Ending Ottawa’s Shadow Economy: Why Internal Cost Recovery Has to Go

One of the least visible, but most wasteful features of the federal government is something few Canadians ever hear about: internal cost recovery. It sounds harmless, even sensible. In practice, it is a bureaucratic shadow economy; departments billing each other for services, shuffling money back and forth across the federal ledger, and employing armies of staff to process transactions that produce no benefit for the public.

Prime Minister Mark Carney has spoken about making government smaller, smarter, and more accountable. Ending internal cost recovery would be one of the most powerful first steps in that direction.

What is internal cost recovery?
In theory, cost recovery ensures that when one department provides a service to another, the costs are borne by the recipient. For example, the Department of Justice bills departments for legal services. Shared Services Canada invoices other agencies for IT support. Administrative services, from payroll to translation to communications, are often cross-billed.

The intent was to make departments more aware of their costs, encouraging efficiency. In reality, it has created a closed-loop billing system that ties up thousands of public servants in paperwork and accounting exercises that add no value to taxpayers. Money flows from one government pocket to another, with staff tracking, reconciling, and auditing every movement.

Why it fails
The problem is that federal departments do not operate like businesses. There is no competition to drive down prices, no customer base to discipline quality, and no profit incentive to innovate. Cost recovery becomes an elaborate exercise in bookkeeping without the benefits of market discipline. Worse, it creates incentives for departments to prioritize revenue generation over service.

Take Justice Canada. Its “clients” are other departments. The more billable hours it can record, the more revenue it pulls in. Yet this revenue is not real, it is funded by taxpayers in the first place, laundered through another department’s budget. The system distorts priorities and consumes time that should be spent on delivering legal clarity, not chasing internal invoices.

Shared Services Canada provides another case. It was created to streamline IT across government, but its billing model has forced agencies into a vendor-client relationship with an entity that cannot be avoided. Agencies complain, invoices circulate, disputes arise, and the system groans under its own artificial complexity.

The hidden cost of staff time
Every invoice issued, processed, and reconciled requires public servants to handle it. Treasury Board has to monitor flows, departmental finance units have to manage transfers, and auditors have to verify them. Entire teams are employed in these transactions. None of this work would be necessary if departments were simply budgeted to deliver their services directly, as they should be.

Ending internal cost recovery could free thousands of hours of staff time each year. That time could be redirected to real work: drafting better policies, improving service delivery, or responding more quickly to citizens. In a public service already stretched for talent, reducing waste should be a top priority.

What should replace it?
The solution is straightforward. Departments should receive direct appropriations for the services they provide, based on realistic needs and demand forecasts. Justice should be funded to provide legal advice across government. Shared Services should be funded to deliver IT. Translation services should be budgeted to serve the entire public service.

Instead of charging their “clients,” these organizations should be judged on outcomes: timeliness, quality, and responsiveness. Treasury Board can hold them accountable through performance reviews, not through a maze of invoices.

The political case for reform
Ending cost recovery would not only save money; it would simplify government in a way Canadians could understand. Imagine explaining to the public that their tax dollars currently pay for one department to send an invoice to another, then pay again for that invoice to be processed, then pay once more for it to be reconciled, all for money that never leaves the federal accounts. Most Canadians would rightly ask: why not just stop?

This is low-hanging fruit in government reform. It does not involve painful layoffs or dramatic structural upheavals. It simply requires the courage to admit a failed system and replace it with something simpler and better.

A smarter Ottawa
Ending internal cost recovery will not solve every problem in Ottawa. But it is a symbol of the kind of reform Canadians expect: eliminating waste, cutting bureaucracy, and focusing staff time on serving the public. It sends a signal that government exists to deliver value to citizens, not to maintain pointless internal economies.

Prime Minister Carney has spoken about building a leaner and more effective government. Ending cost recovery is the perfect starting point. It demonstrates seriousness about reform, frees capacity across departments, and sets the tone for larger changes to follow.

Canadians are ready for a government that respects their time and their money. The shadow economy of cost recovery has run its course. It is time to end it.

When Reform Meets Reality: Carney’s Auto-Filing Plan and a Path to Full Automation

Linking “Four Reforms to Make Ottawa Smaller, Smarter, and More Accountable” (October 3, 2025)

On October 3, 2025, my blog post “Four Reforms to Make Ottawa Smaller, Smarter, and More Accountable” set out a reform agenda for Ottawa; one of its central proposals being the automation of tax filing for wage-only earners so they would no longer need to file returns. That idea aimed to reduce the compliance burden on millions of Canadians and shrink the Canada Revenue Agency’s processing load.

On October 10, 2025, Prime Minister Mark Carney moved the idea from proposal toward practice. He announced that the CRA will begin preparing pre-filled returns for Canadians with simple, low-income situations so they automatically receive credits and benefits without having to navigate the filing process themselves. The government expects an initial rollout for roughly 1 million people (tax year 2026) with plans to scale to about 5.5 million by 2029.

From Pilot to Principle

Carney’s announcement does not yet deliver full blanket automation for all wage-only taxpayers, but it is a clear step in that direction. The targeted pilot focuses on the simplest cases; people whose financial lives are straightforward and whose entitlement to credits can be determined largely from employer withholdings and existing benefit records. This cautious approach is deliberate: it demonstrates feasibility in a controlled way, builds public trust, and generates institutional momentum for broader change.

What felt aspirational on October 3 now has governmental backing. The logic is hard to argue with; if payroll withholding, CPP and EI remittances, and benefits records already contain the necessary data, forcing those taxpayers to file an annual return is redundant bureaucracy.

Why This Matters

Carney’s partial move matters for several reasons. First, it legitimizes the concept of automated reconciliation and changes expectations inside the CRA and Treasury Board. Second, it creates a proof of concept: implementation will surface technical and administrative lessons; data mismatches, appeal processes, and edge cases, that can be resolved before scaling. Third, it frees CRA capacity by reducing routine processing, allowing staff to be redeployed toward enforcement and complex files. Finally, it lays the groundwork to extend automation to a far larger cohort of wage-only taxpayers.

A Practical Roadmap

To build on this announcement and pursue full automation, the government should expand eligibility stepwise from the pilot group to all wage-only earners with no additional income streams. Integrating employer payroll data and benefit records is essential to ensure accurate reconciliation of tax, credits, CPP, and EI. Changes to CRA staffing should be managed by attrition and reassignment rather than sudden layoffs, with legislative changes to formalize default exemptions for simple filers. Crucially, robust appeal and correction mechanisms must accompany automation so taxpayers have recourse if an automated result is incorrect.

From Vision to Reality

Mr. Carney’s auto-filing announcement validates a reform many have described as common sense: for a large share of Canadians, the annual tax return is redundant. The announcement is not the end of the story; it is an important milestone. If Ottawa expands the program, integrates data thoroughly, and legislates appropriate defaults and protections, most wage-earning Canadians could soon be freed from filing, and the CRA could become a leaner, more focused institution.

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A Transatlantic Lens: Exploring the Biggest Differences Between Europe and North America

The feedback I have been getting is that readers have been enjoying my serialised essays exploring subject matter to greater depth. This series of posts is for my friends on both sides of the Atlantic who love to debate this topic, often over European old growth wine and Alberta beef steaks.

Living in North America since the early 1990s as a European, I’m constantly struck by the quirks, surprises, and sometimes baffling differences between the continents. Over the next few weeks, I’ll explore ten key contrasts: spanning work, cities, food, and politics, and share what these differences mean in everyday life.

The Ten Differences

1. Social Safety Nets

In Europe, healthcare, pensions, and social support are expected parts of life. In North America, it’s more “your responsibility,” with benefits often tied to your job. It’s a mindset shift—comfort versus risk, security versus self-reliance, and it shapes so much of daily life.

2. Urban Planning and Transport

European cities invite walking, biking, and public transit. North American life often demands a car for everything. That difference affects how people socialize, shop, and spend their days. Suddenly, running errands isn’t quick, it’s a logistical decision.

3. Work-Life Balance

Europeans enjoy generous vacations and shorter workweeks. North Americans often work longer hours with less guaranteed downtime. Life here can feel like a constant race, while in Europe, there’s a stronger sense of living, not just working.

4. Cultural Formality and Etiquette

Europeans prize subtlety, traditions, and social cues. North Americans are casual, direct, and friendly—but sometimes painfully blunt. Adjusting between the two takes awareness: what feels warm here might feel sloppy there, and what feels polite there can seem distant here.

5. Business Practices

European companies lean toward consensus, careful planning, and stability. North American firms move fast, take risks, and chase growth. The difference shows up in meetings, negotiations, and career paths; you quickly learn when to push and when to wait.

6. Education Systems

Europe often offers low-cost or free higher education and emphasizes broad learning. North America favors expensive, specialized programs. The gap affects opportunities, student debt, and the way people approach learning for life versus learning for a career.

7. Food Culture

In Europe, meals are rituals – slow, social, and seasonal. Here, convenience and speed often rule, and portions are huge. That doesn’t just shape diets; it changes how people connect over meals and how they experience daily life.

8. Political Culture

European politics embrace multiple parties, coalitions, and compromise. North America leans on two parties and polarized debates. This difference affects trust, civic engagement, and how people view the government’s role in society.

9. History and Architecture

Europeans live among centuries of history in their streets, buildings, and laws. North America feels newer, faster, and more forward-looking. The environment subtly teaches what matters: continuity versus reinvention, roots versus growth.

10. Attitudes Toward Environment

Europe integrates sustainability into daily life: cycling, recycling, and urban planning. North American approaches vary, often prioritizing convenience or growth over ecology. Cultural attitudes toward responsibility shape everything from transportation to policy priorities.

These ten contrasts are just a glimpse of life across the Atlantic. In the weeks ahead, I’ll dive deeper into each, sharing stories, observations, and reflections. The goal isn’t just comparison, it’s understanding how culture shapes choices, habits, and even identity. Stay tuned for the journey.

Five Things We Learned This Week

Week of September 29 – October 5, 2025

Another week where science, markets and policy nudged the world in small and big ways. Below are five date-checked items from September 29 → October 5, 2025, each drawn from primary reporting and checked for event dates.


🔭 Webb hints at an atmosphere on TRAPPIST-1e

On Oct 1, 2025 teams working with James Webb Telescope data reported spectral hints consistent with an atmosphere around the rocky exoplanet TRAPPIST-1e. The results are preliminary and require follow-up spectroscopy, but they raise the possibility that this nearby world could retain gases relevant to habitability. Why it matters: Detecting an atmosphere on a nearby rocky planet would be a major step toward assessing exoplanet habitability and prioritizing future observations.

🛰️ Webb detects moon-forming chemistry around CT Cha b

Between Sept 29 – Oct 4, 2025, NASA and STScI highlighted Webb spectroscopy showing a circumplanetary disk around the young planet CT Cha b with molecules associated with moon formation — organics and simple hydrocarbons were reported in the disk. Why it matters: Observing moon-forming chemistry beyond the Solar System gives new insight into how satellite systems assemble and how common moon formation may be.

📉 U.S. services sector stalls as new orders weaken (ISM, Oct 3)

On Oct 3, 2025 the ISM non-manufacturing index fell to the 50 breakeven level, with new orders plunging and employment in the sector remaining weak — a clear slowdown in the U.S. services economy. Why it matters: Services dominate the U.S. economy; a stall raises the odds of central-bank easing and changes the outlook for jobs and growth.

📉 Canada’s services PMI contracts further (S&P Global, Oct 3)

Also on Oct 3, 2025 S&P Global reported Canada’s services PMI at 46.3 in September — a three-month low signaling continued contraction, with declines in employment and outstanding business. Why it matters: The slide points to economic vulnerability in Canada and will factor into Bank of Canada policy deliberations.

👷 Planned hiring at its weakest in 16 years even as layoffs ease (Oct 2)

On Oct 2, 2025 reports showed U.S. planned hiring for the year fell to its lowest level in 16 years, even as announced layoffs eased in September — a sign of persistent caution among employers. Why it matters: Weak hiring intentions alongside lower layoffs indicate a cautious labour market that could keep wage and inflation pressures muted and alter growth prospects.


Closing thoughts: From possible atmospheres on nearby rocky worlds to warning lights in services sectors and hiring plans, this week mixed cosmic curiosity with economic caution. We’ll keep tracking these threads—scientific, fiscal, and social—and bring you the five things worth your attention every Saturday.

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Four Reforms to Make the Feds Smaller, Smarter, and More Accountable

With a Fall budget on its way, I think it’s time to provide a little input to the government’s thinking. I plan on developing these ideas further over the next few days before Canada’s Finance Minister François-Philippe Champagne delivers the 2025 Federal Budget in the House of Commons on November 4, 2025.

Canadians are right to expect more from their government. Every year, the federal payroll grows, administrative costs rise, and services often fail to keep pace with expectations. Prime Minister Mark Carney has a rare opportunity: to modernize Ottawa, reduce waste, and deliver real results for citizens. Four reforms can achieve this vision: ending internal cost recovery, unifying pay and bargaining, adopting outcomes-based management with planned workforce reduction, and automating taxation for wage-only employees.

End internal cost recovery
Departments and agencies currently bill each other for routine services. Justice Canada invoices other departments for legal advice, Shared Services Canada bills for IT support, and administrative units cross-charge for HR and translation. This internal economy consumes thousands of staff hours for paperwork that adds no value to Canadians. Ending cost recovery would simplify budgeting, reduce bureaucracy, and free public servants to focus on meaningful work. Money would be directly appropriated for services, and departments judged by the outcomes they deliver, not the invoices they process.

Adopt a single pay scale and central bargaining agent
The current patchwork of pay scales and multiple unions is costly, confusing, and inequitable. Starting April 1, 2027, all new hires, and any promotions thereafter, should be placed on a single pay scale, with a central bargaining agent representing these employees. Over time, as legacy staff retire, the workforce will converge onto a transparent, uniform system. This builds on decades of prior harmonization work, such as the Universal Classification Standard (UCS) project, and dramatically reduces administrative complexity while ensuring fair and consistent compensation.

Focus on outcomes and shrink the workforce responsibly
Too often, success in Ottawa is measured by hours logged or forms completed. Shifting to outcomes-based management holds departments and employees accountable for results citizens can see. With clearer accountability, the government can responsibly reduce its workforce by 5% annually over five years through attrition and selective hiring. This ensures a smaller, more focused public service while maintaining service quality and providing a review point to adjust if needed.

Automate taxation for wage-only employees
Millions of Canadians file annual tax returns despite receiving income solely through employment, which is already subject to withholding for income tax, CPP, and EI. Like many European systems, Canada could automate reconciliation for these taxpayers, eliminating the need to file a return. This reform would dramatically reduce compliance burdens, shrink the Canada Revenue Agency, and allow the agency to focus on enforcement and complex cases rather than processing simple returns.

A coherent vision for reform
These four reforms share a common principle: simplify, focus, and deliver. They reduce waste, cut bureaucracy, and ensure public servants are evaluated on results rather than paperwork. They free staff to concentrate on tasks that provide tangible value to Canadians while saving hundreds of millions annually in administrative costs.

Prime Minister Carney has the chance to lead Canada into a new era of efficient, accountable government. Ending internal cost recovery, unifying pay, managing for outcomes, and automating taxation are practical, proven, and achievable reforms. Canadians deserve a federal government that works smarter, spends taxpayer dollars wisely, and prioritizes service above bureaucracy.

Preclearance, NEXUS, and Nonsense: The Ambassador Who Cried ‘Play Nice’

Diplomacy, as the textbooks remind us, is supposed to be the fine art of saying nothing offensive in as many words as possible while drinking bad coffee in conference rooms. But nobody seems to have given that manual to Pete Hoekstra, the newly minted U.S. Ambassador to Canada, who has decided to trade in understatement for a megaphone. In the span of a few short months, Hoekstra has managed to scold Canadians for not being sufficiently pro-American, accuse us of harboring “anti-American” slogans, and downplay Canada’s concerns about border overreach. If he’s aiming for “charm offensive,” he has nailed the second half of the phrase.

This is, of course, not the first time Canada and the U.S. have had words. We’ve bickered over softwood lumber, dairy tariffs, steel quotas, pipelines, and, once upon a time, acid rain. But usually ambassadors play the role of polite go-between, smoothing over disputes while the real political firestorms rage between ministers and presidents. Hoekstra seems to have missed the memo: his preferred strategy is less smooth diplomacy, more bull in a China shop – minus the bull’s natural grace.

His latest theme? Canadians just aren’t playing nice. We apparently spend too much time with “elbows up,” as if the entire country were auditioning for beer league hockey. He’s miffed that Canada has dared to issue travel advisories about U.S. border searches, insisting those reports are “isolated events.” Never mind that Canadian travelers actually experienced them. It’s a bit like telling someone who just got splashed by a passing truck that rain isn’t real.

Nowhere is this attitude more obvious than in the discussions around U.S. preclearance, the system where American border officers operate inside Canadian airports, inspecting passengers before they even board a plane to the United States. For travelers, preclearance is handy: you arrive stateside as a domestic passenger, skip long immigration lines, and make your connections. For the U.S., it’s even better: it lets them enforce their rules on foreign soil, keeping anyone they don’t like from ever boarding. For Canada, it’s…..complicated. Preclearance represents cooperation, yes, but also a certain loss of sovereignty. Not surprisingly, Ottawa sometimes drags its heels on expansion.

To Hoekstra, though, Canada’s reluctance to roll out the red carpet for more American officers in our airports amounts to ingratitude. The U.S. gives us this wonderful gift, he implies, and we respond with suspicion. It’s the diplomatic equivalent of scolding a dinner guest for not raving loudly enough about the casserole. The irony is rich: when Canada recently announced its first landpreclearance operation in the U.S., with Canadian officers screening travelers at a New York border crossing, nobody in Ottawa suggested that Americans were being unfriendly. Apparently only Canadians can be accused of bad manners.

And then there’s NEXUS, the trusted traveler program that makes cross-border trips bearable for frequent fliers. Here, too, Canada and the U.S. cooperate closely, with Canadians now able to use Global Entry kiosks thanks to their NEXUS membership. But you wouldn’t know it from the ambassador’s rhetoric. He talks as if the U.S. is single-handedly shouldering the burden of efficiency while Canada stubbornly blocks progress. The reality is that both sides benefit and both sides foot the bill. Preclearance doesn’t spring fully formed from Washington; Canadian airports build the facilities, Canadian taxpayers share the costs, and Canadian sovereignty bends to make it possible.

So why the sharp elbows from Hoekstra? Partly it’s style, he has never been known as a shrinking violet. But partly it reflects a broader U.S. strategy of leaning harder on Canada. The two countries are already sparring at the World Trade Organization over tariffs that Ottawa calls “unjustified.” Washington wants more Canadian concessions on energy, environment, and defense spending. Ambassadors don’t freelance in these circumstances; they set the tone their bosses in the White House prefer. If that tone is loud, impatient, and dismissive of Canadian sensitivities, then Hoekstra is performing to spec.

Still, it’s worth noting how Canadians are responding. While most don’t object to preclearance itself, after all, we enjoy shorter lines at airports, there is resistance to being lectured about it. Canadians pride themselves on being cooperative partners, not subordinate provinces. When the ambassador claims Canada isn’t “playing nice,” many hear it as “you’re not agreeing quickly enough with U.S. demands.” The fact that Canada has invested in NEXUS expansions, shared intelligence, and even put its own officers on U.S. soil underlines the absurdity of the accusation.

In the end, Hoekstra’s style may generate headlines, but it risks eroding goodwill. Diplomacy works best when it feels like a partnership of equals, not a schoolteacher scolding a roomful of students. Canadians are famously polite, but we’re also famously stubborn when pushed. If the ambassador thinks a little tough talk will get Canada to open every airport door to U.S. preclearance, he may be in for a long wait.

Until then, travelers will keep swiping their NEXUS cards, lining up at preclearance facilities, and quietly rolling their eyes at the spectacle. After all, Canadians know that living next to the United States is a bit like living next to an elephant. When it shifts, you feel it. When it trumpets, you really feel it. And when the ambassador starts lecturing you about your manners, sometimes the most diplomatic response is the Canadian classic: a polite smile, a quiet mutter, and an elbow gently nudged back into his ribs.

When Crown Corporations Forget Their Purpose

Two of Canada’s most visible Crown corporations, Canada Post and VIA Rail, seem to have lost their way. Both were created to knit together a vast and sparsely populated country, ensuring that every Canadian, no matter how remote, had access to essential services. Yet today, both have turned their gaze inward toward big-city markets, downgrading or abandoning the rural, northern, and remote communities they were meant to serve.

The problem is not simply poor management. It is a deeper contradiction in how we think about these federal institutions. Are they public services, funded and guaranteed by the government for the benefit of all? Or are they commercial enterprises expected to operate like businesses, focusing on profitability and efficiency?

Canada Post was once the backbone of national communication. Its universal service obligation was understood as a cornerstone of Canadian citizenship: every town and hamlet deserved a post office, and every address would receive mail. But with letter volumes collapsing and courier giants competing for parcels, Canada Post has shifted its focus to the most profitable markets. Rural post offices are shuttered or reduced to part-time counters in retail stores, and delivery standards in remote regions are steadily eroded.

VIA Rail’s story follows the same pattern. Founded in the late 1970s to preserve passenger trains when private railways abandoned them, it was meant to provide Canadians with a reliable and accessible alternative to highways and airlines. Instead, successive governments have treated VIA as a subsidy-dependent business rather than a national service. The Québec–Windsor corridor receives ever more investment, while iconic transcontinental and regional services limp along on political life support. Communities once promised rail access now watch the trains roll past them, or disappear entirely.

This retreat from universal service runs against the spirit of equality that Canadians expect from their public institutions. The Charter of Rights may not explicitly guarantee access to mail or transportation, but the principle of equal citizenship surely demands more than a market-driven approach that privileges Toronto and Montréal while ignoring Thompson or Whitehorse.

What’s going wrong is simple: Crown corporations are being managed as if they were private companies, not public trusts. Efficiency metrics and financial self-sufficiency dominate decision-making. National obligations are left vague, unenforced, or quietly abandoned. Governments praise the rhetoric of service while starving these corporations of the dedicated funding that would allow them to fulfill it.

Canada is not a compact, densely settled country where commercial logic alone can sustain public goods. It is a nation stitched together across vast geography by institutions that recognize service as a right, not a privilege. If we want Canada Post and VIA Rail to serve all Canadians, we need to stop pretending they can behave like for-profit businesses and still fulfill their mandates.

That choice is ultimately political. Parliament must decide: either redefine these corporations as genuine public services with modern mandates and stable funding, or admit that rural and northern Canadians will always be left behind.

Until then, our Crown corporations will continue to forget their purpose, and with it, a piece of the Canadian promise.

The Promise and Peril of the H-1B Visa

When I first arrived in Silicon Valley in 1991, I did so on an H-1B visa. The program was brand new at the time, created to ensure that highly skilled professionals could move quickly into positions where American companies faced genuine gaps in expertise. My own case reflected that original vision perfectly. The U.S. firm that acquired my UK employer needed continuity and leadership in managing the transition of products and markets. I was the senior person left standing after the American parent stripped away the British management team, and my experience as product manager made me indispensable.

The process worked with remarkable speed, and the offer was more than fair. A $75,000 salary in 1991, equivalent to nearly $180,000 today, was a clear acknowledgment of the skills and responsibilities I brought with me. The system was designed to secure talent, not to undercut wages, and for me it delivered exactly what was promised: a career-defining opportunity and a way for an American company to gain the expertise it needed to thrive.

But what worked so well for me in 1991 has, over the decades, drifted far from that original intent. The H-1B program was meant to bring the best and brightest from abroad to fill roles that were difficult to source domestically. Instead, it has increasingly become a pipeline for large outsourcing firms that import entry-level workers at far lower wages than their American counterparts. Where the original standard was senior-level knowledge and proven skill, many visas now go to contractors whose roles could often be filled within the domestic labor pool.

This misuse creates what one former U.S. immigration official has called a “split personality disorder” for the program. Roughly half the visas still go to companies that genuinely need high-level specialists and can offer long-term careers, but the other half are captured by consulting firms whose business model depends on renting out lower-cost workers. That shift undermines both American workers, who see wages suppressed, and skilled foreign professionals, who are often treated as interchangeable resources rather than valued contributors.

The lottery system has further distorted the program. Once a simple way to fairly distribute a limited number of visas, it has been gamed by firms flooding the system with multiple applications. The recent drop in lottery bids, after the government cracked down on such practices, revealed just how much abuse had taken hold.

If the H-1B visa is to remain credible, it needs to return to its original purpose: rewarding specialized knowledge, proven expertise, and long-term commitment. Proposals to allocate visas based on wage levels rather than random chance would be a step in the right direction. They would align the system once again with its founding principle: bringing in the kind of high-value, hard-to-replace professionals that the U.S. economy truly needs.

My own journey in 1991 demonstrates the potential of the H-1B program when it is used as intended. It was a bridge for talent, a tool for competitiveness, and a life-changing opportunity. But unless it is reformed, the program risks being remembered not for what it enabled, but for how it was exploited.

Allies Reclaiming Autonomy: The Growing Shift Away from U.S.-Made Military Equipment

Across NATO and allied nations, governments are increasingly rejecting U.S. defense options or cancelling long-term contracts, favoring domestic or European alternatives that offer control over manufacturing, maintenance, and upgrades.

For decades, the United States has dominated the global defense market, especially among NATO allies. Its model, sell advanced platforms, then tie buyers into decades of maintenance, upgrades, and proprietary service, has been remarkably profitable and politically influential. But that model is under pressure. Increasingly, U.S. allies are saying no: rejecting American options, cancelling planned contracts, or shifting to alternatives that offer greater operational and industrial autonomy.

Spain provides a recent example. While the country had previously considered U.S.-made platforms to modernize its air force, Madrid has turned toward European options such as the Eurofighter Typhoon and the Future Combat Air System. Officials cited cost, supply chain control, and the desire to retain domestic and European industrial participation as key drivers. Similar reasoning is guiding Portugal, which has reconsidered its replacement programs for aging aircraft, leaning toward European-built fighters rather than committing to U.S.-supplied F-35s.

Denmark illustrates the trend in air defense. In its largest-ever defense procurement, the Danish government opted for the Franco-Italian SAMP-T NG long-range system over the U.S.-made Patriot, citing both cost and delivery time. Denmark is also reviewing medium-range options from European manufacturers, emphasizing local or regional production and maintenance. This choice reflects the dual desire to strengthen European defense capabilities while reducing reliance on U.S.-based service contracts.

Other NATO members are making comparable moves. Switzerland, historically neutral, has expressed reservations about joining long-term U.S. programs, including the F-35, instead evaluating European alternatives that allow for national control over lifecycle management. Norway has similarly emphasized local assembly and domestic sustainment for fighter and patrol aircraft. The Netherlands, Belgium, and Greece have all shown interest in European or domestic solutions for naval, air, and missile systems, explicitly seeking contracts that do not lock them into decades-long U.S. maintenance agreements.

These choices reflect a broader strategic and economic calculation. U.S.-made systems, while technologically advanced, often require buyers to accept a near-perpetual dependency on American contractors for upgrades, parts, and service. Allies are increasingly reluctant to cede that control, recognizing that operational autonomy and local industrial development are critical to national security. European manufacturers, by contrast, are offering co-production, local assembly, and technology transfer that allow countries to maintain both sovereignty and economic benefit from defense programs.

The implications for the U.S. defense industry are substantial. Losing planned contracts or having allies cancel or decline U.S.-made systems threatens billions in revenue, particularly from the lucrative long-term service and maintenance components. Strategically, it reduces Washington’s leverage: allies that control their own equipment are less subject to subtle influence through supply and upgrade dependencies. Over time, the cumulative effect could reshape the defense-industrial landscape in Europe and beyond, challenging the assumption that U.S.-supplied hardware will dominate allied inventories.

Canada, with its submarine program and proposed Swedish fighter deal, stands as the most prominent example, but it is hardly alone. Across Europe and NATO, governments are asking whether reliance on U.S. contractors for decades-long service agreements is compatible with modern defense priorities. The answer increasingly appears to be “no.” Allies want control over manufacturing, maintenance, and upgrades, and they are willing to bypass traditional U.S. options to achieve it.

In short, the U.S. model of “buy once, pay forever” is losing favor. NATO members and other allies are embracing autonomy, local industrial participation, and diversified procurement, signaling a shift that could reverberate across global defense markets for decades. The message is clear: even America’s closest partners are no longer content to surrender operational control and economic benefit for decades-long contracts that primarily serve U.S. industry.

Canada and Mexico Forge Strategic Partnership: Implications for North America

On September 18, 2025, Canadian Prime Minister Mark Carney and Mexican President Claudia Sheinbaum signed a comprehensive strategic partnership in Mexico City. This agreement, covering 2025–2028, aims to deepen economic, security, and environmental collaboration between Canada and Mexico, explicitly anticipating the 2026 review of the United States-Mexico-Canada Agreement (USMCA). While the immediate bilateral effects are evident, the agreement also carries broader implications for the three major North American economies: Canada, Mexico, and the United States.

Scope and Focus of the Agreement
At its core, the agreement establishes a four-year bilateral action plan encompassing four pillars: prosperity, mobility and social inclusion, security, and environmental sustainability. Economically, it focuses on expanding trade and investment in infrastructure, energy, agriculture, and health, while jointly developing critical infrastructure such as ports, rail links, and energy corridors. In security, it aims to strengthen border control and combat transnational crime. The environmental and sustainability component is particularly notable, signaling both countries’ intent to collaborate on climate mitigation and resource management.

Strategic Context
The timing of this agreement is significant. Earlier in 2025, both Canada and Mexico faced tariffs and trade frictions with the United States, creating a strategic impetus to solidify bilateral cooperation. This partnership may serve as a hedge against future unilateral U.S. trade measures and positions both nations more strongly for upcoming negotiations surrounding the USMCA review in 2026. By consolidating economic, security, and environmental frameworks bilaterally, Canada and Mexico signal that they can act decisively and collaboratively independent of U.S. alignment, while still committing to trilateral engagement.

Implications for Canada
For Canada, the agreement represents a proactive diversification of trade and investment partnerships within North America. Beyond the U.S., Mexico is an increasingly significant market for Canadian goods and services, particularly in energy and infrastructure. By reinforcing bilateral economic ties, Canada gains leverage in upcoming USMCA discussions and reduces its vulnerability to unilateral U.S. trade policy shifts. Moreover, collaboration on climate and sustainability initiatives positions Canada as a leader in cross-border environmental governance, complementing its domestic commitments.

Implications for Mexico
For Mexico, the agreement strengthens its economic and geopolitical options. Mexico has historically balanced trade and diplomatic relationships with the United States while seeking alternative partners. Formalizing a strategic partnership with Canada enhances Mexico’s negotiating position with the U.S., particularly as the USMCA review approaches. Joint infrastructure projects and investment commitments also promise to accelerate Mexico’s industrial and energy development, potentially boosting domestic employment and technology transfer.

Implications for the United States
For the United States, the Canada-Mexico agreement presents both opportunities and challenges. On one hand, stronger integration between Canada and Mexico may facilitate smoother trilateral cooperation, reducing friction in cross-border commerce and security. On the other hand, it could limit U.S. leverage in bilateral negotiations with either country if Canada and Mexico present unified positions during the USMCA review. The U.S. may need to consider the strategic consequences of any unilateral trade actions in light of this growing North American solidarity.

The Canada-Mexico strategic partnership represents a calculated, forward-looking approach to regional stability and prosperity. While the agreement strengthens bilateral ties, it also reshapes the dynamics of North American relations, providing both Canada and Mexico with enhanced economic and strategic agency. For the United States, it signals a more integrated northern and southern neighbor bloc, emphasizing the importance of collaborative rather than confrontational engagement. As the 2026 USMCA review approaches, all three nations will likely navigate a more complex and interdependent landscape, where trilateral cooperation becomes not only beneficial but essential.

Sources:
• Reuters. Canada and Mexico committed to shared partnership with US, Carney says. September 18, 2025. link
• Politico. Mexico and Canada make nice ahead of high-stakes trade talks. September 18, 2025. link
• Global News. Carney, Sheinbaum sign strategic partnership to boost trade, security, environment. September 18, 2025. link