How Canada's Political Culture Corrupts Canadian Values

Myth: Governments are not as corrupt as Enron
Fact: Enron, meet Adscam

A Nation of Serfs
How Canada's Political Culture Corrupts Canadian Values
Mark Milke
272 pages , $26.99
Published by John Wiley & Sons, 2006

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A Nation of Serfs is copyrighted material. This excerpt courtesy of John Wiley & Sons. No further reproduction, transmission, or downloading permitted. Mark Milke © 2006

"If the headlines show us anything, it is that the greed and cooked books of the corporate world are no substitute for public services." -- Jack Layton, speaking then as a candidate for federal New Democrat leader, on the Enron scandal, in 2002.

"The Auditor General is obviously dismayed to learn that Public Works and Government Services Canada agreed to pay fees and commissions to communications agencies for their services in transferring funds from one department or agency of the Government to another, with little in the way of work or services required other than the transmission of a cheque." -- Auditor General Sheila Fraser, as cited by Justice John Gomery in his report on the sponsorship program scandal, in 2005.

The politicians get lucky

If there was ever a case of a misplaced superiority complex, it came in the triumphal crowing over revelations of accounting shenanigans and fraud in the business world. Shortly after the Enron−WorldCom corporate scandals broke in the United States, Jack Layton, then running to become federal New Democratic Party leader, asserted that "the greed and cooked books of the corporate world are no substitute for public services."

Canadian Labour Congress president Ken Georgetti predicted the CEO scandals would revive the moribund labour movement. Some in the media also chirped in. In a column entitled "Activist government becomes relevant again," Ottawa Citizen columnist Susan Delacourt observed that "It is suddenly the job of the public sector to restore the confidence eroded by the private sector."

Closer observers noticed that the most that could be said about Western government since the 1980s, including Canada's, was that they finally stopped a few of the more glaring, unwise interventions from earlier decades--say, running airline, oil and telephone companies. Other than that, judging by the taxes, regulations and multiple other interventions, government activism never caught a flu, much less died; thus, a pronouncement about its glorious resurrection was unnecessary.

But the revelation in late 2001 that Enron overstated (and fudged) more than US$500 million in earnings, along with multiple restatements from other companies, gave politicians an excuse to bash business and trumpet the superiority of government.

The Layton−Georgetti−Delacourt crowd were pleased as the scandals seemed to vindicate a revival of an old-time faith in a priori public-sector superiority. The "new" justification was simplistic but attractive: greed was discovered again in corporate boardrooms and the public should be shocked--shocked!--that excesses could be found where the possibility for great material gain exists.

But public or private, the common factor was the involvement of flawed human beings with all the potential for scandalous behaviour that implies. Moreover, Layton skipped over the experience of fellow New Democrats in British Columbia. There, the Auditor General and other professional civil servants ripped apart the accounting practices, estimates and budget controls of the NDP when that party had its run of the public treasury. The claim of a higher, more moral public-sector caste was a myth.

If one wanted to expand the definition of good governance beyond the obvious (not cooking the books) to not burning up taxpayer dollars, there were excellent historical Canadian examples of massive ineptitude: the government corruption which surrounded the building of the Canadian Pacific Railway is perhaps the most well-known example.

Then there was the nationalization of Petro-Canada, perhaps Canada's largest government waste of taxpayer dollars. In 1991, Peter Foster estimated the portion of Canada's debt associated with that failed political experiment at $14 billion. Even after a subtraction of paid-back proceeds from Petro-Can's later privatization, the inflation-adjusted loss by 2005 was still $12.1 billion. It's not as if Pierre Trudeau, Jack Austin and Maurice Strong ever woke up in a cold sweat, worried they'd one day wear prison stripes for their role in that boondoggle.

Quick! To the head of the parade!

That the embarrassment and prosecution of fraudulent CEOs and their accountants was deserved was self-evident. But from Wall Street to Bay Street to Main Street and the smallest of investors, calls for heads to roll proceeded apace with vicious market sentiment strafing the crooks and number-crunching swindlers.

On the biggest scandal, Enron (and its US$63.4 billion in assets) was forced into bankruptcy within six months of the first critical article in the business press about its accounting practices. WorldCom, with US$103.8 billion in listed assets, filed for Chapter 11-bankruptcy protection within one month after it admitted earnings were overstated by US$3.8 billion. Tyco, Bristol-Myers Squibb and Merck had historical results which looked quite impressive--until equity markets became suspicious about their numbers; then, shares in those companies dropped 50 per cent in six months.

Once companies' books were shredded by outside analysts, market reaction was swift, damning and irreversible. By the time the politicians raced to the head of the "reform business ethics" parade, it had already been underway for some time. The initial questions about Enron's books originated with Barron's and other Wall Street analysts and publications, not with Washington, D.C.; and it never came from a Canadian federal government--which would shortly have its own multiple Enron-like shenanigans to answer for.

The Canadian political pot calling the corporate kettle, um, Black

The reaction of investors in specific, and markets in general, to shoddy corporate accounting was in sharp contrast to what some politicians have done over decades and the rarity with which they have faced similar chastisement. Any casual observer could come up with several examples of improper government accounting. The acronyms and names are now as familiar to Canadians as those of their children, the latter of which are arguably far better behaved than some who ran federal agencies over the past decade such as Human Resources Development Canada (HRDC), the gun registry, or government sponsorship programs.

The key difference between political fraud and mismanagement is that retribution for business incompetence and cooked books is dealt with swiftly once known. In Canadian politics, politicians mismanage files for years before they might be held to account by the electorate.

Unlike stock markets, shareholders and prosecutors who execute errant companies and chief executives and financial officers with the zeal of French revolutionaries in 1789, voters and Canadian courts have rarely shown such diligence with errant politicians, appointed politicos and civil servants.

That might be because a four-year lag exists between what elected officials can get away with and when they have to account for it. Perhaps it's because the voting public is too cynical and thus accepts lower standards in political life than they would from a CEO. Or there's the reality of limited political choices. Whatever the reason, Canadian political practitioners of lower ethics can massage numbers and divert cash in the comforting assurance that they will rarely be held to account by voters or the courts.

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Mark Milke is a public policy consultant, author and freelance columnist. This article is excerpted from his new book: A Nation of Serfs How Canada's Political Culture Corrupts Canadian Values, just released by John Wiley & Sons.