Marnie: Hi, I'm Marnie Niemi Hood. 

Russell: And I'm Russell Evans. We're the host of Contributors, a podcast where we explore how Canadian employers are leading change, innovating industries and investing in our country's well-being and prosperity. 

Marnie: These organizations are prospering today by prioritizing more than just the bottom line and so are we. As leaders at the CAAT Pension Plan, we are contributors to one of Canada's fastest growing defined benefit pension plans. 

Russell: We believe in contributing today for a long term benefit. And we want to showcase other employers who are securing a better future for Canadians. Follow along. Welcome back to Contributors. Today, we're so fortunate to be speaking to Stephen Poloz, former governor of the Bank of Canada, about the current state of the Canadian economy and the trends that we should expect over the next decade. 

Marnie: Stephen Poloz served as the ninth Governor of the Bank of Canada from 2013 to 2020, returning after having served at the bank for 14 years there earlier in his career. Prior to leaving the bank, he was head of Export Development Canada, where he served for 14 years after joining the EDC as its chief economist. 

Russell: Stephen now acts as an advisor and board member to several leading organizations and is a frequent speaker and writer. He's joining us in Contributor to discuss the volatility we're seeing, but more importantly, how Canadian employers can adapt to thrive into the future. 

Marnie: Stephen will share his views on demographics, technology and more. Welcome to the show, Stephen. 

Russell: Welcome, Stephen, thank you so much for being on Contributors. Now many of our guests will be familiar with you and your background but some will not. So can you open by sharing a little bit about yourself and your background as well as your interests? 

Stephen: Well, sure, thanks very much. Pleasure to be here. I grew up in Oshawa, down near Toronto, the Motor City and, you know, pretty modest background and I had to struggle and work hard, lots of jobs to get to university and through university. I got married in the mid-seventies while I was still in university to Valerie and we're still together. So it's a long time ago. And, you know, through through time at school, you know, I went down there to queens to try and become a doctor and and took economics is my option. Next thing you know, I'd fallen in love with economics and so I never looked back. Became an economist, got my doctorate degree down in western Ontario and then started work at the Bank of Canada. So I've been, you know, a researcher or an economist or a forecaster. Basically, all my professional life and moved around a little Bank of Canada and Export Development Canada, Bank credit analyst. A few groups like that but basically always been a macro economists and always interested in what's going on in the world and why. 

Marnie: That's great. If you could just take us back before the pandemic hit. How would you describe the state of our economy? What were some of the key factors that play, would you say there? How would you say the economy was performing pre-COVID? 

Stephen: Pre-COVID, the Canadian economy was it was probably the best place it had been for close to 40 years. We had for a long time inflation had been on target or very close to target and just so happens just before just before the pandemic, it was exactly on target. And the unemployment rate was at about a 40 year low. So I've often said that, you know, if you're going to get sick or if the economy is going to get shocked you, if you want to start, start and get shocked by something, it's best to be in the best health you've ever been in. Then you're much more able to shake off whatever is ailing you. And the same is true for the Canadian economy. It was well prepared for a shock like this at least as prepared as it could be. 

Russell: What would you say is our current economy and business climate here in Canada? 

Stephen: Well, I think we're we're at the stage now where we've learned pretty well how to how to cope with COVID. I think we all acknowledge that Covid's going to be with us for the foreseeable future. And so we'll still be getting booster shots and, you know, perhaps wearing masks for some time. We'll have to see how that goes. But the economy has managed to cope with it for the most part. There is only the sectors that are in close contact sectors that are still struggling. You know, the hotels, the restaurants, the bars, the gyms and anything that requires close contact travel also is still struggling. But of all things considered, we've managed through it pretty well. You know, if you look back 18 months ago, economists were advertising, you know, the worst recession since the Great Depression, and that clearly didn't happen. And in fact, it was a very modest thing. I mean, a big shock. But the recovery was very quick. So looking ahead, I think we've got those pieces back on track and what's going to emerge. I think after the big fluctuation from COVID is a steady but a slower growth rate than people are expecting. And I think a return to stable inflation. But the one of the things that people miss in all that is that through this piece, we're getting older and I don't know if you've noticed that across, but every year we get a year older. And so as it turns out, you know, the baby boomers such as myself that entered the workforce in the 1970s and 1980s are now exiting the workforce. And this is not just here in Canada. This is a global phenomenon. And so what this means is that the workforce in the world, the growth rate that we've seen in that workforce was bumped up by the postwar baby boom. And that gave us stronger economic growth in the world for about 50 years. Where people are about to discover is that the 50 years that they've lived through are anomalous. That is actually the next phase, we're going back to a more normal state where economic growth is lower, real interest rates are lower than we've ever experienced in in our adult lifetime. 

Russell: So looking across the Canadian economy right now. What are we doing right? 

Stephen: Well, it's an interesting way to pose it, so what are we doing right? We are we are now, I think embracing new technology companies are investing heavily in new technology. The pandemic has certainly speeded up that process. And that's good because Canada's been a bit of a laggard historically, so encouraged by what I'm seeing on investment. We are we are one of the most important exporters in the world. We've become a world class business in engineering and high tech I.T. service provision, both domestically and as an export. And we've become world-class in education services, which is a very important export. And we're a world class in the agrifood business. Also, the forestry business, these are important businesses, the energy business, also world class business. So we're doing a lot of things that are right. And yet around the edges, we seem to be adept at putting little roadblocks in the way they're trying to slow us down and mean that for productivity purposes, we really haven't kept up with other countries. And over time, our competitiveness, our ability to perform at a global level is eroding. 

Russell: I saw you speaking about CERB and the idea that CERB was a government program that worked because it was just it was dead simple. 

Stephen: That's correct. Yes, so red tape, if you're if you really wanted to design CERB, you know, from from scratch and you had lots of time, you would have put in a whole bunch of requirements and and tests that you needed to pass in order to qualify. And it probably would have required human intervention to judge whether you qualified or not. That's how we would normally design something like that. But given that we had zero time, it was designed all in one week and set up on a computer, you know, abide by the CRA and wonderfully done. I mean, it was a true a true advance. And so when you look at the data now, it's say, my goodness, why did the Canadian economy not miss a beat? Well, that is the main reason why. And our ability to move fast. Whereas in the United States, you know, they were still quibbling months later in Congress about whether they could make a package or not make a package. So, so OK. So, so then afterwards, people say, Oh, that's just lamentable that some people got served. It shouldn't have got to. Well, you know, I understand that that's exactly the cost that you accept in order to be fast about it. So the kinds of restrictions we have, you know, there are there are differences even between one province and another province when you have a business. 

Marnie: That's really helpful. I know you've said that there are some key factors or trends that we need to be mindful of. Can you share those with us and how they're impacting our economy today? 

Stephen: Sure, will well, one of them is the one I mentioned just now, which is the aging of the population. That's a really important one because the one we don't notice even though we have a birthday every year. But is it's as I mentioned before, about how it was going to slow economic growth down and people may not understand why that is. So it's important for us to understand that on the other side of it, as we have a growing stock of elderly folks who may require more medical care or more, just elder care, we'll be devoting more societal resources to to that to that segment at a time when governments have already rung up a lot of debt, you know, after the pandemic. So, so it's going to be a big stress on government coming from that source. Second one, that's front and center and we're doing it right now and that's technology advances. And technological advances is a persistent feature of every economy for all time. It's usually incremental but over history, we've had major waves of technological advance that have affected fundamentally how the economy operates general purpose technologies. We've only had three of those. So as the industrial revolution in the eighteen hundreds, that was the steam engine. The second one was the electrification in the in the early 1900s, which gave rise to, you know, a general purpose. Technology went everywhere, as you know. And then the third one was the computer chip starting in the late 70s and each of those we call industrial revolutions because they're so big in effect, everything. Well, here we are in the Fourth Industrial Revolution, which is, you know, digitalization and the development of artificial intelligence, biotechnology, like those things all kind of stem out from from digitalization and. And so everyone's expecting this to be at least as big and as profound as as the computer chip revolution. Well, I've studied those revolutions and there's some pretty important similarities among all of them. When you introduce a new technology, a company has to that's going to affect everybody. Every company has to has to adopt it, right? Otherwise they're out of business. Adopting it, what happens is people who work with the old technology lose their jobs. And so what we get is a k shaped trajectory for the economy during these these waves of technology with the top part of the k doing well, the bottom part of the chaos is those folks that are thrown down there that are that are dislocated by then by the new technology. So I think we're going to go through roughly, you know, who knows how long but I'm going to say 10 years to make sure you understand it's for a long time, not a not a short thing. The big effects from the computer chip industrial revolution accumulated during from 1995 to 2005 and is not period where we had what we call jobless recoveries. OK. So with the economy growing but not jobs? And that's the sort of thing I'd expect to see repeated. So this, too will put a lot of stress on the social safety net on governments. And you know, how do they take care of all that? My my contention is that every industrial revolution has created more jobs than it destroyed but usually they're not the same types of jobs. And that gives rise to that. So we had the Victorian Depression in the late 1800s. We had the Great Depression in the 30s. We avoided that in the 90s and 2000s through smarter policies. So I'm confident that we can do it again. 

Marnie: And these were these were predictable. 

Stephen: I mean, it took us until probably 2015 to understand what the computer revolution did in terms of productivity. Even in advanced economies such as the United States, where it's worthwhile studied. In Canada, I mean, just understanding that took another 15 or 20 years afterwards for you to see what's what it actually did. 

Marnie: You know, certainly, as Churchill said, those that fail to learn from history are doomed to repeat it. What we know is that revolutions are rarely peaceful. And that these are periods in history that are fraught with, as you say, political dissent, job loss at the confluence of these other factors that you mentioned earlier, the the aging population, the demographics at the same time, it almost seems like a perfect storm of uncertainty. 

Stephen: Well, that's exactly right, so and so uncertainty is the key word, because to be honest, even though I know what the if the population gets one year older, I know what sort of consequences that has for the economy. We change our consumption patterns, we change our housing so we can predict those things. And yet when we layer on top of that, this technological shift and then and then so the economy, oh, by the way, at the same time, all this is happening, you must transition to a net zero growth varies and every country may look different. And that's the uncertainty. So as a company, you just think, well, how am I supposed to behave when I don't know where I'm headed? I think what we're seeing is as the population ages and a skills shortage continues to grow. The power is shifting to the employee. Just as subtle, it's not some dramatic thing but I think that's why we're seeing firms stepping up and we'll see that as a trend as we go forward. I think more and more firms will embrace that. It's time to do a little bit better by employees, especially if I need if I really want to compete and keep them. That's going to become more and more important as the population ages and we're going to actually have shortages of the right kind of workers. Immigration can help, of course, right, but it's but it's not a cure for everything. 

Marnie: Let's jump into something new here. Can you tell us how inflation and growth contribute to more uncertainty, both at home and abroad? 

Stephen: Yeah. You know, the inflation outlook is riskier, but for the more fundamental reasons that we've talked about, not because they went up because of the pandemic. The inflation outlook, it'll be determined by the central banks. And as usual, central banks in general can at times be shoved around by their government. And governments have a strong incentive to cause more inflation because they've incurred a lot of debt during the pandemic. And that's a faster way to pay it down. So I'm not saying that that's the case here or even in the U.S. or any place like this. But the point is that, you know, in some countries it could happen and it seems more likely than in others. So we need an investor to be on the outlook for inflation risk more than we had to be a couple of years ago because of the high, higher government debt around the world. But that's not the same as saying there's going to be high pressure at all. It's just one of the more than one of those bits of uncertainty I would add to the mix. 

Russell: Stephen talked about two distinctive shifts, an aging demographic across Canada and the Fourth Industrial Revolution. 

Marnie: As a pension plan, we certainly are attuned to demographic change. 

Russell: As Stephen said, there are opportunities to seize this moment to secure a better future for Canada. 

Marnie: Let's hear more about these shifts and how they'll impact Canadian employers. 

Russell: So going back to those shifts that you talked about, the aging population, the fourth industrial revolution with digitalization, what are those things mean for Canadian employers? How should Canadian employers react to those shifts? 

Stephen: Well, as an as an employer, as an employer, you need to be asking yourself, OK, I know to compete, I have to deploy this new technology whichever way I can. And if I don't, my competitor well and I'll have my breakfast for me. And so you have that. But then you're thinking, Gosh, I got people in my business that are going to be displaced by this technology. And by the way, I'm going to need to hire some new people that are savvy in that new tech to maintain it or install it or whatever. And so and if you start advertising for them, you'll soon discover they're earned it. You know, they're they're they're they're few and far between. In front of you, you have the makings of a solution. You know, you could just throw throw those people that are displaced by technology out on the street and let them appeal to government programs and retrain themselves and maybe one of them comes back to you someday. Or you could just say, you know, that's pretty painful. That person's been with me for 12 years. How about I make it easy for them? And by the way, I'll make it easy for me too, right? Because I don't have to go find somebody. I already got a great person here. They just don't quite have all the skills I need now. And so what you do is you let them learn on the job or you send them off for three months to learn with that to learn. And so I think what we'll see is more companies doing more of this. Even small companies and obviously big companies always done a bit of that. But I think it will become more standard. Another thing that is going to matter is in order to grow our our companies and our our economy, we're going to have to maximize the workforce that we do have. Because it's going to be aging and the growth rate will be slow and all income from immigration. Actually starting in the next couple of years, the net growth in our workforce will only be due to immigration. OK, so that's a very important ingredient for any business. Well, okay. So you're looking through, you know, new new new arrivals to Canada for people with the skill sets you need, which which is fine. But let's not forget, there are lots of people in Canada who are not participating in the workforce for one reason or another. And let's talk particularly about women. So women participate far less than men. So why is that? Well, the most important constraint, we believe, is child care. So, you know, that investment and daycare, that the governments have started now, that's not just, you know, one of those election promise things, so that's got a fundamental driver like I've just described and that's why it was covered by all the parties, you know, everybody had one or one version or another. And I acknowledge that that's really important but I don't think it's going to do the whole job. And I think there are, again, that companies are in a position to not just rely on the government to have daycare programs but to invent their own types of daycare programs for themselves to help retain more and more scarce people and bring, you know, women in particular into the workforce to help grow the company. So there's a couple of ideas that I think are going to become more real. We already talked about the shift in the shift in power towards the employee. I think you may as well get in front of that and think about what employees really need. It isn't just more money. Sometimes it is. But you know, you can be pretty you can be pretty, pretty custom customize. It involves one count, one to one person in your company needs day care and another one just wants a higher salary. You know, another one is flex work. You know, they need to be able to go get the kids at three o'clock. Or, you know, so we have an opportunity here now that we've seen how technology can work for us to re redo the whole work contract. OK? Not just how many days of week you spent in the office but to truly customize it and therefore boost everybody's productivity and really win, win, win. 

Marnie: That's a great point being able to accommodate, I think the needs of today's workforce with that kind of flexibility that employers need, I think is definitely going to be critical. I liked how you described employers being able to offer essentially retraining and redeployment to workers that may be affected by the digitization, this fourth industrial revolution. What would you say is the next stage essentially for Canadian business leaders on a macro scale? 

Stephen: I think the the most important thing I've got in my mind is that we're entering a period where I think people will be expecting things to calm down post-COVID. To be more predictable. And I think my main argument is I don't think that's the case, that these things we've talked about here are things that are not just there, they're actually in motion. And they'll have quite hard to predict consequences for the business environment. So it's one thing to fuss over it and get get your planning team to work on it and get consultants to work on it. OK, try to figure it out. That's fine. But I think any forecasts that somebody works out for their company is almost certainly going to fail to turn out. So what is more appropriate is instead to assume you won't know. Pretend you just can't know. That really what you're entering is a foggy future where the uncertainty is higher than you've seen in the past. And how do you prepare the company to be able to manage through that? I'm saying there's other things here that are more fundamental that will do this. And, Rotella argued, was that all companies need what he calls a barbell strategy bearing in mind that volatility can be usually think of it as bad because uncertainty is bad, right? But but the fact is, volatility is two sided. So what happens to the company tomorrow could be bad luck. It also could be good luck. And so that's what you mean by barbells, so you have to be prepared not just to buffer the downside but to pounce on your good luck if it happens. So it means keeping dry powder and having people, you know, are just all busy all day with their regular job. But to actually the sort of dreamer types can can be nimble on behalf of the company. You know, I see a problem coming, so we need to do this, this, this and this and you've got the capital there to do it. That's defensive. And so, you know, so the chief opportunity officer sits right beside the the chief risk officer, right? So that, you know, are they could be the same person, I don't know. The point is that the risk management becomes a profession not just something you do in the boardroom. It is something you actually have people working on all the time in order to make sure that you can steward this company through this this boggy passage. That's kind of my my sense of it. It's it's it's more about uncertainty than about putting a pin in the map thing. That's I'm pretty sure that's where we're headed. 

Russell: When you're talking about kind of the challenges facing Canada in terms of shrinking workforce and some of the other challenges. It's definitely our belief that offering a great pension can help you win that race for talent. 

Stephen: And I think it's unfortunate that we've gone through this phase where it became fashionable. Know, I think boards basically talk management into going to disease or eliminating pensions where we had a period where pensions were just all, all pensions were unaffordable. You know, and I think one of the, you know, I've I've been, you know, a good pension my most of my life. But one of the things that I know is that I paid for it. I mean, I know there was a contribution from my employer, but I paid a lot for it. So I think defined benefit kind of got a bad name through some of that post 2008 kind of crisis period. But having it as an opt in, at least, I think it should be part of the part of our fabric. And because otherwise, you know, you know how hard it is to save your whole life, basically based people say to the former real estate and that's about all. 

Marnie: Yeah, without a mandatory workplace pension that's doing that payroll deduction. Yeah, we're seeing the numbers. And, you know, from a social policy perspective, as you mentioned earlier, governments will be very preoccupied with elder care. And if the pension plans that we have across the country aren't sufficient to provide retirement income for those seniors, we're going to be in real trouble. That's one of the reasons that CAAT established DB and our employees and our members are able to have a secure, predictable pension whether they're private sector or public sector, regardless. Right? Very important to have that. 

Stephen: Well, it's good to hear that trend. 

Russell: Are you optimistic about Canada's future? 

Stephen: I am. And I'll tell you a couple of reasons why. One is that this technology thing, I mean, every other big wave of technology has been huge in terms of living standards and the creating jobs we never heard of before and all that stuff. And and I said before, when companies get the mushrooms, it looks like they get all the money but that's only phase one. What happens then is they spend the money and when people spend the money, they don't spend the money, like the people who invented the iPad didn't just buy iPads with the money. They bought everything with the money. What that does is it creates jobs everywhere in the economy. So if you're displaced by the technology, you don't necessarily have to learn how to write computer code to get up to the top part of the K. If there's going to be 20 percent more houses, why you need 20 percent more furnace repair people or, you know, technicians like that, that's that's a couple of months of side training. Whatever the next thing you know, you're back in business. So that's important. There's this rising tide raises all boats kind of notion about all these things. So that's why you should be optimistic. 

Russell: I wanted to ask you about Star Trek because I heard that you're a Star Trek fan and the Star Trek that I grew up with was the next generation. And one of the things that I would say define that show for me was that it was a very optimistic version of the future. It was a future in which we treated each other well. We use technology to kind of further altruistic aims. And I look at you as a futurist, I think, is this is this someone who was inspired by that, that sort of Star Trek Future? 

Stephen: Well, I think you might be on to something because for sure. I started watching it when it first arrived, you know, the first, the first Star Trek. But I do think back to your original question is should we be optimistic about Canada? I think the answer is yes, that not only is the new technology going to favor us but because we are blessed with the resources that they will still need when they're actually watching the Starship Enterprise. But in this case, we we should be optimistic, we have a right to be but we will need to step up and be a leader in order to do that. And I think the most important opportunity we face is to help fulfill the world's energy needs in a way that gets us to net zero. 

Marnie: Well, William Shatner is my captain as well and he's certainly got quite the lasting legacy as we're looking towards the future. What would you suggest businesses do today to future proof their companies? 

Stephen: Well, I think the basics are to to think of investment in risk management as a line on your on your on your income statement. That right now it's kind of a soft item. It's it's it's kind of like investing in your brand. When you invest in your brand, you can increase the value of the company. You do a good job of it. And I think investing in risk management will be the next intangible channel for companies to to strengthen, strengthen their companies in a sense, to take uncertainty and convert it to value for the shareholder. And so whereas some companies will say, Oh, I don't want to make that investment or never do that project, that that that's too risky and the risk adjusted rate of return is below my hurdle rate. Well, the next company that comes along and says, well, I've got a great team of risk managers, they're used to that kind of stuff. I'm going to do that project and I'm going to still make my real rate because I'm going to bring risk management value to the equation and convert it to value for our shareholders. I think that'll be an important element of success. And that means starting now, creating more nimbleness in the company by investing in the people that that's their full time job to be thinking about the next twist or turn the company has to cope with. And it sounds, it sounds kind of overhead, you know? But but I think you have to understand it and then realize it's not actually eradicate your survival could depend on that. The next black swan, whatever it is, could be the one that wipes out your company. What you want is people that can say, that's OK. We can manage that. 

Russell: So every every organization needs a Stephen is what I'm hearing. 

Stephen: Well, something like that or, you know, look, companies deal with consulting shops all the time. Your audit firm has good deep resources and so you may be able to have, you know, once a once a quarter, once a year brainstorming with the board with some deep resources from from, you know, consulting firm. That's that's another another channel. But I do think you'll still need an in-house resources who are, you know, clearly really well attuned to the company's nuances and its opportunities and the resources that it has available because companies aren't all the same. 

Russell: Last question would be what's next for you? I know, I know you have a book on the way. Can you tell us a little bit about that? 

Stephen: Oh, yes, I have a book that will come out in February. It's from Penguin Random House and it's called the next stage of uncertainty, so you can see that the uncertainty order came up a lot in our conversation. And for many of the reasons that I've, you know, I go into more depth in the book why I think that world will look quite different from what we're used to. And it's it's a take off of John Kenneth Galbraith's book from almost 50 years ago, which was the age of uncertainty. And that's about the 1970s, when on the 1970s things basically got stood on their head. And economics, as we know it today, had to be rewritten in the late 70s when I was in grad school. So I think that that's the kind of tumult that we're headed for and some people will oversimplify that and say it's all just because of opaque and that's not correct. Many other things that were driving that bus. But I think anyway, in my case, you know, I'm serving on some really interesting boards of Enbridge and CGI and OMNI Conversion Technologies. And I'm working at Osler, the law firm, as a special advisor where I get to visit lots of boards of directors. And that's a lot of fun. 

Marnie: Wonderful, thank you so much for taking the time with us today. It's been a pleasure having you on. 

Russell: The two focal points for our conversation, demographics and technology are issues with real implications for Canada. But what I really love is Stephen's optimism about our future. 

Marnie: A key takeaway for me was when Stephen mentioned the shifting power dynamics between employers and employees and how this will be happening more and more. There's a growing need for organizations to really understand and prepare to meet the needs and demands of today's increasingly mobile employees. 

Russell: Exactly, Marnie. And that's something that we do at CAAT. We've adopted our plan designed to meet the challenges that employers face in offering a pension plan while still delivering the secure lifetime retirement income that employees want. 

Marnie: For sure and will continue to evolve as changing economic conditions impact the needs of Canadian employers and employees. It's more important than ever that we all work together for a resilient future. 

Russell: Thanks for joining us today. To delve deeper into Stephen's perspective, be sure to check out his upcoming book, The Next Age of Uncertainty. 

Marnie: Thanks for joining us today on Contributors. We hope to see you again next time. 

Russell: Don't forget to subscribe rate and review Contributors on Apple Podcasts.