Canada’s standard of living is stagnating, and productivity—the only real way to fix it—is (rightfully) at the centre of the conversation. Conferences have been held, policy departments have been established, and, more recently, a new federal working group was announced—all in an effort to address this pressing problem.
For those following closely, it may seem like no stone is being left unturned. From the role of industry dynamics to interprovincial trade to the potential effects of immigration, and even why some productivity measures might look worse than others. This is all good; the more people, ideas, and thought behind it, the better.
But one point lost in the conversation is that this productivity slowdown isn’t unique to Canada; it’s global. To be sure, Canada’s recent record has been particularly bad. However, productivity growth has been weak across the G7 for decades. In fact, virtually every rich country in the world has seen slower productivity growth in recent decades, compared to the period from the 1920s to the 1970s.
So, while Canadians may feel bombarded by headlines about Canada’s productivity problem, a Google search of “Productivity Growth [insert country name]” shows we’re not alone. Much has been written on the issue from other perspectives, from “The UK Productivity Paralysis” to “The German Productivity Paradox” to “Why is Europe Losing the Productivity Race” and “Australia’s Woeful Productivity Sinks Living Standards,” just to name a few.
Oftentimes, these analyses compare productivity growth to that of the U.S., the one country that has managed to buck the trend at certain points in recent history (namely, in the late 1990s and early 2000s). But even the U.S. is failing to show the level of dynamism that it once did and, as they see it, they too have been experiencing a productivity slowdown for many years.
There are many reasons for the global decline. Certain factors that drove earlier improvements—like a more highly educated workforce—may have run their course. Likewise, services industries (where most employment now lies) haven’t been able to deliver the same productivity gains as the transition from agriculture to manufacturing did in the past. So far, the new technologies that could increase productivity ( for example 5G, big data, AI) have yet to yield the efficiencies for office workers that mass production techniques and electricity did for factory workers.
Of course there are exceptions. Some businesses are keeping pace with the productivity growth of the past. Interestingly, it’s not necessarily the ones that invest the most but rather the ones that use their resources (capital and labour) most efficiently. However, there is a growing divergence between the best and the rest, which fall substantially behind.
That said, just because other countries face a similar challenge doesn’t mean Canada doesn’t have a real problem. Canada’s productivity slowdown has been especially noticeable since the mid-2010s and has already had a very real effect on Canadians’ standard of living. But fixating on the gap in growth between Canada and the U.S., while real and concerning, may miss the bigger point: that strong productivity growth may be more difficult to capture than in the past, and we may need to challenge ourselves to think a little differently if we want to solve this problem.
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