Canadian companies are complacent
Ottawa has launched one of the most thorough overhauls ever of our immigration system.
But its sweeping changes to reduce the flow of newcomers will not solve the problems for which the immigration surge of the past two years has been held largely to blame.
That includes a warned-of “population trap” in which population growth exceeds available Canadian capital required to maintain a prosperous society.
Ottawa’s recent immigration reforms address that problem.
But laggard productivity growth, and the diminished prosperity gains that result, will remain a problem. That problem is rooted not in immigration flows but in decades of underinvestment in the economy by Canadian business.
The Bank of Canada this week labelled the country’s stagnant productivity growth an “emergency.” More on productivity later. First, how we got here on immigration.
To meet demands for more labour during the post-pandemic economic boom, Ottawa allowed record immigration flows. Ottawa tested Canada’s welcoming capacity, and the country now has almost 2.7 million temporary residents, Statistics Canada reported this week.
But in a drastic course-correction, Ottawa is now shutting the door to about 500,000 would-be newcomers over the next three years — a number larger than the population of Greater Halifax.
The strict new measures will reduce Canadian population growth to roughly one per cent from 3.2 per cent at the height of the immigration inflows.
Ottawa has also read the riot act to employers who have abused the temporary foreign worker program to hire cheap foreign labour rather than unemployed Canadians.
Employers in key sectors where labour shortages remain acute, including health care and construction, are exempt from the new measures.
But curbing growth in temporary residents won’t solve Canada’s productivity emergency.
Temporary residents have not played a significant role in reducing per capita GDP — a yardstick for improved living standards — though some credible experts think they have.
The biggest recent drop in Canadian GDP per capita was in the years 2012 to 2016, when it fell by close to 20 per cent.
It did drop again during the 20222023 immigration surge, but by a modest 3.3 per cent. And per capita GDP growth has since resumed its upward path, forecast by the International Monetary Fund (IMF) to reach a record high of $75,386 this year.
The IMF projects a further 14.8 per cent growth in Canadian GDP per capita in the next four years, to $86,559 in 2028.
In their recent report on immigration and productivity, Scotiabank researchers Rebekah Young and René Lalonde say population growth “should give Canada a competitive advantage over countries with declining populations.”
But they call for immigration policy to focus more on prospective newcomers “with high economic potential.” And they warn that this must be “matched with equally significant increases in business investment.”
“Absent that,” they say, “the country will remain on the current trajectory of declining productivity and competitiveness.”
More so than most of our G7 peers, Canada is an economy dominated by oligopolies and branch plants of foreign enterprises.
The result is insufficiently robust competition to drive productivity gains, in which Canada trails most of the G7.
In its latest World Competitiveness Index, the Swiss-based International Institute for Management Development (IMD) ranks Canada a dismal 18th in its category of “business efficiency.”
That metric includes customer satisfaction levels, reinvestment in modern plant and equipment, best practices in worker training and “competent senior managers.”
The Organization for Economic Cooperation and Development (OECD) ranks Canada dead last among G7 peers in R&D spending. At 1.7 per cent of GDP, Canadian R&D spending is far behind America’s 3.5 per cent and the OECD average of 2.7 per cent.
The Fraser Institute reported last year that average U.S. business investment per worker in 2021 was $26,751 compared to Canada’s $14,687. It found that Canadian business investment per worker compared with the U.S. has fallen steeply since 2014.
Meanwhile, climate change, global trade tensions and changing demographics put Canada at greater risk of renewed inflation than in the past, Carolyn Rogers, a Bank of Canada senior deputy governor, warned in a speech this week.
Stronger productivity gains are among the best means of generating significant economic growth without inflation, Rogers said. She described “the urgent need to improve Canadian productivity” as an “emergency.”
But Canadian business hasn’t gotten the message.
“When you compare Canada’s recent productivity record with that of other countries,” Rogers said, “what really sticks out is how much we lag on investment in machinery, equipment and, importantly, intellectual capital.”
Canada under-employs many of its newcomers, Rogers reminded her audience. And it lacks sufficient competition to force smarter business practices.
And “there is a persistent gap between levels of capital spending per worker by Canadian firms compared with U.S. counterparts,” Rogers said.
Those who blame immigration for poor productivity growth will soon have to look elsewhere.
They can start with a complacent Canadian business community and might not have to look much further than that.