Growth has stalled in Canada

OXFORD—Canada clearly needs more economic growth. We are not creating the wealth we need in order to do what our country needs to do, let alone what we would like to do. The benefits of growth are clear. Between 1981 and 2023, real per capita GDP in Canada rose from $36,900 per person to $58,100, a gain of $21,200. Over that period, Canadians, on average, enjoyed significant improvements in our standard of living. Growth matters. But growth has stalled. We were better off in 2023 than we were in 1981—not because we had more of what people had in 1981, but because we had new and better things. We enjoyed the benefits of technological progress based on serious investment in ideas. As British economist Daniel Susskind explained in his compelling new book, Growth, “growth has allowed people to live much healthier lives. In richer economies, human beings die less frequently in childhood, live longer as adults, grow taller while they are alive, and eat more bountifully throughout.” The dazzling progress in eliminating many life-threatening diseases and other far-reaching advances in medicine and health care, for example, are the result of individual achievement, antibiotics, vaccines, sanitation, anesthesia, and antisepsis, according to Susskind. But, he argues, “each of these breakthroughs would have been impossible without the material prosperity required to pay for their development and put them to widespread practical use.” At the same time, richer countries tend to be better educated and capable of higher-value activities, and also have more leisure time and ways to use it. Yet something is wrong today. Our productivity performance is weak, our innovation is inadequate, and we seem too pessimistic about the future. We have too little growth, and need much more. Over the past five out of six quarters, real per capita GDP in Canada has declined so that today it is $4,200 lower than it should have been if the long-term annual average rate of growth had been sustained. The only significant way to get on a strong growth path, as Susskind argues, is through technological progress that lead to productivity gains. In other words, the No. 1 task is to boost our nation's poor productivity performance. Over the past 30 years, productivity growth has accounted for 93 per cent of the growth in real per capita GDP. So, the challenge is to improve productivity performance through innovation from new ideas. This means generating more ideas, and putting them into practical use. And how do we do that? “Overhauling who owns and controls those ideas, investing heavily in more research and development, helping more people into the economy and relentlessly developing more technology,” Susskind contends. This means more investment in intangibles, including research and development (R&D), ownership of IP, business organization and competencies, skills upgrading, branding, and the pursuit of new markets. The problem is that Canadian business overall falls short in delivering what we need—despite some exceptions. The pursuit of growth doesn’t mean a blind pursuit of growth at all costs. To Susskind, it is clear that growth “has come at a huge cost to humankind, widening economic inequalities, the degradation of the natural world, the hollowing out of local communities, the unleashing of technologies that we seem unable to properly control.” But this does not mean embracing the degrowth or no-growth movements—those who claim the world has no capacity for more growth. This, as Susskind rightly observes, would plunge the world into permanent recession and stagnation, either condemning the world’s poor to be permanently poor, or forcing a massive transfer of wealth from the rich West, which is simply not feasible. Fortunately, there is another option: we can shape the direction of technological progress. The need to reduce the use of fossil fuels to curb greenhouse gas emissions is a good example. In 2005, for example, the European Union introduced a form of carbon pricing—an emissions trading system—for industry and electricity generation. Since 2005, emissions have been reduced by 47 per cent. Likewise, the price of solar power is now lower than power generated by fossil fuels, boosted by feed-in tariffs and R&D investment. This is induced technological change. “By shaping the incentives people face, and influencing the choices they make, we can influence the pace and direction of growth that takes place,” Susskind contends. We can make major changes in taxes and subsidies, laws and regulations, and social narratives and norms. Indeed, that is the purpose of Canada’s carbon tax: to encourage a shift to energy efficiency and green energy, and to provide an incentive for technological progress through new products and services that are green. Likewise, people’s creative capabilities to respond to crises should not be underestimated. Faced with the COVID-19 pandemic, the world was able to develop two vaccines in eight months, a process that—based on past performance—could have taken a decade to achieve. This, as Susskind reminds us, is “a small reminder that we have barely caught a glimpse of the full measure of what we can achieve.” So growth is good—if it is the right kind of growth. But for Canada to achieve the much stronger growth we need, we must become much better at creating ideas, and broadening our capacity to bring them to practical use. This won’t happen without the effort and policies that push us harder to succeed in a world of intense competition for new ideas and the benefits technological progress can bring. Here, I fear, Canada is only part way there. Our policies too often are transactional rather than strategic. In her recent budget speech, Finance Minister Chrystia Freeland boasted that “we are driving the kind of economic growth that will ensure every generation of Canadians can reach their full potential.” I am not convinced. David Crane is an award-winning journalist with special interests in the economics of globalization, innovation, sustainable development and social equity. He can be reached at crane@interlog.com. The Hill Times

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Growth has stalled in Canada

Canada’s productivity performance is weak, our innovation is inadequate, and we seem too pessimistic about the future.

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