Budget will set the stage for how well we emerge from the pandemic

TORONTO—The federal budget on April 19 will set the stage for how well we emerge from the pandemic and what kind of country we start to build over the next five years. Done right, the budget will push and pull Canada towards a new and more productive economy. That really has to be the overriding priority because today we cannot afford to do what we would like to do as a country. Indeed, we could face the risk of stagnation unless we become a more dynamic, innovative, and productive country. Accomplishing change won’t be easy. We are moving into a world that could be much more disruptive than the big changes we have seen over the past couple of decades. Moving to a new kind of economy will be wrenching so it will be important ensure that all Canadians will share in the eventual gains. That’s the social dimension of dealing with change. New technologies are radically altering how economies and societies function. These technologies—advanced manufacturing, artificial intelligence, robotics, 5G communications, advances in computing power, bioscience, renewable energy and new energy sources such as hydrogen and batteries—are highly disruptive. Jobs will disappear while new jobs will take longer to appear. And many Canadians will need new skills—indeed without more people with new skills we won’t be able to achieve meaningful change. In Mark Carney's new book, he stresses the importance of creating dynamism in our economy since new jobs and industries come from new ideas. The Hill Times photograph by Jake Wright In its most recent report on Canada, the International Monetary Fund warns that we need to focus much harder on increasing the productive capacity of the economy if we are to avoid risks to our future standard of living. “Low productivity and an aging population will not be able to sustain output growth in the long run,” the IMF says, arguing Canada needs to diversify its economy beyond traditional industries such as oil. “Over the medium term, weak external competitiveness, low productivity growth and population aging will limit potential growth to 1.7 per cent.” When population growth is taken into account, that suggests a future where per capita GDP growth is low and this raises serious questions about our ability to afford the kind of country we would like, including the public goods we want as well as incomes that enable decent lives. Moreover, as the IMF says, we don’t know the impact of the pandemic on Canada long-term productive capacity but its baseline scenario suggest that Canada’s real output by the end of 2026 will be one per cent below its pre-pandemic level. Between 1999 and 2019 U.S. productivity rose by about 40 per cent while Canadian productivity rose by half that rate, by about 20 per cent. In the dynamic information technology and communications industry, U.S. productivity increased by about 100 per cent but showed almost no growth in Canada. This widening productivity gap should be a serious cause for concern in writing the budget. While we have little choice but to move with change, we do have choice in how we manage change. We can manage change well, or we can manage it badly. This is a key point of Mark Carney’s ambitious new book, Value(s): Building a Better World For All. In his book, much of which is written for a global audience, Carney has a long and valuable chapter at the end, entitled "How Canada Can Build Value for All." In it, he stresses the importance of creating dynamism in our economy since new jobs and industries come from new ideas. Until now the economy has needed support, but now it needs direction, Carney says, with government policy focused on what he calls “mission-oriented capitalism” to solve our major problems, The transition to a net-zero emissions economy is one such example. “The largest investment opportunities for the next decade all involve accelerating the trend to a net-zero economy,” he argues. While Canada is off to a good start with carbon pricing, more needs to be done. We can manage change well, or we can manage it badly. This is a key point of Mark Carney’s ambitious new book, Value(s): Building a Better World For All, writes David Crane. More broadly, Carney calls for creating a business environment that recognizes that “the value of intangible capital (like software and intellectual property) now dwarfs that of physical capital (like factories and real estate.” We will still need factories but what they produce will increasingly be based on knowledge capital—intellectual property and other intangibles such as brand, advanced production processes, marketing innovations, new forms of business structure and employee skills. This in turn means we need new ways of financing young companies, commercializing new ideas, designing tax systems and incentives, promoting participation in value chains and promising competition so that Big Tech, for example, cannot use its vast financial resources to buy up potential competitors. Moving forward, once Finance Minister Chrystia Freeland has delivered the government’s budget, the government should create an arm’s length body to monitor Canada’s transition to a more productive, greener and equitable economy. It would be a bit like Britain’s Industrial Strategy Council (recently abolished because the British government disliked critical reviews) or Australia’s Productivity Commission. It would track the government’s innovation policies and their effectiveness and also conduct its own research to propose changes in policy, cancelation of programmes not achieving results, and suggestion of new policies. Carney would make an excellent chair of such a body and there are other knowledgeable and independent-minded Canadians who could make up the council. It would not have a large staff but would commission experts to conduct studies, which would be published. We are in a new age. But in many respects, the pandemic simply accelerated changes that were coming anyway. With the disruption we face we need to get policy right. The best way for that to happen is to ensure that policymakers are exposed to proper scrutiny. David Crane can be reached at crane@interlog.com. The Hill Times

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Budget will set the stage for how well we emerge from the pandemic

We could face the risk of stagnation unless we become a more dynamic, innovative, and productive country.

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