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Derek Fildebrandt: The best thing Ottawa can do to help the media? Stop trying to help us

Commentary

The news media in Canada is in crisis. Policy responses to date are failing to solve for the information that citizens need to make informed decisions about important issues and debates. The Future of News series brings together leading practitioners, scholars, and thinkers to imagine new business models, policy responses, and journalistic content that can support a dynamic future for news in Canada.

“The nine most terrifying words in the English language are: I’m from the government, and I’m here to help.” These words were spoken by Ronald Reagan to emphasize that the road to hell is often paved with good intentions. So much the worse when it is the government paving the roads. 

The Canadian legacy media cartel has been lobbying and begging the federal government for “help” for a decade now. Their first big rent-seeking win was the creation by the Liberal government of the media bailout, an expensive suite of programs that are mostly administered through the federal tax system. 

Dangerously, it created for the first time in Canadian history what amounts to a federal licencing system for journalism. Anyone who wanted in on the free money had to meet federal standards to be declared a “Qualified Canadian Journalism Organization.”

At the insistence of the organization that represents the legacy media cartel, News Media Canada sold its independence to the federal government in exchange for some cash. 

But it was obviously not enough. In fact, companies tethering their financial health to government largesse resulted in what corporatism almost always results in: dependence on the state. This dependence led the cartel to seek new and potentially larger sources of unearned income: a shakedown of Big Tech. 

Google and Facebook succeeded Craigslist and others in replacing the media’s monopoly over advertising with their own. Google in particular has been accused of using openly anti-competitive practices to monopolize the online advertising market. But News Media Canada didn’t ask Ottawa to do anything to restore competitiveness to online advertising; they asked it to forcibly give it a slice of the monopoly’s cake. They didn’t ask for anti-trust legislation but instead argued that Google and Facebook were “stealing” their content by…making their links available for readers to click on. 

This ass-backward thinking gave birth to the grossly flawed logic that would underpin Bill C-18, the Online News Act

The cartel and the feds would simply present the two big tech giants with a bill, and they would pay it. Such has always been the power of modern nation-states. What choice would they have? 

But like the legacy media, the federal government is still living in a bygone era where the state has almost unlimited power to coerce its will upon all. Unlike an American auto branch plant, Google and Facebook maintain no real physical assets within Canada for the government to coerce. 

Importantly, the cartel and the government both failed to recognize that Google and Facebook held all the cards. They may have eaten the media’s advertising lunch, but the transfer of value was not from the media to Big Tech (“stealing the content”), but from Big Tech to the media (making our content available to readers or customers”). 

As I put it in my pleading before the Senate on Bill C-18, Facebook and Google are the 21st century’s paperboys; delivering our content to readers. And no paperboy would pay the newspaper for the privilege of delivering the paper. 

Facebook made crystal clear while the bill was before Parliament that they would comply with it by blocking the news in Canada. No news, no payments. Google made similar threats in softer, more diplomatic language. 

But the feds damned the torpedoes and went ahead anyway, believing Google and Facebook would have no choice but to pony up. 

They were shocked when Facebook did exactly what it said it would do. Analytics show that it suffered no drop in traffic whatsoever. But the media sure took a hit with massive drops in traffic, with no silver lining. In particular, new entrepreneurial media start-ups took by far the biggest hit, relying as we did on Facebook to reach new audiences. 

Google held off on a quick move to block the news but made clear that it would do so unless Ottawa effectively re-wrote the legislation before the December deadline. 

And so this entire year, the prospect of losing a majority of our web traffic hung over the heads of the independent media like the sword of Damocles. The Western Standard, where I am the publisher, was forced to shelve major investment plans for expansion for an entire year, for fear that we would lose the two largest sources of our traffic and the most effective ways to build new audiences. 

Far from supporting journalism, the federal government forced us to not create new journalism positions. 

Late in the game, Ottawa came to the painful recognition that it had lost an all-too-predictable bad gamble. If Google followed the path of Facebook, the media would outright collapse. They had no choice but to make a deal, and Google held all the cards. 

It effectively surrendered to Google, getting a mere $100 million per year from them that is being put toward a media fund. After accounting for Google ending its existing agreements with the media, this is only about half what the cartel was promised. To Google, this was merely the cost of business, like paying a corrupt customs official at the Port of Shanghai. 

To make up for the disappointing loot, Ottawa doubled the generosity of the media bailout. 

Predictably, corporate rent-seekers like TorStar were wholly unsatisfied with all the new money, but they will inevitably die anyway. They are still dinosaurs in the online age. 

All of this has compounded the federal government’s misguided mission to prop up the dying (or dead) legacy media. By doubling the media bailout, they continue to make the innovative new media companies less competitive relative to the legacy media incumbents. 

By playing chicken and losing badly with Facebook, they have cut off a major source of traffic and audience growth disproportionally used by new media. 

All of this has had the effect of delaying the inevitable market forces that are shaping a new, financially viable media industry, making that industry more reliant on the state. 

And while the Liberals may be ideologically comfortable with regular businesses being reliant on the state, they continually fail to see the extreme danger to the freedom of the press by having said press reliant on the state. Any disagreement with the Liberals on this point is met with howls of “Trumpism. Disinformation. Conspiracy theories. Convoy.”  

No matter what the federal government does, it seems to make the media less independent and less financially sustainable. 

To those less charitably disposed toward the Liberals, a less independent media is seen as probably a feature of these policies, not a bug. 

But the Liberals very likely are genuine in their desire to see a more financially sustainable media industry. But even here, their efforts to “help” have been an unmitigated disaster of biblical proportions. 

Pierre Poilievre has pledged to defund the CBC if he comes to power, a move that would be positive from both press freedom and industry competitiveness perspectives. But even more urgently, he needs to scrap the entire regime of the Online News Act and media bailouts. 

The legacy media cartel would surely howl that it will die if he does so. But for the new trees to grow, die they must. 

The Future of News series is supported by The Hub’s foundation donors and Meta.

Robert Asselin and Theo Argitis: Don’t buy the government’s rosy projections—Canada’s fiscal outlook is not a pretty picture

Commentary

After a challenging 2023, Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland head into the new year facing significant pressure to test further the reach of the federal government’s balance sheet.

Just to stay in power, the federal government will likely need to launch a multi-billion pharmacare plan to fulfill a promise that it made to the New Democratic Party. A federal election, whenever it comes, will only stoke demands for additional spending. Adding to the pressure are structural challenges around aging, industrial policy, defence, Indigenous reconciliation, and the energy transition.

As a result, the next 12 to 18 months will see heightened debate over the state of the nation’s finances, as well as the amount of fiscal space that remains available and how best to use it.

We believe the federal government should resist any temptation to add to the fiscal framework at a time when debt has ballooned, interest rates have increased, and growth has slowed. Others will take a more sanguine view. Political actors will work hard to frame the discussion strategically to rally the public around their positions.

To help inform the coming debate, we offer a few observations that we think are worth highlighting.

Net debt

Let’s start with a reminder that there are a number of ways to measure debt and sustainability. Under the government’s preferred gauge—net debt—Canada’s fiscal position looks much better than most major economies—a fact that the current government has raised repeatedly to justify its spending.

But it has limitations.

Net debt is a narrow measure that deducts state financial assets from actual debt liabilities. In Canada’s case, this includes the fast-growing assets held by the Canada Pension Plan and the Quebec Pension Plan. The fundamental idea is that it’s the best way to assess longer-term solvency since, in theory, the government can tap into these financial assets to repay its debt if needed.

The concept is somewhat notional, however, since it’s tough to see any government raiding the nation’s pension assets even in a crisis.

Net debt also is less useful in analyzing the actual trade-offs that governments are forced to make in real-time. The burden of debt repayments is what actually matters for budget making, and borrowing costs can overwhelm a country’s finances and undermine growth well before any risk of a default eventually kicks in.

Gross debt measures and actual debt servicing indicators give a more accurate picture of the fundamental constraints faced by fiscal planners. And these indicators offer much less comforting international comparisons.

Discount the trajectory

When looking at Canada’s fiscal picture, we suggest discounting the government’s medium-term projections, which always show improving debt dynamics and a downward deficit trajectory that approaches balance and then fails to materialize.

In her November fiscal update, Minister Freeland even pledged to establish a “rule” in 2026 to prevent the deficit from ever again exceeding 1 percent of GDP—which we don’t find credible based on, among other factors, the Bill Parcells’ rule.

To project where the Trudeau government’s deficits will be in the future, take guidance from former New York Giants coach Bill Parcells, who famously said that you are what your record says you are.

Between 2017 and 2022, the Trudeau government ran deficits averaging 1.4 percent of GDP when adjusted for swings in economic activity—which not coincidentally is about the deficit projection for 2023 and 2024. That’s our best base-case assumption going forward under a moderate growth and interest rate scenario.

Spending matters

Current spending is not consistent with any meaningful reduction in deficit levels. Expenditures as a share of GDP—at 17.8 percent over the next two years—are structurally the highest levels since the 1990s.

In the post-World War II era, the federal government has managed to record a deficit of less than 1 percent of GDP only twice when spending exceeded the 17 percent threshold. That was between 1996 and 1998 at the very start of a decade-long period of fiscal consolidation.

In fact, history tells us risks are asymmetrical and tilted to the upside at these spending levels. Since the end of WWII, deficits have averaged more than 4 percent in years when spending has surpassed 18 percent of GDP.

This is an intuitive outcome. There are more constraints to raising revenue than there are to increasing spending.

Spending and deficits at current levels over a sustained period of time aren’t necessarily unstable as long as economic growth is robust, but that’s not a luxury we currently have with our abysmal productivity numbers and population aging.

Today, the bigger risk may be that we enter into an era where public debt charges outpace revenue growth—a dangerous inflection for debt dynamics.