Recent figures on Canada’s stock of capital and new investment prefigure lower incomes for Canadian workers, according to a new report released by the C.D. Howe Institute.
In “Declining Vital Signs: Canada’s Investment Crisis,” authors William B.P. Robson and Miles Wu examine Canada’s stock of business capital and new investment, comparing it to the United States and other Organisation for Economic Co-operation and Development (OECD) countries.
“Canada’s capital stock is not keeping pace with its workforce,” write Robson and Wu. “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.”
Since 2015, Canada’s stocks of capital per worker have been stagnant or declining and its rates of gross investment per worker have been weak, write the authors. Moreover, business investment has been feeble compared to investment in the US and other countries, a contrast that appears to have worsened during COVID-19.
Comparing Canada with the United States, Robson and Wu calculate that new investment per available worker in Canada was only about 50 cents for every dollar of investment per available US worker in the second quarter of 2021, and that investment per available worker in Canada in 2021 and 2022 will be about 58 cents per potential worker in the OECD countries generally.
“This weakness is both a likely effect of weak productivity growth in the present and a harbinger of weak productivity growth in the future,” say the authors. “Countries with higher capital intensity tend to have higher productivity and higher wages. Countries with lower capital intensity tend to have lower productivity and lower wages. We want Canada to be in the first category, not the second,” they conclude.