Canada’s productivity paradox

TORONTO—Canada’s consistent slips down the productivity ladder can no longer be ignored.

Considering its economic performance has fared better than most other markets, it should be easy to catch the world’s productivity leaders, but that’s not been the case.

It’s time to put a few things in perspective:

Between 1987 and 2000, Canada’s labour productivity growth in the manufacturing sector averaged less than 3.2 per cent. The U.S. fared better, averaging four per cent.

And while that 0.8 per cent gap seems small, Canadian productivity would have to grow by 3.22 per cent annually over the next 15 years to catch up—and that’s only if U.S. growth stagnated at 1.67 per cent, according to the Conference Board of Canada (CBOC).

The likelihood of that happening is pretty low considering Canada’s current productivity growth is hovering at 0.95 per cent.

Those sluggish productivity numbers have cost every Canadian. Had Canada’s productivity been slightly higher between 1988 and 2000, real GDP per capita would have been up by $8,500, meaning Canadians would be $7,500 richer by 2008. Corporate profits would have increased by 40 per cent and government revenues would have been up by 31 per cent.

So how does Canada fix this problem?

To start, Canadian firms must increase technology investments, which have fallen by 37 per cent in the last decade, according to Canadian Manufacturers and Exporters (CME).

Improving technology efforts would help put us on par with emerging economies like China and India. Consistent slips down the ladder of global competition now ranks us 12th out of 142 countries. It’s time for Canadian businesses to step up—we’ve fallen three spots since 2009.

And while 12th might not seem so bad, Canada’s innovation performance is a measly 14th out of 17 peer countries, according to the Global Economic Forum.

Those numbers pinpoint Canada’s miserable productivity position despite government subsidies that promote innovation, such as the Scientific Research and Experimental Development (SR&ED) tax credit and the Industrial Research Assistance Program (IRAP).

But these programs aren’t widely used.

Canadian Plant magazine’s Business Outlook: 2012 survey shows only 26 per cent of respondents plan on using SR&ED credits. This is compounded by a dearth of venture capital and constrained access to investment capital. Indeed, the Global Economic Forum ranks Canada’s access to private R&D capital as 21^st out of 23 OECD countries.

And considering smaller economies like Denmark and Finland have overtaken Canada in Global Economic Forum innovation rankings, we now face even more competition in a frenetic global marketplace dominated by bigger players like China and India.

Unless more Canadian firms work to reverse our endemic complacency, Canada’s economy will continue to slip from its tenuous position as one of the world’s leading markets in a hyper-competitive world.

Click here to go back to the Manufacturing Leadership report on productivity.