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Our Workers Outgunned: Financial Post Op-Ed

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April 18, 2017
Our Workers Outgunned: Financial Post Op-Ed

The federal budget talked at length about infrastructure and innovation. But any nudge to activity and long-term growth from governments will be slow and small compared to the boost that businesses, unshackled from uncompetitive costs and taxes, and spurred by competition and confidence, can give us.

Business investment in Canada is weak. The 2017 federal budget highlighted how it is lagging the rest of the economy. Bank of Canada Governor Stephen Poloz and his colleagues have expressed concerns. A few weeks ago, Deputy Governor Larry Schembri emphasized the importance of business spending on new plant, equipment and intellectual property for growth in the short run, and for the capital stock that raises living standards over time. Weak investment is a problem now and for the future.

We estimate that Canadian businesses will spend about $11,700 per worker on new, non-residential capital this year, far below a peak of $15,100 in 2014. The fall-off means the average Canadian worker will have less infrastructure, machinery and technology to work with in the years ahead.

The picture darkens when comparing Canada to other countries. This year, for every dollar of new capital enjoyed by the typical worker in other OECD countries, the typical Canadian worker will enjoy a meagre 67 cents. For every dollar of new capital enjoyed by the typical U.S. worker, the average Canadian worker will enjoy a paltry 55 cents.

In the arena of global competitiveness, workers elsewhere wield modern tools and information technology. By comparison, Canadian workers are taking the proverbial knife to a gun-fight.

Granted, much of Canada’s recent poor performance has its roots in the fall in oil prices in late 2014. Per-worker investment in Alberta, Saskatchewan, and Newfoundland and Labrador is down from peaks close to $40,000. But capital spending in provinces that consumer energy — many of which should be benefiting from exports to a reviving United States — has not picked up the slack.

Investment per worker in Ontario will likely come in under $9,000 in 2017; in Quebec, under $8,000. While things are better in British Columbia (close to $11,000), the Maritime provinces are utterly anemic. Nova Scotia will come in under $8,000, New Brunswick at about $6,500 — its lowest figure in a decade — and P.E.I. at less than $6,000. At $13,100, Manitoba looks like a leader in this sluggish parade.

It does not have to be this way. Canadian businesses have historically invested less per worker than the United States and other developed countries, but over a decade following the early 2000s, we narrowed the gap. From 2006 to 2011, for every dollar of business investment in the typical OECD worker, Canadian workers received 84 cents; by 2013, it was up to 91 cents. From 2006 to 2011, for every dollar of investment in a typical American worker, Canadian workers received 72 cents; by 2013, that figure was up to 77 cents. Getting those numbers back up from their current pathetic levels is an urgent task for Canadian business leaders and policy-makers.

An improving economy means improving corporate cash flows, which will help. Indeed, it offers a timely opportunity for measures that could both sharpen competitive pressures and create opportunities for entrepreneurial leaders. Lower barriers to international and interprovincial trade, for example. And deregulation that spurs innovation and competition in such sectors as airlines, telecoms and agriculture.

But governments must do much more. Rising prices for electricity and fuels affected by new taxes are sapping confidence, especially for businesses facing foreign competitors with access to less expensive energy. Recent trends in corporate income taxes and property taxes affecting businesses are sending a discouraging message — invest in your house, not your factory!

As for protectionist sentiment in the United States, our governments — mainly Ottawa, but the provinces have a role to play as well — need to remind Canadians that the barriers have not yet gone up, and redouble their efforts to keep U.S. markets open to Canadian products. If negotiations with the United States loom, we must enter them with our priorities clear: We want outcomes that will foster stronger investment for Canadian workers in the years ahead.

The federal budget talked at length about infrastructure and innovation. But any nudge to activity and long-term growth from governments will be slow and small compared to the boost that businesses, unshackled from uncompetitive costs and taxes, and spurred by competition and confidence, can give us.

William B.P. Robson is president and CEO, Aaron Jacobs is a researcher, and Benjamin Dachis is associate director, research, at the C.D. Howe Institute.

Published in the Financial Post

Author(s):

William B.P. Robson, President and Chief Executive Officer
William B.P. Robson
Benjamin Dachis, Associate Director, Research
Benjamin Dachis
Aaron Jacobs, Researcher, C.D. Howe Institute

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