bout de papier, Vol. 9, No. 2 (1992) — Spring 1992 // Printemps 1992, pp. 13–16
It has now been four years since Brian Mulroney and Ronald Reagan signed the free-trade pact and the mythmakers are out in full force trying to craft revisionist accounts of how we got there. Three books with free trade as their main theme are now on the shelf at W.H. Smith. The count is a firm two to one for the Luddites. The only thing all three have in common is that they are readable. Too bad. I would have preferred that the woolly thinking that marks two of them had been accompanied by fuzzy writing. In fact, all three are extremely well crafted and make for compelling reading. Full credit to the perfidious peddlars of perversion.
On Morningside, Canada AM, and CBC Newsworld, Canadians were confidently told that James Robinson III — chairman of American Express — is the man who bears prime responsibility for many of the ills that afflict the land. Apparently, it was Robinson who managed to get the US government to negotiate a business-dictated free-trade agreement with Canada so that the rich would get richer and the poor poorer. This Robinson fellow is no piker. He did his selling job so deftly that even Brian Mulroney became convinced that it was all his own idea. At least that is what Linda McQuaig would like us to believe in The Quick and the Dead: Brian Mulroney, Big Business and the Seduction of Canada (Toronto: Viking, 1991).
McQuaig’s approach is, of course, not wholly original. But it is told with such zest and zeal that there will be a depressingly large number of Canadians prepared to accept this fatuous account of how major policy ideas are conceived and executed. I expected more of someone advertised as being one of Canada’s premier investigative journalists: someone who supposedly learned the art of interviewing, checking sources and collating material. Apparently not. Like cigarettes, The Quick and the Dead should be sold with a warning that reading it may be bad for the mental health of all but the cadres of the left.
McQuaig’s pessimistic view of the world colours every page. In her view, trade takes place in a world of finite wealth where global corporations seek to grab an ever-increasing share of the pie at the expense of “ordinary” people. For her, international trade and investment lead to a Hobbesian world where life is nasty, brutish and short. The so-called globalization taking place is nothing new; it is no more than a fancy term justifying the grab for wealth and power by faceless global corporations. Dare we see the slick manipulations here of the seven gnomes of Zurich?
She accepts that the IMF, OECD, GATT and other international organizations have applauded Canada’s pursuit of a more market-based approach to trade and industrial policy. But that is because they are no more than dupes for international business. (The gnomes again?) The Macdonald Commission appears to have been similarly captured by the business elite. She reaches this conclusion by conveniently ignoring most of its report, including its detailed description of the Canadian economy and its recommendations on industrial policy. She blithely asserts that the Commission had no advice for the poor and powerless, thus conveniently sweeping its recommendations on a guaranteed annual income and other social policy measures under the rug. If its seventy-one volumes of research and 1,910-page report were too meaty for her, at least she could have taken the trouble to read the convenient summaries prepared for the media. She appears instead to have relied solely on the rather biased views of that group of dissident researchers who brought us The Other Macdonald Report.
The book is permeated by an “us” versus “them” mentality, the us being “ordinary” Canadians stripped of their power by a spineless government captured by “them” the faceless, amoral international corporations. “They” are in turn controlled by a relatively small group of people who manage international capital. Her preference appears to be for the kind of soulless statism that millions have rejected in Eastern Europe. She is convinced that the combination of politicians and bureaucrats are more likely to protect the “little” people than are the managers of international capital. The flaw, of course, is that the Free-Trade Agreement (FTA) and the rest of the business agenda were brought to you precisely by the politicians and bureaucrats. That is why she has to characterize the current crop as having been “seduced” by the blandishments of James Robinson and Ed Pratt, chairman of the pharmaceutical giant, Pfizer, apparently the two most powerful people in America during the FTA negotiations. Ronald Reagan, James Baker and George Shultz were mere putty in their hands.
The book, of course, has its redeeming features. Her economic illiteracy, for example, is touchingly romantic. She paints wonderful pictures of a rosy past, when Canada was ruled by sturdy Canadian nationalists ready to withstand the American horde. She wants to remind us of those halcyon days when Wall Street was dominated by small, prestigious firms with integrity rather than the large, rapacious firms of today, J.P. Morgan and Diamond Jim Brady notwithstanding.
In her zeal to demonstrate that US business subverted Canada into a free-trade agreement that it did not want but which would serve the interests of international capital, McQuaig has to exaggerate the role of their friends in Canada, largely BCNI heavyweights like Tom d’Aquino, Alf Powis and David Culver. They are given a prominence that eases the task of her revisionist chronology of events. Little did Tom and his colleagues know that they were being manipulated by Robinson and his sophisticated band of lobbyists and admen. Robinson and his agents, including former USTR Bill Brock, apparently took great pains to make these guys believe that free trade was a Canadian idea.
After assigning the starring role to US business tycoons, there was no room left to deal with the many others whom I mistakenly thought had played at least supporting or cameo roles. I sought in vain for Peter Lougheed, the premier of Alberta whose passionate espousal of free trade proved critical to convincing Mulroney that free trade made political sense. Clayton Yeutter, United States trade representative during the negotiations, is not to be found. Sylvia Ostry, Reisman’s deputy for multilateral negotiations is similarly absent, as is Walter Light, the first chairman of the federal government s International Trade Advisory Committee. Also missing from the action are Dick Lipsey, one of Canada’s most respected economists, a leading proponent of free trade and author of an influential book advocating an agreement and John Crispo, Toronto business economist and tireless free-trade crusader. McQuaig appears never to have heard of Tom Burns, former president of the Canadian Exporters Association whose consultations with business in 1985 were an important confidence-builder for government and business alike or of Tom Hockin, chairman of the joint parliamentary committee that sought the views of Canadians during the summer of 1985 and recommended that the government proceed to exploratory negotiations. The minor roles assigned to trade ministers Jim Kelleher and Pat Carney further underline the political genda of this book. The FlAs Briar
Mulroney’s agreement and his alone; he was the agent of Ronald Reagan who in turn was the puppet of US business moguls.
Having finished this grim fairy tale, I turned to that old crusader, Mel Hurtig, and found that he had done the impossible. He has succeeded in making McQuaig’s effort look sober and scholarly. With his usual gusto and energy, he has now decided to try the other side of the book trade. The result is The Betrayal of Canada (Toronto: Stoddart, 1991). The transition from failed publisher to failed writer has been swift and complete.
To the initiated, Hurtig’s accomplishments as an analyst and researcher are clear from the beginning. He has none. A few examples drawn from the opening pages should suffice. The first is that old chestnut about the communications memo leaked in September, 1985 purporting that the government was determined to “sell” rather than explain the free-trade negotiations. He ascribes its drafting squarely to the Prime Minister’s office and its approach as vintage Mulroney. He does not want to know that the leaked document was an early draft of a routine memo produced by the communications specialists. If I remember correctly, not even the political fellows had as yet had a crack at it, let alone senior officials or ministers. In short, it had none of the attributes essential to the thesis he is determined to prove.
We also read once again about the “secret deal”’ on exchange rates. He too wants us to believe that the increase in the exchange rate since 1988 is due solely to a deal so secret that none of those involved knew about it. And all this time I naively thought the increase in the value of the dollar was the result of complex factors influencing its long-term float such as the federal deficit, the need for federal and provincial governments to raise funds on the US bond market, the need to attract foreign investors, and John Crow’s anti-inflation crusade. I hope someone can reassure me on this one.
I do not need any reassuring on his third chestnut: Canadians were never told what the free-trade negotiations involved. I will not dispute that Mel Hurtig never understood what was involved, but that is not because the government kept him in the dark. It is hard to find a major policy issue that was studied and discussed in greater detail before final decisions were taken. As I remember it, from 1983 on, every university in the country sponsored at least one free-trade conference or seminar. Every business convention during that period had free trade as a central part of its program. Every think tank sponsored conferences and colloquia. For a year after it took office, the government consulted anyone who had a view to express. It issued discussion papers (conveniently collected in a January, 1986 booklet) which described the issues involved in the negotiations in great detail. A ministerial task force held hearings in fifteen cities across the country. Numerous meetings with provincial politicians and officials elicited their views. Provincial governments in turn held their own hearings. A Royal Commission, on the basis of extensive hearings, prepared one of the most exhaustive analyses of the issues ever undertaken. A special commissioner was appointed to take briefs from business and other special interest groups. A Parliamentary Committee toured the country. All this before the government took the decision to proceed in September, 1985.
Hurtig’s book is a tougher slog than McQuaig’s. The anger is less subtle and the nonsense harder to take. There is no room for whimsy or humour. The future of the country is at stake! He is a hard case and will need a lot of remedial work. With the free time he now has available, perhaps he can be persuaded to take Economics 101 at the University of Alberta. I do not think sending McQuaig back to school will do much good. I think she knows better, but has discovered that crap sells.
If Mel takes the course, he can learn a little bit about cause and effect, a subject on which he is particularly weak. He is quite right in suggesting that there are some fundamental problems in the Canadian economy which will require some wrenching adjustment if Canadians are going to continue to enjoy one of the highest standards of living in the world. Free trade is part of the cure; it is not the cause. The cause is that we are living beyond our means. Governments at all three levels are spending more than they are taking in. Productivity is slipping. Per-unit manufacturing costs are higher than in the USA. Wages are rising faster. Domestic and international borrowing are driving up the value of the dollar. These are complex issues requiring sophisticated responses.
In Econ 101, he will learn that his solutions – closed borders to trade and investment — are likely to deepen Canada’s woes. The professor will tell him, for example, about the New Zealand experience, where a socialist government learned the hard way that small, open economies cannot ignore the world around them. He will learn that even large ones cannot do so with impunity, with the first years of the Mitterand government being used as exhibit one. Argentina is likely to figure prominently as the prime example of what happens when you insist on isolating your economy. Fifty years’ of mismanagement there offer a wealth of evidence.
He will, of course, also learn that there is plenty of debate and controversy about what works and what does not. Economics is not a monolithic science. He will discover, however, that what distinguishes debate among economists is a healthy respect for analysis and research, and a great suspicion of simple explanations and single causes.
He will ascertain, for example, that economists, in analyzing the decline in manufacturing employment in Canada in 1990-
91, are examining a number of phenomena. In the first place, they are looking at the effect of the recession. They will insist that much of the decline is due to the slowdown in business activity taking place around the globe that had nothing to do with the FTA. The same thing happened in 1981-82, with some of the impacts being even more severe. Secondly, he will learn that some of the lost jobs are the result of structural adjustment, some in reaction to free trade, others to changes in fiscal policy, exchange rates, technology and other exogenous factors. Finally, he will learn that there is a secular downward trend in manufacturing employment as we gradually become a more know!- edge-based, service economy, a trend discernible now for more than twenty years and not limited to Canada. It is taking place in every OECD country. As jobs are disappearing in the manufacturing sector, new ones are being created in the service sector. Canada has been very good at this, posting the best record in the OECD over the past ten years. If he listens carefully, it should gradually dawn on him that many of the ills that he attributes to free trade are in fact the result of pressures we face as a relatively small, open economy in an increasingly interdependent, global economy. We are not alone. Australia and New Zealand, to name but two, are experiencing even more painful structural adjustments than Canada. They and others are all adopting the same policy mix as Canada: less regulation, more open trade and investment regimes, tighter fiscal policies. Even the Swedes have cried uncle and are adopting a more conservative policy mix. They too have recognized that shielding people from economic reality brings short-term gain and long-term pain. They too are turning to the policies that seem to have the greatest support among mainstream economists the world over. It is possible that all these economists are wrong, that the OECD, IME, IBRD, and GATT are all wrong, and that Hurtig is right. Somehow, I do not think so. That is why I think he will benefit from taking the whole course. If he succeeds at Econ 101, Hurtig should take a basic course in statistics the following semester. Mel has a wonderful way with statistics. So wonderful that he proudly boasts that he is presenting some of them in print for the first time. Someone should tell him that they have not been revealed before because they are dead wrong. In other cases, the numbers may be right, but the explanation somewhat fanciful. He wants us to know that under Brian Mulroney, Canada’s share of world trade slipped from 5.1 percent to 3.6 percent. I looked up the numbers. We did once hit 5.1, in 1971! Brian Mulroney was then a young lawyer in Montreal. In the 1980s, we went from 3.4 in 1980, to 4.6 in 1984 and 1985, to 3.9 in 1989 and 3.8 in 1990. But who cares? World trade shares are calculated on the basis of statistics denominated in US dollars. The changing numbers tell us more about the ups and downs of the US dollar than about anything else. What counts is that throughout the 1980s, Canadian trade – both imports and exports — grew steadily as we became more and more integrated into the global economy. I think we benefit from trade: Mel does not. I don’t think this is a gap that can be bridged. But at least he should tell a straight story.
What he does with the numbers on investment is nothing short of amazing. Of course, that is a field he has been cultivating for many years without learning much. He wants us to know that Canada’s net international investment position in 1990 was $259.2 billion in the hole. I could say so what? Checking the numbers, however, I found out that there is more to it than this simple sum. His number represents the sum of indebtedness to foreigners. It includes the book value of accumulated FDI at the end of 1990 ($126.6 billion) less Canadian assets abroad plus the value of portfolio investment held in Canada by foreigners ($229.1 billion). The latter is made up largely of government bonds floated by the provinces, the hydros and the federal government in New York and elsewhere.
Mel does not make much of the steady increase in Canadian direct investment abroad, now worth $84.8 billion. In effect, therefore, the net investment position that tells us something about foreign ownership is $-41.8 billion, 16 percent of $-259.2 billion Mel put forward. Phew!
He also makes a big deal out of the large sums sent to the US each year as dividend payments. Most of that turns out to be governments servicing their debts, debts Mel does not think much about and is prepared to increase. A little gap in his logic here. In fact, 80 percent of the increase in the book value of FDI in Canada is the result of reinvestment of retained earnings. Foreigners continue to have confidence in Canada and do not send their dollars home.
Mel also forgets to tell us that Canadians have been steadily increasing their own stake in the economy. US ownership and control of non-financial corporations reached a high of 27 percent in 1971. It was down to under 17 percent in 1987, the latest year for which reliable statistics are available. Overall foreign ownership is now under 25 percent, a figure that is not far out of line with that of other smaller, open economies. What distinguishes Canada is the dominance of one country. But then not everyone lives next door to the largest, most productive economy in the world. It is questionable whether we would have been able to achieve our standard of living without this boon of geography.
While we are on investment, perhaps someone can give him a call and tell him that there is a positive dimension to foreign direct investment. Canadians gain access to foreign technology, management expertise, production know-how and innovation, new markets and new jobs as a result of two-way FDI. I know Mel would prefer that all this come from Canadian sources. The trouble is there are not enough of us and we do not know everything. Even the Americans are learning that they need others. And there are 270 million of them.
But what I really cannot understand is why Mel, who is so constipated about US foreign direct investment, keeps complaining about US companies closing shop and going home. You would think he would cheer each US-controlled factory closure as providing another opportunity for those held back by the dominance of the multinationals. He needs to think this one through. Recent studies suggest that foreign-based firms are more active exporters, are more efficient and more profitable. They make a large contribution to the economy. That is why countries all around the globe are actively competing for more foreign direct investment.
Fortunately, there is an antidote to all this nonsense, and it comes from an unexpected corner, the university campus. Rather than the usual indigestible mass of facts and theories that are the hallmark of much academic writing, Bruce Doern and Brian Tomlin have crafted a convincing, balanced and readable account of the free-trade story, Faith and Fear: The Free Trade Story (Toronto: Stoddart, 1991). Their book reflects interviews with many of the principals, pro and con, a detailed reading of the thousands of pages written on both the events and the substance and a sophisticated understanding of the economics, politics and institutions involved on both sides of the border. (Look for a detailed review in the next issue of bout.)
The real problem, of course, is not that McQuaig and Hurtig are wasting thousands of trees in displaying the confused trappings of their minds but that they are lionized by the media as if they had something important to say and a contribution to make. Their publishers are to be congratulated for getting them the kind of air time they received, but the producers who made that time available should hang their heads in shame. And the interviewers with the breathless questions desperately need to go back to school to learn some of the basics of their journalistic craft. Therein lies the rub. Canada is increasingly becoming the victim of a wilfully underinformed media, a media that takes pride in its ignorance. A media with its own axe to grind. In all other walks of life, specialization has become an accepted practice. Not in Canada’s media. Publishers are unprepared to hire specialists. Editors do not assign stories in order to nurture a more sophisticated knowledge of a particular field. Few working journalists are prepared to take the time to develop the sources and the knowledge to provide incisive analysis of complicated subjects. Most come to the issues with their minds made up.
There are, of course, exceptions. The Globe and Mail used its Report on Business staff to review McQuaig and Hurtig. Both reviewers did an excellent job of demonstrating that these books are old hat and nonsense. Der Hoi Yin on the CBC did a marvellous job of showing the dishonesty of Hurtig’s statistical gerrymandering. But 1am sorry to say that they are in the minority and that most Canadians were given the impression by the media — particularly the electronic media, the source of most Canadians’ news — that two “serious” people had done a first-class job of investigating the dangers of free trade and how we got there.
The issues raised by such a complex undertaking as the negotiation of a free-trade agreement require hard work if they are to be understood and then explained in the simple, straightforward language which modern mass communication requires. Literacy is more than a matter of saying things well; it is also a matter of understanding the issues being discussed.
Is there a solution? Yes. Those of us in government can learn to be a little more straightforward and open. We make the job of the naysayers so easy. We have forgotten how to tell a straight story. Everything has to be shaped by the spin doctors. The simple truth has to be varnished. We write for ourselves in obscure briefing books in a style that only bureaucrats can appreciate. We are no longer able to conduct an intelligent disclosure with outsiders. Even when we do, we get nervous that someone may write about us publicly. Why do we continue to do this to ourselves and to our political masters? We have abdicated our responsibility to communications gurus who talk about ventilating ideas, cannot finish a paragraph without running it by a focus group, and wait for the polls before deciding what should be in a speech. Ugh!
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Originally published in bout de papier, Vol. 9, No. 2 (1992) — Spring 1992 // Printemps 1992, pp. 13–16. Read the rest of this issue →
