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.

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.

Alasdair Sinclair, a Dalhousie University economist, has calculated that if all federal payments were suddenly halted, income levels would decline by 21% in Nova Scotia, 36% in Prince Edward Island, 19% in New Brunswick and 30% in Newfoundland, scaring off investors and intensifying the brain drain from the region.

“People wouldn’t be starving,” added Lars Osburg, another Dalhousie economist, “but there would be significant social stresses involved.”

POLITICAL SCENARIOS. Depending on whether Canada merely recasts its political order or Quebec votes itself into independence, there are a number of options for the Atlantic provinces. But none is particularly attractive to the majority of Canadians who live here:

* The region becomes independent itself.

In this scenario, the departure of Quebec so weakens the spirit of the rest of the country that Canada would split into four or five separate, antagonistic states. Wealthy, industrialized Ontario might go it alone, for instance, while Alberta and British Columbia might team up in the far west.

Some think Atlantic Canada would make a logical union, and indeed, a recent poll by Baseline Market Research, of Fredericton, New Brunswick, found that 50% of New Brunswick residents, 49% of Nova Scotians and 56% of Newfoundlanders favor political union for the four Atlantic provinces. (Only Prince Edward Island was lukewarm, with 36% of respondents in favor of such a configuration.)

“There’s a lot of countries in the world with less than 2 million people,” the approximate population of Atlantic Canada, Winter said. “We would have to make extensive adjustments (to survive independently), but we’re going to have to do that anyway.”

An independent Atlantic Canada would have to shed countless overlapping layers of government; for now, the 2 million people here elect a total of 194 legislators, while Ontario, with its 10 million people, elects just 130.

It would also have to design and pay for its own social programs, such as the costly government-sponsored health-insurance system Canadians have come to expect.

And it would have to tear down an antique system of intra-regional trade barriers and learn to cooperate. For now, economies are so protected here that a bus traveler from Halifax to Fredericton can’t even make his journey on a single bus line. New Brunswick won’t permit Nova Scotia buses to ply its highways, so all passengers have to change lines at the border.

* The Atlantic provinces join the United States.

Though it may come as a surprise to Americans, some Canadians think that if their country were to come unglued, the United States would be waiting to snatch up the best parts and make them into states.

Osburg says this idea is a non-starter, however.

“The growth in Canadian nationalism since about 1970 has been really phenomenal,” he said, noting that Canadians are proud not to have sent troops to Vietnam, or to have developed American-style urban squalor in their cities. Young Canadians wouldn’t want to join a country they see as beset with intractable social problems, he said. Nor would Atlantic Canadians be happy to join a country that provides none of the social benefits they now take for granted.

“Anybody under 45 thinks (the idea of Canada joining the United States) is kind of weird,” Osburg said. “I don’t know anybody who takes it seriously.”

* Canada stays intact, minus Quebec.

Winter calls this “the Bangladesh solution,” invoking the name of one of the world’s poorest and most afflicted countries. (Bangladesh was once a province of Pakistan, separated from the rest of that country by the land mass of India. Bengalis felt so oppressed and disenfranchised under the arrangement that they eventually fought a bloody war of independence.)

The Atlantic provinces are a far cry from Bangladesh, but the economy here could take a body blow, depending on how antagonistic the negotiations between Quebec and the rest of Canada become. Winter fears that a nationalistic and belligerent Quebec could exercise monopoly control of all avenues of transportation and communication between the Atlantic provinces and western Canada, charging shippers extortionate rates.

As evidence, he points to Newfoundland, which has substantial undeveloped hydroelectric potential but lacks the means to export power without running transmission lines across Quebec.

Dalhousie’s Osburg is more optimistic about this scenario, and he prefers to liken it to Alaska rather than to Bangladesh. Alaskans, after all, don’t seem to consider themselves political orphans just because geography separates them from the continental United States.

Osburg thinks that Quebec would have a stake in treating the Atlantic provinces decently, since it would want to make Montreal a successful international port on the St. Lawrence Seaway.

Winter doesn’t buy it. “That’s the ‘Quebec will be economically rational’ argument,” he said. “The fact of the matter is that national pride will often come before rational economic behavior.”

* Atlantic Canada joins Quebec.

This would keep Quebec from exploiting the region’s geographic vulnerability. But it’s hard to imagine the Atlantic provinces united with a people whose guiding principle is the preservation of French language and culture in North America. Among the four Atlantic provinces, only New Brunswick is officially bilingual.

That people in Atlantic Canada are even thinking about merging with Quebec “indicates that there is a kind of dramatic rethinking of relationships going on,” Morley said. “Nothing is being written off.”

PREPARING FOR CHANGE. Nova Scotia, for one, has empaneled a group of citizens to travel the province, let people know that some sort of change is inevitable and try to find out in return what new arrangements the public might accept.

A similar effort is under way in New Brunswick, where the premier--once a staunch federalist--is now making noises about accommodating powerful Quebec.

Regional politicians have also taken a stab at reducing trade barriers, with an eye toward a future in which they will have to cooperate. In April, for instance, Nova Scotia, New Brunswick and Prince Edward Island agreed to open up bidding for government contracts to bidders from the entire region, not just their home provinces.

THE BRIGHT SIDE. There is even a small school of thought that says Atlantic Canada would do well to be cut off from the federal apron strings and forced to stand on its own.

These thinkers have it that the massive federal transfer payments have distorted the economies of the region, driving down productivity and eradicating the work ethic.

Winter, for one, tells of the time he had a leaky pipe in his house and called a plumber. Three weeks later, the man showed up.

“I said, ‘Where were you?’ and he said, ‘Well, it was hunting season,’ ” Winter recalled. He blames the generalized climate of entitlement and thinks it would be healthier to cut back the transfers.

Canada’s ‘Have-Not’ Provinces The four provinces on Canada’s Atlantic coast are scenic but underdeveloped. They depend heavily on generous federal subsidies to sustain their citizens’ lifestyles. Subsequently, most Atlantic Canadians back a strong, centralized federal government. Here is a brief look at the people, politics and economics of the provinces: In U.S. dollars

1. NEW BRUNSWICK Capital: Fredericton Area: 45,604 sq. mi. Population: 722,900 Population density: 15.8 per sq. mi. Language distribution: English 63.6%, French 31.8%, other and multiple 4.6% Per capita income: $13,133 (77% of Canadian average) Per capita federal transfers to provincial government: $1,714 (two times Canadian average) Unemployment rate: 12.5% Seats held in Senate: 10 House of Commons: 10

2. NEWFOUNDLAND Capital: St. John’s Area: 251,952 sq. mi. Population: 572,600 Population density: 2.3 per sq. mi. Language distribution: English 98.6%, French 0.3%, other and multiple 1.1% Per capita income: $12,076 (71%) Per capita federal transfers to provincial government: $2,042 (2.5 times) Unemployment rate: 15.8% Seats held in Senate: 6 House of Commons: 7 3. NOVA SCOTIA Capital: Halifax Area: 34,459 sq. mi. Population: 890,200 Population density: 25.8/sq. mi. Language distribution: English 93.2%, French 3.6%, other and multiple 3.2% Per capita income: $14,023 (82%) Per capita federal transfers to provincial government: $1,498 (1.8 times) Unemployment rate: 9.9% Seats held in Senate: 10 House of Commons: 11 4. PRINCE EDWARD ISLAND Capital: Charlottetown Area: 3512 sq. mi. Population: 130,500 Population density: 37.2 per sq. mi. Language distribution: English 93.5%, French 4.1%, other and multiple 2.4% Per capita income: $12,591 (74%) Per capita federal transfers to provincial government: $2,012 (2.4 times) Unemployment rate: 14.1% Seats held in Senate: 4 House of Commons: 4 Sources: Corpus Almanac & Canadian Sourcebook; Atlantic Provinces Economic Council

Note: Population figures for April, 1990. Canadian national per capita income that year was about $17,025. Canadian national per capita federal payment figure for 1989 was $832. Canadian national average unemployment rate for 1989 was 7.5% There are 104 total seats in the Canadian Senate and 295 in the Canadian House of Commons