Transcript
Transcript: Economic Headwinds and the Role of Government
[00:00:05 Text appears onscreen:
"Canada's Strategic Challenges Series"
"Economic Headwinds and Role of Government".]
Narration: On September 22, 2025, economist Armine Yalnizyan spoke at a session of the Geopolitics and National Security Development Program for federal government executives. In the discussion, Ms. Yalnizyan examined the challenges that slowing economic growth poses for Canada, along with the importance of government and good policy in protecting the well-being of Canadians.
[00:00:40 Armine Yalnizyan is shown sitting next to two panelists.]
Armine Yalnizyan (Economist, Atkinson Fellow on the Future of Workers): We got a brand new world unfolding for the federal public service.
[00:00:44 Text appears onscreen:
"A New Wave of Economic Reality for Canada
Atkinson Fellow on the Future of Workers
- Canada School of Public Service
Geopolitics and National Security Learning Program
It is going to challenge you to come up with a new growth strategy and a new industrial strategy in the time where growth is slowing and recession is at our doorstep.
[00:00:51 Text appears onscreen:
"Overview
- New growth and industrial strategy
- Slowing growth or recession
- New context and your role".]
But the challenge is to grow and to have a new industrial strategy. So, that's why I'm going to talk about this context and what it means for the role that you play at your level of federal public service. Next slide, please.
[00:01:11 Text appears onscreen:
"What Will Propel New Growth?"
"More investment, less spending"
- More market, less government?
- Different fiscal accounting?
- Will return on investment of public spending extend to human capital (care economy)"
"Military Keynesianism
- Who benefits most? Canada? United States? Europe? Others?
- Will boost in defence spending offset job loss and industrial capacity loss due to trade war?"]
So, what is going to propel new growth at a time when growth is being debunked? So, we are told more investment, less spending. Can I just say that that is a cipher of a statement? It could mean more investment, less spending for the federal expenditure line. It could mean more market, less government. We don't know yet. We won't know what that means as we break up fiscal accounting into operating and capital. We won't really see what is meant by that. We do know that $150 billion of federal public investments is supposed to lever over a trillion dollars in private sector. That's the plan.
So, my big question as a Canadian citizen that has no control over how foreign businesses are going to invest is, how is my own taxpayer's money going to deliver returns on investment for what we are spending on our own people? And will that extend to the human capital part of our own social and care economy? Now, we know we found $9.3 billion in the couch cushions a few months ago to spend more on defence, and that defence spending as a share of the economy is going to more than double in the next five years. Is this military Keynesianism? We don't know because we don't have a budget yet.
But the question you need to be asking is, who's benefiting from this additional… the only obvious place that we are going to be spending a lot more on an operational and a capital sense is going to be through defence. That could mean that we are going to be spending more in Canada, and it will mean that. But then, is the titre of that mixed with, we're trying to form new alliances that are not to the south of the border, we still are planning on buying F-35s. How much of this money, our Canadian taxpayer money, leaks offshore to support the builders of fighter planes or whatever it is that we need to defend ourselves and to build alliances with other partners at this incredibly fractious time?
And then, the question is, in the money that is spent on Canadians in Canada, will it be enough to offset the absolutely predictable decline in jobs that is going to flow from investors looking at our market, realizing how expensive it is to get into the American market, and relocating? Right now, the steel proposal, how do we protect steel, envisages helping to up to 10,000 workers. There were 20,000 workers in all steel manufacturing at the beginning of the year. We're envisioning 50% of the workforce being cut. And when I talk to Unifor, I can see that that's the same thing going to go on with the D3 right now, even though they had just announced they're going to keep their third shifts at Stellantis and GM, which is cool, great news. It is a put-your-finger-in-the-dike-and-wait-and-find-out-what's-going-to-happen moment. So, we don't know how much we're going to lose but it's going to be in the tens of thousands of jobs. Next slide, please.
[00:04:20 Text appears onscreen:
"Canada Strong Needs an Industrial Strategy"
"The shift to a high-innovation economy means a shift from a return to primary- or staples-based exports".
A line graph of data from ISDE shows the% of Primary exports over time between 1990 and 2024.]
And by the way, I didn't even reference the cascade effect, but the cascade effect being once it hits those trade-exposed sectors, it affects retail spending, it affects service spending. So, people that have got nothing to do with trade are going to get some blowback from this.
Now, this is a chart from a fact book that Jim Stanford put together. The data comes from ISED and it shows that in 1990, about 25% of our exports to anywhere in the world were in primary, the staples. Do you guys know what the staples theory is? This is what Canada was founded on economically, the hewers of wood, the drawers of water, the fur trade, all of these things is the staples theory of economic development before we build our railroads. Well, that has continued apace. It was about 25% of all of our exports were in primary in staples like agricultural products. That fell to 20% in the year 2000. But now, it's the highest it's been since ISED started keeping these records, and we're close to 50% of what we ship is a staple, and what's that staple? Primarily, it's oil and gas, right? And it mostly goes to the United States. Next slide, please.
[00:05:47 Text appears onscreen:
"Industrial Strategy Needs to Incorporate the Economic Powerhouse: The Care Economy".
A column graph of data from Statistics Canada Table 31 10 0434 03 shows the "Top 10 Industries in Canada in 2024 by contribution to GDP"]
But what we keep ignoring is the degree to which the care economy is actually the number one driver of GDP in this country. We think of it as a derivative. It's what we do once we have grown the economy, but it's actually now bigger, and the care economy I'm folding in two StatCan industrial sectors, health and social assistance and education. There are three points, 13.6% of the economy, bigger than real estate and rental, which you really don't want to be driving your economy as we have noticed. It is one-and-a-half times the size of all manufacturing, not just trade-exposed manufacturing. It is twice the size of construction and it is almost three times the size of all mining, all quarrying, and all oil and gas extraction, and we ignore it like it's like a nothing burger. Next slide, please.
[00:06:40 Text appears onscreen:
"The Care Economy: The Single Biggest Source of Earned Income for Canadians".
A bar graph of data from Statistics Canada Table 14-10-0023-01 shows "Figure 11: Employment by Sector, 2024".]
And it is the biggest source of earned income for Canadians by a country mile. There's no other source of employment. Over 21% of all jobs in Canada are in the care economy, and yet we treat it like it is something we don't need to address in an industrial strategy.
[00:07:05 Text appears onscreen:
"Why Add Care? Because the economy is slowing, for reasons you can't avoid."]
We need to address it in an industrial strategy because, next slide, please, why do we need to add care? Partly because of demographics, but I'm going to show you why the economy is slowing. I'm going to give you the main reasons why the economy is slowing, and these are for reasons that nothing you are going to come up with, with a policy, is going to turn around in your time as a federal public service. Next slide, please.
[00:07:26 Text appears onscreen:
"Slowing Growth"
"Highest dependency ratio since the 1960s but for much longer and with less than half the GDP growth."
An area graph of data from Statistics Canada shows "Figure 2.7 Demographic dependency ratio, observed (1921 to 2013) and projected (2014 to 2063) according to the medium-growth (M1) scenario, Canada."]
This is the demographic curve. It goes back to 1920 and it goes out to 2061. It's an old StatCan chart. It's old because if you were to do exactly this exercise today, see that blue line in the kind of greyed out area which were projections, that area is the number of kids, children under the age of 14, too young to work, and then over 65, too old to work. So, you can see that that greyed out blue line is falling precipitously because of the drop in the birth rates that is happening all around the world by the way. This is not unique to Canada but Canada is kind of leading the parade on this one. So, we have a very high dependency ratio. It is very different than it was the last time we saw it, which was when the baby boomers were born in the 1950s and 60s, at which time we had a growth rate of between 6 and 8%.
The only time we came close to the 4 or 5% Anil was talking about in terms of a desired growth rate is when we re-opened the economy after the pandemic. We're not going to get 6 to 8% growth rate again any time in the future. We're actually contracted in the last quarter. We may be in the middle of a recession. We'll find out on November the 28th whether it was two back-to-back quarters of contraction. But whatever it is, we're less than 1% growth with the highest dependency ratio on the smallest working age cohort that we have seen in 60 years. You think these people that have kids don't need help? You think these people that have aging parents don't need help? They're the ones carrying the load for everybody. Next slide, please.
[00:09:10 Text appears onscreen:
"Slowing Growth"
"Growing inequality…and intolerance"
- Rising concentration of wealth
- Ownership trends, changing ecosystem of business sector (fewer small players)
- Ripe for politics based on rage farming and othering
- Target: outsiders—often newcomers and immigrants".]
Slowing growth is also a result of growing inequality. There was an IMF study done, God, I think before the global financial crisis, showing how higher inequality meant more economic volatility, meant slower growth overall. Okay, so, growing inequality is a factor for slowing growth but it is also a factor for rising intolerance. You can trace back the growth in me-first-ism and in intolerance of others to the global financial crisis. You can go right back to the wake of the 2008/9 financial meltdown that saw trillions of dollars just evaporate, and see the Arab Spring, see basically the beginning of Brexit was David Cameron in 2010 saying we're only going to accept 100,000 immigrants, and never could deliver because of what I'm going to show you in a minute, ripe for politics of rage.
People are farming this rage because of the growing inequality and the sense that you have no control, which is what makes people say, me first, I'm going to take care of myself first. This is what makes Russia say Russia first. It's what Britain said, Britain first. It's what the U.S. is saying with MAGA, it's me first, the hell with the rest of you, and the target is often not others. Well, it's others. It could be transgendered, it could be anybody, but the target is most often newcomers and we just saw it this summer with youth unemployment soaring but not because of newcomers. Next slide, please.
[00:10:49 Text appears onscreen:
"Slowing Growth – System breakdown"
"Shifting global world order:
- Not one superpower and one enemy, United States and Russia
- Emerging roles of China and India
- Emergent axis of dictatorships (get power, keep it, make the rules to suit your mood)"
"Regulatory and institutional breakdown, internationally and domestically:
- Unable or unwilling to enforce rules
- Lack of international consensus or momentum"
"Misinformation, disinformation, explicit destruction of official statistics"
"Weaponized social media".]
System breakdown will slow growth. You've got a shifting world order where it's not your daddy's economy globally, right? It's not the U.S. versus Russia. It's not Europe. It's not the old China, which is also slowing because of population aging due to their one child policy in the 1980s. Korea, by the way, South Korea is aging the fastest of any country in the world, right? So, it's no longer Japan is leading that race. And then, you've got this emergence of dictatorships. This whole me first thing that is going on everywhere politically has given rise to a bunch of dictators, and they are getting power, they are keeping power, and they are changing the rules so they make sure that they can do whatever they want. With this comes a loss of regulatory and institutional security, both internationally and domestically.
The people who make the rules seem less and less willing to enforce the rules on the people that are not deemed to be the others. If you're in power, you make the rules, you enforce the rules as you see fit. That could mean victimizing people and it could mean giving you and your buddies a free pass. And because there is no international consensus right now, the WTO, the GATT, the UN, the everything, it matters not, to anybody, at this stage. We are recreating where potential international consensus could be. The only consensus right now is the axis of dictatorship which seem to be all playing by the same playbook. And of course, as Anil said misinformation and disinformation and explicit destruction of official statistics is helping weaponize social media where most people are getting most of their information. Next slide, please.
[00:12:40 Text appears onscreen:
"Slowing Growth – Counterproductive responses"
« y = f (L, K)
- y = output or GDP
- f = the technological mix that creates aggregate productivity
- L = labour
- K = capital
"Do the math
- Forty years of falling birth rates means nearly 100% of labour-force growth comes from immigration
- Productivity has flatlined since 2015
- Business investment is falling
- Reduce immigration because of anger about jobs or housing, and watch your economy shrink".]
So, I'm going to do economics 101. See this chart on the left? Y equals F, a function of labour and capital. Y is GDP or output. F is that famous productivity which applies to your system. Labour is the L and K is capital. So, let's do this math. We're talking about GDP that is maybe shrinking. But in any case, we are looking at everything starting to slow down everywhere around the world where there was a baby boom after the Second World War. The world is slowing down, especially a systems breakdown. So, you've got 40 years of falling birth rates. So, nearly 100% of our labour force, according to the Minister of Immigration, nearly 100% of our labour force growth came from immigration. So, if you're not going to love immigrants, that's going to have an impact because productivity has actually fallen in Canada since 2015.
Why? The oil price, global commodity price of oil, collapsed and everybody started talking about disinvestment. And oil and gas was the main reason for business machinery and equipment increases. So, business investment is falling, productivity has flatlined, and the only source of growth for the labour force, that's it. That is your function right here. That is how we get GDP growth. You want GDP growth and you say, I don't like immigrants, you're going to be heading for a recession guaranteed, because there's nothing else that's growing. Everything else is contracting. So, I don't care what you're going to say about productivity. There's no productivity wand that you can pass over an economy where the amount of labour and the amount of capital is shrinking. You're not going to reverse that story. Next story, please.
[00:14:33 Text appears onscreen:
"Slowing Growth"
"Recession? We're not recession- ready"
A column graph of data from Statistics Canada shows "Regular UI/EI beneficiaries as a% of the unemployed Canada, Average Annual Data 1941-2024, monthly to May 2025"]
And we are not ready for that recession. So, if we're talking about a recession that is not two back-to-back quarters but really sluggish growth or maybe recession for maybe a year, maybe two years like in the 1990s. We had six back-to-back quarters of contraction in the 1990s. We had four in the early 1980s when we had massive recessions. We are not ready for this. This chart shows you that from 1941, when the E.I program was instituted, to today, the latest data available, we have less than a third of people who are jobless who have access to jobless benefits. Jobless benefits are social insurance. They make sure that your recession is not as deep or as long as it needs to be. We are not recession-ready. We are not covering enough people. And when we do cover the long tenured employees, their rate of income replacement is insufficient to prevent an economic cascade of dislocation as people lose their housing, whether it's a six figure steelworker that can't re-finance his mortgage on less than 30% income replacement rate or somebody that's working in retail or hospitality and just above the minimum wage because they can't afford their apartment at 55% of just above the minimum wage, and there ain't no place cheaper to go to. So, unless we fix it, we are in trouble. Next slide, please.
[00:15:59 Text appears onscreen:
"A New Wave of Economic Reality for Canada"
- Can't address New World Order problems by applying Old World Order solutions (tax cuts, spending cuts, deregulation).
- "More market, less government" has been the formula since the 1980s. It just led to more concentration of power.
- What's new? A lot. Population aging, extreme climate events, economic protectionism, realignment of global alliances, war.
- Social and economic risks from less predictability, security and trust. More [stable] government, not less, is what the moment—and the smallest working-age cohort in 60 years — demands".]
So, the way we have been addressing this new crisis, this new world order crisis, is using, as Janice was saying earlier, using old world solutions, tax cuts, spending cuts, deregulation, 'goose up' business investment, but this more market, less government idea has been the playbook for the last 40 years. And the big question mark on inviting more investment is, are we going to ring-fence anything? I mean, we've been talking about Teck, right? Teck is going to be sold, last remaining big mining company, right? Will Canada own it or will some foreign investor own it? Are we going to ring-fence private investment in health care? Because everywhere it has gone, it has absolutely ruined health care. We pay more and we get less.
We don't have a playbook for this moment, and so much is new. It's not the last 40 years. Population aging is not what we've been dealing with in the last 40 years. Extreme climate events have become more numerous. Economic protectionism is not brand new but it's a decade old in its current version, and the realignment of global alliances is brand new, and potentially a Third World War also. So, we have got social and economic risks from less predictability, less security, less trust. What we need now is not more market, less government, but more stable government, stable genius governments, not less, and that is what this moment and your smallest working age cohort in 60 years need from you.
Narration: The Canada School of Public Service hosts exciting and insightful events, workshops, and courses on geopolitics and national security. To learn more, contact the following e-mail address:
[00:17:51 Text appears onscreen: "gnslp-pagsn@csps-efpc.gc.ca".]
[00:18:01 The CSPS logo appears on screen.]
[00:18:06 The Government of Canada logo appears on screen.]
