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Howard Anglin and Ray Pennings: Canada is careening towards a constitutional crisis in the Senate

Commentary

The Senate is currently debating a motion based on the latest of 13 reports from a special committee on modernization that was struck six years ago. The Senate’s rules still presume a traditional adversarial structure with a government caucus and an opposition, but that is increasingly challenging in a 105-seat chamber that now includes an official government representative, 13 members of an official opposition caucus, with the rest divided between independents and three loose parliamentary “groups.” 

Senator Marc Gold is the government representative in the Senate. His job includes getting the government’s legislative agenda passed and answering questions on behalf of the government in the Senate. Senator Gold isn’t officially even a Liberal (although he is a member of the Liberal government’s Cabinet operations committee.) He describes his relationship to the government as similar to that of a lawyer to a client.  

The Conservatives don’t buy it. They view Senator Gold as a Trudeau puppet as they do most of the other eighty-one “independent” senators appointed by Prime Minister Trudeau. An objective analysis suggests they have a point. Without casting aspersions on the integrity of any senator, Trudeau’s appointments are not a representative cross-section of “independent” Canadian political perspectives. There is a relatively cohesive ideological conformity that is mostly aligned with the current Liberal Party. 

So far, there has not been any reason to question these new senators’ genuine commitment to public service, which has included a general sensitivity about an unelected Senate impeding the will of the elected House of Commons. But restraint is much easier when the Senate is politically inclined toward the government. What happens when legislation from a future Conservative government runs into a Senator’s strong ideological commitments? Is there an expectation that senators with deeply held convictions will pass legislation they believe is wrong? Will a senator committed to fighting climate change by any means just go along with a bill repealing the federal carbon tax?

Senate shenanigans impeding legislation have occurred before over issues that were more pragmatic than reflective of deeply held convictions. Recall 1990, when then-Opposition Leader Jean Chretien mused that his senators were considering “killing” Brian Mulroney’s proposed GST bill in the Senate. The issue was sidestepped through a rare constitutional provision, by which Mulroney was able to appoint eight additional senators and the bill cleared the Senate by just two votes. The decision of the next Liberal government to retain the GST proved the senators’ concern was more political than principled.  

There will always be a temptation to politicize the Senate’s constitutional powers, but the partisan system that prevailed before Justin Trudeau began appointing “independent” senators checked that temptation. It meant that if a party’s senators blocked legislation that had been approved by the elected majority in the House of Commons, there could be political consequences for the party’s brand in the next general election. The new “independent” model has removed the indirect accountability that might discourage such an abuse of the Senate’s power.  

Because some of the new “independent” senators may believe that they were appointed on the basis of their individual merits, they may be emboldened—or even expected—to exercise their newfound political power to thwart the democratically elected House of Commons in a way that partisan appointees did not. If that is how they come to feel and act, there is nothing a future government can do about it. A 2014 Supreme Court opinion said that even something as relatively minor as imposing Senate term limits would require broad federal-provincial agreement, which means new constitutional limits on the Senate’s powers that are all but impossible. As a result, Senate reform has mostly vanished from the federal agenda.

Except that while no one was paying much attention, Senate reform has happened.

The consequence of eliminating the Westminster structure of government and opposition caucuses in the Senate while leaving its constitutional powers intact may prove more consequential than many of the previously debated Senate reforms. The idea of the Senate as a regional and partisan chamber of “sober second thought” has been functionally replaced with the idea of the Senate as a political check on the House of Commons. And under a new Conservative government, a Liberal-appointed Senate majority could also become an ideological check on the government’s agenda. If so, Prime Minister Trudeau will have achieved more by fiat than his predecessors ever attempted through constitutional reform. 

The old Senate model worked because partisan appointees saw themselves as secondary legislative players to the elected House of Commons and they brought that attitude to the scrutiny of legislation, even—or especially—legislation they disagreed with. Senators reviewed and suggested revisions to legislation, tested policy evidence at hearings, and conducted independent studies conscientiously and with integrity, but also with political modesty. The understanding was that the Senate might occasionally balk at the government’s agenda, but ultimately it would back down.  

New Brunswick Senator Joan Kingston, centre, poses for a photo with Senator Nancy J. Hartling, right, and Senator Marc Gold ahead of a swearing-in ceremony at the Senate of Canada in Ottawa, on Tuesday, Nov. 21, 2023. Spencer Colby/The Canadian Press.

There were only a handful of notable exceptions to the rule, but they stand out because they were so rare. Famously, in 1988, a Liberal majority in the Senate defeated the Conservative government’s free trade bill. In response, Mulroney dissolved Parliament and in the subsequent election he received a strong electoral mandate for free trade with the United States. His newly-elected government reintroduced the bill and this time the Senate stood down and passed it. 

Would a Senate dominated by a relatively narrow ideological perspective broadly aligned with the previous government and untethered from public opinion be so acquiescent? Unshackled from formal partisan affiliation, will senators feel entitled to stare down elected MPs and block a government agenda they oppose? If they want to do so, they will certainly have the votes. Given that senators can serve until their 75th birthday, even if the next government wanted to rebalance the present ideologically unrepresentative makeup of the Senate, it would take the better part of a decade to do so. (Of course, seeking to achieve “ideological representativeness” by appointment is a fraught and subjective process at the best of times.)

If a majority of the Senate chose to block or severely delay a Conservative government’s legislative agenda, it would plunge the country into a constitutional crisis the likes of which we have not seen in more than a century. The fact that individual senators who “resisted” a Conservative government would likely be feted by many Laurentian elites as political heroes would only highlight the Senate’s democratic deficit and exacerbate the institutional damage. And with no realistic path to constitutional reform, we could see our politics take a dark, but not unprecedented, turn.

Given the way that the Senate’s political makeup trails democratic changes in the House, it is surprising that we have not been pushed to this constitutional precipice before, but it has happened elsewhere. In 1911, the British Liberal Party proposed a radical program of new taxes to fund social programs known as the “People’s Budget.” In a clear breach of constitutional convention, the House of Lords—whose members, incidentally, stood to lose the most financially—voted it down, triggering a constitutional crisis. 

As in Canada in 1988, it took an election in which the country at large broadly endorsed the Liberals’ budget to force the Lords to blink. Even then, it required the additional threat by the government (with the backing of the King) to appoint dozens of new peers to swamp the existing majority in the Lords—an option not available to a Canadian prime minister, who can only appoint up to eight additional senators above the usual constitutional limit of 105—for the House of Lords reluctantly to back down.

To avoid a future showdown with the Lords, the government introduced and passed the Parliament Act 1911, which provided that henceforth the unelected Lords could delay, but not block outright, the passage of legislation.The initial two-year delay period was later shortened to one year pursuant to the Parliament Act 1949. This legal restriction was later supplemented by a new constitutional convention to reinforce the principle of democratic control of parliament. Known as the Salisbury-Addison Convention,After the leaders, respectively, of the Labour and Conservative parties in the Lords at the time. it provides that the House of Lords will quickly pass legislation that was specifically mentioned in the government’s election manifesto (platform).

Both measures would be wise additions to the Canadian constitutional order, regardless of how the Senate responds to the next Conservative government, but we hope that neither will be necessary. A constitutional crisis precipitated by overweening Senators attempting to stymie an elected government’s legislative agenda would be a disaster for the Senate and the country. Canadian politics would grind to the kind of impasse that is only broken by the kind of extraordinary force whose political and social repercussions are unpredictable. 

Throughout Canadian history, the Senate’s constitutional legitimacy has depended on its members’ political restraint. Our Senate functions best when its members work diligently and conscientiously, but always with a nagging awareness of their democratic illegitimacy. They may oppose the government vocally, but not politically. They may push back occasionally, as long as they yield in the end. Should the Senate face a Conservative government with an ambitious legislative agenda after the next election, all Senators would be wise to remember that. 

DeepDive: Canada’s natural resources are a long-neglected ‘golden goose.’ It’s time to change that

Commentary

DeepDives is a bi-weekly essay series exploring key issues related to the economy. The goal of the series is to provide Hub readers with original analysis of the economic trends and ideas that are shaping this high stakes moment for Canadian productivity, prosperity, and economic wellbeing. The series features the writing of leading academics, area experts and policy practitioners. The DeepDives series is made possible thanks to the ongoing support of Centre for Civic Engagement.

It’s increasingly recognized in policy and political circles that one of the biggest challenges facing the country is economic stagnation and declining living standards. This has led policy scholars to try to understand the causes and sources of Canada’s economic malaise. 

New research by Macdonald-Laurier Institute fellow Heather Exner-Pirot points to challenges in Canada’s natural resource sector as a “smoking gun.” Her basic insight is that a combination of economic forces and policy-induced harms have undermined what her colleagues Philip Cross and Jack Mintz have characterized as the country’s “golden goose” and that this has significant explanatory power for the overall decline in business investment, productivity, and economic activity. 

The purpose of this DeepDive is to test that hypothesis. It aims to understand the economic importance of Canada’s natural resource sector and the extent to which the headwinds that it has faced over the past several years have contributed to the country’s “lost decade.” 

As part of this analysis, we also examine the factors—including the role of government policy—that have impeded the natural resource sector’s ability to contribute to more economic growth and higher living standards for Canadians.  

Canada’s natural resource endowment

Canadian economic history is replete with an understanding of the disproportionate role of our natural resource endowment. From the fur trade to the “staples thesis,” scholars have put natural resources at the centre of their conception of Canada’s political economy. 

Not everyone of course has viewed the outsized role of natural resources in favourable terms. The notion of “hewers of wood and drawers of water” is often characterized as a sign of failure. It represents a squandered opportunity on the part of Canada to transition to what are sometimes perceived as higher-value sectors. One can find plenty of evidence of policy scholars and political actors lamenting Canada’s so-called “resource curse.”

In 2016, Prime Minister Justin Trudeau, for instance, told the World Economic Forum: “My predecessor wanted you to know Canada for its resources. Well, I want you to know Canadians for our resourcefulness.” 

Cardus Institute scholar Brian Dijkema has challenged this line of thinking as misguided and harmful to Canada’s economic interests. As he and a co-author have written

We need to stop thinking that being “hewers of wood and drawers of water” is something to be self-conscious about and start seeing it as the source of Canada’s global advantage. In fact, hewing wood and drawing water has…helped to turn Canada into a land flowing with milk and honey that continues to attract people from all over the world.

Dijkema’s characterization is backed up by the data. Across a number of key economic metrics—  including economic activity, employment, income, investment, productivity, and exports—Canada’s natural resources are a huge economic asset. 

The challenges that the sector has faced over the past several years—including as a result of specific government policies—are a key contributor to Canada’s overall economic malaise. The inverse therefore is also true: boosting our natural resourcesThe definition of natural resources used throughout the DeepDive follows recent work by Cross and Mintz, unless otherwise specified. That is to say, the natural resource sector constitutes agriculture, forestry, fishing, mining, utilities, pipelines, and manufacturers using natural resources for at least 17 percent or more of all inputs. This definition is quite expansive and at points the DeepDive zooms in on certain critical components of the natural resource definition. could have positive economy-wide effects. 

The economic benefits of natural resources
Economic activity 

The natural resource sector is a major driver of Canada’s economic activity. In 2019, according to estimates by Cross and Mintz, natural resources accounted for 14.9 percent of Canada’s gross domestic product. This percentage has fallen in recent years, after peaking in 2008 at 19.5 percent, when the commodity cycle crashed in 2014-15. 

Using the 2019 estimates, the oil and gas subsector was the largest overall contributor to the natural resource sector’s economic output, accounting for 28 percent of the sector’s total economic contribution. Mining accounted for roughly 10 percent of the natural resource sector’s output, with agriculture, forestry, and fishing adding another 12 percent. The remainder of the sector’s economic contributions are derived from utilities, resource-intensive manufacturing, and pipeline transport. 

Overall, what is clear is that notwithstanding the 2014-15 drop in commodity prices and the harms to the sector from government policy, natural resource development continues to be a major source of economic output in Canada. 

Employment

When considering the sector’s employment impact, we use a slightly truncated definition of natural resources to utilize an existing Statistics Canada dataset that better allows for inter-provincial comparisons.

Overall, in 2021, natural resources employment totaled almost 920,000 jobs, or about 5.6 percent of total Canadian employment. Canada’s four largest provinces account for 86.5 percent of employment in the natural resource sector. Ontario leads the way with over 280,000 jobs, followed by Quebec with almost 200,000, Alberta with almost 190,000, and BC with almost 120,000. 

Not only is the natural resource sector a major source of total employment, but the distribution of its employment is highly advantageous too. The geographical distribution of natural resource jobs diverges from the concentration of employment in a small number of major Canadian cities. In fact, a 2021 Natural Resources Canada report found that in more than 1,800 rural and remote communities across Canada, most of which have populations of 10,000 or less, an average of 30 percent of jobs in those communities were dependent on the natural resource sector. 

Mineral deposits, managed forests, and oil and gas reservoirs are dispersed across the country and generally located near rural and remote communities. Take the oil and gas sector for instance. It is present in Newfoundland, southwestern Ontario, Alberta, and Saskatchewan, as well as potentially in the Arctic. This provides well-compensated employment opportunities for those who want to remain in or closer to their own communities. 

Natural resources also employ people across the skills distribution, including large numbers without post-secondary credentials. In fact, more than 40 percent of those employed in the sector in 2021 had a high school diploma or less. 

As other parts of the economy have gone through a process of “job polarization” in which demand for mid-skilled workers has fallen significantly, the natural resource sector has protected Canada from middle-class erosion experienced elsewhere. Its sustained labour demand for well-paid upstream oil and gas roughnecks, forest managers, and mining technicians working in the field and midstream locations has been identified by University of British Columbia economist Kevin Milligan as responsible for “sustaining Canada’s middle class.”

Incomes

Incomes are higher in the natural resource sector than most other parts of the economy. The average gross weekly pay in the mining and oil and gas sectors has been consistently the highest in Canada since 2007. As seen in Figure 1, the average weekly salary of $2,302.94 is double that of the average service worker ($1,145.63) and is even more than the average in professional services, finance, or health care. 

Source: Statistics Canada Table 14-10-0204-01. Graphic credit: Janice Nelson.

The natural resource sector’s wage premium has been especially beneficial to Indigenous Canadians. Indigenous workers in the mining and oil gas sectors have the highest median income of their peers by more than double ($99,000 versus $41,000). 

According to the Indigenous Resource Network, the Indigenous workforce in forestry, mining, and oil and gas is higher than its overall share of the population and quite a bit higher than the percentage in the federal government (see Figure 2). 

Source: https://www.newswire.ca/news-releases/resource-sector-provides-highest-paying-jobs-for-indigenous-workers-in-canada-846492054.html. Graphic credit: Janice Nelson.
Investment 

Natural resources also dominate Canadian overall business investment. In 2023, capital investments in the natural resources sector were estimated to amount to $109.0 billion or 43.6 percent of all business investment in tangible assets such as structures, machinery, and equipment. At the height of the commodity cycle that coincided with a large upswing in the sector’s capital expenditures, natural resources accounted for as high as nearly 60 percent of all business investment in 2014. 

As of 2023, energy accounted for over 60 percent of the sector’s total business investment, down from 80 percent in 2014. While energy’s share of sector business investment may be falling, investment has continued to rise in mining and utilities, as those subsectors expand their capital outlays to keep up with heightened demand from growing electrification efforts.

Productivity 

Although Canada is in the midst of a productivity crisis in overall terms, the natural resource sector is something of an outlier. Mining and oil and gas extraction, as well as utilities, are some of Canada’s most productive industries, measured as real output per hour worked. Using data from Statistics Canada, figure 3 shows that labour productivity in the mining and oil and gas extraction sectors is more than three times greater than the all-industry average and almost three-and-a-half times greater than the government sector. 

Source:  Statistics Canada Table 36-10-0480-01. Graphic credit: Janice Nelson.
Exports

Energy products alone are Canada’s most lucrative export sector, outearning every other subsector,  including, for instance, commercial services and motor vehicles (see Figure 4). Added together with mining and forestry, these three natural resource subsectors have made up about 30 percent of total exports since 2017. They are critical building blocks of a stable Canadian economy. Additionally, they offer a unique geographic-based value proposition because they cannot be outsourced to other countries. The resources and the operations to extract them must be located in Canada because the deposits are here. In an increasingly globalized world, this is a true advantage to building a strong domestic economy.

Source: Statistics Canada Table: 12-10-0161-01. Graphic credit: Janice Nelson.

The key takeaway here is that across a number of key economic metrics—including economic activity, employment, income, investment, productivity, and exports—the natural resource sector is a huge economic asset. Even as it has faced headwinds (discussed below in more detail) it has generally outperformed other parts of the economy. It stands to reason, therefore,that if Canada has a more hospitable policy environment for natural resources, then they can play a key role in boosting overall economic output. 

Challenges facing the natural resources sector

If the natural resource sector is the main engine of the Canadian economy, it has not been firing on all cylinders. Since 2015, for instance, natural resource exports have actually shrunk in real terms (see Figure 5). Oil and gas exports have decreased by as much as 13 percent. Mining and forestry exports shrunk by 5 percent and 2 percent respectively. 

Source: Statistics Canada Table: 12-10-0161-01. Graphic credit: Janice Nelson.

Similarly, while the sector remains a major source of business investment, it has experienced a decline itself over the past several years. As Tyler Meredith, a former adviser to Prime Minister Trudeau, noted in a previous Hub essay, resource investment actually fell between 2014 and 2022 by as much as $52 billion. Today annual investment in mining and oil and gas is about half the level that it was during the Harper government. 

One way to understand these developments is to compare the value of major resource projects planned or underway in Canada since the Trudeau government was first elected. According to the government’s own Major Project Inventory, in 2015, the total projected value of Canada’s next decade of resource projects was $712 billion. As of 2023, it stands nominally at $572 billion, representing a drop of $150 billion (see Figure 6). In real terms, it amounts to a decline from $712 billion to $454 billion—or $258 billion in eight years. 

Source: Major Project Inventory Reports 2015-2023. Graphic credit: Janice Nelson.

The trend is similar when one examines the number of canceled projects. As Figure 7 shows, since 2015, Canada has seen nearly $670 billion in natural resources projects suspended or canceled. If even 21 percent of the value of these failed projects had been realized, the nominal investment loss would have been eliminated. 

Source: Major Project Inventory Reports 2015-2023. Graphic credit: Janice Nelson.

It prompts the question: what is happening? 

Economic factors—namely the commodity downturn in 2014-15—are a big part of the story. Research by the Bank of Canada finds that the decline in oil prices that began in 2014 and persisted until 2022 had significant effects on the sector and the economy as a whole. There is no doubt for instance that it had a negative effect on resource investment and employment. 

But it would be wrong to assume that the challenges facing the sector have been limited to exogenous factors. Government policy has played a role too. 

As Exner-Pirot outlines, the Trudeau government has enacted a series of policies that have harmed the investment climate for resource projects. These include: The Impact Assessment Act, which further inserted the federal government into resource project approvals, the oil tanker moratorium, the moratorium on offshore Arctic oil and gas licensing, industrial carbon pricing, the UNDRIP Action Plan, rejection of the Northern Gateway pipeline, methane regulations, Clean Fuel Regulations, the proposed Clean Electricity Standard, and now the proposed emissions cap for the oil and gas sector. 

Evidence from the Fraser Institute’s latest survey of energy sector executives indicates that these policies have had a deleterious effect on the investment climate by raising costs and contributing to policy uncertainty. 

The emissions cap is a good example. This is a policy that specifically targets Canada’s biggest source of exports with greater regulatory stringency than any other part of the economy. Separate analysis by Public Policy Forum fellow Don Wright and University of Calgary economist Trevor Tombe finds that such a policy will come with significant economic costs—including in Tombe’s case an estimate that the costs will extend beyond the oil and gas-producing provinces.  

Key takeaways

The evidence is rather clear that being a “hewer of wood and drawer of water” has produced positive economic outcomes for Canada. The natural resource sector—including forestry, mining, and oil and gas—is a major source of employment, investment, and economic output. It is also more productive than other parts of the economy and is the source of well-paying jobs for people and places that are less represented in other sectors. 

Yet notwithstanding the sector’s major contributions to Canada’s overall economy, it has faced headwinds over the past decade or so that have held it back. A major one is the end of a commodity supercycle in 2014-15 that put downward pressure on investment and employment for a near decade. The good news is that these exogenous forces have since dissipated and, as Exner Pirot highlights, we seem to be moving into a prolonged bull market for commodities. 

Canada’s ability to leverage growing global demand will require overcoming the second challenge facing the sector: harmful government policy. The past decade has witnessed a cumulative burden of regulations and other policies on our natural resources that have produced significant opportunity costs. 

At a time when policymakers are concerned with boosting economic growth and Canadian living standards, it stands to reason that one of the most impactful steps that they could take is unleashing the natural resource sector. As Exner-Pirot rightly concludes: 

Bright spots in the natural resource sector’s performance have mostly been despite, rather than because of, federal government policy. As we move into a prolonged bull market for commodities, the entreaties of the last century should be heeded. Let us celebrate and support our resource and energy sector with good, common sense policy. When we do, it can provide an incredible foundation for growth, productivity, security, and prosperity for all Canadians.