B.C.’s productivity gap with the rest of Canada has narrowed as the country’s overall productivity has slowed considerably since the start of this century, according to the Business Council of British Columbia (BCBC).
Its November 16 report noted that growth in Canadian real gross domestic product (GDP) per person, a key measure of living standards, has dropped since the 1960s. Prior to 2000, Canadian incomes were doubling in roughly 30 years (one generation). But the BCBC report noted that, at recent growth rates, the same standard of living increase would now take four to five generations.
B.C. productivity in relation to the rest of Canada, meanwhile, has increased significantly.
The province’s real GDP per person in 2001 was $6,600 less than the Canadian average. By 2017, the gap had fallen to $1,450, according to the report.
BCBC executive vice-president Jock Finlayson told Business in Vancouver that business productivity on average in Canada, and in B.C., is about 26% lower than in the U.S.
“We’ve always lagged [behind] the U.S. in productivity, but the gap has widened over time.”
Finlayson added that the U.S. has a higher per capita GDP than Canada because American companies invest more per worker than do their Canadian counterparts.
They do this in part because they can write off the cost of equipment upgrades faster than Canadian companies can. U.S. companies also have easier and immediate access to a larger market, and the companies are larger, on average. Unlike Canada’s tax regime, the U.S. government’s tax code does not provide incentives for companies to stay small.
U.S. companies are also in higher-growth sectors, such as technology and medical equipment, Finlayson said.
“Our economy is more weighted with small businesses and less productive industries, and our policy system has done relatively little to attract growth capital to companies that come to Canada to expand.” BCBC wants the federal and provincial governments to overhaul tax rules to provide incentives for companies to get bigger and to address the erosion of Canada’s tax competitiveness compared with the U.S.
It also wants governments to modernize regulatory regimes to promote productivity investments and reward innovation and success. •