By Stewart-Patterson, David; d'Aquino, Thomas
Ivey Business Journal Online
Editor's note: This article originally appeared in the January 26 edition of the Financial Post.
Canadians know what needs to be done to make us all better off a decade from now.
Canada has made some smart moves over the past decade and that is why the Canadian economy remained relatively strong through a punishing global recession. But our country is immune neither to the relentless evolution of global competition nor to the march of population aging, and we need to move quickly to address unfinished business in honing Canada's competitive edge in the decade ahead.
In our 2001 book Northern Edge, we made the case that Canada had all the right ingredients to flourish in the global economy. What was needed was a better recipe for success and a winning attitude where second best is not an option. We proposed a strategy with 12 elements that together could move our country to the global forefront of growth and prosperity. These included accelerated debt reduction; bold tax reform; smarter public spending; improvements to our educational system and talent pool; emphasis on lifelong learning; more efficient governance; more adept engagement in North American and global trade and investment; and better leveraging of our energy and environmental advantages.
On a couple of fronts, notably public debt and tax reform, Canada has made major progress. The string of federal budget surpluses that began in the late 1990s extended all the way until the recession. Tax rates, especially on corporate income and capital, dropped steadily through the decade at both the federal and provincial levels and regardless of the party in power.
It is no coincidence that Canada not only achieved the lowest debt/GDP ratio in the G7 both before and after the recession, but that we also had the highest per capita income growth in the decade to 2009 and that we have seen employment quickly recover and surpass its pre-recession high.
That's the good news. But while debt and taxes are down, public spending has ballooned. Despite lip service to review and reallocation, six years of minority government have led to a relentless rise in federal spending. And at the provincial level, unsustainable health care costs are eating up an ever greater share of revenue, with willingness to explore innovation and efficiencies undermined by the 10-year deal boosting federal transfers at about triple the rate of inflation.
In many of the other elements of national strategy that we laid out, there has been some progress, but at a pace well short of what the country needs to achieve its full potential.
Perhaps the most troubling marker of failure is the country's continuing poor performance in raising productivity, the effective measure of how much money each Canadian can generate for each hour of work. As the population ages and leaves relatively fewer Canadians in the labour force, it is obvious that each worker has to generate much higher income if the economy as a whole is to keep growing.
In 2001, we said Canada should aim for productivity growth a full percentage point higher than that of the United States. Instead, the country has continued to lag, falling behind by a further percentage point a year through the decade. If this performance is not reversed quickly, all Canadians will suffer in the years ahead.
To turn this trend around, we need to address some key issues, both at home and abroad. One major challenge that we did not anticipate was the impact on North American integration of the terrorist attacks of 9/11, which occurred just after our book was published. Despite a series of important initiatives, including the Smart Border Accord and the Security and Prosperity Partnership of North America, the Canada-United States border today is more of a barrier to the efficient movement of people and goods than it was a decade ago. Ongoing efforts to shift more security screening to the continental perimeter seem unlikely to make much difference in the near term. …