Economic Wealth War Canada vs. USA

The per capita GDP of Canada has not yet recovered to its pre-pandemic level. In fact, it has been in decline. The long-term implications of this lack of productivity growth for our standard of living are dire, particularly in comparison to the United States, our primary trade partner and economic competitor. In fact, the most recent decline is merely the most recent installment in a moribund performance that has been a part of a trend that dates back decades, in comparison to the United States. The inflation-adjusted USD per capita GDP for Canada and the U.S. from 1981 to 2022 is depicted in Figure 1, along with the ratio of Canadian to US per capita real GDP. The outcome is remarkable.

Although the real GDP per capita of both Canada and the United States has increased over time, there remains a persistent disparity between the two nations. The real per capita GDP of Canada has increased by 59% since 1981, while the U.S. has experienced a 98% increase. This has led to an increase in the disparity between the two nations. In 1981, the real per capita GDP of Canada was nearly ninety percent that of the United States. However, by 2022, it had decreased to just over seventy percent. This relative decline appears to have occurred in three phases: a decline from 1981 to the mid-1990s, a plateau at approximately 80 percent from the mid-1990s to 2014, and a subsequent decline to the present.

Moreover, the trajectory since 1981 has reversed the historical growth relative to the United States

despite the fact that Canada's real per capita GDP has consistently lagged the U.S. The real per capita GDP of Canada increased from approximately 70% to nearly 90% in comparison to that of the United States from the 1870s to the early 1980s. We have returned to the 1870s in the span of four decades. Nevertheless, it is important to acknowledge that there are regional variations in performance. Alberta, Saskatchewan, and Newfoundland and Labrador have performed somewhat better due to their natural resource sectors. Additionally, Quebec City, Vancouver, and Montreal have experienced greater real per capita GDP growth than Toronto, Calgary, and Edmonton when examining significant urban centers that were established more recently. However, the national environment is in decline in comparison to that of the United States.

The reasons for this can be distilled into five categories: the policy environment, structural economic issues, capital investment, investment in research and development, and population growth differentials. The predominant explanation for Canada's real per capita GDP performance in recent years is the country's rapid population growth, as explained in Figure 2. The population growth rate in Canada has reached its greatest level since the 1950s as a consequence of the increased immigration levels, which also include a significant number of international students and temporary workers. During the third quarter of 2023, the estimated population of Canada was 40.528 million, a one million increase from the previous year, which was already characterized by record growth. extensive and intensive. Extensive growth is characterized by an increase in the total extent of the economy or GDP, whereas intensive growth is characterized by an increase in GDP per person. In order for intensive growth to occur, inflation-adjusted GDP must expand at a rate that exceeds population growth. Furthermore, if Canada's population expands at a higher rate than that of the United States, it will contribute to an increasing per capita income disparity. Figure 2 demonstrates that this has been the case for an extended period, as evidenced by the increase in Canada's population as a proportion of the U.S.

There are two distinct categories of economic growth

The population of the United States increased by 85 percent, while Canada's population increased by 117 percent between 1960 and 2022. This led to a decrease in Canada's population from 10% to 12% of that of the United States. The expansion of our domestic market and the establishment of economies of scale should be advantageous as we grow in comparison to our southern neighbors. In addition, the recent population growth has also contributed to the resolution of labor shortages that are associated with an aging population, as immigrants are generally younger. It is true that an increase in the number of individuals can stimulate substantial economic growth. Nevertheless, intensive economic growth will not occur unless the stock of capital increases in tandem to increase productivity.

It is odd that Canada's recent capital investment performance, which encompasses investments in apparatus, equipment, plants, and buildings, appears to be commendable in comparison to the United States when viewed solely as a percentage of total GDP. At present, our investment-to-GDP ratio is approximately 23%, while the United States is at 21%. Nevertheless, investment spending per capita is also a pertinent metric, and this is where Canada's deficiency is most evident, similar to GDP. The United States has the capacity to allocate a greater portion of its per capita GDP to investment than Canada, as a result of its significantly higher per capita GDP. Figure 3 illustrates that Canada has also lagged behind the United States in this regard.

In general, Canada's real per capita investment has been lower than that of the United States. Additionally, our investment expenditure per capita has remained relatively stagnant, in contrast to the United States, which experienced a recovery in the wake of the 2007-08 Great Recession. The real per capita U.S. investment spending per person in 2010 constant U.S. dollars was 11,601 in 2022, while it was 10,424 in Canada—a ten percent decrease. In order to achieve parity with the United States in terms of per capita investment spending, Canada must increase its investment spending by an additional $1,117. In doing so, our aggregate investment spending to GDP ratio would increase from 23 to 26 percent. 

It goes without saying that, in order to achieve investment expenditure per person that is significantly higher than that of the United States

we would need to allocate nearly 30% of our GDP to capital formation, given our population growth rates. This has not occurred in Canada since the wheat boom era of the early 1900s, which coincidentally coincided with the country's fastest population expansion.Of course, the quality and composition of the investment are just as important as the quantity. In this regard, it has been observed that Canada's research and development spending as a percentage of its GDP has been declining for the past two decades in comparison to that of the United States and its G-7 counterparts. In fact, Canada's expenditures as a percentage of GDP are approximately half that of the United States and are lower than those of all other G-7 countries, with the exception of Italy. However, they have been gaining ground and are expected to surpass us in the near future. Additionally, our natural resource sectors have historically been the site of a significant amount of productivity-enhancing investment and research. However, we have recently demonstrated a clear reluctance to replicate this trend.

Canada's productivity deficit is also influenced by two additional factors. To begin, we are a relatively non-competitive and confined business market, dominated by duopolies and oligopolies, particularly in transportation and telecommunications, despite population growth and a market size that now exceeds 40 million, in comparison to the U.S. The most brazen example to date was when Canada's two major airlines essentially carved up Canadian service territory in a manner that was not dissimilar to the way in which crime leaders carved up the proceeds from gambling or drugs.  It is no accident that airfares have increased in the aftermath. Despite the fact that the population of the country has doubled in the past forty years, our markets are reportedly still "too small" to accommodate additional competition, and we continue to be a captive market for oligopolistic firms, such as retailers. When this is combined with the provincial and federal implementation and regulatory environments, which have increased the cost of initiating nearly any endeavor, the result is a recipe for long-term economic ossification.