Canada is a big, prosperous country. Why do we insist on small-minded solutions to our problems?
For far too long we have erred on the side of far too little. Whether it’s out of considerations of fairness, protecting oligopolies, or the environment, our public policy is too focused on preventing an oversupply rather than ensuring consumer demand is met.
When governments put their thumb on the scale, it’s often because they’re worried about oversupply rather than undersupply. This supply management mentality needs to be discarded.
Agricultural supply management is a program that limits the supply of dairy, eggs, and poultry in an attempt to maintain stable prices. While stability might be the aim, structurally higher prices are the side effect. One prominent study estimated that milk prices are twice as high in Canada as in the United States as a result. While many words have been spilled on the topic of milk prices, I think it’s a useful analogy for large swaths of the Canadian economy.
Supply management isn’t just about stable prices for consumers, but about protecting industry players. We see this in other sectors ranging from telecommunications to air travel. Stable but high prices are seen as necessary to protect incumbents. It might be a good way to run a small, closed economy. It’s an odd way to run a large, relatively globalized economy.
Canadian governments often operate as though we’re a small, stagnant country that desperately needs to cling to its place in the world—and the things that make it unique—lest we fade away. In reality, Canada is a large and growing country. The supply management approach might work in some small European countries, but it doesn’t work when you’ve got both a rapidly ageing and rapidly growing population.
Now, you might pause at the idea that a rapidly ageing population along with rapid population growth are distinct issues. After all, much of that population growth is in response to our ageing population. Large-scale immigration is justified in part by our ageing demographics, after all. The trouble is that while immigration helps blunt a few challenges, such as labour shortages, it creates other challenges, such as housing shortages.
That isn’t to say that immigration isn’t a net benefit. But to get the full benefit, we need a more dynamic economy. Take housing, for instance. We’ve already got a deep housing shortage. One way to help address that is by welcoming more people with the skills to build more homes. The immediate effect is to take up existing housing units, but that can pay off if they’re able to help accelerate the pace of homebuilding. Only, construction sector productivity has been lagging. We need more dynamism in the construction sector if our immigration levels are going to be sustainable.
It’s not just productivity, though. It’s also about land availability. Take the Greater Toronto Area, our largest regional economy. The McGuinty government identified urban sprawl as a major challenge to the region. There are indeed costs associated with sprawl. Infrastructure, pollution, lost farmland. There are surgical ways to address some of these challenges, but they took a blunt approach introducing the Greenbelt. Which meant that the housing industry needed to re-orient towards more urban density. The only problem is that while they cracked down on sprawl, they didn’t legalize enough density. So we got shortages. The government put its thumb on the scale in favour of less of a particular type of housing, but the net effect was that we couldn’t build enough of any type of housing to keep up with population growth.
Then there’s the other side of that demographic equation: the rapidly ageing side. Canada’s health-care system is in trouble. This used to be a controversial thing to say, but it’s becoming impossible to ignore. In 2021, Canada had the highest health spending as a percentage of the economy of 30 high-income countries with universal health care (on an age-adjusted basis), but ranked at or near the bottom in many key areas of performance. A recent study by the Canadian Institute for Health Information identified significant surgery backlogs, staffing shortages, and lack of access to family physicians as pressing issues with the system. If you’ve dealt with the health-care system in any serious way lately, you probably don’t need to hear this. You’ve seen it with your own eyes.
There are many suggestions out there for addressing our challenges. Money probably isn’t the primary issue, given that we’re already leading on that metric. We probably need to incorporate some best practices from European health-care systems, including cost-sharing or more private delivery options. That runs contrary to our supply-managed version of health care, but probably necessary if we want to provide adequate health care to an ageing population.
Of course, embracing a more dynamic approach will annoy some people. Doctors, farmers, and homeowners don’t always like changes. But the country is changing whether policymakers do anything or not. It’s growing rapidly, adding about a million residents a year. There is no status quo option. We’ll either reform policies, or the consequences of our supply management approach will become starker, whether it’s in house prices or in hospital wait times.
This also requires a bit of an attitude shift that I suspect is already underway. We need to stop viewing “too much” as a bigger problem than “not enough.” This is capitalism, baby. Sometimes businesses are going to fail. That’s ok. Most of our economy works that way, whether it’s a tech startup or a restaurant. Strong businesses chase out weak businesses. That’s good for consumers, and good for the economy.
Thankfully, there are hopeful signs that change is happening.
Take housing, for instance. Governments at all three levels have made policy changes that would have seemed unthinkable two years ago, ranging from ending detached-only zoning to eliminating mandatory minimum parking requirements in cities across the country. Similarly, several provincial governments have moved to allow pharmacists to take on more responsibilities, including writing some prescriptions. Change is possible.
Given our growing and ageing population, clinging to the status quo isn’t an option. We should embrace more economic dynamism and less supply management. Governments should default to erring on the side of more rather than less. Undersupply—whether it’s in health care or housing—is among our biggest problems. It’s also a choice. One we don’t have to make.