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Sean Speer: Trudeau’s empty-calories economic agenda is failing Canada

Commentary

Last week marked a major development in Canadian politics. Conservative leader Pierre Poilievre’s commitment to tie annual immigration levels to housing construction is the first time in more than a decade that we’ve heard a mainstream politician speak openly about limits on immigration.

Trudeau-era immigration policy has been marked by two intellectual commitments: first, cultural diversity is inherently good and involves no trade-offs, and second, a bigger population represents a key driver of economic growth and similarly involves no real trade-offs.

The first assumption remains a mainstream position among Canadian opinion and political leaders. There are few voices who are prepared to question the cultural consequences of large-scale immigration, including the risk that Canada becomes a locus for old-world political prejudices to manifest themselves. Anti-Israel protests over the past few months haven’t yet been a catalyst for that difficult yet important conversation.  

The second assumption, however, has become the source of growing criticism including from a lot of mainstream voices. Economists and other experts have begun to challenge the Trudeau government’s massive increases in Canada’s immigration levels and its downward shift in the share entering the country through the points-based system. They highlight its distortionary effects on the housing market, wage growth, and business investment. Poilievre’s comments signal the diffusion of this new thinking about immigration limits into our mainstream politics.

The Trudeau government has put rising immigration levels at the centerpiece of its economic agenda. The prime minister and others around him have clearly bought into the idea of a “bigger, bolder Canada” in search of economic advantage in a world of aging demographics and slow population growth.

The numbers are quite staggering. Its annual targets for 485,000 new permanent residents in 2024 and 500,000 for the two subsequent years amount to a near doubling of its predecessor’s record. It has also overseen a nearly 50-percent year-over-year increase in the number of non-permanent residents (including student visas and temporary foreign workers) that brings the total intake to more than 1 million per year. The upshot: Canada’s population growth of 3.2 percent in 2023 was five times the OECD average—and 96 percent was due to immigration.

Although the government has seemed somewhat surprised by these numbers, they shouldn’t be understood as inadvertent. They represent a purposeful yet misguided policy agenda that conflates different types of economic growth.  

As Lakehead University economist and regular Hub contributor Livio Di Matteo outlined earlier this week, there are two types of economic growth: extensive growth and intensive growth. The former reflects an increase in the total size of the economy. The latter is concerned with an increase in GDP per person which ultimately depends on whether inflation-adjusted GDP grows faster than the population.

These distinctions may seem technocratic but they’re actually key to understanding the current political moment and the ideas and impulses that underpin it. The Trudeau government has pursued a policy of extensive growth driven by high immigration rates, loose fiscal policy, and rising cash transfers. This economic model has artificially stimulated economic activity by bolstering consumer demand but it represents the policymaking equivalent of empty calories: it has failed to make the economy structurally stronger or Canadian households any richer.

Quite the opposite. There’s reason to believe that the government’s immigration policy—both its magnitude and shift to lower-skilled newcomers—is distorting business investment and undermining productivity. The Trudeau government has clearly put its thumb on the scale when it comes to the classic capital-labour tradeoff. It’s one of the key contributing factors behind Canada’s poor performance on business investment. Capital per worker is now below its 2015 levels.

The combination of rapid population growth and stagnant business investment is responsible for the economy’s lack of intensive growth. It shows up most conspicuously in the weak recovery of GDP per capita lost during the pandemic. Canada’s GDP per capita actually declined last year and remains roughly $1,000 per person and $2,500 per household below pre-pandemic levels. It’s now not expected to recover until 2027. This “lost decade” of stagnant or declining living standards will have lasting effects on the material well-being of Canadian households.

The future isn’t expected to be much brighter either. Canada’s GDP per capita growth is projected to be the lowest in the OECD for the next three or four decades. One of the biggest risks is that the rising gap between Canada and the U.S. leads to an out-migration of high-skilled Canadians in search of higher wages.

Notwithstanding these disappointing outcomes, the Trudeau government and its supporters have been dismissive of the growing concerns about Canada’s stagnant GDP per capita. Their chief argument is that it’s a flawed metric because it is neutral on distributional considerations. The risk, according to this line of thinking, is that rising national wealth disconnected from its distribution may lead to higher inequality. This progressive impulse reflects the government’s core tendency to favour equity concerns over economic efficiency.

Yet there’s a good possibility that the government is actually misreading the trade-offs. As University of Waterloo labour economist Mikal Skuterud set out in a recent email exchange, there’s a strong likelihood that higher GDP per capita growth would translate into broad-based gains, including among low-income households, rooted in something known as the “Kuznets Curve.” He explained it as follows:

The curve hypotheses an inverse U-shaped relationship in which countries who are in the early stages of economic development tend to see increasing levels of economic inequality up to some maximum, beyond which further advances in development tend to reduce economic inequality. It seems entirely reasonable to believe that Canada is on the downward sloping part of the Kuznets Curve where further gains in average living standards tend to benefit the most disadvantaged in society.

The key point here is that even if one is motivated by normative commitments to reducing inequality in our society, the answer isn’t to neglect the imperative of intensive growth. A policy agenda that sought to boost business investment and innovation in the name of increasing overall wealth wouldn’t necessarily involve a major equity trade-off. Higher GDP per capita growth is ultimately key to boosting living standards for all Canadian households.

The bigger point though is that the Trudeau government’s experiment with an extensive growth agenda rooted in high immigration and high public spending has manifestly failed to produce positive results. It may have staved off a technical recession, but it has contributed to deep recessionary conditions for Canadian living standards that are having far-reaching socio-political consequences including heightened pessimism about the future among ordinary citizens.

This growing realization has led to renewed debate about Canadian immigration policy. That’s a healthy development. We need to restore a more responsible policy that sets reasonable targets and reprioritizes high-skilled immigrants. Pierre Poilievre deserves political credit for taking a big step in this direction.

But that’s a necessary yet insufficient response to what ails Canada’s economic life. What we ultimately need is to replace the Trudeau government’s empty-calories economic agenda with a healthier mix of pro-growth policies to boost investment, productivity, and living standards.

Amal Attar-Guzman: Arab Israelis navigate uncertain ground in a post-October 7 Israel

Commentary

This past weekend marked 100 days since the Israel-Hamas conflict began. While there has been a lot of substantive and essential coverage of the experiences of Israeli Jews and Palestinians, another population group that has found itself at the nexus of the conflict but often forgotten is the Arab Israelis.

Nothing better demonstrates this than the controversy surrounding the decision by Israel’s Jewish Culture Department of the Ministry of Education to withdraw funding from the Megiddo Regional Council’s annual Shavuot event because Arab Israeli broadcast journalist Lucy Aharish would be hosting it. 

Aharish, the first Arab Muslim news presenter on a mainstream Hebrew-language television show, is in an interfaith marriage with Fauda Israeli Jewish actor Tashi Halevi. Most notably, she and her husband saved lives during the October 7th attacks by facilitating a private rescue operation

Although Itzik Holevsky, the head of the Megiddo Regional Council, appealed the decision, citing Aharish’s professional and personal experiences that make her qualified to host the event, Itiel Bar Levi, director of the Department for Jewish Culture, rejected it. 

In this Sunday, April 13, 2015 photo, Arab newscaster Lucy Aharish speaks during an interview with The Associated Press in Tel Aviv, Israel. Ariel Schalit/AP Photo.

In Levi’s written reasoning to the council, he explained the funding was retracted due to bureaucratic miscommunication and procedural technicalities. But then he further reiterated the following: “We live in a ‘Jewish State’ and as the Wing of Jewish Culture, it makes sense that a woman who represents mixed marriage cannot represent Jewish culture.”

His comments elicited outrage not only from Aharish and the council but from many Israeli citizens. The Ministry of Education has since refused further comment. 

This situation highlights the complexities of identity and acceptance for Arab Israelis, especially as they navigate a post-October 7th Israel. 

Representing 21 percent of Israel’s population, Arab Israelis are situated in a unique position. Not only do they share ethnic and community ties with Palestinians in the West Bank and Gaza (with some even identifying as such) and Arabs across the Middle East more broadly, but they also share national ties with Israeli Jews and other ethnic groups in the state of Israel. 

Arab Israelis are descendents of Palestinian Arabs who remained in Israel when it was founded in the 1948 war in what had been British-ruled Palestine. Hundreds of thousands of their kinsmen fled or were expelled. 

A majority of today’s Arab citizens in Israel are Sunni Muslims, though there are many Christians and Druze as well. Most Israeli cities have either majority Jewish or Arab populations. More than half of Arab Israelis live in the northern parts of the country. 

A December 2023 survey from the Israel Democracy Institute, an independent research group, sought to understand how Arab Israelis have responded to the conflict and see their place in Israeli society more generally. The survey results showcase an interesting mix of trends. 

The biggest finding is that Hamas’ terrorist attacks against Israel and the ensuing conflict have contributed to a rising share of Arab Israelis who now say that they feel a sense of belonging to Israel. More than two-thirds said they feel part of the state of Israel in the survey. That is up from less than half in June 2023 and represents the highest rate since 2004. 

Among Arab Israelis, the Druze community identified the most with the Jewish state (80 percent), with Christians coming in second (73 percent), and Muslims third (62 percent).

Interestingly, the feeling of being a part of the state was stronger among those without higher education—with 75 percent of those without a high school diploma saying that they feel a part of the state—than among those with post-secondary education, with only 54.5 of those with a college degree reporting the same. 

Arab Israelis also strongly support (more than 85 percent) Arab citizens of Israel participating in volunteer efforts during the war, such as helping evacuees or providing medical assistance.

When asked about the recent statement by the leader of Israel’s Ra’am Party, MK Mansour Abbas, that Hamas’ actions on October 7 “do not reflect Arab society, the Palestinian people, and the Islamic nation”, more than 55 percent of Arab Israelis agreed with it, including 53 percent of Muslims. 

As for the current humanitarian crisis in Gaza, nearly 60 percent said that responsibility was shared by Hamas and Israel. The share that attributed sole responsibility to Hamas or Israel was roughly the same at 16 percent and 14.5 percent, respectively. 

A large majority (78 percent) of Arab Israelis say there has been no change in their relations with Israeli Jewish friends or acquaintances. Only 15.5 percent say that these relations have worsened since the start of the conflict. 

Yet, despite feeling a strong kinship with Israel and its society as a whole, 71 percent of Israeli Arabs said they do not feel comfortable expressing themselves on social media, 84 percent are worried about their physical safety, and 84 percent said that they are concerned about their economic security and prospects. More than half (51 percent) say they feel comfortable speaking Arabic in public spaces, but that number is down by 25 percentage points since the start of the conflict. 

One key consideration is that many Arab Israelis have close familial and friendship ties with Palestinians in Gaza and the West Bank. As such, there is a great amount of personal loss and difficulty in the background of the current conflict. The survey highlights, for instance, that of Arab Israelis who have family and friends in Gaza and the West Bank, 76.5 percent do not feel comfortable contacting them in the current social climate.