Canada’s Prosperity Will Be ‘Severely Compromised’ Unless Productivity Increases, Carney Warns

Governor of the Bank of England Mark Carney speaks at a news conference at the Bank of England in London on Feb. 7, 2019. Hannah McKay/Pool/Reuters

Canadians’ prosperity will be harmed unless the federal government manages to raise productivity, former Bank of Canada governor Mark Carney has warned.

“When we’re debating over our priorities, what we value, what we should be doing as Canadians, we should first acknowledge that we have less to spend because we have become less productive,” Mr. Carney said during a keynote address at Canada 2020’s Economic Lookahead dinner in Toronto on April 22.

“And unless we turn that around, Canadian prosperity for all Canadians will be severely compromised. Because we can’t redistribute what we don’t have.”

Mr. Carney, who was governor of the Bank of Canada from 2008 to 2013 and governor of the Bank of England from 2013 to 2020, said governments around the world are facing a changing landscape. He said the transition to green energy, the emergence of artificial intelligence, higher inflation, and “protectionist barriers” have resulted in the global economy being “fundamentally rewired.”

“The result of this fragility is an unenviable combination,” Mr. Carney said, adding that countries like Canada have seen weaker private growth combined with more active but “less effective” governments.

Mr. Carney said the world is prone to higher and more volatile inflation, higher interest rates, and “new drivers of productivity.” He also warned that since all debts must eventually be repaid, “governments that spend too much and invest too little will eventually pay a heavy price.”

Mr. Carney’s speech came weeks after the Bank of Canada’s senior deputy governor Carolyn Rogers warned that the country’s productivity level had reached emergency proportions. Although Statistics Canada said the country’s labour productivity showed a small gain at the end of 2023, that came after six consecutive quarters where productivity fell.

Ms. Rogers said an economy with low productivity can “only grow so quickly” before inflation begins to set in. “You’ve seen those signs that say, ‘In emergency, break glass.’ Well, it’s time to break the glass.”

‘Mission-Oriented Capitalism’

During his speech, Mr. Carney said in response to changing economic realities, Canada had the option to continue increasing government spending. “But the challenge is, if you’re prioritizing the new, you can defund the old,” he said, warning that such a strategy could stifle innovation and lead to an “eventual and brutal reckoning.”

“This new era will demand fiscal discipline and a relentless focus on delivery rather than reflex spending that only treats the symptom but doesn’t cure the disease,” he said.

Mr. Carney also criticized the “opposite approach” of shrinking the size of government and reducing government spending. He called the approach of Conservative Leader Pierre Poilievre, which involves reducing government spending and cutting taxes, “misguided.”

“Remember that when he shouts ‘axe the tax,’ he’s really whispering ‘can the plan’ and leaving us with nothing,” Mr. Carney said of the Conservative Party’s proposal to get rid of the federal government’s carbon tax.

“Demolition is not a plan, and slogans, denials, and defeatism won’t make our businesses more competitive, and they won’t grow jobs at home.”

Mr. Carney suggested the best plan for Canada’s future would be a mix of the two approaches, which he defined as “mission-oriented capitalism, grounded in values combining resilience, purpose, and dynamism.”

“Prosperity is certainly not trickle down, but neither is it top down. Instead, strong, inclusive, and balanced growth is everything everywhere, all at once,” he said.