Ottawa's next big idea: Supply

"We need to increase the supply of everything"

This is the clip-art I got when I searched my photo service for “Supply”

I’m travelling this week before getting back to the Rouleau Commission hearings in Ottawa, so it’s time to change the subject, as good columnists must. Here at the Paul Wells newsletter we like to bring you the big new ideas driving government decision-making. We are not usually overworked in this department because there often aren’t many new ideas. But here’s one now: a new paper by the team of Edward Greenspon, the president and CEO of the Public Policy Forum, and Sean Speer, the PPF’s Scotiabank Fellow in Strategic Competitiveness.

Greenspon and Speer have written a paper called The Urgent Case for a Supply Rebuild: Investing in New Economic Compact for Canada. You can’t see it quite yet. It’ll be up on the Public Policy Forum’s website this week. I’m going to outline their argument, and then share some of my reasons for skepticism.

Their idea: after 30 years during which fiscal and monetary policy were mostly driven by the goal of increasing demand, it’s time for government to focus on increasing supply. Supply of what? Everything, basically:

“We need to increase the supply of everything from housing to hydrogen, from IP to ICUs, from quantum computing to the next mRNA, from long-term investments in critical minerals to longer-term investments in human capital. We need to increase the supply of things, ideas and people — the programmers, perfusionists, scientists, welders, teachers, nurses and countless others on whose backs and brains the digital-age economy travels. And we need to ensure for reasons of efficiency and equity that these opportunities are available to everyone.”

This expansive view of government’s role is recognizably a hallmark of Greenspon, who was the editor of the Globe and Mail from 2002-2009 and who, there and elsewhere, has shown a sturdy belief in the power of government to fix big problems. It’s perhaps more surprising that his co-author is Speer, who was a senior economic advisor to Stephen Harper and who is still highly regarded in federal Conservative circles.

The Greenspon-Speer paper is worth discussing for two reasons. First, in the spirit of the week: Chrystia Freeland will deliver her fall economic update on Thursday, and Pierre Poilievre will give a speech to Bay Street swells at the Empire Club of Canada in Toronto the next day. So it’s a big week for talking about government’s role in the economy. And the frankly astonishing amount of coverage Freeland’s “friend-shoring” speech to the Brookings Institution at the beginning of the month suggests there’s an under-fed appetite for ideas.

Second, because the last time I was skeptical about a big idea from Ed Greenspon, he was arguing for a big government bailout of the newspaper industry. And to say the least, my skepticism didn’t carry the day.

Greenspon and Speer argue that the elements of the postwar economic consensus — pioneered by Reagan and Thatcher and accepted, to an extent that seemed surprising at the time, by Bill Clinton, Tony Blair and Jean Chrétien — have lately been paying sharply diminishing returns. In its late stages, that old demand-side model “centred on lowering consumer costs and boosting economy-wide consumption through expansionary fiscal and monetary policies.” But “it has come with some major drawbacks. This ‘consumption-oriented approach’ failed to reckon with the inflating of coveted assets like housing and, as we discovered during the pandemic, it left us with reduced productive capacity in critical areas such as food production and biomedicine.”

In other words, you can build an economy in which money is cheap and taxes are low, making it easy for economic actors like governments and households to demand things. But if nobody is supplying things then the economy seizes up in ways we have begun to witness.

“Easy money was never intended as a sustainable economic model,” Greenspon and Speer write. “For that, attention now must move from the demand-based and redistributive policies of the past decade and a half to a supply rebuild.” What would it look like?

For one thing, clearly, an end to “easy money” — which was already coming to an end, thanks to central banks’ inflation-fighting interest rate hikes. For another, Greenspon and Speer call for the state to play “an indispensable partnership role alongside business and markets in shaping the economy — in short, a return to industrial policy and geo-economics.”

Did I mention I’m skeptical? I’ll get to that. Greenspon and Speer bring with them the two things most needed for credibility in Ottawa policy circles: a Harvard economist and a popular Washington politician. The economist is Harvard’s Dani Rodrik, who has coined the term “productivism” for a vision that favours “production and investment over finance” and “revitalizing local communities over globalization.”

The politician is Janet Yellen, whom Freeland was quoting more or less verbatim when she sang the virtues of friend-shoring in Washington last month. “In a Davos speech in January 2022,” Greenspon and Speer write, Yellen sang the praises of “modern supply-side economics” which emphasizes “supply, human capital, public infrastructure, R&D, and investments in a sustainable environment.”

Greenspon and Speer pitch their “Supply Rebuild” as a latter-day successor to the Macdonald Commission report, which paved the way to continental free trade a generation ago. In Donald S. Macdonald’s spirit, they call for “a modern leap of faith or two” in favour of “huge amounts of investment by the public and private sectors.”

So that’s the pitch. I’ve given it respectful room, because normally when either Greenspon or Speer has an idea, much of Ottawa starts talking about it, and because the back-to-back Freeland and Poilievre speeches later this week will probably inaugurate a new season of debate over government’s role.

I’ll be surprised if Greenspon and Speer’s argument leads to big change, for two reasons.

First, I don’t see a lot of receptivity in Pierre Poilievre’s Conservative Party for “huge amounts of investment” along lines advocated at Davos by Joe Biden’s treasury secretary. “Productivism” — do I need to belabour what a problematic label that is? — seems likelier to join carbon taxes and parliamentary reform as ideas academics think Conservatives should love.

Second, and perhaps more significant: I’m not sure what part of this agenda the Liberals haven’t already been trying to advance. Look again at the list of things Greenspon and Speer say Canada needs more of: “housing to hydrogen… IP to ICUs… quantum computing to the next mRNA…. critical minerals to… human capital.” That’s a pretty good list of things the Trudeau government has pushed hard to promote, using such battle-weary policy instruments as the Canada Infrastructure Bank, the research superclusters, and a series of direct government subsidies in sectors that seem promising. I’m honestly not clear on what Greenspon and Speer think should change — except the level of success of such enterprises. Assuming Trudeau converted to “productivism” with the energy he once reserved for “deliverology,” the hope seems to be that a Trudeau Agenda III would more or less resemble Trudeau Agendas I and II, except this time it would work.

So yeah, I’m unpersuaded. But unpersuaded Wells is not always the most influential Wells in this town, and evangelical Greenspon has not lately had to put up for long with a “No” from the PMO. So I thought I’d pass this recommendation along. If this government falls in love with a “supply rebuild,” you heard it here first.