Stop obsessing over the term and start driving economic growth policies, says RBC economist
Canada’s productivity woes may be solved by focusing on policies that promote economic growth rather than getting bogged down in the technical term, according to the Royal Bank of Canada.
RBC deputy chief economist Nathan Janzen suggested that policies like reducing red tape, eliminating internal trade barriers, utilizing immigrants’ skills, adopting new technologies, and incentivizing investment could effectively boost Canada’s economic performance.
“Looking at some of the solutions to Canada’s productivity gap, you don’t really need to talk about productivity,” Janzen said. “These are the kinds of things we should be doing even if we had the strongest productivity levels in the world.”
Janzen’s report outlined ways to improve Canada’s productivity. He believes the term “productivity” is too technical and often misunderstood by the general public, which diminishes the sense of urgency to address the issue.
Canada’s lagging productivity has been a major concern for policymakers like Bank of Canada senior deputy governor Carolyn Rogers, who declared in March that the country needs to tackle its “poor efficiency numbers” as an “emergency” to insulate against future inflation risks.
“You’ve seen those signs that say, ‘In emergency, break glass’, well, it’s time to break the glass,” Rogers said in a speech in March.
Statistics Canada defines labour productivity as the country’s gross domestic product (GDP) per hour worked. Other metrics, such as GDP per capita, are also used to measure productivity.
However, Janzen argued the root issue is Canada’s lack of overall economic growth after adjusting for inflation and immigration. He noted that Canada’s productivity has dropped from 88% of the US level in 1984 to just 71% in 2022.
Canada’s stunted economic growth
Janzen attributed Canada’s falling productivity to declining economic growth.
“Canada has stopped growing,” Janzen’s report read. “Our economy, when adjusted for inflation and immigration, is smaller than before the pandemic — and pretty much in the same place it was a decade ago.”
Historically, Canada saw significant productivity growth, with a 5% annual increase in the 1950s and 3.5% per year in the 1960s due to technological advancements and automation.
However, productivity growth slowed during the economic turbulence of the 1970s and 1980s. Innovations in the 1990s, such as container shipping and global trade expansion, led to gains, but since the turn of the century, productivity growth has stagnated at 1% per year.
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The RBC economist pointed out that Canada’s investments in education, training, and skilled immigrants are not yielding the expected economic returns. However, Janzen believes the solutions are clear and attainable, emphasizing a collective mindset focused on future economic growth.
“One of the most powerful tools is not a tool at all; it’s a mindset,” the report stated. “If Canadians developed a collective focus on the economy of the future — one that rewards innovation, celebrates competitiveness, invests in both people and technology and efficiently delivers returns — the productivity puzzle may become easier to solve.”
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