For inclusive growth, exclude economic planning
The federal government says it wants Canada to have an “inclusive” economy recovery. I want an inclusive recovery, too, and so do lots of people. There is plenty of disagreement as to what exactly an inclusive recovery is supposed to include, however. Announcements of clean fuel regulations, plastic bans and other sustainability programs that create high costs but little compensating environmental benefit show that many politicians’ inclusive- recovery plans are far too inclusive of economically unsound ideas. Despite the existing surfeit of bad policies, however, activists and academics are busily proposing more.
Fo r ex ampl e , the “COVID-19 Inclusive Recovery Campaign” formed by sundry progressive organizations is lobbying the federal government to use its massive infrastructure spending plans to “leverage Community Benefit Agreements to create local workforce and business opportunities for Black and Indigenous peoples, women, persons with disabilities, veterans, youth and newcomers.” The desire to help marginalized or disadvantaged people is a perfectly good one. The problem is that the infrastructure department’s purpose should be to build infrastructure that delivers net benefits at reasonable costs, period. Turning it into a jobs program for women, youth, newcomers, or anybody else, is a recipe for inflating costs and wasting resources.
Progressive activists aren’t the only ones who confuse infrastructure investment and jobs programs. When making infrastructure spending announcements, everybody from Alberta Premier Jason Kenney to federal Infrastructure Minister Catherine Mckenna ( are there two less similar politicians in Canada?) cite as one of the benefits of the infrastructure all the jobs that will be created building it. Here they get their economics backwards. The infrastructure might be needed for economic growth, but the labour consumed in building it is a cost, and shoving higher costs onto the backs of taxpayers is certainly not an economic benefit.
A separate proposal for inclusive economic growth comes from a trio of researchers who, in a paper published by the University of Toronto’s Ontario 360 project, correctly highlight the importance of increasing worker productivity in order to strengthen the economy. This makes a lot more sense than, say, turning the federal infrastructure department into a jobs program for women or anyone else. But what doesn’t make sense is their road map for achieving higher productivity, which runs through an industrial policy web sure to entangle economic resources in unproductive activity.
“Conventional economic thinking,” they write, “has mostly conceived of a limited role for government” and “a general skepticism about government intervention in the economy.” ( This thinking has been conventional among good economists but not in the federal and provincial legislatures.) But free-market economics, they suggest, has been challenged by the 2008- 09 recession and the coronavirus pandemic; thus the need to pivot towards a new “inclusive growth” paradigm.
Their inclusive growth strategy for Ontario calls for “a more active role for government in shaping — rather than just enabling — technological innovation” and an overall increase in government planning of the economy. The Saskatchewan government’s economic plan to boost agricultural exports and tourism and the Illinois government’s plan to provide support to the agribusiness, energy, information technology, healthcare, manufacturing, and transportation industries are both held up as examples to follow.
But the all- important question remains: From where does the government get the knowledge as to what industries to support, and how, and how much? The University of Toronto researchers suggest that the knowledge can be obtained from statistics on employment, patents, business expenditures, and other metrics. The implication is that inclusive growth can be achieved by having the government centrally plan industries, as long as it collects enough data and evidence.
The problem is that this inclusive growth plan cannot possibly include all the necessary economic data. Economic information — everything from the demands of individual consumers to the willingness of individual workers to supply labour to the best use for a particular piece of land in Toronto — is widely dispersed and held, in many cases, by only a single individual. The government cannot possibly collect and make use of all this information — a crucial economic reality that has not been overturned by any recession or pandemic and I strongly suspect never will be.
A real inclusive growth strategy must be inclusive of as much economic information as possible. This means leaving economic planning to individuals acting in a free market, not having it controlled by politicians, bureaucrats, and powerful industry lobbyists. For there to be an inclusive economic recovery, the economy actually has to recover. That it will becomes less likely every time politicians are advised to transfer economic planning and resource allocation decisions from the market to the government.