Canada, stop underinvesting in yourself
What exactly does Pierre Poilievre, leader of the Conservative party, mean when he describes Canada as “broken?”
The social cohesion of the country is better than ever, after a pandemic strengthening of the national character.
And the economy is robust, with inflation on the wane and higher GDP growth around the corner.
But it’s irrefutable that Canada is a laggard in productivity growth, the chief measure of progress in improving living standards.
In that regard, it’s not so much that the economy is broken as that we’ve allowed unfavourable conditions to persist.
That persistence is abetted by a 2021 report by the Paris-based Organization for Economic Co-operation and Development (OECD).
It ranked Canada last among the 38 OECD countries in its forecast of productivity growth between now and 2060.
A close look at the report, which has been a rallying cry for Canadian policy influencers since it was released, shows that Canada is actually on par with its mature, slowgrowth G7 peers in many of the components of the overall ranking.
But opinion leaders in think tanks and editorial boards have fixated on that out-of-context report to get attention for their solutions to laggard productivity.
Which don’t go much further than cutting corporate taxes and dismantling regulations they claim are inhibiting productivity gains in the private sector.
It is difficult to credit that proposition when so many foreign multinationals are investing billions of dollars in an allegedly business-unfriendly Canada.
Those investors appear determined to help make Canada a global leader in, among other major sectors, electric vehicle automaking, advanced telecommunications, and clean-energy steelmaking.
Meanwhile, under a stricter regulatory regime meant to fight climate change, the Canadian oilpatch has reaped record profit.
So, what is constraining Canada’s productivity growth?
To start, our economy hosts many business oligopolies. That alone inhibits investment in productivity enhancements that market-dominating firms needn’t make in a country lacking sufficient competition.
It also restricts consumer choice, which itself is inefficient.
Canada might also be the world’s biggest branch-plant economy, where entire economic sectors are dominated by foreign enterprises.
When Volkswagen AG unveiled its planned government-subsidized electric vehicle battery plant in St. Thomas, Ont., last month, Poilievre’s reaction was to ask why Ottawa is giving money to a “foreign corporation.”
It’s a good question.
The answer is there are no Canadian-owned automakers to use as platforms for a clean-energy auto sector.
Offshore enterprises dominate Canadian business sectors as varied as autos, smartphones, computer hardware and software, steelmaking, chemicals, pharmaceuticals, electrical goods, natural resources, even breakfast cereals.
And those firms tend to develop their intellectual property in their home countries, not here.
That level of foreign ownership probably wouldn’t be tolerated among our G7 peers.
In 2006, the U.S. rejected a planned Dubai purchase of six East Coast ports citing port security. There have since been no similar foreign attempts to buy U.S. infrastructure.
In 2021, Paris blocked a proposed Canadian takeover of a French grocery chain on the ludicrous grounds of “food security.”
By contrast, Ottawa stood idly by as Abitibi, Alcan, Noranda, Dofasco, Inco and other iconic Canadian firms slipped down foreign gullets.
Meanwhile, Canada’s domestic business community is complacent and risk averse. It chronically underinvests in itself.
And it continues to export mostly to next-door America, choosing not to crack the new export markets in Europe and Asia-Pacific that Ottawa has opened for it.
Canadian business complacency is of such long standing that we hardly notice it.
Carolyn Wilkins, the former Bank of Canada deputy governor, found it necessary to remind us recently that Canada’s stunted productivity growth owes much to “our lacklustre business investment in research and development, intellectual property, and even machinery and equipment.”
Finally, a Canada that prides itself on an open-door immigration policy restricts the ability of new Canadians to work in their chosen fields.
In a more recent OECD survey, specific to Canada and released last month, note was made of those vexing restrictions.
“Non-recognition of certain (worker) qualifications between provinces reduces the efficiency of Canadian labour markets and limits mobility,” the report said.
A revealing companion piece to that survey is a scornful 2021 report on Canadian business underinvestment by the C.D. Howe Institute.
The right-leaning think tank found that in 2020, Canadian business investment in intellectual property per worker was only about $2,000 versus about $7,000 in the U.S.
And it noted that Canadian companies invested just $2,500 per worker in modernized equipment compared with about $8,200 in the U.S.
The OECD’s key recommendations for Canada include scrapping the interprovincial trade barriers, creating more effective anti-trust measures to curb oligopoly inefficiencies, and to consider imposing windfall taxes on excess corporate profits, a distorted distribution of capital.
And so, should he take on the task of a needed Canadian business reinvention, Poilievre would have to shatter a few obsolete traditions.
And to break things in a country that is not, in fact, broken, but is clinging to some backward business and economic practices.