Canadian companies are losing ground, says Bill Morneau in a new book

Introduction by Andrew Willis

Before Bill Morneau became federal finance minister in 2015, the former Bay Street CEO had to win over voters in some of the country’s poorest neighborhoods in downtown Toronto.

Knocking on the doors of families struggling to make ends meet, including recent immigrants trying to find housing and work, was a “reality check” that Mr. Morneau said he used as a touchstone during his five years in government, and in his post-political career. In an interview ahead of the launch of his book next week, Where to from here: The road to Canadian prosperity, The 60-year-old said his overarching goal as a politician is to improve the country’s weak economic performance, for the benefit of all Canadians. This year he takes on the same ambition as the author.

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“My time in government was a tremendous learning opportunity, five years that felt like a doctorate in international economics,” said Mr. Morneau, who has an MBA. “Now I want to start a conversation about the serious economic issues facing the country at a critical time for Canadian business.”

In his book, Mr. Morneau makes it clear that Prime Minister Justin Trudeau never shared his focus on taking care of business, which he sees as a key factor in his decision to step down in 2020. He also details the cut and thrust of partisan politics – Conservative Leader Pierre Poilievre’s ears will be burning – and lays out plans to fix what ails the health system, balance trade with human rights and wean the economy off fossil fuels.

However, a recurring theme throughout the 325 pages is that Canadian businesses are losing ground – becoming less productive – and that governments of all stripes need to up their game to maintain, let alone improve, our standard of living. Mr. Morneau’s turnaround strategy includes recruiting CEOs, indigenous leaders and academics for a prosperity council, similar to groups that have fueled growth in Australia, Chile and France. He’s also pushing for a Canada Growth Fund to boost business investment – ​​and the federal government announced a program to that effect in its latest budget.

In this excerpt from where from here extensively edited, Mr. Morneau lays out a plan for prosperity and explains why the Trudeau government is failing to deliver on the economy.

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One of the reasons I entertained the idea of ​​running for office in 2015 was Canada’s declining economic performance. I was drawn to the opportunity to apply my business skills and experience to help make a difference in critical issue areas such as our response to climate change, reconciliation with our indigenous people and the need for a national childcare program. All of these, to one extent or another, could be fully solved only if we had the means to invest in them. So addressing our economic goals, in my view, had to be a key priority.

Canada’s economic growth had been stalled for two or more decades and needed to be revived. According to the OECD, Canada has been outperformed by 138 countries in the recent past, including Australia, Mexico, New Zealand and the US. Although growth was slow during the Stephen Harper years, this was not a partisan issue. In my opinion, this was a fundamental problem that required immediate attention.

It would not be easy to solve. The policies needed to get us out of our economic crisis would be difficult to implement and would involve significant costs. They would also require a clear focus, strong discipline and a willingness to collaborate in new ways. That’s a huge shopping list.

On the other hand, we achieved some important things from 2015 to 2020, highlighted by the Canada Child Benefit, the expansion of the Canada Pension Plan and the launch of a national approach to carbon pricing. Despite all that we have achieved, we have not done nearly enough to stimulate economic growth. This is perhaps not surprising, as restoring Canada’s economic performance was not a major point in our election platform. A talking point, yes. But it had to be more than that.

Let’s be brutally honest: with all the national attributes our country is endowed with, we shouldn’t be lagging behind so many other nations with similar levels of industrialization and development – ​​we should be at the head of the class.

This realization prompted me in 2016 to establish the Advisory Council for Economic Growth. The Council has done significant work, drawing attention to the importance of immigration and its impact on our demographics; identifying key economic sectors in which Canada had a competitive advantage; focusing on how we can stimulate lagging private sector investment with ideas like the Canadian Infrastructure Bank; advocating the expansion of international trade in Asia, where growth is likely to continue; and encouraging a focus on skills development and training.

As often happens in political life, the ideas were good, but their implementation proved to be a challenge. Building and rebuilding infrastructure required a large amount of capital and extended timelines to complete the projects, plus provincial and municipal buy-out. Internationally, our strategy to expand trade opportunities with China ran into harsh geopolitical realities, and the implementation of other promising initiatives ran into obstacles that could not be easily circumvented.

The focus on economic reconstruction deserved to be sharpened and directed by the Prime Minister, but it was not. I was ready to play any important role to reach the goal, but the responsibility for economic growth cannot be transferred only to the Minister of Finance. It requires attention at the very top. In my view, neither the Prime Minister nor the Prime Minister’s Office have seen the need to address our anemic growth as a first priority, despite a host of statistics to back it up and the need to treat it as a priority.

From the end of World War II to the mid-1970s, few countries exceeded Canada’s economic growth rate. As one measure, Canadians’ weekly earnings grew by an average of 2.54 per cent annually over that period after adjusting for inflation, more than doubling our earned income. Pretty impressive, but from 1982 to 2019, our country’s real GDP grew at an average of only 1.3 percent per year, which isn’t impressive at all.

The decline is directly related to the downward trend in productivity growth during those years. Out of 36 Organization for Economic Co-operation and Development (OECD) countries measured from 2000 to 2019, Canada ranked 25th when it comes to productivity growth. Assessing real output per hour worked, we were less than mediocre compared to peer OECD countries: 10 per cent lower than the UK, 22 per cent lower than France and Germany and a whopping 27 per cent lower than the US, our best partner and our biggest competitor.

One reputable study noted that from 2000 to 2019, Canadian productivity grew at an average of 0.9 percent per year, half the annual growth rate from 1961 to 2000. If we had maintained the same productivity growth from 2000 onward, the average annual growth rate income for Canadian workers in 2019 would be about $13,550 higher. It’s pocket proof that higher productivity benefits everyone.

Improving productivity is not about maximizing our labor force participation, as important as that is. Increasing the labor force helps promote growth, but does not necessarily improve productivity. Nor should our goal be to work more or work with fewer people to get the same amount of work done. It’s about smarter work, which is not the same at all. The best way to raise labor productivity in the 21st century is to apply technological advances and ensure the workforce’s ability to adapt to them.

It is impossible, on a long-term basis, for any society to earn or spend more than the value of anything it produces, whether goods or services. It’s a basic rule that doesn’t require a degree in economics to understand. All you need to grasp the idea is your experience in balancing your household budget. The key to long-term prosperity is productivity, and the reality of our aging demographics will make it even more important in the coming years.

Instead of keeping the retirement age, we should be encouraging older Canadians to stay in the workforce as long as they want. Why should we dismiss their talents, experience and contribution? These are enormously valuable resources. We need to ensure that people have the incentive to continue working while their health and interests are working, and we should be encouraging them to put their skills to work expanding Canada’s wealth-creating growth.

Improving our economic growth is not and should never become a partisan issue. There is plenty of room for partisan debate about the size and role of government and redistribution, but everyone should agree on the goal of raising living standards through growth.

It has never been difficult to convince business and industry groups of this prospect. Whatever their political leanings, they all understood the importance and urgency of getting on with the job of improving Canadian productivity. Yes, you could argue that self-interest was the motivation. But isn’t that the point of capitalist market democracy? Isn’t that how we got to a place where we could have one of the best lifestyles in the history of the world? I was always impressed by all the proposals that came from those in the private sector who immediately saw the benefits that awaited us if we could achieve some growth targets.

My challenge was to build consensus within the government about the urgency of the problem and provide enough incentive to take it seriously. There is always an important short-term problem to solve, a social problem to deal with. I’ve often agreed, but the reality is that without a focus on growth, all those other goals will be harder to achieve – we’ll be constantly fighting to prioritize our pet with more limited resources. Breaking the cycle, focusing first on growth and then on programs, is a leadership challenge.

We cannot do anything and just assume that we will get out of the situation. The world does not work that way, nor has it ever worked.

So what do we do?

Our first move must be to acknowledge that the problem exists and take steps to deal with it in response to the OECD’s projections of our future prosperity. Economic projections are not weather forecasts. The difference is that we can change the future by making the right decisions today and tomorrow. And creating our economic success is a duty that no one but us can take on.

Let’s also accept that there is no quick solution to the problem. We did not lose the economic success we enjoyed overnight. The decline was slow and gradual, and we were followed along by other developed countries that saw their own productivity growth lose speed and momentum. Misery may love company, but it’s not the kind of company we need or want because we fell faster and farther than the others during the ride.

I have spent a lot of time on this topic because years of experience in the office have convinced me that improving productivity is the most important issue on our agenda, and we are not focused on it.

The implications of ignoring this aspect of Canada are more than significant – they are critical.

Without focusing on our economic growth to produce improvement, we will not be able to design the energy transition process. Nor will we be able to seriously address the problem of polarization without expanding opportunities for all. Our next Prime Minister, looking back at the key elements of the party platform, must consider economic growth as the most important goal of the federal government.

In the absence of this goal, any other political initiative must necessarily be limited.

Derived from Where to from here: The road to Canadian prosperity. Copyright 2023. Published by ECW Press. Reproduced in agreement with the publisher.