Stephen Clarkson and Tim Lewis

The Contested State:

Canada in the Post-Cold War, Post-Keynesian, Post-Fordist, Post-national Era




However much professionalism may push political science towards a neutral style of analysis, metaphors persistently creep back in to enrich -- but also confuse -- its discourse. Take, for example, the "Gulliver effect." Proponents of this metaphor currently postulate that sovereign states(1) have a size problem.(2) They are both too small to perform some functions which are better left to supranational institutions, and too big to respond to the increasingly differentiated local and regional needs which are better met at sub-national levels of governance. If the federal state is as immutable as was Gulliver when tied down by a thousand points of string in Lilliput, then it is indeed destined for irrelevance. But this is a limiting narrative because it accounts for the possibility of change in neither the federal state's forms and functions, nor in its impacts on its environs.(3) If the metaphor of shape shifting is introduced different ways of conceptualizing the changing role of sovereign states emerge.

Initially shape shifting suggests the notion of changing state forms. To understand shape shifting we need to understand what the shapes of the state were, what has shifted them, and what they have become. The shape of the federal state in Canada has shifted over the decades while the context in which it operates has also changed. But identifying exogenously-driven changes in the form of the federal state is insufficient, for as shapes shift so do roles: when a state's forms change, its traditional functions may be discarded and new ones may be acquired. Understanding shape shifting, then, requires an investigation of function as well as form. Indeed, forms often evolve to meet functional requirements, just as forms may impose functional change. That shape shifting is possible suggests that there is something inherently adaptive about the federal state. Unlike Gulliver, it can move its limbs and even mutate.

The state is not, though, a chameleon: we cannot assume that shape shifting is simply a matter of responding to external forces. Changes in state forms and functions can be endogenously determined. Further, these changes can have effects on the world outside, particularly on other levels of governance. The shapes of sub-national, continental, or global levels of authority are themselves shifted by federal mutations. Just as the federal state responds to the context in which it operates, it creates an important part of the context to which other levels of governance respond. To operationalize the study of shape shifting, then, we need to understand changes in form and function, the exogenous and endogenous factors in which these changes originate, and the consequences of these changes upon other tiers which perform governance operations. In this endeavour we must anticipate having to deal with many levels and agents of causality in which factors under analysis are both effects and causes of other phenomena. These factors have contradictory effects, simultaneously centralizing and decentralizing, homogenizing and fragmenting the same political structure.

In so conceptualizing the possible transformation of the federal state, we must recognize that any analysis of change presupposes some degree of continuity. The metaphor of Gulliver may be too rigid, but the metaphor of jelly is too supple. A glance back since Confederation tells us that the federal state has already reconstituted itself in several palpably different incarnations, through a process of constant transformation. Yet over the decades its features have been stable enough that we can identify them as the things that have been changing. The federal state is not wholly malleable, and to the extent it is irreducible, change is built upon the history, structural forces, institutional capacities, and constitutional powers which comprise its core.

Our point of departure for this analysis of the Canadian state is the period following the turbulent, years of John Diefenbaker's transitional incumbency when Lester Pearson and Pierre Trudeau (1963-1984) attempted to complete and then sustain a social welfare state, which had been initiated during the last decade of the King/St. Laurent era, on the basis of macro-economic management and the pax Americana. Canada has always been a fundamentally liberal country, basically sceptical of coercive and concentrated state action, but there are different ways of being liberal. John Ruggie has called the apparently stable system of this era one of "embedded liberalism," in which market functions were woven into the social fabric so that moderately liberalized trade and international capital movements were subordinated to the interests of domestic policy autonomy.(4) The wealth- generation that this Keynesian welfare state redistributed emerged from the "Fordist" consensus which granted organized labour a share in the returns produced by mass-production manufacturing under conditions of growing productivity rates.

The international financial order set up at Bretton Woods in 1944 and the Keynesian and Fordist(5) rationales for economic management which it presupposed came under enormous strain following the disconnection of the American dollar from the gold standard in 1971 and the OPEC oil price and supply crisis of 1973. When, following these shocks, Canadian enterprise encountered difficulty competing in its own market because of declining tariff protection, it started expanding into the American market. Efforts, relatively coercive by Canadian standards, of the Trudeauites in the late 1970s to shore up a national mode of regulating the economy were comparatively illiberal and failed to mesh with a regime of accumulation that was becoming increasingly continental in its orientation. The disjuncture reached politically catastrophic proportions with their short-lived National Energy Program of 1980.

The election of the Progressive Conservative government of Brian Mulroney in 1984 appeared at first to be a rejection of Trudeau's successor, John Turner, not of the Liberal Party's policy heritage, at least in terms of bilingualism and the Canada Health Act, which Mulroney went to great pains to endorse.(6) Once settled safely into the prime minister's office, however, he responded to the advice of his finance minister, Michael Wilson, and of the royal commissioner, Donald Macdonald, to initiate a neo-liberal transformation of the country that was continued by the Liberal Party under Jean Chrétien. In the fifteen years from 1984 to 1999, the Canadian state has been reduced in some functions and made much more subject to the market, but remains strong in other areas so that it can discipline itself and society in the name of economic efficiency and individual liberty.

While it is indisputable that major political and cultural changes have occurred since the mid-1980s, we doubt the utility of describing them, in the words of much Canadian political economy discourse, as a shift from the paradigm of a "nation-state" to one of a post-Keynesian, post-Fordist, post-sovereign, or even post-national state. Apart from "post-modern," which contains a range of suggestive connotations concerning logic and reality in a world of interactive communications, multiple identities, and virtual realities, these "post-" labels constitute an epistemological quagmire. They are empty of positive content, merely suggesting that a central phenomenon in human society has been pushed off the historical stage, but not indicating what has taken its place. While empirically "lite", these post-it notions of the state are at the same time normatively heavy, infused as they are with nostalgia, apocalypse, and teleology.

Their nostalgic quality derives from the tendency to reify a late-lamented federal state by idealizing the regulatory capacity of what was in any case no more than a 'bastard' Keynesianism(7) and exaggerating the social harmony and stability in what was at best a "permeable' Fordism(8) whose self-serving bargain between business and labour leaders excluded other social forces. The limitations of Fordism and Keynesianism were disguised in the post-war era by productivity gains and economic growth which allowed the dominant protagonists an ever-larger piece of an ever-larger economic pie. The nostalgia is truly directed to this economic golden age and the possibilities for social progress it created.

Besides looking backward with regret, the post- labels look forward with despair. Their apocalyptic tone endows the present state with a terminal character: its proclaimed transmogrification into a neo-liberal monster implies that the Keynesian welfare state is history, its Fordist chapter closed. While it is true that politicians have systematically cut back welfare policies, the neo-liberal model has not achieved consensus as a desirable societal contract. Even if the public has come to accept as necessary the imperative of debt and deficit reduction, a balanced budget offers no general panacea. When forced by pressure from the financial markets, most governments cut back programs reluctantly in the hope that they can be restored once budgetary conditions improve. No sooner did the ultra-conservative Klein government of Alberta find itself with a budget surplus than it increased its funding for education.

More troubling analytically, the post- labels bear a teleological load that imputes to the state certain a priori functions which it ought to fill. One is given to understand that, if the state does not perform them, these services will not be provided at all, and the state itself will shortly lose its raison d'être and even self-destruct. This would have grave consequences in a country like Canada whose weak historical and cultural underpinnings put the onus on the federal state to create a political community where no other form of community existed.(9)

We do not contest the proposition that the functions performed by the Canadian state have changed substantially over the course of three and a half decades. Rather, we wish to propose an alternative to the emptiness of these post- conceptualizations. Instead of dwelling on the loss by the federal state -- whose characteristics constitute the focus for this annual series -- of certain functions deemed to be its inherent properties, we will examine how the location of some of these functions has shifted. We will pay particular attention to economic issues (including macro-economic, industrial, and trade policy), and then turn to such political attributes of the federal state as its social and foreign policies and its democratic practice in the context of the constitution's evolution. But first we need to reflect on the form within which Canada's state shapes are shifting.

I Reconceptualizing the Canadian State in a Multi-Level Framework

The evolution of the federal state from the social-democratic leanings of Lester Pearson and Pierre Trudeau to the neo-liberal orientation of Brian Mulroney and Jean Chrétien can, we believe, be best understood through a nested, five-tier model of state operations. The new state that is emerging reveals a disaggregated but integrated and interactive structure that operates from the municipal and provincial tiers through the federal and on to the continental and global levels.(10)

- While still showing dynamic capacity, the federal state appears most reduced in its functions, having lost powers upwards to the global and continental tiers, outwards to the market, and downwards to sub-national entities. Nevertheless, it has shown strength by taking bold steps both at home and abroad.

- Above it, a market-driven continental regime has become institutionalized first bilaterally with the United States and then trilaterally with Mexico. Although the federal state is the prime formal interlocutor in continental politics, the provinces play active roles beyond their borders with their sub-national counterparts, primarily in the US.

- The global order is made up of a set of supranational and inter-governmental institutions in whose agenda setting and management the federal government actively participates as a sovereign state which consults the provinces according to their constitutional jurisdiction.

- While these provincial governments have not developed a major international role, they have gained power from the federal level. At the same time they have lost capacity to the market and off-loaded functions onto their cities.

- At this, the municipal level of governance, cities have gained further responsibilities, but in some cases have lost the financial means necessary to meet them.

Not all of these levels of governance can be properly described as "states." In Canada only the federal and provincial levels have formal constitutional standing, municipalities remaining the colony-like creatures of their provinces. However, there has been sufficient institution-building at the other levels that governance functions with the quality of "stateness" are performed at each tier in the model.(11) While the impact of change at each level is worthy of extensive investigation in its own right, our concern in this chapter is the federal state in Canada. Accordingly we will elucidate the other four tiers only as far as is necessary to understand Canada's federal level of authority.

1. The Federal State

The federal state started its shift towards neo-liberal governance some two years before the election of Brian Mulroney's Progressive Conservative government in 1984 and has been realizing this never-declared mandate ever since. As many scholars have shown, it is accurate to identify the neo-liberal state with an offloading of functions to lower levels of governance, an uploading of authority to the global and continental tiers, and a greater reliance on the imperatives of the marketplace.(12) But these apparent losses of power have occurred because the federal state has displayed considerable strength. It balanced its budgets by taking steps which institutionally entrenched interests, including the provinces, often fought, and it imposed structural reforms which favoured market outcomes constraining both state and civil society. It used its treaty power to create a new continental regime of accumulation in which it has been an enthusiastically self-restraining participant. The Bank of Canada introduced John Crow's "price stability" policy in 1987, which exerted substantial discipline on market actors and provincial governments.(13) Successive federal governments cut and "reinvented" social programs, constraining citizens' ability to protect themselves from the consequences of market functions. In each of these cases, new disciplines were exerted over provinces which were forced to cope with new difficulties. While the federal state has divested itself of some authority, the process of changing its role has required Ottawa to take strong and concerted action. To the extent that the federal state has been operating under neo-liberal norms, whatever shifting of authority that has occurred is not interpreted as a loss by the government of the day or its officials, who view their achievements as properly reconstituting the federal state.

The federal state also maintains an important role because it nurtures vestiges of embedded liberalism. Part of the Chrétien Liberals' rationale for deficit elimination has been to ensure that the federal state can continue to play a role in social policy. In this regard it maintains important continuities with the paradigm which prevailed under the Pearson/Trudeau Liberals. While some may not approve of the life it is leading, reports of the federal state's demise have been greatly exaggerated.

2. The Global Order

Although the evolution of a global level of governance clearly derogates from the freedom formerly enjoyed by sovereign states to run their own affairs, the sovereign state's loss of internal sovereignty may be partially offset by its capacity to exercise external sovereignty through participating in the deliberative process at the global level that establishes the norms, regulations, and disciplines it subsequently imposes on itself.(14) In 1990, half-way through the long Uruguay Round, Canada was the country that proposed introducing the more authoritative institutional structure that transformed the famously ineffectual General Agreement on Tariffs and Trade (GATT) into the much more substantial World Trade Organization (WTO). Ottawa believed that a mid-sized state was better off in a rules-based system with a dispute settlement mechanism strong enough to enforce the rules. The same round of trade talks also yielded what had escaped the grasp of Canadian negotiators with the United States over the Canada-United States Free Trade Agreement (CUFTA). The WTO's comprehensive subsidy code promises to reduce the vulnerability of Canadian exports to the kind of American harassment that alleges unfair subsidies and imposes stiff countervailing duties.

Canada experiences much of globalism's constraint as an extension of a US-dominated continentalism with which it has long had to deal. Two illustrations from the WTO make this clear.

- Trade-related intellectual property rights (TRIPs) were adopted thanks to years of sustained lobbying from the American information, entertainment, and pharmaceuticals sectors. First incorporated in the Uruguay Round's Dunkel draft, then embedded at US insistence in the North American Free Trade Agreement (NAFTA), they ultimately became part of the WTO's General Agreement on Trade in Services. With TRIPs enshrined in the new trade order, Washington, supported by the EU, pressured Ottawa to adopt these norms. Its compliance gave the foreign-owned pharmaceutical subsidiaries generous protection for their branded drugs and eliminated the legal base for the Canadian public health system's much cheaper, generic drug suppliers.(15) Canada's autonomous drug policy was thus undermined by its own concurrence with a US-initiated reconstitution of both the continental and global normative regimes.

- Although CUFTA had grandfathered such Canadian cultural policies as the interdiction of split-run editions of American magazines, Time Warner induced Washington to lodge a case with the WTO's new dispute settlement body against Ottawa's barring the distribution of a Canadian advertising edition of Sports Illustrated. The WTO dispute panel and appellate body rulings reached back into Canadian political history to declare cultural policies democratically legislated years -- even decades -- ago to be invalid according to Geneva's 1995 trade rules (Magder, 1998 Endnote). In this case Washington's aggressive invocation of norms that it had managed to embed in the global regime helped it achieve the goal of unfettered access to its northern neighbour's advertising market that undermined Canada's precarious cultural autonomy. Such internationalization of US power represents an extension of the deep integration with the American system that the Canadian state has long experienced as part of a de facto continental regime.

3. The Continental Regime

The projection onto the global level of governmental, societal, or entrepreneurial actors also characterizes the development of continent-wide systems of governance. If an integrated North American market is being forged by corporations operating continentally thanks to NAFTA's new investment and trade rules(16) and if a halting evolution of continental norms can be detected in the work of dozens of working groups beavering away on specialized issues such as the transportation of dangerous chemicals,(17) one might think that the Canadian state was on the road to irrelevance. But NAFTA was carefully designed to prevent any supranational form of continental governance from developing. Far from encouraging greater political integration, its two English-speaking member states are carefully monitoring their borders to obstruct immigration from Mexico and restrict general labour mobility. In the name of their national autonomy, the three governments have already hobbled NAFTA's putatively autonomous Commission for Environmental Cooperation. In the interests of protecting their autonomy they are also resisting the creation of a North American monetary union that might clone Europe's EMU.(18)

The growth of continental forms of governance has an effect on the Canadian state parallel to that of globalism. The most controversial is the strictures on the range of permissible government action imposed by NAFTA and CUFTA on many policy areas formerly considered to be at the sovereign discretion of the federal or provincial states. This inhibition is the equivalent to the negative integration that characterizes the European Union's market-centred and state-limiting processes,(19) but its actual constraint on Canadian governments has been difficult to observe. A contemporaneous shift in the managerial philosophy of both elected and bureaucratic policy-makers away from a big-is-better activism in favour of a small-is-best disengagement makes it difficult to determine whether a reduction in interventionist practices by federal and provincial governments is due to officials' fear of falling afoul of the new continental rules or to their own proclivity for neo-liberalism. Non-decision-making is notoriously resistant to scholarly observation: analysts can rarely tell to what extent NAFTA has prevented state actions that might have been taken in its absence. Furthermore, Canadian governments may be renouncing industrial policies that support national enterprises because of their internally-driven compulsion to eliminate budget deficits, not because of NAFTA's national treatment principle.

4. Provincial Governments

As a rule, federal offloading has increased both the de facto and de jure jurisdiction of the provinces, which have welcomed the extra power when the financial implications were neutral but have had mixed reactions when federal offloading has not been uniform in its fiscal effects. When offloading has been accompanied by general cuts in transfer payments, all provinces have protested. When these cuts in transfer payments have disproportionately favoured the equalization-receiving provinces, their otherwise better-off cousins have objected vociferously.

Since the Canadian government negotiates trade treaties but can implement them only in areas of its own constitutional jurisdiction, provincial involvement has been necessary to realize more fully what are understood as the benefits of liberalized trade. For this reason, the federal level has encouraged increased provincial participation that started to emerge when the Tokyo Round of the GATT negotiations brought non-tariff barriers to the bargaining table.(20) Paradoxically, increased provincial trade policy-making involvement has resulted in decreased regional industrial policy capacity because principles such as national treatment or the right of establishment diminish a sub-national government's ability to foster its own enterprises' competitiveness. While provincial influence over trade policy has increased, it remains the case that Canada's global and continental trade initiatives have been driven by the federal government.(21) Growing authority of global and continental governance over areas of provincial jurisdiction suggests that increased provincial trade policy capacity has been as much a response to federal initiatives and to uploading as it has been a result of provincial autonomy expanding due to federal offloading or to independent "province-building."

The provinces' increasing fiscal weight since the 1970's has given them greater authority in what used to be the federal preserve of macro-economic management, but the use of this authority has been strongly influenced by the federal state. For example, vociferous provincial criticism of transfer cuts in 1990 was followed by just the kind of the tough deficit-cutting budgets at the provincial level that the federal government sought to provoke.(22) Monetary policy is a matter of federal jurisdiction and has also been used, particularly via the Bank of Canada's price stability policy, to influence provincial fiscal policy. All those attempting to swim against this monetary-policy tide eventually fell into line, particularly Ontario.(23) In sum, while provinces have acquired increased capacity and authority relative to the federal state, they have done so in a neo-liberal context that has been largely shaped by the federal state.

5. The Municipal Level

One consequence of federal devolution straining sub-national budgets has been provincial offloading to municipal governments. The effects of provincial decisions on municipalities have been dramatic, again especially in Ontario whose principal city has suffered a virtual putsch at the hands of Queen's Park. The great concentration of power in provincial executives jealously guarding their bailiwick has meant Ottawa's relations with municipal governments are far weaker than Washington's role in US cities, despite the fact that in both countries local governments are constitutionally the creatures of their states or provinces.(24)

This constitutional isolation does not mean Canadian cities are cut off from the international political economy. Indeed, a principal mechanism through which the global and continental orders operationalize themselves is through a network of international cities which act as growth nodes and connectors to other cities and their regional hinterlands.(25) This global-local interface, captured by the notion of "glocalization," has been affected by the federal government insofar as it has promoted or resisted globalization. In promoting globalization, for example through the WTO, Ottawa has enhanced the position of its international cities through which trade is organized, particularly Toronto, Vancouver, and Montreal. In refusing the application of four chartered banks to merge into two super banks, the federal state has implicitly declared its determination, in the face of globalization, to retain a regulatory authority that may help ensure Toronto's survival as a second-tier global financial centre.

II From Paul Martin to Paul Martin: Welfare to Workfare

Keeping this nested, five-tiered interconnection of governing structures in mind, we will proceed to investigate the changes from the Pearson/Trudeau to the Mulroney/Chrétien eras first by addressing the domain of economic policy.

The activist state was clearly what Lester Pearson's coterie of ministers and advisers -- the economic nationalist, Walter Gordon, the Fabian democrat, Tom Kent, and the social welfare advocate, Paul Martin -- thought they had been elected to construct in the mid-1960s. Pierre Trudeau's writings display a related belief in equity-oriented social engineering as the proper role for the modern state. His promise of a "just society" was clearly premised on the belief that state action was necessary if social justice was to prevail over the inequities caused by laissez-faire capitalism. By contrast, what makes the current epoch post-modern is the scepticism that states can be rationally and purposefully run to achieve any specific ends. If government is more likely to be the problem than the solution, then it has no business in either the bedrooms or the boardrooms of the nation.

The degree to which the Keynesian vision has been superceded by the neo-liberal model is indicated by shifts in approach where:

- the long-run prevails over the short-run as the policy focus;

- controlling inflation trumps reducing unemployment as an immediate priority;

- direct government intervention is viewed as inappropriate because economies are believed to reach an optimal equilibrium through the play of market forces;

- the supply as opposed to the demand side of the economic equation is emphasized;

- deficit finance is seen as an unacceptable policy tool.

None of these characteristics in and of itself defines the character of economic policy, and to some extent both species of policy are always operative. Nevertheless, the neo-liberal vision tends to delegitimate the state's use of direct, short-term, demand-based, deficit-supported measures. With its emphasis on structural, long-term, supply-side, fiscally balanced policy, the neo-liberal state has neither a capacity for nor an interest in day-to-day economic intervention.

In Canada changes in macro-economic policy, industrial policy, and trade policy have been closely connected. Under neo-liberalism these three fields share a diminished concern with the demand side of the economy in favour of engineering permanent, structural solutions. As attention has turned towards the international competitiveness of the Canadian economy, expanding trade has displaced deepening domestic demand as a prime goal of public policy.(26) The shift from one paradigm to the other can be understood as a movement away from a Fordist regime of accumulation (the set of arrangements through which capitalist accumulation functions during a particular historical stage) and from a concomitant Keynesian mode of regulation (the institutional framework within which accumulation is realized). Just as Keynesian demand manipulation through fiscal and monetary policy became politically incorrect, high wage levels on the Fordist model lost their primacy as a means for supporting domestic demand. The Swedish high-wage, high-tech success story, so attractive to Canadians with a post-Keynesian mind-set, [Wally Clement reference: ask Mel] was dismissed by neo-liberals who believed high wages impaired the country's international competitiveness. The focus on trade has depreciated the importance both of industrial policy and of discretionary, interventionist macro-economic policies. It has also shifted the levels in the multi-tier model at which governance functions occur. Control over industrial policy, for example, now resides at least as much in NAFTA's interdictions and the WTO's subsidy code as in provincial capitals.

I. Macro-economic Policy(27)

For three decades after World War II Ottawa believed that, by adjusting both monetary and fiscal levers, government could even out the ups and downs of the business cycle. By the late 1960s Keynesianism had become associated with the notion, embodied in the Phillips Curve, that inflation and unemployment were direct tradeoffs: if one variable was high, the other would be low.(28) The emergence of "stagflation" in the 1970s -- the coexistence of high inflation and high unemployment -- necessarily called into question this relationship and so Keynesianism's credibility. It also prompted three important policy changes in the mid-1970s which heralded the beginning of the end of the Keynesian era.(29) The imposition of the Anti-Inflation Program (AIP) by Finance Minister Donald Macdonald, the introduction of "monetary gradualism" by the Bank of Canada, and the restriction of growth in federal spending to no more than trend growth in GNP signalled important discontinuities with the Keynesian mode of regulation.(30)

These changes did not imply that Keynesian practice was completely rejected in Canada. The persistent deficits which began in 1975 were presented at the time as primarily countercyclical responses to an economic underperformance which was not yet understood to result from a secular downshift in growth and productivity rates. While countercyclical demand management had been fettered, budget documents through to 1984 still defended deficit financing as an appropriate policy to offset cyclical economic underperformance.(31) Keeping federal spending growth within the GNP growth trend was explicitly argued to be consistent with deficit spending in a down year: when growth was beneath the previous trend, spending at the trend level that year would be stimulative.(32) There were no constraints placed on the tax cuts ("tax expenditures") which became the primary mechanism used in the 1970s to stimulate the economy. In the context of stable spending on social welfare, these concessions to business and to middle- and upper-income taxpayers significantly lowered federal revenues and became the direct source of what hindsight would demonstrate were structural deficits. Although the means of what was conceptualized as countercyclical deficit finance had shifted somewhat during the 1970s, the norms remained as alive and well as they had been before 1975.

While marking important alterations of the policy prescribed by the Keynesian consensus, the AIP and monetary gradualism were designed to deal with inflation without harming the short-term employment levels that were such a Keynesian concern. By controlling wages and prices directly, the federal government sought to reduce inflation without creating higher unemployment.(33) Monetary gradualism was articulated as a longer-term complement to the AIP in the sense that a steady reduction in money supply growth was preferable to a harsh monetary contraction in its effect on employment.(34) Along with deficit finance, these policies made sense only in terms of a Keynesian concern for the short-term employment effects of a fast contraction of demand. In a difficult economic situation they supported the notion that social justice required state action to protect against economic dislocation.

These policy changes did not imply a reduction of the federal state's role in the economy. On the contrary, the AIP extended the federal state's power to a sphere with which it had little previous experience. Significantly, the courts legitimized this increased federal jurisdiction in the face of provincial protests.(35) The Trudeau government's intractability in its dealings with the provinces; its distrust of continental integration as manifested by the "third option" with respect to trade; its creation of the Foreign Investment Review Agency; and its commitment to the National Energy Program showed that Ottawa refused to abdicate its role. Indeed, the 1983 "recovery budget" presented by Finance Minister Marc Lalonde was probably the most Keynesian budget of the post-war era. It proudly boasted of its high deficit as a means to boost employment and facilitate recovery from the 1981-82 recession.(36)

Although consistently defended by Prime Minister Trudeau and his government, the federal role was nevertheless challenged by the province-building which had began in 1960 with Quebec's Quiet Revolution and had spread in the 1970s to the western provinces. Provincial governments were becoming more important economic actors, both in absolute terms and relative to the federal government.(37) The friction with business and the provinces caused by Trudeau's intervention in micro-level decisions created a generalized obloquy in the private sector, some provincial capitals, and the media over any policy which impacted upon corporate or provincial autonomy. The resulting delegitimation of interventionist policy by the early 1980s created political opportunities for Brian Mulroney's neo-liberalism, which advocated a state that provided a context for private sector growth without making decisions for it. Having campaigned in part on restraint in government, the Tories deplored the deficit financing in which the Trudeau Liberals had engaged for the decade preceding Mulroney's ascension to power.(38) The official disavowal of the Keynesian consensus in Canada was signalled shortly after the Progressive Conservatives took office when the new minister of finance, Michael Wilson, presented a document which defined the economic doctrine for the new government's mandate.(39) In A New Direction for Canada deficit finance was no longer conceptualized as an appropriate response to economic underperformance during the business cycle; now it was seen as dangerously inflationary. Deficit reduction was identified as an important part of the comprehensive reforms which the Mulroney government believed would restore competitiveness to the Canadian economy.

In the event, Tories did not come close to attaining this deficit reduction goal even though, or rather because, they implemented other politically costly changes. The Bank of Canada's price stability policy(40) combined with CUFTA to brutally exacerbate the impact of the 1990-91 world recession.(41) This economic slowdown actually necessitated increased government spending (particularly in unemployment insurance payments and debt servicing charges) and resulted in major tax revenue reductions -- and so a rising deficit. Procrastination in introducing the Goods and Services Tax (GST) made fiscal balance still more elusive.

These structural reforms were conceptualized by the Mulroney government as necessitated by the federal state's loss of power to international economic forces which had eroded Ottawa's capacity to intervene effectively in either Keynesian or post-Keynesian terms. Instead of trying to insulate Canada from ineluctable global economic forces, the only reasonable response was seen as embracing and enhancing them so that Canada could win the unavoidable international economic contest. The GST exemplified this attitudinal shift: it liberated domestic producers from a manufactures tax that harmed their competitive position. A consumption tax, though regressive, was a lesser, and much preferred, evil.

Price stability policy disciplined wages both by reducing inflation and by creating enough unemployment to weaken the bargaining position of labour. Neo-liberal restructuring also had definite implications for the balance of power between the federal government and the regimes below and above. Price stability policy, the GST, and free trade required a federal state strong enough to implement them over objections from various provinces because of their important regional consequences.

The alienation of jurisdiction by the federal government to the global economy it reified and to the continental trade and investment regime it negotiated impeded Ottawa's efforts to balance its budget. In hobbling economic performance and raising debt servicing charges, these structural policies contravened the government's fiscal goals even though the rising deficit in the early 1990's exacerbated the perceived urgency of deficit reduction. While the fiscal condition was made worse by moving authority to global and continental regimes, it was also a crucial reason for the movement of state functions downward to lower levels in the multi-tier state. Caught in this dilemma, Ottawa made substantial cuts to social programs "by stealth"(42) and offloaded some of its fiscal problems by cutting transfers, particularly to the "have" provinces. In this way both deficits and more responsibility for social policy were shifted down to the sub-national tier which in turn passed its problems on to the municipalities. Offloading responsibilities to the provinces (environment), deregulating services (transportation), downsizing (cuts to the federal civil service's employment base) and privatization (sale of crown corporations such as Air Canada) reduced the functions and the structures of the federal state.

The fiscal position of the federal government was much further in the red when the Mulroney government left office than when it took power, but the Progressive Conservatives did create the political conditions which would allow Jean Chrétien's finance minister, Paul Martin, to eradicate the deficit. The recession of the early 1990s, and the very slow recovery which followed, accelerated and deepened a trend toward delinking the perceived interests of the Canadian mass public from the Keynesian welfare state and the deficits which support had come to support it. High unemployment, declining real incomes, and the shift of employment from unionized to non-standard work undermined the sense of mutual aid which had once generated public support for a more generous state. Instead, the combination of great personal economic stress among the general public and its sense that the welfare state benefited only privileged bureaucrats and special interests elicited a rightwards turn inward for self-protection. In addition, there was a growing apprehension among the public that the welfare state would not long survive to help people, even when they ultimately qualified for support.(43) This changed consciousness allowed deficit reduction to be credibly presented as a matter of the "general" interest. Mass public support for the endeavour allowed cutting to be done in the open rather than by stealth, and gave the Liberals the electoral backing for deficit reduction that had eluded Mulroney's grasp.

The structural transformation of the economy engendered by free trade and its massive dislocation of the manufacturing sector was largely completed by the time the Progressive Conservatives were routed from office and no longer impeded fiscal control by buffeting the economy. The GST was in place by 1991 and became a vital source of increasing revenue. The government could at least plan around a predictable level of underperformance (particularly high unemployment) rather than have to cope with a deep recession and rebuild the revenue structure. NAFTA consolidated the integrating continental economy's reconstruction; it did not constitute a change in kind. When interest rates started to fall after 1995, the government reaped big rewards in the form of lower debt servicing charges.

The Liberals purged Keynesian notions from their public rhetoric to a greater extent than had their Tory predecessors. Deficit reduction was to be permanent, not simply confined to the upside of the business cycle.(44) Even if the government believed that demand contraction following from fiscal retrenchment would have a negative impact on growth or employment, it was not so foolish as to admit this out loud. The political space for the government's fiscal agenda widened to the extent that the public no longer connected deficit elimination with economic underperformance.

The combination of the inherited Mulroney measures, public support, and the final purging of Keynesian ideas surrounding deficit finance meant that the fiscal question could become the dominant content of policy and debate during the Liberal tenure through 1998. Policy of all stripes was filtered through its relationship to the government's fiscal priority. While Paul Martin's insistence on making prudent assumptions and keeping a contingency reserve certainly facilitated deficit reduction, the real explanation for his success in balancing the budget and then running surpluses was the Liberals' remarkably disciplined commitment to the goal even in the face of concerted provincial opposition to transfer payment cuts. Their tenacity proved possible because it was electorally viable and brilliantly marketed. No unfinished structural reform remained to push the government off its track.

One interpretation of the relationship between the Liberals' fiscal performance and the role of the federal state argues that fiscal retrenchment led to budget cuts which resulted in even more offloading of fiscal problems to the provinces and a substantial reduction in the capacity of the federal state. In short, the neo-liberal character of its fiscal contraction made mandatory a further shrinkage in, and some redefinition of, the federal state's role in the economy. No longer would the state take responsibility for the national transportation system. Federal transfer payments that had matched provincial payments for social assistance dollar for dollar under the Canada Assistance Plan were combined with the Established Program Financing block transfers for health and education in 1996 to produce the Canada Health and Social Transfer (CHST) which cut federal transfers by over $6 billion. The CHST's fixed sum vitiated the automatic countercyclical content of the CAP. With its diminished funding came reduced federal control over the content of social policy. The government also appeared to have ceded some of its regulatory function to the self-auditing of the business community in areas such as public health.

Another interpretation of the Liberal record is that the government reluctantly cut programs to preserve its social policy power in the longer run. While the social and regulatory tapestry was torn by what were indeed neo-liberal measures, this damage was presented by Liberals as a temporary, if necessary, response to the government's fiscal straits. These difficulties included rising debt interest payments which threatened to squeeze out valuable program spending and demand leakage that accompanied paying interest to foreign holders of Canadian debt. Only by balancing their books, these Liberals maintained, could social programs be saved and ultimately strengthened. Once budgetary surpluses were achieved, it would be possible both to reduce tax burdens and to "reinvest" in the social web. On this view, fiscal retrenchment was a means to higher social goals, and could be conceptualized as participating in embedded liberal visions of the secure society which the government purported to be fostering. This argument is consistent with Paul Martin's advocating a reinvigorated international "architecture" with strengthened Bretton Woods institutions.(45) His efforts at the International Monetary Fund harkened back to Canada's role in the creation of the post-war order, and, if successful, would also help embed macro-economic regulation in higher levels of governance. The endeavour could be understood as moving authority up to the global level in part so that the federal state could be salvaged along with its domestic policy objectives.

The liberalism of the Chrétien regime has proven more "neo" than "embedded." Social programs now do more to facilitate market functions than to protect citizens from them. Having lost their justification as automatic stabilizers of demand, they have acquired a supply-side rationale as "bridges" to employment. The federal fiscal structure has become much less sensitive to variations in economic conditions than was the case even in the early 1990s. Keynesian demand management is now dismissed in the rhetoric of budget documents as policy without economic value. Concerns about short-term employment have disappeared from policy-makers' discourse. Yet, while the Liberal fiscal agenda was of primarily neo-liberal stock, the justification of retrenchment as a mechanism to save social programs was certainly part of what animated the government's actions. Some of the cutting was manifestly reluctant rather than enthusiastic. Federal fiscal policy did retain glimmerings of an embedded liberal DNA.

2. Industrial Policy

Beyond policies that target the economy's general economic environment, those that are aimed at improving the functioning of specific economic sectors also distinguish the Pearson/Trudeau state from its Mulroney/Chrétien incarnation. Under the earlier regime, government was deemed responsible for intervening to save troubled industries and protect national economic players. Under Mulroney, intervention in the national market under the guise of an industrial strategy became a bad word. Instead, the government took pride in negotiating international rules that were to replace and even prohibit the old ways of affecting the nature of the economic game. The federal government steadily withdrew from micro-economic policy making. This retreat originated in the Mulroney government's belief that previous efforts to formulate a national industrial strategy under the Trudeau Liberals had failed. Retreat accelerated during the Chrétien Liberals' attack on their inherited deficit. The resulting program cuts have radically restricted federal funds for enhancing either innovation or productivity and have created space for provincial activity in the field.

The 1970s crisis of Canada's macro-economic management was directly linked to its fractured regime of accumulation. In the Fordist post-war compromise between labour and capital, high wages for workers in mass production industries made possible the mass consumption that generated enough demand to keep these manufacturing processes growing. As productivity increased, wages rose -- thanks to government-sanctioned collective bargaining. This regime of accumulation shattered in part because it failed to develop linkages between the extraction of natural resources and their processing into finished products. Instead, resources were exported to the American market in massive quantities and manufacturing for the national economy was largely controlled by branch plants of US transnational corporations which typically imported US-made components for local assembly. In the process, Canada received minimal rents for its resources. At the same time the branch-plant economy led to a rising financial drain of management charges, royalties, and dividend payments to the US head-office economy. With tax revenues from this truncated economic system kept permanently low, the welfare aspect of the federal state never reached European levels in protecting citizens from the vicissitudes of industrialism. Dependence on American capital acted as one constraint; a relatively low level of worker mobilization was another. National unity and nation-building, rather than class struggle provided the dominant axis along which social consciousness was organized.(46)

As GATT-negotiated declines in Canada's tariffs proceeded to reduce protection for nationally based manufacturing through the 1970s and as the federal government's efforts at maintaining an interventionist economic role failed by the early 1980s, the logic justifying a century-old import substitution industrialization strategy collapsed. The Canada Development Corporation, Petro-Canada, the Foreign Investment Review Agency (FIRA), and the National Energy Program had expressed the faith that the government could and should control developments within its own economic territory particularly for the benefit of the industrial heartland in Ontario. But with new Canadian direct investment abroad having exceeded the entry of new foreign direct investment since 1975, Canada's increasingly continental regime of accumulation could no longer sanction a national mode of regulation that had become intolerable to those, such as the western provinces, who had never been its beneficiaries.(47)

The welfare state was cut back partly to reduce budget deficits but also to provide the greater labour "flexibility" that business in Canada was demanding. To this effect CUFTA's facilitation of enterprise mobility to the US or Mexico put heavy pressure on trade unions to make wage concessions. Supporting this competitive imperative, the Canadian state whittled down the social wage, reducing unemployment insurance benefits, cutting assistance to people on welfare and generally doing less to protect citizens from the economic circumstance it was encouraging. As corporations responded to free trade, the foreign-owned branch plants evolved into hollowed out subsidiaries(48) and Canadian-owned national champions, which once served the domestic market, restructured to serve the continental market.

Discourse among most of the political elite by the late 1990s contended that what used to be micro-economic, firm-, or sector-centred industrial policy should now focus on "investing" in education for skills development and in infrastructure for attracting footloose investment to locate in Canada. In this optic, government should no longer be a hierarchically superior organization conceived in a vertical relationship with the market. Instead it should become a heterarchically articulated agency nourishing a horizontal, information-sharing and morale- boosting relationship with the private sector. Such re-thinking of government's proper role emphasizes the move away from Fordist mass production assembly plants towards more specialized, more dynamic clusterings of very flexible, knowledge-based firms with a less highly structured workforce.

Subnational regions are more natural loci than the federal tier for the needed public sector encouragement of private sector partnerships and alliances. In a huge country containing geographically distinct economic areas so disparate in their characteristics that they do not even comprise an optimal currency zone, the federal system has enormous difficulty developing a coordinated economic activity that satisfies all regions. It follows that the provinces may constitute the preferable administrative tier for establishing innovative systems that galvanize private-sector initiatives within a techno-economic, lean production mission.(49)

The primary mechanism through which the neo-liberal federal state has engaged in industrial policy is by subjecting the Canadian economy to the disciplines of international competition. While not a fully proactive, "anticipatory" industrial strategy, using trade policy in lieu of an industrial policy is more than a merely reactive approach.(50) It is a non-invasive way of precipitating ongoing industrial restructuring.

3. Trade Policy

By the early 1980s, when nationalists in the Trudeau government had lost their battle to enhance the interventionist thrust of federal industrial policy, the government's focus was already moving to commercial policy.(51) In effect free trade was an industrial policy designed to force firms to become competitive under the threat of extinction. In a relatively small and increasingly open market, domestic demand could no longer be the economy's driver. The emerging neo-liberal paradigm knitted macro-economic, industrial, and trade policy together into a coherent pattern.

Trade policy was distinguished from the two other pillars of the neo-liberal platform by its dependence on negotiating with other governments norms that directly affected the scope of what had previously been the state's strictly internal policy domain. The federal government's implementation of the bilateral CUFTA in 1989, followed shortly by the trilateral NAFTA in 1994 and the multilateral WTO in 1995, signalled the effort to institutionalize a continental and global mode of regulation appropriate for an increasingly globalized and continentalized regime of accumulation. From the viewpoint of the Canadian state system, these trade agreements have created an "external constitution" that establishes new limits on the permissible actions of Canadian governments and creates new rights for corporations, notably foreign TNCs, vis-à-vis the three internal tiers of the Canadian state.

At the same time these bilateral, trilateral, and multilateral agreements extend the sphere of operation of the Canadian state whose civil servants -- and, on occasion, NGOs - participate in transnational policy-making. The GATT was so weak as a forum for arbitrating trade conflicts that it was dubbed sarcastically the "general agreement to talk and talk." Successive rounds of trade talks did succeed in reducing global tariff levels significantly. GATT's replacement in 1995 by the more muscular WTO -- which has an autonomous, supra-national capacity and an integrated structure with legal personality designed to impose the discipline of collectively negotiated rules on even the most powerful sovereign state - suggests a substantial change at the global level of governance in the institutionalization of the trade policy function.(52)

Along with the other trading nations, Canada participated energetically and with considerable effect in the creation of this new system and has continued to play an active role in the negotiations, which are extending the WTO's norms to telecommunications, informational technology, and beyond. The negotiation of trade rules has now become an endless cycle of confrontation, negotiation, adjudication, and bargaining, followed by renewed disputation and negotiation. As an active participant in this cycle, Canada has tried to affect the ongoing trade agenda (which, now includes rules for environmental, labour and human rights along with conditions for the admission of Russia and China), while bargaining separately to achieve bilateral trade deals with Israel and Chile. All the while it is continuously interacting within its primary continental regime, NAFTA, through its ongoing, daily involvement in the United States capital where every roaming lobbyist and the least expected congressional hiccup can spell trouble for the world's largest dyadic trade relationship.

The implications for the state's structure and function of this ever-broadening scope of trade policy come into starker relief once the distinction between "foreign" and "domestic" policy breaks down. Such nominally domestic policy areas as the regulation of anti-trust and financial services now overlap with external trade and investment norms. The inclusion of cultural, environmental, food, and health policies within the scope of trade disputes signals a new phase of deeper interpenetration between the global and the national.

Given the strengthening connection between the flow of commerce and the flux of capital, rules governing trade practices cannot be isolated from norms specifying the treatment of foreign capital. Codes on investment were initiated at the continental level with CUFTA, which reduced the capacity of Investment Canada (formerly FIRA) to regulate foreign takeovers of Canadian companies. With the federal state's ability to screen foreign investment minimized, NAFTA moved towards giving foreign investors rights over the Canadian state in its chapter 11. While not appreciated at first by most observers, this innovation has given foreign firms powerful new rights to challenge almost any regulatory action that might "expropriate" their future earnings. When the federal government backed down from its proposed elimination of the gasoline additive MMT in the face of a legal challenge by the additive's producer, Ethyl Corporation of Virginia, it showed how dramatically power had been lost to the foreign marketplace.

This increase of foreign corporations' powers over the Canadian state points to the need to follow how players in the private sector interact horizontally with the state. In the domain of international trade politics, the transnational corporation (TNC) is playing a growing and contradictory role, alternatively undermining and reinforcing the sovereign state in its participation in global governance. For instance, the same exports-oriented corporation, which may be calling for the privatization of crown corporations and the deregulation of the economy in Canada, may also be soliciting municipalities to create fully serviced industrial parks at which to locate its plants, importuning provincial governments to increase the supply of technically skilled graduates, lobbying the federal government to negotiate a phrase change in an international agreement that will favour its interests, and working directly with Canadian officials in Washington or Geneva as they strategize over a trade dispute within NAFTA or at the WTO. TNCs, whether foreign- or Canadian-owned, will be pressing officials in Ottawa to respond to their needs, needs which may be articulated by special interest groups lobbying for big business (Business Council on National Issues), a business sector (Canadian Manufacturers Association), importer or exporter associations, a particular industry like steel or such an industrial sector as auto parts.(53) What was once an arcane bureaucratic dossier looked after by trade officials haggling over customs codes is now a congested public policy field crowded further by organizations of many kinds which are representing constituencies in civil society suddenly aware that their interests are affected by the new phenomenon of deep integration.(54)

Environmental issues dramatize most clearly how national policy-making has become simultaneously internationalized and localized. That provincial environmental regulations can be dragged onto the international agenda was shown when Ontario attempted to require that all beer be sold in recyclable bottles. This move sparked accusations of protectionism from outraged American breweries (which sold their ale in cans) and resulted in an adverse ruling by a GATT panel whose implementation was mediated by the federal government.(55) Greenpeace is the flagship for the new post-modern, anti-statist non-governmental organization which is able to mobilize a transnational coalition of counter-elites against particular domestic targets ranging from British Columbia's practice of clear-cut logging to Newfoundland's seal harvesting.(56) By intervening in global and continental fora these NGOs are stimulating the crystallization of a supra-national consciousness that is linking trade questions to environmental issues. Ecological questions have already become annexed to trade issues at the continental level in NAFTA's Commission for Environmental Cooperation whose mandate is to reconcile the goal of controlling protectionism with that of sustainable development.

The transnational and infranational (another word?) qualities of environmental politics clearly transcend the scope of the old nation-state, but attachment to sovereignty dies hard. Federal-provincial conflicts still determine whatever collective inter-governmental action is taken -- as the disappointing follow-through from the Rio and Kyoto environmental summits confirmed. Most provinces have declined to sign the North American Agreement on Environmental Cooperation, NAFTA's environmental side agreement. It is an indication of the federal government's greater commitment to trade than to the environment that it uses its treaty power aggressively in the former case and tentatively in the latter, even though it has comparable constitutional authority in each area. Provinces also prioritize trade over the environment but they do not prevail over the federal level in these areas constitutionally. Both in the spheres of the environment(57) and of trade and commerce,(58) the Supreme Court has expanded federal regulatory jurisdiction so that policies which can work only if developed on a national level are constitutional.(59) Using the same logic the Supreme Court has increased federalism's centripetal tendencies by ruling that the nature of telecommunications requires jurisdiction be lodged at the pan-Canadian level.(60)

While the uploading via NAFTA of some authority to the continental regime was consistent with the government's view that globalization had already curtailed federal powers, this upward subsidiarity contributed substantially to this weakening of the federal state. Complicating its new trade-policy function is the reinforcement of already strong regional governments. The broad, constitutionally entrenched jurisdiction of Canadian provinces over natural resources and transportation, education and social policy makes the federal state able to do little more than speak on their behalf in international fora on these issues. Nevertheless CUFTA and NAFTA committed the federal government to take "all necessary measures" to ensure provincial compliance, a stronger requirement than the "reasonable measures" standard prevailing under GATT. In the process of courting foreign investment in the hope of attracting projects that will generate tax revenues and jobs, provinces and cities offer subsidies and concessions that can give rise to claims of unfair trading when they successfully lure an investor away from another jurisdiction. Such bidding wars reveal the sovereign states to be actively engaged in sustaining the ongoing process of trade liberalization while their sub-national jurisdictions flout such resulting norms as WTO subsidy code with considerable impunity.

Beyond their own deficit-induced hesitation in assuming the federal government's economic functions, there is also a question about how far the provincial state can go in representing its interests abroad. Even though these governments may have a considerable potential for international relations in a globalizing world, practical budgetary constraints and formal problems of recognition limit provinces in this ambition. Taking a feather from the cap of Germany's Laender, they could demand from the courts guarantees that the federal government not alienate any of their powers in the course of its international bargaining. They could even insist on direct representation in the new continental and global regimes. But there is surprisingly little discord in this dossier. Indeed, provincial voices readily sing as part of a federal chorus when "team Canada" sallies forth in federal-provincial trade missions in Asia, Latin America, or Europe.

If their bureaucratic capacity is inadequate to project their regions' interests abroad, provinces may need to rely on the federal state to represent them in intergovernmental fora even in areas of provincial jurisdiction. Cutbacks of the province's quasi-embassies abroad not just by Ontario but by Québec confirm that provinces are experiencing real limits to their capacity for direct participation in global affairs. Continental governance has generated little in the way of the "region states" that some observers expected.(61) Contrary to expectations following the signing of NAFTA, long-standing transnational linkages of Canadian provincial governments with contiguous states of the U.S.A. are not expanding to include equally close relations with states of the Mexican federation.(62) Indeed, Ontario's relations with even the Great Lakes states have withered.

III The Contradictory Political Features of the Neo-Liberal State

If our analysis has accurately depicted the economic face of neo-liberalism in Canada, we can conclude that, compared to the Pearson/Trudeau era, it has:

- changed the way that the state's role in the economy is applied;

- rearranged the distribution of power among the five levels on which state functions are filled;

- seriously affected the impact of social programs on the distribution of income and well-being.

Since these changes have been effected by the two major national parties in Canada they can be taken to constitute a paradigm shift among the country's ruling elites who, in conjunction with their ideological counterparts in most other developed and developing countries, have facilitated the spread of a globalized market and opened their borders to its impact at home. Our next task is to determine whether neo-liberalism has by the same token transformed the Canadian state's political face.

1. Social Policy

The advocacy state of the Pearson and Trudeau period offered public support to help the marginalised find their political voice through programs such as the Company for Young Canadians and Official Languages legislation, Opportunities for Youth and the Local Initiatives Program. A prime beneficiary of such an empowerment approach to participatory politics has been the women's movement. In the late 1960s a path-breaking royal commission established an ambitious agenda for government action to reduce the flagrant inequalities experienced by women in the political economy. The 1970s witnessed some considerable progress made on this dossier. Small increments of power led to greater empowerment. Most notable was the success of politicized women during the early 1980s debate on the Charter of Rights and Freedoms in having affirmative action constitutionally protected and gender equality exempted from the controversial notwithstanding clause, which allowed legislatures to override most Charter provisions. By 1984 women's voices were strong enough to command a nationally televised debate on their issues during that year's federal election campaign. Women's groups opposed Brian Mulroney's government even though, as is now acknowledged by active feminists, more progress was probably made on woman's issues during his tenure than before it. This hostility was due to their interpretation of the impact of his government's structural economic policies upon the interests of women, especially in its second term.(63) Substantial subsequent budget cuts under the Chrétien Liberals led to a reining in of the various agencies set up in the heyday of the women's movement. The official response to women's movement outrage has been efforts to delegitimate such criticism by labelling it as whining by a selfish "special interest group" no longer seen as worthy of public financial support.


There has been an analogous chilling effect of neo-liberal budget cuts to the social security system. Established in the Pearson/Trudeau years, it delivered payments through social insurance and demogrants to individuals according to universalistic standards rationalized as rights of equal citizenship. The Mulroney/Chrétien years have seen payments income-tested, targeted, and increasingly conditional on the recipient engaging in work or training.(64)

These changes in the direction of policies toward individuals affect the nature of civil society by subverting the integration of the working class in the national community and undermining a pan-Canadian sense of identity based on social justice and regional equalization. In its place a sauve qui peut attitude has permeated a society increasingly polarized between haves and have-nots, undermining the capacity of the federal state to integrate Canadians by identifying justice with Canadian citizenship.

With economic policy focussing increasingly on investing in human capital, the distinction between economic and social policy is becoming increasingly blurred.(65) As Ottawa has cut back its social policy transfers to the provinces, so too have national standards been weakened. Under the Canada Assistance Plan provincial receipt of federal funds required that welfare be available to everybody in need, that there be an appeals process, that the provinces provide certain basic information to the federal government, and that no provincial residency requirements be imposed on recipients. The sole surviving condition in the Canada Health and Social Transfer is the prohibition on residency requirements. Canada Health Act principles are still operative, but erosion in the comprehensiveness of coverage has occurred as funding has declined. This provincialization of social policy, which can in turn be offloaded to municipalities, has a disintegrating impact on Canadian society. Since equalization has been built into many programs, the divergence of interests between the equalization-receiving and equalization-giving provinces and populations is rising. This effect increases when equalization payments to the "have-not" provinces are spent more on imports and less on the production of the "have" provinces as the economy becomes oriented in a North-South direction.(66)

An embarrassing result of these changes was a damning report issued by the United Nations Committee on Economic, Social and Cultural Rights, which condemned Canada for allowing serious social problems to fester, including the deterioration of human rights, the conditions on native reserves, and homelessness. While referring specifically to the years from 1989 to 1994, the committee raised grave questions about further worsening following the drastic cuts of Paul Martin's 1995 budget. Particularly noteworthy of the interconnection between the five levels of the state were the Canadian non-state participants who used this global forum to realize domestic political aspirations. These included the Charter Committee on Poverty issues, the National Anti-Poverty Organization, the National Association of Women and the Law, the Grand Council of the Crees, the Ad Hoc Committee on Trade and Investment, the Inter-Church Council on Immigrants and Refugees, and Toronto's Parkdale Community Services.(67) While social policy authority was in part being offloaded, civil society was flexing its muscle by turning to the global level of the multi-tier state as part of its strategy to pressure the federal state to reverse its withdrawal from the social policy field.

2. Constitutional Politics

The impact of constitutional politics on the tension between centrifugal and centripetal forces is ambivalent. The 1982 Charter of Rights and Freedoms certainly made a significant constitutional change whose impact both supports the emerging values of the neo-liberal order and sustains norms developed under its social-democratic predecessor. On the one hand it has fostered a sense of entitlement for all Canadians (at least in Canada outside Quebec) as holders of individual rights in a social vision of atomized autonomy. On the other hand, the Charter continues to be rights-enhancing and status-enhancing for minority and underprivileged groups such as gays and lesbians, insofar as members of such groups find their values in a communitarian order. These developments enhance the role of the courts relative to all legislatures whether federal or provincial. They also bolster federal power vis-à-vis the provinces, because charter rights are identified with the federal government which fought for them -- against the provinces' resistance -- in the early 1980s, and because they are rights held by virtue of membership in the Canadian political community, not from being part of a province.(68)

The Constitution Act of 1982 was negotiated by a prime minister with a deep commitment to a specific vision of a pan-Canadian state.(69) However, as is all too well known, the constitution was patriated without the premier of Quebec's signature. This failing allowed Brian Mulroney to campaign in Quebec on a platform restoring the province to the Canadian constitutional family "with honour and enthusiasm." As Mulroney's federalism was more decentralized than Trudeau's, he was able to negotiate with the provincial premiers at Meech Lake an accord which accepted Quebec's demands and extended their decentralizing provisions to the other provinces as well.

The extent to which participatory, pan-Canadian Charter values had taken hold in Canada outside Quebec with respect to constitutional change was not well-understood at that time. The closed executive federalism process by which the Meech Lake accord was negotiated, its relatively decentralizing tenor, and the "distinct society" clause raised public ire outside Quebec, particularly when Trudeau launched his virulent attack on the deal.(70) Newfoundland and Manitoba did not ratify the Accord within the three year time-frame, and it died. This failure to negotiate the Canadian state's constitutional decentralization caused the federal party system to fracture. A small group led by Lucien Bouchard, calling itself the Bloc Québécois (BQ) and dedicated to achieving sovereignty for Quebec, split from the Tory caucus. In the west, Preston Manning founded the Reform Party as a neo-conservative, populist movement animated in no small part by hostility to Quebec. The Quebec-Prairie axis of the Mulroney coalition fractured over the failure to reconcile agendas which were superficially compatible in terms of a common wish for decentralization, but which were fundamentally animated by different understandings of Canada.(71)

A further outcome of the Meech Lake debacle was a new level of nationalist rage in Quebec, which prompted Mulroney's second effort at constitutional reform. As much as the Meech process was closed, the Charlottetown process was open, but by then the positions of Quebec and Canada outside Quebec (particularly the west) were too polarized for reconciliation, and the new Charlottetown accord failed to gain approval by referendum in 1992 either in Quebec or in the rest of Canada. In the 1993 federal election, the Progressive Conservatives were reduced from two successive large majorities to a mere two seats in the House of Commons.(72) The BQ became the official opposition, even though it held no seats outside Quebec. Reform was the third party, with no seats east of Manitoba. Along with the Progressive Conservatives, the NDP lost official party status, and while the Chrétien Liberals won seats in every province of the country, their virtual sweep of Ontario constituted their base of support. In constitutional terms, the centralizing norms of the Charter had prevailed over the decentralized federal agenda Mulroney sought in part as a complement to his continental economic vision. The political reaction was a regionally-based party system. Mulroney's coalition had exploded in the wake of Meech and Charlottetown, the FTA, the GST, and a devastating recession. The near victory of the Yes forces in Quebec's 1995 referendum on sovereignty only emphasized the territorial and national divisions in Canadian politics.

To the extent that individual rights are protected by virtue of individualism, the Charter disaggregated the Canadian political community. To the extent that collective rights are protected by virtue of membership in a particular group, the Charter's centralizing pan-Canadian vision was not attached to notions of collective provision or mutual aid. Under the Charter, individuals were Canadianized but isolated from each other; groups were Canadianized, but not by virtue of participation in a common interest. A distinct identity as Canadians came at the expense of a sense of social obligation to Canadians. The notion of responsible parliamentary government as the locus of the general interest and of the protection of rights diminished in favour of the courts as the new guarantor of these constitutional, rights-based values. The parliamentary state in which politicians from the two main national parties were empowered by periodic elections has been altered by the growing political role of judges and the accompanying "Charter consciousness." A public with unprecedented access to information and the capacity to use it has lost its deference to authority. In the process, the party system, which once played a unifying role in the national polity, now mirrors and reinforces both inter-federal and inter-class conflict.

The attack on interest groups and recipients of social assistance as "special" and "privileged" has emerged from a related, rightward-leaning populism that seeks to retrieve more direct forms of democracy - the restoration of control to a mass public through referendums, recalls and initiatives -- from what is seen as co-optation by representative democracy.(73) This anti-elitism is given political expression by the Reform Party in national politics and by the Conservative provincial governments of Ralph Klein in Alberta and Mike Harris in Ontario. It is visible in accountability legislation which fetters the discretion of elected representatives in many provinces by requiring balanced budgets, and in public reaction against judicial decisions both for being too liberal (striking down anti-pornography legislation) and not liberal enough (very public wrongful convictions). The future of representative democracy, with its roots in both the Anglo-American parliamentary and the French revolutionary traditions, is at stake if citizens suffer from a lessened ability as voters to affect their own destinies. At a time when the whole world is being wired to an interactive communications system which empowers the individual with information in unprecedented quantities and at dazzling speeds, the upper reaches of the multi-level state offer the most limited and indirect forms of popular control. Radical, even xenophobic populism in the politics of countries as different as France and Australia is already expressing this disenchantment with the democratic deficit as the global and continental levels of the multi-level state appear unable to resolve the problems left behind by its sovereign Fordist, Keynesian, and modernist predecessor.

3. Foreign Policy

Nevertheless, levels of citizen participation in Canada's foreign policy formation are higher than ever before, thanks to federal government encouragement of grass roots contributions to discussions of Ottawa's diplomatic initiatives. The astonishing example of NGO mobilization at several world summits such as the APEC leaders' meeting in 1997 and against the Multilateral Agreement on Investment at the OECD in 1998 demonstrate falling levels of tolerance for elite behaviour, even at the global level, if it is not based on extensive consultation.

The federal government has also retrieved some authority in foreign policy. The collapse of the Soviet Union relieved Canada of having to toe Washington's anti-communist line and play a secondary military role fully integrated in the NATO alliance system. The end of the East-West nuclear stand-off has shifted the locus of foreign policy authority from a continental or multilateral level back to the federal state. The ideational corollary of the end of the Cold War is a noticeable shift in official discourse from traditional Realpolitik notions of defence to more holistic language around "human security."(74) Although US coercive power has become even more irresistible, the disappearance of the Soviet threat has enabled the Canadian government to take a lead on such issues as the international treaty to abolish land mines, the institution of an international criminal court, and even the consideration of Nato's nuclear disarmament -- all in defiance of its neighbour, the global superpower.

During the Cold War, "multilateralism" described Canada's strategy of active participation in inter-governmental bodies to offset its asymmetrical bilateral dependency on the United States. In the post-Cold- War period, when intergovernmental institutions have become more global than Atlantic in scope, Canada's ranking in the international hierarchy has become vulnerable to downgrading. Although it has retained its place as seventh largest economy following Russia's economic disintegration, the country's relative importance has diminished because of the rise of various third world economies. The threatened loss of membership in the great power club may stimulate, rather than diminish the Canadian state's efforts to participate in a global governance for which its diplomatic culture as a mid-sized power gives it a historical predilection. A new version of multilateralism - building coalitions with other sovereign states and exploiting with them the machinery established by the available international institutions -- has become an increasingly important thrust of the Canadian government's diplomatic practice, which is increasingly focussed on low-cost, high-visibility, symbolic politics and decreasingly willing to spend public dollars on serious and expensive aid to destitute Third World zones. (See Andrew Cooper's chapter in this volume.)

Participation in a continental regime necessarily limits the sovereignty of the members for whom it nevertheless provides fora for expanded diplomatic action. The Organization of American States (OAS) is a bi-continental organization in which Canada plays happy soldier in order to demonstrate its commitment to the Western hemisphere. As a multilateral network with a renewed dynamic, the OAS offers Canada an additional mechanism for distinguishing its identity from that of its dominant neighbour through coalition building with the Latin states. A dramatic example of such self-assertion through association in this traditionally US-dominated organization was Ottawa's successful initiation of a resolution that condemned the United States Congress's Helms-Burton bill. Canada is also participating in the pre-negotiations for the Free Trade of the Americas Agreement targeted by the Miami Declaration of 1994 as an extension of CUFTA and NAFTA, . If successfully negotiated, the FTAA will both further limit Canadian sovereignty and increase the federal state's role in hemispheric affairs. Beyond North America - South America inter-continentalism, Canada engages enthusiastically in Asia-Pacific Economic Cooperation, the budding consultation forum among states sharing frontage on the Pacific Ocean. APEC shows how Canada's old multilateralism, which focussed on Nato's military operations, has taken on a more globally directed, trade-centred form offering the federal state greater room for manoeuvre than it had under NATO's constraining nuclear umbrella.


This review confirms substantial changes have taken place in the functions and structures of the Canadian state from the activist, relatively generous practices of the Pearson/Trudeau governments to the regressive stances of neo-liberal politics. Federal shapes have shifted both in response to a changing environment and to shape that environment. The federal state is different from its modernist predecessor both because of its neo-liberal traits and because it has become so tightly interconnected with governance above and below that it is now just one tier in an evolving and nested multi-level state structure. While there has been change, its nature is not always obvious and its consequences are not always consistent. Continuities with earlier eras also exist. Finally, there is some evidence of a return to a more active federal state, and the insufficiency of the neo-liberal model itself creates the basis for further evolution.

The boundaries between state, market, and civil society have become more porous. At the same time as the state attempts to reduce its expenditures and structures through downsizing, budget cuts, de-regulation, and privatization, it is passing to civil society and the market responsibility for many of its functions. It does not follow that the state is declining just because air lines administer immigration procedures at their check-in counters or because advertisers take on the job of policing their own practices. These developments could simply be an indicator of sensible delegation. Similarly, the transnational activity of social movements, epistemic communities, and non-governmental organizations may complicate inter-governmental relations but may not ipso facto threaten the raison d'être of sovereign states.(75) While strong states might lose some of their monopoly control over foreign affairs, weaker, more decentralized states like Canada may gain by being able to exploit "their" NGOs' transnational endeavours as projections of the national interest.

The conceptual question, "How can we describe the sovereign state?" does not answer the normative question about how to sustain the quality of the social and political life achieved under the modernist, Fordist, Keynesian welfare state of the first post-World War II decades. To be sure, the phenomenon of globalization may be a process through which capitalism is liberating itself from political control and engendering ever-increasing disparities between rich and poor both within and among countries.(76) Although a decline in the level of social services for the citizenry, a weakening of trade union powers to defend workers, and a diminished capacity to redistribute wealth on egalitarian principles seem to be indicators of social regression inherent in neo-liberalism, these do not appear to be logically necessary concomitants of the emerging multi-level state. Even though the shapes of governance are shifting, the world of federal states may not be as "global" as both proponents and critics of globalization assume.(77)

If some variant of the proposed Tobin tax on international capital flows were instituted, redistribution of a capital rent in favour of the poor might become possible precisely through a variant of global governance formerly talked about only by dreamy-eyed world federalists. A citizens' version of the MAI is being proposed by the Council of Canadians, an NGO which has developed an international coalition to demand that rights given TNCs be balanced by obligations that foreign investors create jobs with high labour standards, maintain the level of environmental regulations, and protect national cultural distinctiveness.(78) The European Union has shown that social welfare and worker rights can be defended in principle -- though very imperfectly in practice -- at the continental level. Asian capitalism offers an alternative, less individualistic political model for achieving economic competitiveness and social solidarity.(79) In short, capitalisms vary, as do popular responses to it. The post-modern, multi-level state is far from synonymous with a reprise of pre-modern, Dickensian practices.

The danger inherent in any claim that a sea change has occurred in Canada's state forms is to ignore the features of continuity that persist from the putatively discarded paradigm. Consider, for example, those characteristics of the Canadian polity which Trudeauphiles claim to be his lasting legacy.(80)

- The Charter of Rights and Freedoms, the patriation of the constitution, and the changes that followed; OR The Charter of Rights and Freedoms entrenched in the Canadian constitution norms that were largely egalitarian and redistributive. The subsequent rejection of the constitutional changes proposed by the Mulroney government during the Charlottetown process forestalled the constitutionalization of neo-liberalism.

- The impact of multiculturalism and bilingualism, both as policies and goals, on Canadian life; OR while bilingualism may have lost some momentum, the Pearson/Trudeau elevation of multiculturalism both as policy and goal has not lost its grip on Canadian society.

- The long struggle of establishing native land claims which was launched in the Trudeau years; OR The long struggle by native nations to vindicate their claims to justice through the courts, which developed force in the Trudeau years, has continued to gain ground.

Other continuities exist which may result in a different, but reinvigorated, role for the Canadian state. Inter-regional equalization has been remarkably resistant to fiscal retrenchment and has actually been extended through fiscal federalism in such measures as the "cap on CAP," (now embedded in the CHST), Employment Insurance and other programs which discriminate in favour of the "have not" provinces at the expense of the "haves." Canada's new Social Union Agreement may result in a new species of cooperative federalism in which the federal government reclaims some of its earlier functions by enriching its transfer payments and working in tandem with the provinces. While the rhetoric of consensus around these talks disguises inevitable political and jurisdictional disagreement, the Child Tax Benefit, which was their first product, indicates that some movement has taken place. At this writing it was not clear if the 1999 federal budget would mark the end of the social union project or be just one part of an ongoing consultative process.

A close reading of how the Liberal government interpreted the promises Prime Minister Chrétien made to renew the federation during the 1995 Quebec referendum also suggests that, even under the unprecedented twin pressures from separatism and fiscal retrenchment, the federal government had a vision that would modify but maintain Ottawa's relevance. Two results of these promises in late 1995 were a House of Commons resolution to recognize Quebec as a distinct society and a law requiring substantial provincial consent before Ottawa would concur in most constitutional amendments. But the prime minister had also promised greater decentralization,(81) and in the 1996 Speech from the Throne, the federal government announced it would no longer use its spending power to create new shared cost programs in areas of exclusive provincial jurisdiction without the consent of a majority of the provinces. Those not consenting would be compensated if they operated an equivalent or comparable initiative. This promise was further defined by the Social Union Agreement. Ottawa also promised to withdraw from labour market training, forestry, mining, and recreation. Partnerships with provinces in other areas were recommended. But it was clear that the federal government still envisioned an important, if altered, role for itself. The spending power promise, while important, was only a moderate constraint on federal action.(82) While always pledging to work with provinces, it was emphasized that the federal government had a major role to play with respect to both the economic and the social union. It would work for unhampered mobility between provinces and unfettered access to social benefits across the country. It would seek to enhance labour mobility.(83) It would try to liberalize internal trade. And with interested provinces it would work to create a Canadian securities commission, a single food inspection agency, and a national revenue collection agency. The process emerging from the 1996 Throne Speech is ongoing, and while some of the decentralizing pledges have been kept, the commitments with a centralizing thrust continue to animate much federal behaviour. As the fiscal problem recedes, and if tensions on the national unity front do not reignite, further federal assertion can be anticipated.

The effort of some factions to "unite the right" in federal political parties also reveals as much continuity with an earlier era as change from it. This endeavour, led primarily by members of the Reform Party and of the Progressive Conservative Party, sought to repair the fracturing of the party system and create a second national party that could challenge the Liberals on the Canadian political landscape. The form such an arrangement might take was hotly disputed(84) and the divisions between the "right" parties were extremely deep.(85) Success was doubtful. But the desire for unification suggested an atavism regarding the Canadian political system, particularly for the Mulroney coalition of Quebec and the West. Indeed, the willingness of the right in Canada outside Quebec to court not only nationalists but also separatists in Quebec for partisan political gain indicated that perhaps too much of the past was being retrieved.(86)

A final danger dogs those who would declare the former paradigm dead and buried. With the crisis of neo-liberalism being played out both at home (with the distress of hospital and educational services brought on by cutting back the state) and abroad (with the crisis of the globalized financial market system in 1997-98), no new point of equilibrium has been reached. The neo-liberal model leaves the state without an obvious role to play as a buffer against the short-run economic vicissitudes which characterize capitalist economies. In abdicating this function, the federal state exists with a lacuna at its centre.

The neo-liberal model has clearly been the winning approach since the Mulroney government took office in 1984, but the silence at its heart renders it incomplete. It is unable to be both true to itself and responsive to the social needs to which governments may feel compelled to respond. Deprived of the tools and the rationales for discretionary intervention, citizens demanding a more activist state must speak from outside the neo-liberal ideological loop. Over time the neo-liberal vision is subject to contestation against which It has only weak arguments. Indeed, considerable authority and legitimacy having located elsewhere, the federal government may try to reassert itself in ways it had earlier abandoned and reclaim some of the authority and legitimacy it had previously alienated. Given the inability of the neo-liberal model to respond to some of these concerns, the pendulum may even be poised to swing back towards a state less reluctant to exercise its power to regulate the market and to provide civil society with the services it desires. Measures to maintain aggregate demand and automatic stabilizers remain in the policy arsenal. Calls for government action to create physical and human infrastructure are continually heard. Suggestions for government action to re-establish order in the world's financial markets imply enhanced roles for states to achieve exchange rate, if not nuclear, stability. As a result, the potential for contestation and further change remains within the federal political space.

What characterized the post-war consensus so celebrated by its analysts was its long period of relative stability. At the turn of the millennium a prime characteristic of the Canadian state is its level of flux. If it suffers from chronic instability, this is largely because the losers, who have borne the brunt of neo-liberalism's "reforms," are clamouring for their reversal. But it is also because the corporate sector, in its endless efforts to merge and acquire to protect itself from global market vicissitudes, is also running scared. The ultimate characteristic of the Canadian state at the end of the century is its being continually contested.



1. When we speak generally, the term "sovereign state" will be used to describe internationally recognized national states. When referring to specifically to Canada's national state, as opposed to its federal system, the term "federal state" or "Canadian state" will be employed. It is very difficult to apply the concept of nation-state to Canada where Québécois and aboriginals identify themselves as nations or peoples. Even France, the prototype for the nation-state, contains vestigial non-French nationalities and, however unitary its political system may be thought to be, has introduced significant measures of decentralization.

2. Gilles Paquet, "Institutional Evolution in the Information Age," in Thomas J. Courchene, ed., Technology, Information and Public Policy (Kingston: Queen's University, The John Deutsch Institute for the Study of Economic Policy, 1994).

3. For a very thorough critique of the "Gulliver effect," see François Rocher and Chrsian Rouillard, "North American Integration Ten Years Later: Economic Efficiency vs Federal Principles in Canada," unpublished manuscript, (1998).

4. John Gerard Ruggie, "International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order," in Stephen D. Krasner, ed., International Regimes (Ithaca: Cornell University Press, 1983); "Embedded Liberalism Revisited: Institutions and Progress in International Economic Relations," in Emanuel Adler and Beverly Crawford, eds., Progress in Postwar International Relations (New York: Columbia University Press, 1991); and "Trade, Protectionism and the Future of Welfare Capitalism," Journal of International Affairs, 48, 1 (Summer, 1994), 1-11.

5. Stephen Clarkson, Canada and the Reagan Challenge: Crisis and Adjustment, 1981-85 (Toronto: James Lorimer: 2nd. ed., 1985).

6. Stephen Clarkson, "The Dauphin and the Doomed: John Turner and the Liberal Party's Debacle," in Howard Penniman, ed., Canada at the Polls, 1984: A Study of the Federal General Elections (Duke University Press, 1988), 97-119.

7. David Wolfe, "The State and Economic Policy in Canada, 1945-75," in Leo Panitch, ed., The Canadian State: Political Economy and Political Power (Toronto: University of Toronto Press, (1977), 251-88.

8. Jane Jenson, "'Different but not exceptional': Canada's Permeable Fordism," Canadian Review of Sociology & Anthropology, 26, 1 (February, 1989), ????.

9. Donald Smiley, "A Note on Canadian-American Free Trade and Canadian Policy Autonomy," in Marc Gold and David Leyton-Brown, eds., Trade-Offs on Free Trade: The Canada-U.S. Free Trade Agreement (Toronto: Carswell, 1988).

10. In this paper, "regional" will apply to sub-national jurisdictions, "continental" to groupings of more than one sovereign state that encompass most of a continental land mass.

11. We use "state" to refer to the enduring if evolving ensemble of political, judicial, administrative, and coercive institutions. "Government" will refer to the executive, legislature and bureaucracy that enjoys the current electoral mandate.

12. John Shields and Stephen McBride, Dismantling a Nation [2nd edn] (Halifax: Fernwood Press, 1997).

13. Observers often describe this policy as one of "zero-inflation." In fact, it is directed to "price stability," which may or may not be defined as zero-inflation. For example, if prices rise in one year, but not the next, inflation in the second year would be zero, but prices would not have been stable. The Bank is only beginning to turn its collective mind to the question of precisely what should count as price stability. (Interviews by Tim Lewis with Bank of Canada officials, June 2, 1998). See also Proceedings of a conference held by the Bank of Canada, May 1997, Price Stability, Inflation Targets, and Monetary Policy (Ottawa: Bank of Canada, February, 1998).

14. Wolfgang Streeck (1996) has suggested a similar hypothesis for the member states of the European Union, arguing that they have compensated for what they have lost in internal sovereignty by what they have retained in their inter-governmental bargaining in the EU's various institutions -- though decision-making deadlocks and democratic deficits at the continental level of governance are high prices to pay for this exchange.

15. Christopher Kent, "The Uruguay Round GATT TRIPS Agreement & Chapter 17 of the NAFTA: A New Era in International Patent Protection," Canadian Intellectual Property Review (1994), 711-33.

16. Stephen Blank, Stephen Krajewski and Henry S. Yu, "US Firms in North America: Redefining Structure and Strategy," North American Outlook, v. 5, n.2 (Feb. 1995).

17. CEC (Commission for Environmental Cooperation), NAFTA's Institutions: The Environmental Potential and Performance of the NAFTA Free Trade Commission and Related Bodies (Montreal: CEC, 1997).

18. Stephen Clarkson, "The Joy of Flux: What the European Monetary Union Can Learn from North America's Experience with National Currency Autonomy," in Colin Crouch, ed., After the Euro: Shaping Institutions for Governance in the Wake of European Monetary Union (Oxford: Oxford University Press, 1999).

19. Fritz W. Scharpf, Negative and Positive Integration in the Political Economy of European Welfare States (Florence: European University Institute, 1995).

20. On the role of provinces in trade issues, see Douglas M. Brown, "The Federal-Provincial Consultation Process," in Peter M. Leslie and Ronald L. Watts, eds., Canada: The State of the Federation 1987-88 (Kingston: Institute of Intergovernmental Relations, Queen's University, 1988); "Canadian Federalism and Trade Policy: The Uruguay Round Agenda," in Ronald L. Watts and Douglas M. Brown, eds., Canada: The State of the Federation 1989 (Kingston: Institute of Intergovernmental Relations, Queen's University, 1989); and "The Evolving Role of the Provinces in Canadian Trade Policy," in Douglas M. Brown and Murray G. Smith, eds., Canadian Federalism: Meeting Global Economic Challenges? (Kingston: Institute of Intergovernmental Relations, Queen's University, 1991).

21. Ian Robinson argues that the CUFTA and the NAFTA are centralizing in their effects. See "The NAFTA, the Side-Deals, and Canadian Federalism: Constitutional Reform by Other Means?" in Ronald L. Watts and Douglas M. Brown, eds., Canada: The State of the Federation 1993 (Kingston: Institute of Intergovernmental Relations, Queen's University, 1993); and "Trade Policy, Globalization, and the Future of Canadian Federalism," in François Rocher and Miriam Smith, eds., New Trends in Canadian Federalism (Peterborough: Broadview Press, 1995).

22. Robert M. Campbell, "Federalism and Economic Policy," in Rocher and Smith, New Trends in Canadian Federalism, 200.

23. An exception may be British Columbia, which was not hit very hard by the recession in the early 1990's, but whose economy has struggled in the late 1990's, and whose fiscal position does not seem to be tending toward balance.

24. Richard Simeon, "Canada and the United States: Lessons from the North American Experience," in Karen Knop, Sylvia Ostry, Richard Simeon, and Katherine Swinton, eds., Rethinking Federalism: Citizens, Markets, and Governments in a Changing World (Vancouver: University of British Columbia Press, 1995), 251.

25. Thomas J. Courchene, "Glocalization: The Regional/International Interface," Canadian Journal of Regional Science 18, 1 (Spring, 1995), 1-20.

26. Daniel Drache, "Globalization: Is There Anything to Fear?" Unpublished manuscript (Toronto: Robarts Centre, York University, 1998).

27. The argument in this section is based upon Timothy Lewis, The Political Economy of Debt and Deficit Politics in Canada (Toronto: University of Toronto PhD dissertation, 1999).

28. The Phillips Curve is not actually a strict prediction of the Keynesian model, but was rather an empirical observation that countries with higher inflation rates had lower unemployment rates and vice-versa. Given the priority in Keynesian thinking of employment concerns over moderate levels of inflation, it did function to legitimate Keynesian efforts to "buy" lower employment at the price of higher inflation.

29. See Robert M. Campbell, Grand Illusions: The Politics of the Keynesian Experience in Canada, 1945-75 (Peterborough: Broadview Press Ltd., 1987), 6; David A. Wolfe, "The Rise and Demise of the Keynesian Era in Canada, 1930-1982," In Readings in Canadian Social History, vol. 5 (Toronto: McClelland and Stewart Ltd., 1984), 71-2.

30. For more on the character of Canada's postwar Keynesianism, the forces which unravelled it, and the policies which replaced it, see Robert Campbell's chapter in this volume.

31. The major exception was the 1979 budget, for which the short-lived Clark government could not gain the confidence of Parliament. See John Crosbie, Budget Speech (Ottawa: Department of Finance, December 11, 1979).

32. Donald S. Macdonald, Budget Speech (Ottawa: Department of Finance, May 25, 1976), 21.

33. For an explanation of the economic thinking underlying the Anti-Inflation Program, see Department of Finance, Canada's Recent Inflation Experience, (Ottawa: Department of Finance, November, 1978).

34. See Gerald K. Bouey, "Remarks by Gerald K. Bouey, Governor of the Bank of Canada," Bank of Canada Review (Ottawa: Bank of Canada, October, 1975), 28; and "Statement by Gerald K. Bouey, Governor of the Bank of Canada," Bank of Canada Review (Ottawa: Bank of Canada, November, 1975), 4.

35. Anti-Inflation Reference , [1976] 2 S.C.R. 373.

36. Marc Lalonde, Budget Speech (Ottawa: Department of Finance, April 19, 1983). Another document also vindicated deficit finance as an appropriate mechanism to improve upon cyclical economic underperformance. See Marc Lalonde, The Federal Deficit in Perspective (Ottawa, Department of Finance, April 1983).

37. The federal government nonetheless sought to direct the provinces toward policies which were consistent with its economic philosophy. In 1973 Finance Minister John Turner used his budget speech to try to persuade provinces that they too had responsibilities for countercyclical demand management. John N. Turner, Budget Speech (Ottawa: Department of Finance, February 19, 1973), 20.

38. See Peter Aucoin, "Organizational Change in the Management of Canadian Government: From Rational Management to Brokerage Politics," Canadian Journal of Political Science 19, 1 (March, 1986), 17; and Donald J. Savoie, The Politics of Public Spending in Canada (Toronto: University of Toronto Press, 1990), 163.

39. Michael Wilson, A New Direction for Canada - An Agenda for Economic Renewal (Canada: Department of Finance, November 8, 1984).

40. The Governor of the Bank of Canada argued in 1987 that the Bank should direct itself to the goal of price stability. See John W. Crow, "The Bank of Canada and its Objectives," Bank of Canada Review (April 1987), 21-2.

41. Duncan Cameron, "Introduction," in Duncan Cameron and Mel Watkins, eds., Canada Under Free Trade (Toronto: James Lorimer & Company, 1993), xiv-xv.

42. Ken Battle and Sherri Torjman, Federal Social Programs: Setting the Record Straight, (Ottawa: Caledon Institute for Social Policy, Spring 1993).

43. Edward Greenspon and Anthony Wilson-Smith, Double Vision: The Inside Story of the Liberals in Power (Toronto: Doubleday Canada Ltd., 1996), 349-350.

44. Paul Martin, Budget Speech (Canada: Department of Finance, March 6, 1996), 8.

45. For some exposition on Canada's vision for the future of international economic institutions, see Department of Finance, The Economic and Fiscal Update: Strong Economy and Secure Society (Ottawa: Department of Finance, October 14, 1998), 9.

46. Jenson, "Canada's Permeable Fordism."; Thomas Legler, A Comparison of Canadian and Mexican Postwar Development (1945-1994): More than at First Meets the Eye, (México: Centro de Investigationes Sobre América del Norte, 1995), 14-15.

47. Stephen Clarkson, "Disjunctions: Free Trade and the Paradox of Canadian Development," in Daniel Drache and Meric S. Gertler, eds., The New Era of Global Competition: State Policy and Market Power (Montreal: McGill-Queen's University Press, 1991), 103-26.

48. Harry Arthurs, "The Hollowed Out Corporation."[]

49. David Wolfe, "The Emergence of the Region State," in Thomas J. Courchene, ed., The Nation State in a Global/Information Era: Policy Challenges (Kingston: John Deutsch Institute for the Study of Economic Policy, (1997), 205-240.

50. On the distinction between "reactive" and "anticipatory" industrial policies, see Michael M. Atkinson and William D. Coleman, The State, Business, and Industrial Change in Canada (Toronto: University of Toronto Press, 1989), 23-27.

51. Stephen Clarkson and Christina McCall, Trudeau and Our Times. Volume 2: The Heroic Delusion (Toronto: McClelland and Stewart, 1994).

52. Gilbert R. Winham, "International Trade Policy in a Globalizing Economy," International Journal LI:4 (Autumn, 1996), 638-650.

53. Alan M. Rugman, "Why Business Supports Free Trade," in John Crispo, ed., Free Trade: The Real Story (Toronto: Gage, 1988), 95-104.

54. Michael Hart, Fifty Years of Canadian Statecraft: Canada at the GATT, 1947-1997 (Ottawa: Centre for Trade Policy and Law, 1998).

55. John Kirton, Alan Rugman and Julie Soloway, Environmental Regulations and Corporate Strategy: A NAFTA Perspective (Oxford: Oxford University Press, 1999).

56. Stephen Dale, McLuhan's Children: The Greenpeace Message and the Media (Toronto: Between the Lines, 1996).

57. R. v. Crown Zellerbach Ltd., [1988] 1 S.C.R. 401; Friends of the Oldman River Society v. Canada (Minister of Transport), [1992] 1. S.C.R. 3.

58. General Motors of Canada Ltd. v. National City Leasing, [1989] 1 S.C.R. 641.

59. On this point, see Robert G. Richards, "The Canadian Constitution and International Economic Relations," in Brown and Smith, eds., Canadian Federalism.

60. Alberta Government Telephones v. Canada (Canadian Radio-television and Telecommunications Commission), [1989] 2 S.C.R. 225; Téléphone Guèvremont Inc. v. Quebec (Régis des télécommunications), [1994] 1 S.C.R.878.

61. Thomas J. Courchene with Colin R. Telmer, From Heartland to North American Region State: The Social, Fiscal and Federal Evolution of Ontario: An Interpretive Essay (Toronto: Monograph Series on Public Policy, Centre for Public Management, Faculty of Management, University of Toronto, 1998).

62. Don Munton and John Kirton, "Beyond and Beneath the Nation-State: Province-State Interactions and NAFTA," paper for the International Studies Association, (San Diego, April 1996).

63. Sylvia Bashevkin, "Losing Common Ground: Feminists, Conservatives and Public Policy in Canada during the Mulroney Years," Canadian Journal of Political Science 29, 2 (June 1996), 211-242.

64. Banting in Courchene

65. Courchene, "Glocalization," 7.

66. These points regarding equalization are emphasized in Courchene and Telmer, From Heartland to North American Region State.

67. Margaret Philp, "UN committee lambastes Canada on human rights," Globe and Mail, December 5, 1998, A7.

68. Alan Cairns, "The Charter and the Constitution Act, 1982," in his Charter versus Federalism: The Dilemmas of Constitutional Reform (Montreal and Kingston: McGill-Queen's University Press, 1992).

69. Kenneth McRoberts, Misconceiving Canada: The Struggle for National Unity (Toronto: Oxford University Press, 1997).

70. For the content of Trudeau's objections, see Donald Johnston, ed., Pierre Trudeau Speaks Out on Meech Lake (Canada: General Paperbacks, 1990).

71. See R.K. Carty, "On the Road Again: The Stalled Omnibus Revisited," In R.K. Carty, ed. Canadian Political Party Systems: A Reader (Peterborough: Broadview Press, 1992).

72. This was also a result of perceptions of graft during the two Mulroney administrations, the pain caused by the structural economic reforms that these governments implemented, widespread dislike of the Prime Minister on a personal level, and the terrible campaign run by Mulroney's successor, Kim Campbell. Jean Chrétien proved able and willing to profit from the mistakes of her campaign.

73. For an account of these issues, see David Laycock, "Reforming Canadian Democracy? Institutions and Ideology in the Reform Party Project," Canadian Journal of Political Science 27:2 (June, 1994), 213-247.

74. Mark Neufeld, "The Political Economy of Security Discourse: Reflections on Canada's 'Security with a Human Face'" in Ken Booth, ed., Security, Community and Emancipation: Critical Security Studies and Global Politics (Boulder: Lynne Rienner, 1999.)

75. Thomas Risse-Kappen, Bringing Transnational Relations Back In: Non-state Actors, Domestic Structures, and International Institutions (New York: Cambridge University Press, 1995).

76. Stephen Gill, "Globalisation, Market Civilisation, and Disciplinary Neoliberalism," Millennium: Journal of International Studies (Tokyo: United Nations University, 1994), 399-423.

77. On the points that the world is not as global as is often thought, and that even if it is, downward policy harmonization does not follow, see William Watson, Globalization and the Meaning of Canadian Life (Toronto: University of Toronto Press, 1998); and Paul Hirst, "The Global Economy - Myths and Realities," International Affairs 73, 3 (1997), 409-425.

78. Heather Scoffield, "Groups pitch alternative to MAI," Globe and Mail, July 8, 1998, B4.

79. Richard Stubbs, "ASEAN's Distinctive Capitalism: Implications for International Trade Rules," in William D. Coleman and Geoffrey R. O. Underhill, eds., Regionalism and Global Economic Integration: Europe, Asia and America (London: Routledge, 1997).

80. Andrew Cohen and J.L. Granatstein, eds., Trudeau's Shadow (Toronto: Random House, 1998).

81. Chrétien committed to decentralization, recognition of Quebec as a distinct society, and a veto on constitutional change for Quebec for any amendment affecting its jurisdiction in his Verdun speech of October 24, 1995 and in his address to the nation the next night.

82. Notice and consultation provisions notwithstanding, the Social Union Agreement, like the Throne Speech promise, did not fetter the raw power of the federal government to use its spending power in areas of shared jurisdiction or for programs such as the "Millennium Scholarship Fund" which transferred money directly to Canadians. Indeed, the Social Union Agreement gave formal administrative recognition to the legitimacy of the use of the federal spending power.

83. Indeed, enhanced mobility was included in the Social Union Agreement because the federal government pushed the issue.

84. Brian Laghi, "United alternative looks at split into five blocks," Globe and Mail, January 8, 1999, A1; Sheldon Alberts, "New United Alternative proposal includes strong regional launching pad," National Post, January 8, 1999, A5; Henry N.R. Jackman, "Suppose the Tories and Reform chose the same candidates," Globe and Mail, January 8, 1999, A19.

85. Ted Byfield, "Not exactly the great White hope: Western Reformers are dismayed at Tory 'terms' for United Alternative," National Post, January 8, 1999, A13.

86. Joel Ruimy, "Reformers, separatists drawn to rally to unite the right," Toronto Star, January 8, 1999, A6; Andrew Coyne, "Separatist footsie, à la Reform," National Post, January 11, 1999, A19.