The reviews of Budget 2013 are in. It is a big yawn. A nothing Budget, a one- day wonder in terms of press interest, most of the new measures in it having been leaked beforehand.
This misses a core point. Budget 2013 is remarkable for one thing—the Conservative government has embraced a degree of market intervention we have not seen before.
Conservative commentators like Andrew Coyne, the Canadian Taxpayers Federation, the Fraser Institute and the National Citizens Coalition have lamented for years that the Harper government has strayed from conservative principles because it has been big spending and state expanding. The Harper government’s fiscal record, say these critics, is anathema to conservative principles and history. The critics are of course wrong. Big spending has been the hallmark of every national level conservative government in North America for going on thirty five years. Ronald Regan, George Bush 1 and 2 and Brian Mulroney delivered to their electorate massive deficits, ballooning national debts, and major expansions in the size of the state. If you believe the critics that the Harper government has been big spending and has expanded the size of the state you can be secure in the knowledge that this sits squarely within mainstream North American conservative governance history.
What is new for conservative governments in this country, however, and what runs afoul of three centuries of conservative orthodoxy—all the way back to Adam Smith–is micro economic market intervention, what is sometimes pejoratively referred to as “picking winners” or “industrial policy”. Too its credit, the Harper government’s 2013 Budget shows a willingness to depart from the conservative orthodoxy that the free, unfettered market always delivers the superior economic outcome. Fortunately, this orientation sits squarely in the wheel house of most governments, regardless of political stripe, in most advanced industrial countries.
The 2013 Budget, then, gives us a glimpse of a government that is acting much less like a tribe that subscribes to the theology of Milton Friedman and Frederick Hayek, and much more like a government that wants to experiment with ideas that actually work. In this connection, Budget 2013 contains three welcome market interventionist initiatives of note.
The first relates to the well-known problems of the Canadian labour market, specifically the skills mismatch that exists across the country, in which many employers cannot find workers with the requisite skills to fill jobs. Five years ago, the Conservatives introduced Labour Market Agreements (LMAs), whereby Ottawa transferred, with no strings attached, $500 million per year to the provinces to improve labour market outcomes in their jurisdictions. Half a decade of this hands- -off approach has evidently left the feds underwhelmed, as the skills mismatch has intensified. As a result, going forward, Ottawa will play a more active role in labour markets through the creation of a new Canada Jobs Grant—funded out of the LMA envelope—a $5,000 grant to individuals to be matched by employers and provinces to help ensure workers get the training they need to fill the jobs the labour market is offering. The free market and the provinces will no longer be left to their own devices in resolving Canada’s skills mismatch. Ottawa is coming to the rescue.
The second welcome market intervention contained in the 2013 Budget is the response to the panel headed by David Emerson, former Minister of Industry and Trade, mandated to review Canada’s aerospace policies and programs.
It is a truism that the global aerospace industry is dominated by government interventions of various types. Governments the world over have concluded that aerospace is an industry worth having and worth spending taxpayers money on because of the relatively unique positive spillovers that accrue to the economy as a whole from this sector. Subsidizing aerospace is even supported by a body of serious economic theory—so-called strategic trade theory—that Nobel prize winning economist Paul Krugman pioneered thirty odd years ago.
To its credit, the Harper government seems to have been persuaded that a new, yet modest, market intervention in the Canadian aerospace sector is warranted. Hence, Budget 2013 has committed to establish an Aerospace Technology Demonstration Program, with funding of $110 million over four years. This program will help Canadian aerospace firms bridge the financing gap for large scale technology demonstration projects, which if left un-bridged can cost business opportunities. This is a relatively low-cost and welcome market intervention that could make a big difference for the competitiveness of Canadian aerospace firms in the global marketplace.
Finally, after decades of neglect from both Conservative and Liberal governments alike, Budget 2013 is embracing the notion that Canada needs some kind of defence sector industrial policy. This follows on the heels of the recent report led by Tom Jenkins, CEO of Opentext, which basically called for Ottawa to put in place, on an urgent basis, a number of measures that cumulatively amount to a Canadian defence industrial strategy.
Market intervention in the defence sector is of course also contrary to free market orthodoxy. Yet governments the world over have recognized at least since the Second World War that this industry operates in a managed market, where governments are the main, and sometimes only, customers. And for a variety of complex national security, economic and sovereignty related reasons, most governments around the world have chosen to put in place various types of market interventions to support domestic defence suppliers. Canada has been a weird and almost inexplicable outlier in this respect. Budget 2013 fixes our outlier status with its commitment to implement the Jenkins panel report and establish a Canadian defence industrial policy.
This, then, is why Budget 2013 matters. Like all budgets, you can criticize it on many levels. But the idea that it is a pretty meaningless document misses a core feature of it. Budget 2013 signals an important shift—a maturing if you will– in the Harper’s government’s approach to economic policy, from one largely bound by free market orthodoxy to one that is more interested in policies that work in practice, but maybe less so in theory.
Month: March 2013
What does a changing climate mean for Canadian agriculture?
Author: Sophie Oliver
Release Date: March 14, 2013
Pages: 17
Incremental warming and increased incidence of extreme weather events are likely here to stay. So, what does this mean for Canada and Canadian agriculture? Does Canada’s geography make it exempt from the more damaging effects of climate change? Will Canada in fact gain by being able to extend its agricultural lands further north as temperatures rise? Might Canadian agricultural producers be able to cash in on higher commodity prices as competitors’ crops suffer? And will agriculture then increase in importance within the Canadian economy?
This paper, authored by Canada 2020 Research Intern Sophie Oliver, looks at the present state of Canadian agriculture, current and future trends in the sector, and its level of preparedness for the challenges, the potential benefits and the uncertainties of climate change.
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Climate change impacts on Canadian agriculture – no time for complacency
Climate has always mattered in agriculture. Farmers watch the weather, we all know that. But are they paying enough attention to the bigger changes?
In a 2007 study of Ontario farmers, 62 per cent of respondents viewed climate change as a long-term warming trend, and 21 per cent were entirely skeptical about its existence.
A U.S. Department of Agriculture report released in February 2013 — Climate Change and Agriculture in the United States: Effects and Adaptation — refers to this perception problem: “Social adaptation barriers represent a significant challenge to climate change adaptation in U.S. agriculture.” In other words, people are having a hard time accepting that climate change is real.
It would, however, be surprising if more recent data did not show Canadian farmers coming to understand the problem of climate change: 2009 and 2011 were major flood years in the Prairies, while 2012 saw widespread drought in many of Canada’s growing areas.
It’s worth noting that climate change will not affect all of Canada equally: it is likely to hit hardest where it hurts the most. The Canadian Prairies — home to more than 80 per cent of Canada’s agricultural land — already has experienced warming at a faster rate than the global average. The area of the Canadian plains at risk of desertification is estimated to have increased by about 50 per cent between recent conditions (1961-90) and those projected for the 2050s.
So whose head is stuck in the ever-deepening sand?
Perhaps it’s the government’s. Agriculture and Agri-Food Canada’s Medium Term Outlook for Canadian Agriculture, 2011-2021, projects a picture of continuity, with prices of grains, oilseeds and special crops remaining well above historic levels (though below recent peaks).
The catch is that the report “… assumes no impact from climate change and from policy to mitigate climate change nor significant animal disease outbreaks or unusual climatic conditions over the period of the outlook.”
Climate change is likely to hit hardest where it hurts the most. The Canadian Prairies — home to more than 80 per cent of Canada’s agricultural land — already has experienced warming at a faster rate than the global average.
Why the complacency? A host of studies from the early 2000s served to reinforce the belief that there was not too much to worry about in Canadian agriculture. Although the studies considered a wide range of outcomes, the take-home message was that climate change could be positive for Canadian agriculture. Longer growing seasons, increases in arable land and a possible shift to higher-value crops would work in Canada’s favour, enabling us to capture greater market share and, in general, to prosper.
More recently, though, that optimism has been dampened by studies showing that crops are often more sensitive to temperature extremes than to averages. So the effect of temperature on many crops has been found to involve thresholds, above which yields rapidly decline. We have also experienced more extreme climatic events and there appears to be a dawning realization that man-made climate change implies more than just a steady warming trend: it implies intense variability, specifically in precipitation. The impact on crops and agricultural production is consistently negative. Expanded agricultural area is of no benefit if the land is regularly flooded or parched.
Here is what we know we will see more of in the future: moisture stress, droughts, disease outbreaks, weed growth and soil erosion as well as higher average temperatures. A recent report issued by PricewaterhouseCoopers pours cold water on any hope that warming can be limited to 2 degrees C, a widely shared aspiration: “Even doubling our current rate of decarbonisation would still lead to emissions consistent with 6 degrees (C) of warming by the end of the century”.
With changes of this magnitude in store, this is no time for complacency. Agriculture and Agri-Food Canada’s 2012 overview of Canadian agriculture paints a picture of a dynamic agriculture and agri-food system directly providing one in eight jobs and accounting for 8.1 per cent of total GDP. But is it prepared for what comes next? Does it have the adaptive capacity required not only to survive the climate future, but to take advantage of any benefits it may offer — even if they’re short-lived?
Federal and provincial governments are spending $8 billion annually on agriculture, but just $156 million goes into research programs — less than 2 per cent of the total spent. With so much uncertainty ahead, is this enough? Will it enable us to be ready with a flexible toolkit of responses when things change? It would be a different situation if the private sector were stepping up its own research spending, but Canada lags other countries in terms of the proportion of private money going into agricultural research.
There is much to applaud in the agri-sector. We’re seeing greater diversification and a change in farming practices to become less environmentally damaging. The 2011 Census of Agriculture showed that, for the first time, over 50 per cent of the total area prepared for seeding across the country employed the less ecologically-disruptive no-till methods.
But we need to ask ourselves if there is more we can do, both to maximize the potential of the sector (how are all those Asian megacities going to feed themselves, after all?) and to help it prepare for a very uncertain future. If the USDA is right when it says that “… continuing changes in climate conditions … (are) likely to overwhelm the ability of the agricultural system to adapt using existing technologies”, there surely we have no more time to waste.