Despite having the fastest-growing population in the developed world, thanks to a massive acceleration of immigration, Canada is facing a forecasted economic growth of only one per cent in 2023 (according to the OECD).
This is surprising given the rise in demand for things we are very good at producing, such as food, forestry, energy, and minerals. The global demand for these goods is at record highs, and so are their prices.
Yet, despite rapid population growth, huge reserves, and potential increases in production, Canada is facing a future of tepid economic growth.
A simple economic theory developed in China, called the Cake Theory, helps explains this situation. Traditional communists believe the focus should first be on determining how the cake should be divided before it is made. Free market reformers in China believe that the goal should be to bake the largest cake possible and then determine how to divide it. Both groups believe in having clear policies on how to divide up economic growth, but only the reformers want to pursue economic growth first before the wealth is divided.
Generally, in the west, we believe that a rising tide lifts all ships and that, despite the inherent inequality that growth brings, it is better to focus on baking a larger cake first rather than on dividing the cake before it is baked.
In reality, things are more complicated, with market forces, union contracts, labour shortages, and labour laws establishing minimum income participation by workers. But the general idea is important: Do you focus on growth first or focus on equality first?
Our current federal government, headed by Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland, advocates dividing the cake up before it is made. Their view is that our natural advantages in primary industries are large enough, and the focus should be on a redistribution of wealth rather than growing the economy.
As we all know, Trudeau has praised the Chinese Communist Party in the past, and it comes as no surprise that he favours their approach when it comes to economic development.
Freeland is also dedicated to this approach, as clearly articulated in her book, . She recognizes that while free markets and capitalism bring far more significant growth than communism and increase wealth for everyone, it does not do so with enough equality.
She refers to the halcyon days after the Second World War when the U.S. had a marginal income tax rate of 77 per cent and income inequality shrank while, due to a number of factors including a baby boom and the end of the war, the U.S. economy grew at about 3.5 per cent per year.
Trudeau and Freeland needed to undertake two actions to advance their policies: increase taxes and government spending. The two believe that by making “strategic investments” (a process that is difficult to measure with any certainty) and by raising taxes, Canada can achieve the miracle of increased economic growth while, at the same time, reducing income and wealth disparity.
In their mind, the fact that their policies are also designed to limit and restrict primary resource development is seen as a bonus. They firmly believe that, rather than try to help Europe with natural gas sales, it is better to develop a new industry based on solar power to make hydrogen and sell that fuel to Europe. They also firmly believe that new green jobs to replace primary industry jobs will emerge and that these new jobs will be well-paid and sustainable.
There are three years left in this government’s mandate, which means three more years of a government devoted to sharing the cake before it is baked – three more years of slow growth, increasing government spending, increased government regulations, and higher taxes.
With each new session of parliament, more legislation is enacted to limit the growth of our natural resource advantages and to even scale them back. There are ever more restrictions and cancellations of pipelines, increased environmental regulations, and increasing First Nations consultations.
Regardless of what you think about these policies, the results will be reduced economic growth for the country, the provinces and territories, and individual Canadians.
Randy Boldt is a senior fellow at the Frontier Centre for Public Policy.
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