Canada’s Economy, Explained
EP 8
SUMMARY KEYWORDS
Trust, data weaponization, disinformation, social cohesion, economic well-being, institutional trust, crisis of grievance, trade tensions, regulatory environment, business investment, tariffs, economic growth, data ecosystem, modernization, policy making.
SPEAKERS
Chad Bown, Stephen Tapp, YouTube Audio, Marwa Abdou, Anil Arora, Andrew DiCapua, Outro, Meredith Lilly
Anil Arora 00:00
We're living in a in an era where trust is really difficult to come by, right? Who do you trust? What do you trust? And it's data have been weaponized in a sense, right? Look at false information. Look at disinformation. Now. They upset social cohesion. They upset democracies. They upset our social and our economic well being and good data, as difficult as it might seem, good data and our commitment to good data and making it available is an investment in building trust.
Marwa Abdou 00:39
Welcome to the Business Data Lab podcast. Canada's Economy Explained. I'm your host, Marwa Abdou, and that was Anil Arora, former chief statistician for Statistics Canada, providing the opening remarks at the inaugural BDL research conference. The conference was titled The Case for Canada. It brought together some of Canada's prolific economists, statisticians, business executives and thought leaders. For a day of conversations and insights on how Canada can approach this next chapter at this critical juncture in time, annul continue to say that institutional trust is at an all time low according to the latest Trust Barometer data. The Edelman trust Institute is the brains behind this index an annual survey of 28 countries and more than 30,000 respondents. Now in its 25th year, the report is sounding the alarm on what they call a crisis of grievance. This year's report, in which Canada ranks in the middle of the pack, showed that 62% of Canadians have a moderate or a high sense of grievance, a zero sum mindset that is placing unprecedented strain on our social contracts. The summary of their findings is that all institutions and their leadership, be it government, business, NGOs and media, must work on rebuilding trust, one whose influence is rooted in and by the way, of compassion, as opposed to one of power. As I reflect on the importance of this moment in history, not just for Canada but the world, I think of how global and local economies can discover a new order and balance. But to achieve this, it is imperative for our leadership, be it that of business, government and us as a society, to extend our attention even beyond today's trade and budget deficit debates, we know that this current path of mounting tariffs and trade tensions isn't where the journey ends. It's only at best, a fraction of what we need to re examine and assess about the state of our economy and our role in today's complex world. So it is what our leaders and what we will choose next that will either deepen the erosion of trust or it will potentially signify a new social, economical and political contract that is anchored in it, and maybe that's why it's so key to the case for Canada, as much as it is for the world. If I was asked to summarize many of the conversations that I heard in the presentations that I saw at the BDL conference, that theme of trust was a consistent through line, either implicitly or explicitly, and it's hardly a novel one in the field of economics. It's called the economics of trust because it's viewed as so invaluable and forms the basis of so many of our day to day interactions. There's vast literature and research that investigates the link between aggregate trust and that of economic performance. Take, for instance, data from the World Values Survey, which looks at people's values and beliefs, how they change over time, and what social and political impact they have. World Bank analysis of this data shows that there is a strong positive correlation between trust and GDP per capita countries with higher self reported trust attitudes are also the countries that tend to have higher economic activity, while more economic inequality tends to go together with lower levels of Trust. Not only can trust impact a country's economic growth, development and prosperity, it can be a market force that guides investment decisions. It's a determining factor in stock market volatility. It can be a driver of innovation and entrepreneurship. It can be a catalyzer for productivity. Trust in an economy is like the invisible thread that holds together our landscape of transactions and interactions. So perhaps it makes sense that so many of the challenges we are facing today are signaling this crisis of trust. And the penalty is only getting steeper.
Stephen Tapp 05:06
Think of Canada's regulatory environment. Wu Long Gu, who's a researcher at statcan, had a very good paper looking at regulations and looking at the growth and increase in regulations over the last while. And he looked at the period from 2006 2021 and meticulously documented the fact that there's been an increase in federal regulations. I think this is probably true differential. True at the prohibit but there's been increase in regulations in terms of the number, and so those have grown about 2% on an annual basis. And his econometric estimates, when you look at the relationship between regulations and a bunch of different measures, he estimates that this reduced the level of GDP in Canada by almost 2% so that's significant. And if we're looking for growth, I think that scenario we can look can look and in particular, it disincentivized business investments significantly, almost double digit reduction in business investment over this period. And I mentioned before business dynamics, so there being a less dynamic economy, less less entry, discouraging entry, more than exit. And so again, getting the opposite of what you'd want.
Marwa Abdou 05:59
That was Stephen Tapp, former chief economist of the chamber and now CEO of the Center for the Study of living standards, he was talking about a February 2025, stat scan research paper by Wu Long Gu, which looked at how regulation and their accumulation From 2006 to 2021 imposed measurable costs to businesses and negatively impacted Canada's economic growth and competitiveness. The number of total regulatory requirements had increased by 37% over that 15 year period. You see, this kind of data and analysis gives us a better understanding of what is working and what is not knowing the economy wide, costs and benefits from regulations like taxation and red tape is challenging, but it is fundamental to progress. We need regulatory and tax systems that don't crowd trust out by burdening small businesses, especially those owned by minority communities, that promote innovation and competition, that encourage the entry and growth of businesses in Canada instead of driving them away. The complexity with how we build and maintain a trustworthy regulatory system is rooted in the who, the what and the how. Who are the decision makers, regulators and custodians of trust? What are their values and how are they ensuring a sense of accountability? So much of trust also starts with the stories and the narratives we are telling ourselves about who we are as a collective living on this indigenous land, but also about those who reside outside of it at the conference, we were fortunate to have Dr Meredith Lilly, professor and Simon Reisman chair in international economic policy at Carleton University. She was on the first panel of the day, which discussed Canada US economic ties and the impact of tariffs, alongside our own BDL principal economist, Andrew de capo, listen to what she had to say when Joanna Smith, from the logic, asked her about her insights on how Canada had been dealing with the threat of tariffs versus the approach that was taken by Mexico.
Meredith Lilly 08:14
You know, more broadly, we clearly were have been provoked by the President and singled out to some extent, as Canadians, but as I think about our approach relative to Mexico, I really think it would have been more beneficial to Canada if we had kept things more matter of fact and less emotional, if I'm being honest, and I Think that would actually serve Canada's national interest better, I did some empirical analysis in 2018 of the NAFTA renegotiations, looking at the narratives that Americans were telling themselves and us, and that Canadians were telling themselves and and Americans. And based on that analysis, what I learned from it was essentially that Canada likes to fight with Trump and Chrystia Freeland, who was sort of the chief narrator of Canada's plan, also understood that. So Canada's narrative actually started out as a win win win thing you might have heard this win win win benefit all sides. It was actually not very popular with Canadians. It was popular with the business community. And many of you in the business community would say we like win, win, win, but actually Canadians don't like it. Canadians like stand up to Trump. And so over the course of the negotiations, she actually moved her narrative from Win, win win to stand up to Trump. And when she did that, she started to get flowers from Canadians, and she she learned something from that. So you know, you fast forward to now and the Ontario election, the liberal leadership race. What we saw was sort of this race to stand up to Donald Trump, and he essentially is on the ballot. It in Canada. And so I try to think about the counterfactual of, well, what would have happened if we had had an election and we had a prime minister in office before Trump came to office, and what kind of narrative would we be telling? And I guarantee to you that the Canadian Prime Minister would be doing more to try and lower the temperature and find ways to work constructively with the President, not seeking to amplify it. So that's what Mexico has done. Mexico had an election. Couple months later, Trump comes into office. She came in President. Sheinbaum came in with a huge majority. She's followed a very similar game plan to her predecessor, AMLO president, Lopez Obrador. And so she's done a few things. You know, she also was provoked. President decided to rename the Gulf of Mexico, Gulf of America. She said, No, I don't think so. But she was firm. She was straight up. And then she moved on. And one thing she did not do was give a lot of detail about retaliation in the future. She said, Mexico will respond, period. And everyone said, What are you going to do, president? She said, I'm not telling. And actually, we probably should have done that too. And and so I think that preemptively saying what how we're going to retaliate, has actually probably done more to damage Canada's unity than it has done to impact the Americans. I'm not saying retaliation doesn't have its place, but I think it has largely been political in Canada, and as you look at where Canada and Mexico are today. We're actually in exactly the same position policy wise. So for all of the noise and rhetoric out of Canada versus the less noise less rhetoric coming out of Mexico, from a policy perspective, with tariffs, we're in exactly the same place. But President shinbaum has more leverage and has more ability to she's done more to create space for constructive dialog than we have done. And on April 28 we're going to have a new prime minister, and that person is going to have to work with the President, whether they like it or not.
Marwa Abdou 12:17
Now it turns out Professor Lilly might have been on to something. Think about what happened on May 6, when newly elected Prime Minister Mark Carney met with US President Donald Trump.
YouTube Audio 12:30
[Prime Minister Mark Carney] As you know, from real estate, there are some places that are never for sale. That's true. We're sitting in one right now. You know Buckingham Palace you visited as well, and having met with the owners of Canada over the course of the campaign last several months, it's not for sale. Won't be for sale ever, but the opportunity is in the partnership and and what we can build together. And we have done that in the past, and part of that, as the President just said, is with respect to our own security. And my government is committed for a step change in our investment in Canadian security and our partnership. And I'll say this as well, that the President has revitalized international security, revitalized NATO, and us playing our full weight in NATO, and that will be part of it.
Marwa Abdou 13:20
A little over three years ago, Carolyn Rogers had a speech that was titled The Bank of Canada a matter of trust. It was her first speech after joining the bank as senior deputy governor. The word trust was in it 19 times, including the title, I think, in it she addresses, quote, Canadians who are questioning whether their central bank is independent, whether it is accountable, and whether it is acting in their best interests. And talks about each of those qualities, independence, accountability. She talks about trust in uncertain times, and wraps up with trust in times ahead. In rereading that speech, I was reminded of my colleague Andrew DiCapua was response when Joanna Smith asked him about what Bank of Canada should be doing in response to the tariffs.
Andrew DiCapua 14:12
Yeah, should. Well, I maybe I'll just start by providing some context. I mean, Anil had a very good opening comment about trust, right? You know, the lack of trust. And I think one of the things that Canadians that we're still going through, of course, is affordability crisis, right? In terms of the fact that price levels have overshot. You know, what would have been a lower path in terms of prices, if we would have been at the 2% target, but, but because we've overshot it, it's compounded, and we're now much higher. So that is still sticking with us, and has resonated with Canadians in a sense of, you know, I just can't, I can't get ahead, right? So we think back to 2021, when. When central banks, specifically the Federal Reserve, was saying that inflation would be transitory, and they got that messaging very wrong, and that upset a lot of people, and made people distrust central banks for their ability to control inflation, so they had to ratchet up rates to slow inflation, and of course, we've come down from what was 8% year over year growth at its peak, but we're starting to now see inflationary pressures come back up. So we've been at Target, or between the target range of one to 3% for a few months now we've seen some GST holidays that have kind of distorted the numbers. But you know what we can agree on, or what I think the bank should do is that the trajectory makes sense. It's maybe not making a lot of sense as tariffs are layered on day by day, but rates still need to come down, in my opinion. You know, the economy is, is not, is much more vulnerable than most to interest rates. And so, you know, there are estimates of where the neutral rate is right. I think we're kind of in this range where we're not supporting the economy or restricting the economy. And so we've got to, you know, get on the lower end. And you know, yet last year and the year before, the Canadian economy was kind of operating below its potential, and that allowed us to feel comfortable that price pressures would not build up in the economy and overshoot, and the bank would need to address that. Potential growth has been revised down. There are numerous estimates out there, but that gap between real GDP growth and potential is much tighter. So, you know, all things considered, it makes the next few months a little bit more vulnerable. The bank can't really respond to sudden price shocks. So you know, something that maybe I'll just end on, something that I thought was interesting in their five page summary of deliberations, which is quite long to look at, and was quite confusing. But was this disagreement amongst members of governing council as to what they should do, right? And you kind of heard Don allude to this earlier, the one line that got me was governing count. I'm paraphrasing, governing council decided to lower the policy rate by 25 basis points to provide some relief to Canadians with the uncertainty from tariffs. Right? What does that? What does that mean? I mean, it doesn't. It's not clear that the bank knows that there are inflationary pressures that could build. It's not broad based enough yes yet for them to hold or raise interest rates, but that they're going to have a difficult next few months.
Marwa Abdou 17:49
Transparency, consistency and clarity go hand in hand with how institutions foster confidence and nurture public trust, that much we know that we make sure we are starting with openness and accessibility of information, that we are ensuring that individuals and businesses and all entities of society have the necessary skills, but also granular, nuanced and reliable data to make informed decisions. It also means that you are not only building trustworthy institutions and systems, but you are extending an effective rubric for fostering trust. That was something that resonated with me as I listened to Dr Chad bounds keynote. He is currently the Reginald Jones senior fellow at the Peterson Institute for International Economics based in Washington, DC. I was fortunate to interview him for the podcast. You can listen to our conversation on Episode Five. In his keynote, he was generous to share insights from his experiences in US government during very different eras, the first after the financial crisis in 2008 with the Obama administration's White House Council of Economic Advisors, and the second as chief economist at the US Department of State with the Biden administration. He talked about how thinking in terms of US trade, especially when factoring in changing geopolitical dynamics and lessons we'd been learning in terms of agglomeration economics had been happening for some time that it wasn't just attributed to one political party, but was bipartisan. He elucidated on what it means, but also what he believed would be important in terms of how we can get governments to have more coordinated policies.
Chad Bown 19:45
You Canada have been subject to tariff threats for a number of different reasons, so just as so, you know, during the first Trump administration, I was at the Peterson Institute, and basically I saw it. My job was to kind of provide transparency, right? It's. To like today, we don't know what they're doing. They say a lot of things, but what is it that they're actually doing doing? Right? So I tried to provide the transparency of the what the policies were, what the things were that they actually were doing. So I did this in multiple forms, written form, so we had timelines, right? That we're just kind of tracking the actual policy announcement. So if you like words, we had an outlet for you, charts, right? We would then put that, attach that to data right, to say, well, this is what's happening with the tariffs, the tariffs we're doing on China, whatever audio form, right? Podcast you like, you want to hear about it instead of seeing it. Or we'll do it. We'll do in that form anyway. So that's what I did during the entire first Trump administration. That's what we're trying to do right now as well. So what is it that they're doing? Well to you guys, we've had the steel and aluminum tariffs, okay, but again, that's not all that different from what they did the first time around, right? So it's hard to see a deviation there from from trend. Yes, they were ultimately removed off of you, in a sense, right? They really said you need to engage in a voluntary export restraint for these things, or we will hit you with tariffs again. If you remember back, I think it was August of 2019 when you started to export a little bit too much aluminum into the US market for the USTR to be comfortable with. There was a month long period there where the tariffs went back out again. So it wasn't as if the the issue ever went away, even after the usmca agreement was agreed and they were kind of lifted. So steel and aluminum, you've got this fentanyl issue, which I didn't realize guys were the world's largest problem of fentanyl and border security, right? So obviously, there's something else going on there, right, but there is now tariffs, through that International Economic Emergency Powers Act, legal authority that are hanging out over your head the entire the entire administration, basically. So far, the point here is tying tariffs to non trade, stuff that's different, or at least a little bit different, right? They did that to Mecca. Right? They did that to Mexico once in May of 2019, I feel like when there was a skirmish Border Security, Immigration popped up in the first time around as well. So tying it to non trade stuff is is something they're doing this time around, obviously, bilateral trade surplus, dairy quotas like this, president's going to know more about supply management and can you should be a challenge when the President knows about your issues, I think that's where you don't want them to actually know the details about about anyone, anybody's issues, not just yours. Specifically, you make some cars, and apparently all cars should be made in the United States, or they're a national security threat. Again. This is another one, though, where this is this also is not new, right? This was hanging out there the entire second half of the administration that they were threatening to impose 25% tariffs on cars. It was primarily Canada and Japan. At that point, you had a carve out letter in usmca. Usmca that basically said, if, if those tariffs were going to go on up to some volume limit, you would get an exemption, right? But the main issue is, none of these are are kind of new, in some sense. And aside from that, the other big thing is that the President has said repeatedly, and parts of his administration have said, they want to raise tariffs for revenue purposes, right? We've got big fiscal deficits in the United States. They want to lock in permanently the tax cuts that he'd enacted in 2017 and if you are interested in doing that, you need to come up with alternative revenue sources, right? And so they're thinking, Ah, we can get some of this tariff revenue to help plug some of those holes. Okay? But you saw there, there's a lot of different things that they're claiming to want to use these tariffs for. So which one is it? Because then when you begin to think about it, you're like, Wait, you can't actually mean all of them, because some of them are contradictory, right? You can't use tariffs as a stick for countries who are behaving in ways you don't like, like, if you're not doing border security, or if you're allowing drug trafficking or things like that, because if I punish you and raise tariffs really high, then there's no imports coming in, there's no volume, there's no base, so there's nothing for me to tax, okay? So that you can't do that and revenue at the same time. You also can't use tariffs as a carrot that says, if you do good things for me, you'll get preferential access to my market and zero tariffs, because then, once again, there's no revenue, right? You have a big base of volume of imports, but if there's no tax being applied to them, then there's no revenue either. So same with reshoring for jobs, if all the cars need to be made in the United States, right? Because we want them here for either national security reasons or for workers, okay? But then there's no imports coming in either, and you can't again, you're taxing zero volume of something, so there's no revenue, right? And. Then there's finally the reciprocity argument, where we already have reciprocity with Canada, right, for 99 point something percent of all goods of zero tariffs. So these arguments are internally inconsistent with each other. The point is, at some point the administration is going to have to prioritize and tell us what they really want, right? And they just, they haven't done that yet, right? And so if you're confused. I'm confused. Everybody's confused. Maybe it's by design, a little bit right, to keep us unclear as to what the underlying there, there and motives are by design.
Marwa Abdou 25:30
In a way, all of this is part of our aim, and the genesis behind the chambers business data lab, our partnership with Statistics Canada is a cornerstone of that this podcast and the conversations we're having on here is one channel. Well, you get the point, and that's why I hope you're tuning in at least partly. So I think we're almost out of time. So I want to give special thanks to the cross functional teams at the Chamber who organized this year's conference and made the recording audio available so we are able to share it with all of you who can be there in person. A huge thank you to all our speakers who shared their wisdom, their knowledge, their time, including Jay Barber, Director of internal trade at the Privy Council Office, that's the office which supports the Prime Minister and Cabinet in the Government of Canada, we couldn't include any of Jay's conversation due to Chatham House rules. Fear not, though, the conference will take place next year in Toronto, and I suspect these kinds of discussions will only get better. So hopefully we can see you all there. I'll leave you with Anil's opening remarks, because he puts it so succinctly. Thank you for continuing to tune in lots more in store. Until next time.
Anil Arora 26:46
The first point that I want to make is I remember back in 2016 when I came back to Statistics Canada, after working in policy and regulatory spaces, I was given three mandates. One was restore the long form census. You recall the 2011 fiasco. And the second was to bring in legislation to make Statistics Canada more independent. And the third one was this very specific term, just modernize the place. Will you? So how many of you have heard that just modernize? Will you just modernize? Because it's kind of like thinking so, well, what does that really mean? What does it mean to modernize? So modernize has a sense of, do something different, right? So do something better, right? And so we took a couple of weeks, me and the senior management team at Statistics Canada, and kind of really gave a lot of thought to what you know, what does this mean in terms of modernizing the statistical agency? And what we came back with was a strategy of five pillars, and we went out on an engagement listening tour to try and get a better sense of what were the needs of the country, how they were evolving, and what role the agency could play in this expanding ecosystem. And so those five pillars very quickly. First is we don't want to drink our own Kool Aid, lick our own ice cream, whatever analogy you want, and be really, really happy about it, but really to go out there and listen and learn from users as to what's not going well. Where is it that they need things, that there are gaps, that we can be a solution to. So being user centric, the second one was to recognize that our ecosystem, our data ecosystem, was expanding at a very rapidly rate. Data from sensors to different organizations. So data becoming quite prolific, and we need to harvest that. We need to be able to put things out at a frequency that, not that we don't think is just, you know, that's the way it should be, but really at the speed of users. So in some cases, we'd have to kind of make some trade offs. We'd have to say it's good enough, and would get it out quicker. And other cases, you know, would say, No, that is a use for which precision is absolutely necessary. I'm going to take our time. We may come out with some preliminary numbers and but you know, ultimately, we'll come up with very, very robust data. The second pillar was going to be about in this in this ecosystem, because there's so many different players they were going to necessarily have to play in this cooperative, in this collaborative, in this partnered base way. And that's one of the reasons why the business data lab exists, is because as an organization, we made a commitment to working in partnership and collaboration. Yeah. The third was to use novel methods and new sources of data and even kind of refresh our methodologies and our approaches to modernizing. The next pillar was really about increasing numeracy and literacy. We didn't think we were just the fly by night, throw data out the side and run but we had a role to play, to actually educate, to teach people how to use data properly, so increase numeracy and literacy skills so they can actually consume and make good decisions based on the data. And the fourth was the ultimate, which is if you don't have a culture, you don't have a modern workplace, you don't have the infrastructure. Well, then that's all pipe dream, right? So without the people and their commitment, without the enabling infrastructure, this doesn't work. So those are the five pillars on which we embarked our modernization journey. And we listened and we listened and we listened and we heard, we said things like, you know what, kudos are great, but criticism is what we look for, because that's what's going to get us to be better. And that's Think about that for a government organization going out there and saying, Could you please criticize us right, as if we don't have enough already, so that that was the genesis of of of partnering, and so many hubs and portals and and collaborations.
And so if you look at, you know, where Statistics Canada is today compared to, you know, our thinking back in 2016 I think it's a very different place. And if you look at the data ecosystem, it's a very different place. You look at the technologies today, look at AI, right? We talk about AI, and we were just talking earlier, AI functions on data. And if you don't have good, standardized, interoperable, coherent data, what do you think you're going to get out of AI? AI cannot, cannot, as much as people might tell you, it cannot deal with the biases. So good data and our commitment to good data is absolutely crucial. So I'll just leave you with kind of three points. The first point, I would say, is we are we're living in a in an era where trust is really difficult to come by. Right? Who do you trust? What do you trust? And it's data have been weaponized in a sense, right? Look at false information. Look at disinformation. Now. They upset social cohesion. They upset democracies. They upset our our social and our economic well being, and good data. As difficult as it might seem, good data, and our commitment to good data and making it available is an investment in building trust and trust, if you looked at the latest Edelman Trust Barometer. You know, we're looking at historic lows when it comes to trust in institutions and leaders and organizations, private and public and academic and you name it. We've never seen such decline trust numbers in the 25 years that they've been doing it and in Canada as well, unfortunately. So trust data are not inseparable. They're actually very integral. The second point, if I could leave you with, is that more data responsibly collected and responsibly used can actually be very, very informative and a strategic advantage for us as Canadians, for our businesses, for our for our country. I mean, just think about it. The other person on the other side of the table has better data, more timely data, more granular data, they will out, do you in terms of their strategic advantage. And that happens. Unfortunately, you have to say time and time and time again, when our competitor is sitting there and they they know more about our shipments, for example, than we do so data at the granular level, that is high quality, that is timely, is actually a competitive advantage, and we need to work together collaboratively to make that happen. The third point that I will leave you with is investment in data is not separate from an investment in the policy outcome, investment in data, in the infrastructure, is critical if we are to be effective in our policy making. And yes, there are going to be difficult times. There's always cycles, there's cuts, etc, but I'm absolutely. Convinced that with the kinds of partnerships like the business data lab, where you've got multiple players, you're bringing expertise to the table, and we're building that base infrastructure that everybody can access and use is to our competitive advantage.
Outro 35:18
Thanks for listening to Canada's Economy, Explained. Follow us for updates and visit businessdatalab.ca for free tools and insights and be sure to join us next time you.