June 10, 2006
Mr. Harper, the double-double set thinks your idea tanks
By Jim Stanford - CAW Economist
June 5, 2006 Globe & Mail
There's a bitter joke making the rounds among policy wonks these days.  “What think tank is most influential with the Conservative
government?” it goes.  “The Tim Horton's Think Tank.”

If an idea flies with the crowd lining up for coffee and doughnuts, the theory goes, then it might show up on Stephen Harper's agenda.
If not, forget it.  How else to explain the sheer, calculated politics behind some of the government's most prominent, but intellectually
questionable, policy initiatives?

Cutting the GST.  Reinstating the long-lost baby bonus, in the guise of “child care” policy.  Wading into the impassable swamp of
federal-provincial fiscal relations, vaguely promising to keep everybody happy.  It's hard to find a high-falutin' policy expert (even a right-
wing one) who agrees with the logic of any of these initiatives.

And they will all cause headaches for Ottawa down the road.

But with the Conservatives focused ruthlessly on winning a majority, federal actions are now driven by politics, not policy.  The Harper
team has judged each of these initiatives to be a potential vote-winner, hence they charge ahead.

There's one federal initiative elbowing its way onto the political radar screen, however, that badly flunks the Tim Horton's sniff test.
Ottawa is negotiating a free-trade deal with South Korea, one that would likely serve as a template for subsequent deals with Japan
and China.  Despite increasingly agitated opposition from some of Canada's most important industries, federal negotiators have fast-
tracked the talks — meeting the Koreans every six weeks, seeking a deal by year's end.

This represents the reincarnation of the good, old-fashioned, elitist approach to policy-making.  Only a true policy wonk, armed with
ethereal printouts from a computable, general-equilibrium economic model, could seriously claim the average Canadian will receive
any measurable benefit whatsoever from a deal with far-off Korea.

Canada and Korea have a modest, oddly unbalanced, trading relationship.  Canada exports less than $3-billion worth of products to
Korea each year, mostly resources (coal, wood pulp, and aluminum are the biggest). We import twice that much from Korea, mostly
high-tech manufactures: motor vehicles, computers, and electronics.  The result is a $3-billion deficit, equivalent to the loss of about
15,000 Canadian jobs.

This imbalance got much worse following Korea's 1997 financial crisis.  Korea's exports to Canada are up 90 per cent since 1997,
while our sales to Korea are actually 10 per cent lower.  Korea has relied on export-led growth, while tightly capping imports (through
various tools, including macroeconomic levers, taxation policy, and creative non-tariff barriers).  A NAFTA-style trade deal would have
even less luck undoing these Korean practices than it had with the Americans.

Two-thirds of our deficit with Korea reflects one-way trade in autos.  Korea exports 130,000 vehicles to Canada per year, versus all of
400 going back the other way.  Sales by Korean producers in Canada are already surging, and a trade agreement will make it worse.

There isn't a single industrial sector in Canada whose leaders have identified exports to Korea as a significant opportunity for future
growth.  (When pressed on this question, federal officials cite fisheries, forestry, and agriculture — but even in these sectors, industry
associations are silent.)  Many sectors have spoken against the deal, most notably auto.

Suppose you are nursing a double-double in Tim Horton's.  Someone comes in and says, “Hi, I'm from Ottawa, and I'm here to help
you.  A trade deal with Korea will enhance our economic welfare.”  Then you read that the CEO of a huge employer predicts it will
destroy Canadian jobs.  Who are you going to believe?

For all their focus on Quebec these days, the Conservatives won three times more seats in Ontario — most in the vote-rich (and
doughnut-shop-rich) auto belt stretching from Windsor to Peterborough.

They must hold those seats, and win more in Ontario, if they want that majority.  MPs are getting letters from constituents.  Several
Ontario city councils have passed resolutions against the deal. In other provinces, too, (including the Atlantic and Quebec), concerns
are being loudly expressed.  There's a grassroots revolt in the air.

If the Conservatives follow the advice of the Tim Horton's Think Tank, they'll drop this deal.  If not, they'll pay a price.