‘No silver bullet’ to fix Canada’s decades-long productivity crisis: Donald
‘We have to just pick a corner and start making progress,’ says RBC chief economist Frances Donald about Canada’s productivity. / RBC PHOTO
Canada’s productivity challenges cannot be solved with a single policy or quick-fix solution, MPs heard at the House of Commons Industry committee (INDU) as witnesses told government to take urgent, multi-pronged action to reverse decades of weak investment and low growth.
“There is no silver bullet, which on its own will save the country,” said Frances Donald, chief economist at the Royal Bank of Canada.
“We have highlighted as a profession Canada's lack of tax competitiveness, burdensome regulations, slow investment, overexposure to the housing sector and barriers to trade — some self inflicted, some quite natural. You will be hard pressed to find a Canadian economist without published research and perspective on these, and you'll find that almost all of it rhymes. The productivity problem has persisted beyond the life of any single government,” she said in her opening remarks.
Heading into 2026, there are three pieces of new context to the discussion that are relevant to the elements that have always been true, she said. “The first is that slower population growth and in some regions of the country negative population growth will mean that we need more productivity growth.”
Second, Canada’s economy has been generally resilient and productivity issues will feel less like an emergency to those areas of the economy that have been hit by trade shocks.
Biggest shock in a century
That’s partly thanks to CUSMA and the approximately 90% of exports to the U.S. that remain tariff-free. “Roughly 10% however, is experiencing the largest trade shock in nearly a century,” she said, adding that segments of the economy, particularly in Southwestern Ontario, are struggling and unemployment in cities like Windsor, Ont., is above 10%.
Third, Canada’s productivity problems have accumulated over 40 years and will require coordinated, sustained action rather than one-off measures.
Donald told MPs studying Canada's Underlying Productivity Gaps and Capital Outflow that policymakers must act simultaneously on multiple fronts. “We have to just pick a corner and start making progress,” she said, noting both cost-free measures such as deregulation and more expensive public-sector investments will be required.
The Business Council of Canada delivered a similarly stark message.
‘The number one challenge in Canada really is that we're in an investment crisis. We live in very interesting times and we need to use all tools available in order to make a difference, to change the picture, change the perception of Canada as a bad place to invest,’ Business Council of Canada Senior Vice-President Theo Argitis told the House Industry committee. / SCREENSHOT
“Canada has not been investing at the pace required to keep our economy competitive or to sustain the rising living standards Canadians expect. In short, our productivity crisis is really an investment crisis,” Senior Vice President Theo Argitis told the committee.
This has left industries and workers “capital starved.”
While the recent federal budget included measures the council considers positive, he said, “the pace of change still isn't fast enough to break out of the low-investment trap the economy has fallen into. After a decade of underinvestment and uncertainty, we need more than incremental progress.”
Canada does have what the world needs, he said, but the government must help businesses to scale up private sector investment.
“The cost of inaction is continued stagnation. The reward for boldness is a stronger, more productive economy that delivers rising incomes and enduring opportunity for Canadians,” he said.
Argitis also emphasized that foreign investment inflows do not negate the problem, noting that “much more has exited the country” as Canadian firms increasingly choose to invest elsewhere, particularly in the United States. Capital, he said, simply goes “where the highest returns are.”
Michael Gullo, vice-president of policy at the Business Council, added that Canada is falling behind on research, development and commercialization capacity.
Dwarfed by China
He pointed to weak R&D investment and Canada’s poor track record of converting research into commercial products, saying “our innovation input isn't matching the output.” In key strategic sectors such as mining technology, he noted “Chinese dominance of over 70% of the IP” while Canada sits “right around 2%.”
Gullo said Canada lacks strong institutional partners to help de-risk new technologies and called for an advanced research agency to match U.S. DARPA-style institutions.
Asked how to spur more private-sector R&D, Donald said Canada must improve the “risk-reward component of investment,” noting that programs like SR&ED help but are insufficient on their own: “We have to run a marathon… we have many more steps to take,” she said.
Donald highlighted construction as Canada’s single biggest area for potential productivity improvement “because the stats are the worst in that industry.”
She also cautioned MPs not to conflate growth, investment and productivity, stressing that “investment is step one but the type of investment that you make matters.” Much of Canada’s recent investment, she said, has flowed into low-productivity sectors such as housing.
Avoid falling behind
Looking ahead, she said Canada must avoid falling behind in emerging high-growth fields: “We want to make sure that 10 years from now we're not talking about trying to fix productivity in our AI sector.”
Both Donald and the Business Council stressed that national productivity strategies must be designed with regional and sectoral differences in mind.
Donald said “there is a difference between cross-country productivity enhancements and sector-specific enhancements” and that provinces are affected differently depending on their dominant industries, such as resources in Alberta or housing in Ontario.
Argitis reiterated long-standing concerns about regulatory burden and Canada’s slow permitting systems, telling MPs that “it's been very difficult to build things in Canada” and that this has hindered investment, especially in resources.
He warned that while the government’s new major projects office may help a handful of projects, “we prefer legislation that solves the problem rather than bypasses the problem.”
On fiscal policy, Argitis told MPs that Canada still has room to invest, but warned that new spending must enhance productivity rather than expand structural deficits: “The risk is you run high debts. You don't change the growth dynamics in Canada and investors sour on the debt, interest rates rise and you slow down the economy.”
