Quick Hits - We're having an economic moment
Three decades of market-based orthodoxy is giving way and what replaces it is far from certain
Welcome to the Wednesday Quick Hits! Today I want to highlight a few recent pieces that explore the shifting sands of economic and policy orthodoxy.
Since the 1980s, much economic and policy thinking has been rooted in neoliberal, pro-market approaches that emphasized a greater role for private businesses and a reduced role for governments. This has been accompanied by a rapid globalization of the world economy, with supply chains built in the name of economic efficiency, and just-in-time principles, crisscrossing the globe.
All of that is coming under greater scrutiny, in Canada and internationally. Some of that scrutiny reflects a greater awareness of the inherent failings of that model - where pursuing market-based policies has led to sub-par results at best and undesirable societal and economic outcomes at worst. Some of it comes from recognizing that this hands-off approach is insufficient to tackle the complex, interlinked challenges we face (which are often driven by those same pro-market policies in the first place).
What replaces this economic paradigm is far from certain, as some of the pieces below discuss. There is a very active process of creative destruction in politics and policymaking happening as new approaches are tested and alternatives are dreamed up.
But there is also a delicate balance to strike here. We need to craft a different vision for the economy and society that does not lead to a swing of the pendulum too far in the other direction or unleash other damaging forces - something we are seeing with resurgent nationalism as countries move away from globalization.
As I often come back to, we need to articulate a clear vision of what we want Canada to look like over the coming decades - one that is inclusive, equitable and that utilizes innovation to enable sustainable growth and prosperity. And then we need to actively build the capacity and the policy tools to bring that vision to life.
What’s Behind Canada’s Housing Crisis?
In this piece in The Conversation, Yushu Zhu and Hanan Ali explore the different factors driving the housing crisis, zeroing in on the impact of decisions made in the 1980s and 1990s to shift from a strong housing welfare system to one that cultivated “a culture of homeownership and market supremacy”. They argue that “the housing crisis is an inherent feature of a neoliberal housing system that created a tenure hierarchy, with homeownership at the top and non-market rental at the bottom. Everyone is expected to participate in the private market to climb the housing ladder from renting to owning. Such a system will always fail to produce equitable housing outcomes.”
Solving this crisis for them means “breaking the hierarchy between homeownership and rentership, and between the market and non-market rental sectors. De-commodifying and de-financializing housing is key.” Given the deep financialization of housing, this will be a difficult thing to achieve without real political will.
The old US economic policy is dying and the new cannot be born
Adam Tooze, in this article for the Financial Times, looks at some of the fragmentation of the old models of global integration and how what has replaced it so far is “less a coherent new agenda than pervasive cognitive dissonance”. While there has been a pushback in the US against global trade, and a resurgence of industrial policy, some of the underlying macroeconomic conditions have not changed at all - with the US continuing to run deficits on its government budget and its trade account.
Tooze describes the current state of economic policy as an “anti-paradigm” that “adds materially to the uncertainty haunting the world economy”. Combined with, and compounded by, resurgent nationalism and heightened geopolitical tensions (see below) these are powerful headwinds and not something that Canadian leaders seem to have fully reckoned with yet.
The Age of AI Nationalism and Its Effects
For a long time technology development has been a highly global enterprise. While there has been a concentration in the ownership of the leading companies, fundamental academic research has been a cross-border endeavour, as has follow-on R&D by businesses. To see that, you need only look at the proliferation of big tech R&D centres across different countries.
However, that picture is changing in the face of resurgent nationalism as this research paper for CIGI by Susan Ariel Aaronson explores. Aaronson dives deep into the policy landscape globally as countries pursue AI sovereignty through measures that either seek to advance domestic AI or that, directly or indirectly, seek to hamper or prevent the production or trade of foreign-developed AI.
As Aaronson concludes, these policies may reduce the impact of AI and data, entrench established firms across the AI value chain, alienate allies, and further divide the world in “AI haves and have nots”. For Aaronson, “AI internationalism is in everyone’s interest. It is more likely to achieve the promise of AI - to enhance human capability and improve human welfare”.
I don’t know in what direction Canada will ultimately move on this question. As I wrote last week in my essay on policy coherence, decisions by the federal government are shifting us towards greater nationalism and protectionism, but they are doing it in the absence of an overarching strategy or a real conversation about what the consequences of this will be, and while still partly holding to more internationalist principles.
We don’t need no education: How Canada’s broken university system holds us back
The third article in Dan Breznitz’s Prosperity’s Path series in the Globe and Mail (see my discussion of his first two articles here), this piece dives into the state of play in Canada’s post-secondary sector. Again, Breznitz points to a shift from government support to market-based policies as a source of deep problems that has now “reached a stage where the majority of Canadian universities face constantly growing operational deficits and are on the verge of financial ruin”.
I appreciate that Breznitz emphasizes that these problems are not merely a sectoral one, but instead “part the broader, systemic decline of Canada” and that “systemic problems need systemic attention, operational excellency, humility in admitting and understanding that we do not know all the solutions beforehand, and the willingness to experiment until we find what works – and then scale it up.”
Too often we default to sectoral solutions or strategies that do not account for the wider system they operate in. As with all these articles, whether it is housing policy, economic and trade policy, AI policy, or post-secondary policy, until we begin to think systemically and holistically about what we are trying to get to as a country, we are going to be stuck in a cycle of short-termism that undermines our ultimate prosperity.
I think all four pieces paint a picture of a state of severe flux right now, as old models and approaches break down but a positive vision of what comes next has not yet been realized. The need to have that debate on what that vision is has never been more urgent.