Declining Vital Signs : Canada's Investment Crisis

Recent figures on Canada’s stock of capital and new business investment are worrying. Canada’s capital stock is not keeping pace with its workforce. New business investment per worker is declining. Not only have areas of traditional strength in Canadian business investment – non-residential and engineering structures – fallen in recent years, but the categories most associated with innovation and future productivity – machinery and equipment (M&E) and intellectual property (IP) products – are weaker yet. After improving against international competitors during the 2000s and early in the 2010s, business investment per available worker in Canada slipped badly after 2014 and appears to have dropped further during the pandemic. This weakness is both a likely effect of weak productivity growth in the present and a harbinger of weak productivity growth in the future. It means that Canadian workers will have less capital – less nonresidential building and engineering, less M&E and less in the way of IP products – with which to produce goods and services, earn incomes and fund public services in the years to come. Public policy can and should help. Measures to boost business’s desire to invest, such as productivity enhancing competition, and measures that increase the supply of investment capital, such as tax reforms, can help Canadian workers get more of the tools that will raise their future incomes and living standards