Industrial Policy in Canada After Market Fundamentalism
The useful question is not whether government should intervene, but how it can set strategic direction while preserving competition, price discovery and the possibility of failure. Mark Carney’s polic
This essay was triggered by Bryan Cheang’s Montreal Economic Institute critique of Mark Carney’s proposed Canada Strong Fund. Cheang’s central objection deserves engagement: Norway accumulated petroleum revenues before investing them, while Singapore accumulated reserves before establishing GIC. Canada proposes to capitalize a C$25 billion investment fund while carrying government debt, so whatever label Ottawa uses, the assets have to earn enough to cover financing costs, operating expenses, investment risk and the opportunity cost of using the money elsewhere.
Singapore makes the argument less tidy. GIC is only one of its two major public investment institutions, and it is not the one most relevant to what Carney appears to be attempting. Temasek was incorporated in 1974 with 35 companies worth S$354 million that the Singapore government had created or acquired during its industrial development. The state retained ownership while professional commercial management was separated from day-to-day policymaking. Temasek does not prove that public investment is inherently wise, or that Canada can reproduce Singapore’s institutions, but it establishes a more important point: public wealth need not begin as oil royalties or a pile of accumulated cash. Governments can help create productive capabilities, retain ownership, impose commercial discipline and compound the resulting wealth.
The most revealing complication comes from Cheang himself. His peer-reviewed paper, What Can Industrial Policy Do? Evidence from Singapore, is considerably more nuanced than the MEI article. He treats Singapore as a serious challenge to the Austrian proposition that successful industrial planning is impossible and accepts that its industrial policies contributed materially to development. His remaining case is about trade-offs: state-led development may have constrained local entrepreneurship and small-business discovery relative to an unknowable market-led alternative. That is a worthwhile argument about institutional capacity, commercial discipline and opportunity cost. It is no longer an argument that governments cannot create productive wealth.
Once that concession is made, the interesting question changes. It is not whether government or markets should run the economy. It is how governments can set strategic direction, build common capabilities and solve coordination problems without suppressing the distributed knowledge, experimentation and competitive pressure that make markets useful.
The Hayek I Had Misunderstood
That question led me back to Friedrich Hayek and to a correction in my own understanding of him. I had repeatedly encountered extreme positions attributed to Hayek, checked what he actually wrote and found more nuance, which left me inclined to blame the harder market fundamentalism associated with his name mostly on later libertarians and free-market institutions. That was too generous to Hayek himself.
His central economic insight remains powerful. Much of the knowledge required to coordinate an economy is local, tacit, temporary and distributed among millions of people. Prices let that knowledge influence decisions without requiring a minister, executive or investment committee to possess the whole picture. Hayek also distinguished centralized direction from what he called planning for competition: government could establish institutions and rules that allowed competitive discovery rather than prescribing every result. This leaves considerably more room for public goods, institutional design and social provision than the caricature in which markets know everything and governments know nothing.
It also supplies one of the best questions that can be asked of industrial policy: how could officials know that the company, technology or production model they favour will outperform alternatives they have not considered?
The later Hayek carried that insight into much harder political territory. His concern about the limits of economic knowledge expanded into hostility toward deliberate attempts to shape distributive outcomes, a rejection of social justice as a coherent objective and a willingness to subordinate democracy to his conception of liberal order. The qualifications around his notorious comments on temporary authoritarian government matter, but so does the fact that he made them. Those positions were not simply invented by the institutions that later claimed his intellectual legacy.
The evolution was not a clean division between a sensible young Hayek and an extreme old one. The Road to Serfdom was already a forceful political argument, while the older Hayek retained more nuance about legitimate government activity than many of his followers. The better description is that a powerful epistemic warning widened and hardened. What is worth retaining is the knowledge problem, competition as discovery and suspicion of institutions claiming more certainty than the evidence permits. What should be rejected is the leap from government cannot know everything to government should therefore avoid collectively choosing strategic, environmental or distributive outcomes. The knowledge problem is a constraint on how government should act, not a universal veto on acting.
Keynes, Schumpeter and the Symmetry of Failure
Keynes supplies the necessary counterweight, although industrial policy was not his primary subject. His contribution here is the recognition that non-intervention is itself a consequential policy choice. Markets can produce collapsing investment, prolonged unemployment and socially destructive outcomes without quickly returning to an acceptable equilibrium. Watching that happen is still a policy decision.
The 2008 financial crisis demonstrated the point through revealed preference. Stephen Harper’s Conservative government had defined itself partly around fiscal restraint and scepticism about activist government, yet its 2009 Economic Action Plan introduced major stimulus when the alternative appeared to be a much deeper recession. Faced with an actual collapse rather than an ideological debate, tough-love fiscal conservatives reached for collective demand management.
Keynes and Hayek were also less alien to one another than later political arguments imply. Keynes told Hayek after reading The Road to Serfdom that he agreed deeply with much of its moral and philosophical argument. Their important disagreement was over the inference Hayek drew: Keynes did not accept that moderate planning, public investment or social provision necessarily led down a road toward totalitarian control.
The useful synthesis is therefore complementary. Keynes explains why governments sometimes have to act because markets can produce destructive outcomes or fail to supply essential capabilities. Hayek explains why the resulting intervention should preserve decentralized information, competition and adaptation rather than assuming that officials possess a complete answer in advance.
Schumpeter supplies a final correction that industrial-policy critiques routinely omit. Markets produce enormous numbers of losers. Failed firms, obsolete factories, stranded capital, bankrupt investors, displaced workers and discarded technologies are part of the process he called creative destruction. It makes little analytical sense to describe failed private investments as healthy experimentation while treating failed public investments as proof that government cannot allocate capital.
The meaningful comparison has to count failure on both sides and ask what remains afterward. Did failures produce useful knowledge, productive capability or competitive pressure? Did successful investments elsewhere compensate for them? Were social costs or strategic vulnerabilities excluded from the private-market calculation? A government programme in which every supported company succeeded would itself be suspicious, suggesting that assistance flowed only to safe incumbents, losses were repeatedly refinanced or politically favoured firms were protected from competition. A credible industrial strategy should tolerate losers without repeatedly rescuing them.
Taken together, Keynes, Hayek and Schumpeter suggest a practical rule. Government should identify public purposes it can justify, build common platforms, correct specific failures and establish durable constraints such as carbon prices, reliability requirements or strategic-security objectives. It should then leave as much technological, corporate and operational discovery as possible to competing firms, customers and investors. Where public money carries meaningful risk, the public should receive an appropriate share of the return. Where the evidence turns against a project, cancellation has to remain a genuine outcome.
Carney’s agenda provides a live test of that synthesis. Transmission and shared infrastructure create arenas in which many firms and technologies can compete. The Canada Strong Fund is formally designed to invest commercially, take minority positions and retain public upside. The proposed west-coast oil pipeline has followed a different path: governments created the public development vehicle while its route, binding shippers, full financing and production case remained unresolved.
Canada no longer needs to decide whether it has industrial policy. It already does. The harder question is whether that policy uses markets to discover viable answers—or progressively rearranges public risk until a predetermined political answer appears commercial.
