A Country In Crisis

The Canadian Economy is in Freefall. It's Time We Talk About It.

Author

Moshe Modeira
August 23, 2024

Commerce & Capital is a weekly ode to universal truths, first principles thinking, leading with integrity, learning with humility & executing with confidence.

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Hey Friends

This week’s edition comes out the latest it ever has — on a Friday. I have been experimenting with what day of the week is best to share this newsletter with you. Our team asks for your patience as we, now 21 editions in, continue to tinker with delivery, style and format while keeping our core DNA of supporting entrepreneurs, founders, creators and business professionals with key insights.

I ended last edition sounding these alarm bells and I continue to sound them this week. We need to have more frank, honest discussion about the numerous uncomfortable truths swirling around the Canadian economy.

Recent government data, statements and speeches from officials paint a concerning picture about the increasingly dire economic trajectory of Canada.

Let's start with productivity. As Bank of Canada Senior Deputy Governor Carolyn Rogers highlighted in her speech earlier this year, Canada's productivity growth has stagnated for years. We're now producing just 71% of the value per hour worked compared to our American counterparts, down from 88% in 1984. This isn't just an abstract economic concept — it directly affects our standard of living and ability to compete globally.

Productivity, at its core, is about how efficiently we turn inputs — like labor and resources — into outputs — like goods and services. When productivity grows, it means we're extracting more value from the same amount of work. Wages go up, profits skyrocket, and economic expansion abounds, unfettered by recessionary inflation. Canada's persistent underperformance in this area is severely limiting our economic potential, and exacerbating income inequality.

Rogers identified three key factors determining productivity: capital intensity, labor composition, and multi-factor productivity. Canada is lagging in all three areas, particularly in business investment in machinery, equipment, and intellectual property. This investment gap, coupled with policy uncertainty and lengthy regulatory processes, is creating a perfect storm that's holding back our economic growth and contributing to acute economic anxiety for both Canadian citizens and immigrants.

Canada's productivity problem is coinciding with other challenging economic trends. Rapid population growth partly driven by increased immigration has put significant pressure on housing markets. While immigration can be a net positive for the economy, the speed of this growth has outpaced our ability to build adequate housing and infrastructure. The mismatch between immigrant skills and available jobs, as highlighted by Rogers, is further exacerbating this issue, leaving many newcomers struggling to find suitable employment and affordable housing.

This brings us to the alarming rise in homelessness. Zooming in on the countries most populous city, pre-pandemic estimates had Toronto's homeless population at around roughly 9,800. Recent reports suggest this number may have ballooned to nearly 250,000 in summer 2024. While we should be cautious about directly attributing this entire increase to any single factor, it's clear that the combination of lagging productivity, rapid population growth, and skyrocketing housing costs has created a perfect storm.

The Bank of Canada has historically aimed to support productivity growth by maintaining low and stable inflation, which should theoretically allow businesses to plan and invest with confidence. Recent inflationary pressures have complicated this picture, potentially discouraging the very investments needed to boost productivity. This economic instability is trickling down to everyday Canadians, with many finding it increasingly difficult to pay the bills.

We're at a critical crossroads. The traditional metrics of economic success — GDP growth, low unemployment — may be masking deep-seated issues in our core economic structure. The stark reality is that a quarter-million of our fellow Torontonians are facing housing insecurity. That should be a loud wake-up call. Our current economic model isn't working for many people.

It's time for a serious, nationwide conversation about how we can realign our economic priorities. We need to focus on boosting productivity through strategic investments in technology and skills training, as Rogers suggested. We have to address the housing crisis head-on, with ambitious building programs and policies that ensure affordable housing keeps pace with population growth. We need to remove disincentives for small companies to grow, and increase competition across markets, as these factors are crucial for driving business innovation and productivity growth.

These are complex, interconnected issues that won't be solved overnight. But acknowledging the scale of the problem is the first step towards finding solutions. As we move forward, let's commit to having these difficult conversations and pushing for meaningful change in how we approach economic growth and social welfare in Canada. The widening productivity gap, if left unaddressed, will only continue to fuel economic inequality, housing insecurity, and social unrest.

Onwards,

Moshe Modeira

Editor-in-Chief 

Commerce & Capital

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Market Alpha: Late Week Update

Did you notice Jerome Powell’s speech at the global central bank meeting today? His talk revealed strong signals for a rate cut, and the markets are reacting accordingly. Powell sent ripples through the markets, potentially offering a lifeline to investors and entrepreneurs bracing for a late 2024 recession. Lower interest rates could stimulate borrowing and spending, potentially boosting economic activity. For investors, this might mean a rally in stock markets, particularly in growth and tech sectors. Bond yields may fall, increasing the value of existing bonds. Entrepreneurs could benefit from cheaper borrowing costs, making it easier to fund expansion, or weather economic turbulence. However, it's crucial to remain cautious. Rate cuts often signal economic concerns, and the timing and magnitude of any cuts remain uncertain. Diversification and careful risk management will remain key strategies.

AI Risk Perception Soars: A striking report from Arize AI reveals that 56% of Fortune 500 companies now cite AI as a "risk factor" in their annual reports, up from just 9% in 2022. This dramatic increase underscores the growing awareness of AI's transformative potential and associated challenges.

Fortune 500 Companies Citing AI as a Risk Factor

🔑 Key Insight: The surge in AI risk awareness signals a pivotal moment for investors. Companies that effectively navigate AI integration while managing associated risks could gain significant competitive advantages. Consider focusing on firms with robust AI governance frameworks and clear AI implementation strategies.

Tech Giants' AI Chip Race Intensifies: Apple is reportedly accelerating work on its in-house modem chip, potentially debuting in niche models next year. Meanwhile, SoftBank explored partnerships with Intel and TSMC for AI chip development, highlighting the fierce competition in the AI hardware space.

🔑 Key Insight: The AI chip market is becoming a key battleground. While established players like Nvidia currently dominate, keep an eye on emerging competitors and potential disruptors in the semiconductor space.

Enterprise Tech Sector: Enterprise Tech is displaying unexpected resilience, with Zoom reporting Q2 revenue up 2.1% YoY to $1.16B, beating estimates and offering an optimistic Q3 forecast. This positive surprise contrasts with Snowflake's mixed signals; despite reporting Q2 revenue up 29% YoY to $868.8M and raising its FY 2025 product revenue forecast, the company's maintained margin forecast led to a 7%+ stock drop.

Key Market Developments:

Regulatory Developments: Heightened corporate scrutiny and regulations continue to shape the business landscape, with a U.S. district judge striking down the FTC's ban on worker noncompete agreements, while the UK CMA accepted Meta's ad rule changes regarding Marketplace data usage.

In the crypto sphere, a report from Public Citizen reveals that crypto companies spent $119M+ in the 2024 election cycle through Q2, accounting for 48% of all corporate money. This significant political investment suggests potential regulatory shifts on the horizon for both crypto and the broader fintech sector.

Alpha Recap: As these diverse threads interweave, investors must remain agile, recognizing the interconnected nature of technological advancement, regulatory evolution, and market sentiment. Certainly, the AI revolution has a lot of the current oxygen; the sector is driving market considerations at an unprecedented pace. The coming weeks may offer clearer signals on what other trends will dominate the tech investment landscape in the near term.

Commerce & Capital: Experiential Marketing

The Enduring Power of Experiential Marketing in a Digital World

A through-line throughout my career has been experiential marketing.

The power of touch, feel, and in-person experiences in our increasingly digital world is still undeniable.

One of my first jobs out of university in the late 2000s was working for a marketing company called Mosaic. It was my first taste of being part of a marketing “street team”, the ultimate dispatch in experiential marketing. Mosaic represents major Fortune 500 brands. My job was to be an “Customer Engagement Associate” which was a fancy title that meant I was assigned an X-Box branded shirt (Microsoft was the client), set up at malls around the Toronto area, and tasked with playing video games with people in public and showcasing Microsoft’s video game console. At the time, I couldn’t believe my luck going to work every day. It was probably the most fun time I ever had working “corporate.”

I was fortunate to attend the Futurist Blockchain Conference last week in downtown Toronto. It was a stark reminder of the cerebral impact that comes from a well-executed experiential marketing event. Kudos to the event organizers and various committees that poured hours of attention into figuring out the details of what is turning into a renowned annual fete to the crypto and DeFi community.

Futurist Conference Toronto 2024

I've been in the trenches of digital marketing and social commerce for 15 years now. I've built audiences, crafted advertising campaigns, and watched the rise of the creator economy. I've had a hand at building my own digital empires, selling fashion, consumer products and information. It's been a wild ride, full of ups, downs and fateful pivots.

Despite all the machinations leading up to this moment in time, I find myself coming back to one fundamental truth: human beings crave physical experiences.

Digital marketing is not dead. Far from it. What I am saying is that the future of commerce lies in the sweet spot between digital reach and physical experience. It's about creating a seamless journey that starts online but culminates in a tangible, memorable interaction with your brand.

Why do people still line up for hours to get into an Apple Store when they could order online? Why do pop-up shops for digital-first brands like Glossier or Warby Parker draw crowds? It's because, at our core, we're still tactile creatures. We want to touch, feel, try on and experience before we buy.

The most successful brands aren't choosing between digital and experiential – they're blending them. They're using AR to let you "try on" products at home. They're creating Instagram-worthy physical spaces that drive social sharing. They're leveraging data from online interactions to personalize in-store experiences. Importantly, they are making sure they have a presence in the crypto landscape, positioning themselves for the metaverse future, whatever that may end up looking like. A great example of such a brand?

Toronto’s OD LABS — A Truly “Phygital” Brand Experience: OD LABS, the AR tech division of ODTO, is a Toronto-based fashion and collectibles brand that has truly redefined the intersection of wearable art and digital collectibles. The NFT space, with it’s heyday in the 2021 and 2022, has a few legacy projects that have lasted the test of time and still enjoy a prominent mindshare in the minds of crypto natives. OD Labs is one of these brands, consistently providing value for holders of their “Lulu” NFT.

ODLabs “LULU” NFT

The OD Labs case study underscores a consistent feature of NFT projects that have weathered the storms of time: their token economies are supported by real world, physical product businesses, and are vigorously buttressed by an ecosystem of experiential events and opportunities for customers, holders and brand enthusiasts to come together in the real world.

What does this mean for you, the modern entrepreneur or investor? It means opportunity. It means thinking beyond the digital-only playbook and considering how you can create physical touchpoints for your brand. It means understanding that while a viral TikTok can drive awareness — in-person experiences drive loyalty and long-term value.

As we hurtle towards an increasingly digital future, don't forget the power of the physical. Whether you're selling software or socks, find ways to let customers experience your brand in the real world. Host events, create pop-up experiences, invest in product design and packaging that begs to be touched and explored and admired. We're marketing to humans. Flesh-and-blood people with five senses, and a need for genuine experiences. Give them that — and you'll have customers for life.

CTA: Audit Your Current Marketing Mix

Are you relying too heavily on digital? How can you incorporate more experiential elements? How can you create moments of genuine, physical connection with your audience? Let us know your brand plans in the comments section, or send us a message and ask us for help 🙏 📢 🚀 

Because let me tell you, after years of riding the digital wave as an agency director, after launching a loungewear brand, after recently diving into the world of custom merch, I can say with certainty: experiential marketing isn't just alive and well. It's more important than ever.

🌍 Social Media

The Japan Bubble: How One Country Is Holding Up The Entire World — Andrei Jikh: Jikh explores how Japan's monetary policy, particularly its low interest rates, has influenced global financial markets through the "carry trade" mechanism. The carry trade involves borrowing money cheaply from Japan to invest in higher-yielding assets elsewhere, creating a complex web of global financial dependencies. Now, we have a scenario where any small change in Japan's interest rates can cause significant market volatility worldwide, as seen in recent market reactions. Jikh discusses the unknown but potentially massive scale of these trades and their implications for the global economy.

Marketing Expert Reveals Secret For Building an Audience That Buys | Seth Godin — Erika Kullberg: Marketing maven Seth Godin reminds us that the industry is fundamentally about serving others and creating meaningful change — not self-promotion. The key to effective marketing lies in developing empathy for your audience, understanding their needs, fears, and desires through careful observation. While AI is transforming the field, it can't replace creative, non-linear thinking, so focus on what AI can't do. Godin emphasizes that we must build trust and deeper connections with audiences, rather than chase vanity metrics, and create content that challenges them to grow.

Instagram: The Audience Comes LAST - Rick Rubin. ALL CREATIVES NEED TO HEAR THIS TODAY. I REPEAT. YOU NEED TO HEAR THIS TODAY. The legendary producer Rick Rubin shares an excerpted idea from his book that making art primarily for yourself — and not pandering or over-catering to your audience — is the truest, most pure expression of artistry.

TikTok: ICYMI, this is THE definitive breakdown of the Olympics breakdancing debacle that the world was treated to by Australia’s Rachael “Raygun” Gunn — with a searing incredulity that could only be delivered by peerless comedian Josh Johnson.

@joshjohnsoncomedy

How An Australian Break Dancer Broke The Olympics #australia #breakdance #olympics

📚 Book Shelf

The Creative Act A Way of Being by Rick Rubin. I am eagerly diving into Rick Rubin's book, and it’s a profound experience in practical wisdom. It’s a comprehensive guide to unlocking creativity as a fundamental aspect of human existence, applicable to all areas of life. Drawing from his extensive experience as a renowned music producer, Rubin presents creativity not as a skill reserved for artists, but as an innate human capability that can be cultivated and applied universally. Rubin advocates for removing ego from the creative process, overcoming self-doubt, and emphasizing play and experimentation. He provides practical exercises and thought experiments to help readers tap into their creative potential, while also exploring the spiritual dimensions of connecting with something greater than oneself.

Hero on a Mission by Donald Miller. Bestselling author Donald Miller presents a transformative framework for personal growth, centered around four character archetypes: victim, villain, hero, and guide. Miller argues that self-awareness is crucial in recognizing which role we're playing in our own life story. Drawing from personal experience, he offers a practical plan to shift from self-defeating victim or villain mindsets towards the more empowering hero or guide roles. Miller's approach aims to help readers identify opportunities for heroic action in their lives, avoid victimhood traps, and develop a personalized roadmap for overcoming current challenges and achieving fulfillment in both personal and professional spheres.

Hug Your Haters by Jay Baer. Author Jay Baer addresses the significant gap between companies' perception of their customer service and customers' actual experiences. Drawing from extensive proprietary research, Baer explores how the rise of smartphones and social media has transformed the landscape of customer complaints. He identifies two distinct types of complainers: offstage haters who seek solutions through traditional channels, and onstage haters who voice their disappointment publicly for an audience. The book provides detailed strategies for dealing with both groups, offering case studies from diverse businesses worldwide, along with specific playbooks and formulas. Through a mix of research-backed insights, practical tactics, and entertaining examples, Hug Your Haters presents a compelling case for reconfiguring customer service to deliver exceptional experiences, turn critics into advocates, and transform negative feedback into positive outcomes for businesses of all sizes.

📰 Article Of The Week

The End of the Creator Economy - Joe Procopio, Inc.com: Procopio examines the sustainability of the creator economy in this article, drawing parallels with past entrepreneurial trends, and questioning the reality behind the "get rich quick" narratives often associated with platforms like YouTube and TikTok. The article challenges the notion that anyone can easily make millions as a content creator, highlighting the stark divide between those who create quality content out of passion, and those who chase algorithms for views. Procopio maintains that the creator economy, despite its apparent novelty, still relies heavily on traditional advertising models, leading to a race to the bottom in terms of content quality. Ultimately, Procopio expresses skepticism about the long-term viability of the creator economy, suggesting that without a fundamental shift in how quality content is valued and monetized, the system may be unsustainable, leaving creators to choose between artistic integrity and financial success in an increasingly crowded landscape.

See y’all next week! Would love to hear your thoughts — leave your comments below.

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