Monday, September 22, 2008

Low Growth a Good Idea?

Heresy: The upside of low growth from The Toronto Star might have even more to say now that American taxpayers are bailing out our banks.
"And now there's the concept of slow growth to challenge conventional wisdom, which maintains prosperity depends on fast growth, meaning an annual increase in gross domestic product (GDP) in the range of 3 per cent.

However, says David Foot, economics professor at the University of Toronto and author of Boom, Bust and Echo, a standard of living can remain high, and even rise, while the growth rate drops.

This borders on economic heresy. But Foot is a demographer, and he insists that 'Demographics is the dominant determinant of an economy.' By demographics, he means age distribution within a society.

If a country has a large bulge of young people coming into the job market, the economy can grow at a quick pace if basic ingredients are in place, such as entrepreneurial skills and available technology. The young workers will provide a growing market, their purchasing power will enlarge the economy and from this base exports can take off.

Meanwhile the standard of living will grow, and this is what has been happening in Brazil and China. In China's case, as Foot points out, 400 million people have been taken out of poverty in the past decade.

On the other hand, if the bulge in population is among people in middle age or older, there will be fewer workers looking for jobs and wages will increase."

***

But there are catches. Canada is a trading nation. Exports account for about a third of our GDP, so we need to stay highly competitive in a demanding global market. We have advantages: a skilled services sector; rich natural resources; tremendous agricultural capacity.

However, we need to stay creative, dynamic and up-to-date and this requires reinvestment by both government and business. Without it, Foot says Canada will experience "a long, gradual decline in relation to other countries."

Unfortunately, a lot of manufacturing is now controlled from outside the country, and as Foot says, profits have been going offshore.

Those last three paragraphs made me think especially of Indiana.

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