Just Watch Me

by John English

  † Herb Gray was Canada’s first Jewish Cabinet minister. Although his appointment was very popular with the Jewish community, Gray recalls that Trudeau did not speak with him at the time about issues dealing with foreign policy. Most of Gray’s own speeches dealt with social justice rather than issues specific to Jewish interests. Even though he was a federal minister, he believes he spent more time on the provincial issue of support for independent schools than any other item. He did speak out against the Arab boycott of Israel after the 1973 Arab-Israeli War, but neither the press nor the PMO paid much attention to his comments. Later in the decade, the election of Menachem Begin’s centre-right Likud Party brought Israeli politics more directly into Canadian affairs, and Gray even delivered a warning “message” from Trudeau to Begin about occupation of the Golan Heights. Interview with Herb Gray, July 2007. On the value of Gray’s initial appointment with Jewish support, see Michel Vennat to Gordon Gibson, Oct. 28, 1969, TP, MG 26 07, vol. 121, file 313.05, LAC.

  * The peculiar key in which debates played during the first Trudeau government is captured well in an exchange during a quarrel between Michael Pitfield in the Privy Council Office and Jim Davey in the Prime Minister’s Office. For most MPs and certainly the political veterans, the “key” was out of tune. Writing to Trudeau, Davey explained the quarrel and told Trudeau not to worry because the two “have shared too many important experiences together for that to be the case. Possibly he is too Jesuitical in his guardianship of the Cabinet faith and his discernment for the spirit of others. On the other hand, while I hold the faith in common with him I have a more Dominican approach to the doctrine of organization, government and otherwise” (Oct. 3, 1969, TP, MG 26 07, vol. 290, file 319.11, LAC). Pitfield was himself moved to a deputy minister post in 1973.

  * Margaret’s first official trip abroad was to the Soviet Union in 1971, where the intense protocol often separated her from her husband, the heavy helpings of rich food upset her stomach, and her morning sickness took the joy out of sightseeing. She did, however, discover the advantages of Soviet security. Although she refused to believe their hotel room was bugged, she and Pierre realized it was when they returned to the hotel room and Margaret, exhausted, cried out to Pierre. “Oh Pierre, what wouldn’t I give for an orange! My kingdom for an orange.” Within five minutes, a waiter was knocking at the door with an orange on a tray. Margaret Trudeau, Beyond Reason (New York and London: Paddington Press, 1979), 107.

  * An injury took Fairbairn away from her job in 1973. On March 2 she wrote to her boss: “I have been following events on the Hill with the usual interest, anxiously listening to make sure you didn’t put your foot in the glue. You probably have had a soft time of it this week and I look forward to coming back to bark at you again Monday.” TP, MG 26 020, vol. 4, file 10, LAC.

  CHAPTER EIGHT

  THE STRANGE REBIRTH

  OF PIERRE TRUDEAU

  In the first years of his marriage, Trudeau’s aides, ministers, and MPs saw an even more intensely focused and hard-working prime minister than they had known before. His determination after the 1972 election not only to govern strongly but also to lay the foundation for a new Liberal majority had a major impact on his administration: first, he was less cautious and more willing to take chances; and second, he considered the expressly political consequences of his government’s decisions and actions far more often than he had before. And those late nights on the files brought rewards every weekday morning when the stream of meetings began: Trudeau often knew briefs better than the relevant ministers.

  Two issues dominated the agenda—the economy and international events—and in the early seventies, they forced all politicians to navigate unexpected and unknown rapids. As we saw in chapter 6, the Nixon shokku of 1971 suddenly cut the American dollar from the gold standard, signalling the end of the postwar Bretton Woods system and a new era of uncertainty. As with most epochal changes, those living through them were often mystified by what they meant—and Trudeau was no exception. Schooled in the Keynesian approach to the economy, he struggled to understand what “stagflation”—high unemployment combined with high inflation—would mean for democratic governments committed to the welfare state.

  In August 1972 Gus Weiss, a leading member of President Nixon’s own advisory team on international economics, briefed Canadian officials on the world economy. He was frank: “We have 10 computer models all trying to forecast economic eventualities,” he admitted. “We don’t really know what’s going on.” And they didn’t. “Externalities,” the bugbear of economic prediction, bedevilled policy makers at the time. As Weiss put it, “the greatest problem today is that there are too many problems.”1 Trudeau, whose Jesuit-trained mind sought order and design, puzzled over what implications the sudden world food crisis, the emerging energy crisis, the turbulent currency markets, and the shifting international trade patterns meant for Canada and the world. Harvard economist John Kenneth Galbraith recalled meeting a highly inquisitive Trudeau at dinner parties in New York and Washington, where the prime minister would constantly pose questions to Wall Street and Beltway guests about the future. He, along with Michael Pitfield and Ivan Head in particular, became deeply interested in the futurists clustered around the Club of Rome, which sponsored the bestselling book The Limits to Growth. This controversial work, based on computer modelling, forecast a Malthusian world where population growth would overwhelm diminishing resources. Within Canadian government departments, clusters formed to analyze future trends, and they led internationally in promoting discussion of the club’s analyses.2

  Trudeau experimented with the futurists’ emphasis on a “horizontal” approach to government and problem solving, one reflected in the new structure he introduced for Cabinet committees, the movement of officials among departments, and interdepartmental committees and working groups. However, the dire predictions set out in the club’s book and in its methodology, which ineluctably led to broader state intervention and bureaucracy, soon became less convincing to him. Far more influential was the advice of his old friend Albert Breton, who had returned to Canada in 1970 from Harvard and who wrote incisive analyses of the Canadian and international economies for him. They bantered easily: when Breton asked Trudeau whether he still believed much of the “stuff” he had written before he went into politics, he got a quick response—“Very little.” In November Breton warned that in the wake of the drastic actions the Nixon administration had instituted during the summer, the United States would “in all probability … between now and November 1972 [adopt] policies that … [would] be erratic and half-baked, and these reactions of Washington could trigger erratic and half-baked policies or policy recommendations both outside and inside the Government of Canada.” Breton, an independent thinker, remained skeptical about internal government attitudes and forecasts for the future.3

  The major battle over the economy in Ottawa swirled around the Department of Finance, where John Turner was now minister, with Simon Reisman as his deputy minister. Turner brought considerable political weight to the office, and Reisman, bureaucratic aggressiveness and strong continentalist, and increasingly conservative, beliefs. Given the personalities involved and the known rivalries between Turner and Trudeau, friction was inevitable. Indeed, even as he appointed Turner, Trudeau remarked, “No one will suggest that Turner is a weak minister,” and added, “One characteristic of Turner is that he likes to succeed.”4 The potential for conflict was only increased by the minority government’s dependence on the New Democratic Party for its survival. Not surprisingly, then, Trudeau and his closest assistants decided right from the outset that they needed independent voices to counter any domination by this exceptionally confident department.

  In Turner’s view, the poor performance of the Liberals in English Canada stemmed from a significant move of votes to the right. Maintaining financial “credibility” was essential, he insisted, and he wanted “no deals” with the NDP.5 Turner was also adamant about keeping the commitments m
ade in the 1972 budget to decrease corporate taxes. Realistically, though, it was difficult to implement that pledge after the election because the NDP had denounced “corporate welfare bums” so effectively during the campaign and now held the balance of power.

  In the Throne Speech, Trudeau made it clear that his party would shift to the left and maintain power through the support of the NDP. The very first vote following that speech condemned the American bombing of Hanoi. The decision to support that resolution was an important one, which sealed the Liberals’ alliance with the NDP while enraging Richard Nixon, who refused to reply to a letter from Trudeau explaining the domestic circumstances that had caused it. So angry was Nixon that he even declined to send a note of condolence to Trudeau on the death of his beloved mother in January 1973. As the debate over the economy developed within both the Cabinet and the government as a whole, the differences between the prime minister and the finance minister became personal and ideological., Trudeau came to be identified with policies on the left, while Turner, who had developed excellent relations with his conservative American counterpart, George Shultz, became the voice of “business” and the “Americans.” The perception was unfair—finance ministers are invariably regarded as a conservative force within government—but the minority situation exacerbated the impression.6

  The debate zeroed in on John Turner’s first post-election budget, which everyone knew was critical to the survival of the government. Turner and the Finance Department initially fought to have the promised corporate tax cuts implemented, although he was willing to adjust the budget to meet NDP demands. Breton was strongly opposed, writing to Trudeau on January 19, 1973, that “whatever the politics of the case for a cut in the corporation income tax may be, the economic case is at best non-existent or very weak.” A personal tax cut, he argued, would be more efficient and stimulative: American-owned corporations would realize only half the reduction because of their ability to deduct their Canadian taxes in the United States. In the end, the budget tilted toward the left, with extensive social spending and numerous items that satisfied the NDP, such as reduction in the personal tax rate, increased personal exemptions, higher old age pensions, and indexation of the personal tax rate, which would mean that inflation would not create higher taxes by placing individuals in higher tax brackets. More than 750,000 Canadians would no longer pay income taxes, and the predicted deficit was $1.3 billion, compared to a surplus of approximately $100 million the previous year. The budget was highly stimulative, precedent-setting in its deficit, and politically valuable in that it bought time for the NDP-Liberal alliance.

  Despite reports that Reisman had devised the indexation system as a way to restrain future government spending, both Trudeau and Turner supported it. Moreover, the Cabinet debate on February 13 suggests that ministers were aware of that potential effect. By 1973 even Trudeau was actively seeking a means to limit the growth of government—which had been remarkably high for well over a decade—both in Ottawa and in the provinces. Breton warned him that exceptional growth at both levels of government, along with the monopolies created by the rapid unionization of public services, were themselves causes of inflation and, therefore, of political trouble. The press, however, ignored these subtleties and preferred to focus on the personalities: the anti-American and leftist Trudeau, and George Shultz’s buddy and business favourite Turner.7

  The caricatures distorted, but they contained kernels of truth. In the struggle over the 1973 budget, Trudeau emerged the victor, and Turner privately fumed that the prime minister had not supported him sufficiently.* Turner did manage to maintain credibility later by implementing the earlier corporate tax cuts, but this success only reinforced his image as the representative of business interests in an economically conservative department. Turner had thought earlier about leaving politics for the private sector, and he knew that after he contributed to Trudeau’s political survival, first through championing the Criminal Code reforms and now through a well-received budget, his own chance of succeeding Trudeau in the top spot became ever more distant. Journalist Ron Graham, who knew both men well, later wrote, “[T]heir looks, their intelligence, and their reputations gave them the habit of controlling their surroundings and assured that they would clash once mutual advantage was exhausted.”8

  After the budget, that exhaustion set in. Trudeau recognized that Turner was his rival, his successor should he falter, and he remembered that Turner had wanted the government to resign immediately after the catastrophe of the 1972 election. In response he decided to maintain his personal distance from the Finance Department and to develop an independent system of economic advisers within the Privy Council, in his own office, and at the Treasury Board, where economist Douglas Hartle was especially influential. In turn, these advisers could be blunt in their critiques of the traditional finance giants. Breton, for example, made this comment on the 1973 annual report of the Bank of Canada in April 1973: “It is sad that an institution which is staffed with some of the best minds in the country, which possesses one of the best Research Departments anywhere has, for unfathomable reasons, become capable only of learning at a very slow pace and hence incapable of providing the intellectual and moral leadership that it should be doing in the area of monetary phenomena and that the country needs.”9 Inevitably, there would be a clash between Trudeau’s advisers and the Department of Finance. The only question was when and how it would happen.

  All agreed that, in the early seventies, the country faced fresh challenges. When he came to office in 1968, Trudeau declared he would make no more additions to the recently established welfare state. He pledged, rather, to work on regional disparity and on inequalities among Canadians, and he put considerable emphasis on the creation of the Department of Regional Economic Expansion (DREE). Later evidence indicated that DREE’s panoply of schemes, combined with transfers from the federal government, reduced some regional inequalities, but the large DREE projects usually fell flat. Indeed, as early as 1973, Breton astutely warned Trudeau that “the Government cannot easily engage in the continuation of a policy which has not produced many results.” Moreover, the “welfare backlash” during the election campaign, combined with the disorderly creation of the Canadian social security system, forced Trudeau to evaluate just how successful the federal government approach had been. At the increasingly regular federal-provincial gatherings, the provinces continued to snipe at Ottawa for its encroachment on their traditional responsibilities for health, welfare, and education, areas where their spending grew rapidly throughout the seventies. Trudeau soon lost patience with them: he appointed his friend Marc Lalonde as minister of national health and welfare, with “the goal of systematizing a little all the aid programs for the poor, seniors, children, the unemployed, etc.” Canada’s programs had become almost the equal of those in Western Europe, but they were too dispersed, and competing provincial programs made matters even more confusing. Trudeau described his ambitions to journalist Jean Lépine:

  Imagine integrating all of this. We were paying half of all provincial public welfare. So we wanted to find a system. Everyone who was somewhat progressive at the time wanted the guaranteed annual income, so imagine creating a system to integrate all of this. This quest became the Orange Book that Lalonde created with Al Johnson, one of his deputy ministers. The two got along very well and did a fairly extraordinary job in very little time.

  The change did not happen quickly enough. Economic conditions deteriorated, and the Finance Department fought furiously against Lalonde’s proposal to unify support payments in a guaranteed income. Trudeau backed down. Later he explained to Lépine: “Normally, I prefer to lean to the left, but since I am told here that we will not have sufficient funding to finance our programmes, I would rather be a little bit more cautious.” But Lalonde had told Lépine that the decision was made on personalities rather than the issue itself, and Lépine questioned whether “prudency” was the real cause, particularly when the government was tilting to the le
ft at the time. Trudeau sighed and evaded the question by saying it was “a good example of responsible government.”10 A finance minister is in a special position, and if a prime minister does not accept the advice of that minister, he risks a resignation. Trudeau knew that Lalonde would never resign, but he was not sure about Turner—and the loss of the popular finance minister at this point could mean the government’s fall. So it happened that the guaranteed annual income, which the Liberals had mused about since the sixties, became the essential sacrifice. Finance eventually won this quarrel, but it was to lose most of the others during the minority government period.

  In the 1972 election, the NDP had won over Canadian nationalist votes, most notably those of Eric Kierans and Walter Gordon. David Lewis and his party held the balance of power, and that meant the Liberals could no longer defer their promise to establish an agency to review foreign investment in Canada. Trudeau himself was dubious: he told Alastair Gillespie, his minister of industry, trade, and commerce, who had responsibility for drafting the act: “You know I’m not a nationalist and this is a form of nationalism, which I find suspect.” Although a Gordon disciple and a nationalist himself, Gillespie had become exasperated with the particular kind of nationalism espoused by the Toronto Star, which he found insatiable, but his own business experience convinced him that a foreign investment review agency was essential in a country where so much industry and so many resources were foreign owned.

  In 1973, therefore, he brought forward the “Gillespie Guidelines,” which set out conditions to be applied to foreign investment in Canada. They essentially required investors to show “significant benefit” to Canada and, the following year, were incorporated into the mandate of the Foreign Investment Review Agency. FIRA irritated many businesspeople both in Canada and beyond. Gillespie recalls an “obnoxious” German businessman who denounced the agency. When Gillespie asked, “Why does that concern you?” he answered that his company had 25 percent ownership of Algoma Steel and wanted to increase it. Gillespie replied that there would be no problem if he could show “significant benefit.” The businessman exploded angrily and sold off the Algoma shares, which, to Gillespie’s satisfaction, Canadians quickly bought. In truth few investors reacted as the German did, and the financial newspaper Barron’s, which initially excoriated FIRA, reported that the only company “that wouldn’t be welcomed in Canada is Murder Inc.”11