It’s businesses that drive economic growth – for our future’s sake, we must spur them
Anne McLellan and Lisa Raitt
As Finance Minister Chrystia Freeland prepares to deliver the fall economic statement, our advocacy organization, the Coalition for a Better Future, urges the government to develop a robust plan to boost productivity and prosperity for all Canadians.
It has been seven months since we released the Coalition’s annual scorecard of key metrics for Canada’s economy and expressed deep concern about the persistent weakness threatening to undermine our future prosperity.
Since then, our worries have only become heightened.
On a Per-capita basis, our economy has not only stalled but is contracting. Real GDP per capita has fallen over the past year faster than at any time in at least six decades outside of a recession, and we are producing less per person today than we were in 2018. Labour productivity, the amount of output generated per hour worked, looks even worse.
The outlook, meanwhile, is hazy. We will no longer be able to rely on low-interest loans to drive growth, like we have for much of the past two decades. In fact, the excesses of the past that have led to high household debt levels (among the highest anywhere) and out-of-reach housing prices will now act as headwinds. Governments, too, will face higher debt burdens that will limit their ability to continue stoking growth.
Look long enough at the numbers and it becomes pretty clear that in a world where consumers and governments will be pulling back, business will need to step in. We will need to develop an investment-first mindset.
Canada needs to have a long-term plan for economic growth that is inclusive and sustainable. We avoid advocating for specific proposals or taking sides in debates since we understand there are competing potential paths toward achieving our objective. But there are certain guardrails we think make a lot of sense.
The first principle of good economic management is to do no harm, so let’s not be too cavalier about how we think about and deal with our resource sector. Without energy exports, our dollar would be weaker and inflation and interest rates would be higher.
At the same time, the imperative of climate change means it can’t be business as usual. We will need to find a way to reconcile a healthy resource sector with our environmental goals, and the only way we’ll be able to do that is by accelerating the pace of private-sector investment in green technologies.
Businesses will need to step up and government will need to use its balance sheet to reduce risk, co-finance projects and provide other forms of cost certainty to help make the calculus work. The federal government has taken some key steps toward that direction, but we’re still waiting on it to execute its plan.
A second guardrail for policy is to foster a stable environment for this investment to take place. If we want corporations to ramp up capital spending in the coming years – in the order of hundreds of billions of dollars – we need to make businesses confident that they can get a return on their investment.
This will require unity of purpose across parties on, at the very least, core objectives such as the need to drive the energy transition, even if we don’t agree on specific policies. It means making sure Indigenous communities are part of the equation both for the private sector and governments.
It also means seeing corporate Canada as a partner. We hear from businesses that they are concerned about policy being drawn up for short-term files. Quick fixes don’t work when trying to solve our longer-term economic challenges. We should also stop demonizing profits, which is becoming uncomfortably mainstream. We will need healthy, profitable companies to drive the expansion of investment needed to drive up living standards.
A third important guardrail should be to get macroeconomic policy right. The best type of environments for business investment are the ones where policy achieves low and stable inflation.
Getting inflation down will require two things. One, fiscal policy needs to work in concert with monetary policy. They can’t work at cross purposes. Two, we need to maintain an independent central bank.
There are no easy answers. The problems we face are multi-faceted and long-standing. But Canada still has a lot of good going for it. We are a rich, prosperous country that does a lot right.
We believe we can overcome our problems. We refuse to accept that slow growth is inevitable.
