In a critical examination of government procurement practices, economist Jack Mintz highlights how policies protecting local producers ultimately burden taxpayers with higher costs and inferior quality. Drawing from Milton Friedman's insights on free markets, Mintz argues that special interests often override the general public good in economic decision-making.
The Economic Cost of Protectionist Procurement
Government procurement represents a staggering 12 percent of global GDP, amounting to approximately US$14 trillion annually. Instead of seeking the most cost-effective and high-quality goods and services from friendly nations, governments frequently implement preferential policies favoring domestic suppliers. This protectionism shields local industries from international competition but comes at a significant economic price.
Between 2009 and 2018, an average of 56 new trade barriers were erected each year globally. The level of protection in public procurement—effectively acting as a tariff—often exceeds that of export taxes and technical barriers, though it remains lower than traditional tariffs and export subsidies. This environment creates inefficiencies that taxpayers ultimately finance.
How Special Interests Shape Policy
Governments frequently craft laws and regulations that benefit specific interest groups, including requirements for equity, inclusion, and diversity norms, mandates for union wages on projects, and regional preferences for local suppliers. These measures lead to inflated public spending, substandard products and services, and either higher taxes or increased deficits.
As Milton Friedman observed, "Free trade is not politically feasible. Why? Because it's only in the general interest and in no one's special interest." Governments dependent on coalitions of special interests for re-election often prioritize these narrow concerns over broader public welfare.
Canada's Defense Spending Strategy: A Case Study
Ottawa's new Defence Industrial Strategy provides a clear illustration of these economic principles in action. While Canada urgently needs to modernize its military capabilities—defense expenditure has declined from 3.6 percent of GDP in 1963 to just 1.3 percent in 2024—the procurement approach raises concerns about efficiency and value.
Canada contributed only 2.8 percent of NATO's US$1.5 trillion in military and related defense expenditures last year, with the United States covering 62 percent. This disparity has prompted calls for fairer burden-sharing among NATO allies.
The Numbers Behind the Strategy
The current government has increased defense spending by $9 billion this fiscal year, bringing total expenditure to $63 billion and finally meeting Canada's commitment to allocate two percent of GDP to defense. Equipment and infrastructure account for nearly one-quarter of this spending, with plans to reach five percent of GDP by 2035.
Over the next decade, the government expects to spend $180 billion on defense procurement and $290 billion on defense-related capital investments. However, the implementation details reveal potential inefficiencies.
Local Content Requirements and Bureaucratic Complexity
Seventy percent of procurement will originate from Canadian businesses, including foreign-owned companies operating within Canada, with the remaining 30 percent coming from "trusted" allies. This substantial domestic preference comes alongside the creation of 10 new agencies or programs to manage procurement processes.
This expanding bureaucracy is likely to introduce additional Canadian-content requirements, extend delivery timelines, and increase overall costs. The result may be a defense strategy that prioritizes local economic interests over optimal military capability and fiscal responsibility.
The tension between supporting domestic industry and obtaining the best value for taxpayers continues to challenge governments worldwide. As defense spending increases globally, the economic implications of procurement policies will remain a critical consideration for policymakers and citizens alike.
