Friday Afternoon Links

This and that for your Friday reading.

- Jim Stanford points out that free trade hasn't delivered any productivity gains as promised - and has in fact moved Canada further away from the model that's working elsewhere:

The famous Macdonald Commission, influenced heavily by market-oriented economic analysis, made two core recommendations in this regard. Canada’s social welfare programs should be rationalized to reinforce labour market discipline. And we should pursue comprehensive free trade with the U.S., to expose our firms to the full force of competition and eliminate our remaining 10-per-cent productivity disadvantage. The proposals were fiercely debated, but in the end implemented. The Macdonald Commission’s 1985 report heralded a new era of economic rationalism; it might be less “compassionate” than previous policy frameworks, but would surely deliver the productivity goods via the invisible hand of a freed market.

The graph that accompanies this article starkly illustrates the ironic results. No sooner had the Macdonald Commission helped spur a historic turn in Canadian policy, than Canada’s relative productivity began to fade. The more social programs were curtailed, the more we faced global competition, the more sectors were deregulated, and the deeper taxes were cut, the worse Canada’s productivity performance became. Today we’re right back where we started: poor cousins again, with business sector productivity equal to only 70 per cent of U.S. levels, and still sinking.

In terms of innovation, our performance has been even worse: lagging far behind the U.S. and most of the industrialized world. As we focus on extracting and exporting ever-more unprocessed minerals, our capacity to develop innovative products, services, and processes for the world has withered away.
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Indeed, the experience of most successful industrializing countries in recent decades suggests a very different idea of how innovation, productivity, and export-led growth actually occur. From Korea to Finland, China to the Netherlands, Brazil to Germany, countries which actively direct and manage growth seem to perform better in productivity, innovation, and global trade. These countries have fostered investment and innovation with focused sector strategies; deliberately favourable capital market, exchange rate, and trade policies; and sophisticated efforts to manage income distribution so that productivity growth visibly translates into higher living standards (unlike Canada where there is no longer any visible link between productivity growth and personal incomes). Intellectual support for the effectiveness of those approaches is provided by recent new thinking in development economics, highlighting the central role of a proactive “developmental state” in attaining qualitative and quantitative economic progress, rather then reifying market forces.

- Meanwhile, Ezra Klein points out how tax expenditures - preferred by the Cons and other anti-government parties as a means of handing out money without creating any corresponding social institutions - are both less effective and more dangerous than direct spending.

- And Andrew Jackson notes that even the IMF doesn't buy the rhetoric of budget hawks anymore, warning that misplaced austerity may do as much damage to bond markets just as it does to workers.

- pogge rightly suggests that Peter MacKay's use of defence resources for political purposes would serve as a resignation-worthy offence for any minister with the slightest sense of responsibility.

- Finally, following up on John Ibbitson's column today, Alison gives a clear-cut example of the Cons encouraging exactly the kind of wink-wink, nudge-nudge attitude toward political deception that led to the newly-named Robocon.