The Canadian Century. Brian Lee Crowley
competing principles that might guide thinking about the tariff were, on the one hand, that government should interfere as little as possible in the choices people made, including the choice to buy imported goods over domestic ones, and, on the other hand, the wish to keep the cost of raising revenue as low as possible. The solution, Laurier thought, was major tax reform: the steady move away from a “protectionist tariff ” and toward a purer “revenue tariff.”
The distinction today may seem a fine one, but then it was an important shift in policy. In the years prior to Laurier’s rise to office, the protectionist role of tariffs had risen steadily to the fore. A protectionist tariff confers major benefits on domestic producers competing with imports. Naturally, the domestic lobbies, particularly for manufacturers, push the government to make its tariffs fall most heavily on their foreign competitors, rather than making the tariff a relatively neutral one, falling more or less equally on all kinds of imports. Not only did the tariff, as it grew up under the National Policy, pit manufacturer against importer, but it pitted, for example, the free-trading West against Central Canada’s manufacturers, exacerbating regional tensions in the young country.31
A tariff is, by its nature, not economically neutral in its effects; it falls by definition on products coming from the outside, conferring an advantage on domestic production. That being said, however, the tariff itself could certainly be arranged in different ways. It could be used to favour domestic industries by placing its burden most heavily on industries in competition with domestic producers. Alternatively, its burden could be made to fall more or less equally across all imported goods, getting the government out of the business of using tax policy to favour some groups and industries over others.
Laurier’s view, and it is one that has been shared by many of the historians who have come after, is that under the Tories, who had ruled with only a brief interruption since 1867, the tariff had become infected with politics, its revenue-raising role playing second fiddle to that of selective protection for favoured industries.32 Originally, Laurier and the Liberals, guided by Edward Blake, their former leader, had been pure free traders, but after suffering electoral defeat on the issue, and given the Americans’ manifest lack of interest in reciprocity negotiations, the Liberals trimmed at their 1893 policy conference, preferring tariff reform to outright abolition, at least in the short run.
This was done over the objections of Laurier, who proclaimed himself not only completely committed to free trade with the US but ready to adopt a customs union33 with a single set of common tariffs and a pooling of the revenue that resulted—a policy of deeper integration with the United States than that which exists today.34 But while Laurier would have preferred full steam ahead on free trade, he accepted that it was not going to happen any time soon, and once in power set about reforming the tariff. As John Dafoe wrote of Laurier’s new policy, “A deft, shrewd modification of the tariff helped to loosen the stream of commerce which after years of constriction began again to flow freely.”35
It was not the free trade, plain and simple, that a campaigning Laurier in earlier years had promised the West, and a revenue tariff, dress it up as you will, is still a tariff—but an important start had been made in getting the politics out of the tariff.
Even beyond that dilution of politics in the tariff, in another echo of modern practices of reciprocity in trade liberalization, Laurier’s government introduced for the first time a tariff that would recognize and reward the efforts of countries that opened their markets to Canadian goods. In the words of Laurier’s minister of finance, William Stevens Fielding, there would now be “one tariff for countries which are willing to trade with us and a different one for countries which are not.”36
The other aspect of Laurier’s plan to keep government small and costs under control was government borrowing. Laurier and Fielding were not anti-debt zealots. In most years, they borrowed a little. On the other hand, what constituted an acceptable level of borrowing for Laurier and Fielding was strictly limited by the interplay of three important factors.
First, given the extent to which the government was investing, as we have seen, in the development of a great deal of what we would call today infrastructure, and given the limited size of the borrowing in any year— usually well below 1 per cent of gross domestic product (or GDP)— borrowing was clearly being used solely to finance genuine investment.37 Laurier was not borrowing to pay for current expenditures, such as civil service salaries or public services. He limited debt to its proper use: to finance assets with a long productive life, spreading the cost of their construction over a long period so that all of the people who benefited from them over time would contribute to their cost.38 As Fielding explained, “In a new country like Canada with a great many public works requiring to be assisted with many demands on the treasury, it would not be surprising that each year we would not only be obliged to spend our ordinary revenue but to incur some debt in order to carry on our great public works.”39
Second, borrowing, which allowed the government to spread the cost of major investments over time, made an important contribution to Laurier’s objective of keeping Canadian tax rates below those in the US. Laurier was balancing the demands of a growing nation against the need to keep the cost of government low.40 Private finance built a lot of infrastructure, keeping the costs off the taxpayer’s back, while what public borrowing there was was designed to further ease the burden on the taxpayer by spreading over many years the cost of constructing bridges, railways, wharves, and courthouses.41
Finally, Laurier and Fielding kept an eagle eye on international financial markets to ensure that Canada never borrowed beyond what lenders thought the young Dominion could support. They clearly feared that excessive debt would trigger higher interest rates, which would be followed by higher taxes and the loss of competitive advantage vis-à-vis the US. Laurier’s legacy to us on this front was that reasonable levels of debt for the right purpose while living within the country’s means contributed to Canada’s well-being. But it was easy to get the balance wrong, and borrowing needed to be carried out carefully and in a disciplined way.42
3. Self-confident engagement with the Americans
The third part of Laurier’s plan for the Canadian century was that Canada could not shrink before the challenge posed by American dynamism and proximity, but instead Canada must meet them head-on, turning them as best we could to our own account, especially as the British imperial power faded slowly from the scene. Laurier was a Canadian nationalist and a realist. He understood that Britain took but scant interest in Canada and that we were not strong enough to impose our will on America. Laurier believed, therefore, that we had to play cleverly and well the few cards that we had been dealt.
American arrogance and brashness; manifest destiny; hostility to the former colonial power, Britain, and its continued presence in North America; and the unsettled nature of the boundaries between much of Canada and the US helped to give rise to many conflicts between the two countries. Britain, which kept control over all questions of Canadian foreign policy—which they saw as merely a part of imperial policy—often sacrificed Canadian interests to further larger imperial objectives that required friendly relations with Washington.
Laurier lived through a classic example of Canada being sacrificed on the altar of British–US power politics in the resolution of the dispute over the border with Alaska in 1903. The three parties—Britain, the US, and Canada—had agreed to the creation of a joint commission to recommend how to resolve this long-festering issue. The issue had a special significance to Canada in that the Yukon gold rush was under way; Canada desperately wanted an outlet to the Pacific from the Yukon on Canadian soil so that Canadians would be the chief beneficiary of the wealth being created by the development of the Yukon’s gold deposits.43 American interests were equally determined that Canada should gain no such outlet and that Alaska should capture much of the economic benefit of the gold rush.
The commission was composed of six people: three Americans, two Canadians, and a Briton. Laurier was horrified when he realized that the British member of the Canadian delegation had marching orders to give in to the US to preserve transatlantic relations. Lord Alverston, the British judge in question, gave his name to a newly coined verb,