Business productivity key to beating inflation: BoC

Now more than ever it is vital for governments to reduce the burden on business to spur the investments needed to increase productivity. Doing so will inoculate our economy against runaway inflation, said the Bank of Canada’s Senior Deputy Governor Carolyn Rogers on March 26.

“An economy with low productivity can grow only so quickly before inflation sets in. But an economy with strong productivity can have faster growth, more jobs and higher wages with less risk of inflation,” Rogers said. “That’s why I want to talk about Canada’s long-standing, poor record on productivity and show you just how big the problem is. You’ve seen those signs that say, ‘In emergency, break glass.’ Well, it’s time to break the glass.”

Rogers said there was a spark of hope during the pandemic as business showed resourcefulness and ingenuity. However, unlike what is happening in the U.S., Canadian firms reverted to low levels of productivity from before the pandemic.

To increase productivity, businesses and their employees need three things:

1. Better tools. Rogers used the example of using a snow blower to replace shovels — or a snowplow to perform even better. For many businesses, upgrading technology will be the key to staying competitive.
2. Better training. The more skills your team has, the more value they bring to the workplace.
3. Better efficiency. Increasing your economy of scale, modernizing management practices and embracing generative AI make businesses more competitive.

“Weak investment has been a problem in Canada for a long time. You can go back 50 years and find a persistent gap between the level of capital spending per worker by Canadian firms and the level spent by their US counterparts,” Rogers said, noting it’s harder for new businesses to compete and too much red tape reduces the incentive to change and evolve.

“Higher productivity should be everyone’s goal because it’s how we build a better economy for everyone,” she said. “When a business gives workers better tools and better training, those workers can produce more. That, in turn, means more revenue for the business, which allows it to absorb rising costs, including higher wages, without having to raise prices.”