Weak business investment in Canada poses a profound threat to Canadian living standards and competitiveness, says a new report from the C.D. Howe Institute.
In “Working Harder for Less: More People but Less Capital Is No Recipe for Prosperity,” authors William B.P. Robson and Mawakina Bafale show that gaps between investment per available worker in Canada compared to the United States and other OECD countries, which narrowed until the mid-2010s, has since widened to a chasm.
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“Rapid population growth and declining capital per worker risk putting our country on a path to a labour-intensive, low-productivity and low-pay economy,” write the authors.
In 2023, Canadian workers will likely receive only 65 cents of new capital for every dollar received by their counterparts in the OECD as a whole, and 58 cents for every dollar received by their counterparts in the United States. Canada’s stock of fixed capital per member of the labour force has been falling for eight years, something that has not happened since World War 2, said the report.
“Investment per worker that is lower in Canada than abroad tells us that businesses see less opportunity in Canada, and prefigures weaker growth in Canadian earnings and living standards than elsewhere,” said Robson.
The authors warn that, without more robust business investment, higher immigration will make Canada a more labour-intensive economy, with problematic implications for productivity and wages. When they adjust the number of available workers in Canada to take account of the explosion in temporary residents that has accompanied higher targets for permanent residents, they note that capital per potential worker may be no higher now than it was a decade ago, said the report.
“The coincidence of another immigration-boosted rise in the labour force and anemic growth in Canada’s capital stock raises the concern that labour productivity and wages will not accompany population increases this time,” said the report.
Mario Toneguzzi
Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)
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