Mixing Politics and Markets

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HERE'S MY TAKE

“Build, baby, build” has become shorthand for the Carney government's economic ambitions. The June 2 meeting in Regina with the prime minister and the premiers had been advertised as a pivotal step in implementing the federal agenda.

The go-to quote coming out of that meeting came from Ontario Premier Doug Ford, who described Prime Minister Carney at the meeting as Santa Claus. “He’s coming and his sled was full of all sorts of stuff” Ford said. “Now he’s taking off back to the North Pole. He’s going to sort it out and then he’s going to call us.” Ford’s compliments to the prime minister were representative of all of the premiers. Even Alberta's Danielle Smith, a fierce critic of the federal government said she was “encouraged by the immediate change of tone that we’ve seen in recent months.” She wasn’t ready to pop champagne corks, but she did indicate that the meeting “should give Albertans some reason for optimism.”

The meeting and the reaction to it highlight the complicated relationship between politics and the capital markets that make infrastructure funding decisions. It’s been talked about for decades, but has come to the forefront of the agenda in recent months as a necessary response to American tariff policy. Canada needs significant productivity increases and capital infrastructure investment in order to become globally competitive. Goldman Sachs has predicted that AI will cause data centre power demands to grow by 160 percent by 2030. The most recent projections from Resources for the Future suggest that as developed economies rely less on oil, demand for the commodity will rise in emerging markets. There is growing demand for other energies, such as liquefied natural gas, geothermal, hydrogen, and solar. The key question remains: what supply will meet that demand?

So when it comes to the economic fundamentals, there is a clear market demand, and Canada has significant supply advantages. It is widely acknowledged that politics stops our economy from thriving proportionate to our energy supply capacity. Any proponent of a project gets stuck in a quagmire of regulation and approval that generally sees more than a decade pass between a proposal and the necessary approvals to begin construction. Given the scale and cost of these construction projects, which in practice takes the better part of two decades before production even begins, the calculations investors make about receiving a return on their capital become less attractive.

This is one of the core challenges the Canadian economy faces. Insofar as the prime minister can deliver on his promises to fast-track national interest infrastructure projects by creating an approval process that takes no more than two years, this week’s meeting was a very positive step in the right direction.

But Premier Ford’s Santa Claus metaphor betrays an underlying problem. If the premier was referring to the government carrying out its responsibility to efficiently provide project approvals so that capital can get working more quickly, with the jobs and productivity Canadians would then enjoy, I’m all in favour. But that shouldn’t be a present from Santa Claus. Good government (along with peace and order) should be business as usual, not just for national interest projects, but for all projects. Investment capital will flow to Canada when the government does an appropriate regulatory job and then gets out of the way.

I suspect what Premier Ford had in mind, however, was the federal government directly subsidizing projects to attract capital to Canada. And in fairness, given that other countries, including the United States, are doing similar things, some level of subsidy is a pragmatic requirement in a competitive environment. Research suggests that Canada is subsidizing businesses at rates comparable to those of the United States in dollar terms. However, “a sharp slide in the ease of doing business, which, in turn is caused by perceived regulatory and bureaucratic delays” as well as “inconsistency in federal infrastructure funding programs and policies (tied to federal election cycles)” are key problems today, according to three University of Calgary economists.

Premier Ford (and the other premiers) hope Santa Claus Carney will deliver subsidy dollars for their projects. And I don’t blame them. When the federal government is doling out money, it only makes sense to line up for your share. Ports, mines, pipelines, and nuclear plants highlight the list of five projects the prime minister invited each premier to submit. This sort of infrastructure certainly requires public incentive, whether that is direct subsidy or favourable tax treatment, if the required capital will come to Canadian provinces instead of going to other jurisdictions.

But Santa Claus’s Christmas presents don’t provide long-term sustenance. Canada needs more than just some Christmas presents to overcome the economic hunger prompted by the tariff threat. We need a reliable structure that provides adequate economic prosperity for us to live all year long. That will only come when we consider the government's impact on capital investment not as a gift that comes from Santa Claus, but as a normal expectation of efficient government. The ultimate success of Monday’s first ministers' meeting will be how they all translate noble words into improved government functioning to change both our reputation and the reality of Canada as a good place to do business.

WHAT I’M READING

Confidence Game

The Mark Carney-led government has the confidence of the House of Commons after it managed to get opposition MPs to adopt the throne speech without a vote. The National Post has the details on the rare procedure that allowed this to happen and why the opposition parties, including the Conservatives, would have consented to it. Failure to adopt the speech would’ve been a vote of non-confidence in the minority government, which would lead either to an election or the Governor General asking the Conservatives to form a government. Fred Delorey, a former Harper government staffer, took to Substack to slam the NDP for dramatically promising to vote against the throne speech, but then offering only “a puff of smoke where there should have been a flare.” 

Democratic Slippage

A former justice of the Supreme Court of Britain warns that US President Trump “exhibits the three classic symptoms of totalitarianism: a charismatic leader surrounded by a personal cult, the identification of the state with himself, and a refusal to accept the legitimacy of opposition or dissent.” That’s how Jonathan Sumption put it in The New York Times this week. Agree or disagree on his assessment, what’s interesting is Sumption’s analysis that economic and social frustration, as well as dislocation, are key elements that attract many voters to Mr. Trump.

Alberta’s Economic Frustration

Jason Kenney is increasingly speaking out about Alberta and conservatism in general. In a major interview with The Hub, the former Alberta premier and federal minister suggests Albertans’ flirtation with separatism is primarily an expression of people’s genuine and justified frustrations with the way the federalism works and the province’s ability (or lack thereof) to reach its economic potential. Notably, he’s also much more positive than many other pundits on the way the Conservatives performed in the recent federal election. 

Wars and Rumours of Wars

“The United States must recognize what once was unfathomable: a war between a NATO member and the Jewish state,” warns Michael Rubin, a senior fellow with the American Enterprise Institute. Rubin suggests the Pentagon needs to run war games simulations now to gain some idea of what might happen if Turkey goes to war with Israel—something he says is possible in the next ten years. Turkey’s government, Rubin notes, openly supports Hamas. He adds that through its dominance of Syria following the collapse of the regime in Damascus, Turkey “effectively shares a border with Israel.”

MEANINGFUL METRICS

Shaky Public Confidence

The Liberal government has the confidence of the House of Commons, but maintaining the confidence of Canadians is not anything to take for granted, according to the Angus Reid Institute (ARI). Sure, there’s some fairly high confidence the government will do well in strengthening Canada’s diplomatic relationships with “like-minded” countries and in removing inter-provincial trade barriers. But it’s downhill from there on all the other issues ARI asked about. On reducing government spending and making housing affordable, at least seven in ten Canadians are not confident about progress.

TAKE IT TO-GO

Pack Your Trunks

Ok, it’s time to address the elephant in the room. Literally. I was quite amused to read that a wild elephant traipsed into a grocery store in Thailand this week to help himself to some snacks. Associated Press reports “the huge male elephant, known as Plai Biang Lek” calmly entered the store and “ate about nine bags of sweet rice crackers, a sandwich, and some dried bananas.”

My meagre knowledge of pachyderm behaviour would frankly be irrelephant here. But from what I saw of our friend in Thailand, anyone who had to feed Plai Biang Lek would find he’d be a pretty harsh tusk master. I can only imagine he would go for a swim after his free meal, so I hope he packed his trunks.

Looking forward to connecting with you in next Saturday’s Insights.