Canada's per-person GDP is growing at its slowest rate since the 1930s and the Great Depression, according to a new study by the Fraser Institute, a non-partisan Canadian policy think-tank..Per-person GDP, the value of goods and services per Canadian, is a common measure of prosperity, but, adjusted for inflation, per-person GDP in Canada grew by a dismal .8% between 2013 and 2022. .“Canada’s in a full-blown economic growth crisis, which is homegrown and due largely to poor government policy," said study-author Philip Cross, a senior fellow at the Fraser Institute. .From 2016 to 2022, per-person GDP in the United States (adjusted for inflation) grew by 11.7% compared to just 2.8% in Canada. .Since 2015, the year when growth between the two countries began to diverge significantly, Canada's real GDP per capita growth has steadily fallen behind that of the United States..The 8.9 percentage point gap in growth between the two countries originates in three periods of time..An initial divergence of 3.5 percentage points in favour of the United States opened up between 2016 and the end of 2019, just before the onset of the COVID-19 pandemic..Then, during the worst of the pandemic-related shutdowns in the first half of 2020, although both countries saw a decline in per capita real GDP, in the United States it fell by 9.7% while in Canada the drop was 13.2%, adding another 3.5 percentage points to the gap..Since the recession low in mid-2020, real GDP per capita has recovered by 15.3% in the United States and 14.1% in Canada, increasing the gap between the two countries by a further 1.2 percentage points..The ability of the US economy to sustain growth over the past decade shows that Canada’s stagnation was not the inevitable result of an aging population or the exhaustion of technological innovations, but instead reflects factors under Canada’s control..This is a Canadian-made problem rooted in declining business investment and stagnating growth in exports, two critical sectors of the economy..The federal government can’t blame COVID: The slow growth began before the pandemic..Furthermore, Canada has adopted many of the policies economists recommend to boost growth, including high levels of immigration and education, lavish government support for research and development, and free trade deals with all the G7 nations, but slow growth has become more entrenched..So, what is going on?.Canada has lost its dynamism and eroded the values that encourage innovation and entrepreneurship. .Specifically, the value of business investment in the fourth quarter of 2022 ($189.8 billion) was 17.6% lower than at the end of 2014 (adjusted for inflation.).The value of exports has flatlined since 2014 as well..As growth has slowed down, governments in Canada have fixated on the re-distribution of income rather than the creation of income, and on stabilizing the short-term course of the economy for political reasons, rather than raising its long-term potential..Policies reliant upon more government spending and relentless monetary stimulus provide at best a very short-term answer and depress the long-term potential, especially through their negative impact on business investment..Slower growth is specifically seen in declining business investment and exports, the sectors of the economy that embed innovative technologies and reflect the competitiveness of Canadian businesses..Growth and prosperity are neither automatic nor well understood by economists, despite widespread claims that sustaining growth is easy to achieve by adopting simplistic policies..Canada cannot rectify its poor record of growth by continuing its narrow focus on such formulaic policymaking..Recent research also stresses the importance of a nation’s culture to economic growth..Without a national mood that supports entrepreneurship and innovation, even the best policies and institutions will produce disappointing results..Canadians need to get over the mindset that, in the words of a leading commentator, “In Canada, if you run a successful business, you are made to feel you have done something wrong.”.Profitable business must be viewed as successful behaviour. Raising growth requires a resurrection of Canadians’ faith in the ability of Canada’s businesses to compete in the global marketplace without constant government intervention..In the absence of such a revival, Canada will be condemned to the stagnation seen in recent decades in Japan and much of Western Europe..Canadians need to be reminded by their business and political leaders of the necessity of restoring higher economic growth if we want to pursue a wide range of economic and social goals and restore Canada’s standing on the global stage.."If policymakers want to increase economic growth and attract investment, they should enact pro-growth policies and encourage entrepreneurship," Cross said..Canada can still regain its ability to grow faster..Culture changes, and Canada showed for much of the past century that it possessed the values which incubate business dynamism. Canada has avoided the populist trap of calls for more protectionism, at least in its trade dealings with other countries, if not trade between provinces..Canada’s borders remain open to large inflows of immigrants, who necessarily have a heightened taste for risk..More broadly, innovative cultures have shown they can rebound from severe setbacks, such as Europe’s recovery from the devastation of two world wars and the 1930s depression, because its human capital and culture remained intact even as much of its physical capital was destroyed..Canada needs its leaders to change the way they talk about and interact with business, especially our dwindling number of successful firms.
