Can Canada Compete as a System?
My Muted Optimism for a Deming-Style Transformation at Home
We have grown up in a climate of competition between people, teams, departments, divisions, pupils, schools, universities. We have been taught by economists that that competition will solve our problems. Actually, competition, we see now is destructive. It would be better if everyone worked together as a system, with the aim for everybody to win.
Deming, Dr. W.E. The New Economics. 2nd ed (p. xv), 3rd ed (p. ix)
What he taught in Japan did not exist in America. He did not export to Japan American methods. He taught there the principle of a system. Japanese management and engineers listened and learned, put into practice what he taught. He relied on cooperation between people and between companies. Cooperation has always been in Japan a way of life.
The boundary of the system would be all Japan, Deming taught them. Companies must work together in cooperation. As you learn, teach others. The transformation in Japan must be a prairie fire covering the whole country.
(End of statement by Dean Seebass.)
Ibid. 2nd ed (p. 62 ), 3rd ed (pp. 43-44 )
THE AIM for this post is to share some thoughts I’ve had about whether a transformation, like the one Dr. Deming ignited in 1950s Japan, could be replicated in modern-day Canada, with all of its blessings and “head-start”. Given our hackneyed reputation as a “nice” people, it might surprise some to know that despite outward appearances, we’re not exactly cooperative with each other as a nation, and that gives me pause about our ability to transform.
This is something I’ve been ruminating on for a long time as a consultant and coach who has urged leadership to follow Deming’s lead. It seems that despite our identity as “not America” we place a premium on the ideals of American-style competition and protectionism to solve our problems, from cellphone plans to groceries, and as I wrote about earlier this month, punitive tariffs on foreign products that buy us “temporary reprieves”.
It seems that the components of our system work at odds with each other, rather than cooperatively with the aim to improve.
Nowhere is this more evident than in how we function as a nation composed of ten provinces and three territories. What began as an idea at a conference in 1864 to band together into a cooperative union has, 160 years later, become tense, frayed, and competitive, with one partner always agitating to leave despite being represented in the House of Commons with 32 33 seats.
While our current federal government has some blame to share in this situation, the provinces themselves aren’t faultless, either. Some, as we will see in the curious case of Gerard Comeau, like New Brunswick, go out of their way to enforce ancient protectionist laws that prima facie go against our constitution’s provisions for free trade, drawing dark lines around their boundaries in a manner that reminds me of Dr. Nida Backaitis’ illustration in The New Economics about how to destroy a system by isolating the parts:
Canada was founded on the premise of economic cooperation: whither did that promise go? To answer this, we need to go back to first principles and ask a fundamental question…
What is the AIM of a Nation?
Dr. Deming provides us with the following definition of a system in The New Economics:
What is a system? A system is a network of independent components that work together to try to accomplish the aim of the system.
A system must have an aim. Without an aim, there is no system. The aim of the system must be clear to everyone in the system. The aim must include plans for the future. The aim is a value judgment. (We are of course talking here of a man-made system).
2nd ed (p. 50), 3rd ed (p. 35-36)
Deming goes on further to define a system as having a boundary, which is relevant for our purposes:
Boundary of a system. The boundary of a system… may be drawn around a single company, or around an industry, or as in Japan in 1950, the whole country. The bigger the coverage, the bigger the possible benefits, but the more difficult to manage.
2nd ed (p. 55 ), 3rd ed (p. 39)
What, then, is the aim of a nation like Canada? What are the benefits of joining together versus standing separate and apart?
Canada, as we know it today, began as a conference in 1864 sponsored by Britain to organize its maritime colonies into a self-managing union. Participants included representatives from Prince Edward Island, Nova Scotia, and New Brunswick with the Province of Canada (now Ontario and Quebec) joining in later conferences. These efforts would lead to our founding as a nation through the British North America Act which was officially adopted on July 1st, 1867, which we observe as “Canada Day”.
The aim for establishing Canada was to create a strong, self-governing, federation capable of managing its own trade, defense, and political affairs while preserving British cultural and political traditions and institutions, like the Westminster Parliamentary System. A vital part realizing this federation would be an intercolonial railway to enhance trade among the provinces and make it easier to move goods to and from the ports on the east coast, providing the foundations of economic cooperation between the provinces in the newborn nation.
Section 121: Ensuring Economic Cooperation
A key provision in the act to establish Canada was and still is s. 121 which establishes free trade among the provinces. It states:
All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.
The aim of this provision is to promote economic cooperation between the provinces rather than despoiling protectionism and adversarial competition within the land. Sensible policy for sensible times — at least, that was the original intent. In practice, in the years since the founding of Canada, s. 121 has proven to be less-robustly observed and upheld, and more vigorously ignored and challenged, owing I think in large part to the imprecision of the English language and the willingness of the provinces to prioritize their own selfish interests over the aim of the nation.
This will become evident as we go on…
The Curious Case of Gerard Comeau
In 2012, a Tracadie, New Brunswick man by the name of Gerard Comeau began what he thought would be a routine trip to Pointe-a-la-Croix, Quebec and back to purchase beer and liquor, but would end years later at the Supreme Court of Canada in a case over whether provinces were held to an absolute definition of s. 121.
Like many of his fellow citizens, Comeau made this 360 km round-trip to avoid paying the markups charged by the provincially-run liquor stores in his home province which could be up to 50% higher. Unfortunately, in so doing, he was also running afoul of an obscure, Prohibition-era law, s. 134(b) of the New Brunswick Liquor Control Act, that strictly limits the amount of alcohol an individual can “import” from any other province to no more than a bottle of wine or 12 pints of beer. (NB: this law doesn’t apply to imports from the US: figure that one out…)
After loading up his van with over a dozen cases of beer and two bottles of liquor (it’s a 2h drive each way, so you better make it worth your while), Comeau began his long trek home. Unbeknownst to him, he was being watched by officials in Quebec who were coordinating with the RCMP in New Brunswick who in turn pulled him over not long after crossing back over the provincial boundary.
Comeau was issued a $300 fine for his first “offence” which, to his credit he decided, with the aid of the Canadian Constitution Foundation, to fight in court on the basis of the New Brunswick law violating s. 121 of the constitution. In 2016, he was vindicated by a provincial court justice who dismissed all charges in a lengthy decision that agreed the law was unconstitutional. His victory was short-lived, however, as the Province appealed to the Supreme Court of Canada and ultimately prevailed in a 2018 decision that s. 121 does not, in fact, impose absolute free trade across the country.
In its ruling, the Supreme Court noted that provinces could enact laws that incidentally affected inter-provincial trade, eg. “health and safety” regulations so long as they weren’t directly-aimed anti-free trade measures: Hello, loophole!
The court was also concerned, rather bizarrely, that an absolute interpretation of s. 121 could “jeopardize agricultural supply management schemes, public health-driven prohibitions and environmental controls”.
So, case-closed: according to the justices, we never really had a broad principle of economic cooperation to begin with because we believed we all held the same operational definition of what “admitted free into each of the other provinces” meant.
Is Canada… a System?
Let’s wheel this post back to my original questions: is Canada a system in the Deming sense in that its parts cooperate to accomplish the aim? It’s not totally a black-and-white answer, but I think Comeau’s case illustrates a significant legal, if not culturally-reinforcing barrier. If the components of the system can invoke the Comeau decision to fortify their boundaries against other provinces, we have de facto enshrined the principle of adversarial competition and protectionism over interprovincial cooperation into the constitution and weakened ourselves for the bargain—and this plays no small part in our productivity crisis.
Indeed, while the Comeau decision centred on beer and liquor sales, these are just one of several warning signs in the larger issue of Canada’s internal trade barriers. For the past few years the Canadian Federation of Independent Business (CFIB) has highlighted the country's economic fragmentation in its annual State of Internal Trade reports. Beyond “cross-border” alcohol trade SNAFUs, the CFIB identifies labour mobility and exceptions to the Canadian Free Trade Agreement (CFTA) as the top obstacles to economic cooperation, estimating forgone gains at around $200 billion. As Keyli Loeppky, CFIB’s Director of Interprovincial Affairs, wryly pointed out in an interview, it is often easier to trade with the United States than to do business across provincial or territorial lines in Canada. Let that sink in.
In The New Economics, Dr. Deming effectively describes our current state from his vantage point way back in 1993: we’re not a system by the definition of the Comeau decision because we’ve taken our hands off the wheel for a long time:
Management of a system therefore requires knowledge of the interrelationships between all the components within the system and of the people that work in it.
A system must be managed. It will not manage itself. Left to themselves in the Western world, components become selfish, competitive, independent profit centres, and thus destroy the system.
2nd Ed (p. 50), 3rd Ed.(p. 36 )
Our “management” on this file has been absentee, it would seem.
Nevertheless, as the CFIB report explains, Manitoba and Alberta, are actively taking the lead in dismantling trade and regulatory barriers. However, others, such as Quebec and the eastern provinces, remain deeply invested in maintaining theirs.
In addition, as noted in their reports, the creation of the Canadian Free Trade Agreement (CFTA) in 2017, along with the Regulatory Reconciliation and Cooperation Table (RCT), has laid the groundwork to address our interprovincial regulatory differences. Yet, the Comeau decision continues to cast a shadow of doubt over whether Canada can fully embrace the kind of sweeping transformation needed to tackle our productivity challenges, akin to Deming's revolution in Japan. The solution is within our grasp—but only if we can get out of our own damn way.
Rx? Individual Acts of Leadership
Earlier this year I wrote an open letter to the Sr. Deputy Governor of the Bank of Canada (response still pending…) about substituting a different style of leadership to meet our productivity crisis, which she was speaking to business about at the time. Rather than going back to the “old economics”, I made my case for “The New Economics”. A big part of this is changing the way we think about our interactions.
Canada was founded on the principle of cooperation for mutual benefit and aid. Written into our constitution is an artifact of that simpler time, s. 121, that proscribes inter-provincial protectionism, and yet, as we learn in the Comeau Decision, 157 years later this has not been uniformly observed. Over time we’ve drifted from this north star.
So, where do we begin to transform a nation and re-align it with its founding aim? Cooperative instruments like the Regulatory Reconciliation and Cooperation Table are a good start, but not enough. Do we wait for a First Ministers’ Conference or an Act of Parliament to sanction our efforts? Definitely not: as Dr. Deming offered in his deliberations with management: Support is not enough: action is required.
As Deming in education expert David Langford aptly notes, "You are always at the top of some system, so begin there." We could look to the examples of Alberta and Manitoba who are making great strides dismantling their trade and regulatory barriers, with our political and institutional leaders playing a part in facilitating the “connective tissue” to share this knowledge broadly.
In The New Economics, Deming references a passage from Dr. William Ouchi’s book, The M-Form Society where he describes the stark difference between an American-style industry conference he attended where fishing and golfing were the top activities, while their Japanese analogs were using such opportunities to design products and revise export policies - together as a system (2nd Ed. pp 55-56. , 3rd ed pp. 39-40). Ouchi concludes by asking: “Who do you think will be ahead five years from now, you or your Japanese competitors?”
Could such a thing happen here? Absolutely, but it would take leadership for us to get beyond our prevailing way of thinking about adversarial competition and protectionism as the solution for our ills. As Dr. Deming quotes from Bill Scherkenbach: (North) American management must still learn that in order to compete, they must learn to cooperate. As long as we have decisions like Comeau urging the opposite, we have our work cut out for us.
With a possible Federal election in the wings for 2025, I think we’re well-positioned to begin transforming, but I am not optimistic that we will if we wait for our leaders to do something for us. We must lead ourselves wherever we are as we are all components of systems within larger systems within still larger systems. This would, with the right theory of management, go a long way toward a much more prosperous future where we punch well above our weight and do not wait around for someone to invent something for us to sell: we begin the innovation and invention right here, just as the Japanese did in 1950—starting with how we cooperate and compete as a system.
What do you think?
The Miro Board
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In the board for this post you’ll find goodies like the original SCC Comeau Decision, news articles from the time, and the CFIB’s past three annual reports on the State of Internal Trade along with a comparative analysis I got from ChatGPT4o that wasn’t half-bad.
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