In March, 2024, the Bank of Canada went public with a warning: The economy was in trouble. Canada’s productivity had fallen significantly behind its G7 peers’ and that meant, in a nutshell, our standard of living would suffer for years.

The issue quickly turned political. Even though economists had talked about this for years, the central bank lit a fire at a time when some business leaders were arguing that Justin Trudeau‘s government was ruining the country, and they latched onto the productivity crisis as proof.

What they missed is that during her speech in Halifax, Carolyn Rogers, the central bank’s senior deputy governor, spelled out the root problem – and it wasn’t Ottawa. “Perhaps most importantly, Canada’s investment levels are nowhere near as high as they should be in the areas of machinery, equipment and intellectual property.”

In other words, businesses themselves were not spending.

A year on, it’s a similar story. Mark Carney has become Prime Minister and business leaders from every sector imaginable are writing letters demanding that Ottawa needs to change, rarely acknowledging that they’re a big part of the problem: Private investment through research and development, machinery and the like is what boosts productivity, and if companies of all sizes don’t increase their spending, it’ll be hard to turn Canada’s economy around.

“Every year we wait and pray for business investment to rise, and it’s not happening,” Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce, said in an interview.

To measure this, economists tend to talk about Canada’s falling capital stock per capita, or per person. In other words, the total value of all machinery, plants and the like per Canadian. In 2015, it peaked at roughly $68,000 a person, according to data from Statistics Canada and National Bank of Canada. By 2023, the last period with full-year data, it had fallen to about $64,000 a person.

Why this figure peaked in 2015 is an important part of the story. Investment in the energy sector, and particularly the oil sands, used to be a big driver of Canada’s economic growth. That started to change in 2014 when Saudi Arabia flooded the world with oil, sending the price of crude plummeting. After that came investors’ focus on environmental, societal and governance (ESG) concerns, coupled with Ottawa’s determination to be an environmental leader, which discouraged investment in the oil sands.

But there is much more to the country’s productivity decline. In fact, Mr. Carney himself warned about it more than a decade ago when he was Bank of Canada governor and the oil sands were still booming.

In 2012, he took a swing at Corporate Canada for sitting on piles of cash, which he referred to as “dead money,” instead of investing to improve their businesses. At the time, Mr. Carney was frustrated that companies were too timid after the 2008-09 global financial crisis, and that put too much onus on governments and central banks to stimulate the economy.

“Their job is to put money to work and if they can’t think of what to do with it, they should give it back to their shareholders,” he said in a speech.

While there was some improvement after that, business spending has been a perennial problem ever since energy prices crashed. In 2020, current Bank of Canada Governor Tiff Macklem practically pleaded with businesses to borrow money at ultralow rates to fund capital spending. “Investment in productivity-enhancing machinery and equipment is vital,” he said. “So is a commitment to research and development, and to constantly train and reskill employees.”

And now, five years on? “Nothing has changed,” said Mr. Tal, the CIBC economist.

The crucial question, of course, is why. Businesses and their lobby groups often complain about Canada’s red tape, particularly when it comes to natural-resource projects and new housing construction. Zoning approvals, for instance, can take years.

That bureaucracy is undeniable, but business leaders also hide behind debatable issues. Canada, some argue, can’t compete with the United States after President Donald Trump lowered corporate taxes during his first administration. Yet in a number of U.S. states, the corporate tax rate is quite similar to what a Canadian company currently pays once all levels of government are factored in – and even then, what really matters is the effective tax rate that takes things such as research and exploration credits into consideration.

Depending on the industry, these credits can be quite advantageous, and drop a company’s tax liability below that of its American peers.

Businesses also rarely acknowledge that in 2018, Ottawa did try to counter Mr. Trump’s corporate tax changes by allowing accelerated depreciation of capital investments, allowing these expenditures to be written off more quickly.

Underlying it all, however, is a major shift in the economy. “Canada’s economic landscape has shifted away from oil and gas and toward construction, moving resources from high productivity to low,” economists at Toronto-Dominion Bank wrote in a September report. Residential housing construction is now one of the hottest sectors, but it isn’t very productive because it’s “composed mainly of small firms, which are slower to adopt new technologies.”

There has also been a shift in investor expectations, something that is harder to track, but weighs on CEOs’ minds. Stock markets went on a 15-year bull run after the 2008-09 global financial crisis and investors got addicted to the good times.

“In a number of sectors, it’s a given that there are consistent profits,” said Brett House, a professor in the economic division at Columbia Business School in New York. That makes it harder for executives to tell investors and analysts there might be a few years of muted growth as their companies make capital investments.

However, most people acknowledge it’s unrealistic for businesses to suddenly start investing now, considering Mr. Trump has started a global trade war. But should things calm over the next year or two, Mr. Tal, the CIBC economist, believes corporate leaders will have no choice but to invest for the future.

For decades, he said, “easy profit was bailing them out.” Globally, interest rates kept falling, and governments kept running deficits that juiced economic growth. But now the world is changing so much – less globalization, a tightening labour market from an aging population – and nothing will come easy any more. The hope is that businesses will invest to stay competitive.

If he’s right, that spending will do wonders for the Canadian economy.