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Canada's Structural Economic Reform - How to avoid secular economic stagnation


Canada, like many OECD countries, has shot its bolt on monetary policy (interest rates close to zero). As the Bank of Canada admits, it has come to the end of the line in its usefulness as a stimulative policy instrument.

Canada is embarking on a policy of fiscal stimulus with infrastructure as its focus (tried in Japan but with a threatening legacy of debt and little to show for it). This policy may be of limited use in Canada if it is not targeted at productivity improvements.

This leaves only "Structural Economic Reform" as a realistic path to avoiding secular economic stagnation - slowing or negative growth. Structural economic reform is a term used by economists for removal of governance obstacles to improving economic efficiency and therefore the growth in productivity necessary to raise living standards. It is the opposite of "ossification" which can mean the stagnation of political institutions and the buildup of rules over time that choke economic adjustment, efficiency and productivity growth.

Canada's third option is politically challenging for it means taking on the status quo political and economic interests and old mindsets.

An important caveat: Canada's principal economic partners and allies are similarly suffering from hidebound, ossified systems and are in need of structural reforms. If the OECD, as a whole then, does not collectively address the problem of "ossification" and the accretion of barriers to productivity improvement, then Canada's economic future will be reduced for Canada has one of the world's most trade dependent and open economies in the world.

Structural economic reforms can be introduced by international governing bodies, the federal government, provincial governments, and local governments.

Productivity improvement is critical to Canada's future success. Structural reform is our greatest and perhaps only opportunity to achieve that overall improvement in our rate of productivity growth and hence standard of living.

Given the profound nature of the looming global economic crisis, structural economic reform must be front and center on the political agenda and all political participants in Canada must be prepared to invest political capital in our structural economic reform. The economic collapse in the Soviet Union was driven by a failure to introduce structural reforms and its current stagnation is similarly the result of its failure to reform. No economic or political system is immune from the need for regular reform - including our own.

Nouriel Roubini has summed up the problem: which is global.

"Finally, with so many factors dragging down potential growth, structural reforms are needed to boost potential growth. But such reforms are occurring at suboptimal rates in both advanced and emerging economies, because all of the costs and dislocations are frontloaded, while the benefits occur over the medium and long term. This gives opponents of reform a political advantage."

We have a great opportunity if we but pay attention to the mechanisms by which persistent growth, even accelerating growth is possible We must put an end to the "rent seeking" that is found across the country which is often aided and abetted by all political parties and at local, provincial and the federal levels of government.

Doubt that productivity is key to western democracy? Start with this speech by Andrew Haldane of the Bank of England

Canadian Federal Government Advisory Council on Economic Growth

  Canada's Advisory Council on Economic Growth - News & Developments
  

Peterson Institute - The Global Conundrum - Strengthening Economic Policy Prescriptions

  Policy Implications of Sustained Low Productivity Growth: Panel 1 (November 2017)
  
  Policy Implications of Sustained Low Productivity Growth: Panel 2 (November 2017)
  
  Policy Implications of Sustained Low Productivity Growth: Panel 3 (November 2017)
  
  Policy Implications of Sustained Low Productivity Growth: Panel 4 (November 2017)
  
  Policy Implications of Sustained Low Productivity Growth: Panel 5 (November 2017)
  

Organization for Economic Cooperation and Development (OECD) - Recommendations for Structural Economic Reform

  OECD paper:The Next Production Revolution Implications for Governments and Business
  
  OECD paper: Structural reform priorities for the G-20
  
  G7 commits to advancing structural reforms to boost growth, productivity and potential output and to leading by example in addressing structural challenges (May 26 - 27, 2016)
  
  OECD: The Pace of Reform must accelerate
  
  OECD: Economic Policy Reforms: Going for Growth
  
  Structural Problems by Country by Sector
  

International Monetary Fund (IMF) - Recommendations for Structural Economic Reform

  IMF: Robots, Growth, and Inequality (September 2016)
  
  International Monetary Fund: Canada: Staff Concluding Statement of the 2016 Article IV Mission: (May 9, 2016)
  
  Structural Reforms in Advanced Economies: Pressing Ahead and Doing them Right (April 6, 2015)
  
  IMF: Fiscal Policies to Spur Innovation and Growth
  

Canada's Interprovincial and International barriers to trade limit productivity growth

  CBC: 5 things to watch in today's interprovincial trade deal (April 7, 2017)
  
  G&M: New interprovincial trade deal expected to add billions to economy (April 7, 2017)
  
  Canadian Free Trade Agreement - Consolidated Version (April 7, 2017)
  
  CFIB: A new vision for interprovincial trade in Canada A business agenda for strengthening Canada’s economic union
  
  Government must tear down the walls created by internal trade barriers to free Canada’s economy, senators say (June 14, 2016)
  
  Financial Post: Trevor Tombe: A stunning $7,500 per household is the annual cost of unfree provincial trade (March 28, 2016)
  
  CDN Foreign Direct Investment performance is questionable. Barrriers to trade = barriers to scale & clusters
  

Canada - Interprovincial Trade

  Maclean's: The good—and the bad—in Canada’s provincial trade deal (April 08, 2017)
  
  Andrew Coyne: No evidence that ‘Canada works’ in new internal free trade deal (April 07, 2017)
  
  Provinces poised to sign historic Canadian Free Trade Agreement in April (March 30, 2017)
  
  Incrementalism packaged as bold victory (July 22, 2016)
  
  B.C., Ontario and Quebec strike deal making it easier to buy their wines (July 22, 2016)
  
  Report of the Senate Standing Committee on Banking, Trade and Commerce: Tear down these walls: Dismantling Canada's Internal Trade Barriers (June, 2016)
  
  Courts "decision a “critical” move toward the end of inter-provincial trade barriers" (May 2, 2016)
  
  Federal government backs move to liberalize flow of alcohol between provinces (April 30, 2016)
  
  G&M: Interprovincial beer ban violates Constitution, N.B. judge rules (April 30, 2016)
  
  New Brunswick Court Liquor Ruling & trade barriers between provinces (April 29, 2016)
  
  Hon. Navdeep Bains, Minister responsible for Canada's Agreement on Internal Trade @MinisterISED
  
  iPolitics: Inter-provincial trade talks down to ‘short strokes’: Duguid (March 2, 2016)
  
  The federal government needs to devote just as much time negotiating an interprovincial agreement as it does any international trade deal (January 15, 2016)
  
  G&M: Canada’s internal trade barriers must fall (June 14, 2015)
  
  The Trade, Investment and Labour Mobility Agreement (TILMA) is a ground-breaking accord between the Governments of Alberta and British Columbia that creates Canada's second largest economy.
  
  C.D. Howe Institute: A New Prescription: Can the BC-Alberta TILMA Resuscitate Internal Trade in Canada? (October 2007)
  
  Exploring the economic impact of the Agreement on Internal Trade (AIT) chapters - Eugene Beaulieu (May 2013 )
  
  The Agreement on Internal Trade (AIT) is an intergovernmental trade agreement signed by Canadian First Ministers that came into force in 1995
  
  Twitter - Interprovincial Trade News
  

Canada - International Trade

  OpenCanada.Org: Faced with Trump’s threats to cancel the TPP, how should China’s neighbours react? ( if the agreement fails, how can Canada help?) (November 23, 2016)
  
  Trans-Pacific Partnership (TPP)
  
  Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union
  
  New International Evidence on Canada’s Participation in Global Value Chains
  
  C.D. Howe Institute: Better in than Out? Canada and the Trans-Pacific Partnership (April 21, 2016)
  
  CSIS: On the security implications of the TPP
  
  Google Search - TPP News
  
  Google Search - CETA News
  
  Twitter - TPP News
  
  Twitter - CETA News
  

Transportation Sector

  Canada Transportation Act Review Report (February 25, 2016)
  
  Conference Board: The Productivity Performance of Canada’s Transportation Sector Market Forces and Governance Matter (2009)
  
  Maclean's: Editorial: Simple fixes to a broken transportation system
  
Airlines and Airports

  CGCC Position Paper: INCREASING GLOBAL CONNECTIVITY & ECONOMIC VALUE THROUGH CANADA’S INTERNATIONAL AIRPORTS (December 2016)
  
  Why Canada is the only major market in the world without a super-cheap airline (July 15 2016)
  
  Canadian Transportation Act Review (February 25 2016)
  
  Ottawa to ease competition rules for Air Canada after CSeries purchase (February 17 2016)
  
  CAC CTA Review Submission (February 17 2016)
  
  Full Throttle: Reforming Canada’s Aviation Policy (January 2014)
  

Rail

  Statistics Canada: Rail Transportation in 2015
  

Shipping & Harbours

  Transport Canada
  
  World Bank Logistics Performance Index - Canada is behind China and way behind Germany
  
  Port of Vancouver boss to Ottawa: Don't privatize Canada's biggest port (December 10, 20015)
  
  Union upset with new trucking commissioner choice at B.C. port (February 4, 20015)
  
  BC Maritime Employers Association aka the management of featherbedding
  

Public Transit

  
  

Ride Sharing

  New Uber campaign @Uber
  
  Uber Increases Productivity @Uber
  

Driverless Trucks & Cars

  The driverless truck is coming, and it’s going to automate millions of jobs (April 25, 2016)
  

Highways

  G&M: A 7,000-kilometre northern corridor in search of shared vision (May 26, 2016)
  

Energy Sector

Gas

  CWF: State of the West: Energy (Part 2) – Trade and Disposition (April 24, 2012)
  
Electricity
  Canadian Electricity Association @CDNelectricity
  

Telecommunications, the Digital Sector and Artificial Intelligence

  The State of Competition in Canada’s Telecommunications Industry – 2014 - Montreal Economic Institute
  
  World Development Report: Digital Dividends (2016)
  
  Modern Monopolies: What It Takes to Dominate the 21st Century Economy
  
  Jason Furman, Chairman, Council of Economic Advisers: Is This Time Different? The Opportunities and Challenges of Artificial Intelligence (July 7, 2016)
  

Postal System

  Canada Post Financial Reports
  
  Can Canada Post survive the digital era? March 2013 Maclean's
  
  Why Canada Post is Due for Reform (2007) - C.D. Howe Institute
  
   Minister of Public Services and Procurement Mandate letter - No appetite for reform
  
  Among OECD 2010 Recommendations - Liberalise postal services by eliminating legislated monopoly protections and privatising Canada Post
  
Broadcasting

  Steve Globerman: Technological Change and Its Implications for Regulating Canada's Television Broadcasting Sector (May 25, 2016)
  
Banking and Finance

  Competition Bureau launches FinTech market study - Study will examine innovation in the Canadian financial services sector
  
  WSJ: PayPal wants to become the biggest innovator in banking (but without becoming a bank)
  

Professional Services Sector

  
  

Agriculture Sector (aka food for the poor taxes)

  NP: Supply management: it’s adding $300 per year to the average Canadian grocery bill (November 28, 2016)
  
  Maxime Bernier: I’m coming out against supply management — and I want all Conservatives to join me (May 31, 2016)
  
  G&M: Here’s Canada’s way forward on supply management (June 24, 2015)
  
  Conference Board: Why Does Milk Cost So Much? It’s Complicated - (October 2012)
  
  The $25,000 Cow - Andrew Coyne (2011)
  

Local Government Reform - the Affordability Crisis and its broader social implications - the need for action

The key problem is not the influx of foreigners but the "supply of housing" bottleneck created by local governments failure to rezone land on transit routes in adequate quantity to deal with demand.

The housing prices explosions in Greater Vancouver and Toronto are a simple problem of supply and demand.

By restricting rezoning we encourage speculation which further drives up prices.

This is a global problem as local governments drag their feet on rezoning - height restrictions being one of the most salient problems.

Rezoning should be regulated (just as the money supply is) by senior governments to ensure inflation targets are met. Prices would be regulated by the supply of rezoned land. If housing prices start to go up greater than two percent a year or down by two percent then the stock of rezoned land should be either increased or decreased.

Local government would designate (in advance of price changes) which zoning would change should the prices go up or down. The "central bank" would trigger the increase or decrease in the growth of housing land supply.

Failure of local governments to rezone adequately would result in an independent authority designating areas for rezoning - just as we reallocate electoral seats and take local school boards to task for failing to manage costs.

We build housing bubbles by a failure to socially innovate. More critically we are denying a generation home ownership and restricting productivity improvements on which our overall standard of living is based in all regions of the country.

The problems of real estate booms and busts will not be solved until "central banks" oversee targets for this central aspect of the economy. Housing booms and busts represent a threat to global financial stability and social stability as the Great Recession of 2008 demonstrated.

“The big picture here is that from about 1870 through to about 1950 or 1960, banks lent about a third of their money against real estate and the rest to non-real estate finance. But after about 1950, that relentlessly grew to reach 60% by 2007, and this actually understates the case because this is primarily residential real estate. There’s quite a lot of commercial real estate on top.” Source

As the rate of technological and economic change accelerates government must adapt or face systemic failure and social upheaval. The rules of evolution apply every bit as much to governance as they do to natural systems. Failure to adapt is an evolutionary dead end.

Urban centers are the largest accelerant or brake on productivity growth. The key concept here is agglomeration that needs to be considered in advancing the economic and social benefits of modernization. We have a society chock-full of restraints on trade – this is but one of many.

  Vancouver Board of Trade: UNLOCKING SUPPLY: HOUSING AFFORDABILITY AND THE MISSING MIDDLE (April 18, 2017)
  
  Canada’s housing bubble looks a lot like the U.S. around 2007 (April 7, 2017)
  
  WSJ:Policy Makers Work to Prevent Housing Bubble in Canada’s Biggest Cities (April 6, 2017)
  

Canadian Budgets

  Canada's Federal Budget (March 22, 2016) - a transitional budget that does little in the way of structural reform
  
  Canada's Federal Budget (April 21, 2015)
  
  Canada's Federal Budget (February 11, 2014)
  
  Canada's Federal Budget (March 21, 2013)
  

Canadian Tax Policy

  CD Howe Report: Modernizing Business Taxation - removing distortions that exist in the current tax system (June 2016)
  

Canadian Innovation Policy

  IRPP: Canada’s Innovation Conundrum: Five Years After the Jenkins Report (June 9, 2016)
  
  IRRP Report: Making Better use of Science & Technology in Policy Making (March 2016)
  

Canadian Competition Policy

  Canada Competition Act
  
  North American antitrust authorities continue collaboration (May 20, 2016)
  
  Federal Competition Bureau
  
  CBC ANALYSIS: From banks to Uber: No competition please, we're Canadian (May 20, 2016)
  

Canada's GDP by Sector

  Canada GDP by Sector - Services 72%, Manufacturing 13%, Natural Resources 7%, Other 8%
  

Canada's Economic Complexity

  Canada's Economic Complexity - 33RD OF 186 (lower than Mexico)
  
  Why do the provinces lag on ICT investment? (September 2015)
  

Canada's Digital Barriers - e-friction index and legacy system blockages

  Wikipedia: Technical Debt - legacy system accumulation
  
  Government IT projects flashing red: Email, Phoenix Pay and data centres just the tip of the iceberg (November 28, 2016)
  
  Building Canada’s Digital Identity Future (May 2015)
  
  Digitalization of Seaport Supply Chains Now a Reality (November 22, 2016)
  
  The Economist: Digital trade: The internet's rub - e-friction index (January 20, 2014)
  
  World Bank Report: Digital Dividends (2016)
  

Economic Institutes and Public Policy Groups

  C.D.Howe Institute @CDHoweInstitute
  
  Canada West Foundation @CanadaWestFdn
  
  Canada's Public Policy Forum @ppforumca
  
  Institute for Research on Public Policy @ppforumca
  
  Conference Board of Canada
  
  Fraser Institute @FraserInstitute
  
  Macdonald-Laurier Institute @MLInstitute
  
  Centre for the Study of Living Standards
  

North America Restructuring

  NYT: A New Map for America (April 2016)
  

Economists of Note

  Paul Romer - Chief Economist of the World Bank
  

AIification and the geographic distribution of productivity gains

  Google - The Geographic Distribution of Productivity Gains
  

Statistics Canada Reports


  
  The Industry Origins of Canada’s Weaker Labour Productivity Performance and the Role of Structural Adjustment in the 1990s and the 2000s (June 13, 2016)
  

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