stephen s poloz : from hewers of wood to hewers of code canada's expanding service economy remarks by mr stephen s poloz, governor of the bank of canada, at the cd howe institute, toronto, ontario, 28 november 2016. * * * i would like to thank robert amano, jing yang, andre binette, brigitte desroches and stefano gnocchi for their help in preparing this speech. introduction some cliches never die. the last time the number of canadians employed in the goods sector exceeded those working in the service sector was the mid - 1950s. for about 60 years now, growth in services employment has persistently outpaced employment in goods production. we have been much more than a nation of hewers of wood and drawers of water for a long time, yet the cliche lives on. the same story of an expanding service sector has played out for all advanced economies. but that does little to allay an emerging sense of unease about the economic forces at work. here in canada, this sense of unease has been compounded by two significant shocks to the economy. the first was a steady loss of export capacity in the years prior to — and in the wake of — the global financial crisis. our export recovery since 2009 has been impressive but remains incomplete, as at least $ 30 billion worth of export capacity was lost in the process and competitiveness challenges continue. the second shock was the sudden drop in resource prices, particularly for oil, which represented a significant loss of income for the nation as a whole — something in the range of $ 50 billion to $ 60 billion per year. together, these two shocks have created an $ 80 billion to $ 90 billion hole in our economy, which is more than 4 per cent of gdp, and have set in motion a complex series of adjustments. it is natural to wonder : what will replace the economic losses due to these shocks? where will the new jobs be created? these are difficult questions, so it is no wonder that people are worried about the future, particularly those employed in the goods sector. in the circumstances, skepticism about the benefits of technological change, globalization and international trade is understandable. we need a strong and open dialogue on these issues, and i hope to contribute to that conversation this evening. but let me start with my conclusion : i strongly believe that the continued expansion of our service sector is pointing the way toward full economic recovery and the return of sustained, natural growth

worker, not necessarily fewer workers. indeed, improved productivity is essential to compete internationally, which is itself essential to maintaining or growing a business. in other words, without increases in productivity, the business itself and all of the associated jobs can be lost. this is the creative destruction process at work. specific jobs lost to automation are gone. exporting companies who closed their doors in the wake of the global recession in 2007 – 09 are unlikely to return. rather, surviving companies will expand, and other, new companies will grow in their place. naturally, i am oversimplifying the matter. the real world is far more complex than our economic models suggest. even the distinction between goods and services is a blurry one. consider the smartphone in your pocket. yes, its manufacturer used circuits, wire, plastics and other materials. but it also needed research and development, engineering, design, software, transportation, trade, finance, legal, sales and accounting services. and certainly your phone would be totally useless without telecommunications services, not to mention after - sales service, including a call centre to help with problems. rather than a dichotomy between goods and services, it is much more useful to think of a spectrum — from raw commodities at one end to pure services at the other. in general, the further up the value - added chain the manufactured product, the more services are embedded in it. there is reason to believe that the canadian economy has a comparative advantage in some of the service categories i just mentioned, as well as others, such as tourism. we have the necessary ingredients : a highly educated labour force supported by strong universities and colleges ; entrepreneurs with access to business incubators ; a beautiful and interesting country that many would like to visit ; a multicultural workforce that helps us to serve domestic and international markets. and, that comparative advantage has been strengthened by the decline in the canadian dollar in the past couple of years — a symptom of falling resource prices, and a facilitator of the rotation of growth from resource production to other sectors. filling the hole so, how can we fill the economic hole i spoke of earlier? of course, monetary and fiscal policies are doing their part to support the recovery. but can growth in the service sector play a role? it already is, and we can expect its contribution to grow in the years ahead. since the onset of the global financial crisis, growth in canada ’ s service sector has been stronger on average than in the goods