Economic Vision: A time for new policies and clear-eyed optimism
February 01 2011
Many Canadians remain stuck between wary uncertainty and hesitant optimism even though the recent economic recession is over. The slow pace of the American recovery and economic turbulence in Europe feed our insecurities and, as Canadians, we aren’t always sure we have what it takes to hold our place in the global market when growth returns. This makes the next federal budget crucial if we want confidence to win the day and to set an economic agenda that speaks to our aspirations.
Canada’s fiscal prudence over the last decade and stimulus spending in the last two years has helped us weather the storm better than most countries. Because of this, Canada is in an enviable position of being able to focus on the future rather than scrambling to deal with the short-term impacts of the downturn. With some foresight, the future can indeed be bright. Let me explain.
The next federal budget offers our government a strategic opportunity to lay out a bold and determined economic vision for our country. This vision should play to our strengths. It must speak to the average Canadians’ sense of what Canada can be and in doing so it should rekindle self-confidence in our economy.
We start from a position of strength: healthy banks, sound fiscal policy, and institutions and markets that are highly functional and free of corruption. We take these things for granted but anyone operating elsewhere in the world will tell you they are enormously valuable.
With our broad macro-economic conditions in an enviable position, the government can now focus its attention on a micro-economic agenda that will help us transition to a bright future. Even recognizing that this is a time of fiscal restraint, there are smart steps the government can take to lay the groundwork for the private sector to flourish and productivity to grow.
By putting the right policy framework in place, the government can catalyze greater private sector investment, innovation, and productivity, which will result in job creation and sustained economic growth. The government has already made some positive moves in this direction but it has often been less strategic and predictable than necessary. The scheduled corporate tax reductions must go ahead, and the government should make the accelerated capital cost allowance provisions first introduced in Budget 2007 permanent to attract capital to Canada and encourage businesses here to invest in productivity enhancing machinery. Government can also help lower the risks of developing and deploying new technologies by improving our support for innovative research and development and partnering in the piloting and demonstration of transformative technologies.
Certainly, this would help one area where Canada has a huge potential and a huge comparative economic advantage ―being a country rich in natural capital, the resources such as arable land, energy, minerals, and forests.
Natural resources already contribute significantly to our economy but if we play our cards right, we can do more. Canadian prosperity in tomorrow’s global economy will be closely tied to technical and environmental brilliance at extracting and transforming these resources. Why is that?
The planet is becoming crowded and more affluent. Between now and 2030 the world’s population will grow by 1.3 billion – that’s the size of the current population of China. Over that same period global GDP will double and per capita income in the developing world is expected to triple. So increasingly scarce natural resources will attract a growing premium.
The government must set out a blueprint to maximize the economic and social returns on our resources by attracting private investment in innovation and productivity. In the global economy capital has little national allegiance. Skilled workers, scientists, managers and enterprises will move location only if required but capital lives a life at no-fixed address. Again, that’s why setting the business conditions to attract investment must be job one of the new national economic vision.
There is much more that the government could do to show leadership. Environmental sustainability must be a thread which runs through the economic fabric of Canada and the architecture of our national policies. There could be a “best in the world” ethic in the management of our natural resources. The government could pioneer a national energy strategy. There could be an environmental innovation “national project” and clarity and predictability on foreign investment rules.
The next federal budget can be seen as Canada’s biggest and best opportunity in decades. The times may be sobering but our confidence can and should build. Fiscal caution is warranted but we should aim high. Our government must deliver a vision with clear-eyed optimism and strategic policies and investments to back it up.
