Canada, like many OECD countries, has shot its bolt on monetary policy (interest rates close to zero). As the Bank of Canada admits, it has come to the end of the line in its usefulness as a stimulative policy instrument.
Canada is embarking on a policy of fiscal stimulus with infrastructure as its focus (tried in Japan but with a threatening legacy of debt and little to show for it). This policy may be of limited use in Canada if it is not targeted at productivity improvements.
This leaves only "Structural Economic Reform" as a realistic path to avoiding secular economic stagnation - slowing or negative growth. Structural economic reform is a term used by economists for removal of governance
obstacles to improving economic efficiency and therefore the growth in productivity necessary to raise living standards. It is the opposite of "ossification" which can mean the stagnation of political institutions
and the buildup of rules over time that choke economic adjustment, efficiency and productivity growth.
Canada's third option is politically challenging for it means taking on the status quo political and economic interests and old mindsets.
An important caveat: Canada's principal economic partners and allies are similarly suffering from hidebound, ossified systems and are in need of structural reforms. If the OECD, as a whole then, does not collectively address the problem of "ossification"
and the accretion of barriers to productivity improvement, then Canada's economic future will be reduced for Canada has one of the world's most trade dependent and open economies in the world.
Structural economic reforms can be introduced by international governing bodies, the federal government, provincial governments, and local governments.
Productivity improvement is critical to Canada's future success. Structural reform is our greatest and perhaps only opportunity to achieve that overall improvement in our rate of productivity growth and hence standard of living.
Given the profound nature of the looming global economic crisis, structural economic reform must be front and center on the political agenda and all
political participants in Canada must be prepared to invest political capital in our structural economic reform. The economic collapse in the Soviet Union
was driven by a failure to introduce structural reforms and its current stagnation is similarly the result of its failure to reform.
No economic or political system is immune from the need for regular reform - including our own.
Nouriel Roubini has summed up the problem: which is global.
"Finally, with so many factors dragging down potential growth, structural reforms are needed to boost potential growth. But such reforms are occurring at suboptimal rates in both advanced and
emerging economies, because all of the costs and dislocations are frontloaded, while the benefits occur over the medium and long term. This gives opponents of reform a political advantage."
We have a great opportunity if we but pay attention to the mechanisms by which persistent growth, even accelerating growth is possible We must put an end to the "rent seeking"
that is found across the country which is often aided and abetted by all political parties and at local, provincial and the federal levels of government.
Doubt that productivity is key to western democracy? Start with this speech by Andrew Haldane of the Bank of England
