Globe editorial: The Prosperity Problem: How Canada can build a better future - The Globe and Mail

Working longer hours for lower pay sounds like the opening lines of a particularly woeful country song. But giving more to get less is also the anthem for the Canadian economy these days.

The economy is growing, sure, but once inflation and population growth is taken into account, there is a smaller slice of national income for each person: less wealth and lower wages. Or, as economists would say, real per capita gross domestic product is shrinking.

But Canada’s prosperity problem is not just something for economists to obsess over. It is the key challenge facing this country in coming years. Dealing with climate change, fixing health care, rebuilding decaying infrastructure, meeting global defence challenges, coping with an aging population: all of those will require the Canadian economy to become much more productive than it is currently. And for any parent that wants their children, and their grandchildren, to be better off than them – that hope hinges on dealing with the prosperity problem.

So far, Canada is not meeting that challenge. As the accompanying chart shows, real per capita GDP has dropped in the past 18 months, retreating to fall 2017 levels. That pattern can’t be chalked up to the effects of the pandemic. Real GDP per capita in the United States – already significantly higher than in this country – has grown during the same period.

That is a failure of the federal Liberals’ economic agenda. Some supporters of the government have argued that declining real GDP per capita doesn’t matter, that incomes for many Canadians have been rising.

That countercritique falls short for two reasons. It glosses over the reality that in an economy with declining wealth, any income gains eventually come at someone else’s expense.

And all Canadians are already paying the price of a less productive economy in the form of a weakened currency – an invisible tax. Vacations abroad and imported goods cost more because of long-standing policy failures that have undermined the Canadian economy.

The Prosperity Problem

This is part of a series on Canada’s economic challenges. Follow our editorials page to see more instalments as they are published.

National Bank economist Stéfane Marion has argued that Canada is in danger of being snared in the kind of growth trap that usually threatens only developing countries, in which living standards stagnate or decline because the economy cannot generate enough capital to keep up with increases in population.

That trap has not yet closed around Canada, but avoiding it will require Ottawa (and the provinces) to abandon the demonstrably failed economic policies that have weighed down the national economy and sapped our prosperity.

Some of those failures, such as interprovincial trade barriers, date back to Confederation. And not only government is to blame: Complacent businesses have not invested or innovated enough.

Still, the decline in Canada’s economic performance under the Trudeau government, particularly in the past two years, has been striking.

One obvious driver is the recent surge in immigration, particularly of low-skilled workers. Ottawa needs to retool temporary immigration and to focus on higher-skilled workers that will increase per capita GDP.

But that is only a start; in the coming week this space will examine how to rejuvenate Canada’s economy. A measured reduction in the regulatory burden is part of the answer. Tax laws need to be recast, to galvanize corporate investment. New structures are needed to harness the 21st-century engine of wealth, intellectual property. And, yes, after 157 years, Canada must become a single national economic space.

The capacity to build a better country and to create a better future for our children: those are the stakes. Canada’s flagging prosperity is everybody’s problem.

Adblock test (Why?)

Globe editorial: The Prosperity Problem: How Canada can build a better future - The Globe and Mail
Read More