How Canada can pursue an inclusive industrial policy

For decades, we have been told that “governments can’t pick winners” and that industrial policy — characterized by high tariffs and grinning politicians delivering jumbo cheques to failing factories — is for chumps.

The caricature was a dishonest distraction from the fact that Canadian governments have been engaging in industrial policy the whole time. Although we didn’t like to talk about it, governments never stopped investing public dollars to shape markets and build sectors in explicit and implicit ways.

“There is now a surprising emerging consensus across the political spectrum in Canada on two ideas: governments need to engage in activist industrial policy; and economic growth on its own isn’t a sign of success if growth exacerbates inequalities, damages the environment, destroys communities and fails to create good middle-class jobs.

It is not a question then of whether Canada embraces industrial policy, but whether we do it well. With governments now making massive public investments in COVID economic recovery, it will be a generational failure if we neglect to account for what kind of growth we want to see and what kinds of communities we want to build.

Strong macroeconomic fundamentals are important. But these on their own were never enough to create, scale and retain globally leading companies. The most dynamic economies in the world in Europe and Asia have been successful in part because of an active state and strategic and creative ways of supporting firms, sectors and regions.

Today, around the world, governments are investing more in their industrial policies, focusing on building competitive advantages in sectors like AI and energy transition. Here in Canada, the current federal government — even before the massive investments during the pandemic — had embraced an agenda focused on supporting key sectors and helping companies scale, attract talent and diversify their export markets.

But a modern industrial policy should not ignore other critical policy goals. It needs to be inclusive – supporting innovation and private-sector growth in a way that delivers widely shared economic, social and environmental value.

There is growing evidence that more inclusive growth isn’t just more equitable — it’s also stronger growth. Many of the most pathological qualities of our current economic crisis – inequality, precarity, carbon intensity and a lack of social protection for vulnerable workers – arise from our failure to understand that economic growth and inclusion are mutually reinforcing goals, not competing ones.

If our industrial policies help build great companies that contribute to growing inequality and wealth concentration, they will have failed.

A well-designed industrial policy overcomes collective action problems, addresses issues of scale and builds ecosystems in which positive spillovers and economic activity are more likely to occur. A well-designed inclusive industrial policy is a conscious effort to build that economic capacity in ways that generate broadly shared wealth for individuals and communities on a sustainable basis.

In a joint effort with the Brookfield Institute and Innovation and Entrepreneurship and the Ryerson Leadership Lab, we recently released a report outlining how Canadian governments can build an inclusive industrial policy that delivers more economic inclusion and community wealth, and helps Canada achieve its 2050 climate goals.

The report lays out a toolkit of tested inclusive industrial policy approaches that could be scaled or introduced here in Canada. Among the key levers that governments can use are a more strategic use of procurement and standard-setting; more democratic and inclusive access to capital; and government investment in Canadian firms, including taking equity. If these tools are used, Canada would be more likely to see economic growth and innovation, while at the same time making progress on goals like reconciliation, racial justice, gender equality, community-wealth and net zero emissions

Some will argue that Canada has enough trouble simply creating and retaining innovative, high-growth companies and we should focus on that first. It is not an unreasonable concern. But this generational economic crisis demands a generational economic response to the very real risks of inequality, social instability and the climate crisis.  We can deliver growth and inclusion at the same time.

Matthew Mendelsohn is Visiting Professor at Ryerson University and a co-creator, with the Ryerson Leadership Lab and the Brookfield Institute for Innovation + Entrepreneurship, of First Policy Response.

Noah Zon is the co-founder of Springboard Policy, a public policy research and advisory firm based in Toronto. He has spent his career in public policy in the non-profit sector, think tanks and public service.

Keywords: ECONOMICS, FPR ORIGINAL, INCLUSIVE POLICY MAKING, INDUSTRIAL POLICY

Citation: Mendelsohn, M., & Zon, N. (2021, January 28). How Canada can pursue an inclusive industrial policy. First Policy Response. 

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