Free Trade and Social Policy Reform: The Hidden Dimension? «/. Rachel Macdonald School of Social Work Carleton University Current debates in Canada about the merits or shortcomings of free trade have been framed in a number of different ways. Both the Canada-U. S . Free Trade Agreement (CUSFTA) and the North Amencan Free Trade Agreement (NAFTA) have been addressed and assessed in terms of job creation or loss, the possibiHty of increased environmental degradation, and the potential threats to political and cultural sovereignty. Despite all the seemingly disparate claims and arguments that are made, however, the free trade debate has at its base a fight between essentially two competing visions ofthe Canadian economy. On the one hand, there are those who oppose free trade and argue for a strong national industnal policy that commits the state to policies of full employment, national instruments of accumulation (i.e. Crown Corporations), demand-side management, and universal welfare rights. On the other hand, proponents of free trade see the proper role of state policy as promoting market innovation, enhancing structural competitiveness through supply-side intervention, and subordinat- ing welfare policy to the demands ofthe 'free' market (see Jessop, 1 993 : 9). Given the contours ofthis debate, one ofthe more intriguing questions about the issue of free trade is how the curroit agreemaits will affect the ^ Alternate Routes, Volumel 1, 1994 development and implementation of social welfare policy under a regime committed to the dommance of the free market. Indeed, the uncertain future of Canada's social programs—family allowances, old age security, public pensions. Medicare, education, and social assistance—was a central concern dunngtheCUSFTAandNAFTA discussions. In mycurrait research, I argue that free trade has three detrimental impacts on Canada's social welfare policy. First, free trade encourages a shift from 'universal' to 'selective' or 'residual' social programs, thus undermining any real social commitment to the redistribution of wealth and income. Second, free trade encourages 'policy harmonization,' thus threateningto reduce Canada's social programs to American and Mexican levels. Finally, trade agreements bind the nation- state, both directly and indirectly, from pursuing social policies that may be mterpreted as restricting access to markets or as discouraging profit-making. Rec«it changes to the definition of poverty, cutbacks to Medicare, and proposals aimed at replaang Canada's social safety net with wage supple- mentprograms illustrate the degreeto which the ideological underpinnings of free trade have already dramatically altered social policy in Canada. The Ideology of Free Trade: Its Origins and Growth The present rush toward continental 'free trade' represents the culmination of over two decades of debate on developmental strategies for the Canadian economy. Bnefly, the ongin ofthis debate can be traced to the economic crisis confronting all Western capitalist economies in the mid 1970s. Rising inflation coupled with increasing levels of unemployment produced a phe- nomenon of 'stagflation' that threatened to stall the growth engine of the West. In Canada, as in other countries, this challenge was most commonly addressed bytwodifferentprescnptionsforthe future. One, drawing upon the tradition of Keynesianism, argued that the solution to Canada's economic woes lay with increased state intervention. Proponents of this view argued that the state needed to play a more active role in promoting scientific research and development in order to boost a declimng manufactunng sector. This argument was advanced by a number of academics and think-tanks, such as Macdonald/Free Trade and Social Policy Reform the Science Council of Canada, and taken up by elements of the Left, the labour movement, and English Canadian nationalists who believed that a national industrial strategy would help reduce American corporate power (Brodie, 1989:176-177). A very different vision of economic development, however, was put forth by an increasingly powerful coalition of neo-liberal think-tanks and influential elements of the business community (see Richardson, 1992:321- 322). These actors argued that the post-war policies ofKeynesian economics and welfarism had produced a mammoth and cumbersome state bureaucracy that was choking off private investment and growth. To alleviate this problem, the size and activities ofthe state needed to be scaled down and the control ofthe economy returned to the allegedly more efficient private sector. These neo-liberal economic views were translated mto electoral victones in the United States and in Britain (Brodie, 1 989: 177). Free trade has been from the start a key component of neo-liberal economic philosophy. In fact, the idea itself stems from the work of the classical economist, David Ricardo, who in the early Nineteenth Century ^j^ developed the 'Law of Comparative Advantage.' Briefly, Ricardo believed that with free trade between nations, all countries would prosper as each began to specialize in an area of production in which it held a competitive advantage over the others . Rather than tryingto produce everything for itself, the nation which is best suited to produce a certain product, because of some natural or other advantage, should specialize in the production ofthat product and export the surplus. For example, Ricardo suggested that because of its climate and soil, Portugal would excel at the production ofgrapes and wine. On the other hand, because ofits industrial infrastructure, Britain could excel at textile manufactunng (Watkins, 1992:93-94; McGaughey, 1992:36).' According to classical liberal economists, the only way that the real 'benefits' of free trade could be realized is if the protectionist and interven- tionist tendencies of the state could be curtailed. That is, free trade abroad needed to be balanced by a policy oflaissez-faire economics at home. Lurking inside ofarguments for free trade, as Watkins ( 1 992 : 94) convinangly argues. Alternate Routes, Volumel 1, 1994 is the ideology of the New Right, an ideology that advocates deregulation, pnvatization, and cutbacks to soaal spending. The emergence and dominance of this economic vision has forced a dramatic restructunng of the Canadian state and soaal policy over the past 20 years. Throughout the 1970s, for example, Canada pursued an aggressive nation-building approach with respect to economic and social policy. The Trudeau govemmait introduced such programs as FIRA (Foreign Invest- moit Review Agency), the National Energy Plan (1973), and the Canadian Development Corporation. These programs and agencies were designed to channel national capital into Canadian-owned corporations and reduce foreign control over the nation's economy (Clarkson, 1991 : 107). During this penod, the state also pursued an ambitious policy aimed at strengthaiing social welfare programs; the development ofMedicare as well as progressive reforms to old age security, unemployment insurance, and the Canada Pension Plan underlined the state's commitment to universality. However, dunngthis period of nation-building, Canadian capital had been consolidating and continentalizing at a rapid pace. Canadian banks, real estate corporations, and media industries were particularly successful in expanding their reach into the United States and abroad.- Canada's corporate powers thus had little need or patience for the 'protectionist' and 'interven- tionist' Canadian state. Instead, they wanted fewer rules and regulations so that they could further extend their reach into the global market (Clarkson, 1991:115-116; Richardson, 1992:316; Deblock and Rioux, 1993:27-28). Such structural changes in Canada's political economy, coupled with an aggressive lobby-campaign launched by the Business Council on National Issues (BCNI), led to the signing ofthe Canada-U S . Free Trade Agreement (CUSFTA) in 1987 Almost immediately after the agreement's ratification, the number of plant shut-downs, layoffs, and corporate mergers rose at an alarming rate. Public opinion remained firmly against the deal, yet by 1990 the Conservative government was entenng yet another round of free trade negotiations, this time a tnlateral deal with Mexico and the United States. I Macdonald/Free Trade and Social Policy Reform It is clear that free trade is about much more than trade only—it is a wide-sweepmg prescnption for the creation of a society modeled stnctly on the 'laws' of laissez-faire economics. Indeed, the discourse of 'free trade,' much like the discourse of 'free markets,' is inextricably attached to a long and complex intellectual tradition of individualism, and specifically to the rights of individual investors and entrepreneurs to move their capital around as they see fit (Marchak, 1 989). Free trade, moreover, is clearly presented in terms of national competitive advantage, and thus draws upon vulgar chauvimsms and crude forms of patnotism. There are other deeper supporting cultural conditions to the social vision offered by proponents of free trade. Free trade is a high risk economic program and is thus easily presented in masculine terms of aggression ('capturing markets') and conflict ('beating the competition'). It is also a mode of assessing odds and determining outcomes, like gambling and sport spectacles—activities that underline its masculine bias. Free trade, like the vision of 'community' offered by classical economists, is the brutal world where relations of competition and domination prevail, a world in which im nations and people are in perpetual conflict and struggle with one another (see Hartsock, 1983:38-40). Given that free trade, as it is proposed by neo-liberal economists, represents such a sweeping social vision, it is clear that its influence will extend throughout all elements of society. In particular, the ideology of free trade threatens to drastically alter the role the Canadian state plays in the economic well-being of its citizens. By submitting ourselves to the 'law' of comparative advantage, we may be unwillingly subverting the very social programs and services that Canadians have fought hard to achieve. Indeed, one ofthe first 'victims' of free trade may be the very notion of universality Itself. Alternate Routes, Volumel 1, 1994 Free Trade and 'Universality': Toward a Poucy of Residuausm? Universalityhas clearly been one ofthe most cherishedprinciples in Canada's modest system of social security. It is a principle that sees social welfare as a citizQiship right by which all members of the nation, regardless of income or market power, are entitled to certain goods and services such as health care and education. This vision, however, is clearly jeopardized by the ideology and practice of free trade. Free trade is part of a neo-liberal package that favours principles of 'selectivity' and 'residualism' in social welfare policy. Suchpnnciples affirm the centrality of the family and private institutions in aiding those who have an inadequate income. 'Selective' public relief should only be the last resort after all otherpnvate avenues ofsupport have been exhausted. Inthismanner, as Muszynski (1992:8-9) notes, a residual approach to social policy rein- forces the belief that it is the market that is responsible for allocating social rewards. The market will reward those who have the motivation and desire to work and will punish those who 'choose' to remain idle. Social policy, according to advocates of this position, must reinforce the 'justice' of the market by ensuring that the recipient of social assistance is kept as motivated as possible to enter the labour market. Welfare programs can secure this only if they have long qualifying periods, long waiting periods, low benefit payments, or are admimstratively stigmatizing. A commitment to 'universalism,' on the other hand, paints a very different picture of the capitalist marketplace. Universal social programs represent an attempt to provide a collective response to counter what is recognized as the inherent instability ofthe marketplace. From this perspec- tive, it is assumed that the market is not 'just,' that it necessanly creates winners and losers, and that the responsibility for those who fail in the market is something to be shared by all of society. While residualism thus defines the objective of social policy in terms of temporarily alleviating poverty, universalism sees social policy goals more broadly in terms of building a sense of community through the redistnbution of wealth and power There- Macdonald/Free Trade and Social Policy Reform fore, while universalism may concede that markets are important mecha- nisms for the allocation of wealth, other criteria such as need, rights, age, residence, and citizenship are also seen as legitimate bases for the distribution of wealth and power (Muszynski, 1992:9-10). The nature of free trade agreements, however, is such that mcreasmg pressure is applied to the state to shift its social policy agenda away from universalism and toward residualism. Unrestncted competitive pressures between nations force the state to protect domestic capital by lowering the 'tax burden' on businesses. Government spending on universal social pro- grams, therefore, comes to be seen as a threat to Canada's ability to compete in the continental marketplace. As such, pressures are applied to revamp or cut existing social programs and replace them with policies that are more cost-efficient, that induce people back into the labour force, and that target benefits only to those 'truly' in need. These policies have been a^ressively pursued by the Canadian state since the signing of CUSFTA and NAFTA. The former Conservative government ended the universal Family Allowance Program and withdrew all ^Q) federal support from social housing projects. New qualifying conditions have been attached to the Unemployment Insurance program that seriously undermine its universal accessibility. Social assistance has also been seri- ously eroded by limitations placed upon the amount of federal money transferred to the provinces (Swanson, 1 993 : 1 2). Nowhere has the shift from universalism to residualism been more apparent than in the attempts to re-define poverty to include fewer, and ostensibly 'more needy,' people. Drawing upon the work of Christopher Sarlo, the former House of Commons committee on poverty recommended that the poverty line be 're-adjusted'—in one quick stroke, the number of Canadians living before the poverty line could be reduced by as much as 90 per cent (Murphy, 1 993 : 19). Underlyingthis desire to re-define poverty is the thinly veiled beliefthattoo many Canadians who do not really require benefits are receiving social assistance. Alternate Routes, Volumel 1, 1994 By identifying the 'deserving poor,' the state is able to justify cuts and reforms to the social welfare system, reforms that threatai the principle of universality. As such, universal social programs are being turned into selective and residual programs, all in the name of cutting govemmoit expenditures in order to lessaithe 'tax burden' of transnational businesses. Free Trade and Social Poucy Harmonization: Whither Medicare? A related danger inherent within free trade is that competitive pressures may force Canada to 'harmonize' its social policies with those ofthe United States and Mexico. Unrestricted freetrade may compel the Canadian state to reduce social programs in order to 'match' its policies with that ofits tradingpartners (Hum, 1988:25-26; Drover, 1988:49-50). In the process, social programs such as Medicare may be revamped in such a way as to mirror systems south of the border. While the issue of 'policy harmonization' amongst free-trading nations remains the subject of much debate, recent evidence suggests that there is indeed a linkage between trade liberalization and social policy harmonization (see Drover, 1988). Under free trade agreements, nation-states struggle to create, at the very least, a 'level-playing field' so that domestic capital is not encouraged to moveto areas wherewages are lower, environmental standards less stnct, labour policies more anti-union, and taxes lower. This situation thus creates a downward pressure on social policy as a country like Canada is forced to compete with the United States and Mexico where programs are much more pro-business. In Canada, recent changes in the health-care system reflect the real dangers of policy harmonization. Since the signing of the CUSFTA, health- care workers have seen an increase in layoffs, privatization, and the contract- ing-out of services, while the public has witnessed hospital closures, cuts in services and the elimination ofmany procedures from public health insurance plans. The federal government has slashed health-care funding in an effort to Macdonald/Free Trade and Social Policy Reform cut its deficit, and 'user-fees' have been introduced by several provincial governments (Fuller, 1 993 : 1 6- 1 7). Policy harmonization in the area ofhealth-care means that Canada may be moving to a multi-tiered American-style system in which some services will be privatized, some doctors will opt-out, and user fees will be the norm. Private specialized clinics already exist in Alberta and it may not be long before other provinces pursue such policies as a way of dealing with rising health-care costs. The move to a privatized, decentralized and fragmented system, moreover, will help serve the needs of large health corporations and insurance companies who favour a competitive health care 'market' in which there is room, free from 'intrusive' state management, to reap profits. In the process, however, a two-tiered medical system may soon emerge: a hollowed- out publicly financed one for the poor, and a capital-rich privately controlled system for the wealthy. Free Trade and the Future of the Nation-State Debates around free trade pacts have also noted that such agreements tend to undermine the sovereignty ofnations, placing political power in the hands of transnational corporations or non-elected transnational agencies controlled by corporations. With the increasing ability of capital to move from one jurisdiction to another, nation-states are more than ever pressured to appease the interests ofcorporations, often to the detriment oftheir citizens . In the age offree trade, then, the ability ofthe nation-state to pursue progressive social policies may be curtailed by the growing political and economic power of capital. Consequently, whenthe Canadian state develops social welfare policies in the future, such policies will not only have to abide by the rules set out in the text of CUSFTA and NAFTA, but they will also have to be structured in a way that benefits and promotes capital accumulation. For Canadians to become more competitive in the 'global economy,' social programs may increasingly be seen as a way to entice foreign investment. For example, recently there has been some discussion about proposals, initially tabled by