There were two cheers for Canada last week.
The first came from German Chancellor Angela Merkel in her ringing endorsement of Canada’s responsible approach to fiscal policy and her praise for our sound banking system during her visit to Ottawa. There was also good news for Prime Minister Stephen Harper in Merkel’s pledge to work for a “speedy conclusion” to a trade deal between Canada and the European Union. Merkel and Harper are beacons of sanity in a western world of unaffordable entitlements.
The second cheer came from Moody’s Investor Service which gave Canada its top triple A rating in its annual report on the state of the Canadian economy and Ottawa’s finances.
As the Prime Minister and his fellow Canadians enjoy the waning days of summer, they have much to feel good about. Even the prospect that the Bank of Canada will hike interest rates seems less likely with July’s low inflation numbers.
But the sunny days of an unseasonably hot summer will turn blustery and cool with the onset of fall. Unless Premier Jean Charest can reverse his falling poll numbers with a convincing performance in four rounds of televised debates before Quebeckers cast their ballots, we may be looking at the return of a separatist government and the inevitable antics, including a referendum on sovereignty, that will invariably follow.
Already the business community in Quebec is shuddering at the impact the renewal of jurisdictional battles between Ottawa and Quebec City will have on the province’s investment and overall economic climate, especially if Pauline Marois acts on her populist promise to impose new restrictions on foreign takeovers of Quebec companies. Many Quebec firms are already struggling with the higher corporate and payroll taxes they pay compared to the rest of Canada. They have reason to be concerned about the business unfriendly environment a socialist PQ government would bring.
A return of the Quebec question mark is depressing to contemplate and will hurt all Canadians. The main difference now is that there is really no credible federal face in Quebec. The tiny Tory contingent is a negligible force and Thomas Mulcair offers little to rally around, contrary to the views of some recent commentators. The mood in the rest of Canada will also be less tolerant of separatist antics, more inclined to cut losses but on terms that will be less than generous. Just as Britons are tiring of the Scottish lament, so too are English Canadians taking a colder look at Quebec’s perennial existential crisis.
The heightened tension and renewed squabbling in federal-provincial relations that will inevitably accompany the PQ’s return to power as it tries to game the system to lay the groundwork for a referendum are also distractions that Quebec and the rest of Canada can ill afford.
Notwithstanding the good news we got last week, as a trading nation that depends for its survival on what it can produce and sell to the world, Canada is struggling. We are uncompetitive in relation to our major trading partners and sorely lacking in innovation and productivity. Canadian companies are also failing to adapt to a fast changing world.
Consider the cold facts. Canada’s exports of good and services as a share of GDP have steadily declined since they hit a high of 46 percent in 2000, falling to 29 percent a mere decade later. Trade with our most important market, the U.S., is also in decline. Canada’s share of the U.S. merchandise market fell to 14 percent in 2010 from 19 percent in 2000. China has overtaken Canada as the leading merchandise supplier to the U.S. market. Overall, by 2020 the U.S. market will only account for two-thirds of our exports, down from the all time high of 87 percent at the beginning of this decade.
Even more ominous, Canada’s share of the world export market has been halved from the roughly 5 percent it was at the beginning of this century. We are now no longer in the top 10 of world global traders. In fact, we barely make the top 15. IMF calculations show that Canada’s share of world markets in the past decade fell more sharply than any other G-20 country except the UK.
In a globalized world that has become even more competitive with the rise of emerging markets, which are the new drivers of growth, we will lose big time if our political house becomes fragile and our provinces engage in puerile, internecine warfare with the federal government or among themselves.
Our provinces, the federal government, and the business community are going to have to work much more closely together to help Canadians exploit new markets and make Canada globally competitive at a time when the opportunities for trade expansion and growth in our traditional markets, like the United States and Europe (even if we get a CETA agreement), have dimmed because of weak demand, chronic fiscal problems, and continuing financial instability.
That is the message that Prime Minister Harper must take to the Canadian people as he basks in the accolades Canada got from Merkel and Moody’s last week. That is also the message that any serious contender for the leadership of Quebec should be taking to the voters. Quebeckers and Canada have too much to lose if it's deja vu in Quebec politics and federal-provincial relations all over again.