Con­fi­dence key in tough times for econ­omy

We lis­ten to pes­simists over op­ti­mists at our own peril, Kevin Carmichael writes.

Vancouver Sun - - FRONT PAGE -

Leona Alleslev, the Toronto-area mem­ber of Par­lia­ment who left Justin Trudeau’s govern­ment for An­drew Scheer’s op­po­si­tion in Septem­ber, said the des­per­ate state of the coun­try jus­ti­fied her treachery.

“For the first time in many years, Cana­di­ans don’t be­lieve that to­mor­row will be bet­ter than to­day,” she said in the writ­ten state­ment that ac­com­pa­nied her walk across the floor of the House of Com­mons. “This is not a strong econ­omy.”

Dave McKay, the chief ex­ec­u­tive of Royal Bank of Canada, sees things dif­fer­ently.

“We’re build­ing the fu­ture, but we’re not re­ally tear­ing down the past,” McKay told re­porters in Mon­treal on Tues­day, at the of­fi­cial open­ing of an RBC-spon­sored ar­ti­fi­cial in­tel­li­gence lab.

“You’ve seen enor­mous job creation, with­out the threat of real job de­struc­tion, yet,” he con­tin­ued.

“We’re cre­at­ing a lot of jobs and a lot of re­search jobs. We’re in this ex­cit­ing world of trans­for­ma­tion prob­a­bly for at least a decade or two be­fore we see a threat to tra­di­tional jobs in the econ­omy.”

I know what some are think­ing: Easy for the plu­to­crat to say! McKay’s salary was $12.4 mil­lion in 2017, a nearly eight per cent in­crease from the pre­vi­ous year at a time when the av­er­age pay gain of us mor­tals barely kept up with in­fla­tion. What could some­one like McKay know about what’s go­ing on in the real econ­omy?

And I know what some oth­ers are think­ing: Who cares what that turn­coat Alleslev has to say about any­thing! She ran down Stephen Harper’s econ­omy when she was a Lib­eral, and now she’s only talk­ing the book of her new boss, Scheer.

What could some­one like that know about what’s go­ing on the real econ­omy?

Let’s try to do bet­ter than this. McKay’s salary is tied to the for­tunes of his bank, which means he has a strong in­cen­tive to un­der­stand what’s go­ing on in the econ­omy. And while it’s true that Scheer and most of his front bench pre­fer the shal­low end of the rhetor­i­cal pool, Alleslev pre­sum­ably formed her opin­ion of the econ­omy while still un­der the in­flu­ence of the prime min­is­ter. Both views de­serve to to be taken se­ri­ously.

So who’s right? That’s a big­ger ques­tion than you might think.

When the Great Re­ces­sion was fin­ished, it left us to con­front a text­book case of cre­ative de­struc­tion.

Dig­i­tal­iza­tion is re­shap­ing the global econ­omy and al­most ev­ery­thing is go­ing to change. McKay is fo­cused on the cre­ative part of what’s hap­pen­ing, con­fi­dent that tech­no­log­i­cal dis­rup­tion will lead to bet­ter days, just like it al­ways has.

Alleslev ap­pears to have been con­sumed by the de­struc­tion. “Canada faces a per­fect storm of chal­lenges at home and abroad,” she said in her de­par­ture state­ment. Those are two very dif­fer­ent nar­ra­tives. The one that pre­vails mat­ters be­cause con­fi­dence mat­ters.

If Alleslev’s dark view wins, dis­grun­tled job seek­ers could stop seek­ing and ex­ec­u­tives could start hoard­ing prof­its. But if those job seek­ers see the world through McKay’s eyes, they could feel in­spired to take out a loan to go back to school; the prospect of fu­ture de­mand could per­suade com­pa­nies to ex­pand.

Stephen Poloz, the Bank of Canada gover­nor, last month al­luded to the risk of us talk­ing our­selves into a funk, and in­di­cated con­cern that too many of us have come to be­lieve a story that isn’t true.

There were more than 500,000 job va­can­cies in the sec­ond quar­ter, ac­cord­ing to Sta­tis­tics Canada’s lat­est es­ti­mate. That’s a prob­lem, but over­all a good one be­cause it shows the econ­omy has po­ten­tial to grow.

“Un­for­tu­nately, the skills gap is of­ten por­trayed in ex­ag­ger­ated terms — how can a long-term fac­tory worker be trained to write com­puter code, for ex­am­ple,” the gover­nor said. “This only serves to dis­cour­age peo­ple.”

Poloz’s speech didn’t get a lot of at­ten­tion be­cause it ar­rived when the only thing peo­ple wanted to talk about was whether Trudeau would agree to a trade deal with Trump by the pres­i­dent’s dead­line of Sept. 30. That’s un­for­tu­nate, be­cause his re­marks in Monc­ton were in some ways a cri­tique of our 13-month ob­ses­sion with the fu­ture of the North Amer­i­can Free Trade Agree­ment.

The le­gal in­fra­struc­ture of Canada’s com­mer­cial re­la­tion­ship with the United States is a big deal, but a dis­pute over au­to­mo­bile im­ports and dairy ex­ports never was ex­is­ten­tial. Com­pa­nies in the in­dus­try that StatCan de­scribes as “com­puter sys­tem de­sign and re­lated ser­vices” now rep­re­sent some two per cent of gross do­mes­tic prod­uct — more than autos and aero­space com­bined. The in­dus­try has grown more than five per cent each year for the past half decade, and the num­ber of peo­ple work­ing in com­puter de­sign surged 20 per cent over the past 24 months, ac­cord­ing to the Bank of Canada.

No doubt, Canada has prob­lems. The coun­try’s oil trades at a steep dis­count to the in­ter­na­tional bench­mark, Trump’s tax cuts have tipped the com­pet­i­tive bal­ance in the U.S.’s favour, and el­e­vated house­hold debt is an an­chor on con­sump­tion.

Yet de­spite all of that, the unem­ploy­ment rate rarely has been this low, wages are start­ing to rise, the value of ex­ports touched records this sum­mer, and busi­ness in­vest­ment still is grow­ing.

So maybe the econ­omy isn’t strong, but it is a long way from weak. Change is stress­ful; don’t make it worse by fo­cus­ing only on the bad stuff.


Bank of Canada gover­nor Stephen Poloz gave a re­cent speech in which he lamented how per­cep­tion about the state of the econ­omy failed to match the re­al­ity that times are pretty good.

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