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Trevor Tombe: As productivity plunges, Ontario and Alabama now have the same per capita GDP

Commentary

Canada’s economic productivity has trailed the U.S. for decades. This isn’t news and has numerous possible causes. What is particularly troubling for all Canadians, though, is that the gap is getting wider. 

According to the latest data from Statistics Canada, which was released last week, Canada’s labour productivity—that is, how much stuff each hour of work produces on average—fell for the fourth consecutive quarter. As a result, Canadian productivity is now about 2 percent lower at the beginning of 2023 than it was one year earlier. Worse, this has reversed several years of gains. We’re now back to mid-2017 levels. 

This matters. Had productivity growth in Canada kept pace with the United States over the past five years, I estimate we’d be producing over 8 percent more per hour worked than we do now. That’s enormous. Roughly speaking, it’s equivalent to $5,500 per person in lost economic output. Given how closely wages are tied to productivity, this directly affects our living standards and, in my view, poses a bigger affordability challenge than recent high inflation.Since 2000, for example, inflation-adjusted average hourly labour compensation has increased by 20 percent. Labour productivity over this same period has increased by 18.5 percent. Over time, the purchasing power of our incomes is tied directly to productivity growth.

Although recognized nationally as a pervasive issue (perhaps exacerbated by COVID), these figures mask significant differences across Canadian provinces and U.S. states. Some provincial economies outperform many U.S. states, yet most lag far behind.

To show this, I use the latest data from several sources to estimate the total GDP per person in 2022 for each of the 60 provinces and states.Canada’s GDP data for provinces comes out with a long lag; I estimate 2022 by using the 2021 official statistics and RBC Economics’ latest forecast for 2022 growth. Importantly, since price levels differ considerably across countries, I use a common approach to compare the quantity of final goods and services each economy produces. According to the most recent OECD figures, one dollar in Canada can buy the same amount of goods as 80 cents can in the United States. I use this to adjust the Canadian data into something comparable to the U.S., which I display below.

The disparities across regions are significant, and most Canadian provinces lag far behind almost all U.S. states. Ontario, for example, has a per-person level of economic output that is similar to Alabama (both equivalent to $55,000 USD worth of final goods and services produced annually per person). The Maritimes are below Mississippi, and Quebec and Manitoba lag behind West Virginia. Only Alberta exceeds the U.S. average of $76,000, but even Canada’s strongest economy ranks 14th overall. It’s roughly comparable to New Jersey and Texas, but 13 percent below California and nearly one-quarter below New York.

Productivity is not merely some abstract economic concept. It’s at the heart of any robust economy, and central to the living standards of each of us. GDP per capita roughly captures the total amount of income generated each year within an economy. For capital-intensive economies like Alberta, an above-average share of that income is captured by capital investors and a below-average share by labour. But even using measures of average household income reveals a large gap between most Canadian provinces and U.S. states.

Overall, the median household income in the U.S. is just under $71,000 per year. For Canada, it’s just over $78,000 Canadian dollars, which is equivalent to roughly $62,000 in equivalent purchasing power in the U.S. While this data is not entirely comparable, GDP per capita is strongly related to average incomes, even within Canada.

Simply put: lower productivity almost always means lower living standards. 

There’s no silver bullet to increase productivity growth in Canada. This could include investing more in skills training, increasing infrastructure development, streamlining taxes and regulations, and so on. But the first step is to prioritize it more than most governments tend to do. All policies should be evaluated with productivity in mind.

This doesn’t mean no other consideration can win the day. Most of us are often willing to trade off economic gains to achieve non-economic outcomes. Even so, we should strive to limit the adverse impacts. Take climate policy. We should never opt for a high-cost policy when a low-cost alternative exists, as Sean Speer recently wrote for The Hub, as have Christopher Ragan, Paul Rochon, and Mark Jaccard more recently in the context of phasing out oil and gas. Unfortunately, most federal climate policy is unnecessarily costly and is set to become even more so.

Prioritizing productivity is something that should span political boundaries. A productivity agenda is not exclusively about improving regulations or lowering taxes, which some parties oppose. Childcare is a great example. Evidence is beginning to mount that the increased accessibility and affordability of childcare this year is increasing employment rates and labour force participation rates among mothers with young children, as Wilfrid Laurier University professor Tammy Schirle and Business Council of Alberta economist Alicia Planincic have recently pointed out. This boosts productivity. 

This is not merely a federal policy concern, given the wide diversity between the provinces. All Canadian governments should prioritize it, and we should learn lessons from each other. By embedding productivity concerns at the core of policymaking in Canada, we wouldn’t just be building a more competitive economy. We’d be enabling a more prosperous future for all of us.

Sean Speer: Overused accusations of extremism are diminishing our political debate

Commentary

One of the stranger and unhealthier developments in modern politics is the ceaseless process of redefining what we consider “radical” or “extreme” such that we risk rendering the terms essentially useless. This propensity for gratuitous labelling is invariably inflicted on the Right more than the Left. 

Take Mitt Romney, the Republican presidential nominee in 2012. His campaign in hindsight was generally boring, uninspiring, and even at times hollow. But his politics were fundamentally recognizable as mainstream conservatism. Yet he was regularly characterized by the media, pundits, and his political opponents as a “radical”, extremist”, and voice of the “far right.” 

The same treatment extended to Conservative MP (and former party leader) Erin O’Toole who delivered his final speech in the House of Commons this week before he departs from politics altogether this summer. Although his leadership of the Conservative Party was marked by a clear shift to the political centre, he was still denounced by the media and his opponents as bigoted, intolerant, and even a white supremacist for his use of the (completely benign) slogan “secure the future.” 

O’Toole’s successor as Conservative leader, Pierre Poilievre, has been subjected to even greater claims about his alleged political extremism including from some voices who purport to be on the Right. These accusations, it must be noted, are mostly vague and unpersuasive. They generally refrain from policy specifics and instead point to communications and style. 

There’s a good reason: Poilievre eschews the typical policy positions of the far-right figure that his critics wish he was. He’s pro-choice, pro-LGBT rights, and pro-immigration. As much as his critics may not like his elbows-up tactics, they’re wrong to confuse them as an expression of ideological radicalism. Poilievre’s politics are decidedly liberal. 

It doesn’t mean that he hasn’t taken controversial positions (for instance his promise to fire the Bank of Canada governor) or ought to be free from criticism. Poilievre is no shrinking violet. He certainly gives as good as he receives in political combat. But it does mean that his critics need to go beyond strawman arguments in order to challenge his ideas. 

It reflects the biggest problem with this tendency to characterize conventional political views as extreme. It’s a poor substitute for real dialogue and debate. Dismissing ideas that we disagree with as radical or extreme is inherently anti-pluralistic. It fails to grapple with the multiplicity of political preferences in a diverse society. There are bound to be competing views about the trade-offs between freedom and equality, the tensions between secular and religious conceptions of the good life, and the role of the state in the economy and society. Claiming that the other side of these debates is beyond the pale implies that there’s only one accepted “truth” in our political life. 

Another problem is that it has a diminishing effect on our collective ability to identify certain ideas or political actors as actually extreme. There are indeed true extremists in our society but it becomes harder to call them out or marginalize them when the working definition of extremism encompasses debatable yet ultimately mainstream political views. 

The danger is that it gradually leads people to shift their support from those accused of political extremism to actual extremists. It’s somewhat intuitive that after George W. Bush, Mitt Romney, and Paul Ryan were mischaracterized as reactionaries, their supporters became drawn to political figures who really are reactionary. If everyone to the right of a narrowly-prescribed set of acceptable political propositions about taxes and deficits is now considered extreme, then the distance to real extremism is necessarily shorter. 

And then of course there’s the argument that the tendency to call certain ideas or politicians extreme tends to be rather one-sided. Ordinary conservative politicians are regularly subjected to the accusation of extremism but left-wing ones—including those with curious views about climate change or capitalism or gender, race, and sexuality—never face similar treatment. 

Yet one could persuasively argue that many of the positions advanced by today’s progressive politicians are more outwardly left-wing than Poilievre, Doug Ford, Danielle Smith, or whatever conservative politician one thinks is moving to the far Right. There’s evidence in fact from the United States that progressives have moved more to the Left generally in the past several years than conservatives have moved to the Right. These findings broadly align with political developments in Canada. But there’s little discourse about these trends including whether they ought to be understood as extreme or radical.

The key point here isn’t a dispute about who is more or less extreme but rather a call to preserve claims about political extremism for when they’re really appropriate and otherwise to confront political ideas with arguments rather than labels. That’s how we can ultimately restore a healthier, more decent, and genuinely pluralistic politics.