It's easy for Canadians to feel a little complacent these days about our relative well-being in a world filled with economic distress. When you look south of the border, for example, it seems you see nothing but stubbornly high unemployment and home foreclosures.
What you don't see, however, is that even after their financial and housing meltdowns, Americans remain much richer than we are.
How much? Well, if Canada had enjoyed the same income boosting productivity growth seen in the U.S. since the late 1980s, average take-home pay in this country would be about 26% higher, calculates the Conference Board of Canada in a new report. That amounts to a shortfall of about $7,500 per Canadian.
What's even worse, the total pay gap is about twice this size, since Canada's starting point was already lower, explains economist Mario Lefebvre, one of the report's authors.
What's going on here? The answer, Lefebvre believes, is that even though a Canadian factory or office or shopping mall looks pretty much like an American one, the efficiency -- or productivity, as economists say -- of its workers is much lower.
"We have a well-educated workforce that doesn't have the right tools," Lefebvre says.
The good news is that this could be about to change in a big way. "I think we've finally come to grips with making the right kinds of moves," including a big increase in business spending on new machinery and equipment, Lefebvre said.
That would be a game-changer because our problem isn't that Canadians are lazy or poorly educated. It's mostly that we do our jobs with equipment that's not up to the best standards, wasting a certain amount of our time.
Think, for example, of two people preparing a long document, one with a typewriter and the other with a computer.
The technology gap with the U.S. isn't quite that big, but it's true that in a U.S. workplace, spending on equipment -- particularly high-tech computer and phone equipment -- is a good deal higher.
We've always been a bit less productive than our American cousins, but this gap was fairly small until about 20 years ago. Then it began to widen rapidly.
These days, a typical Canadian worker can produce only about 80 cents worth of value for each dollar turned out by an American, down from 90 cents in the mid-1980s.
What changed over this period? It wasn't the abilities of workers, suspects Lefebvre.
Educational attainment continued to rise over this period. However, the other key element of productivity -- the pace at which employers boosted spending on machinery and equipment -- began to falter.
This, in retrospect, isn't too surprising.
During this period, the Canadian dollar depreciated sharply, to just above 60 cents U.S. at its low point. That changed two important things for Canadian firms.
First, the competitive pressure to boost productivity became weaker when the dollar was weak. At an exchange rate of 70 cents, for example, it was easy for a factory here to undercut a U.S. outfit paying its workers in 100-cent U.S. dollars.
Second, the ability of Canadian companies to buy productivity-boosting equipment diminished.
Most of such equipment is purchased in the U.S. or bought elsewhere for U.S. dollars. But a 70-cent loonie meant that spending a U.S. dollar on such imports cost $1.43 Canadian.
There were other factors too, like capital taxes, which actually punished companies for sinking more money into their operations, and dumb regulations like the ban on foreign ownership of telecommunications companies, which deprived Canada of competition and new ideas from abroad in a critical sector.
But these have either disappeared or been softened. And the dollar, of course, has recently been hovering right around equality with the greenback. "There seems to be improvement on all fronts," Lefebvre says.
Helped along by these changes, business capital investment has surged in the past year and this trend is expected to continue.
Business managers "see the problem and they want to fix it," says economist Diana Petramala at the TD Bank. If they don't, they'll be roadkill in an era of global competition.
The question is how quickly the improvement will show up. So far, even with investment spending surging, it's only returned to the level we'd already attained before the recession.
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