Five Economic Tests for Harper’s Majority Government

This article was first published at the Globe and Mail’s Economy Lab.

As Parliament resumes after Canada’s historic 41st election, all eyes are on Prime Minister Stephen Harper and how he delivers on his campaign promises of growth and stability.

With no encumbrances to its decision-making powers, the Harper majority government will be responsible — and will be seen as responsible — for Canada’s economic fortunes in the months and years to come.

How to measure success or failure? There are five aspects of economic growth that will affect the day-to-day lives of Canadians in every one of the 308 ridings represented by Parliamentarians. Each aspect of growth is shaped by a short-term public policy approach that could enhance or disrupt long-term outcomes.

The Path of Economic Growth

The emphasis on trade and the expanding global supply chain puts Canada’s economy on a track towards greater reliance on resource extraction.

This is an easy short-term solution for balancing books and proclaiming good governance. It is not a great long-term plan for maintaining a competitive edge in technology or innovation. Without these, our standard of living will decline. What public policy will the government shift to maintain and diversify sources of value-added production?

The Distribution of Economic Growth

In the decade before the crisis hit, the richest 1 per cent of Canadians took almost a third of all income gains from growth, reaching shares of total income last seen in the 1920s.

Median after-tax household income was $46,000 (in constant dollars) in the late 1970s and stayed at that level or below until 2007. We don’t know yet know the data beyond 2008, but do know that middle-income jobs are under enormous pressure, as private and public sector employers attempt to contain costs of wages, benefits and pensions.

In the wake of the recession corporate profits and executive incomes have bounced back, in many cases exceeding the pre-crisis records. If past recessions are any guide, the number of poor is also on the rise.

The promise of prosperity is that economic growth results in broad-based, meaningful growth in incomes and enhancements to community services and life. That did not happen in the decade of robust growth that preceded the economic crisis. Getting the economy “back on track” is not enough. What will the government do to maintain and grow the middle class for the next generation?

Today’s economic strengths may not translate into tomorrow’s economic growth without a plan to address crumbling infrastructure, growing corporate consolidation, and the need for more energy-efficient utilization of resources.

The Foundation of Economic Growth

Canadian communities are saddled with a massive $123-billion infrastructure deficit for maintenance and repairs our governments keep putting off, and a further $115-billion in unmet expansion needs. That’s just physical infrastructure.

Without well-functioning foundational supports for Canada’s businesses and households, investors will be less interested in coming to Canada or staying here. What will the government’s answer be to this dilemma?

The Rules of Economic Growth

Foreign ownership rules are poised to be loosened. That permits rising market shares of a handful of producers on the global stage, as the big fish eat the little fish. Without tighter rules, Canada may see more foreign investment, but less value-added production and fewer jobs.

If higher rents/taxes are not applied to the extraction of resources, it is hard to see what will be the benefits of these trends for the average person.

Free-trade deals are also leading to extensions of intellectual property rights (like copyright and patent laws). This accelerates corporate influence and higher consumer costs. What checks and balances will the government introduce to limit the growing power imbalance between large corporations and the rest of us in Canada?

The Sustainability of Economic Growth

Canada is an energy superpower, but the benefits accrue mostly to exporters, not the majority of Canadians. The challenge to producers and consumers in the coming years is to advance energy efficiency and reduce waste and pollution in households, communities and businesses.

What kinds of strategies will the government facilitate to make Canada a world leader in energy- and resource-efficient solutions?

These are the real economic tests for the government and, indeed, this generation of decision-makers at home and abroad.

How the public and private sectors step up to the plate over the next four years will shape Canada’s future for decades to come. The role the government chooses to play may be the most decisive factor for us all.