OTTAWA – The federal Liberals are hoping to solve an economic mystery that has perplexed previous governments for decades: raising Canada’s lacklustre productivity.
Policy-makers were reminded of the situation Friday when Statistics Canada released its latest numbers on labour productivity growth. The rate contracted 0.2 per cent in 2015 — by far its weakest result in three years.
Since coming to office, Finance Minister Bill Morneau has repeatedly vowed to address what he has described as the country’s “productivity challenge” and he has even tasked a new economic advisory council with finding solutions.
It’s an important goal, Morneau argues, because improving productivity growth would allow Canadians to enjoy their highest-possible standard of living — even amid mounting economic worries linked to the aging population. He is expected to outline some productivity-related measures later this month in the federal budget.
Regardless of the party in power, productivity growth has proven to be a head-scratcher for governments.
Briefing material prepared for Morneau’s predecessor, former finance minister Joe Oliver, noted that Canada’s productivity growth between 2000 and 2013 trailed all G7 countries except Italy.
“Boosting our lacklustre productivity performance remains one of the key public policy challenges, especially given the dampening effect that population aging will have on real GDP growth in coming years,” reads the “secret” October 2014 memo, obtained by The Canadian Press via the Access to Information Act.
Other documents show that last fall, Economic Development Minister Navdeep Bains was warned that Canadian productivity was “well below” the U.S. level.
Labour productivity data gauge how efficiently goods and services are produced, which is important for a country’s economic health.
“It’s how we get richer as a society — by producing more per the amount of effort we put into it,” said BMO chief economist Doug Porter.
But Porter predicts it won’t be easy for anyone to improve productivity in a country that has averaged just 1.1 per cent annual growth since 1981.
Past efforts by federal governments to raise Canada’s productivity have been unsuccessful, he said.
For example, he said some believed the North American Free Trade Agreement and the Canada-U.S. free-trade deal would raise Canadian productivity. Other measures, like cutting personal and corporate taxes, were also expected to do the trick, Porter added.
“I have to say that as long as I’ve been an economist, this has been a debate and a puzzle that people have tried to solve,” Porter said.
“It doesn’t matter, really, who’s in power or what policies are in place — it just seems like we’re anchored around something a bit above that one per cent growth rate.
“I wish the new government a lot of luck on this front, but I would be frankly surprised if we could seriously move the needle.”
Experts caution that one must consider a few important differences when comparing Canadian labour productivity growth with that of the U.S.
For one thing, Porter said the U.S. has a big edge when it comes to scale. The countries have very different industries, with the Americans boasting much-larger companies.
Canada also has to deal with the added hurdles of a harsher climate and huge distances between cities, he added.
Pedro Antunes, executive director and deputy chief economist for The Conference Board of Canada, said it’s very difficult to evaluate the records of policy-makers when it comes to dealing with the country’s low productivity.
Perhaps, Antunes said, conditions would have gotten even worse without past policy measures, like lowering tax rates.
“We can always say, ‘Oh, labour productivity growth hasn’t improved,’ but the truth is we don’t know what the counterfactual would have been.”
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