The economic headwinds facing Canada are greater than the sum of its parts. The pace and sporadic nature of the United States’ trade war with Canada is unprecedented and has recently dominated headlines, but the underlying structural challenges demand careful attention. The Covid-19 Pandemic-induced economic shock can be blamed for the acute inflationary jump in the cost of housing and food, but the interlinked productivity and cost-of-living crises have been brewing for more than a decade.1 The OECD predicts Canada’s per capita GDP growth will be last amongst OECD economies in the next 40 years.2 Nearly half of Canadians report difficulties meeting day-to-day expenses due to rising costs.3 Recall it was these economic crises that catapulted the Conservative Party under Pierre Poilievre into dominant polling territory before Trump’s victory changed the narrative.
On top of this, perhaps the most fundamental feature of the Canadian economy is that our wealth and welfare depend largely on fossil fuel commodities in a world with a highly uncertain fossil fuel future. We’re at a turning point, and there is no single silver bullet except rethinking and reforming the process by which economic policy is made. The ongoing crises will only continue to test the democratic fabric of the federation, and it is high time that the government presents a long-term vision that balances ambitious and sustainable growth with equitable outcomes.
Enter industrial policy, the buzzword about strategic government interventions influencing the direction of the national economy. Suddenly from all ends of the political spectrum in Canada, the new rallying cry seems to be “build, baby, build.”4 The immediate political-economic crisis presents an opportunity to address the fact that our policy mix hasn’t been set in the right direction for a long time; a multi-faceted strategy overhaul is long overdue, and in this moment all eyes are on the promise of infrastructure investment. But build and invest in what? Is this really the silver bullet its proponents want it to be? Who will decide, and how will the government avoid the pitfalls of earlier failed and delayed infrastructure projects? Does Canada have the administrative capacity to agree on a vision, to shape industries, and to build big?
Now, as Canadians are living in media res through a crisis where the old economic formula is broken, and historic relationships can no longer be taken for granted, the competition for successful government economic strategies beyond the tried-and-tested austerity and privatization is on at full throttle. With old commitments fraying apart, it has become much more apparent how supply chain resiliency and climate investment are tied up with sovereignty and national security. Crucially, industrial policy is not new: the state’s ability to effectively steer, incentivize or establish markets is what inter-state competition has always been about. The pandemic dropped the veil on the ever-present role governments play in shaping markets, and the ongoing geopolitical and energy crises have practically guaranteed that embracing industrial policy fully is the only way to navigate the new disorder. Free market boosterism does not make for good government strategy in a world of trade wars.
The return of industrial policy has come with a resurgence in critical attention to the meaning of state capacity, not just as a barometer of state success but even as a barometer of state legitimacy.
Industrial policy was once taboo, but it has recently come into vogue across advanced economies. By the International Monetary Fund’s count, 2023 saw more than 2500 industrial policy interventions worldwide.5 Its return forces policymakers to rethink not only the relationship between the state and the market, but also what democratic states owe its citizens with regards to state capacity. Governments are always shaping markets through budgets, regulation and tax policy; but the true marker of the industrial policy turn is the combination of scale, degree of intervention, and the explicit planning nature that governments have demonstrated in designing industry-stimulus programs that make straightforward claims about the intersection of domestic economic policy and international politics.
The return of industrial policy has come with a resurgence in critical attention to the meaning of state capacity, not just as a barometer of state success but even as a barometer of state legitimacy. We tend to think of democratic legitimacy as being rooted in democratic processes: free and fair elections, Parliamentary procedure, Charter rights to free expression and protest. Citizens have a say, and having a say is part of what makes democracy a government of, and for, the people. Consultation processes help to secure stakeholder buy-in as they also help polish the end-vision itself.
However, an equally weighty test of legitimacy Canadians should be asking, especially in a moment where housing markets keep young generations out of homeownership and basic public health services are in decay, is whether the government is able to provide services reliably and equitably. As part of our social contract, there is a reasonable expectation that government services will work, that government bureaucracy can be effectively reformed, and that government projects, in principle, will not be delayed ad infinitum. This is what some political theorists have called democratic state capacity.6 It is not enough for a government to articulate policy goals; these must be well-executed, constructed and built. It is not enough for a government to say it wants to build an economy for the middle-class and those-working-hard-to-join-it, it must be able to do it.
The passing of Carney’s 2025 One Canadian Economy Act commits the government to fast-tracking a handful of nation-building projects. The spirit of the Act is to help bring the country together by building together, but already the process thus far has been beset by opposition by the Bloc Québécois, the New Democratic Party, and even some Liberal MPs. Enthusiasm is high in Ottawa, but the hard road lies ahead.
The government is expected to determine a list of national interest projects for expedited approval by 2027 with the criteria that each project: enhances Canadian autonomy; brings economic benefits to Canada; has a high likelihood of success; advances the interests of Indigenous people; and contributes to clean growth. The list is likely to include a mix of energy, natural resource and social infrastructure, but it is unclear which will be a priority for Carney’s government. With the world’s largest deposits of high-grade uranium, the largest potash reserves used for fertilizer, and plenty of other rare elements required for renewable technologies, it is an understatement to say that Canada is geographically well-endowed. The country is well positioned to develop into more of an energy superpower – if it chooses to.7 But the current enthusiasm is at odds with the patent political challenges of building infrastructure in the last decade and, indeed, the political challenges that have defined many of Canada’s greatest periods of infrastructure and industrial policy.
Key historic moments of Canadian infrastructure building and industrial policy have been “nation-building,” but these moments were also wrought with bursts of heated controversy and have sown longstanding division. Almost by definition, nation-building projects must be so sufficiently large that, from the planning stage onward, they seem nearly insurmountable. They must also be sufficiently substantive that, once established, it is just as impossible to imagine the national landscape without them.
Massive infrastructure projects put the nature of state power under a microscope: it must pick winners and losers and manage the trade-offs. It is a thankless and unenviable task, but a state that is unable to make a compelling case for these trade-offs isn’t much of a state.
It is now impossible, for example, to imagine Canada without the Trans-Canada Highway as the connective tissue that links the vast network of roads across the country. Nevertheless, before the 1949 Trans-Canada Highway Act passed by the Liberal government of Prime Minister Louis St-Laurent, roads were exclusively understood to be under the jurisdiction of the provinces, and many provinces took great offense at having the federal government try to unite them in a single project. The Premier of British Columbia at the time, W.A.C. Bennett, boycotted the federal opening ceremony at Rogers Pass, opting to hold a provincial ceremony instead, just so that he could call the road “BC Highway 1” instead of the Trans-Canada. Québec did not officially sign on to accord until a decade later than the other provinces. Provincial stunts that channel backlash have long been an anticipated and inevitable component of Canada’s nation-building projects.
The impetus to build a national highway seems obvious: its construction sped up travel time from region to region, bringing commercial and social benefits. Communities that were cut off from the new highway routes faced economic and social challenges, but the communal benefits outweighed the specific disadvantages. Despite protests over the highway route and who would pay (the federal government ended up paying much more than it budgeted for) the road was built. Massive infrastructure projects put the nature of state power under a microscope: it must pick winners and losers and manage the trade-offs. It is a thankless and unenviable task, but a state that is unable to make a compelling case for these trade-offs isn’t much of a state.
Prime Minister St-Laurent, in addition to the construction of the St. Lawrence seaway, also oversaw the construction of what was then the longest fossil fuel pipeline in the world. The TransCanada pipeline was completed by 1958, and it still ships natural gas from Alberta to Québec. The infamous pipeline debate surrounding the legislation that authorized the company TransCanada PipeLines Limited spent all of St-Laurent’s political capital and put immense stress on Parliament. By the early 1950s, Alberta’s nascent oil and gas industry began to accelerate its development with the discovery of the Leduc oilfield, just as Canada’s eastern provinces needed more energy to meet industrial growth. Alberta was keen to sell its energy resources to the United States, but St-Laurent and his Minister of Trade, C.D. Howe, had another plan. The pipeline offered a way to solve two regions’ needs by facilitating trade between them, to the disappointment of the Alberta government and industry.
The source of controversy had to do with its cost, who would pay, and whether it had to be built through the difficult terrain of the Canadian Shield in north Ontario instead of passing south of the Great Lakes. According to Howe: “Once again, as in the days of railway building, the difficult and sparsely populated pre-Cambrian shield appeared to present an almost insurmountable barrier to economic transportation between western and central Canada.”8
Canadian debate on economic policy during the era of the TransCanada pipeline was inflected with a deep anxiety over American influence. Then Conservative Leader of the Opposition John Diefenbaker, claimed that if St-Laurent were re-elected in the 1957 Federal Election, Canada would become “the [next] economic state in the American union.”9 The Conservatives were concerned with excessive American financial involvement with the pipeline project, and the socialist Co-operative Commonwealth Federation, led by James Coldwell, called for outright nationalization to redistribute the profits generated by the project across Canadian society. Both opposition parties were determined to filibuster St-Laurent’s pipeline legislation from the outset, but the Liberals pushed ahead with a Parliamentary strategy that would rely on the use of “closure” – a Parliamentary tool to adjourn debate and force a vote.
What transpired was a wrenching couple of weeks in Parliament during which 3 MPs were admitted to the hospital and one MP had a heart attack in session as the opposition attempted to stall the legislation. Few moments in Canadian Parliamentary history have been as strained as the 1956 Pipeline Debate. But looking back now, despite the obstacles, wouldn’t we still rather have that Canadian pipeline instead of the alternative? Wouldn’t we prefer that Ontario could buy directly from Alberta instead of relying on the US as a third-party buyer and seller?
Each of St-Laurent and Howe’s infrastructure projects, on highways, pipelines, and ports depended upon the decision to overcome major geographical obstacles towards the end of bringing the country together. In every case, there was a geographical struggle and a political struggle to facilitate east-west infrastructure across Canada instead of north-south infrastructure that facilitated stronger US integration. Building east-west infrastructure is much more technically challenging due to Canada’s geography. Any longitudinal national project requiring the blasting of Rogers Pass or building on the Canadian Shield is, in some sense, impractical from a cost and return point-of-view. However, the logic of price-cutting and convenience are not what built Canada. These nation-building infrastructure connections are part of what physically reinforces the country’s integrity as a unit.
The point is not that the government should simply stay out of the way – if that was the case, we wouldn’t have an oil sands industry to speak of. Rather, as the government commits to intervene in shaping and establishing industries, it must be clear-eyed about the inevitable regional disaffection, and it must continuously offer a compelling vision for why the immediate trade-offs are in the country’s long-term interest.
Canada’s fossil fuels, and the infrastructure and technology that drive it, have been subject to some of the best and worst of Canadian government strategy and industrial policy. The fallout of the 1956 Pipeline Debate, and the end of St-Laurent’s Liberal government, motivated John Diefenbaker’s Conservative government to establish a quasi-judicial regulator, the National Energy Board, to shepherd future energy infrastructure projects. Established in 1959, the NEB was developed to help insulate major energy projects from provocative national debates in the name of national interest. Rather than consume Parliament with oversight of east-west projects, the NEB enlisted a group of technocrats to judge the viability and appropriateness of energy infrastructure projects instead. But the promise of depoliticizing energy infrastructure and regulation in Canadian democracy proved to be its own pipedream.
On one hand, it was well-crafted provincial industrial policy under Alberta Premier Peter Lougheed that fostered the technology that would enable the economical extraction of oil commodities from bitumen. Lougheed’s Alberta Oil Sands Technology and Research Authority, established in 1974 as a provincial crown corporation, incentivized technological innovation while keeping the intellectual property in the hands of the public. Without its institutional structure and investment, the oil sands would not have been able to develop as they have, and Canada’s bitumen would not be internationally competitive.
On the other hand, it was Prime Minister’s Pierre Elliott Trudeau’s National Energy Program (NEP) that would sow the seeds for longstanding Western resentment of the Liberal Party of Canada. As oil prices skyrocketed globally due to the oil price shocks across the 1970s, Trudeau introduced export and price controls to counterbalance the benefits of high oil prices for the West, with the burdensome costs on non-oil producing provinces. Crucially, the NEP did help steer investment into Canadian-owned oil sands development through grants, and away from foreign-owned conventional oil extraction. Proponents of the NEP saw it as a tool to shore up national wealth, distribute prices for all regions, and unite the country on a path to energy self-sufficiency. Critics saw it as a failed attempt of the government to overstep and intervene in the market and disrupt Alberta’s industry.
What these two cases demonstrate is that industrial policy can vary with various mechanisms and goals, such as sustained government investment to establish an emerging industry or price setting to sustain equalizing outcomes from industrial capacity. But once the government puts itself in the ring making overt decisions about the direction of the economy, the immediate losers have no question of who to blame. The point is not that the government should simply stay out of the way – if that was the case, we wouldn’t have an oil sands industry to speak of. Rather, as the government commits to intervene in shaping and establishing industries, it must be clear-eyed about the inevitable regional disaffection, and it must continuously offer a compelling vision for why the immediate trade-offs are in the country’s long-term interest. Industrial policy cannot be relegated to technocratic processes, it must be embraced as a political project that requires constant justification and inspired debate.
By the 2010s Diefenbaker’s technocratic NEB became the centre of the highest-profile infrastructure scandals of recent times: the extension of the Trans Mountain Pipeline. In 2013, US-based Kinder Morgan, one of the largest energy infrastructure companies in North America, submitted an application to the NEB to increase capacity of the Trans Mountain Pipeline, operational since 1953, that ran from Edmonton, Alberta to its terminus in Burnaby, British Columbia. The project would see the construction of an additional pipeline along the same route to double the capacity of crude oil shipments from Alberta for export on Pacific Ocean trade routes.
After three years of review, the NEB approved the project, granting it with the judgement that it was in Canada’s national interest under the auspices of Prime Minister Justin Trudeau’s Liberal government. Simultaneously, protesters gathered to defend Indigenous land rights and to raise climate concerns over the narrowness of the sea-passage and the risk of oil spills. Immediately after the government approved the Board’s review, several Indigenous groups challenged the NEB’s environmental assessment and its failure to adequately consult and accommodate.
In the Trudeau government’s attempt at compromise, it was announced in 2018 that the Trans Mountain Pipeline would be acquired by the federal government outright, with plans to share equity with Indigenous groups. This infrastructure episode would lead to the closure of the NEB in 2019 and replacement by the Canada Energy Regulator, a new agency of the Government of Canada with a broader mandate for public engagement, Indigenous Reconciliation, and environmental protections. Still, by 2020 the Supreme Court of Canada dismissed appeals by First Nations to contest, for a second time, Prime Minister Justin Trudeau’s approval of the project.
Learning from Trudeau’s failures, Carney has insisted on thorough consultation with Indigenous groups and a commitment to share equity from the beginning. Perhaps if he truly took note of Trudeau’s experience, he would at least entertain greater government ownership at the beginning of these infrastructure projects as well. Carney hopes to achieve in 2 years what it took Trudeau more than a decade after developments were delayed by protest and legal contestation over what constituted reasonable consultation. For more development of our natural resources to be expedited, Carney will have to work hard to show and justify how these projects will be sustainable and equitable to all parties involved – especially those that will be asked to make compromises.
The current industrial policy turn may reflect a global phenomenon, but how these policies get carried out, and how effective they are, is specific and contextual. For instance, the left-wing economic discourse in the US has been embroiled in a debate on the politics of ‘Abundance.’ The basic claim is not complicated: the US should overhaul its legal and environmental regulatory processes that appear to be in the way of speedier construction, and more infrastructure is needed to secure future wealth for American society. Proponents see it as a “supply-side progressivism,” while critics see it as another de-regulation agenda, absent of true strategic industrial policy.10
First, there is a difference between unnecessary bureaucratic overlap and well-functioning labour regulation. The difficult work for policymakers ahead is to be honest about where processes can be streamlined while not undoing labour rights that are the product of decades of work and activism. Not all regulation that slows things down is bad, but the assessments and judgements on critical infrastructure must speed up. This is where industrial policy with clear regulatory frameworks, not de-regulatory retrenchment, should come in.
While ambition and necessity of fast-tracking nation-building projects in the short and medium term should be embraced, it should not come at the cost of circumventing democratic processes.
Second, there is a difference between calling for bureaucratic processes to be chain-sawed and hollowed out à-la-DOGE and having well-thought-through long-term economic plans that make a clear case for why and how massive infrastructure projects can be a boon to all. Streamlining bureaucratic processes on its own is not the same thing as building out a long-term plan and having a government there to coordinate across sectors and backstop momentary failures.
Third and finally, the US regulatory and development context is not Canada’s. As much as some might be inspired by the rhetoric and spirit of the so-called ‘Abundance’ agenda, what makes industrial policy work, and what secures buy-in, is when policy and strategy is homegrown and is the product of local discussion in response to local contexts. We would do well to protect our own development discourse from being hijacked by American interpretations of American history. For industrial policy to work well in Canada, it must be the result of sober comparative work and stubborn analysis of our own specific strengths and weaknesses.
Infrastructure building and industrial policy involves long periods of investment with no immediate payoff. The political gamble is whether the narrative of nation-building under the context of existential sovereign threats can outlast necessary interregional contestation, not to mention inevitable unforeseeable global shocks that have yet to come. While ambition and necessity of fast-tracking nation-building projects in the short and medium term should be embraced, it should not come at the cost of circumventing democratic processes. The challenge for the federal government is whether it can balance underwriting (and expediting) consultation processes while simultaneously recognizing and communicating that effective economic administration as a key tenet of democratic state capacity. The democratic fabric of the country depends upon it.
Notes
- On the productivity crisis, see: Carolyn Rogers, “Time to break the glass: Fixing Canada’s productivity problem”, Bank of Canada, 26 March 2024. ↩︎
- Jonathan Barr, “OECD Global Forum on Productivity” Presentation by Innovation, Science and Economic Development Canada, 15 October, 2024. ↩︎
- On the cost-of-living crisis, see “Nearly half of Canadians report that rising prices are greatly impacting their ability to meet day-to-day expenses,” Statistics Canada, 15 August 2024. ↩︎
- Hadrian Mertins-Kirkwood and Noah Kathen. Bet Big: A Citizen’s Guide to Green Industrial Policy In Canada, Canadian Centre for Policy Alternatives, 2022, and also see Erin O’Toole, “There was a time Canada really did Build, Baby, Build,” The Walrus, 3 July 2025. ↩︎
- Anna Ilyina, Ceyla Pazarbasioglu & Michele Ruta, “Industrial Policy is Back but the Bar to Get it Right is High,” IMF Blog 12 April 2024. ↩︎
- K. Sabeel Rahman, “Building the Government We Need: A Framework for Democratic State Capacity,” Roosevelt Institute 6 June 2024. ↩︎
- Tej Parikh, “Unlocking Canada’s Superpower Potential,” Financial Times, 16 March 2025. ↩︎
- Stephen Azzi, Walter Gordon and the Right of Canadian Nationalism, McGill-Queen’s University Press, 1999, p. 45. ↩︎
- Ibid. ↩︎
- See Virginia Postrel, “Abundance Makes the Case for ‘Supply-Side Progressivism,” Reason, June 2025 and Isabella Weber, “What Abundance Lacks,” Foreign Policy 9 May 2025. ↩︎
