How our new PM can help grow the economy

Generations of rhetoric notwithstanding, Canadian prime ministers don’t have that many tools at their disposal to boost economic growth. So here are three ideas to get Justin Trudeau started
By Ian McGugan

Lasting stimulus: World events really drive our economy, but leaders in Ottawa can pick their spots

You should feel sorry for federal politicians—at least during elections and just afterward. It’s then that these would-be leaders are forced to stand up and pretend they possess the magic formula to generate prosperity.

Of course, their hopeful rhetoric often bears only a passing resemblance to reality. Just like ordinary citizens, prime ministers usually wind up governed by circumstances outside of their control. The latest example is Stephen Harper, who for years portrayed himself as the consummate economic strategist as he steered the country through the global financial crisis. In reality, much of his success was simply the result of the world’s surging demand for crude. When oil prices unexpectedly slid in 2014, Harper’s ability to generate prosperity vanished.

Many politicians share Harper’s habit of taking credit for events they played no role in bringing about. Back in the late 1990s, Jean Chrétien basked in applause for Canada’s recovery—a rebound that was in large part the result of a red-hot U.S. economy combined with looser monetary policy by the independent Bank of Canada. Look back even further and both Pierre Trudeau and Brian Mulroney claimed paternity rights to expansions fathered outside of Canada.

This persistent habit of Ottawa power brokers raises a couple of interesting questions: What can prime ministers actually do to boost the economy? And what should Justin Trudeau be doing and saying right now?

For starters, let’s give credit where credit is due. The governments of Mulroney, Chrétien and Harper did manage to implement many reforms that economists recommend as sound long-term policy. From the GST to free trade (Mulroney); more free trade, an end to deficits and stabilizing the Canada Pension Plan (Chrétien); lower taxes, increasing incentives to work (Harper), each had some impact. But despite their efforts, much work remains to be done. Canada’s recent growth, such as it is, rests on two teetering foundations—an oil boom that looks to have expired and a housing market that long ago entered la-la land. It’s possible that oil prices will recover and that home prices will remain in the stratosphere. But, on the off chance they don’t, here are three things that Trudeau can and should focus on:

Liberating Canada’s farms Canada’s supply-management policy is a disaster. The system governs domestic production of milk, cheese, eggs and poultry by tightly controlling quotas for production and erecting barriers to imports. It results in many agricultural commodities costing double or more in Canada what they do in other countries.

The beneficiaries of supply management are a relative handful of farmers. The victims include Canadian families, each of whom must pay hundreds of dollars more for groceries every year than they would if government allowed free competition in farm products. And the casualties don’t stop there. At their current prices, Canadian eggs, milk, cheese and chicken are simply uncompetitive in foreign markets. As a result, supply management throttles any hopes that Canada could become an exporter of those farm products or food made from them.

This dysfunctional system endures because of the political importance of the farm lobby. It’s past time to end the kowtowing to special interests. A liberated farm sector would be a boon for Canadian consumers and exporters.

Reducing retirement costs If Canada’s farms are inefficient, so is much of our retirement system—particularly the massive financial planning industry set up to peddle mutual funds with absurdly high management fees.

Consumer advocates have spent years criticizing the fees, which typically top 2% a year of assets. So have external observers, such as Edward Whitehouse, a leading pensions expert at the Organization for Economic Co-operation and Development who was asked by the Department of Finance to provide an outsider’s perspective on the Canadian retirement system. Among the concerns he identified were the high charges facing RRSP savers. “The impact of charges on retirement incomes cannot be stressed enough,” he wrote in a 2010 report. “Moving from a levy of 2% of assets to 0.5% would increase net benefits by more than 40%.”

Surely it’s possible for Ottawa to engineer a system that would provide ordinary Canadians with a low-cost, highly efficient way to save for their retirements.

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Making manufacturing a priority Canadians have to face the prospect that the oilsands may never be the wealth generator we hoped they would be. At current prices, much of Alberta’s oil isn’t attractive to develop. Even if prices were to recover, it’s tough to transport bitumen given the resistance to pipelines in many jurisdictions. On top of that, the mounting evidence of global warming does not bode well for the carbon-intensive oilsands.

Canada must find new expansion opportunities and the best way to do that is to focus attention on areas like advanced manufacturing that have the potential to help improve our country’s dismal record on productivity growth. Ottawa should invest in improved infrastructure to speed transportation and border crossings. It should also expand education in engineering and related fields to ensure a high-quality workforce. It should encourage the spread of high-speed Internet connections and construct a social safety net that helps displaced workers retrain for new jobs.

Boosting our nation’s factories isn’t exactly the sexiest of government platforms. But it could help our national leaders bring a new realism to our national economic debate.

Ian McGugan is an award-winning business journalist in Toronto and the founding editor of MoneySense magazine. E-mail: imcgugan4@gmail.com.

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