Canada just got the crisis manager it desperately needed

By Robert Burgess

CANADA’S Liberal Party is a fourth consecutive national election in a race that largely came down to which party would better stand up to US President Donald Trump. “We are over the shock of American betrayal,” Mark Carney, a former central banker and the leader of the Liberal Party, said in a victory speech early Tuesday morning. “But we should never forget the lessons.”

Indeed, there were many lessons, not the least of which is that Trump’s provocations on tariffs and musings about making Canada the 51^st US state probably would have been easier to laugh off if the country’s leaders had taken steps to shore up its woeful productivity. Generally defined as the amount of output per hours worked, productivity is a bedrock of any strong economy, boosting competitiveness, helping to restrain inflation and raising living standards.

Productivity is Canada’s Achilles heel. It’s so bad that the 1.8% drop in labor productivity in 2023 was the worst among the 38 members of the Organization for Economic Co-operation and Development (OECD), according to an by Jonathan Barr, senior director at Innovation, Science and Economic Development Canada. The poor performance, which carried into 2024, erased all productivity growth since 2017. The Deutsche Bank Trade Weighted Canada Dollar Index, a measure of the nation’s economic performance compared with trading partners, has plunged 9.44% over the past four years. A similar measure for the US dollar surged 11%.

No wonder the OECD predicts that growth in Canada’s gross domestic product per capita among its member countries over the next 40 years. “A positive change in productivity could be the most significant factor in lifting economic growth, and the prosperity that goes with it,” RBC Capital Markets noted in a recent report.

Luckily for Canada, Carney is more economist than politician. Bloomberg News describes him as “a consummate crisis manager,” having steered the Bank of Canada through the global financial crisis of 2008 and the Bank of England through the UK’s highly disruptive decoupling from the European Union in 2016. (Carney was the chair of Bloomberg, Inc. until January, when he resigned that post to enter politics.)

Comments by Carney on the campaign trail suggest he understands the challenge, promising a capital spending budget that would allocate tens of billions of dollars to investments in productivity-boosting infrastructure. “It’s said there are no atheists in foxholes. There should be no libertarians in a crisis,” at a news conference in Whitby, Ontario, earlier this month.

More spending is a start, but more is needed. Canada needs to reduce its notorious bureaucracy and the stiff internal trade barriers between provinces that impede the flow of goods, services, and people. It also needs a system to match education and skills with jobs to accommodate its immigrant-fueled population boom. Here, a little could go a long way. RBC notes that businesses in Canada invest about as those in the US, a trend that has only become worse since the 2008-09 global financial crisis. Lower taxes, especially for businesses that embrace worker training, should be an immediate priority.

Carney can also help the cause by adopting a policy championed by Pierre Poilievre, head of the defeated Conservatives, to boost housing in a nation that doesn’t have enough supply by tying municipal grants to a requirement that cities increase home construction by 15% a year. Carney may have no choice given that his party had about 43% of the national vote, falling short of the 172 seats needed for a majority in the House of Commons. This means the government will be forced to work with other parties to pass budgets and other legislation, according to Bloomberg News. Carney is already talking about “working constructively with all parties across parliament.”

Although Canada’s tax burden isn’t bad relative to other advanced economies — with tax revenue amounting to 34.8% of GDP in 2023 as measured by the OECD — it’s meaningfully higher than the US’s 25.2% of GDP. Bringing the tax burden down would go a long way to spurring growth and productivity. It’s not like Canada doesn’t have the fiscal space to accommodate lower taxes, with a budget deficit of around 2% of GDP versus 7% in the US. In its 2025 outlook, the OECD recommended that Canada could make its tax system more growth friendly by switching the burden from direct taxation to indirect and environmental taxes. Canada could also incentivize research and development, which the OECD notes is “a key driver of a country’s innovation capacity.” Carney has already promised to run deeper budget deficits to cut income taxes and grow spending on infrastructure.

Fixing what ails Canada’s economy won’t be easy or quick. But Carney’s credentials and comments about never forgetting “the lessons” suggest he understands the root of the problem.

BLOOMBERG OPINION