The Canadian Century. Brian Lee Crowley
than the Americans to enrich social welfare but more inclined to invest in productivity-enhancing transport and communications. We spent less of our rising incomes on government; they spent more. And anticipating the critics, it is perhaps worth pointing out that the higher American defence spending does not account for the gap in favour of higher US spending: the gap between Canadian and US defence spending is considerably narrower than the one on social welfare.
From 1932 to 1963 expenditure on health, education, and transportation rose slightly more quickly in Canada than in the United States, and expenditure on defence and social welfare and total expenditure more quickly in the United States than in Canada.8
Louis St. Laurent, the prime minister who most embodied the era of postwar progress and freedom, entertained no doubt that Canada’s great good fortune was rooted in its inheritance of a tradition of freedom and individual responsibility—Laurier and St. Laurent were as one in their belief that our individual freedom was the cornerstone of all else and that the biggest danger to that freedom was an overweening state.
The St. Laurent government’s policy could hardly have been closer in spirit and in detail to Laurier’s vision. Canada’s public finances were carefully managed to ensure regular budget surpluses to help pay down war debt. Modest expansions were made to social welfare programs, but these were kept under tight control and designed to ensure that they would not become an alternative to work for Canadians. The resistance to fashionable expansion of the size of government came not only from St. Laurent’s government, but from the provinces as well. As a result of this measured frugality, Canada enjoyed the tax advantage that was so close to the heart of Laurier’s plan, which was proving itself again in the mid-twentieth century as it had in Laurier’s day.9
As late as the 1957 federal election campaign, St. Laurent was still firmly committed to Laurier’s vision for Canada—and for the Liberal Party—when he said:
[A]ny idea of non-essential interference by the government is repugnant to the Liberal Party. We believe that the private citizen must be left to his own initiative whenever possible and that if some help is required for the individual, that which is afforded by the national government must encourage rather than replace the help which the community or the province with its municipalities can give.10
We were not overtaking America, but the two nations of North America were together showing the rest of the world their heels.
The twenty years of growth and dynamism we enjoyed in the immediate postwar years amply demonstrated that Laurier’s vision was not a mere product of its times but that it was a vision that stood the test of change and retained its power to inspire.
Again, however, Canadians got knocked off course—and this time the blame fell more on us than on world circumstances over which we enjoyed so very little influence.
Beginning in the mid-sixties, the confluence of many forces began to work a change in the minds of Canadians. A wave of nationalist antiAmericanism washed over Canada, fuelled in part by distaste for the Vietnam War and America’s brash assertiveness on the international stage and in part by domestic alarm over a perceived American domination of the economy.11 The counterculture movement that emerged in the US found echoes around the world, including in Canada, and Marxism, feminism, and various other isms began a long march through the academic institutions. Keynesianism, a naïve faith in the ability of government officials to “manage” the economy, became almost universal among Western governments, especially since memories were still reasonably fresh of the success of central planning controls during the Second World War.12 In the seventies, a Republican president brought in price and wage controls, the ultimate expression of confidence in government’s superiority over markets.13
Increasingly, government was being looked to to solve perennial social problems, such as when Washington moved in the 1960s against both racial discrimination, through the Civil Rights Act, and poverty, through the War on Poverty and the Great Society. All of these factors and more— wider access to education, the emergence of effective contraception, the growth of cities and suburbs—affected Canada as much as they did other Western societies. Over and above that, we had special factors in Canada that exacerbated these trends. For example, we had the largest baby boom in the Western world, undermining our faith in the economy to provide work for all who wanted it, just as we saw the rise of a new breed of aggressive separatist nationalism in Quebec, which unleashed a torrent of spending designed to bind Quebeckers to the federal state.14
Laurier’s belief in the rugged individualism of Canadians, and the freedom, within the rule of law, that made that individualism the source of great prosperity and social progress, seemed overtaken by events. The new zeitgeist called for an expansive state, great new social programs, and vast extension of state employment and state enterprise. Against all this Laurier had warned, and those warnings increasingly fell on deaf ears.
Government took an ever-increasing place in the economy and the lives of Canadians. Government was growing everywhere in the industrialized world, of course, but in few places like it did in Canada.15 Armies of workers were drawn into public sector work in the federal, provincial, and municipal governments while the tax burden rose, public finances deteriorated, and the national debt took off. The expansion of welfare state programs drew tens of thousands into dependence as the value of benefits rose handsomely in real terms.
By the mid-nineties, over 12 per cent of the population of the country’s largest and wealthiest province, Ontario, was on provincial social assistance. In next-door Quebec, one-fifth of the population was on some kind of public benefit, such as welfare or unemployment insurance.16 Public employment rose in Ottawa, and those increases were mirrored in the provinces.17
The share of the national economy directed by government rose from about 28 per cent in 1960 to a peak of 53 per cent in 1992.18 As we document more fully in later chapters recounting Canada’s fiscal challenges, we didn’t have a single balanced national budget between 1974 and 1998.19 Taxes, and especially deficits, rose inexorably.
By contrast, America was a paragon of economic virtue, even though it too indulged in some expansion of the state. Over the same period, 1960 to 1996, the share of the national economy devoted to government also grew, and from the same starting point. But where they upped their spending by six percentage points, to 34 per cent of GDP, we nearly doubled ours.20 Their national debt grew, but it went from being a little higher than ours to somewhat less—despite Vietnam, the Great Society, and the same percentage of national income spent on tax-financed health care as in Canada.21
Protectionism became something of a vogue as we threw up barriers to foreign investment and foreign cultural products like music, television, and magazines.22 Unemployment became a national preoccupation, and after having kept even with US unemployment rates for decades, we began a long-term divergence of our rates that saw a larger share of Canadians than Americans consistently out of work.23
We slammed the door on immigration in many of the years of these lost decades, sometimes admitting as few as 71,000 people (1961)—a far cry from the 282,164 admitted at the postwar peak in 1957.24 Taxes became uncompetitive compared to the US,25 and we obsessed about brain drains to the south. Our standard of living in 1960—almost identical to the Americans’—slowed its growth, creating a gap that, by 1992, had reached about 22 per cent as a result of poor productivity growth, high taxes, and high deficits that crowded out private sector investment.26
The foreign investment controls introduced during this period merit a little further attention for the absolute reversal of policy they signal. The 1972 Foreign Investment Review Act, the product of a minority Parliament where Pierre Trudeau’s Liberals were dependent on a virulently economically nationalist NDP for their survival, was a radical departure for Canada. As political scientist John Fayerweather noted in 1974:
There have been virtually no general restrictions or even government administrative processes to impede new investors. Until the mid-fifties, the general tenor of Canadian attitudes was to encourage