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(CFP 100 YEAR VISION CANADA: 2017 ECONOMIC VISION SERIES)
Although Canada has enormous economic potential, in his Financial Post commentary, "Illusions of Growth" (September 19, 2017), Mr. Philip Cross addresses several macro-economic areas, where according to quantitative analyses of 2016 and 2017 GDP, the Canadian economy seems to be under performing . Also, he notes that the Bank of Canada is unable to provide any constructive or effective strategies for our “chronic slow growth” and economic stagnation. As an economist, it appears to me that we need to pull back from our quantitative quandaries and begin to seriously consider the qualitative structural forces that have dominated Canada’s economic performance throughout the past twenty years.
Business investment and exports of manufactured goods certainly need stimulation; however, our micro-economic infrastructure is presently impaired by excessive foreign control over the disposition of capital via oligopolistic elimination of free market activities. Foreign control over our industries means that Canada’s economic development is subjected to foreign corporate interests and their national loyalties. As relatively seamless global trade becomes the mantra of large capital investment conglomerates, we either allow increased dominance and exploitation, or survive with reduced capital inflows into our economy. This applies equally to our natural resource and manufacturing sectors. The only sector appearing to attract them is our intellectual service industries, where we will likely lose our present competitive advantages as Internet education spreads around the world.
Thus, Canada needs a broad range of qualitative strategies (New Enterprise Creation, De-Taxation, De-Regulation, De-Governing and De-Oligopolization). Our economic development will only occur under present conditions if we stimulate domestic middle class investment capital accumulation within the few remaining competitive sectors of our economy.
Exports of our natural resources at 25-30% discounts on the $USA, is certainly the easiest way to appeal to these foreign businesses and governments, especially in our non-renewables, but this is also a huge dis-service to all Canadians as it reduces our earnings and capital accumulation. This absurdly discounted value of our resources and human capital is a short-term financial economic palliative action, when we should be sourcing new markets around the world with stronger marketing programmes for both our natural resources and high quality manufactured goods. This requires initiatives by Canadian owned enterprises, not foreign Oligopolists. It also requires revisions to the industrial research tax breaks which have produced almost zero new technology and merely subsidize under-productive factories and reduced government tax revenues. Industrial research technologies could be a dynamic development catalyst for Canada, but we need to invest a significant portion of our GDP in promising niches of this sector.
Both domestic and foreign observers over-estimate Canada’s dependency on our oil industry. This is a global cartel industry, much like automobiles, and we have little say in its production and pricing games.
Our domestic needs should be paramount to our policies and strategies in these two industries. Especially in light of their role in other sectors of our economy. We have plentiful capacities and thus these industries should add to Canada’s comparative advantage throughout our other industries and household needs. They should not enrich others at the expense of domestic needs, as they have done for much too long. Channeling significant funds out of these industries into government coffers, instead of our household and business balance sheets, is economically foolish and unproductive in the minds of the majority of Canadians. The wealth produced by them needs to be more equitably distributed amongst Canadians.
Global monetary and banking authorities have made alarming pronouncements of a Canadian housing bubble as indicated by their simplistic rental rates vs. selling price ratios. What they miss is the structural qualitative changes occurring as our largest cities acquire major size and stature. Our clean, safe cities are very appealing to troubled nationals around the world.
Demand for our housing is on a long-term expansion trend driven by immigration, family formation and senior downsizing. Eventually, we will see the densification of our larger cities produce a much larger proportion of renters, similar to the global cities around the world. Canadian have been home-owners, not home renters. Thus our ratios are anomalous to the rest of the world, but they are not signs of a “bubble” that will burst.
In fact, the retiring baby boomers have already begun the exodus from the big cities in B.C. and Ontario. Prices in outlying semi-retirement accommodation communities are edging up until their housing supply mix catches up. The Bank of Canada is mistaken to take the ill-informed advice of the global monetarists to increase mortgage rates via increasing the bank rate. After two increases, they should see that their increases have only enabled an attack on homeowner’s equity and destroyed whatever new investment projects our entrepreneurs may have been contemplating. Canada's Banking and Corporate Conglomerate Institution clearly needs a more paternalistic strategic overhaul of their monetary strategies.
Missing from the Financial Post’s Illusions of Growth story is the major impact of price inflation on homeowners and our manufacturing sectors. Fuel and energy prices, manipulated daily, plus food and other essential services (insurance, credit, retail, clothing, communications, commuting/ travel, elderly medical devices, etc. etc.) have incurred extra-ordinary inflation since the 2008 banking collapse. Wages have been held at artificially low “OFFICIAL” inflation rates by the foreign dominated employers across Canada. Domestic firms and government employers have followed their examples. Real household costs inflation rates produced the reality that discretionary income has been wiped out for a significant majority of Canadian home owners. Similarly, capital accumulation (Savings), has been impossible, as most of our home equity goes towards the high demand, high price, and smaller homes during this major “downsizing” epoch for the boomers. It also has forced young adults to forego home ownership as a reliable source of lifetime capital accumulation.
Quantitatively, the debt levels of Canadians has surged along with the real price/ value growth in our homes, but the Canadian Total Debt Service Ratios (TDSR) remain solid. Canadians aren’t allowed to be excessively over-extended as the unscrupulous lenders enable in the USA. Canadians still owe our mortgage debt defaults, whilst Americans can walk away from them. Thus, the Canadian banks can’t lose nearly as much as American banks. Our default levels are nominal. Also, our well built homes retain their values as you can’t live in a car through our winters. Canadian real estate and land values have risen due to increasing demand for our “best in the world” lifestyles. We are a prudent and reliable people. No one need worry about our borrowing.
It is high time Canada’s monetarists, economists, governments, politicians and bankers begin to think out-of-the-box of quantitative economics. They are well advised to envision new strategies for developing our independent economic growth. We were never slaves, and we should no longer allow ourselves to be economically enslaved by trading partners, international bankers, foreign sovereign wealth funds or global monopolists, cartels and oligopolies. Canadians have all the human, physical, informational, technological and financial resources we need to create a solid and dynamic new economy.
Canadians can be world champions in more than hockey. Moderate economic nationalism could be our Phoenix!
God Bless Canada.
Jim
Jim Reid Founder: CFP- Canadian Federalist Party (Virtual)- (Sept. 2017)