Canada is doing better – maybe
Bank of Canada governor Stephen Poloz, with his rah-rah Vancouver speech on the economy, sounds more like a member of the Harper government than an independent central bank governor.
But Canadians need a central bank governor who is more analytical in his pronouncements, not another economic cheerleader.
In his latest public speech, in Vancouver, Poloz rhapsodized about the looming return to what he called “natural economic growth.” He contended our economy is at a “tipping point from improving confidence into expanding capacity.”
Unfortunately, his speech failed to acknowledge serious challenges in the economy. Much is made of Canada’s job recovery from the dark days of mid-2009.
And clearly, we have done better than the U.S.
But our employment rate — the percentage of people of working age who actually have a job — remains too low, and lower than before the recession hit, while our unemployment rate remains too high, higher than before the recession hit.
Moreover, young Canadians are having an especially tough time in finding regular, full-time jobs, as opposed to shorter-term contract employment, wages and benefits of workers with regular jobs are being squeezed, and two-tier compensation systems are growing in number. We have widening income and wealth inequality.
While Poloz is correct in pointing to a recovery in employment since 2009, if you take an earlier benchmark — July 2007 — before the economic troubles began and the recession hit, then the numbers tell a different story.
Compared to July 2007, we had gained 895,600 jobs by July 2013.
But largely publicly-funded education, health and public administration accounted for nearly 60 per cent of the job gains, or 529,500 jobs, while manufacturing lost 289,700 jobs.
And despite all the talk of the oilsands and mining, we have added just 29,700 jobs in the resources sector.
Construction added another 196,100 jobs, fueled by super-low mortgage rates, while professional, scientific and technical services, which includes law, accounting, advertising agencies, computer systems and various consulting services, added 210,000 jobs.
But we still have some distance to go.
For his part, Poloz brought a hyped message of hope to Vancouver, talking up new kinds of jobs such as social media experts and professional bloggers and Canada’s prospects for innovative new companies and big export gains in emerging markets, along with the application of new technologies such as 3-D printing, artificial intelligence and synthetic biology.
“Whole new sectors will take off, descriptions of new classes of jobs will be written, and people will be hired under brand-new, yet-to-be-defined job titles.”
Poloz is also counting on export-led growth. “There is a sequence of events we can anticipate,” he explained.
“Foreign demand will build; our exports will strengthen further; confidence will improve; existing companies will expand their production; companies will invest to increase capacity; and, new companies will be created.”
All of this will lead to new jobs, and growing incomes will lead to new spending, reinforcing the domestic economy.
But the competitive battle is much more complicated.
The manufacturing sector remains in serious trouble, for example. And globalization and economic uncertainty in the U.S., Europe and China hang like dark clouds over the economy, while Canada’s natural resources are vulnerable to wide swings in prices.
Poloz nonetheless has a vision on how the world should unfold: “We [meaning presumably Poloz and the Bank of Canada staff] are optimistic that the gathering momentum in foreign demand, especially in the United States, should help lift the confidence of Canada’s business leaders and exporters. We can expect the emergence of new products, new processes, new structures and new industries.”
Yet at the same time Poloz was making his speech, the U.S. Federal Reserve was announcing that it had delayed plans to reduce its stimulus for the U.S. economy because unemployment was still too high and economic growth prospects still too weak.
Poloz admitted his “natural growth” scenario “may be slow in coming, but it will emerge, and it will serve as a driving force of economic growth.”
But there is nothing automatic about this process and there will be many barriers.
Poloz would inspire more confidence if he moved beyond the debatable assumptions of conventional macroeconomic policy and focused on the serious microeconomic problems we face, from skills shortages and poor infrastructure to inadequate innovation and the lack of a financial system that supports potential new growth companies while leaving the rah-rah side of things to the Harper government.
Economist David Crane is a syndicated Toronto Star columnist. He can be reached at email@example.com.