The Canadian Century. Brian Lee Crowley
Indeed we saw how the Laurier years had been ones of massive flows of capital into Canada. These flows were dwarfed by the St. Laurent years. The fifties saw the largest inflow of American capital in Canadian history up to that date.28 For noted Canadian historian Michael Bliss, this phenomenon is easily explained: “American investors poured money into what was perceived as a friendly neighbouring nation, culturally indistinguishable from the U.S., rich in raw materials waiting to be processed to enrich the continental economy.”29 Clearly, the postwar relationship between the Canadian government and American investors was reciprocal—government was eager to attract huge levels of investment, and investors were equally as eager to invest in Canada.
This was regarded as a virtuous circle in the early postwar years, just as it had been regarded by Laurier and all the political leaders in between: “Until the mid-1950s, there was virtual unanimity in Canada that foreign direct investment created a net benefit for Canada.”30 In the seventies a modish economic nationalism made us skittish about foreign capital and investment, even though there was little evidence that we were any more reliant on that capital than we had been previously, and even less evidence that our traditional openness to foreign investment had been anything but beneficial, on balance, for Canada.
The actual degree to which foreign investment was obstructed is the subject of some controversy. Not many deals were actually blocked. On the other hand, the review process was long and cumbersome, and the simple fact of its existence created the kind of potentially costly uncertainty that business shies away from. Economist Harry Johnson passionately argued the line that Laurier, a proud Canadian nationalist, would have taken when he said in 1977 that “Canadian nationalism as it has developed in recent years has been diverting Canada into a narrow and garbage-cluttered cul-de-sac.”31
In other words, we abandoned almost every tenet of Laurier’s plan, and we paid a heavy price.
Still reeling from reciprocity’s defeat in 1911, the political class shied away from any suggestion of broaching a broad-based trade agreement with the United States, but we were still mindful of the dangers to the Canadian economy posed by the possibility of American unilateralism, such as Richard Nixon’s aggressive action against foreign trade. His 1971 New Economic Policy put paid to the notion that Canada could escape being the target of unilateral US trade action because of some ill-defined “special relationship,” thanks to which we nice Canadians could always resort to special pleading to be excused from a protectionist spanking really intended for nasty foreigners across the seas. Nixon had Canada squarely in his sights. Canada had enjoyed a long-term trade surplus with the US, and Nixon most emphatically decided to include us in his surprise protectionist program. An across-the-board 10 per cent tariff was slapped on Canadian imports. Ottawa was shocked. Washington didn’t care.32
With a comprehensive agreement off the table, Canada was thrown back on three strategies. One, which predated the shock administered by Nixonomics, was to negotiate more modest sectoral agreements with the US, such as the Auto Pact signed by Lester Pearson and Lyndon Johnson in 1965, which essentially created managed trade between our two countries in auto production and assembly.33
In 1959, following the cancellation of the Canadian Avro Arrow fighter plane project, we worked out a Defence Production Sharing Agreement. This seemed a sensible alternative to the Arrow’s go-it-alone approach when we couldn’t supply a market on the scale needed to produce complete defence systems at a competitive price; specialization for Canadian producers within a common continental defence equipment industry seemed a more efficient option, giving Canada a better bang for its buck. Gaining access to the US market by essentially being treated as domestic US suppliers paid off handsomely. In its first year alone, the agreement generated about $200 million in new revenues for Canadian suppliers of defence-related equipment.34
A third such agreement dealt with agricultural machinery.35 But such agreements were few and far between, and being limited in scope didn’t offer the kind of room for favourable trade-offs that a more comprehensive agreement would have done.
Under our second strategy, we were enthusiastic supporters of multilateral trade negotiations, looking to the General Agreement on Trade and Tariffs (GATT) and its successors to help discipline the US tendency to go it alone by dangling the prospect of improved access to world markets and not just Canadian ones. Like the sectoral trade agreements, these international agreements were useful, and throughout the period international trade grew consistently faster than domestic economies.
The third Canadian strategy was to seek to diversify trade away from the United States and toward other markets. This policy was an abject failure. Many Canadian governments came to office in the postwar years bubbling with enthusiasm for the unexploited or underexploited foreign markets that would reduce our reliance on American customers and vulnerability to American politicians. China, and to some extent India, plays that role in Canada today.
After the shock of Nixon’s New Economic Policy, however, the pursuit of such diversified markets became a matter of high policy known grandiloquently as the Third Option, the other two options being the dysfunctional status quo or an unpalatably closer embrace of the US, a set of choices designed to make the Third Option appear highly attractive.36 Talks were opened on special trading relationships with the European Community and Japan, for example, and Prime Minister Trudeau cultivated leaders of emerging economies around the world. These efforts foundered on the same shoals as all their predecessors: governments don’t actually make trade decisions; companies do. And Canadian exporters were closely bound up with American markets. One acute observer of the time summed up the results with devastating accuracy: “Every Canadian government after 1945 hoped to diversify trade and every one left office with an increase in the proportion of trade with the Americans.”37
Channelling Laurier’s spirit, historian Michael Bliss dismissed all these efforts in the sixties and seventies as naïve attempts to deny Canada’s real economic circumstances:
The Galbraithian world of controlled markets, planning systems, and perpetual profits was a fantasy. Canadian governments’ confidence in their ability to anticipate the future and shape economic events was pathetically absurd.38
One reason that Bliss’s verdict on these lost decades may seem harsh, but is in fact quite justified, is that the policy of these years was based on an increasingly outmoded view. The truth of the matter was that it was becoming more and more misplaced to think of the Canadian and US economies as separate national economies. We had many highly integrated industries, such as autos, defence, and agricultural machinery, operating on both sides of the border as if the continent were a single economic entity. Autos and other manufacturing industries, however, weren’t the only industries that were increasingly integrated across the international border. Our natural resources fed US production, for example, which was powered by our electricity, our oil, and our natural gas. To an ever-growing extent, we did not make products exclusively within our national borders and then trade those finished products with each other. Different pieces of complex production processes took place on both sides of the border; we traded less and less in the classical sense, and instead more and more we made things together. “Shifting” Canadian exports to other nations implied that Canadian exports were constituted of finished products we could sell to whomever we wanted, a naïve and dangerously outdated understanding of the unique degree of continental integration we were already achieving.39
Dawn of the Redemptive Decade
Slowly, groggily, Canada began to question the wisdom of the new course it had charted for itself, but once roused, Canadians began to demand change, and change they got. In fact, there is a decade during which Canada clearly changed course, beginning with the free trade election in 1988 and ending with Paul Martin’s tabling of the 1997–98 budget, the first balanced budget in Ottawa in a generation. We call this the Redemptive Decade. Canadians and their leaders took bold steps to resolve problems that had been festering within the body politic for years. Actions that just a few short years before were conventionally viewed as “unthinkable” became not only thinkable but doable. And the country began to redeem itself, to return