Le rôle économique et social du gouvernement The Economic and Social Role of Government

Sommaire

L'étude qui va suivre portera sur le rôle de l'Etat au Canada dans le domaine économique et social et plus particulièrement dans les sectuers du développement industriel, de la stabilitié économique et du bien-être social. L'auteur étudie d'abord en quoi a consisté ce rôle dans le passé et quels sont les facteurs qui l'ont déterminé. Il se demande ensuite si l'interprétation du passé au Canada n'a qu'une signification historique ou si elle peut conduire à une théorie générale sur le comportement de l'Etat. Enfin, ces deux premières étapes serviront de base à une tentative de prévision sur le rôle que l'Etat sera appelé à exercer au cours des prochaines décennies.

Summary

This essay will attempt to forecast what the economic and social role of government in Canada will be during the next fifty years.

The forecasting method which will be used is quite simple. We will try first to detect the trends which seem to account for the past. Secondly, past trends will: be submitted to scientific analysis in order to see if they ought to be modified before being projected into the future. Thirdly, the forecast itself will be formulated. Regarding this latter adventure, however, we must never forget that the only one thing certain with regard to the future is its uncertainty. This is particularly true with regard to our topic.

PAST EVOLUTION SINCE 1850

The first phase in the application of our forecasting method consists in reviewing the past role of government in Canada. It seems that, from 1850 to the present day, a distinction can be made between two periods which largely coincide with two important industrial revolutions. In Canada, the First World War marked the transition between those two phases.

The First Period of Evolution

While it is always unsatisfactory to ascribe specific dates to different phases of general economic evolution, it can be suggested that this first period started with the end of mercantilism, when the first industrial revolution received its real impetus in Canada, and, in the political field, with the first years of Confederation.

The industrial revolution meant the rise of manufacturing, new methods of production and substantial changes in the system of sea and land transport. As has been frequently said, it was based on coal, steam and steel. In such circumstances, industrial development could be entrusted to private initiative, which would produce rapid economic progress provided private enterprise was not discouraged by any system of intervention and regulation.

In the British North American colonies, however, economic conditions were quite different because the industrial revolution had an unfavourable impact, aggravated by the long depression which characterized the last part of the nineteenth century. Potential investment opportunities existed, mainly in the filed of railroad building and equipment, but prospective profits did not seem sufficient to attract private capital.

It was necessary then to find a solution to serious economic stagnation and, at the same time, to achieve the technological progress enjoyed in other countries by providing railroad transport facilities and by encouraging the application of the new methods of production as well as the manufacture of the new products. Thus, Confederation, which was brought about 1867, can be interpreted as a political adaptation to the unfavourable impact of the first industrial revolution on Canada.

Although the Canadian people had a strong preference for private enterprise, the doctrine of economic liberalism requiring government non-intervention did not fit in with the particular conditions of that period. The first task of the federal government was to enlarge the territory. Thus as early as 1873 Canada extended over the entire area she occupied until the addition of Newfoundland in 1949. The role of government in this field took different forms: direct public investment, monetary subsidies, free distribution of land, guarantees for private borrowing. It finally ended up with the creation of a large public enterprise to integrate the network which the government had been obliged to take over.

To develop the territory it was necessary to build up important markets which at the same time would be complementary to each other. The first step toward this goal was to ensure that the domestic market would be preserved for Canadian industry. This was the objective of the National Policy inaugurated in 1878.

The end of the century coincided with world economic recovery. For the first time, Western countries felt the full impact of the industrial revolution. In particular, there was a huge world demand for wheat. On the other hand, Western Canada was particularly suited for wheat production and was, thus, in a strong position to compete on world markets. The rapid colonization of the West, coupled with the huge public investment programme necessary to organize the territory, favoured an intense prosperity and a swift industrial development in the whole of Canada.

Long-term projects of economic development were inspired, supported and often initiated by the public authority. On the whole, private initiative merely responded to the impulse coming from the government.

In contrast, the role of government in social affairs was restricted to a minimum during that first period. The economy, based mainly on agriculture and on small enterprise, did not experience wide short-term variations in production. Massive and prolonged unemployment was relatively unknown. Technological immobility was low. Of course, social risks and extreme poverty existed, but, according to the then prevailing standards, they were expected to be solved on the private level.

The Second Industrial Evolution

At the beginning of the present century, what was the basis of this new industrial revolution, and what would be its impact on the countries of the Western world, and, in particular, on Canada?

The first technological revolution had been based on coal, steam and steel; the second was found upon oil and water and on metals which became substitutes for steel, such as copper and aluminum. It brought substantial changes in almost every sector of economic activity. The new industrial revolution witnessed the generalization of mass and standardized production, which favoured large scale operations, huge plants, a further division of labour and increased efficiency.

In contrast with the first industrial revolution, Canada was probably the country most favoured by the new technology in the Western world. For the first time, the rate of Canadian economic development exceeded that of the United States during the second quarter of the present century. Over the long run, prospective profits were high, investment opportunities were great and private initiative was very active.

Thus, for the first time since the industrial era, the Canadian government was in a position to adopt a "laissez-faire" attitude toward economic affairs. The only new important responsibility undertaken by government in the economic field W3S road building which, of course, could not be left to private initiative. It was soon discovered, however, that the movement of private investment was irregular and that, if left alone, it tended to create short-run economic instability characterized by inflation and unemployment. The great depression of the thirties was the dramatic manifestation of the new industrial era.

Broadly speaking, governments adopted the same "laissez-faire" attitude toward short-run problems which they had applied to the long-term situation. In the social field, the situation during this second period was different from that of the first. The main source of change has been rapid industrialization. This period witnessed the rapid development of the co-operative movement, the farmers' associations and the labour unions. Secondly, industrialization, through its various impacts, has given rise to specified risks and needs which cannot be met by the average family. Thus, the very conditions which permitted the government to adopt a "laissez-faire" attitude in the economic field obliged the public authorities to assume an increasing role regarding social welfare. In other words private initiative had failed to solve the complex social problem resulting from rapid industrialization and urbanization in an unstable world, and public intervention had become necessary.

Conclusion

We are now in a position to set out the main conclusions concerning the evolution of the role of government in Canada since Confederation.

Up to the twenties, government played an active role in the field of a long term economic development through its programme of direct public investments and of encouragement to private initiative. It was the real dynamic factor in industrial progress during that period. On the other hand, short-term economic instability was not so much a problem; to a certain extent, this explains why the responsibilities of the public authority in that respect as well as in the field of social security were almost negligible.

Since the twenties, however, the role of government has followed a different pattern. Long-term economic development has been taken over by private initiative, while public authorities have assumed new and increasing responsibilities first in the field of welfare and social security and later, especially since the forties, in respect to short-term economic instability.

It is highly important to note the Canadian past experience, because it shows, that there is no basic general trend pointing toward an increasing role of government in the same direction. It also reveals that political ideologies have not played a decisive influence in determining state responsibilities. On the contrary, the role of government has been primarily functional in character; it has been adapted, with certains lags, to changing economic and social circumstances, which, in the last resort, were determined by the recurrence and the impact of industrial revolutions.

A THEORICAL APPRAISAL OF PAST TRENDS

From the above interpretation of Canadian past political evolution, it is possible to build a general model describing the behaviour of government in three important economic and social sectors, that is, long-term industrial development, short-term economic stability and social welfare. The main determinants of that model are the consequences of industrial revolutions and the different objectives sought by government and private initiative.

We are now in a position to summarize our brief incursion into the field of political science. The above tentative theory can be reduced to the following basic propositions.

1.—The process of political evolution leads sooner or later to a situation of stable equilibrium, which is moving according to changing economic and social conditions, and which rests on a combination of forces that can best realize general welfare.

2.—That situation of moving equilibrium, which is usually attained after a certain period of adjustment, does not correspond to pure capitalism, which means the systematic reliance on private initiative, or to pure socialism which relies exclusively on government action. It is rather characterized by the recognition of a complementary relationship between the private and the public sectors of our society.

3.—This complementary relationship is mainly determined in the long run by the impact of industrial revolutions or by the response of the natural resources of a country to the technology prevailing during a certain period. Thus, the role of government can be deduced from that main determinant and from the basic features of the behaviour of the private sector.

4.—In an equilibrium situation, if the impact of technological factors is favourable to a given country, the main responsibilities in the field of long-term industrial development are left to private initiative, but the role of government in respect to short-term economic stability and social welfare is decisive. On the other hand, if the impact of technology is unfavourable, then the role of government in the field of long-term industrial progress will be determinant but its functions in respect to short-term stability will be greatly reduced while its responsibilities in the field of social welfare will depend to a large extent on the degree of industrialization.

5.—Finally, two main sources of desequilibrium have been detected. The first coincides with the passage from mercantilism to industrialism. During that transition period, most countries go through a temporary phase of pure capitalism or of pure socialism, but those two avenues can be viewed as convergent paths toward the same equilibrium position. Once that position has been attained, another source of desequilibrium is still possible. Generally it is due to a static interpretation of the equilibrium position, which is essentially moving; this, in turn, is usually explained by the fact that an extremist ideology is dominating the political scene.

For instance, a government may refuse, because of its unlimited faith in private initiative, to take on more responsibilities in a certain field although such a step is required by changing conditions. Thus the static interpretation of the dynamic relationship existing between private initiative and government action causes a temporary departure from the equilibrium position and may leave crucial problems without solutions.

If the ideology and the sectional interests which are at the origin of the evil are not too solidly rooted, the result may be limited to short-run political instability. On the other hand, if they are strongly entrenched, so that delays in solving the important problems of a period are prolonged, then this situation may produce a profound disequilibrium and lead to the temporary victory of an opposite ideology. We may also mention a third source of disequilibrium; the direct intervention of a foreign power to impose by force its own ideology on another country. However, our theory does not take that possibility into account so that the forecast which is based on the above interpretation does not envisage conquest by force or political disequilibrium by conquest.

Our brief scientific inquiry contributes at least to raise serious doubts about the foundation of those political theories which assert that the evolution process leads more or less inevitably toward pure socialism, conceived as a stable system. It also shows that our interpretation of Canadian past experience not only accounts for a single set of conditions which may not repeat themselves but has a much more general theoritical validity. Finally, we are led to the conclusion that past trends are not likely to be modified in the future in Canada and that the model which we have just outlined can serve as the basis of our forecast.

THE ROLE OF GOVERNMENT IN CANADA: A FORECAST

The recognition of the complementary relationship between private initiative and government action has been the dominant feature of our political history at least since 1867, and there is no evidence at present to show that this long-established tradition may be broken. On the contrary, all the facts indicate that it will be strenghtened.

First, the present attitude of the Canadian Government in that regard is clear and has been re-stated on several occasions since the publication of the White Paper on employment and income.

Secondly, the major political parties recognize the fundamental complementarity existing between private initiative and government action. Finally, it is evident that there are differences of opinion among the various sections of the Canadian population as to what government should or should not do. Slogans denouncing the Welfare State or creeping socialism or government controlled by wicked capitalists had to be imported from other countries and were soon found to be unfit for Canadian consumption.

The normal implication to be drawn from this outlook is that private initiative will continue to play the dynamic and dominant role in the field of long-term industrial development in Canada during the next decades. The role of government will be auxiliary and conditioning. It will consist mainly in maintaining a favourable climate for private initiative and in adopting policies designed to ensure that the natural resources will be rationally utilized to the advantage of the Canadian population. This outlook has direct implications in the future short-run situation.

Thus, if the theory developed in this essay holds, the main responsibility of our government in the future will consist in maintaining short-term economic stability. On the success of this vital role will depend the stable level of general welfare and the survival of private initiative in the field of long-term development This objective of government action will require the contribution of each sector of general economic policy.

From this point of view, economic preparedness to fight a depression is just as important as military preparedness to resist an aggression.

The future role of government in the field of economic stability will be crucial and highly complex. It will require centralized responsibility, growing reliance on expert knowledge and judgment, constant collaboration between the different levels of government and co-operation from private groups as well as from the people generally.

In the years to come more than ever before, the essential complementarity existing between private initiative and government action will have to be recognized both in theory and in practice.

GENERAL CONCLUSION

Our forecast concerning the future role of government has several important implications. The first is related to the orientation of federation in Canada and the second to the problem of bureaucracy. Confederation was the recognition of the fact that only a central authority could effectively assume those heavy responsibilities.

After the First World War the importance of the federal government was gready reduced. On the other hand, the rise of the automobile as a new mean of transport, the growing importance of natural resources as the foundation of economic development, rapid industrialization and urbanization contributed to establish provincial legislature in a dominant position. The Great Depression seems to have brought this phase of provincial autonomy to an end. For various reasons, provincial governments did not provide the most basic measures of social security and the federal government took the initiative in this field. This trend will be maintained in the future until the minimum requirements of the main social needs and risks are met. Thus, the federal authorities will continue to assume the most important responsibilities of government in the field of social welfare.

In respect to short-term economic stability, the role that can be played by provincial governments is limited because they have no jurisdiction in the field of international trade and of monetary policy; they increase their borrowing capacity and their fiscal powers are restricted. In addition, it must also be recognized that a stabilization programme requires a central authority and a unified economic policy. All these factors indicate that the federal government will be obliged to play the dominant role in the collective effort to avoid economic instability. Account should also be taken of its vital responsibilities in respect to national defence.

In recent years, the rising power of bureaucracy has been criticized. Indeed, bureaucracy is not an institution confined to government. It is also growing in business organization and in labour unions.

This trend is brought about by many factors. The first and probably the most important is the large-scale proportions obtained by our economic, social and political institutions, which has made direct and immediate control almost impossible. A second factor has been the growing complexity of the problem faced by those various organizations. Finally, the progress accomplished by social sciences has given rise to expert and specialized knowledge in this field.

The expansion of bureaucracy certainly creates crucial problems with regard to the democratic control of our private and public institutions. Some people are proposing to solve those difficulties by getting rid of experts. II is certainly as desirable to be able to rely on specialized advisers in the field of social sciences as it is in the sector of natural sciences. It will be necessary to create new methods of democratic control and perhaps also to revise our concept of democracy. It might well be that a more enlightened public opinion can provide the only satisfactory and permanent answer to that question.