Canadian business needs to walk the walk on productivity
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It is an annual rite of passage stretching back 30 years. Canadian business leaders sound a warning klaxon about the threat of Canada's declining productivity. Then they will present a detailed list of policy asks to the federal government that, if implemented they say, will empower Canadian business to reverse our downward productivity trend.
In many ways, federal governments — Conservative and Liberal — have answered the business call. Need free trade with the United States and Mexico? Done. Need to balance the federal budget to avoid national bankruptcy? Done. Need a low federal debt to GDP ratio? Done. Need corporate taxes rates that are competitive with the G-7? Done. Need business to be supported through the COVID-19 pandemic? Done.
Yet, year after year, Canadian productivity growth stagnates or declines. And year after year, the federal government is blamed by business and business media for failing to deliver a policy suite that will solve the productivity conundrum.
One could perhaps forgive a certain eye-rolling cynicism about business alarmism. And it sometimes seems to federal policymakers that businesses tend to shift the productivity policy goal posts for success in an effort to keep Ottawa the focus of criticism.
On the flip side, there are quite legitimate business frustrations and complaints about how Ottawa operates. Canada’s inadequate depreciation rules, regulatory uncertainty, and slower project approvals can make capital projects less attractive. Programs like the SR&ED tax are rightly criticized as bureaucratic and more useful for tax planning than for encouraging real risk-taking.
Generational failure
At most, however, the federal government can create a pro-productivity framework. Improving productivity requires not just government policy shifts but also decisions made in boardrooms, shop floors, and offices across the country. On this score, while businesses have talked the talk on productivity for a generation, they have continually failed to walk the walk.
Canada has world-class researchers and scientists, yet business spending on research and development (R&D) is among the lowest in the OECD. Too often, Canadian companies rely on imported technologies rather than creating or adapting their own. This dependency leaves them vulnerable to foreign competitors and stifles the domestic innovation ecosystem.
A related difference between Canadian firms and their international peers lies in technology adoption. Businesses in Canada tend to delay or avoid major investments in automation, artificial intelligence, cloud computing, and advanced analytics. This hesitancy often stems from cost concerns, risk aversion, or a “wait and see” mentality. But by holding back, firms are limiting their ability to produce more with the same resources.
Productivity is not only about machines — it is also about people. Workers equipped with up-to-date skills are far more likely to generate innovative ideas, master new technologies, and adapt to evolving markets. Unfortunately, Canadian businesses spend significantly less per employee on training and development than U.S. and European counterparts.
The point here is not to score governmental debating points against Canadian business in a seemingly endless passing of the productivity buck back and forth. The government-business productivity dialogue to which we have become accustomed is a luxury we can no longer afford in light of rising American economic nationalism.
Canada's economic history has been defined by its privileged relationship with the two globally predominant economies of the last 150 years: the United Kingdom and the United States. Some may think that President Donald Trump’s assault on the global rules-based economic system will pass when he leaves the scene. However, it may also be the case that Trump has tapped into a political vein that has considerable staying power among Americans who feel dispossessed by globalization.
Profound shock
Prime Minister Mark Carnery has recognized this possibility and is trying to jolt Canadians into making big choices at a time when the nation may well be losing its privileged place under the American economic umbrella. This would be a profound shock to federal policy-making and to the way that Canadian companies do business.
Carney has signalled what is coming federally by the breakneck speed with which he secured the Building Canada Bill Act, which seeks to remove the typical bureaucratic encumbrances that have held back major economy-building projects. His choice of Michael Sabia as a new Clerk of the Privy Council signals he will reward risk-taking and innovation above all else and penalize mere process management.
Canadian businesses must meet this moment with equally bold thinking and action in a new, more uncertain economic reality. They must invest in a culture that rewards productive investment and upskills its workers. They must reward experimentation and tolerate calculated risk. They must uncover more efficient ways of doing things rather than copying existing models. Above all, they must adopt a true, globally competitive mindset beyond the comfortable habits ingrained during the now declining economic Pax Americana.
In other words, Canada is at an economic crossroads. The federal government seems to recognize this.
But whether we travel the right road ahead will depend very much on whether Canadian businesses stop talking the talk on productivity and finally walk the walk.
