Canadians expected an exit from pandemic life over the past year, but instead, 2021 was a “failure to launch.” This is how Maclean’s senior writer Paul Wells began this year’s New Year’s Revelations discussion with former Bank of Canada Governor, Stephen Poloz.
Hosted by the Lawrence National Centre for Policy and Management, the recent webinar attempted to make sense of a new era of uncertainty, as weary Canadians look towards a fresh beginning for 2022. While many face a “tripod of angst”, possibility of higher inflation, higher taxes, and high fiscal deficit, Poloz feels there are reasons for optimism should Canada embrace policies and provisions to encourage productivity, harness the fourth industrial revolution, and proceed towards goals for net zero emissions.
Where we currently stand
Poloz stresses it’s important to have a two-track picture of the current economy. While several job categories such as entertainment, tourism, bars and restaurants have been suffering for the past two years, many sectors have seen tremendous growth, including engineering, professional services, education, information technology to name a few.
“The economy throughout this period has done way better than the gloomy forecasts in the early months of the pandemic,” said Poloz. “I don’t think we should lose sight of that. It’s an important surprise, especially for the economics profession.”
Crediting vaccinations as a key initiative, Poloz believes the latest Omicron variant has not had a significant impact on the macro economy to date. However, inflation continues to make headlines internationally, and right here at home, but Poloz feels these “conservations have been misleading”. While prices today seem higher than a year ago, the reported figures tend not to take into account deflation that occurred near the beginning of the pandemic.
“If we take energy out, which is often a choppy element [then] the average annualized rate of inflation since the pandemic started is 2.2% over 22 months. And so that’s not really a big problem as long as we settle in there after the big bumps are over,” said Poloz.
Focusing on growth and productivity
Reflecting on the early days of the pandemic, Poloz noted that “all ingredients of the second Great Depression were there. But what did we have instead? We had the shortest economic downturn in history because of those prompt actions.”
The prompt actions Poloz referred to are the rapid government assistance programs and central bank policies put in place shortly after the pandemic began.
With employment back to pre-pandemic levels, the next stage of the recovery is the normalization of those policies which the federal government and the Bank of Canada have alluded to. At the same time, according to Poloz, it is imperative to focus on expanding the economy’s long term potential capacity by enhancing the labour force and productivity. For instance, on the labour force front, he observes the need for continued aggressive immigration targets and increase workforce participation by investing in childcare, which gained substantial traction in the last 12 months.
Additionally, policy imperatives include improving Canada’s productivity by encouraging adoption of new technologies and through infrastructure development and renewal. However, progress will always be slowed unless certain impediments are lifted, such as financing constraints, or regulatory red tape.
“There are things like trade restrictions or regulations across provinces that differ from one province to another that make it hard for companies to grow,” exclaimed Poloz. “So removing things that are holding productivity back can be just as important as promoting investment when it comes to generating more productivity.”
Fourth industrial revolution already upon us
Poloz firmly believes the fourth industrial revolution is well underway, in spite of the pandemic. In the long run, this revolution driven in part by technological advancements in blockchain, AI, and 5G has the potential to increase productivity and employability, and at the same time reduce costs, benefiting consumers.
In the short run, however, there is uncertainty associated with worker displacement and how the revolution will unfold. Poloz notes that the blockchain technology developed initially is now finding surprising uses in other areas, including in enhancing efficiency in supply chain and combatting counterfeit.
“What we do know is that every industrial revolution [eventually] has created many more jobs than disrupted, but it requires skill adjustments,” said Poloz. “As [the fourth industrial revolution] unfolds, I'm guessing that we will be talking about it for a good 10 years, probably longer.”
Poloz noted that in harnessing emerging digital technologies, there is a need for developing ecosystems that enable startups to test their applications and scale up their businesses, and policymakers and business leaders could look to the public-private partnership model as a route to create such an ecosystem, as indicated in a recent research report developed by the Lawrence National Centre.
Carbon capture key for net-zero
Recent global forums like COP 26 have highlighted the growing momentum of a transition towards a low carbon economy. Similar momentum has been felt here, with Canada pledging to reduce emissions by 40-45% from 2005 levels by 2030 and has legislated its commitment to achieve net-zero by 2050. However, significant concern remains domestically when it comes to Canada’s ability to meet targets with an economy dependent on energy development. Poloz reminded viewers that recent projections predict the demand for energy will continue to grow, with fossil fuels accounting for 50% of global energy use for the next few decades.
“So to me the only way to reconcile the world’s green ambitions with its carbon backbone, is through extensive deployment of carbon capture, utilization and storage technology,” asserts Poloz. “So, right now, the simplistic view of just switching to electric and leave that [oil and gas] in the ground, I think it’s not possible for us to get there. We have great technologies that can get us there though.”
By specifically harnessing and developing carbon capture technology, Poloz believes that Canada can still remain a major producer and exporter of energy.