By Matthew Mendelsohn | Part of our Special Series: Always Canada. Never 51.
Eight weeks ago, many in Canada were preparing for a trade war with the United States and were looking for compromises we could make to avoid it. The media were filled with stories about workers about to lose their jobs and businesses thinking about relocating to the U.S. to avoid tariffs.
That seems like a long time ago.
There are real risks to Canada. But we’re not talking nearly enough about the risks of doing business or investing in the U.S.
I remember learning about risk and uncertainty a long time ago. We discussed these concepts in the context of investing in emerging markets or unstable democracies. I remember learning about the “prudent investor” rule and fiduciary duty to shareholders.
Doing business in an unstable, retreating democracy governed by the whims of erratic billionaires, career criminals and Russian assets is not a place you should want to invest. It isn’t prudent.
Large parts of the U.S. economy are becoming more extractive and predatory, with the same uncertainties that one finds in other authoritarian systems – corruption, cronyism, corporate blackmail, extortion, civic unrest and threats to one’s livelihood and civil rights.
These are new risks for businesses and investors in the U.S. How does one calibrate the risk that comes from a president who might try to shake you down? Or Elon Musk waking up tomorrow and canceling your firm’s contract, insisting that Starlink can do the work better?
I’m not a financial analyst and I don’t know how one would quantify these risks. But we seem to be in black swan territory. The risk of investing in the U.S. today feels a lot like investing in Russia 20 years ago. Yes, wealthy and powerful companies will probably become even more wealthy and powerful. But it will be more difficult for most companies to compete in a rigged market, with success determined by fealty to the regime rather than hard work, innovation or ingenuity.
The rules of commerce that we have taken for granted in democratic capitalist societies no longer apply in the U.S. Call their emerging model of capitalism what you will – gangster, crony, disaster, techno, late-stage – there is no doubt there is money to be made if you get in at the right time with the right people. But it is highly volatile and unpredictable.
The impact of what is going on today – for example, the hollowing out of state capacity to perform the basic functions of democratic government – will grow.
I don’t want to understate the risks to Canadian jobs and businesses right now. Many businesses are facing very difficult choices. But we need to talk more openly about risks in the U.S., and the risk to Canadians in continuing to tie ourselves to an unstable, authoritarian power.
The American version of capitalism and democracy currently on display is not one to which we should aspire. It is a result of a capitalist and democratic model that produces extreme inequality, concentrated power and inadequately funded public services.
What can we do? First, a prudent person would stop arming those who want to do us harm. Canadian pension funds and all holders of institutional capital should gradually reduce their exposure to the unstable American economy.
“We need to talk more openly about risks in the U.S., and the risk to Canadians in continuing to tie ourselves to an unstable, authoritarian power.”
Second, we need to double down on our commitments to diversity, inclusion and democratic capitalism. I believe that the things we claimed are true are in fact true: diversity around the management table and employees with purpose produce better outcomes for businesses and society. I believe it is possible to build positive-sum outcomes and shared value within properly regulated capitalist markets.
Third, we need to defend the rules and institutions that make democracies work for businesses and investors: the independent judiciary, the non-partisan public service, the rule of law rather than the rule of the autocrat, the independent press, competitive open markets, an independent military and police, strong labour unions and social protections. We need to protect all of these in Canada. The rule of law and the ability to enforce contracts are not sexy, but they make capitalism work.
And fourth, all of our institutions need to look at how we attract entrepreneurs, technologists, scientific researchers and others who want to escape our southern neighbour. Many will be persecuted, and many will want to do their work within the context of a healthier democracy and economy. I get emails regularly from people who want to bring their expertise to Canada. We should mobilize across society to help people do that.
Canada’s value proposition today is the same as it was last year and it aligns with the values most Canadians hold, even if we execute on them imperfectly: diversity, inclusion, freedom, equality, democracy, respect and reconciliation. I would rather invest in a country that strives to uphold those values and build an inclusive, democratic capitalist system than invest in the uncertain, volatile mess that is the United States right now.
Share with a friend
Related reading
Four reasons our economy needs employee ownership now
Employee ownership offers a timely solution to some of Canada’s most pressing economic challenges, writes Deborah Aarts in Smith Business Insight. Evidence shows that when employees share ownership, businesses become more productive, innovative and resilient. Plus, beyond firm-level gains, employee ownership can help address the coming mass retirement of business owners, protect local economic sovereignty, boost national productivity and reduce wealth inequality. There is enough data about the brass-tacks benefits of employee ownership to sway even the most hardened skeptic.
Advice to the public service: Five ways to confront monsters and chaos
Canada's political and bureaucratic leaders are quickly trying to re-wire the federal government to confront a belligerent Unites States, but systems can’t deliver what they were not designed for. This is a time like no other in our history, writes Matthew Mendelsohn, and those making decisions have not been trained for this—because we haven’t experienced anything like this before. Drawing on his own time in Ottawa, he walks us through five priority “machinery of government” changes our public service needs to make to meet the threat of an increasingly authoritarian, imperialist America.
How to get single family homes out of the hands of investors | Toronto Star
About 1.3 million homes in Canada that could be family-owned are held by investors—mostly individuals. In The Star, Matthew Mendelsohn, the Missing Middle Initiative's Mike Moffat and Jon Shell explain how a simple tax change could finance new rental construction while also freeing up homes for families to buy. The policy would temporarily allow investors to defer capital gains taxes if they reinvest proceeds into new purpose-built rentals. Many policy changes are needed to fully address the complex Canadian housing crises, and this could be one that puts Canadian capital to more productive uses.