The Canadian government has recently allocated $6 million over 15 years to investigate the nation’s persistent productivity crisis. Spearheaded by Trevor Tombe, a prominent economist, this initiative aims to unite 30 researchers from 15 different organisations, along with six federal departments, to address an issue that has plagued Canada’s economy for years. While the effort is commendable, it highlights a more pressing concern: the knowledge to improve productivity already exists; what Canada truly lacks is the political will to implement necessary changes.
The Productivity Conundrum
Canada’s economic landscape is strikingly concerning. In a startling turn of events, the nation has found itself trailing behind Alabama in terms of productivity. This is not merely a statistical anomaly; it reflects deep-rooted systemic issues that have long been documented yet insufficiently addressed.
For decades, economists have understood the factors that drive productivity. Yet, Canada has largely ignored these insights, making only superficial adjustments or, in some cases, even moving in counterproductive directions. The underlying reasons for this stagnation are clear, and they have been reiterated by various reputable sources, including the Organisation for Economic Co-operation and Development (OECD) and the Bank of Canada.
Structural Failures
A litany of structural failures has contributed to Canada’s declining productivity. The country’s tax system is often seen as a hindrance to investment and growth, while an excessively complex regulatory environment discourages capital from flowing into productive sectors. Key industries, such as telecommunications, airlines, and banking, are dominated by oligopolies that lack the competitive pressure to innovate.
Moreover, the nation’s trade and transport infrastructure is struggling to efficiently connect Canadian goods with global markets. A stagnant immigration policy has also led to an influx of low-wage temporary workers, which displaces high-skilled talent that could complement capital investment. Finally, while the public sector continues to expand, its effectiveness and productivity are in decline.
These challenges are well-documented, yet the response has often been a series of half-hearted measures. Governments have resorted to minor tax adjustments or targeted incentives, which fail to address the root causes of the crisis. In some instances, policymakers have even moved in counterproductive directions, such as increasing tax rates that disincentivise economic activity or layering on new regulatory hurdles.
A Decade of Stagnation
The results of these compounded failures are stark. Between 2014 and 2024, Canadian labour productivity has grown at a paltry average of 0.3 per cent per year, significantly lagging behind the United States. Canadian GDP per hour worked has dropped from 67 per cent of the U.S. level to just 60 per cent, exacerbating the ongoing business investment crisis.
As external shocks, including tariffs from the Trump administration and broader geopolitical uncertainties, began to impact the economy, they served as a hidden tax on investment. Rather than arriving at a robust economy ready to adapt, Canada finds itself in a precarious position, struggling to manage both internal and external pressures.
The Call for Bold Action
This moment presents a unique opportunity for transformative change. With external threats converging upon a decade of self-inflicted economic challenges, Canadian political leaders are in a position to pursue bold reforms that would have been unimaginable in more stable times. However, the response thus far has been to commission a lengthy study rather than taking decisive action.
While the Tombe initiative is undoubtedly valuable in connecting researchers to policymakers and bridging the gap between insight and action, time is of the essence. The knowledge required to drive productivity improvements is readily available, and the policy toolkit is well understood. What is needed now is the courage to tackle entrenched interests and outdated systems that inhibit progress.
Why it Matters
The window for comprehensive policy reform is not open indefinitely. External crises create an urgency that can spur nations to take action, but this window may close as quickly as it opens. Allowing it to shut without making significant changes could lead to dire consequences for Canada, prolonging economic stagnation and diminishing the country’s global competitiveness. The time for decisive action is now; the cost of inaction is one that Canada cannot afford to pay.
