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  • Towards Justice: Tackling Indigenous Child Poverty in Canada July 9, 2019
    CCPA senior economist David Macdonald co-authored a new report, Towards Justice: Tackling Indigenous Child Poverty in Canada­—released by Upstream Institute in partnership with the Assembly of First Nations (AFN) and the Canadian Centre for Policy Alternatives (CCPA)—tracks child poverty rates using Census 2006, the 2011 National Household Survey and Census 2016. The report is available for […]
    Canadian Centre for Policy Alternatives
  • Fossil-Power Top 50 launched July 3, 2019
    What do Suncor, Encana, the Royal Bank of Canada, the Fraser Institute and 46 other companies and organizations have in common? They are among the entities that make up the most influential fossil fuel industry players in Canada. Today, the Corporate Mapping Project (CMP) is drawing attention to these powerful corporations and organizations with the […]
    Canadian Centre for Policy Alternatives
  • Tickets available for Errol Black Chair Fundraising Brunch 2019 June 26, 2019
    You are invited to CCPA-MB’s annual fundraising brunch in support of the Errol Black Chair in Labour Issues.  Please join us to honour: Honoured Guest: John Loxley is Professor of Economics at the University of Manitoba and a Fellow of the Royal Society of Canada. Guest Speaker:  Jim Stanford is Economist and Director of the Centre […]
    Canadian Centre for Policy Alternatives
  • The fight against ISDS in Romania June 24, 2019
    CCPA is proud to co-sponsor this terrific video from our colleagues at Corporate Europe Observatory. It chronicles grassroots resistance to efforts by Canadian mining company Gabriel Resources to build Europe’s largest open-pit gold mine in a culturally rich and environmentally sensitive region of Romania. After this unimaginably destructive project was refused by the Romanian public and courts, the […]
    Canadian Centre for Policy Alternatives
  • A critical look at BC’s new tax breaks and subsidies for LNG May 7, 2019
    The BC government has offered much more to the LNG industry than the previous government. Read the report by senior economist Marc Lee.  
    Canadian Centre for Policy Alternatives
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Trading on Thin Ice

It is amazing to see the charged responses to the idea of a made-in-Canada policy for procurement related to infrastructure stimulus spending. Perhaps it is just that all economists are supposed to accept free trade as the One True Policy. But what I am seeing are largely moral arguments for free trade in the abstract rather than an examination of a particular policy proposal in light of current events. So let’s put aside our inner Ricardos and drop the knee-jerk defense of free trade.

In James Galbraith’s new book, The Predator State, one interesting point he makes is around Adam Smith’s “invisible hand”, now widely taken as THE metaphor of free markets and trade. The full quotation, however is actually a guide against free trade between England and France:

“By preferring the support of domestic to that of foreign industry [every individual] intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention…. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.” [I grabbed this quote here]

The reality of the development of advanced countries is that all of them have used some forms of active industrial policies, including preferential procurement; none has gotten rich by blithely pursuing free trade (one exception might be Hong Kong but it has some unique circumstances). Even economic theory suggests that free trade is not always a win-win for everyone, all the time (Krugman’s Nobel prize speaks directly to these sort of dynamics).

Don’t get me wrong. I generally support open trade and there are many large industrial sectors where the economies of scale are such that trade is a necessity for an efficient level of production. But there are democratic limits, too. Countries need to be able to carve out certain sectors from trade (most public services), regulate consistent with their own circumstances (environmental protection, labour standards, etc) and engage in industrial policies. The latter is even more important given the trend for Canada to revert back to its traditional role of resource exporter to the rest of the world, most of whom are more pragmatic and have developed strategies to take leading positions in high value added industries.

The only valid argument in all this is that protectionist measures beget protectionist measures and thus set of a cascading trade barriers. But let’s keep perspective on what is being proposed and its total magnitude. Furthermore, what is being proposed is legal under existing trade rules.

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