C.D. Howe: Canada Badly Lags U.S., OECD in Business Investment

February 15, 2021

WILLIAM ROBSON

BRITISH COLUMBIA – After improving against international competitors during the 2000s and early in the 2010s, business investment in Canada has slipped badly, lagging investment in the United States and other advanced economies, says a new report published by the C.D. Howe Institute.

In “From Chronic to Acute: Canada’s Investment Crisis,” authors William B.P. Robson and Miles Wu look at Canada’s latest business investment figures across three types of capital and offer solutions to improve Canada’s investment performance.

Strong capital investment creates the machinery and equipment workers use in their job, the intellectual property that drives innovation, and the buildings where products are built and moved to market. Weak investment undermines competitiveness, and puts Canada on a path to lower value-added jobs and living standards.

Unhappily, Canada’s latest investment figures tell a bleak story. “Overall, the stock of business capital per available worker in Canada has been falling for the past five years, with the gap widening during the COVID-19 crisis,” says Robson. “Inadequate investment in machinery and intellectual property products threatens Canadian workers’ ability to compete globally.”

Adjusting for prices and sizes of labour force, the authors estimate that the average Canadian worker enjoyed only 29 cents of new investment in intellectual property products in 2020 for every dollar enjoyed by the average US worker. Add other capital – non-residential structures, and machinery and equipment – and new investment per available worker in Canada in 2020 was about 58 cents for every dollar of investment per worker in the United States – lower than at any point since the beginning of the 1990s.

Since 2015, the gap between new capital per member of the workforce in Canada and that in other OECD countries has been unprecedently wide. In 2020, businesses in other OECD countries likely added more than $16,000 of new capital per available worker, $4,000 above Canada’s level. Canadian workers enjoyed about 60 cents of new capital for every dollar spent on their OECD counterparts.

The authors call on all levels of the Canadian government to help improve investment performance by:

  • Dealing effectively with the pandemic with more testing, targeted restrictions and rapid vaccine rollout, rather than broader-based shutdowns of the economy;
  • Investing in infrastructure, particularly energy transportation infrastructure;
  • Addressing growth-inhibiting taxes, including high business property taxes;
  • Reviewing regulations that blunt competitive pressure and tax/subsidy programs that discourage business growth; and
  • Resolving international trade uncertainties and loosening internal trade restrictions.

 

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