Business investment per worker fell 20% in 15 years amid weaker competition: StatCan

OTTAWA — Canadian business investment per worker plummeted by 20 per cent over a 15-year stretch, according to new Statistics Canada research that suggests weaker competition is partly to blame.

The report finds for every worker, businesses invested $628.80 less in their companies in 2021 than they did in 2006.

The decline was more significant in large and medium-sized companies and foreign-controlled businesses, though it’s unclear why that was the case.

The report attributes nearly one-third of the drop to declining entry rates, or the number of new companies starting up by industry.

“Economists always believe that competition promotes investment. When you look at our data, there’s a decline in the share of new firms,” said Wulong Gu, the study’s author.

Canada is struggling to increase labour productivity amid low business investment, an issue that has been raised frequently by business groups and economists in recent years.

Capital investment, which refers to spending on everything from real estate to machinery, helps businesses grow and make their employees more productive.

That’s why economists argue capital investment is critical to growing the economy and improving living standards.

The report says the slowdown in investment coincided with a shift toward intangible assets such as brand equity and patents, which national statistical agencies don’t record as investments.

However, that shift doesn’t explain why business investment in Canada lags that in other countries, said Wu, because intangible assets are not recorded as investments elsewhere, either.

The study also found no relationship between profitability and business investment, which Wu said was “surprising.”

Canada’s competition watchdog released a report in the fall that found competition weakened over the previous two decades as profits and markups rose.

The Liberal government recently introduced several changes to the Competition Act after pledging to modernize the country’s competition law.

The Competition Bureau welcomed the amendments, which were inspired by its recommendations, but it’s hoping for even more ambitious changes.

In a news conference earlier this month, Finance Minister Chrystia Freeland weighed in on the issue of business investment and made a plea directly to CEOs to spend more on their businesses.

“We believe in you. We want strong Canadian-headquartered companies in this country,” Freeland said. “We need you to be investing in the productive capacity of this country, whatever sector you’re in.”

This report by The Canadian Press was first published Feb. 22, 2024.

Nojoud Al Mallees, The Canadian Press