Business·Analysis

Recession? Knowing if we're in one matters: Don Pittis

Are we or aren't we? Statistics Canada releases figures Tuesday showing whether we are in a technical recession. Don Pittis looks at what those numbers really mean to Canadians.

Cold statistics remain distinct from the partial truths of an election campaign

Smarter Alloys founder Ibraheem Khan (left) and director of engineering Andrew Pequegnat have chosen Waterloo for their high-tech manufacturing startup, a good example of growth. (Smarter Alloys)

If only there were more businesses like Smarter Alloys, Canada wouldn't have to worry about recession. When the latest growth figures come out Tuesday morning, the answer would be clear.

Founded by inventor and University of Waterloo grad Ibraheem Khan, Smarter Alloys has just announced it will begin building prototypes of devices that use its revolutionary metal memory technology for everything from orthodontics to automobiles and aerospace.

"Humans are probably the most important," says Khan, running through a list of reasons for basing his new manufacturing facility in the Waterloo area.

Smarter Alloys wants access to the region's high-tech talent pool. And the money the company is spending is boosting Canada's GDP.

Behind the statistics

Khan's startup is part of the reality behind tomorrow's statistics. But the unique details behind Khan's business decision demonstrate that some of the standard arguments for what leads to businesses success do not always match the reality.
The former Heinz plant in Leamington, Ont., shut down and the company consolidated most of its manufacturing in the United States, contributing to southwestern Ontario's rust-belt image. (Geoff Robins/Canadian Press)

Smarter Alloys is not producing old-style commodities like the steel and ketchup of Canada's sunset industries that now form what The Economist magazine calls Canada's "new rustbelt."

Khan is selling brain power. While existing metal memory devices remember their original shape, the Smarter Alloys innovation allows devices to remember a series of shapes.

According to the standard business argument, low taxes and a low dollar are supposed to boost the export business.

But Khan needs to import manufacturing equipment. That means the falling Canadian dollar makes those imports about 25 per cent more expensive than when his company launched its business plan just over a year ago.

Innovation value

And just as in high-tax, high-wage Germany — a country that continued to export high quality manufactured goods even when its currency was high — Khan expects his product to be in such demand that those kinds of costs will play a minor role in his business success.

"The value that our innovation adds to the product is well beyond the input costs we have," he says.

When we finally get a look at the latest gross domestic product numbers on Tuesday morning, Smarter Alloys will be part of those statistics, but the startup's unique story will be hidden. And that is the benefit of statistics. The numbers are unbiased by interpretation, political spin or anecdote.

During the first quarter of the year, the economy failed to grow. It didn't grow in April or May, either.

By long tradition, two successive quarters without growth means a country's economy has entered a recession, sometimes called a "technical recession," meaning it is based on GDP data alone.

In many ways the dividing line between recession and non-recession is arbitrary, a matter of a few percentage points of growth, but especially in the politics of an election year, the label makes a significant difference.

If the economy has stopped growing, critics of the government might ask, "Where did all those business and personal tax cuts go?" They might ask whether the incumbents were wise to bet so heavily on the energy and resources sector.

Secret disappointment

If the economy is not in recession, opposition parties will probably be secretly disappointed, although they are unlikely to say so. Recession is a stick to beat a government that stakes part of its claim to power on sound financial management. 

A non-recession offers support to Conservative Leader Stephen Harper's claim that although global energy prices have unexpectedly crashed the Canadian economy, it is a temporary phenomenon and wise government policy has laid the groundwork for an economic revival that is just around the corner.

The stakes are high. The C.D. Howe Institute, a "non-partisan evidence-based" think tank that generally comes to right-of-centre conclusions, recently expressed the view that a technical recession is not necessarily a recession at all.

Conservative finance minister Joe Oliver agrees that Canada is not in recession.

But the good thing about hard, cold statistics is that they are above the political fray. Despite politically motivated changes in the data it collects, Statistics Canada remains a credible source. And while recession or non-recession remains an arbitrary line in the sand, it is the same statistical line in the sand that existed last year and 10 years ago.

Damned lies

It's not quite certain who said it first, but according to folk wisdom, "There are three kinds of lies: lies, damned lies, and statistics." There are also many doubts about the validity of GDP as a measure of human welfare. 

But in the sea of partial truths that we get during an election, numbers generated by Statistics Canada using a standard data set may be the closest we get to an unbiased view of where the economy has been going over the last six months. And that unbiased view can be compared to similar data sets in the past and in the future.

Whether we are in recession or not, the young team of engineers at Smarter Alloys is convinced the future is bright.

"As we ramp up production, we'll be adding a significant number of jobs," says Michael Kuntz, Smarter Alloy's vice-president of product development.

The company, which plans to stay in Canada as it grows, has 10 employees but Kuntz expects to double that number every six or eight months.

When that expansion occurs, using the same unbiased methods as it is using this time, Statistics Canada will count its contribution to Canada's rate of economic growth.

Follow Don on Twitter @don_pittis

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About the Author

Don Pittis

Business columnist

Don Pittis was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London. He is currently senior producer at CBC's business unit.

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