Canadian business embraces a new economic pragmatism

As published on Substack

Uncertainty is the defining feature of our time.

The world is lurching from one crisis to another, forcing political leaders to think much more deeply about stability and about policies that reduce vulnerabilities to global shocks.

Increasingly, the response has included more active engagement by states around the world in managing their economies, a trend that has been wholeheartedly embraced by Prime Minister Mark Carney’s government.

More active doesn’t necessarily mean more statist. For example, it may mean government actively tries to get out of its own way. Think Carney’s Bill C-5 or the introduction of the Major Projects Office. It could mean active efforts to spur private investment, by helping derisk projects. But sometimes it does mean more statism, for example, state ownership of pipelines in Canada.

Either way, governments are playing a larger role in shaping economic outcomes, and this is not about ideology.

At its heart, the new agenda reflects countries scrambling for more agency over their own economic and political destinies, at a time when many global forces shaping our lives feel increasingly out of our control. In such a world, where control and stability are at a premium, governments are looking for all levers at their disposal to get things done.

For Canadian business, the full weight of these structural changes will be enormous, including changing the way the private sector interacts with government.

Policymakers around the world are trying to persuade and incentivize their domestic firms and national champions to do more in pursuit of priorities considered to be in the national interest. Meanwhile, protectionism threatens to change the DNA of global competition. Canadian firms compete not just against other companies, but against other states. In the global marketplace, productivity and innovation may no longer be enough to be successful.

So, how should business think about all of this? How should our traditional approach to policy change, if at all?

To help answer some of these questions, the Business Council of Canada (BCC) held extensive consultations with members over the summer, asking the CEOs of Canada’s largest companies for their take.

One result was clear: business leaders are largely supportive of the overall shift towards a focus on sovereignty and resilience, as well as an increasing appetite for government involvement, as long as it remains disciplined and focused on driving more investment into our economy.

It would be a stretch to characterize the mood in C-suites as nationalist or an openness to retreat away from market principles. BCC members believe that, as a first-best, markets should be as open as possible and government intervention limited. But we are not in a first-best world.

A more accurate way to describe the mindset among business leaders is pragmatic. On industrial policy, for example, the preference is that it needs to be targeted. At the same time, about half of BCC members are more supportive of industrial policy today than they were in 2019.

This pragmatism extends towards a growing willingness to collaborate with a federal government that is itself seeking a closer relationship with business.

Among the more than 100 BCC members surveyed, only one respondent said business leaders should avoid close involvement in shaping the new sovereignty agenda.

That is a striking level of openness to collaboration.

Where this all leads to remains to be determined.

Business and government are clearly aligned on objectives. They also share the same concerns around the country’s ability to deliver and execute on priorities.

Is this a world in which government and business will be expected to work more closely to achieve national economic objectives? Very likely.

Does that mean we should be moving away from market principles toward state-led capitalism? Not at all. Indeed, there are plenty of areas where greater cooperation could make markets work better, by removing obstacles to investment or addressing problems that neither government nor business can solve on their own.

For example, our members are telling us they want to be more proactive in addressing the coming labour squeeze in the trades, and don’t want to leave it to government alone.

Beyond that, many questions remain: the limits to government intervention, the degree to which governments should influence private investment decisions, how we preserve competition and market discipline in a more activist policy environment, etc.

These are complicated conversations we are just starting to have.