Andrew Richter: The Liberal path to economic mediocrity

For many years, Canada was a rich country, securely in the top 10 in virtually every economic indicator. And while we were never as wealthy as our southern neighbour, the difference was usually sufficiently small that most Canadians could claim, with some justification, that our more generous social safety net more than made up for the difference in per capita GDP. But that was then.

Canada’s economy today is one of the most troubled and under-performing in the western world. Growth has almost completely stopped, coming in around 1 per cent last year. While we are still relatively rich, the signs of decline are everywhere. Under many indicators, such as GDP per capita, we no longer rank in the top 10 — or even the top 15.

The problems have been recognized for some time — a declining standard of living, terrible productivity, low levels of innovation, our near invisibility in global technology markets, too much government, a bloated public sector, an overly complex tax system, along with enormous budget deficits and accumulated debt. It’s a depressingly long list.

Unfortunately, there are no simple solutions. Many of these problems have become structural, and have been worsening for years (but each either originated with, or has grown much worse under, the Trudeau government). It is not something a new Conservative government will be able to quickly fix, although better economic policies will undoubtedly help.

I would like to focus on just two of these challenges — our lack of innovation, and the fact that our economy is still dominated by companies that were founded in either the late 19th or early 20th centuries.

Canada’s lack of innovation is widely known, and the government has been sounding the alarm for many years. The solution, however, does not lie in more government reports.

As successful entrepreneurs know, building an innovative, successful company relies on several ingredients: a great idea, of course, but also a range of other factors that are less readily apparent, including access to capital and skilled labour, a favourable business environment and a tax system that rewards entrepreneurship.

Unfortunately, while Canada does (fairly) well in terms of capital and labour, we lag badly when it comes to creating a favourable business environment and competitive tax system.

The business climate in Canada is poor, as the Liberal government seems far more interested in distributing (and re-distributing) wealth than in creating it. And as for the tax system, it literally punishes successful companies, both with high corporate rates and very high taxes on capital gains (which went up this year, making the problem even worse).

The result has been a limited number of domestic companies that do truly innovative things, and even fewer that have managed to become global players. Thus, any list of major Canadian companies is still dominated by those in traditional sectors , such as resources and banking.

Adding to the general malaise in the Canadian economy is the fact that most of our biggest and best-known companies are over a century old, and thus are not part of the technology revolution that has been underway for decades.

This is not to say that companies like Bell, Canadian National Railway, Royal Bank and Sun Life are bad businesses. They all remain highly profitable and employ hundreds of thousands of Canadians. Canada’s economy would be much poorer without them.

But where are the successful technology companies? Yes, there is Shopify, the Ottawa-based online retailer that has grown rapidly over the past decade. Sadly, though, it remains an outlier and is still relatively small compared to the American tech giants.

Somewhat incredibly, a few decades ago, Canada actually did better in this regard. Back then, there were three highly successful domestic technology companies — Nortel, JDS Uniphase and Research in Motion. Unfortunately, the first two went out of business years ago, while the third is today a shadow of its former self (now known as Blackberry).

There is a reason why most of the world’s successful technology companies are based in the United States. Yes, America’s tax policy is better (although hardly perfect), and they have access to virtually unlimited capital.

But there are a range of other factors that are just as important — a culture that values innovation but accepts failure, an incredibly dynamic stock market where innovative companies can quickly become household names and a society that is prepared to move quickly when change is afoot. That latter issue is a major problem in Canada, where everything seems to move slowly, no matter the circumstances.

In sum, Canada’s economy is in serious trouble. No longer one of the world’s richest countries, it continues to decline in many global rankings.

All that said, there are measures that a new government (or the existing one, although I would not hold my breath) could take that would undoubtedly help: tax reform; a renewed attempt to eliminate provincial trade barriers; a return to more traditional levels of immigration (along with the skills-based criteria that we used to emphasize); smaller, less intrusive government and a more favourable attitude toward business and foreign investment.

If no action is taken and the status quo reigns, Canadians can expect their living standards to continue to fall, and we will increasingly become known as a country that was once one of the wealthiest in the world, but squandered that potential on its path to economic mediocrity.

National Post

Andrew Richter is an associate professor of political science at the University of Windsor.