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C.D.Howe Report: Canada’s Weak Business Investment Threatens Prosperity

C.D.Howe | William Robson and Mawakina Bafale | Aug 16, 2022

Decapitalization weak business investment threatens Canadas prosperity - C.D.Howe Report:  Canada's Weak Business Investment Threatens ProsperityRecent high inflation shows starkly that the Canadian economy’s ability to produce goods and services is not keeping up with surging nominal spending. One key suspect in the economy’s disappointing ability to produce is a declining stock of business capital per available worker – that is, member of the labour force.  Business investment in Canada has been weak since 2015 – both in areas of traditional strength, such as non-residential and engineering structures, and in areas we look to for innovation and future productivity:  machinery and equipment (M&E) and intellectual property products (IPP).

Comparing investment in Canada to that in the United States and other OECD countries reveals that, before 2015, Canadian businesses had been closing a long-standing gap between investment per available worker in Canada and abroad. Since 2015, however the gap has become a chasm. Business investment and productivity are closely related: productivity growth inspires investment by creating opportunities, and investment drives productivity growth by equipping workers with more and better tools. Having investment per worker much lower in Canada than abroad tells us that businesses see less opportunity in Canada, and prefigures weaker growth in Canadian earnings and living standards than in other OECD countries.

See:  Canada’s Competition Consultation Continues (thanks Senator Colin Deacon)

Particularly concerning was the IP Investment per Available Worker, which is one quarter (25%) that of the United States. I have to underline this... US businesses are investing four times (4x) what Canadian businesses are investing (per worker) on the IP that will drive their global competitiveness.

The future income of every Canadian is being undermined by this problem. But more to the point, it also means that we are not even close harnessing the innovative capacity of Canadian entrepreneurs to address the multitude of massive challenges that we currently face -- and turning their solutions into Canadian opportunity, jobs and prosperity.

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