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.