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An urgent call for national (economic) unity in Canada

All hands on deck – that's what Canada needs right now. Working together is never easy, but provincial premiers and First Nations leaders must join Ottawa in facing a global economic and political situation that is likely to remain unsettled for decades. It is urgent that Canada figure out where it stands on both counts, and what strengths it can bring to bear.

The global balance-sheet recession of 2008-09 saw a very big shoe drop, when concern about debt caused a spending dip that threatened to drag the economy to a halt. The world has been fundamentally altered as a result.

Until around 1980, the U.S. economic locomotive pulled the global economy out of cyclical recessions with America's current-account surpluses (savings) borrowed by weaker countries to build their productive capacity. But when those surpluses changed to deficits, because easy credit allowed U.S. consumers to live beyond their means, the locomotive ground to a halt, threatening in turn to spark a massive depression.

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End of the postwar world

The U.S. will never again play economic engine to such a degree. Monetary policy can no longer mask what is going on. A depression was averted, but huge unfinished business remains:

  • Not only do the aftershocks of 2008 continue, the underlying causes of the crises remain unaddressed
  • The U.S. economy is good but not trouble-free and remains vulnerable to the nation’s disaffection-driven politics and a global economy that is generally weak
  • The central role of monetary policy is ending but its exit poses risks, both from continuing low interest rates and from unconventional tools being used in an attempt to keep it alive.

Avoiding the worst from 2008 was only half of the job. The rest will be more challenging, and calls for painful structural adjustments that, so far, only the U.S. has done much to address.

Plus there is a second big shoe to drop: The world of the U.S. economic locomotive has to be replaced by something, which would be a very big job under the best of circumstances. Current circumstances, however, don't seem conducive to a reasonable outcome.

Wrong medicine

Monetary policy was part of the reason the world avoided a global depression, but is no longer the right medicine. That particular cure has been maintained for too long at too high a dose and to less and less effect. It must give way to something better, despite the unavoidable risk of withdrawal shock. Our current monetary doctors do not want to admit defeat, so are administering the medicine in bizarre, untested new formulations (negative interest rates are the latest), making exits ever more difficult and the longer-term negative effects ever more costly.

Two numbers from Richard Koo, chief economist at Japan's Nomura Research Institute and an expert in balance-sheet recessions, make the case:

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  • The U.S. monetary base has been expanded by the Federal Reserve by 357 per cent since the end of 2008;
  • Credit to the private sector has increased only 19 per cent over seven and half years.

An elephant effort for a mouse outcome.

The message for Canada is twofold. We may not have much time to get on the right path. And what we do must rely more on our own strength, rather than the rest of the world's, although that process could take decades.

On the plus side, Canada is possibly the only happy political place among Western countries right now. That is true both federally and provincially, and for politicians and parties in office and not. There are fights over policies (as there should be), but Canada's politics are, for the most part, not very divisive by today's standards – much less is there populism and extremism.

Use it or lose it

But the nation must use its current good politics, or it will lose them. The federal government, the provinces and the First Nations must collaborate to find as many win-win, non-zero-sum ways of moving forward as possible – a reasonable expectation.

No provincial premier today needs, or stands to benefit from, national politics that are divisive. This was not the case 40 years ago in the era of Pierre Trudeau, René Lévesque, William Davis and Peter Lougheed, when each benefited from having one (or more) of the others as political foes. Today no leader needs an enemy. In fact, the provinces and First Nations have things they need from each other – and can gain leverage from what they offer in return. This balance of need and leverage should be the foundation for lasting deals that benefit everyone.

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Canada's politics and economics are each strongly regional. What is national are its federal-provincial system (which, arguably, has worked better than any other political system) and its strong mutual-accommodation ways. When the various economies are not well balanced (something that is often difficult to achieve), regional tensions tend to rise. Right now, oil and many other commodities have moved from hugely benefiting their regions to putting them at a severe disadvantage.

Look to what's ahead

Effective political leadership must have the ability to look around corners and prepare for what is coming – not just the art of the possible, but of making possible the necessary.

Fifty years ago, our existence was threatened when the Quiet Revolution in Quebec deeply unsettled our society and politics, yet Canada got the far-sighted leadership it needed. Prime Minister Lester Pearson responded early to the tensions that the rising forces of modernism and Quebec nationalism would bring. He recruited three forward-looking leaders from Quebec (Pierre Trudeau, Jean Marchand and Gérard Pelletier), initiated a distinctive Canadian flag, and appointed the Royal Commission on Bilingualism and Biculturalism to address the future. Yet, after 1965, his government was a minority, so vulnerable, and it was two premiers, neither a fellow Liberal, who called the other premiers to a Confederation of Tomorrow Conference in November, 1967. They were Quebec's Daniel Johnson of the Union Nationale and Ontario Tory John Robarts, whom Globe and Mail writer Ross H. Munro said "probably more than any other English Canadian helped prevent Quebec from not reaching into a dangerous isolationism."

They and the others not only met, they were able to see ahead of a curve that lasted another half-century.

Security threat

Today the threat, here as everywhere else, is the economy. If Canada is to survive and prosper, it has an array of needs: risk-reward opportunities, institutions and clusters able to compete with those in the United States despite the huge U.S. advantages of domestic market size, large global corporations and freedom-driven entrepreneurship. Canada's advantage lies in human resources; its long-term political security now rests more on its ability to attract and retain the best people, and less on resources that depend on global markets.

Canada's economy of tomorrow

Now the global economy is undergoing irreversible, destabilizing changes. President Obama has done a major service in his measured withdrawal from ground the United States can no longer hold to ground it can better hold. But even if the country escapes the high risk of Donald Trump as president later this year, the forces that produced both him and Democrat populist Bernie Sanders will be back with a vengeance in 2018 and 2020. The crisis will be particularly acute if China and Germany fail to get their current-account surpluses substantially down, and take pressure off both the U.S. and Canada.

In the Pearson era, the premiers of the two largest provinces came together to offset potential federal weakness and meet the burgeoning unity challenge. Now, as I have suggested before, the premiers of the four largest provinces – three of whom are women – should call all the rest of their colleagues to "Canada's economy of tomorrow conference." This would produce a conversation very different from one led by an unavoidably remote Ottawa.

Provinces need federal growth strategy

Above all, every province needs growth for revenues and jobs – requiring a stronger federal policy focus on human resources (as well as the First Nations). Each can attract good people, and has done so. But they should push the federal government, as should the Conservatives and the NDP in Ottawa. Resources are a huge continuing Canadian asset, but people are Canada's future.

The federal people push needs four major elements:

  • a strong university research infrastructure as part of larger technology and commercialization clusters
  • open immigration, supported by a speedy and efficient system
  • encouragement for competitive and collaborative personal initiative – the best people almost always create jobs, not take them, so Canada must offer opportunities that attract the best people and keep them here for the long term
  • a tax regime that takes a capital-pool approach to capital gains and thus reflects the reality that building businesses and capital are lifetime, not single-transaction, affairs.

This approach works everywhere, in every activity, and provides a doorway to businesses of the future. It also allows the economy to perform much better when it comes to creating capital – essential in a country that borrows more than $60-billion a year. It would rebrand Canada as the best of both worlds – societally inclusive and economically hard-headed.

The federal government may achieve these goals all by itself, but the provinces have the clout to make sure it does. The federal opposition parties could seal the deal. For the Conservatives, support would show them backing "build-the-economy" taxation rather than "populism wins election" personal tax cuts (which did not work). For the New Democrats, support would demonstrate they understand how growth in the private sector can advance social well-being too.

For more than a decade neither Ottawa nor Ontario has had a government with a real instinct for what drives a successful private sector. Canada needs leadership that does. It requires stronger collaborative self-reliance, boldness and the confidence to raise the excellence bar even higher – all in ways that strengthen what both Canadians and non-Canadians like about our country. All groups are needed. But the provinces have the most at stake – and the most political clout. If they do not use it, the price may come high on the revenue and job fronts.

Canada's three big eras

Canada has been through three big challenging eras:

  • 1867-1896 – Confederation, the CPR and a coast-to-coast Canada
  • 1896-1960: An outlook shift away from Britain and colony to North America and independence
  • 1960-2015: The centrifugal forces of Quebec separatism and Western alienation.

Canada now appears to be entering its fourth big challenging era – figuring out what it needs to navigate a likely long-lasting, deeply unsettled world. As was the case during the last 55 years, it will need early, far-sighted leadership for its next long journey of large change.

Justin Trudeau – or some other bold, far-sighted leader – must respond to the challenge and make Canada a very different kind of great country for a very different kind of world.

William A. Macdonald is a Toronto writer who, to spark discussion of the nation's future, has created, with associate William R.K. Innes, The Canadian Narrative Project at www.canadiandifference.ca.

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