Our excursions have become a personal tradition. “Every year, I reduce my career expectations,” says T———. Most conversations in Vancouver go something like this, although rarely with such candor. There is always some gnawing concern, and eventually, it becomes the only thing worth mentioning. Vancouverites have a cold, polite distance when talking about their lives and anxieties. A general tone of neutrality and understatement, followed by an innocuous excuse for the banality of the subject. Excitement is not part of the repertoire—things are either exactly the same or vaguely less tolerable. All aspects of life are circulated through this filter: dating, work, shopping, even the weather. “We didn’t really click, last night,” “Just a long week, I guess,” “It was a little pricey, so I only got this,” “It was sunny this morning, but then it started raining.” I always thought of this as the most obvious remnant of Vancouver’s British colonial past, but I’m afraid it’s the least likely to be decolonized. You get used to it after a while.
T——— and I usually meet in Vancouver’s West End, by English Bay. Quaint towers from the sixties, a beach, palm trees, cyclists, container ships drifting into the sunset, children playing—but only sometimes. You might spot an aging gay couple having wandered off from rainbow-flagged faux-seedy clubs. Those clubs are now mostly frequented by tired, yet glimmering retirees in denial about their age, or by loud young women trying to enjoy their girls’ night out. The West End captures much of the appeal of Vancouver: laid-back, beautiful, open, inclusive, safe. T——— has been living in this part of town for quite some time, after having spent his childhood in the suburbs. I always had the impression that he never quite enjoyed the entirety of it, although I suspect it’s because of the song in his voice that makes it seem like he is constantly caught unaware by the things around him. His every statement is a question. Although years in the making, even the suffocation of his professional ambitions seemed to have caught him by surprise.
T——— represents the best of the Canadian immigration model. A child of post-Iran–Iraq war immigration, he shares the honest intelligence, soft-spokenness, largesse in manners, and innate liberality so often found among Iranians in the West. The latter seems a product of intergenerational distaste for theocracy. Maybe that’s where the inquisitiveness stems from as well: an antidote to the steadfastness of the clerics.
This birthright inquisitiveness has found new use in a new context. A few years ago, T——— blazed through a degree in economics at one of Canada’s best schools, as well as through the city’s barren political underground. He knew the Who’s Who of Vancouver politics and business—an experience which left him with a pure and unmitigated disdain. His curiosity had brought him to acquaint himself with large and disparate circles of the city.
He often jokes about being in the shadow of his father. It’s a feeling common among sons with shrewd fathers and comfortable upbringings. The jokes, however, hinted at something more profound, which sometimes burst into honest family conversations: was it worth it? His father had left Iran with the hopes of sparing his sons the hardships and difficulties of living in a region disrupted by conscription, embargoes, and regime change. But what was a self-evident calculus had turned into quite a surprise. While his father had done well and built an enviable life for himself and his sons in Canada, there was a bitter realization that those who stayed behind in Iran had reaped the greatest rewards.
In those twenty years, Tehran had transformed into a world class capital, and the little clerks and drivers who had worked for T———’s father and could barely afford to rent a basement had since become ten times wealthier than hw was. Now, they have villas on the Caspian Sea, and servants of their own. The question of whether it was worth it is, of course, already meaningless for T———. But many of the young Iranians who immigrated in the last few years have settled it the other way. None have planned to stay for long—just enough time to get their Canadian papers (a marker of affluence at home) and jet back to Iran where life can really be lived. What happened in those twenty years?
We habitually end our evenings sweeping down Granville, Vancouver’s neon-lit party district—well-known as one of the least entertaining night scenes in North America. There’s a constant, eclectic mix of jumpy students getting their first taste of sweaty, deafening dance floors and overpriced vodka cranberry tonics, homeless men in their 20s shooting up heroin in every nook and cranny, washed up from Alberta’s struggling oil towns, and glitzy Chinese women draped in Louis Vuitton and Prada, strutting out of Nordstrom and into white BMWs.
“It’s surprisingly empty for a summer weekend night,” says T———. This is also a recurring theme in Vancouver conversations, especially among Millennials: the cataloguing of friends who have left to try their luck elsewhere is a constant theme. He’s right. The seasonal influx of rowdy Irish students and Australian bohemians seems to have gotten lighter with the years and is now unnoticeable downtown. Vancouver was always placed for being a city without a soul. It seems it has completely bled out, as well. “Now Hiring” signs are on every store front. Some have been there for months. T——— picks up on this.
“This is not what an economy with unemployment at 3% looks like,” he says. “For Canada, anything under 5% is structural unemployment,” he continues, “but there’s something that doesn’t make sense. Salaries haven’t budged. If unemployment were really at 3%, firms would be killing each other over workers.”
I reflect on this a moment. Many startups and tech companies I know are having a hard time hiring developers, especially with Amazon moving in. Their salaries are way too low. On a few occasions, I’ve gotten to ask if they’d consider raising compensation, but I get the same reply every time: “This is how much a developer should make. We’re not paying a penny more.” It’s a very strange dynamic; a combination of low available capital for investing in anything higher tech than real estate, and cultural barriers to high compensation, has them shooting themselves in the foot. They lose out on top talent that ends up going to the States.
When I relay all this to T———, he laughs. “Firms used to have training and recruitment programs. I don’t see that anymore. The most effort they put in is getting headhunters to harass people with bullshit PowerPoint jobs that pay nothing.” He pauses a moment. “What happened? How can corporate leadership be so lacking in thumos?”
He then launches into one of his favorite stories about his lunches with the top guys at the Canadian Pacific Railway, one of Canada’s economic jewels and the primary engine behind the settlement of the western frontier during the 19th century. A naive and younger T——— had tried engaging his sexagenarian audience with things like “western economic development,” “resource transportation infrastructure to meet Asian demand,” and “provincially supported railway extensions.” It went over their heads. Within minutes, the conversation had switched to golfing and vacationing at their lake houses. This was the pinnacle of Canadian corporate ambitions. “That’s all they talked about,” says T———, “They don’t even vacation in interesting or exotic places. Just dumb golfing vacations.” And every subsequent lunch went the same way. That was T———’s main frustration with these apparatchiks: mediocre at best and woefully incompetent at worst.
Canada is a holdout of Brezhnevism. T———’s apparatchiks aren’t very different from their Soviet predecessors: frail old men in buffoonishly baggy suits from the 1990s, complete with black (Volga-like) sedans and dachas in the countryside. When they aren’t vacationing in said dachas, their main occupation is making sure that things are as stable as possible, which realistically means making sure nothing new ever happens.
Americans with left-leaning sympathies point to Canada as a model to emulate for a progressive and fair society. But Canada is, and has always been, an oligarchy where the ruling families—the Saputos, Demarais, Reichmans, etc.—have relied on their own Brezhnevites to preserve their wealth by shielding them not just from competition, but from any kind of change.
The key to acquiring wealth in this country is creating bottlenecks by saturating public and private institutions with members of this class. Thanks to their valiant efforts, the Canadian economic model is a madhouse where apparent opposites are simultaneously true. Anyone who’s worked in developing economies knows that the right sort of corruption is a blessing, at least in the short-term: for a few greenbacks more, you can shrink processes that take months down to a few days. In Canada, the same process seems to exist to slow down development. Both governmental and private sector projects are always severely over-budget and late by ridiculous timeframes. Internationally promoted as an open and transparent economy, anyone in the thick of it encounters a culture of eerily systematic structural barriers. Spend enough time in it, and your mind begins to wander off to very different comparisons.
There was a period in the Soviet Union between the energetic reformer, Khrushchev, and the not-so-energetic reformer, Gorbachev, when the centrally planned economies of the Eastern Bloc started going off the rails—all while the veneer of normalcy was ever more brutally enforced. Stalin had built a giant of industry from a mass of illiterate peasants that out-produced Germany, and equipped and propelled some 400 Soviet divisions across the Danube and onto Berlin. Khrushchev had straddled this giant and used it to dramatically increase living standards across the country. The post-war reconstruction was completed, the stars were reached, Soviet agriculture was reformed, and personal cars and televisions made their way into the lives of average Soviet citizens for the first time. Initially a supporter of Khrushchev, Brezhnev came to power by shrewd bureaucratic manipulation and clamped down on the excesses of his patron.
During the two decades of the Brezhnev period, the dynamism of the Soviet economy died. Stagnation set in at all stages of life. Many Soviet dissidents and red émigrés of the late ’70s point to the general ideological disillusionment with the Soviet system experienced by the people as the cause for this stagnation. But the central planners were already aware, from the early ’60s onward, that they had reached the limits of the command aspect of the economy. The attempts at jump-starting the Soviet economy piled on, while the people grew more disillusioned with each passing year. It had become clear that the extraordinary transformations the country had experienced, and the optimism that comes with bloody and hard-earned progress, were behind them. There was no communism coming, the stars were getting ever more distant (Brezhnevites axed the real Soviet space program), the barbed-wire more apparent. The choices offered were emigration or “comfortable socialism.”
Productivity plummeted, alcoholism became chronic, gangsterism returned and shortages became more severe, while careerism ate its way through the Party. The hardline believers in the faith of communism and human progress made way to middle managers trying to exploit their positions to marginally improve their own living standards. This mindset of exploitation of the commons then infected the population with disastrous consequences. Soviet car-factory workers stole leather seats to redo their wardrobes with cool ’70s jackets, restaurant workers became fabulously wealthy by stockpiling state food distribution and reselling on the black market, Soviet pipelines leaked thousands of tons of oil through the most guarded border in the world and into neighboring markets.
The social hierarchy had shifted as well, with those best-placed for using state resources for their own enrichment climbing on top. Something strange happened in the Brezhnev years. Engineers and scientists, who were respected and capable figures under Stalin as pillars of socialist progress, and who had become cultural superstars under Khrushchev, suddenly morphed into naive losers who now occupied the bottom of the Soviet social hierarchy. The labor situation had also officially shifted, as alcoholism, absenteeism, and policies against unemployment meant that wages for unskilled laborers were fixed at a higher rate than those of white collar workers, which incentivized those who did not want to work.
The Soviet leadership was well aware of these endemic problems, and attempts at reform soon gave way to cheap fixes. The oil crisis and the détente allowed the Soviet Union to sell to the international market in exchange for the hard currency they could use to keep the whole thing afloat. It started with purchasing wheat to make up for the failures of Soviet agriculture, then it turned to Pepsi and Levis jeans to sprinkle over an increasingly uncooperative and unproductive population. By the early 1980s, oil exports weren’t enough to mask ongoing failures. Credit obtained on international markets substituted for economic growth. Debt spiraled out of control and by 1989, the Soviet Union traded 17 submarines, a frigate, a cruiser, and a destroyer for Pepsi bottles, making Pepsi the 6th-largest navy for a brief period of time.
There are many lessons to be learned for Canada from this surreal but unfortunate episode in history, as productivity gains flatten, cost of living rockets, and household and public debt inch ever out of control.
Most of our economic and social woes arise, as was the case in the Soviet Union, with Brezhnevites of all sizes carving out bureaucratic fiefdoms for themselves. This infectious mindset eats into the heart of what was once one of the most advanced and forward-looking countries. As rot sets in, optimism and belief in improvement die out, and are replaced by a race to the bottom among those fiefdoms. Brezhnevism and the pessimism that inevitably follows have reached critical levels and have taken comical and not-so-comical turns.
Vancouver is a wonderful case study. Architects line up at 6 a.m. with lawn chairs or placemarkers in front of Vancouver city hall, hoping to get a hearing for their projects in the afternoon. The effort is often in vain. By-laws are conjured nearly from thin air, or creatively reinterpreted, to send them back to the drawing boards. This comes as many city councils are eager for much-needed relief from the housing crisis. In this case, these Brezhnevites continue to sustain the interests of wealthy landowners who oppose any infrastructure, commercial, and housing development.
It’s not just housing and construction which suffer from this institutional rot. The MRI shortage in British Columbia is a particularly acute example. To appreciate the seriousness of the shortage, it’s important to note that the U.S. has 38 MRI scanners per million people, while Japan has 35. In Canada, that number is a critical 10 machines per million people.
As of the writing of this article, the wait times for a screening have been reduced to a commendable average of 48 days, half of the previous average of 96 days. How were these wonderful results achieved? By running the MRI machines 24/7 and scheduling appointments at 3 or 4 a.m. for those in critical need. You might be dumbfounded by this story. Couldn’t the number of machines simply be increased? A few physicians attempted to procure the MRI machines themselves and charge very low rates for screening. They were immediately ordered to cease and desist operations by health authorities. You see, determining the need for MRI machines is a core competency of a specific health commission in the British Columbia health care system, and at the time, the commission had not yet determined that there was a need for more machines. The issue required further investigative work by said commission.
The private sector is not safe from Brezhnevism, either. The phenomenon is set into elite structures which transcend such boundaries.
The supply management example is interesting because the lines between inefficiency, well-paying union jobs, private fortunes, and lobbying are blurred. Under this system, foodstuffs like dairy, eggs, and poultry are regulated to maintain prices. While some of the country’s largest fortunes are behind it, it’s not hard to see why so many Canadians see merits to it, especially in light of the disastrous effects of trade liberalization on nearly every other Canadian industry. The civil servants and politicians who pushed for the liberalization and privatization of Canada’s crown corporations suddenly found themselves sitting on the boards of the very same companies they sliced up—who still rely on protectionist measures to maintain their quasi-monopolies.
Rent-seeking, Or How To Destroy The Wealth Of Nations
It was a meeting I had while working in mainland China that hammered home events in Canada. G——— had become a venture capitalist through pure grit. Like many foreign entrepreneurs in China, he had that weathered look about him and made it a matter of principle never to mince words. In middle age, he looked more like a rockstar than an investor—sporting a man-bun, a deep tan, and ripped jeans. He was always flanked by pretty assistants. You would never catch him in a suit, even at more formal events, among Chinese salarymen and party officials. “Welcome to Shanghai!” he exclaimed. “You made it to the center of the fucking universe, and if you want to survive here, you have to learn quickly and see the big picture.”
His advice for foreign entrepreneurs wasn’t some canned platitude about never giving up or how hard work paid off, but rather to read a specific book. “You want to understand what’s happening here? Go pick up Adam Smith’s The Wealth of Nations.” The down-to-earth entrepreneurs think it’s a waste of time to read a tract three centuries past due, and the university-educated economist scoffs at reading quaint theory over the econometrics papers pumped out daily. But reading Smith to understand the crazy world of Chinese growth wasn’t about economic theory or its applications. It was about intuition.
That’s what innovators do. When the world around them goes crazy, they step back and look. When empty lots sell in the several millions of dollars, when shoddy rentals begin taking above 50% of the incomes of ordinary citizens, when 36,000 homes sit empty while offshore fortunes are laundered through them, it’s time to rely on intuition.
Smith, revered by deregulation proponents, understood that rent-seeking was a hindrance and imposition on productive activity. In his attempt to intuit the relationship between farmers and landowners in his 18th century Scotland, he devised the following relationship:
The rent of the land, therefore, considered as the price paid for the use of the land, is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give.
Smith uncovered the dynamic rent-seeking imposes on productive activity. Although many think of landlords as providing a service at a price determined by market forces, the reality is that they are barely providing a service at all, but merely extracting the largest possible share of tenant income by exploiting a geographic bottleneck. This is missed by the rhetoric surrounding the housing crisis. Landlordism in cities is (correctly) blamed for a worsening of income inequality. What’s ignored is the effect rent-seeking has on productive economic activity, and that the causes of income inequality lie in the crushing of productivity gains by such activity. Rent-seeking isn’t just a transfer of wealth from Millennial renters to Boomer landlords, but also a transfer of wealth from the productive segment of society to the unproductive.
There is a very simple way of looking at this transfer: wealth creation is making things.
When innovative companies begin making decent profits, landlords raise the rents to adjust for the new ability to pay. As a result, these additional wages are neither reinvested, nor reflected in the disposable income of employees. This is the dynamic behind the mystery of stagnant wages. When workers in a particularly well-paid sector begin pouring into a city, landlords likewise raise the rent to absorb these incomes. It isn’t gentrification, but absorption through monopoly power.
With this framework, we can begin to understand the effects that Canada’s out-of-control housing market has on innovation and productivity. Using data from StatsCanada and the CMHC, I’ve overlayed historical rents in Vancouver to average weekly earnings (pre-tax) of workers in British Columbia in the professional, scientific, and technical services sector, which gives us something like this:
Rent is rising with income, even slightly faster, absorbing much of the gains, as landlords are extracting an increasingly significant percentage of wealth generated by workers. As this trend drags into the new decade, it means being a productive worker pays increasingly less than speculating on the real estate market. It means that more and more people are pushing out of the productive sectors of the economy and into the unproductive, with the rentiers leveraging their assets and historically low interest rates to acquire even more rent-seeking opportunities. As the price of real estate inches ever upward, more and more people are left in the dust and at the mercy of the landlords.
It also means that real wealth creation is endangered. The sectors of the economy where goods and services are made and know-how is created shrink relative to our productive capacity as more capital, human and otherwise, becomes tied up in this real estate inflation. The rationale behind this asset inflation is the oft-repeated claim that the Canadian economy is undergoing profound technological change and that the influx of jobs in the transition will sustain demand for real estate in the decades to come. With the backing of major U.S. tech companies and urban transformation projects such as Sidewalk Toronto mushrooming in Canada’s top cities—-Toronto, Vancouver, Calgary, Waterloo—the word in everyone’s mouth is Silicon Valley North.
But a quick glance at sector data from StatsCanada dispels the idea of a Silicon Valley North:
From 2009 to 2019, this supposedly prodigal sector has gone from occupying about 4.3% of production to about 4.6%. Hardly the much-touted silver bullet to Canada’s economic woes. The Canadian economy remains solidly stuck in a resource trap; the only sector actually delivering tangible growth is the one driven by asset inflation. To illustrate the point of Canadian real estate compared to Canadian innovation, the following chart is instructive:
How did real estate, the most low-tech asset class in existence, become more sought after than shares in the most bleeding-edge tech companies? Which came first? Did Canadian innovation fail because all the capital became tied up in real estate, or more uncomfortably, did real estate absorb all the capital because Canadian innovation could no longer deliver on its promises? Whatever the answer may be, it’s clear that Canadian innovation needs a new start as the threat of Brezhnevite failure looms on the horizon. A country that has a housing shortage when it is a net exporter of construction material, has nearly unlimited land, and has an oversupply of human capital, is stuck in the same rut as a country that has a shortage of toilet paper, just as it exports massive quantities of processed timber.
The Canadian Space Age
The future will only belong to Canada if Canada, the people of Canada, have faith in the destiny of Canada and work like blazes to make that destiny come true.
— Sir Roy Dobson, 10th anniversary of Avro Canada
It’s always arresting to be confronted with the optimism and anxieties of a bygone era. At the Chief of Staff committee meeting in February 1957, at the height of the Cold War, there was a general feeling of unease as reports were piling up of U.S. and Canadian patrols making contact with the Soviet Type 37 Bison, a long range strategic bomber designed for the delivery of nuclear payloads to North American targets. The committee came to an agreement to speed up the Arrow program, the program to build and equip the Royal Canadian Air Force and U.S. Air Force with an aircraft capable of intercepting Soviet bombers flying up to 36,000 ft over the polar circle.
The timeline, the appearance of ICBMs, and the requirements presented considerable challenges to the engineers at Avro Canada. Although the costs of the program were expected to be significant, the government pressed on with development. It’s a little hard for us to imagine what the Canadian government was willing and able to do when we were a small country of 15 million people. The great defense scandal of our age is the failure of consecutive governments to modernize the antiquated CF-18s. This is purely a procurement failure. It would be unthinkable today for Canada to produce a 5th generation jet on its own. Funds would simply not be found, and nearly everyone would agree that the know-how to build such a jet is non-existent. After all, the F-35 program was a collaboration between several NATO allies, and its development was beset by problem after problem. How could Canada ever hope to build anything on its own?
In 1957, we still knew how to build things. We had the young, motivated engineers to push forward. Thousands of eager minds, newly minted from Canada’s top engineering schools, were marched into Avro Canada’s laboratories. It was an exciting time. Talented engineers, many of whom were veterans of the British aerospace industry that had won the battle of Britain, poured in from the UK, along with their families, to close any gap left by the youngsters.
The results were tangible and spectacular. The requirements for the Arrow program were issued in 1953. By 1958, the delta-winged apparition was already in the air—a mere five years. In 1959, the CF-105 Arrow hit Mach 1.52 at 50,000 ft. For a brief moment, a future Canada as aeronautical titan was within grasp. The Arrow program generated significant know-how. Engineers achieved many aerospace ‘firsts.’
The program was gradually shut down by the new Diefenbaker government, which was determined to rein in “rampant liberal spending” and shift to a new missile-centric defense posture. This amounted to buying missiles from the United States.
When the program was shut down, it permanently shut the door on large-scale Canadian technological ambitions. The demoralizing effect on the army of innovators that Avro Canada had assembled was devastating. The ending to the Arrow epic is one familiar to today’s young Canadian engineers. Superstars such as Jim Chamberlin and his inner circle, with decades of experience in the production of British aircraft models and the CF-100 under their belts, left for NASA and served as pillars of the Apollo program. The vast majority of the young men and the British family men who were given the opportunity of a lifetime, only to see it bitterly yanked away, never worked in aerospace again. The lucky ones ended up as small-time civil servants and construction consultants.
In 2019, many of the 6,000 yearly engineering graduates relive this story in a loop. The software engineers, in high demand at U.S. companies, migrate south. Others leave the profession for safer, better-paying careers. The human capital spoilage is astounding. Young people who are trained in moving mountains, in catapulting to space, in foraging the seas are then put on conveyor belts to cubicles to pump out PowerPoints. Canada spends enormous resources to train these people, only to deny them the opportunity to practice their profession.
I share with the faceless millions who have grown up in the shadow of North American factories a strange color blindness. We are unable to see the color gray—or, rather more accurately, it has the hue of a calm, comforting green. The earliest and fondest memories of our fathers are at the factory. Everything seems larger than life when you are a boy. I spent most of my early summers and many winters at the telecom factory where my father and grandfather both worked.
The ritual was perfect. Never once was it a bore. My father would come pick me up from school in the afternoon on his lunch break and drive me to the factory. I loved the drive there as the suburb melted along the highway and warehouses. Trains and industrial equipment took its place. There was one particular stretch of the highway where I would unbuckle and jump to the right backseat window, and invariably my father would point to it: the Bombardier warehouse storing large airliners, the tails popping over the fence. If I was lucky, they would be unsheathed from their black protective covers, revealed in the full glory of their metallic, glimmering white.
I loved the stuffiness of the offices where my father worked with the other engineers. It was a post-communist refuge, and there was an obvious sense of solidarity among the Hungarian exiles from Ceausescu’s regime, Estonian Jews and, of course, the unavoidable Russian engineer with his impeccably mismatched patterns. Everyone was gray, this jolly gray I was talking about, and there was a lightness about. The hypermodern offices of the most cutting-edge companies will never match that gray lightness. In my professional life, I have seen very few workplaces where people were more at ease.
I spent most of my time drawing on the back of discarded drafts, with no real purpose in mind, exercising a precocious imagination as many boys do at that age. Sometimes, I would reproduce the drafts themselves, at other times it would be scenes of boyish fantasy. Ludmila, a rather plump middle-aged redhead, loved the latter the most. She pinned my most extravagant drawings on the wall behind her desk, as if they were some sort of prophecy. My father thought she was silly for it. When I got bored of drawing, I would go and bother my grandfather manning an assembly line, bent double, polishing with sandpaper the various waveguides, filters, and terminations perfectly aligned on his work table like tin soldiers. Sometimes, we would go take a break and walk around on the train tracks running between the nearby factories. My main thrill was finding the carcasses of dead snakes lying around the tracks. When 6 p.m. came, all three generations fit into the car and headed home.
These memories are not particularly different from those who grew up away from the first-tier cities (to borrow Chinese terminology). Even those as young as I remember workplaces as communities full of solidarity, creativity, purpose—before the North American interior became a desert of opioids and unemployment and the coastal cities became mirages for cut-throat gigsters.
It was only later in life that I understood where the energy animating my father’s colleagues came from: the gutted carcasses of the Tondi Elektroonika Plant, or the Yaroslavl Radio Plant, or any of the other Soviet electronic titans, each with its tens of thousands of workers. They had broken free from their Brezhnevnite superiors, and had easily found a new home at Quebec’s national champions (and not-such-champions): Bombardier, Bell, Nortel, etc., where they were appreciated, nurtured, and accordingly compensated. The easy-going French Canadian managers and engineers welcomed their new Soviet colleagues with open arms and for a time, this new synthesis bore fruits.
Until our factories, in turn, were gutted.
Misha was my father’s best friend at the company. When the owners sold the factory for scraps and relocated production to Vietnam (very forward-looking for the early 2000s), Misha and my father did not look for new jobs like the other engineers. They decided to go into business together (or “bizinyis” as Misha would say) and start their own shop from Misha’s brutalist Montreal apartment. Misha was ahead of everyone and had never gotten comfortable when his colleagues were settling into McMansions. His apartment was bare, a very functional table with a trail of Heineken bottles filled to the brim with cigarette butts, mattress on the floor, two desktop computers with the massive TV-like monitors, and a sports bicycle—a token from a previous life.
Misha was a special person in a very Russian sense of the term. He was a horrendously ugly bald man, with enormous warts on his nose and large, bare forehead, always drawing your attention away from his eyes. He had been a ‘master sporta’ of the USSR in both cycling and fencing. Russians tend to be polymaths. He incessantly invented new components and perfected existing ones. Some of the stuff he built 20 years ago is still considered cutting-edge today. His resourcefulness had no end. When he needed rare German radioengineering software, he put his FSB friends back home on the case, and voilà, he had the bootleg copy he needed to complete his work. Misha was great in the way that all engineers are great: not because of his degrees or accreditations or blue chip employers, but simply because he solved problems no one else could.
My father and Misha had big dreams, and they were going to build the future together—they were ahead of everyone in the game by decades. But Misha’s Achilles’ heel was booze. On one of his many trips to Russia, he drank himself to death. Misha’s death was the first that I remember. There is no future without crazy, gun-slinging engineers like Misha: my father spent the next 20 years trying to do what they had set out to do, but it turned out to be a fool’s errand without him.
And I myself wouldn’t set foot in an electronics factory again, not until many years later in Hangzhou, when I visited Xiaomi’s plant. I found the future elsewhere.
That was something that linked T———’s father and mine. T———’s father had put all of his savings in Nortel where my father had worked. It was a time when everyone had unbounded optimism about Canadian technology. We were the best at what we did, and we knew it. When Nortel was gutted, he lost his savings, and my father lost his livelihood. It was a bitter lesson to learn for optimists, and their numbers have dwindled year after year for two decades. Canadian optimists are now in critically short supply.
A New Model
How do you do capitalism without capital? Answering this question has been the fundamental economic struggle for the vast majority of countries since the 18th century. When the Industrial Revolution began in Britain, the country had large amounts of private capital, acquired through its trading empire, that it could invest in buying and building the infrastructure necessary to support its new industries. The history of industrial development in the U.S. followed a similar pattern. The northeastern U.S. had enormous amounts of capital in the hands of its leading merchant families that were quickly put to use in developing the country. The rail network that linked the country from coast to coast was built and funded by the robber barons of the age. Even when the U.S. government undertook ‘internal improvements’ specifically under the auspices of the Clay’s American system, there was sufficient capital in the country to fund the works quite easily.
However, many later industrial powerhouses such as France, Germany, and very recently China, began with little capital, as these countries had always been agricultural societies with limited access to international trade. The key to their economic development was that the state, with its ability to borrow on international markets, became the primary capitalist funding the projects necessary to develop a modern economy. Their trajectories were decidedly different from the U.S. and the UK. All three are mixed economies, with France and China still running a dirigiste economic model. You can’t do laissez-faire capitalism with peasants barely producing what they themselves consume.
Although somewhere between the U.S. and the UK, Canada never possessed the internal capital it needed to assert itself as a dominant economic force on the world stage. The country was built on a railroad to its western territories, funded by state capital. We have to be mindful of this reality when discussing development in Canada, especially innovation. There are many earnest voices in this country who are calling for the end of Brezhnevites. They call for an end to the tyranny of cliquey professional associations, of corrupt labor union officials, of incompetent bureaucrats, and of spendthrift politicians. They call for an all-encompassing liberalization, including a significant reduction in taxes.
But it’s crucial to look at the issues facing the country straight on. Shaving 5% off the income tax won’t build the 150,000 dwellings a year needed to house the 350,000 immigrants arriving every year, it won’t build the deep-water ports needed in the Arctic circle to facilitate polar shipping routes, it won’t build the refineries and pipelines needed to export energy to allies, it won’t build the nuclear power plants and charging stations necessary for a green energy transition. This would mean strategizing, shrewd decision-making, hard work, and—most importantly—experimentation. It’s not going to be done by investors who can barely scratch together enough capital to run a corner coffee shop without getting cold feet. But the future isn’t going to wait.
Many of these experiments would fail. That’s how innovation works. Failure is only a problem in the absence of improvement and backup plans. There is no such thing as perfect execution, or absence of risk. Calculated risks undertaken by competent and eager builders is a natural part of managing and creating growth. Shunning risks or avoiding planning is the surest way to rent-seeking and stagnation, as you cannibalize the successes of previous generations of innovators.
But risky experimentation requires optimism and confidence in the future. This is one of the greatest assets any country can have. An investment of any kind—time, money, effort, emotional commitment—is about belief in an upside. The larger the potential upside, the larger the acceptable risk. Optimism is the belief in upsides.
It’s become fashionable in some circles to ask how people can be made optimistic again, and speak of optimism directly as a variable influenced by culture and propaganda. It’s true that beliefs like optimism can be socially influenced. It’s clearly an important input to progress, so why not try to influence it? But beliefs also reflect reality, and cannot deviate too blatantly, except to the detriment of sanity.
Optimism isn’t just about what people believe is possible; it’s about what actually is possible. If some bright-eyed, young engineer graduates from his training, full of optimism and big ideas, and sets out to find the opportunities, what does he actually find? Does he find and solve real world problems, build confidence in his skills, and learn how he can do amazing things? Does he strike the jackpot of opportunity and then put his less optimistic classmates to shame? Or do his more conservative classmates who followed the tracks and took no risks put him to shame? Like T———, are his dreams progressively crushed down further year after year as he finds no willing comrades in adventure, and no dynamism or potential in the system? This is what decides whether the culture is permeated by an ambient optimism and dynamism, or the stagnation of Brezhnevism.
To some extent, if only others were also optimistic, our imagined young engineer might have found some comrades or willing capital. But the simple collective action problem is only part of the story. The problem of possibility isn’t just in everyone being optimistic. It’s in complex social organization. Networks need to be organized around finding, discussing, and taking advantage of ideas. Capital investors need expertise in evaluating risky opportunities. Material capabilities in hardware, space, and logistics need to be easily available to new projects. Young engineers need expert mentors to help them distinguish the real potential opportunities from wastes of time and resources. A workforce of experienced engineers needs to be available. Barriers to entry need to be low and key bureaucratic bottlenecks kept open. Without these fundamentals, any episode of mass optimism will soon be crushed by the inevitable failure of the future to materialize.
With economic pessimism, we’re dealing with a much larger collective-action problem than just belief in the future—-the kind of problem that has only ever been solved by a bold, coordinated, development-oriented elite. But where to get one of those is a whole different problem.
T——— isn’t the only one asking the question: if you can’t build anything else for lack of real leadership, then how do you build real leadership? I run into an increasing number of young, would-be innovators like T———, surprised and frustrated by the lack of possibility in Western economies, who are turning their attention towards this challenge.