TORONTO – After years of relatively robust performance, business investment in Canada has slipped ominously, according to a new report published by the C.D. Howe Institute, a not-for-profit research institute.
In “Thin Capitalization: Weak Business Investment Undermines Canadian Workers,” author William B.P. Robson warns that lagging capital investment in Canada has crippled Canadian workers’ ability to increase production and earn higher wages.
Strong capital investment creates the machinery and equipment workers use in their job, the intellectual property that drives innovation, and the buildings where products are built and moved to market. Weak investment undermines competitiveness, and puts Canada on a path to lower value-added jobs and living standards.
Comparisons to business investment in the United States and other countries in the Organization for Economic Co-operation and Development (OECD) show Canada as a chronic under-performer on the international stage.
“Canada’s anemic performance contrasts strikingly with the robust US story, where workers will likely enjoy new capital investments some $9,000 higher than their Canadian counterparts this year,” says Robson.
His calculations show Canadian businesses investing only about $15,000 per worker in 2019. By contrast, businesses across the OECD are investing about $21,000 per worker, while US businesses are investing about $26,000.
For every dollar of new capital enjoyed by OECD workers this year, their Canadian counterparts will receive only 71 cents. And for every dollar of new capital enjoyed by US workers, Canadian counterparts will receive 58 cents.
Robson cites bottlenecks in getting energy resources to market, a loss of tax competitiveness, rising electricity costs, and barriers to international and internal trade as possible causes for Canada’s weak capital investments.
The report recommends all levels of Canadian government:
- Remove barriers and reform regulations that inhibit business investment;
- Address growth-inhibiting taxes, including Canada’s high business property taxes; and
- Loosen restrictions on internal and international trade to mitigate the threat of US protectionism.