Why Canada could be in for an amazing economic renaissance once the government aid taps are turned off

This column by Armine Yalnizyan was originally published by the Toronto Star on Wednesday October 20, 2021. Armine is a Contributing Columnist to Toronto Star Business featured bi-weekly.

The feds will stop helping soon. Should we be worried?

At some point the federal government will stop helping us get through the pandemic. That’s a rather grim thought given that the scheduled sunset date for extraordinary pandemic-related emergency supports to businesses and individuals is Oct. 23. This weekend.

Wave four of the pandemic is still unfolding across the country. As long as governments restrict business activities for public health reasons, they have an obligation to help. With a new cabinet due Oct. 26 and Parliament restarting Nov. 22, expect federal help to be extended.

How long for is anyone’s guess and, while that’s worrisome, help has been tapering off anyway. As restrictions have eased, both requests for assistance and the amounts paid out are down.

Still, today there are more than double the number of long-term unemployed (389,000 people have been actively looking for work for the past half year). And while many businesses have reopened, many can’t see a path to profitability.

How bad will the day of judgment be? I see three possible scenarios.

The first is a nasty recession. In the U.S., they’re already on the brink of one. Here, too, the economy could shrink again. Thousands of zombie businesses (dead, but still moving, thanks to federal largesse) may finally be buried. Business bankruptcies are down 36 per cent across Canada (down 50 per cent in Ontario) compared to 2020. That’s on top of the “natural” deaths of businesses in Canada, which numbered around 90,000 a year before the pandemic. If income supports are cut before enough people are working again, critical purchasing power that fuels job growth could be lost. Fewer buyers mean fewer sellers.

Second scenario: a protracted period of “slowth” — not recession, but slow or no growth. Economic growth is never uniform. In good times and bad, some aspects of the economy are expanding while others contract. Sometimes that nets out near zero. On average, 96,000 businesses are created every year and about 91,000 die — half of Canada’s startups last less than nine years. At the end of 2019, there were 1.23 million businesses, of which 1.2 million were considered small (less than 100 employees).

As both birth and death rates of businesses have slowed, the average length of time workers spend on the job has been rising, from just over seven years with the same employer in the late 1980s to almost nine years in 2020. More people may be getting paid better because of labour shortages, but a shortage of workers due to population aging may lead to more on-demand arrangements that usually pay workers more poorly. Hence the Ontario government’s recent announcement it will crack down on temporary agencies.

That brings me to the third option. If I was a betting girl, I’d put my money on an economic renaissance. In the aftermath of all plagues, much is lost, but that clears the ground for something new. That’s the moment we are in, because the pandemic has revolutionized so much.

Yes, 1.4 million people are still unemployed, a quarter of them for a very long time, but months of talk about essential workers as heroes is translating into action as more people demand better treatment. That’s what happens when decades of labour surpluses turn into decades of labour shortages, everywhere. Labour becomes more valued.

The pandemic made the old model of globalization choke. Global supply chains that created super efficiencies, lowering prices of inputs and final goods and services, are now bottlenecked. Lean and mean but brittle just-in-time-production will still be the choice for some producers, but new logistics are also emerging. More businesses are looking for more backup suppliers and considering warehousing more inventory, and there are more localized solutions.

The pandemic made remote work more commonplace with the aid of digital technologies. While work-from-home may ultimately translate to more outsourcing, we now know how to get more people access to at least some health and educational services. Some of us have discovered new people doing similar work around the world and learned from them, in real time, without travel. Cue a wave of greater wellness, innovation and collaboration that will spur untold innovations.

The pandemic also spurred e-commerce’s meteoric rise. More efficient distribution networks and warehousing have reduced waste, both in our greenhouse gas emissions and time spent shopping. Acres of fallow downtown office towers and strip malls are already built assets that could be repurposed for residential, community and personal care needs, or even more urban agriculture.

Of course, for every charmed example I’ve listed, there are devastatingly evil equivalents. But we’re almost through a pandemic that has revealed new sightlines for greater well-being and creativity than we have seen since the last wave of public health innovations at the turn of the last century which normalized clean water and safe milk through pasteurization.

What happens when the feds stop helping? We can all imagine the bad things. But good things are also possible. Don’t be worried about what happens next. Be clear about what could happen and help make it so.