Class 2: Defining Canada
Business in the Canadian Context
ADMS 1010 – Section
Instructor
Alex Browning
Email: browning@yorku.ca
Web Site: http://alexatyork.com/bus_class.html
Class 2: Implications of Federalism
on Business
Agenda
• Class Admin
• Summary from Class 1
• Video –
• Introduction to the System of Federalism
• Canada vs United States
• Break
• Evolving Nature of Canada’s Confederation
• Arrangement of Federal-Provincial Relations
• Government and Regional Diversities and Disparities
• Banking Industry
• Q&A
Class 2: Implications of Federalism
on Business
Outcomes
By the end of the class you will:
• Understand the system of Federalism and how it works in
Canada
• Understand the competing forces within confederation and how
they shape business and government interactions in Canada
• Have a high level understanding of how the Canadian Banking
system came into being
Summary of Class 1: Ideologies
How do we perceive our Economy?






News Items
Housing Starts
Trade Figures
Employment Rate
GDP
Balance of Trade
Porter’s Diamond
Adapted by the Martin Prosperity Institute from Michael Porter, The
Competitive Advantage of Nations, Free Press. 1990
9 May 2011
Alison Kemper ADMS 1010
7
Porter’s 5 Force





Existing Domestic Rivalry
Threat of New Entrants
Threat of Substitute Productsm& Services
Power of Buyers
Power of Suppliers
STAGES OF NATIONAL
COMPETITIVE DEVELOPMENT
1.
2.
3.
4.
Factor-Driven Stage
Investment-Driven Stage
Innovation-Driven Stage
Wealth Driven Stage
Copyright © Captus Press Inc., 2009
Diamond of Sustainable Growth
Stern School of Business
Section 3: Major Political, Social
and Economic Ideologies
What is an Ideology?

It refers to a set of shared values, beliefs and ideas,
and perceptions through which persons interpret
events of the past, present and future.

It also refers to an explicit doctrinal structure
providing a particular diagnosis of the ills of society.

It will include an accompanying action program for
implementing the prescribed solution.
Reasons for Change in Society

Interactions among competing groups with dominant
or counter ideology result in changes in society.
–
–
–

Social Upheaval changes status quo
–
–

Poor versus Rich (French Revolution)
Rich versus Rich (American Revolution)
Poor versus Poor (Peru 1980’s)
Great Depression
War
Technological Changes impact social order
–
–
Industrial Revolution
Information Revolution
Reasons for Change in Society
Changing Social and Business Demographics
Feudal Era
Mercantile Era
Industrial Era
Technological Era
Information Era ?
Types of Social Ideologies
1. Collectivist Ideologies
2. Individualist Ideologies
Collectivist
Collectivist ideologies: Rather than leaving
the individual to pursue his or her own ends,
the state ensures that the individual serves
the interests of society when taken as a
whole.
Collectivists focus on community and society,
and seek to give priority to group goals over
individual goals
Collectivist Ideologies



Socialist
Democratic Socialist
Conservative
Individualist Ideologies

The individualist theory
of government holds
that the state should
take a merely defensive
role by protecting the
liberty of each
individual to act as he
or she wishes as long
he or she does not
infringe on the same
liberty of another.
Ayn Rand (1905-1982)
Individualist Ideologies



Liberalism
Modern/Reform Liberal
Neo-Liberalism
Ayn Rand (1905-1982)
Economic Ideologies
Capitalism
 Communism
 Mixed Economy

Section 4: The Ideological Framework of
Canada
The dominant Ideologies of
Canada Today
Political
 Conservatism
 Reform Liberalism
 Social Democracy
Economic
 Capitalism within the
context of a mixed
economy.
Commanding Heights
PBS Production
 Based upon the
book by:
Daniel Yergin
Joseph
Stanislaw

Class 2: Defining Canada
Early Governments in Canada





Government of New France
– 1608-1759
Feudal System
– Augmented by Fur Trade
Aristocracy with Samuel de
Champlain being the first colonial
ruler 1608-1635
Oligarchy – Corporate governance
Triumvirate Council of Governor,
Bishop and Intendant
Diamond of Sustainable Growth
Stern School of Business
Early Governments

British Government 1759-1867
–
–
–
Defeat of French - Battle of the
Plains of Abraham 1759
French permanently give up
Canada 1763 – Treaty of Paris
which ended the Seven Years
War in Europe
Significant attempts were made
to Anglicise the population.


Support English migration from US
Limit Catholic Church
Early Governments

On the verge of US
revolutionary war British
attempt to win French support
the British governor passed
the Quebec Act 1774 giving
the Church more power,
allowing Catholics to hold
office and for French to
maintain their own civil law.
Guy Carleton British Governor of
Quebec 1768-1778
Revolutionary War, 1775-1783
After U.S. Revolutionary War
50,000 Empire Loyalists who did
not want independence from
Britian fled persecution and
came north to Quebec, New
Brunswick which resulted in
Britian creating the Province of
Nova Scotia to handle the
increase.
29
Alison Kemper ADMS 1010
9 May 2011
United Empire Loyalists
Those that came to Quebec did not like living under the
French influence so the British government created the
Constitution Act of 1791 and split Quebec along the Ottawa
Valley and created Upper and Lower Canada.
30
Upper & Lower Canada
While the British ruled through a Lieutenant Governor,
who spent most of their time in Europe, and an elected
assemble, the effect rule was left to an executive
group who were appointed for life.
 Family Compact – Upper Canada
 Chateau Clique - Lower Canada
They were members of the high clergy, wealthy
businessmen and traders, the high-ranking military
officers, and large landowners
Unrest Rest
Power resting with this select few cause unrest
amongst the population
Lead to Rebellions in both Upperm1837 and Lower
Canada in 1837 & 1838
Upper Canada – William Lyon Mackenzie
Lower Canada - Louis-Joseph Papineau, Wolfred
Nelson, Robert Nelson
Durham Report 1838



After the two Rebellions Britian sends Lord
Durham to investigate and to make
recommendations
Create a responsible government
Unite Upper and Lower Canada 1841 Act of
Union
Lead Up to Confederation



Civil War and Raiders from US
caused concern
Political instability in the new
province of Canada
John A. Macdonald and other
delegates created the 72
resolutions that lead to the British
America Act in 1867 establishing a
confederation of provinces but with
a strong central government to
avoid US problems
Federal Legislative Powers
Constitution Act 1982 Sec. 91


“It shall be lawful for the Queen,
by the advice and consent of the
Senate and House of Commons
to make Laws for the Peace,
Order and good Government of
Canada.”
Canada Health Act, International
Trade, Defense, Transport
Canada, Fisheries.
Provincial Legislative Powers


Section 92 and 93 on Canada’s
Constitution distributes exclusive
legislative powers to the provinces
over regional interests.
Example: Cities and Towns,
Education, the provision of Health
Care, Welfare and Transportation,
Direct Taxation, protection of
property, exploration and
development and government and
management of non-renewable
resources
Canadian Government Structure
State Structures
•Unitary State
•Federalism
What is a Unitary State?

A unitary state is a state or country that is governed
constitutionally as one single unit, with one
constitutionally created legislature. Governmental
power may well be transferred to lower levels, to
regionally or locally elected assemblies, governors
and mayors ("devolved government"), but in a
unitary state the central government has the
principal right to recall such delegated power.
Source: http://en.wikipedia.org/wiki
Unitary States
Examples of a Unitary State
• Great
Britain
• France
• China
• Japan
What is Federalism?


Emphasizes the legal and institutional
aspects of the system.
It has been defined as the method of dividing
powers so that the general or central
regional governments are each within there
sphere coordinate and independent.
Federalism
Sharing of Power
• Economic
• Constitutional
• Political
Principles of Federalism
● Governmental power is distributed between a
central or national authority and regional state
or provincial authorities
● Every individual is subject to the laws of each,
both the central government and the regional
government
● Neither levels can subordinate or over rule the
other where powers specified
● Where powers not explicitly granted they are
assumed to be part of either the central or the
regional authority
Federalism

Examples of Federations
 Canada
 USA
 Australia
 India
Equality in Federalism




In no federation does perfect equality exist
between all in the federation.
Federal Government holds the power in all
unspecified areas
PEI does not have the same role or power as
Ontario. Why?
Federal Government can over-rule regions in
states of emergency – War Measures Act – AntiInflation Board
Problems of Federalism




Conflicts in fiscal policy.
Federalism can protect the status quo or move to
change them.
Federalism can act as a barrier to change
Conflicts in ideology
What are the challenges to Canadian
Federalism?
•
•
•
•
Duality of federalism. The country versus the
regions.
Vast geographic distances.
Changing economic and social circumstances
Nature of Regions. Many areas of Canada were
independent prior to Confederation and have their
own distinct identities.
Evolving Confederation
•
•
•
•
•
•
•
•
•
•
British Columbia
Alberta
Saskatchewan
Manitoba
Ontario
Quebec
New Brunswick
Nova Scotia
PEI
Newfoundland
1871
1905
1905
1870
1867
1867
1867
1867
1873
1949
A Federal System is a Balance
Federal
Federal Government provides
peace and security for the
entire nation
Provincial
Provincial Governments retain
sufficient powers to regulate
local matters
Judicial Powers


A method of authoritative
interpretation of the
constitutional division of the
legislative power
The testing of the
constitutional validity of laws
both at the Federal and
Provincial Levels
Differences between US and Canada





In Canada
All powers not specifically
reserved for the provinces
are allotted to the Federal
government.
House of Commons
democratically representative
Senate Appointed
Co-operative Federalism –
Marble Cake





In the United States
All powers not specifically
reserved for the Federal
government are allotted to
the States.
House of Representatives
(Congress) democratically
representative
Senate Elected and Equal
Dual Federalism – Layer
Cake
Bank of Canada
Created in 1934 as a private bank
and in 1938 became a Federal
Crown Corporation
The responsibilities of the Bank
are: monetary policy; sole issuer
of Canadian banknotes and
currency, the promotion of a safe,
sound financial system within
Canada; and funds management
and central banking services "for
the federal government, the Bank
and other clients.
Money, Business and Federalism
Canada’s Financial Institutions
The Canadian financial services sector is made up of banks,
trust and loan companies, credit unions and caisses
populaires, life and health insurance companies, property and
casualty (P&C) insurance companies, securities dealers and
exchanges, mutual fund companies and distributors, finance
and leasing companies, as well as independent financial
advisors, pension fund managers and independent insurance
agents and brokers.
Banks represent the largest portion of the Canadian financial
services sectorthe 6 largest Canadian banks still account for
more than 90 per cent of total bank assets and for about 76
per cent of the total assets of the deposit-taking sector.
Canada’s Financial Institutions
Sector
Banks
Number of active firms
Employment1
69
237,000
1,298
53,000
Trust companies
29
n/a
Life and health insurance
companies2
108
118,000
P&C insurance companies
230
100,000
Mutual fund companies3
270
70,0004
Securities dealers3
Finance and leasing
companies
207
37,000
250
n/a
Credit unions/caisses
populaires
Canada’s Financial Institutions
Canada's banks and life and health insurers are
significant participants in international markets. The
six largest banks generated 33 per cent of their net
income from foreign sources in 2003, while 58 per
cent of the life and health insurance sector's
premium income was derived from foreign sources
Canada’s Financial Institutions
Under the constitution the federal and provincial governments
share jurisdiction over the financial services sector.
The Government of Canada has sole jurisdiction for banks
while credit unions/caisses populaires, securities dealers and
mutual funds are largely regulated by provincial governments.
Both levels of government regulate insurance and trust and
loan companies. Market conduct is regulated at the provincial
level and companies that are federally incorporated are
regulated by the Federal government.
Ontario no longer provides for the incorporation of new trust
and loan companies in its jurisdiction.
Canada’s Financial Institutions
The Government of Canada provides prudential oversight of
banks through the Office of the Superintendent of Financial
Institutions (OSFI).
Federally incorporated Trust and Insurance Companies are
regulated the Trust and Loan Companies Act
On October 1, 2009, for Credit Unions and Caisse-Populaires
regulations responsibilities were transferred from Financial
Services Commission of Ontario (FSCO) to Deposit Insurance
Corporation of Ontario (DICO)
The legislation governing Canada's federally regulated
financial institutions is subject to review every five years.
Consumer Protection
the Canada Deposit Insurance Corporation (CDIC), a federal
Crown corporation, insures deposits in banks and trust and
loan companies against loss in the event of member failure up
to $100,000[3] per depositor in each member institution
The Deposit Insurance Corporation of Ontario (DICO) is an
Ontario Provincial Agency established under the Credit Unions
and Caisses Populaires Act, 1994. All eligible deposits are
insured up to $100,000 per depositor in each organization and
fully insures all eligible deposits in registered accounts (i.e.
RRSP’s).
Part 2 The fiscal and institutional
arrangements of federal-provincial relations
The Great Canadian Dream
Canada's confederation on July 1, 1867 brought four
eastern provinces together to form a new country. As part of
the deal, Nova Scotia and New Brunswick were promised a
railway to link them with the two Central Canadian
provinces – Quebec and Ontario.
Manitoba joined confederation in 1870. British Columbia, on
the west coast, was enticed to join the new confederation in
1871, but only with the promise that a transcontinental
railway be built within 10 years to physically link east and
west. Canadian Pacific Railway was formed in 1881.
Show Me the Money!



Fiscal and administrative
arrangements are a key
component of federal
provincial relations.
How much and who gets
what is the defining
question of the Dominion
of Canada.
Politics plays a key role,
but there are other
elements.
Fiscal and Institutional Arrangements




From 1867-1929 Provinces gained more an more
power from the Federal government
Many provinces gained control over crown lands
Gain control over mineral rights
Growth of importance of Provincial roles in
Education, Health and Welfare
Factors Contributing to Increased
Federal Activism
The Great Depression and the need for Federal
Government help?
 Federalism was influenced by the economic theories
of John Maynard Keynes.
 Federal authority was seen under Keynes’ economic
model to be the provider of economic stability through
the use of the Central Bank to regulate money supply
an
Start of WWII and the War Measures Act

Keynesian Philosophy Increased
Federal Activism - Post WWII
Department of Finance
Officials believed that the
federal government must
ensure economic stability
through management of the
money supply by the Bank of
Canada through tax cuts and
additional government
spending in a period of
economic downturn

Keynesian Philosophy Contributed to
Centralized Federalism – Post WW II


To forestall a post-war
recession, the Federal
Government embarked
on a program of postwar reconstruction and
social spending.
Paternalistic Liberal
Government
Cooperative Federalism
• Federal and Provincial Governments agree to work together in
areas that are clearly the domain of one or the other
• Four Main Features
• Reliance on Federal-Provincial conferences
• Federal Government agreed to consult with provinces before
committing to programs
• Policies designed as fiscal programs to create economic stability and
growth – Cost sharing
• Formal structures to support intergovernmental relations
• Lead to a more integrated Federalism
Cooperative Federalism

The Federal Government provided
financial assistance, either in a
lump sum or fixed ratio of the cost
of a program, on the condition that
the provincial governments
provide certain services

Federal Government used these
grants to involve itself in virtually
all areas of provincial jurisdiction

Used transfer payments to entice
the provinces into adopting new
national programs.
Benefit of Conditional/Shared Cost Grants




Served to inhibit conflict
Shared knowledge and provided basis for resolving
disputes
Administrative consultation among officials tended to
involve low levels of conflict
It was a movement toward greater partnership
Problems with Conditional/Shared Cost
Grants




Conditional grants can distort provincial budgetary
priorities.
The federal government can increase their influence
in areas of Provincial jurisdiction.
The Provinces could refuse grants, however, the
realities of politics makes this unlikely.
Interest groups will pressure provinces into
accepting grants.
–
Example: Medicare 2002. All provinces signed on to the
Federal funding offer even though many were opposed due
to budgetary constraints
Problem with Conditional/Shared Cost
Programs



Provinces still felt the Federal Government was
interfering with Provincial powers
Provinces resented the Federal Government taking a
paternalistic attitude, that they knew what was best
for each province
Programs did not affect provinces equally
Executive Federalism


Quebec often opted out of Federal Programs though
wanted the money to do their own. (Double Image
Federalism)
Provinces began to take more activist roles in
economic and social policy and demand great
control over revenue and spending

Lead to a more Executive Federalism

First Minister Conferences
Conferences




Federal Provincial Conferences - The federal
government set the agenda and therefore hold the
advantage. Topics include the constitution, transfers,
health, education, CPP, etc.
First Minister’s Meetings – Held between the
Premiers and the Prime Minister. Recently the
Premiers have dominated the agenda.
Held behind closed doors. Joint Statement.
Secrecy is important. (Why?)
Part 4: Regional Diversities and
Disparities
OVERVIEW OF THE SECTORAL
STRUCTURE OF CANADA’S ECONOMY

Evolution of Canada’s economy
–

From agrarian to manufacturing and then to servicebased
Development of Canada’s corporate sector
–
–
High degree of concentration of wealth and corporate
power
High degree of foreign ownership
Copyright © Captus Press Inc., 2009
Sectoral Structure of Canada’s Economy
from 1901-1961
Copyright © Captus Press Inc., 2009
SHIFTS IN EMPLOYMENT

Employment is shifting away from the
agricultural sector.
–

Shift is attributed to an increase in the
productivity of agricultural labour
 Due to increasing sophistication and
mechanization of agricultural production
Great increases in the goods production
and service industries
Copyright © Captus Press Inc., 2009
Sectoral Structure of Canada’s Economy from
1960-2005
Copyright © Captus Press Inc., 2009
EFFECT OF SHIFT
TO SERVICE SECTOR




Canadians will require different and greater
level of job skills to be successful
Government must adapt new industrial, tax and
regional policies to reflect shifts
Strategy is difficult because not all provinces
equal
Need to manage these differences
Copyright © Captus Press Inc., 2009
Regional Differences





Influenced by
immigration patterns.
Economics
Cultural differences
Resource differences
Historic differences
Regional Differences





Size of internal market and access for products.
Ontario vs. PEI
Natural Resources – Inherently volatile
Occupational mobility, fishing and mining
Spatial immobility “I like it here!”
Claim to capital, i.e. Bank Loans
Feds try to Manage Regional
Differences three ways.
1.
2.
3.
Industrial Incentive
Programs
Infrastructure Assistance
Programs
Social adjustment and
rural development
programs.
Industrial Incentive Programs



Make viable industries attractive in slow growth
regions.
Tax credits, seed money, consulting services.
Oil and Gas in Newfoundland.
Infrastructure Assistance Programs


Assist in providing capital for sewers, water, road
improvement, hospitals and universities.
Example: Toronto to Montreal high-speed rail
proposal.
Social adjustment and rural
development programs.
Try to develop
industries in areas
where there is little or
no productive
employment.
Example: The soap stone
carving industry in
Nunavut. Ontario Wine
Industry

Flaws of Regional Development



Industrial incentive programs favor capital-intensive
programs in areas where one of the major problems
is excess labor. (Mega-projects).
Do the companies really need the grants, or would
they have done it anyway?
Grants to one company could hurt other existing
companies who have not received grants.
Flaws of Regional Development
Industrial incentive
programs may accrue to
multinational companies in
foreign countries.
 Could lead to ‘bidding wars’
between neighboring
provinces or countries to
secure the relocation of
large companies.
Example: Ontario’s Green
Energy Deal Samsung

Diamond of Sustainable Growth
Stern School of Business
Need for a Stable Banking System
Case: The Bank Act of 1871
Commanding Heights
PBS Production
 Based upon the
book by:
Daniel Yergin
Joseph
Stanislaw

Next Week


Canada expands—Agriculture and Manufacturing
Readings
– Civics Canada Online Textbook





Agriculture in Canada
Manufacturing in Canada
Statscan Information on Manufacturing
Case: Relentless Change, Massey Harris Company,
pp. 60-76
First Group Assignment -- On Massey Case