Weak Business Investment in Tech and Innovation Hurting Canadian Productivity: Report

A woman on a cellphone is seen in downtown Toronto. U.S. companies invest more in communications technology than Canadian firms do, a new report says. Don Quincy/DQC Photo

A lack of investment in innovation and technology by Canadian corporations is hampering productivity, a new report by the Fraser Institute says.

Business investment in high-tech and innovative assets has been weaker in Canada compared to the U.S., according to The Weakness of Corporate Investment in Canada, 2001–2021 published on Sept. 24 by the think tank.

The report follows news from Ottawa that it will create a working group to look at low economic productivity in the country.

Treasury Board President Anita Anand made the announcement in August, saying the group will be able to evaluate productivity challenges in both the public and private sectors.

The Fraser report looks at what corporations in both countries have been investing in, noting that in Canada companies buy more property, compared to the U.S., where they put money into information and communications technologies (ICT) and intellectual property products (IPP).

“Not all business investment is created equal, and investments in machinery, equipment, and research and development, which improve worker productivity are major contributors to higher living standards,” said Steven Globerman, Fraser Institute senior fellow and author of the report.

Globerman said in a news release that ICT and IPP help productivity to grow and that Canada has been trailing the U.S. in these assets for more than 10 years.

Between 2001 and 2010, 26 percent of investment in Canada went to ICT or IPP, compared to 44 percent in the U.S. That number fell to 23 percent between 2014 and 2021, while remaining the same in the U.S.

“Improving Canada’s productivity performance, therefore, requires policy initiatives that will encourage increased investment in ICT- and IPP-related assets,” Globerman wrote in the report.

“Technology-related ICT and IPP asset categories are most closely tied to productivity growth, as they directly embody new technology and/or they are primary channels through which new technology is introduced and diffused throughout the economy,” he said.

High Investment in Canadian Housing

Globerman found that Canadian corporations are more invested in housing and properties than their American counterparts.

“Relative investment intensity in different asset categories, therefore, suggests that corporations in Canada found investing in Dwellings and Other Structures relatively more profitable compared to ICT and IPP than did corporations in the United States,” he wrote.

“The rapid and dramatic increase in residential property values in Canada compared to the United States is a plausible, if partial, explanation for the apparent preference of Canadian investors, including corporate investors, to invest more intensively in this asset category than US investors.”

He concluded that the difference in asset investment between Canadian and U.S. companies makes an “important contribution” to Canada’s lagging productivity performance.

Noé Chartier contributed to this report.