Investment relative to economy size outperforms that south of the border
Canada is punching above its weight for business investment when the amount of investment relative to the size of the economy is considered alongside the US.
But while total investment stats look good, this is skewed by the huge investment made in housing over the past two decades, with weaker investment in productivity-improving elements and other investments that could boost Canadians’ standard of living.
That’s according to a recent report from the Fraser Institute senior fellow Steven Globerman, who authored ‘Comparing the Investment Performances of Canada and the United States Over the Past Five Decades.’
“Weak business investment in technologies like IT and research and development, which help Canadian workers be more productive impedes improvements in Canadian living standards,” he said.
In recent years, Canada’s living standards have suffered one of the worst declines in 40 years according to a Statistics Canada analysis.
Looking at a snapshot from 2014 to 2021, housing accounted for 34% of investment in Canada compared to less than 19% in the US. Meanwhile, Canada invested just over 10% in IT versus almost 17% in the US, and research & development and other IP products was just short of 13% in Canada but almost 30% in the US.
Output per hours worked, a common measure of productivity, during the 2014-2022 period was 1.35% in Canada but 1.78% in the US.
“If governments in Canada want to promote rising living standards through faster productivity growth, they must create a policy environment that’s attractive to productivity-enhancing business investments and not simply focus on building more housing,” said Globerman.
In March, the Bank of Canada’s senior deputy governor, Carolyn Rogers, said Canada needs to urgently address productivity, which is lagging most of its G7 peers.
“You’ve seen those signs that say: In emergency, break glass — Well, it’s time to break the glass,” she said, adding that investment in technologies that enhance productivity is key. She highlighted that improved productivity means higher revenues for businesses which can lead to better wages without a rise in prices.
