Canada's Digital Imperative

Highlights 

• Prior to the pandemic, Canadian firms tended to be laggards in the adoption and use of technologies and, as a result, have been less productive and slower to grow than global peers. 

• Canada’s low technology equilibrium is largely explained by weak incentives and limited capacity to change. Many firms across a range of sectors have been able to maintain above-average profits for decades with minimal technology adoption, while others who recognize the potential benefits of adopting new technologies face resource, knowledge, and skills constraints. 

• For the past 15 years, some sectors and firms have made a gradual shift toward more intangible digital technology and service investments, such as cloud computing and software as a service. Intangible digital technologies effectively eliminate key capabilities challenges and lower technology investment risks for firms. 

• The COVID-19 pandemic and accompanying restrictions on mobility and proximity dramatically altered the technology incentive structure for firms in retail, professional services, and other key sectors prompting investment in e-commerce, remote work, and other technologies to maintain business operations and sales.

• Whether or not the pre-pandemic shift to intangibles and pandemic era technology investments marks the emergence of a permanently higher technology equilibrium will depend on developments in labour and skills, digital infrastructure and security, and the use of intangibles by competitors in the coming years. 

• To support further technology adoption—and the productivity and other benefits it offers—policy-makers should consider not only strategies that address barriers to technology adoption—a common focus—but also strategies that are focused on the incentives firms’ face in their decision-making. 

This report was made possible thanks to a generous contribution from Google Canada.