What manufacturers have to say about Canada’s declining productivity

MNP raised the question with manufacturers about the big problem of Canada’s declining productivity.

• According to the Organization for Economic Co-operation and Development, Canada ranks 29 among 38 OECD countries for labour productivity.
• During a presentation to a business group this spring, Senior Deputy Governor Carolyn Rogers of the Bank of Canada referred to Canada’s long-standing, poor productivity record as an “emergency [12].
• Claude Lavoie, former director-general of economic studies and policy analysis for the Department of Finance, recently commented, “Companies here use less capital and technology, are less innovative, and operate at a smaller scale in an economy plagued by insularity. And it’s getting worse [13].
• Predicting real GDP per capita growth for 2020-30 and 2030-60, the OECD ranks Canada last [14] among advanced economic countries globally.

Given that lower productivity means lower profits for businesses, stagnant incomes for workers, and ultimately a lower quality of life for all, MNP asked manufacturers for their thoughts about what we, as a country, can do to change this trend.

Adopt smart tech

According to Canadian Manufacturers & Exporters, Ontario manufacturers are slow adopters of advanced manufacturing technology compared with the U.S. Between 2004 and 2021, machinery and equipment investment increased by 34 percent south of the border but fell by 14.8 percent in Ontario.

Dan Engelage, President of D&R Custom Steel, says, “Americans in our industry are much more proactive with technological adoption. When it comes to fabrication shops, robotic laser lines and laser tube cutters and other tech — they invest way more than we do.”

The IMD World Digital Competitiveness Ranking measures countries' capacity and readiness to adopt and explore digital technologies as a driver of economic transformation. The latest ranking ranks the U.S. as number one, while Canada ranks number 11.

As another owner of a manufacturing company owner puts it, “We need to properly embrace technology in Canada.”

Invest in more R&D

Canada ranks 17 among OECD countries for the percentage of GDP spent on research and development (R&D). And it’s one of the lowest spenders among the G7 [15].

R&D represents an important investment in developing new ideas, technologies, and processes to strengthen business performance and improve products. MNP partner Ryan Magee comments, "There seems to be less appetite for risk in Canada than there is in the U.S." Roundtable manufacturers agreed that there's more reluctance in Canada to do things differently.

The Expert Panel on the State of Industrial R&D in Canada says this country’s low investment rate in R&D is one of the key factors contributing to the consistently wide gap in productivity growth between Canada and the U.S.

More manufacturers need to undertake R&D to successfully compete in a global economy increasingly centred on knowledge and technology.

Strengthen workforce upskilling

The Bank of Canada says being more efficient with our current work contributes to higher productivity. This includes improving worker skills and training, providing better tools, and using new technologies to improve efficiency and output.

Gallup and Amazon’s “American Upskilling Study: Empowering Workers for the Jobs of Tomorrow” found that for most workers, upskilling is an important benefit they consider when deciding whether or not to apply for a new job. And 71 percent who participated in upskilling agree / strongly agree that it enhanced their satisfaction with work.

To attract and retain workers, manufacturers should keep in mind that potential employees consider employer-paid training during work hours an important benefit.

More political support, please!

Political will is considered by manufacturers to significantly impact industry productivity. They note that in comparison to their counterparts in the U.S., Canadian manufacturing companies might not receive as many support mechanisms such as property tax breaks, development charge reductions, regulatory benefits, and employment cost reliefs like health and safety. This difference in support could influence perceptions of political backing in the two countries.

MNP partner Hussam Malek points out that manufacturers represent the backbone of the Canadian economy. More than 95 percent of businesses in this country are small and mid-size enterprises [16]. These SMEs employ the most private-sector employees and produce the most private-sector gross domestic product [17].

This spring, the Canadian Manufacturers Association called on the federal government to provide more support to stimulate manufacturing investment and support economic growth. “With manufacturing investment per worker significantly less than half that received by U.S. factory workers, the government must prioritize measures that encourage manufacturers to invest, reinvest, and expand in Canada."

One manufacturer receives calls almost weekly from various U.S. states, offering generous financial incentives to move his company to these jurisdictions. The offers range from a five-year property tax hiatus to reduced building development fees.

Manufacturers believe that stronger political support and targeted policies are needed for the government to become a partner rather than an impediment to productivity.