Canada’s Lost Decade

Vehicles on the production line at the Honda manufacturing plant in Alliston, Ont., on April 5, 2023. The Canadian Press/Cole Burston

Commentary

In the 1980s, the world was infatuated with Japan. Its economy was on fire and was projected to overtake the USA as the world’s number one economy by the year 2000.  That came to a grinding halt in the 1990s as the Japanese stock market collapsed and economic growth there ground to a halt. What followed was called the “lost decade.”

Japan has never recovered from the promise of the 1980s. Canada is now facing its own lost decade. Can we recover?

Let’s do a quick review of the lack of progress since 2015.

Wealthiest Middle Class in the World (Used to Be)

In 2014, the New York Times published an article that opened, “The Canadian middle class may now be the world’s richest.” The outlook for Canada was rosy, with its abundance of natural resources, a strong and ethical immigration system, rising economic standards, solid government financing, and falling crime rates. Canada in 2014 was the envy of the world, just like Japan was in the 1980s.

Since that time, we have seen per capita GDP grind to a complete halt. According to the World Bank, Canadian real GDP per capita rose by just 2.9 percent in the last eight years (or 0.37 percent per year), from US$43,635 to US$44,910. South of the border, meanwhile, the real GDP per capita went from US$52,266 to US$59,836, or 12.65 percent (or 1.58 percent per year).

That means that in 2014, GDP per capita was 22 percent higher in the USA and by 2022 was 35 percent higher, or that the U.S. per capita economy grew at a staggering 4.3 times faster than Canada. During that time, real wages have remained completely flat in Canada, even starting to fall this past two years as inflation takes off and wages remain static. According to the OECD, the prospects for per capita growth the next few decades are among the worst in the developed world.

Decline of the Auto Sector

In 2014, Canada produced 2.39 million vehicles. That fell by 49 percent to only 1.23 million vehicles in 2022. In the same time period, American car production also fell, but only by 14 percent, from 11.66 million to 10.01 million.

Increase in Government Debt

In 2015, Canada was the envy of the developed world with regards to its federal government debt, which totalled only 35 percent of the GDP. Since that time, it has risen from $659 billion to $1,260 trillion—or 59 percent of GDP.

It is not the actual level of debt that is concerning, it is the impact it has had on inflation in Canada, particularly asset inflation/housing. Perhaps too much emphasis is placed on consumer price inflation, and not enough on asset inflation.

In the past eight years, we have seen consumer prices rise by 25 percent, while the average price of a home in Canada has risen by a staggering 87.6 percent to $750,000.  Even if we discount the increase in house prices by the CPI, this means an average “real” increase was 50 percent. As pointed out, wages and production have not increased in the last eight years, which means it is increasingly difficult or impossible for young people to afford to buy homes, particularly single-family dwellings, which is where young families prefer to raise their families.

Increase in Civil Servants

Despite the lack of economic progress by Canada, the number of federal civil servants rose by 100,213, or 38.9 percent, going from 257,034 to 357,247. This year alone, it has increased by 21,290 people.

Crime Rates Sky Rocket

Crime rates had fallen steadily from the 1990s, and were at record lows in 2013 and 2014. Since then, according to Statistics Canada, violent crime has increased by a staggering 40 percent across Canada.

Lack of Progress on the Environment

From an economic point of view, Canada has made no progress. We have seen a massive rise in the cost of government. We have seen a doubling of federal government debt and an 87.6 percent rise in house prices.

This is a lost decade economically, but surely we have made progress on the environment?

Progressives often suggest that there is a trade-off between economic growth and the environment. They constantly talk about putting a price on pollution, rather than improving technology, as the way to reduce pollution.

Consider, the disputable view that carbon dioxide is pollution. Greenhouse gas emissions have risen by 5 percent in Canada in the last eight years, but they have fallen by 7 percent in the same period in the USA where they don’t have a carbon tax. If you believe CO2 levels need to be reduced (many don’t) we seem to be having the worst of both worlds: a very sluggish economy, with falling living standards, as well as rising levels of carbon dioxide.

There are two years of the present federal government left to run, until an election is called. There are absolutely no policies being discussed which will lift the country out of the economic stagnation that it currently finds itself in. The role of government is not to simply act as Robin Hood—taking money from the rich and giving it to the poor.  They also have a role in facilitating the growth in the economy.

This decade we have failed miserably on this front. Let’s hope we can start to recover in the next decade.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.