Finance Minister Bill Morneau told the media in March that Canadian competitiveness is “Job 1 on the centre of my desk for the next six months.” It took longer than it should have to come to this realization. But it’s better now than never. His coming fall economic statement is a good chance to restore a focus on Canada’s economic competitiveness.
Mr. Morneau’s tenure to date has been marked by increased tax rates on high-income earners and rising public spending financed by deficits and debt. It’s been an agenda focused principally on equity over efficiency, fairness over dynamism and government-driven growth over bottom-up growth and opportunity.
The results of this three-year experiment with high taxes and high borrowing haven’t been positive. It’s involved a deterioration of Canada’s competitiveness, flat-lined business investment and subdued investor confidence. One proof-point: Foreign direct investment is down by 55 per cent between 2013 and 2017.
The minister is therefore right to put competitiveness back at the centre of his agenda. It should have been there all along. Work and opportunity ought to be the bywords for the fall economic statement and his government’s overall agenda.
Not only has Ottawa’s focus on redistribution had harmful economic effects, research from Yale University shows it’s not even responding to the public’s principal demands. The analysis shows most people aren’t concerned about unequal outcomes or demanding more redistribution. Rather, most people are alarmed by perceptions of unfairness and unequal access to opportunity. As the authors put it: “Human beings, the research suggests, are not natural-born socialists, but we do care about justice.”
Reconceptualizing how we think about our economic and political challenges as a demand for work and opportunity rather than equalized outcomes has significant policy implications. It’s no longer about slicing up the economic pie and instead about making it larger. It’s no longer about a “zero-sum” formulation and instead about expanding opportunity for everyone. Mr. Morneau should be focused on promoting the importance and dignity of all work.
This starts with a renewed emphasis on economic competitiveness. The good news is that we don’t need to reinvent the policy wheel. Canada’s economic and fiscal experience in the 1990s – what we’ve dubbed the “redemptive decade” – is a useful case study of how to unshackle the market and empower individuals.
Sweeping reforms to government spending, taxation and the welfare state reduced the burden and cost of government and left more resources in the hands of investors, businesses and consumers who were then able to deploy them to create new economic activity, investment and jobs. The “redemptive decade” should thus be seen as a deliberate set of policy choices to shift the focus from high taxation and redistribution (including public employment) to fiscal discipline, deregulation, investment and growth. Think of it as a comprehensive, pro-competitiveness agenda.
The results speak for themselves: Canada experienced world-leading growth and, in turn, high levels of business investment and job growth. Canadians from all regions, sectors and income groups benefited from this growth-enhancing agenda and the work and opportunity that it catalyzed. The experience offers lessons for how to enable strengthened economic growth and expanded opportunity nearly two decades later.
But it will require a big change. Policy-makers will need to place a greater emphasis on economic growth and opportunity and less on equity and redistribution. This may sound like a simple adjustment to policy-making. But it’s a major recalibration. It’s a different set of objectives and requires a different mindset.
A dynamic market economy where businesses are forming, investing and hiring isn’t merely about profits and stock prices, market share and so on. It’s not that these things don’t matter. They do. But it’s so much bigger than that. A dynamic market economy is about harnessing human creativity and ingenuity for the public good. Its most important output is work and opportunity.
The agenda that we outline here is markedly different than the one that’s dominating policy discussions in Ottawa. But it’s hardly pie-in-the-sky. It builds on Canada’s world-leading experience of the 1990s that harnessed the precise forces of growth and opportunity whose virtues we’re extolling. We have done it before and can do it again. The coming fall economic statement is a good time to start.
Brian Lee Crowley is the managing director and Sean Speer is a Munk senior fellow at the Macdonald-Laurier Institute.