The sooner we recognize that we have entered an era of supply-constrained economics, the better, Carolyn Wilkins writes.Andrew Vaughan/The Canadian Press
Carolyn Wilkins is a senior research scholar at Princeton University’s Griswold Centre for Economic Policy. She was senior deputy governor of the Bank of Canada from May, 2014, to December, 2020.
Open a news site these days and you’ll feel adrift in a sea of worries: cost of living, health care, climate change. Add geopolitical risk to that list and you might not sleep at night. I’m worried, too.
What is reassuring, though, is that there’s a growing community of Canadians who are pulling together. I sit on the advisory council of the Coalition for a Better Future, which is building a community from many walks of life across Canada. It includes youth, business leaders, Indigenous groups, social policy advocates, environmental groups and some plain-old concerned citizens.
One of the projects the coalition has done is develop a scorecard to track how Canada stacks up on a set of long-term objectives that are ultimately tied to our quality of life. The scorecard reflects what coalition members care about: growing sustainably, living better and winning globally.
So how did we do? Well, I’d say we’ve earned some Ds and even an F or two on some important fronts. GDP per person is still below where we were prepandemic, and its growth rate over the past decade was less than half of what the U.S. achieved. Canada ranked only 15th (among 167 countries) on a reputable prosperity index, down four places in the past decade. Wages, particularly of lower-income workers, have not been keeping up with inflation or productivity growth.
Don’t get me wrong, Canada has a lot going for it. We have a well-educated and talented work force, abundant resources, world-class institutions and some amazing businesses, big and small. And we have a history of pulling together, especially when the going gets tough.
So it’s not surprising that we’ve earned some As and Bs in other areas. The share of Canadians living in poverty has fallen to the lowest level in decades thanks to the support from the federal government during the pandemic. Indigenous people are playing a growing role in the labour market, with their participation rate last year surpassing the non-Indigenous rate. Carbon dioxide emissions are down as a share of GDP.
We’ll need to raise our GPA by building on our country’s strengths given the challenges that Canada, and all other countries, will face.
One core reason for some of the Ds and Fs is slow productivity growth. To see why, you just need to look at our lacklustre business investment in research and development, intellectual property and even machinery and equipment, which has been disappointing for years.
Yes, other countries are struggling with the same problem. Yet Canada is at the back of the class, particularly next to our largest trading partner. If we can’t compete in the United States and in other markets, we’ll be poorer – it’s that simple.
Policies that boost demand did help us in the darkest hours of the pandemic, but they won’t fix this problem. In the current context, they’ll only add to inflation.
The sooner we recognize that we have entered an era of supply-constrained economics, the better. It’s being driven by the aging of the population, climate change, digitalization and the structural trend away from globalization driven by troubling geopolitics. These challenges are only heightened by a sense that our country is ill-prepared to face them.
What we need now are policies that will increase Canada’s capacity to grow sustainably so we have the wherewithal to face these challenges. That means renewed emphasis on capital formation, in all its forms – physical, intellectual property and human. Needed are policies to induce companies to spend on capital, promote the adoption of technology and the commercialization of research, build infrastructure and help train workers. It’s not always about spending more money or reducing taxes. Sometimes governments just need to remove barriers when they’re getting in the way of responsible investment. Sometimes it’s as simple as recognizing professional qualifications when someone arrives from another country or moves to another province.
The discussions about Canada’s challenges can get pretty animated, yet our group, the Coalition for a Better Future, is united in the belief that economic growth that is also sustainable and shared is a necessary first step to a better quality of life.
Canada may not be making the grade today, but it can do better with the right public policies and private sector engagement. The good news for the federal government as it prepares to release its 2023 budget in the coming weeks is that Canadians are paying attention.