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Robert Asselin: The federal budget has no answers on the question of growth

Commentary

To evaluate a budget, I’ve always asked a simple question: which problem(s) is it trying to solve?

A budget that needs 700 pages of (red) ink says a lot about government motivations.

I can only try to answer what to me is the most important question from a public policy angle at this particular moment: where will economic growth come from over the long term?

To start, it was clear for some time that the government’s decision to spend more than $100 billion in so-called short-term stimulus was a political solution in search of an economic problem. If you search for an output gap, even in the short term, you’ll find the budget arithmetic doesn’t match the current economic data.

The budget document is clear on that front: “Private sector economists expect real gross domestic product (GDP) to rebound from a contraction of 5.4 per cent in 2020 to growth of 5.8 per cent in 2021 and 4 per cent in 2022, a faster recovery than the growth rates of, respectively, 4.8 per cent and 3.2 per cent projected in the November 2020 Fall Economic Statement (FES 2020).”

And then a key sentence: “Real GDP growth is expected to moderate to about 2 percent on average per year over the remaining years of the forecast horizon, reflecting a return to trend long-run growth rates.”

One can try in the 739 pages to find a clear plan to make Canada more productive and competitive. Although some of the objectives and proposed measures — investments in child care, skills, life bio sciences and clean tech — should be applauded, it is hard to find a coherent growth plan.

Was there any debate on measures to prioritize? Any trade-offs? Governing is about making choices, but if this budget can be defined as anything it is everything. No one has been left out.

It seems we are often last to find out the world is moving faster than we are.

In which sectors do we think we can be competitive on the global stage?  It is impossible to find in the 270 measures this budget proposes.

Our labour force is aging and our low levels of business investment are reflective of a lack of large firms operating in our economy. We need to encourage more innovation to grow more firms. The government’s response in this budget? Essentially, doubling down on programs that do not address our innovation shortcomings and have yielded few results to date.

The Strategic Innovation Fund, which got a boost of $7.2 billion over the next seven years, is not the best of what industrial policy has to offer: instead of building sectoral capabilities in investing in applied R&D, which is what global leaders like the Germans, Americans and South Koreans do, it provides subsidies and repayable loans to firms. Does it drive more business investments and make our firms more competitive on the global stage? Nobody has ever tried to answer this question seriously in Ottawa.

What about the need to double down on applied research? Or commercialization of our publicly-funded research? IRAP, a well-intended but unambitious program at the National Research Council, is the best we could do apparently. Other countries, including the U.K. in its budget, are acting more boldly by creating mission-driven, DARPA-like institutions that are unconstrained by the pitfalls of Weberian bureaucracy.

While the Biden administration recently went big on leveraging public procurement to incentivize business innovation and create demand for new products and services, it’s still business as usual in Canada.

British Columbians will be happy to find out they will now have their own regional development agency, at a price tag of $550 million. Will it do regional development? As Professor Donald Savoie recently asked: “What does the policy not include?” 

What does this budget say about our level of ambition, and our resolve for steadfast execution and implementation? How fast will we move to assert ourselves economically in this new geopolitical environment?

On the same day Finance Minister Chrystia Freeland tabled the budget, NASA flew a helicopter on Mars and charted an unprecedented new partnership with the private sector on space exploration. Back in Ottawa, our budget allocated $90 million for incubators and accelerators “to give enrolled start-ups access to advice.” 

It seems we are often last to find out the world is moving faster than we are. Just look at our record fighting the COVID-19 pandemic.

While China and the United States are moving fast to build their EV supply chains, bureaucrats at Natural Resources and at Treasury Board Secretariat will be busy in the coming year working on a new Treasury Board submission to fund a new “Critical Battery Minerals Centre of Excellence.” 

With this huge stack of new programs, initiatives and measures, I can already see the long queue of ministers and their senior officials in line at Treasury Board meetings with their budget submissions. A year from now, maybe some of them will have received the money they were promised. This budget adds many layers of duplication and bureaucratic complexity to a system that was not known for its nimbleness and agility. A more focused public-private partnership in key areas to drive growth would achieve better results.

I go back to where I started: did we have to use a false economic premise for short-term stimulus to justify a ton of new unfocused and unimaginative structural spending? The private sector forecast contained in the budget tells us we will be back at 2 percent real GDP growth in 2023.

After doubling our federal debt in only six years, and spending close to a trillion dollars, not moving the needle on long-term growth would be the worst possible legacy of this budget.

Sean Speer: The budget is a sign that progressives are winning the battle of ideas

Commentary

The world of political ideas moves similar to the way Ernest Hemingway described going bankrupt in his novel, The Sun Also Rises: “gradually, then suddenly.”

It wasn’t that long ago that British Prime Minister Tony Blair was talking about “third way” Labourism, U.S. President Bill Clinton was declaring the “era of big government was over,” and Canadian Finance Minister Paul Martin was balancing the federal budget “come hell or high water.”

The end of the twentieth century and the start of our current one seemed to mark the ascendancy of a new, limited government orthodoxy that prioritized low taxes and balanced budgets and was wary of the economic and fiscal costs of large welfare states. That the chief proponents of this nascent consensus were often center-left politicians spoke to its fecundity.

It didn’t happen overnight of course. It took years — even decades — for conservative intellectuals such as economists Friedrich Hayek and Milton Friedman and social scientists Irving Kristol and Nathan Glazer to chip away at the “mixed economy” model (including large-scale entitlement programs, high marginal tax rates, and a “visible hand” in market outcomes) that was popularized in the immediate post-WWII era.

These intellectual activities, including conferences, policy papers, journal articles, and so on, mostly occurred outside the mainstream of western politics. They weren’t quite fringe ideas, but they didn’t have much purchase in the political arena either. Conservative politicians like Republican President Richard Nixon or British Prime Minister Edward Heath were mostly upholders of their era’s big government consensus.

Yet these intellectuals continued to cultivate a new ideational framework in waiting. They sharpened their critiques of government intervention in the marketplace and the failings of welfarism and began to develop an alternative policy programme that sought to reduce the size and scope of the state in the economy and society.

As important as these efforts were, ideas alone weren’t enough to change the course of history. Events also needed to conspire. It required a crisis of the prevailing system — the so-called “stagflation” crisis of the 1970s — to fully open the door to a conservative revolution in ideas. A combination of Britain’s “winter of discontent” in late 1978 and Jimmy Carter’s famous “malaise” speech in July 1979 in hindsight marked key intellectual turning points.

By then, both Hayek and Friedman had won the Nobel Prize and Margaret Thatcher had been elected prime minister. Ronald Reagan would follow in November 1980. What had started slowly soon moved quickly. It spread across the developed world including, of course, Canada.

The subsequent 30 years or so were mostly shaped by this broadly-defined center-right orthodoxy. Although governments sometimes deviated for various political economy reasons, the overwhelming policy trends were in the direction of significant tax reductions, free trade agreements, privatization efforts, and lowered expectations for the welfare state. That these policy reforms spanned the political spectrum reflected how overwhelmingly conservatives had wrestled control of the terms of contemporary policy debate.

The side that’s shaping politics is typically the one that is genuinely and relentlessly committed to the realm of ideas.

I retell this abridged version of the Right’s slow yet steady intellectual ascendancy in the late-20th and early-21st century because I was reminded of it by yesterday’s federal budget.

In response to the Trudeau government’s announcement of massive new funding for universal childcare, a $15 minimum wage and various other progressive priorities, University of Victoria economist Robert Gillezeau tweeted the following:

I’m halfway through #Budget2021 and it’s amazing to see a decade of work from progressives bearing fruit. Universal child care, a $15 federal minimum wage, and expanding the Canada Workers Benefit…. if folks put aside cynical politics this could be a Pearson-Douglas moment.”

As a social democrat this is a moment of triumph. Many of the centrepieces of the policy agenda that Jack [Layton], Tom [Mulcair], and Jagmeet [Singh] have articulated are here. They have shaped not just our dialogue, but the direction of the country.”

Are there pieces missing? Of course and social democrats should offer a path there (particularly on housing and inequality), but we can also acknowledge our successes as progressives.”

Although I generally disagree with Gillezeau on politics and policy, I think he’s both highly smart and highly decent. I also think he’s right.

Yesterday’s federal budget (along with the Biden Administration’s activist ambitions in the United States) signals the rise of a new, confident progressivism that has set its sights on the commanding heights of policy and governance.

It mostly rejects concerns about the disincentives of high rates of taxation, the economic costs of deficits and debt, or the limits of state action. Instead it advances a governing vision rooted in the idea that inclusion and equity are not only greater priorities than economic efficiency but are actually themselves drivers of growth and long-term value. This is a far cry from limited ambitions of Blairism, Clintonism or what the Fraser Institute has described as the “Chrétien Consensus.”

As Gillezeau observes, this progressive advance similarly didn’t occur overnight. It started as an intellectual movement that rejected centrist compromises and instead sought to restore a more robust left-wing politics that more closely resembled the post-war orthodoxy that Hayek, Friedman, and others had undone. Its ideas were mostly confined to university campuses and the world of social activism. Its chief political proponents were third parties like the New Democratic Party or outsiders like U.S. Senator Bernie Sanders.

But progressive intellectuals kept up the important work of ideation and policy thinking in academic journals, think-tank reports, and other venues. They utilized their privileged position in academia to build support among young people and became effective users of multimedia channels to promote and disseminate their ideas.

Eventually, though, as in the past, events have contributed to their growing salience. If the global financial crisis was a pivotal moment, the COVID-19 pandemic has created a massive opening to see these political ideas come to fruition. The Trudeau government’s adoption of some of them in yesterday’s budget represents the culmination of these efforts. It’s a powerful (and perhaps sobering) sign that progressives are winning the battle of ideas.

There are a couple of key lessons here. The first is that there are no permanent intellectual victories. One can never become complacent because a combination of new generations, new challenges and unexpected events are bound to threaten previous intellectual advances. It’s incumbent therefore for intellectual movements to remain rigorous and dynamic.

The second is related: political progress starts with ideas. They may not be all that matters but they matter more than we often realize in the moment. The side that’s shaping politics is typically the one that is genuinely and relentlessly committed to the realm of ideas.

Depending on one’s persuasion, a recognition of the rising progressive tide is either a cause for celebration or a call to intellectual action. Either way, it’s a reminder of Richard Weaver’s famous adage: “ideas have consequences.”