Reconstruction planning must take into account existing economic trends – Policy Options

While the government has begun to consult broadly about the conditions needed to reopen the economy post-pandemic, it needs to think and plan with two other longer-term economic trends in mind: the rapid diffusion of digital technology and the transition to a post-carbon economy. The policy measures needed must support the adoption and use of digital technologies, as well as promote the transition of our energy systems to sustainable sources of energy.

Economic changes of this magnitude are rare occurrences. The last time Canada experienced change on this scale was in the reconstruction that followed the Great Depression and the end of the Second World War. Some commentators have even compared the current emergency to that wartime situation with the virus as our enemy. While this analogy is a bit stretched, one aspect of it is highly relevant – the need for post-pandemic reconstruction planning.

Reconstruction planning

The changes in patterns of social behaviour and economic activity that will follow the pandemic will intersect with the broader changes already underway, on a scale comparable to that which occurred after 1945 in the transition from wartime production to a peacetime economy.

Wartime production in Canada and the US entailed a massive shift in production from civilian goods to military armaments, with governments assuming control over the coordination of production in an unprecedented fashion. The effort involved the establishment of whole new industries, such as fighter aircraft in Montreal and Toronto and synthetic chemicals in Sarnia, but there were grave concerns about the ability of the economy to transition back to a peacetime basis of production after the end of hostilities.

Leading economists in Canada and the US predicted the end of the war would be followed by a return to the Depression and a prolonged period of secular stagnation (negligible growth). In response to these fears, the federal government undertook a massive effort to plan for postwar reconstruction to convert the economy back to civilian production. The effort, led initially by an advisory committee of outside experts and then transferred to the Ministry of Reconstruction and Supply, involved a massive cross-government organizing effort as well as extensive coordination with the provinces through a series of Dominion-Provincial conferences on reconstruction that laid the basis for the postwar recovery. The success of these efforts paved the way for the growth of new industries in these sectors and Canada’s economic prosperity in the postwar era.

Major global trends that will impact post-pandemic planning

The lessons to be gleaned from our success in using the vast production capacity that had been built during the war to lay the basis for Canada’s postwar economic expansion can guide us in planning for a post-COVID recovery. The economy will slowly reopen as the threat of the pandemic recedes, but many of the changes that occurred during our lockdown will linger, including remote working and learning, as well as declining demand for conventional sources of energy.

The recovery will require a comprehensive planning effort that also takes account of the two broader trends altering the shape of the economy.

The first trend involves the growing digitization of all aspects of the economy, placing greater reliance on cloud computing, mobile telephony, data analytics and artificial intelligence. For the past two decades, the pace of innovation has been accelerating, dramatically compressing the time it takes to disrupt established industries and bring new products and processes to market. The impact of exponential growth has been accentuated by the shift to virtual work and learning during the pandemic. The pandemic has accelerated a new wave of digitization across virtually every aspect of our lives. These changes will persist into the recovery

The second trend is the accelerating shift away from carbon-based forms of energy to renewable forms, including wind, solar, battery electric, fuel cells and hydro power. This shift has been occurring for the past decade, with the cost of renewable energy and energy storage falling steadily and rapidly approaching the crossover point with natural gas.

In many jurisdictions, wind and solar energy is already cheaper than coal power. The trend away from carbon-based energy sources has been underlined by the steady stream of announcements from leading investment firms and sovereign wealth funds of their divestment from conventional fossil energy producers. Recent reports underline the vulnerability of existing oil and gas reserves, much of which may well end up as stranded assets. While some demand for carbon-based energy sources will return with a restoration of economic activity, the new normal of remote working and distance learning may well persist. Over the medium-term the adoption of virtual technologies to replace physical ones will reinforce the broader shift that is already underway to reduce the demand for these conventional energy sources.

Central and Western Canada’s interests aligned

The combined effects of digitization and decarbonization have the potential to accentuate regional tensions in Canada, but a comprehensive approach to reconstruction planning would allay these tensions. From Western Canada’s oil and gas economy to the traditional manufacturing sectors in Ontario centred on the automotive industry, early signs of this transition were apparent through falling capital investments in new energy projects and shutdowns or reduced shifts in traditional automotive plants. The move to renewable sources of energy and new forms of connected, autonomous, shared, and electric (CASE) transportation combines both trends – the digital and decarbonizing – into a new mobility paradigm.

The reality is that the regional interests of Western and Central Canada will be more aligned in terms of their response to this transition than they have been for many decades. Since the discovery of oil at Leduc, Alberta, in 1947 and the dramatic expansion of Central Canada’s manufacturing economy in the 1950s and 1960s, the prosperity of both regions has been tied to the fate of the carbon-based energy economy. The threats and opportunities created by these trends require a comprehensive planning approach that cuts across the conventional departmental boundaries within government and integrates initiatives at both the federal and provincial levels of jurisdiction. In this respect, the post-COVID planning effort must be comparable to the reconstruction planning efforts at the end of the Second World War.

To the growing clean energy sectors of the economy and the further expansion of the digital revolution underway for the past two decades, we need enhanced policies to support:

• the growth of domestic firms in the digital and cleantech sectors of the economy to accelerate the transformation of existing industrial processes to a more digitally enabled and sustainable basis;
• greater provision of renewable sources of energy, including, wind, solar and hydrogen;
• rethinking and redesign of urban mobility systems, including public transit;
• more attention focused on our public health system, through the effective use of digital technologies to track diseases;
• the application of new computing techniques to accelerate the discovery and development of new vaccines and antiviral drugs; and the use of these technologies to support and protect frontline workers in the health sector and other parts of the service economy.

The challenge is massive but many of the solutions are readily available in the form of existing technologies and the firms to develop them. The economy that emerges from the current lockdown, and the economic opportunities it presents, will differ significantly from the one that we have been accustomed to.

Planning for the reconstruction of the economy depends on our ability to recognize these trends and differentiate their longer-term effects from the short-term impact of the coronavirus. The current pause in economic and social life as we (used to) know it provides an opening to map the terrain of the current transition and chart a new economic path that takes full advantage of the emerging opportunities through digital technologies and sustainable energy.

Conventional policy processes are unlikely to produce the desired result; governments need to embrace a contemporary equivalent of the reconstruction planning process adopted towards the end of the Second World War. The lessons learned through that experience can serve us well in responding to the challenge of preparing for the transition to a post-pandemic economy and society. Now is the time for governments at all levels working collaboratively to design and implement the measures necessary to deploy our knowledge assets and technology resources to solve the emerging economic, health and energy challenges of the 21^st century.

This article is part of the Building a More Inclusive Innovation Economy After the Pandemic special feature.

Photo: Shutterstock/By IR Stone

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