Economic Backwardness and Political Balkanization

The erosion of political sovereignty is more obvious than other consequence of lengthening of dependence. Less dramatic but equally serious is the slide into patters of economic backwardness and internal balkanization.

Fifteen years of unprecedented intake of American capital, technology, know­ how and marketing connections have resulted in considerable increase in income and employment. This has not, however, secured the basis of continual growth. Indeed, there has been a regression in Canada ‘s economic position relative to othe1 equally industrialized countries The author of a survey of recent trends and patterns of Canadian trade concluded that “Canada’s position resembles more closely that or a less developed nation than that of the developed countries”.

The golden days of easy export earnings have passed. The resource boom which fed the income-generating process of the Fifties and attracted the heavy inflow of direct investment in secondary manufacturing is largely played out. Now the trend of American direct capital flows towards expansion of manufacturing facilities in the rich and growing markets of Europe. The. honeymoon is over, rapidly the realization is dawning that the heavy intake of direct investment and the consequent loss of economic control has restricted Canada s freedom of action in a highly competitive world economy.

Canada is unique among industrialized countries – and many less industrialized ones – in the degree to which her economy has been integrated, with the metropolis through the controlling links of direct investment. The dominant economic institution in the commodity-producing sectors of the Canadian economy today is the subsidiary or branch plant of a foreign corporation, more particularly, an American one. This is true both of resource and of manufacturing industry.

In the key sectors of the Canadian economy, decisions concerning what is to be produced, where it is to be sold, from whom supplies are to be purchased and what funds are to be transferred in the form of interest, dividends, loans, stock­ purchases, short term balances, charges for management, research or advertising services. etcetera, etcetera, are made externally in accordance with considerations of global strategy of foreign corporations. Nor is dependence confined to decisions transmitted through parent-affiliate links. For Canada, freedom of action has been progressively restricted by a proliferation of commitments – both formal and informal – arising from bilateral arrangements with the government of the United States. In this manner the free market is being replaced by internal transfers within multi-national corporations. Correspondingly, inter-governmental relationships resemble increasingly those of the old mercantilist system. Although the country is richer, the Canadian economy is less flexible than it has been in the past. The instruments of public policy are constrained by umpteen commitments made in exchange for “special favours”.

In the private sector the economy has little entrepreneurship or technological dynamism. There has been virtually no adjustment to the condition of competition of the Sixties. The share of crudely processed materials in exports has not diminished significantly. Imports of manufactured goods as a percentage of domestic production have increased. Technological dependence is greater than ever and unequalled by any other industrialized country. In a world in which competition places a premium on innovation and entrepreneurship, imitative technology is reflected in a high cost structure and lagging productivity. The capital market is distorted in the sense that Canadian industrial savings cannot find attractive equity investments in Canada, while large proportions of savings generated in Canada are not available in other sectors of the economy because they accrue in the form of retained earnings and depreciation allowances of foreign controlled corporations. The structure of ownership and control is such that there are barriers to the flow of Canadian savings to finance Canadian-controlled growth industries. These Technology oriented industries are firmly in the hands of foreign corporations. They effect a limitation on both the economic and the political independence of the country. As the Watkins report observes; “Power accrues to nations capable of technological leadership, and technological change is an important source of economic growth”.

The most bitter harvest of increasing dependence and diminishing control may yet be reaped in the form of the internal political disintegration of Canada. The final outcome of branch plant society is a convergence of value systems and a meshing of corporate and technocratic elites, which must ultimately call into question English Canada’s willingness to pay the price of continued independence. That point was made by Gad Horowitz when he warned that “by the time we have regained control of our economy, we will have nothing but American thoughts in our head. Control our economy for what?”

The “continentalist” orientation is fundamentally destructive of the consensus upon which rests the continued existence of Canada. It rejects the maintenance of the national community as an end in itself. It puts the value system by which as a nation is ultimately defined, up for sale. In every “cost-benefit” calculation concerning gains and losses from direct investment, there is an implicit price tag on national values and beliefs'”. Galbraith, has shown that the great producing organizations, which reach forward to control the markets they presume to serve, put “Americans thoughts in out head” because it is profitable to homogenize the consumer. By the intake of branch plant factories and the associated branch plant culture, in the widest meaning of the term, national values and beliefs in the hinterland are influenced, bent and shaped in the image of the metropolis. When the process is complete, there remains as Horowitz suggests, no reason to regain control of the economy.

The same anti-nationalist orientation which is undermining the will of English Canada to resist absorption into the American empire, leads to intransigence to the pressures from Quebec for powers to bring the economic and social life of the French Canadian national community into line with the value system which defines it. The basic cause of the regional fragmentation of the country and the all-time low in the prestige and power of the federal government is not to be found in the present upsurge of Quebec nationalism, but in the gradual erosion of the national s:ructure of the Canadian economy and polity through the uncontrolled expansion of direct investment.

Direct investment transfers the locus of decision-making from Canada, where it has in the past been subject to strong direction by the federal government, to the managements of scores of very large externally-based private corporations, operating on a world scale under the protection of their metropolitan government.

The weakening of governmental and public control over national economic policy is a self-reinforcing cumulative process of regression to fragmentation. In Canada the uncontrolled laissez faire transfer of economic decisions from an internal public to an external private locus has limited the capacity of Canadian governments to implement public policy:

“Foreign control means the potential shift outside the country of the locus of some types of decision-making. The extent to which decision­ making within the host country is eroded varies with circumstances, and basically depends on the power of the foreign firm and its government relative to the government of the host country.” (Watkins)

Fragmentation is facilitated by the federal character of the Canadian political system. As the economic basis of the Old National Policy operated by a strong central government disintegrated, and as decision-making functions were relinquished by Ottawa, provincial governments have extended the1r area of operations. The shifting pattern of resource exports and investment from the west-east to the north-south axis has strengthened the provincial governments vis-à-vis the federal government. Regional fragmentation is the result of the new mercantilism of branch plant economy. Equally important although less well understood, is the fact that the process of fragmentation is self-reinforcing:

“The desire if each province to get as much job-creating investment including foreign direct investment as it can, has created a tendency toward minimal constraint on, and maximum encouragement of foreign ownership.”

In Canada the continued refusal of the English-speaking national community to recognise explicitly the national aspirations of Quebec is leading to the progressive escalation of provincial fiscal demands and is propelling the balkanization of the country to the point of piecemeal absorption into the American empire.

Under these conditions it becomes increasingly difficult to repatriate the locus of decision making, or to implement the “new national policies” suggested by Watkins and his associates. The manner in which political decentralization reinforces the pull towards the metropolis was summed up by Professor Aitken years ago:

“If continentalism is in any sense a threat, it is a threat to Canada a notion. It is not, a threat to the province as such many of whom dependent as they are on American capital, would find it easier to defend their regional economic interests if they had two senators apiece in the United States Congress”.

Indeed, the blind refusal of English Canada to accommodate to the demands of Quebec for national equality within a Canadian partnership of two nations is pushing nationalist forces in the French Province towards seeking their own “independent” hinterland relationship with the United States corporations and possibly with the Europe metropolis through associate membership in the Common Market.