William Watson: The growth advisory council—folly and presumption from the nicest people

Earlier this week in my history of economic doctrines class we got to Chapter 2 of Book IV of The Wealth of Nations. It contains some of my favourite Adam Smith quotes. My very favourite in this chapter, even more favourite than “the invisible hand,” is the following:

The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.

A word search of my newspaper columns (ain’t computers grand?) shows I’ve referred to it a half dozen times since 2011—once a year on average.

As it happened, we got to “folly and presumption” just as the Prime Minister’s Advisory Council on Economic Growth came out with its second wave of recommendations. Now, the Advisory Council has some great people on it, including my boss, McGill Principal Suzanne Fortier, and my friend and colleague, McGill economist Christopher Ragan, so I have to be careful how I say things. But their report recommends doing precisely what, in Smith’s view, “no council or senate whatever” should try to do, namely, direct private people how to employ their capital.

There’s nothing wrong with the Council’s goal. It wants per capita output in Canada to be $15,000 higher in 2030 than it will be on current trends. That’s even slightly courageous, given the strength of anti-growth ideology these days. Moreover, it’s not inconceivable that a growth council could recommend policy changes that really would speed up productivity growth. And along the way it does mention some: getting rid of costly, wasteful regulations, for instance, and other obvious obstacles to growth (though exactly which regulations are costly and wasteful is never easy to agree on).

But to my mind the Council’s main strategy reflects folly and presumption. It wants to use the “agfood” sector as a pilot project for how we go about getting more growth—for “unleashing” our growth potential, as the report repeatedly says. Why the agfood sector? Well, why not? It’s big. We have lots of arable land and fresh water for irrigation. And it’s doing well already. We’re fifth in the world in ag exports and 11th in food exports. That all sounds good and reasonable but, of course, those are complete non sequiturs. That a sector is of a certain prominence or achievement or export profile says nothing at all about how much of its growth potential is still leashed or unleashed. Growth is about the margin, not the average.

Anyway, the Council obviously believes plenty of our agfood growth potential is still leashed and it believes the way to unleash it is through … [wait for it] … meetings, including an interdepartmental task force of the federal government (there’s a handy flow chart showing which departments should be included) and better collaboration between Ottawa and the provinces. (Uh-oh. Maybe you want to push that growth target back a bit, from 2030 to, say, 2130. Anything that depends on effective federal-provincial collaboration is going to take a while.)

What would the meetings be for? You get the sector together. You get them to agree on a bold growth target. “Bold” is used 13 times in the Council’s agfood document. In one section head it’s used twice: “Bold moves: Rallying the private sector and government to work together towards bold growth objectives.” (The Council likes “bold” even more than I like “folly and presumption.”) In this case, the Council’s bold suggestion is that we aim to move up to Number 2 in the world in ag exports and Number 5 in food. They apparently think this is doable even though, so far as I can tell, no one on the Council works in agfood. (As I say, I know Chris Ragan. Chris Ragan is a friend of mine. He has a lovely backyard and enjoys a good meal. So far as I know that is the full extent of his familiarity with the agfood sector.) In any case, hitting those bold new targets would bring an extra $30 billion of exports, which is two per cent of current GDP.

Sounds great. But does anyone notice a word missing in all this? The missing word is “profit.” With sufficient subsidies and other inducements we might well be able to increase our agfood exports by $30 billion. But would it be profitable to do so? “Profit” is a dirty word in many circles these days. Has been for a couple of centuries, in fact. But if you make a profit, that means your revenues are greater than your costs. And since most food and agricultural output consists of technologically private goods (i.e., their only benefit is to those who ingest and digest them), revenue is an excellent indicator of benefit. If you don’t make a profit, therefore, that suggests your costs are greater than the benefits you produce, in which case using resources to boost exports in this way means wasting those resources. If you do make a profit (or stand to make a profit), then we do want you exporting, but of course you’ll have every incentive to export all on your own, without a growth council or sectoral assembly telling you to. Why? Because you want to make a profit. That’s what firms like to do.

As you might have guessed, Adam Smith already had this Catch-22 about support for industry figured out 240 years ago: “If the produce of domestic can be brought … as cheap as that of foreign industry, the regulation is evidently useless. If it cannot, it must generally be hurtful.” (For a nice contemporary application of that logic, see Andrew Coyne’s dissection of Ottawa’s “repayable loan” to Bombardier.) Our national agfood strategy should therefore be: Produce and sell at home or for export everything that it is profitable to produce and sell at home or for export and nothing that isn’t. And our policy for doing so should be to make sure agfood—and all other—firms operating in Canada remain responsive to profit signals. If they do, they will be led, as if by an invisible hand… well, you know the rest.

In fact, the sector gathering that the Council proposes would mainly identify obstacles to growth, such as environmental or health and safety regulations or maybe taxes or reporting requirements. Government or public members would then push back a little in the case of regulations that really do serve an important public interest. And then the group together would ask the government to get rid of those regulations, if any can be found, that really don’t serve a public interest but do block growth.

OK, well, that’s not too bad. Talking about obstacles and then agreeing, maybe, to get rid of them: No one can really object to that—even if asking farmers or food processors to spend time talking about farming or food processing rather than actually doing them directly reduces their measured productivity. On the other hand, the number of regulations that are truly mindless and only wasteful and irksome and, even more importantly, don’t have partisans in the greater population that would defend them in the political arena probably isn’t great. (If it were, wouldn’t they have been done away with already?)

Obstacle removal? Fine. But it seems there are also going to be “sub-sector action teams,” as in:

The Council recommends that the government reconfigure the Value Chain Roundtables established by Agriculture and Agri-Food Canada into new sub-sector action teams focused on major agfood subsectors and oriented for high-impact. Representatives from other sectors (for example health, environment, and technology), bringing new perspectives, should be brought in to support transformational change. Each of these teams comprising the senior-most representatives of relevant companies, government organizations, and academic institutions would set growth targets for their subsector.

Scraping off the biz hype (“oriented for high impact” “transformational change”) it seems working groups will be setting growth targets for their sub-sectors. Really? That’s downright Stalin-esque. In a market economy, the sector is not a decision-making agent. The firm is. If firms start doing things because that will help them comply with the official sector target, Lord help us all. Prepare for, as they say, negative growth.

There is one more problem that needs to be mentioned, however. All these meetings sound harmless enough. But my favourite Adam Smith quote of all, so favourite that in a recent book I cited it twice, suggests maybe they aren’t:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

Government’s growth strategy should be to see to it Canadian firms spend more of their time producing and competing for profit and less of it talking about producing and competing to hit national targets.