ECONOMIC VIEWPOINT

François Dupuis, Vice-President and Chief Economist • Joëlle Noreau, Senior Economist

Desjardins, Economic Studies: 418-835-2450 or 1 866-835-8444, ext. 5562450 • desjardins.economics@desjardins.com • desjardins.com/economics

NOTE TO READERS: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively.IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. The data on prices or margins are provided for information purposes and may be modified at any time, based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. The opinions and forecasts contained herein are, unless otherwise indicated, those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group. Copyright © 2018, Desjardins Group. All rights reserved.

Is GDP That Short-Sighted? Why all this fuss about the GDP? Part of the answer lies in our expectations; we expect GDP to measure too many qualitative and quantitative variables: economic and social advances, well-being, human development, quality of life and standard of living. We want it to be our “all-purpose” tool. The demand is unrealistic. How many aspects of human life problems have been solved with one single remedy?

The GDP measurement was developed in the 1930s at a time when the finance departments in the United Kingdom and United States were building their national accounting systems. The objective was to measure the effectiveness of policies developed to kick-start their economies, which were still mired in the Great Depression. Warnings about the GDP’s limits were issued when it was launched: it was not designed to measure well-being. However, that message seems to have evaporated over time.

The GDP gets its share of slings and arrows. Some claim that it fails to measure unpaid work (such as domestic labour, volunteering). It is also accused of “having no morality,” in the sense that reconstruction following natural catastrophes or conflicts, etc. is viewed as growth (positive perception) although the reconstruction usually stems from something negative. It is also said that GDP is not adapted to modern life because it fails to capture improvements in the standard of living like medical breakthroughs that reduce hospital stays and extend life expectancy or the impacts of innovation. Its failure to measure

the consequences of environmental destruction or resource depletion is another complaint. In short, it is a deeply flawed tool.

A Measure That Can Be TweakedThe way GDP is calculated has changed over time. A few changes have been made to varying degrees in order to provide a more comprehensive and accurate measure. Some smoothing would also ensure increasingly fairer comparisons.

New features were added to try to estimate the scope of undeclared work. Statistics agencies try to place a dollar value on intellectual property and artistic creation in order to measure their contribution to the economy, and they are also examining the best way to include the sharing economy and evaluate natural resource assets. If we had a better grasp of the financial indicators in households and non-profit organizations, we might learn more about how the economy is really doing—that is the bet the data-crunchers are waging. Capturing the value of IT industry innovations would provide a better picture of social progress. This is exactly what those who track national accounts have been studying, especially since the year 2000. However, the efforts made to fully account for our social and economic progress seem insufficient.

The Focus of Many InstitutionsWork to improve how social progress is measured has been going on for years. In the 1990s, the United Nations Development Programme created and published the

Is GDP the Only Way to Measure Economic Performance?

ECONOMIC STUDIES | SEPTEMBER 27, 2018

In November 2016, an Economic Viewpoint was published on the lacklustre global economy since the last recession. One important finding in this study was that progress could be measured using indicators other than those we usually rely on, especially gross domestic product (GDP). Progress might be taking place elsewhere in the economy and society, outside the reach of traditional performance measurement tools. Those tools usually reflect current or fairly recent data, which is useful for making a diagnosis, but are not very good at highlighting the challenges societies will face in the medium and longer term. This paper examines how we could bridge that gap, using indicators that offer a better way to measure the progress and well-being of society and of Quebec, both now and in the future.

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“Human Development Index“, which focused on three areas of concern: health, education and GDP per capita. The resulting shapshot was found to be incomplete, however, and they went back to the drawing board.

More recent research1 shows that the distribution of income and wealth can have a major impact on a population’s level of satisfaction and well-being. The most equal societies do best in terms of human development. Viewed from this angle, most social problems are more closely tied to income disparity than income inadequacy, but the disparities still need to be defined. The impact of lower incomes takes different forms and is reflected in the rates of crime, teen pregnancy, infant mortality, mental illness, female empowerment, life expectancy, academic performance, etc. The effects of inequality are found in rich and poor countries alike.

With these concerns in mind, the Commission on the Measurement of Economic Performance and Social Progress submitted a report to the French government in 2009, stating that well-being did not depend exclusively on the standard of living (production) but on quality of life as well, and that preserving physical, natural, human and social capital was essential to the sustainability of well-being.

The report submitted by that Commission, headed by Nobel Prize winner Joseph Stiglitz (Economics, 2001), which included Amartya Sen, another Nobel Prize winner (Economics, 1998), sent shockwaves and acted as a catalyst for further work by various researchers and national and international statistics agencies. Among those was the Organisation for Economic Co-operation and Development (OECD) Secretariat, which developed a conceptual framework to measure a population’s well-being based directly on the Commission’s recommendations.

The most innovative feature of this framework is its focus on personal well-being instead of growth and economic development. The traditional economic variables, like GDP, are no longer front and centre; they are viewed instead as merely part of the overall material conditions that are likely to contribute to people’s well-being. The OECD also acknowledges that economic growth can lead to “unfortunate” activities that could conflict with well-being.

In addition to those material conditions, the concept imagined by the OECD based well-being on quality of life, which depends on elements ranging from health and education to security and the quality of the environment. Taking the pulse of more intangible factors like social ties, or subjective factors like the feeling of well-being, is another OECD innovation.

The OECD framework considers not only people’s actual well-being, but also the potential for that well-being to evolve and endure; this is more commonly referred to as “sustainable development.” Appendix on page 11 offers a glimpse of different attempts to measure well-being around the world.

The analysis that follows is largely based on the approach and classification proposed by the OECD. However, the term “material conditions” is replaced by “standard of living” to use terms that best reflect current use.

Another Perspective on Growth For the purpose of this analysis, the data starts in 2009 (after the recession), where available, showing the changes that occurred between 2010 and 2017 (as available). The overview will be brief and will focus on GDP, the benchmark against which the other data used in this analysis is measured. Graph 1 presents the inflation-adjusted annual real GDP growth for the period shown. Only modest progress has been made in Quebec, especially between 2012 and 2016. This points to weak growth, especially when compared to Ontario. Quebec recorded average annual real GDP growth of 1.7% for that period, clearly below the growth level of previous decades, including the 1990s when the 1990–1991 recession seemed to drag on until the 2000s.2 But does that mean that no progress has been made since the recession?

Selecting the IndicatorsA few indicators have to be chosen from a sea of available options. Each indicator must provide a sufficient level of accuracy and sensitivity, show consistency over time and provide useful information on performance or the future outlook. The data must stem from sources known for their methodological rigour. A limited number of indicators must be used to give a clearer

GRAPH 1Quebec: Sluggish real GDP growth

Sources: Statistics Canada and Desjardins, Economic Studies

In % annual change

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2010 2011 2012 2013 2014 2015 2016 2017

Canada Quebec Ontario

AVERAGE ANNUAL CHANGE IN REAL GDP BETWEEN 2010 AND 2017

Canada 2.3%

Quebec 1.7%

Ontario 2.0%

2 A host of particularly favourable factors, most likely fleeting, are behind the change of pace recorded in 2017.

1 Richard WILKINSON and Kate PICKETT, The Spirit Level: Why Equality is Better for Everyone, Penguin UK, 2009, 400 p.

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picture of any developments. Comparisons will be made between Quebec and Ontario, where possible, given their similarities in terms of size, geography, standard of living, structure, institutions and the economy. A change must be observed year-over-year so that it can be tracked.

Here, 23 indicators were selected and grouped into three broad categories: quality of life, standard of living and sustainability.

Quality of LifeThe analysis considers a wide variety of subjects to assess quality of life. It looks specifically at changes in job quality, road congestion, the Health Utilities Index that measures general health status, obesity/overweight rates, the Crime Severity Index for young people, post-secondary graduation rates, income disparities, regional income disparities and subjective well-being. First, we look at how Quebec’s society and economy have evolved in each of these areas since 2009, followed by a more comprehensive overview.

The Institut de la statistique du Québec (ISQ) examined the quality of salaried jobs3 based on different criteria such as qualification levels, stability, compensation and weekly working hours. Graph 2 shows that the proportion of high-quality jobs increased between 2009 and 2017 while low-quality jobs decreased. This is a positive trend that goes beyond what the usual job readings provide.

As far as road congestion is concerned, no superpowers are needed to see that the situation has not improved much lately. Major roadwork is being done across the province, especially in the Greater Montreal area, which promises to improve traffic flow in the medium term. But it is creating more congestion in the immediate term and hindering Quebecers’ productivity

and quality of life, despite the GDP boost that spending on infrastructure triggers. With time, the traffic woes will decline and people, businesses and ultimately, the economy, will be better off.

On the topic of health, progress in the Health Utilities Index (HUI) is disappointing (graph 3). The related ISQ indicator identifies the percentage of the population with moderate to serious health problems. It is based on the HUI, which measures vision, hearing, speech, mobility, dexterity, emotions, cognition and pain. The percentage of the population with problems has been climbing in recent years, despite the vast amounts invested in healthcare. Quebec’s population is aging, which partly explains the deterioration in Quebecers’ health, as revealed by the HUI.

With regard to overweight and obesity4—also quality of life components—both conditions inched up consistently in Quebec between 2007 and 2014. Taken together, half of Quebec’s population is affected (graph 4). While overweight and obesity

GRAPH 3The rate of Quebecers with moderate to serious health problems is rising

Note: The data for 2011-2012 is an interpolation.Sources: Institut de la statistique du Québec and Desjardins, Economic Studies

In % of the population aged 12 and over

13

14

15

16

17

18

2007–2008 2009–2010 2011–2012 2013–2014

Health Utility Index

GRAPH 2The share of quality salaried jobs has been rising since 2013

Sources: Institut de la statistique du Québec and Desjardins, Economic Studies

In %

15

20

25

30

35

40

45

2009 2010 2011 2012 2013 2014 2015 2016 2017

Low Medium High

Proportion of jobs based on quality level

3 Répartition des travailleurs salariés non étudiants dans les trois niveaux de qualité de l’emploi, résultats selon le sexe pour diverses caractéristiques de la main‑d’oeuvre, Québec, Ontario et Canada, Institut de la statistique du Québec, January 27, 2016, 1 p.

GRAPH 4Overweight and obesity in Quebec are also on the rise

Sources: Institut de la statistique du Québec and Desjardins, Economic Studies

In %

10

20

30

40

50

60

2007–2008 2009–2010 2011–2012 2013–2014

Overweight Obesity Total

Share of the population aged 12 and over that suffers from overweight/obesity

4 Overweight corresponds to a body mass index (BMI) of between 25.0 and 29.9 while obesity refers to a BMI equal or above 30.0.

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are generally viewed as early signs of a range of disorders in humans, their progress is clouding the outlook for Quebecers’ quality of life. A healthy workforce and a fit population are assets for both the economy and society as a whole, translating to less absenteeism at work and less spending on healthcare.

Security is another quality of life component. The Crime Severity Index, as calculated by Statistics Canada,5 is one way to measure security. It includes all Criminal Code violations, including traffic offences, drug crimes and federal statutory offenses. The level of severity is based on actual sentences handed down by the courts in all provinces and territories.

As is the case elsewhere in Canada, the severity of crimes committed by young people declined in Quebec between 2009 and 2016 (graph 5)—a positive trend, although the rate went back up a bit in Quebec in 2017, just as it did in Ontario and in Canada as a whole.

Education may still be a hot topic, but healthcare always tops the list of Quebecers’ concerns in surveys, whether an election is just around the corner or not. That said, education seems to be more important today than in the past, as we can see from the many initiatives launched in recent years to encourage young people to stay in school and keep them from dropping out. We know that educational levels and the acquisition of skills go a long way toward improving a person’s quality of life and well-being. They increase a person’s ability to find meaningful work, forge rewarding social ties, have access to culture and a better understanding of political and social issues. Graph 6 shows the substantial jump in Quebec’s post-secondary graduation rate since 2009. Quebec has made considerable strides.

Income distribution is another facet of well-being and quality of life. The unequal distribution of income and wealth affects the

well-being of the population that believes it is on the wrong side of the equation. Awareness of such inequalities has increased in recent years, with many reports and studies showing that the disparity between the richest individuals and rest of the population is getting worse in many countries.

Getting unanimous approval for one indicator can be difficult. The Gini coefficient is the index used most often to measure the degree of income inequality in a society. The coefficient ranges from 0 to 1. The closer the value is to 1, the greater the income disparity (and therefore, the more unequal the society).

Graph 7 shows that the disparities in after-tax income in Quebec have moved in a narrow seesaw pattern since 2009. The disparities remained at roughly the same level for the overall period. The same was seen elsewhere in Canada, but the disparities were much deeper than in Quebec. We therefore conclude that Quebec did not make any real headway in tackling income disparity between 2009 and 2016. When it comes to income distribution, however, Quebec is way ahead of its provincial counterparts.

The perception of well-being or subjective well-being is also part of the quality of life ratio. Statistics Canada used the

GRAPH 5The Crime Severity Index for young people is clearly dropping

Sources: Statistics Canada and Desjardins, Economic Studies

2006 = 100

40

50

60

70

80

90

100

110

2009 2010 2011 2012 2013 2014 2015 2016 2017

Quebec Ontario Canada Alberta

GRAPH 6The post-secondary graduation rate for people aged 25 and over is on the rise

Sources: Statistics Canada and Desjardins, Economic Studies

In %

54

56

58

60

62

64

2009 2010 2011 2012 2013 2014 2015 2016 2017

Quebec Ontario Canada Alberta British Columbia

Post-secondary graduation rate

5 The Crime Severity Index is compiled by Statistics Canada using data from the Uniform Crime Reporting Survey (UCR).

GRAPH 7After-tax income disparity in Quebec has barely changedsince 2009

Sources: Statistics Canada and Desjardins, Economic Studies

Relative degree of inequality in the distribution of income

0.27

0.28

0.29

0.30

0.31

0.32

0.33

2009 2010 2011 2012 2013 2014 2015 2016

Quebec Ontario Canada Alberta British Columbia

Gini coefficient

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Canadian Community Health Survey (CCHS) to draw its own conclusions on the perception of well-being, and the latest results point to improvements between the recession period (2007–2008) and the post-recession period (2013–2014). The level of satisfaction started to drop after 2010, however. Regional differences were noted, but most regions reported a high level of satisfaction (table 1).

We can draw some conclusions in light of what the quality of life indicators tell us. The first is obvious: all of these indicators and data are out of sync. As noted, the progress made since the recession ended is sharply divided. The second finding: the positive bias of steady gains in real GDP for the period (average annual growth of 1.7%) does not seem to be reflected in all of the quality of life indicators. This once again confirms the gap between measuring economic growth and measuring quality of life.

If we combine the eight indicators selected and try to draw some conclusions for the period between 2009 and 2017, only three of them show positive trends in their respective areas (job quality, the Crime Severity Index for young people and post-secondary graduation rates). One shows almost no change at all (after-tax income disparity) and four show a negative trend (traffic congestion, the HUI, obesity/overweight and subjective well-being). Considering that more indicators are tilted downwards than upwards, can we really conclude that no progress has been made? Not necessarily; it depends on the weight given to each indicator and the impact of each aspect on people and the economy in general. The key is to make sure some indicators do not show a steady downtrend. That is why it would be interesting to track data over time.

Standard of LivingWhile the standard of living alone is not enough to ensure well-being, a minimum degree of comfort and convenience is certainly necessary. This indicator measures the standard of living (material conditions) of a person’s existence. It is also informed by several economic variables such as income, wealth and consumption.

If income is a core dimension of the standard of living and a key quality of life factor, then the low income rate is useful in showing the proportion of the population that could have serious difficulty reaching or maintaining a satisfactory level of well-being. Graph 8 shows the changes in Quebec’s Low Income Measure.6 The rate declined in 2013 and 2014, started to climb in 2015, then dropped considerably in 2016. The low income rate for this past year in particular was higher in Quebec than in Ontario and the rest of Canada, although there was much less of a gap compared to the Canadian average.

The number of hours worked highlights the vitality of an economy, the potential for households to improve their standard of living and people’s willingness to extend their presence on the labour market. Graph 9 on page 6 offers a good illustration of Quebec’s recent rise and where it stands vis-à-vis the whole of Canada. The average number of hours worked in Quebec was up in 2015 and 2016, which is encouraging. There are two sour notes, however: only modest gains have been made since 2009, and comparisons with the average in Canada or Ontario leave few reasons to cheer. The increase recorded in Quebec in 2015 and 2016 is encouraging nevertheless.

Trade relations provide another good glimpse of the competitiveness of Quebec’s economy compared to that of Canada’s other provinces and the rest of the world. Generally

2007–2008 2009–2010 2011–2012 2013–2014

Bas-Saint-Laurent 94.4 93.7 93.4 93.9Saguenay–Lac-Saint-Jean 92.6 95.5 94.0 94.3Capitale-Nationale 93.4 95.6 95.3 93.2Mauricie and Centre-du-Québec 94.0 94.4 95.6 92.1Estrie 91.6 93.4 94.5 94.0Montréal 89.1 93.5 91.5 92.5Outaouais 93.5 93.7 94.4 94.4Abitibi-Témiscamingue 91.7 92.9 93.9 93.1Côte-Nord 95.9 96.4 94.7 94.1Nord-du-Québec 96.2 96.5 97.2 93.1Gaspésie–Îles-de-la-Madeleine 94.9 94.5 93.4 91.1Chaudière-Appalaches 95.5 94.8 94.6 93.7Laval 93.6 92.1 91.9 93.3Lanaudière 94.0 95.2 95.1 95.2Laurentides 94.2 94.1 94.0 94.5Montérégie 93.7 94.1 94.8 94.4Quebec as a whole 92.6 94.1 93.8 93.6

TABLE 1

IN %

Percentage of individuals who are satisfied or very satisfied with their life

Sources: Institut de la statistique du Québec, Statistics Canada and Desjardins, Economic Studies

GRAPH 8The percentage of low income earners in Quebec recently dropped

Sources: Statistics Canada and Desjardins, Economic Studies

In % of the population

6

8

10

12

14

16

18

2009 2010 2011 2012 2013 2014 2015 2016Quebec Ontario Canada Alberta British Columbia

Low Income Measure

6 Statistics Canada: “Low income measures are relative measures of low income set at 50% of adjusted median household income. These measures are categorized according to the number of persons present in the household, reflecting the economies of scale inherent in household size.“

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speaking, trade with other economies influences our standard of living: there are so many goods that cannot be manufactured or produced in Quebec due to its climate, natural resources, workforce skills or available technology. On this score, trade is highly profitable.

Exports of goods and services abroad have increased since 2010; they even spiked in 2014 due to Canada’s weak currency and the booming U.S. economic recovery (graph 10). Imports of foreign goods outweigh exports however. The balance of interprovincial trade (exports and imports) has been positive since 2009—it even improved in 2014 and 2015, although it dropped again in 2016 and 2017. The Canadian Free Trade Agreement (CFTA), the interprovincial trade agreement that came into force in July 2017, will help reduce trade barriers. Measuring the impact of this agreement over the next few years should yield interesting results. If we combine the international balance (negative) and the provincial balance (positive), we still end up with a trade deficit, which narrowed in 2014 and 2015 but has started to grow again. This brief analysis of the standard of living shows that the nature of the indicators selected shares closer ties with the traditional economic gauges. Despite their proximity to the GDP measurement, not all indicators moved in line with GDP advances between 2009 and 2017. The outcome does not point

GRAPH 9Average weekly hours worked peaked in Quebec in 2016 before dropping a bit in 2017

Sources: Statistics Canada and Desjardins, Economic Studies

Hours per week

31

32

33

34

35

36

2009 2010 2011 2012 2013 2014 2015 2016 2017Quebec Ontario Canada Alberta

GRAPH 10Exports of Quebec goods and services abroad have strengthened

e: estimateSources: Institut de la statistique du Québec and Desjardins, Economic Studies

In % of GDP

16

21

26

31

36

2009 2010 2011 2012 2013 2014 2015 2016 2017eExports abroad Exports to other provincesImports from abroad Imports from other provinces

Share of output trades

GRAPH 11The share of the workforce aged 25 to 44 withouta high school diploma is declining

Sources: Statistics Canada and Desjardins, Economic Studies

In % of the workforce aged 25 to 44

5

6

7

8

9

10

11

12

2009 2010 2011 2012 2013 2014 2015 2016 2017

Quebec Ontario

to progress alone. But not all the indicators are showing declines either, meaning that Quebec still managed to eke out some gains during those years (weekly hours worked, for instance). The challenge lies in maintaining those gains.

SustainabilitySustainability indicators are used to assess whether Quebec’s society will continue to benefit from the same level of individual or collective resources that it currently enjoys. These will be looked at from four different angles: human capital, economic capital, public infrastructure and natural capital.

Human CapitalBasic education is an important factor for social integration. In addition, a high school diploma is generally a must even for positions requiring few job skills. To this end, the percentage of the population between the ages of 25 and 44 that does not have a high school diploma is a relevant variable (graph 11). The rate has been falling since 2009; it dipped from 10.8% to 7.9% in 2017. In another bit of good news, the spread with Ontario narrowed somewhat over the period.

The labour market is increasingly looking for qualified personnel for both technical and professional work. The college and university graduation rate illustrates whether companies can find workers who meet their needs. The proportion of Quebec’s population between the ages of 25 and 44 that holds a post-secondary diploma or certificate soared between 2009 and 2017 (graph 12 on page 7), from 71.6% to 78.8%. Quebec is ahead of Ontario on this score—the gap even widened during this period. The presence of CEGEPs is likely to have tilted in Quebec’s favour.

Enrolment in the natural and technical sciences, engineering and math programs offers another look at training. While education and graduation rates are undeniably important, some areas of learning react better to meet business needs in a context where innovation is a growing driver of competitiveness and sustainability. This is why enrolment in natural sciences,

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GRAPH 12The share of the workforce aged 25 to 44 with apost-secondary certificate or diploma is rising

Sources: Statistics Canada and Desjardins, Economic Studies

In % of the population aged 25 to 44

66

68

70

72

74

76

78

80

2009 2010 2011 2012 2013 2014 2015 2016 2017

Quebec Ontario

7 More specifically, in the following categories of the Statistics Canada classification: physical sciences, life sciences, technology, mathematics, computer science and information science, architecture, engineering and related services.

GRAPH 13The percentage of post-secondary STEM enrolments is gradually climbing

STEM: Science, technology, engineering and math. Sources: Statistics Canada and Desjardins, Economic Studies

In % of students enrolled in a post-secondary institution

14

16

18

20

22

24

26

2009–2010 2011–2012 2013–2014 2015–2016

Quebec Ontario

technology, engineering and math (STEM)7 is an indicator that shows the extent to which the career choices of Quebec’s students will meet the foreseeable needs of Quebec’s society and economy. Registration between 2009 and 2017 showed an encouraging increase, with enrolment in all post-secondary programs rising from 16.4% to 17.4% (graph 13). Comparisons with Ontario show a considerable difference, however, which has widened in recent years. All told, the result is positive for Quebec compared to the past and promising for the future. The growing gap with Ontario dampens the enthusiasm, however.

Economic CapitalDepending on whether they are in perfect sync, personal finances influence an individual’s or a household’s capacity to maintain or improve their well-being over the longer term. The savings rate reflects both a household’s actual standard of living and its ability to maintain or improve that standard over time. The savings rate of Quebec households changed very little over the period, fluctuating between 3% and 5% of income

(graph 14). Right now, the savings rate is above the Canadian average, eclipsing the savings rate in Ontario.

On a more collective level, research and development (R&D) expenditures also contribute to economic capital—they are a good indicator of an economy’s ability to innovate and adapt to structural changes. This is especially true for R&D spending in natural sciences and engineering. Quebec is ahead of Ontario in this area, but both provinces made significant cuts to their R&D spending in science and engineering between 2009 and 2015 (graph 15). Data for 2016 would show whether the situation has changed course to reflect a growing economy.

Likewise, the number of people working in R&D is another way to assess the priority companies put on innovation. Between 2009 and 2013, the number of resources in R&D roles declined from 69,750 to 66,780 (graph 16 on page 8). This trend was also seen in Ontario, fuelled in large part by the economic slowdown. It is to be hoped that the situation later self-corrected, in step with the anticipated spending spree for R&D in natural sciences and engineering.

GRAPH 14The household savings rate in Quebec has risen slightlysince 2010

Sources: Statistics Canada and Desjardins, Economic Studies

In % of disposable income

02468

1012141618

2009 2010 2011 2012 2013 2014 2015 2016

Quebec Ontario Canada Alberta

GRAPH 15R&D spending in natural sciences and engineering is down in the economy

R&D: Research and developmentSources: Statistics Canada and Desjardins, Economic Studies

In % of GDP

1.7

1.8

1.9

2.0

2.1

2.2

2.3

2.4

2009 2010 2011 2012 2013 2014 2015

Quebec Ontario

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GRAPH 16The number of resources assigned to R&D is dropping

R&D: Research and developmentSources: Statistics Canada and Desjardins, Economic Studies

In number

0

50,000

100,000

150,000

200,000

250,000

2009 2010 2011 2012 2013

British Columbia Quebec Ontario Alberta

R&D resources

GRAPH 17Private non-residential investment is decliningin Quebec

Sources: Statistics Canada and Desjardins, Economic Studies

In 2007 $M

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2009 2010 2011 2012 2013 2014 2015 2016

Quebec Ontario

GRAPH 18Lack of infrastructure maintenance: Contrasting pictures

Sources: 2017-2018 Annual Management Plans for Public Infrastructure Investmentsand Desjardins, Economic Studies

In $M

0500

1,0001,5002,0002,5003,0003,5004,000

2016–2017 2017–2018

School boards Universities CEGEPs Health and social services

Per public infrastructure category

GRAPH 19The condition of the highway network* improved

* The network maintained by the Ministère des Transports du Québec. p: MTQ’s projections Sources: Ministère des Transports du Québec, 2015 and 2016 reports on the condition of Québec’s highway network, and Desjardins, Economic Studies

In % of the number of structures

68

70

72

74

76

2012 2013 2014 2015 2016 2017p

Percentage of structures not requiring any work

Private investment is also a good indicator of the economy’s ability to expand and renew. Comparisons with Ontario show whether both provinces respond to structural and cyclical pressures in the same way. Private investment in Quebec has been falling since 2013 (graph 17). In 2016 private investment fell below the level reached in 2009, during the financial crisis. Ontario displayed mixed trends and the gap between both provinces began to widen, especially from 2014 to 2015. We have to admit that Quebec has lost some ground and the erosion of private investment is a concern, especially since Quebec is not known for fierce competitiveness against its commercial rivals.

Public InfrastructureQuality of life and economic potential are related to the availability of sufficient and quality public infrastructure. One way to get a clear picture of this is to look at the maintenance of public infrastructure. If not addressed, the lack of infrastructure maintenance can spiral out of control and result in medium-term losses. This is even more of a concern from a health and educational standpoint, given the impact of public infrastructure on a population’s well-being. Failure to maintain assets was partly resolved in CEGEPs and universities in the last year, but got worse in schools and in the healthcare and social services

network (graph 18). Despite some progress, there is little reason to boast.

Looking at the road infrastructure is another way to assess the situation. We will take a close look at the highway system overseen by the Ministère des Transports du Québec, which is a strategic infrastructure. Keeping it in good condition speaks volumes about the government’s ability and willingness to allocate the resources required to maintain highways over the medium and long term. Graph 19 presents the status of the structures, i.e. the network’s bridges, culverts, supporting walls and tunnels. The situation improved between 2012 and 2017. The challenge is twofold: we have to prevent any loss of the gains made since 2012 and we have to improve on this record. The well-being of the population and economy’s growth potential are at stake.

Natural CapitalEnergy, the environment, wildlife and natural resources represent the natural capital that must be managed and protected if we want to maintain the population’s quality of life and standard of living in the medium and long term.

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GRAPH 20Improvement in high quality water coming from the mouths of draining basins in southern Quebec

Sources: Institut de la statistique du Québec, Ministère du Développement durable, de l’Environnementet de la Lutte contre les changements climatiques and Desjardins, Economic Studies

In %

0

20

40

60

80

100

2009 2010 2011 2012 2013 2014 2015 2016

Fecal coliforms Phosphorus Suspended particulate matter

The mouths of good quality draining basins

Since it is essential to life itself, water tops the list. Good quality and free-flowing water contribute to the population’s well-being on two fronts. First of all, water is a public health issue, and second, water is a major contributor to industrial and agricultural production. One available indicator is the quality of the water flowing out of the mouths of the main drainage basins in southern Quebec. This index ranks water quality based on acceptable levels of fecal coliforms, phosphorus and suspended particulate matter. Despite some year-over-year fluctuations, the quality of the water flowing from the mouths of the main drainage basins in southern Quebec has gotten better since 2009 (graph 20). This specific aspect of well-being and the economy will become more important over time, especially due to climate change (water quality and quantity—scarce? abundant?). Water is already a strategic issue in some countries around the world. It is also the focus of intense discussions8 on this side of the Atlantic, locally, regionally or between countries.

Air quality is just as important; it is also a critical factor for public health. Air quality is influenced by nature, the intensity of economic activity and the environmental regulations instituted by public authorities. The region of Montreal is the one area of Quebec where air quality is most likely to be variable, even though it can also be affected at the local level in other regions of Quebec due to factors such as industrial plants that release emissions into the atmosphere.

The indicator used is the index of smog-free days in Montreal. It reports on the city’s air quality based on concentrations of the two primary pollutants in smog: ozone and particulate matter. Days with smog or no smog are determined by the limits of this atmospheric condition in terms of intensity, duration and scope. The indicator points to a clear improvement between 2009 and 2017 (graph 21), which is good news. A few observations can be made: first of all, this is good for the population and a plus for public health. Second, the measures taken seem to

be working. Third, this improvement could also be good for companies that want to attract and retain workers. Fourth, the drop in the number of smog advisory days is only one aspect of air quality, but it is still a major milestone.

Lastly, while much progress has been made, these efforts have to be maintained. Forests represent a major source of economic activity for several communities in Quebec, making positive contributions to the standard of living. They also provide major ecological support, storing carbon, preserving wildlife habitats, controlling erosion and regulating the water cycle. The potential of Quebec’s forests depends on several factors, some of which are economic and can be controlled by government authorities, like industrial operations, while others are natural (forest fires and epidemics). Forest fires can devastate large swaths of forest area. A deterioration has been recorded since 2009 (graph 22).

With the exception of 2013, Quebec has not had to deal with major forest fires in the past few years. A large portion of Quebec’s forests has been exposed to a spruce budworm outbreak however. A deterioration has been recorded since 2009—a negative on several fronts, whether it affects well-being or economic growth. 8 Water: abundant, and scarce, Desjardins, Economic Studies, Economic Viewpoint,

April 14, 2016, 10 p.

GRAPH 21The number of smog-free days in Montreal has reached its peak

Number of days per year

325

330

335

340

345

350

355

360

365

2009 2010 2011 2012 2013 2014 2015 2016 2017

Sources: Institut de la statistique du Québec and Desjardins, Economic Studies

GRAPH 22The number of forest areas affected by the spruce budworm is growing

Sources: Ministère des Forêts, de la Faune et des Parcs and Desjardins, Economic Studies

In thousands of hectares

01,0002,0003,0004,0005,0006,0007,000

2008 2009 2010 2011 2012 2013 2014 2015

Spruce budworm Forest fires

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In terms of overall “sustainability,” the report card for 2009 to 2017 is similar to that on quality of life and standard of living: deeply divided. Seven indicators showed improvement: population without a high-school diploma, population with post-secondary diploma, enrolments in natural sciences, household savings rate, condition of highway structures and air quality (smog-free days in Montreal), and water quality. In contrast, five indicators showed losses: R&D spending in engineering and natural sciences, R&D staffing, private, non-residential investment, lack of asset maintenance, forested areas affected by natural disturbances.

While the data in this portion of the analysis was drawn from 12 indicators, there is no clear and decisive conclusion except for a positive trend. All three human capital indicators were positive. For economic capital, three indicators were negative while just one was positive. As far as public infrastructure is concerned, one indicator out of two showed improvement; the other ticked down. For natural capital, one out of three indicators showed a downtrend while two were up.

All ToldThis review of well-being and progress indicators ends with a contrasting picture. It is not always a good idea to make correlations between the GDP and many of the indicators used in this analysis. Although not all the data is positive over the period of time studied, there were few consistent negative trends between 2009 and 2017. They all show alternate advances and declines. That said, very few aspects of well-being showed permanent deterioration. It was also made clear that trends can be reversed.

Considering the very difficult years that followed the recession, all told, Quebec did not suffer any substantial setbacks.

To the question we asked earlier—Can we assume that no progress has been made since the recession? —the answer is no. Besides GDP, Quebec has made a number of economic and social gains. We also have to admit that some aspects have stagnated while others lost ground. Of all the factors taken into account, some rely on conditions that are imposed, such as international trade, which depends on the strength of our economic partners, the loonie’s value and how fierce the competition gets. However, many other factors, such as academic training and infrastructure maintenance, are more likely based on the choices made by the local, provincial and federal governments and shaped by citizens’ concerns.

The time of budget restrictions is behind us, and the impact of government investment into the economy is already being felt. The extent to which that investment will contribute to improving the population’s well-being should be interesting to see.

In light of the indicators studied, we can see that gains can be made even in times of turbulence, as is often the case

after a recession. Of course, we cannot make progress on all fronts at the same time. However, looking forward, the foundations are solid. We are doing better than in the past in some respects, while we have already done better in other areas. Improvements start with tracking and fine-tuning the indicators we use to measure progress. Once that is done, we can set goals and find ways to reach them. If we look at how growth affects people, not just the economy or the country, it goes far beyond the question of GDP. Growth also reflects the population’s well-being and the sum total of the choices made.

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ECONOMIC STUDIES

The experiences below are grouped according to their ties to the quality of life and standard of living elements in the conceptual framework developed by the Organisation for Economic Co-operation and Development (OECD).

Individual Well-BeingOECD—Better Life Initiative As part of the Better Life Initiative, the OECD Secretariat created a dashboard featuring 22 primary indicators and 33 secondary indicators that measure social, economic and environmental dimensions, among others.

Canadian Index of Wellbeing (CIW)The Canadian Index of Wellbeing includes 64 indicators (of equal weight) in eight different areas. This chronological series goes back to 1994 and shows the incidence of cyclical reversals.

The indicators used in the CIW are drawn mainly from data collected by Statistics Canada, as shown in the regular tables and in regular or ad-hoc studies. Data from Environment Canada, Elections Canada and Parks Canada also populate the CIW indicators. Lastly, the data are provided by independent groups and organizations, such as the OECD, Global Footprint Network, CIBC, Canadian Centre for Economic Analysis and Childcare Resource and Research Unit.

Overall AssessmentsThe sustainable quality of life in Canada’s provincesThe Conference Board of Canada publishes How Canada Performs: A Report Card on Canada each year to compare the quality of life in Canada’s provinces against that in some 15 other peer countries chosen for their high quality of life and certain other criteria; only countries that can offer meaningful comparisons are included. This report card gives each administration an overall ranking (A, B, C or D) based on its performance on different indicators in the following categories: economy, society, innovation, environment, health, education and skills.

Mercer IndexMercer releases an annual quality of living city ranking that covers 200 of the world’s largest cities for executives and professionals who work abroad. This highly respected ranking takes several criteria into account: climate, sanitation standards, ease of communication, distance/remoteness, social and political environment, violence and crime. In the 2018 Ranking, Montreal was ranked 21rd, ahead of San Francisco (30th), Calgary (33rd), Boston (35th) and Paris (39th), but behind Vancouver (5th), Toronto (16th) and Ottawa (19th).

Quality of Life Subjective Well-Being

f OECD

• The OECD Secretariat has drawn up Guidelines on Measuring Subjective Well-Being. Developing such guidelines was necessary for this organization to avoid the bias that sometimes results from poorly designed questionnaires and enable comparisons between administrations and surveys.

• The document presents subjective well-being as something that extends beyond the idea of “happiness” to cover three key elements: life review—reflective assessments on a person’s life; affect—a person’s feelings or emotional state, typically measured with reference to a given time period; and eudemonia—a sense of meaning and purpose in life, or good psychological functioning.

Global SurveysMany surveys have been conducted in the past several years to measure life satisfaction, for lack of a better term.

The Gallup World Poll (GWP) was created by drawing on the ideas of reputed researchers like Daniel Kahneman, the winner of a Nobel Prize in Economics (2002), and John Helliwell, Professor Emeritus of Economics at the University of British Columbia. This survey covers 140 countries and respondents are asked to assess their levels of satisfaction with their lives on a scale of 0 to 10. The GWP contains some 15 questions about well-being, several of which deal with specific aspects of well-being (depression, joy, sadness, stress, worry, etc.). This poll shows huge disparities between countries and between global regions. More than a third of respondents in Europe rank their levels of satisfaction at 8 or higher on a scale of 10, compared to less than 5 in sub-Saharan Africa. The results of the Gallup World Poll are published in the World Happiness Report, which has been publishing annual rankings since 2012.

Among other similar surveys, the World Value Survey should be mentioned. This survey includes questions on happiness and satisfaction, among others. It covers some 100 countries and is conducted in waves of a few years, the last of which spanned the 2010–2014 period. Not all countries are included in each wave. The last year in which Canada was included in the survey was 2005.

The Pew Global Attitudes Survey also takes place in waves. This survey covers 44 countries and asks questions about satisfaction.

AppendixA Few Examples of Well-Being Measures

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9 Information on the ONS approach was reported by: Stephen HICKS, World Happiness Report, Measuring Subjective Well-Being, 2012, 170 p.

10 Harvey L. MEAD, L’indice de progrès véritable du Québec : quand l’économie dépasse l’écologie, Quebec, Éditions MultiMondes, 2011, 414 p.

National Statistics AgenciesThe national statistics agencies also produce satisfaction surveys for their respective populations. The General Social Survey is published annually in the United States. In Canada, the General Social Survey (GSS) and the Canadian Community Health Survey (CCHS) both focus on five-year cycles.

Some of the latest CCHS results were reported in a recent study on the health of Quebecers by the Institut de la statistique du Québec (ISQ). The results show that Quebecers report a very high level of life satisfaction, but that few changes have occurred in the last 10 years.

In the United Kingdom, the Office for National Statistics (ONS) also examined how to measure subjective well-being, concluding that it was entirely possible to provide useful and reliable data on the subject.9 The organization also noted that there are three aspects to subjective well-being that must be measured separately: people’s thoughts about their own lives, positive emotions (joy, pride, etc.) and negative emotions (pain, rage, worries, etc.). The results of the latest survey are available on the agency’s website.

Standard of Living

f Quebec Economic Health Index

• The Canadian division of PricewaterhouseCoopers (PwC) publishes a Quebec Economic Health Index each year, which assesses economic progress since 1980. It provides a perspective over time and focuses on the economy. No comparisons with other provincial or national economies are made. The index is based on 26 variables that gauge the vitality of Quebec’s economy from different angles. The information released by PwC does not specify the weighting given to each of the 26 variables to build the aggregated index.

• Several of these 26 variables are traditional measures (GDP, graduation rates, investment, R&D spending, public debt, etc.). Others are more original, such as the Herfindahl-Hirschmann index of industrial and product diversification. Exports and imports are also accounted for separately, as are business demographics (number of active vs. closed businesses).

“Unfortunate” Activities

f Genuine Progress Indicator (GPI)

• In measuring the more “unfortunate” activities in the OECD diagram, Harvey Mead, Quebec’s former Commissioner for Sustainable Development, created the

GPI10 as a replacement for the GDP. The GPI subtracts from GDP the value of the externalities or hindrances that come with market production in the main sectors of the economy as well as the impact of different pollutants on health. The GPI translates into monetary values such disparate realities as depletion of fish stocks, loss of allowable forest cuts, loss of agricultural land, impact of climate change, involuntary unemployment, etc. Bottom line: the GPI has advanced at half the GDP rate in the past few decades. The GPI does capture some of the more adverse effects of economic growth, but its reliance on numerous assumptions and highly technical data is a major drawback. It would also be hard to publish the GPI on a regular basis, unlike the GDP.

Sustainability

f ISQ’s Sustainable Development Indicators

• Under the Sustainable Development Act, the ISQ has created and published some 20 indicators on sustainable development in Quebec, based on the “bequeathed capital” approach developed by an international group of experts. These indicators are presented in the following document (in French only): Recueil des indicateurs de développement durable.