290. Can Canada Replace America? Two Economists Debate의 전체 녹취록

coordination. 00:04:49.279 --> 00:04:58.480 But then uh with with regard to um uh uh goods themselves, uh we emphasize that there are some supply chains that are more distance resilient than others. 00:04:58.639 --> 00:05:07.680 So uh, for example, things like pharmaceuticals and aerospace tend to have uh more global or less uh you know distance sensitive supply chains. 00:05:07.759 --> 00:05:12.000 Uh, we then unpack, well, what can Canada do to bolster that? 00:05:12.160 --> 00:05:17.680 Um uh Canada has unfortunately been a laggard on commercial innovation for quite some time. 00:05:17.839 --> 00:05:25.040 It's it's uh RD in the private sector as a share of GDP has been persistently low versus peer countries. 00:05:25.199 --> 00:05:45.040 Um we uh we argue that that is uh in in no small part a scaling phenomenon, that uh Canada struggles to scale up uh companies in several important uh industries and uh particularly in industries that are intensive in uh regulatory requirements or or cap requirements. 00:05:45.360 --> 00:06:07.360 We um have a chapter furthermore on uh housing, just denoting that uh even if Canada is successful at activating new innovation industries with a global reach in order to make sure that most Canadians can actually access that wealth, it's important to address Canada's persistent uh urban housing shortages so that more people can share in that prosperity. 00:06:08.160 --> 00:06:09.600 Jack, I'll pass it over to you. 00:06:09.680 --> 00:06:11.519 What are your reflections on what you just heard? 00:06:11.920 --> 00:06:20.160 Well, let me first of all uh start that uh I don't think uh there's uh much of a disagreement on my part about the value of trade diversification. 00:06:20.240 --> 00:06:23.600 I mean, we've been talking about that in Canada for years and years and years. 00:06:23.759 --> 00:06:33.120 Uh in fact, back in the early night um 19 uh 70s, it was I think it was the 70s or 80s anyway, you know, it's early 70s. 00:06:33.199 --> 00:06:48.000 There was this uh concern about uh US uh tariff on uh on goods uh uh as part of the conversion to the uh uh moving away from the golden gold standard in the in the United States that Nixon brought in. 00:06:48.160 --> 00:06:54.319 And that prompted uh uh Canada to start saying we need to develop other uh other markets. 00:06:54.399 --> 00:06:57.120 Um but of course, as what we saw later on, that didn't happen. 00:06:57.279 --> 00:06:58.560 In fact, the opposite happened. 00:06:58.639 --> 00:07:02.240 Uh Canada became even more linked uh to the United States. 00:07:02.319 --> 00:07:05.920 And and the problem is, of course, the uh economics drives you there. 00:07:06.000 --> 00:07:13.439 Uh uh trade is very much affected by transport costs uh and and and and also culture. 00:07:13.519 --> 00:07:22.160 You know, it's easier to deal with a country where you have the same culture, the same language, uh, compared to trying to deal with uh very different cultures elsewhere. 00:07:22.240 --> 00:07:31.920 It doesn't mean you can't do it, but it's but it is uh there's a tendency to, you know, gang companies when they're first going abroad, they tend to look at the United States partly for that reason. 00:07:32.000 --> 00:07:57.600 And it's also a very it's a huge market, it's one quarter of uh the world GDP, so having access to that market was very important, which is of course what the 1988 free trade agreement was all about with the United States, that Mulrini uh was able to actually under uh uh undertake a major change in Canadian philosophy at that time, uh, which uh there was a lot of deep anti-Americanism at various points in Canadian history. 00:07:57.759 --> 00:08:02.639 Uh, and yet he won an election on free trade, which was really quite a significant change. 00:08:02.879 --> 00:08:12.079 And uh generally that has done Canada quite well uh in many ways, but of course it does make you vulnerable in trade to the most, you know, to one particular market. 00:08:12.399 --> 00:08:20.800 But when you look at uh, you know, the major goods that we sell to the United States, uh, the auto industry is completely tied into the North American market. 00:08:20.959 --> 00:08:24.399 Uh, it is very unlikely that it could expand other countries. 00:08:24.480 --> 00:08:29.920 I'm not uh sure whether Eric has that view or not, but I don't see Yeah, I would I would agree with that. 00:08:30.000 --> 00:08:33.759 Uh sorry, I'll let you keep going, but we can I'll jump in with more thoughts when you're done. 00:08:33.840 --> 00:08:34.080 Keep going. 00:08:34.399 --> 00:08:43.440 Yeah, but the auto industry I think is going to still be very tied up, and that's our second largest export uh in terms of auto and parts to uh to the rest of the world. 00:08:43.679 --> 00:08:52.720 In the case of um of the res of energy, uh, which is our most important export, uh, we could have actually done some more diversification. 00:08:52.879 --> 00:09:04.559 I mean, certainly both in terms of oil and natural gas, we could have sold more to the rest of the world, but we hampered ourselves in terms of allowing that to be built over the past 10 years, 15 years. 00:09:04.720 --> 00:09:17.039 In fact, uh they were people forget back in the uh in the in the first uh first part of the second decade of the century, uh there were a tremendous number of LG proposals uh for the West Coast. 00:09:17.279 --> 00:09:26.799 I forget the number now, but uh I was on the board of a company that was uh that was uh had one of those proposals, but they all fell away except for uh one basically. 00:09:26.960 --> 00:09:31.120 And so, which we finally uh got into protection in 2027. 00:09:31.360 --> 00:09:36.559 But we had a government at that time that completely discouraged any type of international exports. 00:09:36.720 --> 00:09:44.639 And so we suffered as a result while Australia and the United States was building LNG for the rest of the world uh and uh quite profitably.

00:09:44.799 --> 00:09:51.759 So uh we did hurt ourselves there, and I think there are diversification opportunities, no question in my mind, uh, with that. 00:09:52.000 --> 00:10:03.200 And as you go down all through the different types of goods and and services that we sell, there are there are some opportunities, but I don't think it's going to be that easy to ever replace the US market uh for Canada. 00:10:03.360 --> 00:10:05.120 And so it's a question of management. 00:10:05.360 --> 00:10:15.600 And I think a lot of the hostility and issues right now that people are raising about concerns or vulnerability is due to kind of the recent American posture, you know, under Trump. 00:10:16.240 --> 00:10:32.240 But things will change in two, three, four years, five years, as we saw back in the 1970s when when the uh Americans were uh put on this 10% ta uh tariff, and then all of a sudden everybody uh started reacting to it in Canada. 00:10:32.320 --> 00:10:39.279 There was a great deal of uh anger about US investment in Canada, as we might remember back in the 1970s. 00:10:39.360 --> 00:10:40.639 We wanted to block it. 00:10:40.799 --> 00:10:47.120 Uh and so uh that changed a lot uh later on because the economics simply drive you there. 00:10:47.279 --> 00:10:49.519 So so we'll have to see what at the time. 00:10:49.600 --> 00:10:52.799 I don't have a problem with diversification if the economics allow that. 00:10:55.279 --> 00:10:57.120 Go ahead, Eric, if you'd like to respond. 00:10:57.519 --> 00:10:58.559 Yeah, certain certainly. 00:10:58.720 --> 00:11:03.279 I I I mean, I I I think we have a lot of agreement, uh, quite honestly. 00:11:03.440 --> 00:11:07.039 I I know this is supposed to be a debate, but I I think we can have a thoughtful discussion. 00:11:07.200 --> 00:11:10.960 I I think the point on the auto industry is uh very salient. 00:11:11.039 --> 00:11:13.840 Um, I mean, there's a lot of uh evidence. 00:11:14.000 --> 00:11:21.600 People even talk about in the literature with a reference to the auto industry about factory Europe, factory North America, factory Asia. 00:11:21.759 --> 00:11:25.840 And uh the reality is that that industry is very much regional. 00:11:25.919 --> 00:11:29.440 It's it's not really a hugely globalized industry. 00:11:29.519 --> 00:11:32.399 And it's because the logistics involved are so intense. 00:11:32.559 --> 00:11:36.159 You know, you have new uh car models coming out all the time. 00:11:36.320 --> 00:11:40.720 You have uh hundreds of thousands of models being produced, lots and lots of different parts. 00:11:40.879 --> 00:11:44.639 If something goes wrong, you need to have a factory right next to you to coordinate. 00:11:44.799 --> 00:11:55.120 And uh that is one area where I would doubt that Canada would be able to uh you know create a more globalized auto industry in in particular. 00:11:55.279 --> 00:12:06.000 And that that's why uh we emphasize in the book the importance uh of uh you know developing other areas uh of trade, other kinds of industries. 00:12:06.080 --> 00:12:09.039 Uh it does include natural resources, like you mentioned, Jack. 00:12:09.120 --> 00:12:47.679 Uh, that certainly is one area where Canada has not done enough and could do more to get our natural resources to global markets, um, but also to develop uh other advanced manufacturers to uh solve our issues that are so persistent with our uh laggard status as an innovator uh in order to build up new, really globalized industries, uh, build additional sources of income, uh, not only because those things are worthwhile doing for their own ends, but because uh it reduces how lopsided the relationship with the United States is and thus the amount of leverage that any future administration um could possibly have over Canada. 00:12:47.919 --> 00:12:54.240 I I think it's a really interesting question, and especially, you know, today uh when we're talking, it's the US midterms, right? 00:12:54.399 --> 00:13:02.000 Um, it's a really interesting question of what will happen politically in the United States uh and how will that affect Canada's future? 00:13:02.240 --> 00:13:14.960 Can we just, you know, sort of uh forget anything happened with uh Trump and go back to a world of continued integration with the United States and hoping that uh thing things all play out nicely? 00:13:15.120 --> 00:13:35.759 I I think what um what Trump has revealed is that uh, you know, even if we do have good friends as things were when uh NAFTA was signed originally, it's difficult to envision what's going to happen 20 years later, 30 years later, and uh Canada can't really control what happens in US politics. 00:13:35.919 --> 00:13:52.480 Um I so I I do think it is worthwhile to nevertheless diversify international trade just to remove that possibility of well, you know, there could be a future US president in the vein of MAGA who uses that relationship as a cudgel again. 00:13:52.639 --> 00:13:56.399 Uh things are cyclical in politics, they can swing back and forth. 00:13:56.559 --> 00:14:02.879 Uh diversification off Canada's trade relationships, I think, would be nevertheless helpful. 00:14:04.000 --> 00:14:15.039 Jack, in September you published an article arguing that trade diversification comes with a heavy economic cost, warning about lost GDP and jobs. 00:14:15.200 --> 00:14:20.960 Eric is making the case that maintaining the status quo creates its own economic and strategic risks. 00:14:21.120 --> 00:14:23.039 What do you say to that argument? 00:14:24.080 --> 00:14:38.799 Well, I think uh, first of all, uh what I was trying to argue was that trying to force uh trade diversification by subsidizing industries to export to certain industries, uh countries and things like that is is not going to be a way of trying to solve our problems. 00:14:39.039 --> 00:14:52.720 Uh actually what we uh we'll probably get into this, but we need to uh I think focus on building up um the uh uh the

competitiveness of the canine economy, investment and things like that, which is a a goal right now of the government. 00:14:52.799 --> 00:15:02.559 There may be different ways that one can argue about how to do that, but I think there's uh certainly uh, you know, I I think certainly there's uh uh you know things to think about. 00:15:02.720 --> 00:15:18.320 Um what I was trying to say is that trying to stop our trade with the United States and simply uh thinking that we're going to export more to other countries uh by kind of forcing it uh through government policy, I'm not sure is as as successful as one would think. 00:15:18.480 --> 00:15:38.480 We have done the right we have actually created a number of trade agreements uh since NAFTA in 1994, of which the two most important ones was the original one, the Trans Pacific Partnership, uh and uh which was later renamed to add the word progressive because liberal tradable government liked the word progressive in it. 00:15:38.639 --> 00:15:48.480 Um but uh uh but we um we also had the uh CETA, the one with the comprehensive economic trade agreement with uh with the European Union. 00:15:49.039 --> 00:15:58.480 And but when you actually look at what they actually accomplished in more trade uh with other countries, you know, it's been positive but not particularly large. 00:15:58.639 --> 00:16:09.600 And in fact, I uh one of the pieces I did write was showing actually which share of uh imports um of another country uh does Canada account for. 00:16:09.840 --> 00:16:21.120 In the case of the United States, uh we're about 11% of um of US imports, uh, which by the way is only 1% of uh of uh US GDP. 00:16:21.200 --> 00:16:27.519 So it means that we don't have a big impact on on the United States, which is part of our vulnerability, of course. 00:16:27.679 --> 00:16:33.679 Um and the um and the and the other aspect is what it's even worse for other countries like EU. 00:16:33.759 --> 00:16:37.759 It's only like 1.7% of their imports and et cetera, et cetera. 00:16:37.919 --> 00:16:41.440 So yes, we could probably take advantage of more trade with other countries. 00:16:41.600 --> 00:16:44.000 I think there are some uh things that could be done. 00:16:44.159 --> 00:16:50.399 And part of it is, you know, making sure we have a port system that works properly, we have a regulatory system that works properly. 00:16:50.559 --> 00:17:16.720 Uh and I oh and I've been an advocate of uh big bang tax reform, which I think could also uh you know create a lot more uh potential investment in Canada, uh potentially uh potentially scaling up businesses, which by the way, we have talked about for decades about how to scale up businesses, and of course we haven't done it uh because it's hard with a small population spread over a very large area close to the United States. 00:17:16.799 --> 00:17:21.920 So it's been which is one of the reasons we we tend to be such a regional uh based economy. 00:17:22.079 --> 00:17:32.640 Uh but I but I think as a result of all these various factors, uh, you know, we we we probably can try to do more than we can in terms of some of the things that we we we do. 00:17:32.880 --> 00:17:48.720 Uh, but I think a lot of it comes down to domestic policy in trying to actually just generate more investment and uh and uh and uh economic growth, which uh we lost over the past decade from 2015 to 2025 was a very poor decade. 00:17:48.880 --> 00:18:05.759 And I think we've now seen a government has gone back to really a previous philosophy of of uh you know uh trying to uh improve the conditions for for economic growth uh in the country, as well as you know, maintain the kind of social policies that we like as a country. 00:18:07.279 --> 00:18:09.599 Eric, I will uh welcome your response on that. 00:18:10.000 --> 00:18:13.759 Yeah, I I think you raised a couple of uh really interesting points, Jack. 00:18:13.839 --> 00:18:27.599 Uh one one point that I liked and that we discussed in um you know briefly in the book is that diversification is about, well, trade diversification is about much more than just signing free trade policies, uh free trade agreements with other countries. 00:18:27.759 --> 00:18:32.240 That, you know, certainly is a lubricant to any kind of a trade relationship. 00:18:32.319 --> 00:18:41.440 But if you if you don't have the domestic capacity to actually uh operate the industry, then um you know you're not gonna see things uh uh scale up. 00:18:41.519 --> 00:18:47.599 And and that that persistent scaling issue that you mentioned, it it is really, really important to tackle. 00:18:47.920 --> 00:18:57.519 One of the uh analytical forays we do in the book is uh looking at that that scaling and how that relates to innovation outcomes. 00:18:57.680 --> 00:19:15.759 And uh there was a really interesting pattern that we landed on, which is that uh in most tech industries, uh Canada has you know a pretty low uh presence in terms of uh the amount of RD that it does per capita versus other high-income countries around the world. 00:19:15.920 --> 00:19:20.160 But there's one really interesting exception, and that's in software and ICT. 00:19:20.400 --> 00:19:27.759 In software and ICT, we are actually one of the top countries uh that does the most uh business RD per capita. 00:19:28.000 --> 00:19:34.960 And um we we tied this to the uh the the scaling phenomenon by uh looking at a couple of other things. 00:19:35.200 --> 00:19:45.440 One was the fact that in uh all of these other tech industries, Canada really has a a paucity of uh large firms that are present there. 00:19:45.599 --> 00:19:49.039 Whereas uh we actually do have some in software and Ict. 00:19:49.440 --> 00:19:53.039 It it tends to be companies that aren't necessarily household names. 00:19:53.119 --> 00:19:56.079 Um so they they don't necessarily get on people's radar. 00:19:56.160 --> 00:20:03.680 It's not you know the Microsoft and the Googles of the world, but it

it's it is things like Shopify and OpenText, more B2B companies. 00:20:03.920 --> 00:20:13.839 Um and uh I you know there is a a relationship there between uh size and and the ability to uh to actually innovate. 00:20:14.000 --> 00:20:30.559 Um uh you know, in other OECD uh countries that are some of the top uh innovators around the world, places like Germany and Taiwan and Japan and what have you, uh, the share of business RD that is done by very large companies, it's the lion's share in those other those other companies. 00:20:30.720 --> 00:20:40.640 And it's because you those uh you know, those huge companies, they have the wherewithal, the financial means, uh, the resources at that scale to actually invest in in RD. 00:20:40.720 --> 00:20:48.559 Whereas um uh you know, in in uh Canada, we just uh don't have those those large companies operating. 00:20:48.720 --> 00:21:01.039 Um so we thought that was a interesting pattern to observe because uh so much of the discussion around scaling um essentially says, well, okay, Canada is small. 00:21:01.359 --> 00:21:02.319 It's a small country. 00:21:02.480 --> 00:21:07.680 It's sort of our fate that we're not going to be able to compete with the likes of the US and China. 00:21:07.839 --> 00:21:24.000 Um, but at the same time, you know, there are other countries around the world that are smaller, not just than Canada, but smaller even than, say, Ontario, that are um considerably more successful at commercial innovation, places like Israel, places like Sweden, places like Denmark. 00:21:24.160 --> 00:21:30.799 Uh some of those in the case of the Nordics are also adjacent to much larger economies, uh, you know, Germany in their case. 00:21:30.960 --> 00:21:42.640 Um so we think that you know, there's not necessarily a complete and utter restriction on Canada's possibilities just because we're not the biggest country in the world. 00:21:42.799 --> 00:21:59.680 Uh we we we think that rather the fact that we are successful in uh software at scaling things up and doing innovation um maybe points toward the uh importance of uh of regulatory issues and and of scaling and capital access uh in order to get those. 00:22:00.240 --> 00:22:04.720 Companies to the size and maturity that we need to in order to compete internationally. 00:22:06.720 --> 00:22:11.519 Jack, can I just uh transition a little bit to the reality that we're seeing? 00:22:11.759 --> 00:22:19.119 And we're hearing from Prime Minister Mark Carney and uh President Donald Trump that there may be a deal on the table. 00:22:19.359 --> 00:22:22.240 How do you think Canada should be approaching that? 00:22:22.400 --> 00:22:25.440 Are we on the right track with a potential deal on the table? 00:22:25.599 --> 00:22:26.720 How optimistic are you? 00:22:26.799 --> 00:22:29.279 And how would you kind of navigate this from your perspective? 00:22:29.680 --> 00:22:31.440 Well, I hope we do get a deal. 00:22:31.599 --> 00:22:33.200 I think it's gonna be very

important. 00:22:33.440 --> 00:22:39.279 Uh partly because of that relationship is still there and it's not gonna disappear, and it's very important to our economy. 00:22:39.519 --> 00:22:44.000 Um and uh and so uh, but I do find it's very interesting. 00:22:44.079 --> 00:22:48.160 I mean, the one we'll we'll see, we don't know yet what's in the deal, what's even being discussed. 00:22:48.240 --> 00:22:54.720 Even all this discussion about the European Union alignment, whatever that means, we still don't understand it. 00:22:54.799 --> 00:23:07.599 Uh and in fact, I was looking up to see what does it mean to be part of the Erasmus program in you know in you know in uh in the European Union and and uh can we really actually work work in that context? 00:23:07.759 --> 00:23:10.640 In fact, I've been talking to some people with some questions about that. 00:23:10.880 --> 00:23:13.119 But it but you know, you have to get into the details. 00:23:13.200 --> 00:23:24.000 But I found the one thing that I I find very interesting is uh the because it's one thing that Trump did mention, uh, was to uh basically build Keystone XL. 00:23:24.480 --> 00:23:38.559 Well, there goes our diversification in the energy industry, because Keystone XL will add another million uh well, it could be potentially a million more right now, probably around 800,000 barrels per day going down to the United States. 00:23:38.799 --> 00:23:42.720 But that would all of a sudden offset some of the changes that would occur. 00:23:42.880 --> 00:23:44.079 I would not oppose that. 00:23:44.160 --> 00:23:52.000 I think actually uh Keystone XL would make create a lot of income for uh uh Canada and for and and jobs and everything else. 00:23:52.160 --> 00:23:57.359 So uh but as far as as economic diversification is actually going in the other direction. 00:23:57.519 --> 00:24:01.279 And that's gonna happen, I think, in terms of any kind of deal with the United States. 00:24:01.519 --> 00:24:13.759 There's still gonna be um uh, I think, a desire to make sure that we can maintain some of the uh relationship that we do have and not seeing uh uh our uh industries being hurt. 00:24:13.920 --> 00:24:19.119 As we're seeing right now in the auto sector, in the manufacturing sector in Ontario and Quebec, there's been job losses. 00:24:19.200 --> 00:24:35.680 There have been I've been talking to a number of uh Canadian companies that uh, you know, they've been holding off to see how everything kind of works off, but it's it's now two years, and uh uh they're already starting to expand their production in the United States. 00:24:35.839 --> 00:24:41.599 Uh they're not leaving Canada yet, or some have decided to do that, but uh but you are getting that. 00:24:41.759 --> 00:24:42.000 Why? 00:24:42.160 --> 00:24:42.720 Because the U.S. 00:24:42.799 --> 00:24:47.440 market is so large, and that's why the scaling up in Canada is tough for that reason. 00:24:47.519 --> 00:24:48.880 It's because of the size of the market. 00:24:48.960 --> 00:24:52.160 Now, I agree with Eric, there's lots of exceptions to that. 00:24:52.319 --> 00:24:57.759 I was a board, I was on the board of Brookfield Asset Management, a terrific international company that that works everywhere. 00:24:57.920 --> 00:25:10.079 I know the founder, very good friend of mine of OpenTex, although they're having a lot of trouble lately at OpenTax for for uh given the changes in tech artificial intelligence and what's impacting on on the business. 00:25:10.319 --> 00:25:23.599 But uh, but this is not to say that we can't we can't do well, but where I think we hurt ourselves is in some of the some of the um regulations that we have uh that I think have made it harder to have a stronger IT sector. 00:25:23.839 --> 00:25:32.000 So take a look at our uh telecommunications sector, uh protected by international comp uh from international competition. 00:25:32.319 --> 00:25:41.680 But do you see our telecommunication sector going international, becoming you know, big players uh at the international market, like some of the companies that you see internationally? 00:25:41.839 --> 00:25:42.480 No, you don't. 00:25:42.559 --> 00:25:49.039 And that's because they they have a well-protected, easy market in Canada to deal with, and they don't have to go international. 00:25:49.200 --> 00:25:51.279 There's nothing pressing them to do it. 00:25:51.440 --> 00:25:54.240 And and and it's the same thing with our banks and and others. 00:25:54.400 --> 00:26:03.839 So, you know, so we actually through our various regulations and things like that, we we d we we sometimes encourage companies just to be domestic. 00:26:04.000 --> 00:26:14.720 And that's what worries me now about some of the insuring that we talk about and some of the uh regulations that we're now thinking about, you know, favoring domestic um producers and things like that. 00:26:15.039 --> 00:26:20.640 It's gonna be just another form of protection uh for the domestic market, which means that we won't scale up. 00:26:20.799 --> 00:26:24.400 We'll we'll end up being mainly working in our own country. 00:26:25.839 --> 00:26:27.759 Eric, what are your reflections on that? 00:26:28.000 --> 00:26:33.599 How would you how do you think we're approaching President Trump in the correct way and moving in the right direction? 00:27:14.879 --> 00:27:19.440 Well, I I think we've gotta see how the uh midterms can come in, quite honestly. 00:27:19.599 --> 00:27:42.720 And and uh I wouldn't be surprised if privately part of the strategy on the part of you know Carney was playing for time a little bit to see how things would shake out because if uh I I checked the betting markets this morning and on poly market it says there's a 77% uh implied probability from speculators that uh the den Democrats will take the U.S. 00:27:42.799 --> 00:27:43.119 Senate. 00:27:43.200 --> 00:27:45.759 And that that does change the calculus involved. 00:27:45.839 --> 00:27:49.599 It

does mean that Canada gets more leverage in in making a deal. 00:27:49.759 --> 00:28:02.480 Um, you know, obviously I I uh would agree with Jack in in that we we should you know get some kind of uh agreement if it is sufficiently favorable uh to Canada. 00:28:02.639 --> 00:28:11.839 Um, that is uh an important thing to do if it is the right deal and not one that just you know is overwhelmingly lopsided and would destroy Canadian industry. 00:28:12.000 --> 00:28:24.240 Um but uh you know at the same time as working on our international trade diversification strategy, yeah, we can't just uh completely abandon and ignore the American market. 00:28:24.319 --> 00:28:31.359 It it is uh right there and overwhelmingly large, and and we should continue to uh to engage. 00:28:31.680 --> 00:28:38.000 Um I I thought uh Jack's comments on uh regulation were um uh very much on point. 00:28:38.160 --> 00:28:54.319 One of one of the uh topics that we touch on in the book is uh, for example, the set of regulatory uh practices and and conditions involved in the uh life sciences sector in Canada that can make it very difficult to scale up a company. 00:28:54.399 --> 00:29:05.519 If you look at the time it takes to get a medicine to market in Canada versus the most competitive comp uh, the most competitive countries, it's staggeringly long. 00:29:05.680 --> 00:29:10.799 Uh, you know, we're talking about uh years sometimes to get a new medicine to market. 00:29:10.960 --> 00:29:27.680 And you can even find uh instances uh in the news of Canadian biotech companies that say, well, you know, we built this company in in Canada, but ultimately we had to go to uh a completely different country to get it to market for the first time because it was just faster. 00:29:27.759 --> 00:29:38.879 Uh and you can imagine how that kind of uh that kind of slowness can uh make it very difficult to launch and to you know start making revenue as a Canadian biotech company. 00:29:39.039 --> 00:29:52.000 Um the the you know you know the issue is that uh there's all these approval procedures, some are federal, some are provincial, and uh other countries tend to do these things in parallel so that there's multiple things happening at the same time. 00:29:52.240 --> 00:29:53.920 Canada tends to do them in sequence. 00:29:54.079 --> 00:30:18.319 And and you can imagine if you're doing the same steps one after another very deliberately, uh it might save some bureaucratic cost involved because you avoid redundancy and maybe something fails at an early stage and you avoid certain steps of the process, but it also makes it very long and it makes it very difficult uh for a Canadian life sciences company to to uh mature and get to market as a result. 00:30:21.200 --> 00:30:27.119 Could I just add one point because I agreed with I agree with the points, Eric, but I would add on another another point. 00:30:27.279 --> 00:30:29.759 That's the way we run our healthcare system in Canada. 00:30:30.000 -->

00:30:41.279 When I was on the uh panel on healthcare innovation, we heard from the people that actually were innovating, you know, new types of medical equipment, new types of drugs, things like that. 00:30:41.519 --> 00:30:50.720 Their comment was about uh was about the formularies in in Canada, where uh it was very hard to sell domestically in the K market. 00:30:50.879 --> 00:30:53.839 They basically had to go uh they had to export. 00:30:54.000 --> 00:31:01.200 And the reason for that was because the formularies uh only will accept new innovations if they reduce costs. 00:31:01.519 --> 00:31:05.119 But if they have significant benefits at a higher cost, they reject them. 00:31:05.599 --> 00:31:12.799 And so the domestic market is basically shut down by the healthcare system and the way we run the healthcare system in Canada. 00:31:13.359 --> 00:31:50.240 And in terms of trying to go to export, then they complained it was really well, they I shouldn't say complain, but they raised they raised the issues of how how difficult it was actually to export to international markets because Canada's um uh government is relatively small, and that the American uh producers have a uh a lot more power in various markets because the commerce department in the United States is very will really go after a country to open up uh you know to open up their market to to American producers, or Canada doesn't have the same leverage. 00:31:50.480 --> 00:31:55.680 So I think, you know, in my view, uh necessity is always the motherhood of invention. 00:31:55.839 --> 00:31:58.319 Um Israel is absolutely remarkable. 00:31:58.399 --> 00:32:04.240 It's it's the biggest spender of RD as a shared GDP in all OECD countries, 6% of GDP. 00:32:04.480 --> 00:32:10.480 They are have they are very innovative, but of course that's been hugely driven by security requirements. 00:32:10.720 --> 00:32:29.920 And so um uh and as a result, but they've also have a lot of innovative things and other things as well, but they've really sponsored that through a very uh very common a very well pre uh developed plan to to uh be highly innovative and it's done the uh country very well. 00:32:30.079 --> 00:32:36.960 And so it is possible, like Eric said, have a small country to do well, but but you really have to create the conditions to do that. 00:32:37.039 --> 00:32:41.920 And as long as we continue doing some of the things that we do in Canada, we won't be able to scale up. 00:32:42.000 --> 00:32:44.240 And I think that's that's the issue. 00:32:44.879 --> 00:32:51.680 Eric, when you look at Prime Minister Mark Carney right now, he's getting close to two years into his mandate. 00:32:52.000 --> 00:33:01.680 And I've interviewed multiple people, including Jack, where we talk about external politics, creating relationships with the EU, um, trying to navigate the U.S. 00:33:01.759 --> 00:33:03.599 relationship, trying to sign other agreements. 00:33:03.759 --> 00:33:16.879 But then, and I I think you alluded to it, the internal mechanisms of improving cross-provincial trade, uh, updating our tax policies, these have all, from my perspective, potentially been lagging. 00:33:17.039 --> 00:33:21.359 And I'm just wondering, how would you rate the performance of Prime Minister Mark Carney to date? 00:33:21.759 --> 00:33:32.160 Well, I I I think he's been uh you know very energetic and he's made a number of uh you know significant moves to uh try to get things in in the right direction. 00:33:32.319 --> 00:33:35.680 I'm I'm personally actually relatively pleased with his performance. 00:33:35.759 --> 00:33:46.240 I I think the reality is is that uh a lot of the things that Canada needs to do are objectively very difficult and very politically contentious. 00:33:46.399 --> 00:33:48.799 That's that's a big uh uh part of the challenge. 00:33:49.039 --> 00:34:16.160 I you know, I think that uh where Mark Kearney has done uh maybe especially well has been on uh trying to expedite getting Canada's natural resources to world markets in particular, things like the major projects office, things like trying to negotiate a West Coast pipeline, um, uh thing things like the um uh the the new taxation regime uh to reduce the uh marginal effective tax rate on on uh capital. 00:34:16.320 --> 00:34:20.639 Uh that that's very helpful for all these capital-intensive resource projects. 00:34:20.800 --> 00:34:29.360 Uh, I think that if there was to be uh an Act II, uh, I think more could be done with regard to fixing the innovation problem specifically. 00:34:29.519 --> 00:34:32.720 And the there has been um some movement on on that. 00:34:32.880 --> 00:34:48.240 Uh, you know, the the RD tax credit spread, uh, they were updated uh to an extent, for example, but there's still bias towards being favorable for uh small firms and then you know not necessarily providing the same generosity as from scale. 00:34:48.320 --> 00:34:56.240 And if we have a scaling problem, it might be worth thinking about uh rebalancing uh that relationship as an example. 00:34:59.440 --> 00:35:03.200 Jack, what are your take on Prime Minister Mark Carney and his performance? 00:35:03.680 --> 00:35:07.040 Well, I think I have a a bit of more of a mixed um view. 00:35:07.120 --> 00:35:22.640 Uh on one hand, uh, and here I agree with uh with uh Eric, is that uh I think that there's a um I'm really pleased to see that there's this orientation towards uh economic growth and in in public policy. 00:35:22.800 --> 00:35:25.760 We didn't have that for 10 years under the Trudeau government. 00:35:25.920 --> 00:35:36.320 And so there's been a shift back to really what the Harbor government is trying to do, uh, as well as the Creaton and the Martin government, uh and the Mulroney government, uh which by the way, I worked under all of them. 00:35:36.480 --> 00:35:50.240 So I really have uh I have had I've had gone through these different governments, and the Trudeau government was really quite a uh

a big shift in public policy, away from uh looking at uh you know, uh thinking about economic growth. 00:35:50.400 --> 00:35:59.840 Um so I think I uh I'm really pleased to see that, and I agree with uh some of the things that are trying to be achieved, like to reduce regulatory costs and things like that. 00:36:00.080 --> 00:36:10.560 But my biggest concern is that there's still uh uh a problem, I think, in terms of uh of uh how to approach these issues. 00:36:10.800 --> 00:36:14.640 Um my view, uh I'm not a big fan of industrial policy. 00:36:14.800 --> 00:36:21.920 I affect the United States really, you know, you're now seeing Trump get into industrial policy, but frankly, the U.S. 00:36:22.080 --> 00:36:30.240 has been, I think has always had a very strong private sector despite what the government does uh in the United States, which is amazing. 00:36:30.400 --> 00:36:34.560 Uh but in Canada, we've always been so reliant on governments to direct things. 00:36:34.720 --> 00:36:41.840 But I think that we do need to have some general regulatory changes and some general tax changes and things like that. 00:36:42.000 --> 00:36:51.840 So even the even the um uh productivity uh mega uh deduction, uh which Eric referred to, uh, I'm not a big fan of that. 00:36:52.000 --> 00:37:02.960 In fact, it to me reminds me of the 1970s when government started with all these investment tax credits and accelerated depreciation favoring some industries over other industries, which is what this one's doing. 00:37:03.120 --> 00:37:12.800 And and it it leads to um unfortunately, it leads to uh you know some serious um uh distortions in the economy. 00:37:12.960 --> 00:37:21.040 And then what happened since I was brought into finance in 1984, we it was there was a view that I had to clean up the system. 00:37:21.200 --> 00:37:32.160 There were a lot of companies ended up not paying taxes, so a lot of these incentives didn't matter anymore, uh, or at least, you know, and or they were trying to figure out how to get their tax losses from one to another. 00:37:32.320 --> 00:37:35.600 Uh, the system was just completely uh out of whack. 00:37:35.680 --> 00:37:49.519 And so the view became we had to we we had to clean up the system, get rid of all these uh investment tax credits, accelerated depreciation, special preferences in the system, and just simply lower corporate rates, which were quite high actually at that time. 00:37:49.760 --> 00:38:01.360 And and so I'm I'm a great fan of neutrality when it comes to business taxation, in that in not trying to pick which which industry is going to be the winner and the loser, but really to support all of them. 00:38:01.519 --> 00:38:13.200 And and that's that's what I see right now with the current system, which I think is a problem, in in terms of there's still a lot of being direction coming from the federal government about which industries to invest in. 00:38:13.360 --> 00:38:18.400 And I think I think that that's that could

be a recipe for failure down the road. 00:38:19.040 --> 00:38:22.800 Eric, what are your thoughts on Jack's perspective on taxation? 00:38:23.519 --> 00:38:29.360 I I well, taxation among other other things that uh Jack mentioned. 00:38:29.440 --> 00:38:41.519 I I mean, um I I I think there's there's other elements actually where there could be uh uh increased neutrality to Jack's point, where it might actually help scaling specifically. 00:38:41.680 --> 00:38:56.880 Uh one one of the issues we touch on in on in the book is uh you know, it's politically contentious, but Canada actually has very preferable uh corporate tax rate for rates for small businesses compared to other uh high-income countries around the world. 00:38:57.040 --> 00:39:12.080 Um there was a um uh you know a paper from um some academics in Alberta, it might have been University of Calgary, if I'm remembering correctly, that was looking at the size of the the tax wall that's um in companies face as as they scale. 00:39:12.160 --> 00:39:14.000 It's absolutely huge in in Canada. 00:39:14.320 --> 00:39:15.120 That was like a patron. 00:39:15.519 --> 00:39:16.800 Oh, that was your was that? 00:39:16.880 --> 00:39:18.000 Oh, there you go. 00:39:18.320 --> 00:39:19.120 It's so funny. 00:39:19.200 --> 00:39:21.200 Uh yeah, well, I won't disagree with you. 00:39:21.280 --> 00:39:21.680 I'm listening. 00:39:22.320 --> 00:39:23.519 We talked about that in the book. 00:39:23.600 --> 00:39:24.480 That's hilarious. 00:39:24.720 --> 00:39:42.480 Um the the uh the other um the other um you know article that I liked on this topic was from a uh Bank of Canada economist who uh looked at changes in the um the tax threshold uh that applies to small versus you know larger businesses in Canada over time. 00:39:42.720 --> 00:39:59.360 And um what the really interesting finding was was that uh small businesses actually adjust the amount of uh of business that they do, the amount of uh revenue that they do, so that they can come in just under the threshold where the tax level changes. 00:39:59.519 --> 00:40:06.160 And and you know, it goes back and forth over time, but they keep you know running and trying to hit this moving moving target. 00:40:06.320 --> 00:40:10.800 And uh it's it's really easy to imagine how that discourages scaling. 00:40:10.960 --> 00:40:20.960 If you have an incentive to stay small, stay below this uh threshold, then um uh you know, of course, companies aren't just going to grow to uh to become bigger. 00:40:21.120 --> 00:40:23.920 And um it does come with a significant cost. 00:40:24.080 --> 00:40:42.800 The I remember the OECD uh estimated that the the uh cost uh in terms of you know foregone tax revenue uh that is associated with the very favorable low tax rates for small businesses in Canada is uh bigger than the entire cost of the SRNED uh tax credit. 00:40:42.960 --> 00:40:48.960 So that would be one element you know where maybe a more neutral tax system uh could come into

play. 00:40:49.600 --> 00:40:53.440 Eric, very quickly, I just I don't think I got your answer on the comment. 00:40:53.680 --> 00:40:58.480 Do you think Canada should try and enter into a new trade agreement as soon as possible? 00:40:58.640 --> 00:41:01.120 There's talks that there may be one on the table. 00:41:01.360 --> 00:41:04.720 Would you in in principle support trying to resolve this as well? 00:41:04.800 --> 00:41:06.720 Sorry, with the United States, you mean specifically? 00:41:06.960 --> 00:41:07.440 Yes, correct. 00:41:07.680 --> 00:41:08.160 Yeah, yeah. 00:41:08.240 --> 00:41:11.680 I mean, provided it's it's the right kind of uh agreement. 00:41:11.840 --> 00:41:21.760 I, you know, the the prior iteration that we saw in in the summer, uh, I I just don't know how Canada's auto industry would have survived on under that one, quite honestly. 00:41:22.160 --> 00:41:35.760 And you know, not that I have you know years of experience in the auto industry, I very much don't, but uh it it seemed like, by all appearances, that it would have been close to fatal, if not de facto fatal to Canada's auto industry. 00:41:35.840 --> 00:41:39.840 So, you know, that that's a version of a deal that would not have been acceptable. 00:41:40.000 --> 00:41:46.480 Uh but we we should nevertheless strive to get a more balanced deal and uh let's see how the midterms go today. 00:41:46.640 --> 00:41:55.040 It may be that Canada gets more leverage as a result and that uh we we can get a free trade deal um that that is more reasonable. 00:41:55.680 --> 00:41:59.680 Jack, what was your take on that on that deal that was previously offered? 00:41:59.760 --> 00:42:07.040 There were concerns, I think, as well about Canadian sovereignty and and the rules around being able to reach out to other countries in foreign trade deals. 00:42:07.280 --> 00:42:08.480 Did you support that initial one? 00:42:08.800 --> 00:42:11.440 Well, the problem is we don't really know what was being discussed. 00:42:11.519 --> 00:42:22.400 Uh, you know, you do hear a different, somewhat different points of view of obviously between the United States and Canada, and both of them are going to be presenting their their own argument in in whatever form they want to. 00:42:22.560 --> 00:42:24.160 Um I do agree with Eric. 00:42:24.400 --> 00:42:32.720 Probably uh I think the biggest concern was over the large vehicle, uh, you know, the larger vehicle uh issues, and and that may have been a problem. 00:42:32.800 --> 00:42:45.760 But some of the other things that came up, uh the Amer I know the Americans really don't care that much about uh issues about, you know, French and you know and you know being required and things like that. 00:42:45.840 --> 00:42:50.800 I think that was that was uh I don't think there was any any basis to that. 00:42:51.040 --> 00:42:55.760 In fact, I do know that the Americans what they were upset about was tariffs on streamers. 00:42:55.920 --> 00:43:03.360 They weren't

tariffs, they were ta new taxes on streamers, uh, partly because the stream I've talked to the streamers themselves about that. 00:43:03.519 --> 00:43:16.320 Um and and that was a big issue for for them, as well as previously the digital service uh uh sales tax, which of course is not just Canada, other countries they've been quite uh going after. 00:43:16.480 --> 00:43:30.880 And there is a bigger issue out there over data saver sovereignty uh in the in the in the you know in in uh in these in these issues uh you know with Meta and and all these other American uh dominant firms in the world now. 00:43:31.040 --> 00:43:34.400 And of course the Europeans are talking about it, and we're talking about it, and things like that. 00:43:34.480 --> 00:43:45.920 And I think that's an issue that's gonna be one that's not resolved uh very easily, but I think that will be uh that will be potentially part of any uh trade negotiation, I think, uh down the road. 00:43:46.160 --> 00:43:52.480 Um so I think uh, and of course, supply management is something that the Americans have complained about a long time. 00:43:52.720 --> 00:43:54.960 I would love to see us get rid of supply management. 00:43:55.120 --> 00:43:56.720 I think it's just a dreadful program. 00:43:57.040 --> 00:43:58.320 And it's it's a good example. 00:43:58.480 --> 00:44:05.440 When you put a policy in like that one, it's very hard to undo it uh once you create a uh a special interest group that wants to keep it in. 00:44:05.519 --> 00:44:14.480 And that's what we're gonna see with the tariffs in the United States, that even when Biden came in after the first Trump, uh, he didn't get rid of the tr Trump's tariffs very easily. 00:44:14.560 --> 00:44:25.040 And you're gonna see this after the um after Trump is gone in 2028, and who knows it could be even a Democrat uh uh government by that point in in 2028. 00:44:25.360 --> 00:44:32.880 I will bet you that we will not see a big change in terror policy in the United States because they are becoming very reliant on the revenues. 00:44:32.960 --> 00:44:38.720 You know,$200 billion a year is two trillion dollars over ten years, and that's how they look at their budgets. 00:44:38.800 --> 00:44:45.440 And so So uh that's that's not given the size of their deficits, they're not going to be wanting to give up revenues that easily. 00:44:45.600 --> 00:44:54.720 So um and and they will also have a lot of special interest groups that will want to keep their protection, just like we've seen in Canada, with the same sort of thing. 00:44:55.120 --> 00:45:00.720 So so I think, you know, I think uh you know, uh I'm not sure what a good agreement means. 00:45:00.800 --> 00:45:04.800 Everyone says, oh, you know, if it's a if if it's a good agreement, then that's fine. 00:45:05.120 --> 00:45:09.200 But let's see what uh what we're talking about in terms of a good agreement. 00:45:10.080 --> 00:45:13.040 Eric, we needed to get here supply management. 00:45:13.200 -->

00:45:19.920 I've been accused of being a shill for big supply management because I don't ask economists enough about their perspectives on it. 00:45:20.400 --> 00:45:25.519 What are your thoughts on supply management uh and the process to resolve that with the US? 00:45:25.840 --> 00:45:33.280 Well, well, I I think you're gonna be very hard-pressed to find a serious economist of any kind who supports supply management. 00:45:33.360 --> 00:45:36.560 There's very obvious inefficiencies in the system. 00:45:36.720 --> 00:45:42.400 I mean, it's it's a quota system, it's not truly a free market in the uh purest sense of it. 00:45:42.480 --> 00:45:45.600 And it does hobble Canadian production and productivity. 00:45:45.680 --> 00:45:47.760 It drives a cost unnecessarily. 00:45:47.840 --> 00:45:50.000 It is really an awful system. 00:45:50.080 --> 00:45:59.519 Um, there's uh two points around that that we highlight in the book about just how um absurd the uh results of the supply management system are. 00:45:59.920 --> 00:46:08.000 One is the fact that Canada uh actually has a history of destroying dairy rather than allowing it to uh be sold. 00:46:08.080 --> 00:46:11.600 And and I'm you know, people are very concerned about the cost of living these days. 00:46:11.760 --> 00:46:18.240 Why are we actually destroying milk and and and cheese and what have you when we could be uh selling it? 00:46:18.480 --> 00:46:29.440 The the other um the other point is that uh, you know, uh we we should be trying to diversify on all fronts, and uh agriculture could be one of those. 00:46:29.600 --> 00:46:37.040 And uh, you know, there are some elements of the agricultural system that are not quite so protected, but uh dairy and poultry very much are. 00:46:37.120 --> 00:46:49.920 Um and it's it's uh striking that New Zealand, tiny New Zealand, that has only a fraction of Canada's population, a fraction of Canada's land area, exports more dairy in Canada. 00:46:50.000 --> 00:46:51.200 It's it's preposterous. 00:46:51.360 --> 00:46:56.320 And uh they they you know do not have uh supply management uh anymore. 00:46:56.480 --> 00:47:08.080 Uh they have a very uh competitive industry there that has been forced into the international export uh sector, as it were, uh forced to become productive, to become hyper-efficient. 00:47:08.240 --> 00:47:12.880 And uh now it's it's it's a global brand, you know, New Zealand dairy, New Zealand milk. 00:47:12.960 --> 00:47:15.360 Uh why can't Canada do the same thing? 00:47:15.519 --> 00:47:18.400 We absolutely should dismantle supply management. 00:47:18.560 --> 00:47:30.160 And it it is really just uh a set of special interests that wants to defend an unproductive, uncompetitive system that benefits them and makes everybody else worse off. 00:47:31.120 --> 00:47:43.680 Jack, you've argued for major tax reform, including reducing the general federal corporate income tax rate to 10% and shifting some of the tax burden toward consumption

or payroll taxes. 00:47:43.920 --> 00:47:47.760 Why do you believe that would generate more investment in prosperity? 00:47:48.560 --> 00:47:48.880 Okay. 00:47:49.040 --> 00:48:12.000 Well, uh, first of all, uh uh with regard to um uh the proposals I made on uh big bang tax reform, uh uh I want to mention that actually uh, and Eric will like this, the 10% rate would be applied to all firms and you'd get rid of the small business deduction and two dividend tax credits and things like that. 00:48:12.160 --> 00:48:14.480 It would be significant simplification. 00:48:14.720 --> 00:48:21.680 Uh but more generally, uh Canada uh collects more income taxes as a share of GDP than all other G7 countries. 00:48:21.840 --> 00:48:45.600 Um and in fact, uh when you start looking at our uh top marginal rate of uh which is roughly uh average across the country, around 52 percent, 53.5 percent in Ontario uh and and uh and in Quebec, but uh you know uh Alberta and and uh Saskatchewan's a bit less and stuff and BC, uh no, not BC anymore. 00:48:45.760 --> 00:48:51.840 Anyway, um but the main point is that uh that top rate applies at a relatively low income level. 00:48:51.920 --> 00:48:56.240 Uh it's only uh roughly about uh three times the average wage in Canada. 00:48:56.400 --> 00:49:06.400 Well, if you look at France and Japan, which have slightly higher marginal tax rates at the top end, uh it's uh it's in the case of Japan, it's nine times the wage rate. 00:49:06.560 --> 00:49:09.760 And in in France it's 14 times the average wage rate. 00:49:09.840 --> 00:49:11.280 So um wages. 00:49:11.440 --> 00:49:18.000 So, you know, it's uh you know, it's it's a uh we we we really do have uh you know relatively high rates. 00:49:18.080 --> 00:49:31.280 And in fact, one of the things we showed is that actually the the rates are even for low-income people, uh the marginal tax rates are or the average tax rates, income tax rates are higher uh than other G7 countries. 00:49:31.440 --> 00:49:39.040 And so uh we really rely on income taxes a lot, including corporate income taxes, and and that's more than uh other countries. 00:49:39.120 --> 00:49:45.280 And they're they and economic studies have shown they are the most uh economically distortive uh taxes to have. 00:49:45.360 --> 00:49:51.840 They discourage work, they discourage risk taking, uh, et cetera, and uh discourages venture capital. 00:49:52.000 --> 00:49:59.760 Some of the things that Eric would like to see that makes it harder with the kind of tax system that we have at the personal level, uh uh, particularly. 00:50:00.240 --> 00:50:21.040 And and at the corporate level, we we have all these distortions in the system that we keep making even worse lately, you know, especially in the past uh 10, 10 since 2012, basically, where governments have been throwing in more investment tax credits and sell you know, special preferences and um and uh and have no longer been cutting the corporate rates. 00:50:21.200 --> 00:50:27.280 What's happened to all the other country uh countries have been cutting rates and Canada no longer uh stands out. 00:50:27.519 --> 00:50:34.320 So um so on so the corporate taxes, uh, you know, we've lost the tax advantage that we created by 2012. 00:50:34.480 --> 00:50:38.400 And so uh uh so generally our income taxes are too high. 00:50:38.640 --> 00:50:48.720 The good thing about consumption taxes and payroll taxes, that's an area where we don't have as much taxation as other uh OECD countries and uh and G7 countries. 00:50:48.960 --> 00:50:58.240 And I've been kind of uh I realize GST raising the rate is tough because seniors pay it and they don't they have fixed incomes and they're very opposed to increasing it. 00:50:58.480 --> 00:51:02.560 I think Harper figured that out when he decided to cut the GST rate. 00:51:02.720 --> 00:51:13.120 Um but the one uh the one idea that I'm kind of attracted to is bringing in a payroll tax uh on employers to fund uh healthcare, a dedicated tax. 00:51:13.280 --> 00:51:16.240 In fact, maybe creating something like a special fund. 00:51:16.720 --> 00:51:28.560 And and since five or six provinces already have that kind of payroll tax, maybe you could have a joint federal provincial employer payroll tax to fund healthcare and add more money into the system. 00:51:28.720 --> 00:51:38.640 And that actually might be more appealing, I think, to people in terms of a of a of a shift toward away from income taxes towards uh towards a less damaging tax. 00:51:40.000 --> 00:51:41.680 Eric, what is your response to that? 00:51:41.840 --> 00:51:46.400 Your book makes a slightly different argument, and I'd just be curious as to how you take Jack's comments. 00:51:46.720 --> 00:51:58.400 Well, well, I I think uh slightly different, but sort of thinking in similar directions about how do we incentivize uh people to uh you know to innovate more and to build more, to scale more. 00:51:58.560 --> 00:52:21.440 So one example is that uh we we reflect on a um tax policy in Sweden, where when you are a founder and you've got uh equity from a successful exit that you're looking to sell, uh they have a policy where you're you're allowed to not simply you know just immediately uh pay capital gains and what have you. 00:52:21.680 --> 00:52:36.560 What they allow uh the these founders to do is uh put their uh earnings into a special vehicle that can be reinvested uh as you know, they they can defer the capital gains on the condition that they reinvest their earnings. 00:52:36.800 --> 00:52:52.880 And uh it I think there's a strong argument that uh that that specifically creates and you know incentives and action in Sweden for people to become repeat founders, for people who are successful founders to then go on into angel investment, venture capital. 00:52:53.120 --> 00:52:59.760 And uh what's nice about that is that it's it's not merely um you know uh changing incentives overall. 00:52:59.840 --> 00:53:07.519 It's it's

really targeted at the people who uh are successful and have the know-how to actually do these things, to do it over and over. 00:53:07.680 --> 00:53:25.440 Whereas uh in in Canada, there's uh a relatively um you know uh strenuous set of policies uh on on you know the the the threshold at which you have to start paying uh capital gains on on your overall uh uh lifetime uh earnings from these things. 00:53:25.680 --> 00:53:40.080 And it it's it's important because the the know-how that you gain from going through these things, if you're then able to transfer that to other people, you're you're spreading knowledge throughout a system, you're enabling uh more people to scale, yourself to scale more. 00:53:40.160 --> 00:53:53.200 Uh I recall one paper, for example, showing that uh successful former founders then go on to be better venture capitalists who uh you know create more successful investments, allow those companies to scale up. 00:53:53.280 --> 00:54:00.480 Uh so that would be one example of a tax reform that I would be interested at looking at in the case of Canada. 00:54:01.280 --> 00:54:08.160 We only have a few minutes left, uh, but I do want to go over a few different, I think interesting questions for each of you. 00:54:08.320 --> 00:54:10.560 So I'll start with you, Jack. 00:54:10.800 --> 00:54:17.440 How hard do you think Canada should fight for access to the American market and trying to continue to grow that? 00:54:19.440 --> 00:54:20.560 Oh, sorry, Jack. 00:54:20.720 --> 00:54:20.880 Sorry. 00:54:21.120 --> 00:54:22.080 Yes, can you hear me? 00:54:22.320 --> 00:54:22.640 Sorry. 00:54:22.800 --> 00:54:23.120 Yeah, yeah. 00:54:23.200 --> 00:54:23.920 Sorry, go again. 00:54:24.000 --> 00:54:24.560 My apologies. 00:54:24.800 --> 00:54:28.640 Um Well, I I think we have to fight hard for our access to the U.S. 00:54:28.720 --> 00:54:29.040 market. 00:54:29.120 --> 00:54:31.360 I don't think that's something you want to give up. 00:54:31.680 --> 00:54:35.440 And uh and so we're gonna have to have some sort of trade agreement. 00:54:35.680 --> 00:54:40.240 May not, it's not gonna be the same trade agreement as NAFTA was and even Kuzma. 00:54:40.400 --> 00:54:49.120 Uh new issues come up, but if we can end up uh having something that is positive for both countries, I think uh that will be a good thing, not a bad thing. 00:54:49.360 --> 00:54:52.240 We we are dealing with a very different world today. 00:54:52.400 --> 00:55:07.040 Um in fact, uh I've just been finishing reading a book by Brendan Sims on the return of uh of uh you know of uh of uh superpowers or of great powers uh in the world. 00:55:07.120 --> 00:55:09.360 And it's fascinating reading when you think about it. 00:55:09.440 --> 00:55:23.040 But we are in a very different world today with with uh two major superpowers, uh with another one that's still continuing as a bit of a major power as Russia, but uh only because of the military strength that it has. 00:55:23.280 --> 00:55:29.040 And uh and and that puts us in a very difficult position about who we're gonna be friends with. 00:55:29.200 --> 00:55:39.040 And and so I think it's uh I think it's a different world we have today than we had uh just 25 years ago when the United States dominated the world uh entirely. 00:55:39.280 --> 00:55:43.760 And so uh we are gonna have to figure out where we want to position ourselves. 00:55:44.000 --> 00:55:48.400 And I think in the end it's gonna have to be with the United States, whether we like it or not. 00:55:48.640 --> 00:56:10.400 Um, and and and and uh yeah, we we can trade more with Europe and some of the friendly countries like Japan and South Korea and things like that, but it's uh uh when you start looking at what's happening around the world, uh alliances are going to build, I think, uh particularly those countries that are gonna be uh with the Chinese side and those countries that are gonna be with the United States. 00:56:10.640 --> 00:56:14.400 And that's why I think in the end, uh it's gonna be the Western Alliance. 00:56:14.480 --> 00:56:16.160 It's gonna have to be strengthened. 00:56:17.200 --> 00:56:18.880 Eric, what are your thoughts? 00:56:19.760 --> 00:56:37.760 Well, well, uh yeah, and I think it highlights an important um uh you know tension that is very much in the uh public's eye, which is how do we how do we manage uh you know the relationship with the United Nation with the United States at the same time as diversifying our trade relationships? 00:56:37.920 --> 00:56:42.480 And uh it's it's important not to think that these things are opposites somehow. 00:56:42.720 --> 00:56:52.800 Uh you know, the the the impact of geography, of cultural similarity, of of linguistic overlap between Canada and the United States, it is overwhelming. 00:56:52.880 --> 00:56:59.519 And it would be unrealistic to think that the United States is not going to be a dominant trade partner for Canada in in the future. 00:56:59.840 --> 00:57:02.960 Of course, we're going to keep trading with the United States on a huge scale. 00:57:03.519 --> 00:57:13.600 It's just that at the same time as do as we do that, we can't uh continue to be in this position where we are just utterly beholden to the United States strategically. 00:57:13.760 --> 00:57:27.920 Uh, you know, we can we can be a better friend and ally, we can be uh a more uh sovereign version of ourselves if we if we diversify our international trade at the same time as maintaining a trading relationship uh with the United States. 00:57:28.000 --> 00:57:31.440 So I do think that both of these things have to be pursued. 00:57:32.560 --> 00:57:37.280 As a follow-up to that, Eric, you talk about the Australia model. 00:57:37.360 --> 00:57:44.240 And I'm just wondering if you can very briefly outline what the Australia model tells you, what you think we should take away from that. 00:57:44.400 --> 00:57:47.600 And then Jack, I'd like to pass it over to you to give some

thoughts on that. 00:57:48.000 --> 00:58:02.960 Well, the the Australia model makes the point that uh even if Canada is relatively cut off from American markets, if there's increased friction, that it is possible to be both remote and also prosperous, uh, as Australia proves. 00:58:03.120 --> 00:58:06.880 And um, it it's interesting to see the set of industries through which they do that. 00:58:06.960 --> 00:58:12.800 Uh, Australia's international exports are overwhelmingly dependent on mining and agriculture. 00:58:12.960 --> 00:58:22.720 And uh those things have particular qualities in that they don't have this intensive regional supply supply chain coordination like you get, for example, in the automobile sector. 00:58:22.880 --> 00:58:30.000 So they're they're able to prosper because they've been able to specialize in industries that are resilient to remoteness. 00:58:30.240 --> 00:58:32.480 And that paves the lesson for Canada. 00:58:32.640 --> 00:58:36.160 Uh obviously, mining and agriculture are good examples of that. 00:58:36.400 --> 00:58:44.320 But then we highlight in Canada after America, well, there's there's also other ones in advanced manufacturers like aerospace and like life sciences. 00:58:45.040 --> 00:58:46.640 Jack, what is your perspective? 00:58:47.200 --> 00:58:49.440 Well, actually, I do a lot of work on Australia. 00:58:49.600 --> 00:58:55.120 In fact, I'm just finishing a paper for the Australians on mining taxation. 00:58:55.519 --> 00:59:09.200 Um, the um uh the Australian Australia's been a remarkable country, uh, especially since uh after the 1980s, where they shifted from uh a lot of uh uh regulatory control uh over the economy. 00:59:09.440 --> 00:59:18.880 You have to remember Australia was created um partly because of the interest of having uh stronger internal trade uh amongst the different parts of Australia. 00:59:18.960 --> 00:59:25.600 Because they're all, you know, Australia's kind of you know, you have different parts of the country that's all around the middle. 00:59:25.840 --> 00:59:35.440 The middle is kind of barren, it's like they're our Northwest territories, the middle, but the you know, the population is either on the east, west, north, south. 00:59:35.680 --> 00:59:42.080 And so uh internal uh getting rid of internal trade barriers was a major motivation for the creation of the Federation. 00:59:42.240 --> 00:59:45.040 And so they've always been very concerned about trade. 00:59:45.200 --> 00:59:57.600 And and uh and so uh they're they're big, you know, they do have very significant um uh uh comparative advantage in the in the resource sector, including agriculture, obviously. 00:59:57.840 --> 01:00:09.760 And uh and uh but what happened in the 1990s is that the the economy was not doing all that well, and so they decided to undo a lot of the bad regulations and tax policies at that time. 01:00:09.840 --> 01:00:29.760 They moved they adopted the GST uh as an example, they got uh rid of a bunch of

tariffs, and because of the because of the tariff uh reductions in Australia, the auto industry could no longer compete internationally or in Australia, and so the Australians decided, well, we're not gonna keep you, we're just gonna let you go. 01:00:30.000 --> 01:00:47.280 And they also got rid of supply management uh through a very very innovative policy, which allowed them not only, this is one thing we don't do in Canada, they export a lot of uh uh dairy products, not just milk, dairy products, because in Canada our raw milk is too expensive. 01:00:47.440 --> 01:00:58.400 And so you you we're not gonna be exporters of cheese and exporters of codities and other products that could go, you know, that are derivatives, uh, when you have such a high cost of raw milk. 01:00:58.560 --> 01:01:17.680 And so that's just a bit of an example, but Australians have done a lot of this movement towards economic efficiency and approved allocative efficiency that has allowed them to grow in in uh and and and uh and and allow their uh economy to to do a lot better. 01:01:17.840 --> 01:01:26.240 And and I think that is the example I like using for Canada in terms of undoing some of the things that we're doing right now. 01:01:26.320 --> 01:01:36.960 Um, even unless early the healthcare systems very run similarly to all the European ones, where they have a public and a private uh parallel systems and and uh and etc. 01:01:37.200 --> 01:01:48.400 And in fact, if you look at their spending as a share of GDP, much lower than what you find in Canada in terms of government spending, and and also their debt isn't as high as in Canada. 01:01:48.480 --> 01:01:54.560 So they've had a lot of very smart uh policies that they've adopted over the years that made them very competitive. 01:01:55.840 --> 01:01:59.040 Eric, could you share where people can find your book? 01:01:59.120 --> 01:02:02.720 And if you have a copy, if you could uh show it to the uh uh certainly. 01:02:02.880 --> 01:02:09.840 Um so uh people can find our our book, Canada After America, in uh bookstores uh across the country. 01:02:10.000 --> 01:02:11.440 You can get it uh online. 01:02:11.840 --> 01:02:14.080 The publisher is uh Sutherland House. 01:02:14.240 --> 01:02:19.519 Uh you can just Google Canada After America, a strategy for prosperity in a changed world. 01:02:19.600 --> 01:02:23.920 It's it's you know it's on Amazon, it's on indigo chapters, all of that. 01:02:24.160 --> 01:02:37.760 Um I I also want to flag that as uh concomitant with the launch of the book, we're opening a new policy shop at McGill University's Maxwell School of Public Policy, uh, a new growth lab uh office there. 01:02:37.920 --> 01:02:43.760 Uh, and we're very eager to work with policymakers across the country on economic policy issues. 01:02:43.920 --> 01:02:48.960 So uh we are uh eager to uh talk to everybody. 01:02:49.920 --> 01:02:52.160 Jack, how can people follow your work? 01:02:53.519 --> 01:02:56.240 Well, basically, uh I don't have a website. 01:02:56.400 --> 01:03:00.400 I don't know why I've never decided maybe just never had enough time to create these things. 01:03:00.480 --> 01:03:03.200 It's not been a big, I guess, priority for me. 01:03:03.360 --> 01:03:10.000 Uh, but I do uh in terms of the my financial post articles, you can usually get them on the website of the financial post. 01:03:10.640 --> 01:03:17.040 Um and uh I usually publish a lot of my work uh through various um various things. 01:03:17.200 --> 01:03:25.440 Uh for example, uh there's a massive paper on mining taxation in Latin America and the Caribbeans with the Inter-American Development Bank. 01:03:25.600 --> 01:03:28.400 There's papers that are published in various journals. 01:03:28.480 --> 01:03:33.200 I've also published uh uh with uh various think tanks, including the C.D. 01:03:33.360 --> 01:03:42.560 However Institute and uh McDonnell Laurier Institute, and um and uh, you know, and I forget I can't remember all the others. 01:03:42.800 --> 01:03:44.880 Fraser, I think, has also published some of my stuff. 01:03:44.960 --> 01:03:47.440 So so it's it's scattered around in different places. 01:03:47.760 --> 01:03:54.960 I do try to get the ideas out uh in in various ways, but uh uh but that's a way that people could find it. 01:03:55.120 --> 01:03:59.600 And uh uh and of course they've had some book publications in the past. 01:04:00.320 --> 01:04:00.960 Tremendous. 01:04:01.120 --> 01:04:06.800 Well, I know both of you are thinking, well, we didn't really debate or disagree extremely, and I think that's the gift, right? 01:04:06.880 --> 01:04:08.880 Like I view this as very important. 01:04:09.040 --> 01:04:20.560 We set this up as a debate, but it didn't need to go there because there is overlap, and I think that gives hopefully Canadians reassurances that we're all thinking these through issues through and trying to find a path forward. 01:04:20.720 --> 01:04:33.280 And it's we're we maybe disagree on the fringes, but agree a lot on the pathway forward, which gives me a lot of hope that um we have a lot of academics and experts like yourself willing to come forward and have the debate. 01:04:33.360 --> 01:04:38.960 You don't know how many times I've reached out to people and they go, I don't want to disagree with another person on camera. 01:04:39.040 --> 01:04:40.640 Like I just don't want to be a part of that. 01:04:40.720 --> 01:04:46.560 Um, so the fact that you were both willing, you still deserve absolute kudos and respect for being willing to hash out your ideas. 01:04:46.640 --> 01:04:49.040 Eric, you didn't exactly know what you were walking into. 01:04:49.200 --> 01:04:50.640 I don't think you did either, Jack. 01:04:50.720 --> 01:04:53.200 And yet we we founded a lot of calming ground. 01:04:53.280 --> 01:04:56.000 And I'm never going to complain about that or see that as a negative. 01:04:56.080 --> 01:04:59.920 I think it's an absolute win for our country uh and for the path forward. 01:05:00.000 --> 01:05:02.800 So thank you both again for joining us today. 01:05:03.600 --> 01:05:04.880 Thank you, thank you both as well. 01:05:04.960 --> 01:05:06.240 It's been a real uh pleasure. 01:05:06.320 --> 01:05:11.760 And yeah, you know, I I always find uh a good uh discussion very stimulating and productive. 01:05:11.920 --> 01:05:13.360 So uh agree, agree. 01:05:13.440 --> 01:05:15.760 It was it was a it was a good chat.