How should governments spend $20 billion a year to boost the economy? They should start by talking to each other.
Imagine if the federal government, the province and local municipality each decided that a new highway was needed in one community. Now imagine that rather than coordinating the planning, design and construction of one highway, each jurisdiction just went ahead and built its own separate highway. Citizens would rightly be outraged at such an absurd lack of coordination. Yet this is essentially what is happening in Canada when it comes to economic development spending. Roughly $20 billion per year is being spent with little coordination by our governments.
In the aftermath of the greatest financial crisis since the Great Depression, governments have rightly invested in many innovation-spurring and productivity-enhancing programs and policies. After all, Canada has long been a middle of the pack performer among industrialized nations on a range of productivity and innovation indicators, and there’s never been a more urgent need to improve our economic performance.
So where is the $20 billion going? Federally, there are tax incentives like the Scientific Research & Experimental Development credit ($3.5B in 2011) and the Industrial Research Assistance Program ($237M in 2013), the six regional economic development agencies ($1 billion+ a year), and the small business tax rate worth nearly $3 billion.
Provincially, Ontario spent $3.6 billion in 2011 on direct business supports and tax expenditures through 44 programs and nine ministries. Other provinces have their own programs., . Many cities like Vancouver, Calgary and Montreal are spending millions each year on local economic development programs.
Unfortunately, these efforts to spur the economy aren’t designed to work together. For the most part, they’re undertaken in isolation, with no formal efforts to develop a coherent strategy to spur growth. Constitutionally, Federal and provincial governments share responsibility for economic development. They should align their efforts to ensure maximum impact and value for money.
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Where governments share policy responsibilities, coordination should be the starting point for seeking better outcomes and more efficient use of public resources. With better coordination among the various levels of government, Canada can build the foundation for stronger economic growth and improved productivity. The discipline that comes with coordination will force each government to clarify their own program objectives and measure their results.
We’ve collaborated successfully in other policy areas before. Government approaches on infrastructure, health care and skills training offer lessons for more collaborative approaches to our innovation and economic growth challenges. These models all share key features: governments have a forum for dialogue, agreement on key priorities and cost-sharing.
In health care, governments agreed to common priorities such as wait-times, cost-sharing is formalized through the federal Canada Health Transfer to the provinces and dialogue is, usually, invited through revisiting priorities and funding arrangements. Adopting a similar model in the economic development arena would help Canadians get much more out of their annual $20B investment – more competitive firms, higher-quality jobs and stronger productivity growth.
Federal and provincial ministers of finance and economic development could start by hammering out bi-lateral agreements that clearly establish common priorities and assess what programs and policies are best suited to achieve collective strategic goals.
This kind of approach is likely to produce more effective programs, more productivity and better value for taxpayers’ money. Although there is no guarantee that a coordinated intergovernmental approach would produce better outcomes, we couldn’t possibly do worse than the status quo with different levels of government each planning, funding and implementing economic development programs in silos.
So while $20 billion spent on uncoordinated economic development efforts may be less visible than highways, it is no less important for us to get the fundamentals right. Our governments need to sit down together, define common priorities, align spending, eliminate duplication and measure the results.
A new federal-provincial process might be what is needed to get governments to take a long hard look at their economic development spending and make sure they are investing in what works – and stop investing in what doesn’t.
When the premiers meet Thursday in Niagara-on-the-Lake, jobs and skills will be at the top of the agenda. All governments should agree that a comprehensive skills agenda to help workers is necessary for Canada to remain competitive and for Canadians to feel economically secure.
And that’s why most of Canada’s premiers are disappointed with the federal government’s announcement that it will unilaterally cut the transfers that provinces use to pay for job-training programs.
The programs that the federal government plans to cut — delivered under the Labour Market Agreements — are those that fund training for Canadians who are not eligible for Employment Insurance. These workers are typically the most vulnerable and hard to serve. Many of the programs that could be cut are those that support the essential literacy and numeracy skills that are critical for unemployed Canadians to re-enter the workforce.
Why the federal government has chosen to pick a fight with the provincial governments that run the programs is a mystery. This very same federal government spearheaded these programs and was touting their success until the day it announced the decision to tear up the agreements. The federal announcement also goes against the government’s frequent promises that it will not cut transfers to provinces and will stay out of areas of provincial jurisdiction.
The federal government is proposing to use the $300 million diverted from the Labour Market Agreements to create a new program called the Canada Job Grant, which would pay employers to train workers through educational institutions. Employers would have to kick in one-third of the funds, and provincial governments would likewise have to come up with an additional third.
This would act as a windfall subsidy to employers who already provide the type of training covered by the program — mostly large employers — who could see their training bill fall by two-thirds. But it would probably be too complex and bureaucratic for many small and medium-sized employers to access.
Given that the maximum grant from the federal government would be $5,000 per trainee for short-duration programs, it is hard to see how this would actually help provide workers with the advanced skills they need to take the high-skill jobs where there really are labour shortages. There is simply no evidence to suggest that these small subsidies to large firms would be more effective than the current programs that provinces and communities have been building over the past decade to help unemployed people get jobs.
If the program goes forward, provincial governments will be on the hook for $300 million for this new program, and will have to come up with another $300 million to fund the training programs they currently offer. The federal government, on the other hand, won’t have to come up with any new money because it would fund its share of the program from the cuts it makes to existing transfers to support job training.
The federal government is changing the rules, sending the provinces a bill for $600 million, and not spending a cent of new money on skills training — all the while running ads touting its great new program for the unemployed. It’s not surprising that provinces are miffed.
But it doesn’t have to be this way. The appointment of a new minister, Jason Kenney, provides the federal government with an opportunity to hit the re-set button on the Canada Job Grant.
The federal and provincial governments all agree that Canada needs more and better skills training for unemployed people. No one suggests that every current program is perfect. Most recognize that the federal government has a role to play to strengthen the Canadian economic union and improve the functioning of the labour market. But a unilateral approach, along with cuts to transfers, will hurt, not help the shared goal of a highly skilled workforce and an efficient national labour market.
Nine years ago the premiers met in Niagara, just as they are doing this week, and agreed that a new era of federal-provincial co-operation was necessary for health care. The result was eventually the Canada Health Accord, which provided a decade of shared commitment to improving health care in Canada. Coming out of this week’s meeting, governments should strive for that same level of common cause on Canada’s skills agenda.
Federal and provincial ministers should come together, identify which programs have delivered the best results, and re-negotiate new Labour Market Agreements. Employers could certainly have a role. Canadians should not have their jobs and training caught in the middle of an intergovernmental dispute.
Matthew Mendelsohn is director of the Mowat Centre at the University of Toronto and a former intergovernmental affairs deputy minister in Ontario. The Mowat Centre/Caledon Institute paper The Training Wheels Are Off: A Closer Look at the Canada Job Grant, was released this spring (mowatcentre.ca).
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