Why Trudeau's recovery plan has to go beyond mere slogans and New Deals
Canada's prime economic and social issues should be targeted, Kevin Carmichael says.
Justin Trudeau modified his COVID-19 recovery plan this week. Rather than “bold,” the prime minister said the government's fall agenda will instead be “ambitious” and “responsible,” which might be the most creative union of contradictory ideas since some politicians fused “progressive” with “conservative” in 1942.
The Ottawa commentariat determined that Trudeau was reacting to a backlash against the notion of using the pandemic as an excuse to accelerate the shift to a carbon-free economy and overhaul the welfare state.
Finance Minister Chrystia Freeland and other ministers have stopped characterizing the COVID crisis as a terrible thing to waste, and instead focused on the present danger of a mysterious virus that is still killing people. Green New Deals and new New Deals will take a backseat to public health and the quest for a vaccine.
As they should. You recover from a blizzard by first removing the snow as quickly as possible.
But in the process of backpedalling, what if Trudeau happened on the right way to frame the longer-term response to this crisis? An oxymoronic vision statement that fits Canada's antithetical nature and multi-faceted economy might be a better fit than importing slogans from the United States.
Joe Biden's Democratic Party should probably aim to “build back better,” since American society is obviously broken. But Canada's foundation is pretty firm by comparison, thanks to universal health care and a tax system that spreads the wealth relatively equally, albeit imperfectly.
Women and youth have suffered more than men during the recession, but that doesn't mean our approach to redistribution is fundamentally flawed. Tiff Macklem, the Bank of Canada governor, in highlighting the unequal nature of the recession, also noted that the country “has done a better job than many advanced economies in promoting growth that is shared” over the past four decades.
Canada's level of income inequality is average for the three dozen rich countries that make up the Organisation for Economic Co-operation and Development, and the gap between the richest and the rest has narrowed since 2006, while it has continued to widen in the United States and elsewhere.
America's biggest problems aren't our biggest problems.
Unfortunately, the Canadian right is no better at coming up with its own ideas about POSTCOVID policy than the Canadian left. The “Canada First” mantra that Opposition Leader Erin O'toole has been testing recently is also a bad fit for the country he wants to run. The world's largest economy and dominant military power might be able to get away with such a posture, but for a smallish country such as Canada, it's like actively choosing to be malnourished.
The COVID -19 crisis exposed important weaknesses in the world's supply chains; however, that doesn't mean the fix lies in Sir John A. Macdonald's National Policy. The answer to the concentration of production in China is establishing a greater array of sources, not favouring unproductive domestic factories. And the response to the bully tactics of the U.S. needn't be endless tit-for-tat trade wars, but instead could be one focused on empowering competitive companies that use Canada's relative openness to trade and immigration to their advantage.
We don't know yet what Trudeau means by “ambitious” and “responsible.” The throne speech on Sept. 23 should provide an outline. If Parliament endorses it, details will probably follow in the government's first budget since the onset of the pandemic. If Trudeau fails to win the backing of enough opposition MPS, then his vision will come by way of a fall election platform.
A “responsible” recovery plan would acknowledge that most Canadians are uneasy with the Bank of Canada financing a significant portion of the federal government's debt indefinitely. That means setting a clear limit for how much the federal government is willing to borrow. The anchor needn't be a balanced budget, which is more of an ideological target than an economic one. Still, broad-based confidence matters, so Trudeau needs to draw a line reasonable people will accept.
“Ambitious” is a word that has been missing from policy discussion in Ottawa for too long. The result is an unproductive, uncompetitive economy that has grown too reliant on debt-fuelled metropolitan housing bubbles to generate growth. As David Dodge, the former Bank of Canada governor, vividly showed in a report published this week by the Public Policy Forum, Canadian companies don't invest enough in intellectual property and innovation, while a chronic current-account deficit shows that international investors no longer see Canada as a winner.
Canada's biggest issues aren't social, they're economic, but it might be possible to attack both with one policy in the short term. Bank of Nova Scotia economists Jean-françois Perrault and Rebekah Young this week proposed enlarging the “marginal benefit to working” for parents by adding a sizable top-up to the Canada Child Benefit that could only be used for daycare.
They also said business investment could be jump-started by offering matching grants for a limited time. Perrault and Young, both former Finance officials, estimate their proposals would cost between $40 billion and $65 billion. That's a lot of money, but the boost to productivity and economic growth would eventually more than cover it.
In the meantime, the debt still would stay below 65 per cent of gross domestic product, allowing Canada to remain a relative haven of prudence in the POSTCOVID world.
Their proposals provide a helpful sketch of what “ambitious” and “responsible” could look like. Canada's progressives and conservatives should embrace it, at least until we get through this. They can go back to their cheap American-made slogans after we've all been vaccinated for COVID -19.
A `responsible' recovery plan would acknowledge that most ... are uneasy with the (BOC) financing a significant portion of ... debt indefinitely.