Canada’s Reverse Perestroika
Welcome to the new Canada, where on Monday the Liberal government launched a grand experiment in retrograde economic policy. It deserves a name. When the Soviet Union began to collapse back in the 1980s under the weight of too much central planning, Mikhail Gorbachev brought in Perestroika, economic reforms aimed at reducing the role of central planners, bureaucrats and politicians by increasing economic reliance on markets. Canada is now moving in the other direction.
The 724-page Liberal budget, a tome worthy of the great Gosplans that dominated Soviet economic life, lays out a massive increase in government spending and debt in a document whose essential aspect is to weaken the role of markets and enhance the power of government and planners.
We should call it what it is: Reverse Perestroika, a step backwards with policies and themes that imply that the driver of economic growth is government planning and policy.
Issues of spending and debt rightly dominate the budget and certainly deserve attention. By my tabulation, between 2019 and 2026 the annual Liberal budget deficits (as per Table A1.4) totals $725.5 billion, exactly $1 billion per page of the budget. The net federal debt will almost double to $1.5 trillion. As the nearby graph shows, that works out to $38,000 for every man, woman and child, up from $21,000 in the last Liberal budget, an increase of $17,000.
The claim is that the great federal spending machine will boost economic growth. One graph in the budget claims that improving potential GDP growth by about 1.1 percentage points per year “would increase per capita GDP by about $6,000.” Which is not a lot considering that the $6,000 output gain per capita means it will take a few years to recoup the $17,000 in new debt per capita.
The overall premise behind the Liberal government’s economic policy and budget is that the Canadian economy needs restructuring — perestroika in Russian — reorganizing and renewal around new social infrastructures — child care and minimum wage laws and a new carbon-free physical infrastructure.
When Soviet President Gorbachev attempted to reform the Soviet economy in the 1980s, his motivation mirrors the claims of the new Liberal reform plans. The Soviet problem was to overcome deteriorating economic and social conditions. Growth rates had slowed, inequality increased and the social needs of the people were not being met.
The objective of Perestroika was to get rid of at least some of the planning, put more emphasis on markets, and install economic incentives to replace bureaucratic power.
Canada is said to have the same issues, although on a different scale, but instead of enhancing existing economic and market structures, the new Canadian model involves increasing the planning power of government.
Canada, it is claimed, has been underperforming and falling behind, with anemic growth rates that are apparently due to its over-dependence on human initiative and market behaviour and a lack of government planning and programs — and spending.
Finance Minister Chrystia Freeland summarized the objectives in her budget speech. “The final challenge is to build a more resilient Canada; better, more fair, more prosperous, and more innovative. That means investing in Canada’s green transition and the green jobs that go with it; in Canada’s digital transformation and Canadian innovation; and in building infrastructure for a dynamic, growing country.”
There are two mains streams to the Canadian Perestroika. One is social, with the government taking on a great role in directing programs to foster “social infrastructure,” such as childcare, a $15-minimum wage and other populist and “feminist” initiatives that smack of pre-election goodies to dangle before voters recovering from the pandemic.
The Freeland budget aims to use government planning as a vehicle to boost Canada’s longterm economic growth prospects. The area where the greatest government planning is set to take place — in addition to the usual innovation, technology, entrepreneurialism — is carbon control and climate change. The government sees the 2050 net-zero carbon objective as the new foundation for a Canadian Reverse Perestroika.
The budget continues Liberal hype about a “Net Zero Accelerator.” Through major interventions in the economy by the new master planners of carbon control, the economy will flourish for decades to come. Launched last December, the Net Zero Accelerator “will help build and secure Canada’s clean industrial advantage. By investing in decarbonizing large emitters, transforming key sectors from steel and aluminum to cement — and accelerating the adoption of clean technology across the economy, including the auto and aerospace sectors — the Net Zero Accelerator will spur Canada’s shift to innovative net-zero technologies and attract the large-scale investments needed to meet our goal of net-zero by 2050. It will also help Canadian firms grow and create the jobs of our low-carbon future.”
That’s the plan, the Green Gosplan foundation for Canada’s economic future.