The low productivity of Canadian companies threatens our living standards
The causes of the low productivity of Canadian companies are well known and documented: they invest little, spend less on research and development than those in other rich countries, and have a low propensity to innovate. These behaviours tend to limit their productivity gains and, consequently, restrict the growth of the Canadian economy.
There is an urgent need to act because the consequences of inaction are enormous. In 1981, Canadians enjoyed a $3,000 higher per capita standard of living than the major Western economies (adjusted for inflation and currency fluctuations). Forty years later, Canada was $5,000 below that same average. If the trajectory continues, the gap will be nearly $18,000 by 2060. Canada’s Department of Finance has also reported these alarming projections.
In examining why Canadian businesses are so reluctant to invest and innovate, the Centre for Productivity and Prosperity – Walter J. Somers Foundation (CPP) concluded that the problem is a lack of internal competition. Competition among Canadian companies is too weak and simply does not generate the incentives that would normally boost their competitiveness.
Canadian firms operate in small, highly dispersed markets that are very segmented economically and legislatively. They therefore compete much less with each other than American or European firms, which operate in two large, highly unified and integrated domestic markets that provide an adequate level of competitive pressure. This is not the case here: Canadian companies do not need to invest and innovate as much to stand out and maintain their market share. As a result, they are not competitive enough to compete in foreign markets. Growth suffers and the country’s economy stalls.
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