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The Trudeau government’s economic growth strategy rests on four shaky pillars. First, exceptionally expansionary monetary policy to support interest-rate-sensitive sectors such as credit, housing and durable-goods consumption. Second, loose fiscal policy, untethered from any long-term anchor. Third, unprecedented immigration levels to turbocharge population growth and housing demand in major cities. Finally, an $8-billion-a-year national child-care policy projected to add only 0.05 percentage points to GDP growth annually, according to the 2021 budget.

Much of the national political class seems disinterested in genuine efforts to lift productivity, accelerate real wage growth, and raise living standards for the average Canadian.

A recent OECD report illustrates how Ottawa’s policies are coming up short. Canada’s real GDP per capita inched ahead by 0.8 per cent a year from 2007 to 2020, ranking us 26th among 38 advanced countries (see table). As bad as that record is, it is about to get worse as other countries focus on making their economies more productive while Canada stays in the slow lane.

The Organization for Economic Co-operation and Development predicts Canada will achieve GDP per capita growth of only 0.7 per cent a year over 2020-30, putting us dead last among the advanced countries. One would expect Ottawa to be deeply concerned about this. But despite having 39 cabinet ministers, which is possibly the largest executive branch of any national government for a major country, the Trudeau government isn’t devoting much attention to raising Canadians’ living standards.

What’s driving Canada’s dismal economic prospects?

Increases in GDP per capita combine growth in 1) output or value-added per hour worked (labour productivity); and 2) hours worked per head of population (labour utilization).

Most Canadian policy makers are obsessed with labour utilization, while largely ignoring productivity. Productivity growth is the most important determinant of living standards and real wage growth because it is limited only by the pace of technological change and the ability of businesses and workers to innovate and adapt to it. In contrast, labour utilization growth is intrinsically limited by demographics, labour force participation and the number of working hours in a day.

Canada will struggle to increase real GDP per capita over 2020-30 because of feeble expected growth in labour productivity and a slight drag from labour utilization as the population ages (higher immigration does not materially alter the math on this).

Unfortunately, the current decade is not an aberration. The OECD also sees Canada posting the weakest real per capita GDP growth among all advanced economies over 2030-60. The main reason, again, is disappointing productivity growth.

Past generations entering the work force could look forward to favourable tailwinds boosting real incomes over their working lives. If the OECD is correct, young Canadians entering the workforce in the 2020s will not enjoy much of a tailwind. Rather, they are looking at a long period of stagnant average real incomes for most of their working lives. The result is that Canadian living standards relative to other advanced countries are set to decline.

Projections are of course uncertain. But by providing a glimpse of a possible future, they offer an opportunity to reflect and make course corrections.

We believe Canadian policy makers must recalibrate their priorities. It is time to move away from stimulating credit, housing and consumption and instead concentrate on building an innovative, high-productivity economy that can generate meaningful improvements in real incomes for the broad population.

This will require some hard thinking about how to bolster productivity through higher business investment per worker, scaling Canadian firms, having more of our businesses employing cutting-edge technologies and establishing modernized policy regimes that recognize the central roles of data, intellectual property and intangible assets in underpinning prosperity in the digital age.

David Williams, DPhil, is Vice President of Policy at the Business Council of British Columbia. Jock Finlayson is the Council’s Senior Policy Advisor.

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