Canada’s productivity has lagged behind the U.S. since the 1980s, with the Canadian economy now about 30% less productive. This gap equates to approximately $20,000 less per worker, a concerning trend for the country’s prosperity.
Key issues include an inefficient regulatory system, trade barriers within the country, infrastructure bottlenecks, and excessive red tape. These factors discourage Canadian businesses from investing. On average, Canadian firms invest about half as much per worker as U.S. companies, with recent trends indicating further underperformance in the coming decade.
Lower business investment significantly hampers productivity. Despite this, Canadian businesses are not short on capital, holding a cash reserve worth almost a third of GDP. However, inefficient project approvals make investing in Canada expensive, keeping many businesses small and less productive. Additionally, Canada’s high taxes on distributed profits and large government deficits make the country less attractive for business expansion.
While domestic investment lags, Canadian firms are increasingly investing overseas. The net assets held abroad have reached about $1.7 trillion, more than half the value of Canada’s entire GDP. This trend benefits productivity in other countries, not Canada.
Improving productivity is crucial as it directly affects earnings and wages. Enhanced productivity leads to more well-paying jobs, contrary to fears of job automation.
Proposed Solutions:
To address these challenges, policymakers can:
- Reduce red tape and trade barriers.
- Reform the tax system to make Canada more attractive for investment.
- Utilize the influx of skilled immigrants effectively.
- Accelerate the adoption of new technologies.
Canada’s agricultural sector exemplifies the potential for productivity improvements. Technological advancements have dramatically increased agricultural output per farm acre and worker over the past century.
Taking steps to simplify regulations and cut red tape can significantly boost productivity and prosperity for all Canadians. As Janzen notes, “Reducing complexity just makes sense, even if we had the strongest productivity levels in the world.”
