Jean-François Perrault is Scotiabank’s chief economist and a former assistant deputy minister at the Department of Finance.
Robert Asselin is senior vice-president of policy at the Business Council of Canada and former policy adviser to two prime ministers.
When presenting their policy platforms in the federal election we’re all expecting soon, political parties may be tempted to focus on capturing headlines. Resisting short-termism is not easy in the current era of growing populism and focus-group-driven politics, but the stakes for our country’s economic future are high.
We’re coming out of an unprecedented (and unsustainable) period of fiscal expansion to alleviate the economic ravages of a global pandemic. In addition, we face long-standing challenges including rapid technological transformation, climate change, aging demographics, changing geopolitical dynamics and more than a decade of secular stagnation. Now more than ever, political platforms should be built on the foundation of a long-term policy framework.
Progress is a choice. It doesn’t happen on its own. From 1945 to 1975, Canadians saw their average real weekly earnings grow at a rate that more than doubled every 28 years. This amazing level of economic growth came in large part as a result of policy choices we made as a country. There was intentionality on what we were trying to achieve together. We need a renewed commitment to our long-term economic future.
Political platforms should be formed based on long-term economic objectives with platform commitments reflecting their potential impact on those objectives. Critically, a strong accountability mechanism, such as a review of outcomes relative to commitments by the Parliamentary Budget Officer, would hold the ruling party accountable to its promises.
Which economic objectives should take priority? Here are two that could have a significant impact:
Real median per-capita income should rise by at least 5 per cent over every five-year period. This may not seem particularly ambitious, but in the five years leading up to 2019 (the most recent data available) median per-capita income only rose 3.4 per cent. Since 2009, there have only been three years in which the rolling five-year window has seen growth of 5 per cent or more. Focusing on median per-capita income ensures that the gains from growth are shared broadly across the population rather than benefiting only a few. To achieve this, policies would need to demonstrate how they plan to sustainably raise growth and improve labour-market outcomes for all segments of the population. We need a shift from consumption spending to greater focus on productive investments: applied public R&D in fast-growing sectors, child care, reskilling workers for the digital economy and helping our resource sector transition to a low-carbon future. Evaluating performance over a five-year window would allow for inevitable cyclical variations that can lead to large annual swings.
Commit to halving the investment gap with OECD countries. There is a well-known and well-documented lack of business investment in machinery, equipment and intellectual property in Canada. There are of course many firms that invest a lot, but by and large economy-wide data consistently show that Canada ranks near the bottom of the pack among members of the Organization for Economic Co-operation and Development. In relation to GDP, business investment of this type is barely more than half what it is in the United States, and just under two-thirds of what it is in the average OECD country. Moreover, as the C.D. Howe Institute notes, Canadian business investment per available worker also badly lags that in the U.S. and other OECD countries. This underperformance in business investment directly contributes to our poor productivity performance, and loss of competitiveness. It is no coincidence that Canada’s export competitiveness weakened in recent years as its share of the U.S. market declined. Over the past two decades, Canadian exports have risen at just half the pace of the overall economy.
In addition, while the United States and the United Kingdom are making ambitious moves on advanced industries and increasing their R&D investments, Canada’s approach is still tentative. In an economy increasingly dependent on intangible assets such as data and digital services, innovation will be a key driver of growth. Building Canada’s sectoral capabilities in advanced (or innovation) industries is becoming paramount. These industries encompass technology at its broadest and most consequential. High productivity ensures that the average worker employed in an advanced industry earns a yearly wage nearly 50 per cent higher than the average Canadian worker.
If pursued, these objectives would represent bold and firm commitments to sustainably raising our standard of living. Parties may of course disagree on the means to achieve them, but they can hardly ignore them. The policy choices that we make in the next few years will shape the Canada of 2050, and our country’s standing in the global economy.
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