Governments need to listen to stakeholders and outside advice to catch up as other countries move ahead with a new model for economic intervention.
by Jörg Broschek. Originally published on Policy Options
September 16, 2024
Liberal democracies have entered a new era of organized capitalism. Industrial policy lies at the heart of this transformative shift, but Canada seems to be missing out.
In the past, provincial and federal governments have forged new paradigms to address major challenges. In this case, they have passed on the opportunity to create a new model to provide long-term economic guidance while other countries move ahead with renewed industrial policy.
While the conditions for catching up are bleak, it is not too late.
It’s past time to sit down with all governmental stakeholders, mobilize external advice and to start orchestrating this monumental task.
The comeback of industrial policy
The resurgence of interest in industrial policy is remarkable. In theory, state intervention incentivizing economic activities to pursue public goals became discredited in the neo-liberal era. In practice, governments never abandoned it. One main beneficiary in Canada has been the fossil fuel industry.
A recent estimate by Environmental Defence suggests the federal government announced more than $18 billion in 2020 for the industry in financial support or loan guarantees. There were additional subsidies from provincial governments such as Alberta, Saskatchewan or Newfoundland and Labrador.
What has changed globally in recent years is that the pace and scope of adopted measures qualifying as industrial policy have significantly increased.
Its overall assessment and strategic appreciation are also new.
Industrial policy with a new capitalist order
Today, industrial policy not only promises to advance competitiveness but is also considered an important tool to promote the imperatives of the newly emerging capitalist order: Decarbonization and economic and national security.
The European Union epitomizes this historical turn. Since the introduction of the European green deal in 2019 and the NextGenerationEU in 2020, it has launched a cascade of integrated, ambitious programs and policies such as the green deal industrial plan, the European economic security strategy and the European defence industrial strategy.
These initiatives indicate a departure from the strong emphasis on competition policy. They are poised to reshape the internal market, to enhance the goal of strategic autonomy internationally and to bolster the EU’s institutional and fiscal capacity to drive transformative policy beyond regulation.
The EU approach and “Bidenomics” in the U.S. show that individual countries adjust to historical transformations in particular ways that reflect their political, economic and institutional legacies. Experience suggests that Canada is no less capable of adapting its own paradigms of organized capitalism.
The so-called “second national policy” in the aftermath of the Great Depression gave rise to a more professionalized, interventionist welfare state that adopted Keynesian-inspired economic policy. The government of Saskatchewan under Tommy Douglas championed this trend before it was adopted by other jurisdictions.
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The turn towards a more market-based, neo-liberal model of economic and social development under Brian Mulroney marks the beginning of our current era.
The dramatically escalating climate crisis, supply chain disruptions and global democratic regression have made it abundantly clear that this paradigm is in decay and a new response is warranted.
The political challenge, however, is unprecedented.
The climate crisis, in particular, is a unique challenge with profound implications for political and economic security. As economic sociologist Jens Beckert argues in How We Sold Our Future: The Failure to Fight Climate Change, ongoing failure to significantly limit global warming will have irreversible consequences, which sets it apart from any other policy problem.
But swift action seems impossible because we have never been more economically and socially invested in the fossil-based economy.
The more the crisis escalates, the more its costs will become visible, intensifying “social stress” – not only between the Global North and the Global South, but also within affluent, mature federal democracies such as Canada.
Despite significant gradual policy innovations in recent years, Canada’s approach has remained patchy. It lacks integration across domains and is not sufficiently receptive to the realities of federalism and our regionalized political economy.
British Columbia’s premier David Eby had a point when he raised concerns during the Council of the Federation meeting in Halifax in July about the “blockbuster deals” the federal government has been signing with Ontario and Quebec to promote EV battery plants.
“Sugar daddy federalism”
Instead of creating collaboratively a federal-provincial industrial strategy that also envisions a long overdue institutionalized role for municipal and Indigenous stakeholders, the federal government continues to strike bilateral agreements or to unilaterally announce funding programs, such as the new Canada public transit fund.
This is what Policy Options founding editor, the late Tom Kent, once called “sugar daddy federalism.” It is not, however, the kind of committed partnership required to navigate the transition before us.
Moreover, a new industrial policy needs to be coupled and aligned with other tools such as infrastructure, defence or fiscal policy.
The federal government deserves much praise for its innovative carbon-tax design with the inclusion of the Canada carbon rebate. The EU and Germany still struggle with implementing a similar scheme.
But without integrating this backbone of a more decarbonized economy into a coherent standard approach, it has become vulnerable to opportunistic political backlash, federally and provincially.
Another example is the federal government’s April 2024 policy review Our North, Strong and Free: A Renewed Vision for Canada’s Defence.
This document recognizes the need to develop a bold approach to national security amid a profoundly changing world order. Although an important step in the right direction, it is not part of a broader industrial strategy and remains preoccupied with rather specific policy goals.
Timing is important in politics. There was a moment early in the pandemic that could have served as a critical juncture for crafting a new industrial policy. While the conditions are considerably less favourable today, inaction carries a high price tag.
A lot is at stake and time is running out. What can be done?
Looking back reveals one important missing piece. While federal-provincial conflict was not necessarily less intense, past transitions were always facilitated by high-profile royal commissions.
The Royal Commission on Dominion–Provincial Relations (1937-40) was crucial for developing the Keynesian welfare state of the post-Second World War era in the same way as the Royal Commission on the Economic Union and Development Prospects for Canada (1982-85) paved the way for its neo-liberal transformation.
Royal commissions shaped paradigm changes by recommending encompassing and coherent policy solutions that are reflective of Canada’s federal architecture. They developed argumentative power and authority that profoundly influenced broader political discourses.
This approach forced opponents to engage in meaningful ways, rather than allowing them to discredit good policy based on cheap political slogans.
Politics matter as much as policy itself. It is therefore unfortunate that Prime Minister Justin Trudeau abandoned his 2015 promise to foster a “true partnership between the federal government and the provinces and territories.”
It is equally unfortunate that the federal government was unreceptive to the 2020 calls – among them from former Ontario premier Bob Rae – to establish a commission of inquiry into Canadian federalism.
What Dan Ciuriak and John M. Curtis claimed more than 10 years ago still rings true: “Canada has a profusion of industrial policies, what it lacks is a strategy.”
It’s time to change that.
This article is part of the Trade in an Era of Global Insecurity special feature series.
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This article first appeared on Policy Options and is republished here under a Creative Commons license.