This article originally appeared in the Financial Post. Below is an excerpt from the article.
By
Most economists agree productivity drives income growth over time. Canada’s annual productivity growth has slowed in recent years to less than 1.0 per cent, its lowest on record back to 1961 and a major reason why the growth of real GDP per capita has also plumbed historic lows. Reviving Canada’s economic growth necessarily means boosting productivity.
The major reason productivity has slowed over the past decade is lower business investment. As former Bank of Canada deputy governor Carolyn Rogers observed in her famous “Time to break the glass” speech two years ago, “when you compare Canada’s recent productivity record with that of other countries, what really stands out is how much we lag on investment.”
Business investment has been the weakest sector in Canada’s economy, falling 6.4 per cent since the end of 2014. This decline contrasts starkly with a 43.2 per cent surge in the U.S. over the same period. American investment growth was led by technology companies establishing their global dominance in areas such as smartphones, cloud computing and AI. But technology has not been the only source of U.S. investment growth. It also capitalized on rising demand for oil and gas, especially from Europe after Russia’s invasion of Ukraine in 2022. Diverging business investment between Canada and the U.S. has played a major role in the faster growth of American incomes and productivity over the past decade.
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Philip Cross is a senior fellow at the Macdonald-Laurier Institute.
