The Rise of Remote Outsourcing Teams for US Companies

The pandemic revealed that our governments are slower and more sclerotic than many of us previously realized. It turns out that Canada has a state capacity issue.Begin with the federal government. The pandemic highlighted that Ottawa's governmental capability has been depleted in recent decades. It was still capable of establishing new cash transfer programs such as the Canada Emergency Relief Benefit and sending cheques to households with no inspection or control, but the federal capacity for procurement, logistics, and service delivery was alarmingly limited. The federal government has basically been reduced to a tax collection entity that distributes funds to seniors, families with children, First Nations, and other levels of government.This state capacity weakness manifested itself in a long list of federal pandemic failures, including its confusing and frequently contradictory public health directives, its initial vaccine procurement (including a bizarre contract with a Chinese state-owned enterprise), and the $25 million spent on the ArriveCan appThe post-pandemic period has also been marked by high-profile examples of government failure. The most visible example is the country's passport backlog, which has resulted in lengthy delays, large lines at Service Canada offices, and canceled summer vacations.This case is particularly noteworthy since it is so fundamental. How can a government that cannot issue passports on time possibly hope to decrease poverty by half in 2030, engineer an energy transition by 2050, or achieve any other significant policy goal in the coming years?

The provinces are not much better.

Their joint failure to change their health-care systems prior to the pandemic, despite rising signs of inadequate capacity and poor outcomes, contributed significantly to the country's lengthy and strict lockdowns. For more than two years, we were being held captive by the threat of hospital collapse.This point cannot be overstated: we now know that children suffered long-term learning loss and others opted out of diagnostic tests, surgeries, and treatments in large part because a generation of provincial bureaucrats, politicians, and special interests chose to protect the failed health-care system.These recent examples raise reasonable concerns about our governments' capacity to fulfill their essential roles and responsibilities. Lines of people with lawn chairs in front of their local Passport Canada offices, as if they were waiting for concert or playoff tickets, provide a dramatic counterpoint to the prevalent story of Canada's world-class state capacity.It's critical to note that these findings are not partisan nor necessarily arguments in favor of less government. Governmental failings have been widely dispersed on both the Left and the Right, and research indicates that the relationship between state capacity and government size is ambiguous. Denmark, Finland, and Israel all have comparable sized or larger governments, but they appear to be able to provide more effective and timely public services than we do.

The circumstances underlying our state. 

capacity limitations are multifaceted and will undoubtedly be the subject of ideological and political dispute. The Left would claim that it is the result of so-called "austerity" measures such as privatization and spending cuts in the past. Instead, the Right would argue that Public Choice reasons such as institutionalized risk aversion, warped incentives, and union-protected mediocrity undercut effective and efficient collective action.The main issue here, however, is that the epidemic demonstrated that Canadians should not be overly confident in our country's ability to deliver on anything we collectively ask of it through politics.Which brings me to my apology. In recent years, my research on innovation policy has highlighted the emergence of the intangible economy (also known as the move from a "economy of things" to a "economy of thoughts"), as well as its distinct traits and attributes, including its geopolitical and strategic implications. This has caused me to reconsider the state's role in promoting science and technology, as well as cultivating sectors, sub-sectors, and technologies with high-value, strategic potential for the Canadian economy.As part of this study, we examined establishing new public-sector entities to better promote breakthrough technologies, as well as exploring the possibility of a modern industrial policy. I sought to base my argument on a good understanding of the limits of state action and other political economic hazards. In a late 2021 study, for example, we advocated for a new science and technology agency with a specialized staff and strong autonomy to reduce the risks of bureaucratic stagnation and political capture.

Even with these political economics. 

caveats (which some opponents have unfairly overlooked), there is likely to be an argument that my study overstated Canada's state capacity. That is, I spent so much time worrying about the twin hazards of bureaucracy and politicization that I neglected to consider more fundamental issues such as "Can the government reasonably do this?" The passport fiasco has served as a valuable corrective.I stand behind the majority or all of my work on these topics. We must recommit to a more ambitious science and technology agenda, and the market uncertainties of breakthrough technologies will almost certainly require government intervention. However, I now understand how enhancing (or at least accounting for) the country's state capacity is an important first step toward greater success on these challenges. I admit that my analysis was incorrect or incomplete. One result is that I'm probably more of an economic libertarian than I was before the outbreak.The main conclusion here is that our politics should devote more focus and attention to the issue of state capacity. Our political arguments must go beyond greater vs smaller government to include good versus bad government. Everyone should be able to agree that the former is superior to the latter.