The Bank of Canada’s tough-love treatment of Canadian business is getting tougher.
Tiff Macklem, the No. 2 at the central bank, used a speech in Winnipeg Thursday to criticize Canadian companies over a productivity rate that he said “has ranged from disappointing to dismal.”
The remark amplifies the central bank’s lament that Canada’s economy lacks necessary moxie to keep pace in fast-changing global markets. One of the reasons policy makers have left their benchmark interest rate at an ultra-low 1 per cent for the last two years is a concern about the country’s competitiveness. Mr. Macklem told the Winnipeg Chamber of Commerce that more than two decades of underinvestment in machinery and equipment and information technology has left Canadian workers with half as much of such efficiency-enhancing gear as their U.S. counterparts.
That’s in part a legacy of a weak currency. In recent years, the loonie has traded at around par with the U.S. dollar, making state-of-the-art equipment more affordable. Canadians imported machinery and equipment worth $124.7-billion in 2011, a 9.5-per-cent increase from the previous year, according to Statistics Canada. But last year’s gain follows significant declines during the recession. The 2011 total isn’t dramatically different from the $122.6-billion of imports in 2008.
“Recent investment performance has been solid but not spectacular,” Mr. Macklem said. “We must do better than solid.”
It’s only the latest public lecture that Canadian business has received from its central bank.
Last month, Bank of Canada Governor Mark Carney touched a nerve with his comment that executives were sitting on a pile of “dead money” that should be put to more productive use or returned to shareholders. And for some time, Mr. Carney and other Bank of Canada officials have been urging companies to seek out new markets, arguing Canada is overexposed to slow-growth economies such as the United States and Europe.
Each effort is enlightening, if somewhat controversial.
The theme of Mr. Macklem’s Winnipeg speech was the labour market. He said the Bank of Canada’s commitment to an inflation target helped create the economic conditions that allowed Canada to not only replace the 430,000 jobs lost in the recession, but add another 339,000 since. He took umbrage with the notion that many of those jobs are lesser than the ones that came before, saying 90 per cent of the new positions are in industries that pay at or above the average hourly wage.
For example, 206,000 of the 770,000 jobs created since July 2009 have been in the health care industry, which paid an average wage of $24.03 an hour between August 2009 and August 2012, according to Statistics Canada data compiled by Mr. Macklem for his presentation. Canada’s average hourly wage over that period was $22.85.
Benjamin Tal, deputy chief economist at CIBC World Markets Inc. in Toronto, disagrees with the suggestion that the over all quality of Canadian jobs is improving. His own research suggests the opposite. Factories are paying less, and the Canadian economy is on the verge of losing thousands of high-paying public service jobs as governments cut spending to reduce deficits. Construction employment also is set to contract as the housing market slows.
“Two factors that were extremely important in at least maintaining this relative stability and the quality of employment will not be there in the future,” Mr. Tal said.
Some see short-term wrinkles in the jobs market. Standard & Poor’s, the credit rating agency, says in a new economic outlook that weaker global demand will hamper Canada’s trade-dependent economy, limiting growth to 2.1 per cent this year and 1.9 per cent in 2013. The agency said that could put “upward pressure” on unemployment in the first half of next year and limit income gains.
That outlook is in line with the Bank of Canada’s view. Mr. Macklem said there remains “some” slack in the labour market, although he reiterated that even a tepid pace of economic growth would force policy makers to eventually raise interest rates.
But Mr. Macklem’s focus Thursday was on the longer term. Without more productive workers, the country could become poorer. A less productive economy can generate economic growth so long as it has lots of people to put to work. But Canada’s labour force is shrinking, as the population ages and birth rates decline.
Some of those potential retirees are going to have to be coaxed into staying on the job, Mr. Macklem said. But more important will be producing more efficient, well-trained workers. And here, Canada lags. Its companies hire fewer workers with advanced degrees than U.S. firms, and only one-third of Canadian managers have university degrees, compared with half in the United States.
“Over the longer term, productivity growth has the greatest potential to boost prosperity,” Mr. Macklem said. “Regrettably, it is also where our performance has been the worst.”
With files from Tavia Grant
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