This week, the Bank of Canada took the unusual step of raising the alarm over the state of Canada’s declining productivity.
“I’m saying that it’s an emergency,” the bank’s senior deputy governor Carolyn Rogers said in a speech in Halifax on Tuesday.
The numbers are indeed grim. In 2022, Canadian productivity — output produced per hour worked — was 71 per cent that of the United States, down from 88 per cent in 1984. During this period, Canada fell behind all G7 nations other than Italy.
Rogers is by no means the first to sound the alarm. In recent months and years, there have been mounting calls from economists, think tanks, business leaders and pundits for Canada to address its productivity problem. But so far, the political leaders responsible for getting Canada into — and out of — this mess have been frustratingly silent on the issue.
Productivity is a dry, technical term, so it is worth taking a moment to establish why it matters to Canadians’ daily lives.
For one, it affects the amount workers earn and the prices we pay as consumers. When workers are more productive, it allows companies to raise wages or lower prices for the same amount of profit.
Productivity also affects the standard of living that all Canadians enjoy. A larger GDP increases tax revenue, allowing the government to provide more services, reduce taxes or reduce deficit spending.
Given these effects — and the connection to their own political fortunes — one might expect political leaders to put productivity at or near the very top of their agendas, particularly when Canada has been doing so poor on this score lately.
Unfortunately, this issue does not appear to be a priority for the federal Liberal leadership.
In a recent interview with Radio-Canada, Prime Minister Justin Trudeau said he couldn’t step away from leading Canada given the pressing challenges facing this country. The pressing challenges he cited were climate change, women’s rights, LGBTQ rights, the green transition and extreme populism.
Productivity was not mentioned.
Rogers identified many factors contributing to Canada’s poor productivity, including weak business investment, skills mismatches in the labour force, weak competition and regulatory uncertainty.
The government is not singularly responsible for all of these factors. But it has a major hand to play in most of them. Let’s look at a few.
Skills mismatch: Canada’s points-based immigration system is excellent at identifying top talent to admit into the country. It is far less good at ensuring those skilled workers are able to contribute to the economy to the best of their abilities.
This has been a known issue for decades. Unfortunately, many of the professions, such as medicine, law and engineering, have not been pressed to reduce the unreasonable barriers that prevent skilled immigrants from working in their fields of training.
Competition: Many of Canada’s federally-regulated industries, including banks, telecoms, airlines, railways, agriculture and media, are shielded from robust competition. Regulatory frameworks favour incumbents and discourage or prohibit new entrants and foreign investment.
Regulatory uncertainty: To take one example, consider the fiasco that is the Online News Act. This law, which government passed to prop up legacy media companies, has created an existential threat for previously thriving digital news media companies. On top of this, it has likely eliminated any possible appetite for new investment in the sector.
To take another example, the energy firm Kinder Morgan threatened to walk away from the Trans Mountain Pipeline project due to regulatory uncertainty unless the government guaranteed a path to construction. The government met the company’s terms — by purchasing the pipeline for $4.5 billion and finishing it at an additional cost of $31 billion.
Productivity is the basis of our rich standard of living. The Bank of Canada is correct to call its decline an emergency. You need productivity to create enough wealth to support social programs like health care, child care, housing or defence.
Serious politicians would be prioritizing and talking about this issue publicly.
