A more inclusive economic rebuild is possible
New social infrastructure, skills needed to ensure equitable recovery for all
Just as the 20th century was built on the backs of centralization, through office towers, shopping malls, colleges and universities, the 2020s is now looking like a new era of decentralization, built on the backs of digital platforms.
The COVID-19 crisis and our response to it has accelerated this transformation and, in turn, presented a new driver of growth for the Canadian economy.
For instance, since April, more than half of the persistent growth in e-commerce sales was led by brick and mortar retailers who successfully adapted to a virtual marketplace.
Yet smaller retailers struggled to make the leap. That helps explain why small businesses experienced double the rate of job losses as medium- and large-sized businesses this year.
Left unchecked, these kind of diverging paths could be a prevailing theme for the Canadian economy in the decade ahead. Those who are able to seize on the redistribution of economic activity will thrive.
In a new report from RBC, we highlight the need for new initiatives and investments to support a more inclusive economic recovery and rebuild.
The consequences extend beyond our national borders. Digital platforms are changing the way nations compete and generate wealth. Canada’s longterm prosperity depends on getting the transition right.
Consider the Canadian labour market since the COVID-19 re
cession took hold. Those at the bottom end of the wage scale, earning less than $800 a week, have absorbed sizable job cuts. Higher earners have seen their employment opportunities actually improve during the downturn.
Affected workers could use their time to improve upon their existing skill sets, or learn new ones, to keep pace with the workplace of tomorrow. But those most likely to benefit from this have historically been the least likely to do so.
While 65 per cent of those in high-skill jobs regularly pursue job-related training in Canada, the figure falls to just15 per cent for those with the lowest skill level. Without a strategy to get lower-wage workers back on the job, the uneven damage of the recession could turn into an uneven recovery.
Some sectors are also finding their legacy models holding them back. This includes large swaths of the service economy, which are dependent on in-person contact like accommoda
tion and food services and travel. These companies will need to adapt to a changed economic landscape while simultaneously returning to self-sufficiency. Maintaining government supports for them while they gradually loosen their grip on these lifelines will be essential.
Part of their evolution will require investing in sophisticated tools and technologies, such as artificial intelligence (AI). Like all businesses, the need to better understand how the decentralized economy is changing customer preferences and behaviours is vital.
Yet Canada already faces a short supply of data-savvy workers and the rising demand for them will likely exacerbate the gap between companies ready for the future and those who are ill-prepared.
Regional economies are headed down diverging paths as well. Provinces were already carrying debt-to-GDP ratios at levels not seen since the 1990s. The pandemic added ballooning health-care costs
to their burdens.
Indeed, this year will be a high-water mark in terms of deficits across provinces, and some of the increase in health expenditures will be temporary. Provinces in better financial shape will regain breathing room as the pandemic subsides. But those in the most precarious fiscal shape will face greater challenges. Expect calls for greater permanent fiscal transfers from the federal government.
Divergence will bring with it heightened pressures for redistribution. The burden will fall largely on fiscal policy with forward-looking spending and tax systems to support a post-pandemic economy.
Ottawa’s fall economic statement focused more on the immediate challenge of firms and households trying to manage the transition. As a recovery takes form, the government will likely shift its focus to more structural forms of stimulus, from economic infrastructure to a transformation of social supports, from child care to elder care.
Efforts to help small businesses thrive in a distributed, platform-based economy are also vital. The speed and design of this strategic stimulus will be critical to its impact on competitiveness, productivity and long-term growth.
Even when the recovery takes hold, challenges in the resetting the Canadian economy will persist.
In addition to those cited, the private and public sector must build the digital infrastructure and skills needed to thrive in a platform-based economy, reimagine education to develop the skills for a redistributed world and invest in the natural resources sectors, including energy, to develop new technologies for firms and regions to lead the transition to a net zero economy.
Much like a gale force storm, the COVID-19 crisis will eventually recede from our shorelines. But not before it leaves a lasting mark on society.
This includes the digitization and, in turn, decentralization of our economy, where advanced technologies play a more central role in our lives.
Finding ways to thrive in this post-COVID world will ensure Canada’s best days remain ahead of us. To this end, a new generation of skills, and a new kind of social infrastructure, is needed to ensure the benefits are available to every citizen.