Watch the complete press conference including the tough questions from the media and the straightforward, common sense answers by Brian, Ken and Doug.

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A smarter way for Canada to do aid

BRIAN LEE CROWLEY, Special to The Globe and Mail

Published Thursday, May. 02 2013

The recent federal budget’s elimination of the Canadian International Development Agency, whose activities will be subsumed under the Foreign Affairs department, has attracted relatively little notice. That’s unsurprising, given how little the average person cares about what seem to be abstract bureaucratic machinations.

But if done right, this move could prove a courageous opening salvo in an effort to get more value for the world’s poorest, as well as for Canadians, out of our development spending and broader foreign policy.

Canada does aid poorly. For example, administrative costs as a share of the aid dispensed are among the highest in the Organization for Economic Co-operation and Development. Focusing our aid efforts on fewer developing countries helps, but is not enough.
Foreign aid generally has fallen into disrepute for reasons I observed first-hand working for the UN in Africa, such as corruption and clock-watching, self-serving bureaucrats. The developing consensus is that the best antidote to global poverty is economic growth rather than aid dependency.

Aid efforts are unlikely to disappear completely, but many knowledgeable observers have pointed to two areas beyond aid where Ottawa can take concrete steps to make a lot of vulnerable people in developing countries better off, while also improving Canada’s economy.

These two magic bullets are remittances and trade.

Lack of interest in the value of remittances in reducing developing world poverty has always astounded me, but it is positively inexplicable when set against the development power they represent. According to trade expert Danielle Goldfarb, writing several years ago in a report for the Canadian Defence and Foreign Affairs Institute, money sent by migrants back to their origin countries was at least three times the value of global foreign aid, grew at a much faster rate than aid flows, and reduced both the incidence and severity of poverty in developing countries.

We know a lot more about our official foreign aid program than we do about remittances from people in Canada to their home countries, but research shows that remittances have a big impact. Take India, one of the largest source-countries for immigrants to Canada. India is the world’s biggest remittance recipient. Total remittances from overseas Indians, worth more than 3 per cent of Indian gross domestic product, exceed total Indian government spending on health and education, and their influence is particularly noticeable in regions that have had the greatest outflow of emigrants.

What explains this phenomenal remittance growth? According to Muzaffar Chishti of the Washington-based Migration Policy Institute, it is partly that the flows are more transparent as remitters make more use of official channels (terrorism-related concerns have put informal transfer networks under unfavourable scrutiny) and as greater competition emerges in the official money-transfer market.

There has also been an important shift in emigration patterns to high-skilled technology jobs (Indian software engineers and IT management experts, for example). This underlines the importance of emigration to the source country: The higher the earning power of the emigrant, the greater the impact back home. The human capital of India has not being “looted” by Canada or the United States; it has allowed Indian investments in education and skills to earn a far higher return for India than it might have if those emigrants had stayed home.

The second way to help the world’s poor is to get rid of trade barriers. According to Ms. Goldfarb, eliminating all trade barriers in rich countries would result in income gains to developing countries double that of global foreign aid. Canadian consumers, in turn, would benefit from lower prices.

On the trade front, however, Canadians remain prisoners of protectionist special interests. Clothing is made more expensive for Canadians through tariffs and quotas on the imports of textiles and apparel from many developing countries, depriving those places of desperately needed jobs and income.

Canada also sacrifices prestige and bargaining influence at the international trade table by continuing to protect agricultural marketing boards, a policy that costs the average Canadian family hundred of dollars annually in higher food prices.
Fiddling with the bureaucracy that administers our formal aid program is fine, but if Canada really wants to help developing countries, we know what to do: Welcome more immigrants, make it easier for them to transfer their remittances home, and lower our trade barriers.

Brian Lee Crowley (twitter.com/brianleecrowley) is managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa.

Finding Peace Through Strength

By Brian Lee Crowley, Ottawa Citizen April 27, 2013

For Real Picture on Unemployment, Pay Heed to Job Vacancy Rate

Brian Lee Crowley, Special to The Globe and Mail, Published Wednesday, Apr. 17 2013

The king is dead. Long live the king – of statistics that is.

For the past 50 years, the king of economic statistics, the one awaited each month with bated breath by finance ministers, central bank governors, pundits and the general public alike, was the unemployment rate. A rising rate was political poison, a falling one grounds for governmental preening.But those still focused on the unemployment rate as the prime barometer of the health of the Canadian economy and the prospects of individual workers probably still call recorded music “tapes” and are stubbornly waiting for the slide-rule industry to recover from its slump.

Today the statistic whose entrails we should be earnestly scrutinizing each month is the job vacancy rate. The success or failure in bringing down this crucial economic barometer will matter more than any other single measure in understanding whether we have the policy mix right.

The reason for this revolution in statistical significance is not hard to spot: Canada had the largest baby-boom generation relative to base population in the Western world, 50 per cent larger than the next closest, that of the United States.

As a result of this tsunami of workers, the Canadian labour force grew more than 200 per cent over the past 50 years. The chief economic challenge was where to put all these workers. We did pretty well, all things considered, in getting them into work, but the numbers were so overwhelming that even in the face of strong employment growth, we still ended up with big unemployment numbers. How quickly people forget that in the 1980s, Canada went through an entire decade where unemployment was never less than double digits. Even in the trough of the recent recession we avoided that fate.

But that speaks to how radically the retreat of the boomers is reshaping the economy. Over the next 50 years we can expect the number of workers to rise by a relatively paltry 11 per cent as the boomer bulge moves into retirement.

Consider, for example, that if past recessions are anything to go by, at this stage of the recovery Canada should still be struggling with double-digit unemployment and lagging the U.S. job market recovery.

Instead, Canada was the first major Western industrial economy to recover all the jobs lost in the recession, and remains streets ahead of the U.S. The headline unemployment rates are misleading because Washington measures unemployment better than Canada does. If Canada used the U.S. measure, the unemployment rate would fall to around 6.3 per cent. Bear in mind that the U.S. Federal Reserve has said it will start to raise interest rates when U.S. unemployment falls to 6.5 per cent. Canada has already passed that milestone, with a higher share of its population working than any other Group of Seven country.

Canadian statistics are further distorted because of two narrow groups, young people and immigrants, whose unemployment greatly exceeds the national rate. If they are excluded, the national rate is in the low 5-per-cent range. In other words, the problem is not on the demand side; there is ample demand for labour. Canada no longer needs general stimulus to soak up unemployment; it needs targeted programs to help pull a few outlier groups into the economic mainstream.

Also, the jobs that have been created are not of the “fries-with-that” drudgery of popular lore. Since the recession, the vast bulk of new employment in Canada has been in full-time above-average-wage work. Because of the boomer ebb tide this is no accident or unrepresentative moment. This is the new normal. Labour markets are tightening across the country, explaining the largely unremarked 3-per-cent rise in real wages in the past year, near the peak experienced during the pre-recession resource boom, and business groups constantly single out labour shortages as a huge headache.

Which brings us to the job vacancy rate. Little noticed in the recent federal budget was Ottawa’s estimate that the number of jobs going unfilled is several times higher it was just a few years ago and is rising fast. In other words, the low level of unemployment is increasingly matched by rising job vacancies.

That is a red-hot labour market, with Canada’s economic prospects held back because employers cannot find the right workers with the right skills to help the economy create the greatest wealth for Canadians. Memo to policy makers: Unemployment isn’t the problem. Squeeze the vacancy rate if you want to make Canadians better off.

Why the Liberals Need a Margaret Thatcher

Brian Lee Crowley, Ottawa Citizen, April 12, 2012

She was a liberal in the classical sense.

Having lived in the United Kingdom for the first half of Margaret Thatcher’s time in office, I saw her handiwork up close, just as I saw the electrifying effect she had on the British people, for both good and ill.

But in all the commentary I have read very few writers have, in my estimation, rightly understood her politics. And no one has mentioned how very relevant the Thatcherite legacy is to the Liberal Party of Canada, whose new leader is about to be chosen.

To begin with, anybody who thinks Margaret Thatcher was a ‘conservative’ mistakes packaging for substance. What were her signature policies: the individualism of middle class aspiration and opportunity; a mistrust of monopoly and unaccountable institutions; free trade; a muscular and moralistic foreign policy; moderate taxes; and responsible public finances.

These are not the policies of British conservatism, which is the party of privilege and class, of deference to established institutions and authority, of paternalism, trimming and compromise. Truth be told, the Tories shared responsibility with Labour for the sad decline of Britain during the years before Thatcher. Long known in British politics as the stupid party, they allowed Labour to generate the ideas, with the Tories simply promising to run things better than the socialists. That produced a rudderless leftward drift.

Thus it was that Margaret Thatcher’s rise to the leadership of the Conservatives was resisted by the party establishment. She wasn’t just a woman, and a conviction politician. She represented a liberal insurgency that ripped the Tories from their moorings. The Conservative Party was the first British institution to be pummelled by her famous handbag.

Margaret Thatcher’s ideas were unambiguously those that had animated the British Liberals for generations. Her father, whom she revered, was a prominent Liberal and she learned her politics at his knee.

If Thatcher had heroes in Britain’s political past, they were not Benjamin Disraeli or Stanley Baldwin. They were Edmund Burke and William Gladstone. Her Conservatism, she said, “would be best described as ‘liberal’, in the old-fashioned sense. And I mean the liberalism of Mr Gladstone, not of the latter day collectivists.”

The British Liberal Party, however, abandoned Gladstonian liberalism, a transmogrification that began under David Lloyd George. The party sank to third party status where it remains mired today, albeit in coalition with the Conservatives. By losing the balance between Gladstonian and big government Liberals, the party’s forces were scattered to the winds, with most, like Churchill and Thatcher, ending up as an influential minority within the Tories.

But when, by force of personality and moral conviction, Thatcher imposed her views on the reluctant mainstream of the Conservatives, she revealed that while classical liberal ideas might no longer dominate in any party, they continued to resonate with the great British public. When offered real liberalism after years of socialist-Tory drift, they embraced it with enthusiasm. When Mrs Thatcher strayed, as she did with the poll tax that helped bring her down, they would not follow.

The real measure of her success was that the Labour Party became unelectable until it too embraced the basic tenets of liberalism. They jettisoned anti-liberal policies like nationalization of industry and overweening trade unions that had been Labour orthodoxy. Imitation is the sincerest form of flattery.

As for the Liberal Party of Canada, prior to the Sixties they were enthusiastic Gladstonians. Virtually every tenet of Thatcherism they would have claimed as their own. They were the party of liberty, the individual, responsible finances, middle class aspiration and opportunity.

In the 1960s the party became divided between classical liberals who celebrated individual freedom and those who thought the burgeoning state could solve all our ills. The tension was a creative one for a while, but ultimately gave way to a party less moved by ideas and more preoccupied by the management of client groups clamouring for the state’s largesse.

Classical liberalism’s last hurrah within the party was the fiscal reforms of the 1990s that tamed the very state whose growth they had so assiduously cultivated since Lester Pearson. That was no break with tradition, but a return to the party’s roots. Like Thatcherism, it was highly popular at the time. But since then they have reverted to post-1960s type.

Perplexingly for Liberals, the Tories are now where classical liberal ideas are most welcome, while the NDP is the more convincing advocate of the big government alternative. Can the centre hold?

If the Liberal Party of Canada is to have a hope of revival, it must have a leader capable of holding those opposites together again, staking out that distinctive middle ground and promising to be more than just the least offensive dispenser of the state’s munificence. That’s a job that calls for a doughty handbag-wielder; alas, there are none on the horizon.

Brian Lee Crowley (twitter.com/brianleecrowley) is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.

Ottawa needs more tough love with the provinces

By Brian Lee Crowley, The Globe and Mail, March 21, 2013

Thursday is budget day. A perfect day to recall what used to be a bedrock principle of Canadian federalism that, alas, started to be forgotten around 1960 and by the 1970s had been completely turned on its head, at great cost to taxpayers and the federation.

That principle? Ottawa should not tax Canadians and give that money to the provinces to spend.

Because those who do not know their history are condemned to repeat it, this claim will appear preposterous. Hasn’t it always been the role of Ottawa to use transfers to entice provinces into programs those narrow-minded provincials might not otherwise embrace?

No. The greatest Liberal prime minister, Sir Wilfrid Laurier, said in 1887: “It is an entirely false principle according to which one government collects revenues and another government spends them. This must always lead to extravagance.” His successor and longest-serving PM in Canadian history, Mackenzie King, argued that “it [is] a pernicious principle to have one government collect taxes and another government spend them.”

Laurier? King? To many Canadians I might as well be talking about Pericles or Confucius. But the advisability of Ottawa giving money to the provinces is just as live an issue today as it was then. And most importantly, the evidence shows these dead white guys were right.

Take the example of the Chrétien-Martin fiscal reforms of the 1990s. One of the cornerstones of those reforms was to cut transfers to the provinces. The cuts’ opponents, led chiefly by the provinces themselves (fancy that!), have succeeded through the Great Lie technique in convincing many that such “downloading” was a disaster never to be repeated.

The current government, wishing to distinguish itself from its predecessor, has taken up the cry of no cuts to provincial transfers, despite the fact that Ottawa is trying to balance its budget and its own policy means that the roughly $67-billion worth of transfers cannot make a contribution to eliminating the deficit.

That’s too bad because downloading gets a bad rap, and was actually highly constructive. Take one example. Under the old dispensation, Ottawa gave money to the provinces for social welfare. Unfortunately, the conditions Ottawa attached to the money contributed to a badly-designed system that saw the number of Canadians on welfare rise during recessions, but never fall during upturns. It was an up escalator, not a roller coaster.

By the time Paul Martin was taking an axe to the deficit, about one in every 10 Canadians was on welfare. Then he said two things to the provinces. First, you’re getting less money from us. Second, we’re giving you more freedom. You now make the welfare rules.

Turns out that one of the unintended consequences was to unleash a wave of provincial experimentation with welfare reform, because now the provinces knew they couldn’t look to Ottawa to underwrite costly systems that trapped millions on benefits. The result: The number of welfare recipients fell by half while the number of people living in poverty declined by 40 per cent, as they re-entered the work force and thus were able to climb the ladder of prosperity.

Paul Martin thus inadvertently proved Laurier and King right. Democracy works best when the government that gets the pleasure of spending should also face the pain of the corresponding taxation. Among other things, it makes them anxious to get full value for every dollar spent.

And if welfare reform is anything to go by, we won’t get real health care reform, for instance, until Ottawa cuts its transfers and frees the provinces to experiment in that field too, making provincial politicians face the full consequences of their unsustainable policy choices.

Fortunately, if media reports are correct, Ottawa may take one positive step today, reclaiming the nearly $2-billion it has been giving the provinces for worker training and apprenticeships. While I remain skeptical that it will happen, I would be delighted if reports are true that federal vouchers given directly to workers will take their place. Laurier and King would have approved.

They would also not have been surprised to learn that the provinces waste a lot of that money today. Provinces refuse to release the existing audits of how the money is spent and what it achieves. If they reflected credit on the provinces’ stewardship, they would be on the front page of every newspaper in the country.

Traditionally, federal governments come to power defending the provinces’ virtues against Ottawa’s depredations. But they govern most successfully when they shed those illusions and speak for Canada. We’re about to find out if the Tories have reached that critical turning point.

Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.

Stirrings of change in the U.S.

By Brian Lee Crowley, Ottawa Citizen, March 15, 2013

Something is stirring in America.

Because I spend a lot of time in the States talking to Americans about how Canada enjoyed such success wrestling with its fiscal problems in the 1990s, I get frequent opportunities to test the political temperature there. I spent spring break week on such a cross-border trek and have come back encouraged.

That is a welcome change.

Having spent most of my life as an admirer of America and its sense of destiny, of being an exceptional nation put on the Earth to accomplish extraordinary things, I have always taken our neighbours’ can-do spirit as a given. No problem appears insoluble or insurmountable to Americans, or at least so it had always seemed to me.

Then I began to notice something disturbing. Each time I would travel south of the border to bring Americans a message of hope and optimism that their fiscal decline into a maelstrom of debt and out-of-control spending was neither insurmountable nor inevitable, my audience would respond with shrugs and downcast eyes.

They were not reassured by the idea that if Canadians could balance their budget in the 1990s and then spend a decade running surpluses and paying down debt, then surely Americans could do so as well. On the contrary, every explanation of how Canada achieved its turnaround was met with a sad shake of the head and the firm conviction that none of the things that Canada had done could be accomplished in the U.S.

This was not the America I had been used to, and it seemed to me to presage a worrying deterioration in the character of the country and of individual Americans.

My recent visit, however, has given me hope that things are turning around, and not just because of the growing signs of new economic momentum taking root in the republic.

After years of deadlock, things have started to move in Washington. I don’t say this to suggest that major steps are being taken that will put the country on the road to fiscal recovery. Instead, what is happening is that little things are being tried that, in due course, will help Americans see that the comfortable political nostrums of recent years are insubstantial illusions.

Take President Barack Obama’s success in putting up taxes. This is part of the American left’s deep belief that if only all Americans could be made to pay their “fair share” then no government spending would ever have to be cut.

My prediction is that these tax increases, and any further ones yet to come, will produce only a fraction of the revenue predicted. If they ever existed, the days when governments could simply put up taxes and raise a lot of money are over. I met a senior official in Britain’s equivalent of the finance department recently and he confirmed what I have been hearing from governments everywhere: raising taxes produces little new revenue. It is simply too easy for people to choose to spend their money in ways that the taxman cannot capture. Soon Americans too will see that tax increases are of declining relevance in fixing America’s fiscal problems.

And just as tax rises will lose their appeal, spending cuts are losing their ability to frighten and motivate voters. After years of threats of dire sounding fiscal cliffs, government shutdowns and sequesters, people are becoming inured to the doomsday outcomes that are always threatened but never come to pass. Like the boy who cried wolf, those who stoke fears of the collapse of civilization if even small reductions in spending are enacted are steadily losing credibility as life continues regardless of their histrionics.

Beyond all this, I was heartened by the number of Americans who told me that they are hungry for a new political leadership that will break the impasse in Washington. Just as Roosevelt and Reagan both represented a decisive break with a discredited past and the forging of a new consensus that transcended the partisan divide, the conditions are being created for the emergence of a new leader who will break the current logjam by convincing moderates in both parties to isolate their extremists by banding together on spending, taxes, immigration, entitlement reform and more.

We aren’t quite there yet, and the person who can take up the mantle of leadership has not yet made themselves known. But the old solutions, leaders and parties are increasingly threadbare and discredited. Americans are ready for a leader who can show them that they don’t have to be defeatist but have it in them to rise above their narrow self-interest and do something for the country and for posterity.

When that leader emerges, he or she will find millions of willing followers. How I wish they’d get a move on.

Brian Lee Crowley is managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.

© Copyright (c) The Ottawa Citizen

EI for seasonal workers is a corrosive economic policy

By Brian Lee Crowley, The Globe and Mail, March 7, 2013

Prime Minister Stephen Harper, spurred on by his eastern caucus, has been defending his government’s reforms to employment insurance, most recently in a press conference in Rivière-du-Loup, Que. Front and centre has been the reassurance that EI will continue to be available to seasonal workers.

That’s a pity, because there is no justification, in logic or in economics, for seasonal EI, and the dogged pursuit of this policy flies in the face of the interests of Canada and people who become trapped in the cycle of working seasonally and then receiving EI benefits while unemployed. Some day a politician will have the guts to say so, but apparently not today.

Why should employment insurance be unavailable for seasonal work?

Start by thinking about how insurance works. Real insurance lies at the intersection of two ideas. The first is risk sharing. Everyone faces the risk of injury, accident, fire, flood and death, but no one knows for sure whether these terrible things will happen. To combat this risk-plus-uncertainty combination, people pool their resources, paying an annual premium that is used to compensate those who suffer a loss.

Being insured, however, changes people’s behaviour, and therein lies a problem. A classic example: In the absence of insurance, no normal person sets fire to his home or business. But if you are insured and really need the money, you might be tempted to torch your premises and pocket the cash. Similarly no one would build his house on the banks of a river that flooded every year unless he could get flood insurance that passes the cost on to others. This problem is known as moral hazard.

Moral hazard is why there are insurance policy exclusions, deductibles, co-payments, fraud investigators and the like. Insurers use them to reduce the temptation to use insurance to pass the cost of your decisions and behaviour to all other policy holders. Insurance is where risk pooling meets moral hazard.

Now apply this thinking to your job. Everyone faces the unpredictable risk of an economic downturn or the failure of their employer’s business. These are factors beyond our control. It makes sense, therefore, for all employees to band together to insure each other against this universal risk.

By using a government-created program, we can make everyone contribute, including employers, keeping costs low and coverage broad.

But seasonal work is fundamentally different: The loss of your job is not an unpredictable event beyond your control. On the contrary, in seasonal work there is no “risk” whatsoever: You face an absolute certainty that every year you will be laid off and face a long period without work.

Predictably, this creates moral hazard problems. EI becomes a subsidy to seasonal work for both employers and their staff; for workers, it often becomes a reliable part of their annual income.

In the absence of an employment insurance program, seasonal employers would have to pay their workers enough to make them stick around from one season to the next. Maybe the business couldn’t bear that burden, but why force companies that cannot find the full-time workers they need, to subsidize seasonal employers that otherwise would be out of business? And if you subsidize something, you get more of it; we subsidize seasonal work and unemployment and get more of both.

In short, it is an incredibly inefficient and badly designed form of workfare – a token bout of seasonal work in return for months of tax-financed idleness. But seasonal workers on EI do not consider themselves unemployed, and I have a decade’s experience as a Nova Scotia restaurant owner trying to hire them to prove it.

Now put this folly in the context of Canada’s burgeoning labour and skill shortages. Saskatchewan Premier Brad Wall rightly complains that he has to fly over high-unemployment regions of Eastern Canada on his way to Ireland to recruit workers for his booming economy. Workers fly to the oil patch from communities in every part of the country, including Newfoundland, yet Alberta alone says it is short more than 100,000 workers. As for productivity, the average worker in Alberta produces almost $50 in value per hour worked; in PEI it’s $31, and seasonal workers on EI are paid not to produce even that for months of the year.

Seasonal benefits should be phased out, humanely but firmly, because seasonal workers do not pass the insurance test. They are asking all workers and employers to subsidize their choice of a life that pays poorly and squanders their productive capacity at a time when the country is crying out for workers and improved productivity.

There oughta be a law. Oh wait, there is. Just the wrong one.

Even Keynes opposed permanent stimulus

By Brian Lee Crowley, Ottawa Citizen, March 2, 2013

As Canada’s view of the recent recession moves ever more resolutely into the rear-view mirror, we are about to learn whether we are responsible enough to be trusted with the keys to the Keynesian car.

Remember that the rationale for “stimulus” spending of the kind championed by John Maynard Keynes is that government must compensate for the collapse of demand by private companies and consumers during downturns. Governments borrow money and use it to spend on so-called shovel-ready projects, where plans are ready and people can be employed immediately. Even as tax revenues (that depend on private sector activity) collapse, governments can backstop the economy until the private sector’s energies are restored. The price is rising public debt, but it may be worth paying in a downturn.

You don’t have to accept the theory, and Keynes has his detractors, of whom I am one. But assume Keynes is right. What do we do now that the recession is indisputably over in Canada?

This is where Keynes’s acolytes often inexplicably lose interest in what their guru actually said. He was of the common sense view that since the reason for stimulus was temporary, stimulus should be, too. Once the recession is over, governments should run surpluses and pay down the debt acquired to combat the recession. Real Keynesianism swims against the economic current all the time — borrowing and spending when times are bad, running surpluses and paying down debt when times are good.

But one of the reasons why Keynesianism is such a dangerous doctrine in practice is only half of his prescription is attractive to his patients, and those under his care therefore do not take all their meds.

These are the people for whom the economy is always on the brink of collapse and for whom every job is precarious. For them government must always be stimulating, and the time never arrives for the second half of Doc Keynes’s therapy. That’s the part where the government steps back, hands over responsibility for growth to the resurgent private sector, and uses the tax revenues from that growth to pay down its debt.

But there are logical consequences to only following half of the doctor’s orders. Every recession becomes a one-way upward ratchet in the permanent size of government. And because politicians like the pleasure of dispensing money but are averse to the pain of increasing taxes, deficits become a permanent feature at budget time because governments are unwilling to raise taxes to match their rising spending.

This is a central reason why Canada ran 25 years’ worth of deficits in good times and in bad until Paul Martin and the Chrétien government decided that there was a limit to how much debt Canada could shoulder. By the time a third of all federal revenues were going out the door every year to pay interest on the burgeoning debt, we had to change course.

I was on the radio the other day opposite one of these apostles of all-cake-all-the-time Keynesianism. Sid Ryan, the head of the Ontario Federation of Labour, is stumping the province making the case against an “austerity budget.” In a recent op-ed in the Citizen, he and his co-author claimed that Ontario, currently running a $10-billion dollar deficit, doesn’t have a spending problem, but a revenue problem.

Let’s test Ryan’s proposition. A decade ago, Ontario was spending about $66 billion annually. Today that has risen to nearly $123 billion. Now inflation has eroded the dollar over that decade, and the population has grown, so what has happened to per-person spending adjusted for inflation? It’s up by 37 per cent. I doubt the average Ontarian thinks the value of public services has risen by that much, yet this increase in spending in real terms by over a third is now, in Ryan’s view, an untouchable baseline. If taxes don’t cover it, well, taxes should just go up. Temporary stimulus? Fuggedaboutit.

As for the notion only big government can improve our job prospects, we can test that, too. Canada is one of only a handful of industrialized countries to have recovered all the jobs lost in the recession and more. We have the highest share of our population working of any G7 country. The new jobs have been hugely concentrated in private sector, full time and above-average wage jobs, including in manufacturing, where employment is rising faster than in booming mining. Raising taxes on the private sector is to kick the real job-generating sector just as it hits its stride.

But then only a tiny minority of private sector workers pays union dues to Ryan; the bulk of his membership is in the stimulus-addicted public sector. Keynes wouldn’t have been fooled by the special pleading of Ryan and his ilk across the country and neither should we.

Brian Lee Crowley is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.

© Copyright (c) The Ottawa Citizen

Military procurement is about protection not politics

By Brian Lee Crowley, The Globe and Mail, February 21, 2013

The way we buy equipment for our military is badly broken. Ottawa’s latest report on how to fix it proposes making it even worse.

Getting this right matters enormously, and not just because Ottawa proposes spending $250-billion on military kit over the next two decades. Eye-popping numbers like that are bound to catch the attention of those who would like a share of the action. If this money were for some political slush fund masquerading as economic or industrial development, you might be justified in shrugging your shoulders and asking, What else is new? Wasteful spending in Ottawa is hardly unknown.

Equipping our military, however, is a fundamentally different proposition, because the people who may be called on to use the equipment will be endangering life and limb for their country. Substandard or unsuitable equipment doesn’t just moulder in a warehouse, a monument to government inefficiency. In military procurement, fanciful and wasteful industrial strategies today sow the seeds of humiliation, defeat, and dead and wounded troops tomorrow.

Yet while the stakes are uniquely high, Canada’s ability to buy new military equipment isn’t just bad; it approaches low farce. The Ottawa Citizen reported recently that the average major military equipment purchase now takes a record 199 months, or more than 16 years. Leaving aside costly delays and cancellations, the technological effervescence of the defence world means that what you wanted 16 years ago is obsolete when you take delivery.

Our present imbroglio can be traced chiefly to our politicians’ inability to curb their desire to meddle for political gain. Seeing all these billions being spent, there is a tendency to want to award some of it to your friends, actual or potential. This is usually accompanied by some pious humbug about “regional development” or “technological innovation,” but these fig leaves are both tiny and transparent and therefore hide little.

Instead of buying the latest equipment off the shelf from highly competent international suppliers with big economies of scale, too often we spend more than we need to build capacity from scratch, and then find we have no way of sustaining that capacity once our little defence project is done.

Anyone who has ever looked at defence procurement issues has heard all about how Canada lost a golden opportunity to have a globally competitive defence aerospace industry when the Diefenbaker government shut down the Avro Arrow fighter plane program in the late 1950s. The reality is that decision probably saved us from the usual costly extravaganza with government backing a good (but not great) Canadian technology at a time when the world was crowded with design bureaus producing similar aircraft.

The alternative strategy – one that has served our country well – has been to get Canadian companies access to the huge U.S. defence procurement industry essentially on an equal footing with American companies, allowing us to specialize in components of defence systems where we excel and are cost-competitive.

Think of this as the Canadarm strategy. Canada is too small to have its own extensive space program, but we can be a supplier of sophisticated and complex components (like the space shuttle’s mechanical arm) to the Americans, as we do in so many other fields. Canadarm beats the Avro Arrow strategy hands down.

Yet the newly-released Jenkins Report, the fruit of an Ottawa-commissioned inquiry into how to wring more value for the Canadian economy out of defence procurement, threatens to make the problem worse, not better. At present, defence purchases are at least nominally driven by the needs of the Canadian Forces and the capacity of the federal budget to pay the bill, with many contracts going to international suppliers. Ottawa then negotiates industrial spinoffs with the main contractors, which have incentives to find and employ competent Canadian companies that benefit from important transfers of technology and know-how.

Jenkins wants military purchasing decisions to be driven by the desire to build up Canadian industry in a number of fields. This approach is virtually guaranteed to worsen delays, drive up costs and disappoint expectations because it injects yet more politics and bureaucracy into a process already corrupted by them.

As for the notion that such defence protectionism promotes Canadian jobs and investment, we already face severe and worsening shortages of skilled labour. If we use tax dollars to divert workers away from genuine work to jobs that only exist because Canadian taxpayers are being made to overpay for internationally uncompetitive products, the most charitable thing that can be said is that we will be shooting ourselves in the combat boot.

Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.