Share this Story : Financial Post Copy Link Email X Reddit Pinterest LinkedIn Tumblr

Jack Mintz: Our new maximum-cost defence spending strategy

Government procurement that protects local producers raises costs and lowers quality for the taxpayers such spending is supposed to serve

You can save this article by registering for free here. Or sign-in if you have an account.

Milton Friedman, Nobel-prize winner in economics and staunch advocate for free markets, once remarked, “Free trade is not politically feasible. Why? Because it’s only in the general interest and in no one’s special interest.” Governments should be concerned about the general interest, but they rely on coalitions of special interests to re-elect them and so they often aren’t.

Subscribe now to read the latest news in your city and across Canada.

Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.

Daily content from Financial Times, the world's leading global business publication.

Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.

National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.

Daily puzzles, including the New York Times Crossword.

Subscribe now to read the latest news in your city and across Canada.

Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.

Daily content from Financial Times, the world's leading global business publication.

Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.

National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.

Daily puzzles, including the New York Times Crossword.

Create an account or sign in to continue with your reading experience.

Access articles from across Canada with one account.

Share your thoughts and join the conversation in the comments.

Enjoy additional articles per month.

Get email updates from your favourite authors.

Create an account or sign in to continue with your reading experience.

Access articles from across Canada with one account

Share your thoughts and join the conversation in the comments

Enjoy additional articles per month

Get email updates from your favourite authors

Sign In or Create an Account

We see this in the government procurement programs that account for 12 per cent of world GDP — an enormous sum: US$14 trillion. Instead of seeking the cheapest, best-quality goods and services from friendly countries, governments give special preference to local suppliers, protecting them from import competition. One study estimates an average of 56 new trade barriers went up each year between 2009 and 2018. On average across countries, the level of protection in public procurement — think of it as an effective tariff rate — is higher than it is from export taxes and technical barriers though not as high as from tariffs and export subsidies.

Get the latest headlines, breaking news and columns.

There was an error, please provide a valid email address.

By signing up you consent to receive the above newsletter from Postmedia Network Inc.

A welcome email is on its way. If you don't see it, please check your junk folder.

The next issue of Top Stories will soon be in your inbox.

We encountered an issue signing you up. Please try again

Interested in more newsletters? Browse here.

Governments also write laws and regulations to favour special interest groups. Examples are imposing equity, inclusion and diversity norms, requiring union wages on projects, and favouring local suppliers with regional preferences. The result is greater public spending, poorer-quality products and services and higher taxes or deficits. Milton Friedman had it right: the general interest often gives way to special interests.

Ottawa’s new Defence Industrial Strategy is a good illustration. Canada clearly needs to upgrade its military. When Lester Pearson became prime minister in 1963, military expenditure was 3.6 per cent of GDP. In 2024 it was down to just 1.3 per cent. Last year, we contributed just 2.8 per cent of NATO’s US$1.5 trillion in military and related defence expenditures. The U.S. covered 62 per cent. Donald Trump is right to want fairer sharing by the NATO allies.

Jack Mintz: Will tax hikes undo the affordability agenda?

Jack Mintz: Shorting Israel has not been a good market bet

Advertisement 1Story continues belowThis advertisement has not loaded yet, but your article continues below.document.addEventListener(`DOMContentLoaded`,function(){let template=document.getElementById(`oop-ad-template`);if(template&&!template.dataset.adInjected){let clone=template.content.cloneNode(!0);template.replaceWith(clone),template.parentElement&&(template.parentElement.dataset.adInjected=`true`)}});

The Carney government boosted defence spending by $9 billion this fiscal year, bringing it to $63 billion and finally fulfilling our promise to hit the required two per cent of GDP. Part of that expenditure is for equipment and infrastructure, which accounts for almost a quarter of our defence spending. And we’re supposed to reach five per cent of GDP by 2035. As this week’s announcement said, the government expects to spend $180 billion on defence procurement and $290 billion on defence-related capital over the next 10 years.

That’s all very exciting — until you get to the fine print. Fully 70 per cent of procurement will come from Canadian businesses, including foreign-owned companies operating in Canada, with the balance coming from “trusted” allies. With a mushrooming bureaucracy to handle the affairs of 10 new agencies or programs, you can bet your bottom tax dollar that bureaucratic wrangling will add new Canadian-content requirements, prolong delivery times and increase costs.

Cenovus ready to back new pipelines as output nears one million barrels per day Oil & Gas

Cenovus ready to back new pipelines as output nears one million barrels per day

Posthaste: CIBC warns Canada's housing market is in rougher shape than we thought News

Posthaste: CIBC warns Canada's housing market is in rougher shape than we thought

Advertisement 2Story continues belowThis advertisement has not loaded yet, but your article continues below.document.addEventListener(`DOMContentLoaded`,function(){let template=document.getElementById(`oop-ad-template`);if(template&&!template.dataset.adInjected){let clone=template.content.cloneNode(!0);template.replaceWith(clone),template.parentElement&&(template.parentElement.dataset.adInjected=`true`)}});

Garry Marr: For young Canadians who bought at peak of market, Home Buyers' Plan was invitation to disaster First-Time Homebuyers

Garry Marr: For young Canadians who bought at peak of market, Home Buyers' Plan was invitation to disaster

What's new in 2025 for Canadians filing tax returns Taxes

What's new in 2025 for Canadians filing tax returns

Matthew Holmes: Canada–Mexico plus U.S. businesses make for a winning formula Economy

Matthew Holmes: Canada–Mexico plus U.S. businesses make for a winning formula

You might hope “Buy Canadian” policies would be accompanied by reductions in interprovincial trade barriers but don’t count on it. The Ford government’s 2025 Buy Ontario Act will favour Ontario suppliers in procurement. This week, Alberta will buy $400 million worth of Alberta-built water bombers to fight wildfires. In 2022, Quebec adopted a bill to promote procurement from Quebec-based business. Other provinces are also prioritizing procurement from local suppliers, either explicitly (as in New Brunswick) or via administrative or regulatory practices. Many provinces still have penalties on U.S. suppliers as a result of the Trump tariffs.

U.S. governments are hardly paragons of free-trade virtue, of course. “Buy American” policies have been in place since 1933 and currently favour infrastructure procurement with at least 50 per cent U.S. content. President Joe Biden’s Inflation Reduction Act gave a 10 per cent bonus to projects satisfying a domestic content threshold. U.S. states have their own “buy local” rules, whether blatant, as in California and Florida, or hidden in regulation or administrative practice. Agriculture, construction and professional services are especially favoured. Beyond that, the Trump White House provides tariff relief in exchange for investment. This week, Donald Trump announced Japanese investment of US$36 billion in three U.S. projects.

If any jurisdiction would encourage free trade in public procurement, you might think it would be the European Union. A 2014 EU directive commits countries not to discriminate against suppliers from other member states. In practice, environmental labeling, social/ethical requirements and language regulations lead to trade barriers, especially for smaller companies. A perfect example is a pan-European defence project in which a stealth fighter being built by France, Germany and Spain may collapse as governments bicker over the lead developing company. A 2019 European Parliament study found that although cross-border contracts increased by €6.1 billion between 2013 and 2017, they actually fell from six per cent to 3.4 per cent of total procurement. When it comes to public procurement, politicians thicken the border even inside a “single market.”

Free trade in public procurement would bring big gains to taxpayers. But politicians like the “buy local” policies that allow them to curry favour with local constituencies. No surprise there. When governments have their fingers in the pie, they want the plums to go to their own supporters — taxpayers in general be damned.

Share this Story : Financial Post Copy Link Email X Reddit Pinterest LinkedIn Tumblr

Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.

© Financial Post