Canada's Deputy Prime Minister and Minister of Finance Chrystia Freeland is congratulated after delivering the fall economic statement in the House of Commons on Parliament Hill in Ottawa, Ontario, Canada November 3, 2022. REUTERS/Blair Gable
Canada's Deputy Prime Minister and Minister of Finance Chrystia Freeland is congratulated after delivering the fall economic statement in the House of Commons on Parliament Hill in Ottawa, Ontario, Canada November 3, 2022.

The build-up to Thursday’s economic statement from Finance Minister Chrystia Freeland has been underway for some time, so it should be no surprise the Trudeau Liberal machine is promoting an expanded role for Big Government in the Canadian economy. What Canada needs, said Freeland in a recent speech to the Alberta Federation of Labour, is “a government with a real muscular industrial policy” to take on the low growth and high inflation challenges she said were created by the pandemic and Vladimir Putin’s invasion of Ukraine and “a more coercive China.”

During Thursday’s economic statement, Freeland continued with the theme, promising to flex federal fiscal and regulatory muscles of economic interventionism. She riffed through some of the many ways in which Ottawa plans to continue expanding its role in the economy, providing regulation and money to support housing, jobs, investment and major backing for certain industries tied to climate change. A prime example of the new interventionism is the $15-billion Canada Growth Fund, designed in part to counter the new economic model building in the United States.

As Freeland tells it, Canada needs these expansions in the role for Ottawa in economic decision-making to ward off the growing might of the world’s autocracies that threaten to quash the liberal democratic order. Free trade, globalization and open markets — the foundational principles of the past 70 years of international wealth creation and poverty reduction — have failed to turn the old-line Communist countries into bastions of liberty. In another speech, in which she unveiled what has been dubbed “the Freeland Doctrine,” the former journalist claimed “Liberal democracy worldwide has today declined back to 1989 levels, and autocracies have been making a comeback. Many, including China, the second most powerful country in the world, have grown both wealthier and more coercive.”

In response to the rise of China and Russia as belligerent nations, Freeland and many other thinkers believe the world’s democracies need to adopt a new world-trade order in which liberal nations rethink, reform and redirect their economic policies. Forget the lofty ideals of free trade and free markets, preferably unfettered by barriers to trade and financial activity. Canada and other nations need to adopt narrower trade rules and home-grown policies that put the government in the driver’s seat of progress that is less reliant on open trade.

The Freeland Doctrine was briefly rehashed during the economic update. “The global economy is at a turning point. We are entering an era of friend-shoring — a time when our democratic partners and their most important companies are looking to shift their dependence from dictatorships to democracies.”

The Freeland Doctrine has been warmly received by many, including two Canadian think-tankers who may well have influenced her ideas. According to the Public Policy Forum’s Edward Greenspon and Sean Speer, Canada needs what Freeland proposed, including a “massive supply rebuild” in which Ottawa will oversee an “increase in the supply of everything from housing to hydrogen, from IP to ICUs, from quantum computing to the next mRNA., from long-term investments in critical minerals, to longer-term investments in …” etc. etc.

Most of the mentioned targets are already part of the Freeland-Trudeau economic and fiscal agenda. The new Greenspon/Speer paper from the Public Policy Forum released on Wednesday serves as a backup document for policies already in place or promised, with more to come.

Missing from the Freeland Doctrine, and in the ideas of her backers and other theorists in Ottawa and in certain policy circles around the world, is recognition of the major economic and ideological flip that’s underway. In the United States, the Biden administration has passed laws to shut down China’s semiconductor trade and boost U.S. industry via the Inflation Reduction Act (IRA), legislation that does nothing to reduce inflation but greatly expands government intervention into the U.S. economy. Freeland is a big fan of the IRA. “Going forward, we should design our government procurement and incentive programs with friend-shoring in mind. The Inflation Reduction Act is a forward-thinking example of this approach.”

Biden’s Inflation Reduction Act, however, is filled with protectionist Buy America initiatives and other schemes that do not sit well with Canadian manufacturers. “The U.S. has turned on a shop vac to suck up incentive and we’re standing here with a dust buster,” Matt Poirier, senior director of the Canadian Manufacturers & Exporters who see the act as a threat to Canadian business expansion. The Freeland Doctrine essentially calls for Canada to do the same in response.

The argument in favour of adopting aggressive government economic direction is based on the claim that liberal democracies need to counter the rising power of Russia and China. Once thought to be moving toward liberalism, the two are now seen as autocratic threats. “The world economic system is dividing into camps,” write Greenspon and Speer. “The liberal democratic camp to which Canada belongs is working feverishly to wean itself off Russian commodities and Chinese capital and technology.”

Freeland, Greenspon and Speer all endorse the views of Janet Yellen, Biden’s treasury secretary and champion of friend-shoring and the US$369-billion IRA legislation that is now causing alarm among many in Canadian business. The plan is labelled “modern supply-side economics,” which seeks to focus on directing the movement of goods and services in an economy along nationalist lines. To quote Yellen: “Modern supply side economics, in contrast, prioritizes labour supply, human capital, public infrastructure, R&D, and investments in a sustainable environment. These focus areas are all aimed at increasing economic growth and addressing longer-term structural problems, particularly inequality… Essentially, we are not just focused on achieving a high topline growth number that is unsustainable — we are instead aiming for growth that is inclusive and green.”

Related video: Freeland wants to reassure Canadians about financial future

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But here’s the intellectual flip and liberal backslide behind these major shifts in economic policymaking. To counter Russia and China, the supply-siders are essentially adopting the economic control model favoured by the very countries that are menacing world peace, trade and prosperity. In many ways, the Freeland Doctrine and the PPF document read like speeches of Chinese leader Xi Jinping and his legion of Communist flunkies.

John Lee, the Communist-appointed chief-executive of Hong Kong, this week delivered another speech to international bankers filled with big promises he made earlier on China’s plans to direct the development of the Hong Kong economy. In the speech to the world’s leading bankers from the U.S and elsewhere — and including former central banker Mark Carney — Lee regurgitated scores of state manipulations and incentives China plans to deploy to lure global banks, shipping companies and other industries back into the Communist fold. A typical speech point was the plan to earmark HK$10 billion ($1.27 billion) “to fund at least 100 research teams in universities which have good potential to become startups.” Sounds a lot like the kind of incentive meddling Freeland mentioned during her economic update.

There’s a word for this kind of economic policy, a word that captures the ideological flip taking place: Sino-capitalism. As far as I can tell, expanding Sino-capitalism was first identified as a global trend by Christopher McNally, professor of political economy at Chaminade University of Honolulu. McNally specializes in China and its relationships with the rest of the world.

In a new paper to be published soon, McNally notes the irony. “The growing sway of Sino-capitalism is actually generating a novel dialectical dynamic at the global level, recalibrating domestic economic policies of major trading powers by encouraging more state-centric strategies. In a twist worthy of satire, criticism of China as too state capitalist is being met in the West with exactly what is criticized: the wider employment of state capitalist and neo-mercantilist policies, including protectionism in trade and investment, as well as the rise of techno-nationalism.”

Unlike Freeland and her supporters, McNally sees the clash of Sino-capitalisms as risk-filled . He does not anticipate war, but he does foresee growing conflict as liberal democracies attempt to adopt the very policies — call them neo-statism, Sino-capitalism, supply-side progressivism , or even state-capacity libertarianism — that they claim to be opposing.

McNally continues: “Sino-capitalism’s interactions with the liberal order are generating a mélange that joins neoliberalism’s emphasis on private capital and unfettered market forces with a neo-statist reinsertion of government to manage economies. This mélange is likely to be chaotic as the United States becomes selectively isolationist, while China’s support of the existing order remains half-hearted. The developing chaotic mélange indicates that the global capitalist system could increasingly exhibit disorderly, dysfunctional and even dangerous trends.”

Despite such risks, McNally said in an interview that the Freeland Doctrine — the use of Sino-capitalism to fight Sino-capitalism — may be the only option available to take on retrenching Communist rulers.

On the other hand, McNally agrees with an alternate view of China’s current situation, which is that the success of the last decades of globalization under liberal economic trends have been effective in rattling the Communist regime. President Xi’s recent expansion of government controls at home is a sign that the ruling party is having trouble with emerging (if limited by democratic standards) opposition forces within business and the bureaucracy.

In his 2022 speech to the Communist Party’s congress, Xi reviewed a list of indicators that his regime faces internal upheaval. China’s economy was “beset by acute structural and institutional problems. Development was imbalanced, uncoordinated, and unsustainable, and the traditional development model could no longer keep us moving forward. Some deep-seated problems in institutions and barriers built by vested interests were becoming more and more apparent.” He went on to blast “misguided patterns of thinking such as money worship, hedonism, egocentricity, and historical nihilism.” and complained that “online discourse was rife with disorder.” It almost sounds like a free country.

In other words, contrary to the Freeland Doctrine, liberal globalization is putting reform pressure on China. Given time, internal disruption would become more pronounced. Instead, liberal democracies are taking great risks by adopting Sino-capitalism policies.

While McNally believes war is unlikely, that does not mean that economic peace is at hand. Sino-capitalism’s interactions with the liberal order is producing a “treacherous transitional period” that McNally says “will be shaped by China’s global economic heft and the very nature of Sino-capitalism. Parts of the liberal order are likely to be kept intact, but in the context of a more chaotic global landscape infused with neo-statist behaviours.”

One of those neo-statist infusions is the Biden administrations attack on China’s semiconductor industry. The Chips Act prohibits U.S. exports of American technology to China and commits the U.S government to spend more than $250-billion to knock down China’s semiconductor industry. As McNally describes the Chips Act, “American policy-makers have taken a page out of the Chinese playbook. They are offsetting the considerable pain the sanctions will create with a juicy carrot: America’s largest investment in technology for at least the past five decades. Welcome to industrial policy a la America!”

Financial Times columnist Martin Wolf recently highlighted the growing uncertainty being created by the decline in liberal globalization and the rise of various forms of neo-statism and Sino-capitalism. This fracturing of economic ties along the lines backed by Freeland will likely “be both consequence and cause of deepening global discord. If so, a more destructive end to globalization is likely.”

Wolf also avoids the war conclusion, although he describes the Biden administration’s controls on U.S. exports of semiconductors and other technologies as “an act of economic warfare” that threatens to destroy the great achievement of globalization.

Welcome to the world of Sino-capitalism, where economic warfare is replacing 70 years of movement toward globalized economic freedom. Is this what Canadians want?