Business Momentum Gains Speed in the USA and Canada

There is growing trouble in Canada. The economic impetus driving the nation through the 20th century has vanished in the 21st and seems to have gotten worse following the epidemic. Since 2019, higher interest rates have hampered per-capita output; yet, the issues go more deeply than that. Adjusted for inflation and immigration, our economy is currently smaller than it was in 2019; essentially, it is where it was ten years ago.

We have behind most big economies worldwide.

The typical Canadian's economic output at the start of the century matched Australia's. Australians are almost 10% more productive today, and their economy has expanded 50% per person quicker than that of Canada over the past quarter century. We lag behind the United States more still. Comparatively to tech-rich California or New York, Canada is 30% less productive than the United States and more akin to lower-income states like Alabama in terms of economic performance. Consequently, as of 2022 we have dropped from the sixth most productive economy in the Organisation for Economic Co-operation and Development in 1970 to the eighteenth.

Every Canadian has something at risk, very much. With the productivity difference between Canada and the United States at around $20,000 per person year, Canadians' pay falls about 8% below their American counterparts. For capital, the separation has been considerably more taxing. Anyone who paid $1,000 in the major stock index of Canada in 2000 would have $4,400 today; the equivalent investment in the U.S. S&P 500 index would be worth $6000—a more than 35% difference.

A shortage of investment, particularly outside real estate, construction, and public services like hospitals, has limited our somewhat low productivity—the amount of output and income generated per hour worked in the economy. Consequently, we have not been able to take advantage of the immigration surge adding seven million people—mostly of working-age and well-educated—since the turn of the century and balance the retirement wave of baby boomers.

Many areas of Canada have seen deindustrialization.

which has affected their general level of wealth. Manufacturing is half what it was in 2000, and mining has also declined. Once powerhouses of investment and growth, oil and gas are exhibiting signs of fresh vitality, but investment levels still considerably below what they were ten years ago. As we shall see later in this report, agriculture has been a rare highlight.

The most important element in raising economic growth and the accompanying wealth might be a good change in productivity. Our access to major markets—Europe, Asia, and most importantly, the United States—is the envy of the globe; we have the natural and people resources widely sought after in most of the planet. With those assets, Canada's growth issue may rapidly become a growth opportunity with major advantages for its people. Just bridging the productivity difference with the United States would add around $20,000 of GDP annually per person.

Of course, raising production is not easy. Large and physically varied, Canada is a resource-rich nation with a scattered population that presents particular infrastructure, legal and investment issues. Administrative responsibilities spread over several tiers of government have produced inefficiencies and raised internal trade obstacles. Red tape and infrastructure choke points complicate international trade more than they should be. The way provinces, businesses, and professional associations try to manage labour supplies can restrict even the movement of talented workers—hard enough given our vast expanse.

Those problems all help to explain why Canadian company investment.

is declining and hence, less growth. Moreover, in recent economic cycles, a greater amount of savings and investment has flowed to real estate and construction, which, while required and advantageous for many reasons, are both somewhat inefficient and can hold back the general effective expansion of an economy. Small enterprises, which account for 98% of all businesses and have historically been less efficient, can also follow the same pattern. Those companies are fundamental to the nation and present in many Canadian towns; yet, if they are not expanding and becoming more competitive, the whole potential of the economy could be limited.

Not always was this the case. In the 1950s, Canada's average annual productivity growth was 5% as wartime technologies were modified for civilian use—powering almost all GDP increase that decade. Along with a boost from the 1965 Auto Pact between Canada and the United States that opened a new door to freer trade, productivity growth stayed robust (3.5% annual) in the 1960s as automation of the manufacturing sector proceeded. Although developments like container shipping and increasing worldwide trade resulted in significant increases in growth and productivity in the 1990s, that trend receded during the stormy economic times of the 1970s and 1980s.

One can find these difficulties intimidating. Still, the answers are also obvious and realistic and do not call for many concessions. Policies with growth in mind will help workers as well as investors in every sphere of life.

Every federal government over the past quarter-century, and many of the provinces have looked at the difficulties of competitiveness, expansion, and productivity. And they have each found, occasionally in retrospect, that there is no straightforward policy manual. This paper looks at some of the actions one can do to improve development; but, one of the most effective instruments is not a tool at all but rather an attitude.

The productivity conundrum would be simpler if Canadians concentrated on the future economy—one that honors innovation, celebrates competitiveness, invests in both people and technology, and effectively delivers returns. And growth will resurface with it.