Stability and prosperity must be made in Canada

Prime Minister Mark Carney’s eloquent epitaph to the global economic order at the Davos World Economic Forum has been widely acclaimed for its candour in challenging the U.S. economic coercion that President Donald Trump has unleashed on the world.

It needs to be said also, however, that the old order and its multilateral institutions — the World Trade Organization, World Bank and International Monetary Fund — were responsible for a massive growth of inequality, financial and environmental crises, as well as the imposition of a global division of labour in which manufacturing would be based on cheap labour and other countries, like Canada, would be “hewers of wood and drawers of water.”

The financial elites at Davos stood to applaud Carney, but they remain committed to much of the old design and rules that brought those results.

Carney pitched Canada to the Davos investors as an energy superpower with vast reserves of critical minerals, with the most educated population in the world, pension funds among the largest in the world, the most sophisticated investors and a stable government with “immense fiscal capacity.”

Prior to Davos, Canada reached new partnership agreements in China and in Qatar.

The agreements in Beijing directly benefited agricultural, fisheries and, possibly, energy exports. But without any firm commitments that matched the deliverables in agriculture and resources, the deal also granted access to the Canadian market for high-value-added manufactured goods in the form of electric vehicles.

In the Qatar agreement, Carney announced that Qatar’s US$577-billion sovereign wealth fund, the Qatar Investment Authority, would also make investments in Canada. “This capital will help the projects get built faster and supercharge our energy industries, while helping to create thousands of high-paying careers for Canadians,” said Carney. However, Qatar, a theocracy with an egregious human rights record, has no interest in operating productive facilities and employing Canadian workers. They will come to Canada as investors seeking only guaranteed returns.

In short, the global investment strategy may be diversifying trade and investment opportunities away from the U.S., but the new trade and investment deals with China and Qatar did not include transparent conditionality and deliverables to strengthen Canadian manufacturing and value-added sectors.

The appeal for foreign investment, in part, is because incentives to Canadian business to invest in building Canada have not produced results. To the contrary, Canada has seen declining business capital investment since the launching of Trump’s trade war in spite of corporate tax cuts.

Carney has repeatedly stated that we can create ourselves much more than the U.S. can take away from us. Canada’s own “immense fiscal capacity” to invest in our national projects, housing and the care economy is made possible by a healthy debt-to-GDP ratio at the median of the G7 economies.

Our capacity includes also $727 billion held in Canadian corporate cash accounts that could be taxed into utility requiring companies to fulfil production and employment objectives.

Canada’s parliamentary budget officer has estimated that government direct spending on housing and infrastructure has a multiplier effect of up to 10 times more jobs per dollar and on GDP growth than corporate tax cuts. Those unpaid corporate taxes are not used for new investments in research, facilities or machinery, and are more often directed to share buybacks, dividends, yachts, real estate speculation and foreign investments — or they sit it in cash accounts.

The benefits of state-led industrial policy are not hypothetical. During the Biden administration in the U.S., corporate taxes were increased and government subsidies were directed to leverage investment in green energy projects with new jobs and union contracts. Manufacturing payrolls rose, adding more than 1.6 million jobs in manufacturing, construction, mining and forestry.

In Trump’s tax cutting and deregulation first year, there are no new net jobs in these sectors.

The new Liberal government emphasizes its business experience and connections, and it is not the first time that business leaders have been brought into government during times of crisis. However, when C.D. Howe, Canada’s Second World War industry minister, recruited his “dollar-a-year men” to run the Crown corporations established to rapidly industrialize Canada, he called on the industrialists of the day to build and operate factories and infrastructure. Canada did not offer tax incentives or deregulation, hoping for private-sector initiatives driven by financiers.

“We tell industry what we want; we provide the means; we expect results,” Howe told the Canadian Parliament in 1941. For the next 30 years, the Canadian economy enjoyed its “Golden Age.”

“In this more uncertain and dangerous world, we’ve chosen to create greater stability, security and prosperity together,” Carney said. That is exactly the message that Canadians need to hear, but it was delivered to the wrong audience in Davos.

Because in the new global order, stability and prosperity must be made in Canada, together and between Canadians.

» Robert Chernomas teaches economics at the University of Manitoba. Fred Wilson is a retired director of Strategic Planning for Unifor, the largest private sector union in Canada. This column was previously published in the Winnipeg Free Press.