How will the 2020s compare? A quick historical perspective.

Someone asked me to set our current economic and demographic situation in historical context.  As a belated Christmas present I will do so here.

I’ll start with a few caveats.  First, I don’t particularly love ‘percentage change’ as an indicator.  Going from $1 to $2 = a 100% increase whereas going from $1,000 to $1,050 is only a 5% increase but you are $50 better off compared to only $1 better off in the first example.  In absolute terms you are far better off in the second example whereas in relative terms you are far worse.  However, as a measure of progress, percentage change is still a solid indicator.

Second, I don’t particularly love ‘per capita’ as a measure.  While it is the way we standardize the comparison of different sized jurisdictions it can end up obscuring important trends that are tied to absolute and not per capita growth. For example, GDP per capita could be increasing even as GDP overall is decreasing (as long as the population is decreasing).  Having a shrinking economy is a very important issue but if you were only tracking GDP per capita you would think things are fine.

Nevertheless, the indicators below are one important way to measure economic progress.

The table below shows a summary by decade of a few economic and demographic indicators. They all come from a single Statistics Canada table that compares long term variables.

The first thing to note is that the population growth rate has been declining since the 1970s and nearly went to zero in recent years.  Although the data only goes to 2016, population growth has ticked up a bit in the past few years but will need to surge far more to get back to anything like the 50s, 60s and 70s.  As I have said before, because of our age as a province (population) we will need to get back to at least the growth rate in the 1970s to rebalance our demographic situation and ensure enough younger workers to meet labour market demand and to drive tax revenue.

Another interesting and related variable is urbanization. New Brunswick was rapidly urbanizing in the 1950s and 1960s but has gone the other way since. In 2016, 49 percent of us lived in urban centres.  This was down from 55.7 percent in 1970.  Again I want to reiterate this is not because we didn’t empty our rural areas fast enough – it is because we didn’t grow our urban centres fast enough.  Across Canada between 1970 and 2016, the non-urban population increased by 1.6 million.  To reiterate.  The non-urban population increased.  However, the urban population expanded by 13.4 million. This is why Canada is urbanizing and New Brunswick is not.

The 10-year change in the non-residential investment rate is also very interesting.  This is one variable where the decade percentage point change doesn’t properly capture what is going on.  The figure below is better.  It shows the non-residential investment rate in New Brunswick rose steadily through the 1950s through the 1980s but now has dropped to nearly historic lows. Maybe even a better way to look at this is by using annual average investment rates for each decade.  Using this measure, the non-residential investment rate went from 23.4 percent on average per year in the 1970s to 13.8 percent on average between 2010 and 2016.  Non-residential investment is critical to future economic growth.

The gross fixed capital formation figures clarify things. Residential gross fixed capital formation in real terms is down so far in the 2000s (between 2000 and 2016) and non-residential capital formation has dropped significantly.

Finally, per capita domestic demand, consumption and household disposable income are all trending downward. Even taking into account the 2010 to 2016 period is not a full decade, look at the declines.

So which decade do we want to emulate in 2020-2030?  Even adjusted for inflation the 1960s looks like a good decade to emulate – substantial growth in investment disposable income – fast urbanizing, solid population growth and a decline in unemployment.  Although as I mentioned above I think population growth will need to be much faster than 6.6 percent over the next 10-years.

What happened in the 1960s? New mills, new mines, new manufacturing, urbanization, and rapid growth in household income (look at the expansion of real household disposable income).  This economic growth was enabled by the demographic dividend arising after WW2.  A wave of young people (and increasingly more women) was entering the workforce and entrepreneurs leveraged this labour to build new industries here. Increasing tax revenue meant public spending was also on the rise in those years.

How do we emulate that?  In an era of demographic decline, increasing NIMBYism, weak household income growth and pressure on public finances?

We need new industries, a massive inflow of population and urbanization (not ignoring the very real economic development potential of rural areas).

We will keep talking about it and throwing around ideas on these pages.