STATISTICS Canada recently reported that Manitoba businesses, governments and institutions spent four per cent more on investment in plant and equipment in 2005 than 2004, and will likely spend 15 per cent more this year. Taken in isolation, this is good news. New buildings, machinery and engineering help Manitoba’s workers create more and better products, and earn higher salaries. And for everyone in the province, capital investment raises general productivity and prosperity, boosting the tax revenues that pay for high-quality public goods and services.
Unfortunately, taking the competition and the number of workers into account, the news is much less good for Manitoba than these figures suggest. Manitoba performs poorly in terms of tools available per worker, and also relative to other countries and provinces. By our calculations, workers in Manitoba will likely get about $4,900 less new plant and equipment on average than their counterparts in the U.S. this year.
While Manitoba’s capital investments have risen in recent years — such as in construction and manufacturing, Manitoba is doing particularly poorly in the international competition for investment as measured against its competitors. The province competes for investment with its provincial counterparts, the U.S. and other developed countries. It also competes with emerging markets that not long ago were not contenders for the favour of investors, but that now offer attractive opportunities of their own.
In the late 1990s, Manitoba attracted 11 cents of every $100 spent on structures and equipment in the 21 OECD countries for which we have comparable data. In 2006 Manitoba will get only nine cents. Adding major non-OECD countries — Brazil, China, India and Russia — to the basket, and Manitoba’s share of capital investment fell from around six cents per $100 in the late 1990s to around four cents today.
Restrict the comparison to Manitoba’s immediate neighbourhood and the contrast is worse. Both Canada’s and Manitoba’s shares of North American investment have fallen. In the late 1990s, Manitoba attracted 25 cents of every $100 spent on structures and equipment in North America. By contrast, in 2006 Manitoba looks set to attract only 22 cents.
Convert these shares of investment spending into dollars per worker, and their significance for future living standards becomes stark. Canada and Manitoba are both failing to equip its workers as well as counterparts elsewhere in the world. The average worker in the OECD will benefit from some $11,200 in new plant and equipment in 2006, and the average worker in the United States will get $13,000. The average Canadian worker, by contrast, will get $9,800 of new plant and equipment, and the average Manitoba worker only $8,200. This means that for every dollar of new investment enjoyed by the typical U.S. worker in 2006, his or her Canadian counterpart will get only 75 cents, while the average worker in Manitoba will get a mere 63 cents.
Why is Manitoba doing relatively poorly? Some factors behind this disappointing picture are hard to control. But for policymakers to conclude that Manitoba’s poor performance is inevitable would be wrong — and irresponsible. Businesses choose locations for investment for many reasons, and countries with apparently favourable locations and much else may lose out if other factors, such as skills, infrastructure, regulations, taxes and labour-market policies offset those advantages.
The quality of Manitoba’s labour force is generally high. But federal and provincial programs continue to impede the movement of labour to places where it is needed. Regulation in specific sectors freezes industry in patterns reflecting yesterday’s economy, inhibiting the investment and innovation that greater competition would unleash. And Manitoba imposes effective tax rates on capital investment that are among the highest in the world.
Manitoba employees need their employers to invest more in the plant and equipment that would raise the long-term outlook for prosperity in the province and with it their living standards. Their counterparts elsewhere in Canada, North America, and around the world are enjoying levels of investment spending that are greater, and promise higher living standards in the future. Citizens of Manitoba deserve no less.
William B.P. Robson is senior vice president and director of research for the C.D. Howe Institute. Danielle Goldfarb is senior policy analyst at the Institute. Their e-brief "Canadian Workers Need Better Tools: Rating Canada’s Performance in the Global Investment Race" is available at www.cdhowe.org.