Canada Has a Productivity Crisis

Published by Conference Board of Canada Dec 2024. Read the full report here.

Key Insights

The Rise And Fall of Nation's

Economic progress is complex because it depends on the right mix of policy, regulation, technology, and physical and human capital. Through the ages, civilizations have generally progressed because of scientific and other innovations that allowed them to produce more with less. Over the past 200 years, the success of many Western economies has been attributed to agricultural and industrial revolutions, with a more recent boost coming from adopting information technologies and expanding trade. Yet progress of individual nations is slow and irregular, and past success does not secure the future. Civilizations have also declined because of war, political instability, or simply economic stagnation. There are few guarantees of economic success, even in modern times.

Argentina was one of the wealthiest nations in the world in the early 1950s but has since struggled with high inflation, debt, and political instability. To this day, Argentina continues to be mired in economic distress. In recent decades, Canada, while far removed from any comparison to Argentina, has become a laggard. The country’s productivity growth has not kept pace with that of many developed economies. And few developed economies have kept pace with the United States.

• Canada has a productivity crisis. Labour productivity growth is lagging behind that of many developed economies. Understanding and addressing the factors driving this poor performance is critical if Canada is to maintain its long-term prosperity.
• Increased educational attainment and skills have contributed steadily to Canada’s productivity growth, but capital intensity and efficiency have had setbacks and have contributed unevenly across industries.
• Weakening business investment reduced productivity growth by 0.5 percent per year over the past decade. If that slowdown had not occurred, nominal GDP would be roughly $130 billion (4.2%) higher today.
• To enhance productivity growth, Canada must focus on unlocking private sector investment. A review of the competitiveness of the country’s regulatory and corporate tax regime with other jurisdictions should be a starting point.
• A lack of competition is also detrimental to business investment. Eliminating internal trade barriers, and supply management schemes both long-standing problems, could provide a solid boost to Canada’s prosperity.

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