The Balance of Economic Growth, Cost Control and Living Standards in Canada

With the investment summit wrapped up, it is important to look at what the options are for economic growth, keeping inflation low and raising living standards. These don't all have to be mutually exclusive. At the moment Mark Carney and the government are trying to navigate an existential crisis with our neighbour to the south. Donald Trump is not a rational actor and his threats and tariffs have hurt Canada and the United States mightily. Not unexpectedly, Justin Trudeau bowed out early when pressure from all sides suggested Canada needed to pivot. So great was the pivot that Pierre Poilievre was not able to respond quickly. Since campaign was set for replacing Justin Trudeau, he was trapped in a death spiral of saying how wrong Canada was even as it mirrored what Trump said. Mark Carney won a minority largely on standing up to the challenge. Eventually, this became a majority through floor crossing and byelections.

So as fall season progresses, Carney has walked away from an agreement that really pushed the boundaries of sovereignty. Even conservative opposition agreed that it was right move as well as the retaliation for previous tariffs. Poilievre, however, can't help saying that Carney is not doing anything and that if he were in the lead would have got an agreement, had pipelines under construction immediately and would have cut all tax and environmental laws. It seems we'll never know.

As far as not doing anything, we have evidence of both tax relief, military spending on salaries and trade with nations aside from the U.S. on the rise. For regular citizens, the concern is about prices and jobs. Inflation is down from the very high prices but war around the world is putting pressure on that and it remains stubbornly high. Even if oil production was up in double digits here, it is the world price that we pay. And that price is bad. Six months in and Trump's war in Iran is far from settled. Moreover, the very long war between Ukraine and Russia is hitting oil infrastructure and it is possible Russia will stop exporting due to shortages. The U.S. itself will have some capacity problems as it gets colder.

As long as people live in Canada, the first order of business is food, utilities and shelter. Whatever misgivings Canadians had about ten years of Liberal government under Trudeau, they've set aside because the threat Trump has represented and continues to hold over the country. Couple this with a dislike for Pierre Poilievre and his approach to Trump and Carney has the most popular support we have seen in decades. This has given him a lot of latitude in how he handles Trump and the economy.

It seems to gall Poilievre that Carney is trying to forge new relationships and trading partnerships around the world. His view is we need to get an agreement in the U.S. and claims Carney is the obstacle. The problem with this narrative is that other Conservatives such as Stephen Harper disagree. Other Conservatives are also leaning to support Carney in his initiatives. Harper said he wished he had thought of the investment initiative himself. Two of the most important announcements made there were that a tax cut for investors to use immediately on projects was being introduced. The next was that four major airports were going to be opened up to private enterprise. In much of the world, airports are owned by investors. in Canada's case, it looks like only operations will be considered. NAV Canada (which is air traffic control) was privatized in 1996 to not for profit. The U.S. air traffic control is government. Likewise, nearly all American airports are owned by a variety of governments.

Canada's airports are not for profit run. Some of the airports considered for privatization have great reputations like Vancouver and Calgary while others not so great like Toronto and Montreal. It will be a balancing act to turn over operations and actually create value for the customer experience in airports already rated high. Some people in the west will say if it ain't broke, don't fix it. In the east, the thinking will be it needs fixing. No one wants to pay higher for an asset they already own for no improvement in price, efficiency or choice. As for Winnipeg, our airport was recently ranked very high for customer satisfaction.

Economic progress doesn't and shouldn't have to be big megaprojects. Not that big infrastructure isn't part of this but changes to red tape and tax codes can leverage even small investment of whether people buy or invest in businesses. All over Canada we have said no or slow walked initiatives. They duty to consult didn't mean no is the first response or that a 10 year blue ribbon panel is formed that has to deal with three changes of government or more. As Carney as said, it should be no more than a year before yes or no should be decided. 

It is possible to do things at speed when we are motivated. Canada became a industrial superpower between 1939 and 1945 because of World War II. A trade war is not the same thing as a kinetic war but the threats feel like what was experienced in the lead up to war. Most Americans are oblivious to this. And Poilievre and the National Post columnists keep telling Canada to return to negotiate as if it is just a matter of knocking heads to get a deal or that it will even remain a deal with the nature of Trump mercurial whims.

Ending internal trade barriers will help but it is glacially paced. Only a small window on cross cross alcohol sales has happened at this point. Seems a long time considering U.S. booze is off the shelf and we still can't get wine and spirits from other parts of the country. That is on the provinces and not Carney. However, Carney will have to continue to push to end the blocking that makes it easier to trade with Europe than within Canada.

Other trade deals with India this year could be significant. Energy and agricultures will benefit greatly. The recent visit by the president of Vietnam is the first state visit ever by that leader. Canada receives many Vietnamese goods but they are willing to take whatever energy we can send their way and could be a market for nuclear plants. They are a communist country but not a hegemony today as we see of China. Canada will have to it's eyes wide open but trade with Communist countries goes back to Soviet and China times in the 1970s.

The cost of living is generally self inflicted pain. The tendency of government to allow businesses such as grocery stores to merge along with their wholesale business has almost wholly failed us. There has been progress made on secret landlord agreements that are plain and simple anticompetitive. We have been living with those far too long. It is demonstrated when landlords won't lease property to any company that competes such a grocery or pharmacy. It is why London Drugs took so long to open in Polo Park or why there are empty grocery stores for years. It is deals that prevent anything from going up. There are other issues inside the store where companies are making hay such as including the price of the package in overall price. Doesn't seem to matter how many times it happens, stores get a slap on the wrist. If they are even caught. Corruption, collusion and corporatism are the banes if competition. 

Throughout its history, business has looked for government to invest and then bought the assets in place and then cut and raised prices. The example in Manitoba of MTS being purchased by Bell is overwhelming. And now Bell can barely deliver 911 service on any platform. Looking over at Saskatchewan with Sasktel and you really wonder what the government here was thinking. Ontario probably has similar stories about hydro and highway assets they sold off. Serious questions have to be asked on federal sale of airports. Some of the airports are well liked and well run while others are not. However, it would be a mistake to sell all the assets and be at the mercy of a company based in another country. 

Canada has always had a mixed economy. However, we have tended to let some wealthy individuals have far too much control over aspects of the economy. Antirust laws are supposed to protect Canadians from monopoly tendencies. It is toothless even compared to the U.S. and it hurts competition where there are fewer and fewer competitors. It doesn't help when potential competitors like Giant Tiger retreat from markets like Winnipeg because of crime, lower margins or whatever reason they can think of. The wholesale part of the grocery business is where grocery makes the big money. There are really only five main players in Canada. The Carney government has said they will set up supports for 10 food hubs and two depots. Considering how many marketplaces are looking to expand beyond warm weather sales, this is a good idea. 

Bison meat, Arctic char, lentils and others are directly sourced, warehoused and open to restaurants and independent groceries to purchase. It is often forgotten how important the restaurant industry as a customer for local products. They can be very important to local farms but also reducing inflation. Locally sourced products and supply chains reduces logistics and costs. Family Fare's five locations sourced their supplies from Toronto's Ontario Food Terminal and saved the company 15 to 20%. It is wholesalers controlled by the big retailers that can really hurt competition. And secret deals to control which retailers can build in an area. Aldi, the German hypermarket stays out of Canada because it is an uncompetitive market that won't allow their stores to build in many places.

The government doesn't have to be the primary owner and investor. In some cases like with a pipeline to coast, it had to be. And continues to be. The profitability long term remains questionable given the construction costs but world instability now on trade and war has brought in billions so far to Alberta and Canada this year. Even if overseas wars ended immediately, it will take a few years to reestablish inventories. The electrification of energy is moving forward but will take longer in North America where adapting to the very long drives will require charging stations far in excess of what we have now. 

It is very likely that if and when tariffs are reduced, we will see a real jump in both Canada and U.S. economies. However, we might see at least two years more of Trump vetoing any change. War will also affect things. There seems to be no immediate end to Ukraine or Iran conflicts. Even a Republican defeat in the mid-terms might not bring peace to the volatile Hormuz. Trump remains President and can still act in that capacity as military head. As for the rest of the world, chaos seems to prevail.

It appears tariffs are hurting Republican candidates but how much so is to be determined. If many Republicans ae wiped off the board, it is very possible many will blame Canada rather than Trump. As for Trump, he may strike out at Canada or seek out a trade deal if the next two years looks like a further erosion of his support. The truth is no one will know, least of all him. It seems unlikely a deal is made in the week before the election. But then again...anything is possible. It is strangely odd that Canada would play such a strong role in the present U.S. election.

To sum up: Canada can't rely on U.S. trade as it has in the past even if Trump's tariffs disappear. Nor can we use immigration at high levels to keep wages low and boost the economy. True productivity comes from investing in technology and infrastructure. Or working smarter rather than harder. The employment comes from investment in housing, roads, airports and ports among many other areas. To that end, we are seeing government spending in Canada on new engines and cars for VIA Rail that in past decades were built elsewhere. 

Even ending the 70% expenditure on American equipment and increasing made in Canada and from around the world makes a difference. Despite some some Canadian military people only wanting American equipment and being dismissive of trying to keep some independence, there is worldwide example of U.S. throttling of military capacity by would be allies. Ukraine finding that it can't defends itself because of kill switches in GPS and other equipment has alarmed even Americans. Data centers with secure Canadian information stored in U.S. has also presented a problem since the U.S. government can access it and cripple Canadian financial and government as well as security operations. The closeness of the present U/S. administration to Putin also does not bring comfort to Canada. And to top it off is the threat to take over Canada which far too many don't take seriously.

Cost control can come from making companies compete for projects. Sole sourcing that games the system so only one company will do doesn't save money. However, you don't want procurement that takes decades to achieve before anything is even built. Thankfully, you have many in government and organizations pushing for faster decision making. There are those who slow walk things not just for due diligence but to quietly kill projects they don't agree with. If legal approaches meet the consultative stage, a veto from one party can paralyze any action. This is what we have seen from housing to energy projects. Not in my back yard or ever. Even now some people are determined to stop most projects no matter what they are. Or perhaps are only interested in spending money on programs but not economies.

It has become clear that on housing, governments at all levels were protecting increasing prices. And citizens were taking the savings from low inflation and interest rates to put into ever bigger houses. The same thing happened with vehicles where, over time, everything got bigger. Huge in fact. Now that inflation, interest rates and energy costs, it is a return to the 1970s when people had to downsize and suffered as a result. It literally took the federal reserve and national banks around the world to choke out inflation. And with it came unemployment. Some places like Manitoba suffered more than others.

It seems each week projects are being announced. The glacial pace of things doesn't always seem to be about money but things like the North Treatment Plant in Winnipeg seem to have festered because the city slow walked it in favour of other projects including new road projects. Herein lies the problem. $500 million for the treatment plant is good but if the city feels it can now do $2 billion of new roads, they could end up cup in hand to the Feds again. Perhaps with 9 new councillors such spending will be reconsidered. As for the treatment plant, it is likely it would have been cheaper had it been completed 20 years earlier.

Much like the 1990s, inflation will have to be chipped away at. Unlike back then, protecting high prices for real estate is unsustainable. And protecting, it comes down to restrictive zoning or foot dragging on new housing of any kind, it comes in as flush tax credits so people buy ever bigger houses with even less density, rejecting infill, height restrictions and the list goes on. The truth is that every area of Canada needs to build consistently and with renewed safety but more efficient zoning as the Europeans have shown. And you can't do a 20 year break from it and think you can easily catch up. Nor can you just build low income housing and let it rot.

The good news is that there seems to be a lot of push to do things. We may not be able to control what happens outside our borders but within Canada we need to be focused on the economy, jobs and cost of living. It isn't merely lip service. And can't be at the mercy of Elon Musk and U/S. trade.