Dark clouds obscure sunny ways

Prime Minister Justin Trudeau is in Davos, as I write, telling the great and the good that Canada is a wonderful place to do business, but Andrew Coyne, writing in the National Post, offers a darker and more sobering view of Canada’s economy. He acknowledges that the immediate situation, in the opening weeks of 2018, is fairly good, especially compared to many others, but, he says, “the longer-term outlook is decidedly less rosy — the Finance department projects growth in future decades at just 1.7 per cent per year — and even in the short term the barriers to investment, notwithstanding the prime minister’s optimism, are accumulating. You can only boast about how well our banking sector survived the financial crisis so many times … [and] … As it is, business investment has been a chronic weak point for Canada for years. Though it rebounded somewhat in 2017, it remains well below its 2014 peak, in real terms. At roughly 11 per cent of GDP, it ranks 16th out of 17 OECD countries surveyed in a recent study by former Statistics Canada chief economist Philip Cross, and has flatlined for most of the last two decades.

To make matters worse Mr Coyne explains that “investment in machinery and equipment — the kind that leads to increases in productivity — has fallen, from over 6 per cent of GDP in 2000 to just 4 per cent. Want to know why productivity lags in Canada? Business investment per worker in Canada, at roughly $9,300 (in 2010 US dollars), is 40 to 50 per cent less than it is in high-productivity countries like Switzerland, Norway and the United States … [and, while] … The prime minister can bend famous ears in Davos, but what do investors, foreign or domestic, see when they look at Canada? They see, first of all, a foreign trade situation that is rapidly deteriorating: not only NAFTA, where negotiations, after months of mutual antagonism, are in serious jeopardy of collapse, but the bungling of the Trans Pacific Partnership and China initiatives, with  collateral damage to relations with Japan … [and, further] … Not long ago, a business could locate in Canada with reasonable prospects of barrier-free access to most of the major markets of the world. Now, even the American border looks more and more like a wall: an investor today will think twice before putting a plant on this side. Much of the blame for that, certainly, can be attached to the Trump administration, but what are we doing to compensate on other fronts?” This is, of course, a drum I have been beating for months and months, even years, and as late as yesterday.

He also paints a sad pictures of our tax and deficit/debt situation and he notes, 100% correctly, that “You can load a great deal onto an economy’s back in good times, but when the bad times come, as they inevitably will — we have not had a recession in nine years, or a serious one in 25 — the bill for all this fecklessness will be horrendous.” By “you” he means, of course, economic illiterates like Gerald Butts, Philippe Couillard,* John Horgan, Rachel Notley and Justin Trudeau who persist in paying for today’s frills and fancies with my (as yet unborn) granddaughter’s earnings.

Perhaps,” he concludes, “the executives in attendance at Davos will be reassured by the prime minister’s talk. But I imagine once they get back to their offices and have a fuller briefing, they may say to themselves: are these people serious?” Perhaps the lovely Cate Blanchett, Shah Rukh Khan and Elton John, all of who, we are told, are “some of the top names due to make an appearance” will be impressed, and perhaps Emmanuel Macron, Theresa May and Angela Merkel will applaud politely; but the people who really matter are the likes of Goldman Sachs CEO Lloyd Blankfein, J.P. Morgan Chase Chairman and CEO Jamie Dimon and IBM Chairwoman, President and CEO Ginni Rometty and I’m pretty sure they will, as Andrew Coyne suggests, “get back to their offices …[and] … say to themselves: are these people [Team Trudeau] serious?

Canada did survive the crises of the first decade of the 21st century better than most … and for that we owe thanks to politicians and mandarins (very senior bureaucrats) and bankers and industrialists going all the way back to the late 1940s and ending, recently, with the likes of Mr Coyne’s father James Coyne, John Crowe, Brian Mulroney, Mike Wilson, Don Mazankowski, Gordon Thiessen, Jean Chrétien, Paul Martin, John Manley, David Dodge, Stephen Harper, Jim Flaherty and Mark Carney. None was perfect, many were deeply flawed, but, as a group they put and kept Canada on a modest but sound economic/fiscal/monetary footing. But many of us, Canadian voters, got tired on fiscal prudence and a constant focus to deficit reduction (Chrétien-Martin-Manley) and balanced budgets (Harper-Flaherty-Oliver) and we voted for “change:” small, temporary deficits to finance things that this, that and the other special interest group wanted. And so we end up, today, with Justin Trudeau who brings us projected anaemic rates of economic growth for 2018/19 and beyond, business investment that has “flatlined” for far too long and higher and higher taxes to finance growing deficits.

So, Prime Minister Trudeau is in Davos to tell Jamie Dimon and the most senior bankers and brokers in the world that Canada is a great place to invest: but the numbers say otherwise. It’s not ALL Justin Trudeau’s fault, although he has to take the blame for turning away from fiscal moderation, but he is, as we used to say in the army, “blowing smoke up their arses” and they ~ the they that matter, not the elegant Ms Blanchett or even President Marcon ~ know it.


* Yes, yes, I know Quebec’s budget is balanced, but it’s not when you take away $11 Billion in equalization.


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