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Why experts argue governments must take risks — besides pipelines — to restart economic growth – CBC.ca

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It is very likely that the environmentally inclined economist Mariana Mazzucato, whose new book, Mission Economy, hits the shelves today in Britain, would have a certain sympathy for Alberta Premier Jason Kenney’s failed multi-billion-dollar bet on the Keystone XL pipeline. At least in principle.

Kenney has not been forthcoming on the details of the estimated $7.5 billion in Alberta taxpayer money in direct investment and loan guarantees that he contributed to the project. But as Mazzucato’s research has shown, taking risks that no one else will is a crucial government investment strategy for building a successful economy. Governments, she argues, must pick winners.

But this week, there are clear indicators the bets are changing.

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U.S. president Joe Biden began laying out a plan to fight the climate crisis, after last week revoking the Keystone XL permit and rejoining the Paris climate accord. The world’s biggest asset manager, BlackRock, told businesses to go carbon neutral or be left behind.

Also this week, a new report from Canada’s private-sector funded Transition Accelerator insists governments must continue to pick winners to rebuild Canada’s economy, and has some suggestions of what that should look like.

Betting, but not on pipelines

To be sure, there is a school of thought that cautions against picking winners, saying market forces are more efficient, with less taxpayer money on the line. 

But James Meadowcroft, the Transition Accellerator report’s lead author, says governments can take risks that the private sector won’t.

“It isn’t true that governments can’t pick winners,” said Meadowcroft, who is also a professor in the school of public policy at Carleton University in Ottawa.  

“They do pick them all the time all around the world.”

But rather than focusing on pipelines and other fossil fuel infrastructure that already have broad business support, Meadowcroft said it is essential that Canadian governments instead focus their risk investments on climate change technologies and industries that are struggling against powerful established players.

Meadowcroft points to Mazzucato’s previous book, The Entrepreneurial State, where she shows that while governments have put money into schemes that didn’t work out, the current crop of blockbuster businesses from Apple to Tesla, and technologies from the internet to GPS, were specifically picked and then supported by government grants.

The U.S. picked a winner when they bet on Elon Musk’s Tesla, and it’s okay they also got some duds, argues economist Mariana Mazzucato. (Brendan McDermid/Reuters)

“In order to engage with innovation you have to welcome failure,” Mazzucato once told CBC News, referring to Solyndra, the U.S. government-backed solar company that critics often point to as an example of failed public investment. Her point: without Solyndra you wouldn’t have Apple or Tesla.

“You wouldn’t have the oilsands if the Alberta and federal governments hadn’t for more than 20 years pumped huge amounts of money in to develop cost competitive technologies,” said Meadowcroft.

But now, with Biden’s new plan laid out Wednesday that includes a commitment to phasing out dependence on oil and gas and eliminating fossil fuel subsidies, Canadian governments may be compelled to employ similar huge amounts of money in a different way.

While Kenney’s bet on Keystone XL did not pan out, Meadowcroft insists that in boosting the economy following the COVID-19 recession, provincial and federal governments have an opportunity to create jobs while supporting corporate champions that are leading the way to a new net-zero carbon economy. 

And jobs will surely be a focus, with 2020 going down as the worst year for Canadian jobs since 1982, with losses in the oil and gas industry especially grim.

Canadian climate winners

Among the targets Meadowcroft  sees that are worth betting on — and where Canada has companies with world-beating potential — include the electric power sector, decarbonizing buildings, cement manufacturing, plus the oil and gas sector itself where the Transition Accelerator has been a major player in promoting Alberta’s hydrogen economy.

But perhaps the most important area for government investment is in electric vehicles, where Canada has several important players with room to grow.

“It turns out that Canada actually is one of the best-positioned economies in the world in terms of the electric vehicle supply chain,” said Meadowcroft. From mining for minerals such as copper and nickel needed in batteries, through a workforce skilled in software and electronics, to battery production to assembly plants, this is a sector where strategic government investment could have an immediate effect on the economy, he said.

At the same time it can boost the transition to electric cars and trucks, which is one of the biggest remaining carbon producers after the energy sector itself.

In 2009, Vancouver Mayor Gregor Robertson prepared to take a drive in one of the city’s new electric cars. Massive government investments in Canadian electric cars could boost the economy while speeding up the transition to a low-carbon economy. (Andy Clark/Reuters)

Despite its shrinking relative clout in the economy as a whole, the fossil fuel sector remains a powerful lobby deeply embedded in Canadian business. Amr Addas, an expert in sustainable investment and a consultant to Scotiabank, says that is part of the reason why so far, governments have been tempted to back them with taxpayer cash. Like many other analysts he is convinced that the high-cost, high-carbon oilsands cannot keep producing without “massive subsidies.”

Besides the cost, that could become more difficult as Biden bans fossil fuel subsidies in the U.S. At the same time Addas points out that this week’s comments by Blackrock CEO Larry Fink are just one example of big money looking to find investments that avoid the long term risk entailed in the fossil fuel sector.

And Addas says there is no reason that governments cannot use its money instead to offer financing to support traditional energy giants like Suncor to transition to green technology.

“The reason that those companies are a potential part of the solution, not only a problem, is that they have the expertise for these mega projects,” said Addas. “They have that project management skill.”

Follow Don Pittis on Twitter @don_pittis

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Economy

Britain's economy went into recession last year, official figures confirm – The Globe and Mail

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Open this photo in gallery:

People walk over London Bridge, in London, on Oct. 25, 2023.SUSANNAH IRELAND/Reuters

Britain’s economy entered a shallow recession last year, official figures confirmed on Thursday, leaving Prime Minister Rishi Sunak with a challenge to reassure voters that the economy is safe with him before an election expected later this year.

Gross domestic product shrank by 0.1 per cent in the third quarter and by 0.3 per cent in the fourth, unchanged from preliminary estimates, the Office for National Statistics (ONS) said on Thursday.

The figures will be disappointing for Mr. Sunak, who has been accused by the opposition Labour Party – far ahead in opinion polls – of overseeing “Rishi’s recession.”

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“The weak starting point for GDP this year means calendar-year growth in 2024 is likely to be limited to less than 1 per cent,” said Martin Beck, chief economic adviser at EY ITEM Club.

“However, an acceleration in momentum this year remains on the cards.”

Britain’s economy has shown signs of starting 2024 on a stronger footing, with monthly GDP growth of 0.2 per cent in January, and unofficial surveys suggesting growth continued in February and March.

Tax cuts announced by finance minister Jeremy Hunt and expectations of interest-rate cuts are likely to help the economy in 2024.

However, Britain remains one of the slowest countries to recover from the effects of the COVID-19 pandemic. At the end of last year, its economy was just 1 per cent bigger than in late 2019, with only Germany faring worse among Group of Seven nations.

The economy grew just 0.1 per cent in all of 2023, its weakest performance since 2009, excluding the peak-pandemic year of 2020.

GDP per person, which has not grown since early 2022, fell by 0.6 per cent in the fourth quarter and 0.7 per cent across 2023.

Sterling was little changed against the dollar and the euro after the data release.

The Bank of England (BOE) has said inflation is moving toward the point where it can start cutting rates. It expects the economy to grow by just 0.25 per cent this year, although official budget forecasters expect a 0.8-per-cent expansion.

BOE policy maker Jonathan Haskel said in an interview reported in Thursday’s Financial Times that rate cuts were “a long way off,” despite dropping his advocacy of a rise at last week’s meeting.

Thursday’s figures from the ONS also showed 0.7 per cent growth in households’ real disposable income, flat in the previous quarter.

Thomas Pugh, an economist at consulting firm RSM, said the increase could prompt consumers to increase their spending and support the economy.

“Consumer confidence has been improving gradually over the last year … as the impact of rising real wages filters through into people’s pockets, even though consumers remain cautious overall,” Mr. Pugh said.

Britain’s current account deficit totalled £21.18-billion ($36.21-billion) in the fourth quarter, slightly narrower than a forecast of £21.4-billion ($36.6-billion) shortfall in a Reuters poll of economists, and equivalent to 3.1 per cent of GDP, up from 2.7 per cent in the third quarter.

The underlying current account deficit, which strips out volatile trade in precious metals, expanded to 3.9 per cent of GDP.

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How will a shrinking population affect the global economy? – Al Jazeera English

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Falling fertility rates could bring about a transformational demographic shift over the next 25 years.

It has been described as a demographic catastrophe.

The Lancet medical journal warns that a majority of countries do not have a high enough fertility rate to sustain their population size by the end of the century.

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The rate of the decline is uneven, with some developing nations seeing a baby boom.

The shift could have far-reaching social and economic impacts.

Enormous population growth since the industrial revolution has put enormous pressure on the planet’s limited resources.

So, how does the drop in births affect the economy?

And regulators in the United States and the European Union crack down on tech monopolies.

The gender gap in tech narrows.

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John Ivison: Canada's economy desperately needs shock treatment after this Liberal government – National Post

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Lack of business investment is the main culprit. Canadians are digging holes with shovels while our competitors are buying excavators

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It speaks to the seriousness of the situation that the Bank of Canada is not so much taking the gloves off as slipping lead into them.

Senior deputy governor, Carolyn Rogers, came as close to wading into the political arena as any senior deputy governor of the central bank probably should in her speech in Halifax this week.

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But she was right to sound the alarm about a subject — Canada’s waning productivity — on which the federal government’s performance has been lacklustre at best.

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Productivity has fallen in six consecutive quarters and is now on a par with where it was seven years ago.

Lack of business investment is the main culprit.

In essence, Canadians are digging holes with shovels while many of our competitors are buying excavators.

“You’ve seen those signs that say, ‘in emergency, break glass.’ Well, it’s time to break the glass,” Rogers said.

She was explicit that government policy is partly to blame, pointing out that businesses need more certainty to invest with confidence. Government incentives and regulatory approaches that change year to year do not inspire confidence, she said.

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The government’s most recent contribution to the competitiveness file — Bill C-56, which made a number of competition-related changes — is a case in point. It was aimed at cracking down on “abusive practices” in the grocery industry that no one, including the bank in its own study, has been able to substantiate. Rather than encouraging investment, it added a political actor — the minister of industry — to the market review process. The Business Council of Canada called the move “capricious,” which was Rogers’s point.

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While blatant price-fixing is rare, the lack of investment is a product of the paucity of competition in many sectors, where Canadian companies protected from foreign competition are sitting on fat profit margins and don’t feel compelled to invest to make their operations more efficient. “Competition can make the whole economy more productive,” said Rogers.

The Conservatives now look set to make this an election issue. Ontario MP Ryan Williams has just released a slick 13-minute video that makes clear his party intends to act in this area.

Using the Monopoly board game as a prop, Williams, the party’s critic for pan-Canadian trade and competition, claims that in every sector, monopolies and oligopolies reign supreme, resulting in lower investment, lower productivity, higher prices, worse service, lower wages and more wealth inequality.

(As an aside, it was a marked improvement on last year’s “Justinflation” rap video.)

Williams said that Canadians pay among the highest cell phone prices in the world and that Rogers, Telus and Bell are the priciest carriers, bar none. The claim has some foundation: in a recent Cable.co.uk global league table that compared the average price of one gigabyte, Canada was ranked 216th of 237 countries at US$5.37 (noticeably, the U.S. was ranked even more expensive at US$6).

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Williams noted that two airlines control 80 per cent of the market, even though Air Canada was ranked dead last of all North American airlines for timeliness.

He pointed out that six banks control 87 per cent of Canada’s mortgage market, while five grocery stores — Sobeys, Metro, Loblaw, Walmart and Costco — command a similar dominance of the grocery market.

“Competition is dying in Canada,” Williams said. “The federal government has made things worse by over-regulating airlines, banks and telecoms to actually protect monopolies and keep new players out.”

So far, so good.

The Conservatives will “bring back home a capitalist economy” — a market that does not protect monopolies and creates more competition, in the form of Canadian companies that will provide new supply and better prices.

That sounds great. But at the same time, the Conservative formula for fixing things appears to involve more government intervention, not less.

Williams pointed out the Conservatives opposed RBC buying HSBC’s Canadian operations, WestJet buying Sunwing and Rogers buying Shaw. The party would oppose monopolies from buying up the competition, he said.

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The real solution is to let the market do its work to bring prices down. But that is a more complicated process than Williams lets on.

Back in 2007, when Research in Motion was Canada’s most valuable company, the Harper government appointed a panel of experts, led by former Nortel chair Lynton “Red” Wilson, to address concerns that the corporate sector was being “hollowed out” by foreign takeovers, following the sale of giants Alcan, Dofasco and Inco.

The “Compete to Win” report that came out in June 2008 found that the number of foreign-owned firms had remained relatively unchanged, but recommended 65 changes to make Canada more competitive.

The Harper government acted on the least-contentious suggestions: lowering corporate taxes, harmonizing sales taxes with a number of provinces and making immigration more responsive to labour markets.

But it did not end up liberalizing the banking, broadcasting, aviation or telecom markets, as the report suggested (ironically, it was a Liberal transport minister, Marc Garneau, who raised foreign ownership levels of air carriers to 49 per cent from 25 per cent in 2018).

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The point is, Canada has a competition problem but solving it requires taking on vested interests. Conservative Leader Pierre Poilievre has indicated he is willing to do that, calling corporate lobbyists “utterly useless” and saying he will focus on Canadian workers, not corporate interests.

“My daily obsession will be about what is good for the working-class people in this country,” he said in Vancouver earlier this month.

Even opening up sectors to foreign competition is no guarantee that investors will come. There are no foreign ownership restrictions in the grocery market (in addition to the five supermarkets listed above, there is Amazon-owned Whole Foods). When the Competition Bureau concluded last year that there was a “modest but meaningful” increase in food prices, it recommended Ottawa encourage a foreign-owned player to enter the Canadian market. It was a recommendation adopted by Industry Minister Francois-Philippe Champagne, to no avail thus far.

But it is clear from the Bank’s warning that the Canadian economy requires some shock treatment.

Robert Scrivener, the chairman of Bell and Northern Telecom in the 1970s, called Canada a nation of overprotected underachievers. That is even more true now than it was back then.

It’s time to break the glass.

jivison@criffel.ca

Get even more deep-dive National Post political coverage and analysis in your inbox with the Political Hack newsletter, where Ottawa bureau chief Stuart Thomson and political analyst Tasha Kheiriddin get at what’s really going on behind the scenes on Parliament Hill every Wednesday and Friday, exclusively for subscribers. Sign up here.

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