During the Great Depression, power flowed from the provinces to the federal government in Ottawa. In the 1990's, Canada decentralized and power flowed back to the provinces. Robin Sears writes that, as a result of the pandemic, the flow of power is once again being reversed:
In the next three to five years, as we clean up from the massive bloodshed — human and financial — of the pandemic, the new centre of power in Canada will be the federal government. Conservative pundits, blinded by their hatred of the breathy theatrical style of our prime minister, promote mayors and premiers as Canada’s new leaders. They do not understand where power concentrates as a crisis moves to recovery.
The old military cliché that God is on the side of those with the biggest guns, has a fiscal corollary. She is also on the side of those with the biggest financial guns. When everyone is a beggar and a borrower, who has the untrumpable advantage? The one who can create vast sums of new financial ammunition for their guns. Improbably, in the 21st century, this is not cities, nor multilateral institutions, nor even global banking giants. It is still nation states.
They alone have the right to create new credit, to print new money, without limitation. The right of seigniorage — the exclusive prerogative to print money — becomes the most powerful weapon when everyone is a borrower. Yes, big banks can create millions in new lending, but governments can create billions with a key stroke. Another time-honoured cliché — if you owe the bank a million dollars and cannot pay, you have a big problem; but if you owe the bank a billion dollars, they have the problem — will further enhance Ottawa’s power to declare winners and losers.
This may dramatically change the power dynamics in the Canadian federation. Canadian governments from big cities to small provinces will spend more than they can tax for some years to come. They cannot raise taxes meaningfully, nor can they cut expenditures by any useful amount. They must borrow. Cities are forbidden to go into operating debt. Bond buyers always have the provinces by the short hairs — issue too much debt, and your credit rating plummets and your servicing costs explode.
The shift is going to drive conservatives crazy:
“Premier Kenney, you need five billion recovery dollars? You got it, but not to revive zombie oil and gas companies. Spend it on reducing emissions and a transition to a low carbon economy or we will give it to someone who will.”
“John Tory, you need two billion to get your transit projects up and running? OK, not a single dollar will be spent on dirty diesel buses.”
They will not be happy. On the other hand, any attempt to humiliate them would be a mistake. It's absolutely essential that the federal government be seen as an honest broker:
Ottawa will need to be very careful not to be seen to be bigfooting every other government because they have the only big chequebook.
Provinces and cities, in the borrowers’ queue for years to come, will need to ensure that their case is better than those in line behind them. That will mean listening to and negotiating with Ottawa on its policy goals.
Once again, our federation will be tested.
Image: teacherspayteachers.com
9 comments:
.. Revelation.. for the Nation .. !
It's easy to see it coming, sal. How we handle it will make all the difference.
I'm not surprised, Owen. Toronto is talking about doubling property taxes and slashing transit service. Lockdown has decimated ridership and hotel room tax revenue while increasing spending on public health services. The province is in no position to ride to the rescue, which leaves the feds as the sole branch of government able to respond.
The power of the purse has long allowed the federal government to take a role and set standards in areas of provincial jurisdiction, such as healthcare. It's high time the feds used this power to require provinces to provide standardized and realtime health and death reporting. The lack of standard data and reporting delays severely hamper this country's ability to respond to pandemics, as was made clear in the the SARS enquiry report. It's shameful that no action was taken in the years that followed and that our ability to track public health and drug adverse-effect data remains among the worst in the developed world.
As always, the question is who controls the federal government. Will it be the 90-odd Canadian families that control as much wealth as three provinces combined, or will it be the rest of us?
Cap
You've hit the nail on its head, Cap. The federal government will be in the driver's seat. The question is, "Who will control the federal government?"
.. for Cap.. coup d'etat !
“Premier Kenney, you need five billion recovery dollars? You got it, but not to revive zombie oil and gas companies. Spend it on reducing emissions and a transition to a low carbon economy or we will give it to someone who will.”
Kenney is going the exact opposite way by reducing environmental monitoring to zero, as detailed in that Nikiforuk piece in the Tyee that MOS posted about yesterday.
Remind me again why we're sending billions to Alberta and the oil companies to flout the rules any old way kenney pleases?
Cut 'em off. Now.
I mean, this is getting beyond ridiculous and into dystopia. Kenney deserves a big slapdown in public. Who cares what Albertans think? They need to grow up as much as kenney does. Of course Scheer would also go into frenzy, and that might be fun to watch as he takes the Cons to new low levels of mindlessness and general squawking.
BM
Like Cap, I believe the powers of status quo are underestimated. I'm going to filch my response to your comment today on my blog:
There's such enormous speculation on what a post-Covid world order will look like, the common assumption seeming to be that we can't go back to our old ways. Beyond that there's a cornucopia of opinions as to what the next big thing "must" look like. It seems we're all over the board on imagining our future. That, to me, suggests we're more apt to get little more than the existing powers pushing a "reset" button to restore the old ways. I don't believe there's much chance of reform without consensus on what that should look like. We need something that enough of us can coalesce behind. What that is I don't know.
Without some common vision of a way forward, a real nuts and bolts blueprint that people can understand and rally behind in support, the existing order that we seem to agree "sucks" has the whip hand. The forces of status quo will change but only to the extent they have no choice. Beyond that they'll try to patch up the holes, mask the glaring failures and get the machine lurching back in the same direction.
I suspect that The Right will go from a slow boil to a quick boil, BM. What happens in the kitchen after that is anybody's guess.
I see the present moment as an opportunity, Mound. Whether we will take it and make something better of it is a fifty-fifty proposition.
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