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Ed Greenspon:

Hello, I'm Ed Greenspon, editor-in-chief of The Globe and Mail. Welcome to the Globe Roundtable. Well, the boom and bust times that have characterized Alberta for generations are back. Yesterday, the province announced that it's back in deficit (in relative terms in Ontario) and a big, big comedown from the seemingly never-ending boom of recent years.

And meanwhile, the list of actions the government is taking to help the North American car industry continues to grow. Now Ottawa will underwrite your car warranty , a measure that mimics the United States and is intended to maintain confidence in the North American car makers as they continue to work their way out of their troubles. But our government's getting sucked into supporting the old rather than the new.

Oh yes, and some odd signs of disunity are emerging from the Conservative caucus in Ottawa. Nobody, it seems, can shake the shadows of history.

So to discuss all this, I'm joined today by the Globe Roundtable gang. Doug McArthur, the Distinguished Fellow in Public Policy at Simon Fraser University and a former cabinet minister in Saskatchewan and deputy minister to two premiers in British Columbia. Jodi White, currently a public policy scholar at the Woodrow Wilson Centre and former chief of staff to Joe Clark and Kim Campbell. And John Manley, senior counsel at the law firm of McCarthy Tetrault and Canada's former Minister of Industry, Finance, Foreign Affairs and its deputy prime minister. Good morning, all.

John Manley:

Good morning.

Doug McArthur:

Good morning.

Jodi White:

Hi.

Ed Greenspon:

Well let's start in Alberta. You know, I was just looking this morning, on June 2, 1987 in The Globe and Mail, some young reporter named Edward Greenspon was writing out of Grande Prairie, Alberta, and his story about a bust at that point started at: "The sign over the beer cooler in the Lone Star Saloon, cuts right to the heart of the matter: 'Please God,' it reads, 'let there be another oil boom. I promise not to piss it all away this time.'"

John Ibbitson wrote about that this last week too, with the same quote, and he concluded He did, they didn't - as in God did his part and gave them another oil boom, but they didn't not piss it away.

So Doug, let me start with you. How bad do you think it is for Alberta and really how bad has government been? Can you blame governments for racking up big deficits at times like this?

Doug McArthur:

Well it's hard to blame the government for what's happened to the economy. And of course, one of the things that's happened that caused this huge deficit, and it is very, very large, one of the things that's contributed to that obviously, the main thing that's contributed is the decline in the economy and the decline in oil and gas prices and sales.

Now, the thing about this is that the economy in Alberta is really, as we all know, driven by these things. But there have been attempts to diversity the Alberta economy over the last few years as well, and there was some expectation that the Alberta economy, particularly when you heard from people inside government, that the Alberta economy had diversified sufficiently, that Alberta wouldn't be subject to the same kind of cyclical problems that it's had before, whenever you had declines or collapses in prices of oil and gas.

You know, the thing is this hasn't really worked. The government has been a big spender in Alberta. They've invested a lot in various industries. The medical sciences and these kinds of fields, research, R&D, huge investments they've made in these areas in the past. That hasn't offset the impacts that have taken place in the economy as a result of the downturn. And they've been stuck with very high government expenditures overall. You know, Alberta has the highest per capita expenditure on government of any province in Canada. It's the biggest spender per capita of any province in Canada.

Ed Greenspon:

Well let's come back to that point in a minute because that's obviously a very, very interesting point. But let me go to John a little bit also on this question of diversification. John, I'm wondering, has Alberta just diversified badly or is economic diversification a policy that really only works at the margins?

John Manley:

Well, the way I regard it is a little bit like water finding its level. You know, you can only make water flow uphill for so long. It will find a downhill course. And economies go to the areas where they're most capable of producing income. And in Alberta's case, the natural resources are there.

We've gone through a boom time in oil and gas prices. Lots of investment flowed, lots of jobs and prosperity were created from that and you can do whatever you want in government, other than shutting down production in the natural resource sectors. You're not going to drive huge investment into other areas to a degree that will offset a downturn in your key industry. I just don't believe it can be done. Certainly not over a short time, probably not over a medium term, maybe over a long term.

Ed Greenspon:

Okay, Jodi, but what's the role of government in that then? Because you know, this guy, this reporter I'm talking about, me, in 1987 wrote the provincial government was as profligate as its people. And there were big deficits back then as well in the mid-1980s. So Alberta governments are to expect this and should they be more strongly counter-cyclical?

Jodi White:

Well I mean let me just go back for one second to the sort of diversification. I mean I would think innovation often comes from bad times. Good times, we all tend to be a little bit lazy - it's one of the problems, isn't it? And what we're talking about is not being lazy during the good times, and that of course is better planning.

But whether it's contrary to human nature, I would think that that's worth a conversation. So that they have been going through good times and then you sort of sit back and say "Oh well, it's okay." I mean there was a great deal of criticism during Ralph Klein's time as premier, as you know, including in your newspaper about the fact that they seemed to be missing opportunities when they had the money. Ralph Klein was giving $400 per person back to taxpayers and things like that, when in fact there were opportunities to do more investment.

Although as Doug says, they have done a great deal of R&D investing. They've got very strong post-secondary educational institutions. I think those institutions still feel that they haven't had the support from the government that they could have used to really move into another level. But yes, I think governments have got to have a role in thinking about this.

Ed Greenspon:

They seem to sort of lose their minds in the boom times as well. As you say, $400 cheques here and you know, Doug, maybe you want to talk about the spending increases. You know, they have had double-digit spending increases year after year after year. Hardly a Conservative province, is it?

Doug McArthur:

Yes, I mean the Conservative governments in Alberta, as much as they talk about good fiscal management, have really been spending like drunken sailors and using the taxpayers' money as if it was very little cost to it. So they've had, as you say, double-digit increases in expenditures. They've had the highest per capita expenditure on government, and they really haven't been paying attention to what's been happening in the Alberta economy.

You know, everybody is of the belief that the Alberta economy was booming as recently as last year. But if you look between 2006-2007, GDP growth in Alberta was cut in half. It was cut in half again from 2007 to 2008. And now it's collapsed. There's been a downward trend in the economy in Alberta overall, even though there was a boom taking place in gas in particular.

Nobody was noticing that there were underlying problems developing over the last three or four years. They weren't paying attention. They weren't doing anything about it. They just continued to spend, spend, spend on things that in many ways now look kind of frivolous.

Jodi White:

Wasn't some of the problem the Canadian problem, that we are limiting ourselves sometimes to simple resource extraction and we should be doing much more in many of our industries basically? It's a weakness within the Canadian economy.

Ed Greenspon:

I don't know, I just keep wondering, and this might be very simplistic - but you know, there's a culture in Alberta, and maybe it's actually not very true, but there's a kind of culture of small government, not liking government, and of course you've got big government as it turns out in terms of spending. But maybe you've got kind of an inactive government in some ways. It doesn't seem to be like the Lougheed times of a more activist government, and maybe they just allow things to happen some. I don't know. John?

John Manley:

I think there's some truth in that. Although, you know, to give them some credit, as Doug said earlier, what they've done in areas of innovation, research and development, particularly in the medical and related sciences, has been impressive. Their universities are first-rate. University of Alberta particularly, based in Edmonton, has had a piece of every single one of the federal centres of networks of excellence programs. You know, some things have gone well there. But it underscores something on the fiscal side which I think has lacked consensus in Canada, especially in boom times, when you really need it. And that is to find some kind of realistic fiscal anchor against which you can measure the appropriateness of a budget.

Doug references the fact that their spending was the most profligate of any province. There ought to be some kind of basis to say spending should only increase, either perhaps at the rate of growth of GDP and population on some kind of combined basis. The benchmark should be other provinces.

I remember as finance minister getting great complaints from other prairie ministers other than Alberta saying, you know, Alberta was going into an election and to settle a potential labour dispute with the nurses, they gave them a big increase, causing problems for Manitoba and Saskatchewan because it's such an easy thing to move to Alberta and take the bigger pay. So some kind of fiscal anchor I think is what's required.

Ed Greenspon:

Well I guess the flip side of that would be, if you did have fiscal anchors in there that kept from overspending and then causing certain distortions, you would also save a lot more money for those rainy days, and a lot of money wasn't saved, it seems. And you know, there's been a lot of comparisons people made with Norway and the fund that Norway has put aside for when its North Sea oil runs out. I mean should we have been doing that in Canada?

Doug McArthur:

You remember Ralph Klein really trashed the whole idea of the Heritage Fund. He said that this was a huge bad idea. Peter Lougheed had developed this. Klein argued that government couldn't be making these kinds of investment decisions. He ran the Heritage Fund down. He really ran counter to that whole Norwegian example. Partly, he would argue, and maybe this is what he really believed, partly because he ran against the idea of government saving. He didn't think governments could do that kind of thing and do it effectively.

So he really put them in a corner because while he spent, spent, spent, he rejected the idea of saving. And you know, some people also have an argument, political scientists and others, that say that any governments that don't get their money directly from individual taxpayers but rather get it from renter class, that is to say raise it from resources or some transfers where it doesn't come directly from individual taxpayers. That those governments tend to be careless and unaccountable for the way they spend. Alberta seems to be a class-A example of that.

You know, they're much worse than say the Atlantic provinces, who get large transfers. Alberta gets it from oil and gas, or has been. Gas has become the main thing now. Oil is running down. But they've got all this revenue and you know, they don't have to answer to individual taxpayers. Their provincial taxes are way lower than they are other places.

Jodi White:

It's interesting what this does to the conversation that's gone on for the last couple of years about the westward shift of the economy. I assume this puts a fairly fast stop to that conversation, but I don't know what it means in terms of the balance within Canada of where the economic centre is.

Ed Greenspon:

Well let's tilt back. I don't know if there is an economic centre anymore, but let's look at Central Canada for a moment, which is also obviously having its problems and we go back to the huge car industry.

Doug McArthur:

Give me oil. Give me resources.

Jodi White:

It looks easy compared to autos.

Doug McArthur:

It's gas these days, folks. Pay attention to gas, natural gas. That's where it all is.

Ed Greenspon:

So the car industry is based in Ontario. We've talked lots about it and now we have the government kind of getting in the car warranty business, to a large extent. In the period of uncertainty here, they're going to try to guarantee the warranties for people, so they might not — you know, I guess the people feel that General Motors or Chrysler may not be around. They're loathe to buy their cars and feel that they won't be there to support their five-year warranties. But as we get deeper in this and even you know Obama's remarks a couple of weeks ago where he doesn't believe in the business plan of the car industry. We have a lot of technological change going on. We've got a lot of experimentation with other things and innovation.

John, let me start with you. Are we in danger here that we're backing, you know, horses rather than automobiles, if I can use an analogy of a hundred years ago?

John Manley:

You know, I used to say when I was industry minister, the problem was not so much government picking winners and losers, it was that the government can never shake off the losers. And it's an extraordinarily difficult situation for governments to be in, in this case because it's not clear that good public policy and good politics overlap here. And there's a lot of pressure, not just from workers and people that are employed in the automotive sector, but from all of the associated industries, the parts manufacturers and suppliers.

This is a huge part of the Ontario economy and they're all saying, you know, a little bit of a lifeline to get through the financial crisis and get the economy going again and we'll be able to preserve this. And they point to Chrysler 1982 as an example of how that can happen. But there's a real risk that, you know, global overcapacity in the industry is so great, the Chinese are coming on with automobiles, that we just may not be able to shake the losers here.

Ed Greenspon:

And do we believe that this industry may be a loser?

John Manley:

Well the industry I don't think overall is a loser. It's just whether certain players in it are going to be able to survive the new paradigm in the industry, which is a lot of emerging markets coming onstream, producing automobiles at a much lower price and without the legacy cost, the pension costs and so on, that the historic producers have had.

Jodi White:

I don't think the industry's a loser, but I think an awful lot of Canadians believe it's been dreadfully managed by some of these companies. And that is why they're annoyed about anything that looks like a bailout and I think numbers are opposed to a bailout. But it is a classic public policy issue where there is no good answer and there is no good place for government to go on this. So you've just got to sort of bite down hard and figure it out.

I mean these are the wonderful case studies of government, where it's just really a mess. And I do think, I mean China laid down the challenge the other day at the G20 and announced that they want to be the leader in fuel-efficient or electric cars in three years. And you know, obviously they've set a goal and they're going to start to aim towards it.

And I guess that goes back to some of my constant peeves in Canada. I don't think we have industrial goals, and has been some of the problem there for some of these industries doing things and getting into terrible trouble, and then it becomes the government's problem. They don't want the government involved with them until it's suddenly a disaster, and then it is all the government's problem.

Doug McArthur:

I think that the North American car industry, when I see the business plans that they've put forward and the kind of basis upon which they look to their future with that planning, I think this industry is a loser.

And I think, you know, really I don't think the government's going to be able to save it. They may continue it with large subsidies for a substantial period of time and many people are going to be very angry that the Ontario economy is dragging down the rest of the country because we're subsidizing this industry that has really continuously made bad mistakes.

When you look at what they were trying to do with their business plans that they filed with the governments here a couple of weeks ago, these business plans were based, once again, on the recovery of automobile sales, the recovery of sales of large cars, the same old thing that they've always produced.

The electric car, the Volt, that GM was touting is going to be part of their success story turns out to be way too expensive and the U.S. government has shut that down as part of the recovery plan.

Ed Greenspon:

But Doug, for one minute I'm going to make you the Prime Minister of Canada, okay, if you can handle that. And you know, you've got to look out now in the reality of competing regional interests, of perhaps massive unemployment, of your own political needs, and sort of stare GM and Chrysler in the face and say "Sorry, we're not going to support you."

Do you think as the Prime Minister of Canada that that would be a reasonable option, a do-able option?

Doug McArthur:

Well, from where I sit, it should be. They did this with our forest industry. You know, two prime ministers essentially agreed with the Americans to shut down our forest industry in B.C. You know, this industry went from a very powerful engine of the B.C. economy to just a mere shadow. And that happened because the Canadian government wouldn't stand up to the Americans on the trade issue. They went ahead and let it go.

If you can let the forest industry in B.C. collapse and not really take any responsibility for it, why is it that the Prime Minister of Canada can't say to a losing industry, the auto industry, an industry that has dug itself into a hole that it can't get out of, why should we be pouring billions and billions and billions of dollars into that industry and say "Well I can't help myself because I'm the Prime Minister and this is politically expedient to do?"

Ed Greenspon:

Okay, that's a good question you asked. Jodi, I want you to try to answer it. You lived through, in a short-lived government that tried to do the right thing, short-term pain for long-term gain, is that a politically do-able proposition, what Doug is suggesting?

Jodi White:

No, I don't think so. I don't think it's politically do-able, frankly. I do think the government strategy obviously at the moment is to try to maintain our share of this industry, and that is what's on their mind. That's why they've tied themselves to the American solution. It's not a great solution in either country.

But you know, Chrysler was turned around once before, so whether or not they can do it again. And we've got to remember, this is a foreign-owned industry in Canada. There are companies called Honda and Toyota that we're not talking about, who don't need a bailout. And they are going to continue to perform in Canada.

John Manley:

Not to mention Ford.

Jodi White:

Yes, excuse me, yes, of course.

Doug McArthur:

That shoe has to drop yet, I think.

Jodi White:

That complexity in this story is still there. There are huge inventory problems right now. I think this idea of trading in your clunker, for instance, to try to get some things moving. I mean the car industry seems to think that's the first step, and I think probably they're right on that.

I mean yes, we all want to get into green vehicles etc., but it's going to take us a while to get there and it is a mess. But I don't think politically you can just cut them off right now. I don't think it's going to happen.

Ed Greenspon:

Okay, I'm holding off to trade in my clunker until the government comes up with a program because there seems to be a new one every two weeks.

Jodi White:

With a better price.

Ed Greenspon:

Yeah, I'm holding off my renovation and you know, I'm waiting until everything is subsidized.

John Manley:

But Ed, a question for you: Do you trust the government to warranty more than you trusted the manufacturers?

Ed Greenspon:

You know, I know the government hasn't been good at doing many things over the years, like keeping fish alive and things like that. But it seems relatively simple to guarantee my warranty. So I think I would. I think I would but I don't think it gives me any incentive to buy a Chrysler or GM car. It just maybe removes some of the disincentives that would be there from companies that may not be around to service it. I know they may guarantee my warranty, but I don't know if they're going to guarantee that there's a service bay for me to go to.

Jodi White:

Yes.

Doug McArthur:

I thought the best news for Canada was the report that we're ready for electric cars because everyone plugs there car in here all the time anyway. So now we won't have any problem in plugging in our cars to charge the battery.

Jodi White:

We've all got an electrical outlet, you mean, right there.

Ed Greenspon:

But when I moved from Saskatchewan to Ontario many years ago, Doug, and I asked my new landlord where the plug was for me to plug in my car, he looked at me as if I had come from outer space actually.

Let me turn to one other subject before we go, which is the Tory caucus and the reports that have come out over the weekend of some unhappiness within that caucus of the way that Brian Mulroney is allegedly treated by I guess the Prime Minister's Office, people around the Prime Minister. Apparently there seemed to be some attempt to distance themselves from Mr. Mulroney last week by saying that he was no longer a member of the party, and he was furious about this.

So as somebody once wrote about Trudeau, he haunts us still. Obviously they had the wrong prime minister in mind when they wrote that. Jodi, is this a serious schism?

Jodi White:

No. It's there. There has always been. This one is extraordinarily sort of immature and strange, I find. It is interesting that Mr. Harper was out of the country when it happened, so that does say something. And there have often been people who said that the people around Mr. Harper need adult supervision most of the time, and there have been other examples of that. And I think this falls into that a little bit.

I think it's very unfortunate. It's goofy. I think most people would find it goofy. I mean first of all, in terms of party membership within the country, there are very few Canadians who wander around with a membership card in their wallet and identify that way. That's not the way you identify with parties in Canada basically, for the most part. But it does show that there is severe tension around Mr. Mulroney. He's been a polarizing factor in the country and he's a polarizing factor in this new party. And I think they will get over it and this inquiry will continue along.

But it may show, I mean they've had a bumpy six or seven months. I mean I think there are a number of things that are showing in terms of where the party is at and what it's looking at in the future. I mean there was an election called when in fact you look back and you say, probably not a smart idea to have called that election. There were campaign miscues through the election. The economic statement, which caused a huge uproar in Ottawa, and now a budget that the party in many ways never though it would dream of ever presenting.

So I think there are things going on within the Conservative Party that are causing issues and heartache and self-examination, and this has sort of popped out in one way. I don't think this is the whole problem. I don't think the Mulroney thing — I think there are other things going on as well as they look to the future and future elections and whether or not there will be a change of leadership at some point.

Doug McArthur:

You know, caucuses always have their divisions over issues, over policy issues, and you know, there's some vigorous debates go on within the caucuses and there's strong disagreement. And people argue with each other very passionately. And then caucuses go ahead and whatever the majority, or the prime minister and the majority decide, or the leader and the majority decide, they then unite and join in support.

But this thing I think is different. I think it should be. I'm not obviously an insider in the Conservative Party, but I think there are two things about this that should be worrying. One is it was directed with great passion and anger at the Prime Minister's Office. And you know, when you're ready to attack the leader, the first place you start and the first place you see it happening is on the people around him, the PMO or the leader's office. And there were some very, very strong things said about the Prime Minister's Office and the people right around the Prime Minister, and of course they were speaking to the Prime Minister's own behaviour.

The second thing was who was involved in this? I mean there were some very important caucus members that you would think would be supporting the Prime Minister. Gerry St. Germain, the senator. What about the second person on his feet with this attack was the deputy prime minister, Peter MacKay. When you get these kinds of people speaking out inside your caucus on an issue like this, directed at the Prime Minister or the Prime Minister's Office as a proxy for the Prime Minister, you've got a problem.

Ed Greenspon:

John, would it be your experience in caucuses that policy issues aren't ultimately as divisive as the sort of long term fractures that exist around loyalties, around tribal loyalties within the party?

John Manley:

Yeah, well there are some policy issues that are very, very difficult and causes, as Doug says, debate these with great passion and great commitment, and sometimes it's hard to get everybody lined up, even after they've vented.

Well I'll give you a couple of observations about caucus dynamics. Number one, it's always fractious when the leader is away. Now it doesn't matter whether you're in government or opposition, the leader provides a discipline that when the leader's not present can break down somewhere.

Ed Greenspon:

Why do they even let caucus meet when the leader's away?

Doug McArthur:

They could lock the doors, like they did —

John Manley:

Because it's Wednesday. What would we do?

Jodi White:

Perhaps they won't in future.

John Manley:

Secondly, you've got to remember that this Conservative Party is still at its core something of a coalition. It's a coalition of the Reform/Alliance Party, of the Progressive Conservative Party, of the Harris Conservative Party and of the Quebec Conservative Party. And in putting at least the Alliance and the PC's together, and it's interesting the people that Doug mentions that spoke loudly in caucus. They were from the old PC part of the party, who very much took comfort in Brian Mulroney's endorsement of the uniting of the parties to really carry it off with their supporters. And don't forget how fractious that was. At least two sitting federal Conservative members left and joined the Liberals as a result of that coalition, both from the Maritimes, from Nova Scotia and New Brunswick.

So you know, I think there's that element to it. And then finally, I think Jodi is right. Caucuses always, let's say the elected part of caucus because the senators are part of caucus, the elected members of caucus are always keeping an eye on what's happening in the polls and are always contemplating what it's going to be like to go out on the doorsteps. And this hasn't been a good series of months. A huge advantage was lost. A majority that was almost realized was lost by campaign miscues. Quebec is lost. The hope for a majority the next time is a dim one. In fact, the prospects of losing to the Liberals is real for the first time in a while. And that's got to be making people more fractious than would otherwise be the case.

Ed Greenspon:

Well, guys, that was a really, really good discussion, very helpful. I'm confident enough to give everybody out there a warranty, listening to this and gleaning insight. So you've got the personal warranty of the editor of The Globe and Mail, and I'm going to try to get some backing from Ottawa later in the day, if I can, on that. So thanks for all of you insights and I look forward to speaking again soon.

Doug McArthur:

And in the future, I think you should not let us meet without you being present as the leader because we might get fractious.

Ed Greenspon:

I bet you would. All right, take care.

John Manley:

Many thanks, bye.

Doug McArthur:

Thank you, bye-bye.

Ed Greenspon:

Bye-bye.