Central bank: overregulation keeping Canadian productivity “ in a vicious circle”

Canada’s prolonged period of low productivity has become “stuck in a vicious circle,” according to Bank of Canada deputy governor Nicolas Vincent.

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Canada’s prolonged period of low productivity has become “stuck in a vicious circle,” according to Bank of Canada deputy governor Nicolas Vincent, who suggested Ottawa reduce the regulatory burden placed on companies to revitalize competition.

“To put it bluntly, we’re stuck in a vicious circle,” said Vincent during a press conference on Wednesday. “When productivity is weak, it’s much harder to meet current challenges and seize opportunities for the future. There is no quick and easy way to improve productivity, and no single sector can do it alone.”

According to data from the central bank, Canada’s productivity has been lagging for at least the past quarter of a century.

Vincent went on to say that whenever he speaks with Canadian and global business leaders, he is routinely told that the country “isn’t very conducive to investment.”

“Whether it’s in meetings or surveys, businesses often tell us that Canada’s regulatory framework is too cumbersome, complex and far-reaching. They cite it as an irritant that increasingly prevents them from being more dynamic,” he said.

“This is the first lever we should pull. A certain level of regulation is essential, of course. But it’s fair to ask if we could regulate better. This could mean speeding up approval processes, re-evaluating the scope of some rules and reducing the overall uncertainty around regulation.”

The deputy governor also said it’s time for Canada to address its problem with “overlap, redundancies and contradictions between the different levels of government.”

He noted that such problems also tack on to interprovincial issues faced by workers and product mobility.

The increase in red tape over time has led to a decrease in investment and an environment that people are eager to work in.

For example, average annual growth for labour productivity during the 1960s through the 1970s was about three per cent.

However, growth fell to just one per cent between 2000 and 2019.

“This decline continued through the pandemic and persists today. And it’s not one or two sectors that are causing the poor performance. Nor is it caused by differences in industrial structure. It’s a widespread problem across the economy,” writes the Bank of Canada.

“Even worse, over the past five decades, Canada’s productivity has deteriorated compared with that of other G7 countries. In 1971, Canada’s productivity was, on average, higher than that of its peers.”

However, that situation had reversed by the early 1980s, with the average productivity gap between Canada and other G7 countries only growing wider since the turn of the century, particularly in relation to the United States.