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We need investment, not subsidies, to get productivity growing

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1 year ago

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Prime Minister Justin Trudeau speaks during a visit to an apartment complex under construction in Hamilton, Ont. Photo by PETER POWER/THE CANADIAN PRESS FILES

By Renaud Brossard

The Trudeau government has been crowing about how Canada has had “the strongest economic growth in the G7” coming out of the pandemic, which is true. But it neglected to mention that this growth was the result of Canada’s population getting bigger rather than richer. Per person income has stopped growing in this country.

The data on per capita GDP couldn’t be clearer. Adjusting for inflation, we currently have the same level of output per person as we had in 2018. Our neighbours to the south, meanwhile, have seen continued growth in recent years. Output per person in the U.S. is up by 5.4 per cent since 2018.

The stagnation of Canadian output and income per person is the result of a long-standing problem: Canada’s productivity struggles to keep up with other advanced economies. What this means is that the value the average Canadian worker creates in an hour lags behind what workers in other G7 countries produce. According to OECD data, each hour worked by a Canadian creates an average of US$53.30 of value, on a purchasing power parity basis (i.e., currencies are translated into U.S. dollars, not at the actual market rate of exchange, but at a rate that adjusts for differences in countries’ domestic prices, so that the loonies a U.S. dollar will buy purchase the same goods and services in Canada that the U.S. dollar did in the U.S.)

Fifty bucks an hour might not seem so bad, but it places us next-to-last among G7 members, just ahead of Japan. The average productivity of G7 countries is US$63.90 per hour worked. As for our friends south of the border, they create US$72.10 of value per hour worked.

We can say that this is no big deal, that we’re just a few dollars per hour behind, but we need to understand that the gap has a direct impact on our personal finances. The less value we produce per hour worked, the less we can be remunerated by our employers. If we’re not literally “delivering the goods” (and services), how can they pay us more? Lower hourly productivity means less income for workers.

If for the sake of argument we assume Canadians work 35 hours a week, 48 weeks a year, our US$10.60 per hour gap in value produced compared to the G7 average per hour translates into a US$17,808 gap per year, which most Canadians almost certainly will regard as being real money. If we were able to close the gap with Americans, that would raise our living standards by $31,584 per year.

Closing this admittedly large gap is not impossible. The economic literature is very clear on how to increase productivity: more investment. When companies invest in new, more efficient production processes, workers are able to do more, and do better, with each hour spent working. This produces more value, which ultimately increases potential remuneration.

Canada has been lagging behind for years when it comes to investment, the lifeblood of productivity. In 2018, for instance, non-residential private investment amounted to $17,389 per job in Canada. In the United States, still on a purchasing power parity basis, the level of non-residential private investment was $27,307 per job. In Sweden, it was $33,214 per job.

Our governments, both federal and provincial, are trying to make up for the lack of private investment with subsidies, but the subsidies required to close the private-investment gap with the United States are simply not sustainable. We would need $200 billion a year in taxpayer money to catch up. And that’s assuming subsidies are just as efficient as private investment, which seems unlikely.

The good news for taxpayers is that closing the productivity gap does not require diverting our taxes toward the private sector in order to close our productivity gap. If other countries succeed in attracting more investment, it’s because their business environment is sufficiently attractive for the private sector to be willing to risk its money there.

The longer it takes to get a project through approval stages and then ultimately built, or the higher the taxes levied on its eventual output, the less attractive we are to domestic and foreign investors. The opposite also holds true.

Becoming attractive again therefore requires that we reduce the cost of doing business in Canada, especially the fiscal and regulatory cost. Eventually our self-improvement policy could lead to companies seeing investment in Canada as equally or even more profitable than investing in the United States, France, or Sweden, to name just a few of our competitors for investment.

As long as we do not address this problem of our uncompetitive fiscal and regulatory environment, we will risk seeing our living standards stagnate, both relative to the rest of the world and maybe even in absolute terms.

Renaud Brossard is senior director of communications at the Montreal Economic Institute.

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

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6 days ago

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November 6, 2024

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NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

The Canadian Press. All rights reserved.

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S&P/TSX composite up more than 100 points, U.S. stock markets mixed

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4 weeks ago

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October 16, 2024

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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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S&P/TSX up more than 200 points, U.S. markets also higher

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1 month ago

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October 11, 2024

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TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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