Philip Cross: We revived a moribund economy before. We can do it again

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We can do it againThe good news is that slow growth is because of bad policies that can be reversed. The policy mix of the early 1990s would be a good start.Dock workers load and unload shipping containers in the Port of Montreal on August 1, 2025.After more than a decade of dismal GDP and productivity growth it’s easy to despair about Canada’s capacity to revive its economy. The good news is that our 10-year slump is largely due to policy, and policy can be reversed. We can stop emphasizing redistribution over income growth, consumption over investment, labour over capital, and regulation over market forces.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountCanada was in a similar situation of chronic slow growth between 1981 and 1992 but snapped out of it by adopting well-designed policies, based on time-tested economic principles, that strengthened business investment and productivity.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againBetween 1992 and 2007, Canada substantially boosted GDP and labour productivity. Real GDP per capita accelerated from annual average growth of 0.9 per cent from 1981-92 to 2.6 per cent from 1992-2007 — before slumping again to just 0.3 per cent after 2007. This period of faster growth is reflected in the camel’s hump in the middle of the nearby graph of per capita GDP growth.As for the growth of labour productivity, it averaged 2.0 per cent a year from 1992-2007, materially better than both its 1.2-per cent average from 1981-1992 and its 0.7-per cent average after 2007. Much of the improvement in productivity between 1992 and 2007 was driven by a boom in investment spendingThe turnaround in Canada’s economic performance after 1992 was built on several policy initiatives explicitly designed to improve productivity. Most obvious was the free trade agreement with the U.S., which improved the fortunes of both our manufacturing industries in central Canada and the oil and gas sector in western Canada.There was also an overhaul of the federal tax system, with personal and business tax reforms toward the end of the 1980s. Much as Canadians hate it, adoption of the GST to replace the old manufacturers’ sales tax substantially reduced taxes on investment products and exports, which helped fuel growth.After 1993, federal and provincial governments alike reduced what had become unsustainable debt levels. And the Bank of Canada formally adopted an inflation target of two per cent, promising that low inflation would be sustained indefinitely. Other policies included privatization of several Crown corporations, including Air Canada, Petro-Canada and Canadian National Railway, dismantling the National Energy Program and deregulating foreign investment.This fundamental overhaul of Canada’s trade, fiscal, regulatory, and monetary policies —which closely followed what economists called the Washington Consensus — laid the groundwork for a resurgence of income growth. Real per capita GDP recovered to an annual average growth rate of 1.9 per cent in the decade ending in 2000, rising further to between 2.2 per cent and 2.5 per cent for every 10-year period until the global financial crisis in 2008.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Repeating the policy successes of the 1990s and returning to sustained productivity growth won’t be easy. A free trade deal with the U.S. is unlikely to be repeated, so structural changes to boost investment and productivity will have to come from other sources.Economists have long identified freer trade among the provinces as low-hanging productivity fruit. The Major Projects Office initiative correctly targets better regulation to boost business investment. Removing regulatory and political obstacles to the development of our natural resources reinforces momentum that has been building for years in our mining sector. The Bank of Canada could reaffirm its currently questionable commitment to two per cent inflation.Other potential areas ripe for better policy include dismantling our archaic system of supply management, comprehensive tax reform and downsizing governments after years of excessive growth. Implementing a range of growth initiatives in a short period, as Canada’s governments did in the early 1990s, could quickly propel our economy to new heights.Philip Cross is a senior fellow at the Macdonald-Laurier Institute.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.