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Monday, January 19, 2009

Canadas Take on the new U.S. Administration

Globe Roundtable
Globe and Mail Update

EDWARD GREENSPON: Hello, I'm Ed Greenspon, Editor and Chief of The Globe and Mail. Welcome to the Globe Round Table. Not the inaugural edition for sure, but the last one before the inauguration next Tuesday, Barack Obama as President of the United States. We'll start this morning with the new U.S. administration and its meaning for Canada and the world. We may also touch upon some of the other stories gracing the front page of Canada's national newspaper today. The Parliamentary Budget Officer says Canada won't get out of debt for at least five years, though we can probably afford it. Nortel, once Canada's proudest global champion has filed for bankruptcy after a decade of decline. And the Vancouver Olympics, well remember former Montreal Mayor Jean Drapeau said the Olympics could no more have a deficit than a man could have a baby? Well, is Vancouver in labour? To help us sort through this and whatever mysterious directions they decide to take the conversation I am joined by our Round Table regulars. Jodi White the recently departed President of the Public Policy Forum and a former Chief of Staff to Joe Clark and Kim Campbell. 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 British Columbia. And John Manley, Senior Counsel of the law firm of McCarthy Tetrault and Canada's former Minister of Industry, Finance, Foreign Affairs and Deputy Prime Minister. Welcome to you all.

ALL: Morning, Morning, Hi.

EDWARD GREENSPON: Hi there. Alright, well why don't we start today in the global capital to the south. Next week it will be President Obama. We've heard a lot from him in recent days, more so probably than usually one does from a President Elect. I guess my questions are — is he ready? And — what does he mean for Canada? Jodi why don't we start with you?

JODI WHITE: Is he ready? Wow, well who will ever know. He wouldn't be able to answer that — or he would answer that question positively. I think he's as ready as he's going to be. I think the biggest danger actually are the expectations are so high and that is not a great place for a politician to be most of the time. However, it is … it's fun to watch the excitement both in this country and in the United States of the Inauguration. I thought it was intriguing yesterday with Hillary Clinton in her … her hearings for her nomination that she did mention Canada and I don't want to say that as being somebody who watches for somebody ever mentioning Canada in Washington and thinking — oh gosh, that means we're important. But I thought she made a strong case about the neighbours and I don't think that's usual for a Secretary of State to talk about the two neighbours in that way. So that, I thought that was a signal and it ties in perhaps with the announcement that in fact President Obama will come to Canada some time soon as his first foreign visit and that has historically been important and didn't happen with President Bush. But I think now the onus is absolutely on Canada to make sure that we've got good messages. That we move in there as quickly as we can. With a strategy of our own in terms of trying to build this relationship and put it back into the place where it needs to be on a number of the key issues.

EDWARD GREENSPON: Doug — what sort of strategy do we need and are we going to be on the radar screen in Washington?

DOUG McARTHUR: Well I think Obama's going to be pretty occupied right off the start with three things that are more or less handed to him as he comes in. In the Israeli\Arab conflict, the U.S. economy and the world economy and the Pakistan\Afghanistan situation. And all of these are going to be huge matters to matter … manage … and things he really can't win on. So I think we'll have trouble getting his attention and we're going to see … we're going to see the shine come off the … the government fairly quickly on these things. On Canada I think it's going to more depend on how Canada positions itself vis-à-vis this administration. Canada has not really taken a strong stand with the U.S. on … on trade issues, even though there's been a lot of complaining. The question will be — will Canada want to assert itself and try to do something say for instance on one of the most egregious things the U.S. has done and that's softwood lumber. My bet is — no — that Canada is not going to be very aggressive and so I think it likely that we won't put many demands on the Obama administration and I don't fear necessarily they're going to turn around and poke us on us giving all the other problems and situations they have. I think you're going to see Obama try to handle these really tough things he has. He's going to have to try to show some progress on something of his own agenda and so probably try to turn to something on the social policy side, Medicare or something. Canada? We're not going to count very much. Will Canada try to assert and develop a better relationship and get some better results? I'm kind of doubtful. We haven't seen much of a record in standing up and fighting for our position very strongly on these questions.

EDWARD GREENSPON: But John, what should we be going? I mean are there dangers here with the new administration and it won't be on the radar screen is it important to do that — how do you do it?

JOHN MANLEY: Well first of all let me say I am unreasonably optimistic about how President Obama will … will do. I … I think there's a difference between expectations and hopes and I think hopes are very high. I think expectations are actually more realistic than might otherwise be the case given how high the awareness is of how difficult the … and … and intransigent the problems are that he faces. None of which will he be seen as responsible for. At least for a couple of years. So I think he's got a huge opportunity and I think he's shown himself extremely well thus far. So I'm … I'm … I'm really optimistic about it. And let's face it, Mr. Flaherty and Mr. Harper can do what they want in the budget but what … what the Obama administration does for the economy in the United States is going to have a lot more effect here in Canada I'm afraid than what we do in our own budget on the 27th of January. So we've got a big stake in his success. And even if he never mentions the word 'Canada', if he gets the U.S. economy back on track, that will be good for us in … in many, many ways. In terms of managing the relationship, where … we don't do well when we're you know, you know buzzing around the ear of the United States and … and you know, becoming a … a problem rather than a solution. We do well when we … when we are seen to be relevant in the big issues that the U.S. is engaged in internationally. And then we make progress on the bilateral issues and I think it's going to be very important for the Canadian government to identify the places where we are part of the solution so that we can build capital to spend on some of the bilateral issues, including trade irritants that arise inevitably in a relationship.

JODI WHITE: I agree with that totally in terms of the positive side of it. (Excuse me, sorry). And I really think that one of the things that has to happen is we have to rebuild all of the institutional links. I mean I don't think they have been used in the last while between Ottawa and Washington. I think the possibility of maybe having annual visits with the President somewhere would be so important to us. It's happened in the past, they were … it was an enormously valuable tool for us to have a conversation to do exactly what John's talking about which was to engage on other issues as well and to bring some thoughtful views to the table. But to also be there with our own issues and trying to tackle them. You know, the border being one of the huge ones that we've really got to … to look at very quickly with the new administration. But I think for institution building between the two … for the relationship, is going to be an important part of what we try to do early on.

EDWARD GREENSPON: I want to come back to a couple of points. Let me … let me, particularly John and Jodi for one moment because you've both sat in rooms with … with leaders of countries and foreign ministers of countries talking to each other. When President Obama comes and visits Prime Minister Harper, what will that be like? I mean will they talk politics? Will they talk hockey? Will they just talk about public policy issues that have been laid out by their … by their public servants? What sort of atmosphere occurs in those … in those conversations? John?

JOHN MANLEY: Well, it … usually there is a personal relationship that develops and it's always different with, you know, based on the individuals. And you know certainly I … in my experience seeing Prime Minister Chrétien with Bill Clinton and seeing him with George W. Bush were quite different. And he built a very strong personal relationship with President Clinton to the extent that you know if there were major, you know, summit coming up, Clinton might call Chrétien to get his advice on how to handle a particular situation. There's that kind of … of familiarity and they played golf together and they joked together and they visited privately together and they had that kind of relationship. It was a … it was … it was … I thought for the most part, at least in the bilaterals, very proper between Mr. Chrétien and Mr. Bush but it … it lacked that kind of personal warmth. And some of that is just plain chemistry. So can Stephen Harper get that kind of chemistry with … with Barack Obama? That remains to be seen. There's … there's institutionally a well of goodwill. And we do have our efforts in Afghanistan which will be well noted by the President. But can they … can they click at some kind of a new personal level? That remains to be seen. By the way you know Mr. Mulroney had that … had that knack with the Presidents that he dealt with at least with President Bush Sr. and with President Reagan.

EDWARD GREENSPON: Well Jodi, does the Prime Minister work very hard to develop that knack? I mean do they … do they study having a knack?

JODI WHITE: Well, you certainly hope they do and that is an important part of it to try to find that chemistry and see if it can work and I certainly agree with John. I think that the Afghanistan card is the one that they will play at this side to try to you know, show our importance. And you know it has been mentioned many times. You know, President Obama looks like he's got the charisma card in his hands. And that's fine. And I think Prime Minister Harper will work very hard. And … but in a serious way because he's a very serious guy, of trying to get a conversation going and using as I say, Afghanistan and then trying to build from there on some mutual interests where they know they can agree. So yeah, I think the planning for a meeting like is that you are absolutely trying to build in some chemistry so that you can deal with some of the other things and whether they, you know, use hockey a little bit or anything, you know they'll figure out their way of doing it with both briefings from our Embassy and briefings from people that they know in terms of the connection with President Obama.

EDWARD GREENSPON: Doug — we've heard John Manley confess to irrational exuberance here, vis-à-vis Obama. And indeed there seems to be some kind of you know, crazy euphoria going on here which perhaps you share. But … but I'm going to ask you to play the skeptic here for a minute in any case. The new President no doubt, one of his asks will be about Afghanistan.

DOUG McARTHUR: That's right.

EDWARD GREENSPON: Also, his number one job in this recession no doubt is to protect particularly where he's coming from politically, to protect U.S. jobs which might be harmful. So do we have cause to be worried then?

DOUG McARTHUR: I think we have reasons not to be overly optimistic at least. I think and how those things work out, at least with the Afghanistan situation, he's going to be looking for Canada to signal a change in his position I'm almost certain. And Canada has to be really careful here. I mean if … if and I believe we should not extend the military mission beyond the expiry date — then I think Canada should be very clear about this straight off the bat. And there's always a tendency … politicians are … are like human beings, the new person's around, he's got a high profile, they want him … they're going to want to make him feel good about them. So there's going to be a tendency to be perhaps a bit ambiguous about this and leave it open and then perhaps disappointment down the road. So because we don't follow that expectation so I think that it's going to be … need to be very careful in how we respond and not create the sense of a happy joyous joining arms and going forward, but being very clear. Similarly I think with respect to trade … trade irritants and so on, Obama's going to be pushing back on us on these things and he's going to be eyeing up Canada expecting Canada to, as we've always pretty much done, be willing to give way to the United States on these issues because of the political demands and pressures. And Obama's going to make this case. He's going to say — Look, I've got these industries that are in trouble, they're … politically their representatives are very much opposed to your products coming into Canada whether it be wheat or forestry or whatever. And so I'm … you're going to have to give me room here. I'm not going to be able to help you out. And again, Canada I think the tendency to say — okay, we understand. That's okay. And try to make … keep this happy joined in arms together relationship. I don't think that's the right way to start this. I think … I hope it will be an honest meeting and a tough meeting for Canada is very clear about its interests and its positions.

EDWARD GREENSPON: Okay. Let's go back to the economy for a moment where we spend a lot of time for obvious reasons and we are thirteen days away from a budget so Obama will come in and the Canadian government will follow shortly thereafter with a budget. We see today that the Parliamentary Budget Officer is concerned that deficits are going to last for quite a bit of time. Persist for at least half a decade he's saying. Is that something that worries you guys? John, why don't you start?

JOHN MANLEY: Well it doesn't worry me provided when we begin to see the economy recover that we have a plan to get out of the deficit and you know, having gone through that in '95 it's not … it's not that easy. Also I don't know from the reports that I've seen of the Parliamentary Budget Officer's prediction what he's basing it on. Is it … is it strictly that he's … the expected increase in spending, or more likely has a lot to do with the degree to which revenues will fall?

EDWARD GREENSPON: I think that's right.

JOHN MANLEY: And I think that that … you know I mean that's one of the reasons balancing the budget was so important to get our finances in a condition where when the inevitable downturn did come, the country was not totally in hock and could absorb a few years of deficit spending. It should not be seen as something that, you know, is it against our religion. I think it should be seen as something that's quite pragmatic but that creates an onus in the good years to be putting something away. So, I'm not worried as long as we develop a plan to get out of it in a reasonable period of time when the economy recovers.

EDWARD GREENSPON: Is … Jodi is that … is that a problem for government that we now have this new position, the Parliamentary Budget Officer and there's, you know just a lot of different voices expressing different views?

JODI WHITE: It's a very interesting dynamic in Ottawa right now with that position and it's caused a lot of consternation frankly even by the government that created it. I mean as you know it is really based on the Congressional model in the United States. And I think there's a little bit of a problem in that. And now that they've put this person in place, he is in fact part of the Library of Parliament and so therefore really a research kind of operation. But there is also a certain amount of freedom for him as an agent of Parliament to do some things. And I think, I'm not sure it was foreseen by those who created it, that he was going to be out there. I mean he for one thing depends on a lot of information out of the Department of Finance. But the Department of Finance itself does not put out and so that's where he gets most of his information, and is allowed to. And so there is some confusion frankly. I think, I mean he was really there to provide help to Parliament, to deal with things like estimates and to make sure that they were understanding and asking, you know having somebody to help in terms of developing their economic expertise on investigating various things within the government. Probably a good idea, but there is, it is swirling around a little bit in truth in Ottawa right now as o whether this is a role that was appropriate and as he being out there now speaking independently like this — I'm not too sure what the government intends …. The signals are it's not going to do anything about it. I think originally the Speakers of the two Houses were concerned and were a little confused about the role. So it's an interest … it's just an interesting concept. As I say, it was a Congressional concept brought into a Parliamentary system. I'm not … and perhaps this is an example where in fact not sure if it's working or not. But on the other hand, having a story with that much information about projected deficits which, as I say, the Department of Finance isn't going to put out — is interesting for all of us. And perhaps better for government.

EDWARD GREENSPON: I feel like I have an interest here to declare but the more information that comes out, the better.

JODI WHITE: Yeah well and that was the point to the appointment, but...

DOUG McARTHUR: I mean I think it's unequivocally a good thing. We … we haven't had in Canada an independent body dealing with budgetary matters. And we've had governments increasingly over the past hundred years manipulating the budget reports We've had over … understating of … of surpluses for a period of time. Then we had leading up to this situation, the understating the degree of the expected problem. Governments used to be you could pretty much count on the … on the budget, the financial statements, to be straight up. We haven't been getting that lately so I think this is a good thing. It's independent, it's truly independent, it's not part of any of these Think Tanks that have special interests and so we're getting information that we should. And I think we'll keep the government more honest if you like or more … and stating more clearly what the situation is as they become more familiar with this. I just wanted to make one comment about what's in this report. And one of the alarming things that I saw is that he's predicted and I'm sure he's used very high quality, very sophisticated models … he's predicted … one of the reasons we're going to have this ongoing deficit is we're going to have a gap in utilization of our capacity in the economy. There's going to be a large gap in the level of operation or utilization of economy over quite a period of time. And all of this points to again that we have a problem and I worry about, and I see this in comments that are made and so on. You know, this comment that we shouldn't be too anxious to respond, the problem will probably sort itself out. Doing something about it could create more problems than it can solve. You know demand … This kind of gap in … in the capital utilization calls for effective government policy to … with respect to demand management and again, I think we're being very timid on this and that's going to … to … and I think he's protecting … projecting that. Again, we could do better on a policy sense to address the problems that he's identified.

EDWARD GREENSPON: As we begin to wrap up here let me just take it into one other direction which is, you know, the consequences of, you know, you begin to see the damage from the … from the economy and we see two instances of damage I guess this week. One the bankruptcy of … of Nortel. And the other Doug and I want to start with you because you're closest to it, which is the difficulties Vancouver's having with … with building the village for the Olympics. And I'm wondering — how serious a matter is that both for the Olympics and also for the … for the financial position of the Vancouver and British Columbia governments?

DOUG McARTHUR: Well, I think first of all, this is … this is a result of the first problems we began to see in the economy and that is with respect to credit. And the freezing up of credit. The … the hedge fund that was financing this and undertaken to finance this has not been able to come through with the amount of lending that was required to complete this project. And so now the City is coming … stepping in and taking responsibility and taking responsibility in a very big way. Eight hundred million dollars perhaps in total they're already talking about going out and borrowing four hundred million dollars against a housing project that now most people agree can never recover the costs that were involved in … involved in developing this. So we've got the credit problem coming right back home here into Vancouver where many people thought we were perhaps going to be more recession-proof. The City's taken the responsibility, they've made a number of mistakes. I mean, why they took on the responsibility back in June '07 in the initial responsibility, why they keep wrapping themselves in this problem rather than making a decision to … to force responsibility onto other larger governments who can afford it, is an open question. But it's not a threat to the Olympics. One way or another as Olympics always do, somebody's going to pay for them taking place. I think City taxpayers think they're going to be the ones that are going to be paying for this and they're not very happy about it. And it's going to … already Vancouver's — just yesterday Vancouver's debt rating which was very high, Standard and Poor's has dropped. This is going to be not only a controversy but it's going to put a real squeeze in Vancouver's ability to deliver its services. The story is not going to be good for Vancouver and it's all going to be to pay for an Olympics which was, again, promised to cost us nothing.

EDWARD GREENSPON: John — is this just a tip of an iceberg, emblematic of what we'll see a lot more of in one form or another?

JOHN MANLEY: Well I … you know I think that's right. I think we're … we're still at the early stage of the economic of consequences of the credit and financial problems that started in 2007 and so I think there's a pretty strong consensus around one thing and that's that 2009 is not going to be a great year for … for the global economy. And so lots of these effects will be seen.

EDWARD GREENSPON: And Jodi, let me finish up with you then. Are you a Nortel shareholder?

JODI WHITE: No, I was I suppose but I'm not now.

EDWARD GREENSPON: You can't have lived in Ottawa and not have been a Nortel shareholder.

JODI WHITE: That's right.

EDWARD GREENSPON: Is this … I mean this is I guess a denouement of a long, long declining story. Is this a Canadian tragedy?

JODI WHITE: Yeah actually I would use the term tragedy. I do think it is and you know there was … there's no doubt that there were some greedy people doing illegal things frankly. And I think it's all unfortunate because it was a wonderful company and whether they can restructure now I don't know. But I think a lot of the problems they have to look in the mirror frankly in terms of that company from what I know. And whether or not … also it's interesting in terms of tying it a little bit into securities regulation and compliance and enforcement. And you know, one of the issues with that debate that's going on right now is that our reputation on enforcement is very poor in Canada. And there's a number of examples of that. And you know there's no doubt some of these issues ended up being securities issues for … for Nortel and it's an interesting tie-in in terms of the enforcement of when they knew that things were happening that obviously should not have been happening which were trying to drive up the stock price.

EDWARD GREENSPON: Okay, well next week, Tuesday — swearing-in of the new President of the United States. You're all busy people. Are you going to take time out of your schedules and make sure you watch that?

JODI WHITE: Oh sure, I am.


DOUG McARTHUR: Well, I think I'll get good coverage of it on the evening … evening news and evening reports. I probably won't get a chance during the day.

EDWARD GREENSPON: And on and on next day's Globe and Mail of course you meant to say?

DOUG McARTHUR. Exactly, exactly.

EDWARD GREENSPON: Thank you Doug. Thank you Doug. John? Are you going to the inauguration?

JOHN MANLEY: No I'm … first of all I'm not on anyone's invitation list but secondly this I think is up there with things like Formula One racing and golf tournaments where you can actually see it much better on television than you ever could in person.

EDWARD GREENSPON: And you will be watching it on television?


EDWARD GREENSPON: I mean to me it's sort has the feel of the moon landing. I mean it's just something I feel you know, compelled to watch, so I'm sure many people will. I will see if it breaks Super Bowl and other records for television of viewership. I bet it will. Alright, well I'll see you guys watching it on television as well next week and on the news later. And we'll have a chance to talk about it I hope. So 'till the next time — thank you kindly for all your help this morning.

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