A fall convocation ceremony at the University of British Columbia in Vancouver, B.C., on Nov. 21, 2012.DARRYL DYCK/The Globe and Mail
Allan Gregg is a principal at Earnscliffe Strategies and an adjunct professor at Carleton University’s Schools of Public Administration and Political Management.
The following is adapted from remarks to the 2024 University of Windsor arts, humanities and social science convocation.
One statement in Finance Minister Chrystia Freeland’s 2022 budget struck a particular chord with policy makers throughout Canada: “The Achilles’ heel of the Canadian economy is productivity and innovation,” adding that “this is a well-known Canadian problem … and an insidious one.”
Just a couple of months ago, even more attention was given to comments from Carolyn Rogers, the deputy governor of the Bank of Canada, who declared productivity “a Canadian emergency.”
But this isn’t a new problem. Over the past 40 years, the Canadian economy has grown slower than those of other countries in the Organization for Economic Co-operation and Development. The OECD predicts that, over the next 35 years, Canada’s economic growth will be dead last among the 40 most advanced countries in the world.
It’s not like economists and policy makers haven’t studied this problem or reached a consensus on what levers they believe have to be pulled if Canadian productivity is to improve. Indeed, Canada has struck a half a dozen task forces and panels to grapple with this problem, going back almost 25 years.
Governments have passed tons of legislation and spent billions of dollars on tax incentives over the past 40 years to induce businesses to invest in research and development – key components of any effort to boost productivity.
In fact, corporate subsidies – either through tax incentives or direct funding and loans – now equal about $50-billion per year. That is slightly over one-half of the total amount of corporate taxes collected by the federal government and almost as much as they spend on health care.
And, as the record shows, none of it seems to be working.
A study published in March by the much-respected, non-partisan, C.D. Howe Institute found that only 20 per cent of these business subsidies aimed at increasing productivity actually boost real income for Canadians. The other 80 per cent are not only ineffective but have to be paid for by either more taxes or by decreasing spending on other priorities.
“If four-fifths of corporate subsidies are inflicting harm, then scrapping them would both deliver an economic boost and free up tens of billions of dollars,” a Globe and Mail editorial concluded about the findings of that study.
If that is not bad enough, at the same time, public corporation share buybacks reached an all-time high of $70-billion last year. (This happens when a company cannot think of anything productive to do with their profits except to purchase their own shares to further enrich their current shareholders).
But while all this government effort and money was being spent on attempts to increase productivity, something else did change – and that is Canada’s Gini Index, which measures societal inequities. While productivity has stalled, wealth inequity and the gap between rich and poor has expanded shamefully.
Why? Think about it. Who are all these productivity programs for businesses, startups, PhDs, or R&D centres aimed at? Society as a whole? No. The unstated goal of all these measures intended to improve our productivity are aimed at making the already best off, even better off.
Indeed, the major metric of economic growth and productivity – per capital gross domestic product – represents an ecological fallacy, where the math in aggregate – while accurate – creates a picture that is completely false at the individual level and masks the real nature of what is happening in our economy.
For sake of illustration, suppose we had a population of 100 people who equally generated $100 of annual economic wealth – or $1 dollar per person.
But we all know that if there are 100 people and wealth of $100, there is no way in the real world that each of them has a dollar and shares in this aggregate wealth equally.
In fact, the share of Canada’s wealth that is in the hands of the top 1 per cent of the most high-net-worth families, is just slightly under 25 per cent, or in this example, $25. So, the reality in this $100 economy isn’t that each of us has a dollar. One person actually has almost $25!
Further, the poorest 40 people have only one dollar between them, or about 2.5 cents each, while the top 20 control almost three-quarters of the country’s wealth.
And it is that last group that these productivity programs are aimed at.
So, why don’t we try something different to create more wealth and progress for Canada?
Instead of taking the best off and those who are thriving now and giving them incentives to do even better, what if we tried to give people who are not contributing as much as they could the opportunity to play a larger role in the economy and society?
Let’s call it creating a moral economy.
We could begin this experiment by addressing a sad fact. Every year, between 200,000 and 300,000 young Canadians drop out of high school. And the evidence is irrefutable – there is nothing in modern life that has a higher return on investment than education. The average person who has a bachelor’s degree will earn 100 per cent more than one who does not. A postgraduate degree will earn you 175 per cent more. In fact, there is a straight-line relationship between every additional year of postsecondary education and a rise in income and personal wealth.
Next, we could turn to Indigenous peoples in Canada.
Indigenous adults in Canada have an unemployment rate that is 10 percentage points higher than non-Indigenous Canadians. Closing that gap would add 100,000 new employees to the Canadian work force. And while we are at it, we could set out to close the wage gap between Indigenous and non-Indigenous people who are already working – which is about 16 per cent for males and 15 per cent or females. If that happened, the National Indigenous Economic Development Board estimates that this would generate $27-billion or about an additional 1.7 per cent to our GDP.
And then there are new Canadians.
There is no question that we have had a bit of a bump in the immigration road over the past few years with government mishandling of the numbers of foreign worker and students visas issued, but we should have every confidence that we will fix what looks to be a very temporary problem.
Our historic immigration record is the envy of the world – and for many countries, the model to be replicated. That is because, over the decades, we have attracted an incredibly high calibre of immigrants to our shores. Of the 7.5 million citizens who were born outside of Canada – or about 22 per cent of the population today – 55.1 per cent have a bachelor’s degree or higher, compared with 28.5 per cent of those who are Canadian-born.
Yet the evidence shows that only 38 per cent of university-educated immigrants work in a job that actually requires a university education. As a result, there is an 18-per-cent wage gap between foreign-born and Canadian-born workers of equal qualifications.
Some evidence of the cause of this points to outright discrimination, but the more routine problem is that employers and regulatory bodies often seem to be unable or unwilling to assess how foreign work experience or credentials compare with Canadian standards. Consequently, we routinely see highly-skilled and professional immigrants who are grossly underemployed – foreign-born physicians driving Ubers, for example.
RBC Economics has calculated that if these barriers were eliminated and new Canadians of equal qualification were paid the same as their Canadian-born counterparts that this would boast GDP by 2.5 per cent or about $50-billion.
And finally, there is the biggest one – something that this paper has drawn dramatic attention to – the gender participation and wage gap.
For more than 40 years, female enrolment in postsecondary educational institutions has outstripped male enrolment.
And yet we’ve already established that there is straight-line relationship between education and income, so why is it that female labour force participation rates are still 10 percentage points lower than for males and why are women of equal socioeconomic status, education and qualifications still paid on average $7,200 a year less than the male counterparts?
There is only one answer to that question: Women continue to be forced to choose between work and family and that the very presence of this choice causes them to be discriminated against in the workplace.
We would make better decisions and have a more civilized work environment if women took their rightful role in the C-Suites of corporate Canada and on the work floors of Canada’s manufacturing facilities. At the same time, closing the male-female participation rate difference would add almost two million new employees to the work force and, according to a report by McKinsey, ending gender pay inequality would add $150-billion to the economy by 2026 or about 7.5 per cent to our national wealth.
The total for these four things? Somewhere between $268-billion and $317-billion or a 12-per-cent to 15-per-cent increase in the total productive capacity of our economy.
And make no mistake about it, the argument I am making here is not merely about social justice or doing what is morally right. It is willfully economic and in the self-interests of all Canadians. If we follow this course, maybe we can be a richer country, with more national prosperity and a significantly higher per capita GDP that we have now.