The polycrisis means Canada’s economic immune system needs a boost as quickly as possible. The prescription could lie in a pattern that Italian polymath Vilfredo Pareto discovered more than 120 years ago, when Wilfrid Laurier was prime minister.  

In the late 1890s, Pareto, an engineer who by then had impressed his way into a job as chair of political economy at the University of Lausanne, used math to show that 20 per cent of the population tended to own 80 per cent of the country’s wealth. The pattern—sometimes called the law of the vital few—was repurposed in the coming decades, and eventually became known as the Pareto Principle. Some say it’s a power law that applies to everything from the size of insurance claims to the number of baseball players who perform above replacement level. Universities coach students to focus on the 20 per cent of course work that will make up 80 per cent of their exams and course work. The Business Development Bank of Canada advises entrepreneurs to use an 80-20 analysis to get “quick wins.” 

Canada’s productivity crisis has a Pareto distribution. A handful of industries account for an outsized amount of the country’s economic output, and a vital few are responsible for productivity growth going into reverse in recent years. The charts suggest policymakers could orchestrate some quick wins by focusing scarce resources on a few sectors. One stands out: construction, a key driver of the gross domestic product and perhaps the country’s least productive industry. 

“Technology has advanced so much in our lifetimes, but the way we build buildings hasn’t changed,” said Sabrina Fiorellino, chief executive and co-founder of Fero International, which makes modular homes and buildings at a factory in Stoney Creek, Ont. 

“We built the pyramids before any of us existed on Earth, and we can’t figure out how to do that,” Fiorellino quipped. “So in some ways I would say we’ve regressed in how we build. There is a massive opportunity to do better here.”   

One way to apply a Pareto analysis is to lean into what works. Tiger Woods became one of the most dominant golfers in history by perfecting his strengths, rather than using precious practice time to correct his one consistent weakness—hitting out of the rough. More accurate drives kept him away from trouble, and strong putting offset the potential damage from those times when his balls veered off course. Age and distraction caught up with Woods, but it’s hard to argue with the results when he was in his prime. 

“You don’t become great by just fixing your weaknesses, you start by doubling down on your strengths,” Bank of Canada governor Tiff Macklem said in an interview with The Logic last year. Economist Bev Dahlby said something similar in a University of Calgary paper this year, insisting that “shifting resources, particularly labour, to higher value sectors is essential for driving productivity growth.” 

But what would Woods have done if he sucked at putting? Following the path that Dahlby suggests too closely would risk becoming one dimensional, and maybe not in a good way. The real estate industry generates lots of wealth, but not the goods that will lead to the kind of investment that would make the economy more resistant to the kinds of shocks that will be coming. Charles St-Arnaud, chief economist at Alberta Central, has calculated that Canada spends as much on home renovations and homeownership transfer costs as it does on machinery, equipment and intellectual property. 

“We’ve got to address some of our weaknesses,” too, Macklem said in that interview. 

When it comes to generating business productivity, Canada’s most glaring weakness is construction; output per hour worked actually decreased between 1990 and 2023—and between 2000 and 2023, and 2010 and 2023, according to Statistics Canada data. 

Tim Sargent, director of domestic policy at the Macdonald-Laurier Institute think tank, calculates that productivity growth in construction decelerated between 2020 and 2023, compared with its growth rate between 1998 and 2019. No other major industry suffered such a sizable decline, with the exception of transportation and warehousing. 

The pace of productivity growth in manufacturing also dropped, according to Sargent. Combined, the three industries account for about 60 per cent of the drop in productivity over that period. If growth had held constant, overall productivity would have increased between 2020 and 2023, Sargent showed. Instead, it stalled. 

President Donald Trump’s desire to use tariffs to force more factory investment to the U.S. could expose weaknesses in manufacturing and transportation. The sorry state of Canada’s construction industry is already on full display. Politicians have been describing housing affordability as a crisis for years, and the federal government and the provinces have committed billions of dollars to increase supply. 

Yet little changes. Former prime minister Justin Trudeau set a goal of building 3.87 million homes by 2031—a target that amounts to 550,000 units per year, more than double the current one-year record set in the 1970s. The six-month trend in housing starts decreased 0.7 per cent in March to 235,316 units, according to Canada Mortgage and Housing Corporation. “Our supply curve in Canada is very inelastic,” Michael Waters, chief executive of property developer Minto Group said in an interview with The Logic last year. “It’s not responsive to demand.” 

Economists call that a market failure. Mathieu Laberge, senior vice president of housing economics and insights at Canada Mortgage and Housing Corporation (CMHC), estimates that Canada should be able to build around 400,000 homes a year with the resources we have—there were a record 650,000 people employed in homebuilding in 2023. Laberge says there could be 377,000 housing starts if we had historic productivity rates in construction, and 465,000 starts based on maximum levels achieved in the best performing municipalities.

Why is the rate of home construction half of that? The list of obstacles is long and familiar. The status gap between white-collar degrees and trade school has drained the labour pool of talented and experienced carpenters. 

Regulation makes it hard to plan and keep projects on schedule. Unpredictability makes it hard to raise money to expand and invest. A lack of capital keeps the industry small and fragmented, creating long and fragile supply chains that rely on multiple contractors to complete single projects—or small outfits that are content to build one home per year. Technology could make a difference, but smaller companies can’t afford it. 

And so on. The productivity problem is circular, so solving it means breaking the wheel. Fiorellino is trying. Fero International operates a 300,000-square-foot factory that is capable of building schools, hospitals and homes simultaneously on multiple lines. “In four months last year, we built 55 classrooms,” she said. “In seven months, we built an outpatient clinic for a hospital in Winnipeg.” 

The company could do a lot more. Fiorellino wants to become the biggest maker of modular buildings in the world. First step: getting that massive factory running at capacity. Modular construction is cheaper and faster, yet Canada has been slow to embrace an approach to construction that’s widely used in Europe and Asia. It’s baffling, but Fiorellino has an explanation. “Why did the Roman Empire fall? Because they never had a crisis,” she said. “They sat like fat cats and did whatever they wanted for as long as they wanted without having to think about resilience.”

Modular homes won’t be the entire solution for all the pent-up demand for housing. But perhaps the first step to getting out of both our housing crisis and our productivity crisis is to start thinking differently about the problems.