In a breathtaking piece of economic nationalism run amok, the Harper Conservatives are embarking on a new military procurement policy that would see defense dollars used to grow domestic industry.
This is not about picking the best hardware for the military, as National Defense has very valid concerns about this policy increasing cost overruns and delivery delays. It is rather about using defense department dollars as a way for government to support companies that it sees as future economic champions. The policy is based on the flawed premise that a country can create economic growth by overpaying for goods and services.
The proposal has the explicit objective of leveling the playing field with foreign jurisdictions who subsidize their national military hardware producers. But do Canadians gain by trying to one-up foreign governments in the corporate welfare game?
If the Swedish government wants to provide financial subsidies to the Canadian military the Canadian taxpayer should rejoice. This presents no loss to the Canadian economy, as those dollars can be spent on other priorities such as health and education, or be used to lower taxes.
The timing of this proposal is ironic, given current concerns that the Canadian dollar is overvalued because of our oil exports. Imports counteract this effect and cause the dollar to depreciate, so reducing foreign procurement can only cause the dollar to rise further.
There is a phenomenon in economic reporting, known as Easterbrook’s Law, which states simply “all economic news is bad.” This certainly seems to be the case in Canada, where exports are criticized on their impact on the dollar, and imports are criticized on their impact on domestic industry. If we are going to have an intelligent policy debate in this country we will need to stop seeing every economic issue through the lens of currency values and national champions.
Mike Moffatt is an assistant professor at Ivey School of Business at Western University and a regular contributor to Economy Lab.
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