by John English
Trudeau had sensed the difficulties ahead and, as we’ve seen, even during the 1968 campaign he had told audiences that the time for new social programs had passed. Trained as an economist in the 1940s, he clung to the assumptions of that decade, popularly termed “Keynesian economics.” He was not alone in believing that the government could use taxation and public spending to regulate the economy and ensure growth and stability. In 1971 President Richard Nixon said, “We are all Keynesians now,” but alas, these suppositions, which were loosely based on Keynes’ celebrated writings during the Great Depression, did not fit the challenges Western leaders faced in the 1970s. During that decade, the postwar Bretton Woods system, with the American dollar as the reserve currency and the international financial institutions in Washington as the guarantor for Western countries in need, broke down, and dramatic changes occurred in the international economic system. The stability of the postwar years, with their steady growth, rising productivity, and low inflation, disintegrated in the later 1960s as, contrary to the economic wisdom of the time, inflation and unemployment rose together and created a decade of “stagflation.” Politicians were frustrated. Alan Greenspan, a supporter and adviser of Richard Nixon, recalls the turmoil as his “friends in Washington lurched from one remedy to another.” Unfortunately, few of those schemes worked.17
The conclusion of the Kennedy Round of trade talks in 1967 represented a watershed, as tariff barriers fell throughout the non-communist world and the first glimmerings of late-twentieth-century globalization appeared. U.S. commerce secretary Alexander Trowbridge wrote that the talks represented “a very large step toward the thing we’ve heard so much about in the postwar years: the truly one-world market.” It meant that “the American domestic market—the greatest and most lucrative market in the world—is no longer the private preserve of the American businessman”18—or the Canadian, for that matter.
This revolution ended with supply-side economics and monetarism in the 1980s, but that outcome was unanticipated by Canadian politicians in the late sixties and early seventies. The monetarists responded to the economic problems of growing unemployment and inflation with new nostrums that emphasized a decreased role for fiscal spending to maintain equilibrium in the economy and less government intervention in the economy more generally. In the long run, their policies would result in a smaller role for government, decentralized economic decision making, and free markets. When they looked south, Canadian politicians saw that the American decision to provide “guns and butter” as the Vietnam War expanded was inflationary, and they knew that the pressures on the American dollar, which was pegged to gold, were difficult to contain. Meanwhile, the European Common Market was using its single agricultural policy as the glue to bind its members together, with the result that the venerable and valuable International Wheat Agreement began to fall apart. On all fronts, Canadians saw themselves shut out from old markets such as Europe and facing fresh competition in new markets from the subsidized wheat of France and the resurgent economies of Germany and Japan.
Trudeau’s first instincts in the gathering storm were to go on the defensive. His government began to cut spending and curtail the rapid growth of the public service, a decision that surely contributed not only to the rise in unemployment but also to unrest in the public service. In 1969 a stern Trudeau defended his war against inflation: “We can only get tougher, we can’t get weaker…. I’m afraid there are a lot of people who are bargaining that the Government can’t act tough for too long because it will only get frightened if it sees unemployment go up to 6 percent. But if people think we are going to lose our nerve because of that, they should think again because we’re not.” These unwise comments and his upturned finger to the striking Lapalme truck drivers in 1970 as he told them to “eat shit” transformed Trudeau’s image for many Canadians. No longer the progressive on the Liberal left, the prime minister became the ruthless conservative on the right. The NDP vote began to swell.19
The business community applauded the cuts in spending and in the public service, but business raised its own storm when Finance Minister Edgar Benson tabled the government’s response to the Royal Commission on Taxation (the Carter Commission) on November 7, 1969. This historic report recommended “fiscal neutrality”—that all sources of income receive equal treatment—a revolutionary recommendation in a country that lacked a capital gains tax. The Benson White Paper proposed that tax burdens be shifted from the poor to the rich and that taxation promote rational investment decisions. Accountants and tax lawyers were understandably distressed to learn that the system would be simplified, but they were a small group. The most ferocious and politically troubling protests came from small business. John Bulloch, a lecturer at Toronto’s Ryerson Polytechnical Institute, read the White Paper in the bathtub and immediately decided to lead a campaign against it. His father, a tailor, ran a regular and arresting advertisement in the Globe and Mail, which reportedly had higher readership than the editorial page. Bulloch Jr. took over the ad and began an assault on the Trudeau government and its proposed taxation policies. With an attached photograph of the critical moment in the tub, he called for opponents of the tax reforms to join him in the newly organized Canadian Council for Fair Taxation.
Bulloch was irritating, but the fierce opposition of Winnipeg tax lawyer Israel “Izzy” Asper was taken much more seriously. The leader of the Manitoba Liberals, he was considered a rising star in the party. Struck down by illness, he penned an angry attack on the reforms while in hospital, entitled The Benson Iceberg. It argued that the goal of the tax paper was no less than the “reshaping of society.” The question was fundamental to Asper: “Should every Canadian be his brother’s keeper or just his helper?” The conservative Liberal raised fears that Canada would become a socialist state. Trudeau’s Cabinet became troubled. Paul Hellyer, widely regarded as a spokesman for business interests, had left the Cabinet the previous April, and commentators were beginning to remark on the weak representation of business among Trudeau’s ministers.20
Barney Danson, a highly regarded Toronto MP with excellent connections to the business community, organized a meeting between Trudeau and leading Toronto businesspeople for November 27, 1970. Three days later, he reported: “The apparent lack of understanding of the government’s stance and direction was indicative of a general bewilderment in the business community vis-à-vis its relationship with our new style of government. [The meeting] also highlighted the need for new mechanisms of communication with the business community to establish identification and understanding. There is no one person in government with whom they easily identify, or through whom they feel they have a voice.”21
In response to these criticisms, in August the following year Trudeau appointed the influential Toronto businessman Alastair Gillespie as the minister of state for science and technology. Meanwhile, the withering attacks on the tax proposals caused the bold recommendations of the Carter Commission to shrivel into a mild reform package. Benson’s seventy-page bill took over half a year to pass, in December 1971, and it would not have become law without the invocation of closure. Increasingly disillusioned with Parliament, Trudeau had not given a major House of Commons speech in a year. Nevertheless, he recognized the significance of this bill and concluded the debate on the 17th with the words: “For the first time in Canada, a government has invited the population as a whole to participate with it in the formulation of a major policy.” Unfortunately, it had not been an edifying experience for the government, and Liberal fortunes sagged that month to 37 percent—the lowest level since Trudeau had come to power.22
Although the reforms eliminated taxes for many of the working poor and introduced a capital gains tax at a rate of 50 percent, the NDP under David Lewis relentlessly attacked Benson’s bill as a sop to corporate Canada and to wealthy Canadians, who benefited from the elimination of estate taxes as well as lower marginal rates. NDP support rose on the federal level, just as its provincial bases expanded dramatically,
with election victories by Ed Schreyer in Manitoba on June 25, 1969, and by Allan Blakeney in Saskatchewan on June 30, 1971. The highly nationalist “Waffle” movement within the party, which called for the NDP to be “the parliamentary wing of a movement dedicated to fundamental social change,” shocked conservatives within and without the party, but its purge in Ontario, led by NDP leader Stephen Lewis (son of David), probably strengthened the federal party’s electoral appeal by making the elder Lewis appear less radical as he thundered eloquently against contemporary capitalism. Trudeau, the erstwhile New Democrat, was now worried about business support and inflationary pressures, though he was still committed to state action to reduce inequality and unemployment. He seemed ever more a paradox, a “collection of contradictions,” who in both the press and Parliament was “denounced variously as a playboy and an inflexible lawyer, as an overgrown hippie and a constipated constitutionalist.”
Anthony Westell argued that there had been two campaigners in 1968—one the rationalist and philosopher who urged debate and democratic participation; the other the pop star who embodied adventure, change, and even radicalism. The year 1971 featured a continuation of this paradox with, on the one hand, the wedding to the flower child Margaret, disco dancing in the clubs, and the “fuddle duddle” episode in the House of Commons and, on the other, the long nights in Victoria discussing the Constitution and the weary debate about tax reform. In policy terms, there was also a blurred image—one not un common in the Liberal Party, which had always drawn supporters of varied political tastes.23
For those on the left, Trudeau’s foreign policy offered some satisfaction. His government reduced Canada’s military presence in Europe and recognized Communist China, despite serious reservations from several allies. That country and its communist experiment had long fascinated Trudeau, who had escaped from the region during his youthful travels just as Mao’s troops were entering Beijing. Trudeau had also made a memorable visit to the country in 1960. In Canada, recognition of Communist China had become a major cause for Canadians on the left and even some on the right—notably, grain farmers in the West who had benefited enormously from John Diefenbaker’s willingness to maintain trade with “Red China.” The Globe and Mail was one of the first Western newspapers to have a correspondent in China, and one of its finest journalists, Charles Taylor, had close personal ties with leading members of the Canadian business community. In his campaign for the leadership, Trudeau promised to recognize the communist nation, and he was determined to keep that commitment, even though the Chinese demonstrated little enthusiasm for Canada’s approach.
Trudeau also encountered strong opposition to his plans from others. When he visited Australia in May 1970, the government there warned him that his decision to recognize China was unwise, given China’s “subversive” activities in the region. Nixon echoed these reservations, even though his own administration was secretly planning its own historic China initiative. Meeting in Stockholm, a neutral location where both countries had embassies, the Canadians and Chinese finally agreed, in October 1970, to exchange diplomats. After some delay, as the diplomats negotiated what paper to use for the agreement—finally settling on Swedish—the Chinese bought a former convent in Ottawa and established their presence there in February 1971.24
Trudeau also turned out to be a surprisingly effective mediator at the January 1971 Commonwealth Conference at Singapore. Members feared a possible breakup of the Commonwealth, as African nations demanded a strong stand against apartheid, and the new British Conservative government under Edward Heath insisted that it must maintain its military base at Simonstown in South Africa. Trudeau’s skepticism about the Commonwealth was well known among Canadian diplomats, but encouraged by Singapore’s Lee Kuan Yew and others, he worked out a compromise. The Commonwealth endured, and thereafter, Trudeau’s affection for the institution developed rapidly.* He and Heath established a fine relationship, and the Oxford-educated modernizer Lee Kuan Yew became a close friend.25
More controversial was Trudeau’s visit to the Soviet Union in May 1971. The newly wed prime minister justified the trip by referring to mutual Soviet and Canadian interests in the Arctic and the first buds of détente that had begun to blossom. Still, three years after Soviet tanks had entered Prague, with the Vietnam War still raging and with thousands of Canadians seeking exit visas for their relatives from the Soviet Union, Trudeau’s visit had political dangers. At his final press conference in Moscow, Trudeau carelessly spoke about the “overwhelming American presence” in Canada, a remark that Canadian ambassador to Russia Robert Ford believed was a slip but one that nevertheless “reflected a deep-seated distrust of the United States and a friendly feeling toward the Soviet Union.”26 Ford’s reaction was unfair to Trudeau because Trudeau’s attitude to both superpowers was more complex, but he did not help matters on his return when he declared: “My position in the Soviet Union or in Canada is that anyone who breaks the law in order to assert his nationalism doesn’t get much sympathy from me.”27 Canada’s Ukrainian-Canadian community and stern anti-communists such as Peter Worthington strongly denounced the prime minister, whose remarks equating Canadian and Soviet federalism were, frankly, wrong and foolish. Pravda, the Soviet newspaper, intensified feelings when it praised Trudeau’s “handshake across the pole” in an editorial that irritated Canada’s Department of External Affairs. Ford was Trudeau’s longtime friend and forgave him his flaws, but Washington was not so forgiving.28
Trudeau’s ascent on Nixon’s swelling enemies list was rapid. Although he won Nixon’s respect for his strong reaction to FLQ terrorism, the distrust of the American conservative for the northern leftist “swell” soon returned. Trudeau wrote to Nixon about his Soviet visit, and the president initially drafted a curt reply. Nixon appreciated that Trudeau had spoken “in a frank and forthright manner” and agreed that cooperation within the Atlantic alliance would be “a primary factor in building better relations with the Soviet Union on realistic and acceptable terms.” However, he stroked out a final conciliatory paragraph thanking Trudeau for his “kind invitation to Mrs. Nixon and me to visit you and Mrs. Trudeau in Ottawa later this year.” He wrote an emphatic “No” in the margin. The final version was a bit milder and indicated that he looked forward to visiting Canada. However, his mood varied. His tapes record that on July 6 he said: “About the Canadians. I would not do anything with the Canadians. That Trudeau is a son of a bitch. That’s why I cancelled that business there. I’ll never go to that country while he’s there.”29
Trudeau’s jousting with the United States began during the foreign policy and defence reviews, when the Americans indicated that they were “deeply concerned at the size of the proposed reductions in Canada’s force commitments in Europe and by the speed with which the GOC [government of Canada] plans to carry them out.” Further troubles came as the United States moved unilaterally to deal with its serious economic problems, most notably its large balance of payments deficit. In August, after a Cabinet meeting where Treasury Secretary John Connally told the president that the country was “broke,” Nixon reacted to pressure on the American dollar by announcing what the Japanese called the Nixon shokku—trade restrictions he imposed in reaction to foreign manufacturers capturing markets that had traditionally been American preserves. Although the nickname implied that the protectionist measures were directed at Japan, Canada was deeply affected, too, by the surcharge on imports. The Nixon announcement also dramatically ended the ties between the American dollar and gold, which had, in effect, been the foundation of the international economic system since the Second World War. At the last minute, the Texan Connally, who particularly disliked Canada, threw the Canada-U.S. Auto Pact into the mix, thereby threatening about a third of the trade between the two countries. As an added insult, Nixon said that the measures were aimed at Japan, “America’s largest trading partner.” The error—Canada was the largest by a considerable amount—betrayed the haste of the action and the administration’s
indifference to and ignorance of Canadian interests.30
At the request of his concerned Cabinet colleagues, Trudeau cut short his European vacation on the Adriatic. In the end, the Auto Pact was preserved and subsidiary agreements were reached, but the experience shook Trudeau. It emphasized to him how dependent Canada was on the United States, and it boosted Canadian nationalist arguments that the dependence must be decreased. Minister of National Revenue Herb Gray was labouring on a report on foreign investment, and in November someone leaked it to the leftist Canadian Forum, which immediately published it to considerable controversy. Its criticisms of multinationals operating in Canada captured newspaper headlines across the country.31 Trudeau’s skepticism about nationalism made him hesitate when economic policies rested on nationalist justifications, but the Nixon shokku created a strong momentum for nationalist economics in Canada and elsewhere.
A troubled Trudeau asked to visit Nixon in Washington, and at Kissinger’s insistence, Nixon agreed to a meeting, on December 6. With his hair fashionably long and sideburns well below the ear, Trudeau sat with Nixon in front of the fireplace in the Oval Office and discussed the shokku. Prior to the meeting, Nixon asked Connally, “What to say to this son of a bitch Trudeau?” Nevertheless, formality prevailed when the meeting began. Nixon complained that other countries were “ganging up” on the United States. In reply, Trudeau decried protectionism but added, interestingly: “If you’re going to be protectionist, let’s be in it together.” Claiming correctly that he was neither a nationalist nor a protectionist, Trudeau warned Nixon that “if you were going to take a very protectionist trend, our whole economy is so importantly tied to yours, we’d have to make some very fundamental decisions.” The United States, he claimed, could “colonize” Canada by building up a huge trade surplus: “If we’re always in debt toward you, the only way in which we can pay our debts is by selling you parts of our country.”