Business investment key to addressing Canada’s productivity crisis

The Bank of Canada’s senior deputy governor Carolyn Rogers recently raised the alarm on Canada’s productivity crisis, saying “it’s an emergency—it’s time to break the glass.” But to address Canada’s productivity problem, which is contributing to our stagnant living standards, we must first address Canada’s weak business investment.

For perspective, Canada’s economic growth in the fourth quarter of 2023, as measured by per-person GDP, a common indicator of living standards, was $58,111, which is slightly less than it was at the end of 2014 at $58,162 (after adjusting for inflation). That means that over roughly the last decade, Canadian living standards have not increased. Indeed, our economic problems span well beyond the pandemic. In the five years prior to 2019 (the last pre-COVID year), Canada’s per-person GDP (inflation-adjusted) was the 4th weakest out of 38 advanced countries.

Unfortunately, prospects for the future are dim. According to the OECD, Canada will record the lowest rate of per-person GDP growth among 32 advanced economies over roughly the next 40 years. Countries such as Estonia, South Korea and New Zealand are expected to pass Canada and achieve higher living standards by 2060.

Given that growth in productivity—essentially, the value of economic output per hour of work—is key to higher living standards, it’s no surprise that Rogers and other analysts are raising alarms. But what’s at the heart of our productivity crisis?

Put simply, weak business investment. While the federal and many provincial governments have prioritized immigration and bigger government in an effort to stimulate productivity growth and grow our economy, they’ve ignored business investment, which has significantly declined in recent years.

From 2014 to 2022, inflation-adjusted total business investment (in plants, machinery, equipment and new technologies but excluding residential construction) in Canada declined by C$34 billion. During the same time period, after adjusting for inflation, business investment per worker declined (on average) by 2.3 per cent annually. In contrast, business investment per worker grew (on average) by 2.8 per cent annually from 2000 to 2014.

While business investment has generally declined in Canada since 2014, in other countries, including the United States, it’s continued to grow. As a result, Canada’s GDP per hour worked—a key measure of productivity growth—is among the lowest in the OECD.

Think of it this way; when businesses invest in physical and intellectual capital they equip workers with the tools and technology (e.g. machinery, computer programs, artificial intelligence) to produce more and provide higher quality goods and services, which fuels innovation and higher productivity. Because Canada has lower levels of investment in tools and technology, our workers are less productive.

But here’s the good news. Governments across Canada can enact policies to help stimulate business investment, productivity gains, and ultimately, stronger economic growth. The key is to reduce onerous regulations, rein in high government spending, and create a pro-growth tax environment that makes Canada a more attractive place for business to locate and invest. These policies have a proven track record of improving business investment in Canada. For its part, the Trudeau government can prioritize pro-growth policies when it tables the federal budget next week.

Clearly, without a change in the investment climate and stronger productivity growth, the economic outlook looks grim. Fortunately, Canadian governments can respond to this emergency with pro-growth policy reform.

Author:

Tegan Hill

Associate Director, Alberta Policy, Fraser Institute

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Ottawa should end war on plastics for sake of the environment

Published on May 16, 2024

Todayville

From the Fraser Institute

By Kenneth P. Green

Here’s the shocker: Meng shows that for 15 out of the 16 uses, plastic products incur fewer GHG emissions than their alternatives…

For example, when you swap plastic grocery bags for paper, you get 80 per cent higher GHG emissions. Substituting plastic furniture for wood—50 per cent higher GHG emissions. Substitute plastic-based carpeting with wool—80 per cent higher GHG emissions.

It’s been known for years that efforts to ban plastic products—and encourage people to use alternatives such as paper, metal or glass—can backfire. By banning plastic waste and plastic products, governments lead consumers to switch to substitutes, but those substitutes, mainly bulkier and heavier paper-based products, mean more waste to manage.

Now a new study by Fanran Meng of the University of Sheffield drives the point home—plastic substitutes are not inherently better for the environment. Meng uses comprehensive life-cycle analysis to understand how plastic substitutes increase or decrease greenhouse gas (GHG) emissions by assessing the GHG emissions of 16 uses of plastics in five major plastic-using sectors: packaging, building and construction, automotive, textiles and consumer durables. These plastics, according to Meng, account for about 90 per cent of global plastic volume.

Here’s the shocker: Meng shows that for 15 out of the 16 uses, plastic products incur fewer GHG emissions than their alternatives. Read that again. When considering 90 per cent of global plastic use, alternatives to plastic lead to greater GHG emissions than the plastic products they displace. For example, when you swap plastic grocery bags for paper, you get 80 per cent higher GHG emissions. Substituting plastic furniture for wood—50 per cent higher GHG emissions. Substitute plastic-based carpeting with wool—80 per cent higher GHG emissions.

A few substitutions were GHG neutral, such as swapping plastic drinking cups and milk containers with paper alternatives. But overall, in the 13 uses where a plastic product has lower emissions than its non-plastic alternatives, the GHG emission impact is between 10 per cent and 90 per cent lower than the next-best alternatives.

Meng concludes that “Across most applications, simply switching from plastics to currently available non-plastic alternatives is not a viable solution for reducing GHG emissions. Therefore, care should be taken when formulating policies or interventions to reduce plastic demand that they result in the removal of the plastics from use rather than a switch to an alternative material” adding that “applying material substitution strategies to plastics never really makes sense.” Instead, Meng suggests that policies encouraging re-use of plastic products would more effectively reduce GHG emissions associated with plastics, which, globally, are responsible for 4.5 per cent of global emissions.

The Meng study should drive the last nail into the coffin of the war on plastics. This study shows that encouraging substitutes for plastic—a key element of the Trudeau government’s climate plan—will lead to higher GHG emissions than sticking with plastics, making it more difficult to achieve the government’s goal of making Canada a “net-zero” emitter of GHG by 2050.

Clearly, the Trudeau government should end its misguided campaign against plastic products, “single use” or otherwise. According to the evidence, plastic bans and substitution policies not only deprive Canadians of products they value (and in many cases, products that protect human health), they are bad for the environment and bad for the climate. The government should encourage Canadians to reuse their plastic products rather than replace them.

Author:

Kenneth P. Green

Senior Fellow, Fraser Institute

Business

ESG Puppeteers

Published on May 16, 2024

Todayville

From Heartland Daily News

By Paul Mueller

The Environmental, Social, and Governance (ESG) framework allows a small group of corporate executives, financiers, government officials, and other elites, the ESG “puppeteers,” to force everyone to serve their interests. The policies they want to impose on society — renewable energy mandates, DEI programs, restricting emissions, or costly regulatory and compliance disclosures — increase everyone’s cost of living. But the puppeteers do not worry about that since they stand to gain financially from the “climate transition.”

Consider Mark Carney. After a successful career on Wall Street, he was a governor at two different central banks. Now he serves as the UN Special Envoy on Climate Action and Finance for the United Nations, which means it is his job to persuade, cajole, or bully large financial institutions to sign onto the net-zero agenda.

But Carney also has a position at one of the biggest investment firms pushing the energy transition agenda: Brookfield Asset Management. He has little reason to be concerned about the unintended consequences of his climate agenda, such as higher energy and food prices. Nor will he feel the burden his agenda imposes on hundreds of millions of people around the world.

And he is certainly not the only one. Al Gore, John Kerry, Klaus Schwab, Larry Fink, and thousands of other leaders on ESG and climate activism will weather higher prices just fine. There would be little to object to if these folks merely invested their own resources, and the resources of voluntary investors, in their climate agenda projects. But instead, they use other people’s resources, usually without their knowledge or consent, to advance their personal goals.

Even worse, they regularly use government coercion to push their agenda, which — incidentally? — redounds to their economic benefit. Brookfield Asset Management, where Mark Carney runs his own $5 billion climate fund, invests in renewable energy and climate transition projects, the demand for which is largely driven by government mandates.

For example, the National Conference of State Legislatures has long advocated “Renewable Portfolio Standards” that require state utilities to generate a certain percentage of electricity from renewable sources. The Clean Energy States Alliance tracks which states have committed to moving to 100 percent renewable energy, currently 23 states, the District of Columbia, and Puerto Rico. And then there are thousands of “State Incentives for Renewables and Efficiency.”

Behemoth hedge fund and asset manager BlackRock announced that it is acquiring a large infrastructure company, as a chance to participate in climate transition and benefit its clients financially. BlackRock leadership expects government-fueled demand for their projects, and billions of taxpayer dollars to fund the infrastructure necessary for the “climate transition.”

CEO Larry Fink has admitted, “We believe the expansion of both physical and digital infrastructure will continue to accelerate, as governments prioritize self-sufficiency and security through increased domestic industrial capacity, energy independence, and onshoring or near-shoring of critical sectors. Policymakers are only just beginning to implement once-in-a-generation financial incentives for new infrastructure technologies and projects.” [Emphasis added.]

Carney, Fink, and other climate financiers are not capitalists. They are corporatists who think the government should direct private industry. They want to work with government officials to benefit themselves and hamstring their competition. Capitalists engage in private voluntary association and exchange. They compete with other capitalists in the marketplace for consumer dollars. Success or failure falls squarely on their shoulders and the shoulders of their investors. They are subject to the desires of consumers and are rewarded for making their customers’ lives better.

Corporatists, on the other hand, are like puppeteers. Their donations influence government officials, and, in return, their funding comes out of coerced tax dollars, not voluntary exchange. Their success arises not from improving customers’ lives, but from manipulating the system. They put on a show of creating value rather than really creating value for people. In corporatism, the “public” goals of corporations matter more than the wellbeing of citizens.

But the corporatist ESG advocates are facing serious backlash too. The Texas Permanent School Fund withdrew $8.5 billion from Blackrock last week. They join almost a dozen state pensions that have withdrawn money from Blackrock management over the past few years. And last week Alabama passed legislation defunding public DEI programs. They follow in the footsteps of Florida, Texas, North Carolina, Utah, Tennessee, and others.

State attorneys general have been applying significant pressure on companies that signed on to the “net zero” pledges championed by Carney, Fink, and other ESG advocates. JPMorgan and State Street both withdrew from Climate Action 100+ in February. Major insurance companies started withdrawing from the Net-Zero Insurance Alliance in 2023.

Still, most Americans either don’t know much about ESG and its potential negative consequences on their lives or, worse, actually favour letting ESG distort the market. This must change. It’s time the ESG puppeteers found out that the “puppets” have ideas, goals, and plans of their own. Investors, taxpayers, and voters should not be manipulated and used to climate activists’ ends.

They must keep pulling back on the strings or, better yet, cut them altogether.

Paul Mueller is a Senior Research Fellow at the American Institute for Economic Research. He received his PhD in economics from George Mason University. Previously, Dr. Mueller taught at The King’s College in New York City.

Originally posted at the American Institute for Economic Research, reposted with permission.