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Trevor Tombe: The pandemic’s lasting scars on Canada’s economy

Commentary

The COVID-19 pandemic, and the economic disruptions it caused, appear to have left deep and long-lasting scars on Canada’s economy. 

The latest data from Statistics Canada measuring the size of Canada’s economy through to the end of 2022 shows we have shifted down to a lower growth path—and one that might be felt for years to come or potentially even be permanent.

Specifically, new quarterly data on Canada’s economy shows a clear and sizable gap between where we are now and where we were previously headed. I plot this below. In the fourth quarter of 2022, the economy is roughly 6.5 percent smaller than its pre-COVID trend.

This is a very large gap. It is equivalent to $180 billion per year in lost output. That’s $4,500 per person in Canada per year. It’s larger than Canada’s entire energy sector

While this outcome was foreseeable, it wasn’t a foregone conclusion.

More than a year ago, writing for Maclean’s Charts to Watch in 2022, I raised a concern that “future growth may, unfortunately, be lower for longer.” Whether COVID permanently damages Canada’s economy or whether workplace innovations (like remote work) and policy responses (like childcare) could boost productivity above pre-COVID trends would be revealed by this data.

“Where our economy goes in 2022 will give early indications about which of these two possibilities may be likely,” I wrote. More than a year later, with the data now in, it appears the worse of the two occurred.

Understanding what factors led to this outcome is critical.

This is neither a novel development, to be clear, nor one unique to Canada.

Recent research suggests recessions in general can permanently shift an economy to a lower growth path. The United States experienced this following the financial crisis, for example. Canada was not spared then either. A broad investigation of nearly two dozen OECD economies found countries suffered a permanent ratchet down with only a few examples.

Even normal run-of-the-mill recessions—as opposed to large-scale ones or those following financial crises—may exhibit this pattern.

There are many potential causes. Losing a job may lead some, especially older workers, to permanently withdraw from the labour market. Lasting negative health effects of the pandemic may also be a factor. Investment could also fall, lowering the pace of capital accumulation like machinery and equipment. And productivity growth may slow.

To measure how important each of these factors might be for understanding Canada’s current situation, I use a technique known as “growth accounting”. The intuition is simple.

Labour and capital are critical inputs into the production of nearly all goods and services throughout the economy. Technology, skills, and knowledge each determine how much output we get for any given number of workers and machines—that’s our productivity. Each of these is (imperfectly) measurable, so we can estimate how much increases in employment tend to increase GDP, or how much decreases in capital investment affect GDP, and so on.

I do just that and find lagging productivity growth is the key.

Of the overall drop below pre-COVID trends, productivity accounts for roughly 4 percentage points of the total. That’s about 60 percent of the overall gap between where we are now and where we were previously headed. Productivity growth has been so poor recently it has actually been negative. I estimate it is roughly back to the same level it was at in early 2019.

Lagging investment levels and the country’s overall capital stock, interestingly, account for only a small fraction. Some have pointed to lagging business investment as a central challenge for Canada. And while this is certainly important, it doesn’t appear to account for much of why we remain so far below trend.

It’s therefore labour that accounts for the rest of the decline. I estimate total hours worked in Canada is about 4.4 percent below its pre-COVID trend and accounts for a third of the gap between Canada’s GDP and its prior trend. 

It’s not that we’re working fewer hours individually (though we are a little bit). It’s mainly that there are fewer workers overall due to Canada’s ageing population. 

By the end of 2022, 62 percent of the population was aged 18 to 64 years—that’s down from 64 percent five years earlier, and also below its pre-COVID trend. These small changes can have large effects, given how important labour is to produce almost everything.

Can we boost our longer-term growth rates?

There are options: we can increase our inputs or we can increase our productivity. Demographic challenges are hard to overcome, however. Immigration can partly compensate but comes with considerable challenges of its own

That leaves increasing business investment and productivity growth. The list of areas where we can turn to improve this is long. Increasing technology adoption, growing our internal and international trade flows, boosting the level of competition within several protected sectors, enhancing skills training, exploring and enacting tax reforms, easing regulatory burdens, improving transport infrastructure, and so much more, could all yield dividends. 

Each deserves a deeper dive than I can provide here. But one thing is clear: if we cannot reverse recent trends, Canada’s economy risks falling even further behind.

Peter Menzies: The CBC debate won’t die until we try something different

Commentary

If you want to turn a room of stodgy Conservatives into a revivalist mosh pit, all you have to do these days is shout “Defund the CBC!”

And all God’s people will yell back: “Amen, brother.”

The flock was rocking again this month when CBC President Catherine Tait crossed a line and named her chief political nemesis by name.

“There’s a lot of CBC bashing going on—somewhat stoked by the Leader of the Opposition,” Tait told the Globe & Mail. “I think they feel the CBC is a mouthpiece for the Liberal government.”

They sure do. Conservative Party and Opposition Leader Pierre Poilievre took one look at that fat pitch and swung for the fences, tweeting that “she launched a partisan attack against me, proving my claim that the $1.2-billion corporation is a mouthpiece for Justin Trudeau.”

Which in turn prompted a Twitter defence from former CBC journos.

Terry Milewski, retired for seven years, a fine journalist and no friend of Jean Chretien’s, made a good case. Jody Vance, now appearing on CHEK, was 100 percent behind CBC’s virtue.

“I did sports in the (CBC) Vancouver newsroom,” she Tweeted. “I can tell you, with absolute certainty, there is zero bias. Journalists are in constant pursuit of the truth ….”

No doubt proving everyone’s points, she then went on to describe how Poilievre’s attacks were undermining freedom of the press and, shortly after, retweeted a few posts regarding the evils of Jordan Peterson.

I don’t know what Tait was thinking, or if she was thinking at all. A couple of weeks previously she was insisting that declining faith in CBC journalism was due to social media. All CBC can do, she said, is continue doing what it is doing. In other words, keep on digging.

That determination to dig—that unsupported conviction that it is always us and never them that is at fault—is turning the “defund the CBC” battle cry from mere red meat for the Conservative base into an increasingly mainstream view. In other words, stripping the CBC of public funds could actually happen.

Tait could have said: “We are always looking to improve; better is always possible.”

She could have acknowledged that nonpartisan media bias trackers consistently place CBC to the Left, and even argued that’s where most Canadians are at.

But she didn’t. At a time when all media need to restore public trust, she just dug. And dug.

CBC may operate the nation’s most visited news website and its local morning radio shows are market leaders, but its TV audience has disappeared and ratings for its news are in the low single figures.

In the past, most Canadians seemed, despite their viewing patterns, to still like the idea of the CBC. Those sympathies are gone.

The news division’s hesitation to initially report on the Chinese influence revelations and then, when doing so, drawing criticism for its pro-government approach, has further fuelled detractors.

Today, according to the Angus Reid Institute’s polling, 64 percent of Canadians are OK with defunding the sometimes public, sometimes commercial organization. That includes 84 percent of Conservatives, 71 percent of “others,” 50 percent of Bloc-istes, 37 percent of Greens, and even 34 percent of Liberals and 31 percent of New Democrats.

So while I told The Hub’s Stuart Thomson a few weeks ago that the public would be inclined to rally around the CBC should it become an election topic, I’m not so sure that stands up anymore. So I shall stop digging.

That doesn’t mean it would be wise to amputate $1.2 billion from the CBC and leave it to wriggle around trying to figure out how to get by on its remaining $650 million—$250 million of which is advertising.

Key issues still need to be thought through. Among them are:

  • If broadcast TV in French is to be cut, will Noovo provide sufficient competition to balance separatist Pierre Karl Peladeau’s TVA?
  • What happens in the North? Right now, CBC North is the only service dedicated to serving residents of Canada’s territories with the information they need to organize their lives. Were Prime Minister Poilievre to defund, he would need to give the CBC some direction on this. This could possibly interact with a revived policy interest in the North. Under the current regime, after all, there has been no interest in connecting it, developing it, or, really, even defending it.
  • Will radio remain advertising-free? Stripped of public funding but left with the power to sell advertising, the CBC would likely move swiftly to sell radio ads. Given the extreme circumstances, the Liberal-appointed Canadian Radio-television and Telecommunications Commission (CRTC) could comply and help a Poilievre-gutted CBC find new revenue—perhaps as is done in Britain for the BBC via a license fee paid by consumers. This could cause unnecessary controversy among commercial radio broadcasters and, in the case of a hefty license fee, consumers stuck with “refunding the CBC.”

In other words, if the Conservatives really do plan to “defund the CBC,” they would be wise to decide if they want to kill it completely or let it live. And, if the latter, in what form? Because at the end of the day, this debate won’t die until something different is tried.