Canada used to be productive and competitive, but now it’s not

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As a Canadian, I have to say that the recent debacle in the House of Commons regarding subtle (maybe not too subtle) changes in Middle East policy is embarrassing enough, but the government’s missteps on economic and fiscal policy are The response we received was over the top. Pale – Canada’s real per capita income is decreasing year by year.

Without the good fortune of close trade ties with the United States and abundant resources, Canada’s economy would have fallen into permanent recession.

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Canada has not experienced capital deepening or productivity growth for many years, as massive spending at the government level continues to crowd out private sector investment. All the spending used to fight the pandemic has become a permanent feature of the budget situation. Ottawa’s current program spending levels are 35 per cent higher than pre-COVID-19 levels. Meanwhile, currently the amount spent on total business investment he is lower than in 2012. How can the public accept this?

On a per capita basis, government program spending is 27% higher than in 2019, nearly double the average over the past 40 years. Compared to four years ago, inflation now accounts for only 40% of the difference in per capita spending. Public spending is out of control, and when it comes to the government sector, it is a clear sign that what is always billed as temporary spending measures to combat the crisis will inevitably find a way to stay on the books.

Canadians either don’t know what’s going on with this fiscal waste or, as is typical in this country, are completely indifferent to what’s going on. Government intervention in the country’s economy is severe, with the public sector currently accounting for 27 percent of GDP. Business capital investment? Try a share of just 8% and toy with 20-year lows. Capital investment accounts for essentially twice that amount of the U.S. economy, which is why productivity growth in the states is 2.6% year over year, compared to -0.6% north of the border. That’s right, it’s negative.

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Combining labor and capital, Canada’s total factor productivity has returned to the level it was a quarter of a century ago under the current government in Ottawa. And productivity is the mother’s milk of future improvements in living standards, and no amount of pro-immigration policies to provide the illusion of economic prosperity will ever act as a true antidote.

This is not an attempt at xenophobia, just a comment on how Ottawa is completely taking its eye off the ball when it comes to promoting capital formation and future productivity growth. Rather, they are content to run an economy with real output and income growth of less than 1% while the population grows by the top 3% annually.

The problem of the scale of relentless fiscal expansion, which the next federal budget certainly won’t solve, is that it crowds out private sector investment. And that’s a big problem. This is why the country’s stock of productive capital has stopped growing over the past 20 years and has actually declined by 1.5% over the past year.

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I understand that for non-economists, this discussion of the relationship between continued shortfalls in corporate capital investment and productivity is arcane, incomprehensible, and downright boring. But nevertheless, it affects us all.

This dismal productivity performance has resulted in unit labor costs at an annual rate of 5%, double the US trend. This means our country is becoming less and less competitive, which means that the Canadian dollar, rather than benefiting from higher commodity prices this year, has fallen by at least 5% on most measures. % underestimation.

That’s why, under the current government’s watch, Mexico has replaced Canada as the largest exporter to the United States. This happened to him two years ago. Historically, Canada exported about 20% more to the United States than Mexico. Currently, Mexico sells 10% more of her than the United States. This tells us everything we need to know about how current and past policies have failed us. There is too much emphasis on government intervention and less on business investment to improve productivity and promoting export competitiveness.

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It’s all very sad. Brian Mulroney (RIP) certainly left a legacy. It’s a shame that it took the current administration nearly 10 years to tear it apart. Not only has the world lost one of the greatest statesmen of the 20th century, but Canada has also lost its most talented prime minister. What he accomplished during his nearly 10-year tenure from 1984 to 1993 was most impressive. After years of incompetent government rule under the Liberals, he pulled Canada out of the dark ages of economic hardening (given what’s happening today, we’re talking about going back to the future in Ottawa). He used Reagan-style deregulation and tax reform to combat inflation and launch the Canada-U.S. Free Trade Agreement.

And it’s not just domestic politics; like Lester Pearson in the 1960s, Mulroney has given Canada punch above its weight when it comes to tackling all kinds of global issues. For those who know their history, Mulroney’s name will come up as regularly as the likes of Reagan and Margaret Thatcher.

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The controversial but very positive policies initiated by Mulroney in the 1993 federal election came at a cost to the Conservative Party, but the subsequent Liberal government pledged to abandon all such pro-growth supply-side policies. However, it was eventually decided that he would be trained later. Truly a visionary. A true leader. He’s a real politician. All these qualities are woefully lacking today, not just here at home.

Sorry for the nostalgia, but how great would it be to go back to a dynamic duo like Mulroney and Michael Wilson who understand how the economy works?I don’t know about you, but October 20, 2025 can’t come soon.

David Rosenberg is the founder and president of Rosenberg Research & Associates Inc., an independent research firm. To get more insights and analysis from David Rosenberg, sign up for his 1-month free trial at Rosenberg Research. Website.

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