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From Pivot Magazine

‘Before wealth can be redistributed, it must first be created’

David-Alexandre Brassard, CPA Canada’s chief economist, on how Canada’s slow growth is due, in part, to difficulty creating wealth through innovation

Graphic of hand reaching towards pizza slices The creation of wealth will be a challenge as the next few decades will be marked by anemic economic growth (Illustration by Dan Parsons)

Inflation is at its highest level in nearly 40 years, hitting households hardest every time they buy essential goods. Some provinces have already provided one-time financial assistance and I would not be surprised if they did so again. At the federal level, the political alliance between the New Democratic Party and the Liberal Party of Canada also provides for new major social programs: childcare, dental coverage and even pharmacare. In short, the redistribution of wealth through direct transfers or the addition of services is at the heart of their political agenda.

What seems to be overlooked, though, is the funding for these social programs. Before wealth can be redistributed, it must first be created, which will be a challenge for our country in the medium and long term. Despite the quick rebound of the economy during the pandemic, the next few decades will be marked by anemic economic growth. The Organisation for Economic Co-operation and Development (OECD) even predicts that Canada will rank last, among OECD member countries, in per capita GDP growth between 2021 and 2060. This projected poor performance is due in part to our aging population and our difficulty in creating more wealth through innovation or productivity.

Some people frown at the mention of economic growth. They associate it with increasing inequality and environmental damage, an association that I have always found simplistic, since many European countries are at once wealthy, egalitarian and known for their small environmental footprint (Denmark, the Netherlands, Sweden, etc.). Moreover, Canada is good at redistributing income, especially when compared to the U.S. In both countries, the bottom 40 per cent of the population earn 11-12 per cent of labour income. However, after taxes and transfers, this figure increases to 24 per cent in Canada, compared to only 14 per cent in the United States.

While the government has a clear plan to “renew” the labour market (mainly through immigration), the same cannot be said for long-term economic growth, which lacks a “blueprint” to get us out of this situation of low innovation and productivity. More piecemeal initiatives with uncertain results will not be enough.

In fact, the federal government announced two new initiatives in its last budget: the creation of a Canadian Innovation and Investment Agency, and the creation of the Canada Growth Fund. I have some reservations about both initiatives.

From the outset, these initiatives should not be tied to job-creation objectives, as has been the case with many government programs that support innovation or investment. What we want is to ensure economic growth at a time when the labour pool is shrinking.

The Canadian Innovation and Investment Agency will have to be accessible while forging close ties with the private sector. It will need to develop specialized expertise to target potentially riskier projects for support. The goal? To launch projects that would not have been possible without its support, which will pose financing challenges. Indeed, any good financial package provides for risk sharing among the various investors (banks, pension funds, governments, companies and private investors). Some of these investors are currently quite risk averse, leading the government to invest more than it should in investment or innovation projects.

As for the Canada Growth Fund, it will need to have the financial means to match its ambitions to properly support developing companies. It will also need to learn from previous government investment programs. Although it will be tempting to use the fund for a wide range of purposes (regional development, political priority, other related projects, etc.), the selection process will have to prioritize quality over quantity. Its credibility will depend on it. Furthermore, the fund will also have to work hand in hand with the private sector to create a financial leverage effect.

Clearly, we need to take a holistic view to ensure that the innovation and productivity support ecosystem is comprehensive and based on proven models. This also means that we must set aside political partisanship. That we learn from past programs and initiatives. That we experiment to find new solutions to the problem of low innovation and productivity, which is not new. It would be a shame, after all, if the public and private sectors were to blame each other for not doing enough in terms of innovation and investment.


Check out our series of economic briefings by CPA Canada’s chief economist, David-Alexandre Brassard, which provide insight on the issues affecting Canadian consumers and businesses.