At the February 25th presentation “A Conversation on Leadership with The Right Honourable Paul Martin”, part of an ongoing speaker series by the School of Public Policy and Governance, Martin highlighted a serious economic challenge that future Canadian leaders will face. Before we get to that, two observations must first be noted. On the one hand, Martin emphasized the fact that a large and strong middle class was a necessary component in the success of domestic American business on the international playing field. Strong domestic consumption, made possible by a significant component of the population – the middle class – possessing adequate disposable income, provided domestic industries with the revenue foundations they needed to be able to compete internationally. On the other hand, he explained that there are the rising economic giants of India and China, each of which have populations that dwarf that of all of North America and by more than two to one at that. If their respective rates of economic growth continues and they begin to develop consumption-crazy middle classes they will have the strongest corporations on the international scene due to this tremendous domestic consumption base.
In this economic environment, Canada will definitely not be able to count on the strength of its population to remain competitive internationally. Much more likely is that we will rely on resource export to drive our economy. It was at this point that Martin raised his challenge to the next generation of Canadian leaders. What, in an environment where Canada will likely be able to remain economically viable through its reliance on its resources, will Canada need to do in order to avoid becoming an economic vacuum, through over-exploitation and pure reliance on resource export, and instead create a strong and diverse economy?
Economists often rely on a principle they label ‘the paradox of plenty’ when describing how developing economies rich in resources often have slower growth than would be expected when compared to those that are resource poor. The idea is that these economies, rather than investing in human and physical capital (education and training, as well as machines, equipment and factories) and research and development (in order to develop new technologies and best practices), rely solely on their resource base, which may draw funding and labour away from other sectors and thus drive down their overall growth.Under these circumstances they risk losing their entire economic strength if their resource sectors begin to fail. Often institutional deficits in the form of corruption, questionable judicial systems, and poor contract and property law are blamed for this shortsightedness. Notwithstanding the institutional stability in our fine Nation, Canadian leaders could draw a lesson from this principle.
If Canada does eventually have to use its resource base to remain competitive and leverage its economic growth going forward, leaders must show prescience and go beyond pure resource reliance. In order to stay viable and maintain strong economic growth, we’re going to have to take some of the revenues from our resource exports and invest them in other sectors – capital, education and research for instance – in order to diversify our economy and ensure that we don’t risk looking at a vacuous economic future.
– By Thomas Vogl