Why not separate from ROC ?
The answer, as usual, is a money problem.
Introduction
Most thinking people will agree that we need to change and improve the existing political system in BC. Ottawa has relentlessly forced its control system on BC, but we have two choices for fundamental change. Either to separate from ROC (the rest of Canada), or to re-federate (to change the rules of the old confederation). A refederating of the provinces will prevent separation.
The way that international investors think and act seems to indicate that, of the two choices, only refederation will be viable. The money question is probably the strongest argument against any province separating from the present Canadian confederation. By “money question” is meant fiscal arrangements, not the monetary problem.
Reuven Brenner lectures at McGill’s Faculty of Management and has written a brief but powerful paper pointing out that international creditors will have the last word on the movement towards Quebec separation. His “FINANCIAL OPTIONS FOR A COUNTRY WANTING A DIVORCE” applies to BC and other provinces as well as to Quebec. In it Reuven Brenner presents the cold hard facts of government finance. After reading it, even dedicated BC separatists will wonder if the financial cost to their new nation of BC would be worth it.
Like it or not, separatists have to accept that international investors control the terms of the credit needed by the new BC, and the interest rates to be paid. Exchanging dependency on Ottawa for dependency on foreign investors is no improvement for British Columbians.
On the other hand, a RE-FEDERATING of Canada avoids both of the currency and the fiscal quicksands associated with separation. A new set of rules for the existing confederation can be forced on the central government by a province or provinces. Such a re-federating will place most decision making powers in the provincial capitals. The enormous Ottawa bureaucracy will be stripped down to size.
Here is a Summary of Reuven Brenner’s paper (the full text follows at the end and is more convincing than this mere summary).
Probably the most important question in a secession is how the departing province would assume responsibility for its share of Canada’s public debt. In BC’s case there are two possibilities:
- Either, the province can convince Canada’s creditors to release Canada from the province’s share of the debt, and to accept instead bonds issued by the new nation of BC.
- Or, BC issues bonds and deposits them with Canada. The Canadian government then continues to bear the responsibility for payments to creditors.
The first option
Reuven Brenner argues that the first option is not viable unless both Canada and the new BC switch to a policy of lower taxes, less regulation, the cutting of services to citizens, and more privatization. If these policies are not adopted creditors will not be willing to release Canada from its financial obligations and transfer those obligations to the new nation, unless a much higher interest rate is paid and other conditions are met. One of those other conditions would require Canada to retain fiscal powers in the new BC until the outstanding shared debt is paid in full. Creditors may force these conditions on BC and ROC in the event of separation. Thus the issue is not “sovereignty”, whatever that term means, but continuing creditworthiness. A country may declare itself sovereign. But without access to credit sovereignty becomes an illusion, and a costly illusion. The new paper of the young nation of BC would be backed by Victoria’s right and ability to tax. Ottawa would give up the right to tax British Columbians and that right would be transferred to Victoria. Acceptance of this arrangement by creditors depends on whether it results in greater credibility of fulfilling financial obligations. The terms of future credit for BC may worsen. The BC government will have to cut spending in order to service the higher debt. The ensuing disruption in government programs would also extend to the private sector which supplies government.
An even closer look at the financial mechanics of outright separation reinforces the belief that it is not a viable option.
The second option
With the second option Canada’s public debt would remain the obligation of Canada. The new nation of BC would promise to remit to Canada the funds to pay the interest and capital on BC’s negotiated share of the debt. Will ROC and its creditors consider such a promise reliable ? What happens if BC cannot remit the funds on time ? If BC was unable to convince lenders of its ability to service the debt under today’s conditions (that is, the first option) why would ROC accept that same risk ? Guarantees against default written into the new BC constitution and into its legislation are only words. Creditors care about changes in cash flows, not changes in words.
The creditworthiness of ROC would depend on BC. If BC could not or would not pay, ROC would have to default on its loans. Protection for ROC against such a default could only be arranged if ROC retained control over the fiscal policies of the new BC until the debt is paid off. So now if, in addition to sharing currency and being partners in the same international trade agreements, ROC and BC also share fiscal responsibilities, then the new BC’s sovereignty is meaningless. This is why RefedBC does not advocate separation.
In conclusion
In the summary of Reuven Brenner’s paper, foreign creditors advise would-be separatists to put their fiscal house in order first. The recommendation of the international investors’ for achieving this is:
- “for government in ROC and BC to de-centralize - to relinquish powers to levels more accessible to and responsive to regional concern.”
The BC Refederation Party has written concrete and lawful plans to do exactly that. A comprehensive plan to devolve power to provincial governments is a main objective of the party, and that is what makes the party unique in BC politics. Seriously consider joining us. The party’s drive to initiate a re-federating of Canada now seems to have backing from hardheaded international lenders who will have the last word anyhow.
Ottawa is the problem. Refederation is the answer.