I was fooling around with some GDP data the other day, as we economists are wont to do, and when I put it on a chart and drew a couple of trend lines, I was shocked by how setbacks we’ve suffered since 2000 seem to have become permanent scars on our well-being. In the 1960s and ’70s, economists the world round talked about “the British disease.” What does the Canadian disease look like? Check out the chart.

It shows real GDP, measured in 2012 dollars, on a per capita basis (using the population of Canadians over 15). I took two flights of fancy. First, I imagined that the Canadian economy had grown for the entire period 1997-2021 at the same rate as it grew between June 1997 and June 2000. That scenario is shown as Trend 1. If we had managed to keep our output curve rising at that rate, real per capita GDP would now be $95,000, not the $64,000 it currently is.

But maybe that’s too optimistic. Maybe that was just an especially lucky three-year streak. So, I also extended the trend between June 2000 and June 2008, calling that “Trend 2.” Now the projected per capita GDP is $74,000 — “only” $10,000 per person greater than today’s value. But who of us wouldn’t appreciate that much more output from our efforts?

Lots of things could be said about these numbers. Probably the most important is that economic growth clearly matters. If we had managed to sustain the growth rate of the late ’90s, GDP per capita would be a third higher than it is now. Not all that extra output would have fed into Canadians’ personal incomes. But some would have. And part would have gone into profits and fuelled more investment. And part would have gone to taxes, which would have enabled more public spending, if that’s what Canadians voted for, at lower levels of debt. Canada’s “to do” list is only getting longer. COVID has underscored the need for healthcare system restructuring; municipalities confront increasing infrastructure needs; entitlements keep expanding; and our military procurement has foundered. If we’re going to afford all the things we think we need, we need more economic growth.

How do we “un-flatten the curve” and get growth rates back to the levels of the 1990s and 2000s?

I am sure every reader has a solution to economic malaise. My own suspicion is that the Canadian economy is suffering death by a thousand cuts: slower population growth, trouble in the oil and gas sector, constantly rising taxes that, as Jack Mintz has pointed out, discourage investment, waves of new regulations whose purpose may not be anti-growth but whose effect certainly is, and so on. That there are so many possible contributors is both daunting and encouraging. Daunting because it’s not clear where we begin but encouraging because almost wherever we do begin there’s progress to be made.

And before despairing, we should recognize that signs of an economic heartbeat do exist. According to an experimental dataset developed by Statistics Canada, between January and June 2020, COVID forced the exit of some 100,000 businesses. Since then, however, Canadians have started almost that many new enterprises and we are on track to regain pre-COVID business creation levels within the next six months. It seems many Canadians want to take control of their destinies. COVID may end up having been the ultimate Schumpeterian creative destructor.

What should government do? Mainly get of the way. To use one example, local building regulations and land codes add cost and delay to the creation of new housing. Easing low density zoning and removing red tape in approvals are two changes that would encourage the development of the construction sector and address the accelerating home prices.

Rather than simply doing nothing, government needs consciously to do less and let loose the free enterprise instincts that still run deep in Canada.

Financial Post

Gregory Mason is associate professor of economics at the University of Manitoba.