Canada allowed itself to be hypnotized by triple-digit oil prices. Stephen Harper talked of the country as an emerging “energy superpower.” Economist Jeff Rubin became a minor celebrity circa 2008 with a prediction that crude was on its way to $200 a barrel. Even Bank of Canada governor Stephen Poloz was seduced. “The world is telling us that our energy is more valuable than it used to be, and it’s telling us to invest more in that and less in areas that are highly exchange-rate dependent with small margins,” Poloz said in the late summer of 2014, when I interviewed him for The Globe and Mail. “That’s the hard truth,” he added.
A harder truth is that Canada was ill-prepared—both psychologically and economically—for the sudden collapse of oil markets at the end of last year. There is an impulse to forgive ourselves for this lack of readiness. Who could have foreseen that OPEC would decide to sacrifice billions of dollars by refusing to curb production, just so it could hurt shale-oil producers in the United States? “We should be thankful that we’ve got resources as part of our diversification, whereas lots of other countries don’t have that,” Poloz said in September, when asked whether the country had grown too dependent on oil. We should also be aware that commodity booms make the creation of wealth look easy, causing us to neglect other parts of the economy. The Bank of Canada now is counting on exchange-rate-sensitive exports to offset the damage. One wonders if the blow would have hurt so much if political and business leaders had done more to strengthen non-energy industries.
But Canada doesn’t do introspection anymore. Royal commissions went out of style in 2002, when former Saskatchewan premier Roy Romanow released his study on the health-care system. There has been no deep thinking about a matter of public policy since.
Don Drummond wants to change that. The Queen’s University economist is pushing for a royal commission on the economy. Canada’s embrace of market-oriented policies in the ’90s, such as free trade and lower corporate taxes, generated some pretty good times—but not great times. Most projections say Canada’s economy will average annual economic growth of about 1.6% over the next couple of decades, compared with 2% since 2000. If those forecasts prove true, job creation will slow and provinces will struggle to raise enough revenue to cover rising health costs. “Simply creating a level playing field for competition and then passively hoping that growth will happen may not be the best approach,” concluded Drummond and his co-authors in a paper published by the Centre for the Study of Living Standards in September.
By now, some readers will be having fits—I anticipate comments questioning my intelligence for taking Drummond’s idea seriously. Royal commissions have a mostly deserved reputation as being expensive wastes of time. But to the agitated, I ask: Do you know from where the broad support for market-oriented economic policy emerged in the first place? The answer is the Macdonald Commission, which concluded a three-year study on the economy in 1985.
Then, as now, the economic-policy consensus had been found wanting. Drummond suggests consideration of a more “activist” role for government. That would include measures such as low-interest investment in infrastructure and more assistance for smaller companies that want to do business abroad. These aren’t new ideas, but there is a political consensus missing that prevents movement. A royal commission could create the space for politicians to act.
There will be considerable resistance to Drummond’s idea. Poloz is fond of invoking Mother Nature as the benevolent force that will ultimately guide Canada’s economy to better days. Unfortunately, Mother Nature can be a cruel mistress—or, at least, an indifferent one. It’s time for Canada’s leaders to think about whether they should be doing a little more of the work of boosting economic growth themselves.
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