Under-investment is the weak link in supply chains, EDC’s retiring economist Peter Hall says

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Peter Hall began his tenure as Export Development Canada’s chief economist at the start of a global crisis, and he’s ending it in the midst of another one.

His sense of history tells him that the fallout from the first (the global financial crisis) has led us down a path to the second (the current supply crunch).

His sense of optimism tells him that something positive will emerge from all this.

“We have clear supply chain constraints that are not just about the pandemic. They’re about a prolonged period of time where business was under-investing. I would trace that right back to 2008,” the 59-year-old said in an interview last week, just days before his Feb. 11 retirement from a job he started nearly 14 years ago, as the global financial crisis was taking hold.

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The consequences of that event have coloured Mr. Hall’s entire tenure as the top economist – and most public face – of EDC, the federal crown agency that provides credit to Canadian exporters and their international customers.

“I think one of the greatest realizations that I have had is that globalization has actually stretched out the business cycle,” he said. “We have higher highs; we have lower lows. We have longer growth periods, and we have longer periods of adjustments after, because those corrections are deeper.”

The deep recession that accompanied the financial crisis was followed by a painfully long, slow recovery, rising protectionism, and a loss of confidence in the globalization that had provided so much fuel for economic expansion in the decade prior.

Those forces drove a lost decade for investment in export capacity – the equipment, facilities and public infrastructure necessary to produce and transport goods globally. The unusual pressures from the reopening of global markets after COVID-19 shutdowns, Mr. Hall argues, have brought that investment deficit home to roost.

“What we are seeing right now is a lack of ability to grow because of that [missing] investment,” he said. “It’s not because the economy doesn’t want to grow or doesn’t have the demand behind it to grow. There’s plenty of pent-up demand all over the place.”

But Mr. Hall is confident that the current problem actually contains the seeds of a solution. He believes the urgency for export capacity will be a powerful incentive to both invest and reawaken appetites for globalization.

“That’s typically what happens to undo the protectionism: when you run out of capacity, you scour the globe for capacity. And wherever capacity exists, you latch onto it,” he said.

“I’m hopeful that the growth that we’re seeing right now is going to pour cold water over the protectionist side of things, and get us back into a globally integrated world.”

Mr. Hall has a natural inclination toward optimism, something that has probably made him well suited to an agency whose business is supporting the pursuit of export growth. It’s a trait he shares with the man who hired him, former Bank of Canada Governor Stephen Poloz, who was Mr. Hall’s predecessor as EDC’s chief economist. Mr. Hall was director of economic forecasting at the Conference Board of Canada in 2004 when Mr. Poloz lured him away to be his deputy chief.

“He has made me very proud since, maintaining a level of approachability and reasoned analysis that Canadian exporting companies have consistently found to be of value,” Mr. Poloz said via e-mail last week.

But while Mr. Poloz moved up the management ranks to become president and CEO of EDC, and then made the leap to the head of the Bank of Canada, Mr. Hall has been content to spend the past nearly decade and a half overseeing EDC’s economic analysis and research in service of Canada’s export sector.

“I had offers,” Mr. Hall said. “But I didn’t really want to be in the business of making the rich richer. ... I wanted to do something that was going to [help] people who needed a leg up – emerging market economies that were struggling, or small businesses that were having a hard time getting going.”

The work being done at EDC “was exactly what I wanted to be doing,” he said. “I was really in my sweet spot.”

One constant of Mr. Hall’s time at EDC has been his championing of geographic diversification of Canada’s exports. It was the topic of the first research paper he ever wrote at EDC, in 2006. As he prepares to leave, he continues to advocate further expansion into fast-growing emerging markets as the greatest opportunity for Canadian exporters.

“We believe that ramping up to be able to meet the demands of emerging markets, whose middle class is growing in phenomenal leaps and bounds – that’s really where our future lies,” he said. “We [need to] create the capacity to expand into markets such as China, and Southeast Asia, and India – and, ultimately, sub-Saharan Africa.”

But to get there, he said, it again comes back to kick-starting stagnant investment in capacity – more specifically the roads and railways and air and seaports, particularly in Western Canada, that are necessary to deliver goods to these fast-growing markets.

“We know we’ve got a very large trade infrastructure deficit, and we’ve had a very difficult time trying to overcome the obstacles to investment in that infrastructure – particularly Western-based infrastructure,” he said.

“We’ve got to crack the code. Because a lot of those flows are the flows of the future.”

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