Walk into any bank branch in a mid-sized Canadian city and you’ll find a loan officer who can get you a mortgage in 48 hours. Ask the same institution to finance a manufacturing firm that wants to automate its production floor and it’s a different matter. Three weeks later the bank will hand over a thick folder and long list of reasons why the project doesn’t quite fit the portfolio.

Canada does not have a productivity problem because it lacks innovative ideas. It has a productivity problem because its financial system is not built to fund them.

For years, governments have diagnosed the cause of our country’s chronic stagnant productivity as insufficient innovation. Canadian firms, the story goes, don’t market their research well, entrepreneurs take fewer risks and businesses lag in adopting technology.

The policy response has been consistent. More innovation funds. More tax credits. More incubators. A super-deduction introduced in last fall’s budget was among the latest iterations. It offers accelerated writeoffs for businesses that make investments to enhance their growth. Yet productivity continues to stagnate.

Canada produces ideas. What it does not do well is move money to firms capable of turning those ideas into output. Productivity rises when capital flows to businesses that can expand, automate and compete globally. But much of Canada’s financial structure rewards something else entirely: stability over dynamism and asset ownership over expansion.

Canada’s capital is flowing to the wrong places

For the past two decades, Canadian capital has been concentrated heavily in real estate, financial intermediaries (such as banks and insurance companies) and mature resource sectors. These industries can........

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