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Amidst a swirling tide of new ideas, Canada’s economic institutions remain bastions of orthodoxy


The fifteen years since the global financial crisis have been marked by economic, geopolitical, and domestic political turmoil. The rise of new ideas and political voices has disrupted long-standing orthodoxies about markets, free trade, and globalization across advanced economies. Donald Trump’s erratic and unpredictable political ascendancy is only one example.

Canada has been touched by some of these developments. The People’s Party of Canada is arguably an expression of some of these global trends. Even the Trudeau government’s pursuit of so-called “industrial policy” is broadly reflective of new and emerging intellectual movements.

Yet there’s a case that the core institutions of Canadian economic policymaking—namely, the Bank of Canada and the Department of Finance Canada—have been mostly resistant to the tides of new ideas and remain bastions of the old orthodoxy.

“I’m sure we could find some individuals in the BoC [Bank of Canada], and some individuals at Finance, who differed from the mainstream, they might have been more extreme in one direction or the other, but I think almost by definition, most of the people there hold mainstream views,” says Christopher Ragan, founding Director of McGill University’s Max Bell School of Public Policy, previously served in advisory roles at both Finance and the Bank of Canada.

The one big exception was the extraordinary fiscal and monetary policy during the pandemic. To finance its COVID relief programs during the pandemic, the federal government sold over $307 billion in bonds to the Bank of Canada in a process called quantitative easing (QE) as part of large-scale fiscal and monetary stimulus.

Yet as novel and large as these policies were, they were driven mostly by the pandemic’s exceptional circumstances rather than new ideological commitments such as Modern Monetary Theory (MMT).

MMT has received a boost of popularity in certain intellectual circles as many activists and thinkers, especially progressive ones, began exploring the possibility of the federal government’s large-scale spending becoming permanent. It theorizes that a sovereign government issuing its own currency can always afford to spend regardless of tax revenue. It argues that so long as a government controls the national currency, it can create as much money as needed to fund new programs and raise taxes as needed to reduce inflation.

Ragan doubts that anyone in Finance or the Bank of Canada is taking MMT seriously, notwithstanding the large-scale deficits and debt accumulation during the pandemic.

“My own take is that MMT is basically a prescription for eliminating the central bank’s independence and subsuming the central bank actions more or less into the Finance authority,” says Ragan. “I would be very surprised that very many people thought that was a good idea in the BoC.” 

Although the Bank of Canada is a nominally independent Crown corporation, Ragan says there is communication between branches of Finance and the central bank, which he encountered during his stint at Finance in 2009. 

Current bank governor Tiff Macklem, as well as Finance Minister Chrystia Freeland, have both poured cold water on the possibility of MMT guiding Canada’s fiscal policy, even though both arguably helped to generate interest in the idea by implementing QE.

With an inflationary spell induced in large by Ottawa’s emergency stimulus programs, resulting in the loonie trading at a two-year low against the U.S. dollar last September, MMT’s run of popularity has slowed considerably. The annual rate of inflation hit 8.1 percent in 2022, before dropping to 4.3 percent in March.

Adding to Canada’s current run of inflation have been persistent supply chain issues due to the slowdown of industry and shipping during pandemic lockdowns. Russia’s invasion of Ukraine in February 2022 added to the world’s supply chain woes. 

Having previously relied on Russian oil and gas, most EU member states began curbing their uses of Russian energy imports in response to the invasion, while economic powerhouses like the United States and Japan imposed severe economic sanctions on Russia. 

In this context, there’s been growing discussion among G7 countries, including Canada, about “reshoring”—bringing industry home—and “friendshoring”—aligning industry with politically-aligned partners, away from authoritarian states like Russia and China. 

Long a favoured source of cheap manufactured imports, China has become an unpopular trade partner for Canada due to Beijing’s increasingly aggressive foreign policy choices. These actions included taking Canadian citizens hostage, alleged electoral interference in Canadian elections, and intimidating Chinese Canadians and their families. 

Calls to cut trade with China have grown louder. Yet former Bank of Canada governor Stephen Poloz says Canada must proceed with caution on this front, and that Canadians cannot maintain their high standard of living without healthy trade relationships. 

“We can’t be cutting off imports from somewhere and expecting them still to buy our exports,” said Poloz in an interview with The Hub. “We should be leading proponents of liberalized trade, and if we’re going to go with friend-shoring for strategic reasons…there are an awful lot of low-cost places that can be our friends in the trade system.” 

Poloz said that Canada stands to benefit further from its close economic and geographical ties with the U.S., as well as Mexico, but that should not mean Canada has to double down on North American trade as part of its friendshoring effort. 

Additionally, Poloz said that while China was always going to become more expensive to conduct business with due to its growing economic strength, nearby countries can provide alternatives, specifically mentioning some that are not considered full democracies. 

“Vietnam, Thailand, Philippines—these are places where you can do exactly what we’ve been doing in China for the last 10 or 15 years,” said Poloz. “We can do it now for the past that we did in China 15 years ago. So it’s a natural process, and we should not be standing in the way of it or trying to turn it into politics.” 

In 2021, imports from the three countries mentioned by Poloz were worth roughly $16 billion, compared to the $86 billion worth of goods imported from China that same year. Canada imported over $100 billion worth of goods from China in 2022, setting a new record.

Ragan says it is also only natural for countries to reorient their trade in the wake of supply chain disruptions, whether it be due to war or political unpredictability. He says that even if Canada may pay a slightly higher cost for a more stable supply chain, he compares it to paying for an insurance policy. 

“I don’t think there’s anything very startling or very new in the concept of friendshoring,” says Ragan. “I would say you want to think carefully about it because you don’t want to throw away the benefits of globalization…it’s not an argument, in my view, for collapsing your supply chains just to North America plus Western Europe.” 

A new era of immigration politics has started in Canada


For decades, the annual announcement of Canada’s expected immigration level for the upcoming year was one of the most boring press releases in Ottawa.

Successive governments since the early 1990s gently raised the number each year, allowing a few more immigrants into the country but keeping the rate, as a percentage of Canada’s population, at about 0.8 percent.

In that time Canada has enjoyed a remarkable pro-immigration consensus among its major political parties. Even as populist insurgents gained steam across the Western world, often with aggressive anti-immigration messages, Canada seemed like a calm oasis of political stability.

There’s no better proof of this than the populist People’s Party of Canada attempting to run a national campaign opposed to “mass immigration” in the 2019 general election and ending up with 1.6 percent of the vote. The party tripled its vote count in the next election by running against COVID-19 restrictions.

All of a sudden, though, mainstream voices are arguing that Canada should consider allowing fewer immigrants each year and louder voices are arguing that the country should allow many, many more.

They are treading carefully. Canada’s recent immigration debate, if there was one, has been marked by the stereotypical politeness the country is known for and even as the boundaries are pushed, it’s been in hushed tones by academics and economists.

Advocates on both sides admit there’s no guarantee that it stays this way, though.

Shortly after ringing in the new year, Canada celebrated a record by welcoming 431,645 new permanent residents to the country in 2022. The previous record of 401,000 new Canadians was set the previous year.

The recent totals are such a sea change that researchers at Statistics Canada had to go back to 1913 to find the previous record-setting year before 2021.

In a press release celebrating the achievement, Immigration Minister Sean Fraser reminded Canadians that “newcomers play an essential role in filling labour shortages,” among other benefits.

The government still makes the case for a multicultural Canada, but the argument for more immigration has increasingly become an economic one. As the pandemic wound down, a labour shortage seized the country and the government saw immigration as a way to fill the jobs that Canadians weren’t filling.

In a downtown Toronto conference centre on Monday, a similar case was made.

The event was hosted by the Century Initiative, a charitable organization driven by the goal to grow Canada’s population to 100 million people by the year 2100. The organization was co-founded by Dominic Barton, the former ambassador to China, and the event hosted current and former Liberal cabinet ministers as guests.

Most of the speakers at the conference took for granted that Canada should be obsessively trying to grow its population and keynote speaker, the bestselling author Parag Khanna, explained that developed countries should be engaged in a “borderless war for young talent.”

Khanna explained that based on current trends the world population will peak around 2037, which in demographic terms is “tomorrow.” That moment will spark a zero-sum battle for migrants across the world, he said.

Other speakers warned of the dire consequences for Canada as its population ages and birth rates plummet.

Jean Boivin, the head of BlackRock Investment Institute, warned ominously that at the current trajectory of aging in Canada, Canadians would have to suffer a 20 percent decline in living standards without a boost to immigration.

The solution to these problems is the Century Initiative’s primary focus: hiking immigration levels to the point where Canada has 100 million people by the end of the current century.

It might be a tough sell, especially in the midst of an ongoing housing crisis and health-care backlogs that have blared out from news headlines for years.

Some speakers anticipated these objections. Lisa Lalande, the CEO of the Century Initiative, kicked off the conference by arguing that higher levels of immigration are only possible if these issues are addressed. Otherwise, general support for immigration will decline in the country.

Federal Housing Minister Ahmed Hussen was invited to the conference for a ten-minute interview with a Globe and Mail reporter, but he appeared virtually only for a few seconds before the screen flickered and died. A few minutes of frantic tech support was ineffective and the interview was cancelled.

On the other side of the debate are people who are quietly and cautiously making the case that the government’s immigration targets are either too high or that immigration won’t be a cure-all for Canada’s problems.

In an interview with The Hub on Tuesday, Mikal Skuterud, an economics professor at the University of Waterloo who specializes in labour markets and immigration, said advocates for higher immigration focus too much on the total size of the economy, rather than GDP per capita, which he says is a rough way of calculating Canadian living standards.

It’s undeniable that bringing in more people will boost Canada’s GDP, but it’s extremely hard to boost GDP per capita through immigration, he said. The United States is the one country that may be able to accomplish it because they genuinely attract the best talent from around the world.

But rather than a global “war for young talent,” the policies endorsed by advocate groups like the Century Initiative are more likely to bring low-skilled immigrants to Canada who may be saddled with lower living standards than the people who came here before them, he said.

Skuterud believes that the recent Canadian consensus on immigration comes in large part from accepting high-skilled immigrants who keep living standards high. This system also leads to lower levels of inequality.

“In this country, it’s a system that you want chugging along in the background, very effectively, with high immigration rates. And when I say high, 0.8 percent is high,” said Skuterud.

Skuterud agrees that something has changed in the debate, but he hasn’t experienced any blowback for arguing a position that has historically been taboo in Canada. He said he has been pleasantly surprised about the quality of the debate, even in the more rough and tumble venues like Twitter.

And as the immigration debate opens up, it hasn’t attracted any populist or anti-immigrant sentiment so far.

The British-based Canadian sociologist Eric Kaufmann argues that Canada has benefited from an elite “taboo” about opposition to high immigration levels, but he has argued for years that it can’t last forever.

Kaufmann argues that politicians should learn to talk about immigration in a way that allows these points of view to enter the debate, or risk letting a populist dam burst like it did in the United States when Donald Trump made his unlikely bid for president.

Skuterud worries that if inequality increases, at least partly due to immigration policies, it could endanger the Canadian consensus on immigration.

“This push towards just filling job vacancies (with immigration) has two effects. One, it lowers average living standards. And two, and probably what worries me more, it increases inequality. And that’s not good for public support for immigration,” said Skuterud.