OTTAWA - On the eve of the Liberal leadership convention, the man charged with leading the party's renewal process has dropped a bombshell by questioning one of liberalism's key convictions -- that government actually works.

In a hard-hitting policy paper obtained by the National Post, Tom Axworthy, a former top advisor to Pierre Trudeau, says there is an "implementation gap" between what Liberal governments promise and what they deliver.

"Liberalism's dirty secret [and it is not so secret these days] is that government doesn't seem to work well much of the time," he says, citing such examples as the 800,000 potential immigrants waiting for their applications to be processed; massive cost overruns at the gun registry; lengthy procurement delays for military equipment; poor water quality on aboriginal reserves; and the Jean Chretien Pledge to Africa Act, which promised to produce generic drugs to help fight AIDS but has yet to export a single pill.

Mr. Axworthy's paper also urges the Liberal party to:

- reject the Conservative motion on the nationhood of the Quebecois because it has "no basis in logic."

- introduce security considerations to Investment Canada criteria to ensure Canadian assets are not sold to state-owned Chinese companies.

- ensure human rights are raised with the Chinese Communist leadership so they know such values are central to a relationship with Canada.

- Reverse the Conservative decision on income trusts, grandfather existing trusts and put a size cap on trusts with tax-exempt status;

- Channel higher-education funding directly to students, in the form of grants, rather than to provinces;

- Offer a Resources Security Pact with the United States, which exchanges a guaranteed supply of Canadian oil for trade concessions; and

- Reform the party's internal structure by allowing local members to decide how much funding is retained in the ridings and how much goes to the central organization.

In the paper, Mr. Axworthy notes that without renewal, institutions atrophy. "This is what has happened to the Liberal Party of Canada."

He says the party has lost sight of the core mission of philosophical liberalism -- "to expand the life choices and life chances of every individual."

The party's chosen instrument -- effective, responsive government -- no longer works much of the time. Meanwhile, the voluntary organization of the party "is losing credibility and seethes with discontent."

Mr. Axworthy makes clear the paper is a personal reflection and does not constitute a consensus of the 30 or so task forces that reviewed all aspects of the party's operations under his chairmanship.

While it may be just personal opinion, Mr. Axworthy is well regarded in the party and his observations and recommendations are likely to carry considerable weight at the party's convention in Montreal next week.

On the question of implementing promises, Mr. Axworthy says that improving government effectiveness is crucial because one of the great debates of the next election will be the Liberal argument for investment versus the Conservatives' case for tax cuts and consumption.

"Liberals have a strong case to make to Canada that it is better to invest than consume, but only if they can reassure Canadians that such investments will be made in a timely and effective way."

On Quebec, he argues that restoring the party's credibility with francophones is an essential task of renewal. He agrees with the author of the renewal paper on federalism, former justice minister Martin Cauchon, that the party should strive to recognize Quebec's worth and its autonomy but should do so within the existing division of powers, without reopening the Constitution.

He warns that Prime Minister Stephen Harper's motion recognizing the Quebecois as a nation within Canada, and the Liberal party resolution that calls for the province's status to be "officialized," will set off a "cascading number of demands to put constitutional flesh on the national bone."

"We are being drawn willy-nilly into the dead end of constitutional negotiations.... In 2006, we are back to the future. Once again, though more wearily, Liberals should take up the defence of One Canada against the siren song of deux nations."

His warning is in stark contrast to the current party position; the Liberal leadership has agreed to support the Harper motion, with almost unanimous caucus backing.

Mr. Axworthy notes that the world is changing and suggests Canada's reaction to this new "flat" world of three great powers -- the United States, China and India -- will be its biggest challenge of the 21st century.

He says Canada must secure its base in North America, proposing a Resources Security Pact with a United States that is increasingly worried about China locking up foreign energy resources. This proposal may prove controversial with Liberals who prefer Canada conduct an arm's-length relationship with the United States.

On China, Mr. Axworthy takes an uncompromising stance that appears to endorse the line taken by Mr. Harper on his recent trip to the APEC conference in Asia, when he insisted on speaking in a frank manner about human rights issues with the Chinese.

Liberals in the House of Commons harshly criticized Mr. Harper, suggesting he was endangering trade hopes. Mr. Axworthy notes that the ruling Communist party "abuses its own people and supports autocracies abroad." As a result, human rights should be raised on a regular basis and Canadian assets should be protected from takeover by state-owned Chinese companies, he says.

"Our strategy towards China should be engage but never kowtow."

He argues that Canada should regain the special relationship it once had with India by supporting its membership in the United Nations Security Council.

"A democratic India and a democratic Japan will be important counterweights to an autocratic China," he says.

Mr. Axworthy maintains the Conservatives' income trust decision should be reversed by a Liberal government.

"Democracies survive on trust.... Thousands of individual Canadians made investment decisions based on the Conservative promise [not to tax income trusts]. Individual investors and good-faith companies should not be penalized by the Conservative deception."

He says a new Liberal government should grandfather existing trusts or put a size cap on trusts with tax-exempt status, or extend the four-year grace period.

jivison@nationalpost.com

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