The low productivity of Canadian companies threatens our living standards

[daftandbarmy]

It's OK, they're just following the lead of our public sector, and poilitical leaders

The low productivity of Canadian companies threatens our living standards​

Without fostering competition within Canada, economic growth will remain insufficient and our standard of living will continue to decline.

The causes of the low productivity of Canadian companies are well known and documented: they invest little, spend less on research and development than those in other rich countries, and have a low propensity to innovate. These behaviours tend to limit their productivity gains and, consequently, restrict the growth of the Canadian economy.

It is difficult to understand why our companies are reluctant to engage in activities that are central to success in comparable countries, or why the federal government continues to let it happen when the result is that the Canadian economy has fallen behind.

There is an urgent need to act because the consequences of inaction are enormous. In 1981, Canadians enjoyed a $3,000 higher per capita standard of living than the major Western economies (adjusted for inflation and currency fluctuations). Forty years later, Canada was $5,000 below that same average. If the trajectory continues, the gap will be nearly $18,000 by 2060. Canada’s Department of Finance has also reported these alarming projections.

Dear Canadians, please compete among yourselves​

In examining why Canadian businesses are so reluctant to invest and innovate, the Centre for Productivity and Prosperity – Walter J. Somers Foundation (CPP) concluded that the problem is a lack of internal competition. Competition among Canadian companies is too weak and simply does not generate the incentives that would normally boost their competitiveness.

Canadian firms operate in small, highly dispersed markets that are very segmented economically and legislatively. They therefore compete much less with each other than American or European firms, which operate in two large, highly unified and integrated domestic markets that provide an adequate level of competitive pressure. This is not the case here: Canadian companies do not need to invest and innovate as much to stand out and maintain their market share. As a result, they are not competitive enough to compete in foreign markets. Growth suffers and the country’s economy stalls.

What makes this problem particularly embarrassing is that the Macdonald Commission clearly identified it in the early 1980s. It even proposed viable solutions – many of which are still applicable.

The low productivity of Canadian companies threatens our living standards

The low productivity of Canadian businesses threatens our living standard. Canada needs to foster internal competition.

policyoptions.irpp.org

 

[Brad Sallows]

"It is difficult to understand why our companies are reluctant to engage in activities that are central to success in comparable countries, or why the federal government continues to let it happen when the result is that the Canadian economy has fallen behind."

The federal government "lets" it happen? The federal government often enough is the one pushing policies that protect Canadian companies from both external and internal competition; or choosing some companies to support while allowing others to wither; or, in its efforts to gin up what it thinks is insufficient competition, creating advantages for new entrants to skim the cream in the easiest part of a market or to exploit a privileged position for a while before selling out.

Moreover, it should be obvious even to the least accomplished "expert" that official political positions of disfavour towards entire industries will motivate the players to stop investing and start extracting profits while they can.

I suspect that every time Singh opens his yap to beak off about some scheme for more "fairness", a little bit of productivity in Canada dies.

 

[FJAG]

In examining why Canadian businesses are so reluctant to invest and innovate, the Centre for Productivity and Prosperity – Walter J. Somers Foundation (CPP) concluded that the problem is a lack of internal competition. Competition among Canadian companies is too weak and simply does not generate the incentives that would normally boost their competitiveness.

Canadian firms operate in small, highly dispersed markets that are very segmented economically and legislatively. They therefore compete much less with each other than American or European firms, which operate in two large, highly unified and integrated domestic markets that provide an adequate level of competitive pressure. This is not the case here: Canadian companies do not need to invest and innovate as much to stand out and maintain their market share. As a result, they are not competitive enough to compete in foreign markets. Growth suffers and the country’s economy stalls.

If internal competition doesn't spark improvement wouldn't it be logical that external competition would do so ... wait unless we protect our internal companies from foreign competition.

OTOH, maybe its the complexity of jumping through regulatory hoops that stymies business innovation.

And then there are labour costs and energy costs.

Yup. There are issues and a bureaucracy and governing party that really doesn't understand business and how to make it flourish is high up there.

 

[daftandbarmy]

"It is difficult to understand why our companies are reluctant to engage in activities that are central to success in comparable countries, or why the federal government continues to let it happen when the result is that the Canadian economy has fallen behind."

The federal government "lets" it happen? The federal government often enough is the one pushing policies that protect Canadian companies from both external and internal competition; or choosing some companies to support while allowing others to wither; or, in its efforts to gin up what it thinks is insufficient competition, creating advantages for new entrants to skim the cream in the easiest part of a market or to exploit a privileged position for a while before selling out.

High federal, provincial and other taxes kill business and entrepreneurial activity... and then there are the skyrocketing minimum and 'living wage' costs, and an 'organized labour friendly' environment.

When Henry Ford was asked why he was adopting robot technology he replied "At least I don't have to deal with the robot's union."

Remove the Tax Barrier to Small Business Growth​

The combination of federal and provincial preferential small business income tax rates, while well intentioned, results in steep increases in business income tax rates for businesses that grow and expand.

The smallest increase experienced by growing firms that move from the preferential small business income tax rate to the general business income tax rate occurs in British Columbia, Ontario, and Prince Edward Island, where the applicable statutory rates double.

For instance, the combined federal-provincial business income tax rate for successful small businesses in British Columbia increases from 16.5 percent to 33.0 percent. In Ontario, combined federal-provincial business income tax rates increase from 17.5 to 35.0 percent. The largest increase occurs in New Brunswick where the statutory rate increases from 14.0 to 34.0 percent; a 142.9 percent increase.

Published research indicates that such steep increases in business income tax rates create a powerful barrier, or disincentive, to growth and expansion. The large increases in business income tax rates as firms move from the small business income tax rate to the general income tax rate establishes strong incentives for firms to reorganize (split into multiple firms) and/or pay out additional monies in bonuses rather than growing and expanding.

Remove the Tax Barrier to Small Business Growth: op-ed

There is increasing recognition that entrepreneurs and the small-and medium-sized businesses they develop are vital to the overall health of our economy. As such, governments across Canada have rushed to encourage small business development and entrepreneurship. Indeed every province, save for...

www.fraserinstitute.org

 

[SeaKingTacco]

Mostly, it is not a government’s job to do anything about business productivity.

It is their job to not do stupid things that harm business productivity….

 

[RangerRay]

Mostly, it is not a government’s job to do anything about business productivity.

It is their job to not do stupid things that harm business productivity….

A while ago I saw a book at a bookstore with the premise “why can you find Carona cerveza in Canada, but you can’t find Molson Canadian in Mexico?” If I remember correctly, it boiled down to the Canadian corporate class being very risk adverse, provincial in their outlook, and reliant on some sort of subsidy or protectionist policy that limits their ability to innovate and expand outside the country. I never did buy that book, but that description on the jacket cover always stuck with me.

 

[mariomike]

How is productivity measured?

Ours was Unit hour Utilization ( UhU ), and Response Time.

 

[Navy_Pete]

A while ago I saw a book at a bookstore with the premise “why can you find Carona cerveza in Canada, but you can’t find Molson Canadian in Mexico?” If I remember correctly, it boiled down to the Canadian corporate class being very risk adverse, provincial in their outlook, and reliant on some sort of subsidy or protectionist policy that limits their ability to innovate and expand outside the country. I never did buy that book, but that description on the jacket cover always stuck with me.

A better question was why can you buy Molson Canadian in Canada? It's terrible, and I think only enjoys a market here out of nostalgia./marketing

I think Corona has a market outside of Mexico for similar reasons, as people associate it with sitting on a beach on a hot day, but there are a number of identical beers already available, and also much better Mexican beers, but they don't have Corona's marketing or brand loyalty.

A successful export needs to be something unique, or better than what's already available on the local market, so that's a fairly poor example, as other countries have their own version of generic lager that is usually cheaper and would have it's own nostalgia from having a pint with grandpa or whatever.

Maybe a better example is softwood lumber; high quality product, high availability, doesn't have more exports because of foreign govt protectionist policies, even though it's demonstrably better than a lot of US lumber strictly due to the climate differences.

 

[JLB50]

A while ago I saw a book at a bookstore with the premise “why can you find Carona cerveza in Canada, but you can’t find Molson Canadian in Mexico?” If I remember correctly, it boiled down to the Canadian corporate class being very risk adverse, provincial in their outlook, and reliant on some sort of subsidy or protectionist policy that limits their ability to innovate and expand outside the country. I never did buy that book, but that description on the jacket cover always stuck with me.

I’m not sure if this would or would not be a variant on the book you saw. About ten years ago my wife and I were noticing how globalism was resulting in our local Loblaws store carrying nothing but garlic from China. The same turned out to be true when we went to a Metro store. With our lack of trust in Chinese grown/produced foods, we searched around and finally found some garlic from Chile at a small vegetable store. Ok, we thought, that’s just the way it is.

Several weeks later we were in the Midwest U.S. visiting relatives. When we went to the local supermarket to buy some food, what did we find? Garlic from Canada. Grimsby, Ontario in fact. Just a short distance from where we lived at the time. That very same U.S. supermarket also carried quite a number of President’s Choice products from Canada. But no Canadian garlic in Canada…or at least none that we could find.

One of these days I’ll try to relate how globalism affected a small manufacturing company I owned and operated in both the U.S. and Canada.

 

[dapaterson]

Historically, Canadian industry has been quick to pay out owners and slow to reinvest in the business, which slows growth and diminishes innovation.

 

[Brad Sallows]

Frankly, the way various Canadian governments have affected my finances over the past 2 decades, I vastly prefer quick pay outs to owners (shareholders).

 

[RangerRay]

A better question was why can you buy Molson Canadian in Canada? It's terrible, and I think only enjoys a market here out of nostalgia./marketing

I think Corona has a market outside of Mexico for similar reasons, as people associate it with sitting on a beach on a hot day, but there are a number of identical beers already available, and also much better Mexican beers, but they don't have Corona's marketing or brand loyalty.

A successful export needs to be something unique, or better than what's already available on the local market, so that's a fairly poor example, as other countries have their own version of generic lager that is usually cheaper and would have it's own nostalgia from having a pint with grandpa or whatever.

Maybe a better example is softwood lumber; high quality product, high availability, doesn't have more exports because of foreign govt protectionist policies, even though it's demonstrably better than a lot of US lumber strictly due to the climate differences.

I think the quality of Molson Warm Pisswater is beside the point of the original thesis of the question. After all, one can find a third rate Australian beer (Foster’s) here but can’t find an any rate Canadian beer in Australia, and a third rate American beer is the most popular in the world. The premise wasn’t so much the quality of our products, but the insularity of our corporate class.

Anywho, I thought it was an interesting premise but not interesting enough to buy the book.

 

[FJAG]

I'm not really sure where the Corona v Molson analogy takes us beyond the book.

Molson belongs to Molson Coors. Corona through a long chain belongs to Anheuser-Bush InBev. A decade or so ago Molson Coors got into a joint venture with SABMiller for the American side of the operations. SAB Miller merged with AB InBev but was required to spin off the Miller stuff to Molson Coors, leaving Molson Coors the largest brewer in North America.

From that I get that Molson isn't a tiny little underperforming company in Canada and that the Molson brand itself is just a regional marketing element of what is pretty much the same dishwater brewed throughout North America and labeled under various brands. Molson Coors markets Coors and Miller in Mexico. Molson Canadian is exported (but not brewed) throughout the world and has joint ventures to import and market Modello and Corona in Canada.

The beer industry is an incestuous business.

 

[CBH99]

I think the quality of Molson Warm Pisswater is beside the point of the original thesis of the question. After all, one can find a third rate Australian beer (Foster’s) here but can’t find an any rate Canadian beer in Australia, and a third rate American beer is the most popular in the world. The premise wasn’t so much the quality of our products, but the insularity of our corporate class.

Anywho, I thought it was an interesting premise but not interesting enough to buy the book.

We live in an age of readily accessible information, and that information is even more abundant to some folks in ivory towers who have access to real numbers, conferences, direct access to regulatory bodies, financial bodies, etc

Why is a Mexican beer available here, but ours not there? That’s a good question, and one that could easily substitute beer for so many other products.



Is our corporate class more risk adverse than elsewhere? If so, why?

If government would drastically lower taxes on small businesses, offer easy to access incentives for startups, and offer either decreased taxes/other tangible incentives for businesses operating here…those are good starts.

But the cost of living here has to be one of the biggest drains on any business. In Alberta for example, the minimum wage is $16… that means a business has to pay even their lowest worker $16.

That doesn’t include paying for their benefits which they most likely will have to offer - so now that employee’s eye exams, massages, doctor appointments, etc etc are being paid by the business also…

Now let’s say that business has 80 employees, and only 10 of them are minimum wage workers. The costs just go up & up…. You have to do a fair bit of business here just to meet costs…

(And even then most of those employees are barely scraping by)



Maybe the increase in mortgage interest rates will be what’s needed to pop this absurd real estate bubble, I don’t know…

But the high cost of employing people here has to have an affect on the business climate



(Stephen Harper, oh where are thou?)

 

[Navy_Pete]

I think the quality of Molson Warm Pisswater is beside the point of the original thesis of the question. After all, one can find a third rate Australian beer (Foster’s) here but can’t find an any rate Canadian beer in Australia, and a third rate American beer is the most popular in the world. The premise wasn’t so much the quality of our products, but the insularity of our corporate class.

Anywho, I thought it was an interesting premise but not interesting enough to buy the book.

For sure, I guess it just gets into a weird industry that has been massively consolidated with only a few multinationals, so there is very little real competition, and when there are options it's less about companies competing than giants like InBev supporting brand loyalty in a region. The same brewery will pump out a bunch of different labels, but all the money goes into the same pockets.

I think when different companies get big enough, competition might be more with sister companies in the multinational's supply chain, and is where you get into things like wage/benefit costs. I'm thinking for examples like car manufacturers in N.America, where they have gradually consolidated production in different locations, and when they are closing down one local spot it's because they are upgrading a line somewhere to take over that capacity. That's where things like local wages and benefits, government support (reduced tax etc) gets weighed against transportation costs, tariffs etc.

Long term though, if everyone moves their production offshore, that kills a huge number of potential customers, and if I have a choice between multiple foreign made cars, I'm probably going to hold it against the company that laid off my family/friends (but only more recently; the union demands in the 90s were so ridiculous and strikes so frequent that I didn't blame Ford and GM for shifting a lot of the ON production).

 

[Brad Sallows]

Why is a Mexican beer available here, but ours not there?

Is it beer brewed in Mexico, or beer brewed here (or in the US) under licence?

Beer brewed under licence in massive commercial quantities isn't something to get worked up over.

 

[Spencer100]

A while ago I saw a book at a bookstore with the premise “why can you find Carona cerveza in Canada, but you can’t find Molson Canadian in Mexico?” If I remember correctly, it boiled down to the Canadian corporate class being very risk adverse, provincial in their outlook, and reliant on some sort of subsidy or protectionist policy that limits their ability to innovate and expand outside the country. I never did buy that book, but that description on the jacket cover always stuck with me.

Yes but this is a different issue to the productivity problem. Corporate Canada is very risk adverse, stemming all the way back the start with the United Empire loyalist etc. But part of the problem is the market to South and the ease of Capital. When a Canadian company gets to big there is not enough capital (human and money) in this country. The companies have to sell out. All look at the market problems like when Nortel then RIM at the top. Outside of financials what world beating companies are located here now? The biggest one of the only world class you and one most have never hear of Alimentation Couche-Tard. Others are ThompsonReuters, and Magna. That's it. You can have a class for Brookfield. But its still financial.

Here I will give you an example. One public company we compete with now has 80% of the Canadian market (We have like 1%) . They were (before covid) having a hard time to show growth the stock market wants. They can't get more dollars in their many market because they have most of them. At the time they were also 3 or 4 largest in the world because their Canada market concentration. At industry conferences I asked them (its a friendly fun indusrty mostly) Well when are you going to make the jump? What? The Jump to the US. They then look horrified and said never its too tough there (as they have had some past dealing in the US) One Americans fight harder and two we would never get away with what we do here, costumers and government wouldn't allow it. Telling me all this as his white snowflake jewelry on his lapel shone at me. LOL. Then just before COVID they made a deal to sell the whole to an international megacorp. Deal died because of COVID. But there is Canada in a nut shell. Protected by government and too timid to go big.

 

[Spencer100]

Is it beer brewed in Mexico, or beer brewed here (or in the US) under licence?

Beer brewed under licence in massive commercial quantities isn't something to get worked up over.

The largest Canadian owned beer brand is Moosehead.
Everything bigger is international. Labatt is AB InBV, This includes Blue, Alexander Keith's, Lakeport, Mike's Hard, Bud, Orland, Mill Street etc... MoslonCoors is Molson and Coors is the next with those brands, The Saporo which owned Sleeman's, the next The Brick which is owned by Carlsburg.

 

[Spencer100]

Long term though, if everyone moves their production offshore, that kills a huge number of potential customers, and if I have a choice between multiple foreign made cars, I'm probably going to hold it against the company that laid off my family/friends (but only more recently; the union demands in the 90s were so ridiculous and strikes so frequent that I didn't blame Ford and GM for shifting a lot of the ON production).

The Great Nearshoring is in full swing. For our your car buying future you will mostly be buying a North American assembled vehicle. All manufacturers have gone and localized production of the vehicles they sell in those markets.
Canada is missing out on the full potential on the nearshoring because of government and productive policies. The assembly plants we retain will be at great cost by government subsidies. They require these to offset the increased cost of doing business in Canada. Also and this newer I will give you this one is the crazy US give aways from the Inflation Reduction Act (the green new deal II)

Why do we in Canada have energy cost the way we do? Why are are our taxes so high? We don't spend on Defence? With so high taxes why is our infrastructure (I mean real infrastructure not the BS stuff they now infrastructure) so underdeveloped or poor?

 

[FJAG]

Strange all this talk about beer. Made me look in my fridge where we have two types of beer - Coors light for the missus- and German stuff for me. Curiously, I noted that a can of Spaten that I recently purchased says "German Style Beer" on the can and sure enough, its brewed by Labatt somewhere in Canada. Will have that with my pizza tonight to see if the taste has changed to dishwater like Beck's did when the started brewing it in Canada.

I'm going to need to be more careful in what I buy.

As to cars, my Forester still has a J Vin. Some of the rest of the Subaru line (Ascent, Outback, Legacy and Impreza) are done in Lafayette, Indiana where the same plant also turns out some Toyota Camrys and Honda Passports.