Industrial policy may be the missing link for Canadian productivity

You’ve heard the word “crisis” a lot in Canada. Productivity crisis. Climate crisis. Housing crisis. All these various crises are real. Yet there seems to be a lack of urgency about them. Part of it is that these are complex issues, requiring multifaceted solutions. We have a rough sense of the destination, but no one is steering the boat. That’s where a more strategic approach to industrial policy may come in. Broadly speaking, industrial policy is an attempt by the government to steer economic activity toward a particular end. That sounds vaguely socialist, until you realize that governments are always putting their thumbs on the scale. The most obvious examples involve the auto industry, but governments use levers ranging from tax policy to education spending to help bolster industries from mining to artificial intelligence. Even the most neutral sounding policies—like investment tax credits—steer investment decisions. In short, many of the tools of industrial policy are used all the time by governments. Some of Canada’s biggest innovations have come from speculative investments underpinned by government spending. Take canola oil. Canola was developed by researchers at the University of Saskatchewan and the University of Winnipeg, funded by the National Research Council and the Department of Agriculture. Canola is now the most lucrative crop produced in Canada. Or, take the oilsands. People often assume that Alberta’s oilpatch is an example of unbridled capitalism. Not so, as University of Calgary professor Sara Hastings-Simon has shown. Oilsands technology was once seen as “a silly idea.” But the provincial government of Peter Lougheed—worried about a decline in conventional oil production—sunk more than a billion dollars (adjusted for inflation) into the technology. It paid off handsomely. Steve Lafleur is the research director for economic policy at the Institute for Research on Public Policy. Photograph courtesy of IRPP Of course, governments often fail spectacularly at trying to pick winners. It’s easy to find examples of “corporate welfare” gone awry. But given the magnitude of some of our challenges, we should be willing to take some risks. Consider housing. There’s a broad consensus that Canada needs to double home completions annually to catch up with a multimillion-unit housing deficiency. That’s a daunting task. One potential tool is incorporating new technologies. Take pre-fabrication. Mass producing housing components in a factory can reduce the amount that needs to be done on site, and can reduce the scope for errors and injuries. Building a wall panel in a factory could be much more efficient than swinging hammers on site. The problem? Building factories is expensive. A company needs to sell a lot of panels to drive down the cost of production and justify building that factory. Individual homebuilders have very little incentive to buy until companies can get the costs down. Chicken, egg. Governments might be able to use procurement to give innovative companies a chance to prove their technologies. If it succeeds, it might help increase housing production. Is it worth the risk? In a world where governments are running out of options to bring down housing costs, it might be. This is where having a strategic industrial policy mindset could help. Governments of all stripes are willing to throw money at industries without any real decision-making, governance, or evaluation frameworks. Having a more co-ordinated industrial policy that measures results and learns from failure could well result in less waste, and fewer bad bets. Done right, industrial policy could conceivably be a fiscally conservative approach that reallocates existing spending to better leverage private sector ingenuity. Canadians understand that we have multiple crucial societal objectives we need to advance. The status quo doesn’t appear to be working. If we’re going to build our way out of these problems, we need governments to take an active, deliberate role. The term industrial policy might be a bad word in some quarters. But, by definition, if you’re in a crisis, the status quo isn’t working. We should take some calculated risks. Steve Lafleur is the research director for economic policy at the Institute for Research on Public Policy, which recently published a report titled Should Governments Steer Private Investment Decisions? Framing Canada’s Industrial Policy Choices. The Hill Times

Industrial policy may be the missing link for Canadian productivity

A more co-ordinated industrial policy that measures results and learns from failure could result in less waste, and fewer bad bets.

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Industrial policy may be the missing link for Canadian productivity

A more co-ordinated industrial policy that measures results and learns from failure could result in less waste, and fewer bad bets.

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