Canada Lags, Productivity Ranking Ssays

By HEATHER SCOFFIELD

Tuesday, October 18, 2005 Posted at 4:31 AM EDT

From Tuesday's Globe and Mail

Canada is sliding in global stature, partly because of sagging productivity and because governments are doing little but talk about improvements, the Conference Board of Canada says in its annual report on the country.

"Our story is that we're kind of snoozing," said Anne Golden, president of the Conference Board. "In this world, snoozers are losers."

The board ranks Canada and other industrialized countries for their performance in economy, innovation, environment, education, health and society. While Canada has gained in environment and education, it has slid in the other areas.

In the economy area, Canada has dropped from third place in 2003, to sixth in 2004, and now 12th. Canada's economic position is deteriorating because of its lagging productivity, a lack of investment and because other countries are improving.

"Canada's relative size and status in the global economy is slipping. With an aging population and our economic growth potential slowing, Canada will find it hard to avoid falling farther in the global rankings," warns the Conference Board report, to be released today.

Canada's productivity has stagnated, while U.S. productivity grew by 3.6 per cent in 2004 -- triple the Canadian rate. That translated into an income gap of more than $8,000 (U.S.) a person, the Conference Board says.

Other countries, especially in Scandinavia, are surpassing both Canada and the United States in productivity growth.

Productivity has wormed its way to the top of Ottawa's political agenda, with Finance Minister Ralph Goodale promising to deliver a "productivity budget" this winter. All government departments have been told to frame their budget requests with an eye to how their proposals will improve productivity.

For example, International Trade Canada has been asking for more cash to market Canada abroad and help businesses find new foreign opportunities, arguing this would boost productivity -- with 40 per cent of Canada's GDP linked to trade, which in turn pays for health care.

Some measures could be proposed as soon as in the coming weeks, if the federal government decides to turn its annual fall economic update into a pre-election document laden with spending and tax cuts.

While Ottawa is making all the right noises, the Conference Board says it has heard them all before, and seen few results, especially when it comes to harmonizing the country's 13 stock exchanges, refining equalization, cutting capital taxes, removing interprovincial trade barriers and taxing the working poor.

To make matters worse, Canada has not been able to attract as much investment into the country -- a costly problem because integrated global supply chains are becoming the main way thriving companies do business.

Canada takes top scores for openness to foreign ideas, technological co-operation, entrepreneurship and the tax treatment of research and development. But R&D as a proportion of the economy in Canada has been decreasing slightly, while other countries are on the rise.

While Canadian politicians and business leaders have long been aware of these problems, Ms. Golden said, they are hobbled by regulations and "endless turf issues" that pit provinces against the federal government, and lead to inaction.

Ottawa's plan to "dribble away the surplus" by giving out cheques to taxpayers rather than investing in a productivity agenda is foolhardy, she said.

Rather, governments need to spend more on education and infrastructure, and should remove tax and trade barriers to innovation and commercialization, Ms. Golden said.

Companies should be investing more in natural resources, where Canada has a big competitive advantage, she added.

While the report stresses that Canada is one of the best places in the world to live, and is a better place to live now than a decade ago, "Canada is not living up to its brand as a wealthy, environmentally responsible, socially conscious, healthy society."

But conventional measures of the Canadian economy may not be showing how strong the country truly is, said Ted Carmichael, chief economist at J. P. Morgan Securities Canada Inc.

A new indicator of national income being developed by the Organization for Economic Co-operation and Development, called "command GDP," takes into account the purchasing power of households and the effects of having an improvement in a country's terms of trade.

Because Canada is a highly open economy whose terms of trade have soared, command GDP shows growth averaging more than 4 per cent a year for the past three years, while conventional measures show an average of 2.6 per cent.

The new measure explains why Canada's domestic demand has been so strong, why the job market is thriving, and why living standards have not been hurt by lagging productivity, Mr. Carmichael said.

Indeed, Canada's living standards have improved both absolutely and compared with the United States and other industrialized countries, when measured by command GDP, Mr. Carmichael said. That's because improving terms of trade means more money in the country. And the appreciating Canadian dollar means an improvement in purchasing power.

Canada's sliding stature

The Conference Board of Canada ranks industrialized countries for their performance in various economic categories.
RANK GDP PER CAPITA GDP GROWTH PRODUCTIVITY GROWTH UNIT LABOUR COST GROWTH INFLATION DEFICIT-TO-GDP RATIO STANDARDIZED UNEMPLOYMENT EMPLOYMENT GROWTH LONG-TERM UNEMPLOYMENT RATE
1 Norway Gold Silver Silver Gold Gold Gold Gold Bronze Gold
2 Ireland Gold Gold Bronze Bronze Silver Silver Gold Gold Bronze
3 Switzerland Gold Bronze Bronze Gold Gold Bronze Gold Bronze Bronze
4 New Zealand Bronze Gold Bronze Bronze Silver Silver Gold Gold Gold
5 U.S. Gold Gold Silver Silver Bronze Bronze Silver Silver Silver
6 Sweden Silver Silver Silver Gold Gold Silver Silver Bronze Silver
7 Iceland Silver Gold Gold Silver Bronze Bronze n/a Bronze Gold
8 Korea Bronze Gold Bronze Silver Bronze Silver Gold Silver Gold
9 Netherlands Silver Bronze Silver Gold Silver Bronze Gold Bronze Bronze
10 Denmark Silver Bronze Bronze Bronze Gold Silver Silver Bronze Silver
11 Finland Silver Silver Silver Silver Gold Silver Bronze Bronze Silver
12 Canada Silver Silver Bronze Bronze Silver Silver Bronze Silver Gold

SOURCE: CONFERENCE BOARD OF CANADA

Ottawa's plan to "dribble away the surplus" by giving out cheques to taxpayers rather than investing in a productivity agenda is foolhardy, she said.


'she' is bang on. Foolhardy isn't quite strong enough a word.

Unfortunately I find this portrayal by the Conference Board to be disingenuous and self-serving.

While I think that Canada's productivity is really lagging, I don't think more tax breaks or government money for businesses are the answer.

Most Canadians don't realize this, but Canada has lower corporate taxes than the US. And the many tax breaks and incentives for any manufacturing, tech and R&D businesses (SREDs, the first $200K tax-free, the support through BDC / EDC and trade missions) provided for start-ups and established companies of all sizes are some of the best in the world.

And overall, the education and workforce quality is very good -- that is why the Americans are coming here to set up call and service centers -- McJobs if I have ever seen them -- like Dell, Oracle and what not. We are seen as having great well-educated employees that can be paid lower because the job opportunities are more limited than in the US and the healthcare costs are absorbed by personal income taxes than expensive employer-provided benefits of the US.

And the dollar is still cheap (15% advantage even now). And that's all you hear about Canadian businesses -- many of their business strategies rely on a "low-dollar". I am not sure if people understand what that means exactly -- a low dollar means that we have to discount our services in order to compete. That is exactly what a lag in productivity does.

The problem is lies in the conservative business and management culture of Canadian enterprises. They are more inclined to "flipping" for quick profits like income trust conversions and getting government to absorb risks (a form of subsidy) than they are willing to take innovative and entrepreneurial risks themselves or make capital investments. They would rather be second and wait for "a proven market" than to go out and create new ones. They are slow at hiring, slow at making decisions, and afraid to make any bold moves without "guarantees".

Ontario, with 12 million people, just had 9 new venture-capital funded start-ups in 2005 (according to another Globe Article quoting Mary Macdonald who tracks VC funding statistics) and only $1.7 Billion capital funding pool. Totally dismal and inadequate.

Also capital investments. Take electronic commerce and the Internet, for instance. Most Small-Medium Enterprises (SME) don't use B2B electronic commerce, and their B2C sites are, for the most part lame. They are late adopters, and if they do adopt, the will start importing "proven" solutions -- e.g., Royal Bank's online banking was a total disaster in the late 90s until they partnered with AOL to help them develop real solutions. This is just one example -- there are many more.

Of course, there are ground-breaking companies that create ground-breaking world class businesses that are second to none -- like Research-in-Motion or Documentum (now bought by US-based EMC). But they are still the exceptions rather than the rule.

And if you notice, the most entrepreneurial people are the new immigrants -- partly because they see opportunity and are willing to take risks, and partly because they find it harder to get jobs so they have to start businesses to earn a living. Look at how Vancouver has transformed over the past 20 years with the Chinese immigrants shaking up a staid business community dominated before by established forests and mining concerns without any interest in "hi-tech".

Most Canadian managers don't like workers who are too entrepreneurial. They want loyal and docile pets who will not threaten their power and will fetch on command.

We need a more entrepreneurial culture to boost productivity. That's the bottom line.

As for what to do with the surplus tax dollars, I agree that doling them out to buy votes for the election is just as assinine. There are better ways to invest that money. But they should not be used for the usual pork barrel "infrastructure projects" like building unnecessary bridges in some riding to buy off well-connected construction companies say in Nova Scotia or what have you.

But let's not put the cart before the horse. The fundamental problem with productivity decline is that we need a much more risk-taking entrepreneurial business culture and we should address that first.

Interesting how the US and Canada were the only two G8 countries to make the list.

You guys know productivity is in direct relation to Income per Capita!!, Our shitty productivity is actually taking a toll on our Income levels!!. Wtf man i'm sick and tired of having a lower purchasing power than my cousins in the US!. Its time for us to go after the bigger Pie. I wanna stay in T dot forever but it be cool if we can get our Income gap with the states to close.

Unfortunately I find this portrayal by the Conference Board to be disingenuous and self-serving.

While I think that Canada's productivity is really lagging, I don't think more tax breaks or government money for businesses are the answer.

Most Canadians don't realize this, but Canada has lower corporate taxes than the US. And the many tax breaks and incentives for any manufacturing, tech and R&D businesses (SREDs, the first $200K tax-free, the support through BDC / EDC and trade missions) provided for start-ups and established companies of all sizes are some of the best in the world.

And overall, the education and workforce quality is very good -- that is why the Americans are coming here to set up call and service centers -- McJobs if I have ever seen them -- like Dell, Oracle and what not. We are seen as having great well-educated employees that can be paid lower because the job opportunities are more limited than in the US and the healthcare costs are absorbed by personal income taxes than expensive employer-provided benefits of the US.

And the dollar is still cheap (15% advantage even now). And that's all you hear about Canadian businesses -- many of their business strategies rely on a "low-dollar". I am not sure if people understand what that means exactly -- a low dollar means that we have to discount our services in order to compete. That is exactly what a lag in productivity does.

The problem is lies in the conservative business and management culture of Canadian enterprises. They are more inclined to "flipping" for quick profits like income trust conversions and getting government to absorb risks (a form of subsidy) than they are willing to take innovative and entrepreneurial risks themselves or make capital investments. They would rather be second and wait for "a proven market" than to go out and create new ones. They are slow at hiring, slow at making decisions, and afraid to make any bold moves without "guarantees".

Ontario, with 12 million people, just had 9 new venture-capital funded start-ups in 2005 (according to another Globe Article quoting Mary Macdonald who tracks VC funding statistics) and only $1.7 Billion capital funding pool. Totally dismal and inadequate.

Also capital investments. Take electronic commerce and the Internet, for instance. Most Small-Medium Enterprises (SME) don't use B2B electronic commerce, and their B2C sites are, for the most part lame. They are late adopters, and if they do adopt, the will start importing "proven" solutions -- e.g., Royal Bank's online banking was a total disaster in the late 90s until they partnered with AOL to help them develop real solutions. This is just one example -- there are many more.

Of course, there are ground-breaking companies that create ground-breaking world class businesses that are second to none -- like Research-in-Motion or Documentum (now bought by US-based EMC). But they are still the exceptions rather than the rule.

And if you notice, the most entrepreneurial people are the new immigrants -- partly because they see opportunity and are willing to take risks, and partly because they find it harder to get jobs so they have to start businesses to earn a living. Look at how Vancouver has transformed over the past 20 years with the Chinese immigrants shaking up a staid business community dominated before by established forests and mining concerns without any interest in "hi-tech".

Most Canadian managers don't like workers who are too entrepreneurial. They want loyal and docile pets who will not threaten their power and will fetch on command.

We need a more entrepreneurial culture to boost productivity. That's the bottom line.

As for what to do with the surplus tax dollars, I agree that doling them out to buy votes for the election is just as assinine. There are better ways to invest that money. But they should not be used for the usual pork barrel "infrastructure projects" like building unnecessary bridges in some riding to buy off well-connected construction companies say in Nova Scotia or what have you.

But let's not put the cart before the horse. The fundamental problem with productivity decline is that we need a much more risk-taking entrepreneurial business culture and we should address that first.


Brilliant, simply brilliant. TO_Joe for PM!!!!

:applause:

very true that things are more expensive in Canada {although due to the rise in the dollar that is not as extreme as it was} but there are other things to consider,
the primary one being healthcare.
Not only is it lousy but extremly expensive.
You would lose a lot of that purchasing power when your premiums can be anywhere from $200/month if you have a large employer and even then the system is very limited in what it will provide and for how long.
I know someone in the US that becuase they are a smaller company and they had their third child their premiums skyrocketed to $800/mth.
After lose of income, massive medical bills are the number one reason for personal banruptcy.
Their income security system is very limited.
You can get a lot for your money in the US but dear god help you if you or one of your loved ones get sick.

You guys know productivity is in direct relation to Income per Capita!!, Our shitty productivity is actually taking a toll on our Income levels!!. Wtf man i'm sick and tired of having a lower purchasing power than my cousins in the US!. Its time for us to go after the bigger Pie. I wanna stay in T dot forever but it be cool if we can get our Income gap with the states to close. There's a lot more to quality of life than gdp divided by population. The article you didn't read mentions a different way.