Is faster economic growth achievable?

My recent opinion piece (Does balancing the budget resonate anymore? Oct. 10) pointed to the dilemma federal and provincial governments face because of slow economic growth.

Governments seek to advance agendas that typically involve new spending and, in an age of slow economic growth, requires expenditure reductions elsewhere, higher taxes or increased budget deficits. While governments and the public seem to find increased budget deficits the most palatable solution, there is a limit to that method of funding new government initiatives.

Canada’s economy has grown more quickly than other advanced economies this century, but not in per capita terms. Figures from the International Monetary Fund show that real gross domestic product (GDP) per capita grew by only 0.7 per cent per annum this century, comparable to that in France and Japan, but well below the U.S.’s 1.2 per cent and the G7 average (one per cent). Manitoba’s GDP per capita has only grown at about two-thirds Canada’s rate this century.

The crux of the problem is that real growth per capita, and hence growth in government revenue per capita, has been even slower in recent years. Canadian growth per capita was only about 0.4 per cent over more than a decade leading up to the COVID-19 pandemic, and declined in each over the past two years as 1.5 per cent real GDP growth was swamped by three per cent population growth.

As population growth slowed sharply in 2025 under more restricted immigration, real GDP flatlined, declining 0.4 per cent in the second quarter followed by growth of less than 0.1 per cent in the third quarter. Current trade and tariff uncertainty suggests that a recovery in growth (and revenue for governments) is not just around the corner.

Growth has become a more important focus of macroeconomics, in part due to the success achieved in understanding monetary and fiscal policy as stabilization tools. In recent years alone, these tools have helped to steer Canada and other advanced economies through a financial meltdown in the U.S. and a pandemic. While smoothing economic fluctuations remains an important foundation for sustained growth, it is important to understand what else might contribute to the process.

The rate at which production advances depends on the accumulation of physical and financial capital, the rate of increase in labour inputs and their quality and technological advancement. Governments are constantly attempting to attract capital and expand their base of workers and their skills to satisfy new production requirements. But the technological component, or know-how, is also important to transform these inputs into high quality goods and services as quickly and cheaply as possible.

An important component of modern macroeconomics research is endogenous growth theory, which shifts the focus from external factors such as foreign investment, toward internal factors such as human capital, research, development and knowledge spillovers. As Trump tries to divert foreign resources into U.S. manufacturing, what can Canada and other countries do to boost these internal factors that can accelerate growth?

The latest Nobel Prize in economics rewarded three economists for studying these questions from theoretical and historical perspectives. One, Peter Howitt, is a Canadian now teaching in the U.S. but whose foundational research in this area was conducted at the University of Western Ontario in the ’80s and ’90s. His research argues for industry innovation by a competitive research sector in a process characterized by creative destruction, as new and better ideas in the production of goods and services displace their less effective forebears.

While the focus is often on large projects to develop infrastructure and attract investment from successful private enterprises, less attention has been paid to stimulating the innovation process. A commonly used measure of national innovation, successful patent applications per capita has declined in Canada over the past decade, such that we rank near the bottom among developed countries. For its part, Manitoba ranks below the Canadian average — on par with the Atlantic provinces, and well behind Ontario and Alberta. Declining patent activity reflects our slowing productivity and economic growth.

The Manitoba government recently commissioned the province’s first innovation and prosperity report. Chaired by Jim Balsillie of BlackBerry fame, his task force report bemoans our inattention to the shift from a production economy to one that is knowledge-based and data-driven. It recommends a strategy worth heeding, that concentrates on owning and controlling intellectual property, data and artificial intelligence, while building a skilled workforce capable of adapting to economic change.

Premier Wab Kinew has recently mused about building Manitoba into a have province through megaprojects that rely on Manitoba’s renewable energy resources. This approach may only follow innovation elsewhere, rather than create a prosperous future without plans to stimulate and own whatever pioneering processes emerge. In other words, we need to follow the evidence and technology with institutions that promote the capture of the benefits of better production processes originating from the ingenuity of the human mind.

Developing those minds through education and training inside and outside local enterprise, and attracting talent outside our borders, must be priorities.

Wayne Simpson is professor emeritus (economics) at the University of Manitoba.