Canada’s productivity crisis demands new solutions beyond old remedies

Canada faces a persistent productivity crisis that threatens living standards, wages, and economic growth. Bank of Canada senior deputy governor Carolyn Rogers has described it as a 'break the glass moment' for 2024. Despite warnings from leaders dating back to the Brian Mulroney era, the issue has been overshadowed by trade tensions and other immediate concerns.

The crisis is worsening due to demographic shifts and a growing shortage of care services. The traditional solutions, lower corporate taxes, reduced red tape, and privatization, have not delivered the expected boost in business investment, particularly in machinery and equipment. Since 1981, such investments have stagnated, except during the mid-1990s commodity boom.

The latest effort to address the issue is Prime Minister Mark Carney’s Investment Summit, which presented 167 infrastructure projects to investors. The summit also proposed productivity tax deductions to attract more investment. However, the effectiveness of these measures remains uncertain, as past initiatives have failed to significantly improve productivity growth.

Canada’s productivity growth is also lagging behind the U.S., which has benefited from digital technology advancements. The U.S. is not even the most productive economy globally; that title belongs to Monaco, followed by other tax havens. This raises questions about the relevance of benchmarking against such economies and the strategies needed to close the productivity gap.