It’s not obvious. It rarely makes the news. But the prosperity of our country is on the brink.
For 40 years, Canada’s standard of living has plummeted compared to that of 19 developed OECD countries, as highlighted in the latest annual report from the HEC Montréal Center on Productivity and Prosperity.1.
In 1981, Canada ranked fifth. In 2022, he only occupied 12e place, well below average. And Quebec, now at 16e rank, did not escape the slide.
And it’s not going to get any better.
While the United States is firing on all cylinders, our real gross domestic product (GDP) per capita, which measures the standard of living, has fallen sharply in recent quarters, while it posted the third largest growth rate among slowest in the OECD19 for four decades.
These numbers may seem abstract. But this quiet erosion of our prosperity has very concrete consequences in our lives.
This limits our ability to deliver public services that meet citizens’ expectations, services that we continue to expand (daycare, dental and drug insurance, etc.) without providing additional revenue to finance them.
It also slows down the ability of households to obtain salary increases, to save and to consume, at a time when inflation is eating away at their purchasing power.
In short, this is a critical issue for Canada. “There is danger ahead,” warned the number two of the Bank of Canada, Carolyn Rogers, this week2.
The message is clear: there is an urgent need to act.
But where does the problem come from? From our chronic lack of productivity.
The longer it goes, the worse it gets. Business productivity has completely declined in Canada in 2023, for the third consecutive year, after decades of starving gains compared to the rest of the planet.
In the mid-2000s, former Quebec Prime Minister Lucien Bouchard put his finger on the problem, denouncing our poor productivity. ” What ? Are we lazy? ”, the workers had pointed out.
That’s not the question!
Productivity does not measure the amount of effort workers expend, but rather the effectiveness of those workers in transforming their efforts into production, using technology.
However, for each hour of work, Canadians generate much less value than Scandinavians, Americans, Germans or the French, for example.
Quebecers are no exception. Each hour worked generates $23 less, at purchasing power parity, than the OECD average, a gap of around 24%.
How can this gap be explained? The answer lies largely in the lack of competition which does not encourage businesses to invest, as demonstrated by a recent study by Statistics Canada.3.
Many large Canadian companies are protected by rules preventing their takeover by foreign companies. We can understand that a country seeks to protect key sectors – telecoms, air transport, banks – so as not to become a branch economy. Except that Canada has become a paradise for oligopolies and society as a whole is paying the price, with a sluggish economy and inflated consumer prices.
For small and medium-sized enterprises (SMEs) – very present in our economy, but also less productive – the weakness of our exchange rate acts like an artificial respirator, making the price of their exports more affordable. But when the loonie flies low, Canadians suffer. They pay more for all foreign products sold in Canada and feel very poor when they travel abroad.
Instead of relying on crutches to stay in the race, Canadian companies should dig deeper and focus on research and development (R&D).
There is a long way to go! In Canada, R&D investments are stagnating at 1.9% of GDP, while they have increased in all other G7 countries since 2000. The United States is making almost twice as much effort as we are.
After that, why should we be surprised that Canada is the G7 country with the lowest number of civil patent applications per capita?
This is a bad sign, because productivity depends on our ability to transform discoveries into new, more competitive products and processes that allow us to do more with less.
But to do that, you have to take out the checkbook… something Canadian companies don’t do enough. In fact, only New Zealand invests less than Canada.
This is very worrying.
In its 2022 budget, the federal government itself acknowledged that if businesses continued to invest so little, Canada would end up with the lowest per capita economic growth of any OECD country over the next 40 years. coming years4.
We do not have a choice. If we want to improve our standard of living in Quebec, it’s through productivity. How to do it ? We’ll talk about it again tomorrow…
1. Consult the results of the HEC Montréal CPP
2. Read the Bank of Canada speech
3. Read the Statistics Canada study
4. View the federal government’s 2022 budget