Innovation will boost economy

While Ottawa likes to boast about how well our economy is doing, compared to others, the reality is that we are not doing all that well. Indeed, complacency about the challenges we face is a real danger.

While Ottawa likes to boast about how well our economy is doing, compared to others, the reality is that we are not doing all that well. Indeed, complacency about the challenges we face is a real danger.

Here are two reasons why we should be concerned.

First, we are not creating the jobs we need to enable Canadians to achieve a middle-class lifestyle. While job numbers have increased, we also have to look at where those jobs are coming from, and the quality of those jobs.

If we compare the employment picture in August, the most recent month available, with August 2006, the year before the Great Recession began, we find the number of jobs between the two Augusts increased by 727,500. But 75 per cent of these new jobs were in the public sector, jobs that depend on tax revenues. Moreover, 64 per cent of all new jobs were part-time jobs. In this period, manufacturing lost 348,000 jobs.

What’s missing is an increase in private sector jobs that generate tradable goods and services and sustain a productive economy that delivers the wealth for a rising standard of living and the tax revenues to support public services.

Second, young people today are having a truly tough time, even if they go to college or university. Too many young Canadians are having to settle for temporary or contract jobs while others cannot find jobs that match their education.

Many Canadians in the 15 to 24 age group are still students. But those in this age group who are no longer members of the student population — and this includes many high school, college and university graduates — had 168,000 fewer full-time jobs and 77,000 more part-time jobs.

These employment problems suggest we are not building an economy that can deliver the rising expectations that we have enjoyed in the past. That was based on the belief that if we studied and worked hard we could expect a good job with a rising standard of living.

Instead, we face the prospect of an insecure future and a declining standard of living. Over the coming decade, there’s a good chance there will be little growth in incomes as we struggle with a slow recovery from the Great Recession and eliminate deficits from the stimulus spending that was needed to avert a Depression.

If incomes are showing little growth but prices for energy, food and raw materials are rising as global population grows and the demands for more food, energy and resources from the newly emerging economies increases, the income we have left over after paying these higher bills will mean less money left over for everything else. We will feel poorer.

The only way out is to build the kind of economy that will generate good jobs in the face of growing global competition. New jobs come from new activities, and new activities come from innovation.

China, India and Brazil will move into higher-value-added production as the next decade progresses. Chinese and Indian universities are steadily improving and younger Canadians will face growing competition for jobs from the graduates from these universities in a world where there will be intense competition for good jobs and the investments that underpin them.

This brings us back to Bank of Canada governor Mark Carney’s warning that our productivity performance — our ability to create a smarter economy — is “abysmal.” Productivity growth is the basis for improved living standards and is driven mainly by innovation.

Productivity determines the speed limit of the economy — the rate at which an economy can grow without triggering high inflation. The higher the productivity growth, the stronger the growth potential of the economy. Canadian productivity in the second quarter of this year was just 0.8 per cent higher from the same period last year. U.S. productivity rose 3.7 per cent in the same period and, for many years, the U.S. has outperformed us.

Unless we improve our productivity through innovation, our potential growth rate in the coming decade will be two per cent or less, compared to three per cent from the mid-1990s to the mid part of this decade. That lower rate would mean every Canadian would be worse off by $30,000 and the overall economy would be $1 trillion smaller, Carney says.

In other words, if we want better prospects for ourselves and the next generation, an innovative economy is the key. This is a lot more important than continued wrangling over the long-gun registry.

David Crane is a syndicated Toronto Star columnist. He can be reached at crane@interlog.com