Canada's Low Productivity Clouds Competitiveness, Living Standards
MONTREAL -- While Canada enjoys its healthiest economy in years, it faces a worrisome threat: Lagging productivity growth is undercutting its ability to compete in the future.</br></br>Last Friday, the government said Canada's unemployment rate fell to 7.8% in January from 8% in December, hitting its lowest level since June 1990. Employment in January rose 87,400, or 0.6%, its biggest monthly rise since December 1987. The Canadian dollar finished the week at 67.08 U.S. cents, its strongest level since last July.</br></br>But longer term, recent studies conclude, slowing productivity growth threatens to drag down Canada's living standard for decades to come. In different ways, the Canadian dollar's years-long slide, high taxes, skimpy research budgets and heavy regulation are all taking their toll.</br></br>Signs of trouble are spreading. Here in Montreal, BioChem Pharma Inc. became a star of Canada's biotechnology sector by developing the widely used AIDS drug 3TC. But now, the company is moving aggressively to expand its vaccine business -- in Massachusetts. BioChem tried for two years to lure development specialists to Canada from the U.S., but attracted "zero qualified people," says its chief executive officer, Francesco Bellini. "We can compete on salary, but we can't compete on taxes," he says.</br></br>Since 1990, manufacturing productivity has increased less than half as fast in Canada as in the U.S., the Organization for Economic Cooperation and Development reports. It is now only about 70% of the U.S. level. If Canada doesn't change its ways, its per capita gross domestic product will plunge from 10% above the OECD average now to 15% below that level in 20 years, the organization predicts. After taxes and inflation, Canada's per capita personal income has slid since 1990 and now trails that of Mississippi, according to the Bank of Montreal's Nesbitt Burns securities unit.