Middle-income anxiety: the big beast of Canadian politics
‘Middle-income Canadians won’t be impressed by the billions of dollars the beasts show to Carney. They want Carney to show them the money in their paycheques,’ writes Ken Polk. / ISTOCK PHOTO
A month from now, a gaggle of some of the big beasts of global investment are expected to arrive in Toronto to take part in what Prime Minister Mark Carney has hyped as the “first-ever” Canada Investment Summit. Carney has a lot on the line at the summit.
If nothing else, this will be an acid test of the Prime Minister’s much vaunted global rolodex; his network of high-level relations he has developed over a stellar public and private sector career. So high-profile no-shows could be a deflating foreground to the event itself. The ongoing silence of the PMO in terms of confirmed attendees may give one pause, especially as the schedules of top investors are set well in advance of any event.
Above all, it will be a test of how inviting Canada is as an investment destination in the priority sectors the Prime Minister never ceases talking about: critical minerals, energy (clean and fossil), AI, infrastructure and others. A paltry number of small deals would not be a good look.
There is also the small matter of reaching — or not — some kind of trade deal with the United States by the Aug. 19 deadline imposed by President Donald Trump. Set aside for a moment whether any investor could ever feel secure about a deal negotiated with a President famous for going back on his word, not landing a deal acceptable to Canadians could also undermine the Summit before it begins.
Passing the paycheque test
But let’s allow for the moment that all goes well at the Summit and with the U.S. Let’s say the Summit attendees are impressive, deals announced are enormous and the trade situation with the U.S. becomes more settled. Even if all of this unfolds according to Carney’s plan, there will remain a vital hurdle to be cleared. Indeed, politically it may be the highest hurdle: whether middle-income Canadians feel the benefit where it matters most to them: in their paycheques.
You may remember that during his pre-Carney political ascendancy, Opposition Leader Pierre Poilievre was fond of throwing around a promise that “powerful paycheques” would result from his then government-in-waiting. The slogan sounded odd. What is a powerful paycheque? But it captured an important issue.
It has been widely argued that the fuel that has powered anti-government populism in the United States, Canada, indeed, throughout the western democratic world, has been provided by an abiding squeeze on middle class purchasing power.
Canadians are, in many measurable respects, richer than they were a generation ago. Yet a growing number, particularly younger Canadians, feel the economic system is no longer working for them. Food and gas cost too much. House prices are too high. Student loan debt is too heavy. Parents worry their kids will suffer a lower standard of living.
That gap between economic statistics and lived experience is one of the most important sources of the political dissatisfaction that Poilievre’s slogans resonated with.
The Productivity Paradox
The standard economic theory as to how Canada can address this income squeeze is by increasing our productivity growth, which by all measures has been weak for over a generation. Orthodox economic theory predicts that an economy needs to become more productive for paycheques to rise sustainably.
Stronger productivity growth, it is said, is actually something of an economic magic wand. It is the engine that creates room for higher wages. If Canadian productivity grows rapidly, the theory goes, then governments can simultaneously have: rising wages; rising corporate profits; rising tax revenues; improving living standards; and more money for public services.
Everyone wins. Except where they don’t. Which is the surprising case in the world’s productivity powerhouse: the United States.
A recent article in the Globe and Mail surfaced this productivity paradox. The article reported that “The U.S. economy is seen by many as the envy of the developed world. It has high income per capita, low unemployment and strong productivity growth. … Since 2000, according to Statistics Canada, labour productivity in the U.S. has outstripped that in Canada by more than 15%, which is a large and consequential difference.”
But the article also reported that “When we compare the growth of wages in Canada versus the U.S. since the early 2000s, only the top 10% of wage earners in the U.S. have been doing significantly better than their Canadian counterparts. The gains from productivity growth in the U.S. have not only been distributed more unequally than in Canada, but they have not even allowed most American workers to experience higher wage growth than in Canada.”
In other words, middle-income earners have been doing better compared to their American counterparts even with our productivity deficit.
I cite this story not to suggest that Canadians who complain about the income squeeze should just stop whining. That would be to take a page from the Justin Trudeau economic playbook, which boosted Poilievre to his daunting but temporary 20-point lead.
It does seem to mean there is a necessary role for governments to play to ensure that the income growth generated by higher productivity is shared broadly; that everyone’s paycheque becomes more powerful, so to speak.
This is not a simple policy problem to solve.
Governments can cut taxes, for example, but that can reduce the money available for public services and investment. They can regulate businesses more heavily, but excessive regulation can worsen Canada's clear productivity deficit.
They can promote private sector investment, but investors need confidence that Canada is a competitive place to invest. Or they can raise wages through labour-market policies, but wage growth ultimately has to be supported by productivity growth.
So the crucial economic problem facing Prime Minister Carney as he heads into the meat of this mandate is how to find a policy balance that both spurs productivity growth and boosts middle class paycheques.
The Prime Minister can hold all the investment summits he wants. He can strike a trade deal with the United States that passes political and economic muster. But all of this will be irrelevant to solving the lingering, if currently latent, issue of middle-income economic dissatisfaction.
And that means thinking about things like competition, worker bargaining power, skills, housing, capital ownership, taxation, corporate governance and access to investment, not simply productivity.
The big beasts of global investment who come to Toronto next month don’t care about this. They are about profit. That is how they became big beasts in the first place.
But middle-income Canadians won’t be impressed by the billions of dollars the beasts show to Carney. They want Carney to show them the money in their paycheques.
