Realizing Canada’s prosperity potential

Released January 2005

In Realizing Canada’s prosperity potential, The Institute concludes that Canadians have created one of the most successful economies in the world. However, our GDP per capita trails the United States by $7,200 (Canadian) - a 16 percent prosperity gap. Canada’s prosperity gap with the US widened from $6,000 thousand per capita in 2002 to $7,200 in 2003. This gap translates into an unrealized potential of $15,000 after tax disposable income for the average Canadian family and $90 billion in lost tax revenues for federal and provincial governments. 

Canada can close the prosperity gap and realize its full economic potential. The key to this is higher productivity – the increased capability of Canadians to add more value to the country’s physical, human, and capital resources. The report concludes that more investment is an important element in raising productivity. For businesses, it means making larger investments in machinery, equipment, and software; for governments, it means striking the right balance between spending on current consumption, such as health care and social services, and investing for future prosperity, such as infrastructure and education; for individuals, it means investing more in themselves, such as in higher educational achievement.

The report also finds that Canada’s market structures provide inadequate specialized support and competitive pressure to firms and individuals. Canada’s industries are not benefiting from the kind of specialized support – such as university/industry collaboration and specialized research and training – that creates world-class advantage for companies and workers. Nor does Canada have the structures that fuel the intense competitive pressure that comes from strong firm rivalry and sophisticated and demanding customers. Without this pressure to succeed, Canada’s firms and industries will not strive to be counted among the best in the world.

The Institute is concerned that, while Canada has the potential for economic growth, its situation could deteriorate if we do not act now. The Institute recommends an action plan that encourages businesses, governments, and individuals to work together over the next few years to realize Canada’s prosperity potential for generations to come. 

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Topics: Economic policy, growth, and strategy, Government investment and innovation, Business growth and innovation, Clusters, Social policy