“…what Canadian workers need is a government with a real, robust industrial policy…” – Chrystia Freeland fall statement remarks
“The global green transition calls for an industrial transformation comparable in scale only to the Industrial Revolution itself,” said Finance Minister Chrystia Freeland while introducing the Liberals’ fall economic statement, describing it as “the most significant opportunity for Canadian workers and Canadian businesses in a generation.” What new economic policy did the federal government launch to shepard the national economy through this “industrial transformation”?
Not enough of it, is my first reaction. That said, Freeland has indicated that more is coming in the spring budget. If we view today’s announcement as the first instalment, then the Liberals have made a good start.
Perhaps the thing Freeland got most right is the language.
A point we make loudly and often here at Energi Media is that Canadians have not caught on to how quickly the global energy system is changing and the effect that is having on the international economy. With the introduction of the Inflation Reduction Act – which Freeland promises to match – in August, the Americans acknowledged that they have been lapped by China in the race to build a 21st century economy. China enjoys healthy leads in critical mineral refining, all facets of battery-making, electric transportation manufacturing, as well as solar panel and wind turbine production.
Perhaps most critically, China has built the supply chains for those industries. And plenty more industries that rely on solid-state electronics, which have become the backbone of the new clean energy technologies.
China isn’t our only Asian competitor. South Korea and Japan are manufacturing powerhouses that are ahead of Canada in the shift to cleantech. And let’s not forget about hungry and ambitious countries like Indonesia, Malaysia, and Vietnam.
The finance minister repeated what has become known as the Freeland Doctrine: “The global economy is at a turning point. We are entering an era of friendshoring—a time when our democratic partners and their most important companies are looking to shift their dependence from dictatorships to democracies.”
This is the frank, and difficult, conversation Canadians must have. And if Freeland’s statement to the House of Commons kicks off a national discussion about the threats and opportunities facing Canada because of global economic restructuring, then establishing that narrative in Canadian political and public discourse will easily be her greatest accomplishment of the 2022 fall statement.
What about the rest of her announcement?
Jobs, Growth, and an Economy That Works for Everyone
“Canadian workers need a robust industrial policy that will deliver good-paying jobs by seizing the opportunities of the net-zero economy, by attracting new private investment, and by providing key resources to the world.” – Department of Finance backgrounder
Bottom line, trillions of capital must be invested in new industries and infrastructure by 2050; Finance estimates that Canada needs $125 billion to $150 billion every year, but we’re only investing one-sixth of that amount. Re-engineering an economy on the fly while also decarbonizing it to meet climate targets is no easy feat. Bold, innovative policy is needed.
Freeland did not deliver. She noted that the $369 billion IRA “offers enormous financial supports to firms that locate their production in the United States,” but didn’t offer Canadian firms nearly the same level of support.
The fall statement provided more details on the operation of the $15 billion Canada Growth Fund, first announced in the 2022 budget but badly underfunded. Similarly, another spring announcement, the Canadian Innovation and Investment Agency, a supposedly “pro-active” approach to attracting investment, was promised $1 billion per year in the fall statement.
As experts have noted, this approach has been long on rhetoric but short on results. Canada still badly lags other G7 countries when it comes to business research and development, as well as the adoption of new technologies. This is the cause of the much lamented poor productivity of the Canadian economy, the country’s “economic Achilles heel,” according to Freeland.
Canada has to figure this out, and quickly. The place to start is a critical review of the passive economic policy of the past 40 years that limits the state’s role to “de-risking” private investments, especially new technologies like carbon capture and storage or small modular reactors.
Governments call this “investment,” but in truth it is nothing more than a subsidy to shareholders. If de-risking is required, and it often is for nascent industries, then the public should receive equity for its “investment.” Earnings from public investments can then be returned to the fund to support new investments. Perhaps if Canada decided it actually is in the investment in the new industries and technologies business instead of the subsidizing private capital business, the Innovation and Investment Agency could actually be pro-active.
Canada once used public ownership to build new industries like power grids and natural gas distribution. It’s time to dust off an old idea, update it for modern use, and put public capital to work building that new clean energy economy Freeland is talking about.
EV Manufacturing, Critical Minerals Supply Chains
This is one of the better ideas in the fall statement. The Liberals are providing $8 billion for a Net Zero Accelerator designed to support “key anchor investments that will build a world-class electric vehicle and battery ecosystem in Canada.” A further $3.8 billion is allocated for a Critical Minerals Strategy.
These initiatives are directly aimed at opportunities created by the Inflation Reduction Act. As Freeland noted in her speech, “the United States has moved from a Buy American to a Buy North American policy on critical minerals and electric vehicles.”
The Devil will be in the details. Will all the funding flow to Ontario and Quebec or will other provinces, especially in the West, have an opportunity to play in this sand box? Which parts of the EV supply chain will be targeted? Almost 80% of global battery metals processing is located in China and this would seem to be a logical sector to build out as EV manufacturing expands in North America.
The clean energy economy is driven by innovation, which at its core is about human capital. Workers. Especially highly trained technical workers. If there is one complaint above all others that I hear during interviews, it is that there are not enough technical workers.
The government proposes to spend a paltry $250 million over five years on three initiatives: the Sustainable Jobs Training Centre (developing support like curriculum), “green skills training” for workers in the trades, and the Sustainable Jobs Secretariat (“one-stop shop” providing information on federal programs, funding, and services).
Not nearly enough.
What will the Spring Bring?
There are plenty of other goodies in the fall statement, like investment tax credits for clean technologies (hydrogen, low-carbon heat, clean power generation, electricity storage), a commitment to improving regulatory processes for major projects (a big complaint of Western provinces), support for youth jobs, and increased immigration targeting persistent labour shortages in key sectors.
Freeland’s efforts are not a failure, far from it. But they don’t deserve an A grade (perhaps a B-) and given the critical economic challenges facing Canada this decade and beyond, nothing short of excellence will do.
One important change, an absolutely necessary revision that the finance minister can make by spring, is to flesh out what she means by “real muscular industrial policy.”
The place to start is to include public ownership in her definition. Perhaps then Canada can drive investment instead of prostrating itself to attract investment.