Quick Hits - State Capacity and Government Ineptitude & Insights into WFH
A quick summary of some interesting reads
Welcome to another Quick Hits on pieces that have caught my attention over the past few days. I’m working on a longer piece too on industrial policy and economic security, so I’ll hopefully hit send on that later this week. In the meantime, I hope you enjoy this and if you have any feedback on the newsletter then please do let me know! You can reach me at tom@orbitpolicy.com.
Government Ineptitude and Canada’s Economic Malaise
If you haven’t been reading Dan Breznitz’s essay series Prosperity’s Path in the Globe and Mail then I recommend you do. His first essay, How Canada’s middle class got shafted, took a deep look at Canada’s productivity crisis and how we got here, and he pulled no punches. He was critical of Canada’s management failures - something that I think is very underexamined, perhaps unsurprisingly given Canada’s CEO class is so frequently found on the exact panels bemoaning our productivity. But Breznitz doesn’t hold back, pointing out how “our business and public leaders managed to take the world’s most-educated and hard-working people and employ them in ways that so dramatically underutilized their skills and creativity that they became less productive.”
In that piece, he takes particular aim at how Canada adopted a neo-liberal approach that viewed “global markets as a magical force that would mysteriously fix all of our woes without our government needing to do anything”, with the result that “our very own action led us to become a country adrift without an ability to govern, any capacity and ability to develop and implement a strategy, or indeed even openly discuss what it wants to be in the future”.
Breznitz’s most recent essay, How not to run a country: Government ineptitude and Canada’s economic malaise, picks up on that theme. Examining Canada’s declining state capacity, he finds “a government that fails in basic operation capabilities, lacks the ability to think, and is devoid of strategic leadership”. Again pointing the finger at decisions made from the 1990s onwards that put faith in markets as the way forward, Breznitz argues that “first we dismantled the ability of our state to think and act, then we retrained our public service and transformed it into a meeker version” including through the proliferation of political advisors and then through an addiction to management consultancies.
Decisions made under the Martin and Harper governments, in particular, resulted in “both the destruction of the knowledge of how the economy really works, how the state can strategically assist its growth, and even the ability to maintain competitive markets in, and for, Canada”. While Breznitz acknowledges that pockets of excellence still exist in the public service, he concludes that “to win in this world we need a leadership that is committed to growing productivity in both the public and private sector and is willing to fix the government itself to do so”.
The issue of state capacity is so interesting, not to mention so important, and it is great to see Breznitz highlight it. It is worth pointing out though that the ability of central government to govern in the 21st century amidst a “polycrisis” is by no means unique to Canada. Sam Freedman, a UK political commentator and former government advisor has recently published a book looking at the situation there, Failed State: Why Nothing Works and How We Fix It, and regularly writes about these issues on his excellent substack Comment is Freed.
The USA also has a lot of people focused on issues of state capacity. The Abundance Network is an organization working on how you fight against some of the forces that have led to the situations Breznitz writes about in Canada. They support the very interesting substack, Modern Power, which is focused on California and how to build and exercise modern state power to the benefit of all.
We need similar work that dives into how Canada can do the same. If you’re interested in that then let’s chat!
Work From Home Trends Across Canada
Another interesting read in a very different direction is this recent brief from Tammy Schirle for the C.D. Howe Institute: Settling into a New Normal? Working from Home across Canada.
It breaks down current trends with some great data. Schirle finds that employees working from home (WFH) at least part of the week has stabilized at around 26%, well down from its pandemic peak but significantly above pre-pandemic trends.
Looking at regional variations, one interesting graph looks at WFH trends against average commute time. Unsurprisingly, there is a clear correlation with the length of commute.
WFH trends in different cities are also heavily impacted by their industry mix, with finance & insurance, professional, scientific and tech, information & cultural, and public administration sectors significantly more likely to have higher levels of WFH or hybrid arrangements.
One interesting takeaway is that large organizations are much more likely to offer WFH or hybrid arrangements. Schirle speculates that this “may, in part, reflect the industries these large employers are found in, but also the extent to which they would already have the human resource management practices in place that could facilitate managing employees working offsite”. I would be interested in more research on this front. It strikes me that, given small organizations face challenges in accessing talent, facilitating their ability to attract workers who prioritize WFH would broaden their available talent pool, provided their industry lends itself to flexible arrangements.
Another interesting recent piece on WFH trends is by Nicholas Bloom in the IMF Finance & Development Magazine: Working From Home is Powering Productivity. Looking primarily at US data, Bloom highlights how WFH has had a positive impact on labour supply, noting that there are approximately 2 million more employees with a disability working in the US post-pandemic, and that “these increases in disability employment have occurred primarily in high-WFH occupations”.
On firm-level productivity, Bloom finds that “the impact of fully remote work is perhaps neutral, because firms tend to adopt it only when such work arrangements match the work activity”, but that “the huge power of labor market inclusion means that the aggregate macro impact is likely to be positive”. Overall Bloom concludes that “when it comes to working from home, the winners massively outweigh the losers. Firms, employees, and society in general have all reaped huge benefits. In my lifetime as an economist I have never seen a change that is so broadly beneficial.”