Stronger long-term economic growth key to Canadians prosperity: experts

Liberal plans may boost output for now, but to maintain high standard of living Canadians need a more efficient economic machine.

Thestar.com
Jan. 3, 2016
By Les Whittington

Poorer, less productive, more insecure: That’s the future for Canadians.

Prime Minister Justin Trudeau’s Liberals came to power on a promise to quickly prop up an economy that has just experienced the worst year since the recession of 2009. But, regardless of how that effort goes in coming months, fixing Canada for the long term is the bigger job facing Trudeau and his cabinet.

The economy is on the mend after six months of near-recessionary conditions in the first half of 2015, but the rebound remains weak and the longer-term outlook is middling at best.

Economic growth in the near future is expected to reach only about 2 per cent annually, far below the robust 3 per cent-to-4 per cent growth that fuelled job growth and business expansion in upbeat periods in the past.

This scenario reflects major shifts in the country’s economic makeup.

The large-scale departure of baby boomers from the labour pool will put a lid on the country’s potential economic growth. Productivity is a measure of output per worker and rising productivity is linked to improved living standards. But in Canada productivity has been below par, compared to the United States, for decades. As a result, Canadians’ annual per capita income trails that of Americans by $7,000, according to an estimate by the Conference Board of Canada.

“The population is aging, there are risks that some working-age people who left the labour market may not return, and there are concerns that technology is not going to deliver the leaps in productivity that we have seen in the past,” Bank of Canada senior deputy governor Carolyn Wilkins said in a speech on economic trends.

“The bottom line is that potential output growth in Canada and other industrialized economies will be lower than it was in the years leading up to the crisis,” she said, referring to the 2008-09 financial slump.

Lack of improvement in productivity - that is, working smarter as opposed to working harder - has contributed to the loss of 300,000 manufacturing jobs in Ontario over the past decade, according to a study by the Mowat Centre at the University of Toronto.

“When it comes to job training, ICT (information and communications technology), research and development, and machinery and equipment, Canadian manufacturers have fallen way behind,” the Centre said. “That means our firms are about half as productive as our American competitors.”

This makes Canadian products less competitive, hurting economic growth and leading in the long-term to a decline in prosperity and the overall standard of living. At the same time, well-paying and secure jobs in high-value industries become fewer and the tax revenues needed to support medicare and other valued social programs tend to dry up.

In a report on Nov. 27, a federal government advisory committee concluded “Canada’s poor business innovation performance represents the country’s most profound and urgent science, technology and innovation challenge.

“Despite ongoing efforts to improve Canada’s lagging business innovation performance, it has continued to deteriorate,” the study by the Science, Technology and Innovation Council (STIC) said.

Kenneth Knox, chair of the council, said improving the current picture is crucial to Canada’s future.

“Proactively pursuing - and achieving - a sustainable competitive advantage in science, technology and innovation is the path to higher living standards and a superior quality of life for Canadians,” he said.