“Canada’s Economic Future”Published on May 15, 2018
Speech by Maxime Bernier – Civitas Conference – Montreal, April 28, 2018
Good afternoon everyone.
Before I begin, I want to tell you that I am not talking as innovation critic for the Conservative Party today. These are my own personal reflections.
The topic of my presentation is Canada’s Economic Future. I’m pretty optimistic about our economic future. Simply because I’m optimistic about the economic future of the world.
The constant rise in productivity that started 200 years ago with the Industrial revolution is going stronger than ever. We are in the midst of another revolution thanks to computers, the internet, robots, and artificial intelligence.
Countries in Asia and Africa that were at the margin of the world economy have joined it. Capitalism and freer markets are spreading everywhere.
Markets are still far from free here and in most of the world, and there are still huge problems to solve. But they are free enough to raise the standards of living everywhere.
Many people wrongly believe that things are getting worse, but actually, absolute poverty is fast disappearing.
Thanks to economic globalization, freer trade and the division of labour, we are going to benefit from the wonderful innovations and the wealth created elsewhere.
My concern is more specific to our country: Is Canada going to be one of the champions of this new economic golden age, or are we going to be a laggard?
Will we be one of the world centers of growth and innovation, or will we be content to follow others?
There are two basic attitudes when you want to prepare your economic future, whether we’re talking about an individual or a society.
If you are future oriented, you believe in restraining your immediate desires, in spending only what you can afford, in saving and investing, so that you will ensure larger streams of revenues in the future.
If you are present oriented, you want to spend as much as possible right now. You borrow to spend more, even if it means you will have fewer resources in the future. You don’t save. You don’t invest.
That last one is the mindset of Keynesian economics.
It’s the mindset of big government types who think more borrowing, more spending, more subsidies, more monetary stimulus, is what our economy needs, whether we are in a recession or not.
It’s the mindset of those on the left who always want to create new social programs, adopt new well-intentioned regulations, and redistribute more money, whatever the impact on growth is.
In short, it’s the mindset of the Trudeau Liberals!
All this government has done so far is to borrow, increase spending, create new programs, impose new regulations, increase taxes on entrepreneurs, fail to approve or support major projects like pipelines, and generally create more uncertainty for investors.
The results are in. Total business investment in Canada has steadily declined for the past four years. According to Statistics Canada, it’s down by 17 per cent.
We could have had 25 billion dollars more in investment if pipeline projects had been approved.
Instead, the Trudeau government has killed two pipelines and may kill a third one. Meanwhile, investment in oil and gas in the U.S. is booming.
Foreign investors are also losing confidence in the Canadian economy. Foreign direct investment dropped 42 per cent in 2016 and by an additional 26 per cent in 2017, its lowest level in eight years.
We used to have the strongest investment results in the G7, now we have the weakest.
A year and a half ago, when Donald Trump was elected, I sounded the alarm and said Canada was at risk of losing its competitiveness if we did not match his tax cuts plan.
He did what he promised.
We used to have a fifteen-point advantage over the U.S. in terms of corporate income tax, if we include both federal and provincial or state rates. Now, that advantage is gone.
Meanwhile, the latest budget by the Finance Minister did not offer anything to bridge that competitiveness gap.
It was devoted to the Liberals’ priority: gender issues and intersectional identities. And based on the Keynesian belief that the government can create wealth by borrowing and spending more money to boost consumption.
The Liberals don’t understand that we cannot stimulate the economy by boosting consumption because consumption always follows from the production of wealth.
Simply stated: They put the car before the horse.
Consumption does not drive economic growth. But rather, it is a consequence of growth.
Production precedes consumption. Consumers can only buy something if they have themselves produced something.
We work, we produce, we get paid and then, we consume.
The production of goods and services drives the economy, not the consumption.
So, to stimulate the economy, we need to have public policies that will create the incentives for producers and entrepreneurs to invest and create wealth.
What we should do is cut corporate taxes, to make our economy more attractive for business investments. And ideally to cut or eliminate other taxes such as the capital gains tax, to encourage Canadians to save and invest more.
While Trump has been busy abolishing and streamlining regulations, the Liberals are enacting new ones.
They are about to adopt bills that will make it mandatory to examine the impact of new development projects, on – you guessed it – gender, racial and other intersectional identities.
This is extremely concerning. If we continue along this path, any group will be able to block any project simply by staging a protest and saying it has an impact on their identity.
We used to have a rational and objective mechanism to deal with these issues: property rights.
If we destroy it and replace it with debates about subjective identities, there is no way we are going to have anyone willing to invest in this country.
There is one relatively new important reason why we need to invest and increase our productivity: the fact that manpower is becoming scarce. Our society is aging. There are more and more labour shortages in various sectors of the economy.
Politicians usually like to talk about jobs, jobs, jobs, about this and that decision leading to job creation.
But the challenge is not anymore to create jobs. It’s to find workers, or find ways to produce more without needing more workers.
Some people fear that robots and artificial intelligence will steal our jobs.
Luddites have been wrong for two centuries about the disappearance of jobs. What we need to do is not prevent or slow down the change, but adapt to it. And for that, we need freer and more flexible markets.
One way the Trudeau government says it is promoting investment in our future economy is with subsidies. Innovation minister Bains will give a billion dollars to five so-called “superclusters” that happen to be evenly distributed in every region of the country.
There is simply zero economic logic to government subsidies.
If a business venture is sound and profitable, it doesn’t need subsidies. If it’s not profitable, it should not have any. This is just another wasteful way to buy votes.
Another government policy that is not conducive to investment and future growth is our monetary policy.
I believe I am the only politician in Canada who is preoccupied with monetary policy. It has a direct influence on the future value of our money and on everyone. But nobody talks about it.
It’s been more than a decade since the financial crisis. That should have been long enough to normalize monetary policy.
And yet, we still have artificially low interest rates.
Although they are supposed to stimulate and sustain the economy, artificially low rates have several negative consequences.
Low rates encourage people to borrow and spend. That’s the Keynesian solution to everything.
The OECD says Canadian households are more indebted than any other developed country. When the next downturn hits, this will make it even more serious.
Low rates also encourage governments to borrow. The Liberal government’s return to deficits has no rational justification at all, apart from pretending they stimulate the economy.
But we know that this is a sedative to the economy. And despite their promises, they have no plan to bring back balanced budgets.
Quebec has had a balanced budget for some years, but it is still the most indebted province. Ontario has just announced they will have deficits until 2024. Alberta will have deficits until 2023.
When the next crisis hits, most Canadian governments will be in a worse fiscal position than they were in 2008. This is reckless.
Low interest rates distort the economy. There are lots of so-called zombie companies that are not really profitable, but stay alive because they are propped up by easy money.
That’s one reason why productivity growth is lower than it should. These zombie companies drain resources that should be invested elsewhere.
I am a fan of Austrian economics. I think everybody should read Mises, Hayek, and Rothbard. They have shown that low interest rates bring a misallocation of resources. What they call malinvestments. It gives the impression of a boom, but it cannot last forever.
Resources are not unlimited. You cannot consume more, save more and invest more at the same time. Central bankers are not magicians.
The Bank of Canada seems to always have a good reason to keep rates low. They say rates must be low to encourage investment.
But when investments go up, they say it increases the economy’s capacity to grow without triggering inflation. And so, they don’t need to raise rates.
So rates stay low, year after year. We get more into debt, we have more malinvestments, more economic distortions, and the bank is more afraid than ever to raise rates for fear that this whole fragile edifice will come crashing down.
Not only that, but in typical Keynesian fashion, Stephen Poloz has also been encouraging the government to get more into debt. I find this appalling.
As a central banker, a non-partisan public servant, the governor has no business expressing his opinion on budgetary issues.
He said so himself some years ago when he was asked in a finance committee meeting what he thought about our government balancing the budget.
Poloz and his team should stick to monetary policy. If he wants to play politics, he should resign and run as a liberal in the next election.
What we need for future growth is to save; to accumulate real capital; and to invest in profitable ventures, not ventures artificially made profitable by low interest rates or by government subsidies.
To ensure Canada’s economic future, we need sound free-market policies in Ottawa.
We need a government willing to make the necessary sacrifices and take sometimes unpopular decisions, not a government only preoccupied with buying votes with taxpayer’s money.
There are no limits to growth and human progress when men and women are free to follow their dreams. My dream for Canada is that the twenty-first century becomes a century of unequalled freedom and prosperity.
I wanted to share this dream with you. And I hope that each one of you in your own field, in your own job will find ways to help make this dream come true.