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Edward Greenspon: Hello, I'm Ed Greenspon, editor in chief of the Globe and Mail. Welcome to the Globe Round Table, the political panel that doesn't need to publish to prove its patriotism. All right. We're going to discuss three subjects today: first off, 15 years into NAFTA, does Canada really want Mexico as a partner any more? Then onto the recession cum depression. Is it coming to an end? And finally the guy with that book, "True Patriot Love", Liberal lead Michael Ignatieff. He's just officially become Liberal leader after the convention in Vancouver last weekend. What does he have to do if he wants to become Prime Minister? And is EI, Employment Insurance, once upon a time called Unemployment Insurance the issue?

To explore these and other questions, I'm joined today by our round table guests: Doug McArthur, the distinguished Fellow in Public Policy at Simon Fraser University, a former cabinet minister in Saskatchewan and Deputy Minister to two premiers in B.C.; John Manley, senior counsel at the law firm of McCarthy, Tétrault and Canada's former Minister of Industry, Finance, Foreign Affairs and Deputy Prime Minister; and filling in today for Jodi White, is Rick Anderson, a Calgary business executive who spent much of the 1980s and 1990s involved in federal politics, including two elections as National Campaign Director for Reform Party Leader, Preston Manning, and an active role in the emergence of today's Conservative Party. Welcome to you all, and thanks for joining us today. Rick.

Rick Anderson: Thank you. Good to be here.

Edward Greenspon: Let's start with an op ed that appeared in yesterday's Globe and Mail. John Manley and his partner in crime, the former U.S. Ambassador to Canada, Gordon Giffin, and essentially they're rebutting a previous op ed piece. So we've got a little debate going here about the role that Canada should play with United States, vis-à-vis Mexico, and John, I think you were essentially trying to knock down the idea that we should have — that too much trilateralism is not a good thing. Is that right?

John Manley: Yeah, that's right. I love Mexico. I think that NAFTA has been a very successful arrangement, but it's not right to base our North American relationships solely on its trilateral concept. And I guess what really got my attention in last week's article was the notion that the Smart Border Accord, for which I take a certain amount of pride was a lost opportunity to do something about the border on a trilateral basis, because in fact, I think, on a lot of issues two can act and three can talk. And it doesn't mean that arrangements that are bilateral between Canada and the U.S. will never be adopted on a trilateral basis, but sometimes we can just simply move faster because we are much more closely aligned in terms of the degree of development of our economies. We have a much deeper and longer history in many ways, many more things in common and I hate to think what would have happened with the Smart Border Accord if we'd been trying to do it as a three-way arrangement.

In fact, one might say the problem with NAFTA is that it's a 15-year-old policy and the rest of the world has moved ahead. Certainly Europe has, Asian…has moved miles since NAFTA was signed, and our policy is sort of frozen in time.

Edward Greenspon: Rick. A 15-year-old policy — I guess the question that was the 20-year-old policy which was the U.S.-Canada Free Trade Agreement better than the 15-year-old policy, did we outwit ourselves a little bit by getting involved in a NAFTA?

Rick Anderson: I wouldn't say that, Ed. You know, from an economic perspective and over time from a social and political perspective, the trilateral arrangement's a good idea for North Americans, for all of us, and as the data that were quoted in the original op ed piece in your paper point out, has led to significant advantages for all three countries, economic advantages. But when it extends to really opening the border, there are really very big differences between the two situations, between the two borders. Obviously the matter of immigration and illegal immigration across the Mexican border with the United States is a hugely sensitive political issue in the States, and the idea of really opening that border flies counter to really what's going on down there. There's fences being built and trenches being dug and so on.

Just to rebut the rebuttal just mildly, I thought the Smart Border Accord was a bit of a missed opportunity myself, because I tend to look upon the Canada-U.S. border as a bit of a colonial-era anachronism that hopefully one day could almost completely get erased, as borders have been in most of Europe. But in the political context as much in Canada as in the States in the post-911 environment there still is a feeling, a fear of loss of sovereignty here, which I think flew in the face of that.

Edward Greenspon: …lost opportunity, well maybe an illogical, maybe a hopeful lost opportunity as opposed to the political context, the reality of the political context.

Rick Anderson: Correct.

Edward Greenspon: Couldn't happen either in the United States or Canada, could it?

Rick Anderson: Well, we haven't quite satisfied the body politic in Washington that we're a secure nation and they would need to be satisfied of that. But we also haven't convinced Canadians. Canadians are not convinced that we want the level of integration, the feeling of integration that would be suggested by having a much more easy border with the United States, even though every time you cross that border, you're driving across with your family, the questions seem kind of rote and sort of irrelevant for 99% of border crossings. So you kind of do wonder, why are we still doing this? And you know there are reasons on both sides of the border, different reasons why we're doing it. But it's a completely different situation from the Mexican thing, and to try to equate them, I think would be politically folly.

Edward Greenspon: Okay, Doug, people talk about this border being "thicker" and they want it to be "thinner" at least on the Canadian side. Do we have a better chance of making it thinner if we're involved in a bilateral discussion or if we're involved in a trilateral discussion?

Doug McArthur: Well, I think first of all, we know that the border got thicker after 911 and so it's all mixed up with security concerns. The border has been getting thicker at least out here on the west coast as the concerns about the drug trading, which includes, by the way, drugs traveling from Mexico into United States through into British Columbia, and so there's a very direct link between the gang problems here, the drug trade and the Mexican situation and our border is becoming thicker because of the concerns to try to regulate that activity.

I think I'm having a little trouble with this discussion because I'm not sure it's a real discussion. There will be many things we will need to do bilaterally and there maybe always will be, and I don't think anyone ever thought that NAFTA replaced things that we do bilaterally. And we know that NAFTA certainly didn't stop bilateral actions, such as the U.S. attack on our softwood lumber. And we know that NAFTA didn't cause our governments, both the Martin and the Harper government, from doing this disastrous softwood lumber deal that has really hurt our industry.

So we've got bilateral issues. I don't think it's really correct to point to NAFTA as either being the solution to some of these issues or blocking us from pursuing these issues.

Edward Greenspon: I wonder Doug — I'm going to go back to John in a second — but I wonder you know, if governments only have so much time to pay attention to so many issues and I wonder when they're off — Prime Minister Harper is discussing in Europe a Europeans free trade agreement, we've just come from the Americas talking about again the tight security and prosperity partnership, the Hemisphere of Americas Free Trade Zone — it's had various names over the years. Does that add to our diversity, or does that detract and distract us from our main point, which is our relations, our economic relations with the United States, which, as you say, with softwood lumber and other issues do provide impediments to our prosperity?

Doug McArthur: I do think there's something a little odd going on with all of these different bilateral, trilateral, different formations about trade that Harper's off talking about, and this actually started before him around the world. I think we are now seeing that it's a multinational, multitrade, multinational trade world, and in this sense, many of the kinds of things that we now have covered off by NAFTA are being covered off really by the international trade rules and trade relationships. And in that sense NAFTA or go back to the Free Trade Agreement are both somewhat less relevant than they were previously.

I do think if we, and this is something I noticed in this discussion: this idea that we have a special relationship with United States that Mexico doesn't have and therefore we can claim some special access or some special privilege. I remember the British talked about this for years, it was a sort of British indulgence that they wanted to believe they had a special relationship with United States and of course, as time has gone by we saw that was just mostly hot air. What countries do here is deal with their problems around the reality of their problems. I'm a structuralist in that sense. We have these economic problems at our border, we have the reality that the United States has relationships with Mexico as well as Canada and is often going to want to deal with these things in a somewhat similar fashion and we're just going to have to work our way through this, but I don't think we should set ourselves up as being in some specially privileged position and therefore we don't need to be concerned about Mexico.

Edward Greenspon: John, you've been involved both as a Minister, but particularly …in this post-political life in this question of the thicker border and the question of trying to expedite the border, particularly around economics on our side and I guess ensuring some security on the American side. I'm just wondering, it seems to have gotten thicker and thicker in recent years, and it seems that Homeland Security is less sensitive to the economic argument than they might have been even in the two or three years after 911. Is that your reading of it?

John Manley: Absolutely. And I think it comes from the top. Secretary Ridge, who was my counterpart, was very closely attuned to the economic issues. He'd been a Governor of Pennsylvania, so a border state. He was very familiar with the Canada-U.S. border as the current Secretary is familiar with the Mexico-U.S. border, and from the outset wanted to ensure that in becoming more secure, the United States didn't interfere with the flow of commerce. So that's what Smart Border was all about.

He was succeeded by a law and order guy, Chertoff. Secretary Chertoff was a lot more concerned with enforcement of the law and catching the bad guys and the border was a place where he felt he had a better chance of doing that, and I think the jury's still out on how Secretary Napolitano is going to play this out. But, I think the point that Gordon Giffin and I repeatedly try to make is that the United States can't be either secure, nor can its economy succeed in isolation. Where we do have some ability to penetrate the U.S. body politic is when we can talk to them about our shared interests, and when those coincide, we can sometimes make some progress. And my hope is that the border is one of those areas.

Edward Greenspon: Okay. I'm going to move to — I guess we're slightly out of economics, but I want to go into macroeconomics maybe. Rick, I don't know if you ever thought it was a depression, or think it's going to become a depression, but is the depression over?

Rick Anderson: Well, I never thought it was going to be a depression; I don't think it is. I do think it is a more severe recession than — I mean, it's already a longer recession than most of the ones that U.S. at least has suffered in the last, I think it was back in '74. So, this is a more severe recession than most of the ones that most people who are today living and reading newspapers and investing in markets are familiar with. So that makes it pretty serious. But, I always did feel, Ed, that rumours of the economy's total collapse have been greatly exaggerated and that there's been a bit too much doom and gloom. Particularly the U.S. news channels have been for months in constant, 24-7 breaking news mode of the economic crisis, feeding the idea that this is way worse than it actually is. It's actually been pretty bad in the States — we're into now three consecutive quarters of economic decline, and some pretty significant decline and certain pockets of course, certain industries are really badly hurt.

But I think that since about New Year's you can, if you look hard enough, you can find positive signs emerging and they're starting to grow in number and spread around in diversity, and Mr. Bernanke's testimony at Congress is just one more indication of that.

Edward Greenspon: You must have noticed the Baltic Tri Index and the Ted Spread, Rick? Okay, let's hear about the Baltic Tri Index and the Ted Spread again. Are they bullish or bearish right now?

John Manley: I actually haven't checked, Ed, but for listeners to our podcast, they'll know that I've been the one that's been trying to find the glimmer of hope in the depths of the gloom for months now, and I don't want to be the one now finding the gloom when the sunshine's coming out, but I picked upon the comments from the Fed that this is going to be long and slow, and I think there's a certain amount of exuberance that we saw in the markets the last short period of time, especially yesterday that may yet be facing some difficult realities, because the truth is, credit markets haven't fully opened up. Our financial institutions haven't fully felt the impact of losses on credit cards and to some degree residential mortgages in Canada and commercial loans, and I think there are still some tough times ahead.

Edward Greenspon: Well, the Balkans Dry Good Index is down again, so that's a great worry. Actually I just made that up.

John Manley: I was wondering if you checked it while we were talking. The Baltic. I thought that was great.

Edward Greenspon: Nobody please act on that information. Doug, you are our resident bear, so go.

Doug McArthur: I think what we've seen — we're continuing to get different messages as people start to look at what's happening here. I think it's fairly clear and it's difficult to be absolutely definitive about anything here, but obviously we have been hit with a major recession, whether we want to call it a depression or whether it's going to technically be a depression or not. What we saw was unprecedented government action on a worldwide basis. These stimulus packages and these rescues of banks and governments moving, and moving in a big way to get on top of this issue and I think we've really got to give President Obama a lot of credit for in a very difficult kind of political climate going out there and taking big risks. But we've also seen other countries, the British dealing with their bank situation and the Europeans perhaps less so on the fiscal side, but we've had a lot of action and I think we are seeing some of the results of that.

It's now all good news, however. The Europeans just came out with a report a couple of days ago indicating that things, that they're in for a long haul and they think things are perhaps worse than they had been predicting. That European market is huge in world terms, and so we've still got some problems ahead of us here. I think we can probably say with a fair amount of certainty that because of effective and aggressive government action we're not going to slip into a deep depression. Are we going to have another bump in the downward direction? Probably. There will probably be some more bad news that will take things off track a little bit again, but I think things are on the right track.

Edward Greenspon: I keep having two recurring thoughts, which are not necessarily mutually exclusive, that I wonder about. One is that if we'd had this kind of policy response, and I don't know if any …model of this in their economic models, but if we'd had this kind of policy response both in military policy and fiscal policy in terms of the 1930s, what would have happened to the depression? Would it have gone away? That's one thought. The other one I keep having is that for all this fiscal stimulus that's gone out there, perhaps it's built confidence and that would be great, but I'm not sure that even the so-called "shovel-ready" projects have even hit the ground yet or will until we're well into the recovery.

Rick Anderson: Well, that's a great point, Ed. There was an interesting survey done in 1995 amongst American universities. They asked historians and economists, did the policies pursued, did the new deal policies pursued by FDR prolong the depression, and amongst historians it was 85-15, or something like that, no, no, these were all good things to do, governments really helped fix that. Amongst economists it was 51-49.

Edward Greenspon: There you have the thing about an economist can never reach a conclusion, right?

Rick Anderson: Yeah, if you have 100 economists —

Edward Greenspon: Economists are predisposed to argue that government economic policy is a bad thing and the economy should be left to go as it is, so you've got to be careful with the biases in that. But you know —

Rick Anderson: It's not an immaterial argument and it relates directly to Ed's question. I mean, there has been in Canada only one month of the stimulus package being in effect and of course those dollars have not really started to even flow, as you're saying, Ed. So, for governments to fall over themselves congratulating themselves as having cured this recession, which, by the way I agree with you Doug, isn't over. But the point Bernanke was making and other people are making is you can probably start to see the end of it from here. The idea that that it was resolved by government I think is a little rich.

Doug McArthur: The great depression, many of you will be familiar with Milton Freedman's work, just the highest quality work, and of course Milton Freedman argued that the key problem with the 1930s depression and really the situation could have been corrected if there had been quick action on the monetary policy side. Essentially this was created by failures on the monetary policy side. And of course there wasn't that kind of action, so there was policy failure which we haven't had to the same degree this — we've had governments step in and act quickly. Others have recognized that the stimulus that took place through public works and spending was a significant factor, and I think most economists agree that — I mean you see it all the time today — economists will acknowledge that in the times of recession, if you cut government spending you make the recession worse. There's hardly an economist I know who doesn't agree on that.

So, I think there'd be general agreement, that both monetary policy and fiscal policy, if it had been used quickly in the 1930s at the onset of what started as a crisis in the monetary side, we would have avoided a lot of the problems.

Edward Greenspon: Let me go to our third and final topic, and John I'm going to start with you. One thing that we know about, whenever this recession ends is that between now and then, and even probably after that, unemployment will continue to rise. Unemployment is a lagging indicator. It follows after the economic situation, it doesn't lead it in any way. So it's going to get worse, not better, on the unemployment front.

Michael Ignatieff, coming out of Vancouver this weekend, the convention, sort of laid down that he wants employment insurance to be a front and centre issue — matter of fact, he said he might even be willing to force an election on that. We'll leave aside the fact that Michael Ignatieff does not have the blocking vote to force an election. He would need the Bloc and the NDP. But leave that aside for a moment. Is this the right issue for the Liberal Party, for Michael Ignatieff? Is 360 hours of work the right standard to be able to collect employment insurance in the current situation?

John Manley: Well, I'm not sure I can assess the politics of this yet. I think however that the employment insurance system, or the unemployment insurance system was really meant to be a built-in stabilizer, so that when the economy slowed and unemployment went up it was a very quick and very efficient way to get more money out into the economy as well as alleviating the needs that people have to support their families. So it had a macroeconomic objective I guess as well as a social policy objective.

I think when the economy is in a period of strength and when in fact there are in some regions shortages of employment, shortages of workers rather than shortages of jobs, then you need to calibrate back the other way. But I think from an economic point of view this is the right time to be saying, we need a more generous supply of employment insurance until the job picture improves. So I think it's the right thing to do.

Politically, it's always hard to say. In certain regions it'll be certainly very saleable and perhaps those are the key ones that the Liberals need to make progress in. They're in very good shape in Atlantic Canada, but in Quebec and this time in Ontario, I suspect that this will be a policy that can sell.

Edward Greenspon: Rick, do you want to try the politics and the economics of this?

Rick Anderson: Sure. I'm not so sure on either front. First of all, from the political point of view, from the raw political point of view, this actually doesn't touch very many people, and it also aligns Mr. Ignatieff with being one of the bad news bearers, focusing on the downside of the economy, rather than what are we going to do to fix the economy and get things going forward and seizing on the positives. And that's, I think politically that's a danger zone for him. Plus as I said, it's a bit, in terms of mass political appeal it's majoring in the minors. There are very few people that are going to be affected by the changes he's talking about.

On the economic front, you know, it goes back to the discussion we started to have there about the 1930s. Specifically, the reason that many economists say that government policies made the depression worse than it could have been, was that Congress and the U.S. administration priced labour out of the market. And one of the things that happens is basically, we're a very generous country and we believe we should look after people who are disadvantaged, however there's an economic reality that the more you enrich, the more you sweeten unemployment insurance, the higher unemployment's going to be. And nobody likes to deal with that as a kind of by-product, an unintended consequence of public policy, but that's what happens.

If you make it attractive, more attractive for people to, or more possible for them to remain unemployed for longer periods of time, that's what happens. And it's not — and we all kind of wish that people would not behave that way, but that is in fact the history of the thing.

And the other side of it, from Ignatieff's point of view, from the economic point of view, is that the price tag for this is a billion dollars, which needs to be paid for, one way or another, presumably through higher EI premiums, through higher taxes, through higher payroll taxes, which are also a disincentive to job creation. So, I think both on the merits of it and on the politics of it, Mr. Ignatieff is probably not on a very solid track here.

The one place where the politics worked him is in the House of Commons. The specific policy he's adopted, the number of hours he's talking about, is exactly what the NDP and the Bloc are lobbying for.

Edward Greenspon: I thought you were going to say it's what an average Parliamentarian works during a minority parliament. I thought that's where you were going in the House of Commons. Okay. Doug.

Doug McArthur: Well, I'd just like to pick up on one comment on the policy side of this. Rick comments on how a stronger, more effective, slightly deeper unemployment insurance program undermines employment. You know, all the evidence is not in on this. It's not been followed very much in this whole period, but there's been a lot of discussion and a lot of debate between the European countries and the U.S. and Canada about whether or not the European countries, who have had a more generous approach towards unemployment insurance and other sorts of safety-net features have been able to avoid some of the more extreme measures in terms of stabilization, stimulus that have been called for in United States and Canada. And generally speaking, the European countries will say they have not had to go to those same extremes, and the reason is because they've had a stable, long-going, relatively substantial program of unemployment insurance and assistance for worker transition.

In Canada, our EI has not been policy-driven so much as it has been politics-driven, and so it jumps all over the place. When it seems like it's a good time to say, cut EI, governments of all stripes get in there and start cutting and hacking at it for political popularity, and then now we have Mr. Ignatieff, I think picking it as a symbolic issue, politically, to argue that he is concerned about the victims of the recession and not just the auto workers, but the victims all across the country. And he's picked these out as a political symbol that he feels will have resonance with a large number of voters. He's also picked something that, whether he fully realizes it or not, he must — the NDP and the Bloc will support. So I assume that he's moving this towards a vote in the House, a vote of confidence, and that's interesting in itself as to why he's picking this time to move that way. But I think if he's going to hang onto this, we're probably going to have an election.

Edward Greenspon: Okay, John always wants me to say what I think about something and I usually don't, but I'm going to say it here. 360 hours at 40 hours a week is 9 weeks of work. Have I got that right? I think that is the right math and we're not talking here about people who have been in long-term employment and have lost their jobs, we're talking about 9 weeks of work, and this is clearly what the 1990s reforms were meant to eliminate. The 1971 Unemployment Act that created ski teams, UI ski teams and things like that — it was meant to get away from people having very little attachment to the work force and then rather than getting re-attached, having the incentive of employment insurance, and I don't think this'll be a winning issue for Michael Ignatieff. In fact, I think it will kind of make him look a little less fiscally serious and I think he's actually well positioned now as a kind of Centrist Liberal, better than the Liberal Party has in the last few years. So, John, I think you might want to talk him out of it politically. What do you think? Have I persuaded you?

John Manley: No, I think it's too late to talk him out of it. But I think the key to it in maintaining fiscal responsibility is to say that relaxing the measures is important when the economy is not creating jobs. And when it is creating the jobs, then it's important to respond the other way, which is exactly the advice the OCD gave us when we made the changes in the mid-90s, when the economy was generating jobs by the truckful.

Edward Greenspon: Well, by the time Michael Ignatieff gets in and the economy is recovered, according to Rick Anderson and Ben Bernanke, they'll have to be sliding back up that scale, maybe. We will see. We will see. We'll have four weeks in which to see this, right?

Rick Anderson: But that's actually part of the politics of the thing, Ed, and if it's true that the economy — if it won't actually be in recovery in the second half of this year, it will at least seem to people that that's what's approaching. In other words, that the gloom is off the rose. Then, maybe it really does make sense for Ignatieff to try to force an election in June, when the government will be suffering with an economy that's still in a deeper funk. And that might be part of the politics of this, in which case I go back to saying Ignatieff's got to be careful not to associate himself with being Mr. Doom and Gloom.

John Manley: I'm not sure I agree with Rick on that, although it's possible, but usually as employment lags, the gloom actually stays with the average person longer than the economic numbers justify it and I well remember the 1993 campaign in which by every indication, if you go back and look at the numbers now, the recession was over. But people still didn't feel good and Kim Campbell on Day One of the campaign theorized that unemployment in Canada would not fall below 10% before the end of the decade of the 90s, which turned out to be quite wrong, but it really struck a chord with people who were not yet feeling good and who responded very positively to a campaign that was oriented to creating employment and strengthening the economy. So I'm not sure as this wears on that it's just the markets that are the indicator. I think people are going to still be feeling a little discouraged.

Doug McArthur: As a policy wonk, I would really like to just wish that we would all stop playing politics with the EI program and settle on a solid, substantial, continuing EI program that doesn't keep getting shifted and moved around and as Ed said, now we'll get back to some of those things that we hoped had been fixed. But meanwhile we have got lots of long-term or longer-term unemployed people. We've got forest workers, we've got construction workers who have worked way longer than this, who aren't going to stay on EI very long, and the current EI is not going to handle them. This thing needs a real fix, and this playing politics with it — I understand politics and I know we have to have politics with these sorts of things, but where I think Ignatieff has really gone wrong here is, if he's going to go after EI, he should focus on real reform, get us back to a substantial and meaningful EI program, or UI program.

Edward Greenspon: We're going to allow the last word to go to Doug McArthur as a policy wonk. Now he's also been an elected official, had to run politically, so maybe next time we'll try him on that one again, as well. But as a policy wonk, three of you guys as policy wonks, that was a really great discussion and —

Rick Anderson: When you're an elected official, you're a policy wink.

I'm not trying to take away Doug's last word, but I think he's dead right there. If it could ever be that we would design an employment insurance program from the point of view of what was actually good for the people who participated and from the economy's point of view, rather than playing politics with it, that would be terrific.

Edward Greenspon: Yeah, I think we've all got to hold hands and sing "Kum-ba-yah" at the end. Let's just get politics out of here, okay. You guys were great. Thank you very much. I'll talk to you next week.

ALL: Bye.