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"THE CONTRASTING EVOLUTION OF OUR TWO FEDERATIONS"

NOTES FOR AN ADRESS TO
THE CANADIAN-AMERICAN CENTER,
UNIVERSITY OF MAINE

ORONO, MAINE

MARCH 19, 1999

The longest unprotected border in the world, a history with numerous points of convergence – as evidenced by the fact that around 20% of Maine’s population is of French ancestry – and, lest we forget, the practice of federalism, are testimony that our two countries have a great deal in common. And while we may speak of the New World, Canada and the United States are in fact, together with Switzerland, the oldest democratic federations on the planet.

Let’s look at our two federations over time. What is striking first of all, and calls for some explanation, is how they have evolved in diametrically opposite ways. Over time, Canada, with its centralizing Constitution, has evolved into a decentralized federation, whereas your country has become more centralized even though your Constitution was largely decentralizing.

After reviewing this contrasting evolution, I will examine the causes of those contrasts and then look at one of its contemporary expressions, the federal spending power.

It is my conviction that such comparisons between our two federations, with their differences and similarities, will be mutually beneficial. We should conduct this sort of exercise more often, and I thank the Canadian-American Center for giving me this opportunity to do so. Indeed, for this very reason, the Government of Canada has taken the lead in creating a forum of federations, where practitioners of this system of government from all over the world will have the opportunity to exchange information on their respective experiences. An international conference on federalism in the era of globalization will be held in Mont-Tremblant, Quebec, from October 6 to 8, 1999. The conference will attract elected officials, public servants, academics and business leaders from a large number of federations. The theme of the conference will be the challenges of governance within federations.

It is my further conviction that a better understanding of other federations will strengthen the unity of my country. Not because the Canadian federation is perfect, or so much better than others. But because statements supporting separatism in my country never seem to me to ring so wrong as when they are confronted with what is going on elsewhere in the world.

It is not true that the Canadian federation is a straitjacket that is ill-suited to today’s realities. Federalism has served Canada well, it well serves my society, Quebec, as it has well served the United States. Indeed, our two countries would be inconceivable if they were not federations.

Canada’s Constitution stems from a compromise between supporters of a legislative union, meaning a unitary state with a single parliament and a single government, and proponents of a federative union. The compromise reached by the Fathers of Confederation consisted of adopting a centralized federal system, where the powers then deemed the most important, particularly with respect to the economy, as well as residual powers, were attributed to the federal parliament. Moreover, the Constitution Act, 1867 contains unitary elements that clearly derogate from the classic principles of federalism. For example, the power of "disallowance" allows the federal government to ask the Governor General to nullify any provincial legislation it deems to be contrary to the national interest, even if it is in full compliance with the division of legislative powers set out in the Constitution. As well, the federal parliament has a "declaratory power" under the Constitution that allows it to extend its jurisdiction unilaterally, to the detriment of the provinces.

Indeed, the "unitary" elements in the Constitution of 1867 are so substantial that the great specialist of federalism, Professor K.C. Wheare, wrote in his classic work on federal governments that the system originally established constituted a "quasi-federal" system, rather than a genuine federation. It seems that the choice of such a highly centralized constitutional model can be attributed to, among other things, the desire not to repeat the "errors" of the drafters of the American Constitution. The Fathers of Confederation believed that the overly decentralized nature of American federalism, where residual powers lie with the states of the Union, was one of the main causes of the American Civil War.

And yet, while the Constitution of 1867 does not respect the letter of federal orthodoxy, it has evolved in its application toward genuine federalism. Even the veteran separatist leader Jacques Parizeau recently acknowledged that [Translation] "Canadian federalism is about the most decentralized in the world, along with Switzerland." On the same occasion, Mr. Parizeau added that [Translation] "Canada is an extraordinarily decentralized federation". (February 28, 1999) This adjustment, however, is not the result of formal constitutional amendments, as only four changes have been made to the division of legislative powers since 1867. This evolution is the result of the gradual disuse of unitary mechanisms, the decentralizing interpretation of the Constitution by the courts, and a host of intergovernmental agreements designed to harmonize the responsibilities of the two orders of government.

The U.S. Constitution of 1787 was much more decentralized than the Canadian Constitution Act of 1867. In addition to being assigned all responsibilities not explicitly reserved for the federal government, the states were also empowered to legislate in the areas of banking, marriage and divorce, criminal law and penitentiaries, which are exclusive federal jurisdictions in Canada. Nevertheless, the American federation has evolved in a direction diametrically opposed to that of Canada, among other things through interpretations by the courts that have strongly favoured the central government. It is no exaggeration to say that Canada’s provinces today enjoy substantially greater autonomy than American states.

To give but one example, the federal power to legislate with respect to commerce, which is actually defined in a very narrow way in the American Constitution, has in fact been interpreted by the courts as allowing Congress to regulate all aspects of trade and commerce within a state if the goods produced are likely to be transported to other states. In Canada, the Constitution Act, 1867 gives the federal parliament unlimited power to regulate commerce, but the highest courts have deemed that intraprovincial trade, in all forms and at all stages, is an area of exclusive provincial jurisdiction.

What is true at the legislative level is also borne out in fiscal matters. Looking at just a few figures, federal spending after intergovernmental transfers accounted for 61.2% of all government spending in the U.S. in 1996, compared with 37.8% in Canada. As well, the share of federal transfers in relation to total revenues of American states has increased, from 20.5% in 1986 to 29.6% in 1994, whereas it has decreased in Canada, from 23.3% of provincial revenues in 1986-87 to 14.7% in 1997-98.

In addition, according to a specialist in comparative federalism, Professor Ronald Watts of Queen’s University in Ontario, all federal transfers to state and local governments in the United States were conditional in 1996. In Canada, however, conditional transfers accounted for only 4.3% of federal transfers in 1996. In fact, more than half of the transfers to Canadian provinces are allocated through the Canada Health and Social Transfer (CHST) and these transfers are not conditional in that they have either no conditions for certain aspects or very general conditions.

How can these differences be explained? Why have the dynamics been so different in our two federations? There are at least five reasons, relating to 1) the very nature of the division of powers, 2) demographics, 3) the relationship between the legislative and executive branches, 4) the size of the member states, and 5) the importance of foreign policy. Let’s take a brief look at these reasons.

First of all, while the original distribution of powers in the United States identified several shared responsibilities, Canada placed greater emphasis on the division between the exclusive responsibilities of each order of government. In the U.S., the federal and concurrent powers are set forth explicitly, but the Constitution leaves large unspecified residual powers to the states. The courts have tended to interpret what is "implied" in the federal powers as broadly as possible, which, over time, has contributed to increased centralization. In Canada, where the provincial and federal powers are defined explicitly in the Constitution, the courts have, since the late 19th century, interpreted certain federal powers narrowly so as to expand the scope of provincial powers. Later, the emphasis on provincial authority in the areas of "property and civil rights" transformed this power into a provincial residual clause.

Second, the situation of our main minority groups is not the same. In your country, minorities are dispersed and no one group is so concentrated in a single state to form the majority. As a result, your minorities tend to look to the federal government to defend their interests. In Canada, the country’s largest minority is mainly concentrated in a single province. Francophones represent 24% of the country’s population but they make up 81.5% of the population of Quebec. Francophone Quebecers have a special relationship with their provincial government since it is the sole government where the majority of elected representatives are Francophones. Although the Government of Quebec may sometimes support the sharing of certain responsibilities, it generally acts as a strong advocate of provincial autonomy. This situation has no equivalent in the United States.

Third, the executive and legislative branches are clearly separated in the United States, at both the state and federal levels, whereas the situation is much more fluid within the Canadian parliamentary system. As a result, relations between the President and Congress have shaped American policy extensively, more so than relations between states and the federal government. In Canada, the system has been defined much more extensively by federal-provincial relations than by the relations between the executive and legislative branches.

Fourth, there are 50 American states but only 10 Canadian provinces. Each province has much more influence over the federal government than does each American state. Ontario and Quebec alone account for 62% of the Canadian population, whereas it would take the 13 most populous states of the federation to make up the same proportion of the American population. The fact that there are fewer Canadian provinces than American states makes it easier for our provinces to consult one another and to form strong coalitions in their relations with the federal government. As a result, our provinces are forces to be reckoned with for the federal government, which must negotiate with them on an ongoing basis at federal-provincial conferences at the administrative and ministerial levels.

Finally, the different clout that the United States and Canada carry on the international scene has influenced the role of their respective federal governments on the domestic scene. The United States’ superpower status and resulting military spending have increased the importance of its central government tenfold. Canada’s federal government has not been able to use such leverage.

While Canada is certainly a decentralized federation, there is a major debate taking place in our country as to whether the federal government’s powers in relation to the provinces ought to be limited even further.

This debate is further complicated by the presence of a secessionist government in the second largest province in terms of population, the predominantly Francophone province, my province, Quebec. One theory says that there needs to be a massive transfer of federal powers to the provinces, so as to cool Quebec’s separatist fervour. Another says that, on the contrary, the role and visibility of the federal government must be affirmed so as to make the advantages of belonging to Canada more tangible to Quebecers.

The viewpoint of the Government of Canada and Prime Minister Jean Chrétien is that these two contradictory theories are both equally wrong. The issue of the division of powers must be approached solely in terms of what is in the public interest, while respecting the Constitution. Centralization and decentralization alike would weaken the Canadian federation if they were poorly designed in terms of the public interest. What we need is a federal government that is strong in its own areas of jurisdiction, provincial governments that are strong in theirs, and above all, strong cooperation between both orders of government. All the changes the Government of Canada has made to the federation in the past three years have been geared to that single objective, in such varied fields as the environment, the secularization of school boards and job training. This also holds true for the more cooperative approach the federal government has taken on the use of its spending power, which I would now like to expand on.

The division of constitutional responsibilities between the two orders of government is based on the power to legislate. At the same time, all major federations provide for a "spending power" for their federal and constituent governments in areas that do not strictly fall within their legislative jurisdictions. That spending power is similar to the freedom governments have to contract with third parties. It provides a flexible mechanism: because it is difficult to devise permanent, watertight areas of taxation, and because responsibilities and revenues evolve at different speeds, legislative responsibilities are not always in line with available revenues. This creates imbalances, which are then remedied through transfers.

While this spending power is not formally set out in either the American or the Canadian Constitution, as it often is in the constitutions of more recent federations such as Australia, Germany, India and Malaysia, it is now recognized as a constitutionally legitimate instrument, whose use has been sanctioned by the courts. In Canada, the federal spending power has been sanctioned most recently by the Supreme Court in 1989, 1991 and 1997. In the first of those three judgments, the Court stated: "the federal spending power can be exercised so long as it is not in substance legislation on a provincial matter."

The exercise of the spending power of the federal government varies from federation to federation. In Canada, it has been used less often and with fewer conditions than in virtually any other federation. And yet, it has long been the subject of controversy. In my province, for example, the belief that its use is contrary to the Constitution of 1867 extends well beyond separatist circles.

As a result, federal initiatives that would be considered perfectly normal in other federations are denounced in Canada as a violation of the Constitution and the spirit of federalism. The most recent example of this phenomenon is especially striking. It involves a new federal postsecondary student scholarship program. Believe it or not, this program has been strongly denounced as a federal intrusion into the field of education, which is a provincial jurisdiction. And yet, making education more accessible to students does not constitute meddling in the education field as such. All modern federations have government student aid programs. In your country, 75% of public student aid is provided by the federal government, and no one is complaining.

Your federal government uses its spending power much more than ours does, but without sparking nearly as much controversy. Decisions on exercising the federal spending power in your country do not require special procedures; the Congress and the President make those decisions as they see fit. The conditionality of federal transfers is justified by the principle of accountability to the taxpayer. According to this principle, the government that collects the income tax, in this case the federal government, which has almost exclusive responsibility for this field of taxation, is the one that sets the conditions on how the money is spent.

The Canadian federal government believes it is important to preserve an appropriate use of its spending power. In Canada, as in all developed federations in the world, the federal spending power has been a vital element of social development. It has been instrumental in building with the provincial and territorial governments the Canada-wide social programs which all Canadians value, such as Medicare. It has been essential in promoting equality of opportunity for all Canadians, helping to ensure access to basic social programs and services of comparable quality to Canadians wherever they live or move in Canada.

But at the same time, the Government of Canada wants to devise more effective ways of working with the provincial governments, especially now that most of them have put their public finances in order and are getting ready to reinvest in Canada’s social safety net.

We needed a model that both preserves governments’ capacity to develop common objectives and helps each government to develop solutions tailored to its own context.

Governments spent more than a year negotiating a new social union framework agreement, which was signed on February 4, 1999 by all governments but Quebec’s. The agreement encompasses the different aspects of Canada’s social policy, including mobility, accountability and intergovernmental dispute resolution. One of its key elements is a more collaborative use of the federal spending power.

The federal government can no longer unilaterally launch a Canada-wide program through a conditional transfer to the provincial governments in the areas of health care, postsecondary education, social assistance and social services. It must now work through objectives in these sectors. Even there, it can no longer set those objectives and priorities on its own. It has to seek the consent of the provincial and territorial governments, and cannot proceed without at least obtaining the support of a majority of the provinces.

The individual provinces and territories will be responsible for designing programs and policies to achieve agreed objectives. Governments will agree on an appropriate accountability framework for such new Canada-wide initiatives.

A provincial or territorial government which, because of its existing programming, would not require the total transfer to fulfill the agreed objectives will be able to reinvest any funds not required for these objectives in the same or a related priority area. For example, in the case of a new health care initiative, a provincial or territorial government could choose to spend either in the health care sector or in a related sector, such as assistance for early childhood development.

Thus, each provincial government will be able to determine the best mix of programs to meet the agreed objectives. Canadians are better served when they are offered programs that are tailored to their diverse needs, rather than "one-size-fits-all" programs.

This new model for intergovernmental transfers will encourage governments to work together and set common objectives, while enhancing their capacity to participate in a way that suits them best. In short, it will encourage participation, reward innovation, avoid duplication and therefore set in motion a "race to the top".

In addition to intergovernmental transfers, another way to use the federal spending power is through transfers to individuals or organizations. The new social union framework agreement commits the federal government to giving at least three months’ notice and to consulting before launching new Canada-wide initiatives funded through direct transfers to individuals and organizations in the fields of health care, postsecondary education, social assistance and social services. Governments that participate in those consultations will have the opportunity to identify potential duplication and propose more flexible and efficient implementation alternatives.

And so, the Canadian government, which already uses its spending power less than any other federal government, has now developed guidelines for using it in collaboration with the provinces. This requirement for collaboration is unprecedented in other federations. This cooperative use of the federal spending power will help governments to work together more effectively to serve Canadians.

Today, I have compared our two federations in terms of the division of powers. Neither centralization nor decentralization is a virtue in itself. Each federation needs to strike the right balance between, on the one hand, the need for common objectives and, on the other hand, the ability to develop different solutions.

If the United States were a unitary country, it would be easy for that "United State" of America to set common objectives, but it would not be able to choose them on the basis of a rich diversity of experiences. If your 50 states were 50 independent republics, their experiences would be very diverse, but they would not have anywhere near the same capacity for joint action.

And this is why we have federations: to build common actions on the diversity of experiences. Striking a proper balance between common objectives and varied experimentation is an ongoing challenge, to which federations owe much of their vitality. I can assure you that the Canadian federation will continue to share with you, our federal neighbour, the fruits of this ongoing debate. It may create a lot of headaches for federal and subnational politicians and bureaucrats in our two countries, but at the same time, through positive synergy, it also provides for better services to our citizens.

Check against delivery.