Instead of asking Ottawa for more money again, premiers should target productivity

As published in The Globe and Mail

Canada’s premiers are meeting in Halifax this week for their annual Council of the Federation talks and, if tradition holds, they’ll emerge yet again with a compromise decision to ask Ottawa for more money.

Let’s take it up a notch this year.

Policy makers across the country acknowledge that the productivity problem that has gnawed away at the Canadian economy for a couple of decades is now biting sharply into our collective prosperity.

The premiers are in the perfect position to do something about it. Indeed, it’s an opportunity they can’t afford to ignore.

As we know, the numbers are dismal. Our real GDP per capita has grown by just 0.4 per cent per year since 2006, far below the 1.6-per-cent annual average of the prior 30 years.

Firms and organizations do not invest at pace in the infrastructure, machinery, equipment, innovation and skills that would equip workers to deliver greater output per hour worked. Unchecked, this will mean stagnant real wages and, absent tax hikes, no real increase in government revenue and thus resources for hospitals, schools or other public goods.

The predictable route for the premiers – insisting on bigger federal transfers – will just get harder and harder if this persists.

But while Canada desperately needs a renewed federal focus on productivity, the provinces have some powerful levers to act – right now, on their own.

The obvious candidate is internal trade. According to the International Monetary Fund, Canada could expand its economy by as much as 4 per cent – that’s about $2,900 per person in 2023 dollars – just by reducing barriers to the interprovincial trade in goods.

Those barriers raise the costs of doing business, diminish competition and dampen incentives to invest and innovate. Higher prices for consumers and billions of dollars in lost potential growth are the result.

Here’s a thought: The premiers could agree to a default elimination of the barriers within a period of three to five years unless there is discrete, targeted and justified intervention.

But okay, if they really can’t bring themselves to crack the code on internal trade, then how about looking at labour and skills?

Our immigration system once had a reputation for carefully selecting skilled workers who would make the best contribution to the economy. Over the years, the system has drifted to deliver ad hoc responses to labour shortages in low-productivity occupations, slowing down needed adjustment in the economy.

Provinces can help repair that.

About 40 per cent of economic immigrants are now admitted under the Provincial Nominee Program. Provinces, with the professional bodies, also hold the key to the recognition of credentials that can allow immigrants to efficiently find employment that matches their skills.

And when it comes to training a highly productive labour force, provinces have jurisdiction over the very postsecondary education that cultivates the skilled workers who will drive stronger growth.

And then there’s investing in infrastructure. Yes, the federal government plays in that sandbox, but provinces and territories hold most of the cards. Of course, they all need to be mindful of deficits. But borrowing to fund public infrastructure is far more sustainable and productive than borrowing to spend on current services. Moreover, by pricing infrastructure and creating a stream of revenue, governments can also attract private financing.

On the list of needy infrastructure under provincial control, nothing stands out more than the requirement for an efficient, reliable and competitive clean electricity grid. Capacity needs to double (at a minimum) over the next 25 years, and existing infrastructure must be modernized and, in some jurisdictions, decarbonized.

While the federal government can assist with incentives such as tax credits, it is the provinces and territories that have to establish the policy and regulatory conditions for investment to flow. Some provinces have developed at least notional plans, but time is not on their side.

Similarly, if the provinces could knit together a smooth, connected system to price industrial carbon while incentivizing investment, we’d all be further ahead.

The stated goal of the Council of the Federation is “to make Canada work better for Canadians.” That goal doesn’t preclude the premiers from pressing the federal government for fatter transfers. But it does speak to a need to advance a priority for Canada: stimulating investment and building a more productive economy.