Stephen Poloz, in his first public speech since he became the Governor of the Bank of Canada, confirmed the expectation that he would be particularly attentive to the views and experiences of companies, but he also gave a salutary warning that the Canadian economy is in partly uncharted territory.
He praised Canadian firms for their success in diversifying their export markets, so as to rely less on the United States; “I’ve seen it first-hand at the Export Development Corp.,” he said. And he expressed his understanding of companies’ caution in building up their balance sheets to prepare themselves for new investment – striking a different emphasis from the “dead money” phrase that his predecessor, Mark Carney, had once used. Firms are “understandably cautious,” Mr. Poloz remarked. “We need to be more patient.”
Nonetheless, his message was by no means all about cozy understanding. Almost apologizing for sliding into “academic language,” he repeatedly referred to “creative destruction,” the concept of the 20th-century economist Joseph Schumpeter, set out in his book The Theory of Economic Development in 1911, which is similar to the recent “disruptive technologies” idea of Clayton Christensen, a business professor at Harvard.
We have had the destruction, according to Mr. Poloz, but the creation “has been delayed.” Though he likened the present situation to postwar reconstruction, he is far from advocating a Marshall Plan of economic aid. On the contrary, he said that the creative aspect of this process is the “net creation of new firms,” as the most important source of new wealth and new jobs; after the crisis, net new establishments actually fell for three years until 2011.
Somewhat unsettlingly, he pointed to the unsatisfactory state of standard macroeconomic models in “today’s dynamics.”
Mr. Poloz was right to reassure the business community that it will be listened to, “in order to supplement the models with insights directly from business,” but he was equally right to make clear that Canadians should recognize that they are living in a time of new uncertainty – and creative disruption.