The Maritimes failed to get a 'fair deal,' so Equalization became their consolation prize

The Maritimes failed to get a 'fair deal,' so Equalization became their consolation prize

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From the onset of Confederation, central Canada protected its political and economic interests at the expense of regional sovereignty. While western Canada is no stranger to exploitation, the Maritimes were the first to resist federal influence in their quest for reciprocity and responsible government.

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Moderate reformer Joseph Howe first achieved responsible government as premier of Nova Scotia in February 1848. He believed the government could not command the people's will without fair taxation and equal representation. If the government lacked support from Parliament, it had no legal authority to pass laws or collect taxes.

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Advocates of responsible government sought to decentralize power from local elites, who championed the British Monarch before its citizenry. Still, support for free trade fueled a war of ideas between Canadian-British influence and the US upon the Maritimes. Between protectionism and free trade.

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The Reciprocity Treaty of 1854 between the US and Canada reduced import duties and protective tariffs on certain goods. Trade boomed between the neighbouring states as US fishermen obtained access to Canadian waters and the Maritimes' considerable abundance of natural resources. But Sir John A. Macdonald's National Policy in 1878 levied tariffs against American goods to protect Canadian manufacturers, a rollback on free trade policy.?

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The National Policy relied on selling expensive domestic goods, including commercial interests, food, and farming equipment. Manufacturing flourished in southern Ontario and southern Québec, where most of the Canadian market resided. In the metropolises of Toronto and Montreal, Canadians also had greater access to the hinterland markets in the East and West.

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Canadian businessmen Erastus Wiman and Richard Cartwright advocated an extensive free-trade arrangement on behalf of supportive Canadian businesses in the 1880s. They called for "unrestricted reciprocity." However, these proposals failed to gain traction during the 1891 Canadian election, owing to Britain's budding influence over Canada and its unshakeable anti-Americanism.

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The National Policy deterred economic growth across Canada, preventing immigration to the West until the Immigration Boom of the 1890s. But MacDonald's policies hit the Maritimes hardest, facing prolonged economic stagnation and population decline.?

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Canadian historian Arthur R.M. Lower decried the exploitation of the hinterland as being "squeezed dry and thrown aside like a sucked orange." He adds: "[The] essence of metropolitanism... is the concentration of power."

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The Maritimes ultimately failed to sustain their manufacturing prowess and export, and resource industry as Toronto and Montreal became centers for commerce. Lower says the growth rate in southern Ontario and southern Québec became too great that it depleted the natural resources of the Atlantic provinces. The Senate failed to defend the Maritimes' regional interests from an increasingly antagonistic federal government. The rising costs of importing and exporting products negatively reverberated on Maritime businessmen, who fell to conglomerates in central Canada.

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Among those sympathetic to their claims was journalist and gifted orator Joseph Howe, leader of Nova Scotia's Anti-Confederation Party.

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In an address, he states:?

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"…the scheme [of Confederation] would, if adopted, deprive the people [of Nova Scotia] of the inestimable privilege of self-government, and their rights, liberty and independence, rob them of their revenue, take from them the regulation of trade and taxation, expose them to arbitrary taxation by a legislature over which they have no control, and in which they would possess but a nominal and entirely ineffective representation; deprive them of their invaluable fisheries, railways, and other property, and reduce this hitherto free, happy, and self-governed province to a degraded condition of a servile dependency of Canada."

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From the onset, Atlantic Canada expressed reluctance to join Canada, fearing the centralization of power to an exploitive federal apparatus. They remained firm on free trade with the United States against the protectionism of British-inspired central Canada.

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Hostilities towards Confederation boiled over as a Maritime separatist movement elected 36 of 38 Anti-Confederation MPs in Nova Scotia. But the campaign collapsed in the late-1860s after Britain exerted immense pressure on local authorities as an empire upon its colonies.

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Though the Maritimes' separatist movement is largely forgotten, it provides historical context on the frustrations and alienation felt by western Canada today. Upon joining Confederation, the Maritimes lost their bargaining power to Central Canada and eventually their autonomy and self-reliance.

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While the Maritimes' subpar economic performance, including their inability to diversify (i.e. shipbuilding used steel instead of wood), bears partial blame, importing manufacturing goods became more expensive because of the National Policy's tariffs. Central Canada's expensive domestic products of "mediocre quality" received priority.

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Academics argue the political, academic and business classes in metropolitan Ontario and Québec wield "the 'power of the metropolis '... [to influence] decisions of national importance." They add it furthered the "discrepancy between the center and the margin."?

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The exploitation of the Maritimes is best described through the Metropolitan-hinterland thesis, which defines Metropolitanism as the "ultimate expression [...] of "one individual sitting in a small room" to […] impose unequal terms of exchange."

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"In the 19th century, the locus of metropolitan dominance existed across the Atlantic in Britain. Now it rests in central Canada."

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Though Atlantic Canada exported goods, including fish, lumber, coal, and grain, that was not enough to sustain the Maritimes' optimistic economic outlook pre-Confederation.

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In the 1890s and early 1900s, Montreal replaced Halifax and Saint John as the dominating metropolitan influence in the Maritimes. But Toronto soon challenged this leadership during the 1910s and 1920s.

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"In 1901, Toronto firms had located only nine branches in the region; by 1931, the total was 228, just one less than Montreal. No other urban centers were nearly as competitive, not even American or British cities, and Halifax and Saint John by this time offered only limited competition."

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Their dominance as hubs of commerce continued in their takeover of cotton textiles, rope and cordage, sugar, glass, and paint — almost all by corporations headquartered in Montreal. "Between 1901 and 1921 [...] they more than doubled from 416 to 950."

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The Maritimes faced further economic ruin in the 1920s, causing a net loss of roughly 1,100 businesses. Branch businesses headquartered in central Canada managed to hold firm and gained a more significant share of all business activities in the region.

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By 1931, over 90 percent of the branch businesses received financial backing from central Canadian companies with assets exceeding $1,000,000. Less than two percent of firms in the Maritimes received similar financing.?

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Academics believe Metropolitanism caused the hinterland's economic activities to outsource to metropolitan hubs. "[Effectively, branch businesses became] the emissaries of the metropolis, advancing its economic interests and consolidating its empire throughout the hinterland."

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Now, dependence on provincial deficits and federal transfer payments to replace gaps in government revenues leave Atlantic Canada as perpetual Have Not provinces. Alongside Québec, they remain recipients of federal transfer and equalization payments from western Canada.

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The equalization program, created in 1957, allows the federal government to transfer funds unconditionally to provinces with below-average revenue per capita to ensure all provinces provide comparable services and taxation levels.

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The Government of Canada uses equalization to address fiscal disparities among provinces — financed entirely from the federal government's general revenues — where recipient provinces spend it as they deem fit.

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At the time of the Alberta firewall letter, Alberta Treasury estimated residents transferred $2,600 per capita annually to other Canadians, for a total outflow from our province approaching $8 billion a year.

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Between 1961 and 2019, a study by economist Trevor Tombe suggests Alberta's "net contribution" to Canada is $622 billion — roughly five percent of the province's economic activity over the period and equivalent to $3,344 annually per person in 2021 dollars. According to Tombe, the net inflow to Prince Edward Island averaged nearly 30 percent of its economy.

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Alberta is by far the most significant net contributor in the federation at over $3,700 per person per year over the entire 1961-2018 period and well over $5,000 per person per year — or $20,000 annually per family of four — in recent decades. Prince Edward Island consistently saw the most significant net fiscal benefit of over $8,600 per person per year since 2010.

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According to the Fraser Institute, the fiscal capacity gap between richer and poorer Canadian provinces shrunk dramatically, with the trend accelerating significantly after 2014/15.

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Fiscal capacity refers to a province's ability to raise own-source revenues at tax rates set to the national average, plus any additional revenues from natural resource royalties.

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In 2007/08, using 2020 dollars, the fiscal capacity gap between Alberta and PEI was $10,999. By 2018/19, that number fell to $6,138. With the 2020 COVID shock and sudden fall in natural resource prices, the Fraser Institute estimates BC will overtake Alberta with the highest fiscal capacity.

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"Combining revenue declines and spending increases, Alberta may see the gap between federal revenue and spending fall by nearly $9,000 per person (or from positive $4,000 per person to negative $5,000). That's almost $40 billion overall — equivalent to over 11 percent of the entire provincial economy," writes Tombe.

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"There is no year on record where all provinces were net receivers from the federal budget, as will be the case in 2020. But Alberta benefited more than others — I estimate $650 per person more than the national average," he added.

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Dr. Ted Morton, a political science professor at the University of Calgary, says, "The same federal politicians who accuse us of not sharing their "Canadian values" have no compunction about appropriating our Canadian dollars to buy votes elsewhere in the country."

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The lessons of Joseph Howe's failure to achieve greater autonomy are repeated in western Canada today. From the onset of Confederation, the federal government made decisions that benefited southern Ontario and southern Québec to the detriment of the Maritimes. Suffice to say, history is repeating itself at our expense.

Alex Anas Ahmed is a Political Science and History graduate from the University of Calgary, where he served as the president for its Campus Conservatives. He has actively written on relevant Canadian issues as a contributor with several prominent interviews under his belt for the Western Standard and The Post Millennial. Alex previously worked for the Alberta Government as a Communications Officer and hopes to pursue a career in communications, public relations or journalism.