November 1, 2019
The Canadian economy is doing worse than we think; and it’s impacting our shared prosperity
A thriving economy is central to the Business Council of Alberta’s vision of making lives better for Albertans and all Canadians. Indeed, a strong economy is one of the most common indicators for what it means to be prosperous. The more value an economy generates, generally speaking, the richer its residents are.
To be sure, the size of the economy is only one element of true prosperity. It usually means more money for Canadians, but we all know that money isn’t everything. Health, family, access to high-quality education, and a clean and sustainable environment are just a few of the other factors that need to be considered. That’s why BCA is developing a Prosperity Index that incorporates measures such as these to provide a more holistic assessment of just how well-off Albertans are.
That said, income and wealth do matter. Mark Manson wrote that money doesn’t make our problems go away, but it does allow us to have better problems. Struggling to make your car payments is a real problem, but it’s a much better one than wondering when your next meal will be or if you will have a roof over your head that night.
However, our wealth generator – the Canadian economy – is not doing anywhere near as well as many of us seem to think. This is hardly news to Albertans, but it does go against the prevailing view in other parts of the country. The truth of the matter is that compared to our G7 partners, Canada’s recent economic growth is average at best. Last year, our economy grew by about 1.6%, while over the last five years, real GDP nation-wide expanded by about 9.9% – almost exactly in line with the G7 average. Almost.
The problem is that the main source of economic growth in Canada over that time has been population expansion. Last year, Canada’s population grew by about 1.4% – the fastest in the G7 and twice the rate of the next fastest-growing country – the United States.
Population growth – which in Canada mostly means immigration – is not only a legitimate driver of economic activity in the short term, it is critical to shaping the workforce we need in the longer term as well. Population growth creates demand for housing, drives consumer spending, and helps to provide businesses with the workers they need.
However, if GDP per capita is a measure of prosperity and the population is growing almost as fast as the economy itself, that means that individual Canadians are not getting any better off.
The numbers bear this out. After taking population growth into account, Canada’s economic performance falls from slightly below average to the very bottom of the list of G7 countries; on a per capita basis, we’re growing at less than half the rate of the United States.
One reason why many Canadians don’t see a problem is that our three most populous provinces are doing much better than the rest. GDP per capita in BC has risen by about 7.7% over the last five years, while growth in Ontario and Quebec has been 6.45% and 5.73%, respectively. These numbers are still well below US figures, but they’re at least closer.
Meanwhile, the struggles in Alberta are real. Since 2013, GDP per capita in Alberta has fallen by 3.79% – by far the worst showing of any province in Canada. It’s no mystery why this is. Business investment has plummeted since the oil price crash – not just in the energy sector but all across Alberta – and businesses are hesitant to invest in a province where there is so much policy uncertainty around its main economic growth engine.
Sitting at the bottom of the G7 pack just isn’t good enough. Whether in Alberta or elsewhere, slow per capita GDP growth impacts job quality and wages, and it limits our ability to afford high-quality government services. We need to face up to the fact that the Canadian economy is badly underperforming and put renewed policy focus – both federally and provincially – on turning the ship around.
How do we do that?
First, we need to ensure that both Alberta and Canada as a whole are attractive locations in which to invest. That means a competitive tax system, smart and efficient regulations, high-quality infrastructure, a skilled and adaptable workforce, and stable and predictable government policy.
Second, we need to foster business innovation, technology development, and implementation to ensure that our economy is as productive and competitive as possible.
Third, we need to support responsible resource development, recognizing that Canada’s relatively clean energy can be part of the solution to lowering global greenhouse gas emissions.
This is no small challenge, especially given the results of the recent federal election which revealed a country deeply divided along regional lines. However, this cannot be an excuse for inaction.
Federal policy needs to recognize that a strong Alberta is a critical part of a healthy Canada and take action to support that recognition. And provincial policy needs to focus on restoring Alberta’s reputation as a dynamic investment destination. Only in that way can we turn the economy around and truly build a better Alberta in a better Canada.