The economic benefits of a more moral Canadian economy

In a thought-provoking opinion piece, political advisor and pundit Allan Gregg weighs in on the perennial bête noir (and what Finance Minister Chrystia Freeland recent called "the Achilles heel of the Canadian economy"), productivity, a subject I have also written on recently.

There has been much hand-ringing over the decline in Canada's productivity, a measure of gross domestic product per capita. Over the last 40 years, Canada's economic growth per population has been sadly lagging that of its peers (although, anecdotally, that does not seem to have translated into anything disastrous, if you ask me). As things stand, the OECD predicts that Canada's economy will grow slower than all other advanced economies (per capita, that is, part of the calculation being attributable to Canada's relatively high immigration rates).

Mr. Gregg has a few solutions to offer. The first is to do away with corporate subsidies. Whether in the form of tax incentives or direct funding and loans, $50 billion a year is put into such subsidies at the federal level, almost as much as is spent on healthcare, and as much as 80% of it is useless and does not lead to increased productivity or boost real income for Canadians in any way. That's $40 billion a year going into propping up failing companies and subsidizing their already-rich shareholders. There is an argument to just stop such corporate welfare (although Mr. Gregg does not consider the potentially disastrous employment effects of allowing such companies to actually fail). 

Likewise with corporate share buybacks: when a company buys back its own shares, the only people who benefit are those same rich shareholders. It does not strengthen the company or improve its productivity in any way. Why then do we allow them? Once again, the practical impossibility of such a government intervention is not considered: this is very much a theoretical brainstorming session on the author's part.

Education is a major driver of personal income, and with 200,000 to 300,000 young Canadians dropping out of high school every year, many potentially higher incomes are being squandered. Again, there is a real world practical caveat being ignored here: not every child can go on to higher education - some have neither the drive, the intelligence, nor the aptitude for it, and the higher education system would not be able to cope with it anyway.

Most of Mr. Gregg's potential solutions, though, focus on rectifying social inequities, which in addition to the moral benefits would, he argues, have a huge economic boon. The gap between the rich and the poor has continued to widen, he contends, and Canada's Gini Index, a measure of income or wealth inequality, has increased shamefully. (In fact, as far as I can see, at 31.7, Canada's Gini Index is not that bad, and has been steadily falling since 2006. Indeed, it is better than that of the UK, many European countries, and certainly the USA.)

Leaving that aside, Mr. Gregg suggests that closing the 10% employment gap between Indigenous and non-Indigenous people, for example, could add 100,000 people to the Canadian work force, and generate $27 billion, or about 1.7% of GDP, to the Canadian economy (this according to the National Indigenous Economic Development Board).

Closing the 18% employment gap between foreign-born and Canadian-born workers of equal qualifications - immigrants are typically much more highly educated than those born in Canada, with 55.1% having a bachelor's degree or better, compared to 28.5% for Canadian-born - could boost GDP by about $50 billion, or 2.5%, if barriers were removed and new Canadians of equal qualifications were paid the same as their Canadian-born counterparts (this according to RBC Economics).

And finally, if women made up their 10% employment gap and their $7,200 average pay gap, almost 2 million new employees could be added to the labour force and (according to McKinsey) as much as $150 billion, or 7.5% of GDP, could be added to the economy.

The total of all these measures together would be in the region of $268-$317 billion, or 12-15% of our total national wealth, Mr. Gregg estimates. The hurdles to be cleared en route would be prodigious, and in practice only a small proportion of these gains could ever be realized, but the potential gains are clearly huge.