The Munk Debates Podcast - Friday Focus: Industrial Policy – Peace Pageant

Episode Date: May 19, 2023

Friday Focus provides listeners with a focused, half-hour masterclass on the big issues, events and trends driving the news and current events. The show features Janice Gross Stein, the founding director of the Munk School of Global Affairs and bestselling author, in conversation with Rudyard Griffiths, Chair and moderator of the Munk Debates.  The following is a sample of the Munk Debates’ weekly current affairs podcast, Friday Focus. On this week’s edition of the Friday Focus podcast, Janice and Rudyard start the show with a discussion of the billions currently being spent by governments in North America to subsidize companies involved in the electrification of the economy. Do these subsidies work? What are the tradeoffs? And, can we continue to afford generous cash transfers of public funds to private enterprises? The second half of the program looks at the different countries vying to lead on a peace deal for the Ukraine War. What exactly is going on here? Do any of these countries and any one specific plan have a chance to end the war? How are Russia and Ukraine likely to be ultimately brought to the peace table, and when? To access full-length editions of the Friday Focus podcast, consider becoming a donor to the Munk Debates for as little as $25 annually, or $.50 per episode. Canadian donors receive a charitable tax receipt. This podcast is a project of the Munk Debates, a Canadian charitable organization dedicated to fostering civil and substantive public dialogue. More information at www.munkdebates.com.Become a Munk Donor ($50 annually) to get 72-hour advanced access to the full length editions of Friday Focus and Munk Dialogues. Go to www.munkdebates.com to sign up. Hosted on Acast. See acast.com/privacy for more information.

The following is a complimentary excerpt of this week's edition of the Friday Focus podcast by The Monk Debates. To access full-length editions of each and every episode, along with all kinds of great additional benefits and perks, become a donor to the Monk debates. You can do that for as little as $25 a year, and you'll receive each and every year 50 Friday Focus episodes at full length. It's all available right now on our website. in just a few simple clicks. Triple W. The Monk Debates.com. Look for the Friday Focus option in our navigation bar, the top right of the website. Make your donation, and we will send you each and every Friday a link to listen to the

full-length edition of this program. Thanks in advance for your generous contribution. Hello, Monk listeners. Rudyard Griffiths here, the executive director of the Monk Debates. Welcome to this, the regular Friday Focus podcast. This is the program where each and every Friday, we dig into the big issues and ideas moving the news, hopefully leaving you with some new analysis and insights. We're fortunate on every program to have Janice Gross Stein as our primary interlocular.

She's the founding director of the Monk School of Global Affairs, an internationally renowned scholar and author, and she's all ours for the next 30 minutes. Janice, great to be in conversation with you today. what are we? We are coming into the Victoria Day long weekend here in Canada the 19th of May 2023. That is my favorite weekend of the year. I will tell you, Roger, all the nurseries are open for business and there's no more fun than going to visit nurseries and seeing all those beautiful plants. Bloom. That is a Canadian joy, I think. Right. You take the high road. I'll take the low road, a little kick of the shins here.

It's kind of the last colonial holiday. It's the last one. For some reason, Queen Victoria gets a pass. I don't, I don't know. I'm sure we'll find something about her at some point that we can cancel and rename it. I don't know, Family Day Part 2. Spring weekend. What about spring weekend?

Something as anodyne as our new passport. But we'll leave that debate for another day. Just to thank all of our monk members and donors. who are coming to the monk debate on artificial intelligence on June 22nd. We are now sold out. So great to see this trend continuing post-pandemic of monk members coming back to the monk debates, filling Roy Thompson Hall over 2,000 attendees now scheduled for this. I think really important debate, Janice, that we talked about on the podcast last week in detail on AI.

I am really excited about that, Redford. I just wrote a piece that said this is the big public policy challenge of our time. How we live with technology over these next 10 years as technology races ahead. So I am eagerly awaiting this debate. Yeah. And we'll have details coming up on live stream and how if you're a monk donor for as little as $25 a year, you can. get access to a complimentary live stream as you do to all of our in-person debates. Well, let's kick off the show with a discussion of a topic that might initially cause our

listeners' eyes to glaze. But I want you to bear with us because I guarantee you, Janice and I are going to make this exciting. And the phrase is, industrial policy, whoa, sign me up for 15 minutes. on industrial policy. But in all seriousness, look, this is serious. We're seeing big moves here in North America by the Biden administration, now by the Trudeau government, to use the power of the purse, taxpayers' dollars in the tune of billions upon billions to incentivize companies that governments deem somehow to be, I don't know, emblematic. involved in the technologies of electrification, of the greening of the energy systems within North America.

And Janice, we've seen some increasing kind of tensions break out here north of the border. But to our American listeners, this is happening in the United States too. Companies effectively bidding the government off each other to try to extract larger rents, from the government, i.e. subsidies to proceed with the construction of these electric battery plants, electric car plants. And the most recent incident, what I want your opinion on Janice, just a fascinating scenario here, Volkswagen, AG, getting this $13 billion subsidy for an electric plant here in Canada. It's something like 14% of their entire global market cap. So, very significant aid to Volkswagen. This set off a, well, a tempest. It's more than just in a teapot.

Another manufacturer, battery manufacturer, Stalantis, who had already received a billion dollar subsidy and had started a plant, suddenly says, whoa, we're going to pull our plug on this plant, despite the billion dollar subsidy, because those other, Europeans got 13 billion and we want our share of the public purse

to subsidize our plan so we want to reopen this negotiation with you it's pitting the federal government off the provincial government I don't know Janice give me your reaction I've got a view on this it just seems pretty messy right now

I bet you have a view on this Roger so anticipating what you say, let me argue the other side before you even get going, all right? There are many kinds of industrial policy. There's not one, right? Industrial policy has been with us for 100 years and the biggest practitioner in the democratic world of industrial policy is the United States. We wouldn't have the Internet without industrial policy. That was started by government spending inside the Pentagon. That's the story.

There's a famous agency in Washington, full of lore, called DARPA Defense Advanced Research Projects, agency, which spent billions of dollars, which spun out into the civilian sector. So let's think about industrial policy. Two ways. One way, put the right tax incentives in place. Put the right enabling conditions in place. For instance, some regulation can really get in your way. Some regulation is really helpful.

Invest in upskilling your workforce. That's industrial policy. I will tell you that Medicare and Canada is industrial policy because a lot of our big businesses don't have to pay for private health care plants in the way that their counterparts do in the United States. Those are all critically important things. So I'm not concerned about how much money government spends. I'm concerned about the way they spend it.

Now, what you described is a competition between leading firms in the global private sector to set up new plants. And when you give direct subsidies to those plants, you get into the game that you just described the red year. And you lose. You frankly lose because these firms are global. They can go anywhere and it's not a fair fight when you're doing this with a promise and a federal government. Let's just look so, but here's the problem for Canada right here. Look south of the border. One trillion dollars has gone in to this latest generation of industrial policy in the United States, and they are competitors. Some of what they're doing

is the good stuff. I talked about a chunk of it, but some of what they're doing is subsidies to firms. Gina Romondo has $50 billion to distribute over $50 billion, 50 billion, to distribute to firms to build up the chip sector, the manufacturing and the packaging of computer chip chip. So we are in a very competitive, rough game. It might be our most important monk debate ever. On June 22nd at Roy Thompson Hall will be convening two of the world's leading experts on artificial intelligence to debate the motion, be it resolved. AI research and development poses an existential risk.

Be sure to attend this debate and listen and learn from Max Tagmark and Yen. And Lacoon, again, top experts who know AI like few other people. They're going to share their thoughts on how AI will transform our workplace, our society, our democracy. We'll cover it all the risks, the rewards of AI at this critical Monk debate. For more information, go to our website, triple W monkdebates.com. We do have tickets set aside for Monk members, so grab yours now before this event. sells out. We'll see you in Toronto on June 22nd for the Monk debate on artificial intelligence. Yeah. So Janice, I, you know, I think wise words, and I'm all in favor of, let's say,

creating the context for the market to make the smartest decisions about the allocation of society's scarce capital. So I agree. Education systems, healthcare, tax reform, regulatory reform, these create, in a sense, the preconditions for hopefully the more efficient allocation of capital. What I think is, is someone's tragic and what's going on in Canada, is that we've gone back after many hard lessons about the pitfalls of governments trying to pick winners. And putting their hand, in this case, putting a sledgehammer down on the scales. And in this bizarre instance, I mean, there seems to be very little in the way of, you know, rationale, economic, otherwise, any kind of quantitative data, which would suggest why Volkswagen

receive this $13 billion subsidy. It's approximately $4.1 million for every job created. As I said, it represents upwards of 14% of Volkswagen's entire global market capitalization. It is such a outsized subsidy of a technology that is very new and is changing very, very fast. As you know, Janice, there are new forms of battery technology emerging around sodium platforms that the Chinese primarily are the leaders in. There are urgent battles between the United States and China over the supply chains and components for these batteries. And it's not really clear that Canada will, can be able to participate and compete successfully in those supply chains.

And to me, it just goes back to a fundamental thing of why not let the market do what it's good at, which is identifying countries, nations, regions that will be able to produce products, goods, and services in the most efficient and effective way and let them do it and try to figure out the things that we might actually be good at, which just might not be the hot new flavor of the month. You know, Ontario, where this Volkswagen plant is being constructed, is actually a world leader in something kind of boring, but pretty important, called food processing.

We're extremely good at it. We are arguably a leader in North America, certainly, on a whole series of food processing techniques, on facilities and manufacturing around food processing. Why not put money into the areas where we're our, already ahead or at least part of that leading pack, as opposed to Janice, what this really is. Just agree with me on this. This is politics.

This is a tough election coming up for a government. Ontario will be the battleground. This is about creating jobs in swing ridings that will determine whether it's a minority or majority for an incumbent party that is struggling now. in the polls. And that just angers me when we're talking about such large amounts of public funds for what I think ultimately are very crass political purposes. So I'm in agree with you in part because I don't think that these, we've seen this movie before. Let me put you out. Right. We've seen this movie when governments and not only ours give big subsidies to people who build plants in a variety of areas. And then when the grass squirts greener somewhere else, they pick up and move. So I agree with you. But let me, let me agree also that it's politics, but not in the narrow we're on the verge of an election way. There's a bigger story here. And that's why this is genuinely tough for Canada. The industries of the future are shifting in very dramatic ways, as you just said, right? They're electric vehicles. They are new forms.

of batteries, they are critical minerals. We are seeing a rapid transformation of our economies for a variety of reasons. And there's a problem that if you don't get in, you're out. You're out of these supply chains. New supply chains are forming very quickly. So let's talk about what happens to the auto sector in the province of Ontario. And that's really the issue. Your scenario, frankly, would shut it down over the next five years. The historic play that Ontario has had in car manufacturing, the last, and there is a piece here that look back rather than for it, but the last of the good middle class jobs would go, Frank.

But, Jen, it's just a data point. I think you'd agree with me. The jobs in the auto sector have been declining over the last decade. In fact, you could argue you look back over two decades and you see steady decline. lines in an industry that's being priced out by Mexico that's now increasingly being priced out by Chinese and other other manufacturers, this industry is slipping away. And to double down on, in a sense, an industry that because of larger forces is being pushed towards obsolescence inevitably to create jobs at the cost of $4.1 million in subsidy per employee is just,

it's beyond it's beyond simply ill-informed and you know I would think it verges on the irresponsible it verges to me on how could this strategy be replicated are you going to go across the country and award another 13 billion dollars and another 13 billion dollars and create another 4.1 million you know costs per job created it's unsustainable there's no scale of of this of this action so therefore genus is it even an industrial policy if it can't be replicated you're right that you cannot justify i don't think it cost of $4.1 million to create a job right and that's the bottom line here and that's a problem where's the scalability in this you and i both know the answer it's in ontario it's investment in the car industry of the future

You don't think, Roger, the cars are going away. Neither do I. They're going to change. They're going to become electric. They're going to, you know, we're going to have a new form. But the car industry is not going away. And this is a bet on keeping Ontario in that integrated North American supply chain for the manufacturing of cars. You know our government fought like hell to get that credit for electric vehicles, extended

to Canada and the Europeans are chomping at the bit to get the same inclusion as we fought so hard to get. I think that's the way the government thinks about it. What's it going to be in the prairies? It's going to be food processing and packaging and manufacturing. So a way of thinking about this, yeah, it's going to be $13 billion in different parts of the country, but in sectors that are going to be with us 20 years from now, 25 years from now. But Janice is so hard, you know, as you say, let's focus it. It's a bet.

It's so hard to know what the future is. Wouldn't it be better, again, to think about, you know, an efficient approach to globalization, which is, I don't know, China in the United States, produce the electric batteries. We do the fruit, food processing and the mining of the critical minerals. we're playing to our strengths and we're allowing other nations and other jurisdictions to play to their strengths. My final point in this,

maybe you get to you to react, is I think in some ways, this is all, all of this large S is kind of in the rearview mirror. There's, you know, information out this week that the United States and actually Canada, interestingly now, debt servicing costs are equivalent

to our entire expenditures on the military, portion of the federal budget in both countries. So Canada this year will spend around 1.6% of GDP on the military and it'll spend about the equivalent $50 billion on debt servicing costs. Debt servicing costs in Canada are now half of the entire amount that the federal government transfers to the provinces for health care. And we know that health care costs make up, you know, approaching 50% of all the provincial budgets across Canada. If Tiff Mecklin, our bank of governor is, central bank governor is right in statements he made yesterday, Thursday, that people and governments should not expect rates to come down, that there are new structural features of de-globalization, of aging workforces that will ensure that a higher rate of inflation will be persistent into the future, I just wonder, Janice, you know, how does a $13 billion subsidy to a single, auto manufacturer makes sense in the context of deficits that in Canada alone equal our entire cost

to service of our entire military budget and half of all of our federal transfers. That to me is unsustainable. First of all, let me say, I think Tiff Macklin is right. There are structural drivers of inflation, and that's going to be with us throughout this whole transition. So The question you're asking is a really valid one Roger. But let's just again look out. What we're doing ain't nothing compared to what the United States are doing. And they are locked right now in an ugly, ugly, deeply divisive debate about the debt ceiling, which they've got to get done in the next 10 days, which can compromise, frankly, their global leadership is already compromising their global leadership.

But their investments are an order of magnitude. A trillion dollars, right? We're 10% their size, right? 13 billion is around the year. But their investments are similarly unsustainable against the backdrop of an even worse fiscal position, frankly than Canada. Massive unfunded liabilities around Social Security,

around what they call Medicare. I mean, this is the kind of last gas to me, Janice, of a mode of government. We called it modern monetary theory. I don't know what it was, but it was these ultra-low interest rates that allowed governments to think that there was just, in a sense, unlimited public subsidies that could be extended across the entire economy, across, you know, whatever political constituency government wanted to reward. I think that era is coming to the end for the United States, too. I think I never thought modern monetary theory was very modern. there's no escaping a budget, whether it's a household or a government.

But there's no question that what's happening in the United States is a once in a general. It's equivalent really to what FDR did, right, in the 30s. This is a massive investment to transform the U.S. economy, to keep it competitive. And I think there are reasonable grounds to think that some of the bets. I think the very criticisms you're making of the Volkswagen decision can be made when Jean Romondo picks firms.

She's not, she's picking firms in the chip sector. And I think she's vulnerable to the same kind of things that this government is with respect to picking firms in the car sector. But this is a big bet on transforming the United States to be, to maintain its role as the lead competitor

in the global. economy. We live next door to them Reddyard. This is a hurricane blowing our way. And what we don't want, what we don't want, and here's our challenge, we don't want to pull critical minerals out of the ground and continue to do what we've been

doing. Send them south to be processed and remain and lose the majority of benefits as we move up the value chain. That's a challenge for any government of this country. Yeah, well,

hewers of wood, drawers of water, forever we shall be. Yeah, well, you know, it's fascinating for our listeners, really, because we are at one of these generational moments, right, George. We should probably spend a little more time talking about this in the future. We're at one of these generational moments where our economy is going to be changed almost beyond recognition. It's the industrial policy, it's technology. This doesn't happen, you know, every decade. Yeah, climate.

There's a whole bunch of tectonic plates that are clashing with each other and sending up earthquakes through our political, economic, social, cultural structures. We will talk more about that, but let's take a quick break, Janice. When we come back on the other side, more discussion of important issue that we think should be on your radar. We'll welcome our monk donors exclusively to the donor. or only back half of the Friday Focus podcast. Thanks for listening to this excerpt of the Friday Focus podcast. To get full-length editions of each and every episode of this program, simply go to our website,

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