Thinking our way out of the recession

Digging holes and filling them back in won’t work. Growth requires investment in ideas.


Thinking our way out of the recession

Niall Ferguson was in Ottawa the other day, perhaps by accident. The Scottish historian delivered a condensed version of the arguments in his latest book, The Ascent of Money: A Financial History of the World, to a dinner crowd of Bytown swells, and threw in some alarums about the current global economic unpleasantness. Then he took questions.

I asked how he would govern a country like Canada over the next little while, if forced. He said he had no faith in Keynesian stimulus—“digging holes and filling them back up.” But government does have a role to play, he said, and it’s the role the Americans discovered after the Second World War: big investments in innovation and human capital, through education, basic research, the dissemination and commercialization of new ideas. Growth comes from new techniques and processes, which have no other fuel but imagination. “That’s where a government like Canada’s should invest,” he said.

It was a trick question of sorts: I only asked because I knew how he’d answer. Any smart outsider will give you the same answer: Canada can only ensure its prosperity by moving aggressively up the value-added ladder through innovation.

Here’s Fareed Zakaria, the editor of Newsweek International, in an interview with CBC News Sunday a couple of weeks ago. “I think [Canada’s] challenge is going to be: can you take the extraordinary advantage that comes from having all these natural resources . . . and use it to build what has to be the future of Canadian growth, which is ideas and innovation? You know, the future of economic growth is going to depend on countries that have energy or ideas. Canada actually has a lot of energy and it has a fair amount of ideas. But if anything, the thing you should be doing is taking the money you get from the energy and investing it in innovation, which means education, entrepreneurship, ideas.”

This is so obvious it pains me to have to repeat this message every few months, but I might as well because nobody is talking about the importance of research and innovation in Ottawa these days, except perhaps the odd Scottish passerby. Certainly not the Prime Minister, who likes to remind us he is an economist but who shows the most amazing lack of curiosity about economics. Stephen Harper came to power with one assumption—that the prosperity he had inherited was automatic and perpetual—and one goal: to redistribute this endless bounty of wealth from his opponents’ supporters to his own. He is a redistributor. That’s fair and it would have been fun to watch, more or less indefinitely, if the good times had kept rolling. They have stopped rolling, and poor Stephen Harper looks a bit lost.

Meanwhile, the motor of Canadian prosperity, our laboratories and the universities that house them, is heading into the worst weather in 20 years. A new report from Alex Usher and Ryan Dunn at the Educational Policy Institute, “On The Brink: How the Recession of 2009 Will Affect Post-Secondary Education,” counts all the ways Canada’s universities are about to be squeezed. There are many ways. It’s a bit of a perfect storm.

The global banking crisis is shrinking university endowment funds just as it’s doing to your RRSP, with four of our flagship campuses—the University of British Columbia, the University of Alberta, the University of Toronto and McGill University—together taking more than half of the $2-billion hit nationwide. Pension funds have also lost value, so universities will have to dip into general revenues to pay defined benefits. Faculty and staff whose RRSPs have collapsed will delay retirement, costing more in salaries than their rookie replacements would have.

Students seeking smart shelter from a brutal job market will cause enrolment in two-year colleges and master’s programs to balloon, especially as jittery employers cause apprenticeship in the trades to decline dramatically. Class sizes will increase, maybe not in already bloated undergrad lectures, but in graduate courses where the extra numbers will cause learning to suffer. Students in those larger classes will draw more frequently on student aid because their families won’t be as able to pay themselves.

“We are about to head back toward conditions last seen in the mid-1990s, when resources were so squeezed that at some universities science students would not see the inside of a laboratory until third year,” Usher and Dunn write. “For a generation of institutional leaders who have known nothing but growing revenues, the next few years are going to come as a nasty shock.”

Science, research and innovation were always key to Canada’s future, so it would have been really great if governments hadn’t taken their eye off the ball after about 2002. The crunch facing universities would be less severe if funding had been healthier during the last years of the boom. Now there’s only so much governments, in Ottawa and the provincial capitals, can do. Usher and Dunn suggest letting tuition fees float, while targeting student aid more narrowly at the many who’ll need it; and finally ending the construction boom that has built countless new labs “at the expense of the base research funding which keeps researchers in the country in the first place.”

This is the message from smart outsiders like Ferguson and Zakaria. Stephen Harper has had three years to hear and heed their message. He is free to keep ignoring it. But then those of us who care about building and expanding Canadian prosperity, instead of merely shifting it from one client group to another, will be free to conclude at last that he is precisely the wrong man for this moment.


Thinking our way out of the recession

  1. Good and timely column. Thanks for writing it. And for repeating it in different forms “every few months”.

  2. The Conservatives aren’t likely to heed outsider’s advice, or insider’s either Paul, if Science and Technology Minister Gary Goodyear’s documented temper tantrum with the University Teachers Association is any indication.

  3. It’s probab

    • Sigh…It’s probably been said many times, but i wonder if Canada’s riches are Canada’s ball and chain? Of course just about any country in the western world would gladly swap. Still, others do seem to do so much more with so much less, although other factors come into play, such as proximty to large markets – snap, we can match ; traditional long standing manufacturing base – er snap , poshumously anyway, maybe pre free trade? Even so, i don’t think we fare so well in comparison with say – Germany. [few do to be fair]
      I only lived there for a yr or so but it was long enough to be impressed. Lacking our natural resources they make tremendous advantage of their human ones. The degree to which they seem to be able to focus and cooperate is remarkable – think big seems to be a common theme too! Again how much of this is a bit of an advantage in terms of being a more homogeneous society -i don’t know, certainly things have changed there also.Besides our success in integrating the best and the brightest is legendary. [ bit of ironic license there ] But Germany isn’t the only one, Holland, Denmark and a number of others who rely principly on their noodles all make do very well with less, much less then us. Could it be that our embarrassment of riches are too much of a good thing? Still, i daresay we wont want to swap anyone. Paul’s right it’s all Harper’s fault. It could be our own complacency, could it?

      • Sigher..*.couldn’t *

      • Germany? The country that tried to extinguish the Jews and the Gypsies just 60 years ago? The country that shot any person who tried to climb over a wall until just 20 years ago? The country whose secret police had a file on every dissenting individual until just 20 years ago?

        Holland? The country where owning a house is beyond the reach of most people? Denmark? The country where rioting occurred over a bunch of cartoons?

        Or maybe you are referring to wealth?

        Germany’s GDP per capita is 35000 (2008)
        Denmark 38000
        Netherlands 40000

        Canada 40000

        These are also countries with more favourable climates than Canada, with access to shipping lanes and without the vast distances between major commercial centres. And you say they do better than us with less?

        I’d have to disagree, in every possible way.

        • kc’s point was that those countries’ wealth is self-generated. Ours relies mainly on resource extraction. What do the crimes of WWII have to do with anything?

          • KC’s point was that they do more with less. He was bashing Canada.

            So if you include doing world domination or doing espionage on their own citizens, I’d have to say they do not do more with less.

            As far as resources go, those countries he mentioned do just fine. If you compare Canada to most other countries with similar resources (in terms of energy and natural resources), like Russia, Argentina, Venezuela, or Iran, we do just fine.

            And I’d also to have to differ with the opinion that our wealth is not self-generated – even if we do have large mining, forestry and energy industries.

            I’m just not a Canada-basher by nature, and I also don’t think that Wells is either, that’s not the point he was making with his post.

          • Sorry, wanting to expand our high-tech industries suddenly equals Canada-bashing? Good God, man, if that offends your patriotism you should hear about my plans to pave a pothole!

          • First, Germany has tremendous natural resources, including a superabundance of coal that made the industrialization of the Ruhr valley possible in the first place.

            Second, I`m not sure that it`s correct to say that a country`s wealth is “self-generated“ just because they rely more heavily on manufacturing than on resource extraction.

          • CR
            Gd pt. I forgot about the coal!

          • CR — Not to get all nationalist and all, but surely Germany’s natural resources are miniscule compared to ours.

            sf, I’d have thought the point of Niall Ferguson’s remark re: a high-tech workforce was plain. Resource extraction is all well and good, but it simply can’t go on forever. Long-term prosperity will depend on our having some kind of edge on China and India, not to mention the USA. If we allow ourselves to dwindle to a folkloric society now, depending on resources for our wealth, we are screwed in the long term.

          • CR — Not to get all nationalist and all, but surely Germany’s natural resources are miniscule compared to ours.

            Jack — Most countries have miniscule natural resources compared to Canada, simply because Canada is the second largest country in the world. However, Germany has exploited a much greater percentage of the resources that are available to it. When Germany briefly reigned as the world’s leading industrial power at the end of the 19th century, it owed this development (at least in part) to its relative abundance of natural resources, including coal and iron.

          • CR
            Yr pts are valid. But Germany may be one of the most export dependent nations around – most of it high quality value added stuff too. Obviously they still hav lots of coal. But mostly what they have is a very motivated, well educatd workforce, a high standard of living – when i lived there in 95 it was deffinitely higher than ours – 30 to $40/hr not being uncommon. Very little of that , i would guess is based on resource extraction.

          • CR — “When Germany briefly reigned as the world’s leading industrial power at the end of the 19th century, it owed this development (at least in part) to its relative abundance of natural resources, including coal and iron.”

            Aha, you see, we can invoke your knowledge on both sides of this debate! What if Germany, instead of industrialising the Ruhr, had just sold all its coal to France and spent the last half of the 19th C patting itself on the back? Well, in hindsight that wouldn’t have been such a bad thing, but you take my point: we need to reindustrialise, but instead of nail factories and grimy child labour we’ll have RIM’s and bespectacled techies in white labcoats. Onward!

          • JM
            We need to reindustrialize.
            You wouldn’t be implying that the free trade deal was a big mistake now, would you?

          • kc – I agree, Germany has an advanced manufacturing-based economy, thanks in part to the resources they started with. I don`t see Canada`s resource riches as a ball and chain – more like an opportunity.

            Jack, – I completely that we should further industrialize to the extent that our economy will allow. At present, other countries enjoy significant competitive advantages in the manufacturing sector (including low labor costs and environmental standards) and Canada shouldn’t try to compete at that level. Probably the smartest way we can industrialize is by doing more of what we are already doing: small, incremental increases in specific industries, with significant investments in automation and productivity.

            Occasionally, bigger steps may be required. For example, Canada is the world’s largest producer of uranium, so why not add considerable value to our exports by building gas centrifuges and refining facilities in Canada? (Brad Wall’s plan)

          • CR
            I was speaking figuratively. Just about anyone would love to have our resources. But maybe we’re a little complacent because we have so many options? Unfortunately, or perhaps inevitably, considering our low pop and our proxmity to such a large market, we have allowed ourselves to become the proverbial hewers of……..I suppose that’s changing, but meanwhile we continue on pretty much as we’ve always done.

        • What does the natzis, Stasis, house ownership in Holland and cartoons in Denmark heve to do with the subject of this blog? Yr response is mind booglingly asinine! You seem to have a major hate on for the Germans. Have you ever visited a concentration camp? i have. Not nice at all. Still you would of course know that anti-semitism was a scouge all over the world , indeed Canada’s record is less then perfect. If yr figures are accurate, i certainly dispute yr German figures, that’s beside the pt. We could and should be doing better then them, given our resources. I’ll say it again sf.Sometimes yr comprehension skills are non-existent!

          • Evidence for kc not bashing Canada from his own mouth:
            Of course just about any country in the western world would gladly swap
            Still, i daresay we wont want to swap anyone.
            I LOVE CANADA !!!
            Good enough sf?
            It’s a damn sight more then our PM can say!!

          • Not at all, I have no dislike of Germany at all. I take issue with your statement that they do better with less than we do. I think that comment is incredibly asinine. Not only did you say they do better, you said they do better with less. Your conclusion that I am somehow anti-Germain is ridiculous, considering that you are the one to make the German-Canada comparison that was just so far off the mark from reality. If I see someone taking ridiculous and untrue shots at Canada and Canadians, I will say something.

            To be fair, I’d have to say that JM’s assertions that our resource workers don’t actually generate wealth, I’d have to consider that comment equally ridiculous. In fact, the amount of brainpower and innovation that has gone into the energy and resources industries in breathtaking, not to mention the amount of hard work put in by the typical worker in these industries.

            Now you are claiming Canada’s anti-semitism somehow compares with that of Germany, which is also completely asinine. Canada is one of the countries where Jews fled to save their lives. Even today, anti-semitic occurences are far more common in Europe than in Canada.

            No, my comprehension skills are fine. I read what you wrote, that Germans/Dutch/Danes and a whole slew of other countries do better with less. Then I gave you my reasons why I think you are completely and totally wrong about that, culminating with the fact that we are in fact wealthier than the countries that you mentioned, and have been for quite a while now (not by a wide margin, however). “Critical reasoning” bolstered my argument that in terms of resources, the Germans are quite well off. And I previously mentioned that they have a much mroe favourable climate, amongst other advantages.

            Now that you are trying to fan it off as somehow being a problem with my comprehension skills, all I can say is, if you write something, you should be able to back it up, rather than compain that people actually read what you write.

          • “It’s a damn sight more then our PM can say”

            Really? I disagree with that statement as well.

            Our PM has been praising Canada every time he gets the chance.

          • SF
            Look at the blog heading. It is you would agree, one dealing with economics. No nazis in the tittle – no nazis in my piece. No Canada bashing just a comparison. Maybe i’m wrong, but how you get from there to unpatriotic is beyond me.How on earth you conclude that my observation that anti-semitism AT THAT TIME is labelling Canada an anti-semetic country NOW is yet more evidence of yr poor comprehension skills.
            incitdentally does the phrase:” one’s too many.” ring a bell at all? No! Goole it!

          • Jesus, sf, you are really out to lunch.

          • My bad – google Canada-None is too many!

          • sf: “I have no dislike of Germany at all.”

            Oh no, it’s quite logical to invoke the Nazis at the first mention of Germany. Nothing prejudiced about that.

            “JM’s assertions that our resource workers don’t actually generate wealth”

            I said nothing of the sort.

            “Canada is one of the countries where Jews fled to save their lives.”

            And we turned them back at the ports. As kc says, see None is Too Many.

            “Germans/Dutch/Danes and a whole slew of other countries [don’t] do better with less.”

            They make things. We (generally) sell raw products to other people and buy them back when they’ve done something with them. That can’t last. Well, I guess we’ll always have tourism.

          • JM
            I guess sf isn’t gonna let a little thing called logic get in the way of a non-sensical rant Or prevent him from running over someone else’s patriotism. God help us all if his party ever gets a majority!

  4. I would gladly want the government to run a deficit if I thought that it was being well spent with an eye towards future growth (infrastructure and education) instead of at the expense of future growth. However, the idea that we have to “protect people’s jobs” and reward corporations that are failing with taxpayer money is abhorrent to conservative principles and a lesson I thought we learned when I was just starting high school. I thought we learned that you couldn’t spend your way to economic prosperity or growth on following the mathematical models of economists and social scientists.

    I thought we had learned you can only grow if you increase you export trade, your population, or your technical expertise. I guess we only learned that if you pay off $100 billion, it is okay to spend another $600 billion again. Oh well, I may be forced to pay for baby boomers and forgo an old age pension for myself, but I’ll be damned if a party that runs an unnecessary deficit is going to get my donations anymore.

  5. I don’t understand this, I thought it was all sorted from the moment that Mike Lazaridis was appointed to the Economic Advisory Council ?!

  6. “Stephen Harper has had three years to hear and heed their message. He is free to keep ignoring it. But then those of us who care about building and expanding Canadian prosperity, instead of merely shifting it from one client group to another, will be free to conclude at last that he is precisely the wrong man for this moment.”

    Wrong man, wrong place, wrong time:

    What is the term used for the third derivative of position?

    It is well known that the first derivative of position (symbol x) with respect to time is velocity (symbol v) and the second is acceleration (symbol a). It is a little less well known that the third derivative, i.e. the rate of change of acceleration, is technically known as jerk (symbol j). Jerk is a vector but may also be used loosely as a scalar quantity because there is not a separate term for the magnitude of jerk analogous to speed for magnitude of velocity.



  7. This is dead on. And it’s perfect platform material, provided that you coupled investment in high-end education with job retraining. Oh, please, please let some party — I guess I mean the Liberals — snag this stray puck and break away with it. There’s no one between here and the net.

    • Lawrence Martin column Feb 26th:

      Michael Ignatieff, the new Liberal dean, is a man of letters, a creative thinker. But he has yet to come forward with the big speech on where the country should be moving. Some in his caucus like the idea of him adopting a simple phrase such as “the creative society” to put a stamp on his leadership. It invokes the future, appeals to younger generations and can be fleshed out with myriad policies.

      [Potter grimaces]

  8. Investing in ideas means investing in universities and cities, which are places that aren’t exactly hotbeds of Conservative support.

    • Too too true. Perhaps when the Liberals win the next election they will make things a little bit better.

  9. Paul – in your many columns on this topic, I’ve never seen you point out that university professors (particularly those at elite schools) teach a small number of courses for at best half of the year. Surely, if they are squeezed to the bone, the faculty should offer to teach more without a salary increase.

  10. I have read “The War of the World” and “The Ascent of Money”. While I would give Niall Ferguson a passing mark as a historian, I have grave concerns about him as an economist.
    I have read some of Zakaria’s articles and seen him interviewed and I don’t have an outstanding argument with him. Both their promouncements re education, research, innovations and ideas is a no-brainer. Anyone on the street can and would say that. and one can’t go wrong with saying it

    Everythime I hear someone calling Harper an economist I laugh for the rest of the day. He maybe one for the 19th century but his ideas are useless for the 21th.

    The present concern is how do those hundreds of thousands unemployed get a paycheque every month now and in the immediate future. I’d be interested to see in Ferguson and Zakaria solve that problem.

    If there’s money in ideas my financial future is secure. I am full of them. Now if I ciould only persuade soneone to pay me for them. Anmd yes, they would solve our short term problems too.

  11. When I’m down with flu, it takes me a week to recover without medication. It takes about the same time with medication. However, I still take medication to relieve the symptoms and perhaps, to speed things just a little. And without medication, things might get worse.

    It is the same with a recession. It will have to run its course and get the bug out of the system. However,
    Some form of stimulus will definitely alleviate the symptoms and perhaps, speed up recovery just a little.

    Bailing out inefficient auto industries is obviously not the best answer, unless we can get the industry to change its product into something the market really wants – like energy-efficient cars. Some degree of bail-out will be required just as a stop-gap measure but in the long run the auto industry will have to change its ways.

    Some of the stimulus money will, no doubt, be spent on immediate infrastructure projects that bring quick results. However, the best long-term use of the money is to spend if it on the economy of the future – the green economy. That is the way the world is headed right now, especially with Mr Obama leading the US in this direction. Hence, the best way to spend the money is on green projects that include promoting energy efficiency, producing wind and solar power and upgrading the power grids.

  12. Re “Can the PM Keep Barak Obama’s Attention”, Paul Wells needs his head examined. The Pembina Institute is an environmentalist lobby group, nothing more. We are not required to spend money at the behest of this group to keep up with an orgy of spending in the U.S. Where Harper is planning a temporary deficit and should have the support of the Canadian Media, the Obama administration is headed for structural debt. Some of that debt relates to the environmentalist agenda.

    • This is so much more fun than commenting under the actual story you’re responding to. There’s something I’ve been wanting to get off my chest regarding the poetry of Yeats; am I right that this is the place to do it?

  13. Great, so as a university, expected to graduate in 2010, what am I supposed to do? I’ve already got an undergrad and am now in law school. I’m worried about my younger siblings and how this will impact their education.
    Stupid boomers and their desire for more more more all the time. Thanks for screwing us over.

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