GOLDSTEIN: Canada’s low productivity reduces standard of living, report finds

The lack of business investment in information technologies and research and development, compared to the U.S., is lowering the productivity of Canadian workers and suppressing our standard of living, according to a new study by the Fraser Institute.

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“The underinvestment in key technologies is showing up in Canada’s productivity numbers which are essential for improved living standards,” Steven Globerman writes in a report by the fiscally conservative think tank, titled “Comparing the Investment Performances of Canada and the United States Over the Past Five Decades.”

“From 2014 to 2022, output per hours worked, a common measure of labour productivity, increased at an average rate of 1.35% in Canada, while it increased at an average annual rate of 1.78% in the U.S.

“Crucially doing those same years … investment in IT (information technology) was 10.4% of total investment in Canada compared to 16.5% in the U.S. (and) investment in research and development and other intellectual products was more than double in the U.S. — 27.7% of total investment —compared to Canada’s 12.6%.”

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Globerman argues that Canada’s investment environment post-2000 and particularly over the past decade saw an increasing share of total capital investment going to the construction and renovation of residential housing, while a decreasing share went into IT and research and development, while the opposite occurred in the U.S.

“If governments in Canada want to promote rising living standards through faster productivity growth, they must create a policy environment that’s attractive to productivity-enhancing business investments and not simply focus on building more housing,” Globerman said.

While the Trudeau government is currently focused on building more housing, because affordability is a major concern of Canadians heading into next year’s election, the issue of low productivity is a long-standing problem.

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Low productivity doesn’t mean Canadian workers are lazy. It means they aren’t being given access to the education, training and technologies they need to work more efficiently.

Senior Deputy Bank of Canada Governor Carolyn Rogers described low productivity as a “break the glass” emergency in a recent speech, noting that “in 1984 the Canadian economy was producing 88% of the value generated by the U.S. economy per hour … by 2022, Canadian productivity had fallen to just 71% of that of the U.S.

“You can go back 50 years and find a persistent gap between the level of spending per worker by Canadian firms and the level spent by their U.S, counterparts. However, the situation has become worse over roughly the past decade. While U.S. spending continues to increase, Canadian investment levels are lower than they were a decade ago.”

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The Trudeau government has acknowledged low productivity is a long-standing problem.

In her 2022 budget, Finance Minister Chrystia Freeland described it as “the Achilles heel of the Canadian economy, noting, “We are falling behind when it comes to economic productivity.

That budget projected Canada was in danger of experiencing the lowest economic growth in real Gross Domestic Product per capita between 2020 and 2060 among 16 comparable countries that are members of the Organization for Economic Co-operation and Development, as well as lower growth than the OECD average and lower than every other member of the G7 — U.S., U.K., Germany, France, Italy and Japan.“The stakes are high,” it said.

“Most Canadian businesses have not invested at the same rate as their U.S. counterparts. Unless this changes, the OECD projects that Canada will have the lowest per capita GDP growth among its member countries.”

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