Economic Challenges: Canada and the USA

Canada is experiencing a development crisis. The economic momentum that propelled the nation through the 20th century has diminished in the 21st century and appears to have deteriorated since the pandemic. Since 2019, per-capita output has been decelerated by elevated interest rates; however, the issues are more profound. When inflation and immigration are taken into account, our economy is currently smaller than it was in 2019, and it is essentially in the same position as it was a decade ago. Since 2000, we have lagged behind the majority of main economies on a global scale. The economic output of the average Canadian was comparable to that of Australia at the turn of the century. Currently, the productivity of Australians is nearly 10% higher than that of Canadians, and their economy has expanded at a rate of 50% per capita over the past 25 years. We are further behind the United States. In terms of economic performance, Canada is 30% less productive than the United States and is closer to lower-income states such as Alabama than tech-rich California or New York. The outcome: Our status in the Organisation for Economic Co-operation and Development has declined from the sixth most productive economy in 1970 to the 18th as of 2022.

Almost every Canadian has a stake in the matter

The productivity disparity between Canada and the United States is approximately $20,000 per individual per year, resulting in Canadian wages being approximately 8% lower than those of their American counterparts. Capital has experienced an even greater burden as a result of the divide. The economy's relatively low productivity, which is the quantity of production and income generated per hour worked, has been impeded by a lack of investment, particularly in sectors other than real estate, construction, and public services such as hospitals. Consequently, we have been unable to leverage the immigration surge, which has resulted in the addition of seven million individualsthe majority of whom are both well-educated and of working age since the turn of the century, and to counteract the retirement wave of baby boomers. Canada's overall prosperity has been diminished by the deindustrialization of numerous regions. Mining has also decreased in size, while manufacturing has lost half of its economic impact from 2000. Oil and gas, which were once the epicenters of investment and growth, are currently exhibiting signs of resurgence; however, investment levels are still significantly lower than they were a decade ago. As we will investigate later in this report, agriculture has been an uncommon exception. An increase in productivity could be the most significant factor in promoting economic growth and the associated prosperity. Our access to major markets Europe, Asia, and, most importantly, the United States is the envy of the world, and we possess the natural and human resources that a significant portion of the global population is seeking. With these strengths, Canada's development challenge can be rapidly transformed into a growth opportunity, with substantial advantages for its citizens. Closing the productivity disparity with the United States would result in an annual increase of approximately $20,000 in GDP per person. Increasing productivity is, of course, a complex endeavor.

Canada is a vast, geographically diverse, and resource-rich nation with a dispersed population

Which presents distinctive infrastructure, regulatory, and investment challenges. Inefficiencies and increased internal trade barriers have been the result of administrative burdens across multiple levels of government. Red tape and infrastructure chokepoints exacerbate the challenges associated with international commerce. Even the mobility of qualified workers, which is already challenging due to our extensive geographic area, can be restricted by the methods by which provinces, industries, and professional organizations attempt to regulate labor supply. Despite their necessity and advantages, these sectors are relatively inefficient and can impede the overall productive expansion of an economy. The same can be said for small businesses, which historically have been less productive and account for 98% of total businesses. Businesses that are fundamental to the nation and are integral to numerous Canadian communities may restrict the economy's potential if they fail to expand and become more competitive. This was not always the case. In the 1950s, Canada's productivity growth averaged 5% per year as wartime technologies were adapted for civilian use, which fueled nearly all of the country's GDP growth during that decade. Throughout the past twenty-five years, the challenges of productivity, growth, and competitiveness have been examined by every federal government and numerous provinces. And they have each come to the realization, occasionally in retrospect, that there is no straightforward policy playbook. This report investigates several strategies that may be implemented to accelerate growth; however, one of the most potent instruments is not a tool at all; it is a mindset. The productivity conundrum may become easier to solve if Canadians cultivate a collective focus on the economy of the future, which rewards innovation, celebrates competitiveness, invests in both people and technology, and efficiently delivers returns. Subsequently, expansion will resume.

Some of the factors that have contributed to Canada's long-term economic development slowdown are known and evident. We should commence by examining the inefficiency of the regulatory and administrative approval system at all levels of government, which has unintentionally exacerbated internal barriers to trade and growth.

International trade is further complicated by infrastructure chokepoints and red tape

These factors have resulted in a decrease in Canadian business investment, which has led to an excess of capital allocated to construction and buildings. Despite their valuable contributions to the economy, these sectors do not generate as much development as machinery and intellectual property. Additionally, numerous policies have prioritized small businesses over large enterprises and growth companies, thereby restricting our overall productivity growth. In aggregate, Canadian enterprises invest approximately half as much per worker as those in the United States. This underperformance was exacerbated by the 2008-09 global financial crisis and the oil price decline of 2015, and it was further exacerbated by the pandemic, as the Canadian economy was more severely affected by higher interest rates than the U.S. In conclusion, the average contribution to productivity development from capital investment in Canada over the previous decade has been less than half that since the 2008/09 financial crisis. Furthermore, the recent poor investment trends indicate that there will be additional underperformance in the upcoming decade. It does not seem that there is a dearth of funding available. Despite the fact that central banks have increased interest rates, businesses continue to maintain a substantial cash reserve that is equivalent to nearly one-third of GDP. Businesses have long contended that the cost of investing in Canada is disproportionately high due to the inefficient project approvals framework. Canadian businesses are also smaller due to a lack of investment, as 98% of them have fewer than 100 employees. Additionally, smaller businesses are generally less productive on average.