Download PDF

DISEQUILIBRIA
However, the role of government in markets differs. In the
United States, government is seen in an ideal sense as an impartial referee, ensuring that everybody plays by the same set of
rules. In Canada, the accepted role of government is broader, with
government acting as more of a player-coach to ensure that everyone plays, that injuries are healed, and that each team is ready to
play next season. As a result, frustrations mount as each country
by David Freshwater, Leonard Apedaile,
perceives the other to be violating the spirit, if not the letter, of
agreements like CUST A.
and Philip Ehrensaft
These differences affect the perception of what a level playing
field is. In the United States the meaning relates primarily to the
Market-based systems and free trade are two of the basic tenets
refereeing of the game. The focus is on enforcing fairness by makof economic policy in Canada and the United States. Yet at a time
ing everyone play by the same rules and disciplining those who
when market forces are sweeping the world and when Canada,
violate the rules . That one team may have accumulated more
Mexico and the United States are contemplating a larger free
resources and skills- and therefore has better odds of burying the
trade zone, it is important to recognize that North Americans not
opposition- is not seen as the appropriate concern of government.
only attach different weight to the benefits and costs of markets,
By contrast, Canadians' concern with a level playing field is
they also have a different understanding of the nature of markets.
more about whether all particiAnd of government itself. Words
pants in the game begin with
have different meanings for dif»- Canada and the United States may be the two countries
"reasonable" odds of success.
ferent people and the word
with the greatest degree of cultural similarity and degree of
Government is expected to par"markets" and the phrase "level
economic integration in the world , yet they continue to
ticipate as a partner to even the
playing field " mean one thing in
have significant trade problems. Many of these problems
odds and to ensure that outthe United States and something
involve commodities important to rural areas, such as lumcomes are not inimical to social
different in Canada. And the difber, grains, and livestock. Despite similar policies to assist
objectives for the game.
ferences go well beyond semanrural areas, at the root of the trade problems between the
These differences in meaning
tics, because they relate to subtwo countries, there are fundamental differences in how
increaSingly
get in the way of
tle differences in the approprieach society perceives the role of markets and the role of
efforts to harmonize the rules
ate role of government.
government in those markets. With domestic rural policies
for trade between the two counDistinct, but subtle differbeing challenged as inconsistent with formal trade agreetries, through formal agree ences attached to the nature of
ments, these ph ilosophical differences are becom ing
ments. As continental and globmarkets and the appropriate role
increasingly clear. To reap the full benefit of trade liberalal competition increases, each
of government affect the accepization, these differences must be resolved.
nation examines the policies of
tance of poliCies and rules
other countries for unfair
applicable to trade. They also
advantages. It is here that subtle differences lead to conflicts.
account for, at least partially, why both Canadian and U.S. citi. The U.S. considers Canadian government assistance to less
zens express disappointment with the results of the Canada-Unitwell-endowed communities or companies incompatible with the
ed States Trade Agreement (CUSTA). People in both countries
U.S. notion of a level playing field . But, having the U.S. governexpected the agreement to lead to a greater dependence on marment simply referee "away" games for Canadian teams does not
kets and a more level playing field that would benefit both
jibe with the Canadian idea of a level playing field either. Thus,
nations. But, because these concepts have different meanings in
while citizens of both countries praise market forces and level
each country, the people of each country expected something
playing fields, they aren't necessarily talking about the same
fundamentally different.
thing. What looks like normal competition to the United States
The Same Words Mean Different Things
looks like predation to Canada. And in reverse, the U.S. views
Canada's
joint government-private sector activities as unfair govCitizens of each country use the same words to describe differernment
market-distorting
subsidies, that tilt the playing field.
ent mixes of market and government forces. Yet, words and man-
RURAL AREAS, LEVEL
PLAYING FIELDS AND RULES
OFTHEGAME
ners of speaking are deeply rooted in the heritage and memories
of each society, so much so that the same phrase can have significantly different meaning in Canada and in the United States. In
both nations the predominant role of market forces is widely
accepted, and on both sides of the border a "level playing field"
is seen as necessary and desirable. Both sides see unencumbered
markets as the primary means to increased prosperity.
David Freshwater is Associate Professor, Department of Agricultural Economics, University of Kentucky; Leonard Apedaile is
Professor, Department of Rural Economy, University of Alberta;
and Philip Ehrensaft is Professor, Department of Sociology, University of Quebec at Montreal.
18 • CHOICES
Rural Implications
Rural areas have an important stake in how these differences
are resolved. Rur'al areas in each nation produce primary products that compete directly with each other either in third markets,
or increasingly, within North America. Both nations subsidize
these resource extraction and transformation processes, but in
characteristically different ways. Canadian policies important to
rural areas include: fishing quotas, provincially determined
stumpage charges, freight subsidies, import restrictions, marketing boards and supply management programs, all of which are
characterized by the U.S. as unfair competition. Subsidies in the
Second Quarter 1992
United States include: commodity support prices, "buy American" programs, subsidized credit, and export subsidies.
Lumber is one example. In Canada, provincial governments
establish a maximum allowable cut and then allow companies to
bid for rights to harvest the trees. Resulting stumpage charges are
lower than the cost of growing trees on private forests in the United States. Lumber companies in the United States rely primarily
on private forests for access to timber and argue that Canadian
policy constitutes an unfair subsidy; Canadian producers and the
Canadian government argue it reflects different relative costs.
Also, Canadians see U.S. commodity programs and the Export
Enhancement Program (EEP) as unfair. They argue that far more
government resources support agriculture in the U.S. than in
Canada, and EEP in particular is being used to displace Canadian
grain from traditional markets.
Similarly, Canadian manufacturers view the large domestic
U.S. consumer market as conveying a major advantage to U.S.
producers that requires some form of government assistance in
Canada to make Canadian manufacturing competitive. The recent
fight over the North American content of Honda cars is seen by
Canadians as much as an attempt to ensure that future foreign
investment only takes place in the United States, as an effort to
protect the U.S auto industry.
Urban America Pollutes Rural America
The vitality of rural places in both countries is rarely the dominant consideration when major policy changes are debated, or
when market exchanges are consummated. Large companies do
not locate home offices in rural areas. Rural communities have
relatively "upstream" types of economic enterprise, remote from
the markets that determine final product prices. They also experience unintended consequences of decisions by urban consumers.
Consider, for example, the issue of bargaining power related to
"external costs" associated with urban-oriented public policies
and with global market-based decisions. Rural people typically
experience lower wages, rents and returns to capital; and they
absorb significant adjustment costs, caused by changes in technologies, shifts in consumer preferences and economic restructuring, that originate in urban areas. Rural communities process
industrial waste and pollution with their crops , grasslands,
forests, lakes, streams and marshes. Rural space is used for landfills and golf courses. Rural people and places must also take on
the stress and institutional dislocation of serving urban people
who take over their communities with second homes, tourism,
hunting, and fishing.
Thus, the rural people produce public goods for which the consumer is amorphous, remote, and often unpaying. In today's
world there is simply no working market for trading these goods;
and with the exception of some major agricultural commodities,
there are no government institutions to provide compensation to
rural people.
To a considerable extent the magnitude of the problem of externalities is a reflection of different levels of economic power.
Rural economies are forced to bear the costs of these externalities
because the opportunity cost is low: for the natural resources
themselves, for the capital committed to developing the
resources, and for labor and business organizations in the rural
community.
As rural communities embrace local control, enter into new offshore partnerships and accept the predominance of market forces,
a level playing field becomes critical for economic survival. Other
than under the narrowest interpretation of the government as
umpire, it is at best unethical to promote market-based rural economic development initiatives when there are radically different
qualities of information, different degrees of bargaining power
Second Quarter 1992
and widely divergent resources. It is fairly clear that where government is only an umpire, bargaining and market processes will
be biased to the better endowed. Pure reliance on the market in
these circumstances is for rural economies like playing poker
with a marked deck in the hands of a professional gambler. Moreover, while the United States holds to an ideal of government as
umpire, in both the United States and Canada rural intervention
by government goes well beyond this minimalist role, recognizing
the precarious nature of rural communities.
Government: Leveler or Disequilibrater?
Global market signals to rural economies in each country are filtered and transformed through complex policies that influence
decision making on a regional and commodity basis. Three main
policy sets can be identified-sectoral, social, and macroeconomic.
To many people, sectoral policy for agriculture is synonymous
with rural policy. Yet such policy is increasingly ineffective in
dealing with difficulties in rural areas. Global economic integration blunts opportunities to use commodity policies. In addition,
politically there is currently a greater willingness to accept market driven outcomes even if these markets are driven by firms
with overwhelming size and economic power.
Social policies shift risk from individuals to the collective population. Examples include unemployment insurance, medical
care, education, cultural affairs, and social welfare programs.
While these programs do not directly boost economic development, they do provide income transfers and support functions
that can enhance development activity. They reduce the capital
needs of firms since important resources are collectively provided, often quite efficiently. Social policy, however, is not particularly rural in its orientation.
Neither is macroeconomic policy. Yet macroeconomic policy
covers the broad set of fiscal and monetary policies and external
trade relations that determine the broad economic environment
for the rural economy. Though it tends to be applied uniformly
across regions, the results may be disparate among regions, economic sectors, and rural places. More importantly the particular
policies chosen are selected with an eye to meeting the needs of
powerful economic interests. An example of this disparity is the
impact of a high interest rate monetary policy period on Western
Canada and its agricultural export earnings between 1988-1991.
The manufacturing-based economy of southern Ontario was overheating during the 1980s and federal policy was chosen to
counter inflation in Ontario. This reflected the larger political
and economic importance of this region relative to the west.
Rural Areas and Public Policy In North America
Although farm policy is primarily associated with rural areas ,
the reality is that social and macroeconomic policies have a
greater influence on rural areas in both countries. Current controversies over open markets and government intervention point this
out. While the arguments between the two nations on the surface
are over sectoral policies, the basic causes of the controversy are
differences over broader policy goals and differences in the philosophy or culture of government.
Despite real differences over the meaning and nature of market
forces and competition, the fundamental similarities between the
two nations and a recognition of the benefits from growing integration are leading to a search for common ground. However,
integration of the two economies will require revised social contracts that will have to pay attention to different interpretations of
common terms in each country, and accommodate corresponding
differences in style. While rural issues will not be focus of these
negotiations, it is important for rural areas that they be an integral
part of the agreement. .
CHOICES • 19