It’s taken some time to get there, but even the Tories admit (reluctantly) that the Canadian economy is in recession. The big question for the electorate is: can government do anything to improve the situation?
All of our party leaders have plans to stimulate the economy; regrettably, they’re offering up the same tired old corporate tax breaks, or government-led infrastructure spending programs. Truth is, the problem is much deeper than that.
For decades now, economists have encouraged governments to let market forces manage the economy. Economic theory tells us free markets direct resources optimally.
But with our economy mired in a deep funk, clearly more needs to be done. Government-led economic stimulus after 2008 and, more recently, austerity have not delivered the promised recovery.
Free market economics relieve governments of their responsibly to direct the economy. Even uttering the words ‘national strategy’ in Canada is political suicide. Maybe it’s time for some new thinking, possibly a major about-face, on the role of government in the modern economy.
A good place for governments to start would be engaging in a debate about the future of our country, setting some national strategic goals, targets that inspire, targets that advance the well-being of Canadians and meet the ambitions of our youth. I recognize it’s hard to do, given the diversity of modern society, but isn’t that what political leaders are supposed to do?
There are more specific things governments could do. Economist Kevin Page says a major impediment to growth in Canada is investment, or more correctly, the lack of it. Investment in Canada flat-lined years ago at very low levels, leaving many sectors of our economy undercapitalized.
A role for government could be to stimulate reform of our capital markets.
It is often said that ‘we’, in the developed West, have highly sophisticated capital markets. In fact, one of the most popular myths in modern capitalism is that stock markets exist to connect the world’s capital with companies needing that capital to grow their businesses, build new factories, launch new products or hire new staff.
This is almost entirely false.
In Canada, there are trillions of dollars in managed investments, retirement savings plans, pension and mutual funds. Regrettably, the majority of this capital is in the stock market. Most stock market transactions simply swap one existing (passive) stockholder with another, the money circulating in a great vortex between and amongst these shareholders. Almost none of this invested capital ends up in the treasuries of companies needing capital for growth.
In other words, there’s no shortage of capital in Canada, but it is misdirected toward property and speculative stock market investments and away from productive growth investment.
To change this, governments could start with the banks.
Canada’s banks are ‘chartered’. What that means in practice is they’re afforded some protection from (internal and external) competition. The quid pro quo is, they have a responsibility to capitalize the economy. But corporate lending by banks has almost disappeared and has never really existed for early stage technology-based companies. And bank-managed funds that invest directly in local businesses creating jobs simply do not exist.
Government could set some national goals and then work with the banks and other financial institutions to oxygenate the Canadian economy.
If the proper incentives, regulations and protocols were put in place, then maybe when a young entrepreneur approaches their bank looking for finance, he or she, won’t be shown the door. Perhaps, your financial adviser will have a locally directed ‘Alberta First’ fund, or a special fund for female entrepreneurs, rural development or First Nations’ businesses.
Government could encourage Canadians to take greater personal control over the nearly $1 trillion TSFA or RRSP accounts. Instead of investing in low return GICs, investors could self-direct some part of their savings in ways that make a difference, advancing the economic well-being of their fellow Canadians.
Robert McGarvey is an economic historian and former managing director of Merlin Consulting, a London, U.K.-based consulting firm. Robert’s most recent book is Futuromics: A Guide to Thriving in Capitalism’s Third Wave.
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