Canada may not be as wealthy as you think

Canada may not be as wealthy as you think

VANCOUVER—The resources that make Canada wealthy aren’t increasing at the same pace as economic activity, potentially leaving future generations worse off, a new report on the country’s wealth has found.

Canada’s Gross Domestic Product (GDP), a metric that captures the total economic input and output of a country, has been rising steadily since 1980. It’s the metric politicians most often cite as an indicator of economic health, but more and more leaders and researchers are saying that countries need to find something better.

“It doesn’t distinguish between activity that is beneficial or destructive to us as humans,” said Sonia Furstenau, Green party MLA for Cowichan Valley and an advocate for more comprehensive economic measurements.

“The economy should be serving people,” Furstenau said. “It should operate in service to humans and ideally to future generations as well.”

What’s missing, according to Robert Smith of the International Institute of Sustainable Development (IISD), is a “comprehensive” measurement of wealth. The concept doesn’t just apply to cash.

In a new report released Tuesday, Smith and a team of researchers from the think tank analyze how Canada fares on a number of factors that contribute to the long-term production of value, including the state of the country’s natural resources and the types of skills its people have.

“I like to think of wealth as sort of money in the bank and income is what you earn off of money in the bank,” Smith said. “And so people can be often one step away from hard times if they lose their income unless they have lots of wealth.”

The same thinking applies to countries, Smith said, which need to safeguard and add to the resources that provide long-term sources of well-being.

The IISD report looked at a number of factors, including what it calls produced capital, natural capital, financial capital and human capital. The institute found that most categories saw either a marginal increase or a decline and concludes that the country’s development has been “unsustainable” since 2008.

“All the attention gets focused on short-term measures” like GDP, Smith said. “And that tends to put too much emphasis on what is already the natural inclination of politicians to not look too far into the future.”

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The category that saw the steepest decrease between 1980 and 2015 was natural capital, the IISD report found, due to the depletion of resources like lumber, fossil fuels and minerals.

“When you think about Canada and its history, a lot of well-being has relied on extracting that natural capital,” Smith said. But the value of the country’s available resources declined by 17 per cent between 1980 and 2015, the report suggests, and climate change presents a growing threat.

The value of Canada’s financial capital (think stocks, bonds and bank deposits) and produced capital (buildings, machinery and other physical infrastructure) both rose over the same period, but Smith said there’s cause for concern.

The report states that a quarter of the country’s produced capital wealth is in only two sectors: housing and oil-and-gas. In 1980, those sectors made up only 9 per cent of produced capital.

“Economists are always saying that we need to diversify the economy, but our wealth is becoming more concentrated,” Smith said.

The finding that surprised Smith most from the study was that the value of human capital — the skills and education that Canadians can turn into earnings for themselves — dropped on a per-capita basis since 1980.

“That’s rather amazing to me in a country as technologically advanced as Canada with a great education system,” he said.

He said the purpose of conducting comprehensive wealth studies is to try to convince policy-makers to pay attention to factors that affect long-term well-being and build policy around them.

Marc Lee, a senior economist with the Canadian Centre for Policy Alternatives, said the exercise of moving beyond GDP as a measurement for economic well-being is crucial but contested.

“Depletion of natural capital is pretty serious and potentially existential,” Lee said, and “any way you slice it there are limitations to GDP.”

The communique from the 2018 G7 summit in Charlevoix acknowledged the shortcomings of measuring only economic output and said “monitoring other societal and economic indicators” is important for future well-being.

That can get complicated, Lee said, because not everyone agrees on which metrics are important — or what the numbers mean.

“There’s different approaches to doing it but it’s a worthwhile exercise for thinking about how we want to evolve as a society,” he said.

Alternative economic measurements are already top-of-mind for some B.C. politicians.

Furstenau championed the inclusion of developing a “Genuine Progress Indicator” for the province in the 2017 Green Party election platform.

The platform point, which commits to developing an indicator that includes economic activity, education, income security, health of people and the environment became part of the confidence and supply agreement between the Green caucus and the NDP caucus, which allowed the NDP to form government.

Furstenau said there hasn’t been much movement on the policy point since the agreement was signed.

“There is a growing awareness around how we are measuring things in our society and our economy generally,” she said. “ I would like people to be paying more attention to this more than they are. I would say we have a long way to go.”

Alex McKeen is a Vancouver-based reporter covering wealth and work. Follow her on Twitter: @alex_mckeen

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