Canadian Roulette
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Republished on on February 07, 2006

Forbes, Sept 25, 1995

FORGET ABOUT Russian roulette: Our neighbors to the north play Canadian Roulette—staking their entire Confederation on a single election result.

It's happening again this fall. The separatist Parti Quebecois government of Quebec, Canada's majority-French-speaking province, is recalling its legislature to initiate a referendum on a move to independence, probably in late October or mid-November.

Yawn? They lost a similar referendum in 1980 and opinion polls show this one losing, too? Don't be so sure. "The financial markets just haven't discounted the possibility of an upset," warns economist Michael A. Walker, executive director of the Vancouver- based Fraser Institute think tank.

Walker still thinks the referendum is likely to be defeated. But he adds:

"Anything short of clear and utter defeat for separatism is going to mean a continuation of uncertainty. If the separatist vote is higher than last time [40%], it's going to start to look like an inexorable march to sovereignty. They can always hold another referendum."

In other words, there is a real live bullet in that revolver's whirling magazine. The hammer could fall on it now. Or later.


Or, in the view of Walker and the Fraser Institute, Canada's Confederation may well be forced to decentralize anyway, regardless of the Quebec vote. It may be forced by a fiscal smash brought about by profligate spending and borrowing habits—which, ironically, date back to the Canadian leader who engineered Ottawa's failed strategy of bribing Quebec to stay in Canada: Pierre E. Trudeau (prime minister, most of the time, 1968-83).

Why don't financial markets discount Quebec efficiently? Answer: imperfect information. Look at the different headlines that Quebec's Journal de Montreal and Ontario's Globe and Mail put Aug. 25 on their jointly commissioned poll showing that 49.5% of Quebecers would probably vote for sovereignty, 50.5% against. Quebecers were told, "Oui et Non a l'Egalite"—Yes and No Tied. Ontarians were told, "Sovereignty Drive Seems to be Stalled."

English-language media coverage eerily echoes the Canadian federal government's official line toward the referendum: Play it down and hope it goes away. But Ottawa has no choice: Its efforts to find a constitutional compromise have collapsed. U.S. bond traders, reading only English (if anything), might find themselves cruelly misled.

The Journal de Montreal was right to imply a potential upset. The poll's 3% margin of error means the Yes side might really be ahead.

And there's this complicating factor: The fifth of Quebec's population that is not French overwhelmingly opposes leaving Canada. Take them out and a clear majority of the French community supports the idea. Could Quebec's French simply override the wishes of the English minority? It's happened before elsewhere. So it's hardly a stable situation—particularly because the only party in the province's legislature that opposes a Yes vote, the Quebec Liberal Party, says it is doing so on the explicit understanding that English Canada will accept major constitutional reform, giving the province still more autonomy. No one in an increasingly fed-up English Canada thinks this is even remotely possible.

U.S. bond traders might also be misled by a less-than-perfect knowledge of the history of independence movements. These things are more frequently engineered by determined activists than by mass opinion. Fourth of July oratory aside, they are rarely unanimous popular uprisings. In the Revolutionary War, only about a third of Americans are estimated to have supported outright independence. In India half a century ago, roughly half the population didn't even know the British were there, let alone want them to leave.

In the British General Election of 1918, the radical Sinn Fein party won almost every seat in what is now the Irish Republic and set up its own Parliament in Dublin. Yet a majority of Irish votes went not to the Sinn Fein, but to parties espousing some link with the United Kingdom.

Note that what Ireland got after 1921 was still not complete independence but a form of "sovereignty-association" with Britain—shared currency, reciprocal citizenship—remarkably similar to what the Quebec separatists, mindful of their cautious countrymen, are derided by Ottawa for saying they want.

"Our [referendum] question will be better framed than last time," Quebec Deputy Prime Minister Bernard Landry tells FORBES confidently. Landry describes the Parti Quebecois view of the future Quebec/Canada relationship as "a European Union approach, not more, not less." Landry adds that the PQ's late-August polls show the Yes vote edging ahead.

The separatists have edged ahead in another way as well. At the time of the last referendum in 1980 all Quebec's seats in the federal House of Commons in Ottawa were held by federalists. The separatists had chosen not to run in federal elections. Subsequently they changed their minds. Now most Quebec seats are held by the separatist Bloc Quebecois.

Canada's political parties have fractured regionally. So even if Quebec's separatists lose the referendum, they could eventually hold the balance of power in Ottawa, perhaps even after the next federal election, due by 1998. They will then be able to extort constitutional change anyway.

Economics as well as politics is pushing Quebec closer to independence. Canada has managed to combine both government spending levels and deficits that are significantly higher than those of the U.S. Consequently, the interest burden on Canada's government debt is becoming extraordinary. And there is no room to increase spending to accommodate it.

In a new book, Thirty Million Musketeers, Fraser Institute Senior Fellow Gordon Gibson argues that Ottawa will soon be forced to cut its cash grants to the provinces and other expenditures. But these have been key to establishing its paramountcy. In return it will have to devolve more power.

Canada, writes Gibson, may start to look more like Switzerland—or like Belgium, which since 1970 has effectively split into Flemish and French components without anyone outside really noticing. Call it independence or call it devolution of power, the Quebec bullet will be fired eventually.

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