Economic recovery has to focus on long-term well-being, not just GDP

Given what the pandemic has revealed about our country’s capacity to respond to external shocks, concern for Canadians’ long-term well-being should be on everyone’s mind these days. (File photo: Martin Adams/Unsplash)

Canadians must not miss the opportunity to use the pandemic recovery to redefine what we think of as national progress. Rather than continuing to rely on gross domestic product (GDP) growth as the central measure of success, Canada should make sure its COVID-19 recovery plan gives equal – if not more – weight to enhancing the country’s comprehensive wealth portfolio. This means investing in the social, human, natural, produced and financial assets that underpin well-being in the long term while avoiding the reflex to boost growth by stimulating short-term consumer spending.

Given what the pandemic has revealed about our country’s capacity to respond to external shocks, concern for Canadians’ long-term well-being should be on everyone’s mind these days. We can’t be certain what the next shock will be, but we know it is just a matter of time before one arrives. Canada badly needs to increase its resilience so our governments are not again forced to shutter businesses and print money to see us through.

A blinkered focus on kick-starting GDP growth would be far from adequate for the recovery, even if getting people back to work and regular paycheques is an obvious imperative. GDP-centric thinking has dominated the minds of governments for far too long. Policies aimed at boosting economic growth in the short-term have left the economy more fragile to external shocks than many imagined. To name one, the low-interest rate policies adopted following the dot.com bust left too many households buried in debt they could barely manage before the pandemic. Many families now face the real threat of bankruptcy. Public debt has also ballooned to dangerously high levels due to the government’s efforts to keep consumer spending alive during the pandemic. Though some argue concern about this massive new debt load should be rejected, there’s no avoiding the fact that the bill will eventually have to be paid.

Whether a concern or not, it seems clear that Canada’s recovery plan will lead to more public spending and even higher levels of debt (assuming there is no fall election and potential change in government). The question is what this money should be spent on. Spending only to boost short-term GDP growth would exacerbate Canada’s economic, social and environmental fragility rather than building the resilience we need. Spending to invest in Canada’s social, human, natural, produced and financial assets, on the other hand, would help create the basis for sustainable well-being. A recovery plan focused on investments in Canada’s comprehensive wealth portfolio would do just this.

A plan focused on boosting comprehensive wealth would, as the name implies, lead to a comprehensive assessment of policies. Since all assets play key roles in well-being, none can be ignored. This would be a great advantage over a GDP focus, where growing market income is all that matters, even if it comes at the expense of environmental or social well-being.

A focus on comprehensive wealth would also lead naturally to a concern for the future, since assets are by their nature long-lived. We don’t invest in assets only because they benefit us in the here and now. We invest in them because we know they will be around for a long time, well beyond our lifetimes in many cases. This leads naturally to discussions about future needs – even distant ones – and how best to meet them. Again, the contrast with GDP – where what happens in the next quarter or two is the focus of decision makers’ attention – is striking.

There are, of course, many policies the government might pursue in the interest of expanding Canada’s comprehensive wealth.

Investing heavily in human capital – the skills and knowledge of the workforce and the largest component of comprehensive wealth in all industrialized countries – during the recovery is the quintessential “no-brainer.” Hiring new teachers, building new educational facilities and upgrading old ones, and experimenting with new forms of teaching are all highly desirable from a comprehensive wealth perspective.

Also desirable would be a significant expansion of immigration to double or even triple Canada’s population in the coming years. Former prime minister Brian Mulroney, among others, has recently advocated for just this. There is no faster way to increase human capital than a well-executed immigration policy attracting the “best and brightest.” A corollary to this is reform or elimination of barriers (racial, gender and administrative) that prevent too many Canadian workers from contributing to their fullest potential. Relaxing the rules around recognition of foreign academic credentials would be a good place to start.

From a comprehensive wealth perspective, urgent action to protect Canada’s natural capital would also be a clear priority. The need to limit the greenhouse gas emissions that drive climate change would simply not be a matter for debate. A stable and predictable climate is critical to well-being, and the world has badly depleted this asset. Investing massively in renewable energy (not just solar and wind, but also geothermal and hydro) makes great sense: not only would it address the urgent need to reduce emissions, but it could also quickly boost employment.

A comprehensive wealth perspective would also call for a rethink of the way we manage the revenues from natural resource extraction, with far more of them going into the kind of wealth fund former Alberta premier Peter Lougheed imagined for his province in the 1970s, but that never came close to matching his vision.

A comprehensive wealth perspective would support diversification of Canada’s produced capital portfolio, such as buildings and machinery. Far too much of our produced assets are tied up in just two sectors: oil and gas extraction and housing. Investment in other areas has lagged. To correct this, many are calling for major investments in clean technology – such as electric vehicles and improved electricity grids – as a focus for the recovery. The pandemic has shown the danger inherent in relying on global supply chains when international shocks hit. This has led to calls for to policies to repatriate manufacturing capacity, which would rebuild produced capital stocks.

Finally, there is the question of how to invest in social capital – the value of our civic engagement and community trust. The question is difficult because social capital itself is tricky to define and study. Good progress is being made in direction, however – not least by prominent Canadian researchers such as John Helliwell at the University of British Columbia and Christopher Barrington-Leigh at McGill.

Certainly, we cannot simply ignore social capital since it is the “glue” that binds society together through trust, cooperativeness, and willingness to engage. Without strong social capital we will not only make much poorer use of the remainder of our comprehensive wealth portfolio, we will see a breakdown in our society when the next shock hits.

Building trust, particularly in institutions, is one area where efforts would be welcome. Among others, policies to increase the transparency of government decision-making are essential to building trust. So, too, are policies to combat the spread of false information through social media and other online platforms.

All of the above policies would be uncontroversial from a comprehensive wealth perspective, but they would not necessarily be so from the perspective of maximizing short-term GDP growth. Hiring more teachers is simply a cost – rather than an investment – from a GDP perspective. Further damaging the climate is fine for GDP if it means more people are buying new gasoline-powered cars and trucks. Building more oil and gas pipelines certainly boosts short-term GDP even if it decreases the diversity of our produced capital portfolio. Low interest rates encouraging households to spend are a boon to economic growth today, but they do little to increase families’ resilience against hard times if they lead to mountains of private debt.

Canada cannot afford to consider its recovery plan with GDP as its primary lens. To do so would condemn our country to more short-termism when building long-term resilience is what we need. Our recovery plan must consider the investments needed to shore up the country’s comprehensive wealth portfolio. It is time to stop sacrificing our collective future on the altar of short-term growth.

This article first appeared on Policy Options and is republished here under a Creative Commons license.