A brave, if alarming, new world

Justin Trudeau’s reluctance to level with Canadians by releasing the government’s death-toll projections has led to understandable nervousness. Are the forecasts so bleak the prime minister is worried we can’t handle the truth?

Yet key decision-makers suggest that the main cause for apprehension in Ottawa is not over the immediate health crisis, or even the enormous debt levels accumulated as a result of the $200-billion COVID-19 response plan.

What is keeping policy-makers awake at night is how they will restart the economy once this is all over.

On the health side, senior politicians and public servants are concerned about the spread of the virus from returning snowbirds and people who were on March break — those results have not yet worked their way into the daily updates from provincial agencies.

But the belief is that the health system will endure. It’s unlikely Canada will see an Italian-type failure, because we intervened earlier and the containment strategy has been more robust, said one senior government official. Testing and contact tracing has been slow but it will be ramped up across the country, he said.

There are concerns in the public service about the massive amounts of spending, particularly if some of it proves to be “sub-optimal” in terms of results. In common English, bureaucrats are worried the government will get ripped off by bad actors, overpay for purchases or hand out wage subsidies without adequate scrutiny. But the public policy approach at this point is that perfection is the enemy of good — the belief is that mistakes will be forgiven in the circumstances.

Business groups are complaining about the eligibility rules for the $71-billion emergency wage subsidy, and in particular the glitch in the application process that means payment may be delayed six weeks.

But this is lightning speed for a government spending program.

As Samuel Johnson remarked about a dog walking on its hind legs, while it is not done well, the wonder is that it is done at all.

The system was not built for the massive demands that are now being placed upon it and, while the speed may not be optimal for a business weighing whether to retain workers, billions of dollars will soon be flowing to workers and those who have been laid off.

THE PUBLIC

POLICY APPROACH AT THIS POINT IS THAT PERFECTION IS THE ENEMY OF GOOD.

The Liberal government has often seemed to be a step off the pace, hesitant to be bold, as in the case of releasing death projections. But it has generally arrived at the right destination eventually.

However, if panic is not setting in over the health or fiscal crises, there is real anxiety about what kind of Canadian economy will emerge from the tempest.

In a typical recession, the architecture of the economy remains intact and growth comes back as demand recovers.

But small-business confidence is at an all-time low, according to a survey by the Canadian Federation of Independent Business. Many of those companies are not coming back.

There are also likely to be seismic changes among global players, as they attempt to mitigate the supply-chain shock that has held the world economy in its grip.

In a recent article in The Globe and Mail, Kevin Lynch, former clerk of the Privy Council who is now BMO’s vice-chair, and Paul Deegan, a former deputy executive director of the White House’s National Economic Council, talked about a “global decoupling” that will see supply chains become less centralized around hubs like China.

Far from resisting this move, governments are likely to encourage and expedite it to create what Lynch and Deegan called “national critical supply capacity.”

The federal government is already sponsoring domestic production of ventilators and personal protective equipment.

That is likely to be just the start of a new industrial policy that will see government intervene in areas of the economy from which it has been absent for decades. Senior policy-makers say they have been fostering domestic food production as an insurance policy against imports drying up, for example, checking with food producers to see if greenhouse capacity is being fully exploited.

One senior federal official said he did not expect widespread de-globalization — “Too much value has been created by global supply chains” — but on the margins, retrenchment could prompt government to fill the void.

The conversations taking place in the upper reaches of government revolve around lessons learned from the crisis — for example, that caregivers in nursing homes and grocery checkout clerks are front-line staff, even though they are not being paid at a level consistent with the personal risk.

Does that suggest some kind of risk premium for front-line workers? Possibly. What is apparent is that discussions are taking place around the cabinet table about an expansion of government engagement in the economy unparalleled in the post-war era.

The extent of that expansion will depend on whether we see the resumption of politics as usual in the aftermath of the crisis. A recent article for the Public Policy Forum by Sean Speer, a former adviser to the Harper Conservative government, and Robert Asselin, a former senior staffer in the Trudeau Liberal government, suggested that political ideology on the role of government is going to have to be interred as the country claws its way back to economic growth. “Long held assumptions about the production economy are no longer valid,” they wrote.

They pointed out that Canada cannot rely on traditional market forces while everyone else adopts active industrial strategies.

The authors called on the government to create a new industrial plan that builds domestic capacity. “This strategy should not be temporary,” they wrote.

We are at a moment in time when old orthodoxies are being tested — just as they were in 2009 when Conservatives were forced to concede that deficit spending was necessary to prop up the economy.

Only the wilfully blind would deny that international trade has increased competition and lowered prices. But it is an uncomfortable fact that China is the source of most of Canada’s antibiotics and raw materials for our drug supply. It is equally true that China effectively blocked export of face masks during the crisis and could do the same to the drug supply in a future emergency.

Supply management may soon expand from the dairy and poultry sectors to other parts of the economy as government tries to guarantee inventory.

That would increase prices for everybody, deepening deficits and raising debt levels.

The most recent estimate for the deficit this year is $170 billion and rising. It could end up topping $200 billion, or 10 per cent of the economy.

Higher debt levels, de-globalization and rising economic nationalism will be hallmarks of the new reality. It promises to be a brave, if alarming, new world that we are about to enter.

Trudeau should share the government’s extrapolations on the likely course of the virus. As former health minister Jane Philpott noted: “This is not the time to hide bad news … we’d like radical transparency.”

But if the public is braced for impact on the spread of the virus, it may be too much information to muse on the fate of the postCOVID economy.

SUPPLY MANAGEMENT MAY SOON EXPAND TO OTHER PARTS OF THE ECONOMY.