Canada's Productivity Problem: A More Nuanced Perspective

The narrative that Canada's businesses struggle to keep pace with their American counterparts has been a long-standing concern for decades. Bank of Canada officials have repeatedly highlighted the productivity problem, using phrases such as 'dead money,' 'emergency,' and 'Achilles heel.' Former U.S. treasury secretary Robert Rubin questioned then-Prime Minister Stephen Harper about it in 2013.

However, new research suggests that this narrative may be oversimplified. According to Linda Hasenfratz, executive chair of Linamar, a diversified manufacturing company based in Guelph, Ont., the issue lies not with Canadian businesses but rather with how productivity is measured. She points out that non-business sector organizations, such as government entities and charities, are less productive than those focused on maximizing profit.

Statistics Canada data supports this assertion, showing that while business-sector workers have seen a significant increase in productivity since 2000, the non-business sector has remained largely flat. This is due in part to the difficulty of measuring the value of work done by non-profit organizations, such as teachers and government statisticians.

Despite these nuances, economists still point to two main reasons for Canada's lagging productivity: lack of scale and poor capital investment relative to the United States. However, Hasenfratz disputes this, citing her company's strong performance in manufacturing productivity, which has actually exceeded that of the U.S. since 2010.