Canada’s Productivity Problem is a Superstar-Firm Problem – And AI is Our Chance to Fix It

From: Joel Blit 

To: AI watchers 

Date: August 12, 2026 

Re: Canada’s productivity problem is a superstar-firm problem – and AI is our chance to fix it

Canada’s ongoing productivity crisis is usually explained through a familiar set of factors: The industrial mix, small average firm size, weak business investment, lack of competition, and a risk-averse culture. 

While all are contributors, the fundamental problem is simpler: Canada lacks hyper-productive superstar firms. The reason for this, is that we are failing to create and keep the startups that reimagine entire business models and industries around disruptive technologies. 

Over the last half century, Canada has had the lowest growth in labour productivity of any G7 country. Canadians now produce, on average, 75 percent of the value that Americans do in an hour of work, measured at purchasing power parity. 

However, averages hide a more complicated story. Canada’s productivity problem is not a generalized lack of productivity, but rather a gap at the very top. Data from the Luxembourg Income Study are suggestive: While the mean equivalized Canadian household income was 84 percent that of the United States, the median was 98 percent. A recent Bank of Canada paper provides more direct evidence: the top 10 percent of the income distribution accounts for three-quarters of the difference in GDP per adult between Canada and the United States, and up to two-thirds of the measured labour productivity gap.  

Much of the difference between US and Canadian average productivity can be attributed to Canada’s relative lack of superstar firms with hyper-productive employees. For example, consider the thought experiment of Google parent, Alphabet, moving its global operations to Canada. Adding its value added and employees to Canada’s GDP and population, respectively, would increase Canada’s GDP per capita by 9 percent and narrow the gap with the United States by 15 percent. This is only a back-of-the-envelope calculation, but it illustrates the economic impact of a single superstar firm. 

How, then, can Canada build its own hyper-productive firms; companies built around scalable, technology-enabled business models that employ highly skilled workers, leverage intangible assets and serve global markets? 

Understanding the origins of the largest and most successful US firms provides a clue. Setting aside Nvidia, whose chips are powering the AI revolution, the next five largest firms by market capitalization, Apple, Alphabet, Microsoft, Amazon, and Meta, rose to dominance by reimagining an industry around a past disruptive technology. Microsoft and Apple reimagined personal computing. Apple also later reimagined connectivity by turning phones into mobile pocket computers and entertainment devices. Amazon, Meta, and Google used the internet to reimagine retail, social connection, search, and advertising. 

The good news is that Canada has another chance. A new technological revolution is underway, and with it the opportunity to build the next generation of globally dominant firms. Artificial intelligence will likely prove even more consequential than the personal computer or the internet, because it radically lowers the cost of using data to make decisions and take actions. 

The danger is that Canada treats AI as an efficiency tool rather than a reimagining catalyst. Most firms will begin by using it to replace or augment tasks: drafting e-mails, summarizing documents, writing code, answering customer-service questions. That is useful. But the largest gains will come when firms ask a more ambitious question: If intelligence is cheap, abundant and can be embedded everywhere, what should their business become? 

For the first time in its new AI strategy, Ottawa recognizes AI as a general-purpose technology that can transform every sector. Its national AI literacy initiative has the potential to not only empower Canadians, but also to create the conditions for a groundswell of AI-native entrepreneurship. If history is any guide, it is start-ups and not incumbents that will effectively reimagine most industries.  

Tomorrow’s new economic champions will be companies with business models built around AI. They may be founded by the nurse who reimagines healthcare, the teacher who reimagines education, or the farmer who reimagines agriculture, all around AI. Canada’s new AI strategy proposes to support such start-ups with commercialization programs, strategic procurement to make government an anchor customer, and a $500-million Canadian Tech Growth Fund to provide scale-up capital and help keep young companies in Canada. All are important investments if Canada is to generate a new generation of globally ambitious AI-native firms. 

To be sure, we could do more. As Canadians learn about AI, they should also learn about entrepreneurship, with the two being explicitly linked. We must develop AI-specific founder and venture development programs that will mould the next generations of entrepreneurs and raise the ambition of future ventures. We must build a culture that sees AI not just as a threat to existing businesses and jobs, but as an opportunity to build new and better ones.  

Canada’s productivity problem is, at root, a missing-superstar-firms problem. AI gives us a rare opportunity to build the hyper-productive firms we have long lacked: firms that reimagine industries, achieve global scale, and keep our best talent here. The internet created the last generation of superstar firms. AI will create the next. The question is whether any of them will be Canadian. 

Joël Blit is an Associate Professor of Economics at the University of Waterloo, a Senior Fellow at the Centre for International Governance Innovation, and the Co-Founder of the Canadian AI Adoption Initiative. 

To send a comment or leave feedback, email us at blog@cdhowe.org. 

The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.