William Watson: Low-hanging fruit to boost Canada's economy is left dying on the vine

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Donald Trump says that if you don’t have borders, you don’t have a country. Habs Nation (or Leafs Nation or Red Sox Nation) might object. Our nations’ respective citizens are found all around the world. But, no we aren’t countries. We may bleed our team colours but we don’t have passports, prime ministers or presidents. The Americans do have passports and a president, however. Their problem is, not that they don’t have a country, but that they have such an attractive country people bereft of opportunity take big risks to breach its borders.

© Provided by Financial Post If you have too many borders — in particular, internal ones — do you really have a country? That’s the perennial problem of interprovincial barriers.

The Canadian quandary is a little different: if you have too many borders — in particular, internal ones — do you really have a country? That’s the perennial problem of interprovincial barriers. During COVID we’ve had Soviet-style barriers to travel within Canada, which I’m guessing most of us thought we’d never see. But we have long since got used to interprovincial barriers to just about everything else. To a much greater extent than the Fathers of Confederation likely expected, we have 13 provincial and territorial fiefdoms, each with its own rules and regulations regarding a virtual infinity of activities.

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Will we ever tear down these internal borders and begin to act like a proper country? Olivier Rancourt and Krystle Wittevrongel of the Montreal Economic Institute write elsewhere on this page that creating a truly open internal Canadian market for goods, services and labour would be a much better way to jumpstart a post-pandemic recovery than some of the other ideas on offer, such as bold new wealth taxes or a continuing debt-apalooza.

Their new report provides an update on how things have evolved since the signing of the Canadian Free Trade Agreement in 2017. That agreement’s novelty — for Canada, though not for the world of trade agreements — was a “negative list” approach under which anything that wasn’t on a list of exceptions to the agreement was covered. Rancourt and Wittevrongel measure progress by tracking what has happened over time to each province’s list of exceptions. The hero of their story is Alberta, which had more than 25 exceptions on its list in 2017 but in 2021 is down to six.

Unfortunately, Alberta and Manitoba, which has gone from 16 to 10 exceptions, are themselves exceptional. B.C. and the three territories have actually increased their number of exceptions while most other provinces have made either no change or minor reductions. Quebec remains the worst offender, with fully 35 specified exceptions to the rules, a number unchanged from 2017.

This is very frustrating both to policy nerds and to Canadians in general, who, public opinion surveys show, strongly believe their country should have a single market. That does seem a very basic Trumpian principle of country-hood. It’s also low-hanging policy fruit. Not quite numberless studies have demonstrated the big economic cost of making small markets even smaller, as interprovincial barriers do. In estimating the cost, the MEI economists rely on a 2017 working paper from the International Monetary Fund (IMF), co-authored by Trevor Tombe of the University of Calgary. For the country as a whole, that study found, GDP could be 3.8 per cent higher — every year forever — if all barriers were removed. For smaller provinces, the improvement could be in the double digits.

How many other policies could bring economic gains that big? Hardly any. And yet, except for Alberta — thank you, Alberta! — provinces seem content with the status quo. In Canada, what should be low-hanging policy fruit dies on the vine. That may be good for making ice wine. It’s not good for economic well-being or national self-esteem.

Why is the status quo so powerful? Because it’s so well organized. Yes, individual Canadians are offended by the idea of barriers within their country. But the beneficiaries of those barriers aren’t. Far from it, they’re proud of them. Quebec’s 10 separate government procurement preferences for Quebec producers are an example of buying local, which is all the rage these days, even if Quebec taxpayers and consumers would be big winners from opening up to competition from suppliers elsewhere in Canada. Unfortunately, though the province’s premier is seldom lobbied by individual Quebecers, he regularly hears from lobbyists for the protected industries.

How can ordinary Canadians make their preferences felt? By shaming provincial politicians, bribing them or suing them. Alas, they don’t shame easily. They’re politicians. Not shaming easily is a job requirement. And suing them has been complicated by peculiar Supreme Court interpretations of a seemingly clear-cut constitutional provision on these matters: “All articles of the growth, produce or manufacture of any of the provinces shall, from and after the Union, be admitted free into each of the provinces.” Hah! The founders thought they were creating a “Union.” Silly them!

Bribing premiers is not something individual Canadians can do, not unless they own a bank or telecom company. But their federal government on their behalf could do it in a grand bargain that gave the premiers greater tax room in exchange for reining in their regulators.

It would be nice if politicians created a Canadian Economic Union simply because it was the right, logical and obvious thing to do. But that’s not the kind of world we live in.

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