The sustained economic growth imperative: Bill Morneau edition
It was interesting to see the former Finance Minister’s sharp critique of his former colleagues this week (and the inevitable reminder to him that he was there for most of the policy making). I assume he is now arguing he would have pivoted out of the pandemic to a different set of growth-focused policies.
Beyond the politics of his commentary - intriguing in itself - his concerns are valid. The OECD and others have suggested Canada is not on a particularly firm economic growth path over the next decade and beyond.
When I made this case during New Brunswick’s ‘lost’ decade - between 2006ish and 2015ish - I received a considerable amount of criticism. Why are we so slavishly focused on GDP growth? Shouldn’t we care about happiness? Fairness? It’s time to put our priorities on people and the environment and not on economic growth.
I shrugged my shoulders so much during those years I have permanent back pain but my response - over and over again - was that if you don’t care about at least a modest level of growth in the economy and you want to pump a lot more money into public services and transfers to individuals - you have to find the cash. You can run up big debts for future generations to pay, you can increase taxes even more or you can (in the case of New Brunswick) hope that the federal government will transfer you even more money. The other option is to cut one spending area to fund another but in the case of New Brunswick that meant cutting things like PSE and economic development (relative to total spending) and that, IMO, isn’t particularly smart.
An economy that is growing at least at a modest pace with a strong focus on productivity and innovation will generate sustained organic tax revenue growth that governments can then invest in the services they think Canadians want like subsidized child care.
Of course, the royalty-based economies - mostly oil and gas - have a completely different model. The CBC is reporting Alberta will generate a record $24 billion in royalties this year. I hope they put a few bucks in the bank because there is no amount of movie production, agri-food manufacturing, tourism or IT activity that will ever generate even close to that level of revenue. And even if the province was able to magically grow these sectors of the economy 5-6 times or more and generate billions in new tax revenue - it would come with massive costs (public services to support the workforce, subsidies to movie production/agriculture, etc.) - the oil revenues, by contrast, are mostly free and clear.
But for provinces like Ontario, Quebec, NB, etc. the Morneau prescription is pretty solid. We need the right mix of policies, workforce development, R&D, taxation, etc. that fosters long term investment into industries that are going to sustain 2-3% private sector economic growth through 2050 and beyond. You can’t get there by pumping in a few billion in government cash and then crossing your fingers.
Morneau also criticized the government for not listening to (or even talking to) Bay Street. This is very interesting because the presumptive leader of the Tories - Pierre Poilievre - is also not a big fan of the Rosedale class. I’m not sure this is the right approach. These folks are self-interested of course - and politicians need to balance differing views - but outright hostility or an unwillingness to even engage in a serious conversation - I think is a mistake.
We are having this discussion in New Brunswick and I think making some progress - at least on the workforce development and population growth fronts.
But the truth is New Brunswick’s fate is tied to the rest of the country- in many ways - so the national conversation about growth should be something we follow closely.