Jack M. Mintz: Per capita economic growth has stalled

Financial Post

Canada has just gone through the worst five-year period for per capita economic growth since the Great Depression. PHOTO BY GEOFF ROBINS/AFP VIA GETTY IMAGES FILES

Lagging investment, stalled innovation are flatlining Canada’s economy and causing immeasurable harm

It stopped Canada’s economy dead in its tracks. What’s even more surprising, though, is that we have just gone through the worst five-year period for per capita economic growth since the Great Depression. At the end of 2015, real per capita GDP was $51,158 . After the initial shock of the Great Depression, good years always more than made up for bad so over any five-year period growth was always positive.

In each of 2016, 2018 and 2019, growth was around zero . Add in a 2020 so terrible it swamped the previous four years and the overall decline in per capita GDP is no surprise. When its economy flatlines, that creates immeasurable harm for a country. per capita growth 2016–19, leading up to the pandemic, was stellar at 1.7 per cent per year, a full point higher than Canada’s 0.7 per cent.

A one-point higher growth rate makes a world of difference in prosperity. Which is why Canada is falling behind. Our per capita GDP was about $11,300 below the U. In terms of per capita incomes, we are now more like Louisiana than Joe Biden’s Delaware. Add in the 2020 recession year, and Canada lags the U. minus 6.3 per cent for Canada.

As Statistics Canada’s John Baldwin has pointed out, our economic growth rate has been declining for years. As shown in the chart below, it was robust during the 1961–70 period but steadily declined to average only 0.5 per cent per year in the decade 1991–2000. Investment has been lagging in Canada, however. Business and public fixed capital formation has been basically flat since 2015.

Residential and public investment have both grown but non-residential business investment has fallen 14 per cent since 2016. This is due to weak investment in oil and gas but also in manufacturing. Stalled investment means businesses don’t adopt the latest technologies imbedded in machinery and structures. The creation and adoption of ideas have also stalled.

Business expenditure on research and development was more or less steady 2014–18 at 2.2 per cent of revenues but that masks a 10 per cent decline for companies with more than $10 million in R&D expenditure. Business investment in intangible assets is virtually flat after 2012. Something has happened to our businesses’ animal spirits. Coming out of it, we will need to improve our rate of economic growth if Canadians want to continue to enjoy a high standard of living.

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Source: Jack M. Mintz | Financial Post

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