National Defence Minister David McGuinty at a funding announcement on Monday. Ottawa is ramping up spending on industries such as defence in response to an increasingly unpredictable world.Justin Tang/The Canadian Press
Claude Lavoie is a contributing columnist for The Globe and Mail. He was director-general of economic studies and policy analysis at the Department of Finance from 2008 to 2023.
The continuing escalation of war in the Middle East and its economic repercussions are another test of how resilient the global economic system is to political shocks. In that context, Ottawa’s recent push to protect some industries, ramp up domestic military and energy production and diversify trade could be interpreted as an attempt to shelter our economy from the vagaries of geopolitics and make it more resilient.
After years of prioritizing efficiency above all else – and paying dearly for it during the pandemic – the impulse is understandable. But good intentions and the right policies are not the same thing.
The disruptions wrought by U.S. tariffs, climate change and geopolitical turbulence have laid bare what the pandemic exposed: that Canada, like most Western economies, has prioritized efficiency over resilience to an unhealthy degree. Decades of just-in-time supply chains, lean inventories and hyperspecialization delivered remarkable efficiency – until they didn’t. When the shocks arrived, the buffers were gone.
Boeing’s aggressive pursuit of efficiency, lean manufacturing and its cost-cutting led to the 737 Max crisis of 2024, when the model was grounded worldwide after 346 people died in crashes. Boeing had no alternate aircraft to offer, no buffer inventory, no redundant certification pathway. Toyota’s just-in-time inventory system was efficient, too, but in 2011 an earthquake and tsunami hit its sole piston supplier. A single point of failure forced a long-term shutdown of the automaker.
Resilience and adaptability are essential to long-term prosperity, yet neither sits comfortably in a capitalist system preoccupied with short-term gains and resource exploitation and without any consideration for the negative social spillovers they create. Years of relative stability led governments to dismantle the buffers and regulations that once provided a measure of protection in the name of economic growth.
Canadians remember the frustration of PPE shortages and vaccine manufacturing gaps during the pandemic. They expressed growing anxiety over supply chain vulnerabilities, and voiced irritation when wildfire seasons exposed a chronic shortage of trained firefighters. Now, many are asking why trade diversification wasn’t pursued sooner and why we are not doing more for the environment.
These are fair questions. But the answers reveal something important about the nature of resilience itself: it is expensive, often invisible and deeply unglamorous – which is precisely why governments and markets alike have consistently underinvested in it.
True resilience would require warehouses stocked with contingency supplies, emergency responders sitting idle between crises and costly trade relationships maintained not for economic gain, but as a hedge against the kind of political rupture no forecaster predicted.
There is, at its core, an unavoidable trade-off between efficiency and resilience – one that every Canadian navigates personally, whether choosing how much insurance to carry, how much food to keep in the pantry or whether to become a specialist or a generalist. The question for policy makers is not whether to accept some efficiency loss in exchange for greater security, but how much, and where.
The path forward requires hard choices. Subsidizing companies, protecting some sectors and building up domestic military capacity are not inherently right or wrong approaches. The real work is in identifying where the economy’s hidden fragilities actually lie, through rigorous systemic risk analysis, pilot programs and computer-simulated, stress-testing exercises. Resilience built without that analytical foundation risks producing stranded assets, militaries equipped with suboptimal gear and protected industries that serve regional politics more than national security. It also risks swinging the balance too far to the resiliency side.
Some of the most underrated lessons from the 2008 financial crisis and the pandemic concern better unemployment insurance, sick leave, support for displaced workers, health care capacity – and most critically, institutional trust and social equality. Societies with lower inequality and higher trust in public institutions consistently weather crises better.
Adaptability matters as much as redundancy. A resilient economy doesn’t produce everything domestically or stockpile more of everything. Instead it is one capable of pivoting – from one supplier to another, from one product line to the next – when circumstances demand it. That means outcome-focused regulation rather than prescriptive rules, flexible trade infrastructure and multicountry trade agreements. Picking just a few countries with whom to expand our trade is not sufficient: allies can become adversaries, as we well know.
What a serious resilience agenda would not include is doubling down on fossil-fuel exposure; shielding the industrial sector from necessary transformation by subsidizing it; or allowing procurement decisions to be driven by regional economic returns rather than military needs. Those are the choices of a government managing political risk, not national risk.
The opportunity before Canada is genuine. So is the risk of getting it wrong.