A welfare state but not all-powerful

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The crisis is focusing on the strengths and weaknesses of the state. As much as we appreciate his rapid reaction to limit the pandemic and ensure an income for those who have lost their jobs, we discover with amazement his inability to properly care for the elderly in CHSLDs. What to expect from the state after the crisis?

Posted on June 1, 2020 at 9:00 a.m.

Miville TremblayMiville Tremblay
Senior Fellow, CD Howe Institute, and Visiting Fellow, CIRANO

Fragile and worried, the population will have high expectations of our welfare state, which some will dream of almighty. The need to consolidate public finances will, however, impose severe constraints on the strategic choices we will have to make. Here are some benchmarks to guide our thinking.

The first challenge will be to reduce and then eliminate a huge deficit. First fairly quickly, by tightening, then ending the very expensive temporary assistance measures for people and businesses. Then, more slowly, when the economic recovery comes to replenish the coffers of governments. Finding the right pace will be difficult as the profile of the recovery is uncertain and there will be a political price to pay, especially for the minority government in Ottawa.

As for future measures to promote recovery, we should favor those that have a strong ripple effect on growth and that will best respond to three major trends for our future: the aging of the population, global warming and the redeployment of globalization.

The ageing of the population

Economist Pierre Fortin describes the demographic shock that will sweep Quebec – two times rather than one – as a hurricane. From 2009 to 2029, baby boomers will have retired, leaving a growing vacuum in the job market. Then, they will pass in turn the milestone of 85 years, exploding health costs.

Of course, it will be necessary to renovate obsolete CHSLDs and build Homes for the Elderly, but above all to increase care at home or in residence, much cheaper and faster to set up.

Poverty has practically disappeared among retirees and, depending on their income, they can pay more for their non-medical care.

Despite this, it will be prudent to have reduced the debt burden before the boomers, in their last years of life, increase medical costs, if we want to limit inequity for future generations.

Immigration alone cannot replace all retirees, but done at a pace that ensures the good social integration of newcomers, it is essential to ensure economic growth. We must therefore open our doors wider to qualified workers, but also to those who can be qualified quickly, such as attendants to beneficiaries for example.

Global warming

We listened absently when experts warned us of possible pandemics. We cannot repeat this mistake about global warming, which has more brutal and lasting consequences in store for us. It is urgent to take action.

Imposing an increasingly high price for carbon remains the key long-term strategy, but with the fall in oil, we must consider faster increases.

Several additional measures should also be considered, such as new public transport infrastructure, insulation and conversion to electric heating of public buildings.

Now is a good time for green public investment. However, the main effort must come from private companies, spurred on by the demands of sustainable finance, aware of climate risk and increasingly practiced by banks and institutional investors. Here, the role of the state is to set GHG reduction targets, establish the rules of the game and put in place the appropriate incentives.

The redeployment of globalization

Attacked on the left as on the right, globalization will not disappear, but will rather restructure into rival blocs, under the pressure of a latent cold war between the United States and China. This trend will continue, even if the Democrats win the presidential election in November.

We may regret the decline of multilateralism which has served us well, but our State will have to adjust to this new world order, without sinking into the narrow and costly economic nationalism of populist governments.

Prudent companies will modify their supply chains to find a better balance between resilience and efficiency. They will reduce their dependence on China and the countries that fall into its sphere of influence to focus more on those with whom we have free trade agreements, notably the United States and Mexico.

Competition will remain tough in this redefined arena. The winning firms will remain those that rely on new technologies to innovate and increase their productivity.

In this regard, the most powerful contribution the state can make is education, to train new workers and to reform those who need to acquire new skills. Here again, technology has to take a bigger place, both as a subject of study and as a means of delivering education.

Over the course of several decades, the state will have to assume heavier responsibilities, but with limited resources, choose its interventions carefully.


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