Canada’s struggling productivity has been under the spotlight for the past two years. On March 26, 2024, Carolyn Rogers, senior deputy governor of the Bank of Canada, called the country’s low productivity a national emergency and warned that it was “time to break the glass.” She has since stressed the need for more competition and highlighted planned reforms in Canada’s financial sector, including payment system modernization through real-time payments, known as real-time rail, or RTR, and the introduction of open banking.
While these initiatives are promising, both projects are years behind schedule. The real-time rail system, initially slated for 2019, is now set to launch in 2026. Open banking has fared worse: under development since 2017, it is also scheduled for launch in 2026, with several critical elements still unresolved.
While Ottawa hasn’t acknowledged its failure to deliver, it has stressed that the business community must increase investment and innovation to drive productivity growth. In a recent speech, Linamar Corp. executive chair Linda Hasenfratz criticized the public sector for its low productivity, saying, “… productivity has been absolutely flat, zero growth, not one bit of productivity,” and adding, more pointedly, that it is “flat as a pancake.”
While not directly addressing productivity, Donald Savoie, a Canadian public administration expert, wrote in a recent Globe and Mail op-ed that the federal government “must seriously cut the bloat.” He calls for a review of “programs that have passed their best-before dates” and scrutiny of the growing number of departments and agencies. Savoie questions the need for seven regional agencies; I have questioned the need for three housing agencies.
Even with streamlined delivery of government services, Canada still faces what economists call cost disease — the tendency for wages in labour‑intensive sectors to rise even when productivity does not. First outlined by economist William Baumol in a 1967 paper, Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis, the concept explains why sectors such as healthcare, education and public administration become more expensive over time. Their work cannot easily be made more efficient, yet wages must keep pace with other parts of the economy. That structural reality continues to drive costs higher in Canada, even as governments promise efficiency gains.
The government has suggested artificial intelligence could help counter this effect. I remain unconvinced, given Ottawa’s poor track record in implementing technology.
- The Canada Revenue Agency’s IT modernization efforts, backed by $691 million in special funding, have been plagued by delays and budget overruns.
- The Phoenix pay system is a cautionary tale: more than $3.5 billion spent on a program that was originally budgeted at just $5.8 million.
- The upgrade of the Canada Pension Plan and Old Age Security IT system is now pegged at between $2.7 billion and $3.4 billion. Six-years ago, the estimate was $1.75 billion. The Auditor General has noted that many of the system’s issues were flagged 13 years ago, but promised fixes never materialized.
- The ArriveCAN app is another example. Initially projected at about $80,000, its cost ballooned to an estimated $59.5 million between April 2020 and March 2023.
Even when government system upgrades are implemented, there is little, if any, evidence of improved productivity, whether through higher service levels or reduced staffing. Perhaps it is time to heed Hasenfratz’s solution: “I think we need to dislodge a lot of people from this non-business sector and get them into revenue-generating businesses,” she said. “[T]hat would make an enormous difference to overall Canadian productivity.”
Housing Affordability Watch
CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis
Will Modular Construction Be a Game-Changer? It All Comes Down to Scale
Canada’s housing crisis has sparked renewed interest in modular construction as a faster, more affordable way to build at scale. In the final article of our three-part series, we examine why, despite its promise, modular construction faces fundamental obstacles that limit its potential to transform the housing market—and why scale remains the biggest barrier to making it a true game-changer.
Read part three of our analysis in the latest Housing Affordability Watch: Will Modular Construction Be a Game-Changer? Part 3 – The Scale Challenge
Missed the first two instalments in our series? Find both here:
Part 1: What We Can Learn from Wartime Housing Limited
Part 2 – Lessons from the U.S. Experience
Independent Opinion
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