COVID-19 recession: Why traditional economic tools will not restore job losses

At every Canadian election, federal or provincial politicians promise to create more jobs. Easier said than done at the best of times. The COVID-19 recession adds unique elements to the challenge.

Instinctively, governments will use expansionary monetary policies (interest rates and money supplies) or expansionary fiscal policies (taxation and government expenditures) or both to stimulate job growth.

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Unfortunately, these policies can take up to six months or more to prompt economic gains if, in fact, they will work at all during the current atypical recession. The exception may be government funding for necessary infrastructure programs.

The Bank of Canada has lowered interest rates with the hope that this will cause consumers to borrow and spend more resulting in businesses expanding and hiring additional workers to satisfy increased demand.

However, once a major recession is underway, most people are too poor to spend or borrow no matter how low interest rates are. Banks can become unwilling to lend as personal credit scores tumble and personal savings are depleted.

Lower interest rates might help some in the middle class to renegotiate mortgages or consider new house purchases. As for the upper middle class and the rich, it has been shown that interest rates rarely effect their spending habits and that includes the expansion of their businesses.

Canada is also using quantitative easing to increase the supply of money and liquidity in the economy. Again, the intent is to give a boost to product and service demand by making credit more readily available from banks.

This policy is often referred to as “printing money.” In short, the government creates financial instruments to purchase bonds and securities resulting in the money being released into the economy.

As with lowering interest rates, there is no concrete evidence that using quantitative easing will lead to increased consumer spending and therefore job creation during the current severe recession.

It might assist the rich to acquire more possessions and stock markets might spike, but it will do little for those who have lost their jobs or are afraid they might.

The Canadian government and provinces have taken extraordinary and laudable efforts to get cash straight to individuals and small businesses in need. This puts money directly into the economy without the banks and other institutions acting as gate keepers.

However, as would be expected at this time, these singular allocations have been modest and temporary. At this writing, the federal government is attempting to re-establish the employment insurance program as the focus for ongoing funding.

A compelling argument can be made for establishing a guaranteed annual income even as the current crisis continues. This would assist ordinary Canadians to better weather the ups and downs of the economy, now and in the future, with one simple, reliable and well-funded program.

Infrastructure programs can create many jobs and robust economic spinoffs. However, the fact remains that most of these jobs are temporary and only available to certain trades and professions.

Governments could institute focused and expedited training programs to allow a broader spectrum of the unemployed and underemployed to participate in these projects.

If the quantity and size of infrastructure programs were maximized, then the number of jobs created as we ease out of this recession might well be sufficient to allow small- and medium-sized businesses to reopen. Reducing payroll taxes for new hires would provide a further incentive.

In short, policies such as infrastructure projects, efficient retraining, reduced payroll taxes and the beginnings of a guaranteed annual income system are some the of tools we can rely on to help restore economic growth during and after the pandemic crisis.

In the longer term, governments in Canada need to come to terms with the fact that our future must include a focused industrial strategy using skilled workers trained in all the proven tools for cleantech advanced manufacturing. As the European industrial heartland has shown, an advanced sector is capable of weathering heavy economic storms.

Given the sorry state of Canadian entrepreneurialism, this shift will likely require Crown corporations to lead the way and then, perhaps, pass off what is created to the private sector. The neo-liberal notion of handing out money, free land and tax exemptions to start-up, small and medium sized businesses is completely discredited. Instead, a focused industrial strategy based on advanced manufacturing is the future.

Ken McFarlane assisted in developing and commercializing nine advanced materials technologies in Europe and North America. He chairs Regeneration Group LLP, which undertakes economic development projects on four continents. Ian Waddell is a former MP and B.C. minister of small business.

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