Canada’s chance to be useful in a divided world

TORONTO—The most important responsibility of the Trudeau cabinet confab in Prince Edward Island was to take the next steps towards a credible action plan for a better future, with clearly defined priorities that address the most important challenges we Canadians face. The results should be clear in Finance Minister Chrystia Freeland’s fall economic statement, which ideally would come next month. Despite much boastfulness by Prime Minster Justin Trudeau and his cabinet colleagues, Canada is not doing well, and is poorly positioned for the future. Our poor growth in per capita incomes is just one measure. Overall, we face huge needs that must be addressed, from a serious shortage of affordable housing and the huge investment challenge as we move to net zero emissions; a low productivity future that threatens our ability to fund future health care and the needs of an aging society; and poor planning for a new industrial revolution based on the digital economy, intellectual property, artificial intelligence, quantum computing, and advanced manufacturing. Our fiscal capacity is limited, yet there are drumbeat calls for a major boost in defence spending as part of a costly new arms race (it’s estimated we would have to increase defence spending by $57-billion to meet a NATO target equal to two per cent of GDP by 2027) and yet also to limit new spending overall and bring down the level of public debt. How we sort out all of these challenges and competition for resources will require a level of priority-setting and leadership that has been seriously missing in both the public and private sectors. At the same time, we live in a much more challenging world, one the U.S. is foolishly and dangerously dividing into a zero-sum strategy of competing camps of democracies and autocracies, and doing this at a time when the need for multilateral co-operation has never been greater. Canada has embraced this misguided American-led effort, with our government and opposition MPs all-too-often sounding like American poodles. This U.S.-led zero-sum world, paradoxically, is one where on one hand, the U.S. is trying to build an alliance of democracies, while at the same time pursuing its own protectionist policies that weaken and constrain the same allies in order to make the U.S. better off. In a sobering essay in the latest edition of Foreign Affairs journal, Kristalina Georgieva, the managing director of the International Monetary Fund, warns of the high risks the world faces with the rise of what she sees as a fragmentation of the global economy, a process that greatly weakens the capacity of the world to deal with future shocks, as well as wiping out many of the gains the world has made over the past several decades. “Fragmentation is costly even in normal times and makes it nearly impossible to manage the tremendous global challenges that the world now faces: war, climate change, pandemics,” she warned. “But policymakers everywhere are nevertheless pursuing measures that lead to further fragmentation. Although some of these policies can be justified by the need to ensure the resilience of supply chains, other measures are driven more by self-interest and protectionism, which in the long term will put the wild economy in a precarious position.” Canada has much at stake. Our economy is highly vulnerable in an unstable world. This is why the time has come for Canada to return to its traditional role as a champion of multilateralism, effective global institutions, and global governance. This need is critical in a world of rising tensions, a new arms race, the weakening of global institutions, the division of the world into zero-sum protectionism, pressures from worsening climate change, migration flows, food and water risks, and much greater risks to financial and economic instability, as well as deepening debt and financial sustainability issues in poor countries. It may make more sense to bring Canada’s international aid budget to 0.7 per cent of GDP, from about 0.37 per cent, rather than to raise our defence spending from 1.38 per cent of GDP to 2.0 per cent. This is a chance for Canada to be useful to the world. As Georgieva writes, “when it comes to trying to turn back the tide of fragmentation, there is a troubling lack of urgency. Another pandemic could once again push the world into global economic crisis. Military conflict, whether in Ukraine or elsewhere, could once again exacerbate food insecurity, disrupt energy and commodity markets, and rupture supply chains. Another severe drought or flood could turn millions more people into climate refugees. Nonetheless, despite widespread recognition of these risks, governments and the private sector alike have been unable or unwilling to act.” This is our foreign policy challenge and opportunity. We can choose to be a leader for multilateralism, rather than serving as a junior partner for those who seek fragmentation. In the meantime, as the IMF’s recent report on Canada concluded, “Canada’s long-term prospects will depend on boosting productivity growth, attracting and deploying immigrants productively while ensuring that housing supply keeps pace, and pursuing close international co-operation—e.g., to avoid a race to the bottom on green subsidies, to agree on a carbon price floor—to ensure that the government’s ambitious and welcome climate policies go hand in hand with continued economic progress." Indeed, it says, “given the rebound in housing prices, policies to improve housing affordability remain of essence.” Making hard choices and sticking to them is the real test of leadership. Whether our current government is capable of this remains to be seen, and whether the official opposition is even thinking seriously of these challenges is not discernible. Yet Canada faces a difficult future unless we can get our priorities right, treat them as priorities, and get needed change done. David Crane can be reached at crane@interlog.com. The Hill Times