Wednesday, January 3, 2024

Is Canada Okay?

 Dr. Mike Moffatt explained the six economic problems Canadians should worry about.

He starts with red tape stopping things that would benefit us, a lack of state capacity, overlapping jurisdictions that allow things to slip through or remain undone, use of temporary foreign workers, risk aversion, and demographics. Below is all from Moffatt, saved for later reference:

"Canada overall is in great shape. Most countries would trade our problems for theirs in a heartbeat. This list of six isn't about any order of government or party. They're larger. More structural. this isn't meant to be exhaustive. Here we go:


Our housing crisis is a microcosm of Canada's larger challenges to build, well, anything, from rail lines to nuclear power plants. Why? Because of the "suffocating vetocracy". Public policy and governance should be like an immune system. They should prevent harmful activities (e.g. drunk driving, building aluminum smelters next to daycares) while allowing beneficial activities to occur. But the Canadian body politic suffers from an autoimmune disease. We not only attack the harmful, but that which can do us good. As someone with celiac disease, I can relate to this phenomenon. Canada's celiac disease is obvious in housing, where a kudzu of harmful zoning rules, building code requirements, municipal "negotiations", NIMBYism, and old-fashioned anti-Asian racism "we can't allow our cities to look like Shanghai!" block much-needed housing. But it's a "suffocating vetocracy" because it's often not an outright "no", but rather it's a subjective approvals process, coupled with delays and fees that don't outright ban things, but rather render them uneconomical to build.In short, those who would argue that we have a "gatekeeper" problem absolutely have a point, but the issue isn't the people per se; it's the larger policy culture. We need a cure for public policy celiac disease. And actual celiac disease. I want a donut. 


Ever notice that our governments seem to have trouble doing basic things? Like procuring equipment for our military? Or building an LRT in Ottawa that isn't a complete dumpster fire? Or how we don't have things like other countries have? Like why don't we have automatic filing of tax returns, like so many other countries? Answer: Because it'd turn into the Phoenix pay system on steroids, that's why. This lack of state capacity is a big problem. I consider myself to be on the centre-left, and this should be a huge concern for our clan, who believes that government can be a force for good. Canadian governments just need to be better at building and doing things.Where the centre-left and left get things wrong is seeing any problem as a "lack of investment". That the reason why we don't have high-speed rail is because we just won't spend the money. I'm afraid to say it's bigger than that.Reason why we'll never have high-speed rail in Canada (unless something changes) is that the "suffocating vetocracy" would block it at 99 different stages, and even if we could get around that, the lack of state capacity would turn it into the next Olympic Stadium. (RIP Expos)


For pretty much any public policy problem in Canada, at least two orders of government, if not three, have control over some part of the issue, and our governments do not coordinate with each other well.  At all. Take the massive growth (and massive exploitation of) international students in Canada. It got out of control because no one "owns" the issue: - Higher ed institutions enroll the students - Province regulates higher ed - Federal gov't issues student visas. When you've got an issue with overlapping jurisdictions, it's never quite clear who is supposed to solve it. So no one does. And we find ourselves in the mess we are today, with our broken international student system.


Speaking of international students... In Canada, whenever there's any kind of labour market shortage, whether it be perceived or real, we have one go-to solution: TEMPORARY FOREIGN WORKERS. Let's say an industry is having trouble filling gonculator technician positions. It could: - Raise wages - Train people to become gonculator technicians - Invest in productivity-enhancing equipment so fewer gonculator technicians are required - etc. etc. Unless you're Canada, then you instead bring in a bunch of gonculator technicians as guest workers with fewer rights (as TFWs, international students, etc.), thus preventing companies from having to do things like raise wages, train workers, or invest in equipment. If companies don't have to invest in productivity-enhancing equipment, we shouldn't be surprised that our productivity growth is stagnant. Which brings me to problem five. 


Canada's spent the last 50 years trying to become more innovative through public policy. I co-authored a book on innovation policy solutions a few years back, and in 2017, I was hired by the federal government to help tackle this issue. That said, I think traditional public policy can only help at the margins with Canada's innovation gap. Partly for the first four reasons on this list. But mostly because our problem isn't policy, it's culture. Canada's corporate culture may be the most risk-averse on the planet. Canada's corporate culture issue can be described as the "nobody ever got fired for buying IBM" problem. This is an issue everywhere, but in my experience no more so than in Canada. 

Explanation of the phenomenon. A lifetime ago, I worked in the chemical industry, helping companies with regulatory compliance, as well as selling into new markets. We offered solutions that saved companies time and money, and provided higher quality outputs. I did a fair bit of sales in the early years... I was based out of London, ON, and I quickly found that it was incredibly challenging selling to Canadian companies. They had their way of doing things, and they weren't about to change. The Americans, however, weren't like that. I had more clients, and was bringing in more revenue from one US city (Atlanta, Georgia) than in all of Canada. Why? Differences in culture. In Atlanta, I could go to a company with a $25,000 proposal, and they'd think "let's give it a try... if this works, it could help us a lot. And if it doesn't, it's not that much money lost". In Canada, it was "if we're spending a dime, we have to be 100% sure it'll work". American companies, I found, thought about upside, whereas Canadian companies typically only thought about downside. American companies are willing to experiment, to pilot, to try new things. And this is a well-known phenomenon. I remember being in Tahoe one time, having dinner with a few colleagues from Texas and Arkansas. After one too many whiskeys, one of my Texan colleagues drunkenly said, "Mike, you know why we buy from you? Because you think like a Texan". I love my country. That said, boy do I wish our corporate leaders could have just a bit more Texan in them. If they did, we'd be able to scale up our small and mid-sized businesses. We'd be able to innovate, to try new things. And we'd be allowed to fail once in awhile. Finally, and the most boring one. 


This is an issue a lot of countries, and Canada is better positioned than most due to our immigration system. Demographics really are 2/3rds of everything. And the aging of the larger Boomer cohort has a double whammy, of seeing an exodus of skilled labour out of our companies, plus a massive rise in health care costs. Care costs per capita rise massively by age

That's my list of six economic problems. Again, I want to reiterate that Canada is better positioned than most. But we really do have some big economic challenges that are going to require some creative solutions to fix.

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