In the age of economic sovereignty, business can’t sit on the sidelines

Canada is deeply invested in the success of a stable global system. Over the past 30 years, about one-third of everything we’ve produced has been exported. And it’s not just trade. Canadians are one of the world’s largest creditor nations, owning more than $11 trillion of assets outside the country. The return of industrial policy to Canada, meanwhile, is fraught with risk. Governments driving resources to strategic industries can provide resilience and more economic sovereignty, but at the expense of higher prices and lower efficiency. The trade-offs would be real even if policies were perfectly implemented. But almost certainly, execution will fall short, adding to the costs. The federal bureaucracy simply doesn’t have the capacity to do everything the prime minister and his cabinet are asking of it: managing economic disruption, rebuilding infrastructure, delivering large-scale projects, engaging in commercial diplomacy, mobilizing defence spending and procurement, leading on technological change. The federal government has resorted to workarounds—like Bill C-5 and the Defence Investment Agency—to close the gap between ambition and state capacity. But workarounds are likely unsustainable, and we’ll need more lasting solutions. For Canadian business, the impact of all these structural shifts will be profound. At home, policymakers will try to persuade, incentivize, and even coerce companies to do more in the pursuit of priorities deemed to be in the national interest. Abroad, protectionism threatens to alter the DNA of global competition. Being productive and innovative may no longer be sufficient to succeed in the global marketplace. As governments pursue more sovereignty-driven policies, it will be critical for Canada’s business community to become engaged in influencing how this agenda evolves. This includes contributions to the discussion about how to enhance state capacity and the effectiveness of government, as well as how industrial policy is designed and implemented in a manner that continues to support growth and competitiveness. Business and government will also need to find ways to constructively work together, on everything from large projects and infrastructure to labour market planning and national unity. The private sector can’t afford to treat this shift as something happening to it. The business community must shape how it all unfolds. In the meantime, it’s worth pointing out a few observations and guiding principles First, the resiliency agenda puts investment front and centre. This is welcome. Our country needs more investment—public and private—to boost productivity. Second, first-best principles still apply to the challenge of promoting investment, even in the current environment of geopolitical rivalry and economic disruption. Governments should strive to simplify rules and regulations and make them more predictable; fiscal policy should be sound and credible, and the tax system competitive; Canada’s economy should be as open as possible to trade and investment, especially within North America. Indeed, the growing uncertainty only serves to reinforce the importance of “conventional” wisdom about fiscal prudence and productivity. Third, Canada doesn’t need bigger government or more spending, and we must be mindful of worst practices and government overreach. But we must also recognize that sovereignty-based agendas are here to stay, and we’ll have to stretch our collective toolboxes in this increasingly complex world. This means a state that can deliver, not just retreat.