Emerging From the Igloo

The enduring image of last week’s G7 conference in Iqaluit was Canadian Finance Minister Jim Flaherty being hit by a block of ice that he had accidentally dislodged as he emerged from an igloo. The image was played for laughs and rightfully so. It certainly fit the informal tone that Canada was seeking by hosting the G7 in the secluded Arctic capital. For Canada, however, what really fell last week was manna from heaven.

It began at the World Economic Forum, in Davos, Switzerland where participating countries quickly rejected American-style capitalism, thus paving the way for what promises to be Canadian-style regulatory reform. Later, Canada celebrated a David versus Goliath victory in its war against U.S. protectionist trade measures. Meanwhile, the G7 meeting highlighted Canada’s leadership role in addressing global finance issues all while introducing the world to the promise of Canada’s northern frontier, falling ice notwithstanding.

As World Economic Forums go, Davos was a real barn burner. Since the beginning of the credit crisis, there have been numerous calls for the end of a U.S. dominated global financial system. But until now, that call was somewhat disparate. At Davos, it became clear that political and business leaders seek to ensure that the new financial order will be more regulated, more conservative, and more representative.

French President Sarkozy opened the conference by calling for a complete reform of capitalism, including a new international monetary system, a new global currency exchange regime, and a reexamination of the role of banks in a global economy. There was more of the same from the Presidents of Mexico, Spain, South Africa and Vietnam. Even bankers joined the chorus damning unfettered capitalism.

Davos was the death knell for unregulated markets. More intrusive financial regulation is inevitable. But, at Davos, the pendulum swung too far in the opposite direction. The regulatory reform proposed at Davos is no more likely to be adopted than the U.S. model is likely to continue. When cooler heads prevail, Canada can emerge and can present itself, and its regulatory model, as the practical medium. Hopefully, this will occur sometime around the G8 and G20 meetings in June in Canada.

Further aiding Canada as it claims a top spot on the world stage is the capitulation by the U.S. this week in its trade dispute with Canada over Buy America provisions. The U.S. agreed to exempt Canada from the protectionist measures which were attached to the $780 billion stimulus bill and other various spending bills passed by Congress this past year. By most accounts, the deal was an economic victory for Canada. Approximately $80 billion in U.S. stimulus money remains to be spent and there is likely to be much more.

For the United States, however, it was another blow to an already tarnished reputation. While Canada will be exempt from the Buy America provisions, the news of the agreement highlighted the fact that the draconian provisions remain law. Other countries that trade with the United States, and there are a lot of them, will still be shut out. Canada ended last week looking like a free trade hero. The United States on the other hand was left having to explain to the world why it maintains protectionist trade measures that are downright out of step with a 21st Century global economy.

The G7 meeting also turned out to be a masterstroke for Canada. The setting, in Canada’s far north, evoked the G7’s willingness to forge new paths to solve new and global 21st Century problems. Also, Canada’s “fireside chat” approach worked. There was a sense that everyone was there to get an important job done. Any notion that the G7 was a cozy, old-boy network of nations not representative of today’s world disappeared in the cold dark mist of Iqaluit. There is just not much that seven finance ministers can do while ensconced near the Arctic Circle except try to fix the world economy.

As good as last week was for Canada in terms of its place on the world stage, it was just a warm-up act. On Friday, the highly anticipated Winter Olympics begin in Vancouver. The Olympics will not be a forum for geo-political wrangling. For Canada, they don’t have to be. Instead, in the best Olympic tradition, the Vancouver games promise to showcase Canadians’ fervent national pride and Canada’s competitive nature and spirit. Coming on the heels of last week’s accomplishments, that should be enough for the world to get the message regarding Canada’s place in the 21st Century. At the very least, the world will see that Canada is not just igloos.