This article was first published by the Financial Post.
On October 7, Armine Yalnizyan, Canadian economist and Atkinson Fellow on the Future of Workers, will deliver the third talk in The Canadian Standard of Living, Productivity and Innovation lecture series — a series of events focused on strengthening Canada’s standard of living, hosted by the Centre for International Governance Innovation and sponsored by Savvas Chamberlain.
As Canada wrestles with trade wars, a shifting world order, technological upheaval and demographic change, it’s hard to see the crisis for the crises. The productivity crisis, that is. The one Bank of Canada senior deputy governor Carolyn Rogers called a “break the glass moment” for Canadians’ living standards in 2024.
Since then, continuous tariff threats from the south have justifiably pushed other concerns down the agenda. But productivity concerns can’t be shelved indefinitely. An emerging threat to living standards is a made-in-Canada one: the collision between demographic change and a growing shortage of care.
That changes both the diagnosis and the prescription. The causes of slowing productivity growth have evolved. Our understanding of them has not. Reaching once more for the standard remedies risks treating today’s disease with yesterday’s medicine.
From Brian Mulroney’s government on, political and business leaders have warned that flagging productivity would erode growth, wages and living standards. Yet the predicted reckoning never quite arrived. Canada’s gross domestic product (GDP) continued to outpace most peer nations, while its economy remained among the world’s largest, ranking 11th out of more than 190 countries at last count.
By the end of the Justin Trudeau years, however, the long-running problem was declared a productivity emergency. Canada wasn’t just trailing the United States. Its productivity growth was falling further behind.
This largely reflects the U.S.’s growing dominance in extracting value from digital technology across the West and perhaps globally. A few U.S. corporate giants have monetized previously free inputs such as personal data, generating enormous, seemingly unstoppable returns. In both Canada and the U.S., productivity gains increasingly reward investors, not workers.
Importantly, the U.S. isn’t even the world’s most productive economy. Monaco tops the list. The next four are also tax havens. Who are we trying to catch up to and what’s the secret sauce we’re missing?
Since the 1980s, successive Canadian governments have answered that question the same way: not enough business investment, particularly in machinery and equipment. Hardware, not software. Physical capital, not human or intellectual capital. Goods, not services.
Business has been equally consistent about the solution: lower corporate taxes, less red tape, more privatization of public assets and freer trade.
Governments of every political stripe repeatedly delivered. Business didn’t.
Since 1981, machinery and equipment investment only appreciably rose during the decade-long commodity supercycle that began in the mid-1990s. It has flatlined since 2006.
Prime Minister Mark Carney’s Investment Summit is the latest attempt to shake things up. In one day, it pitched 167 infrastructure, energy, mining and transportation projects to deep-pocketed investors, many of them American; opened our four largest airports, privatized in the 1990s, to for-profit ownership; and unveiled a productivity mega tax deduction that gives eligible corporations the lowest marginal effective tax rate among major economies.
This combination should spur investment, just as Canada stares down the barrel of tariff-driven disinvestment in its industrial capacity. At minimum, it’s badly needed economic insurance.
But this approach misses the new productivity crisis: a growing shortage of care. For decades, more market, less government has been the solution to economic problems. Demographics upend that logic.
Workers can’t find child care, a family doctor or timely treatment. They wait months for surgery or scramble to care for aging parents. They miss work, cut hours or quit. Colleagues pick up the slack. Overtime, errors, turnover, recruitment and training all add costs and subtract output.
At the workplace level, these anecdotes reflect firm-level productivity losses. Multiplied across millions of workers and workplaces, they become a macroeconomic productivity problem, dragging economic growth.
Things could get worse. Canada’s smallest working-age cohort in more than half a century is supporting the largest population of seniors in history. Birth rates are falling. Immigration faces growing resistance. Every worker, and every child who will become a worker, matters more than ever.
Care is as essential as the roads, ports, electricity and water systems businesses rely on. Care develops and sustains the people businesses depend on, both to produce and to buy what they sell.
Demographics guarantee we will spend more on care. The only question is how we will pay for it. The U.S., facing the same problems, has demonstrated the twin problems of greater reliance on private solutions: the highest costs in the world deliver some of the poorest outcomes.
But governments resist spending more. Provinces already devote about half their budgets to health, education and social services. Ottawa favours capital investment over operating spending. The demand for care is rising faster than publicly funded supply, and the gap is widening.
Irony alert: public health care and education arose in response to market failure because private providers couldn’t deliver affordable access at the scale needed to optimize society’s potential. Now, governments are turning to markets to fix the failures of public systems.
Shifting costs to households or private capital won’t address all unmet needs or fix productivity. It just changes who pays, who gets care and who profits.
As growing numbers of workers wait longer for the care they need, the economic toll mounts: higher costs, wasted talent, less output. That’s the productivity crisis unfolding in workplaces across Canada right now. Felt everywhere, yet somehow edited out of the productivity diagnosis and prescription.
Canadian politicians have echoed calls for “elbows up” against threats from abroad. We need that same resolve at home. This productivity threat is ours to fix. Fail to act and we’ll be scoring on our own net.
Armine Yalnizyan is an economist and the Atkinson Fellow on the Future of Workers. On May 13, she will deliver the third talk of The Canadian Standard of Living, Productivity and Innovation lectures — a series of events focused on strengthening Canada’s productivity cycle and standard of living hosted by the Centre for International Governance Innovation and sponsored by Savvas Chamerblain.
