Despite its best efforts, incompetent government policy has failed to undermine Canadian economic achievement. Now is the time to correct those mistakes, not compound them.

With unemployment at a generational low and the Canadian dollar at a generational high, the Canadian economy is in fine fettle. The credit crunch has yet to bite the real economy. And TD Bank Financial Group is swaggering across the border, throwing around its richly valued deal currency (cash and stock), to take out a large U.S. bank.

But amid this climate of success, there are increasing calls for protectionism. Instead of seeking to transform and modernize the economy at this time of relative strength, opposition politicians and the public are fretting over the phantom threat of foreign takeovers.

They should be doing the opposite. Rather than erecting bigger barriers to foreign players, the government should be welcoming them, not least in the financial services sector.

The banks have laboured long enough under government diktat that growth must come from abroad. Similarly, they’ve been too protected from foreign competition, and even takeovers. Rather than constraining strategy and restricting competition, the government should be stepping back and allowing firms to compete.

In the same way that TD’s U.S. success should not be read as a validation of government meddling, these other signs of economic health aren’t a reflection of sound policy, either.

As economic research firm Global Insight Inc. recently argued, the higher C$ may have erased the disparity in currency value between the U.S. and Canada, but it does nothing to close the gap between the two countries’ standards of living. To do that, it says productivity must improve and taxes must go lower in Canada.

The government could pursue these goals simultaneously with some smart reforms, including shifting taxes toward consumption from measures that punish productivity-enhancing activities such as work, investment and savings. Rather than cut the GST, the government should reduce corporate rates, enhance labour flexibility and scrap disincentives to work and to save.

A more flexible, productive labour force is the best way to position the country to thrive when the global economic winds may not be blowing so strongly in Canada’s favour.