More depressing data this week about the extent to which the Canadian economy is suffering from atrophy. Statistics Canada reported that gross domestic product per capita is tracking about seven per cent below its long-term trend, the equivalent of about $4,200 per person. 

The reasons statisticians Carter McCormack and Weimin Wang offered for the collapse of GDP per capita will be familiar to observers of Canada’s productivity emergency: the COVID-19 pandemic sent everything off the rails, exposing the fragility of an economy that was overly reliant on immigration to generate economic growth. 

A rush of able bodies could have led to an economic bonanza. That’s what’s happening in the U.S., where a growing population is taking advantage of an investment-led productivity surge to generate world-beating economic growth. 

Canada is experiencing the opposite. We went on a massive recruiting drive, then asked our expanded ranks to compete with the Americans and the Swedes with wooden hockey sticks instead of the state-of-the-art composite kind: business investment per worker was about 15 per cent lower in 2021 than in 2006. 

The decline was influenced by the collapse of energy prices in 2014 and 2015, but probably not caused by it. McCormack and Weimin flag a lack of competition, and Alberta Central chief economist Charles St-Arnaud has written convincingly about how real estate has become a black hole for capital that could otherwise have been used for more productive purposes. Policy uncertainty and political polarization likely are making things worse. 

Whatever the root causes, the results belie Canada’s image of itself as a leading economy: the 38-member OECD’s long-run projections say Canada will have the lowest growth in GDP per capita through 2060. We’ll do well to keep a place in the G20, nevermind the G7. 

When Canada was embarrassed at men’s hockey in the late 1990s, Hockey Canada effectively declared an emergency. It held a summit to try to figure out what was going wrong and changed its approach to fundamentals such as coaching and practising. It worked. The Canadian men started winning again. 

When it comes to productivity, we are making the same mistakes today that the hockey brass made back in 1998, when a team that included Wayne Gretzky failed to win a medal at the Nagano Olympics. We assume a history of relative economic success guarantees future success, that a roster of assets that looks great on paper will take care of business on the ice. But the game has changed and we can’t decide whether we’re an energy superpower or an AI superpower. We could end up being neither. It’s nice that famous pioneers such as Yoshua Bengio and Geoffrey Hinton are based in Canada, but throwing around their names along with billions of dollars in AI subsidies isn’t an innovation strategy.

“Where I would start is with a strategic plan for getting what we need, which is investment,” Carolyn Wilkins, the former senior deputy governor at the Bank of Canada, said during a panel discussion about the productivity problem The Logic co-hosted with the Canadian Club of Toronto this week. “These one-off spending, or one-off tax changes … are bits of a potentially really good solution, but because they don’t hang together in a whole strategy, it won’t mobilize as much change as we actually need.” 

Strategies aren’t sexy. They require patience. Canadian policymakers appear to prefer to wing it. The federal government, Ontario and Quebec have depleted their treasuries by making a handful of massive bets on multinational makers of electric vehicles and batteries, with little evidence of a fallback plan should the technology change or those foreign behemoths decide Canada no longer fits their plans. 

Ottawa and the provinces are toying with the idea of directing the big public pension funds to invest more at home, while running deficits that deter private investment by increasing the supply of risk-free sovereign debt. Finance Minister Chrystia Freeland decides to spend billions of dollars on housing to reverse the supply crisis, which is contributing to middle-class anxiety and political polarization, and chooses to pay for it by raising capital-gains taxes and therefore the cost of capital required to invest. 

Things might not be as bad as they feel. Big projects are a drag on productivity while they are being built, because there is no output to show for all those hours worked. The Trans Mountain pipeline expansion caused all kinds of political heartache, and who knows if the federal government will ever recoup its investment. But it’s about to come online and will alleviate the productivity problem by contributing 0.25 percentage point of GDP growth this quarter alone, according to the Bank of Canada. 

Similarly, productivity invariably suffers when you add new workers because it takes them time to get up to speed, so it’s reasonable to assume that a crush of new Canadian workers might detract from productivity before they contribute to it. And while thousands of foreign students are a drag on productivity while they’re in school, they could become highly effective innovators as they graduate over the years ahead. That miserable OECD outlook is a forecast, not fate. 

But forecasts become fate if none of the variables change. A poll by the Angus Reid Institute found that a majority of respondents liked many of the individual policies in Freeland’s budget, yet 56 per cent said the budget left them more pessimistic about the future. It would appear Wilkins isn’t the only one who thinks the answer to the productivity problem is a productivity plan. 

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.