it politically possible for the Mulroney government to increase overall cor-
porate tax levels, if with lower marginal rates, to pay for revenue losses result-
ing from personal income tax (PIT) reforms, with careful attention to the
distribution of benefits across economic groups.
Ottawa secured the support of major business groups by promising
sales tax reforms after the 1988 election. The introduction of the GST
(or value-added tax) was intended to spread the cost of existing con-
sumption taxes across a broader economic base. Retaining the exist-
ing 13.5 per cent federal sales tax on manufactured goods was logically
inconsistent with a free-trade environment, especially when the United

States lacked a comparable tax. However, Finance Minister Michael
Wilson’s tax reform proposals prompted a bitter public debate. Business
groups were deeply divided, with manufacturing, capital-intensive, and
export supportive of the GST and most small businesses and service
industries strongly opposed. The new tax’s intense unpopularity con-
tributed to the PC’s electoral destruction in 1993. But no subsequent
government has found an economically or administratively viable alter-
native capable of generating nearly as much revenue.
During the 1970s and early 1980s, economists circulated proposals for
reforming economic regulations, particularly those limiting competition by
restricting market entry and regulating prices (Economic Council of Canada
1979, 1981). However, a combination of demonstration effects in major
trading partners prompted a series of parallel steps by federal and provincial
governments in sectors ranging from energy, banking and finance, to tele
communications, and truck, air, and rail transportation.
During the late 1970s and early 1980s, the US government eliminated
domestic price regulations for oil and natural gas, as well as for rail and
truck freight, passenger airline services, and long-distance telephone rates.
The resulting growth of competition contributed to increased investment
and significant price reductions, prompting demands from Canadian busi-
ness and some consumer groups to follow suit (Block & Lermer, 1991). The
collapse of global oil prices in 1985–86 provided political cover for elimi-
nating oil and gas price deregulation in Canada, along with incentives for
increasing exports to the United States. Ottawa and the provinces agreed to
trucking-sector deregulation during the same period, although side effects
from increased competition later prompted governments to tighten safety
rules substantially.
After 1983, the federal government set rail freight rates on a cost-recovery
basis, but with continuing grain transportation subsidies that, by 1990,
amounted to 70 per cent of railways’ variable costs. By 1995, a combination
of fiscal crisis and WTO agreements to reduce agricultural export subsidies
drove the Chrétien government to end freight subsidies, largely deregulate
freight rates, and compensate farmers and provinces with lump-sum
payments to facilitate adjustment to changing markets and strengthen
agricultural and other infrastructure (Doan, Paddock, & Dyer, 2003).4 These
changes prompted major changes to agricultural supply chains, often with
provincial assistance, the rapid diversification of agricultural production, and
the development of new food-processing industries. Even so, the Canadian
Wheat Board’s (CWB) monopoly over grain transportation persisted
until 2012 (CPCS, 2014; Doern, Coleman, & Prentice, forthcoming;
MacLachlan, 2001). Despite increasing grain freight rates, average real freight
rates declined 33 per cent per tonne/kilometre overall between 1988 and
2013. Rapidly growing traffic has stimulated significant increases in private-
rail investment since 2005 (CPCS, 2014, pp. 11–16).
By contrast, airline deregulation contributed to growing industry con-
solidation, culminating in Air Canada’s monopolizing takeover of Canadian
Airlines in 1999, a process that one advocacy group characterized as being
conducted “with the finesse and sensitivity of Idi Amin” (Public Interest
Advocacy Centre, 2001), a notorious African dictator of the 1980s. The
emergence of WestJet as a viable national competitor and improved net-
working with foreign competitors has created a stable duopoly within a
broader policy regime, which has contributed to prices significantly above
US levels (Gill, 2012), at least until the Canadian dollar’s substantial deprecia-
tion after 2014.
Deregulation of long-distance telephone rates in the late 1980s also
resulted in the elimination of traditional telephone monopolies and grow-
ing competition between traditional telephone and cable firms, reinforced
by the spread of new fibre-optic and wireless technologies, although the
Canadian Radio-television and Communications Commission (CRTC)
retains significant regulatory authority over market entry and ownership.
These changes complemented the continuing effects of the global informa-
tion communications technology (ICT) revolution on economic organiza-
tion, discussed further in chapter 6.
The so-called “Big Bang” of 1986, in which the British government
removed structural regulations limiting competition among or cross own-
ership of commercial and investment banks, investment dealers, and other
financial institutions, prompted Quebec and Ontario to remove restrictions
on bank and foreign ownership of securities dealers. These shifts prompted
Ottawa to loosen restrictions on cross ownership of financial institutions
(except for major banks and life insurance companies) between 1987 and
1992, resulting both in the consolidation of existing firms and the emer-
gence of new competitors in nontraditional sectors such as mutual funds
(Hale & Kukucha, 2006, p. 194). However, in 1998, the Chrétien govern-
ment vetoed two proposed mergers among four big banks after an almost
year-long debate, fearing the effects of excessive corporate concentration
on competition and access to credit. It later introduced a “big shall not buy
big” policy limiting mergers or takeovers among Canada’s largest bank and
insurance companies, while encouraging major firms to expand their inter-
national operations. As discussed in chapter 12, these and other regulatory
reforms contributed to an enormous expansion in Canada’s financial sec-
tor and capital markets, radically changing the ownership and operating
environments for Canadian businesses and supporting the international

expansion of many large Canadian-based firms.
Although the federal government tightened its accounting regulations
following major corporate scandals in the United States around 2000, it
tended to follow British regulatory models rather than the legalistic US
standards. However, by maintaining significant levels of prudential regula-
tion, Canada’s financial sector remained relatively unscathed by the global
financial crisis of 2007–09, which resulted in government bailouts of major
firms in the United States and across Europe (Longworth, 2014).
By the end of the Mulroney government’s second mandate in 1993, the
structural policy changes associated with free trade and regulatory reforms
were too far advanced to reverse. However, they had not yet generated
enough direct economic benefits for the average voter to offset the disloca-
tion resulting from economic adjustment and to prevent the PC’s electoral
destruction. The political and fiscal dividends of Canada’s economic para-
digm shift were reaped by the Liberal governments of Chrétien (1993–2003)
and Martin (2003–06) but not before a period of wrenching fiscal adjust-
ments during the mid- and late-1990s (Hale, 2001; Lewis, 2003).
Some observers view these policies as a reflection of the exercise of corporate
power at the expense of the state or with the ideological complicity of govern-
ments (McQuaig, 1996; Myles & Pierson, 1997). However, much of the intel-
lectual leadership for these changes came from the ranks of the federal public
service rather than from politicians or business leaders (Doern & Tomlin, 1991;
Greenspon & Wilson-Smith, 1996). Had there been strong bureaucratic skepti-
cism of these policy changes, it would have been clearly communicated to the
Chrétien Liberals after their election in 1993 along with suggestions on how
to modify or reverse them. Instead, most major Mulroney-era initiatives were
extended and consolidated by his Liberal successors.
Chrétien-Martin and Harper Eras: Paradigm Consolidation

and Evolution
The Chrétien-Martin governments of 1993–2006 marked the consolidation

of the neoliberal paradigm in federal economic policies, but also the grow-
ing regional and provincial diversification and decentralization of Canada’s
political economy. These trends continued under the Conservative Harper
government (2006–15), but with growing stresses reinforced by the spread of
postmaterialist ideologies, the end of the post-2000 commodity boom, and
the government’s own unforced political errors.
The fragmentation of groups calling for more sweeping (and contradic-
tory) political changes led the Chrétien Liberals to campaign as the party
of cautious, reasonable change rather than seeking to reverse most of Mul-

roney’s major policy initiatives. Organized labour and its traditional allies in
the federal NDP failed to secure public support for alternative economic
policies, which were based on more interventionist approaches to govern-
ment at a time when provincial governments and social democratic gov-
ernments in most other English-speaking countries were adjusting to the
pressures of globalization. The rise of new parties, such as the Reform Party
in Western Canada and the Bloc Québécois in Quebec, provided an alterna-
tive outlet for populist discontent with rapid political and economic change
during the early 1990s and undermined the NDP’s post-Depression role as
a major source of new policy ideas to be adopted by more centrist parties.
Three broad factors contributed to reinforcing the neoliberal paradigm shift
initiated by Mulroney during the subsequent Chrétien and Harper eras. Prudent
macroeconomic policies laid the foundations for sustained improvements in liv-
ing standards for most Canadians after 1998. Second, successive governments
made effective use of policy tools to complement progressive economic globali-
zation and North American integration as a way to manage the growing diver-
sity of external trade and investment relations within Canada. Third, fiscal and
policy decentralization allowed the accommodation of substantial differences in
regional economies and political cultures.These policies permitted more diverse
responses to economic and social challenges across the country, softening the
regional tensions that had threatened to break up the country between the 1970s
and the 1995 Quebec sovereignty referendum.
Steep drops in living standards during the early 1990s, reinforced by falling
commodity prices since the mid-1980s, made voters receptive to politicians who
would work with business to create jobs and promote economic recovery, while
softening the sharp edges of economic restructuring (Lewis, 2003).These initia-
tives created a sustained, largely bipartisan approach to federal economic poli-
cies that was tweaked by successive governments, but has not yet been seriously
challenged under Justin Trudeau’s Liberal government elected in 2015. Major
political and economic shocks during this period, notably post-2001 US border
security concerns, the 2008–09 global financial crisis, and rising environmental
resistance to Canadian oil exports in the United States (and parts of Canada)
have forced some policy adjustments, but within the broad outlines of the neo-
liberal paradigm.
Fiscal Restructuring and Macroeconomic Sustainability
The signature achievement of the Chrétien and Martin Liberal governments

of the 1990s and early 2000s was the restoration of sustained fiscal balance
and low inflation after 27 years of consecutive budgetary deficits and the
entrenchment of public expectations that governments would live within

their current incomes in a low-inflation environment. Both accomplish-
ments marked significant shifts in public expectations.
The 1981–82 recession had left Ottawa and most provinces with record,
sustained deficits. Federal deficits averaged a record 5.9 per cent of GDP in
the post-recession decade, while only three provinces managed to balance
one or more annual budgets during the same period: BC (three), Alberta
(two), and Ontario (one) (Department of Finance Canada, 2016; RBC
Economics, 2017). Faced with broadly declining living standards, continuing
high interest rates, and uneven economic recovery after 1980, governments
faced strong resistance from the public and interest groups in curtailing
their spending growth, even as rising costs of servicing growing public debts
absorbed steadily larger shares of public revenues. But the rapid growth of
cumulative foreign-held debt from 21.0 to 40.7 per cent of GDP between
1984 and 1994 made Ottawa and some provinces increasingly vulnerable to
international financial markets. Several provinces, particularly Saskatchewan
and Alberta, initiated unprecedented deficit reduction measures as early as
1992 in response to looming fiscal crises (Bruce, McKenzie, & Kneebone,
1997; MacKinnon, 2003). Finance Minister Paul Martin came under sig-
nificant pressure from businesses and financial markets to take more aggres-
sive measures to reduce the deficit (Greenspon & Wilson-Smith, 1996,
pp. 153–70, 195–227).
A combination of fiscal discipline, reduction in transfers to provinces,
and very cautious budget projections enabled Martin to balance the fed-
eral books by 1997–98 and to post substantial surpluses in subsequent years
(Hale, 2001, pp. 226–39; Lewis, 2003). Most provinces, some before the fed-
eral government, had, reported balanced budgets by 2000. However, the
timing and specific mix of tax increases and spending reductions reflected
varied regional conditions and political commitments, transcending nominal
partisan labels (Richards, 2000).
Ottawa and most provinces compensated for the 1990s spending con-
straints with significant spending increases after 2000, funded by economic
growth and rising federal transfers, with only modest partisan differences.
Rising health transfers until 2015, combined with growing demands from an
aging population, helped to make health services the fastest growing source
of employment in Canada during the Harper years (Bagnall, 2015). The
three Prairie provinces sustained budget balances, and to varying degrees,
debt reduction (in Alberta, the accumulation of financial assets) until the
2008–09 recession. Quebec, Ontario, and BC took more gradual approaches
and maintained lower levels of fiscal balance. In all cases, party levels were
Table 4.2 Federal and Provincial Balanced Budgets by Five-Year Period

(1985–2015)**
1985/86– 1990/91– 1995/96– 2001/02– 2005/06– 2010/11–
1989/90 1994/95 1999/2000 2004/05 2009/10 2014/15
Federal 0 0 3 5 3 1
BC 3 0 1 2 4 2
Alberta 0 1 5 5 3 2
SK 0 1 5 3 4 5
Manitoba 0 0 5 4 4 0
Ontario 1 0 1 3 3 0
Quebec 0 0 2 2 4 0
NB 0 0 3 4 3 0
NS 0 0 0 5 4 1
PEI 0 1 2 0 2 0
Nfld&Lab 0 0 1 0 5 2
Average 0.4 0.3 2.5 2.8 3.5 1.1*
*Plus/minus 0.1 per cent of GDP/GPP
**2015–16, federal government and three provinces (BC, Quebec, Nova Scotia) balanced budgets.
Source: RBC Economics. (2017). Federal and provincial fiscal tables. Toronto, ON; author’s
calculations.
Table 4.3 Average Surplus/Deficit as Per Cent of Gross Domestic/

Provincial Product
1985/86– 1990/91– 1995/96– 2001/02– 2005/06– 2010/11–
1989/90 1994/95 1999/2000 2004/05 2009/10 2014/15
Federal −5.28 −4.94 −0.46 0.76 −0.24 −0.94
BC −0.14 −0.26 −0.2 −0.18 0.86 −0.14
Alberta −3.26 −2.38 1.88 2.34 1.68 −0.4
SK −3.32 −1.6 0.4 −0.28 2 0.14
Manitoba −1.66 −1.26 0.26 0.04 0.7 −0.9
Ontario −0.86 −3.2 −1.2 −0.18 −0.74 −1.7
Quebec −1.98 −2.8 −0.98 −0.08 −0.22 −0.66
NB −1.84 −1.56 −0.14 0.12 −0.02 −1.28
NS −1.86 −2.22 −1.46 0.36 0.34 −0.4
PEI −0.64 −1.92 −0.04 −1.3 −0.34 −1.06
Nfld&Lab −2.76 −2.98 −1.1 −3.42 2.68 0.04
Average −1.83 −2.02 −0.26 −0.26 0.69 −0.64
Source: RBC Economics. (2017). Federal and provincial fiscal tables. Toronto, ON; author’s
calculations.
less important to fiscal outcomes than the partisan coalitions sustaining indi-
vidual governments (Kneebone & Wilkins, 2016).
Table 4.2 compares the frequency and extent of federal and provincial
fiscal balances (or deficits) during the decade before and the two decades
following Ottawa’s intensified pursuit of fiscal balance in the mid-1990s. Eleven
successive budget surpluses enabled consecutive governments to reduce federal
net debt from 66.6 per cent of GDP in 1995–96 to 28.1 per cent in 2008–09.
The resulting fiscal dividend generated by lower debt interest payments con-
tributed to significant improvements in disposable income and living stand-
ards for all income groups, in sharp contrast to the United States (Alexander
& Fong, 2012b; Hale, 2017b). The fiscal discipline observed by provinces
compared with the 1980s made it possible for Ottawa and most provinces to
take more gradual approaches to restoring fiscal balance after 2009, at least
until the collapse of the commodities boom after 2014 (Kodolov & Hale,
2016).
The economic slowdown that followed the collapse of the commodi-
ties boom in 2015 has prompted the newly elected Trudeau government to
return to more activist government and deficit spending. However, public
opinion surveys suggest that most Canadians expect their governments to
“plan” a return to budget balance in response to economic recovery (Nanos
Research, 2017b).
Cooperation among the central banks of major industrial countries since
the international financial crisis of 2008–09 reinforced structural economic
trends toward persistently low inflation and interest rates to sustain overall
levels of economic growth. However, low interest rates and rising popu-
lations in major cities have also contributed to sharply rising real estate
prices and household indebtedness, even as the federal net debt remains at
levels not seen since the 1970s. These trends have made real estate among
the biggest contributors to GDP growth in larger provinces, but have also
limited access to home ownership for middle-income families in Canada’s
largest cities, creating significant risks for the financial sector and heavily
indebted households (Cardoso & Lundy, 2017; McMahon, 2015a, 2015b;
Poloz, Wilkins, Lane, Schembri, Patterson, & Leduc, 2016). Ottawa, BC, and
subsequently Ontario have introduced a series of counter-cyclical tax and
regulatory measures over several years, often against the strong opposition of
provincial real estate industries, in efforts to contain bubble effects in major
estate markets (McMahon, 2015c; Siddall, 2016).
These developments highlight the extent to which financial services
and real estate have become leading forces both in economic activity and
regulatory concerns over risk management. They also point to the limits of
macroeconomic policies both in promoting economic growth and manag-

ing social and economic risks in Canada’s open, regionally diverse economy.
Citizens and business groups expect governments to promote growth
through economic stimulus, whether through fiscal or monetary policies.
However, governments often face significant resistance from the beneficiar-
ies of such policies when they attempt to withdraw such stimulus, even
when there is evidence of significant economic and social risks.
Adapting to Globalization
Economic policies during the Chrétien and Harper eras have focused
more on the management of globalization than on traditional nation-
building activities. The restructuring of Canadian industries that both
preceded and followed the negotiation of CUSFTA and NAFTA led
Canadian governments to focus on facilitating adaptation to competitive
pressures arising from North American integration and globalization.
During the 1990s, these initiatives focused on achieving fiscal sustain-
ability, as discussed above, facilitating the integration of Canadian indus-
tries within North American markets, and supporting education and
skills training to assist Canadians to find employment in the emerging
knowledge-based economy.
CUSFTA and NAFTA had limited nationalist restrictions on foreign
investment in all but a handful of reserved sectors, including cultural indus-
tries, air transportation, and telecommunications.The 1994 WTO agreements
precluded restrictions on foreign takeovers of existing foreign-controlled firms
within Canada, except on grounds of national security.These policies contrib-
uted to record levels of corporate mergers and takeovers during the 1990s.
However, despite nationalist fears of the hollowing out of Canadian head
offices, Ottawa limited its intervention to using policy to maintain competi-
tion in regional and local markets. Subsequent research noted that takeovers
of foreign-controlled firms by Canadian-based businesses during this period
exceeded those by foreign-based firms (Guillemette & Mintz, 2004).
During the 1990s (and again after 2015), falling resource prices led to the
expansion of major Canadian-based oil and gas firms as foreign-based firms
sold off high-cost resources in pursuit of higher margins in other markets.
After 2006, the Harper government toughened national security rules to
block foreign takeovers in politically sensitive sectors, especially those involv-
ing foreign state-owned or -influenced firms. The subsequent Trudeau gov-
ernment has faced similar challenges in negotiating reciprocal market access
with China and other authoritarian states with government-controlled legal
systems.
Similar political triangulation applied in the agricultural sector. The

diversification of Prairie agriculture led to growing consolidation of firms
handling nonregulated commodities and increased farmer demands for mar-
keting choice against the grain marketing monopoly of the Canadian Wheat
Board.The Harper government championed the latter group, abolishing the
CWB’s monopoly in 2011 and strongly supporting expanded market access
for export-oriented grain, oilseed, and meat producers in successive trade
negotiations with the European Union and Asia-Pacific countries. At the
same time, it fought hard to protect supply management cartels enjoyed
by dairy and poultry farmers against more than token foreign competition
(Wilson, 2016).
Two other major events after 2000 played a disproportionate role in
the evolution of the Canadian economy. The 9/11 terrorist attacks on
New York City and Washington, DC, resulted in the persistent expansion
of border security measures that resulted in a significant “thickening” of
the border and, ultimately, closer cooperation between US and Canadian
governments to maintain access to US markets for Canadian-based firms.
Second, the rapid expansion of Asia-Pacific economies contributed to a pro-
longed commodities boom that strengthened the economies of traditionally
resource-dependent provinces, especially, Alberta, BC, Saskatchewan, and
Newfoundland and Labrador, but also increased competitive pressures on
major central Canadian manufacturing sectors as a result of rising exchange
rates against the US dollar (Coulombe, 2013). To manage regional tensions,
the Martin and Harper governments invested heavily in infrastructure
improvements, working closely with provincial governments and private-
sector firms to expand the freight handling capacities of Canada’s ports and
airports along major trade corridors. However, as in most industrial coun-
tries, Canada has experienced a steady shift toward increased service-sector
activity and employment as goods-producing firms spin off many noncore
functions to separate companies (Tombe & Mansell, 2016).
These trade-offs point to the extent that regional and interest-group poli-
tics frequently take precedence over economic theory or political ideology
in the real world of economic policies. They also demonstrate the extent
to which successive governments have paid significantly greater attention to
distributive considerations, both socioeconomic and regional, when imple-
menting neoliberal policies than have other major industrial countries. The
balancing of regional interests has always been an important dimension of fed-
eral leadership in economic policies. Arguably, the accommodation of varied
provincial and regional interests and the avoidance of a zero-sum approach to
competing regional interests have become among the most critical elements
of the effectiveness and legitimacy of Canadian economic policies.
Decentralizing Economic Activity and Power
The spread of neoliberal policies in Canada has reflected both deliberate

adaptation to globalization, as advocated by the Macdonald Commission,
and a response to the political and fiscal overextension of Canadian gov-
ernments between the 1970s and 1990s. However, the regional, social, and
identity conflicts of the Trudeau and Mulroney eras demonstrated the vir-
tual impossibility of designing a single national identity—or economic strat-
egy—capable of incorporating the interests of all parts of Canada.
Ottawa’s fiscal restructuring during the 1990s took place largely at
the expense of provincial governments. Its unilateral reduction of fis-
cal transfers (about 22 per cent between 1995 and 1998) also provided
provinces with greater spending latitude. Most provinces gave priority to
health care and primary/secondary education. After reaching fiscal bal-
ance, federal and provincial governments decoupled their tax rates, while
continuing to coordinate broader tax policies and administration (Hale,
2000). The result was a far greater diversity of federal and provincial fis-
cal policies between 2000 and 2008 as successive federal governments
repeatedly cut tax rates, while provincial fiscal and tax policies varied
widely (Hale, 2006b).
Responding to Canada’s “near death experience” in the 1995 Quebec
referendum, the Chrétien government decentralized immigration policies in
response to Quebec demands, immigration being an area of constitutionally
shared jurisdiction. Reflecting Ottawa’s renewed emphasis on economic-
class (skills-based) immigration, other provinces subsequently took advan-
tage of increased federal flexibility to tailor their immigration policies to
provincial labour market needs (Bakvis, 2002), while pursuing intergovern-
mental negotiations to facilitate mobility between provinces through mutual
recognition of provincial and technical standards.
Despite efforts to limit barriers to interprovincial trade through the 1995
Agreement on Internal Trade, progress toward this goal has been sporadic,
reflecting external political and economic shocks or pressures. Provincial
agreement to adhere to the WTO’s General Procurement Agreement was a
direct response to negotiations to contain US buy-American policies during
the 2009 recession (Hale, 2012). The so-called “Canadian Free Trade Agree-
ment of 2017,” with its modest reductions to interprovincial trade barriers,
was a direct response to the Canada-EU trade agreement, which signifi-
cantly expanded foreign access to provincial government purchases (Has-
selback, 2017).
As noted above, progressive North American integration contributed to
growing specialization and distinctiveness in the goods-producing sectors
of provincial economies, reflecting varying patterns of provincial autonomy

and (often bilateral) federal-provincial cooperation in various economic and
policy sectors. Bilateral arrangements between Ottawa and individual prov-
inces were frequently in the institutional interests of both orders of gov-
ernment to accommodate provincial interests in resource and agricultural
policies and urban, transportation, and “gateway” infrastructure. Provincial
control over natural resources led US negotiators to propose a regionally
tiered approach to managed trade in the 2006 Softwood Lumber Agreement.
This agreement was tailored to distinctive industry and regulatory condi-
tions in BC and Central Canada, with Atlantic Canadian lumber exempt
from the deal’s export taxes, but not the necessity to track interprovincial
and international trade (Zhang, 2007).
Successive federal governments were reluctant to identify or support
“national champions” in various economic sectors, generally preferring to
reduce business tax rates and preferences after 2000, limiting the growth
of direct subsidies well below levels of the 1980s (Milke, 2014; see chapter
11). However such constraints rarely applied to provinces. Quebec has
long made extensive use of subsidies as part of its broad industrial strategy,
followed by Ontario since 2003. Other provinces have pursued more sector-
specific strategies, with varying degrees of federal support. The federal and
Ontario governments partnered with the Obama administration in 2009
to bail out General Motors and Chrysler to preclude unilateral US action
that might have forced wholesale plant closures in Canada (Waddell, 2010).
Other provinces intervened to promote or protect critical sectors: aerospace
in Quebec, automotive in Ontario, meat production and processing in
Manitoba and Alberta, oil in Newfoundland and Labrador and Alberta,
potash in Saskatchewan, natural gas in BC, and film and television production
in several provinces.
Provincial support has served as an active inducement to policies sup-
porting globalization, as with Quebec premier Jean Charest’s enthusiastic
promotion of trade liberalization with the European Union and successive
Alberta premiers’ support for resource exports and infrastructure develop-
ment. However, provinces have also aggressively resisted liberalization where
it is seen to threaten major regional interests, not least in particular resource
sectors, major provincially headquartered firms, or province-specific effects
of major national infrastructure projects. While such policies can and have
challenged coherent national policy development, they have also served
to force the accommodation of regional interests within federal policies,
thus maintaining widespread, if conditional support, for what Mendelsohn,
Wolfe, and Parkin (2002) have called Canada’s “permissive consensus on

globalization.”
Maintaining political and social cohesion within a broad policy environ-
ment conducive to economic growth has required ongoing flexibility and
mutual accommodation among government, business, and societal groups
throughout Canada’s economic history. The processes used to manage this
accommodation have evolved, along with the political incentives to rec-
ognize them. The political and economic trade-offs adopted to manage
the continuing political and economic shocks arising from globalization,
or from populist reactions to it such as the 2016 election of US President
Donald Trump, have demonstrated a level of resilience in Canada’s political
and social institutions that few suspected during the tumultuous 1980s and
early 1990s. There is little doubt that external and internal pressures will
challenge this resilience in the years to come.
Canada-US Free Trade Agreement NAFTA

Cartel National Energy Program
C.D. Howe National Policy
Defensive Economic Nationalism Path dependence
Demonstration effect Quiet Revolution
Foreign direct investment Second industrial revolution
Great Depression Staples theory
Interventionist nationalism Third National Policy
Liberal continentalism World Trade Organization
Liberal nationalism
1. What are four overarching sets of issues that have shaped Canada’s eco-
nomic history since the nineteenth century? How are they reflected in
government policies and in relations among governments, businesses, and
other social groups during the different periods discussed in this chapter?
2. What impact did the National Policy of the late nineteenth and early
twentieth centuries have on Canadian economic development? To what
extent did it foster or reinforce public expectations of the role of gov-
ernment in the economy? What neomercantilist practices have persisted
in Canada into the twenty-first century?
3. To what extent did the business liberalism of the Second National Pol-
icy reflect continuity and/or change from previous federal approaches
to promoting economic development and social cohesion? What major
factors contributed to the breakdown of the Keynesian consensus in the
1970s?
4. What factors contributed to the re-emergence of Canadian economic
nationalism during the 1960s and 1970s? Why were Trudeau’s nationalist
policies ultimately unsuccessful? To what extent have provincial govern-
ments become the principal proponents of defensive economic nation-
alism in the twenty-first century? Under what circumstances?
5. What principal political and economic factors led to the continuity of
economic policies since the 1990s under federal governments of different
political stripes? What are major arguments for and against the idea of a
corporate agenda as the principal explanation for the consolidation of
neoliberal policies? To what extent do political and economic incentives
other than business pressures explain the priorities of senior politicians
and civil servants?
Bliss, M. (1987). Northern enterprise: Five centuries of Canadian business. Toronto, ON:
McClelland and Stewart.
Bradford, N. (1998). Commissioning ideas. Toronto, ON: Oxford University Press.
Easterbrook, W.T., & Watkins, M.H. (Eds). (1967). Approaches to Canadian economic
history. Toronto, ON: McClelland and Stewart.
Forster, B. (1986). A conjunction of interests: Business, politics and the tariff. Toronto, ON:
University of Toronto Press.
Gillespie, I. (1991). Tax, borrow and spend. Ottawa, ON: Carleton University Press.
Hart, M. (2002). Canada: A trading nation. Vancouver, BC: UBC Press.
McCalla, D. (Ed.). (1990). The development of Canadian capitalism: Essays in business
history. Toronto, ON: Copp, Clark, Pitman.
Norrie, K., Owram, D., & Herbert Emery, J.C. (2008). A history of the Canadian
economy (4th ed.). Toronto, ON: Thomson Nelson.
Pratt, L., & Richards, J. (1979). Prairie capitalism: Power and influence in the new west.
Toronto, ON: McClelland and Stewart.
Notes
1 Historians of this period suggest multiplying currency values by 100 to provide

a rough comparison with current purchasing power and economic impact.
2 Financial panics occurred in 1837, 1857, 1873, and 1893, causing widespread
economic disruption.
3 Trudeau’s Liberals won 83.5 per cent of Quebec ridings in five federal elections
between 1968 and 1980. His successors only won 24.4 per cent of that province’s
seats in the following nine elections between 1984 and 2011.
4 The Harper government significantly increased regulatory controls after 2008,
including expanding remedies for agricultural shippers (CPCS, 2014).
5
Corporate Power in Canada: Nature,
Extent, and Limits
T he concept of corporate power within Canada’s political system

has long been central to the study of Canadian political economy,
business-government relations, and public policies.The concept of corporate
power is a contested one that reflects competing ideas of democracy, the
degree to which governments should exercise control of (as opposed to
influencing) economic decision making, and the broader public interest to
be served by federal and provincial government policies. It also frequently
involves normative views of how to manage, avoid, or promote competition
within and among socioeconomic classes.
This chapter focuses on two broad questions related to the nature and
extent of corporate power in Canada: the assessment of corporate power in
the context of different levels of analysis (i.e., process, outcome, and struc-
tural manifestations of power) and the nature of policy formulation and
contestation within Canada’s fragmented systems of governance.
It considers the efforts of governments to encourage and discipline pri-
vate-sector economic activity through what have been called promarket
approaches for promoting competition and adaptation to changing economic
activities, and their interaction with what have sometimes been described as
probusiness approaches of supporting particular industries or firms within
broad government-led policy processes. It also examines the negotiation of
competing interests and agendas within Canadian policy processes, some of
which are encapsulated in the concept of social licence, in which the expan-
sion or operations of particular industries become contingent on the cultiva-
tion of various forms of social acceptance (Gattinger, 2012).
Corporate Power as a Contested Concept
Canadian governments frequently seek public approval and re-election

based on their ability to promote economic prosperity, much of which is
dependent on private businesses for job creation, investment, and economic
growth. As noted in previous chapters, the political and economic roles of
governments involve the balancing of varied business interests and economic
policy goals with other goals and functions: regulating economic activity
in some semblance of the public interest, financing and delivering public
111
services, enhancing or protecting environmental quality, and adjudicating

disputes between individuals and societal groups, including legal and politi-
cal challenges to the policies and actions of governments themselves.
Framing the terms of the corporate power debate requires clarifications
of both concepts: “corporate” and “power.” From the perspective of class-
based ideology, the concept of corporate power suggests a cohesive govern-
ing class whose networks and interests span the major institutions of society,
incorporating senior orders of government (or at least, those of the largest
jurisdictions), leadership of the largest national and/or regional corporations
(executive suites, boards of directors), and the upper ranks of the professions,
academia, and media (Clement, 1975; Mills, 1956; Porter, 1965).
This outlook has been challenged on several fronts, not least in response to
the financial, social, and technological disruptions arising from globalization and
the emergence of new institutional networks that have undermined elite cohe-
sion and fostered competition among different “elite” groups at various levels
of analysis (Coleman & Skogstad, 1990; Lowi, 1984; Naim, 2013; Ornstein &
Stevenson, 2003).These trends have been reinforced by Canada’s extensive region-
alization of economic activity, varying degrees of interdependence with external
economic actors, and the decline of popular deference toward elites (Nevitte, 1996;
Samara Canada, 2013). Such an analysis requires a distinction between the col-
lective, if often fragmented, power of businesses as agents of economic activities
valued by governments, and a small elite of corporate executives who sometimes
collaborate through peak business organizations such as the Business Council of
Canada.The concept of power, particularly as it relates to the ability of senior cor-
porate executives to shape or avoid policy outcomes important to their particular
or collective interests, is discussed below in greater detail.
Debates over corporate power in Canada derive historically from mer-
cantilistic nation- and/or province-building policies that saw governments
develop alliances with major industry and finance as part of their economic
development strategies, as noted in chapter 4. These policies often resulted
in the development of countervailing sociopolitical coalitions with vari-
ous agrarian, farmer-labour, regionalist, or ethnonationalist ideologies that
sought to use governments—especially provincial ones—as counterweights
to empower regional interests in cooperation or competition with external
(metropolitan or foreign-based) economic and political forces (Dunn, 2006;
Lipset, 1971). In some cases, these approaches have involved the cultivation
of regional (or, in Quebec, ethnocultural) business classes in varying degrees
of partnership with provincial governments. In others, they have involved
the strategic use of state enterprises as vehicles for economic development,
although frequently in support of national or regional business interests
(Arbour, 1993; Fraser, 1987; Pratt & Richards, 1979).
Corporate Power in Canada 113
Some scholars argue that this process has resulted in an autonomous,

privileged, or dominant position for business within the political system.
Rooted in an ideological outlook stressing political and economic egali-
tarianism, these analyses assume that the politicization of economic decision
making based on an authoritative state is or should be normative, that is, the
ideal standard against which real-world behaviour should be based (Clem-
ent, 1975; Coleman, 1988; Evans & Schmidt, 2012; McQuaig, 1996).The par-
tial restructuring and retrenchment of the Canadian state between the 1980s
and early 2000s led some groups to believe that these changes were part of
a broader “corporate agenda” intended to transform the nature of Canadian
society, dismantle or severely restrict the welfare state, and limit the role of
political decision making in the economy.
However, this position has been effectively challenged both in empirical
and practical terms. First, many political analysts have recognized the real-
ity of state autonomy (the independence of governmental and bureaucratic
elites from business and societal groups).
These trends may be both reinforced and constrained by the reality of
the “embedded state” (Cairns, 1986).The growing scope of government
activity at both federal and provincial levels (necessarily in direct spend-
ing terms) has contributed to the fragmentation of both state and society,
as noted by Cairns in the 1980s. Elements of the state can create their own
political environment, often in partnership with other societal actors, which
can effectively resist pressures from other economic and business interests
(Nordlinger, 1981). Governments may advance certain aspects of policy
agendas favoured by major business groups but do so either in competition
with one another with different emphases or in substantially different ways
than initially promoted by such groups.
These realities have been reinforced by four other institutional factors.
First, as discussed in chapter 4, the growing fiscal and economic roles of pro-
vincial governments since the 1980s have reinforced the decentralization of
governmental and economic power within Canada. Second, the combined
effects of financial/shareholder capitalism and technological change have
contributed to high levels of turnover in corporate organization, owner-
ship, and control, reducing the power of major conglomerates and family
holding companies, and increasing that of international financial networks.
These trends reflect Schumpeter’s (1950) concept of “creative destruction”
within capitalism: “the process of industrial mutation” that results in the
replacement of old forms (and structures) of economic activity by new ones
(pp. 82–83). Third, ideological shifts within Canada’s political system have
contributed to a certain degree of ideological convergence on economic
issues between parties of the centre-right and centre-left, notwithstanding
partisan theatrics, reflecting what Christian and Campbell (1990) have called
“business liberalism.” Politically successful social democratic parties have
largely become reconciled to the persistence of capitalism, using its eco-
nomic surpluses for moderate income redistribution and social security. In
turn, more conservative parties have largely embraced aspects of the dis-
tributive state with greater or lesser degrees of commitment to the market
economy. Fourth, public expectations and international networks of pressure
groups increasingly challenge governments and businesses to accommodate
their economic policies and projects to environmental priorities whether
place-based or oriented to the global politics of climate change.
These realities strongly suggest that neither business nor governments exist
as uniform or cohesive sets of social actors and that both sets of actors have con-
siderable capacity to adapt to changing political and economic circumstances.
The Problem of Power
A central question in democratic political theory addresses the capacity of

citizens to translate their goals and policy preferences into the decisions and
priorities of governments and other decision-making elites, and of the latter
to manage conflicting norms, interests, and preferences to serve the public
good.This question is directly related to the problem of power: the ability of
some groups, either within society or the state, to force or persuade others
to act in ways that differ significantly from their own preferences (Stanbury,
1988). It is the capacity for the authoritative enforcement of group prefer-
ences (or those of group leaders) by various means that distinguishes power
from mere influence. Power can be exercised directly or indirectly, by influ-
encing the political, economic, and social environments that shape the values
and actions of individuals and groups.
This section outlines four broad concepts used to define and assess the
extent and exercise of power inside and outside government. The terms
structural power and intellectual power are used to describe the ways
different social groups, including businesses, inject their own interests, values,
and ideas into debates about the public interest. Stanbury (1988) suggests
using the concept “outcome manifestations” to assess the capacity of
political actors to affect or change policy or political outcomes, whether to
secure their own policy preferences or prevent policy outcomes that conflict
with their own interests. “Process manifestations” reflect the use of policy
processes by individuals or groups to serve their own interests, both in coop-
eration and competition with other social or governmental interests.
Competing assessments of the capacity of governments, businesses, or
societal interest groups to influence policy and outcomes depend on which
levels of analysis are used to apply these concepts. Public policy analysts have
identified at least four different levels at which power is exercised through
institutions and regimes, although often disagreeing on precise terminology
and boundaries: international systems, national or regional structures, frame-
work (society-wide) systems of rules governing particular forms of social or
economic organization, and sectoral regimes (Doern, Hill, Prince, & Schultz,
1999, pp. 8–12). Relations among different regimes can increase or decrease
the scope for independent action or the autonomy of governments, busi-
nesses, and societal actors.
An alternative approach, suggested by Peter Hall (1993), emphasizes the
degree and scope of policy changes. First-order policy changes are incre-
mental adjustments to existing policies. Second-order changes involve sig-
nificant changes to existing policies and programs or the introduction of
new ones. Third-order policy changes involve paradigm shifts or fundamen-
tal changes to major policy goals and priorities.
Structural Power
Arguably, the most significant form of power enjoyed by businesses, rather

than any particular group of corporations, is structural power: the sustained
capacity of particular groups to make their interests and values part of the
“normal” environment guiding political, economic, and social systems.
These forces implicitly reinforce certain ideas of the public interest and
marginalize others.
In process-related terms, groups enjoy structural power when their
interests, values, participation, and support are significant elements in eval-
uating policy structures or changes. In outcome-related terms, structural
power involves both the capacity to initiate and sustain proposed policy
changes over the persistent opposition of interested political or societal
actors, and to obstruct authoritative political actors from pursuing such
changes. Alternately, it may involve the ability to obtain substantial, not just
symbolic, accommodation of group interests as a practical condition for the
approval and implementation of such changes.
In any economic system characterized by widespread private owner-
ship and control of economic activity, cooperation among business groups
enables them to exercise structural power, particularly if governments lack
the means or the popular support to foster alternative approaches to creat-
ing employment, generating investment, and promoting economic growth
(Gellner, 1986, p. 301).
Three major factors enhance or constrain business influence over major
policy trends and choices. Business influence tends to be proportionately
greater when strong nationally or regionally based business clusters or

industry sectors contribute disproportionately to economic activity. Notable
examples include the influence of the automotive and financial sectors in
Ontario and the oil and gas sector in Alberta. The greater the sectoral dif-
fusion of economic activity or contributions to growth, the more likely
governments are to exercise decision-making autonomy to accommodate
or balance multiple interests.
A second major factor involves the mobility of capital between jurisdic-
tions, whether through large-scale financial flows or the discretion of major
firms in locating their operations. Individual firms with geographically lim-
ited or concentrated operations, particularly capital intensive ones, have less
economic and political leverage on firm- or sector-specific issues than those
whose operations are distributed over multiple jurisdictions.
Third, the greater the size of governments’ contribution to employment
and other forms of economic activity in a region, the more private-business
activity is likely to depend on the policy priorities and preferences of gov-
ernments, particularly those with strong leverage over regulatory tools to
facilitate or manage economic development. Such governments have greater
political capacity to position themselves as defenders of local or regional
interests against outside economic interests.
Campaign Finance and Structural Power
Another source of businesses’ structural influence, if not necessarily power,

involves the capacity to provide extensive financial support for major
political parties. Since the 1970s, federal and provincial governments have
expanded legislation involving some combination of transparency for politi-
cal contributions, spending limits, direct or indirect government financing
for parties and candidates, and more recently, limits or prohibitions on busi-
ness and union donations. Since the 1990s, Ottawa and some provinces have
restricted nonparty advertising during election campaigns (Hale, 2006a, pp.
443–64; Mowrey & Pelletier, 2002;Thurlow, 2008). Stanbury (1988) has doc-
umented the practice of major firms dividing their contributions between
the government and official opposition, usually favouring the former unless
major policy controversies led them to more overt partisanship. Organized
labour has long provided substantial financial and volunteer support to the
New Democratic Party. Greater transparency was intended to reduce risks
of undue influence of major donors.
Provincial financing regimes vary widely, from relatively restrictive to
virtually uncontrolled (Brock & Jansen, 2015). Contractors and professional
firms with major provincial contracts often donate very large amounts to
political parties. When the long-ruling PC Party appeared at risk of los-

ing the 2012 Alberta election, Edmonton entrepreneur Darryl Katz bundled
$430,000 in contributions to the party, thus avoiding the already generous
limit of $30,000 in contributions by individuals or firms (Ebner & Walton,
2012).
Following the example of social democratic governments in Quebec and
Manitoba, the Harper government banned donations from businesses and
unions in 2006. Federal policy responded to the so-called sponsorship scan-
dal in which federal officials had funnelled a series of contracts to Liberal-
friendly advertising agencies in Quebec after the 1995 Quebec secession
referendum (Commission of Inquiry into the Sponsorship Program and
Advertising Activities, 2005; Department of Finance Canada, 2005). Nova
Scotia followed suit in 2009 and Alberta in 2015. However, such restrictions
can and have been avoided by unscrupulous businesses, unions, government
officials, and party fundraisers, as demonstrated by provincial and munici-
pal fundraising scandals revealed by Quebec’s Charbonneau Commission in
2012–15 (Charbonneau & Lachance, 2015; Hamilton 2014).
The distinction between the pursuit of influence and the exercise of
power in such cases usually reflects the scale and coordination of inter-
est groups’ spending. Concerted action between business groups requires a
broad consensus and a determined effort to act upon it, as with the large-
scale financial efforts of business leaders to support the Canada-US Free
Trade Agreement in the 1988 federal elections. In recent years, when allowed
to so by law, public-sector unions and their allies have also mounted multi-
million-dollar advertising campaigns during election campaigns in efforts
to influence public opinion (Ferguson, 2015). Media reports indicate that
94 per cent of so-called “third-party” or nonparty interest-group spending
in the three most recent Ontario elections (2007, 2011, 2014) were union-
led initiatives, with clear suggestions of coordination with political parties
(Morrow, 2016b). Although the volume of advertising is no guarantee of its
effectiveness in shaping public opinion, the progressive disengagement from
politics and profound skepticism of politicians among many citizens create a
fertile environment for well-financed groups to manipulate public opinion.
However, organizations attempting to influence public opinion are well-
advised to show their agendas will serve the interests of other societal groups.
Whether the levels of power and influence exercised by leaders of major
corporations or the wider business community in all its diversity constitutes
unfair privilege depends largely on whether it is conferred by government
favour on a select few or allows a cross section of interests and outlooks to
be accommodated in the policy process.This distinction is central to debates
over the use of public policies to structure, direct, or influence the activities
of businesses and other economic actors.
Intellectual Power: Competing Views of Government-Business

Relations
Political legitimacy in a democratic system derives in large measure from

the consent of the governed expressed through the unhindered exercise of
choices in competitive elections and opportunities to influence policy mak-
ing of governments between elections. It also involves respect for constitu-
tional forms including principles associated with the due process of law. The
political legitimacy of economic systems is often associated with their capac-
ity to provide most citizens with reasonable standards of living and opportu-
nities to improve their economic well-being and security, whether through
market-based activity or collective action.The ability to shape the underlying
assumptions of government policy makers and the public, including the fac-
tors that contribute to the legitimacy and effectiveness of public policies, is
an element of structural power known as intellectual power (Stanbury, 1988).
In recent decades, Canadian governments have used a mix of three broad
approaches, sometimes characterized as probusiness, promarket, and corpo-
ratist or state-led (Atkinson & Coleman, 1989; Zingales, 2009), as discussed
in Chapter 3. Consistent with neomercantilistic theories of economic devel-
opment, probusiness policies are intended to improve overall well-being by
creating favourable conditions for profitable business investment and com-
petitiveness. Governments (or business advocates) promote or seek to justify
probusiness policies on grounds of mobilizing business resources to serve
broad public purposes such as job creation, job preservation, or the accel-
eration of capital investments otherwise beyond the resources of heavily
indebted governments. In principle, such claims are—or should be—subject
to empirical validation on either process or outcome terms, as indeed should
comparable proposals for the maintenance or creation of public-sector
monopolies.
However, both the collectivist left and market-oriented critics fre-
quently argue that such policies contribute to governmental favouritism
for particular businesses or industry sectors or that they protect exist-
ing patterns of business activity against innovation and competition in
the marketplace (Coleman, 1988; Zingales, 2009). Such favouritism may
take the form of clientele pluralist networks in which a particular firm
or group of businesses, as the object or primary object of government
policies, gains disproportionate influence or even control of the defini-
tion of the public good it is targeted to receive (Coleman, 1988, p. 74).
Sectors open to clientelism include oligopolistic industries with high

entry costs and significant regulatory barriers to entry. Such outcomes
have been most frequent in areas of economic regulation involving con-
trols over market entry, prices and/or production levels, including the
telecommunications, transportation, and supply-managed agricultural
sectors, although challenges from competing producers and consumer
groups have led governments to promote greater competition through
regulatory reforms. Preferential policies may persist in oligopolistic sec-
tors whose interests are threatened by increased foreign competition or
technological change, including automotive, steel production, broadcast-
ing, beer and liquor producers, and telecommunications firms, although
some of these policies have been eroded in recent years.
Such policies are often advanced by senior political leaders (or regional
ministers) to maintain investment or employment in key industries or
regions against external threats or to protect their own influence over those
industries seen as key instruments of government policies. Recent examples
include the joint federal-provincial bailout of General Motors and Chrysler
in 2009 to preclude unilateral action by the US government at the expense
of industry employment in Canada, along with substantial ongoing subsidies
to attract new auto-sector investment to Ontario. Saskatchewan’s interven-
tion in 2010 persuaded the Harper government to veto a takeover bid for
Potash Corporation of Saskatchewan that could have disrupted a govern-
ment-sponsored export cartel.
Public interest justifications for such policies often hinge on their genera-
tion of positive externalities—spin-off benefits beyond a particular industry
sector (and related levels of employment). However, in practical political
terms, they tend to encourage rent seeking, or the pursuit of economic
benefits by businesses and related labour interests through the political pro-
cess, often at the expense of greater economic efficiency and benefits to
consumers (Economic Council of Canada, 1979, 1981; Olson, 1986). Sectors
at risk of such outcomes require internal and external controls over regula-
tion and tendering to reduce both the appearance and reality of favouritism
at the expense of other producers or consumers.
Risks of active rent seeking are greatest in sectors in which govern-
ment decision makers have discretion in dispensing licences to operate
or defining contract specifications: defence industries and large-scale
contracting for public infrastructure, including road-building, general
contracting, and major engineering and information technology services
(Bagnall, 2014). However, these products and services are often so com-
plex that they rarely attract much public attention except perhaps in the
serial failures of Canadian defence procurement policies (Williams, 2009).
More difficult to justify are policies or processes that privilege particular

companies as a result of direct political or bureaucratic favouritism beyond
levels justified by superior performance or open competition. This may
involve favouritism in access to public contracts or the preferential allocation
of opportunities and resources by government elites to individuals or cor-
porations in expectations of compliance with decision makers’ priorities and
objectives. Such processes were part of Canada’s patronage-ridden political
culture in the nineteenth and early twentieth centuries. Often campaign
contributions and other forms of political support were expected. They are
less frequent today, having been stigmatized by critics across the political
spectrum as “crony capitalism.”
Some academics and policy advocates have recommended the development
of corporatist policy-making structures as another means of balancing organ-
ized interests to serve the national interest. Corporatism involves government
sponsorship of the development of peak economic organizations representing
major sectors of society, notably business, labour, and sometimes agriculture, in
the hope of developing coordinated policy responses that can be promoted and
enforced through such organizations. Such proposals have been most frequent
during periods of significant social and economic upheaval such as the 1930s
and the 1970s when economic disruptions led to widespread social unrest and
pressures for major changes to economic and social institutions. Corporatist or
quasi-corporatist approaches have been most persistent in some agricultural
subsectors, large-scale construction, especially in Quebec, and in a handful of
other sectors heavily dependent on government financing or regulation.
However, such initiatives have foundered on divisions within and among
major sectoral groups, reinforced by Canada’s regionally varied economies,
decentralized form of federalism, and individualistic, firm-centred business
culture. The persistence of deep-seated populist sentiments in many parts of
Canada have reinforced these tendencies and remain a significant barrier to
elite-driven policy changes without clear and demonstrable benefits to a broad
cross section of ordinary citizens and small businesses. Examples of these ten-
dencies are seen in the widespread public backlash against the elite consensus
supporting constitutional reforms in the 1990s, public skepticism of proposals
by business economists to shift Canada’s tax system from a dependence on
income-based toward consumption-based taxation, and persistent support for
greater producer and consumer choice in dealing with industry sectors with
high degrees of corporate concentration, whether publicly or privately owned.
The strongest critique of both probusiness and corporatist policies from
across the political spectrum is their tendency to promote incestuous rela-
tions among political, business, governmental, and societal elites. Such rela-
tionships can reinforce the concentration of political and economic power
and create fertile opportunities for its abuse by those with privileged access
to the system. In response, government policy makers and their advisors have
sometimes attempted to use promarket public policies to promote greater
competition within the marketplace, while adjusting regulatory incentives to
limit or diffuse concentrations of power among business and interest groups.
Key objectives of promarket policies include freedom of entry, market
rules and regulations that allow for a level competitive playing field, chang-
ing approaches to regulation that encourage innovation, greater efficiency,
and the reduction of negative externalities to consumers and society. Exam-
ples include reducing price regulations and regulatory barriers to entry in
several major sectors, reducing tariff and nontariff barriers to enable greater
North American and international competition and specialization, and
reciprocal opportunities for cross-border investment, including mergers and
acquisitions subject to competition policy requirements to maintain market
competition. Central to these initiatives is the principle that open competi-
tion under clear market rules serves the interests of consumers more consist-
ently than government efforts to micromanage economic activities.
Three key elements of promarket policies in recent years have been
1) greater openness to foreign competition, subject to reciprocal trade and
investment agreements; 2) requirements that corporate boards of directors
serve shareholder interests, including greater accommodation of market
takeovers in most sectors; and 3) progressive accommodation of demands
for greater consumer choice in oligopolistic industries, notably the telecom-
munications and broadcasting sectors. In some cases, such as major banks and
insurance companies, governments have explicitly limited mergers between
major firms, while encouraging their international expansion. In others,
such as major public-sector pension and investment firms, federal and pro-
vincial governments (with the partial exception of Quebec) have mandated
them to maximize their members’ financial returns subject to requirements
for prudent management, creating major pools of independently managed
capital for domestic and international investment.
Zingales (2009) has noted that there is an inherent tension between pro-
business and promarket policies for both businesses and governments. He
notes that “most lobbying is pro-business, in the sense that it promotes the
interests of existing businesses, not pro-market in the sense of fostering truly
free and open competition. Open competition forces established firms to
prove their competence again and again.” However, promarket policies do
not imply an absence of regulation. Rather, they seek to structure regulatory
regimes in ways that limit insider power, promote greater market transpar-
ency and consumer (including investor) choice, and limit abuses of power
in the marketplace.
One example of these tensions is in the evolution of securities regulations

and corporate governance. The growing reach of finance capitalism has cre-
ated significant political competition within Canada’s regionally specialized
capital markets, reflected in tensions between the Toronto-based financial
establishment, which, with federal support, has sought to nationalize securi-
ties regulation, and Montreal- and Calgary-based financial networks (and
their provincial allies), which have sought to maintain a more decentralized
approach (Courchene, 2011). By contrast, BC has sought to protect regional
interests through active engagement in the design of the proposed Coopera-
tive Capital Markets Regulatory System (Isfeld, 2013). A plausible argument
can be made that none of the protagonists in this competition are particu-
larly promarket in orientation. Indeed, Quebec’s business establishment is
highly solicitous of government protection against outsider challenges posed
by hostile takeover bids (Allaire, 2014; Van Praet, 2014c). However, the frag-
mentation of both corporate and state interests reflected in these debates is
an essential feature in diffusing corporate power through institutionalized
competition among geographically diverse interests.
The reality of interactions between governments and businesses, along
with other social and economic interests, exists not on one playing field but
in many different institutional contexts. These realities are seen in process
manifestations of the extent and limits of corporate power.
Process Manifestations of Political Power
All societal interest groups have an opportunity to engage governmental

decision making to some extent. However, the ability to exert meaningful
influence depends on several factors, including:
• the willingness of governments to provide access to different parts of

that process;
• the ability of groups to make their voices heard;
• the resources available to groups to participate effectively;
• the willingness of government policy makers to take their positions or
suggestions actively into consideration; and
• the timing (and extent) of their participation (Stanbury, 1988).
Effective Access to Resources
All sorts of groups, including business groups, are formed regularly to influ-
ence governments. Businesses possess several advantages when attempting to
influence government policies that affect them directly, particularly when

compared to ordinary citizens, who usually lack the time, knowledge, and
financial resources to engage the policy process except on a limited range of
issues within their own communities.
Many businesses are already members of existing associations, thus reduc-
ing start-up costs of identifying and mobilizing supporters in large numbers.
Businesses that have a significant financial interest in the effects of govern-
ment decisions are far more likely to invest in monitoring and influencing
those decisions than are most citizens, whether directly, by retaining lob-
byists, or through various interest groups. Their financial resources, while
limited and subject to numerous demands, are often more extensive than
those of other groups. Networking, timely cooperation, and the pooling
of resources can expand the resources available to smaller groups, although
there are costs in negotiating common ground with other groups whose
interests vary from their own. In some cases, leading members of business
groups also have personal and professional connections with senior govern-
ment decision makers that enable them to voice their concerns directly,
rather than through intermediaries.
The frequent complexity of policy processes and the difficulties most
outsiders face in dealing with governments create extensive business oppor-
tunities for specialized government relations (GR) consultants (lobbyists) to
market their services as intermediaries between businesses or interest groups
and governments. The perceived need to retain such advisors, whether for
“offensive” or “defensive” purposes, is as much of a comment on the power
of individual business actors as the capacity to invest in professional lobbying
services.
Consultation, Real or Symbolic?
Most governments make use of formal consultations as part of manag-

ing and legitimizing changes to policies and programs. Consultations may
occur as part of a serious discussion with interest-group stakeholders and
citizens about the options facing governments in a particular policy area.
Alternately, they may be little more than a pro forma or symbolic exer-
cise intended to demonstrate that a government organization has asked
for public input on something it intends to do anyway or, perhaps, as a
trial to test the waters for possible action. Consultations may be mainly
political, conducted through the parliamentary/legislative process or with
direct ministerial engagement, mainly bureaucratic, conducted between
civil servants and specialized professional or interest group stakeholders,
or a combination of both.
The capacity of business groups to participate effectively in consulta-

tions depends partly on the resources available to them to monitor relevant
government activities. Other factors include sufficient understanding of
the policy context to develop an informed strategy, the capacity to engage
policy makers in ways that address their objectives, that alert them to poten-
tial problems requiring attention, or that broaden the debate by engaging
media and public interest. Even symbolic consultations can be turned into
substantive ones if coalitions of interest groups can demonstrate to govern-
ment decision makers that the political or economic costs of implementing
a policy exceed the benefits they are likely to derive from it.
The professionalism, priorities, and commitment of interest groups to
influencing decisions is vital to their success in engaging the attention of
policy makers. The collective impact of businesses on consultation, as with
other interest networks, lies in their capacity to work together to mobilize
information and other resources necessary to make their voices heard. How-
ever, in the absence of effective leadership capable of overcoming the normal
fragmentation of business interests, its exercise will depend mainly on the
priorities of existing associations and their leaders.
Status within the Policy Community
The influence of business and interest groups in policy making often depends
on whether they are recognized by policy makers as important stakehold-
ers in the outcomes of existing or proposed policies whose interests and
concerns must be addressed, as problematic or obstructive actors that need
to be circumvented if the policy agenda is to succeed, or as marginal (even
irrelevant) actors whose views can be safely ignored.
Certain business groups are “natural” stakeholders in economic policy
decisions that affect them directly, or in policies of social regulation where
their cooperation is useful in enabling government officials to reach their
objectives without causing unnecessary disruption or political conflict.
However, in many cases, achieving this status requires extended effort, the
capacity to build relationships and to offer something of value to decision
makers who need to balance a variety of interests inside and outside govern-
ment to reach their goals.
In some cases, particular business interests become institutionalized
within different aspects of the policy process. This may include member-
ship in formal advisory committees set up to review existing and proposed
government policies, regular contact with government decision makers
in particular areas, and shared assumptions that the public interest should
accommodate (if not necessarily defer to) specific business interests. As noted
above, the fragmentation of policy processes often facilitates the institution-

alization of vested interests in specialized areas.
The number of organized business associations and their ability to spe-
cialize in particular areas and pool resources in adapting to political circum-
stances give business groups the collective capacity to access governments at
many different points. While this does not guarantee a hearing, let alone the
desired outcome, it does demonstrate the potential to exercise influence and
power when these resources are used effectively.
Timing of Access to the Policy Process
Networking and institutional resources can also enable business and other
interest groups to exercise greater influence over a policy decision by virtue
of the timing of their intervention. However, the capacity to obtain access to
the policy process does not necessarily imply the capacity to control it or to
consistently achieve desired policy outcomes.
Government officials use several techniques to control the degree of access
enjoyed by businesses and interest groups to policy processes.These techniques
include the management of information, the timing of decisions of when to
“go public” with intended policy changes or actual decisions, the capacity to
shape consultations, as well as the evaluation of feedback received from stake-
holders and citizens. As a result, the influence of business groups varies with
the structure and openness of decision-making processes, the number of com-
peting interest groups with effective access to them, and the ability of interest
groups to build coalitions with potential allies inside and outside government.
Groups that are able to engage policy makers in discussions before the
latter initiate public consultations or the introduction of legislation have a
considerable advantage over those without such access. The intensely partisan
environment of Canada’s legislative process ensures that the formal process
of parliamentary hearings on legislation produces few or modest changes to
legislation. The minority of business groups whose interests are institutional-
ized within policy processes uses this advantage to get a head start on potential
competitors in influencing policy choices. However, few business groups have
the capacity to challenge other institutionalized interests on their own “turf ”
unless they are prepared to invest the time, money, effort, and professional
resources to assemble a coalition capable of exercising countervailing power.
Ability to Control Process
Groups whose interests are institutionalized within policy making processes

may be able to influence or control them to the extent that their views,
values, and priorities are shared by those responsible for particular policy
decisions. The greater the degree of technical specialization and the greater
the degree to which governments depend on societal interests (including
but not limited to business groups) to design and/or implement specialized
policies and programs, the greater the degree to which those groups will
influence, if not necessarily control, the policy process.
Outsider groups usually lack the necessary awareness of the process to con-
test policy insiders, along with the professional resources needed to meet them
on their own terms. However, this does not prevent them from attempting to
publicize and politicize an issue to persuade politicians and the general public
that the “experts” have lost sight of some important aspects of public interest.
The cultivation of the news media is another avenue available to groups with-
out institutional resources to offset their lack of process expertise.
Outcome Manifestations
A key expression of power is the degree of autonomy possessed by individuals

or groups in obtaining desired political outcomes. Nordlinger (1981) has noted
that government officials frequently possess considerable independence from
the policy preferences of societal actors, including the owners and managers of
businesses. Autonomy may take the form of shaping policy outcomes through
direct political action in ways that are effectively beyond the control of other
political actors.These outcomes may coincide with or differ significantly from
those of other political actors, whether from similar or different motives.
Major expressions of policy autonomy include:
• the consistent ability to initiate and implement actions opposed by

other major policy players;
• the ability to obstruct or veto policy proposals that otherwise have wide
support;
• the ability to alter (or reverse) a well-established policy that works to its
disadvantage even if it is satisfactory to most others, often by changing
the terms of debate; and
• perhaps most significantly, the ability to determine the outcome of elec-
tions by shifting one’s support for one party to another (Stanbury, 1988).
Successfully Ignoring Public/Societal Opinion
The most visible form of political power is the ability of political actors to
force governments and/or other parts of society to accommodate or accept
their policy agendas or to successfully defy a political consensus adverse to

their interests or political preferences. Government officials can wield this
kind of power by refusing to translate societal preferences (the consensus of
public opinion or politically active citizens) into public policy or by taking
action in clear defiance of public opinion (Nordlinger, 1981, p. 29). Business
groups could be said to exercise effective power when they force govern-
ments to change their agendas to conform to those reflecting a consensus of
the business community.
In Canada, blatant examples of state autonomy may be less frequent than
in previous decades, but they still occur periodically. The Mulroney govern-
ment’s decision to force through the introduction of the GST, despite the
opposition of as much as 88 per cent of Canadians (if published opinion
polls are to be believed), may have been a contributing factor to its electoral
defeat three years later. But this did not prevent government officials from
keeping the GST in place, despite the election of a Liberal government
pledged to replace it (Hale, 2001). In 2006, the Harper government reversed
a campaign promise to protect income trusts, a popular tool for companies
to raise capital while flowing through higher dividends to investors (Chase,
2006). However, its subsequent cuts to corporate income taxes over several
years were packaged with GST reductions and broader commitments to
lower taxes in general, along with less successful efforts to limit international
tax arbitrage.
Successful business challenges to established policies occur periodically
when governments retreat from proposed policy changes in the face of con-
certed business lobbying, usually on issues of substantially greater interest to
business groups than to the general public. However, governments’ depend-
ence on private economic actors to finance ongoing investment and job
creation limits the degree to which governments in largely capitalist socie-
ties can challenge the fundamental interests, as opposed to particular policy
preferences, of business without running the risks of major economic dis-
ruptions and the possible loss of political power.
Converging or compatible political agendas between business and gov-
ernment does not necessarily reflect an exercise of power as defined above.
Senior government decision makers may come to such a conclusion because
of a predisposition to the recommendations of business groups, rational pol-
icy analysis of their own, or calculations of mutual advantage to be gained
from promoting business-friendly policies. Such decisions indicate that busi-
ness groups possess extensive influence, but do not necessarily point to the
exercise of “business power” in the sense of autonomous and irresponsible
political decision making.The capacity of governments to resist many politi-
cal preferences of organized business groups and large corporations, while
accommodating others, suggests a more complex pattern of political and

economic relationships.
The capacity to impose or obstruct policy change depends on numer-
ous factors, not least the degree of consensus among policy elites, or the
degree to which one group of political actors can exploit divisions among
the others to achieve their objectives. When elites are divided, the effective
exercise of power often depends on the capacity of competing groups to
mobilize public opinion, to exploit the policy process to achieve an effec-
tive stalemate, or to persist in the incremental adaptation of policy objectives
until their “internal logic” becomes persuasive to other groups. The capacity
of governments, businesses, and other actors to exercise this form of power
often depends on the complexity of issues at stake, the number and cohesion
of stakeholders, and their ability to use policy processes to their advantage
(Howlett, Ramesh, & Perl, 2009).
Controlling the Fine Print
Another, subtler form of autonomy or power suggested by Nordlinger

(1981) is the capacity of state actors to pursue their own preferences at times
when there is a convergence on general policy objectives between govern-
ments and societal groups (pp. 74–98). Public opinion and many societal
interest groups are often blissfully ignorant of the details of policy imple-
mentation. As a result, governments, sometimes working with other societal
interest groups, implement policies in ways that further their own interests.
In so doing, they also create precedents or conditions conducive to favour-
able policy decisions in the future. The capacity to influence or control the
“fine print” of policy implementation is usually the privilege of policy pro-
fessionals inside government and of institutionalized interest groups that
have preferred access to policy processes as recognized stakeholders in those
decisions.
Particular business interest groups do not necessarily enjoy preferred
access to government policy makers when the implementation of specific
policies is under discussion. However, over time, business groups can develop
relationships of mutual respect and trust with government officials that ena-
ble them to influence the “fine print” of policy implementation to accom-
modate their interests in ways consistent with the government’s broad policy
goals. This process is particularly evident in the design of technical tax legis-
lation of particular interest to certain industry sectors, as well as in the draft-
ing and modification of regulations (Atkinson & Coleman, 1989; Hale, 2001,
pp. 120–23). The network of professional relationships established by mem-
bers of business groups inside and outside government can play significant
roles in technical aspects of economic policy making. This process-oriented

approach to the measurement of political power will be discussed later in
this section.
Changing the Terms of Debate
Another form of independent power or autonomy is the capacity to shift

the terms of public debate over time so that adverse public opinion, or that
of organized social groups, gradually conforms to the policy preferences
of major state or other political actors. This result can be accomplished by
persuasion or through the co-opting of societal actors so that the grounds
for their opposition are removed or conciliated. Governments also use their
control over policy processes to introduce incremental changes that eventu-
ally create their own rationality, momentum, or sense of inevitability, while
marginalizing other options.
The ability to shape policy debate is closely related to the capacity to
shape or use underlying assumptions and values related to particular policies.
These may involve the broad social or political environment that shapes a
particular policy, structural issues related to the organization of particular
activities or economic sectors, specific policy objectives, or the instruments
used to translate these objectives into actions and outcomes.
There is little doubt that business groups have the capacity to influence
public and governmental opinion and the policy process in ways that can
shift a policy consensus favourable to themselves. In some cases, the policy
changes of the 1980s and 1990s followed shifts of governmental opinion that
preceded public opinion. This direction was influenced both through the
actions and networking activities of business groups, and indirectly, through
the actions of policy advocacy groups, or think tanks, whose intellectual
or ideological outlooks complemented those of organized business interests
(Abelson & Carberry, 1998; Carroll & Shaw, 2001).
However, the political effectiveness of such groups in exercising intel-
lectual power is usually subject to two major conditions. First, government
policy makers must be willing to engage and endorse their ideas, both
in defining policy problems and in responses. Political and bureaucratic
gatekeepers evaluate the usefulness of new ideas through the context of
government realities and institutional constraints, including their political
and economic viability and their capacity to implement proposed policy
changes (Abelson, 2009; Hall, 1989).
Second, politicians, journalists, and other “opinion shapers” should be
able to popularize proposed policy ideas to make them plausible to the
average voter, while being able to withstand the scrutiny of competing
interest groups with the capacity to influence public opinion (Hall, 1989,
pp. 370–86). These actors may seek to exercise countervailing power by
appealing for public support for alternative policies offering potential ben-
efits to a broader cross section of society or by appealing to strongly held
values to undermine the credibility of proposed changes.
The negotiation of free trade with the United States and the decision of
federal and provincial governments to confront their budget deficits aggres-
sively during the early 1990s, rather than just complaining about them,
are two examples of major policy changes in which governments actively
sought to persuade the public to accept positions consistent with the policy
preferences of business. However, serious observers have suggested that these
policy shifts reflected internal policy shifts or turf battles within govern-
ments as much or more than business influence (Doern & Tomlin, 1991;
Greenspon & Wilson-Smith, 1996; Savoie, 1990, 1999). In other cases, public
opinion has forced governments to reverse their policies, sometimes in con-
junction with corporate preferences, sometimes in ways sharply at variance
with them, as in voters’ decision to overturn BC’s harmonized sales tax in a
2011 referendum (Abbott, 2015; McArthur, 2011).
The challenge of demonstrating the role and extent of business power in
such situations is to isolate cause and effect in situations where government
policy makers (or public opinion) may respond to several different factors,
including business influence.
Testing Shifts in Corporate Power
As noted above, Stanbury (1988) defined power as the capacity to “implement

policy actions strongly opposed by other [authoritative] interests” (p. 398) or
to block comparable actions by other authoritative actors at their expense.
This section tests the concept of corporate power, defined as collective posi-
tions taken by the Business Council of Canada (formerly Canadian Council of
Chief Executives) a proxy for Canada’s corporate elite, and analogous groups
that have resulted in significant shifts in major macro-policy priorities of
Canada’s federal government. In doing so, it examines three broad sets of policy
issues: budgetary and tax issues, with particular reference to levels of cumula-
tive business taxation; competition policies, with particular reference to merg-
ers and acquisitions; and intergovernmental processes contributing to North
American integration. It does so with respect to the priorities of the Chrétien-
Martin and Harper governments since 1993 by asking the following questions:
• Is there significant evidence that corporate sector priorities (either

narrowly defined as the agenda of the BCC/CEO Council or more
broadly in terms of the agendas of Canada’s leading business associa-

tions) significantly altered the perspectives or priorities of senior politi-
cal and bureaucratic decision makers in each policy field?
• Is there significant evidence of the exercise of intellectual power through
research or advocacy supported by major corporate interests and major
think tanks broadly aligned with their perspectives?
• Is there significant evidence that senior corporate leaders or related
advocates exercised significant influence in internal policy or consulta-
tion processes that contributed to or resulted in significant changes in
government policies independently of the policy perspectives of senior
decision makers? (Pushing on an open door is rarely considered a sig-
nificant exercise of power except perhaps by those unable to approach
the door in the first place.)
• Is there significant evidence of specific policy outcomes that changed as
a result of a concerted effort by major firms or associations rather than
as a result of discretionary actions by government in the face of signifi-
cant public disagreements among senior business advocates?
• What major policy priorities, decisions, or changes therein should be
considered in answering these questions with respect to each policy area?
Budgetary Policies and Business Taxation
The following major changes in budgetary and business tax policies should
be included in any significant exercises in corporate power. This list is not
exhaustive but indicative of major policy departures:
• The Chrétien government’s decision to accelerate its deficit reduction

program from its earlier incrementalist approach in 1994–95;
• The multi-year allocation of broadly based tax reductions announced
just before the 2000 federal election;
• The extended debate over income trusts that culminated in the Harper
government’s radical policy reversal curbing access to this increasingly
high-profile corporate finance vehicle in October 2006 and requiring
the phased conversion of existing income trusts into corporate form
over four years;
• The Harper government’s decision to lower corporate tax rates from an
average 21 per cent to 15 per cent between 2007 and 2012, with comple-
mentary measures to encourage parallel actions by provinces, combined
with further reductions in the GST; and
• The Harper government’s decision, in contrast to that of several prov-
inces, to implement deficit reduction between 2010–11 and 2014–15
almost exclusively through constraints on spending growth rather than

a mix of tax increases and spending reductions.
These changes do not include discussions of provincial policies, which

adapted at very different rates on similar issues between the mid-1990s and
the late 2000s, sometimes in ways favouring business interests, at other times
at cross purposes with them.
Available evidence suggests that hostile responses among businesses and
in the financial press (including the famous Wall Street Journal editorial on
the “Hudson Bay peso”) played some role in the Chrétien-Martin govern-
ment’s decision to initiate extensive deficit reduction measures in 1994–95,
replacing its previous incrementalist approach (Greenspon & Wilson-Smith,
1996; Martin, 2009). However, this policy shift also had strong internal sup-
port within the federal Department of Finance. Martin’s decision cannot
be said to be exclusively a response to domestic business influence, but a
progressive intellectual shift intended to restore financial sustainability and
establish the government’s credibility with international financial markets.
Greenspon and Wilson-Smith (1996) have suggested Martin’s senior
policy advisor, Peter Nicholson, a former senior BCE executive, played an
important role in this process, but one complementary to and supportive of
that of senior Finance Department officials led by David Dodge. However,
these influences did not extend to Prime Minister Jean Chrétien, whose
support was indispensible to Martin’s success in imposing specific spending
reductions to complement the “stealth” tax increases introduced by his pre-
decessors (Chrétien, 2010; Hale, 2001). External consultations were periph-
eral in what was an almost unprecedented exercise in political will. The
details of deficit reduction appear to have been driven by a small core of cab-
inet ministers in the prime minister’s confidence (Savoie, 1999), very few of
whom, unlike Martin, were known for their extensive business connections.
The scale of increases to personal and business taxation during the 1990s
was such that business groups made reductions of taxes and fees a priority
after the federal government balanced its budget in 1997–98 after 24 consec-
utive years of deficits. However, the Chrétien government’s efforts to balance
strategic spending measures, debt reduction, and tax relief over the next seven
years clearly subordinated corporate income tax (CIT) reduction to other
priorities, not least phased cuts to personal income tax rates and targeted
tax credits for lower- and middle-income families announced before the
2000 election. CIT reductions, which reflected top line recommendations
of the Technical Committee on Business Taxation (Technical Committee
on Business Taxation, 1997) chaired by academic economist Jack Mintz,
were back-end loaded, bringing general CIT rates (initially 29.12 per cent)
into line with the lower 21 per cent rate for manufacturers over four years.
Martin also initiated reductions to the non-profit-related corporate capital
tax, a major business priority emphasized by the Mintz report. This process
was completed by the Harper government by 2008.
Both the Technical Committee report, commissioned by the federal
Department of Finance, and its ultimate application, could initially be
considered as process manifestations of power and ultimately as significant
expressions of intellectual power, albeit ones which took several years to
mature. It propelled Mintz to his subsequent appointment as president of the
influential C.D. Howe Institute, one of Canada’s leading business-financed
think tanks. Promoting business tax reforms to enhance the international
competitiveness of Canadian businesses was one of Mintz’s key priorities
over many years, as reflected in annual tax competitiveness reports initiated
in 2005. Mintz’s intellectual contribution of the Marginal Effective Tax Rate
(METR), the cumulative effect of federal and provincial business taxes, net
of various deductions as a benchmark for international tax competitiveness,
was formally adopted by the federal Department of Finance as part of its jus-
tification for a phased reduction to CIT rates between 2007 and 2012. So was
the Technical Committee’s argument that international business tax arbi-
trage had made high CIT rates counterproductive for small, open economies
such as Canada by providing perverse incentives to book discretionary costs
in high-tax jurisdictions and discretionary profits in lower-tax jurisdictions.
Canadian firms’ growing integration within the North American and global
economies made the policing of such arbitrage increasingly difficult for fed-
eral tax officials. These policy changes have subsequently enabled Canada to
generate higher CIT revenues from the controversial practice of tax inver-
sions, corporate takeovers that allow foreign firms (ranging from fast food
giant Burger King to pharmaceutical firm Valeant) to establish Canadian
residence for tax purposes. One small outcome manifestation of corporate
power was the success of tax professionals in blocking efforts to remove tax
preferences for foreign-accrued property income (FAPI) in 2007–08 in the
absence of comparable measures by other major industrial nations. More
modest anti-avoidance measures were ultimately passed after 2009.
However, arguments for corporate tax reductions as a significant exer-
cise in corporate power are offset by the extent and timing of the Harper
government’s reductions to the politically unpopular GST, contrary to the
advice of most economists, business-oriented or otherwise. Both Liberal and
Conservative governments since the 1980s have paid careful attention to the
overall distributive effects of their tax policies as a way of maintaining popu-
lar support for their fiscal priorities, although the Harper government made
far more use of “boutique” tax credits targeted at particular groups than its
predecessors. However, provincial taxation policies have been far more var-
ied, reflecting both provincial political and fiscal conditions and the shifting
agendas of governments.
The income trust debate of 2003–06, while one of the more protracted
public debates over tax avoidance in recent years, does not really fit the
definition of an exercise of corporate power, largely due to the deep divi-
sions within the business community. Income trusts emerged after 2000 as
a means of eliminating corporate income taxes by converting corporations
to business trusts and flowing income through to share- (or unit-) holders
to be taxed at personal income tax rates.The high-yield investments became
favourites of many older and retired Canadians as a source of much higher
returns than available from conventional corporate dividend payments.
Neither Liberal Finance Minister Ralph Goodale nor his Conservative suc-
cessor, Jim Flaherty, were anxious to tackle this political hornet’s nest (Hale,
2005). However, after two of Canada’s largest telecommunications compa-
nies announced plans to convert to income trust status, Flaherty shocked
markets on Halloween 2006 by freezing the market for such conversions
and requiring all non-real estate-based trusts to convert back to conven-
tional corporate status by 2011. Flaherty’s move was a promarket policy that
ended a tax distortion that was leading major corporations to change their
corporate structures for artificial tax reasons, if a politically controversial one
in some quarters.
Arguably, the income-trust controversy may well have been a major cata-
lyst in persuading Flaherty of the benefits of phasing in unprecedented CIT
rate reductions and providing provinces that had not already done so with
incentives to integrate their sales taxes with the federal GST, cutting an
average 10 percentage points off their METRs in the process. One might
argue that in responding to the reality of systematic business tax avoidance,
Flaherty responded to market pressures by explicitly shifting from a passive
probusiness (and proinvestor) policy to an active promarket policy. Interest-
ingly, while the Trudeau Liberals challenged many Harper government poli-
cies, their 2015 campaign platform and first budget opted for higher taxes
on upper-income earners rather than higher CIT rates as championed by
the NDP.
There is little question that business groups in general and major cor-
porate leaders in particular approved of the Harper government’s deci-
sion to return to a balanced budget over five years after running record
nominal deficits during the 2009 recession, including nominal reductions
in direct federal program spending (as opposed to substantial increases
in transfers to persons and provinces during the same period; Depart-
ment of Finance Canada, 2014b). However, as with comparable measures
in the 1990s, these priorities were a function of a highly centralized fed-

eral budget process dominated by a strong partnership between the prime
minister and his finance minister rather than external corporate pressures
or process manifestations of power. As with Frank Sinatra, Ottawa policy
makers did it their way.
Competition and Foreign Investment Policies
Competition policy is an arcane policy field whose substantial ineffective-

ness during the 1970s and 1980s has been comprehensively documented by
Stanbury (1977) as a clear expression of corporate power, whether mani-
fested in structural, intellectual, process, or outcome terms. Changes negoti-
ated by the Mulroney government during the 1980s opened the door to a
wider range of negotiated settlements on mergers and acquisitions (M&A)
between the new Competition Bureau, an administrative law body, and
corporations engaged in M&A activity. This was done to provide greater
safeguards for competition, with provisions for appeals to a quasi-judicial
Competition Tribunal and the federal Court of Appeals.
The federal government’s encouragement of both inward and outward
foreign direct investment (FDI) as part of broad policies of integration
within the global market economy during the 1990s led to a movement
away from the direct regulation of FDI in most sectors, along with much
lighter regulation of corporate takeovers and a significantly greater reliance
on competition policies to determine the terms and extent of such activi-
ties. The rapid growth of outward FDI by Canadian-based firms, which has
exceeded the total stock of inward FDI in most years since 1997, has increased
the reluctance of successive federal governments to intervene extensively
in M&A activity (Hale, 2008, 2014). One could argue that these outcomes
are structural manifestations of corporate power, but outcomes nonethe-
less actively promoted by both Liberal and Conservative governments as a
means of increasing the competitiveness of Canadian-based firms in North
American and global markets. Although these policies have reflected broad
trends through WTO institutions, the intellectual impetus for them has
come largely from published research by economists at Statistics Canada and
Industry Canada, reinforced periodically by the work of business-oriented
think tanks (Bloom & Grant, 2008; Guillemette & Mintz, 2004) under both
Liberal and Conservative governments.
The growth of strong Canadian-based multinationals has become a key
benchmark to demonstrate to Canadians that investments by foreign multi-
nationals are not a threat to Canadian sovereignty or well-being, a past justi-
fication for expanded state intervention. Rather, advocates of this paradigm
suggest that, with appropriate policies, Canadian firms can compete effec-
tively in global markets (Institute for Competitiveness and Prosperity, 2002,
2005, 2009). Interestingly, the benchmark of leading global firms emerged
from an Ontario government-sponsored think tank based at the University
of Toronto, suggesting the mutually reinforcing role of governments, busi-
nesses, and universities in certain settings.
Concerns over the scale of foreign takeovers toward the end of the
2005–07 market cycle led the Harper government to appoint a Com-
petition Policy Review Panel in mid-2007 composed of a cross section
of corporate executives and chaired by veteran public servant and for-
mer BCE chairman Lynton “Red” Wilson. While its appointment may
not have been a process manifestation of corporate power, the Panel’s
Compete to Win (Competition Policy Review Panel, 2008) report most
certainly was. It proposed the substantial reduction of sectoral barriers
to foreign ownership, an increase in the screening threshold from for-
eign takeovers from about $350 million to $1 billion, diversifying markets
for outward Canadian FDI, greater capacity to draw on the innovative
potential of global business networks, and closer regulatory coordination
with the United States and other major trading partners (Boothe, 2015,
pp. 19–29). The Competition Panel report contains a mix of promarket
and probusiness recommendations as well as other proposals, some of
which resonated outside business circles.
A 2015 report by senior academic and former Industry Canada execu-
tive Paul Boothe suggests that the federal government has acted on about
60 per cent of the report’s recommendations, about 30 per cent have been
fully implemented, and another 30 per cent partially (see Table 5.1). Parlia-
ment passed legislation increasing the FDI screening threshold from $600
million in 2015 to $1 billion in 2019, but the Harper government was
slow to act on most of the Panel’s recommendations on foreign invest-
ment reviews. The Trudeau government elected in 2015 has pursued simi-
lar policies.
Summing up, the expression of corporate power on issues related to mar-
ket competition and contests for controlling ownership of publicly traded
corporations is constrained to some degree by self-interested divisions within
senior orders of government and major corporate actors over the mix of pro-
market and probusiness policies that should be applied in particular settings.
Federal regulation of foreign investment has been relaxed in some areas in
recent years, particularly for reciprocal thresholds for investment and takeover
reviews, and tightened in others, such as national security and state-owned
enterprises, leading to notable reductions in the transparency of reviews in
those areas.
Table 5.1 Implementation of 2006 Competition Panel Recommenda-

tions (2014–2015)
Adopted Partial Not
Adoption Adopted
Investment Canada Act (#1 a–f, 2, 3, 4a–b) 7 5 8
Competition Act (#14 a–g, 15–17) 7 1 2
Taxation (#18–22) 1 3 2
Attracting and developing talent (#23–32) 3 5 2
Head offices and cities (#33–35) 0 2 1
Fostering growth businesses (#36–37) 0 1 1
Strengthening the roles of directors in mergers 0 0 4
& acquisitions (#38–41)
The Canadian Economic Union (#42–46) 0 2 3
Canada-US economic ties (border 2 0 0
management) (#47–48)
International trade and investment (#49–51) 1 1 1
Regulation (# 52–55) 1 2 1
Innovation & intellectual property (#56–59) 2 1 1
Canadian Competitiveness Council (#60–65) 0 0 6
Total 24 23 32
Percentage 30.4% 29.1% 40.5%
Source: Boothe, P. (2015). Compete to win:The Wilson panel report six years later. Ottawa, ON: Cana-
dian Council of Chief Executives; author’s calculations.
The Competition Policy Review Panel represents the most overtly pro-
cess-related manifestation of corporate power in the field of competition
and takeover policies, but government priorities with regard to the imple-
mentation of its proposals appear to have been carefully filtered by senior
government officials. Those proposals contrary to the Harper government’s
agenda on federal-provincial relations or its views of political risk were side-
lined or soft pedalled. The outcomes, while less than edifying to observers
from a corporatist or social democratic perspective, reflect the conventional
wisdom of technocratic neoliberal policy makers as filtered through the
Harper government’s political sensitivities. While reflecting some degree of
intellectual power by business advocates, particularly in terms of being able
to shift the terms of the debate over foreign takeovers, the latter are often
sufficiently divided to enable the federal government to exercise the sub-
stantial autonomy expected by analysts of pressure pluralist policy commu-
nities (Coleman & Skogstad, 1990).
North American Integration
The BCC/CEO Council and other major business groups have long lob-
bied for closer regulatory cooperation and other measures contributing
to greater North American integration. Senior business leaders played a
major role in encouraging the central governments of North American
countries to initiate the Security and Prosperity Partnership (SPP) in
2005 and to secure a leading role for a tri-national North American
Competitiveness Council (NACC) of business leaders to influence the
priorities of SPP working groups of government officials between 2006
and 2008.
NACC’s visible role was clearly a process manifestation of power reflect-
ing coordinated lobbying by major business groups in each country. How-
ever, the absence of formal representation for comparable stakeholder groups
from other societal interests prompted a major political backlash from left-
nationalist societal groups in Canada and Mexico and from right-nationalist
interests in the United States. These reactions led the newly elected Obama
administration to abandon the SPP in 2009 and to develop separate bilateral
negotiations between the United States and its North America neighbours,
an outcome preferred by the Harper government and acceptable to major
business groups.
The Beyond the Border Action Plan announced by President Obama
and Prime Minister Harper in 2011 has produced incremental changes
to policies facilitating cross-border travel and trade in return for closer
cooperation between Canadian and US security agencies. However, the
negotiation in 2015 of formal preclearance agreements championed by
business groups in both countries has proven to be more of a symbolic
than substantive achievement to date. Similarly, the Regulatory Coop-
eration Council has focused primarily on closer bilateral coordination
of selected processes on new regulatory developments rather than the
broader emphasis on harmonization of specific regulatory systems cham-
pioned by major sectoral associations. In both cases, the political and
technical objectives of relevant government officials have largely trumped
broader business objectives.
Both national governments pursued the broad policy outlines preferred
by major business groups in subsequent discussions over border policy coor-
dination, regulatory cooperation, and the negotiation of broad trade issues
through a plurilateral Trans-Pacific Partnership (TPP) that Canada joined
in 2011 after the Harper government secured a majority in that year’s elec-
tions. However, a closer examination of these processes suggests dominance
by political and bureaucratic actors, with stakeholder consultations far more
ad hoc than in previous negotiations (Hale, 2017a). Most business groups

supported the initial outcome of TPP negotiations.
It would be a major exaggeration to describe TPP as an exercise in cor-
porate power. It is difficult to imagine a Canadian government deliberately
excluding itself from negotiations for trade and investment liberalization
involving three of its five largest trading partners: the United States, Japan,
and Mexico, particularly as public opinion has been broadly supportive
of Canada’s involvement. Indeed, the Harper government’s negotiating
strategy was successful in minimizing TPP’s impact on Canada’s supply-
managed agricultural sectors, an objective largely deprecated by major
business groups and most leading business economists. Trump’s election
as US president in 2016 has forced Canada and other TPP participants to
seek alternative strategies consistent with prevailing trends toward com-
petitive liberalization of trade policies (see chapter 8). Canada’s greatest
political challenge in responding to Trump’s election, given the latter’s
apparently zero-sum view of international economic relations, will be to
preserve existing levels of access to US markets in most economic sectors
while continuing to diversify its economic relationships. Whatever trade-
offs these processes may entail, they do not pit general business interests
against those of governments or other major societal interests.
Active Constraints on Corporate Power: The Politics of

Environmental Policies
One area in which challenges to corporate and business power have been
relatively successful in recent years has been in the operation of resource
industries and the location of energy-related infrastructure. Environmen-
tal groups, indigenous communities, and landowner groups have been
increasingly successful in challenging the location, environmental effects,
and, in some cases, even the legitimate existence of significant industries.
These challenges have resulted in delays or cancellations of major pipe-
line projects, power plants, electricity transmission lines, or proposals for
resource development and significantly increased levels of regulation and
political contestation.
Although such disputes can lead to cooperation among community,
indigenous, and environmental groups, challenges to resource-sector activity
takes significantly different forms in different areas, with different outcomes.
Some challenges are project-specific, such as the building of power plants
in major urban areas near Toronto, whose cancellation by the provincial
government during the 2011 Ontario election campaign led to contractual
damages and replacement costs to the province of more than $900 million.
Challenges related to public health effects, especially if adjoining urban areas,

usually occur at the permitting phase of energy developments.
In some cases, challenges to the activities and practices of resource com-
panies have reshaped the balance of local and regional interests. Governments
and industry have responded in a variety of ways, for example, by creating
multi-stakeholder (or synergy) groups of community and industry representa-
tives to monitor industry activities and provide recommendations for improved
practices or recourse for public complaints (Hale & Belanger, 2015). However,
environmental organizations in Quebec, New Brunswick, and Nova Scotia
have succeeded in preventing natural gas exploration in those provinces after
public outcries led provincial governments to impose moratoria on such
projects between 2011 and 2015. In 2016, threats to mobilize international
boycotts persuaded BC and the region’s forest industry to limit logging to
15 per cent of the landmass of that province’s coastal rainforest (Yakabuski, 2016b).
Industry activity on or adjacent to indigenous communities or lands
may prompt stronger opposition unless industry groups and sometimes gov-
ernments engage and involve First Nations and other indigenous groups
in the planning and operational phases (Belanger & Lackenbauer, 2015).
Litigation by indigenous groups has resulted in court judgments establish-
ing a “duty to consult” for companies and often governments pursuing new
resource-related projects on or adjoining various categories of indigenous
lands (Newman, 2014a, 2014b). Although these trends have contributed to
significant changes in the operating practices of firms in the energy, mining,
and forest sectors, these challenges have added significant layers of political,
legal, and regulatory complexity in securing social acceptance.
Ideological challenges from environmental groups based on fundamental
objections to certain kinds of resource development are inherently more
challenging for resource-sector firms, especially if in compliance with fed-
eral and provincial laws and policies. The success of environmental activ-
ists in blocking Canadian oil exports through the proposed TransCanada
Keystone XL pipeline through the United States has fostered comparable
efforts by Canadian groups to block any export pipeline with a view to
limiting, if not ending, the development of Alberta’s oil sands, the largest
source of Canadian oil production. Although these campaigns are intended
to reduce Canada’s contribution to global carbon emissions, they raise sig-
nificant issues of how the potential costs and benefits of such policies are to
be shared and whether governments have the capacity or wisdom to carry
out the comprehensive re-engineering of economic activities, which is an
explicit goal of this campaign.
Environmental and other groups are most likely to be successful
when they can frame the main beneficiaries of such policies as outsider
groups imposing unacceptable environmental and social costs on local

communities and regions while prospective benefits accrue mainly to
out-of-province or foreign interests. Strong First Nations opposition
has been decisive in blocking the proposed Northern Gateway pipeline
across Northern BC. However, such campaigns are less likely to suc-
ceed if the projects are expected to create significant local economic
benefits, particularly lasting employment and governments and business
interests make the necessary efforts to engage local interests and address
specific community concerns (Freeman, 2016). Effective consultation
with and approval by First Nations communities has become an effective
condition for liquid natural gas development in BC and large parts of
Northern Canada. The Trudeau government recognized the complex-
ity of this balancing act in linking the approval of the proposed Trans
Mountain pipeline extension and another export pipelines to the intro-
duction of a national carbon tax and major environmental mitigation ini-
tiatives, while rejecting the proposed Northern Gateway project in 2016,
although construction of the former will still have to overcome strong
local political opposition (Ivison, 2016).
Conclusion
The concept of corporate power remains highly contested within Canada

depending on the issues in question and the extent to which corporate
or business interests are seen to compete among themselves or are arrayed
against broad societal coalitions on particular issues. The extensive decen-
tralization and segmentation of political power within Canada shift many
of these debates into provincial politics, with significant differences in the
balance of economic interests (local, national, or international), other societal
interests, political cultures, and governmental priorities on various issues.
Contestation of business interests and priorities remain intense in certain
fields, not least those involving environmental issues and indigenous inter-
ests. Governments and many businesses have responded with new methods
of political engagement, usually in an effort to avoid the zero-sum politics
characteristic of some other industrial countries, not least the United States.
However, to the extent that government policies encourage competition
among business groups, while regulating or correcting visible externalities,
such policies tend to limit the concentrations of economic or political power
that contribute so much to political and social conflict in other countries.
Maintaining this balance amid constant social and economic change remains
an ongoing challenge for governments, but one that Canadian governments
have managed with relative success in recent years.
Clientelism Power
Countervailing power Process manifestations of power
Intellectual power Rent seeking
Outcome manifestations of power Structural power
1. What is power? Compare and contrast outcome manifestations and pro-

cess manifestations of power in political and economic life. Give three
examples of each.
2. What is structural power? What factors contribute to the ability of busi-
ness groups to exercise structural power within political and economic
systems? In what ways is this power subject to limits or to countervailing
power?
3. How have changes to campaign-finance and election-spending legislation
affected both the financing of political parties and relations between politi-
cal parties and groups of donors? What other legislative features related to
political fundraising and campaign spending remain significant factors in
shaping political competition among interest groups?
4. To what extent are major policy initiatives discussed in the chapter a re-
flection of corporate power, whether structural or intellectual in nature,
as opposed to the calculated balancing of interests and political objec-
tives by governments of different political stripes?
Abelson, D.E. (2009). Do think tanks matter? Assessing the impact of public policy institutes
(2nd ed.). Montreal, QC & Kingston, ON: McGill-Queen’s University Press
Bloom, M. (2008). “Hollowing-out”—myth and reality: Corporate takeovers in an age of
transformation (3 vols.). Ottawa, ON: Conference Board of Canada.
Competition Policy Review Panel. (2008). Compete to win: Final report. Ottawa, ON.
Retrieved from https://www.ic.gc.ca/eic/site/cprp-gepmc.nsf/vwapj/Com-
pete_to_Win.pdf/$FILE/Compete_to_Win.pdf
Hall, P.A. (Ed.). (1989). The political power of economic ideas: Keynesianism among nations.
Princeton, NJ: Princeton University Press.
MacIvor, H. (2015). Provincial election finance laws. In Christopher Dunn (Ed.), Prov-
inces: Canadian provincial politics (3rd ed. pp, 158–183). Toronto, ON: University of
Toronto Press.
Nordlinger, E. (1981). On the autonomy of the democratic state. Cambridge, MA:
Harvard University Press.
6
Canada’s Economic Structure: Diversity,
Dynamism, and the Political Economy of
Business-Government Relations
T he concept of economic structure describes the basic characteristics

and divisions of economic activity within a particular geographic
area, economic system, or network. Structures and networks of business
ownership and activity are vital to the nature and levels of economic
activity and their interaction with governmental institutions and policies.
This chapter addresses these matters on two broad levels: the structures of
business activity enabled or mandated by laws and public institutions and
the ways in which these structures interact with markets for the production
and distribution of goods and services and act on competition for control of
corporate ownership and control within these markets.
The interdependence of economic actors makes all policy decisions sub-
ject to the risk of unintended consequences. Ongoing structural economic
changes that have followed one another in succession since the 1970s have
dramatically altered the organization of Canada’s economy and the envi-
ronments within which it functions. Continuous change has increased the
importance of fostering Canada’s international economic competitiveness
and of enabling citizens, businesses, and governments to adapt to circum-
stances often beyond their immediate control (Porter, 1991).
These factors help to make Canada a challenging country to govern, one
that continually defies the application of one-size-fits-all remedies to any
problem or challenge. Failure to understand this diversity, or to take it into
account in making political or policy decisions, is likely to trigger political
conflicts as those groups whose interests are disregarded or ignored seek to
protect them through political processes.
Complexity, Openness, and Dynamism in Economic Structures
Economic structures evolve both in the context of shifting economic rela-

tionships and in the overarching reach and more specialized concerns of
political and regulatory institutions. The institutional structures of govern-
ment tend to be organized in ways that reflect past and present decisions to
recognize the political and economic importance of particular interests and
policy fields through cabinet representation, the organization of government
143
departments, and regulatory systems. They also help to shape the interaction
of interest groups with governments. Most business and interest groups tend
to focus their lobbying activities on the handful of departments, or particular
components of those departments, that affect their activities most directly.
This chapter examines three major dimensions of Canada’s economic
structure: the ownership and control of economic activity, the competi-
tive environment facing Canadian businesses in different economic sec-
tors, and the sources and scale of economic activity by firm size. In doing
so, it addresses three overarching economic contexts: complexity, openness,
and dynamism. It also considers the effects of structural and technologi-
cal changes, often described as the new economy or the knowledge-based
economy, on the role of governments in the economy, their implications for
government policies and the relations between businesses and government.
Economic Complexity
Economic structures in developed industrial countries such as Canada are

complex and highly diverse, incorporating multiple economic sectors, types
of business activity, and overlapping networks of economic and social activ-
ity. Economist and philosopher Friedrich Hayek (1944, 1973) has suggested
that the greatest challenge facing any effort at central state planning of the
economy is the difficulty government policy makers have in measuring, let
alone understanding, the innumerable, evolving economic interactions of
producers and consumers in a complex industrial economy. Hayek’s objec-
tions are both pragmatic and ethical, as they are based on the tendency of
unchecked regulatory authority to result in the arbitrary exercise of power,
and increased incentives to the undue exercise of political influence by
major business interests that habitually interact with particular department
departments and agencies (Olson, 1986).
The post-World War II expansion of government activity led to the emer-
gence of multiple centres of bureaucratic activity paralleling the distribution
of economic activity, creating huge challenges of political and administra-
tive coordination, along with opportunities for economic and societal groups
to pursue their interests through different governments and their respective
departments and agencies. Governments have discovered that the greater
the extent of their intervention in day-to-day business activity, the greater
becomes the challenge of managing conflicting objectives and balancing
competing societal expectations and demands through political processes. For
example, manufacturing-sector policies must take into account differences in
industry organization, market structures, and trends across at least 23 diverse
subsectors (Cross, 2013). Similar complexity frequently applies to multiple,
Canada’s Economic Structure 145
evolving industry sectors and subsectors. In some cases, these challenges have
led governments to establish broad market rules, encourage competition, and
intensify regulation at the margins. In others, it has contributed to the devel-
opment of complex regulatory systems whose effectiveness is often inversely
proportionate to the number of policy goals to be achieved.
Economic Openness
The concept of economic openness affects the characteristics of economic

organizations and regulatory systems both within a particular political space
or geographic area and across political and geographic boundaries. It reveals
the degree of freedom enjoyed by citizens and businesses to enter (or exit)
particular areas of economic activity. It also speaks to the degree of competi-
tion existing within industry sectors and the factors that facilitate competi-
tion to benefit consumers or hinder it.
Open economic systems have become part of more complex interna-
tional networks of economic activity that are strengthened or otherwise
influenced by government actions. The openness of markets to external
economic factors can be measured by the volume and distribution of inter-
national, and, in Canada, interregional, trade, and capital flows, including
the levels and types of foreign investment. Total trade (exports plus imports
of goods and services) increased from 50.0 per cent of GDP in 1990 to
82.9 per cent in 2000, with wide variations across provinces. It declined
thereafter to 66.9 per cent in 2008 and 58.3 per cent during the 2009 reces-
sion, gradually rebounding to 65.3 per cent in 2015. Levels of North American
and international market integration vary widely across economic sectors.
Cumulative levels (stocks) of international investment in and by Canadian
firms have also grown extensively, as discussed in chapter 8.These factors are
heavily influenced by the legal systems governing both international and
domestic economic transactions.
Economic openness is visible in the openness of markets to new entrants;
the extent to which state enterprises control or compete within various
industry sectors (see chapter 9); the effects of new technologies, production
and distribution processes on market organization and consumer choices;
and other expressions of economic dynamism. It is also reflected in the
emergence of complex national and international supply chains, extended
processes for procuring, processing, and distributing products from raw
materials to final consumers, which often involve multiple stages of value-
added value chains (Globerman, 2011;Van Assche, 2012).
The influence of businesses with extensive exports and/or international
operations has grown since the 1980s relative to those firms oriented toward
domestic economic activity. Of Canada’s 100 largest firms that report their
domestic and international revenues separately, 61 per cent generate more
than half from the latter, while only 17 per cent report domestic revenues
above 75 per cent (Financial Post 500, 2016). Locally or regionally focused
industries are more likely to support restrictions on trade and investment to
support their domestic markets. However, interest groups and policy coali-
tions are often sectoral in nature, reflecting industry-specific differences in
market conditions. Economic openness is also reflected in the importance of
inward and outward foreign investment in various sectors.
Dynamism
The concept of economic dynamism is inherent to the functioning of a

competitive capitalist market economy. Economic dynamism describes the
openness and adaptability of economic structures and actors to changes in
the broader economic environment.These shifts result from political or eco-
nomic shocks, technological innovations, domestic or international com-
petitive pressures arising from the normal workings of the market economy,
or policy changes in response to these pressures. It also refers to “creative
destruction” (Schumpeter, 1950, pp. 82–84), the emergence and decline of
individual firms and industry sectors or subsectors.
Competition breeds innovation in meeting existing consumer demand
and in creating new products, processes, and services that alter choices and
opportunities available to consumers. These processes sometimes displace
existing forms of economic activity, particularly in those businesses that are
less able to adapt to changing economic conditions and market or consumer
expectations.
The rapid spread of information and communications technologies
(ICT) among businesses and individuals since the 1980s has also con-
tributed to enormous changes in production patterns and distribution
systems. Major effects include the disaggregation of production and dis-
tribution patterns through complex supply chains, reinforced by just-in-
time delivery systems and the spread of electronic (e-)commerce as both
complement to and competitor with traditional retail and service-sector
distribution systems. In some cases, Internet-based shopping platforms
have disrupted or replaced traditional distribution channels, particularly
in sales of books, music, and other entertainment products (e.g., Amazon,
Netflix). This disruption results in competing pressures on governments
by businesses to protect their investments in developing intellectual prop-
erty and on consumers to protect consumer choice (Doagoo, Goudreau,
Scassa, & Saginur, 2014; Haggart, 2014). Online distribution systems have
disrupted markets for traditional department stores and specialty retailers

(Strauss, 2014, 2016), travel and postal services (Campbell, Beaudoin, &
Bader, 2008), and major segments of the news media (Stackhouse, 2015),
rendering some business models obsolete and forcing the adaptation of
many others.
However, technological changes that empower consumers and busi-
nesses by broadening consumer choice and permitting the tracking of
shipments in real time around the globe also invite vulnerability to anti-
social forms of economic disruption, including identity theft, industrial
espionage, piracy of intellectual property, and other forms of cyber crime,
including the hacking of supposedly secure systems for processing credit
card and other financial transactions central to most citizens’ and busi-
nesses’ financial existence.
Market opening, regulatory, and technological changes have led to suc-
cessive waves of business reorganizations, mergers, and acquisitions (takeo-
vers) between the 1980s and 2000s. As noted in Table 6.1, half of Canada’s
Table 6.1 Canada’s 40 Largest Companies, Then and Now (1964–2016)
Total Canadian Foreign Still FP Still

controlled controlled top 40 FP top
41–100
Substantially the 2004 11 7 4 5 4
same business 2016 3 1 2
structure and
ownership profile
Substantially different 2004 9 8 1 3 4
business structure and 2016 10 7 3 4 2
profile, incl. merger
with major competi-
tor, reorganization by
parent firm
Company acquired by, 2004 4 2 2
distinct subsidiary of 2016 9 1 8
another business
Company acquired 2004 16
by another business; 2016 18
ceased operation as
distinct business
Source: Financial Post 500. (2002, June).Top 500 rankings. Financial Post Magazine, Supplement to the
National Post, pp. 90–109; Financial Post 500. (2016).Top 500 rankings. Financial Post Magazine. Retrieved
from http://business.financialpost.com/features/fp500-the-premier-ranking-for-corporate-canada#1;
author’s calculations
40 largest corporations went out of business or were acquired by other busi-

nesses between 1964 and 2004. By 2016, only three firms from the 1964 Top
40 list were still in business under the same corporate name. Another 10
functioned independently as “successor firms” following mergers or reor-
ganizations. Between 2003 and 2015, seven of Canada’s 50 largest corpo-
rations by revenue were subject to takeovers or ceased operations: Alcan,
Daimler-Chrysler, Nortel Networks, Petro-Canada, Hudson’s Bay Co.,
Noranda, and Canada Safeway, with others experiencing major changes in
ownership and structure.
Watson (2006) notes that these shifts also reflect fundamental changes
in Canada’s industrial structure during the past 50 years, along with major
changes in terms of trade, such as those resulting from major swings in com-
modity prices and exchange rates, and corporate consolidation (or take-
overs). Table 6.2 summarizes the sectoral evolution of Canada’s largest 40
corporations by economic sector between 1964 and 2015. The number of
service-sector firms, particularly in the financial services and retail/whole-
sale sectors (especially food retailing) have grown substantially as a result
of consolidation and the emergence of new sectoral categories. Sectoral
economic shifts are also highly visible within the resource-extraction and
broader manufacturing sectors.
The capacity of selected firms to function as instruments of sectoral con-
solidation has also been facilitated by federal (and some provincial) policy
choices that imposed selective takeover restrictions in particular sectors,
either by limiting the accumulation of controlling blocks of shares, as in
the airline and railway sectors and in major parts of the financial sector, or
by establishing ceilings on the proportion of voting shares held by nonresi-
dents, or by both. As a result, the seven largest TSX-listed firms by market
capitalization in 2015, and 11 of the 20 largest firms were subject to takeover
restrictions of various kinds (Financial Post 500, 2016).
Sources and Scale of Economic Activity
Economists have traditionally segmented economic activity into three broad

categories: primary industries based on production or extraction of raw
materials and natural resources; secondary industries that transform these
resources into semi-finished or finished products, along with advanced
manufacturing firms that make extensive use of technological innovation;
and tertiary or service industries that provide a wide range of personal,
business, and government services. Canada has evolved from a largely agri-
cultural- and resource-based economy in the late nineteenth century to a
largely service-based economy, especially in major cities, with pockets of
Table 6.2 Sectoral Composition of Canada’s 40 Largest Corporations by

Revenue
1964 1998 2015
Resources 16 7 5
Agricultural commodities 0 2 0*
Integrated oil 6 3* 3*
Forestry 6 1* 0
Mining 4 1* 0*
Upstream oil, gas 0 0 2
Manufacturing 14 10 5
Primary metals (steel, aluminum) 4 1 2
Food and beverage 3 1* 0*
Machinery, equipment 2 0 0
Aerospace 1 1 1
Automotive 1 5 1**
Chemicals 2 0 1
Textiles, clothing 1 0 0
Information technology 0 2 0*
Utilities 6 2 4
Pipeline, natural gas, etc. 6 2 2
Electricity generation, distribution 0 0 2
Conglomerates 1 8 3*
Services 3 13 23
Financial services/investment
Banking/insurance 0 0 7
Other 0 0 3
Media 0 2* 1
Retail/wholesale 0 4** 7*
Telecommunications 2 3* 3
Transportation (rail, air, misc.) 1 3* 2
Misc. services 1* 0
Total 40 40+ 40‡
*Firms still on 1964 top 40 list
**Firms ranked 41–50 in 1998 or 2015
+
Of these, 11 firms still on 1964 top 40 list
‡
Of these, 6 firms still on 1964 top 40 list; 13 still on 1998 top 40 list
Source: Financial Post 500. (1999, June). Top 500 rankings. Financial Post Magazine, Supplement to the
National Post, pp. 106–133; Financial Post 500. (2004, June). Top 500 rankings. Financial Post Magazine,
Supplement to the National Post, pp. 78–101; Financial Post 500. (2016). Top 500 rankings. Financial
Post Magazine. Retrieved from http://business.financialpost.com/features/fp500-the-premier-ranking-
for-corporate-canada#1
manufacturing activity and large-scale resource development in particular

regions (see chapter 7).
Table 6.3 summarizes sectoral economic activity by share of GDP between
1997 and 2015. Goods-producing activity dropped substantially during this
period, particularly in manufacturing. Construction activity benefited from
the resource boom of 2004–14. However, these figures mask wide variations
between subsectors and differences among provinces and regions.
The effects of these changes are most visible in the shifting distribu-
tion of employment between economic sectors as noted in Table 6.4.
Employment in goods-producing sectors, except for construction, has
declined substantially as a share of overall employment. Manufactur-
ing employment, with some exceptions such as food processing, has
dropped by more than half relative to overall employment, although
investments in technology and related productivity increases mitigated
the impact of these changes on the sector’s contribution to GDP dur-
ing much of the 1990s and 2000s (Baldwin & Yan, 2014). The greatest
Table 6.3 Per Cent of Gross Domestic Product by Industry Sector
1997 2007 2015

Goods-producing sectors 35.1 32.1 29.6
Manufacturing 14.7 12.8 10.6
Mining, oil, gas 10.0 8.4 7.9
Construction 5.9 7.0 7.2
Utilities 3.1 2.4 2.3
Agriculture, forestry, fishing 1.8 1.5 1.6
Service-producing sectors 64.9 67.9 70.4
Wholesale and retail trade 9.1 13.1 13.5
Real estate, leasing 11.0 11.5 12.9
Finance, insurance 6.2 6.6 7.0
Professional, scientific, technical 4.1 5.3 5.4
Transportation, warehouse 4.4 4.3 4.3
Predominantly public sector 19.8 17.9 18.4
Health and social services 7.1 6.6 6.8
Public administration 6.8 6.2 6.4
Educational services 5.8 5.2 5.2
Source: Statistics Canada. (2016g). Gross domestic product (GDP) at basic prices, by North Ameri-
can Industry Classification System (NAICS), provinces and territories. CANSIM Table 379-0030.
Ottawa, ON.
Table 6.4 Employment by Industry
1976 1996 2006 2015

All industries (’000) 9,748 13,420 16,410 17,947
Percentages
Total goods 34.6 25.9 24.2 21.6
Agriculture 4.8 3.1 2.1 1.6
Other primary 2.6 2.2 2.0 2.0
Utilities 1.1 0.9 0.7 0.8
Manufacturing 19.1 14.3 12.8 9.5
Construction 7.0 5.3 6.5 7.6
Total services 65.4 74.1 75.8 78.4
Retail, wholesale trade 16.1 15.6 16.0 15.2
Transportation, warehousing 5.8 5.0 4.9 5.1
Finance, insurance, real estate 5.4 6.4 6.3 6.1
Professional, scientific, technical services 2.6 5.3 6.6 7.6
Business, building, support services 1.7 3.1 4.2 4.2
Information, cultural, recreation services 3.6 4.3 4.5 4.2
Accommodation and food services 4.2 6.3 6.2 6.7
Health care, education, social services 15.1 17.2 17.9 19.9
Other services (excl. public admin) 4.4 4.9 4.2 4.2
Public administration 6.6 6.0 5.1 5.1
Source: Statistics Canada. (2017a). Labour Force Survey estimates. CANSIM Table 282-0008. Ottawa,
ON.
proportional increases in service-sector employment have been concen-

trated in the fields of professional, scientific, and technical employment,
which includes many high-skilled positions in business and related ser-
vices. However, variations across provinces and regions in levels and
types of economic activity are significant enough that these issues will
be addressed in chapter 7.
Ownership and Control of Economic Activity
Canada’s economic structure in the twenty-first century is a system of advanced

capitalism broadly integrated into North American and global economies,
based on extensive private ownership of business organizations and broadly
based share ownership through capital markets (discussed in chapter 12).
The principal form of business organization is the corporation. Large

private-sector corporations account for the largest shares of business assets,
profits, and revenues. However, smaller firms with fewer than 100 employ-
ees accounted for more than 70 per cent of private-sector employment
in 2015, and almost 90 per cent of net private-sector employment growth
between 2005 and 2015 (Innovation, Science and Economic Development
Canada, 2016). Government business enterprises, nonprofit institutions, and
cooperatives also play significant roles in specific sectors. Canadian public
policies largely take capitalist forms and structures for granted. However,
debates continue on ways to improve balancing the rights and interests of
various stakeholders and the general public in both law and policy, as dis-
cussed in chapter 12.
Ownership and control are associated in small enterprises and in closely
held firms dominated by a single shareholder or group. However, modern
corporate structures separate ownership, the right of shareholders to share in
a corporation’s profits, and increased market value from strategic or opera-
tional control. Strategic control, the ability to direct a firm’s priorities and
business strategies, is exercised by senior management or a board of directors
legally accountable for its actions.
The economic behaviour of corporations, both large and small, reflects
the strategies of firm owners and managers for expanding or maintaining
profitability and managing relationships with suppliers, competitors, cus-
tomers, and broad market and legal environments. Economic historians
suggest that cultural factors, notably attitudes toward risk taking and entre-
preneurship, levels of social trust, and popular and governmental respect for
contracts and property ownership also play a significant role (De Soto, 2000;
Fukuyama, 1995; Landes, 1998).
Federal and provincial laws also structure the environment for business
organization and property ownership. The Constitution Act, 1867 (formerly
the British North America Act) divides responsibility for economic regulation
between the two senior orders of government (see chapter 7), provoking
periodic conflicts between federal and provincial governments as organized
interest groups try to persuade one order of government to intervene on
their behalf to limit or counter the power of the other.
Corporation law is part of a broader system that provides legal secu-
rity for ownership of property and the resolution of disputes related to the
enforcement of contracts. These assumptions are deeply rooted in Canada’s
system of common law, the independence of its courts, and the practices of
specialized quasi-judicial tribunals responsible for applying and enforcing
specific legislation. Box 6.1 notes the major federal laws that provide a legal
framework for the operations of businesses and other economic interests.
Box 6.1 Federal Legislation Governing Economic Organization

and Business Ownership
• C
anada Corporations Act: governs the structure and responsibilities of
federally registered nonprofit organizations.
• C
anada Business Corporations Act: governs the structure and
responsibilities of federally registered business (for profit)
corporations.
• C
anada Cooperative Associations Act and
• C
anada Cooperatives Act: provide legal frameworks for cooperatives
and associated groups of cooperatives.
• B
ankruptcy and Insolvency Act,
• C
ompanies’ Creditors Arrangement Act, and
• W
inding-up and Restructuring Act: framework laws governing
bankruptcy and insolvency, including procedures for dividing the
assets of bankrupt individuals and firms.
• B
oards of Trade Act
• P
ension Fund Societies Act
• T
rade Unions Act: governs the structure and responsibilities of
federally regulated unions.
Note: Other federal laws, e.g., the Bank Act, may provide a legal
framework for businesses in specific industries.
Source: Corporate Law Policy Directorate, Corporate Governance
Branch, Industry Canada
Patterns of Ownership and the Market for Corporate Control
Business-ownership structures influence economic activity in many ways. The

control over individual corporations by a small cohesive group of shareholders
concentrates wealth and economic power in few hands relative to the over-
all economy. However, business and property ownership is also widely diffused,
with millions of ordinary citizens benefiting to some degree, whether directly as
a result of business ownership or stock market participation, or indirectly through
public and employment-related pension funds. Extensive corporate dependence
on public markets has increased the influence of institutional investors, many of
whom manage the savings of individual Canadians, since the 1990s, limiting the
autonomy of corporate executives in many industries. Levels and types of com-

petition capable of benefiting consumers vary across industry sectors and subsec-
tors, with implications addressed in the next section of this chapter.
Corporations may be privately owned by a single individual or family,
closely held by a small group of dominant shareholders, or widely held by
a large group of shareholders with no single owner holding a majority or
controlling block of the company’s voting shares. Large, professionally man-
aged corporations, whether closely or widely held, are the dominant form of
business structure in Canada, although far from the most numerous. Debates
over corporate ownership and control and their implications for public poli-
cies are addressed more extensively in chapter 12.
During much of the twentieth century, economic activity in Canada
was heavily influenced by large, family-controlled businesses. These families
included the Eatons, Sobeys, and Billes (Canadian Tire) in retailing; Molsons
and Bronfmans (Seagrams) in brewing and distilling; Beaudoin (Bombardier) in
transportation equipment; and Weston, Desmarais (Power Corp.), and Irving in
multisector conglomerates. However, the entrepreneurial character, discipline,
and sometimes ruthlessness that built these empires rarely persisted beyond one
or two generations, leading to the break up of corporate empires or shifts of
control to professional managers and investors, as noted in Table 6.5. In recent
years, the Canadian market for corporate control has become significantly
more open and dynamic, reflecting the growth and innovations of Canadian
capital markets; the increased openness of Canadian, North American, and
Table 6.5 Ownership Structures of Canada’s 100 Largest Corporations

by Revenue
1998 2004 2015
Widely held, Canadian 18% 31% 26%
Privately or closely held, Canadian
Dominant partner with 50% + of voting shares 20% 19% 16%
Significant shareholder with 10–49% of voting shares 17% 15% 8%
Subsidiary of foreign-owned corporation 22% 20% 23%
Narrowly held, major foreign partner, 10–49% of shares 10% 3% 9%
Government business enterprise 9% 10% 12%
Cooperative or employee-owned 4% 2% 6%
Source: Financial Post 500. (1999, June). Top 500 rankings. Financial Post Magazine, Supplement
to the National Post, pp. 106–133; Financial Post 500. (2005, June). Top 500 rankings. Financial Post
Magazine, Supplement to the National Post; Financial Post 500. (2016). Top 500 rankings. Financial
Post Magazine. Retrieved from http://business.financialpost.com/features/fp500-the-premier-
ranking-for-corporate-canada#1
global markets to international investment; and the willingness of major cor-

porations to divest themselves of significant business assets to pursue more
focused business strategies.
Widely held companies, in which no one shareholder or cohesive group
of shareholders holds more than 10 per cent of a company’s voting shares,
accounted for 26 per cent of Canada’s largest 100 corporations in 2015;
16 per cent were privately owned or closely held by Canadians, and another
32 per cent were subsidiaries of foreign firms or closely held in partnership
between Canadian and foreign investors (Financial Post 500, 2016). Table 6.5
notes the evolution of the ownership structures of Canada’s 100 largest com-
panies between 1998 and 2016.
Foreign Ownership
About 18 per cent of all business assets and 25.6 per cent of the assets of
Canadian nonfinancial industries are owned by subsidiaries of foreign-con-
trolled corporations with greater or lesser degrees of management auton-
omy from their parent corporations (Statistics Canada, 2016b). As noted in
Table 6.6, foreign ownership is highest in the manufacturing (49.6 per cent),
wholesale trade (48.4 per cent), oil and gas extraction (38.7 per cent), before
several major foreign multinationals sold off much of their Canadian assets
Table 6.6 Foreign Control by Industry, Selected Industries (1999–2014)

(percentage of assets)
1999 2003 2007 2014
All industries 20.0 20.5 21.6 18.1
Financial industries 17.1 14.9 15.7 12.0
Agriculture, forestry, fishing 2.3 1.8 1.6 1.4
Construction 3.7 4.9 4.7 7.8
Utilities 1.9 7.2 9 8.2
Retail trade 18.7 20.3 22.6 25.9
Nonfinancial 23.0 25.8 27.6 25.6
Manufacturing 46.0 45.2 54.0 49.6
Wholesale trade 31.8 34.6 41.6 48.4
Oil & gas extraction, support 39.2 47.2 37.9 38.5
Mining, quarrying 11.2 14.4 47.6* 33.1**
Professional, scientific, technical 16.8 16.9 12.9 25.8
*2006
**2013
Source: Statistics Canada. (2016b). Corporations Returns Act. CANSIM Table 179–0004. Ottawa, ON.
(Cattaneo, 2017), and mining (33.1 per cent) sectors, although these figures
fluctuate significantly over time as noted in Table 6.6.
The rapid internationalization of Canadian businesses since the early
1990s shows similar sectoral variations.The total value of foreign investment
by Canadian-based companies has exceeded foreign direct investment in
Canada since 1997. However, that investment is heavily concentrated in the
financial (41.5 per cent in 2015) and business management (11.9 per cent).
Canada’s mining industry has far more extensive investment abroad than do
foreign mining firms in Canada. However, it is an exception among goods-
producing sectors (Statistics Canada, 2017c).
Canadian firms’ extensive investments abroad, combined with Canada’s com-
mitments within the international trading system, have given most Canadian gov-
ernments strong incentives to maintain open markets for foreign investment to
secure similar treatment of Canadian businesses operating abroad (selected sectoral
exceptions noted above) with exceptions for some foreign state-controlled firms
and national security issues.These issues will be addressed further in chapter 8.
Small Businesses
Companies with fewer than 100 employees, a proxy definition for small
business, accounted for about 70 per cent of private sector employment
in 2015 (Innovation, Science and Economic Development Canada, 2016,
p. 3). More than 95 per cent of these were Canadian owned. The economic
activity of small firms is often interrelated with those of larger ones as sup-
pliers, customers, or as parts of marketing and distribution systems associated
with large corporations. The employment share of small businesses (1–19
employees) is greatest in agriculture, construction, business, and personal ser-
vice sectors. Firms with 20–99 employees have significantly greater shares of
employment in other goods-producing and transportation sectors. Medium-
sized firms with 100 to 499 employees employed about 20 per cent of the
Canadian labour force in 2015, 35 per cent of these were in manufacturing.
Many of these firms are part of larger corporate structures.
Relatively few medium-sized Canadian companies succeed in main-
taining themselves as independent firms beyond a single generation. Some
observers have described Canada’s private business sector as a two-tier econ-
omy, with a small number of very large corporations and a very large number
of small firms. As growth-oriented medium-sized firms are the most likely
source of new big businesses to replace the ones absorbed through corpo-
rate mergers and acquisitions, both federal and provincial governments have
sought to create incentives for their growth. Such measures include reducing
regulatory barriers for medium-sized firms to go public by offering their
shares for sale on Canadian stock markets and permitting investors in small
firms to roll over capital gains from sales of one small business investment
into others without taxation. However, some economists argue that the gap
between overall general and small business tax rates is often a significant
disincentive to growth for small firms (Chen & Mintz, 2015). Provincial
efforts to build up local business classes, which include lower tax rates for
small businesses and greater regulatory flexibility in many areas, are intended
to promote increased local ownership and leadership in regional economies.
Government Business Enterprises
Canada’s economic structure has also been influenced by the strategic use of
government business enterprises (GBEs), or crown corporations. Some
sell goods and services in competition with privately owned corporations in
the marketplace. Others, particularly government-run public utilities, liquor,
and gambling operations that generate the largest share of profits for govern-
ments, are monopolies or enjoy preferred market position conferred by regu-
lation. Many, including government-owned financial institutions, recreational
facilities, and managers of public infrastructure, serve specific public-policy func-
tions, often in support of private economic activity. While Canadian govern-
ments have retreated from direct participation in some industries since the 1980s,
12 GBEs are still numbered among Canada’s 100 largest companies by revenue
in 2015.Trends toward commercialization—the application of market disciplines
and management methods to GBEs, including the need to compete with private
profit-making businesses—have significantly changed the operating environ-
ment for many GBEs.These issues are discussed extensively in chapter 9.
Nonprofit Corporations
Nonprofit corporations engage in extensive economic activity. Nonprofits are

formed to carry out public purposes in the voluntary sector and as exten-
sions of governments. Recent statistics are scarce, but sector sources estimate
that there are about 175,000 nonprofit organizations, including about 85,000
registered charities, distributed across health, social services, education, arts and
culture, and recreational sectors. About half of nonprofits are run by volunteers,
but 1 per cent of organizations, particularly health, education, and charitable
foundations, command about 60 per cent of revenues (Imagine Canada, 2014).
Some nonprofits compete to varying degrees with private businesses,
particularly those providing a range of personal services from child care and
nursing homes to training institutions and retail businesses used as means
of financing the public service activities of related nonprofit organizations.
Several nonprofit institutions, particularly hospitals and universities, have devel-

oped ongoing working relationships with private-sector corporations. Some
of these relationships, which reflect efforts to diversify sources of capital fund-
ing through charitable fundraising initiatives, are consistent with the activi-
ties of other nonprofit organizations. Others, which involve joint ventures,
partnerships, and other cooperative activities related to research and the com-
mercialization of intellectual property, have blurred these distinctions, creating
challenges for both businesses and organizations within the public sector.
Cooperatives
Cooperatives are another form of economic organization that are regionally

and sectorally significant. Cooperatives may be organized by producers, con-
sumers, or workers for mutual assistance and economic benefit. Members share
in surpluses from operations in proportion to their contribution to its activities,
whether through goods provided or purchases, depending on the type of coop-
erative. Credit unions (financial cooperatives) are subject to tax rates compara-
ble to those of small businesses or large firms, depending on their annual profits.
Cooperatives may be large-scale organizations, as with many agricul-
tural and retail co-ops, small-scale community organizations, as with many
local housing and child care cooperatives, or a combination of the two, as
with federations of local credit unions (caisses populaires in French-speaking
regions). They play significant roles in rural development and the stabili-
zation of rural communities, particularly in Quebec, Saskatchewan, and
Acadian regions of Atlantic Canada. The two main credit union federations,
Credit Union Central (now Canadian Credit Union Association) and the
Mouvement des Caisses Desjardins, had 10.7 million members in 2011 (Special
Committee on Cooperatives, 2012, p. 15).
Developments in the corporate world have forced many cooperative organ-
izations to rethink their approach to the production and delivery of goods and
services. Several major grain marketing cooperatives abandoned cooperative
ownership structures in favour of publicly traded share ownership during the
1990s (Howes, 2001, p. C3). Others have sought to expand and merge with
other cooperatives to achieve greater economies of scale in the marketplace.
Competition and Corporate Concentration
Canada’s economic structure and the market for corporate control have often
been affected by the extent of and government attitudes toward corporate
concentration, the degree to which economic activity is controlled by a rela-
tively small number of corporations. The Combines Investigation Act of 1910 was
intended to prevent the emergence of monopolies and other forms of anticom-

petitive behaviour that prevented the efficient functioning of the marketplace.
Successful prosecutions occurred mainly in the areas of restraint of trade and
illegal retail price maintenance practices (Ross, 1998, pp. 1–8). However, despite
periodic amendments, the federal government has never succeeded in obtain-
ing a criminal conviction under the anti-monopoly provisions of the act. The
1977 report of the Royal Commission on Corporate Concentration, chaired by
a former federal deputy minister of finance, voiced the conventional wisdom of
contemporary governments that while corporate concentration has the poten-
tial for abuse, it also contributes to greater economies of scale, competitiveness,
and stability for Canadian firms (Royal Commission on Corporate Concen-
tration, 1978, p. 407; Royal Commission on the Economic Union, 1985,Vol. 2,
pp. 217–18). In practice, governments have often substituted increased regulation
of corporate activity rather than promote competition to obtain a politically
acceptable sharing of these benefits between businesses, their shareholders, other
stakeholders (including unions), and the public.
The Competition Act of 1986 sought to balance protection of domestic com-
petition with encouragement of economic efficiency that results from mergers,
again with mixed results. The federal Competition Bureau, an arm’s-length
regulatory agency, establishes conditions for mergers in different sectors, based
on their potential to limit competition in particular geographic markets, which
are often local in nature. Federal merger guidelines note that the Bureau gener-
ally views mergers “positively as a means to increase competitiveness, allowing
Canadians to benefit from lower prices, product choice, and quality services”
(Competition Bureau, 2015). Parties to proposed mergers must notify the
Bureau of any merger of firms whose combined Canadian revenues exceed
$87 million or whose combined assets exceed $400 million in 2017 dollars.
Thresholds for government intervention are highly technical, focusing on the
economic potential for the merged firm to be able to sustain price increases of
at least 5 per cent over a period of at least one year without loss of market share
in identifiable markets (Competition Bureau, 2011). The Competition Bureau
can impose conditions on mergers, including the sale of particular assets to
competitors, and constraints on potential anticompetitive behaviour, subject to
review by the federal Competition Tribunal and the courts. The Bureau can
also challenge collusive behaviour by particular firms or industry associations
and has done so in several sectors in recent years.
The form of corporate activity and degree of competition in particular
industries is determined by several factors: the scale of economic activity and
capital investments required to compete effectively in regional, domestic, and
international markets; access to investment capital; and openness to international
investment and competition. Regulatory structures also create barriers to entry,
limit foreign investment, and create cost structures that discourage new market
entry. Factors contributing to increased market openness (or contestability) and
competition include technological innovation and diffusion that create oppor-
tunities for new entrants and entrepreneurial ventures and innovative business
strategies that change the terms of competition within specific industries.
Past government policies have both accommodated and contributed to a high
degree of corporate concentration in Canada. Periods of industrial innovation
and entrepreneurship during which large numbers of new businesses emerged
have often been followed by waves of mergers and consolidation, as the strong-
est players attempt to take over less efficient competitors, rationalize production,
achieve economies of scale and, sometimes, eliminate or structure the terms of
competition. The industrial boom of the Laurier era was characterized by one
such merger wave. Others occurred after WWII and during the 1970s (Bliss,
1987; Marchildon, 1996). Ongoing economic restructuring and competition
resulting from North American free trade, technological change, and financial
market innovations contributed to successive waves of takeovers in the 1990s and
2000s (Bloom & Grant, 2008; Hale, 2014). However, the expansion of foreign-
based firms within Canada and the maturing of Canadian capital markets have
contributed to a far more dynamic environment for the emergence, ownership,
and restructuring of major corporations in recent years (discussed in chapter 12),
thus offsetting the trend toward corporate concentration in many sectors.
These shifts and ongoing debates reflect three broad sets of attitudes
toward business organization and competition: neomercantilist approaches,
which sometimes correspond to probusiness emphases (discussed in chapter
3); state-centred (including but not limited to neo-Marxist perspectives) that
emphasize direct government control over the ownership or operations of
particular industry sectors; and neoliberal perspectives corresponding to the
promarket emphases discussed in chapter 3.
Neomercantilists, sometimes labelled “liberal nationalists” (Bradford, 1998),
have emphasized the building of strong Canadian- (or regionally) based busi-
nesses through formal and informal government restrictions on market entry
and competition, sometimes including limits on foreign investment. Major
sectoral examples include the airline sector, which has been dominated by
two major firms (currently Air Canada and WestJet) under evolving regula-
tory regimes since the 1930s; telecommunications, with three national net-
works and several regionally significant firms; and the aircraft, aerospace, and
shipbuilding sectors (Mandel-Campbell, 2008). The latter have been closely
linked to the development of a Canadian defence procurement sector inte-
grated with American defence industries since WWII. Similar principles have
influenced the development and persistence of supply-managed agriculture
in the dairy, poultry, and egg-producing sectors since the 1960s. Quebec has
made extensive use of the Caisse de dépôt et placement, the investment arm of
the Quebec Pension Plan, as one of many policy instruments to cultivate the
development of nationally and globally competitive Quebec-based firms.
Governments of different political stripes have promoted state-controlled
industries as instruments of economic development in key sectors, such as elec-
tricity generation and transmission, airlines and railways (before the 1980s), ura-
nium mining (initially linked to national security during the Cold War), other
areas of resource development, and financial market innovation, as noted in
chapter 9. Regulatory measures may substitute for direct ownership, as with
the Canpotex potash export cartel, restrictive licensing rules governing mar-
ket entry, or production (and export) controls formerly designed to maintain
and allocate employment in certain provincial forest industries. However, apart
from Saskatchewan, whose Crown Investments Corporation oversees a variety
of firms in different sectors, the use of state enterprises as instruments of federal
or provincial industrial strategies has not survived the failure of the National
Energy Program in the 1980s and the expansion of Canada’s trade agreements
in the 1980s and 1990s. However, state enterprises continue to play major roles in
power generation, public transportation, the liquor and gambling sectors (gener-
ally as a means of generating revenues), some aspects of social insurance, and var-
ious aspects of the financial sector.These issues are discussed further in chapter 9.
Government policies may reflect the competitive nature of an indus-
try by adapting to changing market circumstances. Alternately, governments
may attempt to shape the structure of an industry, either by intervening in its
formative stage or by changing the rules that govern its activities to achieve
specific economic, social, or political goals.
Degrees and Types of Competition
Another major aspect of the economic structure is the degree of competi-

tion that occurs or is structured by government policies in particular indus-
try sectors. Neoclassical economic theory suggests that optimal economic
outcomes result from efficient markets characterized by fair and informed
transactions between willing buyers and sellers. The presence of competition
expands consumer choice and disciplines sellers, forcing them to offer goods
and services at prices and levels of quality acceptable to consumers and limit-
ing their ability to engage in unfair business practices without the risk of los-
ing customers and market share to other firms. However, while competition
is often viewed as a major condition of economic efficiency and growth, there
is far less agreement over the types of public policies necessary to achieve
these objectives, especially in industries dominated by a few very large firms.
Box 6.2 summarizes the continuum and major categories of competition.
Box 6.2 The Competition Continuum
Monopoly (Single seller) Collusive Dominant Oligopoly Monopolistic Perfect
Monopsony (Single buyer) Oligopoly Firm Duopoly Competition Competition

(Typically Regulated) (generally illegal)
Monopoly Single firm controls market for sale of set of products, Many provinces–electric power generation,
services may result from market power, efficiencies liquor distribution, gambling casinos
from economies of scale, very high barriers to Potash export cartel (Canpotex)
entry, technological capacity, or government-
conferred licence, generally regulated, unionized
Monopsony Single buyer for particular set of goods or Canadian Wheat Board (before 2012)
services. Usually requires protective government Government-insured medical services (for
regulation (monopoly of public administration) medical professionals)
Dominant Firm Firm that controls at least 40 per cent of market Formerly Microsoft Corp. (contested by Apple)
for particular product or service, and substantially Formerly Air Canada (contested by WestJet)
more than the nearest competitor, often results Amazon.com
from economies of scale, capacity to enforce Interac (automated teller machines)
technical standards on suppliers, customers usually
subject to government regulation, unionization
Monopoly (Single seller) Collusive Dominant Oligopoly Monopolistic Perfect
Duopoly Two principal firms in an industry, often with Domestic air travel–Air Canada, WestJet
smaller, more specialized competitors often Beer–Molson Coors, Anheuser Busch-Inbev
regulated, major firms generally unionized (Labatts)
Railways–Canadian National, Canadian Pacific
Oligopoly Small number of firms dominate particular Banking,* life insurance
industry sector with extensive barriers to entry, Telecommunications
relatively stable market shares, may attempt to Vehicle manufacturing *
engage competition with product segmentation Food (and drug) retailing *
(e.g., discount brands), leading to … Integrated oil companies
Chemical industry *
Pharmaceutical wholesaling
Monopolistic Industry characterized by multiple sellers, Accommodation, food services
Competition relative freedom of market entry, significant Construction industry
levels of product differentiation designed to Personal and business services
provide individual firms with specialized areas Real estate, leasing
of competitive advantage, capacity to service Specialty retailing
specialized market niches, capable of maintaining Trucking industry
customer loyalty in diverse marketplace
Perfect Industry characterized by low barriers to market Idealized state usually tending to producers’
Competition entry, exit, high levels of consumer awareness, identification of specialized opportunities
widespread capacity to substitute products or advantages conducive to pursuit of
services, minimal market power over prices monopolistic competition.
* Characterized by high levels of product differentiation, conducive to monopolistic competition.
Realities of competition often fail to live up to theoretical expectations.

Buyers and sellers often do not enjoy equal advantages in the marketplace.
Some firms exercise market power to enforce their preferences at the
expense of other producers, suppliers, or customers. Others lack sufficient
information to make informed judgments about price or quality due to
information asymmetries between buyers and sellers. Some are able
to translate political power into economic power through rent-seeking
activities that use the political system to redistribute income and economic
opportunities through preferential or discriminatory government action.
Individuals and businesses competing in the marketplace may engage in
irrational or self-destructive behaviour, such as the reckless overexpansion
of resource- or financial-sector firms during market booms, in ways that
affect not only their own well-being but that ultimately create economic
chain reactions that disrupt entire industries or economies. However, despite
their failings, the adaptability of competitive market systems based primarily
on private economic ownership and initiative have proven to be the most
effective mechanisms ever devised for providing human needs and wants,
increasing overall economic prosperity, and adapting to changing market and
societal preferences.
Analyses of competition, its conditions and limits take producer- (or firm-)
centred perspectives or consumer-centred perspectives. Firm-centred
perspectives are rooted in nineteenth- and twentieth-century understandings
of corporate consolidation, which inform neomercantilist, statist, and neo-
Marxist perspectives of competition discussed above. Consumer-centred
perspectives emphasize contestability, the potential for new market entrants
and existing participants to offer comparable products or services, rather than
that of existing firms, to sustain substantial increases in prices and market
shares at the expense of consumers and other competitors (Allen & Engert,
2007; Competition Bureau, 2011).
Firm-centred perspectives often emphasize efforts by large corporations to
monopolize or dominate markets, sometimes through collusion with other
major firms, through vertical or horizontal integration. During the late
nineteenth and twentieth centuries, vertical integration led to the central-
ized control of all major components of an industry supply chain through
expansion or acquisition of different elements of production and distribution
within a single corporation or corporate group. In some cases, such con-
solidation led to the formation of monopolies, the existence of a single
dominant corporation controlling all major aspects of a particular industry. In
other cases, governments have sought to balance disparities of power among
producers and/or consumers or replace them with new centres of economic
power through the creation of monopsonies, firms that are the sole buyer
of the economic output of a particular industry. In others, dominant firms

develop networks of suppliers and distributors that are dependent on them,
even through operating as separate, legally independent businesses. Historical
examples of vertically integrated industries including the automotive sector,
until the 1980s, major integrated oil companies, and the distribution networks
of major insurance and wealth management companies. Subsequent regula-
tory, technological, and other market changes, including increased interna-
tional competition and reorganizations of distribution networks, have greatly
increased competitive pressures in all three industries.
Under firm-centred approaches to competition policy, governments have
responded to or sought to forestall monopolies or collusive oligopolies, the
cooperation of a few major firms to limit competition for market share to
maximize profits, in two major ways. One approach, emphasizing regulation,
seeks to regulate prices to reduce opportunities for abuse of market power,
provide a competitive rate of return on capital invested, and achieve spe-
cific market outcomes such as minimum service requirements to otherwise
uneconomic markets, while establishing strict conditions for market entry.
This approach typified pre-1980s economic regulation in sectors deemed
to be natural monopolies, such as telephone services and electric power
generation and transmission. In other sectors, such as airlines, railways, and
breweries, governments regulated the terms of competition in oligopolistic
sectors dominated by a few major firms. The Canadian Wheat Board, with
its near monopoly over domestic and international sales of wheat and other
grains, was a classic example of a government-licensed monopsony until the
Harper government restored farmers rights’ to sell their product indepen-
dently in 2012 after years of bitter debates among farm groups (Boyd, 2011;
Kroeger, 2009).
Consumer-centred perspectives on competition emphasize consumer access
to a range of goods and services provided under competitive market condi-
tions rather than the firms that provide them.This perspective is centred on the
principles of contestability and substitution, the potential for other providers to
deliver comparable goods and services at a reasonable price to consumers. The
dominance of oligopolies is often seen to produce monopolistic competition,
in which several sellers exist, there are limited barriers to market entry, and prod-
ucts are similar but differentiated, allowing firms some degree of market power
over prices (Khemani & Shapiro, 1993). Allen and Engert (2007) suggest that
“monopolistic competition is probably the most prevalent market structure in
modern economies” (p. 39) due to its applicability to both large and small firms
using various strategies to promote customer and product loyalty.
The dominant approach of Canadian governments to industrial and
sectoral policies since the mid-1980s has been the promotion of globally
competitive Canadian firms in an open market economy, with competi-

tion policies replacing sectoral economic regulations and foreign investment
controls in most sectors. Mergers of Canadian firms to achieve economies of
scale sufficient to compete effectively have been balanced by much greater
openness to foreign investment and the negotiation of conditions of merger
agreements calculated to preserve competition in domestic markets for
products and services. This liberalization has been preceded or accompa-
nied in some sectors by regulatory reforms breaking down barriers between
sectors, for example, in financial services and between telephone and cable
providers in the telecommunications sector.
However, the competitive environment for many Canadian industries has
been shaped as much by North American and international economic forces
as by domestic market conditions in recent years. This process can be seen
from Canada’s industrial structure and the distribution of economic activity
across economic sectors in the early twenty-first century.
Caisse de dépôt et placement Information asymmetries

Cartel Market power
Closely held companies Monopolistic competition
Contestability Monopoly
Corporate concentration Monopsony
Dominant firm Oligopoly
Economic dynamism Rent seeking
Economic structure Supply chain
Government business enterprise (GBE) Vertical integration
Horizontal integration Widely held company
1. What factors have contributed to the openness and complexity of

Canada’s economy? What implications do these changes have for the
operations of Canadian businesses? For government policies?
2. The features of capitalist economies often vary widely between coun-
tries. What major factors help to structure the ownership of Canadian
businesses? How have some of these features changed in recent years?
3. What are three major types of market organization discussed in this
chapter that affect the degree of competition? Give examples of each.
What implications does each one have for the workings of Canada’s
economy? For government economic and regulatory policies?
4. Canada’s economy has traditionally been dependent on the develop-

ment and processing of natural resources and other primary products.
To what extent does this traditional image still apply?
5. What is a knowledge-based economy? What are some of its implications
for traditional business operations? For patterns of employment? For
relationships among business, government, and traditionally nonprofit
knowledge-based sectors?
Baldwin, J., & Yan, B. (2014). Global value chains and the productivity of Canadian
manufacturing firms. Cat. # 11F0027M, no. 90. Ottawa, ON: Statistics Canada.
Bloom, M., & Grant, M. (2008). “Hollowing out”—myth and reality: Corporate takeovers
in an age of transformation (3 vols.). Ottawa, ON: Conference Board of Canada.
Lipsey, R. (1996). Economic growth, technological change, and Canadian economic policy.
Toronto, ON: C.D. Howe Institute.
Mandel-Campbell, A. (2008). Foreign investment review regimes: How Canada stacks up.
Ottawa, ON: Conference Board of Canada.
7
Federalism, Regionalism, and
Provincial Diversity
Federalism and regional diversity are dominant realities of Canadian politi-

cal life. Canada’s federal system divides power between sovereign, constitu-
tionally equal orders of government. Its representative institutions, especially
the federal House of Commons and provincial legislatures, are organized to
serve geographically defined interests. Its diverse regional character lends
itself to the projection of group interests through provincial and regional
identities. At times, this contributes to more inclusive views of national
interests through intergovernmental negotiations, judicial review, and the
balancing of regional interests. At other times, this contributes either to pol-
icy incoherence or provokes centralist reactions that risk turning the politics
of federalism into a zero-sum game.
Consequently, the Canadian economy often resembles clusters of dis-
tinct, if overlapping regional economies rather than an integrated national
economy (Kneebone & Gres, 2013; Savoie, 1997). Indeed, the growing diver-
sity of economic interests and political cultures within Atlantic and West-
ern Canada leads many observers to question the usefulness of regional, as
opposed to provincial, identities as the most relevant basis for political and
economic analysis (Berdahl & Gibbins, 2014; Tomblin, 2004). These realities
are reinforced by a decentralized federal system that gives provinces regula-
tory authority over major industry sectors, much of day-to-day business
activity, and the regulation and implementation of major social policies.
Political organization of business, labour, and agriculture tends to follow suit,
contributing to decentralized, two-tier systems of interest group advocacy
in many areas.
Simeon (2003) has noted the persistence of federal and regional struc-
tures and influences in shaping Canada’s continuing adaptation to globaliza-
tion and North American integration. Provincial governments are not only
constitutionally equal with the federal government within their jurisdic-
tions. They are often seen as principal representatives of regional interests,
especially when they account for a disproportionate share of a particular
industry’s output or employment within Canada. These realities, combined
with the periodic political weakness of federal governments, have made
Canada one of the world’s most decentralized federations (Atkinson, Mar-
childon, & Beland, 2013; Parkin, 2016; Watts, 2008). They also contribute to
169
multilevel governance processes in which different governments and some-

times societal interest groups share responsibility for developing and imple-
menting policies.
The roles assumed by federal and provincial governments in promot-
ing regional economic development and their choices of preferred policy
instruments also shape the economic structures of provinces and regions.
Provinces secure relative immunity from federal “interference” by using
crown corporations as policy instruments for natural resource development
or supporting regional industries, as discussed in chapter 9. These policy
choices also reflect underlying patterns of party and ideological competition
in different jurisdictions, helping to structure relations between and among
governments, businesses, and societal interests. Regional economic struc-
tures and the policies of provincial governments have adapted themselves
to the growing openness and dynamism of Canada’s economy (discussed in
chapter 6). However, the political institutions of Canadian federalism have
adapted more slowly to these trends, reflecting the considerable differences
in economic circumstances and political trade-offs associated with these
processes in different provinces (Hale, 2011; Simeon, 2003).
This chapter examines the implications of the federal division of power for
Canada’s economic structure and the environment for business-government
relations. It outlines major economic differences among and within regions
and provinces and how they are shaped by regional political cultures, the
size and role of governments, and the environment for business-government
relations.
Federalism and Regionalism
Federalism is a system that shares sovereignty and divides power among

federal and subnational levels of government, each of which enjoys a direct
political relationship with the people (Hueglin & Fenna, 2006, pp. 32–33). In
Canada, each order of government is sovereign within its respective consti-
tutional jurisdiction, subject to periodic judicial review.
Historically, the reality of federalism as a combination of shared-rule
and self-rule has cultivated a competitive (and sometimes confrontational)
environment for intergovernmental relations. However, political and fis-
cal decentralization since the 1980s has limited the capacity of large gov-
ernments and jurisdictions to impose their will on small ones (Atkinson,
Marchildon, & Beland, 2013, pp. 3–14). As a result, businesses seeking to
influence policy change or manage major projects involving multiple juris-
dictions are often well advised to pursue more consensual or transactional
approaches to dealings with governments and other major nongovernmental
Federalism, Regionalism, and Provincial Diversity 171
stakeholders rather than pursuing top-down strategies dependent on the

support of a single government (Bouw & McCarthy, 2010).
Intrastate federalism involves the balancing of regional and provin-
cial interests primarily through the institutions and policies of the federal
government. Structural examples include geographic representation in
Parliament, the institution of regional ministers (Bakvis, 1991), and the projec-
tion of federal influence through regional development agencies. Policy-related
examples from the past decade include the balancing of regional and provincial
interests in federal infrastructure projects, particularly Gateway initiatives at major
ports and border crossings, periodic federal contributions to major regional pro-
jects with national implications, and balancing the interests of export-oriented
and supply-managed sectors in Canada’s agricultural trade policies.
Interstate federalism, the management of interdependence through the
interaction of sovereign governments with different but often overlapping
jurisdictions, can take several forms. Each has significant implications for
relations among citizens, businesses, social groups, and governments. Both
federal-provincial and interprovincial relations have decentralized in recent
years, with routine policy and administrative relations managed through
dense networks of interdepartmental committees involving ministers and
senior decision makers with specialized policy responsibilities. In 2003,
intergovernmental policy responsibilities spread across an average of 11 min-
istries or departments in the four largest provinces, Ontario, Quebec, BC,
and Alberta (Atkinson, Marchildon, & Beland, 2013, p. 43; Inwood, Johns, &
O’Reilly, 2007).
As a result, provincial premiers become central actors in policymaking
(Atkinson, Marchildon, & Beland, 2013, pp. 42–47), whether in agenda-setting
for major initiatives or enforcing authoritative vetoes on policy change,
subject to the accommodation of major provincial policy goals. Prominent
examples include Dalton McGuinty’s 2009 decision to embrace a harmo-
nized sales tax with Ottawa, which was rejected by at least three previous
Ontario governments; Brad Wall’s energetic campaign to block the proposed
takeover of Potash Corp. of Saskatchewan in 2010; the Alberta-Quebec alli-
ance that successfully blocked federal proposals to nationalize securities
regulation at the Supreme Court in 2011; Christy Clark’s tactical resistance
to new pipeline projects (2013–16) intended to extract increased regional
benefits for BC; and Kathleen Wynne’s threat of unilateral action by Ontario,
which spurred federal expansion of the Canada Pension Plan in 2016 against
persistent opposition by several provinces and major business interests.
Canada’s federal division of powers, established in the Constitution
Act, 1867, originally anticipated a centralized federation. However, as
discussed in chapter 4, a series of judicial decisions and federal party
coalitions supportive of provincial rights between the 1880s and the

1930s contributed to a significant decentralization. The pendulum
swing of centralization and decentralization has continued ever since.
The assertion of provincial and regional interests in national politics,
whether through the federal government and party system or the activ-
ity of provincial governments, is central to Canada’s continuing region-
alized political economy.
Ottawa shapes the context for economic development through its regu-
latory oversight of major economic sectors, including banking, telecommu-
nications, and interprovincial transportation, and its control over monetary
policies, international trade and foreign investment, diplomatic relations, and
major aspects of tax policy. These factors are major elements in Canada’s
economic union (the legal framework that enables goods, services, and
people to move relatively freely between provinces; see Box 7.1). Histori-
cally, Ottawa’s use of federal spending power (its discretionary power to
allocate funds to areas of provincial jurisdiction) during periods of fiscal
flexibility has enabled it to influence provincial economic and social policy
priorities.
However, provincial governments enjoy broad powers of taxation
and economic and social regulation that enable them to play active and
sometimes primary roles in shaping political, economic, and cultural
contexts for business operations. This role is reinforced by provincial
ownership of natural resources on crown lands and regulatory powers
and jurisdiction over municipalities and land-use issues. In addition, the
provinces have important responsibilities for labour and environmental
policies and in the construction and maintenance of public infrastruc-
ture. Box 7.2 outlines major areas of federal and provincial responsibility
related to economic policies.
Box 7.1 Canada as an Economic Union
Section 121 of the Constitution Act, 1867, provides that “all Articles of
the Growth, Produce, or Manufacture of any one of the Provinces
shall, from and after the Union, be admitted free (i.e., without
customs duties) into each of the other Provinces.”
Section 6(2) of the Constitution Act, 1982, affirms the right of all
citizens and permanent residents of Canada to “take up residence …
and pursue the gaining of a livelihood in any province.”
Box 7.2 The Federal-Provincial Division of Powers

(partial list relating to economic policy)
Federal Provincial
(Section 91, Constitution Act, 1867 ) (Sections 92 and 93, Constitution Act, 1867)
• All forms of taxation • Direct taxation only
• “Regulation of Trade and • “Property and Civil Rights”
Commerce” • Economic development within a
• Interprovincial and province
international trade • Education (and training), social services
• Bankruptcy and insolvency • Highways, public works within
• Interprovincial transport provinces
(including communications)
• Intellectual property rights • Municipal government
(patents, copyright)
• Banking, currency • Provincially chartered nonbank
financial institutions
• Labour (industries under • Labour (all other industries)
exclusive federal jurisdiction)
Shared Jurisdictions
• Agriculture
• Immigration
• Justice/law enforcement
• Pensions (after 1950)
• Consumer affairs (since 1960s)
• Environment (since 1960s)
The persistence of regionalism in Canada’s political economy, frequently

expressed through province-based interests, has several major causes. Differ-
ences in population and political and economic power between regions have
nourished persistent demands for greater provincial autonomy, often rooted
in a shared sense of grievance over unfulfilled promises of equal citizenship
within Confederation. Quebec’s defence of its constitutional prerogatives and
linguistic and cultural distinctiveness is the most persistent expression of this
reality. Historical provincial demands often reflected cultures whose commit-
ment to representative parliamentary institutions was much stronger than in
today’s Canada. Since the 1960s, they have reflected both societal expectations
that provincial governments will be more responsive to regional and local
interests and the institutional imperatives and ambitions of provincial govern-

ments (Cairns, 1977; Moore, 1997; Vipond, 1991). Initially, provincial political
parties played a leading role in Canada’s political party system.Today, although
organic linkages remain, only the NDP maintains formal institutional ties
between federal and provincial parties. Federal and provincial party structures
and patterns of competition are fundamentally different in Quebec, the three
western-most provinces, and the northern territories.
Regionalism also reflects the pressures of regional interests, including dif-
ferent combinations of business, agrarian, labour, and, more recently, envi-
ronmental interest groups seeking to pursue their agendas and reduce their
dependence on (or to escape subordination to) external economic interests.
These realities have contributed to competition over political jurisdiction and
sometimes to constitutional litigation. More typically, they necessitate coop-
eration, mutual accommodation, and a shared recognition of distinct interests
among governments.
Impact of Federalism on Canada’s Economic Structure
The evolution of Canada’s federal system and the politics of regionalism

have contributed to the emergence of significantly different regional politi-
cal and economic cultures resulting from the progressive assertion of pro-
vincial autonomy over fiscal and economic development, natural resource
management, labour relations, and environmental policies (Atkinson &
Chandler, 1983; Hale, 2000, 2001).
Provincial governments project regional interests in national politics both
as representatives of particular social and economic interests and as independ-
ent agents in dealing with other governments and outside economic interests.
Control over natural resources has long been a significant element of provin-
cial economic development policies.These policies have shaped regional trans-
portation and infrastructure networks, patterns of settlement, and relationships
between individual governments and key economic sectors. Regional divi-
sions within Canadian party systems and growing regional variations in exter-
nal trade patterns have reinforced provinces’ ability and willingness to project
this role in recent years. Overlapping jurisdictions provide fertile ground for
federal-provincial conflict. They also encourage active participation in these
disputes by business and interest groups attempting to advance their own
interests and priorities.
The tendency toward societal federalism, the interaction of jurisdictional
and political differences between Ottawa and the provinces with underlying
economic and societal differences, is strongest in Quebec. Several generations of
academics, policy analysts, and commentators have built a strong philosophical
commitment to provincial autonomy within all areas of provincial jurisdic-

tion as a way to defend the distinct social, cultural, and political identity of that
province’s French-speaking majority (Laforest 2010). More recent research sug-
gests that, outside Quebec, such popular autonomist sentiments are deepest in
Newfoundland and Labrador (Marland, 2010). Table 7.1 summarizes the iden-
tification of voters in seven provinces with federal and provincial governments.
Voters in most provinces, Ontario and Manitoba notably excepted, identify as
strongly with their province as with Canada as a whole. This trend represents
immigrants as much as long-term residents (Raney & Berdahl, 2013).
The political realities of federalism have been far more fluid than sug-
gested in formal debates over the division of powers. The effective powers
of federal and provincial governments over economic development have
shifted from decade to decade. They have also reflected the varied financial
and bureaucratic resources available to individual provinces to design and
administer public policies and services, along with the shifting balance of
centralizing and decentralizing forces within both orders of government.
Canadian subnational governments account for more than two-thirds of
overall spending after intergovernmental transfers, as noted in Table 7.2,
although fiscal capacities vary widely among provinces, creating very differ-
ent relationships between their respective public and private sectors.
Pressures for strong national leadership created by world wars and national
crises have contributed to greater centralization. The perceived need to
accommodate regional alienation in the interests of national unity and the
capacity of provincial governments to exercise their responsibilities without
direct federal assistance have reversed the pendulum periodically. Although
conflicts over the centralization of Canada’s federal system sometimes seem
like a zero-sum game, federalism also provides a framework for coordinating
and balancing political priorities.
Table 7.1 Percentage of V

oters who “Identify Strongly” with Canada,
Province, or Both
Canada Province Canada Province
Nlfd&Lab 39.2 70.5 MB 62.3 46.9
PEI 61.2 69.2 SK 67.2 65.5
QC 30 60.6 AB 67.4 64.5
ON 71.5 43 ALL 59 52.4
Source: Raney, T., & Berdahl. L. (2013). Regionalism in a conservative era: Assessing political
identities in Canada. Paper presented to annual meeting of Canadian Political Science Association,
Victoria, BC. Based on provincial election surveys, 2011–12.
Table 7.2 Distribution of Government Revenues, Spending, Excluding

Transfers (2015)
Federal Provincial Local CPP/QPP
Revenues 36.1% 42.7% 12.3% 8.9%
Spending 25.0% 47.4% 20.4% 7.2%
Source: Department of Finance Canada. (2016). Fiscal reference tables: 2016. Ottawa, ON; author’s
calculations.
The paradox of federalism, particularly executive federalism (the broker-

ing of intergovernmental differences between and among federal and provincial
first ministers and cabinet ministers) and administrative federalism (parallel pro-
cesses involving civil service decision makers in related policy fields), is that the
more closely governments work together to address common policy problems,
the greater the likelihood that significant economic and social interests outside
government may be neglected or sidelined in policy outcomes. As a general
rule, horizontal policy fields that engage broad swaths of economic or social
policy, particularly those related to fiscal federalism or the environment, are more
likely to lend themselves to the balancing of governmental interests, sometimes
at the expense of societal interests. Primarily sectoral policy fields, such as natural
resources, labour market development, and regionally specialized industries, are
shaped by decentralization capable of accommodating varied and often compet-
ing regional interests.
These approaches intersect on trade policy. Federal-provincial cooperation
is vital in managing major trade negotiations, which require the balancing of
regional interests, sometimes involving the same industry, as with Canada’s pro-
tracted softwood lumber dispute with the United States (De Boer, 2002; Hale,
2012, pp. 285–94). During the 1990s, global and North American trade negotia-
tions prompted Canadian governments to negotiate the Agreement on Internal
Trade (AIT) to reduce provincial barriers to the movement of goods, services,
and people (Brown, 2002, pp. 146–78).The AIT has resulted in somewhat greater
mobility of skilled workers and professionals among provinces, although many
barriers still remain. Kukucha (2016) notes the negotiation of 13 formal AIT
amendments between 1994 and 2015, along with interprovincial agreements
such as the New West Partnership. Negotiations for twenty-first-century trade
negotiations, such as those intended to secure a Comprehensive Economic and
Trade Agreement with the European Union, directly affect areas of provincial
jurisdiction, including local procurement rules and restrictive rules governing
provincial resource processing.These realities have led to provincial engagement
in international trade negotiations, although federal officials maintain firm con-
trol of most such negotiations (Hale, 2017a; Ivison, 2013).
Regional Economic Differences and Disparities and

the Politics of Regionalism
Levels of economic development can be measured in several ways, including

the GDP, employment and unemployment rates, median or average per-
sonal or household income, and disposable income (the income available to
individuals or families after taxes and transfers). Business support for more
activist government economic development policies is much more likely in
regions facing economic stagnation or decline (Clancy, 2004).
Governments frequently attempt to promote investment and job crea-
tion by offering incentives and inducements for outside investment, setting
regulatory requirements for additional investments, or processing require-
ments in return for access to provincial resources, although such measures
can readily run afoul of international trade agreements. Such policies reflect
competing visions of federalism, along with very different approaches to
promoting economic growth and diversification.
Regional competition takes several forms, reflected in the degree of coop-
eration and competition between federal and provincial governments, between
regional interests, and in political competition within provinces—urban versus
rural, more developed versus less developed regions, major commercial centres
and their economic elites versus small communities. Major differences in pro-
vincial economic structures are also highly visible in the effects of provinces’
dependence on primary resource production, including agriculture.
Table 7.3 summarizes major differences in the sectoral composition of
national and provincial economies in 2000 and 2015, reflected in major
industries’ or sectors’ share of GDP. The manufacturing sector’s decline dur-
ing this period is most visible in Ontario and Quebec. Newfoundland and
Labrador, Alberta, and Saskatchewan remain most dependent on resource
extraction, although the latter two have become somewhat more diversified
(Tombe & Mansell, 2016). The size of finance, insurance, and particularly
real estate sectors in BC and Ontario are now comparable to or greater than
those provinces’ entire goods-producing sectors. The public sector (public
administration, education, health, and social service sectors), strongly sup-
ported by federal transfers, exceeds the size of the entire goods-producing
sectors of Nova Scotia, New Brunswick, and Prince Edward Island.
The term regional disparities is often used to emphasize the inequalities
in political and economic power among Canada’s provinces and regions. These
differences are evident in the distribution of population, economic activity, and
employment and income levels between and within provinces. Contemporary
discussions, prompted by the steady growth of Canada’s major cities, are as likely
to emphasize the wealth and power of major urban regions compared with
smaller towns and rural areas as they are the traditional east-west divisions. In sev-
eral provinces, the major demographic and economic shifts of the past three dec-
ades have contributed to significant changes in regional political cultures, heavily
influencing provincial economic policies and engagement with national policies.
Table 7.4 notes that regional disparities in median household and after-
tax incomes are significantly less than those in the GDP per capita. A sig-
nificant part of this difference is accounted for by sizeable federal transfer
payments, financed largely by taxpayers in Ontario and Alberta, and the
redistributive effects of the federal tax system.
The resource boom of the 2000s, ending in 2014, enabled average real per
capita disposable incomes to increase significantly faster than the national aver-
age in the resource-driven economies of Newfoundland and Labrador (68.6
per cent), Saskatchewan (61.0 per cent), and Alberta (36.2 per cent), along
with BC (40.9 per cent), as noted in Table 7.5. However, income growth has
slowed in most provinces since the 2008–09 recession (Carrick, 2017; Ladou-
ceur, 2016). Real disposable incomes increased slightly faster than the national
average in four other provinces and more slowly in Ontario and Quebec until
2016-2017. Increases in resource-related industrial and construction employ-
ment offset the effects of declining manufacturing subsectors, allowing most
provinces to avoid the sharp increases in income inequality experienced in the
United States (Alexander & Fong, 2012a, p. 5; Hale, 2017b).
The three provinces with the largest resource sectors also experienced
per capita GDP growth well above the national average, reflecting high levels
of capital investment (at least before the resource price crash of 2015). GDP
figures may or may not be reflected in median household incomes or after-
tax incomes, depending on levels of employment, workplace participation,
and economic diversification. However, transfer dependence often contrib-
utes to disconnects between income levels and overall economic activity.
Another major factor in shaping provincial economic policies is external
orientation. As discussed in chapters 6 and 8, international trade and invest-
ment have become a much larger part of Canada’s economy since the 1980s.
Most provinces (except Manitoba and Prince Edward Island) have exported
more to other countries than to other provinces since the 1990s, although
these trends were partly offset by rising exchange rates against the US dollar
for much of the period between 2005 and 2013.
Table 7.6 notes shifting patterns of export and trade dependence among
Canadian provinces. The post-2000 commodities boom and ongoing eco-
nomic diversification enabled Saskatchewan to enjoy the strongest, most
diversified growth of exports, primarily outside North America. Newfound-
land and Labrador has benefited from the shipment and trans-shipment
of energy products, but Alberta’s energy exports remain overwhelmingly
Table 7.3 Real GDP by Major Industry Sector, Canada and Provinces
(2000, 2015)
Goods Mining, MFG Services FIRE* Broader
producing oil, gas producing public
sector**
Canada 2000 35.4 9.1 10.6 64.5 16.8 18.1
2015 29.6 7.9 7.2 70.4 19.9 18.4
2000 30.9 1.9 20.4 69.0 19.8 17.7
ON
2015 22.9 1.2 12.9 77.0 23.4 19.3
2000 33.6 1.6 21.2 66.1 15.4 20.6
QC
2015 28.1 1.4 14.6 71.8 17.8 21.0
2000 54.3 34.8 8.1 46.0 11.5 11.2
AB
2015 46.3 27.4 5.9 54.0 14.2 12.3
2000 27.4 5.1 10.1 72.4 20.3 19.7
BC
2015 24.5 5.4 7.2 75.5 24.3 17.4
2000 51.0 28.6 6.2 43.4 11.9 16.5
SK
2015 50.1 21.0 6.5 57.0 14.1 16.4
2000 31.0 6.4 11.6 69.3 16.7 22.5
MB
2015 30.5 5.2 10.0 69.5 17.9 21.3
NB, NS, 2000 26.8 4.2 8.2 72.9 15.9 29.9
PEI 2015 22.0 2.1 9.4 78.0 20.6 26.0
Nfld& 2000 45.3 25.9 5.4 54.7 n/a 20.4
Lab 2015 47.1 29.1 3.9 52.9 12.4 19.1
*Finance, insurance, and real estate

**Public administration, educational services, health and social assistance
Source: Statistics Canada. (2016g). Gross domestic product at basic prices, by North American
Industrial Classification System (NAICS), provinces and territories, CANSIM Table 379-0030.
Ottawa, ON; author’s calculations.
dependent on US markets. After rapid export growth in the decade after

NAFTA’s ratification, reinforced by declining exchange rates, Ontario’s and
Quebec’s manufacturing and resource sectors have been slow to recover
from the 2008–09 recession. The dependence of most Canadian export
sectors on US markets reinforces Canada’s vulnerability to economic and
political shocks, as exemplified by the resurgence of US economic national-
ism under the Trump administration and its decision to force the renegotia-
tion of NAFTA to serve its domestic political interests. These issues will be
addressed further in chapter 8.
Table 7.4 Household Income Measurements Relative to National

Average (2013)
GDP per Median Median Median
capita household total household
market household after-tax
income income income
Canada 100.0 100.0 100.0 100.0
Nfld & Labrador 123.1 93.7 93.7 99.4
Prince Edward Island 73.9 79.2 84.6 91.0
Nova Scotia 76.0 86.6 109.2 89.0
New Brunswick 78.3 78.9 91.1 87.1
Quebec 82.3 82.6 104.8 88.6
Ontario 95.0 102.0 123.4 103.7
Manitoba 90.9 101.2 99.2 98.7
Saskatchewan 140.2 111.7 110.4 107.7
Alberta 159.7 150.4 134.7 132.1
BC 91.9 100.4 66.8 100.7
Source: Statistics Canada. CANSIM Tables 206–0011, 206–0021, 384–0038, 051–0001; author’s calculations.
This next section of this chapter examines the evolution of provincial eco-
nomic structures across Canada, the internal characteristics that determine
their economies and demography, the role of provincial governments and
political competition in shaping the evolution of those structures, and the
major factors affecting the development of contemporary regional economies.
British Columbia
Resource industries, especially mining and forestry, drove BC’s initial devel-
opment, with government support to develop transportation systems to con-
nect the province’s vast interior with domestic and foreign markets. More
recent governments have faced major challenges balancing sustainable
development, demographic and cultural change, and the reorientation of its
once-dominant resource and energy sectors in response to shifting markets,
environmental challenges, and ongoing negotiations with BC’s diverse indig-
enous communities.
Provincial resource policies have long focused on “stimulating economic
development by encouraging and assisting private producers” (Chandler, 1983a,
p. 54). Processing resources and agricultural products fostered related
Table 7.5 Average Real Per Capita Disposable Income by Province

(2001, 2014)
% of Canadian average % change % change
2001 2014 2001–14 2008–14
Canada 100.0 100.0 25.6 7.5
Nfld & Labrador 81.0 105.4 68.6 25.7
Saskatchewan 83.6 106.5 61.0 8.9
BC 98.2 103.9 40.9 11.9
Alberta 118.9 133.9 36.2 14.2
New Brunswick 84.2 88.9 33.3 10.0
Manitoba 88.5 90.8 30.4 9.3
PEI 82.9 87.1 27.9 10.4
Nova Scotia 86.6 90.8 27.5 11.0
Quebec 89.4 86.0 22.0 4.3
Ontario 107.6 98.1 11.5 3.2
Source: Ladouceur, S. (2016). Per capita disposable income in 2014: Quebec ranks last among prov-
inces and territories. Quebec City, QC: Institut statistique du Québec; Statistics Canada. (2016).
CANSIM Table 326–0011; author’s calculations.
manufacturing industries, especially sawmills, pulp and paper, and food

processing. Since the 1980s, BC has evolved a post-staples economy based
primarily on business services, community and public services, and tourism.
The forest industry’s relative decline has increased the importance of economic
diversification for many communities, while reducing private-sector union
influence.1 BC’s Securities Commission plays a significant role in shaping
rules governing Canadian capital markets as BC is home to Canada’s largest
number of small, publicly traded corporations (Suret & Carpentier, 2010).
The shift to an urbanized service economy centred in the Lower
Mainland, Greater Victoria, and smaller cities in the interior is one of four
key factors that have substantially changed BC’s political economy. The oth-
ers are the impact of large-scale immigration and related capital movements,
largely unresolved land claims and growing political aspirations of BC’s dis-
parate indigenous communities, and the effects of postmaterialist, especially
environmentalist, values on skeptical, sometimes hostile public attitudes to
resource and related infrastructure development.
Historically, BC’s diverse, mountainous geography and dispersed popula-
tion have lent themselves to persistent economic and political conflict.Vancou-
ver’s coastal and mountain hinterlands have yielded enormous resource wealth.
However, large-scale resource exploitation also contributed to the early growth
Table 7.6 Relative Trade Orientation, Dependence of Canadian Provinces

(1990–2014)
International vs. interprovincial Exports as
exports of goods and services per cent of GDP
1990 2000 2014 1990 2000 2014
Saskatchewan 1.040 1.579 1.867 24.3 42.6 45.9
New Brunswick 0.906 1.367 1.313 25.9 40.3 45.7
Nfld & Lab 2.340 2.811 2.222 28.1 41.4 40.7
Alberta 0.880 1.740 1.729 23.5 41.4 34.9
Ontario 1.338 2.838 1.892 28.5 52.2 33.6
Canada 1.184 2.240 1.640 25.1 44.2 31.7
Quebec 0.971 2.178 1.490 21.3 42.0 27.7
Manitoba 0.689 0.950 0.926 17.9 29.8 27.0
BC 2.071 2.337 1.326 26.0 34.0 22.4
Nova Scotia 0.764 1.312 1.111 15.0 27.1 20.7
PEI 0.437 1.165 0.691 12.6 30.4 18.6
Source: Statistics Canada. (2015a). Gross domestic product: Expenditure-based, provinces and ter-
ritories. CANSIM Table 384-0038. Ottawa, ON; author’s calculations.
of industrial unionism and a political climate conspicuously polarized between

successive business-friendly coalitions and socialist or social democratic politi-
cal parties since the 1930s. Combined with Canada’s largest small business sec-
tor, these factors give BC politics a distinctly populist tinge in which politicians
are regularly challenged to look out for the “little guy” rather than large, insti-
tutionalized interests. Between 1952 and 1991, Social Credit served as the pri-
mary centre-right coalition party, selectively expanding the provincial state to
promote economic development, balancing the interests of major corporations
and small producers, and drawing support from federal Liberals and Conserva-
tives.The BC Liberals have performed this role since the mid-1990s.
BC is the only province that allows citizens to reverse legislation by popular
initiative and referendum. The Liberal government’s unexpected replacement
of its retail sales tax in 2009 with a harmonized sales tax integrated with the
federal GST prompted a popular backlash crossing the ideological spectrum,
leading to its 2011 referendum defeat and subsequent reversal. Proposed sales tax
increases to fund transit expansion in Greater Vancouver were soundly defeated
in a 2015 referendum despite trans-ideological support from municipal govern-
ments, business, and union leaders (Bateman & Marshall, 2016).
Greater Vancouver and the Lower Mainland are BC’s urban-suburban
core, home to 60 per cent of its residents in 2016. This subregion boasts
Canada’s busiest international port, a strong financial and real estate sector,
steady inward migration, and a diversified services-driven economy (Arcand,
Lefebvre, McIntyre, Sutherland, & Wiebe, 2013). The resource-based econo-
mies of the BC Interior and northern Vancouver Island continue to experi-
ence the effects of cyclical market fluctuations and trade conflicts on their
mining, forest, and natural gas sectors.
Resource development since the 1990s has become increasingly depend-
ent on negotiations with the province’s 198 indigenous communities. Unlike
most provinces, very few of BC’s First Nations signed treaties with colonial
or federal governments ceding existing territorial rights before European
settlement. A series of Supreme Court rulings have affirmed the validity
of these claims without necessarily defining them, thereby requiring pro-
gressively more extensive consultations with First Nations on resource or
land development projects affecting their communities or traditional lands
(Calder et al. v. British Columbia, 1973; Delgamuukw v. British Columbia 1010,
1997; Tsilhqot’in Nation v. British Columbia, 2014). Negotiating indigenous
consent has become the single most important challenge facing businesses
and governments pursuing new development, especially in northern BC.
Governments or businesses that fail this test face much greater obstacles, as
demonstrated by First Nations’ capacity to block the highly touted North-
ern Gateway pipeline through political and legal action while partnering in
other resource development projects (Hoekstra & Pynn, 2015; Morgan, 2016;
Vanderklippe, 2013).
The dispersion of political authority among governments and indigenous
communities that has accompanied these developments, often reinforced by the
increasingly routine resort to litigation to resolve disputes, has greatly increased
the length of time needed to secure political and regulatory approvals for the
design and construction of major projects.Although global resource price cycles
are indifferent to the uncertainties of Canadian regulatory processes, large-scale
private-sector investment projects are not, as demonstrated by the cancellation
of major liquid natural gas export projects in response to more rapid develop-
ment in other countries, global oversupply, and falling prices (Jones, 2017).
Both Greater Vancouver and Prince Rupert have been central to a differ-
ent kind of “gateway” development: the massive expansion of port and rail
infrastructure to support Canada’s growing trade with Pacific Rim economies
involving more than a decade of sustained collaboration among governments,
private shipping and transportation companies. Premier Gordon Campbell
(2001–10) played a leading role in negotiating a bilateral Trade, Investment
and Labour Mobility Agreement (TILMA) with Alberta to reduce interpro-
vincial trade and regulatory barriers in 2004 (implemented 2007), growing to
include Saskatchewan (2010) and subsequently Manitoba (2016) in the New
West Partnership. However, Campbell’s successor, Christy Clark, made reve-

nue-sharing one of several conditions for BC’s approval of a major expansion
of the interprovincial Trans Mountain pipeline, raising major implications for
infrastructure projects crossing provincial borders (Meissner, 2017). It remains
to be seen how the NDP government that took office in 2017, with Green
Party support, will manage these issues, some of which (particularly interpro-
vincial pipelines) are primarily under federal jurisdiction.
Sizeable inflows of immigrants have made Greater Vancouver Canada’s most
culturally diverse urban region. International migration alone has increased BC’s
population by more than 10 per cent, along with modest (1.8 per cent) net
inward interprovincial migration since 2000 (Statistics Canada, 2016j, 2016k).
These trends have contributed to extensive economic and cultural relations with
China, South Asia, and Southeast Asia. Foreign, especially Chinese capital, has
become a significant factor in the development not only of traditional resource
industries, but of the province’s financial, property development, cultural, and
technology industries—and an overheated Vancouver real estate market. All
three federal parties and both major provincial parties have developed close
relationships with major ethnocultural communities, making Greater Vancouver
Canada’s most politically competitive and unpredictable urban region.
Economic diversification, geographically concentrated population growth,
and pressures to balance development with environmental and quality of
life issues have also contributed to the emergence of Canada’s most visibly
postmaterialist political culture. The development of a strong environmen-
tal movement has increased pressures on all governments and political par-
ties to integrate environmental considerations with their economic policies.
The green spectrum runs from those with strong antidevelopment sentiments
liable to challenge any major resource development or infrastructure project,
to those who make serious efforts to promote sustainable approaches to devel-
opment, to various forms of market-based environmentalism. In recent years,
Green Party candidates have attracted enough votes to have a significant effect
on election outcomes in the Lower Mainland and on Vancouver Island.
In 2009, BC became the first province to introduce a broadly based car-
bon tax, offset by corresponding reductions in personal and corporate tax
rates. (Its implementation was facilitated by a short-lived collapse in global
oil prices from $150 to $40/barrel.) Large-scale public opposition to the pro-
posed Northern Gateway development prompted the business-friendly BC
Liberal government to take a much tougher approach to major pipeline pro-
jects than usual, creating tensions with neighbouring Alberta. The presence
of a strong Green Party since the early 2000s has caused BC New Democrats
to emphasize environmental issues, including climate change, sometimes at
the expense of its traditional working-class constituency (Hoekstra, 2013).
Integrating indigenous and environmental priorities to secure public sup-

port for major economic projects will be the largest political challenge fac-
ing both industry and governments in coming years.
Alberta
Alberta’s political economy has been shaped by its status as a landlocked,

staples-dependent economy attempting to use its jurisdiction over natu-
ral resources and economic development to reduce its dependence on the
boom-and-bust effects of commodity cycles and the alternating policy
indifference and hostility of other jurisdictions. These challenges contrib-
uted to the emergence of a populist political culture that political leaders
often attempted to direct against outsiders to preserve the hegemony of
long-ruling provincial governments and dominant federal parties. The result
has been successive one-party dominant provincial governments, culminat-
ing of the 44-year rule of the Alberta PCs until 2015 under six premiers,
and comparable domination by allied parties in most federal contests since
achieving provincial status in 1905.
Alberta’s economy is centred on its two largest cities and the dominance
of oil and gas to its export economy. Calgary, its financial centre, and the
more heavily industrial Edmonton region account for about two-thirds of
Alberta’s population. The rest is divided about evenly between the parkland
and agricultural regions of northern, central, and southern Alberta, cen-
tred on five major regional centres. Alberta’s population grew 64.7 per cent
between 1990 and 2015 (Statistics Canada, 2017a), largely in the Calgary-
Edmonton corridor, helping Alberta to become Canada’s fastest growing
economy before the post-2014 collapse of global oil prices, while contribut-
ing to significant changes in the province’s political culture.
Unlike polarized BC, Alberta used to have one of the most stable politi-
cal climates in Canada, experiencing only two dominant majority govern-
ments, with periodic leadership changes, between 1935 and the long-serving
PC dynasty’s defeat in 2015. After an initial experiment with Depression-era
radicalism, the long Social Credit administration (1935–71) settled into a
period of careful conservative government, balancing the interests of farmers,
small businesses, and the province’s oil industry. Its PC successors (1971–2015),
enthusiastically endorsed the province-building techniques of larger provinces,
championing Alberta’s business classes and urban areas and ensuring a gener-
ous distribution of oil revenues to support smaller communities. Provincial
governments were usually able to shift political blame for occasional economic
downturns either to the vagaries of global energy prices or to federal interfer-
ence, while adapting their policies to changing economic circumstances.
However, successive leaders since 2006 have been unable to manage

the effects of volatile oil prices on provincial finances, alternating between
appeasing various public- and private-sector interest groups with sharply
higher spending and slamming on fiscal brakes when energy revenues
dropped below forecast levels.Table 7.7 summarizes variations in nonrenew-
able revenues relative to total provincial revenues since the mid-1980s. Along
with growing signs of political entitlement, these gyrations fostered public
impressions of questionable management, triggering a populist backlash that
helped to elect Alberta’s first-ever NDP government in 2015.
These challenges have been reinforced by Alberta’s excessive dependence
on fluctuating oil and gas revenues as the only province without a general
sales tax, and by growing external environmental opposition to oil sands
development, which has hindered its capacity to increase shipments to US
markets or to diversify its markets by building pipelines to export terminals
in BC and Atlantic Canada. The Notley government’s decision to imple-
ment a broadly based carbon tax to replace earlier industry-based levies,
along with tighter carbon emission caps, were significant factors in securing
federal support for major export pipeline expansions in 2016.
Several major factors have changed the face of Alberta’s energy economy
since the 1990s. Technological changes, particularly the spread of hydraulic
fracturing (fracking), have changed competitive conditions for both natural
gas and conventional oil industries. Average natural gas prices dropped from
$6.57 in 2003–08 to $2.82 in 2012–15 and $2.52 in 2016 (Alberta Energy,
2016). Rather than anticipating liquid natural gas (LNG) imports to meet
growing North American demand, huge increases in US gas production
have reduced the volume and value of Canadian exports, leading to propos-
als to export LNG through BC ports. However, expanding global supplies,
falling prices, and complexities of indigenous politics have deferred these
projects into the 2020s (Vanderklippe & Jang, 2016).
Conversely, rising global oil prices led to enormous investments in oil
sands production, which increased from 668,000 barrels/day in 2000 (40 per
cent of Alberta oil production) to 2.5 million barrels/day (74 per cent of oil
production) in 2015 (Alberta Energy Regulator, 2016), significantly outstrip-
ping available pipeline capacity. Although the Harper government strongly
supported the sector’s growth and construction of new export pipelines, it
was unable to navigate growing US environmental opposition to oil sands
imports from Canada, or growing indigenous demands, especially in BC, to
set the terms of resource and pipeline development as part of land claims and
jurisdictional disputes.
The Notley government elected in 2015 has attempted to balance a
commitment to climate change policies, including a new carbon tax and
phasing out of coal-fired electricity (source of 55.3 per cent of Alberta

power generation in 2014 [Alberta Energy, 2015]), with support for new
pipeline development, a stable royalty regime, and substantial incentives
for value-added processing of energy resources within the province. These
policies reflect historic patterns of mutual accommodation between the
provincial government, major integrated oil firms, and oil sands produc-
ers, but greater political tensions with smaller, independent operators who
are more vulnerable to shifts in market conditions. Energy independents
made heavy financial contributions to enable the conservative populist Wil-
drose Party to challenge PC hegemony in the 2012 provincial election, from
which it emerged as official opposition. The Notley government abolished
corporate and union donations to political parties, with Wildrose support,
after the 2015 election. After decades of relative stability, political prospects
for Alberta appear as uncertain as at any time since the emergence of Social
Credit in the mid-1930s.
Shifting market dynamics within North America are also likely to
increase competitive challenges for Alberta oil and gas producers in coming
years. Key factors include technological changes lowering drilling costs for
US shale gas producers, demographic and market factors limiting the growth
of oil consumption, and growing competition from low cost natural gas pro-
ducers in northeastern US states in central Canadian markets (Zeihan, 2016).
These trends may well intensify under the Trump administration, forcing
Alberta producers to seek greater market diversification.
Table 7.7 Alberta Non-Renewable Resource Revenues as Per Cent of

Total Provincial Revenues
Five years Average Peak Trough
ending resource % of
total revenues
1985–86 38.7 45.0 32.6
1990–91 19.3 21.5 17.3
1995–96 18.1 20.9 14.7
2000–01 21.0 41.8 14.1
2005–06 34.4 40.4 28.4
2010–11 28.2 33.3 19.0
2015–16 18.9 29.7 6.7
Source: Alberta Energy Regulator. (2016). Commodity forecast and analysis data. Retrieved from
http://www.aer.ca/data-and-publications/statistical-reports/commodity-forecast-and-analysis;
Alberta Treasury Board and Finance. (2016). Fiscal plan tables. Budget documents—Budget 2016.
Retrieved from http://www.finance.alberta.ca/publications/budget/budget2016/index.html
Saskatchewan and Manitoba
Before the 1970s energy boom, economic geographers lumped Alberta, Sas-
katchewan, and Manitoba together as “the Prairies,” largely rural, agricultural, and
resource-based economies with somewhat different political cultures but broadly
similar economic structures.These similarities have long been offset by significant
differences in the political cultures of the three provinces, which some political
scientists attribute to the diverse cultural influences and patterns of settlement
during the late nineteenth and early twentieth centuries and different responses
to the social and economic trauma of the Great Depression (Wiseman, 2001).
Patterns of political and economic development in Manitoba and
Saskatchewan have diverged in recent years, so they are no longer the
homogeneous agricultural economies of past generations. Rapid growth
of the wheat economy during the early twentieth century spurred the
growth of farmers’ movements in both federal and provincial politics.
However, these movements expressed themselves in very different ways:
populist and later market-oriented conservatism in Alberta; Saskatchewan’s
embrace of socialist and later social democratic governments between the
1940s and 2000s; and Manitoba’s tendency to elect cautious, stable, centrist
governments under a variety of labels.
Growing western alienation from federal Liberal governments during
the 1970s strengthened the position of provincial governments with distinct
approaches to economic and social development (Smith, 1996). The legacy of
agrarian politics can be seen in strong cooperative systems in Saskatchewan and
Manitoba and the extensive use of provincial crown corporations as instruments
of economic development. However, changes in federal regulatory regimes and
international market structures led to the voluntary consolidation of grain coop-
eratives into major corporate networks between 1998 and 2007 (see chapter 8).
The economic evolution of both provinces has reflected the dynamics of
their political systems. In recent decades, Manitobans have favoured centrist pol-
itics, generally alternating between extended periods of moderate conservative
(1988–99) and social democratic (1999–2016) governments since 1988. Saskatch-
ewan was often more polarized between social democratic and varied free-
enterprise parties, with the NDP governing 28 of 36 years between 1971 and
2007. Post-1990, NDP governments in both provinces largely accommodated
the market economy, usually combining fiscal discipline with union-friendly,
redistributive approaches to government. Brad Wall’s centre-right Saskatchewan
Party government has taken advantage of resource and commodity booms
to win three successive majorities since 2007. However, chronic deficits and
infighting within Manitoba’s long-serving NDP government (1999–2016) led
to its defeat by Brian Pallister’s PCs in 2016, with overwhelming support from
rural Manitoba and suburban Winnipeg.
Both provinces have experienced steady urbanization, rural population

decline, and continuing agricultural diversification from the historically
dominant wheat economy. Saskatchewan’s farm sector remains economically
significant, contributing about 6 per cent of GDP and 7.5 per cent of employ-
ment in 2011–15. Greater Winnipeg accounted for 61 per cent of Manito-
ba’s population in 2015; Saskatoon and Regina were home to 48 per cent
of Saskatchewan residents. Indigenous communities averaged 16 per cent of
each province’s population in 2011.
Manitoba’s diversified manufacturing, agricultural, and food-processing
sectors have largely resisted Canada’s broader manufacturing downturn since
2006.Winnipeg has renewed its position as a major logistics hub, taking advan-
tage of its strategic location on intersecting east-west and north-south trans-
portation corridors. The province’s north is a major producer of mineral and
renewable energy resources, with sizeable electricity export markets in the US
Midwest. Historically, Manitoba has been the largest proportional recipient of
federal transfer payments of any province outside Atlantic Canada, sustaining
relatively high levels of social benefits and public sector employment.
Saskatchewan’s NDP government inherited a fiscal crisis in 1991, forcing
public-sector downsizing and fostering a culture of fiscal discipline, includ-
ing budget contingency funds to accommodate fluctuations in economic
activity and reducing provincial debt.These trends have continued under the
Saskatchewan Party government since 2007 (Hale, 2006b; Kodolov & Hale,
2016). Despite its free-enterprise rhetoric, the Wall government has made
relatively few changes to the province’s extensive crown corporations sector,
remaining highly protective of its jurisdiction over resource development and
its influence over potash prices through Canpotex, the Saskatchewan-based
potash export cartel beyond North America (Bouw & McCarthy, 2010).
Ontario
Ontario, Canada’s largest economic region, has faced major challenges

of economic adjustment since the mid-2000s. Traditionally the centre of
Canada’s manufacturing, financial, and emerging technology industries, as
well as an important agricultural and resource producer, its major industries
face significant competitive challenges, along with domestically induced
headwinds such as rapidly rising energy costs resulting from several poorly
designed provincial initiatives. Ontario electricity prices increased 71 per cent
between 2008 and 2016, faster than any other province (Ferguson & Benzie,
2015; Jackson, Stedman, & Aliakbari, 2017.).
Between Confederation and the 1980s, federal economic policies
strengthened Ontario’s economy as the lynchpin of Canada’s east-west trad-
ing system. Its manufacturing and financial industries were the principal
beneficiaries of the National Policy. It early developed a diversified manu-

facturing sector that still accounted for 51 per cent of Canada’s manufactur-
ing output in 2004 (Statistics Canada, 2016b), 46 per cent in 2015.
Although Ontario governments often led Canada’s provincial rights
movement until the 1930s, they have usually worked closely with federal
counterparts as guardians of Canada’s industrial heartland since WWII
(Courchene with Telmer, 1998). As a result, Ontario regionalism has reflected
pressures from subprovincial regions, particularly eastern and northern
Ontario, for a fair share of economic opportunities, government spending,
or favourable regulation, rather than active pursuit of provincial self-interest
against Ottawa until recent years.
More Ontarians, 80.4 per cent in 2015, live in large cities than citizens of
any other province. The province counts at least 24 cities and 15 metropoli-
tan areas with populations over 100,000. The Greater Toronto Area (GTA),
Toronto and its “edge cities,” were home to 44 per cent of Ontarians in
2015 (Statistics Canada, 2016e, 2016m). Ontario attracted about 54 per cent
of Canada’s immigrants between 1990 and 2005, about 40 per cent in 2006–
15 (Statistics Canada, 2016j), maintaining its historic demographic strength
within Canada.
The Auto Pact of 1965, which eliminated cross-border tariffs in return
for domestic production guarantees, helped Ontario’s automotive industry
to become its largest manufacturing sector, followed by the food-processing
sector, generating almost half its exports until the financial crisis of 2007–09
(vs. 34.9 per cent in 2015) forced a major restructuring. It is significant to
the economies of several medium-sized cities, including Windsor, London,
Cambridge, Kitchener, Brampton, St. Catharines, Oakville, and Oshawa, and
also a major customer of its steel industry. These industries have been heav-
ily unionized since the 1930s, contributing to three-way political competi-
tion in urban areas around the province, although greater unionization often
generates increased Liberal-NDP competition.
Ontario has also evolved as the centre for many of Canada’s information
technology and communications equipment technology industries, particu-
larly in the Ottawa and Kitchener-Waterloo regions. Toronto is the largest
centre of Canada’s financial services sector. As a result, Ontario has played a
leading role in financial services regulation, including efforts to promote a
national securities regulator.
Eastern and northern Ontario are more dependent on small-scale manu-
facturing, resource industries, small-scale agriculture, and government oper-
ations. The decentralization of both federal and provincial public services
in the 1980s and 1990s resulted in the public sector becoming the largest
employer in smaller cities such as Kingston, Sudbury, Sault Ste. Marie, and
Thunder Bay. This has reinforced the tendency toward bureaucratic clien-
telism in the distribution of economic opportunities and created a sizeable
constituency for high levels of public spending in many of the province’s
smaller communities. Both regions, while sparsely populated, also have sig-
nificant tourist industries, which make the balancing of employment and
environmental concerns an ongoing concern.
Ontario-based industries took advantage of economic restructuring
occasioned by the CUSFTA to become Canada’s export powerhouse in the
1990s. However, Ontario has faced significant economic headwinds from ris-
ing exchange rates, rising provincial taxes and energy costs, intensified North
American and global competition, with exports falling from 52.2 per cent of
GDP in 2000 to 35.8 per cent in 2015. Ontario’s disposable per capita income
has grown more slowly than that of any other province since 2001 (see Table
7.5), and its per capita GDP fell below the national average in 2006. Ontario
has received equalization payments from Ottawa since 2009.
Ontario’s political culture was mainly consensual and managerial until
the 1990s, focusing on the development of the economy and the efficient
management of its public institutions in relative harmony with a wide range
of economic interests. Its size and diversity has encouraged an emphasis on
brokerage rather than ideological politics, the balancing of economic and
political interests by a strong provincial government committed to facili-
tating provincial and regional economic development through support of
private economic interests, efficient public services, and strategic state inter-
vention in key sectors. As a result, until the mid-1980s, changes of govern-
ment were few and far between.
The breakdown of the post-World War II political consensus and the
economic restructuring that followed affected Ontario more than any other
province. The emergence of huge, sustained budget deficits after 1990 led to
a sharp political reaction and the election of a PC government under Mike
Harris committed to lower taxes, market-oriented policies, and more nar-
rowly focused economic and social roles for government. The McGuinty
Liberal government elected in 2003 and its successors have pursued more
interventionist approaches to industrial development than most provinces,
except Quebec, particularly in the manufacturing and energy sectors. It has
made extensive use of grants, loans, and subsidies, although the effectiveness
of these measures has been questioned (Commission on the Reform of
Ontario’s Public Services, 2012; Dalziel, 2014). Its 2009–11 harmonization
of provincial sales taxes with the federal GST reflects the rapid growth of its
service sector and efforts to offset declining manufacturing competitiveness
(see chapter 11). Ontario has taken an incremental approach to reducing
large, chronic deficits since the 2008–09 recession (Kodolov & Hale, 2016),
currently projecting a renewed budget balance in 2017–18.
The outcome of these policies has been a mix of statist and corporatist
measures varying between economic sectors. This approach has enabled the
government to extract substantial financial contributions from businesses and
lobbyists seeking to avoid being placed at a disadvantage with competitors,
while benefiting from broad support from public service unions fearful of
more aggressive deficit reduction measures from the PC opposition (Cohn,
2016; Morrow, 2016a; Yakabuski, 2016a). Ontario’s relaxed campaign finance
laws have enabled unions to spend significant sums to defend their interests
in recent elections, included about $6 million in 2014 to defeat the provin-
cial PCs, compared with party spending limits of $7.4 million (Beange, 2016;
Ferguson, 2015). Aggressive media reporting of its fundraising practices led
the Wynne government to introduce party finance reforms in 2017, although
donation limits remain high compared to other Canadian jurisdictions.
Quebec
Nowhere in Canada have the interaction of provincial politics and federalism

played a more significant role than in Quebec, reflecting competition between
successive governments to be seen as champions of Quebec’s economic and cul-
tural interests, especially those of its French-speaking majority. However, relative
economic stagnation, until recently and widespread, and growing regional dis-
parities have led to considerable electoral volatility, with the emergence of a four-
party system reflecting growing social, ethnolinguistic, and ideological cleavages.
Major Quebec provincial parties since the 1940s have emphasized pro-
vincial autonomy and control over all major areas of jurisdiction defined in
Canada’s 1867 constitution, including taxation, economic development, nat-
ural resources, workplace, social spending, language, culture, and education.
This “compact theory” of Confederation, repeatedly reaffirmed by Quebec’s
political and intellectual elites, emphasizes Quebec’s sovereign rights, reject-
ing the unilateral exercise of federal power within its jurisdiction. As a result,
Quebec collects both its own personal and corporate income taxes, manages
most of its own social programs (including immigration) independently of
Ottawa, and exercises extensive regulatory authority over businesses operat-
ing within its jurisdiction.
Quebec’s political culture since the colonial era has emphasized the cen-
tral role of distributive politics and the use of political connections to secure
favourable economic treatment. Before the 1960s, Quebec’s economy was
dominated by Montreal’s English-speaking business class. French-speaking
Quebecers were actively engaged in politics, the professions, small-scale
commerce, and agriculture, but les anglais dominated the commanding

heights of industry, banking, and finance.
The Quiet Revolution (1960–80) replaced one form of elite accom-
modation with another. Successive governments greatly expanded the state’s
economic role, invested heavily in education and social services, and used
their regulatory powers to make French the primary language of business
and society. During this era, Quebec took full control of its personal and cor-
porate tax systems and secured compensation for opting-out of federal social
programs in provincial jurisdictions. Government spending, and the taxes
necessary to finance it, have become among the highest in Canada, contrib-
uting to a broadly corporatist and social democratic political culture under
both Liberal and sovereignist Parti Québécois (PQ) governments. Hydro-
Québec, nationalized in 1962, became the province’s chosen instrument to
develop its vast energy resources, fostering large-scale domestic engineering
and construction sectors and a strong public-sector managerial elite.The first
PQ government (1976–85) banned corporate and union donations to politi-
cal parties, substantially expanded the rights of labour unions, mandated that
French become the working language of business and employment through-
out the province, and continued to expand the province’s welfare state.
Persistent demographic realities have shaped the environment for
business-government relations. About 80 per cent of Quebec’s popula-
tion is French speaking. Quebec City and most smaller regional centres
are overwhelmingly French speaking: 94 per cent of Quebecers outside
the Montreal and Ottawa-Gatineau regions are francophones. Almost
half of Quebec’s population, and most of its English-speaking and immi-
grant populations, live in the Greater Montreal region, primarily on the
Island of Montreal (Leclerc, 2015). Since the 1970s, Quebec’s language laws
have sought to foster assimilation of immigrant communities within the
francophone majority, but with only partial success. This ethnolinguistic
concentration has often polarized political choices between federalist and
nationalist (or separatist) parties. The PQ has formed three governments
since 1976 (1976–85, 1994–2003, 2012–14), triggering sovereignty referenda
in 1980 and 1995.
Since 2003, three parties have emerged to compete for the nationalist vote.
Moderate nationalists are divided between the more conservative Coalition
Action Québec (CAQ) and the PQ.The PQ and Québec Solidaire compete
for more leftish voters and hard-line sovereignists. Electoral outcomes are
frequently determined by the choices of soft nationalist voters in both federal
and provincial elections, especially outside Montreal. About 40 per cent
of Québecois have consistently expressed support for Quebec sovereignty
in recent years, but only about 30 per cent for outright independence.
Paradoxically, this support is greatest among voters born before 1965, but
declines with age (Leger Marketing, 2014;Vallée-Dubois, 2016).
Political discourse in Quebec often emphasizes the importance of pro-
moting equity between Greater Montreal, the Quebec City region, and
les regions. Provincial policies have encouraged the development of strong,
competitive manufacturing sectors in small-town Quebec, particularly in
the Bois-Francs and Estrie regions east of Montreal and the Beauce region
south of Quebec City. Much of northern and eastern Quebec, like counter-
parts in northern Ontario, Manitoba, and BC, also relies heavily on forestry,
mining, and provincial investments in hydro-electric power development.
These regions have chronically above-average seasonal unemployment, sim-
ilar to resource-dependent areas of Atlantic Canada. In recent years, Quebec
has negotiated a series of agreements with the James Bay Cree and Inuit
peoples to recognize land claims and their role in resource management.
Both Liberal and PQ governments have made extensive use of business
subsidies, tax incentives, and more recently, equity investments, to foster
the province’s aerospace and high technology sectors and investments in its
remote areas.
These challenges have often drawn Ottawa into a contest of competitive
subsidies to persuade ordinary Quebecers that their well-being depends on
continued participation in Confederation. In some cases, this activity has
contributed to political corruption, mostly notably the sponsorship scan-
dal of 2003–05, along with provincial and municipal contracting scandals
revealed by the Charbonneau Commission (2011–15).
Even so, levels of business-fixed investment in Quebec have languished
between 20 and 30 per cent below the national average since the 1960s.
Some of this shortfall is undoubtedly due to political uncertainties result-
ing from ongoing sovereignty debates and high levels of taxation. GDP
levels and median family incomes outside Quebec’s largest cities remain
stubbornly below Canadian averages (Statistics Canada, 2016c). Quebec’s
diversified manufacturing sector generated a larger share of GDP (14.6 per
cent) and employment (11.9 per cent) than Ontario in 2015, although both
figures have dropped by about one-third since 2000 (Statistics Canada,
2016g, 2017a).
Much of Canada’s aerospace industry, with Bombardier as its multinational
capstone, is centred in Quebec. Major, family-controlled firms play a more
significant role in Quebec’s economy than in most other provinces. Similarly,
much of Canada’s supply-managed dairy and poultry sectors is located in rural
Quebec, notably in areas between Montreal and Quebec City. Counties with
significant dairy sectors were among the few areas of rural Quebec to vote
“no” in the 1995 provincial sovereignty referendum. Political mobilization by
dairy farmers was pivotal to Andrew Scheer’s defeat of Maxime Bernier in

the 2017 federal Conservative Party leadership race (Leblanc & Stone, 2017).
These factors affect Canada’s agricultural trade policies significantly. The
Harper government resisted pressure from economists and business inter-
est groups to reduce these heavily protected sectors in trade negotiations
with the European Union and Asia-Pacific nations between 2009 and 2015
(see chapter 8) to maintain its support in rural Quebec and Ontario (Hale,
2017a).
However, both moderate federalists and sovereigntists supported Canada’s
entry into the Canada-US Free Trade Agreement in the late 1980s.They saw
the agreement as a means of further modernizing and diversifying Quebec’s
economy and reducing its dependence on Canadian markets and English-
Canadian capital. The Charest government (2003–12) strongly championed
Canada-EU trade talks, subject to carve-outs for supply management.
Quebec governments continue to influence capital markets through
regulatory control of the securities industry and corporate governance of
Quebec-based firms (see chapter 12). Perhaps most significantly, the Caisse
de dépôt et placement, the investment arm of the Quebec Pension Plan, has
actively supported the emergence of a Quebec-based entrepreneurial class
(Arbour, 1993), often using its market power to protect firms from hos-
tile takeovers. Although the Caisse has shifted toward a more market-driven
investment strategy in recent years, Liberal governments in power for most
of the period since 2003 have found it difficult to sustain proposals for mildly
neoliberal policy changes. Although Quebec’s general corporate income tax
rates are among the lowest in Canada, small business tax rates and employer
payroll taxes, raised repeatedly to reduce chronic provincial deficits, are the
highest in Canada, as was Quebec’s debt-to-GDP ratio until surpassed by
Newfoundland and Labrador in 2017 (RBC Economics, 2017). Cumulative
business tax rates have been the highest among Canadian provinces in recent
years, as noted in Figure 7.1.
Atlantic Canada
The economies of Atlantic Canada have struggled with economic disadvantage

and dependency for many years. Although the region’s major cities, especially
Halifax, are pockets of prosperity, overall levels of population growth, immi-
gration, market income, employment, and business investment have lagged
behind those in the rest of the country for many years. Regional unemploy-
ment and transfer dependence remain well above national averages, although
less so than before 1995. These amounts reflect the region’s low urbanization
Figure 7.1 Provincial Tax Burden on Businesses as a Share of Gross Output

in the Business Sector (2011)
Taxes on income, profits, and capital gains Payroll taxes

Property taxes (nonresidential) Social security contributions
4.0%
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
N.B. PEI Sask. Nfld. Alta. Man. N.S. B.C. Ont. Que.
Source: Hodgson, G. (2016, May 19). Provincial tax systems are ripe for change. The Globe and
Mail. Reproduced by permission of the Conference Board of Canada.
rates, rapidly aging demographics, and heavy dependence on resource com-

modities and seasonal industries, particularly outside major cities.
Many policy analysts have pointed to the National Policy as the his-
torical root of Atlantic Canada’s economic disadvantages for undermining
the competitiveness of many of the region’s industries and gradually con-
tributing to a culture of economic pessimism (Matthews, 1983, pp. 14–16),
a theme that continues to surface in regional discourse (The Nova Sco-
tia Commission, 2014). High transportation costs, long distances to mar-
kets, and the effects of protectionist federal policies in shifting the focus of
economic development westwards contributed to the region’s economic
decline (Savoie, 2001, pp. 16–21). Maritime goods production dropped from
14 per cent of the Canadian total in 1880 to 5 per cent in 1939 (Savoie, 2001,
p. 21) and 0.9 per cent in 2015, 1.6 per cent if adding Newfoundland and
Labrador’s output.
The significant growth of federal transfers and social programs, includ-
ing unemployment insurance, during the 1970s contributed to higher
income levels and more extensive public services than would otherwise have
occurred. However, these programs have perpetuated dependence, reinforcing
the economic status quo and discouraging entrepreneurship and adaptation
to changing circumstances (McMahon, 2000; The Nova Scotia Commission,
2014; Saillant, 2014). After major, sometimes painful, fiscal restructuring during
the 1990s, three of the four Atlantic provinces enjoyed GDP growth levels at
or above the national average in 2001–06. However, regional economies have
largely stagnated since 2010, as noted in Table 7.8, renewing dependence on
public spending despite varied policy responses across provinces.
Table 7.8 GDP Growth and Broader Public-Sector Share of GDP,

Canada and Atlantic Provinces (1997–2015)
Average annual Broader public sector, %
GDP growth of GDP
2001–06 2010–15 1997 2006 2015
Prince Edward Island 3.1 1.6 31.4 29.9 29.5
Nova Scotia 1.8 0.2 30.2 27.8 28.4
New Brunswick 2.9 0.2 27 24.2 25.3
Nfld & Labrador 5.7 −0.1 23.5 17.3 19.1
Canada 2.9 2.2 19.8 17.9 18.4
Source: Statistics Canada. (2016g). Gross domestic product at basic prices, by North American In-
dustrial Classification System (NAICS), provinces and territories, CANSIM Table 379-0030. Ottawa,
ON; author’s calculations.
Newfoundland and Labrador has evolved a highly volatile resource-based

economy whose vagaries reflect prices for its offshore oil and minerals. Nova
Scotia, New Brunswick, and Prince Edward Island have more government
dependent, service-sector-based economies than most other provinces.
Newfoundland and Labrador’s political culture is characterized by exten-
sive populism and provincial nationalism, reflecting its late (1949), contested
entry into Confederation, social polarization, history of exploitation by out-
siders, and failed development schemes (Noel, 1971). Marland (2010) identi-
fies four major elements of this culture as “executive dominance, agitation
with shared decision making, frustration with capitalism and deflection of
blame” (p. 156). Several strong premiers since the 1970s have recognized the
political benefits of confronting outside interests, from Ottawa to resource
multinationals, over transfer payments and terms of access to provincially
owned resources. Crown corporation Nalcor has been the province’s chosen
instrument to channel benefits from offshore oil partnerships to industrial
development in the Avalon peninsula and pursue hydro-electric megapro-
jects in Labrador to break Quebec’s stranglehold on its electricity exports
dating from the unequal Churchill Falls agreement of 1969 (Feehan & Baker,
2010).
Newfoundland and Labrador has Canada’s most heavily resource-dependent
economy. Goods-producing sectors, mainly oil, gas, and mining (35.7 per cent),
accounted for 51 per cent of provincial output (vs. 30 per cent nationally) in
2010–14 (Statistics Canada, 2016g). The post-2004 resource boom catapulted
Newfoundland and Labrador’s per capita GDP from chronic have-not status
to levels well above the national average, doubling provincial revenues between
2003 and 2008 (Marland, 2010), albeit with greater benefits to St. John’s than the
rest of the province. Population growth resumed in 2008–14, after 15 consecutive
years of outmigration. However, Newfoundland and Labrador remains highly
vulnerable to volatility in global commodity prices. Budget deficits averaged
7 per cent of GDP in 2015–16 and 2016–17, resulting in unprecedented tax
increases and significant spending cuts (RBC Economics, 2017; Simpson, 2016).
Since fish stocks collapsed in the 1990s, the province’s once dominant fish-
ing and fish processing industries have declined sharply, accounting for less
than 2.5 per cent of employment and GDP in 2013–14. The forest (especially
newsprint) sector, based in central and western Newfoundland and Labra-
dor, faces structural decline, like counterparts elsewhere in North America.
Mining is a significant, if cyclical, contributor to Labrador’s economy (Depart-
ment of Finance, 2015). Permits for Vale’s major Voisey’s Bay development
were made conditional on processing resulting nickel production within
the province, after six years of negotiations (M. Macdonald, 2002), although
Newfoundland and Labrador-based processing only began in 2015.
Nova Scotia has long been characterized by careful, cautious, business-
friendly governments, albeit with significant levels of clientelism and patron-
age. Halifax has enjoyed relative prosperity as the region’s government and
financial centre and largest port. Cape Breton and many coastal communities
have been more chronically depressed with the decline of the fishery and the
decline or collapse of long-subsidized coal and steel industries, although the
province has maintained a strong tourism sector.
Deficit reduction during the 1990s reinforced the emergence of a three-
party system, with PCs governing for a decade after 1999, followed by Atlantic
Canada’s first NDP government in 2009. Unusually, the Cameron PC gov-
ernment privatized money-losing Nova Scotia Power, the provincial electric
utility, in 1992. Emera, its successor company, became a regulated monopoly
with operations outside the province (Comeau, 2012). However, power rates
remain among the highest in Canada, and are likely to rise further as provin-
cial climate policies encourage replacement of coal-fired generation. The fis-
cally cautious Dexter NDP government (2009–13) inherited a sizeable deficit
and sought to balance its budget by raising taxes and cutting spending.
Approaching success, it loosened the purse strings to conciliate public-
sector union allies and left a record deficit when defeated in 2013 (Kodolov
& Hale, 2016; Steele, 2014). The 2014 One Nova Scotia (Ivany) Commission
report warned of serious risks of long-term decline from demographic and
economic stagnation without significant changes in the province’s political
and economic cultures it characterized as “parochial competition over shares
of a shrinking pie, rather than increased collaboration and concerted effort
to grow the pie” (The Nova Scotia Commission, 2014, p. 9). However, public
and political support for implementation of its ambitious proposals appears to

have been modest.
New Brunswick’s economy has alternated between periods of entrepreneur-
ial creativity and relative stagnation. A handful of major family firms, including
the Irving and McCain industrial empires, dominate much of the province’s
economy, although the latter has spawned an internationally competitive food
processing sector (Savoie, 2013). Moncton and Saint John are the province’s
transportation hubs, with the former trading on the skills of its bilingual popula-
tion and the latter on its role as the province’s largest port and energy hub.
Provincial politics are shaped more by the need for parties to bridge New
Brunswick’s historic linguistic divide than by major ideological differences. Lib-
eral Premier Frank McKenna (1987–97) and PC Bernard Lord (1999–2006)
were successful in encouraging economic growth and linguistic harmony, but
New Brunswickers have thrown out three successive governments in elections
since 2006 as the province has experienced minimal growth since 2008. The
Graham Liberal government’s proposals to restructure the tax system and sell
debt-laden NB Hydro to Hydro-Québec in 2008–09 triggered a massive pub-
lic backlash and policy retreats (McCarthy, 2010b; Weil, 2010). Neither the PC
government of 2010–14 nor its Liberal successor have had much success in
attracting external investment. Public opposition led the latter to reject propos-
als for natural gas development, although it continues to champion the Energy
East pipeline in hopes of making New Brunswick a regional energy hub.
The construction of the Confederation Bridge, an all-weather link to Prince
Edward Island, during the 1990s was intended to encourage a more diverse pro-
vincial economy. However, Prince Edward Island remains Canada’s poorest prov-
ince, heavily dependent on primary industries and tourism. The province has
experienced the region’s greatest population growth since 2010. Faced with simi-
lar fiscal challenges to its neighbours, its long-serving Liberal government restored
fiscal balance in 2016, partly by harmonizing its sales tax with the federal GST.
Slow growth and public skepticism of outside interests has fostered a
political culture of localism throughout Atlantic Canada (The Nova Scotia
Commission, 2014; Patriquin, 2016), frustrating periodic efforts at regional
coordination. Political and civic leaders recognize the need for increased
immigration to offset population aging and continued outmigration and to
sustain public services. However, dynamic, sustained political leadership will
be necessary to achieve these objectives.
The North
Canada’s northern territories have long existed at the margins of the market
economy. The area north of latitude 60 accounts for more than one-third of
the country’s land mass but only 0.3 per cent of its population, about 118,000
in 2015 (Statistics Canada, 2017a). Gold strikes near Dawson City prompted
the initial European settlement of Yukon Territory at the end of the nine-
teenth century. However, after the Gold Rush, its population did not regain
1901 levels until the 1990s. Efforts to develop the region’s resources have
been the primary impetus for business investment in the territories.
Yukon’s economy is heavily dependent on mining, construction, and gov-
ernment services. The territorial capital, Whitehorse, is home to 77 per cent
of Yukon’s population. The public sector provided 39 per cent of territorial
employment in 2015, compared with the national average of 24 per cent;
the service sector accounted for about 86 per cent of employment (Yukon
Bureau of Statistics, 2016). Although Yukon’s mining sector, its largest export
sector, has been in decline since 2012, with corresponding effects on the
economy, unemployment rates remain below the national average, partly due
to increased tourism activity.
The economic structure of the Northwest Territories (NWT) is less heav-
ily weighted toward government services, although the transportation, mining,
and retail/wholesale trade sectors also add significantly to employment and
economic activity. Both the NWT and Nunavut have nonpartisan legislative
systems, in which the premier and members of cabinet are elected by legisla-
tive colleagues reflecting both historic patterns and the preferences of the
territorial leaders. About half of the NWT population lives near Yellowknife,
the territorial capital.
Employers in the NWT pay among the highest wages in Canada to
compensate for high costs of living and the harsh climate. However, there
are significant differences in living standards between those working in
the wage economy and many people in indigenous communities with a
limited economic base. Mining and transportation are key elements in the
territorial economy. The diamond industry is the largest source of min-
eral exports, with some secondary processing located in Yellowknife. The
NWT has extensive oil and gas resources, but the Berger Commission of
the 1970s recommended deferral of its development until indigenous com-
munities had reached a level of political and social development to secure
its benefits. More than 20 separate agencies were involved in negotiations
for a Mackenzie gas pipeline in the 2000s. However, by the time political
consensus among communities affected by the project had been reached,
prices had fallen enough to make it uneconomic for the foreseeable future.
Mining and hydrocarbon extraction accounted for 23.6 per cent of GDP
in 2015, virtually the same as in 2000. Climate change has raised prospects
for an active Arctic shipping route, but also challenges in building suitable
infrastructure to secure benefits for the territorial population and manage

related environmental issues.
The indigenous peoples who make up a small majority of the NWT
population have largely taken control of its political life. Self-government
and land-claim agreements with the seven major First Nations groups in
the NWT have created a second order of government in the region. These
agreements provide for effective indigenous control over resource devel-
opment on their territories. As a result, resource industries and pipeline
companies must negotiate both rights of access and economic agreements
providing for royalty payments, local employment, and other economic
spin-off benefits to each First Nation community related to these develop-
ments (Burleton, 2003, pp. 6–7). In recent years, indigenous communities
have invested some of the proceeds from these developments in new busi-
nesses as they seek not only to capture the economic benefits of resource
development, but to create upstream and downstream economic opportu-
nities from these resources.
Following extensive negotiations, the NWT were divided in 1999,
with the Inuit majority region of Nunavut becoming a separate territory.
Nunavut’s population, 37,000 in 2015, is widely dispersed across the eastern
and northern Arctic. The territory’s official economy, both the private and
public sectors, is heavily influenced by government, but the public sector
only accounted for about 32.0 per cent of GDP in 2015, compared with
41.7 per cent in 2000. The informal (or land-based) economy contributes
significantly to the livelihoods of many residents. The environmentally sen-
sitive nature of much of the territory and high costs of business operations
suggest that Nunavut will be slow to reach economic self-sufficiency and
that most business activities will depend on close working relations with
governments and Inuit communities.
Conclusion: Federalism, Regionalism, and the Environment

for Business-Government Relations
The institutions of federalism have been created to recognize and accommo-

date regional differences and competing pressures for political accountability,
while seeking to maintain both the economic and social dimensions of the
Canadian union. Both orders of government attempt to maintain a degree
of autonomy and flexibility within their respective jurisdictions to carry
out their commitments to voters. The organization of business interests fre-
quently parallels the political and regulatory structures governing different
industries. As a result, the decentralization of business and other economic
interests is very much a by-product of the institutional structures and juris-

dictional divisions created by the evolution of federalism.
Industries regulated primarily at the federal level, particularly banks,
broadcasting, telecommunications industries, and interprovincial trans-
portation sectors, have structured their national representative associations,
which focus their lobbying activities on the federal government. Major
shifts in federal policies or prolonged policy problems primarily within
federal jurisdiction also prompt the emergence and growth of new business
associations and coalitions.
These economic interests support strong federal leadership in national
economic policies, along with reductions in regulatory and other barri-
ers to interprovincial trade that undermine Canada’s national economic
union. Labour unions and other social interest groups often champion a
stronger federal role in social policy, both in establishing national standards
for provincial social programs and in expanding federal-provincial transfers,
as a counterweight to economic pressures to limit the growth of provincial
spending and taxes.
Provincial responsibility for economic development policies and many
areas of provincial regulations have spawned a wide range of business groups
and economic associations that monitor and seek to influence government
activities. Examples of this form of business organization include chambers
of commerce and industry associations representing real estate, trucking,
construction, hospitals, doctors, and many other industry and professional
groups, often organized on a national basis.
National and regional economic interests often coalesce to mobilize
whichever level of government will best serve their purposes. This multiple-
crack theory of policy making has numerous examples in recent Canadian his-
tory. A major challenge in Canada’s management of the protracted softwood
lumber dispute with the United States has been to balance and accommodate
the widely varying interests of the forest industries of at least six Canadian
provinces, which have different regulatory systems and policy orientations.
Debates over reductions in interprovincial trade barriers can be complicated
by cross-cutting interest groups seeking to influence provincial governments.
These challenges contribute to both the complexity and the dynamism
of state-society relations as new political coalitions, both within and across
provincial boundaries, emerge to contest the status quo or seek greater
accommodation within the political system. Canada’s growing integration
within North America, and to a lesser extent within the global economic
system, adds one more dimension to the balancing of regional, societal, and
economic interests in government policy. This component of Canada’s eco-
nomic structure is the main focus of chapter 8.
Caisse de dépôt et placement Quiet Revolution

Economic union Regionalism
Executive federalism Regional disparities
Federalism Regional ministers
Federal spending power
1. What is the difference between federalism and regionalism? What

major factors have helped to make Canada one of the most decen-
tralized federations in the world? How have the constitutional and
political structures of federalism shaped the context for business-
government relations in Canada?
2. How does Canada’s decentralization federal system affect the environ-
ment for business-government relations? To what extent do these effects
vary by province or region?
3. BC and Alberta both evolved as resource-based economies whose de-
velopment was financed largely by foreign capital. Explain the major
differences in the political and economic environments of the two prov-
inces. Does it still make sense to describe the Prairie provinces as a co-
hesive economic region? Why or why not?
4. To what extent is Central Canada an economic region or a col-
lection of regions? What are the major similarities and differences
between the economies of Ontario and Quebec? What implications
have these differences had on their attitudes toward federalism? To-
ward the economic role of government?
5. What are major reasons for Atlantic Canada’s economic underdevelop-
ment and dependence? To what extent do they reflect a mixture of struc-
tural economic factors, national policy decisions, and regional responses?
Arbour, P. (1993). Quebec Inc. and the temptation of state capitalism. Montreal, QC:
Robert Davies.
Bakvis, H., & Skogstad, G. (Eds.). (2012). Canadian federalism: Performance, effectiveness,
and legitimacy (3rd ed.). Toronto, ON: Oxford University Press.
Berdahl, L., & Gibbins, R. (2014). Looking west: Regional transformation and the future of
western Canada. Toronto, ON: University of Toronto Press.
Haddow. R. (2015). Comparing Quebec and Ontario: Political economy and public policy at
the turn of the millennium. Toronto, ON: University of Toronto Press.
Institute for Competitiveness and Prosperity. (2015). Disruptions ahead: The making
of a dynamic and resilient Ontario economy. Annual Report 14. Toronto, ON:
Institute for Competitiveness and Prosperity.
The Nova Scotia Commission on Building our New Economy. (2014). Now or never:
An urgent call to action for Nova Scotians—The report of the Nova Scotia Commission
on Building Our New Economy. Halifax, NS: One Nova Scotia. Retrieved from
https://onens.ca/img/now-or-never.pdf
Simeon, R., & Robinson, I. (1990). State, society and the development of Canadian feder-
alism. Royal Commission on the Economic Union and Development Prospects
for Canada. Background Paper #71. Toronto, ON: University of Toronto Press.
Tomblin, S.G., & Colgin, C.S. (Eds.). (2004). Regionalism in a global society: Persistence
and change in Atlantic Canada and New England. Peterborough, ON: Broadview
Press.
Note
1 BC averaged 50.7 per cent of Canada’s softwood lumber production in 2012–

16, vs. 21.5 per cent in Quebec and 14.7 per cent in Alberta (Statistics Canada,
2017d).
8
Globalization, Trade, and Business
T he most significant development in Canada’s political economy

during the past generation has been its progressive integration into the
international economic system through globalization, the growing inter-
action and interdependence of economies, businesses, governments, and
cultures around the world. Economic integration has several dimensions,
requiring adaptability to changing patterns of international economic activ-
ity. Some arise from trade flows (the distribution of exports and imports,
often through complex supply and value chains, and their relative shares of
economic activity) or capital flows (e.g., inward and outward foreign invest-
ment and access to and/or dependence on international capital markets).
Human migration and labour movements in response to these trends and
events have been less pronounced than those of trade and capital.
Once established, these trends have also had profound implications for
Canadian patterns of political economy, especially in light of growing diver-
gence in response to these trends among its major trade partners. All systems
of political economy involve elements of risk, along with varied approaches
to the management of political, economic, and social (including environ-
mental) risks by governments, corporations, and societal groups. Growing
awareness of potential risks, reinforced by systemic shocks and other “focus-
ing events,” can contribute to greater cooperation among governments and
other societal actors (including businesses) or to the unilateral reallocation
of risk at the hands of authoritative political, regulatory, or economic actors.
Globalization, as with many elements of capitalism, has unleashed both
creative and disruptive forces. It continues to generate both reinforcing and
offsetting responses with broad social, political, and economic implications
(Rosenau, 2003). The ways in which governments encourage, guide, and
sometimes challenge patterns of economic integration and the networks
of domestic and international economic arrangements that help to struc-
ture these activities influence the range of choices available to governments,
companies, and individual citizens, and the extent to which these choices
serve other important economic and social objectives. The greater the level
of public insecurity resulting from international economic forces, the greater
the likelihood that nationally or locally based particularist forces will seek
government accommodation or protection of their interests. The manage-
ment of these competing forces and the political risks that accompany them
205
take very different forms in Canadian federal politics, different provinces,

bilateral relations, and international activities of certain companies and
industries.
This chapter examines Canada’s evolution within the international eco-
nomic system between the mid-1980s and the mid-2010s, and the ways in
which Canadian governments and businesses have adapted to these changes.
It considers the implications of these changes for patterns of trade and
investment, Canada’s evolving position within the international economic
system and, more particularly, the North American economic region, the
implications of varied patterns of economic integration for major Canadian
domestic policies and institutions, and their effects on relations among gov-
ernments, organized business, and other societal groups.
Canada’s Evolving Position in the International Economy
Canada’s position in the global economy has evolved significantly since the
1980s. Canada’s status as an advanced industrial economy has enabled its
inclusion in major global groups of industrial nations, such as the G7, since
their formation in the 1970s. It remained the world’s ninth largest economy
in 2016, measured by GDP, but sixteenth when measured relative to pur-
chasing power, reflecting the rapid growth of several developing economies
(International Monetary Fund, 2017).
The effects of globalization are visible in the growing, but shifting
effects of trade liberalization on Canada’s integration within the North
American and global economies, related effects on patterns of investment,
and the distribution of economic activity within Canada. Public sup-
port for these developments, the “permissive consensus” on economic
globalization, has been largely contingent on economic performance
and the capacity of government to enable a reasonably widespread
share of both benefits and adjustment costs arising from globalization
(Mendelsohn, Wolfe, & Parkin, 2002).
These factors have contributed to increased interdependence between
Canada, its North American neighbours, and international economies and
societies. They also reinforce domestic pressures on the Canadian govern-
ment to maintain its capacity for choice (Hoberg, 2002) in how to engage
these broad international trends. Governments may choose to accommodate
trends of policy convergence to manage the opportunities and risks of glo-
balization. Alternately, they may strike a different balance of policy goals in
specific areas to balance significant differences between Canada’s political,
economic, and social realities and those of other major industrial countries.
These issues become particularly acute following policy shocks triggered
Globalization,Trade, and Business 207
by major policy shifts in Canada’s leading trade and investment partners, as

discussed in chapter 4.
Both exports and overall trade levels have grown substantially relative
to overall economic activity since the 1980s, although declining somewhat
since 2001.These trends were reinforced by the negotiation of the Canada-
US Free Trade Agreement (CUSFTA; 1988 ) and the North American
Free Trade Agreement (NAFTA; 1994) and the Uruguay Round nego-
tiations, which led to the formation of the World Trade Organization in
1995. Overall trade (exports and imports) grew from 31.2 per cent of GDP
in 1981 to 40.7 per cent in 1990, peaking at 66.8 per cent in 2000 (see Table
8.1). Its composition has fluctuated substantially, especially since 2000 (see
Table 8.2), based on shifts in global commodity prices, Canada’s exchange
rates with major trading partners, levels of overall economic activity, and the
international distribution of investment flows and economic activity, both
overall and in major industry sectors.
These data mask two contrasting trends. A series of Canadian trade sur-
pluses with the United States for most of the period between 1993 and 2008,
reinforced initially by declining Canada-US exchange rates and subsequently
by rising energy export prices after 2002, accompanied by rising exchange
rates in 2002–08, were offset by smaller but rising trade deficits with the rest
of the world. Between 2009 and the 2014–15 crash in energy prices, Canada’s
competitive position in nonresource sectors with the United States declined
without improving substantially with the rest of the world (Statistics Canada,
2016a). Table 8.2 summarizes trends in Canada’s goods exports by major
industry sector since 1999.
The 1985 report of the Macdonald Royal Commission on Economic
Union paved the way for Canada’s growing economic integration within
North America. The Commission’s report noted major shifts in global
Table 8.1 Canada’s Trade as Share of GDP
1990 1995 2000 2005 2010 2015

Exports of goods and services 22.0 30.5 38.1 35.1 29.9 32.3
Goods exports 18.9 26.5 33.1 30.0 25.2 27.4
Services exports 3.1 3.9 5.0 5.0 4.6 4.9
Imports of goods and services 18.7 23.3 28.7 29.9 32.0 33.5
Goods imports 14.3 18.7 23.9 24.6 25.7 27.1
Services imports 4.9 4.8 4.8 5.2 6.3 6.4
Total trade 40.7 53.7 66.8 64.9 61.9 65.8
Source: Statistics Canada. (2016i). Gross domestic product at 2007 constant prices, expenditure-
based. CANSIM Table 380-0106. Ottawa, ON; author’s calculations.
Table 8.2 Composition of Canada’s Exports by Major Sector and Value

(1999–2015)* (percentages)
1999 2007 2010 2015
Automotive products 27 18.3 14.2 16.6
Machinery and equipment 19.3 16.4 15 11.5
Industrial goods, materials 14.6 20.1 23.8 21.4
Forestry products 13.1 8.7 7.3 7.5
Energy products 7.9 18 20.7 16
Agricultural, fishing, intermediate food products 3.2 3.2 5.0 6.1
Consumer goods 11.3 11 11.8 13.3
*On a balance of payments basis
Source: Statistics Canada (2016a). Balance of international payments, current account: Goods.
CANSIM Table 376-0101. Ottawa, ON; author’s calculations.
industrial activity resulting from global trade negotiations during the

1970s and trends toward regional economic integration in Europe and
East Asia. It recommended that Canada negotiate a free-trade agreement
with the United States (Royal Commission on Economic Union, 1985).
Key objectives included obtaining predominantly tariff-free access to
Canada’s largest trading partner, establishing clear rules to manage trade
disputes, and using regional economic integration to facilitate greater spe-
cialization and international competitiveness among Canadian businesses.
These changes complemented the objectives of the US government,
which was pursuing a broad strategy for international trade liberalization
and regarded negotiations with Canada as a timely complement to its
global strategy (Kreinen, 2000).
As discussed in chapter 5, these goals, and the changes to foreign invest-
ment and industrial and resource policies that accompanied them, trig-
gered intense political debate within Canada. The Mulroney government
succeeded in mobilizing enough support from provincial governments and
large and small businesses to win the 1988 federal election and implement
CUSFTA, despite strong opposition from organized labour and nationalist
interest groups (Doern & Tomlin, 1991). This agreement has provided the
foundation for Canada’s international and domestic economic policies since
that time.
Domestic Policy Shifts and North American Integration: 1985–2000
The late 1980s and 1990s marked a series of domestic policy shifts that
complemented Canada’s adaptation to globalization. Some policy changes
during this period, especially those related to foreign investment, com-

petition, and the energy sector, were initiated domestically. Others, nota-
bly financial and transportation sector regulations and fiscal restructuring,
reflected adaptation to international policy shifts or defensive efforts to
avoid fiscal crisis.
The Mulroney government initially reduced barriers to foreign
direct investment (FDI) erected by its predecessor and sought to
encourage new foreign investment. CUSFTA, NAFTA, and the WTO
agreement subsequently entrenched international rules limiting the
screening of foreign investment, except in designated sectors that, in
Canada, include the airline, railway, and broadcasting sectors and other
cultural industries. FDI restrictions in the energy sector were also phased
out, generally with strong support from energy-exporting provinces and
the industry itself.
The 1990s saw sharp increases in both inward and outward FDI, reflect-
ing the ongoing reorganization of numerous industries and the effects of
low interest rates in facilitating the rapid expansion of capital markets and
corporate takeovers (see chapter 12). Long dependent on significant levels
of foreign investment for economic development, the rapid expansion of
Canadian multinationals and investment firms in and beyond North Amer-
ica enabled Canada to become of a net exporter of FDI for the first time in
1997 in an ongoing trend (see Table 8.3).
This trend has contributed to the geographic diversification of outgoing
and inbound FDI, especially since 2000. Historically, the United States has
been the largest source and destination of Canada’s FDI. However, Canada’s
investment relations have diversified substantially, with large-scale inward
FDI from continental Europe, and rapid growth in the (legal) use of offshore
financial centres by Canadian multinationals between 1990 and 2010 (see
Table 8.4), most under rules defined by periodic revisions to international
tax treaties.
International investments in most sectors are subject to two broad princi-
ples under international trade laws: nondiscrimination and national treatment,
Table 8.3 Canadian Foreign Direct Investment Stock as Per Cent of GDP
Outbound Inbound Ratio

1990 14.2 18.9 0.752
2000 31.6 28.3 1.117
2010 37.5 34.9 1.076
2016 50.8 39.9 1.271
Source: Statistics Canada. (2017). CANSIM Tables 376–0051, 384–0064; author’s calculations.
Table 8.4 Sources and Destinations of Foreign Direct Investment as Per

Cent of GDP
Sources and Destinations of Foreign
Direct Investment 1990 2000 2010 2015
Canadian Direct Investment Abroad
United States 61.0 49.9 39.4 44.6
Offshore financial centres* 5.3 11.2 15.6 18.3
United Kingdom 13.7 9.9 13.2 9.2
Other Europe 8.7 13.9 14.5 13.2
South, Central America 2.4 6.0 5.7 4.5
Australia 2.4 0.9 3.5 2.5
Other Asia, Oceania 5.3 5.9 5.7 5.2
Foreign Direct Investment (Inward)
United States 64.2 60.7 53.6 50.4
United Kingdom 13.1 7.5 7.2 4.5
Other Europe 14.7 26.0 23.5 29.3
China n/a 0.1 2.0 2.7
Japan 4.0 2.5 2.1 2.9
Other Asia, Oceania 2.5 1.9 7.2 7.9
Brazil 0.1 0.2 2.9 2.6
*Barbados, Bermuda, Bahamas, and Cayman Islands
Source: Statistics Canada. (2017c). International investment position: Canadian direct investment
abroad and foreign direct investment in Canada (NAICS). CANSIM Table 376–0051. Ottawa, ON;
author’s calculations.
except for specific exemptions defined during treaty negotiations. Major excep-
tions include questions of national security and rules governing investments by
state-owned or influenced enterprises, which often serve as direct instruments
of national policy in international relations (Hale, 2014). The Harper govern-
ment blocked several proposed takeovers and investments by investors with links
to foreign governments or intelligence agencies, particularly from authoritarian
countries, after tightening rules in 2009, mostly in telecom and information
technology sectors (Chase, 2015).
National governments retain broad discretion in drafting legislation in
most policy fields, except for the requirement to treat firms based in sig-
natory countries on the same basis as domestically based businesses. Indi-
vidual countries, including Canada, also negotiate business investment
treaties (BITs) or foreign investment protection agreements (FIPAs) with
other countries that go beyond the language of broad international treaties
to secure additional protection, such as independent dispute resolution, in

countries that lack independent legal institutions or strong traditions sup-
portive of the rule of law (Global Affairs Canada, 2016; Miller & Hicks,
2015). By 2016, Canada had signed 30 FIPAs, mainly with Latin American,
African, and Middle Eastern countries, and former Soviet republics. Alleged
failures by federal or provincial governments to respect similar NAFTA
rules trigger “investor-state” dispute resolution processes, which have led
to settlements in Canada estimated at $150 million between 1994 and 2016
(Herman, 2016) mainly from the actions of provincial governments. Changes
to these rules have made it easier for governments to pursue environmental
and other policy changes as long as they treat domestic and foreign investors
equitably. However, the Trump administration’s proposed renegotiation of
NAFTA creates significant uncertainties in this area.
After 1986, Ottawa combined more relaxed foreign investment rules with
strong domestic competition policies to “provide consumers with competi-
tive prices and product choices,” encourage Canadian firms to compete in
global markets, and “recognize” foreign competition (Competition Act, 1986,
s. 1.1), using a mix of criminal and civil penalties to correct anticompetitive
behaviour. The federal Competition Bureau negotiates or imposes condi-
tions on mergers or takeovers between companies operating in Canadian
markets to preserve competition, potentially including the sale of particular
assets or operations to other firms.The Bureau coordinates its activities with
those of US antitrust and European competition regulators on large inter-
national mergers affecting companies’ Canadian operations. The Bureau’s
adverse report reportedly influenced Ottawa’s decision in 1998 to reject
proposed mergers of four major Canadian banks to create two mega banks
(Whittington, 1999, pp. 239–40), encouraging larger financial institutions to
expand their international operations instead.
Other countries also impose conditions on mergers, so that major merg-
ers or takeovers involving Canadian-based multinationals (and foreign mul-
tinational corporations operating in Canada) require conditional approvals
in multiple countries. For example, the friendly 2016 merger between two
Canadian-based fertilizer giants Agrium and Potash Corp. of Saskatchewan
required separate regulatory approvals in Canada, the United States, Brazil,
China, India, and Russia (Nickel & Benny, 2017).
The deregulation of energy prices and investment rules after 1988 con-
tributed to the substantial integration of Canadian and US energy markets.
Falling global oil and gas prices after 1985 led several major foreign firms
to sell off their Canadian assets, often to Canadian-controlled consortia.
Canadian ownership, measured by the share of assets, has fluctuated between
51 and 66 per cent since the late 1990s, and was about 62 per cent in 2014,
reflecting extensive mergers and acquisitions (M&A) activity (Statistics Can-

ada, 2016b). Industry expansion during periods of declining prices required
increased access to export markets, particularly cross-border pipeline links to
the United States, which began to deregulate its markets after 1978.
Rising prices after 2000 led to sharply increased Canadian exports and
massive investments in new production capacity, especially in Alberta’s oil
sands. However, higher prices also created openings for new technologies,
especially hydraulic fracturing that prompted unprecedented growth in
US oil and gas production. The resultant natural gas glut led to sharp price
reductions and more regionalized trade within North America, creating
incentives for the development of liquid natural gas terminals capable of sup-
porting trans-Atlantic and trans-Pacific exports. Net exports accounted for
53.8 per cent of Canadian crude oil and bitumen production (including
upgraded bitumen) in 2015, 43.1 per cent of natural gas production, and 17.6
per cent of refined petroleum products. Oil sands accounted for 61 per cent of
Canadian crude oil production in 2015 (Natural Resources Canada, 2017).
Canada’s dependence on US markets for energy exports subsequently
made it vulnerable to pressures from environmental groups attempting to
block Canadian oil sands imports and pipeline developments as a symbolic
challenge to climate change. Court rulings affirming First Nations land
ownership rights in BC and other regions have created an evolving legal and
political landscape in which companies wishing to develop major resource
or infrastructure projects must negotiate rights of access and use, often with
multiple communities (Newman, 2014a). Growing political uncertainties
made the diversification of energy export markets an important prior-
ity under both Harper and Trudeau governments to maximize economic
opportunities in Canada. However, navigating new export pipeline projects,
whether to tidewater or the United States, increasingly requires the balanc-
ing of multiple political and environmental considerations for governments
and companies alike (Hale & Belanger, 2015).
Canada also responded to major international regulatory changes to the
transportation and financial sectors in the 1980s, which threatened to put
Canadian firms at a competitive disadvantage. During the 1980s, the United
States deregulated passenger airfares and freight rates charged by railways
(see Figure 8.1) and trucking firms. The resulting explosion of competition
substantially reduced rates, leading Canadian federal and provincial
governments to follow suit to maintain the competitiveness of domestic and
cross-border shippers. Governments in both countries also compensated for
actual and potential risks created by competitive cost-cutting by periodic
tightening of safety regulations, most recently following the 2013 Lac
Figure 8.1 Average US Freight Rail Rates Down since Deregulation
7¢
6¢
5¢ Rall rates are down 42% since 1981*
4¢
3¢
2¢
1¢
0¢
‘81 ‘82 ‘83 ‘84 ‘85 ‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13
Source: American Association of Railroads. Retrieved from https://www.aar.org/Pages/Average-

US-Freight-Rail-Rates-Chart.aspx
Mégantic tragedy, when a runaway freight train carrying US crude to a New

Brunswick refinery exploded, killing 47 people (Owram, 2015).
Changes to transportation-sector regulations have had a series of “knock-
on” effects on other sectors, depending on their exposure to foreign invest-
ment and integration into international networks. Canada’s two major
railways, Canadian Pacific and Canadian National, have become highly effi-
cient, integrated North American firms whose US operations are among
that country’s seven largest Class I railways. Successive federal governments
and some provinces have invested heavily in expanding Canada’s port and
gateway infrastructure to facilitate the growth of international trade. The
1990s deregulation of freight rates for grain transportation has contributed
to the transformation and diversification of Western Canadian agriculture,
the consolidation of traditional grain-marketing cooperatives and their con-
version to “conventional” corporate status, and a long-standing political bat-
tle culminating in the abolition of the Canadian Wheat Board monopoly on
western grain marketing in 2012. Figure 8.2 summarizes the evolution of the
Western Canadian grain-marketing sector since the 1990s.
The demonstration effects of Britain’s big bang reforms in 1985 led
to the substantial restructuring of Canada’s financial sector. Quebec, fol-
lowed by Ontario, opened up its provincial securities markets to foreign-
based investment banks in 1986. In response, Ottawa removed regulatory
restrictions on major bank takeovers of securities dealers and trust com-
panies, largely dismantling regulatory barriers between banks and financial
subsectors, although subsequently prohibiting mergers between large banks
and insurance companies. The emergence of new actors, including mutual-
fund and other wealth-management firms, large pension investment funds
(see chapter 12), and specialized “monoline” financial institutions, along with
Figure 8.2 Evolution of the Western Canadian Grain Business
United Grain
Growers
(1917–2001)
Alberta
Saskatchewan Co-
Wheat
Operative Wheat Manitoba Pool Elevators
Pool
Producers (1926–1998)
(1923–
(1923–1953)
1998)
SK Wheat Pool Agricore RICHARDSON

(1953–2007) (1998–2007) PIONEER
AGRIUM Agricore
United
(2001–
2007)
Australian
VITERRA Barley Board
(2007–2013) (1939–1999)
ABB Grain
(1999–2009)
Glencore Agriculture (2016–?)

Glencore * co-owned by Canada Pension Plan
(2013–?) Investment Board (40%) and British
Columbia Investment Management Corp.
(9.9%)
Source: Adapted from The Globe and Mail, 2015.
the expansion of major credit union federations, has increased competi-

tion in Canada’s financial sector, while encouraging major firms to expand
internationally. However, recognition of Canada’s vulnerability to interna-
tional economic and financial shocks, which resulted in forced mergers of
some smaller Canadian financial institutions in the late 1980s, led Ottawa to
maintain several important regulatory disciplines loosened by other indus-
trial countries in the 1990s and 2000s. These disciplines enabled Canada’s
major financial institutions to avoid the overextension and questionable
risk-management practices that contributed to the global financial crisis of

2007–09 (Longworth, 2014; Pauly, 2014).
Finally, the effects of globalization have contributed to major changes
to Canada’s fiscal and tax systems. Major tax reforms in the United
States, which led to base broadening (fewer tax preferences) and lower
personal and corporate income tax (CIT) rates, but also greater depend-
ence on corporate taxes for revenues, led to similar tax reforms in
Canada in 1987–88. To make up for lost revenues and to avoid placing
Canadian businesses at a competitive disadvantage as Canada negoti-
ated free-trade agreements with the United States, Ottawa replaced the
loophole-ridden federal sales tax, which also applied to manufactured
exports, with a value-added tax on most goods and services consumed
in Canada, while exempting exports (Hale, 2001, pp. 181–223). Although
the GST was bitterly unpopular with Canadians, including many small
businesses, it has persisted as a central feature of the federal (and later
several provincial) tax systems. The growing international operations
of Canadian and foreign multinationals prompted significant changes
to Canada’s business tax systems after 2000, discussed more extensively
in chapter 11, including substantial cuts to CIT rates in 2006–12 and
improved sales tax coordination with some provinces. However, trends
in provincial CIT rates and tax preferences have varied widely across
provinces, reflecting major differences in regional political, economic,
and fiscal conditions.
North American Integration: Sources and Limits
CUSFTA prompted anguished debates in Canada during the 1980s

and early 1990s over the potential consequences of closer economic
integration with the United States. Many critics wondered whether
economic integration would result in closer political integration and
extensive loss of national or provincial policy discretion as under the
European Union, leading to a “race to the bottom” in economic and
social provision.
Debates over North American integration often overlook funda-
mental distinctions between NAFTA as a free-trade agreement and the
European Union, whose shared institutions are the product of more than
60 years of deliberate political choices aimed at the creation of an “ever
closer union.” Box 8.1 outlines the continuum of economic integration
as reflected in major bilateral or region-wide institutional arrangements.
Table 8.5 summarizes key demographic and economic data from the three
countries in 1990 and 2015.
216
Box 8.1 The Economic Integration Continuum
Deep integration/ Customs union Common Free Sectoral Independent

economic union External Tariff Trade Agreements (e.g., national
uneasy partnership
Area Auto Pact) policies

Free Trade Agreement Mutual elimination of tariffs and other trade barriers, with specified exceptions
Common External Harmonization of tariff rates among participating countries on imports from third countries
Tariff
Customs Union Removal (for trade purposes) of internal borders among participating countries; common trade
policy in dealing with other countries
Economic Union Agreement to harmonize fiscal, monetary, and other economic policies among participating
countries, including provisions for labour mobility among members and regulatory
coordination in competition, financial sector, and other specified policy fields
Table 8.5 North America in Context
United States Mexico Canada

% of % of % of
Year Total NA total Total NA total Total NA total
1990 248.7 m 69.6% 81.3 m 22.7% 27.5 m 7.7%
Population
2015 321.4 m 67.2% 121.7 m 25.4% 35.1 m 7.3%
GDP 1990 5,801 bn 86.8 288 bn 4.3 595 bn 8.9
(USD) 2015 17,970 bn 86.6 1,161 bn 5.6 1,628 bn 7.8
GDP per 1990 23,198 7,358 31.7 20,204 87
capita, PPP 2015 56,300 18,500 32.9 45,900 81.5
basis (USD)
United States Mexico Canada

% of Trade Trade
Trade trade with Trade with US Trade with US
as % of NAFTA as % of as % of as % of as % of
GDP partners GDP GDP GDP GDP
1990 20 19.2 38 52 50 56.6
2014 29.3 23.4 66.4 64.6 64.3 68.6
Source: World Bank. (2017). http://data.worldbank.org/indicator/SP.POP.TOTL; http://data.
worldbank.org/indicator/NY.GDP.MKTP.CD; http://data.worldbank.org/indicator/NY.GDP.
PCAP.PP.CD; http://data.worldbank.org/indicator/NE.TRD.GNFS.ZS; CIA World Factbook;
author’s calculations.
The three countries of North America remain distinct, internally diverse

sovereign nations whose governments, unlike those of Europe, have delib-
erately avoided developing shared political institutions to manage the eco-
nomic integration and societal interdependence (Hale, 2015a). This central
political reality requires a capacity to manage intermesticity, the blurring of
traditional distinctions between domestic and international policies (Hale,
2012, p. 4), and intervulnerability, “the cost to one’s neighbors of one’s own
domestic policy choices” (Doran, 1984, p. 8). Given the limits and fragility
of formal institutions for coordination among governments, a wide range
of transgovernmental institutions and processes have grown up between
Canadian and US governments, sometimes extending to include Mexico
(Clarkson, 2008; Hale, 2013). These relations are paralleled by the develop-
ment of cross-border and international networks of economic and societal
interests that promote, reinforce, mediate, or challenge intergovernmental
policy initiatives.
The persistence of independent national regulatory systems governing
most industry sectors means that although some sectors, notably automotive
and information technology, function as North American industries, this

level of integration remains the exception rather than the rule. Others, such
as the railways, airlines, financial, oil and gas sectors (for the United States
and Canada), and telecommunications, have extensive cross-border opera-
tions and mutual interdependence but within distinctively national (or sub-
national) systems of regulation, sometimes involving significant barriers to
foreign ownership.
Rather than hard-law systems of vertical integration based on delega-
tion of authority to supranational bodies, sectoral regulatory coordination
has generally occurred through soft-law processes. National regulators have
attempted to agree on shared regulatory objectives and principles to be
implemented in the context of national legislative and regulatory institu-
tions, often with significant technical variations between countries (Bow &
Anderson, 2015; Slaughter, 2004). Businesses based in neighbouring NAFTA
countries receive national treatment. However, individual firms’ capacities
to negotiate remaining regulatory differences between countries has often
depended upon their operational scale and sophistication.
In practice, greater economic integration has led to closer regulatory
alignment between Canada and the United States than of either country
with Mexico. However, outcomes have been far more complex and sec-
torally varied than anticipated by supporters or critics of CUSFTA and
NAFTA. The growing complexity of domestic politics and each country’s
engagement with the international economic system have increased the
difficulty of expanding NAFTA’s “shallow” governance institutions
(Clarkson, 2008). These political trends have been reinforced by very differ-
ent economic structures, the understandable insistence of Canadian prov-
inces and US and Mexican congresses in protecting their constitutional
rights, and the need to balance competing domestic political interests and
public opinion (Hale 2015b; Simeon, 2003).These realities have led to highly
decentralized policy relations and tendencies toward dual bilateralism, the
development of separate, bilateral arrangements between the United States
and its two neighbours, rather than trilateral arrangements pointing toward
closer North American integration (Gattinger & Hale, 2010).
However, both Canada and (especially) Mexico remain vulnerable to the
effects of unilateral American actions affecting their domestic and cross-
border interests, whether resulting from the deliberate exercise of power or
the inadvertent effects of competition among American domestic interests.
As a result, both countries have expanded their international diplomatic
and economic initiatives outside North America, whether to complement
American policies or insulate themselves against broad US and international
policy trends. Following 9/11, the Bush administration’s commitment to
the international economic system partly mitigated the insecurities brought

on by the attacks. However, it remains to be seen how the resurgence of
American economic nationalism that contributed to the 2016 election of
Trump will affect political and economic relations within North America.
National distinctions within North America have also been rein-
forced by shifting international economic trends during the past 25 years.
Canada’s exchange rates with major trading partners have fluctuated with
prices of major commodities, as noted by Table 8.6. The Bank of Canada,
with its persistent commitment to pursue inflation targeting as its prin-
cipal policy goal, based on regular interest rate adjustments, has deliber-
ately used Canada’s floating exchange rate as a monetary shock absorber.
Overall levels of North American integration, as measured by intrare-
gional trade levels, increased substantially during the 1980s and 1990s,
before declining in the 2000s, especially during the 2008–09 recession,
and rebounding somewhat after 2010 (see Table 8.7). These shifts have
had significant, if fluctuating, sectoral and regional effects, as noted in
chapter 7. US exchange rates with major trading partners are also influ-
enced by volatility in short-term global capital flows (Coulombe, 2013;
Laidler & Poschmann, 2000).
During the two decades before 2016, the distinctions between limits on
political integration, sectoral variations in trade patterns, and the growth of
extensive cross-border operations and supply chains for many Canadian- and
US-based businesses, described by some observers as “bottom-up” integration,
have challenged governments to find new ways of reducing regulatory barri-
ers to trade while preserving national and subnational governments’ capacity
for policy choice (Blank, 2015; Slaughter, 2004).These trends have contributed
Table 8.6 North American Exchange Rates (1990–2016)
1990 1994 1997 2002 2007 2009 2012 2016

Mexican peso →
0.356 0.296 0.126 0.103 0.092 0.074 0.076 0.054
USD
Canadian dollar
0.862 0.732 0.722 0.637 0.931 0.876 0.999 0.755
→ USD
WTI* average
24.47 17.19 20.61 26.12 72.32 61.65 94.11 43.14
price (USD)
Standard
deviation monthly 27.3 9.6 8.5 12.2 18.3 22.4 8.0 15.8
(per cent)
*West Texas Intermediate (principal North American oil price benchmark)
Source: www.data360.org; canadianforex.ca; Government of Alberta, http://economicdashboard.
albertacanada.com/EnergyPrice; author’s calculations
Table 8.7 Intraregional Trade as a Share of Total Two-Way Trade
European Union North America Asia

1980 53.2 32.6 28.8*
1990 60.6 42.8 35*
1999 61.7 54.6 39.1*
2010 65.3 48.7 52.6**
2014 63.3 50.2 56.4**
*East Asia
**Asia.
Source: Pastor, R.A. (2001).Towards a North American community. Washington, DC: Institute for
International Economics; https://www.wto.org/english/res_e/statis_e/its2011_e/its11_toc_e.htm;
https://www.wto.org/english/res_e/statis_e/its2014_e/its14_toc_e.htm, Table A-2.
to highly decentralized, sectorally varied patterns of transgovernmental

relations (interactions among political, administrative, and regulatory offi-
cials in each country on technical issues of policy design and implementa-
tion outside formal diplomatic processes). Not surprisingly, these networks are
complemented by extensive transnational relations among Canadian and US
business and societal interest groups, sometimes including Mexico (Hale, 2013;
Skogstad & Schmidt, 2011). Federal and provincial (or state-level) departments
and agencies in each country may seek to protect and promote the interests of
particular industry sectors in dealings with other governments. However, they
frequently have their own interests and agendas to promote, sometimes associ-
ated with established institutional structures and related views of the public
interest, sometimes related to their own internal agendas.
However, the political and economic dynamics of North American inte-
gration have been fundamentally altered by American political controver-
sies over shifts in manufacturing production, chronic US trade deficits with
Mexico and China, and persistently stagnant or declining living standards for
many middle- and working-class Americans (Autor, Dorn, & Hansen, 2016;
Noland Hufbauer, Robinson, & Moran, 2016). These factors contributed to
the election of Trump in 2016, subsequent steps to renegotiate NAFTA, and
continuing shifts in US trade policies.
Constraints on North American Integration
Several major factors have constrained the deepening of North American

integration since 2000, including the growing primacy of security dis-
course in the United States after 2001, domestic political conflicts in the
United States over relative stagnation in living standards, partly linked to
import competition (Autor et al., 2016), and controversies over border con-
trols and immigration policies (Alden, 2008). Divided or minority govern-
ments have been the norm in all three countries, with domestic political
conflicts spilling over into bilateral and North American relations. Trends
toward competitive liberalization in trade policies have contributed to
the related shift in discussions over regulatory coordination from North
American to international venues (Clarkson, 2015; Hale, 2015b).
Border Security and Integration
The 9/11 terrorist attacks on New York and Washington in 2001 dramatically
altered the focus of Canada-US relations and the broader political environ-
ment for North American and global economic integration. Security replaced
trade as the main focus of US policy makers. New security measures phased
in over the next decade contributed to a “hardening” of American borders,
forcing Canadian officials and companies with large-scale cross-border opera-
tions to take parallel measures to limit disruption of trade and travel (Alden,
2008; Hale & Marcotte, 2010). The substantial complexity and costs of meet-
ing these requirements offset the benefits of trade liberalization for many
companies, particularly small firms. Initially, some Canadian businesses pressed
for a “grand bargain” with the United States and Mexico to trade off greater
accommodation of US security and regulatory goals for inclusion within an
emerging US security perimeter (Dobson, 2002; Hart, 2004). However, such
goals proved illusory as diverging trends in public opinion reinforced differ-
ences between the two countries’ economic structures and legal and political
systems in creating political barriers to further economic integration.
Under the Obama administration, Washington and Ottawa worked to
improve the coordination of border management and security measures
under the Beyond the Border Action Plan. However, progress in facilitat-
ing trade and travel within (and from beyond) the North American perim-
eter was slow and incremental, reflecting competing bureaucratic agendas
and domestic legal standards. Separate bilateral processes have applied to
US-Mexico border management issues, again reflecting the reality of dual
bilateralism and US domestic political sensitivities over migration and drug
smuggling. The future of these processes under the Trump administration is
uncertain at best.
Canadian political and business leaders have sometimes responded to
US tensions with Mexico by attempting to separate bilateral negotiations
on sectoral and border facilitations from trilateral policy discussions. Under
the George W. Bush administration, efforts by major national business
groups to set priorities for trilateral regulatory cooperation prompted strong
countervailing reactions by left-leaning union and environmental groups in

all three countries and conservative nationalists in the United States (Ayres &
Macdonald, 2012; Corsi, 2009). During the 2008–09 recession, the federal and
Ontario governments joined the Obama administration in bailing out bank-
rupt General Motors and Chrysler, largely as a defensive move intended to
limit the continuing southward migration of the industry (Nieuwenhuis &
Wells, 2015, p. 77). Ottawa and Washington set up the Beyond the Border pro-
cess to improve cooperation on border security and trade facilitation in 2011,
paralleling similar initiatives with Mexico. Government officials consulted
with economic stakeholders on closer cross-border regulatory cooperation in
several sectors. However, policy outcomes from these processes have proven
slow and incremental at best. American environmental interest groups have
strongly opposed growing Canadian oil sands production and expanded cross-
border pipeline capacity. The growing polarization of US domestic politics
has eroded broad political support for closer North American integration.
American public attitudes toward NAFTA and other trade agreements, while
volatile, reflect persistent partisan and class divisions (Blake, 2017; PollingRe-
port.com, 2017; Smeltz, Kafura, & Wojtowicz, 2016), despite falling unemploy-
ment and sharply declining levels of illegal immigration.
Divided Government
Negotiating major international policy changes usually requires strong,

cohesive majority governments or extensive cross-partisan consensus on
major policy goals and acceptable means to pursue them.The Chrétien gov-
ernment (1993–2003) extended many of the policies of the Mulroney gov-
ernment that negotiated CUSFTA. Minority governments between 2004
and 2011 agreed on basic elements of North American policy but managed
proposed changes on a case-by-case basis, with careful attention to public
opinion. A limited bipartisan consensus on trade liberalization, with selec-
tive protection of some sectoral interests, was the norm in American politics
during the 1980s and early 1990s. Mexico’s single-party system of electoral
authoritarianism could deliver unified policy leadership in opening its econ-
omy to the world during the same period.
However, divided government, with different parties controlling the pres-
idency and one or both houses of the national congress, has been the norm
in the United States and Mexico since the late 1990s. Cross-border electoral
cycles are rarely synchronized, and both US and Mexican presidents have
sometimes found it difficult to advance their policy preferences, even when
ostensible allies exercised political control of congress. These trends have
been reinforced by intense ideological polarization in American politics and
the emergence of strong factions in both major US parties championing

economic nationalism and opposing further trade liberalization (Hale, 2012,
2015b).
As a result, both the George W. Bush and Obama administrations opted
to limit policy discussions on North American economic and regulatory
cooperation to issues not requiring direct congressional involvement. Such
approaches privileged processes dominated by bureaucratic interests in
each country, although with varying degrees of input from sectoral busi-
ness groups. The relative influence of business interests in such processes
depended heavily on their cohesion, the influence of export-oriented and
import-competing interests in each country and specific sectors, and the
degree to which competing societal interest groups organized to challenge
closer integration in specific cases.
Business proposals for regulatory cooperation were directly related to
transaction costs of managing cross-border supply chains and distribution
networks and the pursuit of greater efficiency and competitiveness from
improved coordination of specialized business networks. Trivial regulatory
differences can result in higher costs, operational delays, and duplications of
business processes. However, domestic regulators face different incentives
that often contribute to cultures of risk avoidance, whether social, legal or
political.
Business and societal interests have varying degrees of access to govern-
ment policy processes in both countries, depending on the mandates and
political sensitivities of relevant agencies. For example, the shift in oversight
of the Canada Food Inspection Agency from Agriculture and Agri-Food
Canada to Health Canada in 2013 significantly reduced internal pressures
to facilitate trade through the development of common technical standards
with other countries (confidential interviews, sectoral associations, 2015).
Similarly, complex, legalistic US regulations created to manage domes-
tic interest-group competition rarely lend themselves to cooperation with
foreign governments. As a result, the political burden of promoting closer
regulatory cooperation falls to domestic businesses that approach them as an
extension of domestic lobbying priorities.
Prolonged disputes, such as those over softwood lumber and country-
of-origin labelling (COOL), generally pit export-oriented (or import-
dependent) interests in each country against domestically focused business,
labour, agricultural, or environmental interests. The softwood lumber agree-
ment of 2006 concluded a five-year dispute over the compliance of Cana-
dian provincial stumpage fees and other rules with NAFTA and the WTO
agreement, with eventual refunds of almost $5 billion in punitive tariffs. Its
expiry in 2015 was followed by a renewal of the long-running dispute in
2017. COOL restrictions on foreign food imports were intended to increase

processing costs for meat and seafood, thereby increasing returns for many
US producers, ostensibly to promote greater consumer awareness and food
safety (Moens & Vivanco-Leon, 2012). After six years of litigation (2009–15),
several WTO rulings allowed Canada and Mexico to impose $1.3 billion in
tariffs on US exports, creating a political window for export-friendly mem-
bers of Congress to repeal the offending law after its supporters had dragged
out the process as long as possible. The integration of industry supply chains
has made such disputes comparatively rare in recent years (Hale, 2012), as
American imports from Canada often contain substantial US value-added
content (OECD & World Trade Organization, 2015; Xu, 2012), thus blurring
distinctions between US and Canadian producers. Politicization of trade dis-
putes absorbs considerable resources for both businesses and governments,
eroding the mutual goodwill and political will necessary to facilitate broader
cross-border and international cooperation.
Competitive Liberalization: Diversifying Canada’s International

Economic Relations?
These trends, combined with the extended global commodities boom of

2004–14, encouraged the Harper government to diversify Canada’s exter-
nal trade and investment relations after taking office in 2006. Even before
9/11, the slow pace of multilateral trade negotiations led both Mexico and
the United States to pursue bilateral trade negotiations with other Western
Hemisphere countries and strategic trading partners around the world. US
pursuit of competitive liberalization enabled it to secure preferential
access to numerous markets, establish negotiating precedents that could
advance its international trade agenda, and provide strategic support to
allies in responding to a series of geo-political challenges (Schott, 2004).
Mexico pursued multiple trade deals to position itself as a central location
for foreign investment by firms seeking to access US and other hemi-
spheric markets.
The Harper government responded to competitive liberalization by pur-
suing parallel deals with other US trade treaty partners to prevent Canadian
firms from being placed at a lasting disadvantage in those markets. Arguably,
this preservation of relative competitiveness in emerging trade networks has
become more important to Canada’s economic well-being than the direct
economic benefits from more recent agreements (Ciuriak, Dadkhah, & Xiao
2016), recalling the political proverb that “it’s better to be at the table than
on the menu.” Box 8.2 summarizes Canada’s bilateral trade agreements with
other countries through 2016.
Box 8.2 Canada’s Bi/Plurilateral Trade Agreements
In force (year Agreements TPP countries

implemented) concluded without previous
(awaiting ratification) FTA with
Canada
United States (1989, European Union (2014)M AustraliaU
1994)M
Mexico (1994)UT Ukraine (2015) Brunei
Israel (1997) UM
Trans-Pacific Partnership JapanM
Chile (1997)MT (TPP) (2015) Malaysia
Costa Rica (2002)MU New Zealand
European Free Trade Association (2009) M
SingaporeU
Peru (2009)UMT Vietnam
Colombia (2011)MU
Jordan (2012)U
Panama (2012)UM
Honduras (2014)UM
South Korea (2015)U
Italicized – pending ratification
M – FTA with Mexico

T – Parties to TPP
U – FTA with United States
This box has been assembled by the author from updated data sourced from Global
Affairs Canada. (2017). Trade and investment agreements, Ottawa, ON. Retrieved
from https://www.international.gc.ca/trade-commerce/trade-agreements-accords-
commerciaux/agr-acc/index.aspx?lang=eng; Office of the U.S. Trade Representative.
(n.d). Free trade agreements, Washington, DC. Retrieved from https://ustr.gov/trade-
agreements/free-trade-agreements; Villareal, M.A. (2017, 25 April). Mexico’s free trade
agreements, CRS Report #R40784. Washington, DC: Congressional Research Service,
Library of Congress. Retrieved from https://fas.org/sgp/crs/row/R40784.pdf
Regional factors within Canada have also played a role in encouraging

trade diversification. Quebec’s pursuit of expanded trans-Atlantic trade
encouraged Ottawa to launch negotiations with the European Union in
2009, eventually leading to a draft Comprehensive Economic and Trade
Agreement (CETA) in 2014, which is moving slowly toward ratification in
2017. After winning a parliamentary majority in 2011, the Harper govern-
ment joined ongoing talks with the United States, Australia, Mexico, and
eight other countries, subsequently including Japan, aimed at negotiation
of a Trans-Pacific Partnership (TPP), which was concluded in 2015.
US withdrawal from the TPP in 2017 has exposed divisions among Canadian
business groups.The Trudeau government and many business groups are focused
on responding to Washington’s demand for renegotiation of NAFTA. Other
groups seek complementary policy measures including a reopening of TPP talks
without the United States, bilateral negotiations with Japan, the initiation of
trade negotiations with China, or some combination of the above. Growing
mercantilist tendencies in US policies increase the likelihood that Canada will
pursue a two-track approach in efforts to diversify trade relations. However, such
efforts will require considerably more focus and reciprocal interest from other
countries to avoid the fate of similar diversification efforts in the 1970s.
Plurilateral negotiations usually involve complex sectoral matters that
affect industries and regions of Canada and negotiating partners, in different
ways. Ottawa has sought to promote the interests of major export-oriented
industries in each region, while attempting to accommodate the interests of
politically sensitive import competing sectors. Provincial governments were
direct parties to CETA negotiations due to EU insistence on direct access to
provincial procurement contracts (direct purchases of goods and services by
government departments and agencies).
Differences in provincial resource policies required effective provincial
consent for negotiation and ratification of the 2006 Canada-US Softwood
Lumber Agreement (Hale, 2012, pp. 287–94). Automotive sector negotiations
were particularly complex, given Canada’s mix of Detroit-based and “trans-
plant” assembly plants and parts and components manufacturers with differ-
ent supply chains, cost structures, and levels of unionization. These divisions
gave Ottawa more flexibility in making trade-offs among the competing
industries (Macaluso, 2015; Nieuwenhuis & Wells 2015, pp. 67–79). Although
economists and trade experts often called for the elimination of supply man-
agement to reduce consumer prices and permit the growth of more com-
petitive food processing industries (Hall Findlay, 2012; Trebilcock, 2014), the
Harper government effectively shielded the politically sensitive dairy and
poultry sectors during CETA and TPP talks, hoping to maintain its electoral
support in rural Ontario and Quebec.
International Regulatory Cooperation and Jurisdictional Overlap
Another challenge of contemporary trade and regulatory agreements is the trend

toward internationalization of regulatory issues traditionally managed through
domestic politics. Such transnational processes have been described as forms of
horizontal integration using a variety of soft-law tools establishing shared prin-
ciples through specialized international agencies that attempt to build bridges
between the sectoral regulatory systems of major economic powers, particularly
the United States and the European Union (Skogstad, 2012; Slaughter, 2004).
Businesses with international operations are subject to a variety of national
legal systems and requirements.The principle of national treatment, noted above,
gives primacy to the legal requirements of each “host” country, with various
approaches to securing nondiscrimination between domestic and foreign-based
firms. In selected circumstances, Canadian governments negotiate regulatory
harmonization or mutual recognition agreements with the United States, par-
ticularly in industry or policy subsectors characterized by deep integration of
industrial organization and supply chains.The automotive sector, in particular, is
characterized by extensive regulatory coordination, although full harmonization
remains an elusive goal. In other sectors, such as accounting standards, Canada
has aligned its regulatory systems more closely with those of Great Britain and
the European Union, although often with significant technical differences.
Trends toward international regulatory coordination are more common in
circumstances in which policy challenges are multidimensional and multilat-
eral. Following the 9/11 terrorist attacks, Canada cooperated with various US-
led initiatives intended to develop multilateral regulations governing activities
ranging from international movements of shipping containers to the standards
for electronic passports. After the 2008–09 global financial crisis, Canadian
officials played an active role in the work of the Financial Stability Board in
strengthening international standards for major financial institutions, although
competing priorities among major powers have enabled Canadian regulators
to retain tactical room to manoeuvre rather than aligning themselves with dif-
ferent US or European regimes (Longworth, 2014; Pauly, 2014).
International nongovernmental organizations have also played signif-
icant roles in various areas: advocating for forest practice standards, pro-
moting greater transparency in multinational firms’ development of natural
resources in developing countries, lobbying for regulatory changes in sus-
tainable environmental standards for natural resources and constraints on
the use of precious minerals from countries disrupted by civil wars, and fur-
thering transparency intended to limit opportunities for governmental cor-
ruption. Some corporations actively champion such measures from various
motives: strengthening their own reputations, establishing legal disciplines
on competitors, discouraging “toll-gating” and other forms of extortion by

corrupt foreign government officials, and legitimizing foreign (or private)
investment and development projects by sharing their benefits more broadly,
thereby strengthening the legitimacy of the economic system. Other firms
are more reluctant to participate, citing risks of competitive disadvantage,
uneven enforcement, and the difficulties of controlling third-party risk by
business partners or suppliers in other countries.
International initiatives through the OECD and several major countries
resulted in passage of Canada’s Corruption of Foreign Public Officials Act in 1999.
It imposes penalties on Canadian-based companies and organizations that
“offer or agree to give or offer any benefit, directly or indirectly, to a foreign
public official for the purpose of obtaining or retaining an advantage in the
course of business” (Public Prosecution Service of Canada, 2014). Additional
legislation in 2013 extended Canada’s Integrity Framework to all federal
public contracts, imposing stiff sanctions on firms convicted of corruption,
including exclusion from eligibility to bid on federal contracts for up to
10 years. This crackdown coincided with revelations of extensive corrup-
tion in public infrastructure projects in Quebec. However, implementation
has been slow. Some business and professional groups have sought greater
flexibility in implementing the new rules. The Trudeau government intro-
duced new rules in 2016 that address some of these concerns (Barutciski,
Kronby, Roberts, & Reid, 2016).
Canada also participates in the multi-stakeholder Extractive Industries
Transparency Initiative, which includes resource-sector firms, nongovern-
mental organizations (NGOs), and governments. It promotes verifiable pub-
lic disclosure of all business payments to domestic or foreign governments
related to resource extraction (Haufler, 2010). First Nations governments
have argued their communities should be exempted altogether from what
they consider a unilateral application of federal law, although such informa-
tion is available in other countries (Freeman, 2016).
Globalization, Business, and Canadian Public Policy
The effects of globalization and North American integration on relations

among businesses and governments and on the influence of competing soci-
etal and business interests on public policies has evolved significantly since
the 1990s. Generalization is difficult because of wide variations across eco-
nomic sectors and policy fields. However, several broad trends are visible.
The rapid growth of Canadian trade and investment abroad has increased
the influence of export-oriented interests and major Canadian multina-
tionals in economic policy making since the 1990s. Canada’s participation
in major trade negotiations, its approach to structuring tax rates and sys-
tems, and its use of soft-law agreements to secure national treatment of
Canadian firms all reflect a commitment from federal and many provincial
governments to maintain the competitiveness of Canada’s export industries.
The greater the extent to which policy and regulatory or fiscal initiatives
are seen as likely to place Canadian businesses and workers at a significant
competitive disadvantage within or beyond North America, the greater the
need for effective international cooperation (and often, intergovernmental
cooperation within Canada) to combine these objectives.
Many government policies, especially at the provincial level, continue
to reflect domestically focused priorities. Most senior Canadian govern-
ments recognize that public support for liberalization of trade and invest-
ment remain dependent on their contribution to raising standards of living
and generating the revenues needed to finance strong public services and
support a decent quality of life for most Canadians. Although strong com-
modity prices and fiscal discipline by Canadian governments have enabled
improved standards of living for Canadians across most income groups since
2000 (Alexander & Fong, 2012a; Kodolov & Hale, 2016), commodity price
slumps and the post-2016 challenge to the North American and global trad-
ing systems place these gains at significant risk.
Domestic regulation of businesses resulting from globalization has not
declined as much as been reshaped by the interaction between economic
forces and the workings of Canadian political, especially federal, institutions.
Economic regulation such as restrictions on ownership, market entry or exit,
and price regulations are far less common now than before the mid-1980s.
Instead, governments have emphasized limiting negative externalities from
various economic activities through expanded societal regulations related to
public health, safety, and consumer and environmental protection. As pro-
vincial governments play leading roles in these areas, increased social and
environmental regulations have contributed to greater regulatory decentrali-
zation in some areas and selective incentives toward greater interprovincial
cooperation in others.
In some cases, growing provincial regulation has enabled regional eco-
nomic and societal groups to secure greater accommodation of their inter-
ests within broad policy fields. Larger firms organized on a national or
international scale are often better equipped to project their influence in
a federal regulatory context than in settings in which provincial govern-
ments give preference to local or regional interests. This phenomenon has
been central to debates over new pipeline construction in certain parts of
Canada, as well as federal efforts to replace interprovincial securities reg-
ulation with a new national regulator. However, increased regulatory
requirements to meet safety and environmental standards can also strengthen

the competitive position of larger, more sophisticated firms with greater
capacity to manage complex regulatory systems and absorb their compli-
ance costs than many smaller firms. For example, the owners of XL Foods,
a major Alberta meat-packing firm, were forced to sell its operations to a
major Brazilian multinational after a mismanaged food safety recall in 2012
(McClure, 2012).
Similarly, cross-border and international regulatory regimes are more
likely to accommodate the interests of large, established firms with greater
capacity to engage their standard-setting processes in each country. However,
as discussed above, these complex bureaucratic processes frequently privilege
the interests and priorities of regulators themselves, especially on techni-
cal and procedural issues that provide a practical basis for state autonomy
over competing economic or societal interests, even when the public benefit
from their actions is hard to discern.
These factors reinforce the influence of export-oriented industry sectors and
firms within the Canadian political system, especially when these sectors play a
major role in the economies of particular provinces: forest products and mining
in BC, oil and gas in Alberta, potash and export agriculture in Saskatchewan,
electric utilities in Manitoba, Ontario’s automotive sector, Quebec’s aerospace
industry, and export-oriented agriculture and food processing in New Brun-
swick and Prince Edward Island. This influence is often heavily contingent on
the political cohesion of industry leaders within a competitive political environ-
ment and their ability to demonstrate the social and economic benefits of their
activities, or persuade regional political leaders to do so effectively.
It is also contingent on the ability to engage complex political and social
forces outside Canada to negotiate mutually beneficial agreements in an
increasingly contested political environment. The slowing pace of North
American and global integration in recent years and the difficulties that many
democratic governments have had in maintaining social consensus based on a
reasonably broad distribution of the economic benefits of globalization clearly
indicate limits both on business influence and the capacity of governments to
balance a wide range of domestic and international political objectives.
Canada-US Free Trade Agreement Economic globalization

(CUSFTA) Economic union
Competitive liberalization Foreign direct investment (FDI)
Demonstration effects Globalization
Dual bilateralism Hard-law (vertical) integration
Intermesticity North American integration

Intervulnerability Soft-law (horizontal) integration
National treatment Transgovernmental relations
North American Free Trade World Trade Organization (WTO)
Agreement (NAFTA)
1. How have globalization and economic interdependence affected the ways

in which Canadian governments seek to maintain or expand their discre-
tion in making economic and social policies? How have these pressures
contributed to both policy harmonization and differentiation?
2. What major factors have contributed to and constrained trends toward
Canada’s continuing economic integration in North America since the 1990s?
3. What is competitive liberalization? Explain its effects on Canada’s
broader trade strategies.
4. In what ways did trade liberalization contribute to increased North Ameri-
can and international regulatory cooperation in the 1990s and 2000s? What
is the different between hard-law and soft-law approaches to regulatory co-
operation? What are some significant examples of each approach?
5. What major factors contributed to the resurgence of economic nation-
alism in the United States? How have these developments affected the
political and economic trade-offs facing Canadian governments in their
trade and investment policies?
Anderson, G., & Bow, B. (2015). Building without architecture. In B. Bow & G.
Anderson (Eds.), Regional governance in a post-NAFTA North America: Building
without architecture (pp. 1–30). New York, NY: Routledge.
Clarkson, S. (2008). Does North America exist? Toronto, ON: University of Toronto
Press.
Coulombe, S. (2013). The Canadian dollar and the Dutch and Canadian diseases. SPP
Research Papers 6(30). Calgary, AB: School of Public Policy, University of Calgary.
Doern, G.B. & Tomlin, B. (1991). Faith and fear:The free trade story.Toronto, ON: Stoddart.
Gattinger, M. & Hale, G. (Eds.). (2010). Borders and bridges: Managing Canada’s policy
relations in North America. Toronto, ON: Oxford University Press.
Hale, G. (2012). So near and yet so far: The public and hidden worlds of Canada-US rela-
tions.Vancouver, BC: UBC Press.
Mendelsohn, M., Wolfe, R., & Parkin, A. (2002). The permissive consensus on glo-
balization. Canadian Public Policy, 28(3), 351–371.
Skogstad, G. (Ed.). (2011). Policy paradigms, transnationalism and domestic politics.
Toronto, ON: University of Toronto Press.
9
Canada’s Crown Corporations and the
Changing Face of State Capitalism
C anadian governments of all partisan complexions have long made

use of public enterprises to pursue political and public policy goals,
whether to supplement, replace, or compete with private-sector activity.
The use, expansion, reorganization, or disposal of state-owned or controlled
enterprises may reflect explicitly ideological objectives involving the delib-
erate exercise of state power to transform political and economic relation-
ships among state, economic, and societal interests. Alternately, the choice of
specific policy instruments may be pragmatic given the range of available
political and fiscal policy options. Such choices may result in incremental
adaptations of existing organizational structures and policy instruments to
changing circumstances as politicians or senior public servants rummage
around the growing tool-kits of public administration (Kernaghan, Marson,
& Borins, 2000; Salamon, 2002). In addition, they may respond to crises,
large and small, that force governments to adapt to circumstances beyond
their control or to sustained demands and pressures from particular (or com-
peting) economic and societal groups.
This chapter outlines a contemporary typology of public enterprises. It
explores major factors that have contributed to the evolution of federal and
provincial government business enterprises (GBEs) since the 1980s in
response to political and economic challenges to the workings of state capi-
talism in general and selected crown corporations in particular. It notes the
scale and scope of GBEs in various jurisdictions and industry sectors, and
compares historical and contemporary rationales for the creation and persis-
tence of GBEs. It suggests that although the policy priorities associated with
the use and adaptation of GBEs continues to evolve, current policy trends are
shaped primarily by incrementalism, the underlying political cultures of spe-
cific jurisdictions, and situation-specific circumstances that lend themselves to
expanded, reoriented, or reduced roles for GBEs in different settings.
Conceptualizing Public Enterprises in Canada
The proliferation of organizational forms within government since the

1980s increases the challenge of defining a GBE, which refers to organiza-
tions formally defined as crown corporations but also other forms of public
233
agencies. Financial Reporting and Assurance Standards Canada (2014), an

umbrella organization that develops accounting and auditing standards for
public, private, and nonprofit sectors, defines a GBE as
a separate legal entity with the power to contract in its own name, and that
can sue and be sued … [with] delegated financial and operational authority
to carry on a business … [that] sells goods and services to individuals and
organizations outside of the government reporting entity as its principal
activity; and … [that] can maintain its operations and meet its liabilities
from revenues received from sources outside of the government reporting
entity … in the normal course of its operations.
A policy-relevant typology of crown enterprises used by the government

of BC distinguishes among:
• commercial crown corporations, those that have a mandate to be

financially self-sufficient, including financing capital expenditures from
their own resources, often competing with private-sector firms and
remitting a portion of their profits to governments;
• quasi-commercial enterprises involved in the sale of goods or ser-
vices to the public, but on terms requiring regular subsidization from
general government revenues; and
• social and government services corporations, which are engaged
in the delivery of public services with no expectation of profit or which
provide services primarily to other government departments and agen-
cies. In some jurisdictions, including Ontario, governments have chosen
to categorize such organizations as “agencies” rather than “corpora-
tions” (Crisan & McKenzie, 2013, pp. 2–3).
All three categories reflect elements of commercialization, the appli-

cation of “business-like approaches,” including a variety of “market forces,
incentives, and mechanisms to affect the delivery of government services”
(Padova, 2005, p. 3). The third category is sufficiently diverse to be largely
beyond the scope of this chapter.
The use of crown corporations and other forms of GBEs as instruments
of public policy, as opposed to more autonomous commercial or financial
organizations broadly accountable to governments, is a by-product of the
interaction of their ownership and governance structures with broader gov-
ernment priorities. GBE mandates are often defined by parliamentary or
legislative statute, although such firms can create subsidiaries to carry on
various business and other activities. The Treasury Board Secretariat notes
three other major types of ownership structure:
Canada’s Crown Corporations and the Changing Face of State Capitalism 235
• mixed enterprises, which combine governmental and private-sector

ownership;
• joint enterprises, in which ownership is shared with other govern-
ments; and
• shared governance organizations, “corporate entities without share
capital to which [governments] have a right to appoint or nominate
one or more members to a governing body” (Treasury Board of Canada
Secretariat, 2013).
Mixed enterprises may be used when governments seek to sell a share

of ownership in crown corporations or other GBEs to raise capital from
private investors for their operations, often when implementing greater
commercialization while reducing or eliminating their role as instruments
of government policy. Examples include Petro-Canada during the initial
stages of its privatization after 1988, the Canadian Wheat Board before the
elimination of its marketing monopoly in 2012, and the Ontario govern-
ment’s 2015 sale of a minority ownership stake in Hydro One. Current plans
call for an eventual 60 per cent investor stake with controlling government
ownership (Hydro One, 2016, pp. 8–10). Proposals by the Greater Toronto
Airport Authority to attract institutional investment to make Pearson Air-
port a regional transportation hub for public and rail transit systems could
also be structured as a mixed enterprise (Curry, 2017).
Joint enterprises involve intergovernmental partnerships organized in
corporate form. Examples include municipal and regional airport authori-
ties that oversee the operation of major airports and development of related
public lands as instruments of economic development, and public infra-
structure corporations involving ownership by more than one government
(or related agency), as with most cross-border bridges in the St. Lawrence
River-Great Lakes region.
GBEs and mixed enterprises with competing commercial and policy
mandates often face major challenges to policy coherence resulting from
competing shareholder priorities or major technological and structural
changes to their core markets. These challenges led policy analysts to rec-
ommend the separation of policy and commercial functions, whether by
delivering these functions through separate organizations (including inde-
pendent regulatory agencies) or by making public subsidies for particular
GBE activities more transparent parts of departmental budgets (Boardman
& Vining, 2012, pp. 23–24). Mixed and joint enterprises, by their very nature,
lend themselves primarily to commercial and operational mandates, thus
requiring policy goals to be pursued by other means. Separating policy and
operational mandates also allows for the equitable treatment of publicly and
privately owned firms competing in the same markets, enhancing public

benefits of market competition.
The greater the complexity of GBE mandates, or of the technical and
business processes required to achieve them, the greater the challenge of
aligning the interests of GBE executives as “agents” with those of their
“principals”: senior decision makers within governments and the broader
publics whose interests they are ostensibly elected or appointed to represent
(Iacobucci & Trebilcock, 2012, pp. 12–16; Lane, 2005). The various processes
that are used to achieve these objectives, as questions of public adminis-
tration, are largely beyond the scope of this chapter. However, they have
surfaced repeatedly in recent years in controversies over the mandate and
performance of major state enterprises, sometimes resulting in significant
changes to their mandates, ownership structures, and economic functions.
The Evolving Face of State Capitalism in Canada
The number and scope of public and mixed enterprises increased steadily
from the end of WWI through the 1980s. However, the late 1980s and 1990s
witnessed a significant retrenchment and reorientation in the number and
functions of state enterprises.The number of federal crown corporations and
subsidiaries dropped from 273 in 1982 to 100 in 2004, although the number
of mixed, joint, and shared governance corporations increased from 17 to
145 during the same period. These trends reflected a combination of fiscal
overextension, growing ideological and empirical skepticism about the effi-
ciency, effectiveness, and adaptability of public enterprises during a period of
rapid economic and technological change, and the demonstrative effects of
organizational and policy changes in other jurisdictions (Economic Council
of Canada, 1986; Osborne & Gaebler, 1993). Some of these changes involved
privatization, the transfer of controlling ownership from governmental to
NGOs. Boardman and Vining (2012, pp. 4–5) note 29 “major” privatizations
of federal crown corporations valued at almost $12 billion between 1985 and
2004; 87.3 per cent of this figure was generated by five major enterprises (see
Table 9.1). During the same period, there were 19 major privatizations of
provincial GBEs valued at $9.7 billion.
These developments represent only a modest share of GBE activity in
Canada. Statistics Canada indicates that the total asset value of 44 federal
crown corporations (excluding the Bank of Canada and federal pension
investment management corporations) totalled $32.1 billion in 2010 and that
of 181 provincial crown corporations totalled $191.9 billion, not including
the substantial number and value of municipal and local GBEs (Crisan &
McKenzie, 2013, pp. 11, 15; see Table 9.2). Although the GBE sector made a
Table 9.1 Major GBE Privatizations since 1985
Federal Value Provincial Value

($m) ($m)
Petro-Canada (1991–2004) 5,693 Hydro One (2015–16) 3,800+
CN Railway (1995) 2,079 Alberta Gov’t Telephones (1990–91) 1,766
Air Canada (1988–89) 708 Potash Corp. of Sask. (1989–91) 1,237
Teleglobe Canada (1985) 612 Cameco Corp. (1991–2002) 1,081
Cameco (1991–95)* ‡
444 Manitoba Telephone System (1997) 860
Nova Scotia Power Corp** (1992) 816
*51% federal share; 49% Government of Saskatchewan
**Now Emera Inc.
+
First two stages, 30% ownership stake
‡
Formerly Eldorado Canada
Source: Boardman, A.E., & Vining, A.R. (2012). A review and assessment of privatization in Canada.
SPP Research Papers 5(4). Calgary, AB: School of Public Policy, University of Calgary,
pp. 4–5; Hydro One. (2015). Hydro One Limited announces closing of IPO over-allocation option
[Press release]. Toronto, ON; Hydro One. (2016). Hydro One Limited announces closing of over-
allotment option for secondary offering by the Province of Ontario [Press release]. Toronto, ON.
Table 9.2 Federal and Provincial Crown Corporations: Cumulative

Assets and Incomes (2010) in $Billions
Assets Net Assets Operating Net
Revenues Revenues
Federal 386.2 32.1 23.5 −1.74
Provincial 554.5 191.9 123.3 18.6
Source: Crisan, D., & McKenzie, K.J. (2013). Government-owned enterprises in Canada. SPP
Research Papers 6(8). Calgary, AB: School of Public Policy, University of Calgary, pp. 11, 15.
net contribution of $4.7 billion to federal revenues in 2014–15, five financial-

sector GBEs accounted for 44.4 per cent of federal GBE operating revenues
and 114.2 per cent of net revenues for that year (Treasury Board of Canada
Secretariat, 2016). Comparisons of financial status across extended time peri-
ods require the reconciliation of very different accounting systems and are
beyond the scope of this chapter. State enterprises remain deeply embedded
within Canada’s economic and social fabric, whether as explicit instruments
of public policies, hybrid vehicles for the delivery of public services, major
sources of government revenues, or primarily commercial enterprises com-
peting with private firms in the marketplace.
The retrenchment and reorganization of state capitalism during the 1980s
and 1990s reflected four major, interrelated sets of forces. First, economic
upheavals beginning in the 1970s led to a renewed influence of neoclas-

sical economics and neoliberal political ideas that sought to apply market
disciplines on state activities and provide greater freedom for the workings
of market forces in most areas of economic activity (Royal Commission on
the Economic Union, 1985). Within governments, such ideas encouraged the
commercialization of many government services, as noted above, using a vari-
ety of organizational forms including but not limited to crown corporations.
Second, they also caused governments across the political spectrum, but
particularly on the centre-right, to question the underlying policy purposes
of more commercially oriented government enterprises, especially in the
natural resources, transportation, and telecommunications sectors. All three
sectors were subject to economic deregulation by the federal government
during the 1980s, following comparable actions in the United States and other
countries. These policy shifts contributed to major structural changes within
each industry, increasing competitive pressures and fundamentally changing
policy rationales for large-scale public ownership in each industry. Table 9.3
notes that natural resource, transportation, and telecommunications sectors
accounted for 89.4 per cent and 85.7 per cent of the value of proceeds from
privatizing federal and provincial GBEs respectively in 1985–2004.
Third, federal and most provincial governments experienced persistent
fiscal constraints, culminating in varying degrees of fiscal crisis during the
1990s (Kodolov & Hale, 2016). These pressures led governments across the
political spectrum to press for greater operating efficiencies, often includ-
ing greater commercialization and reduced government subsidies to GBEs.
Some governments sought to maximize returns from the sale of commercial
GBEs whose activities no longer served a substantial federal or provincial
Table 9.3 Distribution of Major Privatizations by Sector (1985–2004)
Federal Value Provincial Value

Number (in $m) % Number (in $m) %
Natural Resources 9 6483 54.2 13 5602 58.1
Transportation* 5 2836 23.7
Telecommunications 5 1372 11.5 4 2667 27.6
Electricity generation 1 76 0.0 2 1156 12.0
Other 9 1187 10.6 2 225 2.3
Total 29 11954 21 9650
*Does not include BC’s partial privatization of BC Rail in 2003

Source: Boardman, A.E., & Vining, A.R. (2012). A review and assessment of privatization in Canada.
SPP Research Papers 5(4). Calgary, AB: School of Public Policy, University of Calgary,
pp. 4–5; author’s calculations.
public purpose. Others were criticized for pursuing more tactical, short-
term fiscal goals when selling assets. One enduring legacy of these measures
was the escalation of federal ground rents charged to local airport authori-
ties that were turned into shared governance authorities with mandates to
use airport properties to promote local economic development (Gill, 2012).
Fourth, ongoing technological changes, particularly from the informa-
tion and telecommunications revolution, transformed the ways that many
industries interacted with one another, their suppliers, and customers. State
enterprises frequently faced internal managerial and operational condi-
tions, including policy and other noncommercial mandates, which impeded
technological innovation and adaptation to changing consumer and citizen
expectations. Such innovation often requires large-scale capital investments.
Fiscal demands often clashed with other government priorities, forcing GBEs
to reallocate resources internally or seek external partners. Major federal
GBEs facing such constraints in recent years have included Atomic Energy of
Canada, Canada Post, and the Canadian Broadcasting Corporation (CBC).
However, these trends have not led to the disappearance, or even the
radical downsizing, of state capitalism in most parts of Canada. The first
major outcome of the restructuring of state enterprises since the 1980s
has been the continued provincialization of the state sector. Both the
number and scale of provincial GBEs are substantially greater than that of
their federal counterparts, even without the inclusion of financial giants
such as federal and provincial pension investment management funds, the
combined value of whose investments is equivalent to almost 40 per cent
of the market capitalization of the Toronto Stock Exchange (TSX; see
chapter 12).
The continuing tension between commercial and policy mandates is per-
haps most visible in the electricity sector, in which public utilities in seven
provinces are dominant firms. Their operational and rate-setting strategies
are politically sensitive on at least three levels: their impact on the competi-
tiveness of regional industries (and capacity to attract new business invest-
ment), relative costs for households, and environmental impact (Iacobucci &
Trebilcock, 2012). These factors have also challenged the viability of several
federal GBEs, particularly in the competitive roles and risk management
practices of government-owned financial institutions such as the Canada
Mortgage and Housing Corporation, since the financial crisis of 2008–09
(Bergevin & Poschmann, 2013).
Key questions facing senior governments are the degree to which regu-
latory oversight of GBEs should parallel that of comparable private-sector
firms and whether GBEs should be subject to the same level of oversight
and disclosure by auditors general as other government agencies, particularly
in sectors in which policy responsiveness is considered paramount. The

potential for these different oversight regimes to conflict, for example, in
rules governing the disclosure of sensitive financial information often con-
flicts with the tendency of governments and GBE executives alike to fudge
answers to complex questions of accountability in the absence of strong,
consistent governance regimes.
Fiscal considerations are still central to the political oversight of GBEs
and in generating increased revenues for governments, even as the latter
attempt to limit political risks associated with raising taxes. Such issues are
significant in the evolving commercial mandates of government liquor and
gambling operations, possibly soon to be extended to cannabis retailing, and
conflicts between revenue maximization and regulatory (including public
health and other social) considerations (Gee, 2017). However, they can also
affect sectors in which pressures to cross-subsidize money-losing, politically
mandated functions by engaging in commercial activities leads to charges of
unfair competition from private-sector firms.
Ideological considerations continue to play a role in such debates and in
the extent to which governments should actively engage in commercial risk
taking on the same basis as private-sector firms. In recent years, these debates
have become most intense when core provincial and regional interests are
seen to be challenged by outside interests, whether corporate or govern-
mental, contributing to zero-sum contests of political and economic power.
A prominent recent example is that of proposals to convert airport authori-
ties, generally on federally owned lands, into mixed (or private) enterprises
with major investments from pension funds and other institutional invest-
ments (Campion-Smith, 2017a, 2017b; Robins, 2017).
Such conflicts have been rare in Canada since the early 2000s, at least
by comparison to the 1970s and 1980s, although they are most noticeable
in conflicts associated with provincial resource nationalism in smaller prov-
inces, notably Newfoundland and Labrador, New Brunswick, and Saskatch-
ewan. Conflicts between economic and environmental mandates sometimes
involve GBEs but usually in the context of economic and regulatory debates
involving broader groups of stakeholders.
That was Then, This Is Now? Changing Rationales

for State Enterprise
Canadian governments of various political persuasions have had a long his-

tory of using state enterprises to serve public purposes. Historical analyses
point to five major, often overlapping, rationales for resorting to government
ownership of commercial activities:
a) promoting economic development;

b) correcting market failures or filling market gaps;
c) promoting a government’s ideology;
d) exercising policy control over strategic industries; and
e) commercializing an underperforming area of public-sector activity.
As noted above, persistent fiscal challenges have added a sixth major moti-
vation: revenue generation by GBEs as an alternative to significant increases
in direct taxation or reductions in other government functions.
Promoting Economic Development
Chandler (1983b, pp. 209–12) has noted three major approaches to the use
of GBEs in economic development. Facilitative corporations supplement
and extend private-sector market development, enhancing conditions for
economic growth when well-managed. Examples include public electric
utilities with a mandate to combine competitively priced “public power
at cost” with province-wide expansion of electricity transmission facili-
ties, federal (or provincial) financial institutions such the Canada Mort-
gage and Housing Corporation, Export Development Corporation, or
the former Alberta Treasury Branches (now ATB Financial)1 whose man-
dates sometimes included reducing credit risks of conventional lending,
and regional or subregional economic development agencies engaged
in the financing of local businesses beyond levels contemplated by con-
ventional private-sector lending practices. Financial-sector corporations
retain a significant role in economic facilitation, although the maturing
of Canada’s financial and capital markets continues to affect the evolu-
tion of this role.
The role of public-sector utilities has become increasingly contested.
Such challenges may result from the emergence of new technologies and
regulatory models that enable a wider range of participants to contest elec-
tricity markets (Daniels, 1996; Doern & Gattinger, 2003) or as a result of
monopolies’ or dominant public firms’ failure to provide reliable supplies of
electric power at economically competitive rates while addressing environ-
mental concerns and challenges of sustainability in a cost-effective manner
(Reeve, Dewees, & Karney, 2010). However, major changes to ownership
and regulatory regimes also involve fiscal and political risks, as discovered by
Ontario and other provinces in recent years.
A second approach has involved the use of “redistributive corporations”
that “challenge the distribution of economic and political benefits,”
frequently by extending state control over a major segment of the economy
(Freeman, 1996, p. 5). Historical examples include the nationalization of

provincial electric utilities in several provinces and the nationalization of
selected resource firms as vehicles to extend provincial ownership of natural
resources into other areas of upstream and downstream development, most
notably in Saskatchewan between the 1940s and 1970s and in Quebec
after 1960 (Chandler, 1983b). The closest contemporary examples of such
arrangements are public-private and intergovernmental partnerships and
related arrangements intended to have a transformative effect on strategic
economic sectors, often as defensive responses to structural policy or
economic changes. Prominent examples include Ontario’s ill-fated efforts to
jumpstart a domestic wind power industry (McParland, 2017) and Alberta’s
intermittent efforts to encourage the expansion of value-added processing
in its energy sector (Southwick, 2017). In addition, indigenous communities
often use community enterprises as vehicles for economic development and
capacity building (Wilson & Alcantara, 2012).
Quebec’s resort to the Caisse de dépôt to build and operate a major expan-
sion of Montreal’s light rail transit network also reflects this approach to
some extent. Recent municipal contracting scandals (which have spilled
into provincial politics) have challenged historic models of publicly funded
infrastructure development based on private construction and subsidized
public operation. Moreover, the heavily indebted Quebec government has
expressed concerns over its capacity to address pressing infrastructure needs
through traditional models of debt financing (Magder, 2016; Perreaux, 2015).
However, the project’s financial viability hinges on underlying assumptions
that have yet to be tested in real-world operations (Lessard, 2017; Yakabuski,
2017).
A third nationalistic variant of crown corporations combines elements
of facilitative and redistributive functions by serving federal or provincial
goals through the production of strategic goods or services (Freeman, 1996).
Examples include the Trudeau government’s attempted use of Petro-Canada
to project federal power within the Canadian oil and gas industry, even
before the National Energy Program of 1980; the Alberta government’s
acquisition of Pacific Western Airlines, which later became a vehicle for
the partial consolidation of Canada’s airline duopoly; and Hydro-Québec’s
abortive efforts to take over the financially troubled New Brunswick Power
in 2009 as part of its export strategy (Weil, 2009).
Since the 1990s, the political controversy aroused by such activities has
generally discouraged most governments from engaging in competitive
provincial or national state building at the expense of other jurisdictions.
However, governments sometimes expand the mandates of major GBEs to
foster positive (domestic) externalities. For example, Ottawa expanded the
Export Development Corporation’s mandate to include domestic suppliers

of export-oriented firms in 2009–13, addressing liquidity concerns arising
from the 2008–09 financial crisis and parallel moves by international com-
petitors (McKenna, 2012). Quebec has long used the Caisse de dépôt, which
oversees the management of the province’s public pensions, and other GBEs
to foster the development of Quebec-based industries, although the nature
of the Caisse’s dual mandate to maximize returns and promote Quebec-
based firms has fluctuated with prevailing political trends (Cousineau, 2012;
Magder, 2016; Marotte, 2013). Governments may also expand the regulatory
functions of sectorally important GBEs to limit negative externalities from
other policies, as discussed in the Canada Mortgage and Housing (CMHC)
case study later in this chapter.
However, the public in Canada frowns on unsuccessful risk taking by
public enterprises, increasing political risks for both redistributive corpora-
tions and state-building ventures. BC Ferries, initially created from take
overs of private firms as an extension of the public highway system, incurred
major losses during the 1990s resulting from government-mandated pro-
curement to support the development of new ferry technologies and con-
struction. Ontario’s ill-starred efforts after 2003 to promote new wind power
technologies and development cost the province more than $37 billion
during the next decade (Office of the Auditor General of Ontario, 2015,
pp. 208–242). Both these initiatives led to embarrassing political retreats.
Instead of a competitive export-driven electricity sector based on long-term
export contracts with Nova Scotia-based Emera, “faulty, unrealistic assump-
tions” have seriously undermined the economic viability of Nalcor’s multi-
billion dollar Muskrat Falls project in Labrador, saddling Newfoundland and
Labrador with major, ongoing increases in its electricity prices (MacDonald,
2016;Vardy, 2014). Ironically, Muskrat Falls, which was intended to compen-
sate Newfoundland and Labrador for the economic benefits lost to Quebec
under its poorly designed 1969 transmission agreement for Churchill Falls
power, appears to have resulted in similar giveaways of future benefits.
Corporations that are overt expressions of nation or province building
continue to function as “hidden” crown corporations even if privatized. One
such example is Potash Corporation of Saskatchewan and its participation
in the potash export cartel, Canpotex (Koven, 2010; Waldie, 2010). The cul-
tivation of such provincial “champions” can be viewed as the culmination
of developmental approaches to promoting Canadian-based firms described
by Bradford (1998) as “liberal nationalism,” as opposed to the state-centred
nationalism expressed in GBE dominance of certain economic sectors.
However, federal governments since the 1980s have generally avoided the
political risks and market distortions associated with using federal policies
to cultivate or “champion” particular domestic companies at the expense of

competitors. This reluctance stems in part from political risk avoidance, par-
ticularly opposition from prospective private-sector competitors and sectors
not benefiting from direct governmental favouritism.
One significant exception to this rule has been Bombardier Inc., Canada’s
leading commercial aircraft producer. Both federal and Quebec govern-
ments have supported the closely held company as a de facto national
champion in the aerospace sector. Such policies place governments in a
political bind when favoured companies incur financial difficulties result-
ing from questionable management decisions, changing market conditions,
or both, especially when foreign competitors benefit from similar subsidies.
Bombardier’s 2015 request for $2 billion in federal and Quebec government
financial support, while supported by Quebec-based businesses and unions,
drew strong criticism from advocates of corporate governance reform and
financial interests outside Quebec for prospective risks to minority share-
holders (Anand, 2016; Stanford, 2016).
Promoting a Government’s Ideology
Historically, most Canadian governments have sought to promote economic

development and growth, regardless of ideological differences. Ideological
debates have usually centred on relationships between governments and busi-
ness and the distribution of the benefits of economic activity. Social demo-
cratic governments, notably in Saskatchewan, Quebec, and Manitoba, have
been more inclined to use GBEs as instruments for economic coordination
and planning, while business-oriented governments are more likely to use
public enterprises to address specific policy problems in ways that comple-
ment or supplement private business activities (Wiseman & Whorley, 2002).
Social democratic governments are more likely to create or expand GBEs
to redistribute economic and political power from large private corpora-
tions to governments, particularly following the replacement of a long-serv-
ing government seen to be too closely linked to major outside economic
interests, as in Saskatchewan during the 1940s or Quebec during the 1960s.
The persistence of such systemic changes is more likely when the resulting
expansion of state activity is seen to result in widespread economic benefits
and when reforming governments remain in office long enough for policy
changes to become entrenched, yielding new clusters of economic interests
whose economic well-being is tied to the new regime.
However, when the new order is associated with widespread misman-
agement or economic dislocation, subsequent changes in government can
result in the commercialization or privatization of major GBEs. Examples of
the latter include the Devine government’s reversal of its NDP predecessor’s
nationalization of the potash industry by privatizing Potash Corporation of
Saskatchewan in the late 1980s, initially as a mixed enterprise (an initiative
continued by its NDP successor under the fiscal constraints of the early
1990s); the Mulroney government’s conversion of Petro-Canada to mixed
enterprise status in the late 1980s; the BC Liberals’ commercialization of
BC Ferries and partial sale of BC Rail after 2001; and the Quebec Liberals’
greater emphasis on a commercial mandate for the Caisse de dépôt, deempha-
sizing province building after regaining office in 2003.
However, GBEs’ success in achieving both policy mandates and commer-
cial viability may influence public expectations in ways that limit future gov-
ernments’ political discretion in adapting to changing circumstances by making
more than incremental changes. The size and scope of Quebec’s GBE sector,
the largest in Canada (Crisan & McKenzie, 2013), has not changed appreciably
since 1987 when the province sold off two resource industry firms, despite four
subsequent changes of government. After narrowly losing the 2003 election, at
least in part over fears that it would privatize large parts of Saskatchewan’s size-
able GBE sector, the strongly probusiness Saskatchewan Party has maintained the
GBE status quo despite winning sizeable majorities in three successive elections.
Correcting Market Failures and Market Gaps
Governments have frequently used crown corporations as a policy tool to

address market failures, particularly in the case of natural monopolies, which
in the absence of effective regulation leads to abuses of market power as well
as a delay in technological innovation and other benefits that result from
competitive markets (Iacobucci & Trebilcock, 2012). However, the presence
of monopolistic and dominant firms, whether in the public or private sec-
tors, can lead to problems of agency and regulatory capture, the ability of
managerial and technical experts to exercise sufficient influence over politi-
cal decision makers and/or regulators that official perceptions of the public
interest become effectively aligned with the internal interests of the domi-
nant firm and/or related stakeholders such as public-sector unions. Such
concerns have been raised repeatedly by regulators of public utilities and
the nuclear power industry, among other state-sector firms (Freeman, 1996;
Vardy, 2014). They may explain the significant politicization of electricity
policies in several provinces, despite the presence of ostensibly independent
regulators (Holburn & Lui, 2010, p. 7).
Political rhetoric is often used to muddy distinctions between market
failures (markets failing to allocate resources efficiently) and market gaps
(producers’ inability or unwillingness to provide particular [legal] goods or
services at prices that consumers are willing to pay). During the early and
mid-twentieth century, provincial governments frequently expanded public
electric and telephone utilities to facilitate the extension of services to rural
areas that lacked sufficient population densities to make service extension
attractive to investor-owned companies. Financial-sector GBEs have some-
times served a catalytic role in expanding lending or loan guarantee services
previously perceived as uneconomic or excessively risky. Provincial takeovers
of the general insurance industry (i.e., automobile and property) in Manitoba,
BC, and Quebec during the 1970s reflected a mix of consumer resentment
against rising private insurance rates during a period of high inflation and the
greater willingness of social democratic governments to view mandatory auto
insurance as a public service rather than a private business.
Both federal and provincial governments have made extensive use of sup-
plementary lending agencies in supporting small businesses, extending farm
and export credits, along with other forms of business activity. More recently,
pressures for greater fiscal self-sufficiency have contributed to “mandate creep,”
blurring lines between supplementary and competitive market lending.
Exercising Policy Control over Strategic Industries
The concept of strategic industries is an elastic one. Governments may exer-

cise greater control over industries viewed as central to national or provincial
economic development through the use of policy tools, notably regulatory
and tax policies, or through the extension of public ownership when viewed
as necessary to promote the growth of major economic sectors. Provincial
control of public utilities served such purposes during the early and mid-
twentieth century. Energy and other commodity booms during the 1970s
prompted the expansion of state entrepreneurship, just as sharply falling prices
after 1985 led to a widespread retreat from state ownership in these sectors.
However, the evolution of certain sectors, whether as a result of North
American or international market developments (as in the international
grain trade) or changing technologies (as in the telecommunications sec-
tor) calls into question the strategic role of a particular industry or the pol-
icy tools used to promote public interest. Shifts from economic to social/
environmental regulation in several sectors since the 1980s reflect such
developments. So did the Harper government’s determination to remove
the Canadian Wheat Board’s near-monopoly on marketing Western Cana-
dian grain, followed by its privatization in 2015.
Canada’s growing interdependence within the global economy may pro-
vide opportunities to secure economic gains from the selective use of strate-
gic trade policies, the use of government policies to shift profits from foreign
to domestic firms in oligopolistic industries with high barriers to entry

(Spender & Brander, 2008). However, the unpredictability of market cycles
and the greater capacity of authoritarian states to allocate large amounts of
capital to such projects independently of short- or medium-term rates of
return, often subsidized by above-market prices extracted from domestic
consumers, gives them a significant competitive advantages over Canadian
governments in pursuing such policies.
Commercializing an Underperforming Area of Public-Sector Activity
The commercialization of public services involves the application of a variety of

market disciplines (including full-cost accounting, increased or full cost-recovery
or financial self-sufficiency, greater customer orientation, and varying degrees
of exposure to market competition) in providing services by and to public-
sector agencies and departments. The fiscal constraints of the 1980s and 1990s
were major factors in governments’ increased resort to the greater commer-
cialization of public services.These pressures were often reinforced by declining
public confidence in governments as public-sector management was seen to be
less innovative, responsive, or efficient than private-sector counterparts.
In some cases, heavily subsidized operations were reorganized and separated
from commercially viable ones, as with CN Rail’s 1977 spin-off of passenger
services to Via Rail. In other cases, traditional public service functions were
converted into crown corporations, as with Canada Post in 1981 and a series
of federal agencies with expanded cost-recovery mandates in subsequent years.
Commercialization mandates may also apply to existing GBEs, whether
as a result of a shifting policy focus or major structural changes to relevant
economic sectors or patterns of market activity. Provincial liquor retailing
monopolies or near-monopolies have responded to threats of privatization,
whether serious or rhetorical, in some provinces by modernizing operations
in pursuit of increased markets, productivity, and profits (Bird, 2012). Relax-
ing efforts to regulate consumption (apart from negative externalities such
as impaired driving), several governments have opened liquor retailing to
competition, allowing domestic wineries to open distribution outlets and
shifting the focus of revenue collection to government monopolies over
the wholesale distribution of liquor, as in Alberta, BC, and more recently,
Saskatchewan (Cowan, 2014).
A similar pattern is visible in government-sponsored gambling activi-
ties, which had become the largest contributor to national GDP among
GBEs, followed by provincial utility and financial corporations (Crisan &
McKenzie, 2013). Government-controlled gambling grew rapidly during the
1990s in response to budgetary challenges and revenue shortfalls, despite
public concerns that the spread of casinos would drain consumption from
local communities while contributing to social pathologies. Several prov-
inces have also partnered with First Nations communities in licensing casi-
nos as tools for generating local income and employment, while retaining
regulatory control and often ownership of gambling equipment. Similarly,
provincial gambling GBEs make extensive use of retail grocery and con-
venience stores as distribution networks for their lottery products, a margin-
generating activity that expands the constituency for such products.
More challenging are changes to GBE policy or corporate mandates
resulting from major technological changes that threaten their core com-
petencies with obsolescence. For example, the spread of e-mail and other
electronic communication has rendered Canada Post’s traditional approach
to the delivery of postal services largely uneconomic, even though it has
sought to compensate by repositioning itself as a home delivery conduit
for e-commerce (Campbell, Beaudoin, & Bader, 2008; Stewart-Patterson,
Gill, & Hoganson, 2013). Atomic Energy of Canada’s long-standing inability
to bring a new generation of nuclear reactors capable of meeting regula-
tory safety requirements to market, combined with a series of embarrassing
operational failures, led the federal government to sell the troubled com-
pany’s commercial division in 2011 and contract out its aging research facili-
ties to a private-sector consortium in 2015 (Canadian Consulting Engineer,
2015; Fekete, 2011). Similarly, the CBC’s role as a producer-cum-purveyor of
Canadian culture has been seriously undermined by the proliferation of new
production and distribution technologies resulting in audience diffusion.
These developments point to major sector-specific variations in the evo-
lution of federal and provincial GBEs, which are increasingly subject to fiscal
challenges facing various jurisdictions and the degree to which managerial
performance harmonizes with the evolving policy objectives of individual
governments.
The Contemporary Dynamics of Federal GBEs: A Mixed Picture
Rather than introducing a new strategic approach toward state enterprises,

recent federal governments have taken an incrementalist, sector-specific
approach driven primarily by external economic shocks. Under the Harper
government, this approach was reinforced by the realities of a minority gov-
ernment (2006–11) and the need to balance competing regional interests
within the governing party’s base of support. Its subsequent approach to
various GBEs reflected its fiscal priorities, the balancing of various interests,
and market conditions particular to specific firms. The prolonged politi-
cal contest to remove the Canadian Wheat Board’s monopoly status was
the principal GBE-related exception to this pattern. The Trudeau govern-

ment elected in 2015 has made few substantive changes to its predecessor’s
GBE policies, in sharp contrast to many of its other policies, although it is
exploring options for attracting institutional investment into the building
and operation of public infrastructure.
This section looks at major policy and mandate shifts related to five GBEs:
the Canadian Wheat Board, Canada Post Corporation, Atomic Energy of
Canada Limited, Ridley Terminals Inc., and Canada Mortgage and Housing
Corporation. Table 9.4 summarizes major changes to GBE mandates since
2006 and the context for these changes.
The Canadian Wheat Board and Canada Post
For almost a decade following the author’s arrival in Lethbridge, Alberta, an

old pickup truck could be seen at the end of his street bearing the iconic
bumper sticker: “Defend the West: No Kyoto Accord, No Wheat Board, No
Gun Registry.” During the 1980s and 1990s, western grain farmers were
increasingly divided over the Canadian Wheat Board’s (CWB) market-
ing restrictions—or protections, depending on one’s outlook—on wheat,
barley, and other grains. By contrast, rural and small town voters remained
among the strongest supporters of Canada Post’s universal-service mandate
and monopoly over the delivery of first-class mail, in sharp contrast to the
market-oriented principles of many of the Conservatives’ urban support-
ers. The contrast between the Harper government’s dogged pursuit of mar-
keting choice for grain farmers across four electoral cycles and its careful
avoidance of privatization mandates for Canada Post can be explained more
easily by the dynamics of partisan and brokerage politics respectively than by
claims of an ideological agenda.
The CWB’s single-selling desk monopoly originally fit the model of
a redistributive crown corporation designed to provide market power
to grain farmers as a group in balancing the economic power of rail-
roads and private grain companies. Although there is a long history of
ideological divisions among farmers’ organizations, proposed changes to
grain transportation and agricultural trade policies during the 1980s and
1990s prompted the emergence of competing coalitions supporting and
opposing more market-oriented policies (Kroeger, 2009; Skogstad, 2008).
Groups like the National Farmers Union strongly supported maintenance
of single-desk marketing for western grain production. Others like the
Western Canadian Wheat Growers championed greater marketing choice
for farmers. These divisions reflected, among other things, different gen-
erational perspectives, varied proximity to transportation networks and US
Table 9.4 Major Changes to Federal Crown Corporation Mandates since 2006
Corporation/Agency Action Date Underlying Conditions Political Impetus Stakeholders

Partial privatization of commercial
Declining market viability, Remove fiscal burden, serial
division (reactor design, sales, 2011 Divided
Atomic Energy of major operational weaknesses. political embarrassment
maintenance)
Canada (AEC)
Attempted contracting out of Chalk
2012
River reactor
Incremental price rises/service Balance fiscal constraints,
Deficit reduction; response to
Canada Post reductions (gov’t precluded .... pressure from rural communities Varied
continuing market shifts
privatization proposals) to maintain service
Diversification of agricultural
Long-time party policy driven
Canadian Wheat Board Elimination of grain marketing production in Western Canada; Division among grain
2012 by dissident farm groups (heavily
(mixed governance) monopoly more marketing channels for growers groups
contested)
other crops
Realtors and builders
Support housing industry,
Provided liquidity to major banks Response to international seek stimulus apart
2008–09 maintain confidence in Canadian
through mortgage purchases financial crisis from broader economic
Canada Mortgage and financial system
conditions
Housing Corp.
Increased regulatory constraints on Strengthen risk management, Little visible opposition
Rising consumer debt levels,
private mortgage insurance (OSFI 2010–17 avoid repeat of US-style housing from major banks e.g. “risk
risks of real estate bubble
supervision)* crisis sharing”
Export Development Expanded domestic loans and Manufacturers support
2009–13 Response to recession
Corp. guarantee activities broad mandate
Commercialization; raised rates to Strengthen underperforming Pushback from major coal
Competing priorities,
levels necessary for commercial 2006–12 GBE, maintain “open access” companies benefiting from
reinforced by market cycles
Ridley Terminals Inc. viability, expansion to shippers below-market costs
Proposed privatization; not High point in market cycle;
2012–17
implemented through 2017 subsequent downturn 2015–16
*(Federal) Office of the Superintendent of Financial Institutions
markets, and varied attitudes toward the business and economics of farm-
ing, especially in managing the inherent risks of volatile grain markets.The
NDP and Liberals championed traditional collectivist approaches, while
the Reform Party campaigned for an end to the Wheat Board monopoly, a
position subsequently adopted by the Conservative Party after 2003. Public
attitudes toward the Wheat Board closely paralleled patterns of party sup-
port, especially in Saskatchewan, the province with the greatest number of
grain farmers (Atkinson, McGrane, Berdahl, & White, 2011; Boyd, 2011).
During the same period, several major cooperative marketing organiza-
tions consolidated and evolved into large investor-owned organizations
with varying degrees of farmer participation, while ongoing market shifts
contributed to the progressive diversification of western agriculture away
from grain production (Greenwood, 2007; Pitts, 2009).
From their initial election as a minority government in 2006, the
Harper Conservatives championed the interests of prochoice farmers, ini-
tially securing a modest mandate for marketing choice in barley, a policy
enjoying support from a plurality of western grain farmers, rather than pur-
suing the outright abolition of the CWB (see Table 9.5). However, CWB
supporters retained control of the joint organization’s board of directors in
elections held during the 2009 recession, reflecting recession-related eco-
nomic concerns.
Faced with a minority parliament and persistent litigation from CWB
officials and their supporters, the government was only able to make incre-
mental progress in pursuing its agenda before it won a majority in the 2011
election.The prolonged contest turned into a battle of wills between the gov-
ernment and CWB executives and their respective supporters over a policy
commitment central to a core government constituency. As such, it became
a symbolic (if somewhat isolated) test of the Conservatives’ willingness to
Table 9.5 Barley Plebiscite Results: Farmers Divided along Provincial

Lines
MB SK AB BC Overall
Total votes cast 3,703 15,327 9,881 156 29,067
Per cent of votes
Retain single desk 50.6 45.1 21.4 42.3 37.8
Prefer option to market to CWB 34.6 42.1 63.4 49.4 48.4
or other buyer of my choice
CWB should have no role in
14.8 12.8 15.2 8.3 13.8
marketing barley
Source: http://www.agr.gc.ca/cb/index_e.php?s1=ip&page=ip60908a_bg1
keep faith with the rural western element of their base amid the policy and
stylistic compromises required by minority governments. The federal courts
ultimately ruled that whatever the CWB’s formal status as a “shared govern-
ance corporation,” its leaders could not dictate the terms of their mandate to
a cabinet backed by a majority parliament (Chase, 2011; Waldie, 2012).
Canada Post Corporation (CPC) has faced even more intense pressures
on its business model from technological and market changes, not least the
rapid spread of electronic communications. These developments have led
many observers to question its continuing viability as a commercial GBE
required to provide universal delivery of first-class mail at uniform national
prices. After 16 years of profitability, CPC reported operating losses totalling
more than $525 million in 2011–13 with minimal revenue growth before
returning to modest profitability since 2014. A 2013 Conference Board report
projected additional cumulative deficits approaching $1 billion by 2020 with-
out major operational changes (McKenna, 2014; Stewart-Patterson et al.,
2013). Domestic “transaction” mail volumes (letters, bills, invoices, and state-
ments) dropped by 36.6 per cent in absolute terms between 2007 and 2016 or
41.3 per cent per address (Canada Post, 2016, p. 52; Canada Post, 2017, p. 64).
However, the Harper government steadfastly resisted calls from academic
experts and some business groups to privatize CPC, precluding its considera-
tion in terms of reference for external reviews (Campbell et al., 2008; Dachis,
2013; Stewart-Patterson et al., 2013). Following extensive public consultations,
CPC attempted to offset the hollowing out of its traditional surface- and
advertising-mail businesses with sharp price increases, phasing out door-to-
door home delivery and expanding its courier services in partnership with
international carriers to take advantage of the burgeoning e-commerce market
(Curry, 2013; McKenna, 2013c). A December 2013 opinion poll sent mixed
messages, suggesting that while only 38 per cent of respondents favoured pri-
vatizing CPC, 64 per cent believed it should achieve full cost recovery, and 70
per cent viewed it as providing an essential service (Angus Reid Institute, 2013).
The new Trudeau government promised to reverse the planned cancellation
of home delivery in its successful 2015 election campaign, but has deferred
action pending the outcome of another policy review. Meanwhile, with par-
cel revenues up 42 per cent in 2011–16, CPC continues its efforts to become
“Canada’s number-one parcel company” (Canada Post, 2017, p. ii).
Atomic Energy of Canada and Ridley Terminals: Managing the

Commercialization Two-Step
Both Atomic Energy of Canada Limited (AECL) and Ridley Terminals Inc.
(RTI), the operator of a major coal port in Prince Rupert, BC, can be
classified as economic development crown corporations. AECL was Canada’s

leading nuclear technology company for many years, designing and building
nuclear reactors for electricity generation and producing medical isotopes
marketed by MDS Nordion Inc., a former AECL division privatized in 1991.
However, challenges in developing new technologies and chronic cost over-
runs led the federal government to dispose of AECL’s commercial division
at a substantial loss in 2011.
RTI was formed as a joint venture in 1984 to support the export opera-
tions of Northern BC and Alberta coal industries. Its 2007 reorganization as
a commercial GBE after years of sluggish performance prompted significant
tensions with core stakeholders. However, a rebound in Asian commodity
markets resulted in record revenues and profits until the 2014–16 collapse in
global commodity prices.
The Harper government provided political cover for AECL in 2007 when
it secured unanimous parliamentary approval to reverse a safety-related shut-
down order from the Canadian Nuclear Safety Commission (CNSC) and
reopen the company’s 50-year-old reactor in Chalk River, Ontario, which
then produced up to 60 per cent of the world’s medical isotopes. Public
health concerns (and the Canadian industry’s dominant position in the
global market for medical isotopes) trumped other safety concerns despite a
long history of problems (Cowan, 2008). The twin controversies ultimately
cost the chairs of both AECL and CNSC their jobs. A subsequent heavy-
water leak in mid-2009 resulted in a 15-month shutdown at Chalk River
and a highly publicized scramble to develop substitute isotope technologies
(Galloway, 2009).
Escalating cost overruns in refurbishing aging nuclear reactors in
New Brunswick, Ontario, and South Korea alienated clients of AECL’s
commercial division among provincial and foreign utilities. Related
demands for federal subsidies of almost $1 billion in 2008 and 2009
and AECL’s failure to bring replacement reactor designs to market with
appropriate safety clearances 10 years after their original service date
exhausted Ottawa’s patience. After an extended bidding process, the
federal government sold AECL’s commercial division to SNC-Lavalin
in 2011 for a paltry $15 million, far less than cost overruns financed to
fulfill existing contracts (Fekete, 2011). It subsequently contracted out
the operations of AECL’s troubled research laboratory (Canadian Con-
sulting Engineer, 2015).
On taking office, the Harper government reversed the Martin government’s
plan to privatize Ridley Terminals (RTI), whose BC coal terminal had oper-
ated far below its capacity for more than 20 years, for $3 million. It subsequently
introduced a new management team mandated to stabilize the company, raise
terminal handling rates, and prepare it for possible privatization. Alberta and
BC coal operators, two of whose local MPs sat in the federal cabinet, strongly
opposed the rate increases, particularly when coal markets collapsed during the
2008–09 recession. RTI’s chairman, Daniel Veniez, challenged the government
and the coal companies publicly, arguing that the terminal served no compel-
ling public purpose and should be privatized. His public challenge to his cabi-
net overseers led to his summary dismissal (Brethour, 2009a, 2009b).
With economic recovery, the federal cabinet approved RTI’s plans to dou-
ble the size of the terminal’s operations. To finance this growth, RTI signed
long-term contracts with three major American coal companies, to the cha-
grin of regional coal producers, who argued that it should give their ship-
ments priority. RTI’s 2010 annual report noted four elements in its mandate
to “operate in a commercial manner: 1) obtain market prices for services;
2) require guaranteed minimum volumes in contracts; 3) prefer long-term
contracts of five years or more; 4) diversify products handled, the geographic
source of products, and the number of contracts” (Ridley Terminals Inc., 2011,
p. 1; see also Bouw, 2011). Although the Harper government announced plans
to sell RTI in 2012, the subsequent collapse in coal markets has deferred this
outcome for the foreseeable future. Declining coal shipments have led RTI
to explore diversification to service exports of other commodities, with con-
tracts signed and environmental approvals received for exports of liquid petro-
leum gas, beginning in 2019 (Ridley Terminals Inc., 2017, p. 5).
The Harper government inherited AECL and RTI as financially and
operationally troubled GBEs. It intervened in existing regulatory and management
processes, respectively, to protect key stakeholders—the distributors and users of
medical isotopes and major regional coal producers—terminating senior officials
and executives who challenged the government’s prerogatives. However, AECL
was split up and privatized when its leadership could not resolve the problems of
operational and safety concerns necessary to restore the company and its highly
sophisticated products to technical and financial viability. Federal cabinet turnover
allowed RTI management to implement its expansion and diversification plans,
financed on public markets, thus moving beyond the status of a quasi-utility
supportive of regional coal firms. However, its success in turning an economically
marginal crown corporation into a viable commercial business serving a diversified
North American clientele and growing Asian markets will ultimately depend on
its ability to navigate ongoing commodity price cycles.
Canada Mortgage and Housing Corporation: Policy Instrument in

Market Stabilization?
Canada (originally Central) Mortgage and Housing Corporation

(CMHC) was formed after WWII, initially as a facilitative crown
corporation to provide home mortgages for soldiers returning from the

war, and subsequently to finance social housing. Amendments to the
National Housing Act in 1954 and CHMC’s introduction of mortgage
insurance encouraged Canada’s major banks to enter the residential
mortgage lending field, if on much more stringent credit terms than
those prevailing today.
CMHC subsequently became the dominant firm in the mortgage
insurance industry, combining commercial and policy functions, as well
as performing other functions in supporting social and First Nations
housing, research into housing design and technologies, data collection,
and market analysis. CMHC profits on commercial operations averaged
$1.8 billion between 2011 and 2015, largely offsetting the average annual
$2.1 billion parliamentary subsidy to provide social housing services,
particularly for First Nations (Canada Mortgage and Housing Corp.,
2016, p. 67).
CMHC’s central role in housing and financial markets gained much
greater visibility during and after the financial crisis of 2007–09, which
was triggered by the collapse of private and quasi-governmental mort-
gage markets in the United States. The CMHC initially contributed to
the relaxation of mortgage lending standards by insuring 40-year mort-
gages for zero down payments in 2006 in response to increasing private-
sector competition, reflecting long-term federal policies of aggressively
promoting individual home ownership (McKenna, 2013a; Perkins &
Robertson, 2012). These events prompted a progressive tightening
of lending standards under Finance Department direction, a case of
counter-cyclical policies exercised through financial market regulation
enabled by the CMHC’s dominant position in the mortgage insurance
sector. Although these responses have been criticized by the real estate
sector for modestly depressing housing demand, especially outside major
urban centres, financial-market analysts have been broadly supportive of
the government’s actions.
However, the recovery of the Canadian economy by 2010 and pro-
longed low interest rates prompted by global monetary policy condi-
tions resulted in a rapid escalation of mortgage lending, much of it
guaranteed under existing CMHC rules. By the end of 2012, the com-
pany’s mortgage insurance in force was $566 billion, equivalent to 31.1
per cent of GDP, 97.0 per cent of federal net debt, and 214 per cent
higher than the inflation-adjusted value of insurance in force in 1996
(Perkins & Robertson, 2012).
CMHC’s rapid growth and the risk of a serious correction in hous-
ing prices with major implications for Canada’s macroeconomic perfor-
mance prompted Finance Minister Jim Flaherty to place the company
under the jurisdiction of Canada’s lead financial-sector regulator, the Office

of the Superintendent of Financial Institutions (OSFI), in his 2012 budget.
Flaherty also appointed the deputy minister of finance to join the deputy
minister of human resources and social development on the CHMC board,
signalling much tighter government oversight (Poschmann, 2012). He also
adjusted rules governing covered bond pools to clarify mortgage owners’
rights under bankruptcy laws, while withdrawing the implicit subsidy to
banks (and bond markets) previously provided by allowing them to syndi-
cate pools of CMHC-guaranteed mortgages.
Flaherty later mused about the long-term possibility of privatizing CMHC’s
mortgage insurance functions. His comments triggered extensive public debate
over the implications of government withdrawal (as opposed to retrenchment)
from what had become a key structural function in mortgage and financial
markets and the potential moral hazard already seen in recent US experience
of socializing the risks of stimulative government mortgage and housing poli-
cies while privatizing profits (Erman, 2013). Retrenchment prevailed.
The combined efforts of the Department of Finance and other federal agen-
cies to manage cross-cutting monetary, financial, and mortgage market policies
have made CMHC a vital policy tool, transcending its facilitative role in the
housing industry and its indirect contribution to the growth of Canada’s finan-
cial markets. These developments point to the importance of both effective
risk-management policies within individual financial GBEs and clearly defined
principal-agent relations to secure regulatory accountability and transparency.
CMHC’s experience during the past decade, along with that of other
financial GBEs, suggests both the potential and the risks associated with
facilitative crown corporations and the political and administrative chal-
lenges of balancing competing goals and interests. Although CMHC contin-
ues to play a significant commercial role in housing finance, both public and
private, growing market and public awareness of public risk has resulted in
the tightening of credit policies and regulatory constraints on its autonomy
to balance the effects of persistent Bank of Canada low-interest-rate policies.
Provincial Government Enterprises: Path Dependence

and Incremental Adaptation
The political dynamics for provincial GBEs have resembled those of the
broader Canadian economy during the past decade: regionally and sectorally
fragmented, and evolving in response to market shocks and industry-specific
events. Rather than having to respond to political and fiscal shocks compara-
ble to those of the 1980s and 1990s, governments have lacked electoral man-
dates, and in most cases, an ideological orientation toward either economic
transformation or large-scale changes in the role of the state. As a result, apart

from a handful of cases in which particular GBEs have faced crises either of
their own making or resulting from fundamental shifts in market conditions,
changes to the mandate or structures of most GBEs have been incremental,
reflecting the different political cultures of particular jurisdictions. The main
exception has been Ontario’s 2015 decision to sell a minority stake in Hydro
One, its electrical transmission and distribution utility, to help finance the
construction of other public infrastructure (Hydro One, 2016, pp. 8–10).
Developments in provincial GBE ownership and mandates during the
past decade suggest three major trends. First, provinces with a significant
social democratic heritage are likely to have more persistent cultures of state
enterprise, contributing the persistence of more visibly state-centred politi-
cal cultures and limiting external pressures for major revisions to existing
policy mandates. Second, changes to the structure, mandate, or ownership
of GBEs in recent years have been most likely to result from government’s
responses to persistent financial difficulties, especially in the first years of a
new government’s mandate. Third, governments must balance financial and
political risk management in designing or reviewing the commercial and
policy mandates of GBEs, although this task can be facilitated by assigning
policy functions to other government departments or agencies.
The scale and scope of GBEs and their political and economic footprints
vary widely by province and economic sector. Crisan and McKenzie (2013)
indicate that the net economic impact of crown corporations is greatest in
Quebec, followed by Prince Edward Island, Saskatchewan, and Manitoba, and
proportionally smallest in Ontario, Alberta, and Nova Scotia (see Table 9.6).
Although the ideological orientations of individual governments continue to
play an important role in policy shifts, broader attitudes toward state enter-
prise may become embedded in the political cultures of individual provinces
as a result of long-entrenched governments in the absence of sustained fiscal
or economic shocks that destabilize an established political consensus.Table 9.7
summarizes partisan-ideological composition of federal and provincial govern-
ments since 2001.
In Quebec, the activist role of Liberal governments during the Quiet
Revolution and the emergence of a strongly corporatist business culture
under both Liberal and Parti Québécois governments since the 1960s
have framed both political discourse and the policies of major financial
institutions, such as the Caisse de dépôt, the provincial pension investment
fund whose assets under management reached $255 billion in 2016. The
Caisse’s mandate varies substantially from that of the Canada Pension
Plan Investment Board and other provincial public-sector pension
management funds, which function at arm’s length from their respective
Table 9.6 Economic Impact of Crown Corporations on Provincial

Economies (2010)
Contribution to Net income relative to prov.
GPP (%) share of national GDP
Quebec 5.2 2.31
PEI 4.1 −0.66
Saskatchewan 4 0.51
Manitoba 3.3 1.53
New Brunswick 2.9 0.22
BC 2.5 0.65
Nfld & Labrador 2.1 0
Ontario 1.9 0.64
Alberta 1.4 0.82
Nova Scotia 1.2 0.44
Source: Derived from Crisan, D., & McKenzie, K.J. (2013). Government-owned enterprises in
Canada. SPP Research Papers 6(8). Calgary, AB: School of Public Policy, University of Calgary,
pp. 17, 19.
governments with commercial and prudential mandates appropriate to

their functions. The Caisse and other Quebec government agencies have
frequently taken more interventionist approaches under Parti Québécois
than Liberal governments, supporting the expansion of Quebec-based
firms in global markets while often supporting their management against
hostile takeovers. These initiatives, along with attempts to strengthen
the capacity of Quebec-based firms to resist takeovers by outside firms,
are consistent with traditions of liberal economic nationalism, if cur-
rently at odds with contemporary financial-sector policy discourse in the
rest of Canada (Anand, 2015; Anisman, 2014; Task Force on Protection
of Québec Businesses, 2014; Van Praet, 2014c). Even so, Caisse support
for the owners and executives of major Quebec-based firms is strate-
gic rather than unconditional, reflecting its views of broader provincial
interests and the quality of firms’ strategies, management, and economic
prospects (Van Praet, 2013, 2014b).
Manitoba’s NDP government took a similar developmental approach
to its crown corporations during its extended term in office (1999–2016),
often using them to support private-sector economic development. Its PC
predecessor privatized two major GBEs, Manitoba Forestry Resources in
1989 and Manitoba Telephone System in 1997. Manitoba Hydro’s export-
oriented expansion strategy provides business and household consumers
Table 9.7 Governmental Stability,Variation by Province (2001–2017)
Centre-Left Centre-Left Centre-Right Centre-Right

Majority* Minority Minority* Majority
Federal 6 2000–04, 2015– 2 2004–06 5 2006–11 4 2011–15
2 1994–03 2 2012–14 2 2007–08 10 2003–07,
QC 2008–12,
2014–
PEI 10 2007– 6 1996–07
SK 6** 1991–07 10 2007–
MB 15 1999–16 1 2016–
6 10 1999–06,
NB 2006–10, 2014–
2010–14
BC 10 1991–2001 1 2017– 16 2001–17
Nfld & 13 2003–15 4 1989–03,
Lab 2015–
ON 14 2003– 2 1995–03
AB 2 2015– 14 1971–2015
44 2009–13 6 2003–09 2 1999–03
NS
(NDP)2013– (L) (PC) (PC)
*Centre-left and centre-right designations are notional, given interprovincial and intertemporal
differences in ideological orientations of particular parties, and different patterns of party competi-
tion in each provinces. For example, the PC government of Danny Williams governed in a highly
interventionist fashion suggesting a more centre-left perspective than the Liberal governments that
they replaced.
**The 1999 election resulted in a minority government; however, three opposition members
joined the government, enabling it to form a majority.
with some of North America’s lowest electricity rates, supporting West-

ern Canada’s most diversified manufacturing sector. Although Manitoba’s
CentrePort has received mixed reviews, its development is consistent with
a broad strategy of strengthening Manitoba’s position as a transportation
and logistics hub, integrating rail, air, and road networks in the centre of the
continent.
Saskatchewan’s privatization of major resource producers Potash Corp.
and Cameco was linked as much to fiscal constraints and structural changes
in resource sectors in the 1980s as to ideological considerations, particularly
under the Romanow NDP government (MacKinnon, 2003). However, fol-
lowing its re-election in 2003 on a platform of protecting the province’s
GBE sector, the Calvert (NDP) government passed legislation requiring
all privatization to be subject to specific legislative authorization, following
public review, not to take effect until after a subsequent election.This legisla-
tion has created a substantial political and institutional barrier to privatiza-
tion (Government of Saskatchewan, 2004; Schwartz, 2013).
The Saskatchewan Party government of Brad Wall has made few changes
to the province’s Crown Investments Corporation since 2007, although some
firms have increased the contracting out of particular services. It has also
turned Enterprise Saskatchewan, the province’s leading economic-develop-
ment agency, into a public-private partnership.The Wall government’s opposi-
tion was reportedly influential in persuading the federal government to veto
BHP Billiton’s hostile takeover of Potash Corporation of Saskatchewan in 2010
after the Anglo-Australian multinational indicated plans to withdraw from the
provincially sponsored export cartel Canpotex (Erman & Bouw, 2010; Van-
derklippe, 2010). (Canpotex’s pricing power was subsequently eroded by the
break up of the post-Soviet potash cartel in 2012.) These developments point
to both provincial sensitivities with regard to outside control of strategic eco-
nomic sectors and the variety of policy instruments available to provincial
governments in promoting their policy goals.
Political sensitivities over external control of natural resources are also
visible in comparing the roles of provincial utilities in Newfoundland and
Labrador with New Brunswick. Newfoundland and Labrador’s historic
underdevelopment, combined with popular resentment of real and per-
ceived exploitation by outside interests, and potential growth opportuni-
ties offered by resource price cycles have fostered cultures of populism and
provincial nationalism, supporting intermittent assertions of state-led eco-
nomic nationalism, especially under the PC governments of Brian Peckford
(1979–89) and Danny Williams (2003–10).
In 2006–07, Premier Williams renegotiated the province’s offshore oil
agreements with major multinationals to enable its energy utility Nalcor
Energy to receive “back-in” ownership of 4.9 per cent of future profits from
discoveries in the Hebron oil field in exchange for contributions to explo-
ration and development costs. Nalcor also has equity stakes in the Hiber-
nia South and parts of the White Rose offshore oil fields. Although these
policy shifts prompted controversy at the time, along with foreign compa-
nies’ threatened departure from the province, the charismatic premier’s 2010
departure temporarily stabilized the investment climate before the oil price
crash of 2014–16 (Brethour & Chase, 2006; Fenwick, 2006).
Bitter memories of the province’s unequal contracts of the 1960s that gave
Quebec the lion’s share of benefits from the development of hydro resources
on the Upper Churchill have encouraged successive Newfoundland and Lab-
rador governments to champion the development of the $7.7 billion Muskrat
Falls megaproject. Although Nalcor secured federal loan guarantees to build a
transmission line across the Gulf of St. Lawrence before the 2011 federal elec-
tion, creating the potential to finance the project from future exports, massive
cost overruns have undermined the project’s long-term viability, at consider-
able cost to Newfoundland and Labrador ratepayers (MacDonald, 2016; Vardy,
2014).
The conflicting pressures of financial viability, risk management, and
public expectations of provincial autonomy in managing GBEs came to
the fore in Hydro-Québec’s proposed acquisition of financially troubled
New Brunswick Power in 2009. Several questionable operational decisions,
combined with the rising costs of refurbishing its aging nuclear generat-
ing station, increased the utility’s debt by almost two-thirds between 2004
and 2009, leaving New Brunswick with the second highest utility rates in
Canada for industrial users (McCarthy, 2010a). The initial plan, announced
without prior consultation by Liberal Premier Shawn Graham, would have
given Hydro-Québec full control over power transmission to the northeast-
ern United States as part of its export strategy. It aroused strongly adverse
responses from the governments of Nova Scotia and Newfoundland and
Labrador. Despite proposals for significant rate cuts to industry and a five-
year freeze on power rates to residential consumers, a major public backlash
forced Premier Graham first to renegotiate the deal and subsequently to
abandon it altogether (Weil, 2009, 2010). The aborted NB Power deal was
a major factor in the government’s crushing electoral defeat later in 2010.
Both Newfoundland and Labrador’s troubled history of dealings with
Quebec and NB Power point to the significant political risks of surrendering
government control over a strategic industry, not least to a state-controlled
monopoly from another, larger province or state-controlled firms from another
country. Despite strong support from major New Brunswick-based businesses,
the Graham government failed to make a persuasive case to New Brunswick-
ers that the gains from stabilizing or lowering power prices would offset loss of
control to the Quebec government in ceding control of NB Hydro.
Nova Scotia’s unprecedented privatization of its major utility in 1992,
during a period of major fiscal difficulties and rising GBE debt, was balanced
by the preservation of regulatory oversight over power rates and other opera-
tional issues. Despite large-scale expansion into the United States, Emera
Inc., Nova Scotia Power’s successor company, remains based in Halifax. Other
provinces, notably Ontario, have sold power generation assets to reduce debt
and foster increased competition and consumer choice, although Ontario
Power Generation remains the dominant firm within the industry. There
have been few major developments in policies toward state enterprises in
most other provinces during the past decade, although controversies arose
in BC related to the partial privatization of the money-losing BC Rail in
2003, which led to a highly publicized corruption trial of two ministerial

assistants and the cancellation in 2004 of a separate deal for the sale of BC
Rail’s Roberts Bank spur line (Enchin, 2009; Tieleman, 2008). The shift of
Ontario’s Hydro One to mixed enterprise status in 2015 was driven partly by
the fiscal considerations of a heavily indebted province and partly by politi-
cal aspirations to support extensive construction of infrastructure during a
period of economic slack. However, various critiques from financial, techni-
cal, and political observers across the political spectrum suggest that its long-
term implications for ratepayers are open to question (Gallant, 2015; Morrow,
2015). However, like Emera, Hydro One has begun to expand through acqui-
sitions of US utilities, whose regulated profit margins offer greater potential
for future growth and profitability (Willis, 2017).
Conclusion
The environment for public enterprises in Canada has been largely evolu-
tionary during the past decade, in sharp contrast to persistent ideological
and policy conflicts between the 1970s and 1990s. As with the Canadian
economy and the governance of Canada’s federal system, policies toward
government business enterprises have been largely decentralized, reflecting
different policy priorities across jurisdictions and industry and policy sectors.
As in preceding decades, major structural changes to particular economic
sectors and fiscal constraints remain among the most reliable catalysts for
significant changes to GBEs’ specific commercial and policy mandates.
The greater the extent to which GBEs in particular sectors are exposed
to international market forces or major regulatory changes introduced in
response to those forces, the greater the likelihood that commercial ele-
ments of their mandates will take priority over other firm-specific policy
objectives, with other policy instruments being used to fulfill broader policy
objectives. Conversely, the greater a firm’s domestic (or provincial) focus, the
greater the relevance of political and domestic policy imperatives.
The more deeply embedded GBEs are as dominant actors within their
particular jurisdictions, the greater the structural and practical obstacles to
large-scale policy change become in the absence of a sustained crisis that
sufficiently discredits existing policies (or the governments that have sup-
ported them) to provide an effective impetus for change. Smaller GBEs are
more likely to experience significant mandate shifts, whether in response to
changing external conditions or as products of their own commercial suc-
cess (or failure).
In federal policies on state enterprise, political and policy imperatives
of risk avoidance have generally outweighed commercial (or ideological)
ones since 2000. Provincial policies have reflected variations in political and
governmental cultures among provinces rather than broad ideological trends,
although governments continue to use public enterprises to promote or
protect provincial influence over strategic industries along with other policy
instruments, often as provincial variants of defensive economic nationalism.
Canada Pension Plan Investment Mixed enterprises

Board National champions
Commercial crown corporation Privatization
Commercialization Quasi-commercial enterprises
Government business enterprise Regulatory capture
(GBE) Shared governance
Joint enterprises organizations
1. Government business enterprises (GBEs), including crown corpora-

tions, come in several types.What are the major types of GBEs discussed
in the chapter? How do they reflect differences in balancing or empha-
sizing commercial and policy mandates? Provide examples and explana-
tions from one or more Canadian jurisdictions.
2. What are five historical rationales for the creation or expansion of GBEs?
What are the similarities and differences between setting up crown cor-
porations as instruments of public policy and cultivating the growth of
private-sector national champions through preferential policies?
3. What is the distinction between the commercialization and privatiza-
tion of GBEs and other government agencies? What factors have con-
tributed to trends of greater levels of commercialization since the 1980s?
What major factors have made privatization more likely outcomes of
commercializing particular GBEs?
4. How do changes to the ownership and mandates of federal GBEs since 2006
suggest the situational character of federal GBE mandates and policies in
recent years? Use publicly available documents to identify core stakeholders
and political and policy priorities associated with each decision.
5. What factors help to explain the prevalence of path dependence in pro-
vincial GBE policies in recent years, and the outcomes of attempted
departures from it in the mandates of the Caisse de dépôt, NB Hydro, and
Hydro One? Use publicly available documents to explore these case
studies further.
Bergevin, P., & Poschmann, F. (2013). Reining in the risks: Rethinking the role of crown
financial corporations in Canada. Commentary #372. Toronto, ON: C.D. Howe
Institute.
Boardman, A.E., & Vining, A.R. (2012). A review and assessment of privatization
in Canada. SPP Research Papers, 5(4). Calgary, AB: School of Public Policy,
University of Calgary.
Crisan, D., & McKenzie, K.J. (2013). Government-owned enterprises in Canada. SPP
Research Papers, 6(8). Calgary, AB: School of Public Policy, University of Calgary.
Iacobucci, E.M., & Trebilcock, M.J. (2012). The role of crown corporations in the
Canadian economy: An analytical framework. SPP Research Papers, 5(9). Calgary,
AB: School of Public Policy, University of Calgary.
Lane, J.-E. (2005). Public administration and public management: The principal-agent
perspective. London, UK: Routledge.
Osborne, D., & Gaebler,T. (1992). Reinventing government: How the entrepreneurial spirit
is transforming the public sector. Reading, MA: Addison-Wesley.
Wiseman, N., & Whorley, D. (2002). Lessons on the centrality of politics from the
Canadian crown enterprise. In C. Dunn (Ed.), The handbook of Canadian public
administration (pp. 382–396). Toronto, ON: Oxford University Press.
Note
1 ATB Financial became a commercial crown corporation in 1997.

10
The Political Marketplace: Interest Groups,
Policy Communities, and Lobbying
A ll governments face the challenge of providing coherent political

leadership, responding to broader trends in public opinion, and serv-
ing or accommodating the interests or concerns of particular social groups,
including varied business interests, on specific issues. This balancing act is a
constant reality of the political marketplace.
This chapter examines the role and function of interest groups and
government-relations professionals in politics and policy making. It notes
the different functions performed by industry, trade, and professional asso-
ciations as they interact with other organized economic interests within
the political marketplace. It explains the development of an independent
government relations industry to advise clients on effective approaches for
dealing with governments, the media, and public opinion along with the
interaction of business and interest groups and government through policy
communities and networks. Finally, it considers the efforts of governments
to regulate lobbying to balance Canadians’ rights to access political processes
with greater transparency and accountability for both government decision
makers and those who seek to influence their actions.
Lobbying, Strategic Analysis, and the Political Marketplace
The idea of lobbying sometimes has a vaguely disreputable aura in which

well-connected individuals seek special favours from governments for them-
selves and their clients. Although the systematic pursuit of self- (and institu-
tional) interest remains central to political processes in Canada, as elsewhere,
the realities of lobbying or government relations are rather more complex.
Lobbying is an extension of the historic right of petition, which ena-
bles individuals, groups, and communities to seek (or preserve) legal rights
to carry out certain activities from governments or to remedy specific
injustices, social problems, and natural calamities. It also involves efforts
by individual firms to influence the design of government contracts and
procurement processes or to counter similar efforts by other interests. The
spread of lobbying and the professionalization of government relations are
logical responses to the growth of government and state intervention in
almost all aspects of economy and society. The politicization of many areas
265
of social and economic activity has created markets for the exercise of politi-
cal influence and policy entrepreneurship by politicians and societal interest
groups (Cairns, 1986). The greater the degree of government intervention,
the more these relations tend to become institutionalized through interest
groups that provide citizens with alternative forms of political representation
in dealing with governments.
As noted in chapter 5, government organizations and decision making are
complex and not particularly transparent. Under these circumstances, it is
not surprising that the financial and competitive implications of many gov-
ernment policies and decisions for businesses have encouraged the growth of
a government-relations industry to provide guidance and advocacy in pre-
senting their clients’ cases to appropriate decision makers in a timely, effec-
tive manner. Many citizens, business owners, and managers are busy enough
making a living that government policies, rules, and regulations seem like a
force of nature, much like the weather, about which they complain regularly
but feel they have little power to influence. However, the more such poli-
cies affect businesses’ abilities to compete effectively, the more important it
becomes to formalize their public affairs functions, including strategic analy-
sis of their political environment within their broader business planning.
Public affairs is the process of organizing an organization’s relationships
with governments, the media, and societal interests to facilitate or comple-
ment the pursuit of its main objectives. Large firms, including public-sector
organizations, set up internal public affairs departments to manage relation-
ships with governments, shareholders, the media, other organizations, and
stakeholders. In smaller companies and organizations, this function is usually
carried out by the owner or senior manager.
Government relations is a subset of public affairs relating to an organiza-
tion’s dealings with government. Lobbying involves efforts to influence deci-
sions by governments or other authoritative actors with the power to confer
benefits or disadvantages by their actions or inaction. Lobbying can consist
of direct contact with relevant decision makers or be indirect as businesses,
interest groups, and organizations attempt to influence the climate of elite and
public opinion, sometimes called the marketplace of ideas, in order to sway
the decisions of governments and political and societal actors.
Such activities can be defensive, responding to actual or proposed changes
initiated by others; sustaining, oriented to the management of day-to-day
relationships necessary for the effective operation and development of exist-
ing policies; or proactive, actively seeking to initiate change within some
aspect of the political system or policy network. Each of these functions can
be carried out independently by individual businesses and interest groups
or in cooperation or competition with other political and economic actors.
The Political Marketplace 267
There are both similarities and important differences between the politi-
cal and economic marketplaces. Both are multidimensional, fragmented,
competitive, and only partially transparent, with decision makers acting on
the basis of incomplete information. Stanbury (1993, pp. 138–142) likens the
political marketplace to an exchange process in which participants seek to
balance their assets and liabilities through cooperation and tacit bargaining
with one another. Despite the centralization of political power fostered by
the evolution of Canada’s cabinet-parliamentary system of government and
the vast disparities of power and influence within that marketplace, all par-
ticipants still require the cooperation and support of other players to some
extent to achieve their main objectives. Just as well-run businesses need to
understand economic markets in which they operate to compete success-
fully, organizations and interest groups, including businesses, competing in
the political marketplace need to acquire the tools necessary to make the
best use of their limited resources in dealings with governments.
Strategic Analysis and the Political Marketplace
Influencing governments and policy making begins with strategic analy-

sis (an assessment of the opportunities and risks facing specific businesses
and organizations, or their members, as a result of the actions or inactions
of governments and other political actors). These factors include specific
issues that can affect the organization’s ability to pursue its main priorities
(e.g., business expansion, market share, profitability, competitiveness) and
political actors inside and outside governments whose attitudes and actions
can materially reinforce or diminish their success.
Effective strategic analysis involves four major steps:
1. Issues awareness and profile:This involves monitoring the news media,

legislative developments, and policy literature for the emergence of issues
with the potential to benefit or damage a company, industry, or organiza-
tion. Politically relevant issues fall into three main categories. Vital issues
are central to the firm’s or industry’s viability. Lateral issues shape or influ-
ence the broader environment for company or organizational activities,
but are not central to survival or growth. Tangential issues generate mar-
ginal benefits or costs for a company or organization, but not enough to
require significant management attention (Grefe, 1981, pp. 25–32).
2. Identifying elements of a potential political support system: This involves
searching out other businesses, organizations, groups of citizens, indi-
vidual legislators, or constituencies within government that share com-
mon or overlapping interests and are open to cooperation or support.
This step is vital to the development of issue networks and advocacy

coalitions (Grefe, 1981, pp. 43–55).
3. Identifying competing and/or adversarial interests: Paralleling the previous step,
this process profiles other businesses, organizations, groups of citizens, in-
dividual legislators, or constituencies within government whose interests
or outlooks may compete with one’s own organization over an issue.
4. Identifying and cultivating sources of information on relevant decision mak-
ers, their priorities and attitudes about key issues, the likely timing of
and processes for policy development, and opportunities to influence
policy makers is necessary to translate the previous steps into practical
action. The earlier such information can be obtained and acted upon,
the greater the organization’s capacity to achieve more satisfactory
outcomes than otherwise possible.
Timely and well-focused strategic analysis of the political environment

is vital to the effectiveness of interest groups and government-relations pro-
fessionals. However, for individual businesses, strategic analysis is only one
dimension of broader business planning whose importance varies with the
relative importance of particular policies for their competitive environment.
Few businesses have the resources or incentives to engage in comprehen-
sive strategic analysis of most factors affecting their business environment,
choosing to focus instead on issues or government agencies with the great-
est potential impact on their operations. Just as the business marketplace
encourages specialization to increase efficiency and competitiveness, the
political marketplace also lends itself to specialization through the activities
of interest groups and government-relations professionals.
Interest Groups and the Political Marketplace
Interest groups are “formal organizations, sharing common goals and with
some autonomy from government, which seek to influence public policy”
(Stanbury, 1993, p. 119). Politicians or journalists often describe such groups
as “special interest groups,” especially when they represent socioeconomic
or policy orientations that are particularly self-centred or conflict with the
observer’s viewpoint. Because no interest or advocacy group can encompass
the interests or values of an entire society, all interest groups may be seen as
special interest groups to the extent that their claims on the political system
are prejudicial to the interests or values of a significant segment of soci-
ety. The political effectiveness and legitimacy of interest groups is directly
related to their ability to demonstrate how their policy proposals will benefit
society and not just their own memberships (Stanbury, 1993, pp. 114–25).
Interest groups have several functions in common, although some are more
highly specialized than others. Pross (1992) notes five key functions of interest
groups in the political process. Their core function is to mobilize or aggregate
social, economic, or ideological interests to support shared objectives or values.
This function requires communication with government, other interest groups,
and the general public. Interest groups seek legitimation, validating the claims of
particular groups to recognition or accommodation in particular policy fields.
Governments also use interest groups to provide political validation to specific
policies that affect particular groups disproportionally. Selected groups with
specialized expertise also engage in negotiation, involving formal recognition
and inclusion by governments in the internal processes of policy development.
More infrequently, certain groups function as agents of administration, assisting
government in delivering specific public services (pp. 87–96).
Interest Aggregation
Interest mobilization or aggregation is the most vital function of business and

interest groups. Groups that can claim credibly to represent a specific group
of citizens or businesses, usually through the voluntary payment of member-
ship dues or the capacity to demonstrate active member support for their
positions, have greater political legitimacy than those whose activities are
dominated by a self-appointed leadership. The larger a group’s membership
or the greater the proportion of firms (or market share) represented within a
particular jurisdiction or industry sector, the greater its claim to consideration
by governments in relevant policy fields. For this reason, business groups often
seek to boost membership levels by offering tangible economic incentives to
members such as group buying or insurance programs, discounts on relevant
services, and access to low-cost education or consulting services.
Interest aggregation also involves building interest networks or coa-
litions among groups (Hula, 1999). This process includes the formation of
special purpose organizations that enable groups to coordinate their lobbying
or public relations activities and to achieve economies of scale in research and
the hiring of expert technical advice on specific policy issues. Since 2000, the
federal government and most provinces have passed laws to regulate lobby-
ing and make it more transparent. Some of these laws attempt to curtail the
political activities of lobbyists. Some of these provisions are discussed below.
Communications
Interest groups perform multiple communications functions, depending on

their structures, strategic objectives, and tactical choices. Historically, business
groups and individual corporations communicate directly with key policy

makers, including cabinet ministers who oversee relevant departments or
regulatory agencies; public servants responsible for designing and adminis-
tering policies and programs; and, at the margins, individual MPs and mem-
bers of provincial legislatures (Public Policy Forum, 2002). Small businesses
are more likely to contact their local elected representatives, who frequently
devote much of their time to helping constituents in their dealings with
government bureaucracies.
A 2015 study suggests that most overall lobbying activity is directed at cabinet
ministers and public servants, although organized labour groups are marginally
more likely to engage individual MPs. However, parliamentarians, particularly
backbench members of the governing party, were major targets for lobbying by
business and other interest groups in 2011–13 (Boucher, 2015).
Communication with government is often a two-way street. Ministers and
other elected officials regularly speak to business audiences to communicate
their political messages and obtain feedback. Senior public servants attend
conferences sponsored by interest groups, including think tanks, to exchange
ideas and test the waters on potential policy initiatives. Governments some-
times sponsor or commission think tanks to conduct research and host confer-
ences or consultations on particular topics to engage major stakeholders.
Stanbury (1993, pp. 119–120) suggests that interest groups engage in at
least three major communications functions: signalling, providing, and relay-
ing information. Signalling transmits voter or business interests by visibly
monitoring government policy, communicating directly with governments,
and engaging in indirect lobbying through the news media or other efforts
to shape the broader political and policy environments.
They also provide governments and attentive publics with specialized
information and research about industry conditions and the actual or pro-
spective impact of government policies. This research may be commissioned
internally or contracted to third parties with credible professional standing
and reputation. Interest groups also engage in lateral communication with
one another, direct communication with their members through newsletters
and restricted-access websites, and with the general public through various
news media and the Internet.
Legitimation
A key objective of most interest groups is to validate their claim to consid-

eration in the policy-making process.Their tactics often depend on whether
their primary objective is to influence the decisions of specific policy makers,
catch the attention of politicians or the news media, or build support from
particular social or economic interest groups. Businesses and business groups

that are accessible to and earn the respect of major media sources have a sig-
nificant advantage in their public and government relations over those that
do not. However, such credibility requires truthfulness, responsiveness, and
a demonstrated capacity to match rhetoric with reality in addressing public
concerns related to their firm or industry.
Institutionalized interest groups that have secured recognition or
established their place within the government policy process are more likely
to base their efforts to legitimate policy proposals on established government
policies or priorities that they may have influenced in past years. Established
industry associations such as the Business Council of Canada (formerly
the Canadian Council of Chief Executives), the Forest Industries Associa-
tion of Canada, and the Canadian Association of Petroleum Producers have
established close (if not always cordial) working relationships with senior
officials responsible for the areas of major policy interests. Many organiza-
tions in the public sector (e.g., local governments, health and education
sectors, and crown-owned firms) pursue similar strategies. Many such asso-
ciations reinforce these linkages by hiring former ministerial aides, senior
civil servants, and even former cabinet ministers, although federal conflict of
interest rules usually preclude such individuals from lobbying former col-
leagues for five years after leaving offices of public trust. Shorter cooling-off
periods apply in most provinces.
Outsider groups, those representing both business and societal groups, are
more likely to appeal to media and public opinion in an effort to obtain rec-
ognition or accommodation for their ideas as part of a broad public interest.
Some of these groups, such as the Canadian Federation of Independent Busi-
ness (CFIB) and some environmental groups, have become established players
within the political process with the passage of time. Others take a more adver-
sarial approach, challenging government from the margins of the political pro-
cess and attempting to influence positions taken by opposition political parties.
As with communication, governments may use interest groups as a vehi-
cle for legitimizing policy decisions by demonstrating that key stakeholder
groups either support or have been actively consulted in the development of
particular policy initiatives. These approaches may involve consultations by
parliamentary or legislative committees or the development of more elabo-
rate roundtable consultations intended to build consensus.
Negotiation and Administration
Government intervention in social and economic relationships often creates,

affects, or redistributes economic rights and interests within society. Interest
groups whose members are seen to have the capacity to facilitate or block
the effective implementation of particular government policies may be able
to secure formal recognition within the policy process that enables them to
negotiate the details of policy design or implementation.
Examples of this approach include rules providing for professional bod-
ies or self-regulated industries to set and enforce the criteria, standards, and/
or quotas for the training, admission, or expulsion of their members. They
often include the development of technical or safety standards for products
and services. Such negotiations also take place informally, with government
officials being instructed to identify policy choices that are acceptable to key
stakeholder groups before recommending formal policy decisions. Major pro-
fessions and industries characterized by extensive degrees of self-regulation
and regulatory delegation include lawyers, accountants, health professionals,
real estate and insurance brokers, and securities and mutual fund dealers and
exchanges. The nature and powers of regulatory and self-regulatory institu-
tions and the industries affected by them vary significantly across jurisdictions.
Trends since the 1990s have led to the separation of self-regulatory functions
and interest advocacy into separate organizations to reduce real and perceived
conflicts of interest.
Rather than administering a particular policy or program directly, gov-
ernments may establish an arm’s-length organization involving private or
nonprofit sectors to administer a quasi-public program. Examples of this
approach include the CSA Group (formerly Canadian Standards Association,
a nonprofit association empowered to set technical and product standards
for industry), professional disciplinary bodies established under legislative
authority, and arm’s-length foundations with mixed public-sector–private-
sector boards of directors established by federal and provincial governments
to oversee a variety of functions.
The Political Organization of Business and Canada’s

Government Relations Industry
“It is incorrect to speak of a single business community in Canada”

(Coleman, 1988, p. 219).
Business interests take several very different forms, from broadly based
groups that seek to represent a cross section of business interests to trade
associations with highly specialized roles in promoting the interests of their
members. Unlike some countries, in which governments have encouraged
corporatist forms of business organization, there is no peak association capa-
ble of speaking for the Canadian business community as a whole.
The absence of such authoritative business organizations reflects the

realities of Canada’s firm-centred business culture and what Clancy (2004)
describes as the “business-industry dichotomy” in business-government rela-
tions. Even industries with high corporate concentration experience intense
competition among individual firms. Policy competition also results from
the conflicting interests of different industry subsectors, as with the persis-
tent rivalry of Detroit- and Japanese-based automakers or of integrated oil
firms and independent producers.
Scholars of the political organization of business, such as Stanbury (1988,
1993) and Coleman (1988, pp. 81–99), outline three broad types of business
organization. Broadly based (or comprehensive) associations represent
businesses across a range of industry sectors. As a result, they tend to focus
on horizontal issues that apply to different industries. Much of their political
influence and effectiveness depend on their capacity to develop consen-
sus positions on such issues within their memberships. The four largest and
most influential business organizations of this kind are the Business Council
of Canada, the Canadian Chamber of Commerce, the Canadian Federa-
tion of Independent Business (CFIB), and Canadian Manufacturers and
Exporters (CME). Broadly based provincial associations include provincial
chambers of commerce, the Conseil du Patronat de Québec, and the Busi-
ness Council of British Columbia (Coleman, 1988).
Major sectoral associations represent a cross section of business inter-
ests within major economic (including nonprofit) sectors such as retailing,
construction, agriculture, tourism, and health care. Just as broadly based busi-
ness associations attempt to aggregate business interests from several sectors,
sectoral associations seek to aggregate specialized interests within a particu-
lar economic sector. Major sectoral associations include the Retail Council
of Canada, the Canadian Federation of Agriculture, the Canadian Tourist
Industries Association, and the Canadian Construction Association.
Many industries are diverse enough that they have spawned a wide vari-
ety of specialized trade associations, which may be organized nationally or
provincially, depending on the scale of industry operations and the order of
government with the most direct impact on business operations. Industry
segments are differentiated in several ways by factors such as ownership,
relative specialization, size of business, and geographic structure or loca-
tion. For example, Detroit-based and non-North American auto makers are
represented by the Canadian Vehicle Manufacturers Association and Global
Automakers of Canada, respectively, with parts and components producers
represented by the Automotive Parts Manufacturers Association of Canada.
At least 32 different associations represent various aspects of Canada’s forest
industries, led by the Forest Products Association of Canada (Ruiz, 2017).
Both sectoral and trade associations often seek to attract members by pro-
viding industry-specific services to members, including shared promotional
activities and educational, technical, and consulting services. Trade associations
tend to focus their lobbying activities on specialized policy and technical issues.
These activities may overlap, complement, or compete with the broader activi-
ties of sectoral and broadly based business associations. Smaller associations with
limited budgets may contract with association multi-managers who serve several
clients to provide administrative support and guidance to their organizations.
Business organizations are organized as unitary organizations (with
or without regional divisions) or as federal and confederal organizations.
Unitary organizations are centralized, with any regional divisions depend-
ent on the central organization for policy, staff, and other resources. Federal
associations include regional bodies with independent resources and deci-
sion-making powers; they are often funded through contributions shared
between the national and regional organizations. Confederal associations are
composed of autonomous member groups, although some, like Canadian
and provincial chambers of commerce, make provisions for direct business
membership (Colentan & Mau, 2002).
Many businesses hold memberships in more than one organization; for
example, a business may belong to its local chamber of commerce, provincial
or national industry or trade association, and a broadly based group such as
the CFIB. A 2002 survey of 800 large corporations conducted by the Public
Policy Forum indicated that 62 per cent of respondents were members of
two to five industry or trade associations, with 17 per cent belonging to six
or more groups (Public Policy Forum, 2002). Group membership can be
direct (participation by individual businesses), organizational (participation by
organizations), or federal (national organizations or federations of provincial
organizations).
The tremendous diversity of business interests is evident in the wide
range of specialized industry and trade associations registered under the
Lobbying Act and comparable provincial laws. Other interest groups actively
engage in lobbying activities, notably professional organizations, organiza-
tions representing a variety of public-sector interests, agricultural groups, a
handful of major unions, and a variety of other advocacy groups.
Special-Purpose Organizations
Temporary issue-specific coalitions are not as common in Canada as in the

United States, but they emerge when several groups recognize the potential
benefits of pooling their resources to pursue a common policy goal or when
political debate becomes polarized on particular issues. Such polarization
may pit a consensus of major business interest groups against networks of

other social and economic interest groups, as in periodic conflicts over
major changes to provincial labour laws or environmental policies. It may
also reflect major divisions within the business community on specific issues.
Coalition building also results from the efforts of governments, business
groups, and societal organizations to build partnerships for common societal
goals or to bridge societal differences. Box 10.1 outlines a typology of interest
group coalitions, including those limited to the representation of businesses
and business associations, and cross-cutting coalitions that link business with
labour, consumer, and even governmental organizations. The range of issues
Box 10.1 Coalition Building
Actors Breadth of Issues Temporal
Business Coalition Single Issue Event-Specific

• single industry • special purpose • Project
• limited cross-sectoral (project oriented) oriented
• horizontal • continuing (extended period)
Business-Labour Coalitions Issue Cluster Continuing
• usually sector specific (related sectoral • issue/project
issues) oriented
• institutionalized
Business-Government
Coalition
• sector specific
• multisector, policy-field
specific
Producer-Consumer
Coalition
• business-to-business
• business-individual
consumers (NGOs)
Business-Other NGOs
Multisector (including
business)
• including government
• advocacy to government
addressed by special-purpose organizations and how long they remain in

operation (their temporal character) also affect coalition building.
Alternately, business groups create ongoing coalitions to pool expertise
and create economies of scale in research and lobbying on ongoing struc-
tural issues requiring the concertation of economic interests. Examples of
such groups include the employer councils organized to coordinate busi-
ness positions on labour and workplace issues in several provinces including
Ontario, Manitoba, Saskatchewan, BC, and Newfoundland and Labrador.
Provincial chambers of commerce are the leading business umbrella
groups in most provinces, combining large and small business representa-
tions through local chambers. The balance of power and influence between
provincial and local chambers varies widely with big-city chambers or
boards of trade in Toronto, Montreal, Calgary, Edmonton, Vancouver,
Winnipeg, and other cities playing active and sometimes independent politi-
cal roles in their respective provinces. Municipal chambers of commerce play
greater or lesser roles in promoting business development and influencing
local and provincial government policies. Their focus and level of activism
depends on the character and interests of local leaders and their capacity to
recruit and renew their leadership from within their communities.
The Role of Professional Lobbyists and Public Affairs Professionals
The government relations (GR) industry plays a role distinct from that of
industry and trade associations, even though both are frequently among its
clients. Larger businesses have recourse to major law firms and public rela-
tions companies to guide them in their relations with governments, regula-
tory agencies, and the media. Many of these professionals have close personal
and political relations with politicians and governments, creating a symbiotic
relationship that has evolved in recent decades.
The growth of the GR industry is a reflection of the complexity of
government activity; the recognition of many interest groups and corpora-
tions that they lack the technical expertise to deal effectively with govern-
ments; and the broad range of government activities that affect the interests
of businesses, large nonprofit organizations, and many other social groups.
Businesses and industry associations may hire GR professionals as one way of
obtaining a competitive advantage in the political marketplace or of keeping
rival groups from gaining an advantage over themselves.
Some firms and advisors engage directly in lobbying on behalf of clients.
This work is comparable to that done by the leaders and staff of larger cor-
porations and interest groups, some of whom are their clients. Others provide
strategic advice or technical information on the complex and often hidden
processes of central agencies, government departments, and public-sector

organizations. Still others assist in grassroots communications, the direct or
media-driven appeals to members of the public encouraging them to put
pressure on public office holders (Giorno, 2013). Some GR consultants have
taken advantage of the complexities of government programs and processes
to market their services to businesses by positioning themselves as “grant get-
ters” who can help clients access government subsidies, often for a generous
contingency fee. Since 2008, federal law has prohibited contingency fees for
lobbyists in an attempt to limit such practices by extending requirements for
lobbyist registration and for ensuring that grant agreements and contracts pro-
hibit the use of program funds for the payment of contingency fees (Office
of the Commissioner of Lobbying, 2015). There has been comparatively lit-
tle systematic study of GR industries at the provincial level. Although some
national and international firms maintain offices in larger provinces, provincial
GR sectors tend to be localized, reflecting the very different political cultures
and networks surrounding the governments of the 10 provinces.
The Mulroney government introduced Canada’s first Lobbyists Registration
Act in 1989 in an effort to provide greater transparency to the system, responding
to rumours of political influence peddling. Following the “sponsorship scan-
dal” of the early 2000s, the Harper government substantially extended the law
to impose a mandatory five-year cooling off period prohibiting former office
holders, political staff, and public servants from lobbying their former colleagues.
Several provinces have passed similar legislation of varying degrees of stringency:
Ontario (1999), BC (2001), Quebec and Nova Scotia (2002), Newfoundland
and Labrador (2004), Alberta (2007), Manitoba (2008), and Saskatchewan (2012),
although some provinces have waited several years to implement these laws.The
preamble of the current Lobbying Act (2008) notes that:
• free and open access to government is an important matter of public

interest.
• lobbying public office holders is a legitimate activity.
• it is desirable that public office holders and the public be able to know
who is engaged in lobbying activities.
• a system for the registration of paid lobbyists should not impede free
and open access to government.
Most lobbyist regulations provide for public registration requirements for

persons in private-sector and nonprofit organizations whose responsibilities
involve frequent contact with governments. Requirements to register apply
to all consultant lobbyists; those working as private consultants or on behalf
of GR firms; in-house lobbyists; those working for corporations, unions,
government agencies, and nonprofit organizations; and the organizations

that hire or employ them. Most laws have transparency provisions requiring
reporting of meetings and other communications sought with office holders
and public servants and the topics addressed in such communications, cool-
ing-off periods for office holders and government employees subsequently
engaging as lobbyists (in-house or contract), disclosure of grassroots lobby-
ing campaigns (in some jurisdictions), and restrictions on partisan political
engagement by registered lobbyists (in some jurisdictions).
The federal Lobbying Act applies to all consultants paid to communicate
with public office holders (including public servants) with regard to the
development or consideration of legislation, regulation, policy, or program;
the awarding of any grant, contract, or financial benefit by the government
of Canada; or for setting up related meetings with public office holders
(s. 5(1)). It also applies to any business or organization whose communica-
tions with governments on such matters cumulatively account for “a sig-
nificant part of the duties of one employee” or would do so if performed
by one employee, effectively, 20 per cent of an employee’s duties (Office of
the Commissioner of Lobbying, 2009), or about 30 hours per month. This
information, along with information on departments or agencies contacted,
subject matter of contact, disclosure of public offices previously held by lob-
byists, communications techniques used, including grassroots lobbying, and
federal funding received by organizations engaged in lobbying, must be filed
by organizations within 15 days of the end of the month in which commu-
nications occur.This information is kept in an online database maintained by
the Office of the Lobbying Commissioner, a federal public servant.
A lobbyist’s code of conduct, initially introduced in 1997 and revised
in 2015, discourages lobbyists’ relationships with office holders that could
be perceived as creating or exploiting a sense of “mutual obligation.” In
some cases, this has led senior business people to report family dinners with
old friends in public office from an abundance of caution (Chase & Fife,
2016). Responding to long-standing concerns about symbiotic relationships
between lobbyists, politicians, and political parties, federal regulations now
preclude registered lobbyists’ participation on the constituency executives of
political parties or on election campaign organizations (Giorno & Meunier,
2015; Shepherd 2015a, 2015b).
Unlike the United States, relatively few former politicians go into the
GR business. Some former federal ministers like John Manley of the Busi-
ness Council of Canada, the CME’s Perrin Beatty, and Sergio Marchi of the
Canadian Electricity Association have been recruited to manage major busi-
ness associations, usually after a period outside of active politics to reduce
memories of partisan affiliations. However, former ministerial assistants often
find their ways into the ranks of GR professionals, although the tightening
of federal and some provincial conflict-of-interest rules have constrained
post-political career paths for both groups.
Think Tanks and Policy Advocacy Groups
Business associations are subject to two major weaknesses in contributing to the

policy process. First, they frequently lack the specialized professional resources
necessary to carry out timely and effective policy research. More important,
policy research directly sponsored by business, labour, and other interest groups
is often discounted by many policy makers as largely self-interested. This gap
has been partly filled by think tanks, policy-advocacy organizations that spon-
sor research intended to support public debate (Abelson, 2009, 2016).
Research findings on the political and intellectual influence of particular
think tanks vary. Some groups, such as the libertarian Fraser Institute and the
leftist Canadian Centre for Policy Alternatives, are strongly committed to ideo-
logical advocacy. More influential are groups such as the C.D. Howe Institute,
the Conference Board of Canada, and the Public Policy Forum, which develop
focused, topical studies that are intended to apply empirical research to various
policy challenges. Although some think tanks may challenge the policy status
quo, they also serve as “policy legitimators” by “provid[ing] intellectual or sci-
entific justification” for the policy proposals of governments, parties, or indi-
vidual politicians (Baier & Bakvis, 2001, pp. 109–110). However, some observers
suggest that politicians and government officials are more responsive to think
tanks that frame issues in terms amenable to their objectives.
The overlapping, often competing activities of corporations, business groups,
government relations firms, think tanks, other interest groups, and governments
themselves reinforce the fragmentation of policy making and the political mar-
ketplace. As a result, a starting point for strategic analysis and effective advocacy
is to identify the actors responsible for managing or administering particular
policy fields, together with the interest groups and other attentive actors
whose interests directly or potentially are affected by those policies. One con-
cept used in mapping these interests, inside and outside of government, is that
of policy communities.
Policy Communities
The terms “policy communities” and “policy networks” are often used
interchangeably to describe clusters of organizations and interest groups
inside and outside governments that focus on a common set of policy inter-
ests. The concept of policy communities implies greater cohesiveness and
stability among participants than policy networks, which are often more open
to the engagement or departure of participants, especially societal actors.
These concepts are of more than academic interest. As noted earlier,
policy processes tend to be specialized and fragmented with limited trans-
parency. Civil servants and interest-group representatives who specialize
in particular policy fields often have a significant advantage in influencing
policy developments over outsiders. This should not be surprising. After all,
non-lawyers are rarely successful in representing themselves in court, and
few people would want to trust non-specialists in most kinds of surgery.
Types of policy communities or networks are distinguished by the num-
ber of participants, the degree of openness of the process to input from
different interest groups and the general public, and the degree to which
governments define the policy agenda rather than responding to the policy
preferences and demands of citizens (VanWaarden, 1992). The character
of policy communities is directly affected by the number of participants,
both inside and outside governments, and the degree of formal recogni-
tion extended to participants. Participants normally include representatives
from one or more departments of government, one of whose branches
serves as the lead agency responsible for steering and guiding the pol-
icy process. Other participants include cabinet ministers and departments
or agencies whose activities are affected by proposed policy changes and
parliamentary or legislative committees responsible for conducting policy
reviews or examining legislative changes. Other governmental actors that
are involved through interdepartmental committees, cabinet committees,
or intergovernmental negotiations are considered to be part of the sub-
government responsible for policy development and implementation.
Policy communities frequently include interest groups, individual busi-
nesses, and others affected by the issues at stake; policy experts in academic and
professional circles; and members of the news media who monitor or report
on particular issues or policies. These individuals or groups are major stake-
holders to the extent that their vital interests are engaged or their cooperation
is seen as necessary for governments to take effective action. Alternatively, they
may be attentive actors (or the attentive public) who function at the margins
of the policy process but whose influence and support becomes important in
the event of major disputes within or among the subgovernment or major
stakeholders (Pross, 1992, pp. 97–107). Attentive actors, particularly the news
media and highly organized interest groups, are important channels of com-
munication to the general or specialized publics should disputes within the
policy community become matters of significant political importance. Pross’s
amoeba-like diagram of a typical policy community, outlined in Figure 10.1,
indicates the concept’s fluidity and adaptability as a tool of policy analysis.
Figure 10.1 Policy Communities
Foreign
Governments
Other
Federal Individuals
c
bli
Pu
Agencies
ive
nt
te
At
Parliament
e
Th
ent
rnm
ve Major
o
Cabinet and
e S ubg
Central Lead
Policy Agency Groups
Pressure
Th
Structures
Key Other
Pressure
Provincial
Other
Groups
Governments
Provincial
Individuals Individuals
Governments
Source: Pross, A.P. (1995). Pressure groups: Talking chameleons. In M.S. Whittington & G. Williams
(Eds.), Canadian politics in the 1990s (4th ed.). Toronto: Nelson, p. 267.
Policy communities and networks perform several different functions

within the policy process. Networks are channels of communication within
governments and among societal interest groups that are actively interested in
the outcomes of particular processes. Both government decision makers and
interest groups attempt to mobilize networks of interests to consult with other
actors on perceptions of policy problems and proposed responses. Networks
can be used to fine tune policy proposals to make them more responsive to
the needs of particular interests or to mobilize public opinion on particular
issues. In certain cases, they serve as channels for formal or informal negotia-
tion between governments or between governments and key societal inter-
est groups, or they may be used for consensus building among groups with
overlapping or competing interests.The broader the range of issues at play, the
more complex the likely interactions among these groups (VanWaarden, 1992).
As noted earlier, participation in policy making often takes place under
conditions of partial uncertainty and imperfect information. Different players
have limited understandings of one another’s agendas. Reducing uncertainty
depends largely on the degree of knowledge and trust that different players
develop through multiple interactions with one another over time. These
processes privilege regular participants (institutional actors, policy insiders).
Outsiders must persevere and demonstrate their capacity to engage the
system until they can establish their positions as significant stakeholders within
the policy community. Many groups prefer to remain outsiders to promote
their interests without constraining their freedom of action or to protect their
ideological purity. However, such issue-oriented interest groups are likely
to remain outsiders whose influence will depend on their capacity to mobi-
lize media and public opinion to support their positions. Alternately, they may
pursue alliances with other groups in their policy networks that are willing
to play by the rules of the game to be recognized as significant stakeholders.
Types of Policy Communities
The organization of policy communities and their evolution over time

reflect different expressions of power relations between state and societal
interests. VanWaarden (1992) summarizes four generic expressions of these
relations: the relative autonomy of state/public administration when engag-
ing societal interests; the capture or colonization of state agencies by busi-
ness or other interests; the capture of private interests by the state; and a
symbiotic balance between particular state and societal interests. Scholars
identify seven different types of policy communities. Four represent pluralist
policy networks characterized by very different structures of power relations
between the state and societal interest groups.The other three represent nar-
rower, more closed forms of policy communities with differing capacities
for policy coordination on the part of the state and major organized societal
interest groups (Coleman & Skogstad, 1990;VanWaarden, 1992).
Pressure Pluralism
In pressure pluralist policy communities, government decision makers

weigh and balance the claims, demands, and suggestions of varied interest
groups, none of which exercises significant power over policy outcomes. As

a result, governments are largely autonomous and able to make decisions
without undue influence of particular societal interests, although they gen-
erally consider known interests and views of stakeholder groups and citizens.
Not all stakeholder and interest groups have equal weight in these
processes. Some have greater expertise and professional or organizational
resources than others. Some are marginal players, whether due to size or
competing priorities (including those addressed in other policy communi-
ties). Others may devote most of their limited resources to attempting to
affect one or two specific aspects of a specific policy debate, rather than
attempting to influence its development as a whole.
Pressure pluralist policy communities include those relating to federal
budget and tax policies and changes to labour or workplace legislation under
liberal or conservative governments. Under normal circumstances, policy
makers in these areas attempt to balance competing societal expectations to
incorporate at least some priorities of major interest groups (and the broad
public) within resulting policy packages. Sector policies affecting industries
in which producer interests are divided, as in market-driven segments of
agriculture, or in which consumer interests are strongly organized, lend
themselves to the politics of pressure pluralism.
Clientele Pluralism
Clientele pluralist policy communities display a mutual identification

of interests by one or more major stakeholder groups and policy makers
in the lead agency. Ministers and departmental officials tend to perceive
the public interest as broadly consistent with the interests of these client
groups. Although policy makers sometimes respond to the actions of par-
ticular interest groups, more often their decisions reflect an internalized set
of bureaucratic priorities reinforced periodically by political action.
Clientele pluralism was long associated with departments and agencies
responsible for the promotion, oversight, or regulation of oligopolistic indus-
tries. It can also be seen in the operations of industry-sector branches in a
ministry of economic development or in the creation of a sector ministry
responsible for mines, forests, fisheries, natural resources, or cultural industries.
A labour ministry may identify the public interest with that of organized
labour or related societal interests, or a regulatory agency may be captured by
the interests it was originally intended to oversee due to changes in personnel
or the convergence of philosophies between regulators and regulated.
Clientelist relationships are common in political cultures that emphasize the
distributive role of government as a source of benefits for disadvantaged people,
although some observers have suggested that the rhetoric of disadvantage can
evolve into a cloak for excessive entitlement, as in some supply-managed agri-
cultural subsectors. Governments’ organizational structures often facilitate the
segmentation of relationships to permit particular groups a privileged voice
within specific policy fields. However, these privileged relationships may also
hinder the capacity of governments to respond to changing social, economic,
or fiscal conditions that require a broad concept of public interest.
Governments may restructure their operations to break up cozy clien-
telist relationships. Sometimes they choose to group related policy func-
tions within a single new department or agency to balance overlapping and
competing group interests or to pursue significantly different policy goals,
although their effectiveness depends on strong support from senior political
leaders, strong, capable management, and clearly articulated policy priorities.
For example, the Trudeau government’s 1982 merger of foreign policy and
trade functions in a new Department of External Affairs and International
Trade (later DFAIT) contributed to subsequent policy shifts. In recent cases,
governments have formed advisory or policy coordination groups to inte-
grate economic and environmental policies.
Co-optive Pluralism
The emergence of co-optive pluralist policy communities in governments

is often a temporary phenomenon whose durability depends on the political
influence of government officials and the client groups that they create to
provide societal validation for their policy initiatives. Such groups are usually
perceived to be socially or politically disadvantaged and underrepresented
within the political process, most notably women’s groups during the 1970s
and 1980s, and indigenous groups in recent years.
Interest-group participants in such policy communities are initially
dependent on government funding for much of their budgets. However, the
growing political profiles (and sometimes policy capacity) that come with
funding leads such groups to resist government efforts to impose tighter
controls on the use of public funds. In some cases, the result has been the
devolution of policy responsibility to other governments. In others, confron-
tations have led to reductions in group funding as senior politicians and their
officials grow weary of subsidizing an adversarial culture of entitlement.
The problem of interest-group funding raises overlapping questions of
group autonomy, intergroup equity, and financial accountability. The capac-
ity to pursue one’s interests within the political system is a significant aspect
of democracy, but one that becomes potentially controversial when paid
for by forced subsidies from other taxpayers who do not have access to
similar advantages. These debates raise questions of equity, particularly when

interest-group funding becomes a form of bureaucratic patronage favouring
one group and its agenda over another.They also raise questions of account-
ability, both the ability of governments to hold groups accountable for the
use of taxpayers’ money in the general interest and that of group members
to set their priorities independently of government.
Parentela Pluralism
Parentela pluralism involves the politicization of the civil service and

government agencies as particular interest groups allied with governing
parties arrange to have their representatives appointed to positions within
the government. This approach not only prevents the emergence of an
independent civil service committed to serving the state or the public, it
actively encourages political parties to infiltrate their supporters into the
ranks of the civil service to ensure that their interests will be looked after
and not sabotaged by bureaucratic elites or their political opponents. There
are similarities between parentela pluralism and the politics of the spoils
system in which victorious political parties assign government jobs to their
supporters and civil servants owe their primary loyalty to the political party
or government faction that appointed them rather than to the government
of the day or to the state as a whole.
The extension of civil service reforms and the development of a pro-
fessional public service tradition on the Westminster model between 1910
and 1970 limited the spread of parentela pluralism in Canada. Political
partisanship, while rare, is not unknown at senior civil service levels in
some provinces. In the federal government, there is a tradition of for-
mer political assistants to ministers moving into the public service. Many
absorb the norms of nonpartisanship that are central to the Canadian tra-
dition of public service professionalism. However, the veneer of nonparti-
san professionalism is often thinner in the appointments of the executives
and members of many administrative and regulatory agencies that osten-
sibly function at arm’s length from federal and provincial governments.
Some governments have introduced rules intended to limit real or per-
ceived conflicts of interest in such situations, although their enforcement
is not always consistent.
Liberal Corporatism
Canada has experimented on several occasions with corporatist policy

structures. Liberal corporatism attempts to provide formal representation
for major stakeholder groups within relevant government decision-making

structures, sometimes as a institutional response to deep social divisions.
Such groups may be formally representative. However, they are often par-
tially distanced from the societal interests they represent to enable them to
negotiate differences with other stakeholders and develop an elite consensus
to bridge societal divisions.
Corporatism in Canada has been attempted on several occasions, pri-
marily by social democratic provincial governments capable of exercising
some leverage over business and labour groups. Corporatism in Quebec
evolved from industry-worker parity committees in the 1930s into a wide
range of participatory policy structures involving many different sectors
of Quebec society during the 1970s and 1980s. Liberal and NDP govern-
ments in Ontario attempted to extend corporatist structures in several
areas between 1985 and 1995, including the Premier’s Council, a strategic
advisory council on economic and social policies, and several labour and
employment-related organizations. BC has used corporatist strategies to
reconcile industry, union, and environmental interests in the province’s
vital forest industries, with varying degrees of success (Howlett, 2001).
The success of corporatist policy strategies depends on sustained gov-
ernment commitment, usually with some bipartisan and cross-sectoral
consensus on their objectives and scope. However, Canada’s adversarial par-
liamentary political culture does not lend itself to corporatist policy mak-
ing. Neither does the fragmented, highly individualistic character of many
Canadian business associations nor the challenge of policy making within
a highly decentralized federal system. These tendencies are reinforced by
the influence of small business groups, the most individualistic element of
Canada’s business community.
As a result, corporatist policy communities tend to occur at a sectoral
level where different interest groups are more likely to accommodate their
differences and build consensus with government officials on policies most
likely to promote their interests. Recent examples include the efforts of
federal and Ontario governments to coordinate major corporate, union, and
supplier interests in the promotion of automotive policies.
Concertation Networks
Concertation networks are policy communities in which state actors deal

on more or less equal terms with a dominant stakeholder organization or
coalition representing societal interests to negotiate a policy representing
the public interest. Concertation networks are most feasible in oligopolistic
industries with high levels of industry concentration, particularly in dealings
with a highly professional, centralized government department or agency

with the capacity to make authoritative policy decisions.
Coleman (1988, pp. 184–190) suggests that such networks are more
typical of highly structured societies such as Japan or France than of
Canada, although major banks, operating through the Canadian Bankers’
Association, once served as a Canadian example of an outcome of this
kind of policy making. In recent years, major changes to the composi-
tion and regulation of the financial-services sector have led to a more
open approach to interest-group engagement within state-led policy net-
works, as in Alberta’s efforts to balance environmental policy goals with
the growth of the province’s large oil and gas companies.
State-Directed Networks
State-directed policy networks function with a high degree of state

autonomy from societal interest groups. This autonomy is related to the
highly technical or secretive character of their work. It also results when
agencies are extensively involved in state-to-state relationships that, by their
very nature, subordinate or marginalize societal interests to the government’s
view of the national interest. State-directed federal policy networks include
the work of the Canadian Security and Intelligence Service (CSIS) and its
oversight body, the Security and Intelligence Review Commission.
Conclusion
The lobbying activities of business organizations and individual corpora-

tions take place within a political marketplace in which governments use a
wide variety of policy tools to organize and regulate economic activities, as
well as redistribute economic benefits among individuals, businesses, societal
groups, and regional communities.
The capacity of some groups to obtain benefits or to control or redis-
tribute the costs of government activities to other less favoured groups
fosters increased political competition to influence policy making. This
competition takes place on several levels: within and among governments,
among business groups and individual corporations, and between business
groups and competing societal interest groups. Citizens wishing to engage
the policy process to make it more responsive to their interests or to a
vision of the public good that reflects their well-being, need to develop
a better understanding of the multidimensional policy processes of gov-
ernments, their interactaction with one another, and competition among
interests to shape public opinion.
Attentive actors Policy communities

Broadly based (or comprehensive) Clientele pluralist
associations Concertation networks
Government relations Co-optive pluralist
Industry associations Liberal corporatist
Interest aggregation Parentela pluralist
Interest groups Pressure pluralist
Institutionalized interest State-directed
groups Policy networks
Issue-oriented interest groups Public affairs
Lead agency Sectoral associations
Lobbying State autonomy
Direct lobbying Strategic analysis
Indirect lobbying Subgovernment
Lobbying Act Think tanks
Major stakeholders Trade associations
1. Look up the websites of three broadly based business associations (from

publications or summaries of government-relations activities listed on
websites for the past 12–24 months). Compare and contrast their or-
ganizational structures, policy priorities, and policy positions taken on
similar issues, paying attention to similarities and differences.
2. Look up the websites of three sectoral and trade associations and discuss
their
• o rganizational profile (number, size, and market profile of membership;
organizational structure; leadership)
• principal services offered to members
• government-relations priorities
Compare and contrast policy priorities and positions taken on major
issues with those noted in your responses to Question 1.
3. Profile the policy community for a high-profile business issue discussed
in the national or regional media, or that is under parliamentary or leg-
islative review. Clearly define the lead agency or agencies, major com-
ponents of the subgovernment, major stakeholders, and attentive actors.
What type of policy community is engaged with the issue? Explain
your choice. (Hint: review the reports of parliamentary or legislative
committees set up to examine a particular bill or policy initiative for

major participants; do an Internet search for media coverage and com-
mentaries by major interest groups, government departments or agen-
cies, and other observers.)
4. How have post-2008 changes to federal lobbyist regulations changed
the nature of relationships between governments and government rela-
tions professionals? Compare with contemporary rules governing lob-
byists and lobbying activities in your province.
Abelson, D.E. (2016). Northern lights: Exploring Canada’s think tank landscape. Montreal,
QC & Kingston, ON: McGill-Queen’s University Press.
Clancy, P. (2004). Micropolitics of business: Paper, steel, airlines. Peterborough, ON:
Broadview Press.
Coleman, W.D., & Skogstad, G. (Eds.). (1990). Policy communities and public policy in
Canada: A structural approach. Toronto, ON: Copp Clark Pitman.
Public Policy Forum. (2002). Bridging two solitudes: A discussion paper on federal
government-industry relations. Ottawa, ON: Public Policy Forum.
Stanbury,W.T. (1993). Business-government relations in Canada. (2nd ed.).Toronto, ON:
Nelson Canada.
11
The Evolving Political Economy of
Business Taxation
T he political economy of business taxation is one of the most

complex elements of public policies affecting businesses, citizens, and
governments. In recent years, various business taxes have accounted for
about 30 per cent of overall government revenues, although this figure var-
ies significantly between jurisdictions and across stages of the business cycle.
Corporate income taxes (CITs) levied on the profits of large and small cor-
porations are the most visible form of business taxation, but are only one
part of a more extensive system that applies several different taxes on labour,
capital, and other business inputs.
The evolution of Canada’s business tax system since the publication of the
report of the Technical Committee on Business Taxation (1997) has resulted
in incremental but substantial changes comparable in scope to broader tax
reform programs introduced in the late 1960s and late 1980s as part of ongo-
ing shifts from closed economy to open economy frames of reference for
business taxation (Bird & Wilkie, 2012, pp. 2:24–25). Other major trends
include greater, if inconsistent, reliance on benefit-related taxes and user fees,
particularly by provincial and local governments. Major shifts include incre-
mental reductions in combined federal-provincial marginal CIT rates from
43 per cent in 1997 (lower for manufacturers) to a national, more uniform
average of 26.6 per cent in 2015 (Bazel & Mintz, 2016, p. 27), the narrow-
ing of differences in effective tax rates between firms in different industries
(although substantial differences remain), the elimination of federal and pro-
vincial capital taxes on nonfinancial companies, and major reductions in
taxes on business inputs resulting from Ontario’s harmonization of its sales
tax with the federal GST.
Most significantly for tax-policy analysts, federal and provincial policy
changes have reduced the average federal-provincial marginal effective
tax rate (METR) on corporate income from 38.8 per cent in 2005 (the
highest among OECD countries) to 17.5 per cent in 2012 before increasing
to 20.1 per cent in 2016 (Bazel & Mintz, 2016, p. 21), although METRs, the
effective tax rate on new capital investments, vary widely across provinces
and sectors. The relative consistency and persistence of these incremental
policy shifts contrasts sharply with those of previous federal tax reforms
during the 1970s and 1980s and the often intense federal-provincial tax
291
competition of that era (Hale, 2001), notwithstanding severe fiscal pressures

in several provinces since 2013.
This chapter summarizes key factors that have reshaped the political
economy of business taxation in Canada since the last major set of business
tax reforms in the late 1980s, particularly the continuing influence of the
Technical Committee on Business Taxation (TCBT) report of 1997 on the
evolving structure of Canadian business taxation. It considers implications
for the design of business tax policies and for relations between business
and personal taxation resulting from Canada’s growing economic openness
to international trade and investment, the open economy paradigm,
advanced by the Technical Committee under Liberal and Conservative
governments since 2000. It also explores the implications of these policy
shifts on the interaction of federal and provincial tax systems, and the rela-
tive commitments of federal and provincial governments to Canada’s busi-
ness tax competitiveness.
Business Taxation and Corporate Income Taxation: An Overview
This section outlines the role of business taxation within federal and pro-
vincial tax systems and in relation to broad economic priorities. The over-
riding purpose of taxation is to pay for various government services, along
with interest on money borrowed to finance public services and invest-
ments of previous years. Most economists have come to accept the fact
that “businesses ultimately do not bear taxes; they simply pass them on to
others: to customers in the form of higher prices, to suppliers and labour
through lower costs and wages, and to those who supply capital through
lower returns.” As a result, “business taxes are ... borne directly or indirectly
by individuals” (Technical Committee on Business Taxation, 1997, p. 1:3; see
also Boadway & Tremblay, 2016; Kesselman & Cheung, 2004). Even so, Bird
and Wilkie (2012) note that the short-run incidence of a tax “may differ
substantially” from that “after all market adjustments take place” (p. 2:16).
However, governments frequently find it simpler and more administratively
efficient to collect taxes from (or through) businesses.
Businesses also benefit from a variety of services and transfers financed
through other forms of taxation such as gasoline taxes, licences, and user
fees, which contribute to paying for roads and other transportation services.
Technically, a user fee is not a tax if it merely covers the cost of provid-
ing particular services. However, this distinction is of limited value if firms
or individuals are legally required to use particular services, or if taxes are
designed primarily to generate revenues rather than being structured in ways
that promote greater economic efficiency (Bird & Tsiopoulos, 1997).
The Evolving Political Economy of Business Taxation 293
Social assistance benefits (pensions, employment insurance benefits,

workers’ compensation) are partly or fully funded through payroll taxes,
sometimes in lieu of other forms of private provision. Payroll taxes for health
care are levied directly on employers, as in Ontario, Quebec, Manitoba, and
Newfoundland and Labrador, or on individuals, as in BC and formerly in
Alberta, sometimes with provisions to transfer costs to employers through
collective bargaining. Ontario and Quebec also levy nominally health-
related surtaxes on personal income. Municipal and provincial property
taxes involve some element of payment for services, although for businesses
they are often well above the costs of delivering particular services, thereby
providing a de facto subsidy to homeowners. Economists view property
tax rates above costs of providing services as a form of capital tax (Found,
Dachis, & Tomlinson, 2013, p. 5).
Corporate income taxes in Canada currently serve as a form of with-
holding tax on dividends, largely offset for Canadians by measures that offset
double taxation of investment income (e.g., the dividend tax gross-up and
credit). They also generate revenues from foreign-based corporations oper-
ating in Canada (contributing to costs of public services received), with
income taxes paid in Canada offset by tax credits in their country of origin
(Boadway & Tremblay, 2016, p. 3). Similar provisions apply to international
operations of Canadian-based multinationals, although the internationaliza-
tion of major firms (and differences in CIT rates) creates significant oppor-
tunities to arbitrage the amount of taxable income reported in different
countries (Bird, 1996; Technical Committee on Business Taxation, 1997, pp.
1:3–4, 2:8–9, 3:26–27). As noted below, most jurisdictions impose lower
CIT rates on small businesses (see Table 11.5), which reflects both political
factors and differences in their operating conditions, including greater expo-
sure to nonprofit sensitive taxes.
Debates over business taxation since the 1990s have focused increasingly
on cumulative taxation levels, independent of profitability, rather than on
particular taxes. For example, a 2016 survey of major corporations indicated
that for every dollar of corporate income taxes collected, companies paid
an additional $1.09 in taxes not related to profitability and $0.70 in other
payments to governments, including user fees and licenses (PWC, 2016,
p. 2). Given their relative profitability and tax exposure, it is probable that
proportions of non profit-related taxes and fees paid are substantially greater
for smaller firms.
Debates over business taxation often focus on the principle of horizontal
equity, the similar treatment of businesses in similar situations, and departures
from this principle made when governments extend tax preferences (or tax
expenditures) to various forms of economic activity beyond the recognition
of normal costs of doing business based on a benchmark tax system (Boad-

way & Kitchen, 1999, pp. 108–11). Other equity-related complications arise from
providing lower tax rates to Canadian-controlled private corporations
(CCPCs; small businesses) in most jurisdictions, integrating personal and
CIT systems (and related measures such as income trusts and other flow-
through entities that blur these distinctions), and dealing with issues related
to the equitable taxation of international business activities, including the
foreign affiliates of Canadian-based businesses.
Business Taxation and Distributive Politics
The politics of taxation are also directly related to questions of distributive

equity and the ways in which governments allocate the costs of financing
rising expenditures, deficit reduction or, on occasions, the distribution of tax
reductions. Canada was exceptional among OECD countries in reducing
overall government spending as a share of GDP by 6.8 percentage points
during the deficit reduction era of the 1990s (Bibbee, 2008, p. 6), although
incremental increases in personal and corporate tax levels played a significant
role in most governments’ fiscal restructuring (Hale, 2001).
Historic debates over corporate taxation during the 1970s often focused
on corporate income taxes as taxes on capital. According to the left, higher
taxes on capital would facilitate increased redistribution of income by ena-
bling higher levels of government spending (Lewis, 1972). During that period,
many business groups competed to secure tax preferences from federal and
provincial governments for numerous activities seen to contribute to eco-
nomic growth, job creation, and horizontal equity with other businesses,
while offsetting the effects of rising inflation. Business groups favour tax
preferences (or tax expenditures) as substitutes for direct government grants
as the former frequently increase management discretion while the latter
are more frequently subject to bureaucratic discretion and unpredictability.
Direct grants and subsidies are favoured by organized labour for the same
reasons. Periodic efforts at rationalizing the tax system, such as the ill-fated
1981 federal budget, had limited success in changing these dynamics (Hale,
2001, pp. 162–70). Such debates continue in tax policy circles (Boadway &
Tremblay, 2016; Chen & Mintz, 2015; Manley, 2016). However, the political
risks of major structural tax reforms, which those facing major losses often
have far stronger incentives to contest than prospective “winners,” generally
defer politicians from embarking on such policy changes except in cases of
looming fiscal or policy crises (Hale, 2001).
The growth of public participation in equity markets, whether directly or
through mutual, pension, and other retirement savings funds, has weakened
distributive arguments based on current consumption for increased taxation

of capital income, particularly with the challenges of funding future public
services for an aging population. International competition in many
sectors limits corporations’ capacity to pass on the costs of higher taxes
to consumers, especially in sectors open to international trade. As a result,
economists suggest that workers eventually bear these costs through lower
wages (including reductions in employment), except for small businesses
that have fewer opportunities to internationalize their investments (Crisan,
McKenzie, & Mintz, 2015, pp. 8–10; Harberger, 2006). Economists also argue
for addressing issues of income inequality through the personal income tax
system rather than through corporate taxation (Boadway & Tremblay, 2016;
Chen & Mintz, 2015, p. 2).
However, as very few voters pay attention to contemporary economic
analyses, their political relevance depends on the extent to which politi-
cal leaders pay attention to Finance Department officials who do. Expert
advice appears to be more influential in federal tax policies, less so in pro-
vincial policies, especially in jurisdictions with few regionally based large
corporations or greater political preference for higher CIT rates and busi-
ness subsidies (e.g., Quebec and Ontario). The same reasoning applies to
local business and property taxes, whose deductibility from taxable income
frequently encourages municipal councils to impose much higher tax rates
on businesses and rental housing than on homeowners, who often make up
a much larger share of the active electorate and generally do not have access
to such deductions.
The Tax Mix and Federal-Provincial Relations
The sources and distribution of various forms of taxation, known as the

tax mix, is determined by several factors. Canada’s federal and provincial
governments share constitutional jurisdiction over most sources of taxation
with the notable exception of property taxes and provincial resource royal-
ties, which are payments for businesses’ extraction of provincially owned
resources. Personal income taxes (PITs) remain the largest source of revenues
for both senior orders of government, followed by various consumption
taxes (general and goods-specific). Resource royalties paid as “rental fees” for
corporate development of provincially owned resources are major, if highly
variable, revenue sources for three provinces: Newfoundland and Labrador,
Alberta, and Saskatchewan (Kodolov & Hale, 2016). Federal and provin-
cial governments have eliminated direct taxes on corporate capital (business
assets) for nonfinancial corporations in recent years. However, provincial
and net municipal property and land transfer taxes averaged 65.6 per cent
of overall METRs on businesses in major Canadian cities in 2016 (Found

& Tomlinson, 2016, p. 7). Quebec remains the only province to design and
collect its own personal and corporate income taxes independently of the
federal government, reflecting long-standing constitutional and political
commitments.
Key aspects of intergovernmental cooperation include the spread of
coordinated tax administration through the Canada Revenue Agency for
personal income taxes (nine provinces, Quebec excepted), corporate income
taxes (eight provinces, Quebec and Alberta excepted), the harmonized sales
tax (five provinces, including Ontario in 2011 and Prince Edward Island in
2013), and federal incentives for the reduction or elimination of provincial
capital taxes.
Conflicts over overall tax levels and the distribution of the tax mix
take several forms. Some disputes relate to the relative tax burdens borne
by individuals, groups of citizens, and businesses in return for services
received, and the economic impacts of individual taxes and cumulative
tax levels, whether on economic growth in general or on particular types
of economic activity. At times, it has also reflected direct competition
between federal and provincial governments. The evolution of fiscal fed-
eralism has reduced such competition since 2000, although interprovincial
tax competition persists, whether though the periodic lowering of CIT
rates or the expansion of tax preferences and subsidies in provinces with
higher tax rates.
Political conflicts over overall tax levels become more visible in two broad
sets of circumstances.Tax resistance by citizens and/or businesses grows most
notably when the particular and cumulative tax demands of governments
grow faster than the incomes of individual taxpayers or their ability to pay.
Tax “envy” becomes politically significant when significant groups are seen
to pay either substantially less than their fair share, defined either in terms of
vertical equity (ability to pay, based on income levels) or horizontal equity
(comparable tax levels for individuals or groups in comparable situations).
International tax competition has become increasingly significant in recent
decades, as one of several major factors in business competitiveness amid
global competition for corporate investment and as a contributing factor
to tax arbitrage and tax shifting by Canadian-based multinationals and their
global competitors (Jog & Tang, 2001; Mintz & Smart, 2004). These factors
have encouraged greater cooperation among governments of most industrial
countries to increase transparency and limit tax evasion, which, unlike tax
avoidance, is illegal.
The business tax system has evolved as a hodgepodge of separate federal
and provincial initiatives, despite a common CIT base for most provinces
and periodic federal efforts to rationalize significant elements of the personal

and corporate tax systems through major tax reforms (Hale, 2001; Maslove,
1989). Such initiatives tend to be politically controversial in that, even if not
intended to increase overall government revenues, they frequently involve
redistributing costs and benefits in ways that create winners and losers, with
the latter being far more resentful of tax increases than the former are grate-
ful for tax relief (Richards, 2012). As a result, political leaders restructuring
tax systems must pay careful attention to their distributive aspects, not just
those championed by academic economists.
The 1997 TCBT report reflected the first major effort by the federal
Department of Finance to examine the business tax system as a whole,
rather than its separate components such as income, excise, or resource
taxation. It noted that although federal and provincial corporate income
taxes remained the most visible element of the system, they only accounted
for about 22 per cent of overall business tax revenues in 1995, with profit
insensitive taxes accounting for more than three-quarters of overall business
taxes (Technical Committee on Business Taxation, 1997, pp. 2:2, 19). This
pattern continues to apply in most provinces with payroll and property
taxes substantially exceeding income tax payments in six of ten provinces
in 2011 (Adès, 2016, p. 21).
Provincial and territorial governments have accounted for a progres-
sively larger share of overall government spending and revenues since the
1980s, particularly once major increases in federal transfers since 1998 are
taken into account. Provincial governments levied 36 per cent of CIT rev-
enues in 1995 (39 per cent in 2014), along with 61 per cent of overall
business taxes (Technical Committee on Business Taxation, 1997, pp. 2:19–
20; Statistics Canada, 2016d). Overall provincial and territorial spending,
exclusive of public (C/QPP) pensions and transfers to other governments,
totalled 47.1 per cent of total government outlays in 2014, compared to
24.9 per cent for the federal government, along with significantly higher
levels of business subsidies, although both vary widely across provinces
(Statistics Canada, 2016f).
International Tax Competitiveness
Historically, governments have considered corporate tax competitiveness

most significant for tradable goods, particularly manufacturing and resource
sectors. Governments have used numerous tax measures, including sepa-
rate, lower CIT rates for manufacturing and processing, to attract foreign
investment and cultivate competitive domestic firms in these sectors. Long
before the signing of the CUSFTA, it was federal policy to ensure that
manufacturers’ tax rates were competitive with those in the United States,
Canada’s largest export market and source of foreign capital. CIT rates were
significantly higher for service-sector firms, which were then more oriented
toward domestic markets.
Three developments during the 1980s and 1990s contributed to major
shifts in Canadian corporate tax policies. Global tariff reductions and
increased international competition since the mid-1970s contributed to the
progressive restructuring of Canada’s manufacturing sector and the broader
Canadian economy, a trend reinforced by CUSFTA and NAFTA.These pat-
terns included the reorganization of many large firms and the divestiture of
many noncore functions, with service functions being spun off into separate
businesses, reinforcing trends toward higher service-sector employment.
Second, tax reforms during the 1980s in major industrial economies, par-
ticularly the United States, reduced both marginal PIT and CIT rates while
broadening definitions of taxable income. This trend continued into the
2000s, although it has slowed since the 2008–09 recession (Chen & Mintz,
2015, p. 7). CUSFTA also increased pressures to replace the old manufactur-
ers’ sales tax, which increased both costs and prices on Canadian exports,
with a value-added tax not applied to goods or services exports. These
changes assisted the competitiveness of Canadian businesses, while carefully
accommodating distributive considerations.
Third, chronic deficits led federal and most provincial governments to
increase personal and business taxes during the 1990s as part of strategies to
balance their budgets (Hale, 2001; Richards, 2000). Short-term considera-
tions of tax competitiveness were subordinated to the need for fiscal sustain-
ability, particularly in the context of an aging society.
Framing Fiscal Policies: The Chrétien-Martin Legacy
These changes to the framework for fiscal policies effectively set the terms
for future changes in business and personal taxation until the global finan-
cial crisis of 2008–09. The Chrétien government’s conversion to fiscal sus-
tainability was based on recognition of Canadian governments’ inability to
“grow” their way out of persistent structural deficits in both public finances
and social security systems (Greenspon & Wilson-Smith, 1996, pp. 153–70;
Martin, 2009, pp. 130–53). The 1995–96 federal budget significantly reduced
program spending and transfers to provinces, enabling Ottawa to balance its
budget in 1997–98. Most provinces had initiated similar budget balancing
initiatives by mid-decade.
Martin also responded to actuarial reports calling for sharp increases to CPP
premiums to maintain the plan’s viability. He negotiated an agreement with
participating provinces to place the plan on a stable funding basis by building a

sizeable investment reserve under arm’s-length management with high levels of
public transparency.This initiative resulted in a doubling of employer-employee
premiums between 1997 and 2003. However, it also forestalled the prospect of
much larger increases in subsequent years (Martin, 2009, pp. 159–64).
Subsequent fiscal trade-offs rested on two core policy anchors: a zero-
deficit policy reinforced by cautious economic assumptions and a medium-
term commitment to reduce the federal net debt-to-GDP ratio to 30 per cent
from 71 per cent in 1995 to foster conditions conducive to sustainable eco-
nomic growth and intergenerational fairness (Martin, 2009, pp. 179–80).This
target was revised to 25 per cent in 2004 and achieved in 2007. Under such
conditions, continued economic growth and lower debt interest payments
would create a fiscal dividend that could be used to lower taxes and finance
improvements in public services. Table 11.1 summarizes federal budget bal-
ances, debt-to-GDP ratios, and debt interest payments’ share of federal rev-
enues between 1995 and 2008.
To maintain public support while managing pent-up public demand after
a prolonged period of income stagnation and federal spending restraint, the
Liberals’ 1997 election platform announced a political anchor. They would
allocate half of future surpluses to new spending initiatives and half to a mix
of debt and tax reduction. In practice, these concepts proved quite flexible
in their application (Hale, 2001, p. 114). The result was a series of carefully
underestimated budget surpluses that provided the means for ongoing debt
reduction and carefully calibrated tax reductions after 2000 (O’Neill, 2005).
Adjustments to business taxation during this period were only a small
part of a much larger economic strategy, much of which had been out-
lined in the so-called Purple Book (Department of Finance Canada, 1994)
in response to structural economic changes occasioned by globalization,
Table 11.1 Finessing the Fiscal Dividend (1995–2008)
Fiscal year ending 1995 1999 2001 2002 2004 2005 2006 2007 2008
Federal budget surplus
(deficit) current (in −36.6 5.8 19.9 8 9.1 1.5 13.2 13.7 9.6
$billion)
Net federal debt-to-
0.7 0.558 0.443 0.426 0.352 0.31 0.23 0.229 0.226
GDP* ratio
% of federal spending 26.4 27.1 25.2 22.5 18.9 16.2 16.2 15.3 14.3
*Calendar year
Source: Department of Finance Canada. (2016). Fiscal reference tables: 2016, Tables 1, 9, 54.
Ottawa, ON
North American integration, and changes to the structure of the Canadian

economy. However, the TCBT report of 1997 provided a detailed rationale
for policy changes that heavily influenced subsequent shifts in Canadian
business tax policies. These shifts reflect a broad open economy paradigm,
the design of economic policies based on Canada’s growing integration
within the North American and global economies, including high volumes
of international trade and investment relative to overall economic activity,
and extensive interdependence of markets for goods, services, and capital.
The Technical Committee Report
The Technical Committee was composed of senior academics and tax

professionals, chaired by Jack Mintz, a prominent academic economist.
The Committee identified several major challenges in the design and level
of business taxation in Canada. It emphasized the “substantially uneven”
impact of businesses taxes “across industries and types of assets,” includ-
ing capital taxes and “sales taxes on capital goods” that artificially dis-
torted economic activity. The report noted that combined tax rates on
capital investments were higher in Canada than in its major industrial
competitors, creating incentives to “structure operations so that income
is assigned to other countries and costs,” especially interest payments “are
assigned to Canada.” It also noted the inherent challenges of combining
domestic business tax neutrality with global tax neutrality, given differ-
ences in national tax systems, and the growing international activities of
Canadian-based businesses (Technical Committee on Business Taxation,
1997, p. 3:28).
It recommended the pursuit of greater tax neutrality across industries by
phasing in a uniform federal CIT rate of 20 per cent (vs. the then-current
29.12 per cent general and 22.12 per cent manufacturing rates). Prospective
revenue losses would be offset by broadening the tax base, particularly reduc-
ing tax preferences specific to manufacturing and resource industries. It also
recommended international cooperation to limit aggressive tax competition
by capital importing and exporting countries, while proposing to enhance
federal-provincial tax harmonization through the extension of joint tax col-
lection agreements and the negotiation of common “neutral” tax bases for
corporate and capital taxes (Technical Committee on Business Taxation,
1997, pp. 11.1–9). These proposals coincided with the growing internation-
alization of Canadian business as Canadian foreign direct investment (FDI)
abroad exceeded FDI in Canada for the first time in 1997. Other proposals,
such as the experience rating of employers’ Employment Insurance (EI) pre-
miums linked to layoff rates and the reduction or elimination of lower tax
rates for small businesses and for research and development activities proved
well beyond the threshold of political acceptability.
While accepting the report as a guide to future business tax reforms,
Martin placed a stronger political priority on cutting taxes for middle- and
lower-income Canadians, a much more politically popular priority. Several
factors influenced Ottawa’s gradual adoption of many Committee recom-
mendations. The Chrétien government’s economic priorities restored the
Department of Finance to the pinnacle of Ottawa’s policy hierarchy for
the first time since the heyday of Keynesian economics in the 1960s. The
renewed influence of neoclassical perspectives contributed to a convergence
in the policy preferences of Finance officials with those of leading academic
economists and tax professionals. Ottawa’s shift from 23 consecutive years of
budget deficits to a decade of carefully engineered surpluses after 1997 cre-
ated opportunities to pursue greater economic efficiency in designing tax
systems. However, political realities dictated that any such initiatives be com-
bined with attention to distributive concerns including middle-income tax
cuts and expanding refundable tax benefits for lower- and middle-income
families.
Several factors facilitated the wider political environment for these
changes: the rise of conservative populism strongly oriented toward spend-
ing constraints and tax reduction in federal and provincial politics; the mar-
ginalization of the federal NDP between 1993 and 2004 as the leading voice
of redistributive taxation; and the cautious embrace of business-friendly
neoliberal policies by surviving provincial social democratic governments in
Saskatchewan, Quebec, and later Manitoba.
The Political Economy of Business Taxation: 2000–2005
Business tax reforms took a back seat to other priorities after Ottawa bal-
anced its budget in 1998. The next two budgets gave priority to using the
tax system to broaden access to postsecondary education, expanded child
tax benefits, increased health-related transfers to provinces, and mod-
est PIT reductions targeted mainly at lower- and middle-income earners.
Record budget surpluses by 2000 provoked pre-election opposition pres-
sures to reduce taxes. Finance Minister Martin responded with a multiyear
tax reform initiative that promised further PIT reductions, especially for
middle-income taxpayers, and substantially higher refundable tax credits for
low- and middle-income families over four years. Senior federal officials
have indicated that the multiyear packaging of these promises was intended
to balance distributive considerations, particularly for the third of tax filers
having no net taxable income, and to magnify the modest tax relief extended
to individuals in any single year. A consistent feature of federal budgets dur-

ing this period was the refusal to finance tax reductions with borrowed
money.
Martin also introduced the first installment in CIT rate reductions
from 28 to the 21 per cent rate then current for manufacturers over five
years, with the largest savings coming at the end of this period, along with
modest improvements in small business tax benefits. These tax reductions
were accelerated in a pre-election budget update in October 2000. In the
subsequent election, Chrétien won his third consecutive majority govern-
ment, the first such federal outcome since the 1950s. In 2003, John Manley,
Martin’s successor as minister of finance, promised to phase out federal capi-
tal taxes on larger nonfinancial corporations in 2004–08.
The 2004 federal election reduced the Martin-led Liberals to a parlia-
mentary minority, reinforcing the primacy of distributive politics, notwith-
standing federal promises for further incremental reductions in business
taxation by 2010. The federal Conservatives under Harper inherited these
expectations after narrowly winning the 2006 election.
Creeping Business Tax Reform under Minority Governments:

2006–2011
The Harper government adopted and extended its predecessors’ rhetoric

of business tax competitiveness, but with substantial political and economic
constraints. Elected with the weakest minority government since Con-
federation, it used large parts of the surpluses accumulated by previous
governments to facilitate its own re-election through commitments for
further tax reduction and continued increases in health-related transfers to
provinces. Personal tax measures (especially GST reductions) were driven
largely by political calculations. Business tax policies reflected the incre-
mental extension of principles outlined by the Technical Committee, sig-
nalled by Minister of Finance Jim Flaherty’s endorsement of the METR
concept (something quite obscure to taxpayers) as a key indicator of busi-
ness tax competitiveness.
In October 2007, Flaherty committed the government to new policy
anchors: further reduction of the GST, modest debt repayment from budget
surpluses, annual federal CIT reductions over four years, and incentives
for provinces to lower combined federal-provincial corporate METRs to
internationally competitive levels. The Conservatives also took advantage of
new Liberal leader Stéphane Dion’s proposals for a sizeable new carbon tax
intended to combat climate change to promote a modest public backlash
and extend its parliamentary margin in the 2008 election.
After a short-lived parliamentary crisis, Ottawa belatedly adopted a neo-

Keynesian approach to spending stimulus in response to the financial cri-
sis and recession of 2008–09. As in 2006, the 2008 Liberal commitment to
continuing CIT rate reductions gave Flaherty political cover to implement
his step-by-step reductions in general corporate tax rates. His emphasis on
reducing METRs, not just marginal CIT rates, encouraged him to provide
incentives to provinces to harmonize their sales taxes with the federal GST
by broadening the range of taxable products and services and eliminating
consumption taxes on most business inputs. His initial success in persuad-
ing the premiers of Ontario, BC, and Prince Edward Island to buy into
tax harmonization strongly reinforced his agenda. However, a mixture of
right- and left-wing populism in BC forced that government to beat a hasty
retreat after an unprecedented provincial referendum in 2011 (Abbott, 2015;
Richards, 2012).
Table 11.2 demonstrates the incremental and cumulative effects on busi-
ness taxation of Flaherty’s persistent incrementalism. By the end of 2012,
Canada’s average METR on capital investment had dropped from the highest
among OECD countries, at 38.0 per cent in 2005, to the lowest among G7
industrial nations at 17.5 per cent (Chen & Mintz, 2015, p. 6), although BC’s
HST reversal and CIT increases in other jurisdiction subsequently increased
this figure to 20.0 per cent in 2015. Combined average federal-provincial
Table 11.2 Marginal Effective Tax Rate on Capital Investment, Selected

OECD Countries (2005–2015)
Marginal Effective Tax Rate Statutory CIT Rate
2015 2012 2010 2008 2005 2015 2005 Chg in pts.
France 36.1 35.1 34.0 35.1 35.4 38.0 35.0 3.0
US 34.6 35.3 35.6 35.9 36.2 39.1 39.3 −0.2
Australia 25.7 25.9 25.9 25.9 25.9 30.0 30.0 0
Germany 23.8 24.4 24.4 24.4 34.2 29.7 38.9 −9.2
UK 22.9 26.9 29.1 28.8 30.7 20.0 30.0 −10
Canada 20.0 17.9 19.2 27.8 38.8 26.6 34.2 –7.6
Mexico 17.3 17.4 17.4 16.0 17.4 30.0 30.0 0
Sweden 15.2 19.5 19.5 20.9 20.9 22.0 28.0 −6.0
Italy 8.3 24.5 28.0 28.1 33.5 31.4 33.0 −1.6
OECD average 21.4 19.5 19.6 20.1 22.3 25.3 28.2 –2.9
Source: Bazel, P., & Mintz, J.M. (2016). 2015 tax competitiveness report: Canada is losing its at-
tractiveness. SPP Research Papers, 9(37). Calgary, AB: School of Public Policy, University of Calgary,
pp. 17, 27.
CIT statutory rates dropped from 34.2 to 26.6 per cent during this period,
marginal rate reductions exceeded only by Britain and Germany among
major industrial countries.
What factors explain Ottawa’s capacity to implement such major changes
to business taxation, seemingly against the grain of Canadian political cul-
ture? Initially, the government’s proposed business tax changes appeared
to be little more than incremental adaptations of existing Liberal policies,
given extensive political cover by prior reductions in personal income taxes
and the Conservatives’ reduction of the widely unpopular GST. Flaherty’s
abrupt about-face on taxation of income trusts in October 2006, discussed
below, demonstrated a willingness to challenge business interests when they
diverged from the government’s agenda, while preserving the fiscal flex-
ibility necessary to pay for his broader tax reduction proposals (Chase, 2006;
Schmidt, 2006).
The Harper government also demonstrated a better grasp of public opin-
ion during the 2008 federal election which took place as the US financial
crisis threatened to turn into a global economic panic. Harper aggressively
contrasted the Conservatives’ economic action plan with Liberal leader
Stéphane Dion’s proposal for a $15 billion carbon tax to reduce greenhouse
gas emissions in the 2008 election campaign, offset by reducing PIT and
CIT rates and restoring the Conservatives’ GST cuts (Simpson, 2008). Many
Canadians remain viscerally opposed to higher consumption taxes, whatever
the prescriptions of contemporary economic orthodoxy, as demonstrated by
the subsequent defeat of the BC Liberals’ attempted replacement of provin-
cial sales taxes with a harmonized sales (value-added) tax in 2009–10 and the
subsequent defeat of NDP governments in Nova Scotia and Manitoba after
raising provincial sales taxes.
Sales tax harmonization, discussed further below, initially seemed
to offer a fiscal lifeline to the Ontario and BC governments, shoring up
the competitiveness of their export-oriented industries and offsetting the
unprecedented collapse of American export markets in 2008–09. Finally,
Canada’s economy recovered from the recession more rapidly than its US or
European counterparts, seemingly validating the government’s economic
policies, at least in the short term, and enabling the Harper Conservatives to
exploit the political weaknesses of their opponents to win a parliamentary
majority in the 2011 election.
Ironically, when the Canadian public tired of Harper’s aloof public per-
sona and polarizing political tactics in the 2015 election, it turned to Justin
Trudeau’s Liberals who, despite extensive promises of change in other areas,
promised to preserve the thrust of the Conservatives’ business tax policies,
rather than to NDP promises of higher spending and corporate taxes with
balanced budgets. This overview suggests that Canadians are relatively indif-
ferent to business tax levels but are often highly sensitive to the perceived effects
of proposed economic policy changes on their economic well-being, whether in
comparison to corporations or other Canadians (Ipsos-Reid, 2013).
The follow case studies on the income trust controversy of 2004–06, the
Harper government’s efforts at corporate tax reduction, and sales tax harmo-
nization in Ontario and BC illustrate this broad principle.
Income Trusts: The Tax Break that Almost Swallowed Ottawa
Every decade or so, the federal government enables the emergence of

a seemingly innocuous tax break intended to serve focused economic
objectives that metastasizes into a market-distorting, budget-breaking
phenomenon. Income trusts were intended to attract capital to certain
kinds of businesses by allowing firms to “flow through” profits to unit
holders with distributions to be taxed at full PIT rates (with allowances
for return of capital, the share of distributions in excess of a trust’s net
income) in lieu of paying conventional corporate income taxes. Lower
costs of capital made income trusts a popular financing vehicle for small
and medium-sized energy firms after 2000. Several such vehicles also exist
in the United States (The Economist, 2013). Income trusts also attracted
many private investors, particularly retirees, seeking higher than average
rates of return following falling interest rates during the 1990s and the
2000 stock market correction.
Income trusts rapidly gained in popularity after 2000, spreading to other
sectors and promoting a growth industry in corporate conversions to trust
form.These trends reflect both push and pull factors. Some corporate execu-
tives viewed the spinning off of assets into income trusts as a useful way to
raise capital for business expansion in other areas. Investment bankers and
some economists saw them both as a valuable source of fee income and a
way of redeploying capital from corporations’ retained earnings that could
be put to better use elsewhere, challenging conventional wisdom that corpo-
rate executives are best equipped to design their firms’ corporate strategies.
Both institutional and small investors welcomed the spread of flow-through
vehicles as sources of high investment yields in response to low interest
rates (Hale, 2005). As noted in Table 11.3, the market value of income trusts
increased from $18 billion in 2000 to $118.7 billion in 2004, across numerous
industry sectors.
The fragile Liberal minority government hesitated to curtail access to
income trusts, despite the prospect of growing revenue losses, although belat-
edly proposing to reduce taxes on corporate dividends in 2005 to narrow
Table 11.3 Flow-Through Entities Market Capitalization (in $billion of

current dollars)
Income Trusts
General Limited
Business Energy Real Partnerships Total
Estate
Dec. 2004 51.4 41.9 17.4 8 118.7
Dec. 2000 3.7 5.8 4.6 3.9 18
Dec. 1995 1.3
Source: Department of Finance Canada. (2005). Tax and other issues related to publicly listed flow-
through entities. Ottawa, ON.
trusts’ tax advantages, despite criticisms from academic economists that trusts
were seriously distorting capital markets (Aggarwal & Mintz, 2004; Edgar,
2004; Jog & Wang, 2004).
Seeking support from much the same pool of voters, the Harper gov-
ernment continued these policies after its election in 2006, only to be
confronted with a rising wave of planned conversions including major tel-
ecom firms Telus and BCE. Federal Department of Finance officials quietly
warned that the trend was undercutting Ottawa’s capacity to meet its own
fiscal targets and economic agenda. The telecom conversions would have
driven trusts’ cumulative market value above $200 billion, about 7.5 per cent
of TSX market capitalization.
Minister of Finance Jim Flaherty surprised markets in October 2006 by
increasing tax rates on new-income trusts to match CIT rates and requir-
ing existing income trusts to revert to corporate status by January 2011. The
resulting drop in share values triggered an enormous outcry from investors
and affected firms, but most tax economists and many corporate executives
responded positively. A series of subsequent income-trust takeovers provided
many investors with improved payouts, while Flaherty’s announcement of
broader, deeper tax reductions and the advent of the 2008 financial crisis
refocused public attention on other issues.
The income-trust episode demonstrated once again the capacity of busi-
nesses and financial markets to exploit anomalies in tax laws for unintended
purposes, reflecting the growing influence of institutional investors in an
era of shareholder capitalism (see chapter 12) at the expense of corporate
executives’ autonomy. It also reflected Ottawa’s vulnerability to tax arbitrage
in an open and dynamic economy, particularly during periods of economic
recovery when governments are often reluctant to introduce policy changes
potentially disruptive of business activity.The constraints imposed by minor-

ity government status also help to explain Ottawa’s initial reluctance to rein
in the growing use of income trusts.
Flaherty’s decision to crash the income trust party on Halloween 2006
demonstrated the minister of finance’s capacity to reassert control of the
policy agenda, in sharp contrast to the extensive log rolling between well-
connected interest groups and Congress that continues to dominate US tax
policy making. However, its ability to maintain control of that agenda in a
minority parliament given international tax policy trends would depend
on its capacity to pursue a coherent, pro-growth business tax agenda, while
lubricating public opinion with additional tax reductions, especially for
lower- and middle-income Canadians.
Business Tax Reforms, the Marketplace of Ideas, and Harper-Era

Political Competition
The debate over business tax reforms and their relationship to fiscal policy in
the decade after the Technical Committee report took place at three levels:
among academic economists; in the broader tax policy community, includ-
ing federal Department of Finance officials, business groups, and major think
tanks; and in the broader political arena.
Debates within the tax policy community focused primarily on the bal-
ance between efficiency, equity, and sustainability and the pursuit of poli-
cies capable of combining these objectives (Kesselman, 2004; Mintz, Chen,
Guillemette, & Poschmann, 2005). Ottawa’s success in sustaining economic
growth and budgetary surpluses, the fiscal dividend that sustained consist-
ent annual spending increases and tax reduction after 2000, allowed debates
over taxation to focus on two key economic goals. Federal officials sought
to design incremental tax reductions in ways conducive to greater economic
efficiency and growth, while pursuing increased business tax competitive-
ness based on lowering of METRs (McKenzie & Taylor, 2012, pp. 7.28–34).
These initiatives reflected economic studies on broader economic gains or
deadweight losses associated with lowering or raising different types of
taxes (Baylor & Beausejour, 2004; Bibbee, 2008; Dahlby & Ferede, 2011).
This outlook is summarized by Brown and Mintz’s (2012) comment that
“cutting income taxes has a greater positive effect on economic activity than
cutting consumption taxes, because it reduces the adverse double tax burden
[on savings and investment] and improves incentives and competitiveness”
(p. 1.34). Kesselman (2004) noted a “growing consensus among tax econo-
mists [favouring] shifting tax bases away from income, particularly capital
income, and towards consumption and labour income” by improving savings

incentives and “improving the efficiency of resource allocation” (p. 11).These
perspectives reflect what has subsequently become a global consensus among
mainstream economists (OECD, 2010). Table 11.4 summarizes Department
of Finance calculations of the “welfare gain per dollar tax reduction” for dif-
ferent categories of taxation.
These factors contributed to a strong preference among tax econo-
mists, apart from other philosophical or ideological considerations, for
reductions in personal income taxes, corporate capital, and other stealth
taxes (Davies, 1998; MacNaughton, Matthews, & Pittman, 1998), rather
than consumption taxes, should fiscal circumstances permit broad tax
reductions. Such approaches were reinforced after 2000 by the improved
targeting of taxes and transfers to individuals to reduce METRs on lower-
and middle-income households, reflecting research findings that “progres-
sive expenditure policies” were seen to be more effective in reducing
income inequality than highly redistributive tax policies (Bird & Wilkie,
2012, p. 2.14).
Major business groups also challenged the rapid growth of user fees
during the 1990s to fund various federal services to businesses, which
they argued bore no relation to the costs of delivering these services. The
Commons’ Standing Committee on Finance (2000) was unsuccessful in
Table 11.4 Long-Run Economic Well-Being from Revenue-Neutral

Tax Reductions*
Welfare gain per dollar tax reduction
Capital cost allowance $1.35
Personal income tax (investment income) $1.30
Sales tax on capital goods** $1.29
Capital tax $0.90
Corporate income tax $0.37
Average personal income tax $0.32
Wage tax $0.15
Consumption tax $0.13
*Revenue loss assumed to be recovered through lump-sum taxation
**E.g., provincial retail sales taxes on purchases of business inputs
Source: Baylor, M., & Beausejour, L. (2004). Taxation and economic efficiency: Results from a
Canadian CGE model. Working Paper 2004–10. Ottawa, ON: Department of Finance, p. 16; Bibbee,
A. (2008). Tax reform for efficiency and fairness in Canada. OECD economic department working
paper no. 631. Paris: OECD, p. 12. http://dx.doi.org/10.1787/240634153012
persuading the Chrétien government to impose more internal checks on fee

increases. However, the Martin government later endorsed a private mem-
bers’ bill, the User Fees Act (2004), which imposed requirements for public
consultations, cost-benefit analyses, and a parliamentary review of proposed
fee increases. These changes, which were implemented and extended by the
Harper government, have created substantial disincentives for public servants
to increase user fees or introduce new fee-based services independently of
explicit political direction (Haché, 2015).
The business tax equivalent of these initiatives was reflected in a growing
emphasis in the academic literature on measures to reduce business METRs,
driven by a growing recognition of “sharp increases in capital tax mobility”
and reinforced by competitive disadvantages imposed on Canadian manu-
facturers as a result of sales taxes on business inputs, albeit with significant
variations among provinces (Brown & Mintz, 2012, p. 1.16; see also Baylor &
Beausejour, 2004; Chen, 2000).
The influential C.D. Howe Institute had championed these approaches
to business tax competitiveness and personal tax fairness consistently since
the late 1990s. Its 2005 tax competitiveness report indicated that Canada
had the second highest effective tax rate on capital among 36 industrial
and developing countries, exceeded only by China. It proposed medium-
term reductions in combined CIT levels from the then-current 34.3 per
cent average to 25 per cent and the phasing out of federal and provincial
corporate capital taxes by 2010, offset by reductions in tax preferences
(Mintz et al., 2005).
As noted above, the Harper government adopted the benchmarking
of Canadian business METRs against other industrial countries as a cen-
tral communications tool for framing business tax reforms in broad pol-
icy debates. This emphasis became even more explicit in the government’s
October 2007 economic statement that committed it to reducing the federal
general CIT rate from the current 22.1 to 15 per cent by 2012, and pursuing
the lowest METR among G7 countries. To achieve this goal, it encouraged
provinces to reduce their CIT rates to 10 per cent and offered to offset
revenue losses to provinces that eliminated their business capital taxes and
harmonized their sales taxes with the federal GST (Department of Finance
Canada, 2007, pp. 73–80).
To provide political cover for these changes, Flaherty announced plans
to implement the second half of Ottawa’s promised cut to the GST to 5
per cent in 2008, maintaining GST credits at existing levels, reducing the
lowest PIT rate retroactively to 15 per cent for 2007, and increasing PIT
personal exception levels. The government’s cumulative tax reduction pro-
jections through 2012–13, which were heavily targeted toward lower- and
middle-income earners, were estimated to allocate 39 per cent of tax

relief through the GST, 34 per cent through the personal income tax, and
27 per cent through CIT and other business rate reductions (Department of
Finance Canada, 2007, p. 72).
Apart from groups championing the business tax reductions, tax econo-
mists reacted with hostility to the GST-centred tax reductions, both as a
departure from the new orthodoxy and in response to risks of returning to
deficit spending (Doern, Maslove, & Prince, 2013, pp. 11–12). Ontario and
Quebec, which had both raised or committed to CIT increases in recent
years while increasing targeted business subsidies, appeared to be moving in
the opposite direction.
In June 2008, Liberal leader Stéphane Dion presented an alternative
approach, proposing to phase in a new $40/tonne national carbon tax over
four years, offset by extending and deepening the Tories’ proposed business
and personal tax reductions while reversing their GST reductions (Dion,
2008; Laghi, 2008). BC had already announced a similar, if less complex, tax
plan. Despite strong support from prominent academic and business econ-
omists (Laucius, 2008), the so-called green tax shift’s proposals to transfer
much of the tax burden from income to consumption and carbon taxes
failed to win public support during the subsequent election campaign, par-
ticularly given the effects of the international financial crisis that gained
momentum through the summer and fall of 2008.While the Harper govern-
ment failed to win its hoped-for majority, the Liberals lost a quarter of their
parliamentary seats and won their smallest share of the popular vote since
1867. By contrast, the federal NDP proposed rolling back the government’s
CIT reductions in favour of sizeable stimulus spending in response to the
looming recession.
When Michael Ignatieff assumed the Liberal leadership, he responded to
the regionally uneven recovery from recession and growing NDP support
by promising to freeze CIT rates at 18 per cent. As further tax reductions
took effect, Ignatieff committed to roll them back while increasing spending
on postsecondary education, job creation, and other social spending. During
the subsequent 2011 election campaign, Harper responded to these political
shifts by exploiting centrist voters’ fears of an NDP-Liberal coalition to win
his long-awaited majority. Pointing to electoral shifts during the campaign,
Lee (2012) contends that Ignatieff ’s use of CIT policies as a wedge-issue
led many business-oriented Liberals to abandon the party in favour of the
Conservatives. His successor as Liberal leader, Justin Trudeau, has sought to
combine business-friendly rhetoric with conventional pieties on strength-
ening the middle class and more assertive environmental policies before his
election victory in 2015.
In 2016, Trudeau announced plans to phase in a $50/tonne carbon price

between 2018 and 2022, while accommodating provincial initiatives with
similar economic effects, and transferring revenues from hold-out provinces
to their respective governments (McCarthy, Fife, & Galloway, 2016). Distrib-
utive and other effects of the new tax will depend on individual provinces’
policy choices. Several major oil firms have indicated support for the meas-
ure, possibly recognizing it as a trade-off capable of providing political cover
for federal and provincial approvals of new and expanded export pipeline
capacity.
Provincial Business Tax Policies
Given the scale and scope of provincial taxes as a share of overall business
taxation, the Harper government would have had little chance of reaching
its ambitious targets for business tax competitiveness without significant pro-
vincial support. Under normal circumstances, neither the typical dynamics
of Canadian politics nor those of fiscal federalism would offer much hope
of such support to be sustained over the multiple election cycles discussed
in this chapter.
Provinces have widely varying fiscal policies, economic structures, levels
of dependence on federal transfers, political cultures, and patterns of political
competition, all factors that help to shape their fiscal and tax systems (Hale,
2006a). Relative prosperity between 2000 and 2008 enabled most provinces
to reduce personal and corporate taxes, while increasing spending. Provincial
spending, led by education and health services, the latter supported by stead-
ily rising federal transfers since 2000, has grown much faster than federal
spending since 2000.
With more than 90 per cent of major corporations based in the four
largest provinces, reducing general CIT rates has been a secondary priority
for most provinces, although six provinces did introduce substantial CIT rate
reductions between 1998 and 2008 (see Table 11.5), usually following or in
conjunction with reductions in personal taxes. Most provinces made even
larger reductions in their taxes on small business, most of which are locally
based. Following the federal lead, all provinces eliminated their capital taxes,
payable independently of a company’s profitability, on nonfinancial busi-
nesses during the same period, although they continue to impose capital
taxes on financial institutions.
Persistent deficits after the 2008–09 recession led some provinces to
increase taxes, although these policy shifts reflected wide variations in fis-
cal conditions, ideological outlooks, and dependence on resource revenues
among provinces (Kodolov & Hale, 2016). Ontario and BC (later followed
Table 11.5 Provincial Corporate Income Tax Rates, by Category

(1998–2016)
BC AB SK MB ON QC NB NS PE NL
General rate
% pt. change −5.5 −3.5 −5 −5 −4 3 −3 0 0 1
2016 11 12 12 12 11.5 11.9 14 16 16 15
2013 11 10 12 12 11.5 11.9 10 16 16 14
2008 11 10 12 13 14 11.4 13 16 16 14
2003 13.5 12.5 17 16 12.5 8.9 13 16 16 14
1998 16.5 15.5 17 17 15.5 8.9 17 16 16 14
M&P rate
% pt. change −5.5 −2.5 −7 −5 −3.5 3 −3 0 0 10
2016 11 12 10 12 10 11.9 14 16 16 15
2013 10 10 10 12 10 11.9 10 16 16 5
2008 10 11 10/12 13 12 11.4 13 16 16 5
2003 13.5 12.5 17 16 11 8.9 13 16 7.5 5
1998 16.5 14.5 17 17 13.5 8.9 17 16 7.5 5
Small business rate
% pt. change −6 −3.5 −6 −9 −5.5 2.25 −3.5 −2 −4.5 8.5
2016 3 2.5 2 0 4.5 8 3.5 3 4.5 13.5
2013 2.5 3 2 0 4.5 8 4.5 3.5 1 4
2008 3.5 3 2 0 5.5 8 5 5 3.2 5
2003 4.5 4 6 5 5.5 8.9 3 5 7.5 5
1998 9 6 8 9 9.5 5.75 7 5 7.5 5
Bold: CIT rate reduction in calendar year
Bold italic: CIT rate increase in calendar year
Source: Government of Alberta. Budget Plan 1998. Edmonton, AB. (For the years 1998 to 2013.) Re-
trieved from http://www.ey.com/Publication/vwLUAssets/Tax-Rates-Corporate-2016/$FILE/
Tax-Rates-Corporate-2016.pdf
by Prince Edward Island) took the substantial political risk of choosing to

harmonize their sales taxes with the federal GST in 2009. The cumulative
effect of these policy changes has been average reductions of 48 per cent
in combined federal-provincial business METRs across provinces, noted in
Table 11.6.
What factors explain these substantial and sustained policy shifts that tran-
scend normal partisan and ideological divisions? Pragmatic considerations
would seem to have trumped theoretical or ideological approaches in most
cases. Alberta, New Brunswick, and BC introduced the earliest approaches
Table 11.6 Marginal Effective Corporate Tax Rates for Canadian

Provinces
2016 2012 2010 2008 2005 % change
(2005–14)
Canada 20.1 17.4 19.3 27.3 38.8 –48.20%
Manitoba 28.4 26.2 29.8 33 40.6 −31.10%
BC 27.9 17.8 19.9 29.5 39.2 −28.80%
Saskatchewan 24.8 24.2 26 26.5 43.7 −43.30%
Alberta 19.3 17 19 20.6 31.7 −39.10%
Ontario 18.9 18.2 20.3 33.2 43.3 −56.40%
Quebec 17.1 15.2 18.5 21.1 36.1 −52.60%
Nova Scotia 16.7 13.4 17.5 21 28.8 −42.00%
Nfld & Lab 14.1 10.7 13.1 15.5 21.1 −33.20%
PEI 12 28.1 29.8 31.2 37.5 −68.00%
New Brunswick 8.4 2.8 6.3 16.9 22.3 −62.30%
Source: Bazel, P., & Mintz, J.M. (2016). 2015 tax competitiveness report: Canada is losing its at-
tractiveness. SPP Research Papers, 9(37). Calgary, AB: School of Public Policy, University of Calgary.
2016, p. 22; author’s calculations.
to CIT rate reduction, but only Alberta, more dependent on resource royal-
ties than CIT revenues, adopted the Technical Committee’s proposals for
tax neutrality across economic sectors, while following the general provin-
cial trend toward lower small business rates. By contrast, Quebec not only
adopted tax neutrality in the 1990s but, alone among provinces, extended
it to small businesses between 1999 and 2006, while substantially increasing
general CIT rates from 8.9 per cent in 2005 to 11.9 per cent in 2009. At the
same time, Quebec pursued an aggressive program of grants and targeted tax
credits to particular industries, reflecting its historically dirigiste approach to
economic development. The Ontario Liberals under Dalton McGuinty also
increased CIT (and other tax) rates in 2004 to pay for substantial increases
in public spending, while offering generous incentives to alternative energy
and other industries in the (still unrealized) hope of fostering a transforma-
tion of Ontario’s traditional manufacturing economy.
The gradual phasing out of capital taxes had a low enough political pro-
file and was well enough supported by economic research that it proved
uncontroversial. More visible as an expression of distributive politics was
the gradual but significant reduction in small business taxes (see Table 11.5).
Provincial CIT reductions have been incremental and subject to pro-
vincial fiscal conditions and the tactical or strategic priorities of particular
governments. However, proposals to harmonize provincial sales taxes with the

federal GST, which requires extending the tax base to include many previ-
ously untaxed services, have been more controversial. The most significant
factors in prompting provincial CIT (including small business) and METR
reductions in most provinces appear to have been the demonstration effects of
policy changes in neighbouring provinces, especially in Western Canada, and
Ottawa’s 2007 offer to compensate provinces for revenue reductions, whether
from their elimination of capital taxes, from short-term effects of harmonizing
their sales taxes, or from resulting increases in federal CIT revenues. Provincial
sales taxes on business inputs are deductible as costs of earning income. Their
elimination therefore increases profits (or reduces business losses used to offset
taxable income in other year), thus increasing federal CIT revenues.
The decisive factors in Ontario’s adoption of the HST, which, with other
policy changes, reduced that province’s business METR from 33.2 per cent
in 2008 to 18.2 per cent in 2012 by eliminating sales taxes on business inputs,
were the calamitous state of the province’s finances and the cumulative
effects of rising exchange rates before 2008 and the 2008–09 recession on
the competitiveness of its manufacturing sector (Drummond & Burleton,
2008). The federal-provincial agreement also provided room for Ontario to
vary the province’s HST base by up to 5 per cent of revenues, enabling the
McGuinty government to appear responsive to citizen and interest group
concerns raised during consultations on the tax reform proposal. These pol-
icy changes do not appear to have influenced the outcome of the 2011 pro-
vincial election, which reduced the Liberals to minority government status.
The BC government’s initial decision to reverse traditional provincial
policy and embrace the HST appears to have reflected the fiscal effects of
the recession. The Campbell government’s announcement immediately fol-
lowing its re-election in 2009 prompted a massive populist backlash based
on perceptions of political deception. Organized labour and small business
interests rarely found keeping political company supported the referendum
campaign to repeal the HST, which enjoyed the general approval of aca-
demic economists and the province’s corporate sector. The repeal campaign
swept most small-town, rural, and working-class urban constituencies of the
province. As a result, the BC government reinstated its retail sales tax in 2012,
raising CIT and small business tax rates to compensate for lost revenues from
the demise of the HST.
Provincial support for the broad direction of corporate tax reforms
remains tenuous. Both governments in Ontario and Quebec tend to be
more interventionist, favouring targeted tax incentives and business subsi-
dies as instruments for promoting economic development. New Brunswick
was forced to reverse its poorly timed restructuring of its tax system, which
reduced PIT and CIT rates in 2008 but failed to implement a proposed car-
bon tax or make offsetting spending reductions.
The collapse of global oil prices led to record provincial deficits and
the electoral defeat of long-serving PC governments in Alberta and New-
foundland and Labrador in 2015, followed by sharp increases to personal and
corporate income taxes in both provinces and the introduction of a sizeable
carbon tax in Alberta. Alberta premier Jim Prentice prompted a populist
backlash on both left and right by increasing PIT rates and numerous user
fees while refusing to make corresponding changes to CIT rates, demon-
strating the relevance of distributive politics in fiscal responses to economic
downturns. Faced with an estimated 85 per cent drop in nonrenewable
resource revenues between 2014 and 2016 (about $8.6 billion), the subse-
quent NDP government reversed the province’s low-tax, high-spending
model with tax increases on large firms and high-income earners, while
maintaining public services and projecting record deficits for the foreseeable
future. Newfoundland and Labrador imposed unprecedented personal and
business tax increases in 2016 in efforts to compensate for lost energy rev-
enues and contain Canada’s largest per capita provincial deficit.
Conclusion
Like many other aspects of Canadian economic life, the political economy
of business taxation remains highly contingent, reflecting varied regional
and sectoral patterns of political and economic influence. The incremen-
tal business tax reforms introduced by successive federal governments since
2000 represent the most sustained shift in business tax policies in modern
Canadian economic history. While catching up in some respects to business
tax trends in other major industrial economies, they have provided Canada
with a significant tax advantage over the United States in competing for
international investment.
The conditions that have enabled these changes—a convergence of views
between academic economists, senior federal officials, and major business
groups, sustained fiscal surpluses capable of supporting successive, incremen-
tal reductions in personal as well as business taxes, and a modest consensus
over almost a decade between the two largest national parties over the broad
outlines of personal and corporate tax policies—are unprecedented since
the modern era of tax reform began in the mid-1960s. However, sustaining
these policies since the financial crisis of 2008–09 has been heavily depend-
ent on the ability of federal and provincial governments to maintain fiscal
discipline while paying careful attention to the distributive effects of their
tax and spending policies. As a result, it is likely that any future tax reform
will have to meet two conditions. First, to the extent that governments face
the reality or prospect of ongoing deficits, both they and voters will expect
tax reforms to be revenue neutral in the short term, while paying adequate
attention to their distributive effects for individuals and business sectors.
Second, proposed reforms will have to consider the distributive effects on
larger and smaller businesses, particularly if tax preferences targeted at small
firms are phased out as proposed by some experts and interests (Chen & Mintz,
2015; Manley, 2016).
The persistence of recent policy changes and the willingness of govern-
ments to explore future tax reforms depend upon the vagaries of politics, the
preservation of fiscal discipline among Canada’s senior political leaders, and
the country’s ability to maintain the high levels of employment and mod-
est incremental improvements in living standards experienced since 2000.
Past history suggests that such developments cannot be taken for granted,
particularly given Canada’s dependence on global commodity prices for
a substantial share of its exports. Given Canada’s greater dependence as a
medium-sized, open economy on trade and investment flows than most of
its major trading partners, economic realities are likely to impose a certain
amount of discipline on the politics of business taxation in Canada.
Canadian-controlled private Marginal effective tax rate (METRs)

corporations (CCPCs) Open economy paradigm
Closed-economy taxation paradigm Stealth taxes
Deadweight loss
1. What are the major components of Canada’s current business tax sys-
tem? To what extent do these components reflect the challenges of
balancing revenue generation, economic efficiency, economists’ and
ordinary citizens’ differing perceptions of fairness, and the politics of
federalism?
2. What is the marginal effective tax rate? Why has it become a prominent
benchmark for assessing the fairness of the business tax system?
3. How has Canada’s business tax system evolved in the twenty-first cen-
tury? What major political and intellectual factors have contributed to
these changes? To what extent have these influences varied in federal
and provincial tax policies?
4. Political pressures for business tax reforms have reflected competing

views of fairness (e.g., horizontal vs. vertical equity), the importance
of economic efficiency and international competitiveness in allocating
the costs of public services, along with different understandings of who
ultimately pays for taxes levied on businesses. How did these trade-offs
affect the politics of tax reform during the 1980s and tax policy changes
under the Chrétien and Harper governments? What implications do
they have for contemporary debates over business taxation?
Boadway, R.W., & Tremblay, J.-F. (2016). Modernizing business taxation. Commentary
#452. Toronto, ON: C.D. Howe Institute.
Chen, D., & Mintz, J.M. (2015). 2014 annual global tax competitiveness ranking: A
proposed tax reform agenda. SPP Research Papers, 8(15). Calgary, AB: School of
Public Policy, University of Calgary.
Found, A., Dachis, B., & Tomlinson, P. (2013). What gets measured gets managed: The
economic impact of business property taxes. Toronto, ON: C.D. Howe Institute.
Hale, G. (2001). The politics of taxation in Canada. Peterborough, ON: Broadview
Press.
Kerr, H., McKenzie, K., & Mintz, J.M. (Eds.) (2012). Tax policy in Canada. Toronto,
ON: Canadian Tax Federation.
Kesselman, J.R., & Cheung, R. (2004). Tax incidence, progressivity and inequality in
Canada. Canadian Tax Foundation, 52(3), 709–89.
12
Putting the “Capital” into Capitalism: The
Political Economy of Canada’s Evolving
Capital-Market Policies
T he nature of Canadian capitalism and its financial and capital mar-

kets have evolved dramatically since the 1980s. Canadian governments
have significantly reduced regulatory barriers to international competition
and foreign investment in most economic sectors, even though some sec-
tors and firms continue to benefit from protective legislation. Market shifts
and technological changes have increased the pace of creative destruction
among major corporations, reflecting the emergence of new market actors,
the disappearance of others, and high, if cyclical, levels of corporate mergers,
takeovers, and reorganizations.
These developments have contributed to significant changes in Canada’s
corporate culture.They have also changed the terms on which businesses com-
pete in domestic and international markets, the allocation of surpluses and
shortages among corporate stakeholders (managers, investors, workers/unions),
and the terms on which many large firms interact with governments and have
to take into account broad societal interests. The composition of major firms
has evolved from a mixed system of managerial and branch-plant capitalism
to one characterized by higher levels of shareholder (or agency) capitalism,
although business cultures vary across provinces and economic sectors.
This chapter examines these trends as a response to market and regulatory
trends that are moving toward greater participation of individual investors
in equity markets and the strengthening of minority shareholder protections
as a mixed function of market expectations and regulatory requirements.
Following a discussion of political economy theories of corporate control,
it summarizes major domestic policy shifts that have influenced changes
in Canadian capital and financial markets between the mid-1980s and the
mid-2010s, and the implications of these changes for corporate governance
and competition for controlling ownership of major Canadian corporations.
Why Capital Markets Matter
Markets are systems of rules, processes, and relationships linking willing

buyers and sellers. Financial and capital markets shape the environment
within which governments, businesses, and individuals finance long-term
319
investments and day-to-day activities, even as their structures and operations

are often shaped by government policies.
Capital markets enable the issuance and trading of securities such as shares
(equity), bonds, and derivative financial instruments to raise medium- to long-
term financing, usually by businesses and governments.The structuring of cap-
ital markets reflects a combination of policy choices made by national (and, in
Canada, subnational) governments in the context of domestic politics, a coun-
try’s position within the international economic system, and evolving patterns
of interaction among major industrial and financial firms among others.
Gourevitch and Shinn (2005) have observed that “economies with deep
capital markets and healthy corporate structures grow faster than those with
weak financial and corporate structures” (p. xiii). Financial and capital mar-
kets play a variety of vital economic and social roles. They enable businesses,
governments, and individuals to engage in more numerous activities over
long periods, based on expectations of future revenues, than would be pos-
sible if they were dependent on the cash generated by operating revenues
and profits, current tax revenues, or personal income. Weak domestic capital
markets increase dependence on governments, domestic financial oligopo-
lies, and/or foreign investors and lenders, increasing firms’ (and broader eco-
nomic) vulnerability to shifts in economic and political environments.
The rapid expansion of domestic capital markets since the 1980s has
broadened and deepened access to capital both for Canadian firms (and
governments) and for foreign firms doing business or seeking to expand
in Canada. Combined with regulatory and market developments, discussed
below, it has transformed the relationships among finance capital, large and
small nonfinancial corporations, governments, and citizens (as consumers,
workers, and savers/investors).
Tables 12.1 and 12.2 illustrate the depth and diversity of Canadian capital
markets. Between 1990 and 2014, the market capitalization (total value of listed
Table 12.1 TSX Market Capitalization as Percentage of Canada’s GDP

(1985–2014; by market cycle, trough-peak)
1985 43.1 1989 49.8
1990 40.6 1999 110.7
2002 74.0 2007 135.3
2008 78.0 2010 127.1
2011 107.7 2014 121.8
Source:World Federation of Exchanges (2016). WFE Annual Statistics Guide 2015 (London). Retrieved
from http://www.world-exchanges.org/home/index.php/statistics/annual-statistics; Statistics Canada.
(2015). Gross domestic product, income-based. CANSIM Table 380–0063. Ottawa, ON.
Putting the “Capital” into Capitalism 321
Table 12.2 Domestic Long-Term Debt Outstanding by Issuer,

December 2014 (in billions of CDN$)
%
Government of Canada 479 23.0
Provincial 530 25.4
Municipal 61 2.9
Securitizations (public/private) 486 23.3
Domestic corporate 468 22.4
Foreign corporate/other 61 2.9
Total 2,085 100.0
Source: Patel, T., & Yang, K. (2015). The Canadian fixed income market: 2014. Toronto, ON:
Ontario Securities Commission, p. 6; author’s calculations
shares) of the Toronto Stock Exchange (TSX) increased from 40.6 per cent to
121.8 per cent of Canada’s GDP across a series of market cycles (see Table 12.1).
Combined with widespread public participation in share ownership
through investments and pension savings managed by institutional investors,
these factors have reinforced the trends to favour shareholder capitalism, the
oversight of individual firms’ priorities by autonomous boards of directors,
active evaluation of corporate performance by reputational intermediaries
including financial analysts and accountants, and an active market for con-
testing control of major corporations (Culpepper, 2005, p. 5; Gourevitch &
Shinn, 2005, pp. 4–5), except for a handful of protected sectors, including
elements of the financial sector.
Canadian governments and businesses also engage in capital markets
to finance short-term operating requirements and long-term borrow-
ing. Domestic long-term debt totalled about $2.1 trillion in 2014, about
104 per cent of GDP (see Table 12.2). New domestic debt issues, about two-
thirds by governments, averaged 13.5 per cent of GDP between 2009 and
2014, compared with about 4 per cent between 1993 and 1997. Domestic
bond markets have provided most (87.6 per cent) of the $1.2 trillion out-
standing in bonds and short-term debt instruments issued by all levels of
Canadian governments in 2014 and about half of corporate borrowing by
Canadian-based corporations ($961 billion in 2014; Patel & Yang, 2015, p. 6).
The capacity to finance such large-scale borrowing requires a broad,
deep market of institutional investors: banks, insurance companies, pen-
sion funds, and other money managers and financial institutions. Otherwise,
public and private borrowers become dependent on foreign capital mar-
kets, usually denominated in foreign currencies, leaving them vulnerable
to market disruptions, exchange-rate shifts, and economic risks. A key dis-

tinction between managerial and shareholder capitalism is that these funds
do not belong to corporations or their senior executives, but that they are
invested on behalf of shareholders, contributors, and pensioners, implying
higher standards of fiduciary responsibility.
Several overlapping market factors contribute to the continuing inter-
dependence of Canadian and international financial and capital markets.
Public and private costs of financing can be reduced by increasing liquid-
ity, the ability to convert an asset to cash or to raise cash to meet financial
obligations. Being able to access capital across national borders can reduce
costs and increase economic efficiency and competitiveness by broadening
one’s prospective pool of investors or lenders beyond local or national mar-
kets.This is important, whether financing domestic or international business
operations, including the purchase or sale of business units and mergers and
acquisitions of other companies.
Many publicly traded Canadian firms have sought cross-listings on US
stock exchanges to obtain the benefits of increased liquidity. A few even
choose to list exclusively on US markets.Table 12.3 notes cross-listing trends
among large firms. However, this data does not capture small firms cross-
listed on foreign, mainly US exchanges. Most large cross-listed firms are
widely held, although some have legislative restrictions on takeovers and/or
foreign control (Suret & Carpentier, 2010, pp. 43–52).
Table 12.3 Major Canadian-Based Firms Listed on Foreign Stock

Exchanges (FP 500)
2001 2008 2014
FP 500 Cross- US Cross- US Cross- US
rank Listed Only Listed Only Listed Only
1–50 13 0 25 0 24 0
51–100 14 0 9 0 10 0
101–200 14 0 14 0 18 2
201–300 9 0 12 3 12 5
301–400 8 2 12 2 7 0
401–500 8 0 3 1 13 1
Total 66 2 75 6 84 8
Source: Financial Post 500. (2002, June). Top 500 rankings. Financial Post Magazine, Supplement
to the National Post, pp. 90–109; Financial Post 500. (2009, June). Top 500 rankings. Financial Post
Magazine, Supplement to the National Post, pp. 41; Financial Post 500. (2015). Top 500 rankings.
Financial Post Magazine. Retrieved from http://business.financialpost.com/features/fp500-database
Interdependence can have effects on corporate behaviour and regulatory

spillovers between countries, whether in emulation of innovative market and
organizational techniques or regulatory adaptations to them. However, cor-
porate governance, accounting, and securities rules governing businesses with
operations in more than one country are usually subject to national legislation
or mutual recognition. Foreign-based firms listed on US exchanges are subject
to US financial reporting standards and executive compensation rules, although
governments may engage selectively in mutual recognition agreements. These
realities create cross-cutting pressures for domestic regulatory regimes in Can-
ada, given the significant differences between the structures of US and Cana-
dian capital markets discussed later in this chapter (Nicholls, 2006).
The Political Economy of Corporate Governance and Control:

Competing Theoretical Outlooks
The past two decades have seen a growing debate over different models of
capitalism and their relationships to political and social systems. Hall and
Soskice (2001, p. 4) observe that economic performance frequently depends
on major institutional structures of the nation state, including those govern-
ing labour market regulation, education, training, and corporate governance.
The latter, in particular, heavily influences patterns of corporate organiza-
tion and control and the distribution of benefits of industrial expansion and
adjustment costs in response to changing patterns of competition in national
and global markets.
Regulatory regimes reflect differences in domestic political organization
and competition, interactions between economic and social interest groups
and governments, and factors influencing the competitiveness of major indus-
try sectors (Gourevitch & Shinn, 2005). For smaller countries, they may also
reflect “neighbourhood effects” of economic and policy spillovers from major
powers or the defensive measures introduced by their governments against
such effects. The proximity of the United States magnifies these effects in
Canada, not least in debates over securing economic opportunities from geo-
graphic proximity while preserving some degree of policy discretion suited to
ongoing differences in domestic politics, economic structures, and regional dif-
ferences within Canada’s decentralized federal system (Hale & Kukucha, 2006).
Both capital markets and corporate governance policies are heavily
influenced by economic framework policies. These policies foster the con-
centration of economic power in ways conducive to close collaboration
between leading state, economic, and/or social actors, dubbed “coordinated
market economies,” or their decentralization in liberal market economies
characterized by institutions that promote domestic and international
competition intended to create greater diffusion of ownership and control

(Hall & Soskice, 2001, pp. 8–9; Gourevitch, 2003).
Gourevitch and Shinn (2005) outline several models of corporate gov-
ernance in modern democratic capitalist systems. In what they call “investor
models,” owners and managers of corporations dominate corporate deci-
sion-making processes, with unions and workers as effective “bystanders.”
Key variables within such models include:
• the concentration of corporate ownership (high in firms with a con-

trolling owner, ownership group, or blockholder, diffuse in widely held
firms in which no shareholder controls 20 per cent or more of voting
shares);
• the capacity (or independence) of boards of directors accountable
to shareholders to exercise effective oversight over senior execu-
tives; and
• the extent to which public and private legal processes enable or con-
strain takeover bids by minority or outside interests. (pp. 96–123)
Both shareholder capitalism and some forms of managerial capitalism, in

which controlling shareholders and/or boards of directors closely linked to
senior executives have significant capacity to insulate the latter from share-
holder and market pressures, are variants of the investor model as practised
in Canada in recent decades.
The labour power model recognizes (and sometimes advocates) the
capacity of unions to play active roles in corporate governance, privileg-
ing the interests of union members over those of managers and particularly
of shareholders. It is usually supported by regulatory systems that enhance
strong collective bargaining rights, place constraints on management rights,
and facilitate high levels of union coverage. Its response to globalization
has been to pursue measures that would make further trade or investment
liberalization contingent on strong national or regional rules of origin, con-
tingent protection, and other protective measures, often in collusion with
large unionized employers whose market share is threatened by technologi-
cal and organizational changes resulting from increased competition.
Roe (2003) and others have suggested that the labour power model occurs
most frequently in jurisdictions with dominant social democratic parties. How-
ever, its relevance to Canada is largely regional and sectoral given the pro-
vincial jurisdiction over collective bargaining. Changes in forms of business
organization and the sectoral composition of employment since the 1980s have
contributed to steady declines in rates of private-sector unionization in most
provinces, which fell from 29.8 per cent in 1981 to 20.3 per cent in 1998 and
15.2 per cent in 2014, before rebounding to 16.1 per cent in 2016 (Galarneau,
2015; Morissette, Schellenberg, & Johnson, 2005; Statistics Canada, 2017c).
A third model of corporate governance reflects cross-class coalitions
between managers and organized workers, sometimes with active govern-
ment engagement to structure labour-management competition and con-
flict. In European countries (and sometimes in Quebec), such coalitions
have become institutionalized in corporatist systems for balancing those
interests. However, in most of Canada, cross-class coalitions have emerged in
response to specific regional and sectoral circumstances, usually in attempt-
ing to limit foreign competition or externalize adjustment costs through
joint approaches to government for supportive or protective policies.
Depending on the concentration of corporate ownership and unioni-
zation of major sectors, the managerial capitalism that characterized
Canada’s corporate sector between the 1940s and 1980s might have been
characterized as a mixture of blockholder- (controlling shareholder)
dominated capitalism and “Fordist” bargaining between corporate man-
agers and unions to share gains enabled by protective (neomercantilist)
government regulations.
Since the 1980s, Canada has evolved from a mixed economy to a signifi-
cantly more open liberal market economy characterized by a mixture of open,
trade dependent sectors, variably protected sectors, and state-dominated
sectors. Paralleling this evolution, its mixed system of managerial, state,
and shareholder capitalisms has adapted to increased market openness and
ongoing economic changes by adopting many characteristics of share-
holder capitalism. These changes have been mediated by regulatory frame-
works shaped by the legacies of Canada’s decentralized federal system and
the evolution of major financial subsectors in response to shifting market
and policy pressures.
Regulatory Frameworks for Capital Markets
Canadian financial and capital market regimes incorporate the interaction

of several federal and provincial regulatory systems with analogous inter-
national regimes. Some of these regimes reflect adaptations of financial
regulatory systems and cultures inherited from Britain. Others reflect the
Confederation bargain of 1867 as interpreted and modified by the courts,
including federal regulation of the banking system (Bank Act) and other
federally chartered financial institutions, separate civil and common law sys-
tems governing property in Quebec and the rest of Canada, and the courts’
expansive interpretation of provincial jurisdiction over property and civil
rights under Section 92(13) of the 1867 constitution. Collectively these
measures have dispersed jurisdiction over capital markets and corporate gov-
ernance between and among Canada’s senior jurisdictions.
Canada’s decentralized federal system plays a significant role in shaping
market and regulatory regimes for different subsectors (Hale & Kukucha,
2006). Financial-sector activities are regulated separately by function in
most jurisdictions, except for integrated financial-market regulators in
Quebec, Saskatchewan, and New Brunswick. Responsibility for securities
regulation, including the issuance, trading, and distribution of securities,
rests with 13 provincial and territorial securities commissions, although
most policy leadership is exercised by regulators in the four largest prov-
inces: Ontario, Quebec, Alberta, and BC. The first two provinces account
for the majority of large corporate head offices. The Ontario Securities
Commission regulated firms with about 83 per cent of total market capi-
talization in 2006 (Suret & Carpentier, 2010, p. 15). There are substan-
tial differences in policies and attitudes toward corporate concentration
and governance among senior government and corporate policy makers
in Quebec, with its post-1960 history of corporatist economic policies
(Quebec Inc.) and those in other large provinces (Allaire, 2014; Task
Force on Protection of Québec Businesses, 2014). However, the majority
of smaller publicly traded firms are headquartered in BC (36 per cent in
2007) and Alberta (22 per cent; Suret & Carpentier, 2010, pp. 21, 24).
Canada has the world’s third largest number of publicly traded compa-
nies and a higher density of listed firms than any other industrial country
(see Table 12.4), reflecting capital markets, which, unlike in most countries,
enable access to public markets for thousands of micro-cap firms (market
capitalization below $10 million). Such policies can create tensions between
consumer protection mandates and pressures for proportionate regulation of
small firms (Nicholls, 2006, pp. 141ff).
The interprovincial Canadian Securities Administrators (CSA) brokers
coordination among provincial securities regulators. Nine provinces (nota-
bly excepting Ontario) have collaborated through the “passport system”
since 2007, enabling mutual recognition of regulatory activities. Federal
and larger provincial regulators have created the Heads of Agencies (HOA)
group to coordinate responses to market risks that straddle jurisdictional
boundaries (Allaire, 2013). Since an adverse 2011 Supreme Court decision
constraining unilateral federal action, Ottawa has secured significant pro-
vincial support (excluding Quebec and Alberta to date) for a joint Capital
Markets Regulatory Authority (CMRA) to regulate securities issuance
and trading. However, Ottawa has yet to introduce enabling legislation
and the proposal is mired in constitutional litigation at time of writing
(Ritchie,Yalden, & Rankin, 2017).
Table 12.4 Publicly Listed Corporations by Population Size

Canada in Comparative Perspective (2015)
Number of Listed Population Firms per million
Companies (’000) population
Canada 3,799 35,851.8 106.0
Australia 1,989 23,781.2 83.6
Spain 3,623 46,418.3 78.1
UK* 1,858 64,613.2 28.7
Japan 3,504 126,958.5 27.6
United States 4,381 321,418.8 13.6
India 5,835 1,311,050.5 4.5
*2014
Source: http://data.worldbank.org/indicator/CM.MKT.LDOM.NO
The Evolving Market and Regulatory Contexts for

Capital Markets
Since the 1980s, Canada’s capital markets have often paralleled changes in
broader North American and global markets. In some cases, Canadian reg-
ulatory systems have evolved in response to (if not necessarily imitating)
major policy changes in other industrial countries such as Britain’s “big-
bang” deregulation of 1986 and the US corporate governance and account-
ing regime emerging from the Sarbanes-Oxley (SOX) Act of 2002 (Ben-Ishai,
2008; Nicholls, 2006, pp. 176–189). In others, Canadian rules have adapted
to principles negotiated through international bodies such as the Financial
Stability Board, especially since the global financial crisis of 2008–09 (Hel-
leiner, 2010).
Taken together, these changes have transformed relations between Can-
ada’s corporate and financial sectors with international capital markets since
the 1980s. Canada substantially liberalized its foreign investment rules after
1985 to reduce barriers to foreign investment outside a handful of protected
sectors, with selected exceptions for national security. These changes rein-
forced trends that favour the rapid growth of FDI in Canada and the inter-
national growth of Canadian-based multinationals. The cumulative (book)
value of Canadian Direct Investment Abroad (CDIA) surpassed that of FDI
in Canada in 1997 for the first time in Canadian history, substantially influ-
encing the attitudes and incentives favourably of Canadian business execu-
tives and federal policy makers toward international rules governing mergers
and takeovers (Hale, 2008). These trends have persisted with minor varia-
tions, if accentuated by exchange rate fluctuations, as noted in chapter 8.
Balancing these measures, changes to Canadian competition laws dur-

ing the 1980s, reinforced after 2008, gave Canadian regulators new powers
to approve mergers and takeovers of Canadian-based firms conditional on
measures (e.g., divestiture of specific assets) to protect competition in rel-
evant markets, whether local, regional, national, or product-related.
The liberalization of trade and investment rules had two other major
consequences. Canadian export sectors and the international activities of
Canadian multinationals grew rapidly during the 1990s. This trend strength-
ened the influence of business and investor groups supportive of greater
market openness at the expense of business and labour groups focused on
protecting domestic markets. Second, they sparked successive waves of busi-
ness reorganizations, takeovers, mergers, and acquisitions in the late 1990s
and mid-2000s, prompting adverse reactions from nationalist groups and
selected business interests. These trends have continued since 2011 despite
the plateauing of growth in trade relative to overall economic activity.
The reconciliation to liberal market economics, globalization, and North
American integration of the federal Liberal Party, which had intermittently
championed nationalist policies during the 1970s and 1980s, and the partial
adaptation to globalization of governing provincial social democratic parties
generally left these forces without effective political champions after 1990.
The Chrétien-Martin governments of 1993–2006 lacked any strong incentive
to challenge the direction these trends were taking as the cumulative value
of Canadian takeovers of foreign-based (or controlled) firms exceeded that
of foreign takeovers of Canadian-based (or controlled) firms (see Table 12.9).
Selective interventions by the Harper government (2006–15) tended to be
situation-specific, focusing initially on national security questions and subse-
quently on proposed takeovers by foreign state-controlled firms (SOEs; Hale,
2014) Despite stakeholder criticisms, Ottawa’s restrictions on SOE takeovers
introduced in 2012 appear to have had fewer effects on mergers and acquisitions
(M&A) activity than have broad market conditions. Unlike previous market
cycles, the number and cumulative value of Canadian takeovers of foreign-based
firms during the market expansion of 2010–14 significantly exceeded those of
foreign takeovers of Canadian-based firms (see Table 12.5).
Four other major sets of policy shifts have reinforced trends to share-
holder capitalism and the international integration of Canadian capital mar-
kets: medium- and long-term trends toward disinflation and lower interest
rates, the emergence of public-sector pension funds as independent mar-
ket actors, the domestic consolidation and international growth of major
Canadian financial institutions, and the evolution of corporate governance
and takeover rules in response to changing market conditions in Canada and
regulatory conditions elsewhere.
Table 12.5 Outward and Inward Takeover Activity (2010–2014)

Number Value (in millions of 2014
$Cdn)
Canadian firms acquiring
3,267 321,408
foreign-based firms
Foreign firms acquiring
2,009 202,675
Canadian-based firms
Total M&A transactions 14,025 1,025,529
Ratio: outward: inward 1.63 1.59
Source: Crosbie and Company, Canadian M&A Yearly Report. (For the years 2011–2014.) Retrieved
from http://www.crosbieco.com/who-we-are/m-a-publications; author’s calculations.
Disinflation and Low Interest Rates
The Bank of Canada’s anti-inflation policies after 1988 reduced interest rates
to levels last seen in the 1960s (see Table 12.6), eventually leading many Cana-
dians to move their savings into public markets in search of higher returns.
In particular, Canadians’ savings flooded into various mutual fund products,
contributing to the emergence of a greatly expanded wealth-management
industry characterized by intense competition among bank-controlled firms
and insurance and mutual fund companies.
This trend prompted policy makers to take an increasingly consumer-
oriented approach to regulation consistent with Gourevitch and Shinn’s
Table 12.6 Average CPI Inflation, Bank Rate, Real Interest Rates
(1985–2014)
CPI Inflation % Bank Rate % Real Interest
Rate %
1985–89 4.39 9.85 5.46
1990–94 2.56 7.94* 5.39
1995–99 1.66 5.08 3.41
2000–04 2.39 3.68 1.29
2005–09 1.72 3.14 1.41
2010–14 1.57 1.17 −0.40
1981–92 5.21 11.06 5.84
*Bank rates averaged 5.1, 5.8% in 1993, 1994
Source: Bank of Canada. Bank rate, selected historical interest rates, Table v122530. Retrieved from
http://www.bankofcanada.ca/rates/interest-rates/selected-historical-interest-rates/; Statistics
Canada. (2017f ). Consumer Price Index, CANSIM Table 326-0021, Ottawa, ON; author’s calculations.
(2005) analysis of global trends. Key aspects of these policies, often parallel-
ing North American trends, included promoting the increased transparency
of market operations, expanding protection for minority shareholders, and
increasing pressure on corporate boards to maximize shareholder value dur-
ing the takeover booms of the 1990s and 2000s rather than protecting the
interests of target companies’ senior executives. Canadian mutual fund assets
grew from $25 billion in 1990 to $440 billion by the end of the 1990s market
boom and $1.3 billion by the end of 2016 (Investment Funds Institute of
Canada, 2015, 2017; see Figure 12.1).
Demands for greater shareholder accountability were reinforced after
2000 by a series of corporate scandals in the United States with some cases
implicating major cross-listed Canadian firms such as Livent, Nortel, and
Hollinger.1 These challenges have been reinforced by the speculative nature
of some Canadian-based or listed resource companies, particularly those
with operations in developing economies and the periodic disclosure of
epic frauds such as Bre-X Mining in 1997 and Sino-Forest Corporation in
2011, both of which were unearthed by the due diligence of private investors
rather than independent stock market analysts or regulators (Koven, 2012;
Koven, Pett, & Greenwood, 2011; Schneider, 1997).
Central banks’ stimulative interest-rate policies since the 2008–09 financial
crisis may have contributed to a limited economic recovery in Canada and
Figure 12.1 Mutual Fund Industry Assets under Management (1990–2016)
Industry Assets Under Management

($billions)
1600
1400 1339
1231
1200
1000
800
600
400
200
0
19 0
19 1
19 2
19 3
19 4
19 5
19 6
19 7
19 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
16
9
9
9
9
9
9
9
9
9
9
0
0
0
0
0
0
0
0
0
0
1
1
1
1
1
1
19
Source: Investment Funds Institute of Canada. Retrieved from https://www.ific.ca/en/articles/

who-we-are-history-of-mutual-funds
industrial countries, but have also distorted market and investment incentives.
Rather than expanding productive capacity in the face of ongoing economic
uncertainties, many firms have expanded share buybacks (companies’ repur-
chase of their own shares to boost market returns) while increasing corpo-
rate indebtedness.While such responses have triggered criticisms of corporate
priorities, they also reflect the impact of prolonged cheap-money policies on
asset valuations and market pressures on both corporate and financial execu-
tives to avoid overpaying for assets, thereby placing their shareholders and
other stakeholders at significant risk (Cross, 2012; Lorinc, 2013; McGugan,
2015). Other regulatory changes have increased capital requirements for and
restricted lending by financial institutions. These competing perspectives
reflect long-term debates about the capacity of governments to play a catalytic
role in spurring economic development, but with the risk of “force-feeding”
investments or distorting economic incentives in ways that trigger subsequent
market corrections with major losses to investors.
From a political economy perspective, these trends have increased pres-
sures on both managers and workers to adapt to financial-sector demands
for short- and medium-term returns and the power of institutional investors
relative to corporate executives. However, unlike the United States, a com-
bination of government policies and structural differences between the two
economies has offset the rising household economic inequality in Canada
since the late 1990s before sharp declines in commodity markets in 2014–15
(Alexander & Fong, 2012a; Carrick, 2017; Fortin, Green, Lemieux, Milligan,
& Riddell, 2012; Hale, 2017b).
Public-Sector Pension Funds as Major Market Actors
The emergence of public and public-sector pension funds as major actors in

capital markets during the 1990s and early 2000s resulted from the growing
recognition of fiscal and demographic factors that threatened the sustain-
ability of existing pension commitments. Public pension funds such as the
Canada Pension Plan (CPP) and the Régie des Rentes du Québec manage
pensions funded by mandatory contributions by employers and employ-
ees. Public-sector pension funds are employment-related pensions funded
by employers and employees in the public and public sectors (e.g., teachers,
municipal workers, health care workers) on contractual terms subject to
relevant legislation.
Rather than funding plans from current revenues and contributions, public-
sector pension reforms since the early 1990s have mandated full funding of future
pension service, setting up multiple self-governing organizations to invest con-
tributions, subject to legislated standards, to meet future benefit commitments.
Faced with similar trends and the prospect of major payroll tax increases to make
the CPP sustainable, federal and provincial governments agreed in 1998 to create
an arm’s-length Canada Pension Plan Investment Board (CPPIB) to invest
surplus contributions in domestic and global capital markets (Pesando, 2001).
These reforms have created several huge investment funds, operating in
capital markets independently of governments. The eight largest funds, noted
in Table 12.7, managed more than three-quarters of the total value of Canada’s
pension funds, about 35 per cent of total private retirement savings, by 2011.
Between 2003 and 2015, their combined assets increased from $350 billion to
$1.15 trillion, equivalent to about 50 per cent of the market capitalization of
Canadian publicly listed companies and 58 per cent of Canada’s GDP.
Except for Quebec’s Caisse de dépôt, which has a dual legislative mandate
to “achiev[e] optimal returns on capital” while “contributing to Quebec’s
economic development” (R.S.Q. Chapter C-2, s.4.1), other public and public-
sector pension funds are managed at arm’s length from government to limit
risks of politicization and are mandated to “maximize returns without undue
risk of loss” (Canada Pension Plan Investment Board, 2016; Jog & Mintz, 2013,
p. 1), establishing a “fiduciary duty to current and future retirees” (Bédard-
Pagé, Demers, Duer, & Tremblay, 2016, p. 34). Some plans have integrated
evaluations of environmental, social, and corporate governance-related risks
in their efforts to create and protect long-term shareholder value in their
broader investment risk assessment and management processes.
Table 12.7 Major Canadian Public Pension Fund Managers (2015)
Jurisdiction Name Net investment

assets $C billion
Federal Canada Pension Plan Investment Board 265*
Quebec Caisse de dépôt et placement du Québec 248
Ontario Ontario Teachers’ Pension Plan 168
Federal PSP Investment Board 112*
BC British Columbia Investment Management 124*
Corporation
Ontario Ontario Municipal Employees Retirement 80
System
Ontario Healthcare of Ontario Pension Plan 64
Alberta Alberta Investment Management Corp. 90*
Total 1,151
*As of March 31, 2015
Source: Bédard-Pagé, G., Demers, A., Duer, E., & Tremblay, M. (2016). Large Canadian public pen-
sion funds: A financial system perspective. Financial System Review, June, p. 34.
On balance, the effect of pension funds on capital markets has been to

reinforce a moderately proshareholder orientation of corporate govern-
ance, particularly outside Quebec, and the continued internationalization
of major Canadian corporations. Major pension funds, with their predomi-
nantly medium- and long-term investment orientation, serve as counter-
weights to hedge funds and other investors focused on short-term returns
in their investment portfolios, even while using a variety of trading and
hedging strategies of their own to enhance short-term market performance.
To offset the ups and downs of public equity markets, several major pension
funds have substantially expanded their private equity, private debt, infrastructure,
and real estate investments since the mid-2000s.They have significant ownership
positions (averaging 29 per cent of total assets in 2015) in selected Canadian and
foreign-based companies and specialized lenders, often in partnership with other
major institutional investors. Since Ottawa lifted the legislated 30 per cent limit
on pension-fund investments outside Canada in 2005, offshore assets of major
pension plans have increased to a range of 35 to 81.5 per cent in efforts to achieve
greater security and returns from diversification (Bédard-Pagé et al., 2016, p. 36).
This distribution creates temptations for governments to tap into pension assets
to fund domestic projects and job creation in Canada independently of their
potential economic viability. These issues highlight the growing gap between
access to secure pensions for Canadians working in the public and private sectors
and political risks to Canadians’ retirement security.
Major funds can exercise enormous market power when they so choose.
The Ontario Teachers’ Pension Plan’s hostile bid in 2007–08 for BCE,
Canada’s largest telecom firm, while not ultimately consummated, acceler-
ated a major overhaul of that company’s corporate strategy (Willis, 2009).The
Caisse de dépôt has played a significant role in assisting the growth of major
Quebec corporations, often shielding them from risks of hostile takeovers,
but sometimes reinforcing efforts by other market actors to change corporate
strategy (Van der Linde, 2015;Van Praet, 2015). In 2011–12, four major public-
sector pension managers joined with the capital markets divisions of six major
Canadian financial institutions to block a merger between TMX Group, own-
ers of the Toronto Stock Exchange, and the London Stock Exchange. The
resulting deal countered the broad trend of major international market merg-
ers but also raised significant concerns about the competitive implications of
such collusion on Canadian public markets (Corcoran, 2012; Erman, 2012).
Market Concentration and Internationalization
Growing market consolidation in the banking and insurance sectors and the
emergence of huge pension behemoths have created a third major policy
challenge: how to preserve competition and constrain the power of major

financial institutions and other corporations within domestic markets while
enabling and encouraging them to compete effectively in global markets.This
issue came to a head in 1998 when four of the six major Canadian banks
announced plans to merge their operations into two new banks of global scale.
After an 11-month public debate, the deals were vetoed by federal Minister of
Finance Paul Martin for their likely impact in reducing domestic competition,
especially outside major urban centres (Whittington, 1999).
Martin’s decision became the basis for explicit limits on mergers of major
Canadian banks and insurance companies, the so-called “big shall not buy big”
policy, despite pressures from some quarters to allow further consolidation
(DeCloet, 2007; Koeppl & McGee, 2007). Instead, major financial institutions
were encouraged to expand their international operations while maintaining
prudent operational and investment practices. Neither did Canada follow the
traditional European practice of allowing major cross-shareholdings between
financial and industrial firms. Combined with Canada’s conservative regulatory
regime, these decisions were widely credited with reducing the impact of the
2007–09 financial crisis on Canadian banks and avoiding large-scale govern-
ment bailouts experienced in other industrial countries (Longworth, 2014).
The growing internationalization of Canadian banks was paralleled by
regulatory changes that relaxed and then eliminated traditional restrictions
on investments outside Canada by pension and retirement savings funds
between the mid-1990s and 2005, contributing to the significant diversi-
fication of equity investments (Jog & Mintz, 2013, p. 9). Given the TSX’s
traditionally narrow concentration in financial and resource sectors, these
policies have increased potential returns from diversification and contrib-
uted to a greater diffusion of market activities and power.
Evolving Corporate Governance and Takeover Rules
The fourth major set of regulatory shifts has occurred in securities and
corporate governance regulation, albeit in slow motion. Changes to cor-
porate governance reflect an evolving mix of common law judicial rulings
related to the rights of minority shareholders and the obligations of cor-
porate directors, regulatory changes introduced by governments, and pres-
sures from institutional investors and related interest groups such as the
Canadian Coalition for Good Governance.They also reflect the commitment
of several provincial governments to cultivate regionally based firms, whether
in fostering capital market access for small, entrepreneurial companies or
protecting so-called provincial champions, particularly in Saskatchewan and
Quebec, against external takeover threats (Bouw & McCarthy, 2010;Van Praet,
2014a, 2014d).These realities create different governance and regulatory chal-

lenges for firms of different sizes, contributing to what some observers have
called “tiered” or “scaled regulation” (Nicholls, 2006, p. 137).
Key changes to governance introduced in recent years have focused on
“ensuring investors … that minority shareholders of Canadian public cor-
porations are credibly protected against abuse by controlling shareholders”
(Nicholls, 2006, pp. 137–38). Such measures include regulatory mandates for
greater accountability of corporate boards and conduct of management over-
sight, audit committees independent of management, increased financial and
disclosure requirements, stronger criminal sanctions for insider trading and
“tipping” of information, disciplines on related-party transactions, and more
recently, federal requirements mandating disclosure of payments by resource
companies to domestic and foreign governments (Ben-Ishai, 2008; Chatwin,
Grbesik, & Yung, 2015; Nicholls, 2006, pp. 176–89). In some cases, these
approaches reflect a shift away from US regulatory models based on detailed
rules to more principles-based approaches resembling British practices
(Ben-Ishai, 2008). Market initiatives promoted by institutional investors
include periodic proxy challenges to boards of directors, usually at underper-
forming firms, pressures to move from dual-class to single-class share struc-
tures, and more recently, disciplines on senior executive compensation.
Patterns of corporate governance vary widely across Canada’s regions
and provinces, reflecting different patterns of economic development, cor-
porate ownership, and state ownership or investment in nonfinancial firms.
The environment for large corporate governance within particular provin-
cial or regional markets reflects three major factors:
• the predominance of major corporate actors as opposed to state-

controlled or small, entrepreneurial firms in particular provincial or
regional markets and industry sectors;
• the influence of widely held or closely held firms within provincial and
regional economies;
• the scale of provincial or regional capital markets and their capacity to sus-
tain local corporations without active government support or influence.
The greater the scale and entrepreneurial dynamism of particular regions

and economic sectors, the greater become the pressures on corporate execu-
tives to accommodate the influence of institutional shareholders. However,
Quebec and most smaller provinces are characterized by a concentrated
ownership of its major firms and greater likelihood of provincial interven-
tion to maintain localized decision-making power amenable to cooperation
with (or the influence of) provincial governments.
Table 12.8 notes the ownership concentration and source of the 200
largest Canadian-based nonfinancial corporations in 2014, firms with annual
revenues over $1.67 billion. Alberta stands out as the only jurisdiction with a
clear majority of widely held Canadian-controlled corporations, defined as
those without a controlling group owning more than 20 per cent of voting
shares. Ontario, the centre of Canada’s financial sector and the main head
office location of foreign-controlled firms, has a small plurality of widely
held over closely held Canadian firms or firms with legislated restrictions
of control blocks or foreign ownership. The opposite pattern applies in
Quebec, where closely held firms (or those with formal takeover restric-
tions) significantly outnumber widely held firms. Larger firms in Atlantic
Canada, Saskatchewan, Manitoba, and BC are closely held, often family-
controlled firms or, as former crown corporations, are subject to legislative
restrictions on head office relocations.
In Ontario, the influence of major institutional investors has played a
critical role in fostering wide acceptance of incremental corporate gov-
ernance reforms, including proxy contests by minority shareholders. The
Toronto Stock Exchange actively competes with major US and other for-
eign exchanges for corporate listings. Several observers have noted Ontario
regulators’ desire to avoid “reputational disadvantage” among institutional
Table 12.8 The 200 Largest Canadian-Based Nonfinancial

Corporations, Ownership Concentration, by Province/Region (2014)
Widely Closely Gov’t Foreign Co-ops Other Total
Held Held (CR> Owned CR
20) + or > 20%
Legislative
Restrictions
Ontario 13 12 7 35 0 2 69
Alberta 29 7 3 8 1 2 50
Quebec 9 19 3 8 2 2 43
BC 3 5 4 6 0 2 20
Atlantic** 2* 3 1 1 0 0 7
Sask. 2* 1 1 2 1 0 7
Manitoba 0 1 1 2 0 0 4
Total 56 48 20 62 4 8 200
*Former crown corporations subject to legislated head office requirements
**Not including privately held Irving Companies, which do not report earnings
+
CR = Ownership concentration ratio
Source: Financial Post 500. (2015). Top 500 rankings. Financial Post Magazine. Retrieved from
http://business.financialpost.com/features/fp500-database; author’s calculations.
investors by being seen to have weaker minority shareholder protections

than current US rules allow (Nicholls, 2006, 172ff ).2 By contrast, in Quebec,
close links between financial and corporate elites, often mediated through
the Caisse de dépôt with its extensive shareholdings in major Quebec-based
firms, have discouraged hostile takeover bids and challenges to management
by institutional or activist shareholders.
One significant challenge to insider control of companies has been the rise of
more proxy challenges to boards of directors, whether by institutional investors
critical of company performance or activist investors seeking a radically differ-
ent approach to corporate strategy and organization with a view to “unlocking”
potential shareholder value. Proxy challenges attempting to nominate outside
directors or take control of boards of Canadian-based companies increased from
an average of 11 annually in 2003–07 to an average of 20.2 in 2008–12, declin-
ing to 13.7 in 2013–15 (Atkinson, Batista, & Freelan, 2013; Atkinson & Freelan,
2016). Consistent with the market profiles of listed Canadian firms, most such
challenges to management take place at small and micro-cap companies.
However, a significant number of these contests have occurred at major
firms. Most prominent among these was the successful 2012 campaign by
Bill Ackman of Pershing Square Capital, supported by major institutional
investors, to elect a dissident board slate and replace senior management
of the venerable Canadian Pacific Railroad with its own nominees. The
declining number of successful challenges since 2012 appears to reflect sen-
ior executives’ recognition of the importance of cultivating closer relations
with institutional investors and providing more transparent communications
about corporate strategies and performance.
Dual-Class Shares
One major distinction between managerial and shareholder capitalism is the

capacity of controlling shareholders or blockholders in major corporations
to establish and maintain dual-class shareholder structures in which minority
shareholders enjoy voting rights substantially less than their proportionate
ownership stake. Supporters of dual-class shares have argued that such a
structure allows for long-term management strategies conducive to build-
ing strong companies and protecting firms against unwanted takeover bids,
while respecting shareholder rights (Allaire, 2006).
Critics have noted that dual-class shares typically trade at a discount com-
pared to those of firms that provide shareholders with proportional voting
rights and that the latter often have lower costs of capital due to greater
market liquidity for their shares. They also note the potential for blockhold-
ers to exploit their position to extract value from the firm at the expense of
minority shareholders. Changes to stock exchange rules introduced in 1987

provided for equal treatment of separate classes of minority shareholders in
the event control of such firms subsequently changed hands. Fewer than 10
firms with pre-1987 dual-class share structures retain older discriminatory
provisions (Amoako-Adu, Smith, & Baulkaran, 2011, pp. 5–7; Merkley, 2015).
Some studies have pointed to large family-controlled corporations as an
exception to this trend, particularly where the controlling family maintains a
significant equity stake and managerial role in the firm and “there is a closer
alignment between votes and shares” (Spizzirri & Fullbrook, 2013, p. 4). Spizzirri
and Fullbrook (2013) show that average share price growth at 23 large family-
controlled firms significantly exceeded that of a representative sample of
nonfamily firms over samples of 5, 15, and 20 years since 1993, although precise
comparison is difficult due to high levels of corporate turnover.
However, there has been a broad decline in the number and propor-
tion of dual-class shareholdings in Canadian markets since the mid-1990s,
paralleling declines in several European markets. The number of TSX-listed
firms with dual-class shares dropped by half between 1994 and 2010, from
165 to 83, with the proportion of such firms falling from about 14 per cent
to 6 per cent of listed firms. However, only 28 firms listed in the S&P 500
index had dual-class shares in mid-2017. These changes reflect both pres-
sures from institutional investors and the improved market performance
of firms following unification of share classes (Amoako-Adu et al., 2011,
pp. 7–8: Milstead, 2017). As with protection against hostile takeovers, sup-
port for dual-class shares tends to be stronger within Quebec’s tightly knit
corporate and regulatory communities with their continuing commitment
to the norms of managerial capitalism (Cousineau, 2013;Van Praet, 2014d).
In recent years, blockholders have rarely succeeded in extracting significant
premiums from other shareholders. These findings are consistent with broad
trends of greater levels of shareholder capitalism in many industrial econo-
mies. However, the extent and pace of such shifts are highly contingent on
blockholders’ sense of their own strategic priorities and interests, as illustrated
by the controversial US $983 million payout to Frank Stronach for ceding
control of Magna International in 2010–11 (Iacobucci, 2011, p. 239).
Controversies surrounding dual-class shareholdings can be reinforced
when closely held firms seek substantial government assistance, as in
Bombardier Inc.’s pursuit of major equity investments from federal and pro-
vincial governments in 2015–16 to offset major cash flow problems asso-
ciated with the development of its new C-series aircraft in competition
with government-supported aerospace industries in other countries. While
Quebec invested more than $1 billion without much controversy, members
of Toronto’s legal and financial communities have argued that further federal
support should be conditional on the dismantling of Bombardier’s dual-class

structure (Anand, 2015; Kiladze, 2016) so that dominant shareholders assume
the risks of substandard financial performance, as in most other large firms.
Takeover Rules
Perhaps the most politically sensitive issue surrounding shareholder capitalism

is its openness to corporate takeovers. Although takeovers can be justified by
their contributions to greater operational efficiencies and building internation-
ally competitive companies, they are often assailed for their effects in transfer-
ring control of head-office decision making to outsiders (whether regional or
foreign), the so-called hollowing out phenomenon, and dissipating residual
shareholder value, often as a result of overpaying for the acquired company. At
the same time, observers point to takeover risk as a discipline on management
complacency and the need for Canada to treat domestic and foreign firms
symmetrically, both to comply with Canada’s commitments under the World
Trade Organization and in recognition that Canadian firms have been more
active in expanding abroad during the past 20 years than foreign firms have
been in acquiring Canadian-based firms (Bloom & Grant, 2008).
Canadian political debate over takeovers arose from successive waves of
corporate transformation, including takeovers, that roiled Canadian capital
markets in market expansions between 1993 and 2000, and again in 2003–08.
Bloom and Grant (2008, pp. 32–35) note that of the 200 largest Canadian
companies by revenue in 1990, only 92 were still in operation with the same
name and shareholder structure by the end of 2007.
Analysts frequently rebutted the nationalist critique by noting that between
1994 and 2007 expanding Canadian firms were more likely to acquire other
Canadian firms or foreign companies than foreign firms were likely to take
control of Canadian-owned companies (see Table 12.9). If anything, these
trends have intensified since 2010, as noted in Table 12.5, with the value of
intra-Canadian transactions increasing from 31.6 per cent to 51.1 per cent in
2010–14. Trends in head-office employment were mixed both regionally and
sectorally during the earlier period, with overall growth masking declines in
specific regions (particularly BC) and sectors (notably manufacturing; Bloom
& Grant 2008, p. 47). Recent research suggests that the actual number of hos-
tile or unsolicited bids for legal control has dropped from an average of 20
annually for Canadian public companies of all sizes in 2006–09 to an average
of 10 companies annually in 2010–14 (Atkinson & Freelan, 2015).
More pointed and enduring, particularly in Quebec, have been debates
over whose interests should guide decisions by boards of directors respond-
ing to takeover bids, those of shareholders or those of the company, its
Table 12.9 M&A Transactions over $500 million (constant 2007 $)

Involving Greater Than 50 Per Cent Ownership Stake (1994–2007)
Category Deals Deals Deals Avg. per Total
1994– 2005– Total deal 2007 $bn.
2004 10/2007 constant $
Foreign acquires Canadian 92 62 154 2.9 billion 441
Canadian acquires foreign 133 53 186 2.1 billion 394
Canadian acquires Canadian 128 72 200 1.9 billion 385
Total 353 187 540 1,220
Source: Bloom, M., & Grant, M. (2008). “Hollowing out”—myth and reality: Corporate takeovers in an
age of transformation (3 vols.). Ottawa, ON: Conference Board of Canada, p. 40.
management, and other stakeholders, and by what process. In recent years,

the managerialist position has been most strongly articulated by Yvan
Allaire (2008), who suggests that “world-class industrial champions” are
more likely to be built under “patient and stable ownership, relatively
immune from unsolicited attempts to take over the company” (p. 6). He
notes that half of globally competitive Canadian firms with over $1 billion
in annual revenues in 2007 were either privately owned or closely held,
and argues for the value of multiclass (or superior voting) share structures
to enable entrepreneurs to seek equity funding in capital markets without
the risk of sacrificing control. Along with other members of the Quebec
business establishment, Allaire has long contended that boards of directors
should be empowered to use a wide range of defences against unwanted
takeover bids, as in the United States, and that shareholder voting rights
on takeovers should be limited to long-term owners (Allaire, 2008,
pp. 6–8; Allaire, 2014). Indeed, in 2013, Quebec’s Autorité des marches financi-
ers proposed that boards of directors be allowed to reject unsolicited takeo-
ver bids without referring them to a shareholder vote.
Individual companies have introduced “poison-pill” proposals to increase
barriers to potential takeovers. However, securities regulators, especially in
common law provinces, have allowed such defences only for limited periods
to allow directors to obtain a better offer for their shareholders or convince
them that they have a better strategic plan to enhance shareholder value than
outside bidders.
Legal and philosophical questions of who does or should own and control
the company involve deep issues of institutional interest. Except in closely
held companies, in which leadership tenure depends on serving the interests
of the dominant shareholder, senior executives generally view themselves as
better qualified to judge the interests, performance, and strategic opportunities
available to the company than most outsiders. Institutional investors are more
likely to view deference to management as contingent on performance but
are often unwilling to invest the time and effort necessary to exercise effective
oversight, thus placing a premium on the judgment and vigilance of inde-
pendent directors, unless competitors or activist investors provide them with
prospects of greater returns.
Policy makers in liberal market economies are more likely to view the
public interest in promarket terms of legislative and regulatory activities
applicable to all companies engaged in a particular sector or area of business
activity and to avoid ad hoc responses to company-specific developments.
Governments in coordinated market economies are more likely to take a
probusiness or corporatist perspective, viewing major companies as part-
ners in their economic development strategies, or adopt more opportunistic
strategies to protect established economic relationships, as with countervail-
ing measures adopted by Quebec and Saskatchewan to protect provincial
champions against takeover bids by outsiders.
The realities of consensual interprovincial decision making on securi-
ties regulations through the Canadian Securities Administrators (CSA) lend
themselves either to preservation of the status quo or gradual adaptation of
regulations following consultations with provincial regulators and diverse
stakeholder groups. Changes to takeover rules introduced in 2016 after
extended consultation extend the maximum period for delaying a vote on
takeover bids from 35 to 105 days and require acceptance of the proposals by
owners of at least half the company’s voting shares. These proposals increase
the discretion of target company boards in dealing with hostile takeover bids
but maintain the principle that directors are ultimately accountable to share-
holders as the actual owners of the company (Hasselback & Shecter, 2016).
Conclusion
The past 25 years have seen a growing divergence between financial and
capital markets regulation in Canada that has reinforced trends of market
concentration and expanded regulatory oversight in the financial sector, par-
ticularly major banks and insurance companies, but also strengthened trends
of shareholder capitalism, increased competition, and decentralized govern-
ance in corporations and capital markets.
Canada’s system of regulating major financial sector firms remains distinct
from that of the United States, reflecting different market structures, different reg-
ulatory and cultural norms, and Canada’s deliberate federal policies to limit firms’
domestic consolidation and encourage international expansion. Coordinated
international responses to the 2008–09 global financial crisis have encouraged
intensified regulation in Canada, but less so than in the United States due to fun-
damental differences between the two countries’ banking systems and practices.
Canadian capital markets policies have reflected continued US influence,
filtered through the more decentralized structures of Canadian federalism
and significant regional differences in the number and relative size of pub-
licly traded firms. Extensive cross-listings of major firms and deeply inter-
connected networks of institutional investors provide continued motives
for regulatory emulation, particularly in maintaining minority shareholder
protection and increasing senior executives’ accountability to shareholders.
The division of power between federal and provincial governments and
the diversity of provincial political cultures limit the precise application of
Gourevitch and Shinn’s (2005) typology of corporate governance systems to
Canada. However, Canada’s continuing status as a trade-dependent economy, the
federal primacy in trade negotiations, and a continuity of centrist and centre-
right governments between the mid-1980s and mid-2010s have created expec-
tations of reciprocity and national treatment of domestic and foreign investors
in most industry sectors. The growth of internationally competitive Canadian
firms, especially in the financial sector, has created strong institutional support for
market openness and investor-centred models of corporate governance.
Unlike the United States, where financial-sector growth is widely seen
to have contributed to extensive and growing income inequality since the
1990s, questions of distributive equity have not placed industrial and finan-
cial sectors on a collision course in most of the country, although tensions
are more visible in Quebec and traditionally slow growth regions of Atlantic
Canada. In Western Canada, largely favourable terms of trade between 2000
and 2014 contributed to rising incomes and a complementary relationship
between investment and employment. The same shift in terms of trade rein-
forced the decline of Ontario’s manufacturing and traditional resource sec-
tors but also contributed to growth in financial and real estate sectors.
Also unlike the United States, reforms to public and public-sector pensions,
which placed the management of pension fund investments effectively
beyond political influence, have enjoyed broad and consistent federal-
provincial and cross-partisan support.These reforms have strongly reinforced
trends favouring shareholder capitalism in larger provinces outside Quebec.
So, indeed, has the sharply increased investment of middle-class investors’
personal and retirement savings in mutual funds and exchange-traded funds.
The planned expansion of the Canada Pension Plan will probably provide
similar protection for pensioner interests.
The decentralization of regulatory power over labour markets and collec-
tive bargaining, combined with the mildly reformist tendencies and adapt-
ability to market realities of most provincial social democratic governments
elected during the past 20 years, have further constrained countervailing

tendencies favouring labour power or corporatist models sometimes seen in
parts of Europe, Latin America, and Quebec.
All these realities suggest the probable persistence of shareholder capital-
ism in Canada in the absence of a major market meltdown or abdication of
corporate and regulatory responsibility capable of corroding public trust in
institutions’ management of public and private savings that would pressure
governments to take radical action. Just as markets and financial-sector prac-
tices remain dynamic (and sometimes disruptive), corporate governance and
regulatory systems can be expected to adapt to such changes incrementally.
The largest current threat to financial stability remains housing price infla-
tion in major cities, with related risks to mortgage markets. Given direct
federal responsibility for mortgage market regulation and its sizeable share of
the mortgage insurance market, inadequately compensated or hedged sociali-
zation of market risk remains possible. While any such correction could have
significant social and economic impacts, it is unlikely to have a major effect
on capital market regulation, which will compensate for losses in other ways.
Canada Pension Plan Investment Institutional investors

Board (CPPIB) Managerial capitalism
Capital markets Quebec Inc.
Dual-class shares Shareholder capitalism
1. Why do capital markets matter to economic and business development?

How has the evolution of Canadian capital markets since the 1980s
reflected a partial evolution away from traditional patterns of manage-
rial or blockholder capitalism among Canadian-based corporations to a
growing prevalence of shareholder models of capitalism?
2. In what major ways have the market and regulatory contexts for capital
markets evolved in the 1990s? How have these developments reflected
both Canada’s interdependence with the wider global economy and
the ability of Canadian governments to adapt to changing market and
regulatory conditions?
3. How has the emergence of major public and public-sector pension
funds influenced the development of Canadian capital markets? To what
extent has their evolution since the 1990s reflected (or contributed to)
the evolving relationship between governments and markets?
4. How has the evolving debate over takeover rules reflected tensions be-
tween managerial and shareholder models of capitalism, as well as more
traditional debates over foreign investment in Canada? To what extent
do these debates reflect different regional patterns of corporate owner-
ship and control?
Allaire,Y. (2008). On missing the point: The hollowing-out debate. Submission to federal
Competition Policy Review Panel. Montreal, PQ: IGOPP.
Bédard-Pagé, G., Demers, A., Duer, E., & Tremblay, M. (2016). Large Canadian public
pension funds: A financial system perspective. Financial System Review, June,
33–38.
Ben-Ishai, S. (2008). Sarbanes-Oxley five years later: A Canadian perspective. Loyola
University Chicago Law Journal, 39(5), 469–492.
Bloom, M., & Grant, M. (2008). “Hollowing Out”—myth and reality: Corporate takeovers
in an age of transformation (3 vols.) Ottawa, ON: Conference Board of Canada.
Gourevitch, P.A., & Shinn, J.J. (2005). Political power and corporate control:The new global
politics of corporate control. Princeton, NJ: Princeton University Press.
Suret, J.-M., & Carpentier, C. (2010). Securities regulation in Canada: Reexamination
of arguments in support of a single securities commission. Expert report prepared for
Autorité des Marchés Financiers du Quebec (English translation). Montreal:
CIRANO.
Notes
1 Senior Nortel executives were subsequently acquitted of securities law

violations. Livent executives were convicted of fraud in Canadian courts.
Hollinger’s senior executives were ultimately convicted of one count each of
fraud, with other convictions overturned on appeal by US courts.
2 These observations have been reinforced by comments by securities regulators
in other provinces in past conversations with the author.
13
Growth, Equity, and Sustainability:
Pursuing Positive-Sum Policies in a
Shrinking World
B oth political and economic systems face the continuing task

of legitimation and the mobilization and maintenance of sufficient
degrees of public consent and endorsement to sustain existing political and
economic institutions and practices as they adapt to changing circumstances
and conditions (Partridge, 1971). Political theorists, philosophers, and activ-
ists frame these questions in abstract, idealistic, or ideological terms.
Studies of public opinion on the role of government on economic issues
suggest that Canadians have eclectic, rather than ideologically consistent out-
looks (Berdahl, 2008; Graves & Jenkins, 2002; Mendelsohn, 2002). Political
cultures within individual provinces vary widely, reflecting persistent differ-
ences in economic structures and patterns of political competition. Moreover,
public attitudes and priorities reflect levels of economic prosperity and inse-
curity at different stages of economic cycles (Angus Reid Institute, 2017; The
Environics Institute, 2012; Graves, 2002, p. 71), while remaining composites of
varying interests and outlooks shaped by the multidimensional complexity of
Canadian society.
Particular policies are subject to contestation on interest-based or ideo-
logical grounds. These debates are most intense within provincial politics,
probably due to the wide range of geographic and sectoral interests that
must be balanced by politically successful federal governments, with their
incentives to avoid unilateral actions on regionally polarizing issues (see
chapter 7). However, a focus on the actions rather than the political rhetoric
of governments, especially in national politics, suggests an ongoing effort to
balance these objectives, combining the promotion of economic growth and
some measure of distributive equity, with varying degree of attention (often
symbolic as much as substantive) to enhancing environmental outcomes.
This chapter explores contemporary and anticipated challenges in the
political economy of Canadian economic policies as a reflection of efforts
by governments and other major societal actors to pursue continued eco-
nomic growth along with policy goals associated with the legitimation of
the economic system. Most notable among the latter are equity in societal
distribution of benefits, enabling Canadians to adapt to economic and social
change, and commitments to environmental protection and sustainability.
345
Conceptualizing Economic Legitimacy
All economic systems face challenges of political legitimation. They must

secure sufficient support or at least acquiescence (Partridge, 1971) from a
cross section of economic and social interests and facilitate the availability
and distribution of economic opportunities, overall levels of economic per-
formance, and citizens’ capacity to enjoy the benefits of increased economic
activity through higher standards of living and an improved quality of life.
Voters can frame the concept of legitimacy in different ways. Perfor-
mance legitimacy is related to the extent to which the economic system
has made them (or people like them) better off financially than they were
in the fairly recent past: “Are we better off than we were x years ago?” It
can also reflect attitudes on economic fairness, how well the benefits of
rising economic activity have been shared within their community, region
or the country as a whole. Social scientists can measure such effects as
income inequality (before or after taxes and government transfers) and
poverty reduction, two very different things. In times of widespread eco-
nomic turmoil, questions of economic security or insecurity—the ability
to keep a job, having sufficient hours of work to pay the bills, finding a
job for which one is qualified at a reasonable rate of pay—become more
important. Others consider the opportunities they enjoy within a society
to improve their economic opportunities or social mobility, either within
the region they live in or in other parts of Canada. Normative legiti-
macy is derived from commitment to the pursuit of particular legal, social,
cultural, or economic ideals or their substantive inclusion within a broad
set of political objectives.
Comparative international surveys suggest broad but conditional accept-
ance of the market economy, along with substantial levels of government
social and economic intervention. Mendelsohn, Wolfe, & Parkin, (2002) have
described public attitudes of trade liberalization and globalization, one of three
major pillars of federal economic policies since the 1980s, as discussed below,
as a “permissive consensus” that supports existing trade and investment policies
to the extent that they can be shown to provide significant economic benefits
to Canadians, effectively a form of performance legitimacy.
They also indicate shallow levels of trust for major institutions, including
governments and businesses, to do what is right or serve the public good
beyond what is required by their own self-interest (Edelman Insights, 2013,
2015, 2017; Norman, 2016). Levels of public trust vary significantly across
provinces, income levels, social groups, and specific institutional subgroups,
with levels of confidence frequently higher for more localized institutions
(Cotter, 2015). Table 13.1 compares overall levels of trust for governments
Growth, Equity, and Sustainability 347
Table 13.1 Levels of Trust for Government, Business Leaders in

Canadian General Population (2011–2016)
2011 2012 2013 2014 2015 2016 Average
Business 51 51 55 49 56 50 52
Government 46 46 42 47 53 43 46.2
Difference–business vs. gov’t 5 5 13 2 3 7 5.8
Source: Edelman Insights. Edelman Trust Barometer: Canada Report. Toronto, ON. (For the
years 2012–2017.) Retrieved from https://www.slideshare.net/EdelmanTO/2012-edelman-
trust-barometer-canada-and-global-results; https://www.slideshare.net/EdelmanInsights/
canada-results-2013-edelman-trust-barometer; https://www.slideshare.net/EdelmanInsights/2014-
edelman-trust-barometer-canada-results; https://www.slideshare.net/EdelmanInsights/2015-
edelman-trust-barometer-canadian-findings; https://www.slideshare.net/EdelmanInsights/
edelman-trust-barometer-canada-results; https://www.slideshare.net/EdelmanInsights/2017-
edelman-trust-barometer-canadian-results
and businesses in Canada between 2012 and 2017. These surveys suggest that
levels of trust are generally higher among persons with higher levels of edu-
cation and higher levels of income and media consumption, including busi-
ness news, than for the general public (Edelman Insights, 2016). However,
overall levels of trust remain low, if somewhat higher than in the United
States, and are conditional on the perceived performance of the institution
in question.
Social scientists and other observers of public opinion have noted a
decline of deference (Nevitte, 1996) among ordinary citizens toward politi-
cal and social elites, which is reinforced by widespread social or economic
change, particularly if it undermines the security, economic well-being, or
status of significant parts of society. Large segments of Canadian society have
become increasingly intolerant of perceived abuses of power and privilege
by people in positions of authority, particularly where they involve persistent
behavioural double standards that are seen as contrary to a government’s
public commitments or to legal or civic obligations of business leaders and
other institutional elites. Such attitudes have led to gradual changes in laws
and public expectations relating to the financing of political parties (see
chapter 4), corporate governance (see chapter 12), and the growing auton-
omy of legal and regulatory institutions from governments, if not necessarily
from public opinion.
Federal economic policies since the 1980s have been conditioned by
the promotion of economic growth as a precondition for the maintenance
and growth of living standards and widespread distribution of its benefits
through the provision of valued public services and income transfers. Pro-
vincial fiscal and economic policies have varied widely depending on the
priorities (and dominant constituencies) of their governing parties.The most
politically successful governments have been those that have succeeded in

integrating these two sets of policy objectives in a more or less coherent
synthesis and communicating these policies effectively to their constituents.
Continuing changes in the structures of Canadian, North American,
and global economies, along with the vagaries of the business cycle, mean
that growth rates, and the economic benefits that go with them, are rarely
distributed evenly, whether across economic sectors or geographic regions.
Although the economic turmoil and regional divisions of the 1970s and
early 1980s are not part of the memory of most Canadians under the age of
50, most political leaders and senior policy makers have come to recognize
that successful implementation of their major policy choices requires the
balancing of assorted economic and social interests and the avoidance of
zero- or negative-sum games. The progressive decentralization of Canada’s
federal system and economy since the 1980s has increased the importance of
provincial governments in managing these trade-offs.
Canada’s parliamentary system can be conducive to authoritative gov-
ernment action on fiscal and economic policies, as long as governments pay
attention to distributive considerations across regions and different economic
and social groups. However, several factors place significant constraints on
national majoritarianism, including the differences in regional economic
structures, constitutional guarantees of provincial resource ownership and
extensive power over internal economic development, and the weakness
of federal political parties as instruments of national integration. Although
Ottawa has exercised periodic leadership on social policies in recent decades,
its effectiveness is contingent on its fiscal capacity and willingness to pur-
chase provincial cooperation over an extended period (Bakvis & Skogstad,
2012). Combined with Canada’s openness to international economic forces,
these institutional realities lend themselves to incremental policy changes.
Canada is a broadly middle-class society, a concept associated with a
broad distribution of economic opportunity, widespread ownership of
homes (66.5 per cent in 2015) and other property, including business owner-
ship and financial assets, along with varying degrees of economic security.
Sizeable segments of the country, especially in parts of Quebec, rural Atlan-
tic Canada, and many indigenous communities, remain isolated from social
and economic opportunities (Grant & Curry, 2013). Table 13.2 notes the
distribution of household incomes in Canada in 2014, before and after taxes.
Household debt remains at record levels, driven by low interest rates and
rising real estate prices and mortgage obligations, especially in major cities.
Median levels and distribution of household wealth in Canada, which
are significantly skewed by age, demonstrate significantly greater levels of
inequality than income distribution, as noted in Table 13.3; 57.8 per cent of
Table 13.2 Household Income by Income Group, Canada (2014)

(percentage of economic families)
Total income After-tax income
Per cent Cumulative Per cent Cumulative
Under $40,000 14.3 20 15.4 15.4
$40,000–59,999 15.4 29.7 19.6 35
$60,000–79,999 15.5 45.2 18.4 53.4
$80,000–99,999 13.4 58.6 15.6 69
$100,000–149,999 22.9 81.5 21.1 90.1
Over $150,000 18.4 99.9 9.9 100
Median Family Income $87,500 $75,700
Average Family Income $104,500 $87,200
Source: Statistics Canada. (2016l). Total and after-tax income by economic family type, Canada,
provinces and selected census metropolitan areas (CMAs). CANSIM Table 206–0012. Ottawa, ON.
overall wealth is concentrated in the top 10 per cent of the adult population
(Davies, Lluberas, & Shorrocks, 2016, p. 148), most of which is concentrated
in Canada’s largest metropolitan areas. However, just as both total and after-
tax income inequality are notably lower in Canada than in the United States,
distribution of wealth is also somewhat less unequal. Historically, these dis-
tinctions reflect the greater weight of home ownership and other nonfinan-
cial assets in Canada, although record house price inflation in the Toronto
and Vancouver areas have undoubtedly increased levels of regional inequality.
These issues will be discussed in greater depth in the section on inequality
and opportunity.
Most Canadians think of themselves as middle class, making this concept
of greater psychological than analytical value. For this reason, federal and
provincial elections are frequently contests to build coalitions of support
among various fractions of the middle class, especially in heavily urbanized
Table 13.3 Wealth Distribution, Per Cent of Individuals, (2016)*
Under $10,000– $100,000– Over Median Gini

$10,000 100,000 1 million $1 million per adult coefficient**
Canada 25 25.7 45.3 4.0 $96,664 0.732
US 34.6 28.6 31.3 5.5 $44,977 0.862
*USD
**Higher number = greater inequality
Source: Davies, J.B., Lluberas, R., & Shorrocks, A. (2016). Global wealth databook: 2016. Zurich:
Credit Suisse Research Institute, pp. 140, 148–49.
provinces. Political parties with aspirations to govern must bring together

voters with cross-cutting interests and values, including material interests,
social identities, and diverse value commitments.
Growing prosperity has encouraged and enabled cooperative and col-
lective measures intended to improve citizens’ quality of life, including both
natural and human-constructed environments and reasonable access to social
and economic opportunities capable of accommodating the varied aspira-
tions of an increasingly individualistic society. At the same time, there is
widespread recognition of the need to adapt to changing economic cir-
cumstances, including shifting patterns of globalization and the emergence
of the “new economy” (The Environics Institute, 2012; Mendelsohn, 2002;
The Nova Scotia Commission, 2014), although most Canadians look to gov-
ernments either to cushion the effects of these changes or help them adapt
to them. Policies used to pursue these objectives reflect the fragmentation
of Canadian society, reflecting both regionally varied patterns of political
competition and economic activity and the weakening of national political
institutions and social ties.
The ways in which governments combine or balance these objectives
are open to challenge and debate. Such challenges come from economic
and social interest groups who believe (or recognize) themselves to have
been placed at a particular disadvantage relative to others, often attracting
the attention of opposition political parties. Other challenges may result
from sustained use or misuse of political and economic power that excludes
certain social groups from sharing in the overall benefits of government
policies. Although the former are often subject to modification through
the political process, when a large enough segment of society is sufficiently
aggrieved by political and economic outcomes over an extended period,
pressures grow for more fundamental structural or systemic changes in eco-
nomic institutions. Among the more politically significant examples of sys-
temic policy change in Canada since WWII were the gradual emergence
of the Keynesian welfare state between the 1940s and 1960s, Saskatchewan’s
emergence as a model of state-centred social democratic reformism during
the same period, Quebec’s Quiet Revolution between the 1960s and the
1980s, and the emergence of the neoliberal synthesis in the 1980s and 1990s
in response to the collapse of the Keynesian consensus and subsequent polit-
ical, economic, and regional conflicts (Greenspon & Wilson-Smith, 1996;
Hale, 2006a, pp. 130–169; Milne, 1986).
Debates about Canada’s political economy are also heavily influenced by
developments in the United States. To the extent that US economic poli-
cies are seen to be more successful in promoting prosperity (or social and
economic equality) than Canadian counterparts, they may prompt selective
emulation by Canadian political parties and interest groups. Major exam-

ples include price deregulation and lowering of barriers to market access in
major industries during the 1980s and the adoption of the Earned Income
Tax Credit for lower- and middle-income workers after 2000. To the extent
that the emulation of American policies is seen to threaten the interests or
agendas of particular Canadian parties or interest groups, they have become
the object of selective partisan or ideological assault (Hale, 2012, pp. 74–84;
Katzenstein & Keohane, 2007; Milke, 2008).
The neoliberal synthesis initiated by the Mulroney government after 1985,
refined and extended under the Chrétien, Martin, and Harper governments
between 1993 and 2015, and modified at the margins by the Trudeau govern-
ment since 2015, has involved several major elements, addressed here under
three broad headings. First, governments have accommodated increased trade
and investment flows by negotiating a series of major trade agreements and
making complementary changes to Canadian competition and other regula-
tory policies. These shifts have institutionalized Canada’s adaptation to evolv-
ing patterns of economic globalization. Historically, Canadians’ acceptance of
greater economic openness has varied with levels of prosperity or in response
to economic shocks or political disputes. But notwithstanding the rise of
economic populism and nationalism in the United States and some other
Western countries, retreat into economic isolationism is not a serious option
in Canadian politics, however tempting it may sometimes look to politicians
attempting to prop up favoured or threatened sectors. If anything, the elec-
tion of Trump’s largely protectionist administration in 2016 has strengthened
Canadians’ recognition of the benefits of stable trade agreements in North
America and elsewhere (Nanos Research, 2017a).
Second, both the federal and, intermittently, most provincial governments
have sought to achieve greater sustainability in their fiscal and tax policies
and spending priorities to facilitate adaptation to continuing economic and
social changes, not least shifting patterns of international competition and an
aging population (MacKinnon, 2003; Martin, 2009, pp. 130–53). During the
1990s, governments came to emphasize the elimination of chronic budget
deficits, while usually shifting resources toward the targeting of income
support measures to those in greatest need and increasing incentives for
workforce engagement (Department of Finance Canada, 1994; Hale, 2001).
Ottawa’s return to budgetary surpluses after 1998 resulted in the balancing
of tax reductions, new spending measures, public debt reduction, along with
the refinancing of the Canada and Quebec Pension Plan to offset rising costs
for an aging population.
Most provinces maintained disciplined fiscal policies in the 2000s, ena-
bling several provinces to run sustained deficits during and after the 2008–09
recession without incurring fiscal crises (Kodolov & Hale, 2016). Sustained
declines in energy, resource prices, and royalty revenues after 2014 have pro-
voked very different policy responses across provinces. Alberta elected its
first NDP government in 2015 and has opted to run substantial, prolonged
deficits, attempting to cushion the blow through expanded government
transfers. Newfoundland and Labrador’s Liberal government, also elected in
2015, responded to record deficits with unprecedented tax increases and con-
straints in public spending. The Trudeau government has sought to accom-
modate these different levels of regional vulnerability to ongoing market and
policy shifts by allowing provinces to keep the revenues from planned fed-
eral carbon taxes and to vary their application across jurisdictions. However,
it remains to be seen whether such policies will continue to be economically
viable given the evolving fiscal and economic policies of Canada’s major
international competitors, especially the United States.
The third major set of initiatives has involved efforts to assist businesses and
individuals to adapt to the changing nature of global economic activity through
measures that support increased levels of education, access to skills training, and
the reduction of barriers to labour mobility within Canada.These activities have
been complemented by ongoing changes in immigration policies intended to
focus on the recruitment of economic-class immigrants (see Table 13.4), even
if recent immigrants have experienced declining economic and labour market
outcomes in recent years (Banting, 2012). These shifts have encouraged more
favourable views of immigration and cultural diversity within Canadian society
as all major national political parties compete actively for the support of substan-
tial immigrant communities, especially in larger cities in which foreign-born
Canadians account for between 20 and 60 per cent of the total population.
Table 13.4 Distribution of Permanent Immigrants by Category

(1988–2015)
1988 2000 2012 2015
Number of new permanent immigrants 161,600 227,500 257,900 271,800
% of Canada’s population 0.6 0.74 0.66 0.76
% of permanent immigrants by category
Family class 31.8 26.6 25.2 24.8
Economic class 49.7 59.9 62.5 62.7
Refugees 16.6 13.2 9 11.8
Other 2 0.2 3.5 1.4
Source: Immigration, Refugees, and Citizenship Canada (2017). Facts and figures: Immigration over-
view (2015): Permanent and temporary residents. Ottawa, ON: Immigration, Refugees and Citizen-
ship Canada. Retrieved from http://www.cic.gc.ca/english/resources/statistics/menu-fact.asp
However, even though there is broad support for a mutual benefit

approach to immigration policies among Canadians, it is contingent on two
major factors. First, public opinion is likely to react viscerally against per-
ceptions that employers are using foreign workers, especially if admitted as
temporary workers, to displace Canadians (of whatever origin) in particular
workplaces or to justify payment of below-market wages. Second, inconsist-
ent application or end-running of immigration or workplace rules is likely
to trigger strong criticism from Canadians who perceive the application of a
double standard, especially if it is seen to work to the disadvantage of people
like themselves.
Huge administrative backlogs during the 2000s led the federal gov-
ernment to encourage employers to use the Temporary Foreign Worker
Program (TFWP) to address the shortage of qualified employees, some-
times as a prelude to securing permanent resident status (Solberg, 2006).
However, reports of employer abuses prompted an aggressive, if poorly tar-
geted, crack-down by the Harper government in 2014, resulting in a 38 per
cent reduction in TFW permit holders (Bailey, Cryderman, & Curry, 2014;
Carman, 2014a, 2014b; Gross, 2014; Research and Evaluation Branch, 2017).
Regional and sectoral diversity in labour markets, employer practices and,
necessarily, government policies make domestic skills training and immi-
gration policies among the most difficult policy fields to adapt to evolving
social and workplace realities. These challenges apply not just to Canada,
but to neighbouring jurisdictions as well, as companies and public-sector
organizations, including universities and hospitals, compete for skilled work-
ers and professionals.
Whatever the rhetoric of the new economy employed by governments
and policy experts, Canada’s economy has evolved very differently from the
ways anticipated in the 1990s, affected by global shifts in economic activity,
the commodity boom of the 2000s, major exchange-rate shifts, and substan-
tial shifts in regional and sectoral distributions of economic activity. These
priorities reflect the heavily technocratic influence of public servants and
external policy experts. However, to be politically sustainable, they must
meet a variety of public expectations, including rising levels of employment
(despite periodic recessions), increased pre-tax and after-tax living standards,
and a reasonable prospect of sharing in the opportunities and benefits arising
from ongoing economic change.
In doing so, they must generate more effective outcomes (or the pros-
pect of such outcomes) than major ideological competitors or find ways of
co-opting elements of these ideologies within neoliberal policy trends. Two
major competitors are various forms of sectoral and/or state corporatism
and environmentalism. A third approach to achieving popular legitimation
is to incorporate the rhetoric of distributive politics within neoliberal goals,

selectively adopting a populist style to facilitate broad public acceptance of
essentially technocratic policies.
Alternatives to Neoliberalism: Corporatism
Critics of market-oriented policies often look to corporatism as an alterna-

tive approach to developing public policies capable of harmonizing the inter-
ests of competing social groups. In Canada, corporatism has often taken one
or more of three broad forms. Most frequent is the use of sector strategies
involving policy inputs from key stakeholders in major economic sectors,
characterized by high levels of corporate concentration and the coordina-
tion of various regulatory measures, incentives, and subsidies intended to
facilitate their adaptation to changing economic circumstances (Ciuriak
& Curtis, 2013). Most such policies have limited political visibility outside
major stakeholder groups. Given that they are often stigmatized by the lib-
ertarian right and parts of the social democratic left as corporate welfare
(McMahon, 2014), this limited transparency is more politically convenient
for governments than attempting to justify the outcomes of such policies,
which often privilege entrenched economic and bureaucratic players. Such
handouts are more frequently ad hoc gestures made to compete with other
jurisdictions in attracting investment, propping up declining economic sec-
tors, or generating short-term political benefits than they are the product of
coherent corporatist strategies.
Popular support for sectoral corporatism, and the business subsidies (or,
sometimes, bailouts) with which it is often associated, is usually limited
to circumstances in which a major provincial industry is threatened by
economic shock or structural change resulting in large-scale plant closures
and/or job losses. Prominent examples include the 2009 federal-Ontario
bailout of bankrupt General Motors and Chrysler in conjunction with
the Obama administration in the United States, BC’s effort to support the
forest industry’s reorientation toward Asian markets after the US housing
and financial crisis of 2007–09, Saskatchewan’s defence of its potash sec-
tor against a major foreign takeover and the possible break-up of its global
marketing cartel in 2010, and Quebec’s 2015 investment in struggling air-
craft manufacturer Bombardier.
Some provinces, most notably Quebec, have attempted to pursue more
broadly based corporatist strategies intended to build and support strong
regionally based entrepreneurial classes, financial sectors, and geographic
industry clusters with the potential to establish and maintain a compara-
tive advantage and stable patterns of employment. Such strategies are often
reinforced by strong “us-them” perspectives, ethnic or geographic, which

allow provincial governments to pose as champions of regional (and popu-
lar) interests against corporate and financial interests “from away.”
Provinces without the policy capacity to pursue effective corporatist
strategies often resort to populist appeals for greater government control
over outside interests. However, such approaches are rarely successful in
promoting broadly based economic development over the long term, even
though they allow governments to secure a greater share of economic rents
from resource development to support local public services during periods
of high commodity prices. The collapse of Newfoundland and Labrador’s
megaproject-driven economic strategy in 2015–16 is only the latest illustra-
tion of such policy failures.
National organizations such as the Canadian Labour Congress (CLC)
and think tanks such as the Canadian Centre for Policy Alternatives (CCPA)
have long advocated the development of a full-blown national industrial
strategy (e.g., Stanford, 2012) as an ideological alternative to the present eco-
nomic system, recalling similar debates in the 1970s. However, the sectoral
and geographic diversity and openness of Canada’s economy and the com-
peting interests of innumerable actors constantly adjusting to varied market
pressures create almost insuperable obstacles to the introduction of detailed
central-state coordination in the absence of a sustained economic crisis.
Most corporatist strategies fail the test of political legitimacy partly
because of the weakness of major interest groups as representative vehi-
cles for broadly based social interests and networks and partly because they
depend on a level of strategic and operational policy discipline that is hard
to achieve when politicians and major interest groups engage actively in
swapping favours through reciprocal rent seeking. Major horizontal busi-
ness organizations, whether representing big business, such as the Business
Council of Canada, small business, such as the Canadian Federation of Inde-
pendent Business (CFIB), or a mix of both, like Canadian and provincial
chambers of commerce, lack the mandates or cohesion necessary for the
sustained pursuit of corporatist approaches. Major organized labour federa-
tions usually represent a small proportion of private-sector workers, declin-
ing from 19.9 per cent in 1999 to 16.4 per cent in 2016 (see Table 13.5),
especially in service-sector firms.
Despite mergers that have created multisector unions including Unifor
and the United Steelworkers in recent years, they lack the capacity to pro-
vide effective worker representation except in sectors dominated by a small
number of large, capital-intensive firms. Employment growth in recent years
has been greatest in largely nonunionized service sectors, which are more
likely to be dominated by smaller firms (Morissette, Picot, & Lu, 2013).
Table 13.5 Unionization Rates by Sector (percentages)
Sector 1999 2008 2016

All employees 32.3 31.2 30.3
Goods-producing sectors 33.3 29.9 27.9
Services-providing sectors 23.8 24.4 24.6
Services (excluding health, education, public
administration) 7.8 7.8 7.1
Private sector 74.7 74.6 76.3
Public sector 19.9 17.8 16.1
Source: Statistics Canada. (2017a). Labour Force Survey estimates. CANSIM Table 282–0077.
Ottawa, ON.
Large numbers of Canadians remain skeptical about the capacity of

bureaucratic deals with large corporations or unions to provide outcomes
beneficial to the public at large, as opposed to members of the groups
involved, reflecting a mix of populist sentiments and realistic assessments of
special-interest politics. The greater the extent to which governments are
seen to cater to elite cartels of entrenched economic interests, including
those of unions, the more vulnerable they become to populist challenges
by political outsiders appealing to citizens where large elements of society
believe their interests have been ignored or discarded by conventional pro-
cesses of elite accommodation or bureaucratic policy management.
Alternatives to Neoliberalism: Populism(s)—Challenging

Elite Cartels
Historically, Canada’s political system has depended on political parties as

vehicles for building regionally and socially representative coalitions of inter-
ests within Parliament. The process of interest aggregation through political
parties is characterized by the accommodation of a cross section of elites
or leadership groups within society, with varying claims to represent geo-
graphic, economic, and class interests. Opposition parties appeal to groups
who believe their interests have been marginalized by the governing party,
until they can mobilize broad enough support to win an election.
During periods of unusual social or economic disruption, most nota-
bly during the early 1920s, 1960s, and 1990s, the leadership of the lead-
ing political parties (whether their labels or ideological leanings) have lost
touch with sufficiently large segments of their electorates to provoke the
emergence of populist political movements, outsider groups that challenge
the basic assumptions and structures of the political system and call for its
transformation. Such movements often claim to represent a undifferentiated

mass of “the people” in challenging the power of what they characterize
as unrepresentative and unresponsive elites. The agrarian and farmer-labour
movements of the 1920s reflected one such movement. Social Credit began
as a populist movement in Alberta in the 1930s, BC in the 1950s, and Que-
bec in the 1960s, although only the latter succeeded in preserving its anti-
establishment fervour, perhaps by virtue of never winning an election. The
Reform Party of the 1990s had (or chose) to shed much of its populist
message as it evolved into the Harper-led Conservatives of the 2000s. While
New Democrats have often adopted populist political styles in pursuit
of public office, successful social democratic governments have generally
focused on building state- and union-based counter-elites to sustain politi-
cally viable electoral coalitions.
Politicians with populist styles appeal directly to citizens with messages
that affirm the value and symbolic interests of ordinary citizens, often seek-
ing to establish direct contact with “the people” or provide leaders with
direct mandates. In recent decades, resulting changes in political processes
have included selective provisions for referenda and leadership elections
that ostensibly empower ordinary citizens (or party members) as opposed
to an elite or activist minority. By contrast, populist movements attempt to go
beyond procedural or stylistic reforms to change the structures of political
or economic activity to empower or benefit groups that they identify with
“the people,” usually at the expense of those privileged by existing political
or economic systems and discourses. Their success depends on appealing to,
and attracting, a sufficiently broad base of support to secure election, and
then to maintain that support long enough for structural changes to congeal
into the new status quo.
Populist movements thrive, as during the early 1990s, when large ele-
ments of society believe themselves to have been left behind by social and
economic change and existing political parties to be unresponsive to their
demands and aspirations. They frequently appeal to small producers (includ-
ing the self-employed) and/or unorganized workers who have been margin-
alized by existing patterns of elite accommodation or interest group politics,
particularly during times of economic and/or social disruption.
However, Canada’s geographic, economic, and ethnocultural diversity has
contained the emergence of broadly based populist movements in national,
as opposed to provincial, politics. This diversity makes it difficult to package
coherent appeals to outsider groups in different regions and social settings
with different political and economic cultures. Provincially based populist
movements are most likely to grow when a coalition of political and social
outsiders can be mobilized to challenge the real or perceived complacency
of provincial elites, particularly when the latter are seen to serve economic
interests from outside the province at the expense of its citizens. To avoid
such challenges, and sometimes to co-opt them, provincial political parties
adopt populist styles to appeal to a broad electorate, seeking to shift the
costs of economic or social adjustment to groups outside their province, and
sometimes to vulnerable and unpopular minorities within it.
However, most Canadian political parties of the centre-left and centre-right
have remained sensitive to the distributive implications of their policies since
the 1990s to avoid the emergence of antisystem political movements compa-
rable to those that elected Trump in 2016 and prompted England’s Brexit vote
to leave the European Union. More importantly, opposition parties have been
sensitive enough to the emergence of significant social groups who believe
themselves excluded from social recognition or accommodation of their aspi-
rations to provide political safety valves for such groups to diffuse public dis-
content and contain wholesale challenges to the political and economic order.
One major example of the adaptability of Canada’s political system has been its
response to the spread of environmental interest groups and movements.
Alternatives to Neoliberalism: Environmentalism(s)—

Complementing or Conflicting with Economic Goals?
Public opinion in Canada has become strongly supportive of integrating

environmental objectives with economic policy goals in recent decades,
forcing governments to acknowledge these objectives, if not always meeting
them to public satisfaction. The spectrum of environmentalist views ranges
from a conservationist ethic intended to support the preservation of park-
lands, wilderness areas, and wildlife and aquatic habitat, often with a view to
continued enjoyment, including sustainable harvesting by humans, through
the spectrum of human welfare ecology, which focuses on the intergen-
erational sustainability of human and natural ecosystems, to deep ecology
and other forms of ecocentrism, which advocate giving ecosystem preser-
vation and species diversity clear priority over economic development or
other human priorities (McKenzie, 2002, pp. 13–41).
Canadian governments are most assertive in engaging environmental con-
cerns when human health and safety are substantially and demonstrably at risk.
Such initiatives are most visible in the management and handling of chemi-
cals, vehicle emissions standards, and the spread of “polluter-pays” principles
to provide incentives for private- and public-sector firms to improve their
environmental engineering or bear the cost of remediation and clean up for
pollution-generating activities. Such “top-down” initiatives have often been a
response, if a belated one, to incidents in which bureaucratic and/or corporate
complacency, sometimes reinforced by concerns over job creation and preser-

vation, have led to serious negative pollution-related health effects on citizens.
Environmental damage over wide areas resulting from industrial activ-
ity and inadequate regulation of resource industries (including the fishing
industry) has also provided an impetus for expanded regulations. However,
the nature of and economic trade-offs associated with particular approaches
to regulation are often contested by business and other economic stake-
holders, especially when they disadvantage them vis-à-vis competitors in
neighbouring jurisdictions. In recent years, these calculations have been
complicated by the legal rights of First Nations to consultation over pro-
spective impacts of resource development projects on land claims, traditional
lifestyles, environmental issues, and possibilities of sharing in the economic
benefits of such developments (Newman, 2014a, 2014b).
Growing urbanization, rising living standards, and the declining share of
Canadians employed in extractive resource industries in most provinces have
all contributed to a mainstreaming of environmental concerns, although
the political intensity of such concerns varies significantly across provinces.
Green political movements have taken different forms and exercised dif-
ferent levels of political influence in different parts of Canada, sometimes
through independent political parties, notably in BC, but more often by
seeking to become central to the calculations of mainstream political parties.
The influence of postmaterialist values on energy and resource development
is probably greatest in BC and Quebec, facilitated by their greater reliance
for power generation on hydro electricity rather than fossil fuel (Brown,
2012; Centre de Recherche de l’Opinion Publique, 2013).
Public opinion is most favourable to resource development and infrastruc-
ture projects that generate significant regional economic benefits, subject to the
need for consultation with local (including indigenous) communities. They are
least favourable when developments are seen to benefit outside interests, particu-
larly if at a geographic or cultural distance, and especially if creating significant
environmental risks without corresponding economic benefits (Mason, 2012).
Political conflict over environmental goals is likely to be greatest when
these goals conflict with the economic security of a significant number of
single-industry communities. Many corporations have become increasingly
sensitive to the need to incorporate environmental goals and safeguards, as
well as respect for environmental and other concerns of local communities,
into their business plans to maintain a “social licence” for major resource
development (Gattinger, 2012). Businesses also pursue environmental regu-
lations to encourage the maintenance of a level competitive playing field
or to enhance their influence over the content and timing of such regula-
tions on their businesses (D. Macdonald, 2002).The public credibility of such
measures is enhanced if they are developed proactively and in consultation

with communities and other stakeholders, rather than in response to envi-
ronmental push-back (Hale & Belanger, 2015).
With adequate planning and cross-sectoral policy coordination, quality of
life factors associated with high environmental standards need not conflict
with broad economic goals. However, a major test of popular environmental
commitment is whether a critical mass of citizens is willing to accept reduc-
tions in their own living standards as opposed to a “vicarious sacrifice” of
other people’s incomes or the viability of industries in other geographic
areas to meet particular environmental goals.
Such issues become rather more critical when it comes to matters, such as
climate change, with implications that transcend local, regional, and national
jurisdictions. Most Canadians continue to favour in principle measures to
mitigate the medium- and long-term effects of climate change. However,
support for actual initiatives has been uneven, depending on the distribu-
tive effects of particular measures and their timing within the business and
electoral cycles (Brown, 2012). Targeted, industry-specific measures such as
paralleling changes to American automotive emissions and fuel efficiency
standards have been uncontroversial, given the highly integrated nature of
the industry across national borders.
Provinces heavily reliant on hydro-electric power have been more open
to substantive policies to reduce greenhouse gas (GHG) emissions than
those more reliant on fossil fuels for power generation (Brown, 2012). How-
ever, public support for particular proposals often hinges on how interests
are balanced in different settings and whether proposed alternatives turn
out to be deliverable and economically viable, particularly in their effects
on living standards and income distribution. For example, the BC govern-
ment’s introduction of a general carbon tax in 2008, offset by reductions
in business and personal taxes, was modestly controversial. However, it was
temporarily offset by the unanticipated collapse of oil prices during the
2008–09 recession, allowing the Campbell government to win re-election
and citizens to adapt to the new tax. Alberta’s 2016 conversion of a producer
levy into a broad carbon tax benefited similarly from oil price fluctuations.
But voters rejected federal Liberal leader Stéphane Dion’s 2008 election
proposal to phase in a new federal carbon tax, offset by personal and cor-
porate income tax reduction combined with a rollback of the Harper gov-
ernment’s GST cuts, enabling the federal Conservatives to win re-election
with an enlarged plurality.
Trudeau’s Liberal government elected in 2015 took a different approach.
While introducing a national carbon tax rising to $50/tonne in 2022 (com-
pared with $30/tonne in BC and Alberta), he allowed provinces to take
different fiscal approaches based on regional economic differences and to

keep carbon revenues raised within each province, thus avoiding the politi-
cally divisive spectre of redistribution across regions. Trudeau also mitigated
the economic effects of these changes on Western Canadian energy produc-
ers (and their provincial governments) by authorizing two new export pipe-
lines in late 2016, effectively recognizing the political and regional trade-offs
embedded in climate change policies.
Influential environmental tax experts such as Mark Jaccard have sug-
gested that meeting Canada’s international GHG reduction commitments
could require carbon tax increases to about $200/tonne, a level that most
observers view as economically damaging and politically suicidal, especially
in the absence of comparable measures in the United States (Jaccard, Hein,
& Vass, 2016). Instead, he suggests less economically efficient but more politi-
cally viable approaches such as regulatory changes to reduce GHG emissions
by industries and consumers in major economic sectors, effectively burying
the costs of such changes in producer prices and providing incentives for
technological innovation and to change patterns of energy consumption.
However, such initiatives rely on technically competent, politically sus-
tainable policy design. Canada’s constitutional division of powers, combined
with citizens’ expectations of political accountability, place the main respon-
sibility for many policy outcomes on provincial governments. Political
dynamics vary widely, reflecting existing sources of supply and the influence
of major industries and environmental interest groups, and the extent to
which business interests are locally based or dominated by outside interests.
Activists in Quebec, New Brunswick, and Nova Scotia have been successful
in persuading those provinces’ governments to place moratoria on natural gas
exploration pending studies of environmental implications of hydraulic frac-
turing for groundwater. Oil- and gas-sector interests have limited economic
footprints in each province (except for Irving interests in New Brunswick) and
are generally controlled by outside economic forces, limiting their influence
with provincial governments. Similar attitudes have affected public responses
to proposed pipeline developments crossing Quebec and New Brunswick,
despite the greater risks of oil shipments by rail, reflected in the 2013 Lac
Mégantic tragedy in which a train explosion killed 55 people, leading to pro-
gressively tighter safety regulations in both Canada and the United States.
Ontario voters have cooled to the province’s efforts to increase its large-
scale renewable energy-generating capacity while phasing out coal-fired
power generation after the rapid escalation of electricity prices and strong
resistance to wind farm locations proposed in many rural areas (Blackwell,
2011; Butler, 2011; McKenna, 2013b). A series of provincial policy changes,
characterized by ad hoc political decision making and what an auditor
general’s report named as the “breakdown” of the power-planning process,

left Ontario with significant overcapacity, Canada’s highest residential power
bills, and economically uncompetitive rates for many industries (Morrow &
Cardoso, 2017; Oschinski, Chan, & Kobrinsky, 2014; Office of the Auditor
General of Ontario, 2015), a politically toxic legacy for future governments.
Responding to public and First Nations’ opposition to the proposed
Northern Gateway pipeline, the BC Liberal government sought to impose
rigorous conditions on new pipeline development before the 2013 election.
However, when BC NDP leader Adrian Dix announced during the cam-
paign that he would veto expansion of the existing Trans Mountain pipeline,
the backlash from construction workers and swing voters concerned that
conditional-development policies would turn into anti-development policies
helped a 20-point NDP lead in the polls to evaporate, leading to the Liberals’
unanticipated re-election (Hoekstra, 2013). The Trudeau government’s sub-
sequent conditional approval of the Trans Mountain expansion in 2016 also
addressed provincial demands for significant federal investments in oil-spill
prevention and response capacities. It remains to be seen whether the NDP
minority government that took office in 2017, with Green support, will suc-
ceed in blocking (rather than just delaying) the Trans Mountain expansion.
The integration of environmental objectives with economic development
initiatives, particularly in the resource sector, remains vital to legitimizing
policy development, particularly when economic benefits from energy and
resource development are geographically detached from potential environ-
mental risks and costs (Doern & Gattinger, 2003), or more stringent Canadian
regulations, especially those related to climate change, become dependent on
parallel US actions to avoid placing Canadian firms and workers at a compet-
itive disadvantage. Distributive effects, whether regional or socioeconomic,
remain critical to the cost-benefit calculations of citizens and interest groups,
often feeding into the broader populist discourse of Canadian politics.
Public expectations of environmental responsibility have evolved to the point
that both federal and provincial government regulators are likely to enforce pre-
ventive and corrective regulations on businesses whose actions or systems impose
significant actual or probable environmental damages with significant risks to
human, animal, or aquatic health. Many industries have developed sophisticated
environmental and emergency mitigation and response capacities. On climate
change issues, politics, governments, and business leaders are expected to pay
lip service to the risks of climate change, with governments providing varying
degree of regulatory guidance in such areas. However, public support for such
initiatives is usually dependent on the extent to which governments limit their
direct costs to citizens, for example, by offsetting tax cuts as in BC or disguising
regulatory costs imposed on businesses. In the absence of extensive action by
the United States that lowers competitive risks to investment and employment
in Canada, governmental actions in these areas are likely to be incremental and
governed as much by their distributive as environmental effects.
Inequality, Insecurity, and Opportunity
Debates over the nature and sources of inequality have long been a feature
of Canadian political life. They have been central to the emergence and
persistent of democratic socialist and social democratic discourse in Canada.
These forces have also influenced agrarian and populist movements in vari-
ous regions of Canada, as well as a range of public discourses highly criti-
cal of various forms of special privilege perceived to undermine equality
of opportunity or facilitate abuses of political and economic power. Dur-
ing most of the twentieth century, the regional dimension of inequality has
shaped political competition. These debates inspired Canada’s post-World
War II system of farm-support programs, the regional dimensions of (Un)
Employment Insurance, and Canada’s progressive fiscal decentralization
since the 1960s. Identifying ways to address these concerns—and be seen to
address them—while promoting economic growth and facilitating Canada’s
adaptation to changing economic circumstances has been a central challenge
in maintaining public support for federal and provincial economic policies,
and indeed, the legitimacy of broader political and economic systems.
Although economic inequality grew rapidly by numerous benchmarks
between the early 1980s and the late 1990s, debates over inequality were often
subsumed in debates over constitutional reform and national unity, trade lib-
eralization, changes to major social programs, and deficit reduction. A major
priority of the Chrétien-Martin governments after 1998, inherited by the
Harper government in 2006, was to strike a balance among debt reduction,
reductions in personal and business taxation, increased spending on core social
programs, and targeting a substantial share of tax reductions and social spend-
ing to lower- and middle-income families and individuals (Martin, 2009),
while increasing spending incrementally on a series of measures intended to
facilitate Canada’s adaptation to the emerging knowledge-based economy.
The contemporary debate over income inequality in Canada has grown
out of controversies in the United States, notably the Occupy Wall Street
and Tea Party movements, which developed out of the 2008–09 financial
crisis and recession. The widespread financial irresponsibility and regulatory
negligence that contributed to these events served as catalysts for these move-
ments. However, the growing recognition that most Americans’ incomes
had stagnated or declined on average since the 1990s while income growth
became concentrated in the top 5 per cent of income earners reinforced
underlying political sentiments. Median US household income fell 8.3 per cent
between 2007 and 2012 after inflation (Slater, 2013). Despite subsequent
increases, median US household income in 2015 remained 2.4 per cent below
its 1999 peak, contributing significantly to the populist revolts, left and right,
that reinforced ideological polarization and Trump’s election in 2016.
Ironically, some government policies aimed at stimulating economic
activity have reinforced greater inequality. The record low interest rates used
by central banks in most industrial countries to after 2009 contributed to
record growth in stock market levels and real estate prices in major cit-
ies in both the United States and Canada. This increase benefited people
with significant personal savings (primarily older, more affluent house-
holds), employment pensions (public-sector employees, employees of larger
corporations), and existing homeowners in fast growing areas. However,
Canadian income security policies have been quite successful in reducing pov-
erty among older Canadians, while providing opportunities for middle- and
upper-income Canadians to save for their retirements.
Income trends have been quite different in Canada. After a long period of
stagnant and declining personal and household incomes and growing income
inequality in 1981–98, Canadians benefited from sustained increases in household
income between 1998 and 2014. Table 13.6 summarizes changes in total pre-tax
median household incomes, including government transfers, between 1976 and
2014, along with shifts in related measurements of inequality.Although household
incomes fell 9 per cent on average after inflation between 1976 and 1998, increas-
ing in only one province, they increased 14 per cent between 1998 and 2010, and
an additional 5.1 per cent in 2010–14. Levels of household income inequality
declined slightly overall between 1998 and 2014, with increases in three prov-
inces. After increasing slightly between 1998 and 2010, overall levels of household
income inequality had subsided to 1998 levels by 2014, with greater variations
across provinces (Alexander & Fong, 2012a, 2012b; Hale, 2017b; Sharpe & Cape-
luck, 2012; Statistics Canada, 2016e).These data precede the effects of falling com-
modity prices and shifts in regional economic activity since 2014.
Key factors supporting these outcomes included a sustained boom in
Canada’s resource sectors, especially in Western Canada and Newfoundland
and Labrador, which supported rapid growth in industrial and construc-
tion employment, and solid public finances, which assisted Canada’s rapid
recovery from the 2008–09 recession. However, ongoing technological
change, rising exchange rates, and rising energy costs undercut economic
and income growth in other regions, especially Ontario.
Levels of inequality vary across the country depending on changes in over-
all skill requirements for employment, levels of education, and wage rates in
different industry sectors and types of employment. Other significant factors
Table 13.6 Total Income and Inequality in Canada (Total Income:

market income + government transfers, adjusted for household size, before
taxes)
Percentage changes in real Gini coefficient
median household income (higher = greater inequality)
1976–98 1998–2010 2010–14 1976 1998 2010 2014
Canada −9 14 5.1 0.330 0.356 0.356 0.352
Nfld & Lab −8 20 12.6 0.337 0.337 0.350 0.333
PEI 6 22 4.5 0.345 0.301 0.294 0.316
Nova Scotia −5 19 3.5 0.292 0.337 0.333 0.333
New
−11 14 3.5 0.299 0.328 0.317 0.316
Brunswick
Quebec −18 14 4.9 0.325 0.349 0.332 0.33
Ontario −6 10 1.9 0.325 0.357 0.363 0.358
Manitoba 0 17 0.7 0.321 0.341 0.339 0.338
Saskatchewan −8 31 8.8 0.340 0.342 0.353 0.347
Alberta −6 32 9.5 0.333 0.370 0.359 0.353
BC −18 9 9.7 0.325 0.343 0.357 0.346
Source: Alexander, C., & Fong, F. (2012a). Income and income inequality: A tale of two coun-
tries. Toronto, ON: TD Economics, pp. 3, 5; Statistics Canada. (2016). CANSIM Tables 111–0009,
206–0033, 326–0001.
include levels of unionization, cumulative levels and progressivity of taxation,

and family commitments (Burleton, Gulati, McDonald, & Scarfone, 2013;
Fortin et al., 2012; Morissette et al., 2013). Employment growth in Canada
has varied significantly by region, and by large urban, smaller urban, and small
town/rural areas within regions. Similarly, recovery from the 2008–09 reces-
sion varied significantly across provinces, reflecting both regional differences
in economic structures and broad political and policy differences.
In sharp contrast to the United States, where job polarization has led to
the growth of high- and low-skilled (and paid) employment but a decline
in medium-skill jobs, spurring debates over the hollowing out of the middle
class, job creation in Canada has been tilted more in the direction of high-
skilled employment, if with significant regional variations (Burleton et al., 2013,
pp. 11–12). The effects of automation have differed widely across regions and
economic sectors, creating new high-skilled (and waged) employment in some
sectors but also displacing many in lower- and mid-skilled employment. At the
same time, regionalized skill shortages contributed to significantly higher wages
for workers in resource and construction sectors, especially since 2005 and in
Western Canada (Morissette et al., 2013, pp. 28–29). Higher education levels,
employment rates, and shifts in occupations held by women have also reduced
gender-based wage gaps and income inequality among individuals more gen-
erally (Fortin et al., 2012, pp. 133–36; Morissette et al., 2013, pp. 12–17). Policy
developments since the 1990s, including more generous parental leave provi-
sions and the gradual rise of minimum wages, have also reinforced these trends.
However, the greater likelihood of people with higher education levels and
income potential marrying one another has contributed to greater inequality
among households (Fortin et al., 2012, pp. 134–136).
These factors reflect not only government policies, but the nature and
distribution of business and family activities and the choices and trade-offs of
millions of Canadians, which vary significantly across and within provinces.
Other offsetting factors contributing to greater overall inequality include
a growing number of temporary and contract positions (increasing from
11.5 per cent in 2003 to about 14 per cent in 2013), falling private-sector
unionization rates, and a steady decline in manufacturing employment,
strongly reinforced by the 2008–09 recession. However, economic fluctuations
and technological change contribute to widespread, often significant change,
underlying major differences between private-sector employment, whether in
large or small firms, and much of the broader public sector, although the lat-
ter’s contract workers face similar patterns of instability and insecurity unless
and until they can secure full-time positions. A 2017 research study suggests
that as much as 35 per cent of the Canadian labour force may be vulnerable to
the employment effects of automation. However, the economic and political
effects of these changes depend on the extent to which they are incremental,
spread out over an extended period, or concentrated in short periods in par-
ticular sectors or regions (Oschinski & Wyonch, 2017).
Economic studies have shown limited growth in full-time employment
with the decline in commodities production, with most employment growth
in part-time positions. These shifts reflect several factors, ranging from many
employers’ preference for greater scheduling flexibility for employees, some
from social and demographic aging, challenges of work-life balance, greater
caregiving responsibilities for older family members, and growing propor-
tions of older workers more inclined to part-time opportunities. They also
reflect greater flexibility in Employment Insurance rules enabling workers
to accept up to 50 per cent of their EI payments for every dollar earned in
wages, up to 90 per cent of previous earnings (Caranci & Marple, 2017).
Technological change has increased demand for high-skilled workers but
has reduced demand for low-skilled workers. “Trade in goods” has increas-
ingly given way to “trade in tasks” as functions of increasingly dispersed sup-
ply chains, resulting in the offshoring of much routine and labour-intensive
work. In some sectors, wage gaps have grown between older and younger
workers, especially those with limited education (Burleton et al., 2013,

pp. 14–16; Oschinski et al., 2014, pp. 10–25). Although the resource boom
of 2000–14 offset these trends in several provinces, its abrupt end in 2015,
combined with rising protectionist sentiments in the United States, rein-
forced risks of similar social polarization in Canada unless effective coopera-
tion between businesses, governments, and, where relevant, unions, facilitate
worker adjustments to new economic and employment patterns.
The cross-cutting nature of inequality is also visible in the relation-
ship between urbanization and inequality. Canada’s large (>1 million) and
medium-sized (100,000–1 million population) metropolitan areas typically
have higher median family incomes than the provinces in which they are
located (Statistics Canada, 2016l). However, as major cities attract substantially
larger numbers of managerial, professional, and high-income occupations, as
well as immigrants and internal migrants, including indigenous peoples, they
are also characterized by high levels of income inequality. Moreover, stud-
ies suggest rising levels of neighbourhood polarization between upper- and
lower-income neighbourhoods can reinforce established patterns of local-
ized inequality (Burleton & Gulati, 2013; Walks, 2013).
Government policies can mitigate social and income inequality, although
some approaches are more likely to reinforce broader opportunities and
economic growth than others. Government support for access to higher
education and technical skills training remain critical to enable greater
productivity in manufacturing and the business and service sectors. Effec-
tive employer engagement is also vital to the success of such efforts. Net
employment growth since 1990 has steadily favoured postsecondary gradu-
ates, including workers with formal apprenticeship training (see Figure 13.1).
Persistent mismatches remain between among employee qualifications,
job requirements, and available employment, although available data sug-
gest significant region- and occupation-specific variations (Burleton et al.,
2013, pp. 26–33). The OECD estimates that about one-third of Canadians
with postsecondary credentials were overqualified for their jobs in 2009–10,
including 60 per cent of new migrants. However, graduates’ unemployment
rates remain below the national average and earnings differentials are mini-
mal within 10 years of graduation (Burleton et al., 2013, pp. 21–23). Measures
to help new Canadians improve their language skills and establish credential
equivalence could reduce barriers to economic opportunity.
Tax and transfer policies also play a significant role in mitigating inequal-
ity.The Chrétien government significantly expanded the national child ben-
efit targeted at low- and middle-income working parents, after balancing the
federal budget in 1998. Poverty among seniors, particularly the single elderly,
has been substantially reduced. However, Lynch and Miske (2013) note that
Figure 13.1 Employment Growth by Level of Education, Canada
index. 1990 = 100

300
University degree
250
200 Postsecondary
certificate or diploma
150
High school or some
postsecondary
100
50
Less than high school
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: Department of Finance Canada. (2014). Jobs report: The state of the Canadian labour
market. Ottawa, ON: Department of Finance Canada.
“the reduction in inequality due to Canada’s progressive transfer and tax sys-
tem (28%) is only slightly greater than that of the United States (24%).” The
main factor is much lower inequality of market incomes in Canada, “lower
than all other G7 countries, including Germany and France.” The ratio of
disposable incomes between the top and bottom 10 per cent of Canadians
(8.9) was lower than it was in 2000, and 56 per cent of the comparable US
ratio (15.9; Lynch & Miske, 2013).
These distinctions mask significant geographic and racial differences in
both countries, reinforced by major differences in educational attainment
and unemployment. Levels of income inequality are greatest in large met-
ropolitan areas, particularly those with large financial sectors (e.g., Toronto,
New York, San Francisco), as well as rural areas dependent on resource
sectors in comparative decline or labour-intensive agriculture. In Canada,
medium-sized cities (100,000–300,000) with declining manufacturing sec-
tors have also experienced growing levels of inequality (Grant & Curry,
2013; Kotkin, 2014; Walks, 2013). Unemployment levels for urban indig-
enous, recent immigrants, people with disabilities, and people with high
school education (or less) remain substantially above the national average
in Canada, reinforcing cycles of social and economic disadvantage (Depart-
ment of Finance Canada, 2014a, p. 19). However, these distinctions reflect
long-standing social challenges that may be more amenable to carefully tar-

geted and sustained policy responses, rather than requiring major changes
to Canada’s economic system.
Conclusion
Canada’s political and economic systems have proven remarkably resilient

compared to those of many other industrial systems since the financial cri-
sis of 2008–09. Although growth in levels and quality of employment has
slowed and household debt levels, partly driven by rising housing costs in
major cities, have risen sharply, Canadians’ overall living standards have not
declined—although differences across regions remain substantial.
Canada’s decentralized political and economic systems have proven
adaptable to these challenges, also providing a safety valve for public
responses to policy failures or perceptions that political and economic elites
are out of touch. Federal policy priorities have sought to balance both
growth-oriented and distributive politics under successive governments, if
with different emphases and using different policy tools. Decentralization
has allowed for varied responses to regionally specific economic challenges,
avoiding a one-size-fits-all approach almost sure to fail. As a result, Canada
has avoided the levels of ideological polarization, partisan gridlock, and social
polarization that have fostered the growth of polarizing populist movements
in the United States and other Western industrial countries.
Some areas of Canada have experienced trends similar to the “secular
stagnation” faced by the European Union and, to a lesser degree by the
United States (Stelter, 2013; Summers, 2013), especially small industrial cities
in Central Canada hard hit by the restructuring of manufacturing industries
and small towns and rural areas left behind by the commodities boom.
Slow economic growth in Central and Atlantic Canada contributed to a
change of government in the 2015 federal election. However, the increasingly
dispersed nature of political and economic power that has contributed to a broad
political culture of incremental policy change since the late 1990s suggests that
while Canadian public opinion is more open to governmental activism than
in the recent past, such activism is more likely to be targeted for political effect
than to institute major changes to Canada’s economic system. Ongoing upheav-
als in the United States and Europe underline the importance of governments
maintaining enough fiscal and policy flexibility to adapt to changes driven from
outside Canada, which are largely beyond the control of its governments.
At a time of growing social fragmentation, both government and business
leaders, whether national, provincial, or local, need to recognize the human
dimensions of their policy choices, engaging citizens, customers, workers, and
stakeholders who perceive or recognize that their basic interests, and sometimes
values, are threatened by outside forces beyond their control. Recognizing these
realities is central to the capacity of businesses, whatever their size or ownership
structure, to maintain public confidence in their activities and to avoid adver-
sarial and counterproductive approaches to government regulation. Failure to
do so runs sizeable risks to the legitimacy of economic and political systems.
Conservationism National majoritarianism

Deep ecology Normative legitimacy
Human welfare ecology Performance legitimacy
Median Populism
1. Canada’s economic, social, and cultural diversity requires successful po-

litical leaders to pursue a somewhat populist style to appeal to ordinary
citizens, but this is a barrier to the political success of national (as op-
posed to provincial) populist movements. Discuss.
2. How have trade-offs between promoting economic growth and other social
priorities affected debates over the relationship between economic develop-
ment, especially in energy and resource sectors, and environmental protec-
tion? Why does the nature of these debates differ across Canada’s regions?
3. How have Canadian governments attempted to balance the promotion
of economic development and the widespread distribution of its ben-
efits? How do rapid changes in the nature and distribution of economic
activities across Canada complicate these efforts?
Burleton, D., Gulati, S., McDonald, C., & Scarfone, S. (2013). Jobs in Canada: What,
where, and for whom? Toronto, ON: TD Economics.
Department of Finance Canada. (2014). Jobs report: The state of the Canadian labour
market. Ottawa, ON: Department of Finance Canada.
Cotter, A. (2015). Public confidence in Canadian institutions: Results from the General Social
Survey. Cat. # 89–652-X. Ottawa, ON: Statistics Canada.
Fortin, N., Green, D.A., Lemieux, T., Milligan, K., & Riddell, W.C. (2012). Canadian
inequality: Recent developments and policy options, Canadian Public Policy,
38(2), 121–145.
Jaccard, M., Hein, M., & Vass, T. (2016). Is win-win possible? Can Canada’s
government achieve its Paris commitment … and get re-elected? Burnaby, BC: School
of Resource and Environmental Management.
Glossary
Accumulation: the process of amassing wealth or property, whether by individuals

or organizations, including the state, capable of generating income and
supporting other economic activities. [1]
Aggregate demand: a country’s overall consumption of goods and services within
a particular time period (e.g., one year). May be affected by fiscal and monetary
policies. [3]
Attentive actors: individuals and organizations that function at the margins of
a policy community or press but whose influence and support may become
important in the event of major disputes within or among the subgovernment
or major stakeholders. [10]
Automatic stabilizers: policies that have the effect of automatically contributing to
the growth of overall purchasing power (see also aggregate demand) within
the economy by increasing the income available to individuals or the cash
flow available to businesses during economic downturns without discretionary
actions by governments. Conversely, policies may have the effect of increasing
levels of taxation or reducing income transfers to individuals during periods of
above-average growth, thus constraining levels of economic activity. [3]
Benchmarking: formal, documented comparisons of outcomes or performance
of particular products, services, or governmental jurisdictions with standard or
similar measurements of their peers; intended to identify potential improvements
in or progress toward achievement of performance or policy objectives [3]
Benefit-related tax: taxes that are levied directly or roughly in proportion to
the cost of particular services provided to particular businesses or individuals.
Examples include social insurance programs substantially designed on insurance
principles (e.g., workers’ compensation), or gasoline and other “road” taxes
linked to use of road-related infrastructure. [3]
Broadly based (or comprehensive) association: an organization representing
a broad cross section of businesses from a wide range of industry sectors. [10]
Business liberalism: a political outlook committed to fostering private enterprise
and a favourable business climate while accommodating competing interests in
government policies to promote political and social stability. [2]
Caisse de dépôt et placement: the Quebec agency responsible for investment of Quebec
Pension Plan (Régie des Rentes) and other Quebec investment funds, valued at $270
billion in 2016; has dual mandate to support growth of Quebec-based businesses and
generate long-term returns through domestic and international investments in real
estate, infrastructure, private equity, and public markets. [6, 7]
Canada Pension Plan Investment Board (CPPIB): the crown corporation
responsible for managing investments on behalf of the Canada Pension
Plan. [9, 12]
Canada-US Free Trade Agreement (CUSFTA): comprehensive trade agreement
negotiated between the United States and Canada in 1986–88 intended to
secure Canadian access to US markets and reduce barriers to bilateral trade and
investment. Later extended to include Mexico (see also NAFTA). [2, 4, 8]
371
372 glossary
Canadian-controlled private corporation (CCPC): an owner-managed or

closely held firms whose shares are not publicly traded with annual profits
below a designated amount (federal: $500,000 in 2016). CCPCs generally
benefit from lower tax rates (the “small business deduction”) compared to large
or publicly traded firms.Tax benefits may be recaptured through tax adjustments
on dividends paid to owners/shareholders. [11]
Capitalism: an economic and cultural system based on the mobilization and
investment of financial, human, technological, and economic resources (capital)
to generate profits (surpluses) for the benefit of their owners; may take different
forms in different political, legal, and sociocultural settings. [1]
Capital markets: institutions and processes that enable the issuance and trading of
securities such as shares (equity) and bonds or derivative financial instruments to
raise medium- to long-term financing, usually by businesses and governments,
subject to varying degrees of regulation. [12]
Cartel: economic agreement among businesses or governments to manage markets
and limit competition. [4, 6]
C.D. Howe: leading federal cabinet minister (1935–57) responsible for economic
reconstruction after WWII; he championed business-oriented policies, strategic
government intervention in key industries, and large-scale foreign investment
to promote economic development. [4]
Clientelism: a relationship between individuals or organizations of unequal
economic or social status in which one group or set of individuals confers
benefits on others in return for their cooperation in achieving the objectives
of the stronger group. In the case of business clientelism (or more broadly,
of clientele pluralism), highly organized interest groups have the capacity to
project their interests and pursue their objectives through government agencies,
a process that sometimes results in regulatory capture. Governmental
clientism results from a strongly organized government agency to co-opt
business and societal interests to serve its objectives, often in return for tacit or
explicit receipt of political or economic favours. [5]
Closed economy taxation paradigm: principles for the design of a tax system
based on assumptions that economic activity is largely domestic in nature rather
than being subject to substantial international competition in the provision of
goods, services, and capital. [11]
Closely held companies: a corporation where ownership and control is held by a
small group of shareholders; effective control may be held by shareholders with
as few as 10 per cent of voting shares. [6]
Commercial crown corporation: a government business enterprise operating
at arm’s length from government departments and mandated to be financially
self-sufficient, including financing capital expenditures from its own resources,
often competing with private-sector firms and remitting a portion of its profits
to governments. [9]
Commercialization: the application of business-like approaches, including a
variety of market forces, incentives, and mechanisms, to affect the delivery of
government services. [9]
Competitive liberalization: the pursuit of bilateral or regional trade agreements
by multiple countries as an alternative to the multilateral trading system; may
Glossary 373
be used to advance national trade policy agendas within the international

economic system, secure competitive advantage against other countries in
access to markets of major trading partners (offensive), or maintain competitive
market access for export industries in target markets (defensive). [8]
Competitiveness: the ability of particular economic actors or groups of actors
(e.g., firms, economic sectors or subsectors, countries) to provide or sell goods
or services in particular markets relative to other actors or groups of actors; an
important factor in shaping government fiscal, economic, regulatory, and other
policies influencing the performance of businesses and other economic actors,
particularly in democratic capitalist economies. [3]
Conservationism: an approach to environmental issues that emphasizes preservation
of habitats (parklands, wilderness areas, forests, air and water quality) and species
(wildlife, aquatic species) with a view to continued enjoyment, including
sustainable harvesting, by humans. [13]
Contestability: the ability of companies to enter and compete effectively within a
market to provide similar or comparable products or services; may be facilitated
by technology, innovations in business processes, relevant market information,
and low barriers to entry for new products or services. [6]
Corporate concentration: the degree to which an industry is controlled by a small
number of companies; usually associated with oligopolistic industries. [6]
Corporation: legal entity with the right to conduct various activities consistent
with the terms of its character. [1]
Closely (or narrowly) held corporation: controlling ownership held by
individual or small group of owners/investors.
Crown corporation: see government business enterprise.
Nonprofit corporation: required to reinvest all surpluses in the operations
of the organization.
Publicly traded corporation: fractional ownership (shares) of the company
may be traded on public equity markets with potential of gain or loss;
such firms may be:
Foreign: controlled, either as a subsidiary of a corporation based outside
Canada, or by virtue of international investors holding controlling
ownership of a Canadian-based firm.
Widely held: company ownership diffused among many shareholders with
no controlling ownership.
Corporatism: the government sponsorship of peak economic organizations
representing major sectors of society to develop coordinated policy responses
to be promoted and often enforced through such organizations. This approach
may be applied across an entire political jurisdiction (e.g., business, organized
labour, agriculture), or within particular economic sectors or subsectors. In
return for preferential access to the policy process, stakeholder groups tend to
lose a degree of their policy-making autonomy. [2]
Countervailing power: the ability of groups to organize to balance the economic
or political power of other, particularly dominant groups. [5]
Creative destruction: economic processes in which various forms of economic
innovation, including products, processes, or technologies, displace various
products (or services) and their producers over time. [1]
374 glossary
Deadweight loss: adverse economic effects of particular taxes or tax increases that
reduce the total resources available for public and private purposes in addition
to revenues generated for governments. [3, 11]
Deep ecology: an approach to environmental issues that advocates the priority of
ecosystem preservation and species diversity over economic development or
other human priorities. [13]
Defensive economic nationalism: theory of government-led policies of economic
development and national self-assertion, usually initiated as a response to US
political and economic expansionism; linked to neomercantilist policies such as
the National Policy, extensive use of crown corporations as instruments of
economic development, restrictions on foreign investment, and the National
Energy Program. [4]
Democratic capitalism: economic system characterized by the widespread private
ownership (and security) of property, the rule of law, freedom of contract and
association, democratic political institutions, and the diffusion of economic and
political power. [1]
Demonstration effects: examples of policy innovations in other jurisdictions
that prompt governments either to take similar actions, either on their own
initiative or in response to interest group pressures. Negative demonstration
effects of policies implemented by other jurisdictions lead governments to
avoid comparable action. [4, 8]
Dominant firm: company that accounts for a significant share, usually at least 40
per cent of revenues within a given market and has a significantly larger market
share than its next largest rival. [6]
Dual bilateralism: the development of separate, bilateral arrangements between
North American countries (especially the United States and its two neighbours),
rather than trilateral initiatives pointing toward greater formalization of North
American integration. [8]
Dual-class shares: a way of structuring corporate ownership with different classes
of shares with different voting rights and dividend payments; such structures
enable dominant shareholders to enjoy voting rights substantially greater
than their ownership share of a company’s equity or market value. [12]
Economic dynamism: the openness and adaptability of economic structures
and actors to changes to competitive market forces; may be facilitated by
ongoing changes in technologies, business processes, structures, and ownership,
and adaptability to shifts in the competitive positions of different firms and
industries. [6]
Economic efficiency: the capacity to increase overall economic output relative to
additional units of input, including labour, capital, and technology. [3]
Economic neutrality: the principle that government policies should attempt to
minimize efficiency-reducing distortions in allocating economic resources so
that workers, managers, investors, and consumers will make the most of the
resources available to them. [3]
Economic scarcity: the principle that human needs and wants are usually greater
than the resources available to fulfill them; important factor in identifying trade-
offs among competing economic or social objectives. [3]
Economic shocks: major disruptions in domestic or international economic
systems and processes; may have temporary or persistent effects. [1]
Glossary 375
Economic structure: the basic characteristics and divisions of economic activity

within a particular geographic area or economic network. [6]
Economic union (Canada): constitutional and administrative provisions for the
free movement of goods, services, capital, and labour within a shared economic
space; provided for in Section 121 of Canada’s Constitution Act (1867) and Section
6 of the Charter of Rights and Freedoms. [7]
Economic union (international): agreement to harmonize fiscal, monetary, and
other economic policies among participating countries, including provisions for
labour mobility among members and regulatory coordination in competition,
financial sector, and other specified policy fields. [8]
Embedded liberalism: the institutionalization of prevailing liberal assumptions
in legislation, government, and economic and social structures in ways that
reflect and shape public attitudes, expectations, and behaviour. Expressions of
embedded liberalism include the core principles, objectives, and trade-offs of
major components of the welfare state; labour and workplace legislation; the
tax system; participation in international economic agreements and regimes;
domestic regulatory systems; and the role of governments in the economy.
International dimensions of embedded liberalism include cooperation among
national governments (and sometimes other societal actors) to define the rules of
the international economic system in ways compatible with the maintenance of
domestic political and economic stability. [2]
Executive federalism: processes of intergovernmental negotiation among
political executives and senior officials of federal, provincial, and territorial
governments. [7]
External policy shocks: major changes to the political or economic context for
government policies that threaten to destabilize major elements of the political
or economic system. [2]
Federalism: a system of government that shares sovereignty and divides
power among federal and subnational levels of government, each of
which enjoys a direct relationship with the people; Canadian federalism is
characterized by a federal division of powers in which neither federal nor
provincial governments are subject to the other within their respective areas
of jurisdiction. [7]
Federal spending power: the policy-making authority derived by the federal
government from its power to allocate funds to areas of provincial jurisdiction.
May be expressed either through the negotiation of conditional transfer, or
shared-cost programs with the provinces, or by the unilateral dictation of terms
governing the allocation of federal funds. [7]
Fiscal policies: government decisions and objectives that shape the overall levels
and distribution of government revenues and spending, as well as resulting levels
and trends of budget balances (annual surpluses or deficits). [3]
Fiscal sustainability: the ability of governments to maintain existing levels of
taxation, spending, and other policies in the future without defaulting on
(failing to meet) existing policy commitments and debt obligations. [3]
Foreign direct investment (FDI): investments in a company whose ownership is
controlled by residents or citizens of other countries; may apply to Canadian-
based firms operating in other countries or foreign-based firms operating in
Canada. [4, 8]
376 glossary
Generational equity: the principle that each generation should pay for the benefits
and services that it consumes, rather than passing these costs to its descendants.
[2]
Globalization: the growing interaction and interdependence of economies,
businesses, governments, and cultures around the world. [8]
Globalization (economic): the progressive integration of national economies in
regional and international markets for goods, services, capital, and technologies,
with the resulting erosion of the capacity of individual governments to manage
national and local economies independently of one another. [8]
Government business enterprise (GBE): an organization owned and managed
by one or more governments to sell goods and/or services to citizens, businesses,
or other parts of government; includes crown corporations. [1, 6, 9]
Government failure: an unintended consequence of government actions that
imposes serious costs on the economy, society, or the workings of the political
system. [2, 3]
Government relations: a subset of public affairs relating to an organization’s
dealings with government. [10]
Great Depression: the prolonged international economic and social crisis during
the 1930s that reinforced public support for a greater government role in
managing economic activity and extending social security. [2, 4]
Hard-law (vertical) integration: an approach to international regulatory
integration involving the delegation of authority by national governments
to supranational organizations with the capacity to enforce international
agreements independently of national governments. [8]
Horizontal equity: the concept of fairness emphasizing the need for comparable
treatment of individuals or groups in comparable circumstances, while leaving
opportunities for the accommodation of differences among them. [2]
Horizontal integration: the acquisition or consolidation of firms with
complementary lines of products and/or services within a single company or
corporate group. [6]
Human welfare ecology: the range of environmental perspectives that focus on
policy measures to encourage the intergenerational sustainability of human
and natural ecosystems, independently of their aesthetic or economic value to
human beings, generally through various forms of government regulation. [13]
Industry associations: a synonym for trade associations. [10]
Information asymmetries: differences in information available to buyers and
sellers of goods or services that give one a material advantage over the other in
determining their value relative to other products or services available in the
marketplace. [3, 6]
Institutional investor: a financial organization that pool funds to purchase various
securities, other forms of property, and investment assets, usually on behalf
of clients; includes banks, insurance companies, pension funds, and other
investment managers. [1, 12]
Intellectual power: the ability to shape the underlying policy assumptions of
government policy makers and/or broad publics. [5]
Interest aggregation: the process of organizing or mobilizing interests, businesses, or
organizations for purposes of advocacy or representation; may also take the form
of coalition building or the development of interest networks among groups. [10]
Glossary 377
Interest group: an organized group of people or organizations that seeks to

influence government policies, directly or indirectly, to serve its own interests
and/or objectives. [1, 10]
institutionalized interest groups: Interest groups that are recognized
stakeholders in particular policy communities.They tend to be characterized
by relative permanence, a stable membership base, professional leadership,
and relatively stable financial resources.
issue-oriented interest groups: Interest groups that tend to focus on related
issues of particular interest to their leadership and/or a particular segment
of society.Their activities are often ideologically motivated, oriented toward
the promotion of social or policy changes, and directed toward mobilizing
to transforming public opinion as much as to the direct lobbying of
government.
Interventionist nationalism: policies intended to promote national or provincial
economic development under direct government ownership or regulatory
control. [4]
Joint enterprise: government business enterprise in which ownership is shared
by more than one government. [9]
Keynesian economic policies: economic policies based on theories of economist
John Maynard Keynes that provided the rationale for an expanded role for
government in the economy. Keynesian theories heavily influenced economic
policy making in Canada, the United States, Britain, and other industrial
countries between the 1940s and the 1970s. [1, 2]
Lead agency: a government organization responsible for providing policy leadership
within a particular policy community. [10]
Legitimation (also legitimization): a process for securing public acceptance
and/or support for economic and political systems; the former often includes
existing opportunities to obtain and distribute property and/or economic
activity, usually through benefits provided to a broad cross section of individuals
and groups within society; the latter applies to processes for securing public
acceptance of existing political institutions, while not precluding periodic
changes to those institutions that do not change their fundamental character. [1]
Liberal continentalism: policies that encourage increased economic growth and
development through promotion of foreign investment, increased integration
of Canadian and US economies, and increased emphasis on competition and
market forces to increase the efficiency and competitiveness of Canadian
businesses. [2, 4]
Liberal nationalism: policies that encourage economic development by fostering
Canadian-owned industries, particularly in sectors of strategic importance,
including transportation, financial services, energy, and cultural industries;
supports cooperation of governments with national or regional business
interests. [2, 4]
Lobbying: the process of attempting to influence decisions by governments or
other authoritative actors with the power to confer benefits or disadvantages by
their actions or inaction. [10]
direct lobbying: the process of attempting to influence government policies
through direct contact with political and bureaucratic decision makers
and/or their advisor.
378 glossary
indirect lobbying: the process of attempting to influence the climate of

elite and/or public opinion to influence the choices and decisions of
governments and other political and societal actors.
Lobbying Act: legislation that regulates lobbying activities directed at the federal
government; comparable legislation exists in most provinces.
Major stakeholders: participants in a policy community whose vital interest it
engages or whose cooperation is seen as necessary for governments to take
effective action in a particular policy field. [10]
Managerial capitalism: a system of corporate ownership and control in which
controlling shareholders and/or boards of directors closely linked to senior
executives establish corporate priorities with significant autonomy from
minority shareholders and financial markets; sometimes called blockholder
capitalism. [12]
Marginal effective tax rate (METR): the cumulative share of all taxes paid as a
percentage of annual pre-tax income after allowance for relevant tax preferences
and payment of nonprofit sensitive taxes (e.g., sales and excise taxes on business
inputs, general payroll taxes on employees, and capital taxes). [11]
Market failure: events resulting from the inability of economic actors to maximize
the efficient use of resources and/or to maximize social welfare in the normal
course of economic activity. [2]
Market liberalism: system of economic and political ideas that seeks to maximize
freedom of economic activity, consistent with the preservation of competition,
the preservation of social order, and the promotion of general economic well-
being. [2]
Macroeconomic policies: government decisions related to the overall levels
and allocation of government revenues, spending, and budget balances and to
levels of aggregate demand or overall economic activity. Major elements of
macroeconomic policy include fiscal policy and monetary policy. [3]
Microeconomic policies: policies that directly or indirectly influence the economic
decisions of individuals, firms, and groups (including industry sectors) within
the marketplace. [3]
Market power: the capacity of a producer or purchaser of goods and services to
dictate prices or the terms of market competition to other market participants
over an extended period; may be subject to the countervailing exercise of
regulatory power by governments. [6]
Median: the midpoint in any data set arranged in order from the largest of the
quantity measured to the least. [13]
Mixed enterprise: a firm that combines government and private-sector ownership;
may function on a continuing basis or as a transitional state between public and
private ownership. [9]
Monetary policies: policies affecting the value and supply of money within the
economic marketplace, including interest-rate and exchange-rate policies. [3]
Monopolistic competition: competitive market characterized both by high
degrees of specialization and consumer capacity to obtain substitute products
or services that limit the market power of individual producers. [6]
Monopoly: market condition in which there is only one seller of a particular
product or service in a particular market. [6]
Monopsony: a firm that is the sole buyer of the economic output of a particular
industry. [6]
Glossary 379
Multilevel governance: concept and processes by which different governments

and sometimes societal actors share responsibility for the development and/or
implementation of particular policies, reflecting frequent dispersion of decision
making across traditional jurisdictional boundaries. [2]
NAFTA (North American Free Trade Agreement): comprehensive free-trade
agreement among Canada, United States, and Mexico (1992–94); extended
principles and mechanisms of Canada-US Free Trade Agreement and created
trinational commissions to monitor enforcement of national environmental and
labour laws and standards. [4, 8]
National Champion: firm receiving continuing financial, regulatory and other
preferential policy support from governments in return for serving national
policy objectives. [9]
National Energy Program (NEP): federal policy (1980–86) intended to expand
Canadian ownership of energy industries with increased federal control and
revenues from oil and gas development; prompted serious conflict with energy-
producing provinces and organized business interests; major cause of later
business and provincial support for Canada-US Free Trade Agreement. [4]
National majoritarianism: the principle that the public interest is best served by
whatever serves the interests of most Canadians, regardless of their individual
characteristics or differences among or effects on the communities or regions
in which they live. [13]
National Policy: (late nineteenth, early twentieth century) national economic
development policy centred on a high protected tariff, development of a
transcontinental railway system, and the opening of the Canadian Prairies (and later
other frontier regions) to European settlement and agricultural development to
create an integrated national market for Canadian products and services. [4]
National treatment: recognition of a nonresident individual or business as a
resident of a host country for purposes of regulation; intended to provide a basis
for nondiscrimination in international economic agreements. [8]
Negative externalities: direct or indirect effects of economic activities that create
harm to persons, communities, or the environment that are not parties to an
economic transaction. [2, 3]
Negative-sum games: activities or processes that result in cumulative losses by
players or participants as a whole, whatever the gains achieved by individual
players. [1]
Neoliberalism: diverse set of political outlooks and economic policies introduced
in many countries between the 1980s and 2000s to address economic and
social challenges arising from overextended governments. Neoliberal policies
pursued in Canada since the 1980s include:
• systematic efforts to accommodate international interdependence resulting
from economic globalization in trade, investment, and regulatory policies;
• the pursuit of fiscal balance and sustainability;
• commercialization and privatization of many government
enterprises;
• the expanded use of market incentives and methods to the design of
social programs and delivery of public services.
Such policies have reshaped and refocused the nature of state intervention
and governmental activism, rather than substantially reducing governmental
involvement in the economy, as alleged by some critics. [2]
380 glossary
Neomercantilism: policies of economic nationalism intended to promote the

development and growth of domestic industries through protective and
supportive government policies including protective tariff and nontariff
barriers, requirements for domestic ownership, regulations to limit or structure
competition to support favoured businesses or industry sectors, government
subsidies, and financial assistance. [2]
Normative: related to norms or standards of right and wrong, applied to moral,
ethical, or ideological standards of conduct for individuals and societies. [2]
Normative legitimacy: public acceptance or support derived from commitment
to the pursuit of particular legal, social, cultural, or economic ideals or their
substantive inclusion within a broader set of political objectives. [13]
North American Free Trade Agreement (NAFTA): Trilateral agreement
among the United States, Canada, and Mexico, signed in 1993, expanding free
trade and the investment zone created in CUSFTA to all three countries, but
with selected exemptions for each country. Accompanied by side agreements
on labour standards and the environment. [4, 8]
North American (economic) integration: increased economic interdependence
among individuals, businesses, and governments across North America as a result
of extensive trade, investment, and integration of business operations across
national borders. [8]
Oligopoly: industry sector or subsector dominated by competition among a few
major firms. [6]
Open economy paradigm: the design of economic policies, including business
taxation, based on Canada’s growing integration within the North American
and global economies, reflected in high volumes of international trade and
investment relative to overall economic activity and extensive interdependence
of markets for goods, services, and capital. [11]
Outcome manifestations (of power): evidence that policy changes result directly
from the actions of business or other groups at significant variance to the
expressed policy preferences of senior government decision makers, or which
lead to a visible shift in policy instruments used to implement those policies to
accommodate the interests of the groups in question. [5]
Path dependence: a process by which the logic of successive policy changes and
the resources committed to implement them influences and constrains future
policy decisions. [4]
Perfect competition: market conditions that can be said to exist when an economic
sector is characterized by large numbers of willing buyers and sellers of similar
products and services, relatively easy market entry or access, and sufficient
information available to both producers and consumers to make informed
decisions in setting prices for goods or services. [6]
Performance legitimacy: popular evaluation of governments, institutions, or
decision makers based on their success in meeting identifiable economic
or social outcomes or expectations, including prosperity, security, and other
socially valued outcomes to their citizens through their actions or policies. [13]
Policy communities: clusters of organizations and interests inside and outside
government that focus on a common set of policy interests; often called policy
networks. [10]
Glossary 381
clientele pluralist: policy community in which the public interest is

identified by policy makers to coincide with the core interests of its
major organized stakeholders.
concertation network: policy community in which state actors deal on more
or less equal terms with a dominant stakeholder organization or coalition
representing societal interests to negotiate a policy representing the public
interest.
co-optive pluralist: policy community in which government policy makers
attempt to define the public interest and seek to co-opt groups whose
interests are affected by these policies to legitimize their actions and provide
feedback on the effectiveness of current and proposed policies.
liberal corporatist: policy community characterized by direct participation
in policy making by organizations representing major economic or societal
stakeholders (e.g., business, organized labour). In return for preferential access to
these processes, stakeholder groups tend to lose some of their autonomy.
parentela pluralist: policy community characterized by the infiltration of
policy-making bodies within government bureaucracies by individuals or
organized interests closely allied with the political party in power.
pressure pluralist: policy community characterized by multiple participants,
none of whom are capable of dominating the policy process, and varying
degrees of state autonomy in balancing the interests of competing groups
with broader government objectives.
state-directed: policy community in which authoritative state actors establish
public policy without direct reference to the actors or preferences of
societal actors.
Policy networks: clusters of organizations and interests inside and outside
governments that focus on a common set of policy interests; sometimes called
policy communities. Policy networks are channels of communication both
within governments and among societal interests that are actively or potentially
interested in the outcomes of a particular process.They tend to be characterized
by a greater degree of openness to the entry or departure of participants,
especially among societal actors. [10]
Political shocks: threats to the political status quo that force governments to
rethink established policies or political values. [1]
Populism: may refer to the political style and/or discourse that visibly appeals to and
identifies with the interests and circumstances of ordinary citizens, as opposed to
elites or privileged social groups. May also refer to a political program that directly
challenges the interests and policy preferences of political, economic, or social
elites, or insiders, in the name of an underprivileged mass of ordinary citizens,
or outsiders, defined as “the people,” generally on the basis of exclusion from
political power, economic or social opportunity, or equal access to justice. [2, 13]
Positive externalities: benefits to society from a particular activity or service
that may be greater than related economic benefits captured by producers or
consumers. [3]
Positive-sum games: activities or processes that result in measurable, cumulative
gains by participants as a whole. Such processes generate surpluses that may be
shared to allow a larger number of individuals (and/or groups) to benefit or
offset losses from the process. [1]
382 glossary
Power: the ability of some groups, either within society or the state, to force
or persuade others to act in ways that differ significantly from their own
preferences. [5]
Privatization: the transfer of controlling ownership of a government agency or
business enterprise from governmental to nongovernmental organizations.
[9]
Probusiness policies: policies intended to improve overall economic well-being
by creating favourable conditions for profitable business investment and
competitiveness, whether in specific sectors or more generally. [3]
Process manifestations (of power): the use of policy processes by individuals
or groups to serve their own interests, whether in cooperation or competition
with other social or governmental interests. [5]
Productivity: the output of goods and services generated by a fixed input of labour
and capital (including technology). [3]
Promarket policies: policies intended to promote increased and more
effective competition among economic actors; may include the elimination
or reduction of regulatory barriers to market entry (including foreign
competition), regulatory incentives to limit or diffuse concentrations of
power, and measures to facilitate increased consumer or investor choice. [3]
Public affairs: the process of organizing an organization’s relationships with
governments, the media, and other societal interests to facilitate or complement
the pursuit of its main objectives. [10]
Pure public goods: goods or services that all or most individuals in a particular
market can obtain without having to pay for them directly (nonexcludable)
and without diminishing the supply available to other persons (nonrival).
[3]
Quasi-commercial enterprises: a government-owned organization selling goods
or services to the public, but on terms requiring regular subsidization from
general government revenues. [9]
Quasi-public goods: goods and services that provide significant public benefits
above and beyond those obtained by their providers and consumers under
normal market conditions. [3]
Quebec Inc.: name given to Quebec’s post-Quiet Revolution corporatist
governance systems involving close, mutually supportive linkages between
Quebec-based governments, financial institutions, and major Quebec-based
corporations. [12]
Quiet Revolution: modernization of Quebec’s economy and society during the
1960s and 1970s under the leadership of the Quebec state. [4, 7]
Recession: a significant overall decline in economic activity, often defined by two
consecutive quarters of decline in aggregate demand. [3]
Regional disparities: inequalities in political and economic power among Canada’s
provinces and regions. [7]
Regionalism: the shared identification of citizens with a region as a distinct political
or social community, based on conscious differences in political, economic,
and social interests and structures; also an emphasis on the distinctive regional
(or provincial) characteristics or differences of Canada’s economy that make
issues of regional (or provincial) equity and influence over public policy major
considerations of the political process. [7]
Glossary 383
Regional ministers: federal cabinet ministers with political and administrative

responsibilities for promoting the interests of their provinces or regions within
the federal government. [7]
Regulatory capture: a form of government failure that occurs when an agency
created to regulate a particular sector in the public interest comes to advance
the commercial or political objectives of the interests it was originally meant
to regulate. [9]
Rent seeking: the pursuit of economic self-interest by particular economic or
social groups through the political process at the expense of the wider society;
usually reflected in the provision or pursuit of fiscal or regulatory advantages
beyond market rates of return by particular individuals or groups that has the
effect of shifting costs onto other economic or social actors. [2, 3, 5, 6]
Second industrial revolution: era of rapid industrial growth (1890s–1920s) in
North America and Europe characterized by the application of new technologies
(e.g., electricity, internal combustion engine, new chemical processes) and the
development of large, capital-intensive industrial organizations. [4]
Shared governance organizations: “corporate entities without share capital
to which [governments] have a right to appoint or nominate one or more
members to a governing body” (Treasury Board of Canada Secretariat,
2013). [9]
Shareholder capitalism: system of corporate ownership characterized by effective
oversight of individual firms’ priorities by relatively autonomous boards of
directors on behalf of external, usually diffuse shareholders, active evaluation
of corporate performance by reputational intermediaries, including financial
analysts and accountants, and an active market for contesting control of major
corporations. [12]
Soft-law (horizontal) integration: approaches to international regulatory
cooperation involving agreements between national (or subnational)
government agencies, sometimes with legislative ratification, based on shared
regulatory principles, objectives or technical standards, but implemented in
ways consistent with distinct national legal and regulatory institutions; may
involve provisions for mutual recognition of national regulatory measures as
functionally equivalent. [8]
Staples theory: theory of economic development that emphasizes dependence on
the export of a dominant agricultural or resource (staple) to provide the basis
for economic development and finance the costs of imported capital. [4]
State-led economic policies: policies involving extensive state direction and facilitation
of economic development involving some combination of centralized priority-
setting, direct ownership and allocation of resources, prescriptive (command-and-
control) regulation, and coordination of financing, marketing and/or distribution of
goods and/or services in particular industries. [3]
State autonomy: the capacity of governments and the organizations that compose
them to define, pursue, and achieve their own policy objectives independently
of societal actors and sometimes in substantial opposition to them. [10]
Sectoral associations: associations that represent a cross section of businesses
(or nonprofit organizations) within a particular industrial or economic
sector (e.g., agriculture, health care, manufacturing, construction, retailing,
tourism). [10]
384 glossary
Stealth taxes: automatic tax rate increases on individuals or businesses that may
be engineered into the tax system without the need for additional statutory
approval; historical and current examples include full or partial deindexation
of income tax brackets and thresholds and tax clawbacks on income transfer
payments for individuals above certain income thresholds. [11]
Strategic analysis: the process of evaluating the external and internal environments
facing an organization or business to identify its strengths and weaknesses relative
to those of competitors and other relevant actors, along with the opportunities
for and threats to the continuing pursuit of its interests and objectives. [10]
Structural adjustment policies: intended to address sources of economic rigidity
in the adaptability of businesses, governments, and individuals to changing
economic circumstances; include measures to eliminate structural budget deficits
(the share of deficits that would remain if the economy was functioning at full
capacity), increase the flexibility of labour markets, facilitate the adaptation of
workers and employers to changing economic circumstances, and eliminate
subsidies or regulations that cushion businesses against the effects of increased
competition or technological change. [3]
Structural power: the sustained capacity of particular groups to make their interests
and values part of the normal environment guiding political, economic, and
social systems. [5]
Supply chain: extended process of procuring, processing, and distributing products
and related services from raw materials to final consumers, usually involving the
participation and coordination of multiple companies. [6]
Subgovernment: organizations that are directly involved in policy formation and/or
implementation in a particular policy community; usually drawn from government
departments or agencies whose activities are directly affected by its decisions. [10]
Sustainability: the capacity to balance the current consumption of goods and
services with investments that will increase future economic opportunities.
Also refers to the ability of governments to combine improvements in citizens’
material living standards with environmental preservation and related quality-
of-life issues. [3]
Terms of trade: the ratio of indices (weighted averages) of a country’s export prices
and import prices. [3]
Think tanks: organizations created for purposes of policy research and/or advocacy,
but with varying degrees of independence from members or sponsors in their
research activities. [10]
Third National Policy: name given to Trudeau government program of increased
economic nationalism, federal assertiveness, and constitutional reform following
Trudeau’s return to power in 1980. Specific policies including the National
Energy Program, proposed tax reforms, the expansion of federal social programs,
and proposals for an industrial strategy resulted in bitter conflicts between the
federal government, organized businesses, and the provinces. [4]
Trade (or industry) associations: 1) generic name for business associations; 2)
associations that represent trade or industry groups; 3) specialized industry
groups within a broader economic sector. [10]
Transgovernmental relations: interactions among political, administrative, and
regulatory officials of different countries on technical issues of policy design
and implementation outside the formal diplomatic processes of their respective
foreign ministries. [8]
Glossary 385
Vertical equity: the redistribution of income and opportunities from people with
higher incomes or social status to those with lower incomes or social status. [2]
Vertical integration: the centralized control of all major components of an
industry supply chain through expansion or acquisition of different elements of
production and distribution within a single corporation or corporate group. [6]
Widely held companies: corporations whose ownership is widely diffused; no
controlling shareholder exists, either as a result of market arrangements or
legislative requirements, resulting in the exercise of effective control either by
an authoritative board of directors or senior management. [6]
World Trade Organization (WTO): an intergovernmental organization, formed
in 1995 by members of the former General Agreement on Tariffs and Trade
(GATT), that oversees international trade negotiations and administers
agreements on trade in goods, services, and related issues.WTO also oversees an
independent dispute resolution mechanism for managing trade-related disputes
among its 164 member countries (as of 2016). [4, 8]
Zero-sum games: activities or processes in which gains by some players or
participants are fully offset by losses experienced by others. [1]
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Index
9/11 (September 11, 2001), 23, 100, 105, 218, mergers, 20, 60, 98–99, 121, 211, 213–14, 334
221, 224, 227 network, 5, 213–14
1837–38 rebellions, 67, 71 BCE Inc., 132, 136, 306, 333
2007–09 financial crisis, 23, 52, 66, 99, 103, 190, Beauce region, QC, 194
215, 227, 239, 243, 250, 255, 298, 303, 306, Beaudoin family (Bombardier), 154
310, 315, 327, 330, 334, 341, 354, 363, 369 Beck, Adam, 79
Bell, Daniel, 4–5
Action Démocratique du Québec, 33 benchmarking, 62–63, 133, 135–36, 294, 309,
aerospace industry, 15, 60, 61, 87, 97–98, 104, 363, 371
107, 148, 149, 160–61, 165, 194, 209, 218, Bennett, R.B., 82
230, 239, 242, 244, 338 Bennett, W.A.C., 33
Africa, 211 Berger Commission, 200
aggregate demand, 49, 371, 378, 382 Bernier, Maxime, 32, 195
aging population, 5, 21, 41, 52, 55, 101, 196, 199, Beyond the Border Action Plan, 138, 221–22
295, 298, 351, 366 Billes family (Canadian Tire), 154
Agreement on Internal Trade (AIT), 106, 176 Bloc Québécois, 100
agricultural sector, 17, 43, 120, 139, 149, 150, Board of Railroad Commissioners, 80
151, 155, 158, 173, 188–90, 195, 208, 230, Boards of Trade Act, 153
249–51, 274, 368, 379, 383 Bois–Francs region, QC, 194
Agrium, 211, 214 Bombardier Inc., 154, 194, 244, 338–39, 354
Air Canada, 98, 160, 162, 163, 237 Borden, Robert, 80
aircraft industry. See aerospace industry borders,
Aitken, H.G.A., 69, 73–74 security, 100, 105, 221–22
Alberta, 62, 80–82, 101, 116–17, 140, 175, 177– trade across, 55, 56, 75, 121, 137–38, 171, 184,
80, 185–88, 230, 237, 242, 253–54, 258–59, 190, 212, 216, 217–19, 221, 223, 224,
287, 293, 315, 326, 336, 352, 357, 365 230, 235, 322, 360, 380
Alberta Treasury Branches (ATB Financial), Brampton, ON, 190
241, 264 Brazil, 4, 210, 211, 230
Alcan, 148 Britain, 3, 4, 10, 13, 16, 23, 31, 49, 66, 67, 70, 71,
Allan, Hugh, 74–75 84, 213, 227, 304, 325, 327, 377
Amazon.com, 162 British Columbia, 28, 74, 82, 101–02, 140–41,
Anheuser Busch–Inbev (Labatts), 163 171, 178–86, 234, 245–46, 258–59,
Asia–Pacific region, 105, 183, 195, 208, 210, 220, 261–62, 303, 311–14, 326, 336, 360, 362
253, 254, 354 British Columbia Securities Commission,
Atlantic Canada, 23, 90, 92, 158, 186, 189, 194, 181, 326
195–99, 336, 342, 348, 369 British North America Act. See Constitution Act,
Atomic Energy of Canada Limited (AECL), 1867
239, 248, 249, 250, 252–54 broadcasting, 15, 119, 121, 202, 209,
automatic stabilizers, 46, 50–51, 371 broadly based (comprehensive) associations,
automotive industry, 15, 85, 107, 116, 119, 149, 273–74, 371
165, 190, 208, 217, 226–27, 230, 273, brokerage politics, 32, 76, 82, 176, 191, 249
286, 360 Bronfman family (Seagrams), 154
Automotive Parts Manufacturers Association budget (government), 21, 32, 33, 92–93, 102,
of Canada, 273 189, 235, 247, 256, 274, 294, 298–302,
Avalon Peninsula, NL, 197 305, 307, 367, 375, 378
Auto Pact, 85, 190, 216 deficits, 26, 52–53, 100–01, 191–92, 198,
Autorité des marches financiers, 340 351, 384
policies, 46–47, 50, 52, 56, 100–03, 130–35,
Bank Act, 153, 325 283–84
Bank of Canada, 11, 49, 53, 219, 236, 256, 329 bureaucracies, 14, 59, 82, 85, 90, 91, 99, 113,
Bankruptcy and Insolvency Act, 153 129, 131, 138, 144, 175, 191, 221, 230,
banks, 11, 15, 33, 47, 53, 73, 75, 82, 93, 98, 103, 270, 283, 294, 354, 358, 377, 381
202, 250, 255, 256, 287, 329, 364, 376 Bush, George W., 218–19, 221, 223
423
424 index
Business Council of British Columbia, 273 Canadian–controlled private corporations

Business Council of Canada (BCC/CCCE), (CCPCs), 92, 211, 294, 336, 372
112, 130–31, 271, 273, 278, 355 Canadian Credit Union Association, 158
businesses, Canadian Direct Investment Abroad (CDIA),
Canadian diversity, 9, 41, 100, 117, 143, 169, 210, 327
274, 320, 353, 355 Canadian Economic Union, 137
coalitions, 17, 22, 124, 125, 146, 182, 202, Canadian Electricity Association, 278
249, 269, 275–76, 325, 334, 376 Canadian Federation of Agriculture, 273
and globalization, 27, 29, 32, 41, 65–66, 68, Canadian Federation of Independent Business
100, 104, 106–08, 205–06, 208–21, (CFIB), 271, 273, 355
228–30, 299, 346, 376, 379 Canadian Labour Congress, 29, 355
government relations, 13–15, 42–46, 58–60, Canadian Manufacturers and Exporters
69–72, 111–14, 121–29, 254–63, (CME), 273, 278
270–76, 292–97, 300–05, 307–21, Canadian Nuclear Safety Commission
328–37, 339–42 (CNSC), 253
political organization of, 272–76 Canadian Securities Administrators (CSA),
small, 5–6, 9, 17, 31, 91, 152, 156–57, 181, 326, 341
221, 230, 246, 262, 270, 286, 293–94, Canadian Security and Intelligence Service
313–14, 326 (CSIS), 287
structural power of, 115–26 Canadian Standards Association (CSA Group),
taxation, 10, 25, 91, 157, 270–76, 292–97, 272
300–05, 307–15 Canadian Tourist Industries Association, 273
business investment treaties (BITs), 210 Canadian Vehicle Manufacturers Association,
273
Caisse de dépôt et placement, 161, 195, 242, 243, Canadian Wheat Board (CWB), 34, 97, 105,
245, 257, 332, 333, 337, 371 162, 165, 213, 235, 246, 248–52
caisses populaires. See credit unions Canpotex (potash), 161, 162, 189, 243, 260
Calder et al. v. British Columbia, 183 Caouette, Réal, 33
Calgary, 75, 122, 185, 276 Cape Breton, 198
Calvert, Lorne, 259–60 capital, 3, 10, 15, 53, 55–57, 75, 95, 116, 305, 335,
Cambridge, ON, 190 355, 374, 375, 380, 382–83
Cameron, Donald William, 198 foreign, 10, 47, 67, 86, 89, 184, 298
Campbell, Gordon, 183, 314, 360, human, 41, 55–56
Canada Business Corporations Act, 153 investment, 6, 41, 44, 51, 75, 78–79, 118,
Canada Cooperative Associations Act, 153 121–22, 159, 165, 178, 239, 291, 303
Canada Cooperatives Act, 153 markets, 5, 10–11, 57, 98, 122, 154, 158,
Canada Corporations Act, 153 160, 181, 195, 205, 209, 241, 319–35,
Canada Mortgage and Housing Corporation 339–40, 342, 372
(CMHC), 239, 241, 249, 254–56 mobility, 1, 2, 47–48, 116, 145, 205, 219,
Canada Pension Plan, 171, 331, 342, 371 234–35
Investment Board, 214, 257–58, 332, 371 taxation, 42, 133, 195–96, 247, 291, 293–96,
Canada Post Corporation (CPC), 239, 247, 300, 302, 308, 309, 311, 314, 376
248, 249, 250, 252 capitalism 16, 29–30, 51, 81, 86, 120, 122, 127,
Canada Safeway, 148 152, 233, 372, 373
Canada–US Free Trade Agreement accumulation, 1–6, 44, 148, 371
(CUSFTA), 23, 32, 66, 95, 104, 117, 191, branch plant, 319
195, 207, 208, 209, 215, 218, 222, 297, 298, Canadian, 4–6, 10, 29, 113, 151, 236–38,
371, 379, 380 319–43
Canadian Association of Petroleum Producers, creative destruction, 2, 113, 146, 319, 373
271 democratic, 1, 4, 6–7, 27, 82, 114, 324, 374
Canadian Broadcasting Corporation (CBC), economic shocks. See shocks
239, 248 foreign state, 16, 233, 237–39
Canadian Centre for Policy Alternatives laissez–faire, 67, 87
(CCPA), 279, 355 managerial, 319, 378
Canadian Chamber of Commerce, 273 regulation, 5–6, 8, 27–28, 30, 45, 88, 325–26
Canadian Coalition for Good Governance, shareholder, 113, 306, 319, 320, 383
334 Capital Markets Regulatory Authority
Canadian Competitiveness Council, 137 (CMRA), 326
Canadian Construction Association, 273 carbon tax, 141, 184, 186, 302, 304, 310, 315, 360
Index 425
C.D. Howe Institute, 62, 133, 279, 309 conservatism, 24, 25, 26–27, 29, 30–32, 188
Central Canada, 49, 74, 75, 107, 369 Red Toryism, 25
CentrePort Canada, 259 Conservative Party, 28, 30–32, 71, 74, 77, 90, 94,
Chalk River, ON, 250, 253 99, 117, 182, 191, 195, 198–99, 249, 251,
Charbonneau Commission, 117, 194 258–59, 260, 302, 304, 310, 315, 357, 360
Charest, Jean, 107, 195 Constitution Act, 1867, 152
charities. See nonprofit corporations constitutional law, 3, 73, 77, 82, 86, 92, 93, 94,
China, 4, 23, 68, 104, 184, 210, 211, 220, 226, 106, 118, 120, 169, 170, 174, 218, 295, 326,
309 348, 363, 375, 384
Chrétien, Jean, 19, 20, 94, 97, 99–100, 104, 106, construction industry, 120, 150–51, 155, 156,
130–32, 222, 299, 301, 302, 309, 317, 328, 163, 172, 178, 183, 193, 200, 257, 262, 273,
351, 363, 367 362, 364, 365
Chrysler, 107, 119, 148, 222, 354 contestability, 160, 164, 165, 373
Churchill Falls agreement, 197, 243 continentalism, 26, 88, 91, 377
citizen well–being, 13, 18, 21, 39–43, 49–58, cooperative,
79, 88–89, 96, 100–03, 114, 191, 194, 220, businesses, 57, 90, 152, 154, 158, 188, 213, 251
305–08, 348–50, 353, 359–60, 363–69 movement, 4, 33, 188, 350
civil service agencies, 33, 176, 285 Cooperative Capital Markets Regulatory
Clark, Christy, 171, 184 System, 122
clientelism, 70, 74, 78, 80, 118–19, 191, 193, 198, Co–operative Commonwealth Federation
226, 283–84, 372 (CCF), 29, 82
climate change, 2–3, 24–25, 49, 114, 184, 186, corporate income tax (CIT). See taxation
200, 212, 302, 360–62, corporations, 7–8, 9, 30, 50, 55, 58–59, 62, 78,
CN Rail. See railways 273, 328
coal production, 187, 198, 250, 252, 253, cartels, 79, 119, 161, 162, 189, 243, 260, 354,
254, 361 356, 372
Coalition Action Québec (CAQ/ADQ), 33, 193 concentration, 55, 61, 98, 120–21, 158–66,
Cold War, 68, 161 273, 286, 324, 325, 326, 333–37, 354,
collective, 373, 382
action, 4, 118 legislation, 54, 152–53, 228, 259, 283, 309,
bargaining, 84, 86, 293, 324, 342 319, 323, 375
interest, 13, 112 mergers and acquisitions, 55, 79, 104, 121, 130,
collusive oligopoly, 162, 165 135, 137, 147–48, 156, 159, 160, 166,
colonialism, 15, 66, 67, 70, 71, 77, 183, 192 211–12, 319, 327–29, 333–37, 339–41
Combines Investigation Act, 158–59 ownership and governance, 5, 9–11, 79, 113,
commercialization, 10, 56, 96, 157, 158, 234, 151–58, 236, 323–26, 334–37
235, 238, 244, 245, 247, 250, 372, 379 power of, 111–41, 158–66
commodities boom, 103, 105, 178, 224, 369 theory, 43–45
common external tariff, 216 corporatism, 13, 30, 58–59, 83, 118, 120, 137,
Companies’ Creditors Arrangement Act, 153 192, 193, 257, 272, 285–86, 325, 326, 341,
competition, 8, 15, 17, 18, 31, 40–42, 45–48, 343, 353–56, 373, 381, 382
54–56, 60, 65–67, 104, 224, 307–15, Corruption of Foreign Public Officials Act, 228
328–29, 334, 345, 350, 363, 372, 380, corruption (political), 78, 194, 227–28, 262
382, 384 country–of–origin labelling (COOL), 223–24
degrees and types of, 161–64 Créditiste movement, 84
international, 143, 211, 224, 297–98, 300, Credit Union Central. See Canadian Credit
319, 323–24, 375, 377, 378 Union Association
Competition Act, 96, 137, 159, 211 credit unions, 5, 158, 214
Competition Bureau, 135, 159, 211 crown corporations. See government-business
Competition Policy Review Panel, 136–37 enterprises
Competition Tribunal, 135, 159 Crown Investments Corporation, 161, 260
Comprehensive Economic and Trade Crowsnest Pass, 75–76
Agreement (CETA), 176, 226 cultural industries, 15, 104, 107, 151, 157, 184,
Confederation, 65, 67, 70, 71, 72, 73–75, 173, 209, 248, 283, 377
189, 192, 194, 197, 302, 325 customs union, 216
Confederation Bridge, 199 dairy sector, 59, 105, 160, 194–95, 226
Conference Board of Canada, 279
Congress of Industrial Organizations, 86 Dawson City,YT, 200
Conseil du Patronat de Québec, 273 deadweight loss, 43, 56, 307, 374
426 index
debt, economic structure, 61, 65, 143–48, 158, 161,

citizen, 47, 250, 348, 369 170, 172, 177, 180, 188, 191, 218, 221, 311,
corporate, 44, 199, 261 323, 345, 348, 365, 374
government, 31–32, 47, 51–53, 56, 80, 101, economic union, 172, 202, 216
103, 132, 195, 242, 255, 299, 302, 321, Edmonton, AB, 117, 185, 276
333, 363, 375 education, 33, 36, 42, 56, 73, 104, 106, 112, 136,
public, 21, 53, 351 150–51, 157, 173, 177, 192, 269, 274, 301,
decentralization, 4, 7, 9, 34, 47, 175 310, 311, 323, 347, 352–53, 364–68
economic, 6, 7, 8, 9, 13, 16, 41, 49, 66, 77, 79, efficiency, economic, 40, 41, 43, 53–56, 77, 119,
81, 85, 89–90, 94, 99, 106–08, 113, 120, 121, 159, 161, 223, 268, 292, 301, 322,
122, 201, 323, 341 374, 377
policymaking, 35, 71, 82, 86, 89–90, 100, elections, 32, 34, 81, 87, 110, 111, 116, 117, 139,
113, 141, 169–72, 175–76, 190, 218, 187, 191–93, 219, 220, 251, 278, 302, 310,
229, 262, 286, 323–26, 342, 348, 363 314, 349, 356, 357, 360, 364
defence industry, 57, 84, 87, 119, 160 elites, 14–15, 17, 20, 22, 31–34, 68–70, 73,
deficits, 26, 31, 46, 51–53, 100–03, 130–32, 134, 80, 85, 90, 112–114, 120, 128, 130, 177,
191–92, 195, 198, 220, 250, 292, 294, 192–93, 285, 277, 347, 356–58, 369,
298–99, 301, 310, 315, 351–52, 384 378, 381
Delgamuukw v. British Columbia, 183 embedded liberalism, 22, 375
democracies, Emera (Nova Scotia Power), 198, 243, 261, 262
liberal, 4, 6–7, 31 Employment Insurance, 50, 86, 196, 293,
social, 17, 19, 27–31, 42, 50, 117, 188, 244, 300–01, 363, 366
257, 286, 301, 324, 328, 342, 350, 354, Energy East pipeline, 199
357, 363 energy sector,
demonstration effects, 97, 213, 236, 314, 374 Canadian, 2, 91, 92, 180, 186–89, 191, 199,
Department of External Affairs and 207–09, 211–12, 242, 248, 252, 260,
International Trade (DFAIT), 284 305–06, 313, 315, 352, 359, 361–64
Department of Finance (Canada), 52, 132, 133, global, 23, 87, 92, 185
134, 256, 297, 301, 307, 308 Enterprise Saskatchewan, 260
Desmarais family (Power Corporation), 154 environmental issues, 23, 27, 30, 36, 57, 100,
Devine, Grant, 245 139–41, 172–74, 184–86, 201, 211, 222,
Dexter, Darrell, 198 229–30, 275, 310, 358–63, 373, 380, 384
Diefenbaker, John, 33, 84, 87 Estrie region, QC, 194
Dion, Stéphane, 302, 310 equity, 7, 13–14, 17, 18–19, 27, 40, 54, 56, 59,
distributive politics, 17, 20, 33, 42, 45–50, 59, 194, 284–85, 294, 307, 308, 345, 363–69
82, 105, 150, 191, 230, 241–44, 249, 294– generational, 21, 376
98, 308, 313–16, 345–49, 354, 358–63, 369 horizontal, 20–21, 293, 376
Dodge, David, 132 vertical, 19–20, 296, 385
dominant firm competition, 162, 165, 239, 245, Europe, 13, 29, 53, 65, 68, 209, 379, 383
255, 261, 374 imperialism, 15–16, 70–71, 77, 183, 200
Douglas, T.C., 25, 33 political upheaval, 1, 66, 99
Downs, Anthony 29 European Union, 105, 107, 176, 195, 208, 210,
dual bilateralism, 218, 221 211, 215, 217, 220, 225–26, 227, 304, 325,
dual–class shares, 335, 337–39, 374 334, 343, 358, 369
duopoly, 98, 162–63, 242 exchange rates, 39, 40, 47–50, 105, 148,
Duplessis, Maurice, 82–83 178–79, 191, 207, 219, 314, 322, 327, 353,
364, 378
Eaton family, 154 Export Development Corporation (EDC),
economic growth, 241, 243
measurement of, 62, 177, 196–97, 371 export industries, 39, 48–50, 70, 78, 91, 100,
pursuit of, 1, 6–8, 13–15, 25, 39, 41, 43, 107, 161–62, 171, 178–82, 189, 200,
47–52, 54, 67, 68, 77–78, 82, 84, 88, 223–30, 260–61, 298, 304, 328, 361, 384
111, 166, 307, 347 externalities, 7, 20, 54, 57, 119, 121, 141, 229,
economic neutrality, 54, 60, 300 242, 243, 247, 379, 381
economic openness, 10, 40, 145–46, 205, Extractive Industries Transparency Initiative,
291–92, 348, 351 228
economic shocks. See shocks
economic stability, 1, 39–43, 49–50, 52, 53, 68, farmers, 17, 33, 71, 73, 76, 80, 81, 82, 97, 105,
159, 227, 259, 327, 351, 375 112, 165, 185, 188, 195, 249, 251, 357
Index 427
favouritism, Goodale, Ralph, 134

economic, 39, 54, 59, 89, 95, 118 goods–producing sector, 44, 45, 56–57, 78, 81,
political, 17, 18, 24–25, 35, 120, 244 96, 105, 106, 150, 156, 177, 179, 196, 197,
federalism, 3, 9, 10, 35, 47, 73, 85, 111, 169–76, 207, 208, 300, 356–66, 372, 382, 383
177, 375 government,
administrative, 176 business relations 13–15, 42–46, 58–60,
Canadian, 34, 120, 169–72, 192, 205–06, 69–72, 111–14, 121–29, 254–63,
342 270–76, 292–97, 300–05, 307–21,
executive, 176, 375 328–37, 339–42
fiscal, 176, 296, 311 divided, 222–24
interstate, 171, 206, 208 and globalization, 205–30
intrastate, 171 failure, 20, 23–24, 55, 68, 93, 211
and provinces, 171–74, 192, 201–02 industry ownership of, 26, 87, 236
and regionalism, 169–74, 201–02 policies, 5, 7, 9, 10, 13–14, 31–32, 41–42,
spending power, 172 45–56, 87, 206–07, 223–24, 235, 271
Financial Reporting and Assurance Standards government–business enterprises (GBEs), 5,
Canada, 234 10, 35, 59–60, 88, 89, 152, 154, 157, 254,
financial sector, 96, 98–99, 148, 212–15, 216, 371, 372, 373, 376
241, 258, 331, 336, 341, 342, 368, 375 assets and incomes, 237
Financial Stability Board, 227, 327 joint enterprises, 235, 377
firms. See corporations mixed enterprises, 235–36
First Nations. See indigenous peoples oversight, 239–40, 250, 336
fiscal policy, 29, 46–63, 85, 90, 106, 189, 233, privatization of, 96, 236–39
298–307, 311, 351, 375, 378 provincial, 170, 188, 189, 197, 256–62
fiscal sustainability, 39–40, 47, 61, 100, 104, 298, rationales for, 240–48, 374
316, 375 typology, 233–34
fishing industries, 70, 71–72, 73, 150, 155, 198, government relations. See public affairs
208, 359 Graham, Shawn, 199, 261
Flaherty, Jim, 134, 255–56, 302–04, 306–07, 309 grain sector, 71, 73, 78, 80, 97, 105, 158, 165, 188,
food–processing sector, 97, 150, 181, 189, 190, 213–14, 246, 249–51
199, 226, 230 Great Depression, 2, 23, 49, 67, 80, 82, 83, 188,
foreign investment protection agreement 376
(FIPA), 210–11 Greater Toronto Airport Authority, 235
Foreign Investment Review Agency (FIRA), 91 greenhouse gas (GHG) emissions, 140, 186,
foreign–owned companies, 9, 18, 47, 61, 84, 304, 358, 360–61
89, 98, 147, 136, 154, 155–56, 218, 328, Green Party, 30, 184
336 gross domestic product (GDP), 41, 47, 50–53,
forest industries, 70–79, 96, 107, 140, 149, 155, 101–03, 150, 177–80, 182, 191, 194–201,
161, 176, 180, 193–94, 198, 202–04, 208, 207, 209–10, 217, 258, 299, 320–21
223, 226, 230, 273, 283, 286, 354 Group of Seven (G7) nations, 206, 303, 309,
Forest Industries Association of Canada, 271 368
Forest Products Association of Canada, 273
Fortin, Pierre, 41 Halifax, NS, 195, 198, 261
France, 287, 303, 368 Harper, Stephen, 99–105, 110, 127, 131, 133–34,
free trade agreements. See trade 136–39, 224, 226, 249, 251–54, 302–06,
309–11
General Agreement on Tariffs and Trade Harris, Mike, 191
(GATT), 84, 385 Hayek, Friedrich, 144
General Motors, 107, 119, 222, 354 Heads of Agencies (HOA), 326
General Procurement Agreement, 106 health care, 106, 140, 151, 157–58, 162, 202, 273,
Germany, 4, 303–04, 368, 293, 331, 353, 383
Global Automakers of Canada, 273 household income, 177, 178, 180, 348–49,
globalization, 2, 8, 9, 10, 11, 27, 29, 32, 41, 65, 363–65
68, 100, 136, 205–30, 376 House of Commons, 169
and economic integration, 106, 107, 108, Howe, C.D., 85, 87, 372
205–09, 299, 328, 346, 379 Hudson’s Bay Company, 71, 74, 132, 148
effects of, 104–05, 112, 169, 205–06, 228–30, hydraulic fracturing (fracking), 186, 212, 361
350, 351 Hydro One, 235, 237, 257, 262
opposition to, 29, 324 Hydro–Québec, 193, 199, 242, 261
428 index
ideologies, Integrity Framework, 228

market, 18, 65, 67, 93, 99, 105, 112, 129, 233, intellectual property rights, 146–47, 158, 173
236, 256, 263, 306, 308, 353, 355 intergovernmental negotiations, 2, 86, 106, 130,
political, 22–34, 63, 87, 112–13, 182, 191, 241, 176, 217, 229, 235, 242, 280, 296, 375
244, 249, 257, 259, 262, 279, 282, 312, interest groups, 9, 10, 14, 17–20, 22, 25, 36, 40,
345, 351, 356, 364, 377, 380 46, 51, 59, 61–63, 65, 88, 90, 101, 105,
Ignatieff, Michael, 310 114–17, 122–26, 130, 138–41, 186, 362, 377
immigration, 21, 67, 74, 77, 106, 173, 175, 181, forms of, 169, 208, 272–79
184, 190, 192, 193, 195, 199, 221, 222, functions, 144, 152, 170, 174, 202, 268–72,
352–53, 367, 368 314, 357, 374
income transfer programs, 21, 42, 56, 195, 347, institutionalized, 128, 271, 307, 372, 377
371, 384 issue–oriented, 222–23, 282, 334, 350–51,
income trust debate, 127, 131, 134, 294, 304–07 358, 361, 377
India, 211, 327 interest aggregation, 269, 355
indigenous peoples, 3, 180, 189, 242, 248, 255, major stakeholders, 270
284–85, 367, 348, 362, 368 policy communities, 146, 279–87
governance, 35, 36, 201, 228 interest rates, 11, 47–48, 52, 53, 92, 101, 103,
land claims, 139, 186, 194, 201, 212, 359 209, 219, 255, 256, 305, 328, 329–31, 348,
rights, 23, 35, 139–41, 186, 200, 212 364, 378
treaties, 71, 74, 181, 183 international trade, 41, 51, 67, 107, 137, 145–46,
individualism, 31, 82 172–73, 176, 177, 208, 209, 213, 224, 292,
industrial revolution, 77, 78, 160, 383 295, 300, 380, 385
industries, interregional trade, 106–07, 145–46, 183, 202
primary, 70, 148–51, 177, 199 intraregional trade, 219–20
secondary, 148–51, 200 Inuit. See indigenous peoples
tertiary, 148–51 investment,
industry associations, 159, 202, 271, 276, 376, 384 business, 5, 6, 9, 10, 14, 27, 51, 58, 85, 118,
Industry Canada, 135, 136 157, 195, 200, 210, 239, 382
inflation, 2, 11, 26, 46, 47, 49–50, 82, 87, 91, 93, capital, 1, 2, 6, 39, 41, 44, 51, 55–56, 67, 72,
100–01, 103, 219, 246, 255, 294, 328–29, 78, 118, 159, 178, 239, 291, 300, 303
343, 349, 364 foreign direct (FDI), 95, 104, 135–37,
information asymmetries, 54, 164, 376 145–46, 156, 160, 172, 205, 208–10,
information and communications 297, 300, 319, 327, 374, 375, 377
technologies (ICT), 98, 146–47 funds, 21, 213, 332, 371
infrastructure projects, 18, 23, 36, 51, 56–58, 67, high–yield, 134
105, 107, 118, 139, 157, 171–74, 181, 184, Investment Canada Act, 137
212, 228, 242, 257, 262, 333, 359, 371 Irving family, 154, 199, 361
Innis, Harold, 71 Ivany report. See One Nova Scotia
innovation, 3, 4–5, 45, 46, 55–59, 66–67, 78–79, Commission (Ivany) report
88, 118, 121, 137, 146, 154, 160–61, 239,
245, 323, 361, 373 Jaccard, Mark, 361
institutional investors, 10, 11, 153, 235, 240, 249, Japan, 4, 139, 210, 225, 226, 273, 287, 327
306, 321, 331, 333, 334, 335, 336, 337, 338, job creation, 21, 42, 51, 84, 89, 91, 93, 100, 104,
341, 342, 376 111, 118, 127, 177, 294, 310, 333, 359,
institutions, 9–11, 16, 22, 34–35, 54, 65, 98, 365–67
107–08, 157, 173, 201, 214, 257, 321–23, Johnston, Donald, 14
331, 333–37, 343–47, 350, 372, 377, 380, 383 Judicial Committee of the Privy Council, 82
adaptability of, 120, 170–71
intergovernmental, 68, 96, 135, 217 Keynesian economics, 8, 25, 26, 29, 49–52, 65,
insurance companies, 5, 54, 98, 121, 149–51, 67, 68, 83–85, 87, 90–93, 301, 303, 350,
163, 165, 177, 179, 213, 246, 250, 255, 377
256, 269, 272, 321, 328, 333, 334, 341, Kingston, ON, 190
343, 376 Kitchener–Waterloo, ON, 190
integration, Klein, Ralph, 33
hard–law, 218, 376
horizontal, 164, 227, 273, 376, 383 labour movement, 17, 28, 30, 71, 79, 81, 205, 357
intermesticity, 217 Lac Mégantic tragedy, 212–13
soft–law, 218, 227, 229, 383 Latin America, 211, 343
vertical, 164, 165, 218, 376, 385 Laurier, Wilfrid, 67, 71, 75–80, 160
Index 429
legitimation, 1–2, 269–71, 345–55, 377 –led policymaking, 8, 9, 25, 43, 60–61,
types of legitimacy, 346–53 88–89, 111–13
Lethbridge, AB, 249 liberalism, 18, 26, 54, 147, 156, 378
Lewis, David, 33 marketplace,
liberal democracies. See democracies economic, 13, 40, 46, 267, 378
liberalism, of ideas, 266, 307–14
business, 24–26, 31, 87, 94, 114, 371 political, 54, 265–72, 276, 287
viz. conservatism, 25, 31, 188 Marsh Committee on Reconstruction, 83
social/welfare, 25–26, 27, 29 Martin, Paul, 94, 99, 100, 101, 105, 130, 132–33,
liberalization (trade), 2, 68, 96, 107, 139, 206, 253, 298–99, 301–02, 309, 328, 334, 351,
208, 221, 222–23, 224, 346, 363 363
Liberal Party, 20, 24, 30, 34, 75, 77, 80, 82, 85, McCain family, 199
87, 89, 99, 110, 134, 182, 245, 251, 299, McGuinty, Dalton, 171, 191, 313, 314
302, 304, 310, 313, 314, 328, 362 McKenna, Frank, 199
lobbying, 3, 9, 10, 36, 76, 121, 123, 127, 138, 144, mercantilism, 18, 67, 112
202, 223, 227, 377 National Policy, 15, 65, 67, 76–77, 190
definition and types of, 265–66, 377–78 neomercantilism, 14–15, 31, 58, 69, 76, 95,
legislation, 265, 277, 278 380
political organization of, 202, 272–79, 287 Second National Policy, 83–87
process of, 267–71 Third National Policy, 90–93
Lobbying Act, 274, 277, 278, 378 Mexico, 3, 95, 138, 139, 217, 218, 220–22,
Lobbyists Registration Act, 277 224–26, 303, 379, 380
London, ON, 190 Microsoft Corporation, 162
Lord, Bernard, 199 middle class, 20, 33, 34, 42, 94, 310, 342, 348,
low–carbon economy, 2–3, 24 349, 365
Lower Canada, 70–71, 72 Middle East, 211
Lower Mainland (BC), 181, 182, 184 mining sector, 72, 75, 79, 140, 149, 150, 155–56,
161, 179–80, 183, 194, 197, 198, 200, 230,
Macdonald Commission. See Royal 330
Commission on the Economic Union Mintz, Jack, 62, 132, 133, 300
and Development Prospects for Molson family, 154, 163
Canada Moncton, NB, 199
Macdonald, Donald, 94–96 monopolies, 58, 75, 80, 97, 98, 105, 118, 157, 159,
MacDonald, John A., 74–76, 77, 78, 92 162–65, 198, 213, 235, 241, 245, 246–48,
Mackenzie, Alexander, 75 249, 250–51, 261, 378
Mackenzie King, William Lyon, 81, 84 monopsony, 162, 165, 378
Mackenzie pipeline, 200 Montreal, 70, 74, 90, 122, 192, 193, 194, 242,
MacNab, Allan, 72 276
Manitoba, 33, 62, 81, 102, 178–82, 183, 188–89, Mouvement des Caisses Dejardins, 158
244, 246, 257–59, 312–13, 336, 365 Mulroney, Brian, 32, 93, 94–96, 99, 100,
Manitoba Forestry Resources, 258 106, 127, 135, 208, 209, 222, 245,
Manitoba Hydro, 258–59 277, 351
Manitoba Telephone System, 237, 258 multilevel governance, 36, 379
Manley, John, 278, 302 multinational corporations, 16, 155, 197, 215,
Manning, Preston, 33 227, 230, 260
Manufacturers Association (Canadian), 95 Canadian, 135, 194, 209–11, 228, 293, 296,
manufacturing sector, 30, 48, 71, 73–76, 81, 327, 328
84–85, 89 148–51, 155, 177, 181, 189–91, Muskrat Falls, NL, 243, 260
194, 220, 259, 297, 313, 339, 342, 366–69 mutual funds, 98, 213, 272, 329–30, 342
Marginal Effective Tax Rate (METR), 62,
133, 134, 291, 296, 302–03, 307–09, 312, Nalcor, 197
314, 378 national champion, 15, 58, 107, 244, 379
Maritimes, 31, 70, 75, 78, 81 nationalization, 19, 29, 80, 82, 242, 245
market, nation building, 15, 66, 69–70, 73–76, 88, 92,
–based decisions, 13, 27, 32, 45, 54, 58–61, 112
118, 184, 188 National Energy Program (NEP), 92, 161, 242,
concentration, 333–37, 341 374, 379, 384
failure, 19, 20, 40, 50, 54, 55, 79, 93, 241, National Farmers Union, 249
245–46, 378 National Housing Act, 255
430 index
nationalism, Office of the Superintendent of Financial

economic, 8, 14–16, 24, 30, 60, 67, 68–69, Institutions (OSFI), 256
73–74, 76, 84–85, 93, 179, 219, 223, oil and gas industry, 48, 87, 92, 97, 104, 116, 141,
258, 260, 263, 374, 380, 384 150, 163, 165, 183–87, 200, 211–12, 218,
interventionist, 16, 88, 89, 92, 93, 95, 377 230, 242, 273, 287, 304, 311, 315, 360, 379
liberal, 16, 26, 88, 91, 160, 243, 377 oligarchies, 13
Quebec, 16, 76, 86, 89 oligopoly, 119, 121, 162–63, 165, 247, 283, 286,
national majoritarianism, 348, 379 320, 373, 380
National Policy. See mercantilism Ontario, 74, 76, 78–81, 101–03, 107, 116–19,
negative–sum games, 2, 348, 379 171, 177–82, 189–92, 194, 253, 257–58,
neoclassical economics, 32, 41, 43, 53, 72, 161, 286, 293, 296, 310, 311, 326, 336, 342, 365
238, 301, Ontario Hydro, 80, 262
neoconservativism. See conservativism Ontario Power Generation, 261
neocorporatism, 13 Ontario Securities Commission, 326
neoliberalism, 8, 11, 13, 16, 26–27, 29, 32, 66, Ontario Teachers’ Pension Plan, 332–33
68, 88, 94, 99, 100, 160, 195, 238, 350–51, Organization of Petroleum Exporting
353–54, 356, 358, 379 Countries (OPEC), 91
neo–Marxism, 160, 164 Oshawa, ON, 190
neomercantilism. See mercantilism outcome manifestations, 114, 126–30
New Brunswick, 28, 71–72, 102, 140, 177, 179–
82, 196–97, 199, 213, 230, 240, 242, 253, Pacific Rim economies, 183
258–59, 260–61, 312–14, 326, 361, 365 Pallister, Brian, 188
New Brunswick Hydro, 199 Panic of 1873, 75
New Brunswick Power, 242, 261 Pareto efficiency, 43
New Democratic Party (NDP), 25, 29, 100, Parti Québécois, 28, 29–30, 193, 257, 258
174, 184, 186, 188–90, 198, 245, 251, patronage (political), 8, 33, 72, 78, 80, 82, 120,
258–59, 286, 301, 304, 310, 352, 362 198, 285
Newfoundland and Labrador, 49, 71, 105, 107, Pattullo, Duff, 82
175, 178, 195–98, 240, 243, 260–61, 276, Peckford, Brian, 260
293, 315, 352, 355, 364 Pension Fund Societies Act, 153
New West Partnership, 176, 184 pensions, 5, 11, 21, 51, 121, 153, 161, 213, 236,
Nicholson, Peter, 132 239, 240, 257, 294, 321, 328, 331–33, 342,
nongovernmental organizations (NGOs), 170, 371, 376
227, 228, 236, 275, 382 Petro–Canada, 92, 148, 235, 237, 242, 245
nonprofit companies, 152–53, 157–58, 234, 272, perfect competition, 162–63, 380
273, 276, 277, 293, 373, 383 pipelines, 87, 139–41, 149, 171, 183–84, 186,
Noranda, 148 199, 200, 201, 212, 222, 301, 311, 361–62
Nortel Networks, 148, 330, 344 policy communities/networks, 10, 124–25, 137,
North American Competitiveness Council 279–87, 307, 371, 377, 378, 380, 381, 384
(NACC), 138 policymaking, 2, 3, 5–11, 13–16, 18, 19–24, 31,
North American Free Trade Agreement 33–36, 45–56, 62–63, 113–16, 262–63, 367
(NAFTA), 48, 95, 104, 179, 207, 209, 211, attentive actors, 279–80, 371
215, 217, 218, 220, 222, 223, 298, 379, 380 autonomy, 126–30, 201–02, 219
Northern Canada, 65, 79, 141, 199–201 competition policy, 121, 130, 135–37, 148,
Northern Gateway pipeline, 141, 183, 184, 362 165, 166, 211, 229
Northwest Territories, 74, 200–01 fiscal and budgetary, 21, 46–49, 131–35, 176,
Notley, Rachel, 186–87 229, 233, 298, 311, 351, 375, 378
Novak, Michael, 4 lead agencies, 280, 281, 283, 377
Nova Scotia, 34, 76, 81, 102, 117, 140, 177, macroeconomic, 39–42, 46, 84, 100, 104, 378
180–82, 196–99, 257, 258, 261, 277, 304, microeconomic, 8, 46, 51, 58–61, 378
361, 365 monetary, 46–49, 51, 53, 104, 172, 255, 371,
Nova Scotia Commission (Ivany) report, 196, 378
198 probusiness, 8, 18, 58–59, 85, 111–14, 118,
Nova Scotia Power. See Emera 127, 130, 134, 136, 160, 245, 341, 382
nuclear industry, 245, 248, 253, 254, 261 premarket, 8, 18, 58, 60–61, 118, 166, 341, 382
Nunavut, 200, 201 shaping of, 129–30, 201–02, 223–24, 279–80
for stabilization, 49–53, 69
Oakville, ON, 190 structural adjustment, 46, 51, 68, 103, 384
Obama, Barack, 107, 138, 221–23, 354 turning points in, 67–68, 70–108, 208–09
Index 431
political cultures, 28, 29, 70, 100, 120, 141, policymaking, 15–16, 21, 24, 30, 39, 52, 58,
169, 170, 178, 184, 185, 188, 191–93, 85, 86, 106–07, 132, 169–73, 189–90,
197–99, 233, 257, 277, 286, 304, 311, 342, 199, 219, 238, 313–14, 361–62
345, 369 politics, 30–31, 69, 82, 88, 169–74, 192, 194,
political economy, 277, 357–58
business taxation, 291–316 powers, 172–73, 238–39, 361–62
Canadian, 1, 4–6, 8–9, 66, 83, 111, 172–73, regional development, 169–74, 189–91
319–43, 345 public affairs, 266, 376
corporate governance, 323–26 government relations (GR), 10, 123,
dimensions of, 1–6 265–66, 272–79, 376
evolution of, 1, 8–9, 111–13, 172, 262–63, public goods, 7, 13, 26–27, 40–42, 49–50,
319–43 56–58, 114, 118, 287, 346, 382
liberal, 18 Public Policy Forum, 274, 279
moral–cultural, 4–6 public sector, 4, 20, 22, 31, 42, 68, 87
political parties, 8, 14, 20–23, 25–34, 78, 81–83, funds, 5, 11, 45, 284
88–90, 93, 116–17, 174, 182, 184, 187, 193, investment, 5, 30
271, 278, 285, 347–51, 356–59, 381 services, 25–27, 31–32, 42, 45, 50, 52, 57, 99,
campaign financing, 20, 116–18, 120 105, 157, 181, 190, 199, 229, 234, 237,
political shocks. See shocks 246, 269, 295, 299, 315, 347, 355
pollution, 54, 57, 358–59
Poloz, Stephen, 53 Quebec, 16, 28–33, 81, 90, 100–02, 117–21,
populism, 13, 19–20, 29, 31, 32–34, 68, 78, 80, 160–61, 177–81, 191–95, 242–46, 261,
83, 84, 87, 197, 260, 301, 351, 354, 356–58, 286, 293, 295–96, 301, 310, 325, 331–42,
381 371, 382
positive–sum outcomes, 2, 381 Quiet Revolution, 23, 90, 193, 257, 350, 382
Potash Corporation of Saskatchewan, 119, 171, Quebec City, 193–94
211, 237, 243, 245, 259–60 Quebec Pension Plan, 161, 195, 351, 371
power, Québec Solidaire, 30, 193
corporate (market), 8, 99, 111–12, 122,
130–39, 141, 164 railways, 15, 33, 71, 72, 73, 213
countervailing, 125, 130, 373 BC Rail, 245, 261–62
intellectual, 114, 118–22, 129, 133, 137, 376 Canadian National (CN), 80, 163, 213
structural, 114–18, 143–48, 384 Canadian Northern, 78, 80
power generation sector, 161–62, 165, 187, 261, Canadian Pacific, 74–76, 163, 213, 337
359, 360, 361 Grand Trunk Pacific, 78, 80
Prairies, 72, 77, 90, 188, 379 Great Western, 72
primary industries. See industries Intercolonial, 75
Prince Edward Island, 177–78, 180, 196–97, National Transcontinental, 78
199, 230, 257, 296, 303, 312 Rand Formula, 86
Prince Rupert, BC, 183 Rawls, John, 42
private sector, 20, 48, 56, 84, 89, 92, 152, 156, real estate industry, 62, 103–04, 134, 150–51,
158, 175, 186, 233–35, 239–41, 244–45, 163, 177, 183–84, 202, 250, 255, 272, 306,
258, 277, 324, 333, 355–56, 366, 372, 378 333, 342, 348, 364, 371
process manifestations, 114, 122, 133, 135, 136, recession, 32, 50–53, 93, 101, 134, 178–79,
138, 382 192, 219, 222, 254, 298, 303, 304, 310,
Progressive Conservative (PC) Party. See 311, 314, 352, 353, 360, 362, 364–65,
Conservative Party 366, 382
Progressive Party, 81 Reciprocity Treaty, 71, 74, 80
protectionism, 17, 18, 23, 26, 30, 67, 71, 75–76, Reform Party, 100
78, 91, 106 Régie des Rentes du Québec, 331, 371
province building, 15, 16, 60, 66, 69–70, 90, 92, Regina, 75, 189
112, 185, 243, 245 Manifesto 29
provincial, regional,
autonomy, 173–74, 192, 201–02 decline, 196
federal relations, 15–16, 18, 21, 23, 35, 47, development agencies, 72, 171
49, 52, 60, 69–70, 73, 76–78, 106–07, disparities, 177–78, 192, 196, 382
169–74, 186, 189–90, 192, 194–95, ministers, 119, 171, 383
295–97 regionalism, 3, 15–16, 21, 22, 49, 65, 69–71,
government enterprises, 256–62, 277 229–30, 382
432 index
economic, 9, 18, 39, 49, 50, 66, 72, 73, 84, socialism, 17, 19, 23, 25, 26, 28–30, 33, 80, 84,
112, 193–94 188, 363
viz. federal government, 170–71, 177–201 social cohesion, 14, 68–69, 71, 84, 85, 88, 108
political cultures and, 170, 173–74 social movements, 14, 17, 29, 30, 33, 82
regulation, social services, 21, 73, 150, 151, 157, 173, 193
“command and control,” 14, 56 Softwood Lumber Agreement, 107, 223, 226
financial, 5, 8, 10–11, 14, 17, 25, 26, 34–36, South Asia, 184
89, 325, 379 Southeast Asia, 184
international, 27, 68, 212, 227–30, 376, 383 South Korea, 253
market, 44–45, 54, 159, 255, 323, 326, 343 sovereignty,
viz. policymaking, 43, 46–55, 58, 228–30, Quebec, 100, 193–94
328–41, 343, 362–63 state, 69, 135, 217, 375
regulatory capture, 245, 372, 383 Soviet republics, 211, 260
regulatory cooperation, 138, 221, 222, 223, 383, Standing Committee on Finance, 308–09
Regulatory Cooperation Council, 138 staples economy, 66, 69, 70–73, 78, 181, 185,
rent seeking, 17–18, 55, 59, 119, 164, 355, 383 383
resource industries, 18, 23, 30, 48–49, 70–72, state,
81, 89, 107, 139, 148–50, 177–90, 192–97, capitalist partnership, 14, 70, 71, 88, 92, 239
228, 259, 330, 352, 359, 362, 367, 383 directed policy networks, 287
Retail Council of Canada, 273 intervention, 14, 19–20, 24, 26–27, 30, 39,
Ridley Terminals Inc. (RTI), 249, 250, 252–54 44–45, 50, 58–60, 69, 76, 84, 86–87,
Romanow, Roy, 259 93, 136, 144–45, 159–60, 191, 210, 226
Rowell–Sirois Commission, 83 role of the, 8, 18–20, 27, 31, 34–35, 65–66,
Royal Commission on Corporate 86, 88, 111–14, 160, 256–57, 267, 348
Concentration, 159 statism, 70
Royal Commission on the Economic Union St. Catharines, ON, 190
and Development Prospects for Canada St. Lawrence River–Great Lakes region, 235
(“Macdonald Commission”), 94–96, steel industry, 15, 78, 79, 119, 149, 190, 198, 355
106, 207 Stephen, George, 75
Russia, 211 Stewart, Gordon, 70
St. John’s, NL, 198
Saint John, 199 strategic analysis (steps of), 267–68, 279, 384
Saskatchewan, 28, 82, 178, 188–89, 244–45, subsidies, 20, 44–45, 50, 82, 93, 97, 107, 119, 191,
258–60, 350, 354 234–35, 240, 254, 247, 253, 255, 277, 284,
Saskatchewan Party, 188, 189, 245, 260 293, 294, 296, 364, 380, 382, 384
Sault Ste. Marie, ON, 190 business, 10, 14, 17, 54, 58–59, 60–61, 74–76,
Scheer, Andrew, 32, 195 78, 89, 194, 198, 238, 256, 295, 297,
Schumpeter, Joseph, 2, 113 310, 314, 354
secondary industries. See industries Sudbury, ON, 190
sectoral associations, 138, 223, 273–74, 383 supply and demand, 8, 43–45, 56, 59, 97,
Security and Intelligence Review 145–46, 164, 193, 205, 219, 223, 224–27,
Commission, 287 366, 384, 385
Security and Prosperity Partnership, 138 Supreme Court of Canada, 23, 82, 171, 183,
shocks, 326
economic, 2, 13, 23, 26, 39, 52, 53, 66, 67,
70, 80, 87, 90–93, 100, 112, 120, 214, tariffs, 14, 67, 71, 73, 74, 76, 81, 83, 84, 86, 96,
256, 374 121, 190, 208, 216, 223, 224, 298, 379,
external policy, 23, 66, 206, 375 380, 385
political, 2, 13, 23, 39, 65, 66, 69, 70, 77, 100, common external, 216
106, 108, 112, 120, 146, 179, 381 harmonization, 216
protection from, 13, 52 taxation, 18, 26, 29, 33–34, 42–44, 47, 50, 51,
technological, 2–3, 11, 112 54, 73
Singapore, 4 benefit–related, 57, 96, 293, 367
Smith, Adam, 18 business, 10, 19, 25, 42, 58–62, 96, 107,
Sobey family, 154 131–33, 291–316
Social Credit Party, 33, 81, 82, 182, 185, corporate income (CIT), 19, 62, 127, 132,
187, 357 134, 192, 195, 215, 291–97, 305, 308,
social democratic parties, 9, 17, 25, 27–30, 31, 312–13, 315, 360
33, 42, 50, 114, 117, 182, 188, 193, 244, and international competitiveness, 133, 292,
246, 286, 301, 324, 328, 342, 357 296–98, 300, 302, 307, 309, 311
Index 433
personal income (PIT), 96, 132, 134, Trump, Donald, 3, 108, 39, 179, 187, 211, 219,
295–96, 304, 308, 310, 367–68; 220, 221, 351, 358, 364
reforms 43, 56, 60, 85–86, 96, 132, Tsilhqot’in Nation v. British Columbia, 23, 183
291, 302
sales tax (GST), 33, 43, 96–97, 127, 130, unemployment, 21, 26, 29–30, 41–42, 49–50,
134, 171, 182, 184, 186, 199, 215, 291, 55, 76, 82,–83, 86–87, 91, 177, 194,
296, 298, 300, 303, 304, 308, 309, 195–96, 200, 222, 367, 368
312, 314 insurance, 50, 86, 196, 293, 300, 363, 366
stealth, 308 Unifor, 355
unions. See trade unions
Technical Committee on Business Taxation United States, 6–7, 10, 13, 48–50, 53, 68, 82, 93–
(TCBT), 291, 297 97, 138–41, 207–12, 215, 220–22, 224–27,
technological change, 8, 40, 56–57, 59–60, 66, 305, 315, 351, 361, 369, 371, 379, 380
78, 113, 119, 144, 147, 160, 186, 187, 236, Civil War, 67, 76
239, 248, 319, 364, 366, 384 United Steelworkers, 355
tertiary industries. See industries Upper Canada, 70–71, 72
telecommunications sector, 17, 59–61, 96–98, User Fees Act, 309
104, 119, 121, 134, 149, 160, 163, 155, 172,
202, 218, 238, 246 Vale (Voisey’s Bay, NL), 198
Telus, 306 Vancouver, 75, 181–84, 276, 349
Temporary Foreign Worker Program, 20, 353 Vancouver Island, 183, 184
think tanks, 62, 63, 129, 133, 135, 136, 270, Vander Zalm, Bill, 33
279–82, 307, 355, 384 Via Rail, 247
Thunder Bay, ON, 191 Victoria, BC, 181
Toronto, 74, 122, 190, 276, 338, 368 voters, 7, 19, 22, 29, 34, 78, 100, 129–30, 175,
Toronto Electric Commissioner v. Snider, 82 193, 249, 306, 310, 346, 350, 362
Toronto Stock Exchange (TSX), 148, 239, 306,
320–21, 333–34, 336, 338 Wall, Brad, 171, 188, 189, 260,
tourism industry, 181, 198–200, 273, 383 welfare state, 8, 20, 25, 29, 31, 65, 67, 81, 84, 86,
trade, 92, 113, 193, 350, 375
free, 71, 74, 76, 84, 93–108, 117, 207–11, Western Canada, 17, 31, 34, 49, 65, 67, 71, 72,
215, 216 74–76, 79, 80, 81, 86, 100, 169, 250, 259,
policymaking, 139, 171, 176, 195, 216, 220, 314, 342, 364, 365
221, 246, 249, 342, 373 Western Canadian Wheat Growers, 249
terms of, 27, 39, 43, 48, 67, 148, 159, 226, WestJet, 98, 160, 162, 163
342, 384 Weston family, 154
trade agreements, wheat, 15, 72, 78, 97–98, 105, 162, 165, 188, 189,
Canada, 2, 3, 23, 24, 32, 48, 84, 94–107, 117, 213, 214, 235, 246, 248–51
176, 195, 207–09, 215–16, 224–26, Whitehorse,YT, 200
371, 372, 379, 380 Williams, Danny, 260
(re)negotiation of, 3, 104, 176, 179, 207, Wilson, Lynton “Red,” 136
209–11, 215, 351 Wilson, Michael, 97
trade associations, 225, 272–74, 276, 376 Winding–up and Restructuring Act, 153
Trade, Investment and Labour Mobility Windsor, ON, 190
Agreement (TILMA), 183–84 Winnipeg, 75, 188, 189, 276
trade unions, 17, 20, 22, 28, 30, 79, 84, 86, 117, Workers’ Compensation, 54, 80, 293, 371
153, 159, 192–93, 202, 244–5, 274, 277, World Trade Organization (WTO), 97, 135,
319, 324, 325, 355–56, 367 207, 223–24, 339, 385
Trade Unions Act, 153 General Procurement Agreement, 106
TransCanada Keystone XL pipeline, 87, 140 Uruguay Round, 66, 95, 104, 209
Trans Mountain pipeline, 362 World War I, 65, 67, 71, 78
Trans–Pacific Partnership (TPP), 138, 139, World War II, 8, 18, 23, 42, 50, 65, 67, 92, 144,
225, 226 191, 363
transportation sector, 15, 17, 21, 36, 97–98, 104, Wynne, Kathleen, 171, 192
119, 149, 150, 156, 172, 183, 200, 202, 209,
212, 213, 238, 377 Yellowknife, NT, 200
Trudeau, Justin, 103, 134, 136, 141, 212, 226, 228, Yukon Territory, 200
249, 252, 304, 310, 311, 351, 352, 360, 362
Trudeau, Pierre Elliott, 2, 8, 24, 88, 89–95, 103, zero–sum games, 2, 25, 45, 88, 105, 139, 141,
104, 106, 110, 242, 284, 384 169, 175, 240, 348, 385

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Uneasy Partnership

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Library and Archives Canada Cataloguing in Publication

Hale, Geoffrey, 1955–, author

Includes bibliographical references and index.

1. Industrial policy—Canada. 2. Business and politics—Canada. 3. Canada—Economic policy. I. Title.

hd3616.c33h35 2018 338.971 c2017-904212-2

North America UK, Ireland, and continental Europe

orders phone: 1–800–565–9523

This book is printed on paper containing 100% post-consumer fibre.

List of Tables vii

1 Business, Government, and the Politics of Mutual Dependence 1

2 State, Business, and Society: The Political Roles of

4 Canada’s Economic History: Government, Business, and the

6 Canada’s Economic Structure: Diversity, Dynamism, and the

8 Globalization, Trade, and Business 205

9 Canada’s Crown Corporations and the Changing Face of State

12 Putting the “Capital” into Capitalism: The Political Economy of

2.1 Democratic Socialist and Social Democratic Parties in Canadian

7.8 GDP Growth and Broader Public-Sector Share of GDP, Canada

12.9 M&A Transactions over $500 Million (constant 2007 $) Involving

2.1 Nationalism and the Politics of Identity 16

4.1 Unemployment during the 1930s 83

C anada stands out as a stable, prosperous country, particularly in light

economic and political systems (O’Connor, 1973). In the absence of growth,

effects. So could emerging proposals by American president Donald Trump

These expectations reflect a fourth dimension of the study of politi-

Canadian Capitalism in Historical and Comparative Perspectives

Studies in comparative economic history suggest that the particular nature

approach to policies, including taxation and regulation, designed to support

Business, Government, and the Reality of Mutual Dependence

A fundamental characteristic of Canada’s political economy and of rela-

distribution of social and economic opportunities among citizens (and busi-

mainly corporations of various kinds, supply and demand in the workings

particularly in federal politics. It notes the evolution of rules governing lob-

Canadian governments of all political stripes have used government

Key Terms and Concepts for Review (see Glossary)

Accumulation Interest groups

Questions for Discussion and Review

1. What is meant by the interdependence of political and economic sys-

G overnment engagement in the economy is frequently justified in

Political Roles of the State: Referee, Partner, Guide, or Master?

The history of economic development demonstrates that there are numer-

power to foster mutually beneficial alliances with major economic and

and support domestic economic expansion, often by developing the

Box 2.1 Nationalism and the Politics of Identity

Dominant political/ Pursuit of autonomy/greater range

Imperial Power Canadian Economic Nationalism

Central Canadian Regionalism/province building

English-Canadian Domination Quebec nationalism

These policies helped to create an environment of mutual dependence

Mercantilistic policies are in direct conflict with ideologies oriented

Governments also seek public support by using their power to redistribute

power. Examples include the Chrétien government’s 1998 veto on major

economic advantages that enable individuals to compete in or contribute to

Politics, Ideology, and the Economic Role of Governments

of government. For example, Ottawa’s embrace of a free trade agreement

climate, while accommodating agendas of other social groups that do not

While maintaining a broad sphere of economic and social freedom,

“overextended” state while engaging in selective activism to facilitate

Socialism, Social Democracy, and Progressivism

Democratic socialism and its reformist cousin, social democracy, provided

Table 2.1 Democratic Socialist and Social Democratic Parties in Canadian

1 Business, Government, and the Politics of Mutual Dependence 1

2 State, Business, and Society: The Political Roles of

4 Canada’s Economic History: Government, Business, and the

6 Canada’s Economic Structure: Diversity, Dynamism, and the

9 Canada’s Crown Corporations and the Changing Face of State

12 Putting the “Capital” into Capitalism: The Political Economy of

7.8 GDP Growth and Broader Public-Sector Share of GDP, Canada

12.9 M&A Transactions over $500 Million (constant 2007 $) Involving

2.1 Nationalism and the Politics of Identity 16

4.1 Unemployment during the 1930s 83

1. Compare and contrast neomercantilism and market liberalism as alter-

Modern economies are complex systems with multiple, interdependent