Mark Carney’s theory of the case

As published in The Hub

Mark Carney’s trip to New York this week for the UN General Assembly included a stop at the Council on Foreign Relations, where he laid out, for an American audience, the theory of the case for his agenda.

While the venue lent a more international flavour, much of what he said will have sounded familiar to Canadians. Carney has been articulating for months his thesis about a changing world order and the policy response it demands.

All governments rest on some intellectual bedrock. But for Carney, intellectualism seems to be a default setting. And now that Parliament has returned from its summer recess and much of the political attention has shifted to execution, competency, and partisan sparring, it’s worth remembering the extent to which Carney’s agenda is being constructed on critical underlying assumptions about where the world is headed, and Canada’s place in it.

It’s also worth pointing out that those assumptions are not universally shared. Carney’s thesis rests on three pillars: first, that Canada is disintegrating economically from the United States and should embrace, even accelerate, the trend; second, that Donald Trump’s return to the White House has shortened the timeline for adjustment and created a crisis that must be addressed rapidly; and third, that meeting this challenge requires an activist state prepared to borrow and spend to reshape the economy.

I’m not contesting his thesis in this column. All I want to do is highlight that there are alternative theories of the case that lead to different sets of “optimal” policies, and perhaps a different future for the country.

Crisis

There’s also debate about whether Canada is truly in a crisis. Even in this government, the sense of urgency isn’t always there. Ottawa removed retaliatory tariffs quickly, appears not to be in a great rush to resolve U.S. trade disputes (unlike most other countries), hesitated on politically difficult choices such as lifting the emissions cap on oil and gas, only partially removed interprovincial trade barriers, and left unresolved questions like whether provinces should have vetoes over major projects. If this is a crisis, the actions do not always match the rhetoric.

Still, the crisis framing is central to the Carney policy set. The argument is that in times of high uncertainty, the private sector pulls back, and governments must step up. The scale and speed of transformation required, he argues, are too great for markets alone.

This is a more contested part of the Carney thesis. Without the crisis framing, the rationale for aggressive state intervention weakens considerably.

Remedy 

Here, too, alternative frameworks exist, even among those who may agree with the first two pillars.

Don Drummond recently argued in a report for the C.D. Howe Institute that Canada’s vulnerability to the Trump shock reflects a longstanding productivity problem that will not be solved by state activism. The remedy, in this view, is the same as it has been for decades: attract private investment, improve competitiveness, and avoid piling on debt. Productivity and competitiveness are also the keys to trade diversification. Canada cannot diversify if it is uncompetitive. The case for industrial policy does not automatically follow, even if you accept the crisis framing.

Other critics argue the problem is not too little state action, but too much. Regulatory complexity, slow permitting, uncompetitive taxes on investment, and political risk are the real barriers holding back growth. Ottawa’s attempt to pick winners, they warn, risks misallocating capital, crowding out private initiative, and adding bureaucracy. These structural changes are more difficult to pull off, face stiff political opposition in a minority parliament setting, and, even then, there’s no guarantee they will be sufficient to attract private capital.

It would require a lot of political courage. But, then again, are we in a crisis or not?