If Trudeau really wants to spur innovation and the economy ...
... he should use his spending power to buy from the little guys, says Kevin Carmichael.
The most controversial phrase that Prime Minister Justin Trudeau uttered this week might have been this one: “We can choose to embrace bold new solutions to the challenges we face and refuse to be held back by old ways of thinking.”
We won’t know what that means until the throne speech next month, but Pierre Trudeau’s son looks like he’s gearing up to test a conservative nation’s tolerance for radical change. Canada’s attempts at “bold new solutions” in the past have tended to follow Royal Commissions or years of tedious debate. The prime minister seems like he’s just going to go for it.
“As much as this pandemic is an unexpected challenge, it is also an unprecedented opportunity,” Trudeau said. “This is our chance to build a more resilient Canada.”
Some “old ways of thinking,” such as fiscal prudence, aligned with a pretty good run of economic growth from the late 1990s through to the eve of the Great Recession.
Others, however, are clearly holding us back. For example, a weak commitment to antitrust policy has resulted in unmovable oligopolies that stubbornly resist the sort of competition that supports innovation, higher wages and lower prices.
Trudeau has played chicken with the oligopolies, but he always blinks first. His government is slow-walking preparations for an open-banking regime, which would level the playing field between the Big Six and financial technology upstarts. And last weekend, Navdeep Bains, the innovation minister, announced he had sided with BCE Inc., Rogers Communications Inc. and Telus Corp. in their fight with the Canadian Radio-television and Telecommunications Commission over the regulator’s attempt to force them to lower the rates they charge upstart internet companies to use their networks. Prices will remain among the highest in the world as a result. For someone who dislikes business, Trudeau is quick to take the knee.
But he has no such aversion to spending money. Canada’s COVID-19 rescue efforts are among the world’s most generous and he appears willing to keep the taps open. He made a point of noting that the “cost of borrowing is very low,” which he said means one thing: “Now is the time to invest.”
The policy debate this autumn will be a dialogue — and let’s try to make it a dialogue, not a fight — over how to create wealth.
Redistribution appears to be the force that drives Trudeau, and he and his followers will justify it by arguing that a richer and healthier middle class will generate more demand, which entrepreneurs and executives will seek to satisfy. Innovation will follow, and Canada will become more competitive in the process.
That’s the approach Trudeau followed in his first mandate and it aligned with what was perhaps the strongest labour market in Canada’s history. Still, those low unemployment rates masked lacklustre business investment, which means executives haven’t been setting up for future growth. The COVID-19 crisis has exposed an economy that lacks the capacity to produce essential goods and services and pays its front-line workers lousy wages. People died because of it.
If Trudeau is unwilling to take on the oligopolies, then he should use his favourite policy tool — the federal government’s spending power — to make room in the economy for innovative firms.
A “Buy Canada” approach to procurement could be a launching pad for emerging companies in need of an anchor client. Rather than attempting to decide who deserves subsidies, the federal government could instead pick winners by giving them a fair shot to compete for government business. If Trudeau is serious about using the treasury to plug the holes exposed by the pandemic, there should be lots of work to go around.
For years, Canada has sent trade negotiators to Washington to fight “Buy America” policies, so adding a home bias to procurement would be hypocritical. But that fight is lost, at least for now. We know what President Donald Trump thinks about free trade, and former vice-president Joe Biden, the Democratic nominee, has proposed spending US$400 billion on products “made by American workers.” Canada’s free traders should concentrate on erasing barriers between provinces, as there will be no prizes for the virtuous in the international arena.
Some will decry the return of “industrial policy,” an old idea with a poor track record that nonetheless is guiding much of the thinking in China and Europe, where policy-makers realize that new corporate champions will emerge as commerce moves online and the world gets serious about climate change.
But a more aggressive use of procurement shouldn’t be viewed as a make-work scheme. Last month, Nuenergy.ai, an Ottawa-based developer of software that monitors the behaviour of algorithms powered by artificial intelligence, won a contract to educate Transport Canada on how to deploy AI ethically. It’s an emerging field, and one where Canada has a lead thanks to a clutch of companies such as Nuenergy. But to keep that lead, those firms will need some business so they can scale.
“We have no interest in becoming dependent on government,” said Niraj Bhargava, Nuenergy’s chief executive, who has taken advantage of the federal wage subsidy to help survive the recession. “We prefer to revenue-finance the company.”
An overhaul of procurement would be needed because the government’s current approach is about avoiding risk, which favours established firms that have the wherewithal to endure the bureaucracy. That means the government could jolt innovation without big new programs. Instead, it could simply reorient existing budgets to align with its broader economic policy.
Bureaucracy makes the government “really difficult to work with,” Bhargava said. If the goal is to use procurement as a policy hook, “we’re not there yet,” he added.