They forgot to tell the economists at Desjardins that no one wants to hear about productivity, because chief economist Jimmy Jean’s crew decided to produce a series of research notes on the subject this fall. 

Young political staffers in Ottawa and the provincial and territorial capitals should be thankful; they won’t have to read the 2008 report of the Competition Policy Review Panel, the Business Council of Canada’s lament six years later that too few of the panel’s recommendations had been enacted, or any of the litany of reports on Canada’s dismal productivity performance that came before or since. Desjardins has created a digest on the country’s most pressing economic-policy issue that can be easily read on a mobile phone. It amounts to a public service. 

Productivity generally refers to the amount of gross domestic product created for each hour worked. It’s an important indicator of economic dynamism that will become even more important amid a historic period of technological change with a workforce that is shrinking due to aging. Proxies include things such as investment in cutting-edge technology, research and intellectual property. 

In Canada, productivity has been declining—not stagnating, deteriorating—for more than two years. So the situation is dire. 

You’d like the people who could best energize the economy to do something about the problem, but the numbers suggest they are either unwilling or unable to do more than muddle along. Florence Jean-Jacobs, an economist at Desjardins, dug into last week’s Statistics Canada report on gross domestic product and found that the only things on which Canadian businesses increased investment in the third quarter were mineral exploration, industrial equipment, and passenger cars and trucks and buses.

Overall, inflation-adjusted business investment in machinery and equipment declined at an annual rate of 3.8 per cent, a sign that executives sense higher interest rates are finally crimping demand. They certainly aren’t cutting their investment budgets because they’re losing money: Jacobs’s analysis showed that profits of non-financial corporations rose in the third quarter. 

A retired public servant once chided me for writing about Canada’s productivity problem, a subject taken super seriously by a handful of think tanks, Bay Street economists and Senator Colin Deacon, but few others (including the bosses of those Bay Street economists and the sponsors of those think tanks, at least according to the macro numbers). 

Policymakers in the 1970s and 1980s consciously put employment ahead of productivity, this veteran of the era told me. In other words, weak productivity was part of the plan. Societies work well when people are employed and feel like their needs are met. If achieving that requires a less-than-aggressive approach to competition, or tax policies that favour labour over capital, then so be it, he said. 

But the social programs that have protected Canada from the kind of street-level despair that afflicts American society require steady wealth creation to pay for them. The Canadian approach of crowding workers onto the field has reached its limits—workers are retiring, and our capacity to absorb a faster rate of immigration is maxed out. Canada’s long-term prospects depend on getting more out of the workers that are left. 

The transition is happening in real time and we couldn’t be off to a worse start, at least on paper. Productivity has declined every quarter but one since the summer of 2020. It’s gone through slumps of a few quarters before, but never anything like this. Meanwhile, U.S. labour productivity surged 4.7 per cent in the third quarter. Even if the U.S. is an imperfect comparison, and even if the data are wonky because of pandemic effects or record immigration, there’s no denying that something in Canada’s economic machine is broken. 

One answer to the productivity problem could be that there is no answer: this is who we are. Americans are wired to strive and consume, while Canadians are conditioned to weather a storm.  

That desire for stability generated policies to match. Generations of policymakers facilitated the creation of oligopolies across vital industries, including finance and telecommunications. The political class encouraged home ownership by using policy to prefer buying over renting, stoking demand and sucking up capital that could have been used for endeavours more productive than building houses. It bought the narrative that smaller companies are the backbone of the economy and created a tax regime that taxes entrepreneurs at lower rates than bigger companies and individuals. 

The glorification of small doesn’t get the attention it deserves in the productivity debates. Desjardins identified Canada’s concentration of smaller companies as part of the problem. Smaller companies are less productive and innovative than big ones, and Canadian small and medium-sized businesses are less productive than similarly sized enterprises elsewhere. 

Maybe it would be better to treat entrepreneurship as one of many ways to make a living, and instead glorify smaller businesses that strive to get bigger. Scrapping preferential tax rates probably would be too Darwinian, so one option might be offering even lower rates for smaller companies that innovate and scale. 

Desjardins also flagged the government’s tendency to favour tech companies over other firms, considering traditional industries such as construction, agriculture and retail are among the least innovative, and dominated by smaller companies. Removing the tech bias from innovation policy would come with less risk than attempting a significant tax overhaul, so it might be something Canada’s risk-averse policymakers could try. They need to do something, because a storm has arrived—and we aren’t ready. 

Kevin Carmichael is The Logic’s economics columnist and editor-at-large. He has spent more than two decades covering economics, business and finance for outlets including Bloomberg News, The Globe and Mail and the Financial Post, where he also served as editor-in-chief.