A column by Bruce Uzelman
Ahead of the federal budget, the Bank of Canada (BOC) issued a sharp warning on falling business investment and productivity. (Productivity is a measure of the efficiency of the economy.) Senior deputy governor, Carolyn Rogers, in a speech in Halifax last week, declared, “You’ve seen those signs that say, ‘In emergency, break glass.’ Well, it’s time to break the glass.”
Economists have noted Canada’s stalling standard of living for years. The Business Council of British Columbia (BCBC), in March, warned of “a lost decade for Canadian prosperity.” David Williams, Vice President of Policy, wrote, “Real GDP per capita – a key metric of any country’s prosperity – is no higher than in 2014, almost a decade ago.”
Declining investment and productivity are the cause of the low or negative growth in prosperity. Canada most recently registered six straight quarters of falling productivity, followed by one quarter of marginal growth. That is reflected in the plunging real GDP per capita over the same period.
Low business investment and low or negative growth of productivity go hand in hand because investment provides improved technology, facilities and equipment. As Carolyn Rogers notes, we can grow productivity by focusing on growing highly productive sectors like aerospace and energy, or by improving efficiency in other sectors. We have done neither well, she says.
That is no surprise. To reduce greenhouse gas (GHG) emissions and environmental impacts, the federal Liberal government has suppressed the extremely productive petroleum and resource industries with layers of suffocating regulation and taxation.
Moreover, the Liberals have actively discouraged foreign demand for liquid natural gas (LNG), which is supplied by an extremely productive industry. (It is absurd to deny allies Canadian LNG, a lower carbon fuel, which is much in demand abroad to replace coal, a highly carbon-intensive fuel.)
Rogers stresses that lack of competition hinders investment. Examples include inter-provincial trade barriers, barriers to foreign ownership and supply management of agricultural products.
The Liberals targeted tens of billions of dollars at clean investment tax credits in Budget 2023. The credits are still not in place a year later and may not be for months. And the government continues to impede investments with the Impact Assessment Act and impossibly lengthy approval processes for resource projects. Meanwhile, investment and productivity levels have further deteriorated.
Low productivity has taken a huge toll on Canadians’ real incomes. GDP per capita has fallen in five of the last six quarters by a total of more than $2000. That’s over 3% in just 1½ years.
David Williams, in anticipation of the coming budget, called upon the federal government to face, “the fundamental reality that for the average Canadian their piece of the economic pie is shrinking.” His somber diagnosis is, “The private sector is in retreat and the economy is firing only on one cylinder, government spending, which is not a sustainable path to prosperity.”
Inflation and high interest rates are top of mind for Canadians. Inflation confronts us daily at the grocery store, the burger joint or the gas bar, and high interest rates are all too apparent when the mortgage payment or (indirectly) when the rent payment empties our chequing accounts.
As difficult as inflation has made life, it is not a permanent condition. It is fading, and the impact of high interest rates will fade over time as well. This, however, cannot be said of the productivity problem. It has been chronic for decades, has been particularly severe under the Trudeau government and has prevented the growth of real income.
The federal government has narrowly focused on climate policies and new social programs, at the expense of sound economic policies. Climate change is a critical issue, but our economic viability cannot be forfeited to achieve climate goals. The same applies to new social spending.
The government confronts economic problems reluctantly and belatedly. It has only in recent months focused on the long-standing housing crisis, and is just now beginning to respond to the excessive level of immigration and the uncontrolled admission of temporary residents.
Certainly, the Liberals have done nothing to effectively tackle Canada’s collapsing productivity and Canadians’ plunging real incomes. Carolyn Rogers is correct, “it’s time to break the glass.” The emergency is now.
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Bruce Uzelman, based in Kelowna, holds interests in British Columbia history as wells as current political and economic issues.
Bruce had a career in small business, primarily restaurant and retail. He holds a Bachelor of Arts, Advanced from the University of Saskatchewan, with Majors in Political Science and Economics.
Contact: urban.general@outlook.com