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Briefing Paper : What's in Store on the Other Side of Quebec? : * Financial trauma? A U.S. merger? A look at how looming change could rock Canada's Atlantic provinces.


HALIFAX, Canada — Quebec's push for sovereignty casts a long shadow over Canada's four so-called Atlantic provinces, scenic but underdeveloped Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland.

Polls show that the residents of this picturesque realm are all but oblivious to the prospect of a major change in the Canadian confederation. But economists say that if anybody should be worrying about the future in a divided country, it is the people here.

"I'm not sure people have realized how serious the situation is," said Ralph Winter, an economist at Acadia University in Wolfville, Nova Scotia. "The rest of Canada is becoming less and less concerned about the economy of this region. I'm sure the day after Quebec separates, you'd have (Ontario) Premier (Bob) Rae saying, 'Oh, we'll look after our friends and fellow Canadians.' But within a year, the rot would set in."

THE MOOD IN QUEBEC. Since the summer of 1990, Quebecers have been clamoring for a new arrangement with what they call "English Canada," one that would give their province vast new political powers, or perhaps even outright independence. And in March, the Quebec provincial government promised to hold a referendum on sovereignty by the fall of 1992.

That doesn't mean Quebec's independence is inevitable, though. Quebec's government has also invited the rest of Canada to come up with new power-sharing arrangements that might keep the country together. It has pledged to consider all reasonable suggestions before the referendum is held.

The two-pronged Quebec approach has made it difficult to predict whether the Francophone province is staying or going. Some observers think the government's position is a mere bargaining ploy--a way of pressuring the nine English-speaking provinces into negotiating a massive decentralization of governing power in a still-united Canada.

Others argue, though, that Canada's resentful English-speakers will never come up with an acceptable formula in time to meet Quebec's deadline and that the sovereignty referendum will go ahead.

Whatever happens, it's a good bet that Canada's political structure will undergo significant change in the coming months and years--probably a new federal dispensation that involves the transfer of major powers to the provinces.

"Most people tend to favor the status quo, but that's not possible," said Fred Morley, senior policy analyst for the Atlantic Provinces Economic Council in Halifax, Nova Scotia's capital. "We're going to change, whatever form it's going to take."

LESS FOR THE "HAVE-NOTS." Atlantic Canadians have long assumed they are best served by a strong, centralized federal government. After all, by far the biggest components of the regional economy are the Canadian military, the coast guard, hospitals, universities and the fisheries--all of which are either run by the federal government or heavily subsidized by it. If the federal government were weakened, the economy here would be compromised as well.

Even more important, Canadian public policy calls on the federal exchequer to make generous payments to the less-developed, "have-not" provinces. Atlantic Canada has done exceedingly well under this longstanding arrangement. Its individual citizens get federal payments--generous beyond any comparable social program in the United States--in the form of pensions, disability benefits, unemployment compensation and other transfers.

The provinces themselves get "conditional" transfers, in which Ottawa makes payouts on the condition they run their hospitals and schools in line with federal standards. And there are the unconditional "equalization" payments, a unique Canadianism in which the federal government relies on revenues from the richer provinces to make no-strings-attached payments to shore up the poorer ones.

The federal government also engages in some high-profile efforts to promote small business in the Atlantic provinces. Here in Nova Scotia, for instance, federal money has recently helped one company develop a new electronic parking meter for export and another to retool its leather works and prepare a successful bid to supply belts for the Royal Canadian Mounted Police.

The federal government has also underwritten the salaries of new university graduates hired by companies that needed engineers and other technicians but couldn't afford to hire them on their own.

"These types of transfers are vital to Atlantic Canada," Morley said. "Should they disappear, heaven forbid, the consequences would be quite severe."

But that is just what analysts now fear: If Quebec succeeds in dismantling the federal system and transferring broad economic powers to the provinces, then the federal mandate to sustain the poor provinces will go by the wayside.

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