Speaking to the Winnipeg Chamber of Commerce on Monday, Bank of Canada Governor Tiff Macklem addressed the critical issue of Canada’s productivity, urging policymakers to investigate the persistent low levels of business investment in the country.
Labor Market Strengths Amidst Economic Challenges
Macklem acknowledged the strengths of Canada’s labor market, which include high participation rates, substantial immigration, and a robust education system. He noted that while the labor market has generally adapted well to higher interest rates, certain groups, such as immigrants and young people, have faced increased unemployment.
Productivity: Canada’s Achilles’ Heel
Macklem highlighted a significant long-term concern: productivity. “Our Achilles’ heel is productivity. While we’ve excelled at growing our economy by adding workers, we’ve been less successful at increasing output per worker,” he stated. Canadian businesses invest considerably less per worker compared to their U.S. counterparts, a trend that Macklem finds troubling.
These concerns were echoed by Senior Deputy Governor Carolyn Rogers in a March speech, where she described low productivity as a national crisis. Economists worry that inadequate business investment could deteriorate Canada’s living standards, making it essential to attract more investment for sustainable, non-inflationary economic growth and better living standards.
Importance of Productivity Growth
Macklem emphasized the necessity of productivity growth for businesses to remain competitive on a global scale and for increasing workers’ wages. “With an aging population and limitations on the number of immigrants we can effectively integrate each year, improving productivity growth is essential for sustaining economic growth,” he concluded.
Recent Reports and Technological Investments
A recent Royal Bank of Canada (RBC) report underscored the severity of the productivity issue. According to the report, Canada’s productivity rate—measured as output per hour worked—has been declining, currently standing 30% below U.S. levels. This decline is partly due to reduced capital spending and diminished investments in intellectual property, which is now 40% less than in USA, with Canada’s manufacturing sector investing just a quarter of what the U.S. does.
The RBC report advocates for the implementation of Generative AI (Gen AI) in the workplace, which could significantly enhance productivity. Studies show that Gen AI can help workers save time and streamline routine tasks, potentially boosting labor productivity by 8% by 2030 and adding $180 billion annually to the Canadian economy.
Barriers to AI Adoption
Despite the potential benefits, Canadian businesses lag in adopting Gen AI. A Canadian Chamber of Commerce report revealed that only 14% of businesses are using or planning to use Gen AI, with 73% not even considering it. The barriers include cost, data safety concerns, skill shortages, and fear of mistakes.
Polling indicates that trust in AI systems is low among Canadians, with only 32% expressing confidence in AI, compared to 39% globally and 40% in the U.S. Additionally, only 28% of Canadians believe current regulations are adequate to ensure AI safety.
International Comparisons
Canada’s slow adoption of AI is evident in international rankings. According to Statistics Canada’s quarterly survey of business conditions, 73% of Canadian firms are not considering Gen AI, with only 9.3% using it and 4.6% planning to do so soon. Internationally, Canada ranks 20th out of 35 OECD countries in AI adoption, and 10th out of 15 countries in IBM’s Global AI Adoption Index from 2022.
Conclusion
Macklem’s remarks and the supporting data from recent reports highlight a pressing need for Canada to enhance productivity through increased business investment and the adoption of advanced technologies like Gen AI. Addressing these challenges is crucial for ensuring long-term economic growth and improving the living standards of Canadians.