As Canadians head into yet another federal election, global financial markets and, indeed, global economies are in a fragile state. Canada will not be spared the coming pain, but rather than shrink into a defensive shell, policy-makers must articulate a compelling vision for the future, then demonstrate the courage to implement it.

The only real question facing the global economy is whether it will merely stumble through a recession or face a more serious downturn, deserving that ominous title, “depression.” For now, it looks as if we are on track for a recession and slow recovery. But markets are facing unprecedented challenges and an uglier result cannot be ruled out.

The crumbling of the financial services industry in the U.S. and Europe has seized up global credit markets, nourishing a negative feedback loop that is undercutting growth in the real economy. Canada is sure to see collateral damage from this slowdown, particularly as global demand slides and commodities prices weaken.

When facing imported economic pain, it’s easy to throw up your hands, curse global markets and hunker down to ride out the storm. Worse still, policy-makers could be tempted to pull up the drawbridge and increase protectionism as a way to limit vulnerability to global forces.

This is not the way for Canada to go. Trade is the lifeblood of any economy and, if anything, Canada should be reducing barriers, not raising them. More important, we need to make the reforms and investments that will position the Canadian economy for long-term prosperity once the gloom lifts.

Such a vision should focus on ramping up Canada’s productivity. This would include realigning the tax system to increase incentives to work, save and invest by lowering personal income and corporate taxes. It would also address the need to ensure environmental sustainability by putting a price on carbon emissions (preferably via a carbon tax). Increased public investment is also needed in areas such as infrastructure and education, which can amplify the effect of private efforts. Interprovincial efficiency must be improved and regulation enhanced. At the same time, policy-makers must resist the urge to prop up industries in which Canada’s comparative advantage has disappeared.

While the outlook is bleak, the answer is not timid policy.