Home Economy Stephen Poloz: Clear politics needed for a tight job and a weak fool

Stephen Poloz: Clear politics needed for a tight job and a weak fool

by SuperiorInvest

Former Bank of Canada governor points to lack of clear policy

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Ex Bank of Canada Governor Stephen Poloz’s tenure coincided with the emergence of two economic problems that initially appeared to be anomalies but now appear to be permanent features.

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Poloz took over as head of the central bank in June 2013, just in time to watch fool plummeted from 97 cents to the dollar to 71 cents in early 2016 as the country grappled with the ripple effects of a severe recession in Alberta amid a slump in oil.

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After the country began to reel from the effects of the collapse in oil prices, the job market began become unusually tightas the unemployment rate fell to historic lows and the vacancy rate continued to rise.

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Both trends have accelerated as a result of COVID recession, as job vacancies climbed to a record high and the dollar continued to tread water, despite a surge in commodity prices. That matters because persistently high vacancy rates and a weak dollar will complicate Ottawa’s efforts to tame inflationas the insufficient supply of workers will push wages up, while an unfavorable exchange rate will make imports more expensive.

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Poloz, who left public service when his term ends in 2020 and now serves as special counsel at the law firm Osler, Hoskin & Harcourt LLP, sees a connection between the two issues. He pointed to a lack of clear policy as a common cause, arguing that more transparent language could begin to reveal some of the problems politicians face.

“Processes must be better”

First, consider immigration.

Poloz said that for high immigration goals to provide a reliable solution to a tight labor market, the federal government will need to make the immigration process more transparent and efficient to attract more business investment.

“We still need to come together and make sure it’s enjoyable, it’s easy instead of painful, the processes have to be better,” Poloz said in an interview after a fireside chat at an event hosted by the Portfolio Management Association of Canada. Toronto November 16. “How does a business grow if it can’t recruit workers?”

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We still have to get together

Stephen Position

Poloz is not alone in thinking the immigration system needs an overhaul. Victor Dodig, CEO of Canadian Imperial Bank of Commerce, marked the problem in an October opinion piece for the Financial Post calling for a number of changes, including faster professional accreditations and an acknowledgment that housing affordability is likely to deter many talented immigrants from choosing Canada as a destination.

And Tiff Macklem, Poloz’s successor, used a recent speech point to ambitious immigration targets as a way to address structural labor shortages stemming from retiring Canadians. More specifically, he pointed to the Liberal government recently announced targets welcoming 1.4 million immigrants over the next three years, as well as “selection tools” to more easily target sectors in need of labour.

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Bank of Canada Governor Tiff Macklem attends a press conference in Ottawa.
Bank of Canada Governor Tiff Macklem attends a press conference in Ottawa. Photo by Patrick Doyle/Reuters/File Photo

Poloz said the problem is bigger. “It sounds good on paper,” he said. “But what could go wrong with that? Canada is quickly gaining a reputation as a place where it’s really, really expensive to land, so I think that’s a concern.”

While home prices have fallen from their pandemic highs, cities like Toronto and Vancouver are among the least affordable cities in the world. Additionally, rent prices have shot up, with the average price of a one-bedroom apartment in Toronto a jump of 20.4 percent to $2,481 compared to the previous year.

Poloz also pointed to a lack of funding for postsecondary educational institutions, which have often functioned as an important immigration tool in converting foreign students to citizens, and a lack of cooperation between universities and the federal government as other shortcomings. Poloz added that he expects other countries to face worker shortages and that the stakes are high for them to become more competitive on immigration policy.

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If companies can’t get workers, they won’t invest

Stephen Position

It is an issue that Canada cannot afford to get wrong if it is to maintain its current standard of living. Poloz drew a parallel between Canada and Japan in the early 1990s in his book, The next age of uncertainty. He wrote that Japan went from an economic powerhouse in the late 1980s to a laggard in the 1990s, in part because an aging population and low immigration rates caused economic growth to stall.

Canada is not Japan when it comes to aversion to immigration, but there are hurdles to overcome. Poloz said businesses have sometimes come under fire for chasing temporary foreign workers and not giving the job to a Canadian even though the employers were unable to find Canadians to take the job.

“If companies can’t get workers, they won’t invest,” Poloz said.

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How the fool lost his wings

Earlier this year, Mackle he said the Canadian dollar’s lost link to oil is linked to fluctuating investment in the energy sector as international investors no longer line up to take advantage of the oil patch, in part because the transition to greener energy will reduce demand for Canadian oil.

Poloz agreed with the assessment, adding that the federal government’s push toward a zero net policy is creating more uncertainty among investors who might otherwise invest their finances in the oil spill. Limiting emissions in the oil and gas industry and achieving net zero emissions by 2050 was a promise in the Liberal government’s election manifesto.

It’s an ambitious target that leaves the energy sector less certain about the future of energy infrastructure projects in Canada. Poloz said policymakers providing more clarity on how the federal government plans to meet its climate goals and work with the energy industry could ease some of the problems with the petrochemical currency decoupling. That in turn could boost the exchange rate, which would relieve some of the pressure on Macklem to raise interest rates, as a stronger currency would do some of the job of fighting inflation.

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“I just think that if we give it some daylight, it might help restore a normal relationship between the crazy and the energy sector,” Poloz said. “Right now there’s too much uncertainty for it (the relationship) to have.”

Poloz added that the issue of energy security could re-enter the discussion and set the course for 2050, with a plan to have fossil fuels available as a backup energy source for renewables, giving the oil industry more room to play a role in the transition.

“That’s not the same as saying ‘Just leave them in the ground,'” Poloz added. “It really makes a big difference.

• By e-mail: shughes@postmedia.com | Twitter:

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