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Mushrooms and Yeast: The Implications of Technological Progress for Canada's Economic Growth

Author

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  • Peter Howitt

    (Brown University)

Abstract

Whether Canadians talk about income inequality, regional growth or technological change, it is clear that economic growth is not uniformly spread across the country. Canada is not unique in this regard: modern economic growth theory shows that economies grow like mushrooms, not yeast. Instead of expanding uniformly like bread in the oven, economic growth pops up sporadically like mushrooms in the forest bed. Economic growth is a process of unpredictable “creative destruction” in which there will be winners and losers. The policy discussion around this kind of growth has often focused on the consequences for those left behind by change. It is often easier to identify those who lose from technological changes, while the winners are diffuse. Policymakers should also think more about harnessing uneven economic growth. From international trade to education policy, this Commentary shows how governments should think about the mix of targeted and economy-wide policies they should introduce to grow the Canadian economy. With increased international trade, Canadians as a whole will benefit not only from lower prices, but also from the more rapid productivity growth that will result from increased innovation by domestic firms as they seek to compete against foreign firms that can enter the Canadian market. Exchange-rate movements have many conflicting and uncertain effects on both the level and growth rate of domestic productivity. Since monetary policy cannot affect the real exchange rate in the long run, the Bank of Canada should continue to focus not on the exchange rate, but on its inflation target. Existing small business tax preferences are unlikely to promote productivity growth. Job creation is fostered not by small businesses per se, but by the young businesses that are the agents of creative destruction. The Canadian telecommunications industry is ideally suited to benefit from enhanced innovation and productivity growth in the event of a serious threat of entry by foreign firms large enough to enjoy significant scale economies. To take advantage of that possibility, the federal government should eliminate foreign ownership restrictions in the industry. Universities should also pursue independent research programs that foster basic science. Community colleges should focus on giving workers the skills they need to work with the most up-to-date technologies. With growth comes change, and it is time that Canadian policymakers think about how that change occurs and how best to use it for the benefit of Canadians.

Suggested Citation

  • Peter Howitt, 2015. "Mushrooms and Yeast: The Implications of Technological Progress for Canada's Economic Growth," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 433, September.
  • Handle: RePEc:cdh:commen:433
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    Citations

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    Cited by:

    1. Rosalie Wyonch, 2018. "Risk and Readiness: The Impact of Automation on Provincial Labour Markets," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 499, January.
    2. Daniel Schwanen & Jeremy Kronick & Farah Omran, 2019. "Growth Surge: How Private Equity Can Scale Up Firms and the Economy," e-briefs 292, C.D. Howe Institute.
    3. William B.P. Robson & Alexandre Laurin, 2019. "Less Debt, More Growth: A Shadow Federal Budget for 2019," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 531, February.
    4. Poloz, Stephen S., 2021. "Technological progress and monetary policy: Managing the fourth industrial revolution," Journal of International Money and Finance, Elsevier, vol. 114(C).
    5. William B. P. Robson & Alexandre Laurin & Rosalie Wyonch, 2017. "Getting Real: A Shadow Federal Budget for 2017," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 470, February.
    6. Jeremy Kronick, 2018. "Productivity and the Financial Sector – What’s Missing?," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 508, April.
    7. William B.P. Robson & Alex Laurin, 2016. "Where the Bucks Stop: A Shadow Federal Budget for 2016," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 447, March.
    8. William B.P. Robson & Alexandre Laurin & Rosalie Wyonch, 2018. "Righting the Course: A Shadow Federal Budget for 2018," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 503, February.
    9. Robin W. Boadway & Jean-François Tremblay, 2016. "Modernizing Business Taxation," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 452, May.
    10. Matthias Oschinski & Rosalie Wyonch, 2017. "Future Shock? The Impact of Automation on Canada’s Labour Market," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 472, March.

    More about this item

    Keywords

    Innovation and Business Growth;

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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