“It’s time to break the glass.” 

Those words launched a thousand commentaries, social media posts and panel discussions a year ago, on the most colourless of economic concepts: productivity. 

Google Trends data shows internet searches for “productivity” spiked when Bank of Canada senior deputy governor Carolyn Rogers declared that an extended decline in output per hour worked in the private sector constituted an emergency, elevating a back-and-forth between policy wonks to the status of national conversation. 

What has that conversation accomplished? It’s hard to say. 

The University of Calgary created “Canada’s Productivity Initiative,” so some tenured thought leaders have committed to continue to chip away. Some of the country’s leading technology entrepreneurs created Build Canada, a platform for “bold ideas for growth, innovation and prosperity,” which had published a couple of dozen memos by early April. At the same time, the political class barely acknowledged the Bank of Canada’s warning. For good or ill, policy remained focused almost entirely on affordability in 2024, leading to some decisions that would harm productivity, such as former finance minister Chrystia Freeland’s star-crossed attempt to raise capital gains taxes. 

When Rogers sounded the alarm on March 26, 2024, business productivity had fallen in almost every quarter since the start of 2021, evidence that the acute shock of the COVID-19 pandemic had turned into a chronic malaise. The decline levelled out for a couple of quarters and then jumped in the final three months of the year, generating the first annual increase since 2020. Business investment, a necessary element of productivity, also popped over the final three months of last year, suggesting that lower interest rates were starting to work their magic on executives’ animal spirits.

Or maybe it was simply a death rattle. We might never know because the re-election of Donald Trump as president of the United States changed everything. “Momentum observed in late 2024 has all but evaporated,” Brian Yu, chief economist at Central 1 Credit Union, said in a note on March 25. 

The polycrisis has moved beyond surviving pandemics, containing inflation, adapting to climate change and avoiding war—Trump’s return to the White House has made achieving anti-fragility existential. A Royal Commission that could sort through all of this would be ideal, but we don’t have the time. To remain safely independent, Canada will have to follow former NHL coach Ted Nolan’s mantra and learn to win with what we’ve got. 

Trump’s tariff-first trade policy and apparent desire to extend U.S. sovereignty to the northern part of the hemisphere has cracked the foundation on which Canada’s economy is built, crushing business and consumer confidence. Border taxes at the scale Trump imagines would cause a recession, while the incoherence of his objectives and the inconsistency of his demands might be even more destructive. 

“The old relationship we had with the United States based on deepening integration of our economies and tight security and military cooperation is over,” Prime Minister Mark Carney said on March 28. “It’s clear the U.S. is no longer a reliable partner. It is possible that with comprehensive negotiations, we could re-establish an element of confidence but there will be no going backwards.” 

When the head gasket cracks, the engine sometimes is irretrievable and must be replaced. Places such as Finland and Estonia show that it’s possible to create resilient societies and rich economies in the shadow of a hostile neighbour. Canada will have to focus. Carefree trade with the world’s hegemon offset a lot of weakness. We’re starting from a long way back. 

In February, Scotiabank economists Jean-François Perrault and Rebekah Young quantified the scale of the challenge as increasing capital investment by a “massive” $250 billion over four years, their minimum estimate of what it would take to achieve annual per capita GDP growth of two per cent. “Canada’s abysmal productivity performance has been exhaustively documented,” they wrote. “While the crisis was declared last year, the trend decline accelerated a decade ago as resource investment pulled back, compounding a longer list of structural challenges.” 

This is the first installment in a series by The Logic that aims to advance the productivity debate by sifting through the ideas that are lying around after a year of exhaustive discussion. The series will argue that for too long, the champions of productivity have attacked the symptoms, not the disease. Subsequent stories will look at different parts of Canada’s economy, including the energy and tech sectors, and tackle some big issues, like the competition conundrum. The series will conclude with a diagnosis of the problem and a sketch of a prescription.

We’ve chosen to run this series in the middle of a generational election for a reason. We hope it will make a useful counterpoint to what unfolds on the political parties’ campaigns. They will focus on their issues of the day—housing, the cost of living, promises to cut some government red tape, or perhaps create more—and of course, Trump’s shadow will loom over it all. But solving Canada’s productivity crisis is an essential part of facing so many of these challenges. A more productive Canada will be a country that is more resilient in a time of crisis—thus the title of our series.

But first, a deeper explanation of why productivity is so important. Too often, the champions of productivity assume the worthiness of their cause is self-evident. They launch an impressive array of charts and graphs, make some declarations, and then lament the fact that nobody listens. 

In fact, the economics profession is part of the problem. It consistently fails to develop a convincing story for why productivity matters. Former Bank of Canada governor David Dodge, who also served as deputy minister of Finance and Health, said in an interview late last year that the “political guys” always resisted making productivity a central issue because it was too hard to sell to the electorate; people tend to react negatively. Many feel like they are being asked to work harder. Others equate productivity with automation, so they feel threatened. “We truly have a communication problem,” Dodge said. 

Maybe bad bosses or ideological zealots have given us a reason to feel this way. But productivity really is about working smarter, not harder; doing more with what we already have. A good boss will invest in their workers to enhance their ability to produce more valuable goods and services. That makes them more valuable workers and should lead to higher pay. 

Royal Bank of Canada chief economist Frances Donald adopts analogical thinking when presenting to broader audiences. She talks about an economy’s “economic immune system,” and might ask her public to think about why Canada is in so much trouble by visualizing Venice Beach and its famous outdoor gyms. 

The place is dense with strong, beautiful people, like that guy over there “drinking green juice and doing 800 pull-ups a day.” He probably isn’t getting sick when he goes to pick up his kids at the daycare later, no matter how vicious the cocktail of germs his children bring home with them. “That’s America right now,” Donald said on the “Herle Burly” podcast in December. “Their underlying economy is very, very healthy.” 

The green-juice-drinking beefcake might have gotten cocky and done a few pull-ups too many. The U.S. is ground zero for a wave of political disruption that has been described through the lens of everything from entertainment to fascism, and Trump’s assault on the global trading system last week caused a stock market rout that erased trillions of dollars of paper wealth over two days.  

Yet Donald’s observation still holds. The off-the-chart levels of uncertainty that have marked Trump’s first months back in office would have wrecked most other economies. Amid the market sell-off, the Bureau of Labor Statistics reported that American employers added 228,000 jobs in March and that the unemployment was unchanged at the low rate of 4.2 per cent. Corporate earnings remain high and growth has remained steady despite elevated interest rates. Those are the signatures of a strong economic immune system. 

Back at Donald’s rhetorical Venice Beach, Canada is hanging out too, but it’s more Seth Rogen than Arnold Schwarzenegger. Canada “likes to binge-watch reality TV and maybe has ordered pizza a lot this week and has forgotten to take his multivitamin,” Donald said. 

Looking back, you can sketch the outlines of what happened. 

Balanced budgets became the objective of governing, rather than maintaining public services and infrastructure. Low interest rates supercharged demand for housing, yet supply barely budged. The country’s economic strategy became selling oil and intermediate goods to the U.S., shipping agricultural commodities to Asia, and farming out our best and brightest technologists to Silicon Valley. House-poor consumers pumped up domestic demand by purchasing a steady stream of consumer goods and services while piling up record levels of debt.

The result: a steady decline in GDP per capita that turned negative amid a series of external shocks. 

Complex societies need economic growth to thrive. The easiest way to generate wealth is to exploit natural resources. Another way is to add people. Both have limits. When those limits are reached, the only option is to get better at generating wealth from those scarce resources—new ideas that generate novel sources of demand, new processes that allow owners and workers to keep a greater share of the returns on their efforts.

“Canada’s problem right now is that it has this very weak economic immune system,” Donald said. “Productivity is very low. Our potential to grow is very, very low and it’s been hit with a series of shocks. When you get hit with a series of shocks and you don’t have that backup and you don’t have some structural strength underneath, it can really take you down.” 

Canada has been taken down. Time to pick it back up. Milton Friedman said it takes a crisis to produce real change. We have one of those. Friedman also said that when that crisis occurs, the “actions that are taken depend on the ideas that are lying around.” Thanks to Rogers, we have some of those too. 

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. 

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You’re invited to a special virtual event:

Canada’s productivity crisis will be one of the most important issues facing the winner of this federal election. But what does “productivity” really mean? What’s at stake for Canadians and our economy if this crisis continues? And how can we fix it?

Kevin Carmichael explores these questions and more in an hour-long conversation with reporters Anita Balakrishnan and Murad Hemmadi, part of The Logic’s Resilient Canada series.

It’s happening Tuesday, April 8 at 12:00 p.m. ET / 9:00 a.m. PT.

Register here to attend.