Why Canada Does Not Need a Marshall Plan
Op-ed published exclusively on our website.
Writing last week in Policy Alternatives, Jim Stanford aims to let no crisis go to waste. Amid reports that models may have dramatically overestimated the health impact of the coronavirus, Stanford wants to get while the getting’s good, using the coronavirus to seize trillions of dollars through redistribution.
Before rebutting Stanford’s barrels-of-money approach, let’s set the table: Every dollar in additional tax reduces the economy by two to three dollars. It’s not just a matter of shuffling money around; it’s a matter of destroying billions of dollars worth of jobs with every billion in additional taxation. We should therefore have a strong bias for solutions that don’t involve “tens of billions” in new taxes that would destroy “twenty-fives of billions” worth of jobs.
With that said, here is a point-by-point rebuttal:
Stanford kicks off with “job one is providing a financial bridge” for people impacted, but “job two is getting ready to kick-start production once the immediate health crisis has passed.” So far so good; we must all think of the future. But Stanford seems to think the economy just sits there until told what to do, like a well-trained dog awaiting its next command.
In reality, of course, entrepreneurs automatically “kick-start” production because customers automatically “kick-start” demand. They offer money for goods and services because they want to buy them. So, no, there is no government role to kick-start something that’s eager to come back to life. Rather, there is a role to play in proactively getting government out of the way, but more on that later.
Throughout, Stanford seems almost giddy at the prospect of a Depression-era “collapse of thousands of firms and even entire industries” or unemployment “spiking” above 20%. Alas, the whole point of the $75 billion federal Covid-19 bill is so entire industries will not collapse, and so that the unemployment spike will be short-lived. Stanford and others like him would permanently cripple the Canadian economy with tens of billions of dollars in new spending or mandates. Indeed, what threatens the recovery most of all is commentators like Stanford claiming that the “traditional tools” won’t be capable of “leading” the recovery. When it comes to the economy, Stanford’s cure is the disease.(1)
Throughout his piece, Stanford keeps returning to the war metaphor, writing, “Fighting this coronavirus is like fighting a war.” This is common among those who favour expansive government, in support of their claim that recovery will require extraordinary public intervention we’ve never seen before (for example, the war on drugs, the war on poverty, the war on pronouns, etc.). Stanford’s war metaphor takes him to the Marshall Plan that rebuilt Europe’s flattened cities and millions of burned-out factories after World War Two.
Of course, while coronavirus may look like a war in terms of our resolve, this is nothing like a war in the sense that there are no flattened cities, no tens of thousands of factories destroyed. Rather, this looks like a temporary shock, a standard natural disaster. People need help to get through it, to be sure, and the federal government has already responded admirably to the need. But again, those millions of factories, undestroyed, are eager to come back to life.
Stanford continues, “For many years to come, Canada’s economy will rely on public service, public investment and public entrepreneurship as the main drivers of growth.” This wishful thinking hinges on a serious misunderstanding: that government handouts are a “main driver of growth.” In reality, governments consume what others have produced. After all, where are the government factories? What have those impressive “public entrepreneurs” done? In the real world, regular Canadians wake up early and go to work, while government seizes a large cut of what they produce and then redistributes that money to whatever is polling well this month.
Stanford’s next complaint is: “The chronic weakness of private business capital spending in recent years was already indicating a growing need for public investment to lead the way.” This is backward, since the actual reason for falling investment is that mounting regulations have rendered Canada a bad place to do business for many industries. If an Ontario factory faces endless harassment from bureaucrats, the company will eventually think about outsourcing to China. Fantasizing that some never-before-seen great tide of entrepreneurial bureaucrats will replace factory owners does a great disservice to the many victims of government’s systematic crushing of true entrepreneurship. As for the results when bureaucrats do try their hand at running industries, they have left much to be desired.
Stanford follows with a 5-point wish-list:
- Heath care: “We will need to invest tens of billions in repairing and improving health facilities.”
In fact, Canada does have a shortage of health care resources, because the private sector has been systematically shut out. The MEI has written extensively about this and, relevant to the coronavirus, Canada has one-third as many critical care beds per capita as Germany, roughly the same level as ravaged Italy, and in some provinces like Alberta or BC, about as many as Iran. As a percent of GDP, Germany spends only 5% more on health than Canada (11.2% vs. 10.7%) yet has three times the critical-care capacity and practically nonexistent waiting lists.
What explains the difference? Germany encourages private participation in health care. This means the very private sector Stanford is hoping to “kick-start” has long since been kick-started in Germany, and provides increased health resources and fast treatment to German patients.
So, by all means, kick-start the entrepreneurial transformation of Canadian health care. After all, wars require such creative thinking. Let’s mobilize every entrepreneur in Canada to solve the longstanding problem of government mismanagement of health care.
- Transportation: “Airlines and other public transportation… will need injections of public capital.”
We want to differentiate between essential industries and government vanity projects. Airlines are essential to a country; without airplanes, it would be challenging for a Toronto factory to export to, say, California. On the other hand, public transportation has largely been a boondoggle across Canada, essentially nationalizing a private industry that long operated profitably and serviced happy customers.
In recent years we have seen a resurgence—a “kick-start” if you will—of private transportation, in the form of Uber and other ride-sharing companies. Incidentally, this has taken place against the often-fierce resistance of those very entrepreneurial bureaucrats Stanford dreams will make Canada great again.
So, by all means, provide loans to essential businesses, on terms whereby taxpayers will actually make a profit. But the virus shouldn’t be an excuse to bail out vanity light-rail projects that never made sense in the first place.
And, once again, by all means kick-start private sector investment and participation in the transportation sector, by opening up Canada’s cities to private-sector competition, from ride-sharing to private minibus networks common in much of the world, and even private rail, as is done in Japan.
- Public Infrastructure: “Underinvestment in public infrastructure since the 1980s has badly undermined Canadian productivity and well-being.” Stanford’s solution: Raise public capital spending by at least 2% of GDP.
This is an example of moving the goalposts. Early on, we hear how the crisis needs an immediate response; now we’re hearing that, by the way, we should embark on decades-long highway construction. There is no evidence that Canada has underinvested in capital expenditures, and Stanford’s additional 2% haul would, going by Romer’s estimates, cost Canadians between 4% and 6% of their entire GDP. For a sense of scale, 4%-6% of GDP is an economic hit on the order of closing down every farm in Canada, forever.
As with public transportation, wasting tens of billions more on infrastructure boondoggles would further burden the fragile Canadian economy, while opening up infrastructure to private investment would very nicely kick-start an atrophied industry. By opening new highway and new bridge construction up to private ownership, Canada could see a rise in capital spending, not at the expense of taxpayers or the economy, but to the benefit of both.
- Other public services: “Expanded public services will be an engine of growth, not just a ‘cost’.”
Fourth comes a grab-bag of public expenditures, from pre-schoolers on up, sold, as always, as “investments.” While the causal chain is a bit abstract regarding how more money for pre-schools or senior centres might lead to more use of “underutilized labour,” what is much easier to see is that this money comes out of the hides of the very entrepreneurs we’re trying to help. One doesn’t kick-start an economy by levying new taxes on it, whatever creative stories one tells about productive pre-schoolers in 2048.
- Energy and climate transitions: “With the price of Western Canada Select oil falling to close to zero… it is clear that fossil fuel developments will never lead Canadian growth again.” Stanford’s solution: We should massively invest in renewables and aggressively dismantle oil facilities.
Stanford’s logic here is frankly bizarre. After years of predictions that green energy will get so cheap that we’ll abandon expensive fossil fuels, doesn’t it work the same way when fossil fuels get cheap? Or is this a heads-I-win, tails-you-lose political project? If oil prices stay low, we can happily abandon “green energy” boondoggles now rendered hopelessly unprofitable.
As for employment, the main point of oil was never an employment program; it was to heat our homes and charge our iPads and run our hospitals. If we want to protect oil jobs, by all means, reduce regulation and taxes on fossil fuel companies, get rid of the discriminatory carbon tax, and enjoy $10 oil while it lasts. Such reforms could even set the stage for “kick-starting” the oil patch once Russia and Saudi Arabia resolve their spat and prices recover.
Stanford concludes with this: “Great crises are frightening and dangerous. But a crisis can also be an opportunity. The capacity of Canadians to work, produce and care for each other will survive this pandemic. All we need is leadership and purchasing power to put those capacities to full use.”
I couldn’t agree more. The key in 2020, as in every year before, is to unleash the entrepreneurial creativity of Canadians. A creativity that has long been held back by the very government intervention and taxation that Stanford is selling this week.
Through all of these threads, remember that original trade-off: $1 in additional taxes destroys $2 to $3 worth of jobs. If this is a war, if we must “kick-start” Canada, if investment needs a massive boost, if the oil patch needs a hand—those all argue for fewer burdens. We need fewer regulations, less taxes, and reduced government intervention. We need to get the bureaucrats and their alphabet soup of regulators, their 45% marginal taxes and green mandates, off the backs of business. Entrepreneurs are the ones who built Canada and who will continue to build Canada long after this virus has passed into memory, if the government will just get out of the way.
There is, without a doubt, a role for government in terms of improving their response to future public health crises. Countries like Germany have been far better prepared in terms of private-sector health capacity, while countries like South Korea or Taiwan have been far better prepared in terms of stockpiling resources and developing sophisticated protocols for testing and contact tracking. But government incompetence is no justification for seizing great swathes of the Canadian economy, along with tens of billions of hard-earned dollars from workers to squander on fantasies of centralized industrial policy run by miraculously wise and entrepreneurial bureaucrats.
There is, similarly, a case to be made for proactive government aid to industries that government itself has hurt in the past. From oil companies to airlines, government policies have for decades hobbled many once-great Canadian institutions. One could justify a sort of “reparations” from government to make up for past punitive regulation and past punitive taxation. But, again, done in a way that taxpayers, and the larger economy, actually benefit.
In the wake of the pandemic, specific opportunities abound to open up the Canadian economy. These opportunities cover everything on Stanford’s wish-list, and more: health care, public transportation, infrastructure, and energy would all benefit from unleashing millions of Canadian entrepreneurs, freeing them of the dead hand of overgrown regulation and burdensome taxation. If we need a Marshall Plan, it’s for getting government off our backs.
Peter St. Onge is a Senior Fellow at the MEI. The views reflected in this op-ed are his own.
1. For a very thorough account how US government intervention extended the depression, see Murray Rothbard America’s Great Depression.