William Watson


The globalization gremlins that weren't

DANIEL McCABE | The National Post's David Frum calls him "an unusually tall economist who writes abnormally well." That pretty much sums up economics professor William Watson -- Frum is right on both scores.

After spending much of the last two years as The Ottawa Citizen's editorial pages editor, Watson has returned to McGill to teach courses again. He isn't giving up the role of journalist completely though -- Watson will be working half the time at McGill, while spending the other half as the editor of Policy Options, an influential magazine among Canada's policy wonks.

If that isn't enough to keep him busy, he also writes a column that appears regularly in the National Post, The Gazette and other newspapers. And he has a new book out -- Globalization and The Meaning of Canadian Life -- which aims to puncture some widely held conventions about what makes Canada Canada.

The book comes in two sections. The first segment argues that "despite globalization, countries are still free to choose the size of government they want," explains Watson.

In other words, the fears of nationalists, such as Maude Barlow, that free trade agreements would force Canada to abandon many of its government programs and the tax system that supports them, are unfounded.

In the second half of the book, Watson argues that we ought to abandon many of our government programs and slash taxes anyway.

"It just doesn't seem to hold water that economic integration forces countries to become more similar," says Watson.

Over the last 40 years, trade agreements and ever closer trading ties between the U.S. and Canada might lead one to assume that Canada has had to become much more like its larger neighbour to the south to accommodate these tighter bonds. Not so, says Watson. In terms of maintaining higher tax rates and spending more on government, Canada has never differed more from the U.S.

"Globalization does force a number of things -- when you sign a trade agreement, you have to live by its rules. But it doesn't force you to lower your tax rate," Watson says.

As he notes in his book, the members of the European Union have been integrating their economies for four decades and yet the various governments in the E.U. oversee very different spending and taxing rates.

A recent study of G-7 countries pointed to a wide range in corporate tax rates in these countries despite globalization. Watson notes that the different tax rates haven't led to an overwhelming stampede of capital away from countries with high tax rates to those with lower rates.

Companies simply pass on higher tax rates to suppliers, consumers or employees. Or maybe they put up with them because of some compensating factors -- the way Canadians balance our higher taxes against things like the higher crime rates in U.S. cities when they opt to stay put.

"Clearly, there hasn't been a race to the bottom," Watson says, torpedoing the political left's doomsaying take on globalization. Governments haven't been forced to dramatically lower their taxes, nor have they had to savagely slash their social programs.

Watson writes in his book: "That Canadians are free to choose a larger government may seem a strange message from someone who wants them not to. The point of freedom, however, is that it is not an obligation. We are all free to jump out the nearest window… but that doesn't mean we should."

Watson thinks Canadians pay too many taxes and that our government is too big.

"It's a very high tax rate -- people are going underground and becoming cheats."

The current set-up has other drawbacks. Watson claims that Canadians have become addicted to government handouts, teaching a poisonous lesson -- "that success is achieved not by being inventive, innovative, or imaginative, but by successfully petitioning government, that what really counts is not what you know but whom you know.

"This kind of situation puts business people in bed with the government. You won't see business leaders criticizing the government because they want a piece of the action. That doesn't strike me as a good way to run a democracy.

"Our official identity -- our sense that big government is what sets us apart from the Americans -- permits this. It even embraces it.

"You can find the same sorts of things going on in other countries. What I don't like is that we hold it up as an outright virtue of our society."

It's also a notion that's largely inaccurate, claims Watson.

"That's the Canadian argument in a nutshell -- that what makes us different from the Americans and better than them is our large government. I just don't buy any of that."

He says that while nationalists such as Michael Ignatieff believe that a large, activist government in Canada is "bred in the bones," U.S. and Canadian history actually paint a more complicated tale.

In his support for private enterprise, Wilfrid Laurier often sounded a lot like Ronald Reagan. Canadian prime minister R.B. Bennett's New Deal in the 1940s was a rip-off of Franklin D. Roosevelt's New Deal for the U.S. Pierre Trudeau's Just Society was predated by John F. Kennedy and Lyndon Johnson's Great Society.

"We talk about how building the [government-sponsored] Canadian National Railway was a defining moment in our different approach to things, but it's actually the American way -- they did it 20 years before we did. In the 1950s, the U.S. was a very progressive place in terms of government programs -- more so than Canada." We might have more of a big government approach to things today, but that difference is a fairly recent development, argues Watson.

For most intents and purposes, writes Watson, we aren't all that dissimilar from the Americans. Big deal, he says. His advice to Canadians: Get over it.

In trying so hard to distance ourselves from the U.S., we do dopey things, believes Watson.

"Look at the recent APEC meetings. The word going into it was that Jean Chretien was going to take a tough line on human rights.

"Then [U.S. vice-president] Al Gore adopted a hard line first and Chretien seemed to shy away from it. It was almost as if 'the Americans did it so we won't.' Well, shame on him if that's true. If it's a good cause, we should support it because it's a good cause. If the Americans believe in it too, where's the harm? We seem to get joy out of twitting the U.S. whenever we can. I find it juvenile.

"What makes us distinctive is that we worry so much about being distinctive. We shouldn't worry so much about Canadian identity. We should just get on with our business and our identity will be expressed clearly enough in the actions we take."