The Past Speaks

Since November 2024, Canada has seen a very visible revival of anti-American nationalism. Pride in being Canadian rose sharply as tariff threats and bellicose rhetoric from the United States pushed many voters and consumers into a “Buy Canadian” mood. I have never liked this sort of nationalism, and I do not like its latest incarnation either. The reason is straightforward. Nationalism is rarely just sentiment. It is usually the political language through which distributional coalitions demand protection, preference, subsidy, exclusion, and symbolic deference. Patriotism, in the older and more honourable sense, is something else. A soldier accepting modest pay for dangerous service (WWI soldiers earned less per day than they could have got in civilian life), or an athlete giving time and effort for national representation (many Olympic athletes are unpaid), is contributing to a common enterprise. People who voluntarily donate to special charities set up to pay off the national debt also fall within that definition of patriotism. That sort of patriotism is a close cousin of the civic-minded person who donates lots of money to local charities in their will. Nationalism, by contrast, all too often becomes the banner under which cartels and other organized producer groups demand that everyone else pay. Economic nationalism is bad when it is undertaken by the representatives of capital. It’s bad when it is undertaken by the representatives of organized labour, as when a faction within the Canadian branch of a pan-North American “international union” calls for the formation of a distinctly Canadian union. It’s also bad when it is undertaken by artists and intellectuals, as when there is a campaign to make replace US novels like Kill a Mockingbird with Canadian ones in the high school reading curriculum of a Canadian province.

The best framework for understanding this comes from Mancur Olson, the American economist and social theorist best known for his work on collective action and the political economy of organized interests. Olson first became famous for The Logic of Collective Action in 1965, but the key work here is his 1982 book The Rise and Decline of Nations. Its central insight was that stable societies with long histories of freedom of association accumulate what he called distributional coalitions: organized groups small enough to overcome collective action problems and cohesive enough to lobby for advantages at the expense of the larger economy. These are not merely “interest groups” in the harmless civics-textbook sense. They are tariffs, licensing cartels, restrictive work rules, producer boards, regulatory choke points, occupational monopolies, market-sharing devices, and every other arrangement by which a narrow coalition can secure a larger slice without enlarging the pie. The longer a country has existed and has had freedom of association, the more of these growth-destroying distributional coalitions it has. (The UK is a classic case of that and one discussed at length in Olson’s book). Olson’s claim was not that every association is malign, but that societies thick with such coalitions become rigid, slow-moving, and resistant to adaptation. That was part of his explanation for British stagnation: too many entrenched organizations, too many veto points, too much protection of incumbents, too little flexibility. And he used harsher cases too. The Indian caste system and South African apartheid interested him not only because they were morally ugly, though they were, but because they institutionalized barriers, privileges, exclusions, and labour-market rigidities on a colossal scale. In Olson’s framework, apartheid was not just a racist order; it was also an extreme machinery of distributional protection: the concept of the “white race” was used in South Africa as the basis of a sort of meta-coalition of interest groups who enriched themselves in ways that actually reduced total GDP.

Albert Breton had already produced similar insight before Olson published that 1982 book. Breton was a Canadian economist associated with public choice and the economic analysis of political institutions. His key essay here is “The Economics of Nationalism,” published in the Journal of Political Economy in 1964.

Here is a key passage from the first page of his paper:

It is the object of this paper, first, to show that societies in which political nationalism exists in vest resources in nationality or ethnicity; second, that these investments are made because they are profitable; and third, that they are not profitable for everyone in a society but only for specific and identifiable groups. Taken together, the second and third points mean that investments in nationality are not so much income-creating as income-redistributing.

 Breton treated nationality as something with instrumental political uses: a way of organizing claims, creating barriers to entry, tilting the competitive playing field, justify corporate welfare, allocating benefits, and defining the boundary between those entitled to favoured treatment and those who are not. That is why Breton is so useful. He allows one to see nationalism not simply as a spontaneous expression of collective feeling, but as a political technology for constructing an in-group within which transfers, protections, controls, and privileges can be justified. Put in somewhat stark terms, Breton says that a nation is simply a coalition of individuals and groups of individuals who have decided to call themselves a nation so they can command resources. Olson supplied the broader theory of how organized minorities immobilize economies and reduce GDP; Breton, writing a bit earlier, supplied a way of seeing nationality itself as one of the most powerful organizing devices such minorities can deploy in ways that enrich individuals (particularly the most strident nationalists) while making the world as a whole poorer. Put the two together and nationalism looks less like a mysterious force of history and more like a meta-coalition: a coalition of coalitions, held together by a shared claim that the protected insiders are “the nation” and the political system ought to protect the interests of producers who are part of the nation. On that reading, Canadian nationalism and U.S. nationalism can function as a passport-based legitimating ideology for domestic producer interests, while Quebec or French-Canadian nationalism can function as an ethnolinguistic legitimating ideology for a differently bounded but structurally similar set of producer interests.

That is why the recent surge of economic nationalism in Canada should worry anyone who cares about prosperity. (Quebec economic nationalism, which seeks to shield producers in Quebec from competition from both U.S. firms and firms in English-speaking Canada, also appears to have surged). Once nationalism is politically activated, even if it is in response to someone else’s nationalism, the queue of suitors forms immediately: firms wanting procurement preference, individual workers who want foreign workers to be excluded from their little corner of the labour market (e.g., the Canadian academics who argue that there should be a crackdown on the hiring American citizens by universities), incumbent firms (the chartered banks with lousy customer service) wanting foreign rivals kept out, cultural and tech interests wanting “sovereignty” policies, and ministers wanting to dress industrial favouritism up as nation-building. One can already hear the old corporate welfare music returning: not healthy competition, but shelter; not openness, but strategic insulation; not boosting hourly productivity and TFP, but a patriotic vocabulary for old-fashioned rent-seeking. The danger is not merely a few wasteful programs. It is that a broad Canadian nationalist distributional coalition will use the current mood to entrench a whole latticework of costly procurement rules, local-preference schemes, technology nationalism, and retaliatory symbolism that lowers productivity, reduces GDP, and makes preservation of CUSMA more difficult. The demands the US is making on Canada in CUSMA negotiation are pretty reasonable and include getting rid of dairy supply management, something that should be done anyway.

In its defence, Canadian nationalism does at least have one redeeming feature: it can undercut Quebec nationalism and the narrower, and thus more prosperity destroying, producer coalitions that shelter beneath that flag. But one should not confuse the displacement of a provincial rent-seeking coalition by a national one with a victory for economic openness and rationality. It may simply be a cartel merger on a larger territorial scale. Needless to say, U.S. economic nationalism, or even the movement for a tariff-ringed Fortress North America (a sort of economic nationalism for the nation of North America) is also prosperity-destroying, albeit less so simply because the units are larger and more natural. For the record, I’ll note here that I was opposed to Brexit: I’m aware that the EU has some economic nationalist tendencies that have resulted in external tariffs, but the net prosperity-destroying effect of European nationalism is less than that of nation-state nationalisms, such as the drive to take the UK out of the EU and then impose protectionist restrictions on, say, French cheese exports to the UK.