A majority of Canadians think that Canada is broken after years of stagnant incomes, affordability challenges, rising crime, government failures on basic functions like healthcare and immigration, and a deepening cultural malaise. But decline is a choice, and better public policies are needed to overcome Canada’s many challenges. Kickstart Canada brings together leading voices in academia, think tanks, and business to lay out an optimistic vision for Canada’s future, providing the policy ideas that governments need to ensure a bright future for all Canadians.
Part Two
Canada has an over-regulation problem. After a decade of lost growth, our country’s thicket of heavy regulations casts a dark shadow on the otherwise fertile soil of our economy. Both the quenching rain of new capital and the invigorating sunshine of innovation are prevented from doing their inevitable and natural work.
Kickstarting Canada demands we solve this problem. In this two-part essay, I will first lay out the argument for a future de-regulation agenda, and then provide some practical principles and examples that can allow capital and innovation to drive long-overdue growth. This is part two. You can read part one here.
If, at long last, Canada replaces the current government, a top priority must be simplifying, speeding up, and providing consistency to the regulations required to build things in this country. This second part in my two-part essay outlines some principles that outline how we can move with urgency to do so.
Principle 1: Cutting Chesterton’s Fence
This first principle is a blasphemy, or will be seen as one to many conservatives. The principle of Chesterton’s Fence is a core tenet of conservative humility, but that same humility should also demand that we not assume regulatory permanence.
For those who don’t bathe in the shallow, tepid pools of conservative commentary, Chesterton’s Fence was summarized by its namesake thusly:
“There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, “I don’t see the use of this; let us clear it away.” To which the more intelligent type of reformer will do well to answer: “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.”
As loyal readers will recall, I’m a G.K. Chesterton fan. Still, when it comes to regulations, Canada would benefit from inverting this theory. Put another way, Canada should use zero-based budgeting principles for its enormous regulatory library.
Let us begin from an assumption of freedom, and keep only those regulations needed to keep Canadians safe and our fundamental rights protected. The rest should be given no benefit of the doubt. Too many regulations have been built over time, protecting oligopolies, entrenching obsolete business models, or preferencing the loud voices of activists over the economic interests of Canadian workers and job creators.
This doesn’t have to be extreme. This principle should be enacted with a challenge function, ensuring adherence to Chesterton’s entreaty that we understand the use of the regulation prior to its elimination, but the bias towards freeing Canada from regulatory overreach requires us to hunt for the arbitrary and unnecessary rules that hold back our economic growth.
Principle 2: Bias to build
Much of the regulatory sludge that prevents anything from being built in this country seems premised on the assumption that the status quo is Eden, pristine and pure, and any shovel that touches earth must clear an ever higher series of bars, demonstrating paradise will not be defiled.
Contrary to this view, a majority of Canadians believe this country is broken. Our regulatory framework should thus start from a bias to build. A project or proposal that will create jobs and drive economic prosperity must have insurmountable and overwhelming flaws for the state to intervene to block it. This bias can of course still allow for appropriate environmental assessments and community engagement, but no longer should a major project be held captive to the existence of a particular sub-species of frog.
Principle 3: Taking a hard look at Canada’s “independent” regulators
In part one, I covered the argument that regulators should have clear rules that are understandable by all sides; that they do not exist to “push the envelope.”
Too much governance in Canada has been off-loaded by our accountable parliamentarians to an expansive and unaccountable administrative state of bureaucrats and supposedly “independent” regulators, which inevitably leads to envelope-pushing. The fact that many of the regulators who are creating an increasingly complex tangle of regulations are funded by the incumbent oligopolies they regulate (Office of the Superintendent of Financial Institutions and Canadian Radio-television and Telecommunications Commission, for example) increases the need to change the status quo.
American conservative commentator Jonah Goldberg often uses the phrase “complexity is a subsidy” to describe the dynamic where more regulations, paperwork, and complex processes act as a subsidized moat, preventing new entrants and smaller challengers from entering and innovating. This principle recognizes the truth in that argument and argues instead for that subsidy to be cut.
Rather than allowing incumbents to fund their regulators to build ever more complex moats around their businesses, a government that seeks innovation and growth should curtail these regulators’ expanding reach.
How can the CRTC have a different (more expansive) interpretation of its power under brand new regulations than the accountable legislators who just passed it? Why is OSFI broadening its mandate beyond bank stability and into climate activism by creating a large and expensive new climate team, whose goal is to reduce the amount of capital banks are able to lend to Canada’s resource sector?
Why has the Canadian Food Inspection Agency nearly doubled the number of food inspectors over the past decade while simultaneously claiming to have implemented innovative new technology that makes food inspection easier and more efficient? Did the farmers they regulate have any say in the matter? Where is this money going, what is it achieving, and who is regulating the regulators?
Examples along these lines abound. It’s time for an accountable government to assert its obligation to govern and hold regulators accountable for delivering excellence on their core mandates without permitting them to light tax dollars on fire to invent new responsibilities—and new burdens on Canadians along with them. It’s time to put an end to the inexorable envelope-pushing by federal regulators.
Principle 4: Deregulate atoms, not just bits
Speaking of innovation, there’s a strong argument, made most notably by investor and entrepreneur Peter Thiel, that to the extent meaningful technological innovation has been achieved in the last half-century, it has occurred primarily if not exclusively in the world of bits. If Canada wants to foster real growth in innovation and entrepreneurship, it should create a regulatory environment that allows for innovation in the universe of atoms. Put differently: we should treat the physical economy broadly similar to how we treat the digital economy.
The silicon, of Silicon Valley fame, has been the driving force behind most of the growth that has driven markets in the past quarter century. From mobile phones to online search and now the burgeoning AI space, economic growth has leaned heavily on these new and not-yet-regulated technologies. Many, including the Eurocrats whose story opened this series, want to place regulatory weighted blankets on these technologies, aligning them with the rest of our slow-growth Western economies.
In Canada, policymakers have assured us that we can remain an innovative economy by building useless state-funded “incubators” (see MaRS), or using tens of billions of tax dollars to “attract” advanced manufacturers to the Canadian market (see boondoggle battery plants).
But there is another way. Rather than curtailing technological innovation with new regulations on software, or wasting money through state-directed industrial policy, we could take the clear lessons learned from Silicon Valley dynamism and apply them across our economy. Simply put: we should regulate the physical economy much in the same way that we’ve regulated the digital economy over the past twenty years or so.
Technology broadly, and AI in particular, present incredible opportunities to make significant leaps in medical and biological innovation. In order to attract entrepreneurs and allow them to build novel, life-changing advances, we should loosen regulations to allow for more trials, lessons, and yes failures—but ultimately incredible advances in this space. Opportunities extend to nearly every sector that has been regulated into stasis and decline.
The trade-off offered by aggressive regulation is meant to be safety, but if the recent travails of Boeing provide any lesson, it’s that bureaucratic bloat and regulatory overreach eventually deliver not safety but mediocrity. So let’s make Canada a place that attracts entrepreneurs who want to build and test wild new technologies in defence, aerospace, construction, and every other major sector. We don’t need to use billions of taxpayer dollars to make this work or build goofy state-run incubators, we simply need to create a regulatory environment that gives them the freedom to innovate here.
As Patrick Blumenthal, venture capitalist and a leading investor in the defence tech company Anduril, outlined on a recent podcast, there is incredible innovation taking place today in Ukraine in the defence technology space. The reason so much progress is being made so rapidly is because the situation there is existential, creating an opportunity to build and test new ideas and technologies fast, learn quickly, and bring those that work to the front lines. Many ideas will fail, but by simply removing the impediment of onerous state regulations, smart people put every technological advantage of the modern age to use, and see rapid progress as a result.
All that’s required is getting out of our own way.
Principle 5: Regulations worth having are worth enforcing properly
There’s a famous Seinfeld scene, where Jerry shows up to collect a rental car he’s reserved, only to be told they don’t have it. Dumbfounded, he responds with “You see, , you know how to take the reservation, you just don’t know how to hold the reservation. And that’s really the most important part of the reservation…the holding. Anybody can just take them!”
So it is with regulations.
If the people decide a regulation is necessary, and hold individuals and businesses accountable for abiding by them, the government needs to do its part and competently enforce and uphold those rules.
In 2023, Fintrac received 36,286,939 financial transaction reports. That means that Canadian financial institutions, each of whom are obligated to have built large teams and platforms to monitor and track these things, at the cost of hundreds of millions if not billions of dollars, sent Fintrac nearly 37 million reports which merited some kind of second look.
Fintrac made 2,085 disclosures to law enforcement and national security agencies. So for every 17,404 transactions they receive, they make one referral to law enforcement. All of this while reports abound of foreign criminals and governments finding it far too easy to reside here, commit crime here, and move money to and from here.
Money laundering is an issue worthy of serious regulation, but if those regulations exist, and Canadian businesses are going to invest billions in building systems to monitor and flag transactions (and pass those costs onto consumers in the form of fees), the government needs to hold up its end of the bargain and do better than its meagre investigative (not mention prosecution) numbers.
One of the most frustrating things about our regulatory burden in this country is that it’s hard to shake the feeling that the government likes announcing new ones but isn’t really focused on competently enforcing the limited few that already exist and really matter. That needs to change.
Conclusion
Several months ago, in advance of the latest (depressing) federal budget, there was something of an astroturf campaign afoot among some in Canada’s business community who wanted the government to mandate (or force) Canadian pension funds to invest more of their assets in Canada. The volleys back and forth between the two sides contained many data points (and lots of clear self-interest) among some very smart people. But stepping back to look at the forest rather than the trees, that debate perfectly encapsulates the burdensome overregulation of the Canadian economy.
Canada, having regulated our economy into a coma, has made the country a far less attractive market for investment. Rather than solving that underlying disease and freeing our economy to grow, there emerged a camp that wanted to treat merely a single symptom, and in doing so, make the disease worse. A regulatory doom spiral.
There is a better way forward. Simply put: we should regulate the physical economy much in the same way that we’ve regulated the digital economy over the past twenty years or so.
One of the great benefits of beginning to trim back the regulatory excesses that serve as a constant economic headwind to this country is that it doesn’t cost anything; in fact, doing so will reduce federal expenditures. Which is a relief, because the current government has left its successor a complete fiscal mess. Still, cleaning up that mess will benefit from easing the regulatory burden, unleashing pent-up economic demand, attracting new capital, and letting the creative industriousness of the Canadian people go to work.
Canada has an advanced economy, an educated and creative population, abundant resources, a responsible and strong system of government—but a stifling straightjacket of overregulation. The challenge facing the next Canadian government will be large but surmountable, given that it involves, in large measure, simply getting out of our own way.
We don’t have enough homes, roads, or transit. Despotic regimes are getting rich and poisoning the environment while our aggressively regulated resource sector is prevented from exploring and developing valuable new projects among the most abundant supply of natural resources on earth. We need to build. Eliminating onerous and unnecessary regulations, while simplifying those that remain, will help kickstart the growth this country desperately needs.
