It’s all about productivity

TORONTO—Our biggest and most difficult economic challenge—our most significant barrier to the world we want and the kind of society to which we aspire—is not inflation. It is productivity. Yet, it is inflation, not productivity, that makes the daily headlines. So how do we get public policymakers, private corporate leaders, and the analysts and researchers in our universities, and Canadians at large truly focused on this issue? Our future is at stake. There is a way to make the connection between our productivity crisis and our standard of living. And that is to show how much our future depends on the higher level of wealth creation that can only come in a sustained way from solving our productivity crisis. And it is a crisis. Statistics Canada has recently reported that business productivity in the third quarter of this year marked the sixth successive quarter of productivity decline in the business sector. Our performance lags that of many other advanced economies. Most importantly, with continuing low productivity, we simply will not be able to sustain our existing standard of living, let alone meet the needs and aspirations of the future. We will stagnate and face divisive fights over how to share a pie that is too small. We could become a nasty country. This is not a future we should want. But it is one we could have. In fact, for nearly a decade, per capita economic growth has stalled—one of the worst performances among the advanced economies. The reason? Poor productivity. So, as a country, we must accelerate our productive performance in a way that is environmentally sustainable and fair to all, turning the resulting gains into improved living standards for each of us if our country is to have a better future. One way to show why productivity matters to all is to look ahead to the main demands and challenges we will face over the next 10-15 years, and to consider what kind of wealth it will take to respond. One example of a future challenge can be found in a recent report by two economists on the economics of long-term care in Canada. It outlines the challenges we face in just one narrow part of society. Kevin Milligan of the University of British Columbia and Tammy Schirle of Wilfrid Laurier University show that as the percentage of Canadians aged 85 and over increases, the need for long-term care facilities will expand significantly, as well. The number of Canadians aged 85 and up will account for just over four per cent of the population by 2040—barely 15 years from now—compared to just over two per cent now. This implies a need for at least a 50 per cent increase in long-term care places by 2040. The report, published by the National Bureau of Economic Research as part of its international comparison project on long-term care, showed that in Canada, some 26 per cent of people aged 85 and over are in some form of long-term care. The annual public-private cost of providing per-person long-term residential care is $117,865 a year, with the public sector currently providing 46 per cent of long-term care places, and non-profits another 23 per cent. How will we finance and build the long-term care needs that we will face in the future? There will also be a need for a much larger number of low-skill and high-skill workers in these care facilities. Where will they come from? Better productivity performance will be critical. To put the country on track, then, we need some kind of independent institution charged with providing analysis, understanding, and policy ideas on long-term growth and productivity. Our politicians, public policymakers, most corporate leaders and our universities all seem bereft of ideas. Britain’s Productivity Institute, headquartered at the University of Manchester Business School and funded by Britain’s equivalence to our Social Sciences and Research Council, recently published a report —The Productivity Agenda—which provides a detailed outline of that country’s productivity challenges, and concludes that an independent agency that is “unwaveringly focused on finding solutions to the productivity problem” is critical to proving long-term advice that, the report argues, would help with the politics of making difficult and long-term policy decisions. It contains good ideas for Canada since we also need much better analysis and programs. Among the issues such a body would study are: the underfunding of public and private investment in both tangible and intangibles; the poor diffusion and adoption of leading-edge technology, business processes, and systems from leading firms to the wider economy; the disruptive impact of policy churn and the importance of long-term commitment to policies that work; the lack of skilled workers, and how to improve education and skills training to the needs of a more productive economy; the financing of innovation for scaling up more of our smaller firms into world-scale firms owned and controlled in Canada; and the role of such anchor firms in building clusters. Such an institution is urgently needed in this country. Our politicians and corporate leaders are too focused on shorter-term, transactional practices; our public sector policymakers lack the in-house analytical capabilities to provide broad and informed policy advice; and much of the Canadian private sector lacks the leadership capabilities to help provide strategic direction. In the meantime, the government is creating a branch-plant economy by generously subsidizing foreign firms to invest here where the ownership of ideas, innovation, and intellectual property resides elsewhere, so that the economic rents or gains are also owned elsewhere even if developed in Canada. In the end, almost everything comes back to productivity, and the innovation and entrepreneurship that drive it. There are many smart people in Canada all trying to improve our country. But unless we can find ways to bring all this together and to focus our efforts based on the best advice and incentives available, we face stagnation. So productivity really matters. It is the key to a better Canada. Which is why it must be our top economic priority. With better productivity we can then turn the gains into better living standards for all. David Crane can be reached at crane@interlog.com. The Hill Times

It’s all about productivity

To put the country on track, we need some kind of independent institution to provide analysis and policy ideas on long-term growth and productivity. Our politicians, public policymakers, most corporate leaders and our universities all seem bereft of ideas.

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It’s all about productivity

To put the country on track, we need some kind of independent institution to provide analysis and policy ideas on long-term growth and productivity. Our politicians, public policymakers, most corporate leaders and our universities all seem bereft of ideas.

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