Market Forces

Canada’s National Private-Sector Childcare Destruction Program

Peter Shawn Taylor
June 22, 2022
The laws of economics are crystal clear about what happens when prices fall dramatically. Demand rises in step. Such will be the inevitable result of Canada’s new national childcare program as parents respond to heavily-subsidized fees that will eventually drop to a mere $10 per day. But unless the supply of childcare spaces increases in equally dramatic fashion, chaos awaits. Talking to daycare operators across the country, Peter Shawn Taylor charts the troubled rollout of Ottawa’s new childcare policy, the role played by the Trudeau government’s open hostility towards the private sector and what the future holds for Canadian families.
Market Forces

Canada’s National Private-Sector Childcare Destruction Program

Peter Shawn Taylor
June 22, 2022
The laws of economics are crystal clear about what happens when prices fall dramatically. Demand rises in step. Such will be the inevitable result of Canada’s new national childcare program as parents respond to heavily-subsidized fees that will eventually drop to a mere $10 per day. But unless the supply of childcare spaces increases in equally dramatic fashion, chaos awaits. Talking to daycare operators across the country, Peter Shawn Taylor charts the troubled rollout of Ottawa’s new childcare policy, the role played by the Trudeau government’s open hostility towards the private sector and what the future holds for Canadian families.
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After a 27-year career as an elementary school teacher, Maggie Moser took early retirement in 2017 to fulfil her lifelong goal of running a daycare that combined her love of musical education with the Reggio Emilia system of child-centred learning. The result was Blossoming Minds Learning Centre on Danforth Avenue in downtown Toronto, providing 147 much-needed childcare spaces in one of the city’s worst “daycare deserts.”

Moser, who co-owns the facility with her niece Krista Dahlgren, says they briefly considered operating as a non-profit, but rejected that idea when it became clear she wouldn’t be able to raise the required $1 million investment without the promise of future income. Then again, maximizing income was not her main motivation. “This was our dream and we had very personal reasons for opening our centre,” she says. “If we’d wanted a business for purely economic reasons, we would have opened a Tim Horton’s or gone into real estate.”  

They had a dream: Maggie Moser (on right) and her niece Krista Dahlgren (on left) opened the Blossoming Minds Learning Centre in downtown Toronto in 2017, providing 147 much-needed daycare spaces in downtown Toronto. (Source of left photo: Facebook)

Despite the fact for-profit daycares such as Blossoming Minds are denied access to most provincial subsidies by City of Toronto fiat – one of many ways in which governments discriminate against her sector – Moser’s facility was habitually filled to capacity and her wait list grew to nearly 600 names. Whatever ideological reason the city may have had for shunning her, it’s obvious the parents she served didn’t feel likewise. Running her own daycare also ensured that her grandson, who attends Blossoming Minds, would receive the best childcare a grandmother could offer.

Then came Covid-19 and its catastrophic effect on the entire sector. “The pandemic was such a bleak time for childcare centres,” Moser recalls grimly. One bright spot was the Trudeau government’s 2021 budget promise of $30 billion for childcare across the country. “When I heard the budget announcement, it seemed so hopeful. We were thrilled,” Moser recalls. “Working women like me have wanted a national childcare program for so long. Now it seemed like they were really doing it.” She was also heartened by the budget’s promise to help female entrepreneurs like herself.

Moser was further reassured when Ontario finally signed on to the Trudeau government’s plan in March 2022. Despite Ottawa’s claim that its expansive new national system would be “primarily not-for-profit,” the province’s news release pledged “protection of all for-profit and non-profit childcare spaces, helping to support predominantly female entrepreneurs across the province who provide high-quality childcare services.” Says Moser, “I saw that line and it was a relief to be recognized as an important part of the Canadian childcare system. It was very positive.”

Her rosy glow lasted just one month, until the Ontario government released the implementation details of its agreement with Ottawa. Then she realized she was no longer being recognized or protected as a crucial component of her province’s childcare system. Rather, it appeared she’d been targeted for extinction.

Hitting a sour note: Despite her initial enthusiasm for Ottawa’s national daycare plan, Moser (pictured at her childcare centre) was shocked to discover that the fine print in Ontario’s childcare deal will make it impossible for her to operate as a profitable business.

According to Moser, the finer points of the Canada-Ontario deal make it impossible for her to continue to operate Blossoming Minds as an economically-viable business. This is because it would give hostile city bureaucrats sweeping power over her day-to-day operations as well as her long-term survivability. The deal all-but-ensures an absence of profit throughout the entire for-profit sector. “I will no longer have control over my business,” says Moser. “And my life savings are riding on this centre.”   

Given how similar deals have rolled out in other provinces, making it impossible for private-sector operators to participate may have been the federal government’s intention from the start. Such a stance may cater to the small but vocal cadre of childcare activists who claim for-profit childcare is somehow untrustworthy or illegitimate. But this ideological position comes with big costs. As Moser and many other providers point out, actively pushing entrepreneurs out of the federal childcare plan will not create a non-profit utopia. Rather, it will doom the entire national daycare project to chaos.

Unless most provinces take immediate action to embrace the private sector, Canada will end up with a two-tier childcare system marked by massive country-wide waiting lists, huge disparities in fees and many, many angry parents. Anyone who questions the likelihood of such a scenario need only look to Quebec. The same thing happened there 25 years ago.

The Landmine on Page 14

The 2021 federal election was widely panned for its preservation of a status quo Liberal minority propped up by an NDP rump. It did, however, provide clarity on at least one significant policy issue. The Liberal and NDP election platforms promised nearly identical childcare programs requiring massive government subsidies handed to the childcare industry. The Conservatives under Erin O’Toole countered with a refundable childcare tax credit for all parents. The Tory plan would have provided a benefit to many more families – 40 percent of Canadian children are raised at home by parents and another 30 percent attend informal childcare arrangements with relatives, meaning fewer than one-third use formal childcare. Nevertheless, the resulting Liberal-NDP sequel delivered a national daycare plan that will provide billions of dollars in subsidies exclusively for the benefit of parents who choose to put their kids in childcare centres.

From platform to policy: Prime Minister Justin Trudeau’s election promise of $10 per day childcare is rolling out across the country after his government signed Canada-Wide Early Learning and Child Care (CWELCC) agreements with all Canadian provinces and territories. (Source of bottom photo: Julien Lecacheur/ Radio-Canada)

The new $30 billion-five year federal program has two main components. First is the lowering of parental fees to $10 per day by 2026, with an initial reduction of 50 percent by the end of this year. This requires that each province create a new subsidy system to ensure participating childcare centres can operate as going concerns while charging parents the new lower rate. In theory, for-profit operators are eligible to participate in this process alongside non-profit centres. Second is a massive increase in the number of spaces in every province necessary to meet the expected demand unleashed by this new, lower price. The federal government famously insists any growth in capacity must come “primarily” from the non-profit sector.

Despite the federal government’s stance favouring non-profit delivery, it bears mention that in all provinces non-profit and for-profit centres are subject to identical regulations, licensing procedures and inspection criteria. And in most provinces the private sector forms the backbone of the existing system; in Atlantic Canada, Alberta and British Columbia it represents a majority of all spaces.

Since childcare is a provincial responsibility, putting a national childcare plan into action required a series of federal-provincial agreements, called Canada-Wide Early Learning and Child Care agreements (CWELCC). Given the facts of Canadian federalism, each CWELCC is different. But they all bear evidence of Ottawa’s dislike for private daycare operators, and in situations where the federal government had substantial leverage in negotiations, it appears it was able to impose this on the final deal. Ontario was the last province to sign because it wanted additional funds to compensate for its expansive junior kindergarten program. But it also needed to sign a deal prior to the May provincial election in order to keep daycare from becoming an election issue.

An excerpt from Ontario’s 2022 funding guideline for implementing the provincial CWELCC contains a long list of “ineligible expenses” – including debt costs, mortgage payments and property taxes.

This may explain Moser’s shock when she read the agreement’s financial details, outlined in a 74-page addendum explaining how the Ontario government intends to compensate daycare operators for the gap between their costs and what they will earn charging parents just $10 per day. “When I got to page 14, I realized the government was not prepared to cover my actual costs,” she says. The document explicitly states that private operators will not be paid for many large and unavoidable costs that all business owners face. This includes property taxes, debt and mortgage payments, professional fees and retirement packages. Further, the deal gives municipal bureaucrats control over how owners run their business, including setting a maximum allowable profit margin. They will even have the power to dictate when owners can replace broken toys or paint their walls. “There is no room for any profit,” Moser asserts, dismissing the notion of a maximum profit level. “It would be as if we were owned by the government.”

If Moser refuses to accept the government’s terms, she will be forced to opt out of the national plan and thus lose access to any federal subsidies. She would instead have to charge parents her current rates of $75 to $103 per day while competing with non-profits offering their services for a mere $10. Moser, who recently helped form the Ontario Association of Independent Childcare Centres to lobby for changes to the current deal, says she has yet to hear of any of Ontario’s approximately 1,400 for-profit operators who plan to sign the government’s deal. “If you take their option, you will probably go bankrupt,” she says. “Is the purpose here to eliminate for-profit operators?

Note: Quebec’s figures include large after-school programs operated within the school system. For a more accurate calculation of the for-profit sector’s share of total childcare spaces, see Figure 2.

With the private sector contributing 30 percent of Ontario’s 290,000 spaces in the crucial infant to five-year old segment of childcare (and a smaller percentage of spaces for school-aged kids), widespread opting-out by for-profit centres will make it extremely difficult for the province to meet its objective of adding 70,000 new subsidized childcare spaces by 2026 while still offering the $10 per day to all parents. The more likely result will be a two-tiered system with some parents enjoying a heavily subsidized fee and others pay much-higher market rates.

In a background briefing, the Ontario Ministry of Education told C2C Journal that it considers the province’s agreement to be a good deal for the private sector, since other provinces signed deals making it much harder for the commercial sector to participate in any federal funding. The briefing also noted the valuable role for-profit operators play in providing affordable and high-quality childcare and that the ministry intends to consult with the for-profit sector regarding its complaints.

If this is an attempt to soothe the situation, Moser remains unimpressed. “They need our spaces to make the system work. It’s foolish to ignore us.” She’s also upset that an industry comprised primarily of women entrepreneurs is being “exploited” in such fashion. “Women business owners are being railroaded into handing over their business to government,” she says.

East Coast Storm

“They want us gone. But they want our spaces too”: Donna Buckland, the owner of four Giant Steps childcare centres in Upper Tantallon, Nova Scotia, considers the province’s CWELCC agreement to be incompatible with the needs of the private sector; on right, Buckland celebrating with Easton Jollimore on his graduation from Giant Steps.

Daycare operators in Nova Scotia feel likewise. Donna Buckland is the owner of four Giant Steps childcare centres in Upper Tantallon, a bedroom community near Halifax. She started in 2008 with a modest before- and after-school care program and now has 302 licensed daycare spaces. “As the community kept growing, we kept building,” she says of her burgeoning chain. “We have grown because there is a need.”

Unlike Ontario, Nova Scotia has traditionally relied on private operators to supply the majority of childcare spaces. And while nearly 60 percent of daycare spaces in the province today are in commercial centres, Nova Scotia’s federal deal appears specifically designed to eliminate the for-profit sector altogether. Buckland notes that the previous Liberal government under Iain Rankin quickly signed the deal prior to the 2021 provincial election that was won by the Progressive Conservatives under Premier Tim Houston. The Rankin government “totally crumbled to the feds on the not-for-profit issue,” Buckland surmises. “They wanted a deal so they could tell voters they were giving parents $10 a day daycare.”

Earlier this year, Nova Scotia’s private daycare operators were told that to participate in the $600 million in federal funding, they would have to choose from a range of options. These included converting their business to non-profit status, taking a buyout and handing their spaces over to another non-profit, partnering with a new government-run “central organization” that would essentially make all business decisions for the owner, or retiring and going to work for this new government organization. None of the options involved maintaining an independent, profit-making business.

“Crumbling to the feds”: Under former Liberal Premier Iain Rankin (left), Nova Scotia signed a childcare agreement with Ottawa that has private sector owners up in arms; now Progressive Conservative Premier Tim Houston’s (right) government must find a way to fix the problem. (Source of right photo: 4napple123, licensed under CC BY-SA 4.0)

Like Moser in Ontario, Buckland says she supports the concept of a national daycare plan and was excited to see it included in the 2021 federal budget. But the options presented to her are entirely unacceptable. If she does not convert to non-profit status, “the government would be setting your price, the wages you pay and all your policies and programming. That’s not a business anymore.” She would be treated basically like an employee. As for the buyout option, she says she would have qualified for a $100,000 payment, a pittance compared to the $4 million she owes on the mortgages on her properties.

To Buckland, the message was clear: “They want us gone. But they want our spaces too.” Without the participation of the province’s nearly 200 private sector daycare operators, it is hard to see how Nova Scotia will be able to add 11,500 net new spaces by 2026 and lower fees as required. It is even conceivable the overall number of childcare spaces could shrink if private operators decide to flee the sector en masse. “The math doesn’t work,” says Buckland. “They can’t afford to lose more than half of the daycares in this province and still make their targets.” Since the deal was first announced, Buckland has worked to mobilize the province’s private sector daycare operators; she says 140 owners have already joined the new organization – signalling a strongly-unified front. “A walk-out is a definite possibility if things don’t start to go our way,” she warns.

According to a provincial government source who spoke to C2C Journal on background, Buckland’s concerns may be getting through. The new “central organization” that was meant to take over for-profit centres was recently put on hold. Daycare operators have also been offered grants this year that are identical to what they received last year, before the federal agreement was signed. And to put into effect a recent 25 percent reduction in daycare fees as mandated by the federal agreement, all operators regardless of ownership model have been offered identical subsidies. Further, a new childcare policy advisory body has been struck, with representation from commercial operators. 

“They are going to have to partner with us,” says Buckland. “The for-profit sector in this country is strong enough that we deserve a seat at the table – there are better ways to do it.” Asked for an example of this better way, her response is succinct: “Alberta’s deal really supports private operators and is not limiting expansion.”

The Alberta Advantage, Childcare Edition

What does Alberta have that other provinces don’t? For starters, a minister who has loudly and vigorously celebrated the advantages of private-sector childcare.

Exception to the rule: Unlike agreements in other provinces, Rebecca Schulz, until recently Alberta’s Minister of Children’s Services, ensured her deal with Ottawa recognized the pivotal role played by the private sector in meeting the demands of families for high-quality, accessible and innovative childcare.

“We were one of the last provinces to sign a childcare agreement. And one of the most important things we were pushing for was that private operators be included in the equation,” says Rebecca Schulz, until recently Alberta’s Minister of Children’s Services, in an interview. (She resigned her post last week to enter the leadership race of the United Conservative Party of Alberta.) In hard-fought negotiations with Ottawa, she says the federal government emphasized its “drive to prioritize public or non-profit childcare.” But Alberta countered with its own priorities. “We made it very clear that nearly 70 percent of our spaces are operated by private operators, often women entrepreneurs,” Schulz says. “And we were never going to leave them out. That was non-negotiable.”

The result is a CWELCC agreement that explicitly recognizes the significance of entrepreneurs to Alberta’s daycare system and allows them to run their businesses as on-going, money-making concerns. Even so, the deal shows signs of Ottawa’s ideological fingerprints. It states, for example, that 42,500 new spaces to be opened in the province by 2026 with federal funding must be exclusively non-profit. This concession was necessary to get the deal done, says Schulz. But she notes with some pride that the definition of non-profit includes home-based daycares which actually operate on a profit-making basis. Consequently, Schulz adds, “We still very much expect to see growth in the private sector.”

Schulz says her province values the “innovation, creativity and nimbleness that private operators provide. We can’t continue to create spaces without having them at the table.” As for the quality argument levelled by many critics of for-profit care, “We pointed out to the federal government that high quality is not necessarily correlated with whether a space is private or non-profit.” Another unique feature of Alberta’s deal is that it adds a parental income test to the $10 per day rate. This is a nod to voluminous evidence that heavily-subsidized daycare spaces are traditionally snapped up by well-off parents who can better negotiate waiting lists. A sliding scale of subsidies ensures that a greater share of the childcare benefits go to low-income families who actually need it.

Room to grow: Shawn Pattison, president and co-owner of Willowbrae Childcare Academy with 30 locations across the country (shown here in front of his company’s Calgary Evanston facility), says it has become impossible to expand in most provinces given current policies; only Alberta distinguishes itself as a desirable location for growth.

If the goal of the national childcare program is to increase accessibility for parents by increasing the number of new spaces while keeping costs low, then the Alberta approach clearly makes the most sense. Shawn Pattison is president and co-owner of Willowbrae Childcare Academy, a chain that provides 4,100 daycare spaces in 30 centres across Nova Scotia, Ontario, Alberta and British Columbia. Given his company’s geographic reach, Pattison is intimately aware of how the private sector is treated in various provinces. He calls Nova Scotia “a very challenging province for operators.” In Ontario, “it will be absolutely impossible to run any sort of business.” B.C., he says, is also making life difficult for private sector operators. Only Alberta distinguishes itself as a desirable location for a new Willowbrae centre, says Pattison. “It is a province where we can continue to operate and expand.” That, presumably, should be the primary goal of any national daycare program.

With its better access to capital as well as flexibility, drive and entrepreneurial ability, the private sector is habitually faster in responding to changes in demand than non-profit operators. Even Ontario acknowledges this fact – its CWELCC agreement with Ottawa makes note that two-thirds of planned new spaces in the province are in the private sector, despite the fact it comprises only 21 percent of current capacity. Private operators are also a crucial generator of innovation within a traditionally hidebound industry. “We are always looking to add value to our families’ experience because the people who provide commercial centres are inherently entrepreneurial, it’s part of our DNA,” Pattison says. He points to Willowbrae’s proprietary “Braeview” technology platform that brings parents, children and centre staff closer by providing access to cameras in every room as well as delivering daily email updates on each child’s activities, naps, meals and more. “It gives families peace of mind,” Pattison says. And you won’t find Braeview at any federally-sanctified non-profit centre.

The Lessons of Quebec

As the provinces roll out their new subsidy systems necessary to implement $10 per day childcare, both Ontario and Nova Scotia, appear to have done so in ways that needlessly alienate their for-profit operators. Whether this is the result of the federal government’s deliberate animosity towards private operators or reflects provincial flaws in policy implementation is unclear. But it will have grave consequences if not corrected. (And there is some evidence these provinces are now rethinking their current plans.) Excluding for-profit operators from the national childcare plan’s first stage necessarily dooms efforts to add capacity in the second stage. If the private sector is forced out of the federal program, this will inevitably lead to an unfair two-tiered system in which families using for-profit centres are unable to access the benefits of the national system. Yet the sheer size of the private sector makes replacing this capacity impossible. Given the promise of universal $10 per day daycare, it is a recipe for widespread parental dissatisfaction and looming political disaster. Most frustratingly, it is not an idle prediction. Canada has been here before.

When Premier Lucien Bouchard’s Parti Québécois government unveiled $5 per day daycare in 1997 (it is now $8.70), its policy goals were nearly identical to those of the Trudeau government today. All spaces with the subsidized rate were to be provided by a publicly-funded, non-profit Centre de la petite enfance (CPE). To meet initial demand, however, the PQ government needed the participation of the 20,000 spaces operated by the private sector, comprising approximately one-third of the childcare system at that time. The initial solution was to try to take them over.

“They wanted [the new system] to be exclusively non-profit,” recalls Samir Alahmad, president of the Association des garderies privées du Québec, an organization representing privately-owned Quebec daycares. “So the PQ government first sought to merge privately-owned daycares into the non-profit system.” Alahmad and his fellow owners rejected such a government take-over outright. 

Forgotten lessons: When Premier Lucien Bouchard’s government created Quebec’s $5 per day daycare program in 1997 it was to be an entirely non-profit system; this soon proved impossible and led to a lengthy conflict with private sector childcare operators. (Source of left photo: Simon Villeneuve, licensed under CC BY-SA 3.0; source of right image: Association des garderies privées du Québec)

“I didn’t want to become a fonctionnaire,” he says, using the French term for a bureaucrat.

That set into motion a year-long political battle between private daycare owners and the Quebec government that included rallies, walkouts, ad campaigns and personal meetings with every member of the Quebec legislature. “It was a big debate and we put pressure, pressure, pressure on the government,” recalls Alahmad. The provincial government finally relented and allowed the owners to remain as independent businesses, although it slapped a five-year moratorium on new private sector daycare licences to maintain a sense of ideological purity.

A workable solution: In 2009 Liberal Premier Jean Charest’s government created a new tax credit for Quebec parents who were using non-subsidized private sector childcare, leading to a huge increase in new spaces.

The result was a temporary truce, but the government eventually discovered it could not meet the burgeoning demand without robust participation by the for-profit sector. An ever-expanding waiting list became a massive political issue for the PQ government as the unionized and strike-prone CPEs proved cumbersomely slow in providing new spaces. In 2002 the private sector was once again allowed to apply for new licences, although no new government subsidies were offered to families who accessed those spaces.

Then in 2009, the Liberal government of Jean Charest resolved the political headache regarding this two-tiered childcare system by offering parents using unsubsidized centres an enhanced childcare tax credit. This credit was designed to be equivalent to the benefit received by families with a child in a subsidized CPE. (Conservative leader O’Toole copied this model for his 2021 platform.) The result was an almost instant explosion in childcare spaces as business owners seized on the new opportunity to serve parents. From fewer than 2,000 non-subsidized spaces in 2004, the sector grew to nearly 7,000 in 2009 and over 50,000 by 2015. The entrepreneurs who operate these spaces now comprise the second-largest component of the Quebec childcare system after CPEs.

Today the Quebec childcare system is majority for-profit according to official provincial figures. This despite the fact it is repeatedly held up as an exemplar by non-profit activists and the federal government. The vaunted CPE system offers 100,000 spaces. Meanwhile, the non-subsidized, tax-credit-supported for-profit sector has 68,000 spaces with 50,000 spaces in the subsidized private daycares represented by Alahmad’s organization and another 66,000 home daycare spaces operated on a for-profit basis by caregivers working out of their homes. All told, just over one-third of Quebec’s entire system can be considered non-profit.

“The [provincial] government realized that without the private sector they could not meet the pressure from families for more spaces,” says Alahmad. He believes the same logic holds Canada-wide in 2022. “If Trudeau thinks he can complete a national system without the private sector, he is dreaming,” Alahmad predicts. He notes that even after the massive influx of new childcare spaces over the past decade from for-profit operators, Quebec is still short 50,000 spaces. As for gripes that the for-profit sector delivers lower-quality service Alahmad, who operates his own 80-space Garderie éducative les Galopins daycare in Laval, bristles. “We provide exactly the same service and quality. Don’t judge me on my ownership status,” he says. “Judge me on my quality.”  

The Trudeau government is “dreaming”: Based on 25 years of experience in Quebec, Samir Alahmad, president of the Association des garderies privées du Québec, says it will be impossible for the federal government to complete its national childcare program without the full participation of the private sector; on right, a playful scene at Alahmad’s daycare in Laval, Quebec. (Source of left photo: Archives La Presse/ Robert Mailloux)

The experience in Quebec offers important evidence on the need to include private sector owners as full partners in the childcare sector. Beyond their ability to respond quicker to changing demand, entrepreneurs also save taxpayers money. Non-profit organizations must rely on slow-moving government grants and other fundraising efforts to build a new centre. Alahmad notes that Quebec recently raised the available capital allowance for new non-profit daycare centres from $1.8 million to $2.9 million. In contrast, the cost of building a new private daycare centre is entirely borne by the owners and investors, who are motivated to open as quickly as possible. In addition to the substantial benefits in start-up capital, private sector operators in Quebec also receive 10 percent to 15 percent per child less in subsidies than CPEs. And CPEs are exempt from some municipal and provincial taxes as well. Yet the entrepreneurial sector still meets the same standards – and makes money. “We are providing a service that is efficient, high-quality and costs the government less,” Alahmad says. Shouldn’t that be the goal of all public policy?

To hard-pressed childcare business owners such as Moser, Buckland and Pattison currently fighting for their very survival against a national daycare scheme that seems determined to shut them down, Alahmad offers a lesson from his own lengthy experience. “My advice is to do what we did in Quebec 25 years ago – you have to sell your model,” he says, once again emphasizing the cost and efficiency advantages of for-profit operators, as well as the bare facts of daycare math. “Governments will never be able to provide all the spaces they need with the Trudeau plan. They will still need the private sector.” 

Peter Shawn Taylor is senior features editor of C2C Journal. He lives in Waterloo, Ontario.

Source of main image: Shutterstock.

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