• Jun 05, 2024
  • Insights

The Moral Economy

YouTube video

Written by Allan Gregg

Madame Chancellor, Chair of the Board, Mr. President, Grandaunts, Honoured Guests, and Proud Parents … thank you for this great honour.  

And thank you, Dr Cheryl Collier for that kind introduction. Not only was it very gracious but I imagine it also offered relief to many parents and students who were watching the stage horrified and wondering  …. “How did an extremely fit homeless person get a convocation gown and what is he doing up there.”

There is no question that I am old. 72 years of age.

And you are young. Getting ready to set out on the next great adventure of what undoubtedly will be an exciting life.

Given that disparity of age, what possibly could we have in common and what could I say to you today?

I thought about this a lot, and the first thing that came to me was that we share a stereotypical, age-based cliché.

Old people are not supposed to be open to or excited about anything new, including new ideas. And young people are considered to be too inexperienced and otherwise consumed with their youthfulness to care about the world or want to change it.

And then protests exploded across North American campuses.

So much for the notion that young people don’t care about the world or want to change it?

And then I thought about my own time at University in the late 60s and early 70s. Vietnam. Students for Democratic Society. the Black Panthers, The rise of feminism. Kent State. My generation desperately wanted to change the world too.

And we did. Unfortunately, we made it bigger …. But not better.

And I want to do that today by discussing productivity.


Don’t think I can’t see many of you rolling your eyes and saying to yourself … “Oh no. With everything else going on in the world, here goes Grandpa at Sunday dinner boring the crap out of all of us, by going on and on about a topic that nobody cares about but him.”

But if you are thinking that, you would be wrong.

Far from being alone, almost all economists, policy makers and business writers today are obsessed with the topic of Canadian productivity.

Here is what our federal Minister of Finance said recently … “The Achilles heel of the Canadian economy is productivity and innovation”. And then she went on …  “This is a well-known Canadian problem … and an insidious one”.

Similarly, just a couple of months ago, the Deputy Governor of the Bank of Canada declared productivity “a Canadian emergency”.

So why should the Arts, Humanities and Social Science graduating class of University of Windsor care about this “insidious” “emergency”?

Classic economics tells us there are really only two ways to grow an economy … with more people or more productivity.

A growing population means that there are more people making things, buying stuff and paying taxes and that means more things for sale, more purchases being made and more government revenue that can be spent on things we need and value.

Increased productivity means that the existing population becomes more efficient and generates more output, leaving the total population wealthier.

And why should we care about economic growth? Because shrinking – recession – means going backward. And those most likely to fall behind are the most marginalized, and already struggling in society. In other words, growth is the foundation of progress, upon which we can build not only bigger, faster and fatter, but also one the offers more opportunities and individual choice.

So, what does this productivity thing look like?

For sake of example, suppose Canada was comprised of a population of 100 people. And that population – or our economy – generated $100 in economic output per year. That would mean that our Annual Gross Domestic Product was $1 per person.

Now, let’s say “something” happened to make Canadians more productive and that population of 100 started to generate $150 of economic output. Now the per capita GDP would go up to $1.50 and, as a country, we would be 50% richer than before.

Next, let’s ask ourselves, what does that “something” look like that would cause that rise in productivity.

To use an example from the past, let’s say there was a ditch digger who shovelled dirt with a manual shovel. Over the course of a typical day, she would dig up one ton of dirt. But then her employer bought a backhoe, trained her how to operate it and now she can dig up 10 tons of dirt a day. The former ditch digger would get special training to operate the backhoe and (presumably) be paid more both as a result of her new-found skills and (hopefully) to participate in the increased income that the employer was generating. In fact, when the employer invested in this productivity enhancement technology, she calculated that not only would she make more profits but the productivity enhancement of 10 tons a day compared to just one was so great that she would be able to buy another backhoe and hire more workers and make the business grow even more. The new workers would be paid better, so would now be generating more income, buying more stuff and paying more taxes than they were before.

Pretty cool, eh? Are you starting to like this productivity thing? Who wouldn’t?

But this isn’t what happening in Canada.

There is a reason that Finance Minister Freeland calls productivity an “insidious problem” or the Bank of Canada says we are facing a “productivity emergency”.

And this isn’t a new problem. Over the last 40 years, the Canadian economy has grown slower than other countries in the Organization for Economic Co-operation and Development.

And it not like this is a problem that is going to go away anytime soon – the OECD also predicts that, over the next 35 years, that Canada’s economic growth will be dead last among the 40 most advanced nations in the world.

And it’s also not like economists and policy makers haven’t studied the problems or reached a consensus on what leavers have to be pulled if Canadian productivity is to improve. Indeed, Canda has struck a half a dozen Task Forces and Panels to grapple with this problem, going back almost 25 years.

What these Task Forces and Panels have repeatedly told us is that there is a formulae for how to increase productivity: businesses have to invest more in equipment, technology and research and development; we need more venture capital to fund new start-up businesses and we need more experienced managers who can scale up these start-ups so that they can compete not only domestically but also internationally; we have to develop and retain more intellectual property rather than selling it off to foreign investors; more students have to be enrolled in Science, Technology, Engineering and Math programs; and we have to graduate more PhDs.

And over this period of time, governments have thrown tons of legislation and billions of dollars trying to make precisely these things happen.

We have spent billions of dollars in tax incentives over the last 40 years to induce businesses to invest in research and development. We have an Investing in Canada Plan; a Canada Investment Bank; an Innovation Bank; an Infrastructure Bank; a Business Development Bank; an Export Development Bank; the Innovation Super Cluster Initiative; A Global Skills Strategy. (Oh, we also have a Strategic Innovation Fund but its activities are under current suspension as it faces a conflict of interest investigation).

In fact, corporate subsidies – either through tax incentives or direct funding and loans – equal about $50 billion per year – that is slightly over one-half of the total amount of corporate taxes collected by the federal government and almost as much as they spend on health care. Indeed, Canada is recognized as having one of the most generous systems of research and development support in the world.

But – as the record shows – none of it seems to be working.

In fact, a recent study published in March by the much-respected, non-partisan, C.D. Howe Institute found that only 20% of these business subsidies actually boost real income for Canadians. Here is what the Globe and Mail concluded about the findings of that study …. “If four-fifths of corporate subsidies are inflicting harm, then scaping them would both deliver an economic boost and free up tens of billions of dollars.”

And if that is not bad enough, at the same time, public corporation share buy-backs are at an all-time high of $70 billion last year. (This happens when a company cannot think of anything productive to do with their profits except to purchase their own shares to enrich their current shareholders).

Remember the woman who employed the ditch digger-turned-backhoe-operator? Well, it happened that hers was a family business and instead of using her increased profits to buy more backhoes or hire more workers, she used these funds to buy out her relatives so that she would own a bigger chunk of the company and therefore reap more of the profits for herself in the future.

So, productivity hasn’t grown while all these programs have been put in place; isn’t growing; and isn’t expected to grow in the future.

But while all this effort and money was being spent on productivity, something else DID change – and that is that what is called our Gini Index – which measures societal inequities. It has skyrocket and the gap between rich and poor has expanded shamefully.

Why? Think about it? Who are all these productivity programs for businesses, start-ups, Phds, or R&D centres aimed at? Society as a whole? No. The fact of the matter is that the unstated goal of all these measures intended to improve our productivity are aimed at making the best, even better.

Remember that hypothetical example I used to describe productivity when I talked about Canada having a population of 100 that generated $100 of economic wealth or $1 dollar per person?

Well, that is something we researchers call an ecological fallacy, where the math in aggregate – while accurate – creates a picture that is completely false at the individual level.

What I’m saying here is that we all know that if there are 100 people and wealth of $100, there is no way in the real world that each of them has a dollar and shares in this aggregate wealth equally.

In fact, do you know what share of Canada’s wealth is in the hands of the top 1% most high net worth families? Just slightly under $25. So, the reality in this $100 economy, isn’t that each of us has a dollar. One actually has almost $25! The further fact is that the poorest 40 have only one dollar BETWEEN them all or about 2.5 cents each … and the Top 20 control almost three-quarters of the nation’s wealth. And THAT is who these productivity programs are aimed at.

You know, it’s a cliché … but the definition of insanity is doing the exact same thing over and over again, with the expectation of getting a different result.

So, why don’t we try something different to create more wealth and progress for Canada?

Earlier on, I said that traditional economic theory dictates that there are only two ways to grow the economy and create more wealth – increase your population or increase productivity.

Well, that may be true but there may be a different way to do this.

Instead of taking the best and those who are thriving now and trying to give them incentives to be even better, what if we tried to make people who are not contributing as much as they could to the economy and give them the opportunity to be more productive and play a larger role in the economy?

Let’s begin this experiment with a sad fact – one that should be particularly poignant to the people in this room, on this particular occasion.

And that is, every year, between 200,000 and 300,000 young Canadians drop out of High School. And the evidence is irrefutable – there is nothing you can do in life that has a higher return on investment than education. In fact, there is a straight-line relationship between every additional year of post-secondary education and a rise in income and personal wealth.

So, what if as part of our new productivity plan, we decided to make sure – at a minimum – that every Canadian at least graduates from High School. According to Pathways to Education, a national not-for-profit organization dedicated to this goal, eliminating dropping out of high school would generate somewhere between $38 – $107 Billion.

What do you say to that goal? Yes?

Next, let’s turn to Indigenous Peoples in Canada – who, by the way, would benefit disproportionately from eliminating the high school dropout rate.

Indigenous adults in Canada have an unemployment rate that is 10% higher than non-Indigenous Canadians. Closing that gap would add 100,000 new employees to the Canadian workforce. And while we are at it, we could set out to close a 15% wage gap between non-Indigenous and Indigenous peoples who are already working. If that happened, the National Indigenous Economic Development Board estimates this would generate $27 billion or about an additional 1.7% increase to our GDP.

What do you say to closing the Indigenous employment and wage gap? I say, Hell Yes.

And then there are new Canadians.

There is no question that we have had a bit of a bump in the immigration road over the last few years, but I have every confidence that we will fix what looks to be a very temporary problem.

Because the fact is that our historic immigration record is the envy of the world– and for many nations, the model to be replicated.

And that is because, over the decades, we have attracted an incredibly high calibre of immigrant to our shores. Of the 7.5 million citizens who were born outside of Canada – or about 22 % of the population today – 55.1% have a Bachelor’s Degree or higher, compared to 28.5% of Canadian born.  

Yet the evidence shows that only 38% of university-educated immigrants work in a job that actually requires a university education. As a result, there is an 18% wage gap between foreign born and Canadian born of equal qualifications.

Some evidence of the cause of this points to outright discrimination but the more routine problem is that employers and regulatory bodies often are unable or unwilling to assess how foreign work experience or credentials compare with Canadian standards. Consequently, there actually are Indian physicians driving Ubers in Canada.

RBC Economics has calculated that if these barriers were eliminated and new Canadians of equal qualification were paid the same as their Canadian born counterpart, this would boast GDP by 2.5% or about $50 billion.

What do you say to eliminating the New Canadian wage gap? I say, shit yes.

So, let’s turn to one more big one.

For over 40 years, female enrolment in post-secondary educational institutions has outstripped male enrolment.

And yet we’ve already reviewed the straight-line relationship between education and income, so why is it that female labour force participation rates are still 10 percent lower than males and why are women of equal socio-economic status, education and qualifications still paid on average $7,200 less than the male counterparts?

You know, there is only one answer to that question. And that is, “Men.”

For all the advances women have made in education, most of our institutions still operate under a patriarchal system. And men have a vested interest in that status quo.

Not only would we make better decisions and have a more civilized work environment if women took their rightful role in the C-Suites of corporate Canada and on the work floors of Canada’s manufacturing facilities, but closing the male-female participation rate difference would add almost 2 million new employees to the workforce and (according to McKinsey) ending gender pay inequality would add $150 billion to the economy by 2026 or about 7.5% to our national wealth.

So how about enabling women to play their rightful and equal role in the economy? Huh? I say F- yah? What about you?

(Don’t be alarmed Mom and Dad. You can take my word for it. If your daughters and sons are going to change the world, the “f-word” will become part of their vocabulary).

No more high school drop-outs – somewhere between $38 and $107 billion in new productivity.

Indigenous Peoples in Canada employed at the same level and paid the same as non-Indigenous Canadians – just a little under $30 billion in additional wealth.

New Canadians qualifying and being certified for the work and educational experience that they have attained and then being paid according – about $50 billion.

And let’s end gender workplace pay and participation inequality and add another $150 billion to our Gross Domestic Product.

The total for these four things? Somewhere between $268 and $317 billion or a 12-15% increase in the total productive capacity of our economy.

And make no mistake about it, the argument I am making here is not merely about social justice or doing what is morally right. It is wilfully economic. If we follow this course, maybe we can be a richer nation, with more national prosperity and a significantly higher per capita GDP that we have now….which is in ALL Canadians self-interest.

But how would we do this?

Well, the simple answer is through government legislation, regulation and spending.

So, if governments can allow dogs to vote (and they can!) then why not make these things a priority and find solutions to make them happen?

The first thing we can do is follow the advice of the Globe and Mail and the findings of the C. D. Howe study and scrap $40 billion in corporate subsidies that aren’t working.

Let’s use some of that money to hire an army of tutors to help high school students who are in jeopardy of dropping out. We could wave tuition for all Indigenous people who wanted to go to post-secondary schools or enter skill training. It is mandatory if you have a work place, you must provide washroom facilities. Why not make it mandatory that if you have more the 500 employees you also have to provide child care facilities?

Will this work? I don’t know.

But I do know that the effectiveness of any solution corresponds absolutely with the accuracy of the understanding of the problem it is trying to solve.

I also know that this country has a productivity AND inequity problem. And that what we have been doing to date is not solving either – in fact, there is evidence that the solution aimed at productivity is causing the problem of inequity to get even worse.

So at 72, I want to keep an open mind and not harken back to a time that never will be again.

But I also know that however open I am to new ideas, at this point, the time has past for my generation to implement them and change the world.

That, my children, will fall to you.

And trust me, those who aspire to be hedge fund managers, or bank presidents are not going to change the world. It will be the teachers, artists and musicians, civil servants, social workers, academics and lawyers who will …. Graduates like you, who are not afraid to challenge the status quo and are prepared to paddle against the tide of orthodoxy.