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Fading Productivity: Making Sense of Canada’s Productivity Challenge 

The Global Competitiveness Report of the World Economic Forum demonstrates that Canada’s productivity growth is at its lowest in the last five years. To understand the major causes of our decreasing competitiveness and its impact on productivity, the Certified General Accountants Association of Canada (CGA-Canada) undertook a comprehensive review of the subject. The CGA-Canada report draws on information published by the World Economic Forum in the annual Global Competitiveness Report to identify the major causes of competitive decline, followed by an analysis of how these factors have interacted with productivity growth.

DEFINING PRODUCTIVITY

Productivity is defined by the efficiency with which goods or services are produced by a given set of inputs, such as capital, raw materials and labour. Productivity is most commonly measured as the output per unit of labour. Creating an efficient and sophisticated production process therefore involves producing the greatest number of outputs with the least number of inputs possible.

KEY FACTORS CONTRIBUTING TO CANADA’S DWINDLING PRODUCTIVITY

Insufficient Investment in Higher Education

  • Full-time faculty growth in Canadian universities slipped to 7% between 1987 and 2003, while full-time student growth rose by nearly 50%.
  • Federal cash transfers to the provinces for post-secondary education fell from 0.56% of total GDP in 1983-84 to 0.19% in 2004-05.
  • The share of provincial expenditures dedicated to post-secondary education fell from 1.54% of provincial GDP to 1.05% between 1992-93 and 2004-05.

Inadequate Quality of Math and Science Education at the Secondary Level

  • The quality of skills obtained by secondary students in Canada has been declining in science and mathematics – the vary areas required to be competitive in a knowledge-based economy. Canadian students went from 5th place in the OECD to 11th place for science skills between 2000 and 2003. Mathematics skills fell from 6th place to 7th place.

Insufficient Employer-Supported Job Training

  • Employer-supported job-related training fell from 79% of all workplace training in 1997 to 72% in 2002.
  • 28% of all employees in the workplace reported that they had unmet training wants or needs.

Excessive Business Regulation

  • A survey distributed to participants of university/industry collaborations – which are a major source of innovation in Canada – indicated that excessive rules and regulations surrounding intellectual property, contracts and overhead costs are the major barriers to effective collaboration.
  • Government-imposed restrictions on foreign ownership in certain industries such as the telecommunications industry – one of Canada’s most important industries – have resulted in the inability to raise capital efficiently. The excess cost has resulted in increased consumer prices, by at least $1.06 per month per subscriber for telephone companies and $2.61 per month per subscriber for cable companies.

Inadequate Investment in Capital Goods

  • Capital intensity growth – which measures the amount of capital used per worker – fell from 0.4% in 1996 to -0.6% in 2004.
  • The ratio of real investment in machinery and equipment (M&E) to GDP was only 6.8% between 1981 and 2004, compared with 7.9% for the United States, despite the fact that manufacturing, Canada’s 2nd largest industry, continues to rely heavily on M&E investments.

Institutional inefficiency and corruption

  • The institutions pillar – one of the four pillars of the Basic Requirements sub-index and as such a well-accepted tool for measuring the economic impact of government ethics and accountability- has experienced a serious decline since 2004.
  • Our report links this to several factors – while one is the fall-out from the sponsorship scandal, other important factors are overall government inefficiency and excessive government regulation produced in part by the duplication of regulation by the various levels of government.

KEY RECOMMENDATIONS TO INCREASE CANADA’S PRODUCTIVITY

Invest in Human Capital

  • Make excellence in math and science skills a priority at the secondary level.
  • Increase government investment in higher education.
  • Provide career advice at the secondary and post-secondary levels to promote interest in science and engineering.
  • Create aggressive incentives, such as tax credits, for employer-supported training to address shortages of skilled workers.
  • Render independent study more enticing by introducing more generous tax credits.

Encourage Efficiency and Innovation in Small and Medium-sized Enterprises (SMEs)

  • Promote innovation and technological growth by importing innovations from other countries.
  • Expand the Industrial Research Assistance Program (IRAP) which provides technical and business-oriented advice to SMEs on adopting new technologies, extends financial support to firms that demonstrate growth-oriented behaviour, and allow SMEs access to a wide range of networks to foster technology growth.
  • Encourage business to specialize in high-productivity tasks while outsourcing low-productivity tasks which may not be economically optimal in consideration of Canadian compensation costs or the makeup of the staffing complement.
  • Government, lenders and firms must:
    • introduce mechanisms which facilitate access to capital and reward firms for pursuing efficiency; and
    • look to maximize organizational efficiency, consider outsourcing low-productivity activities to alternate or foreign suppliers and make direct foreign investments.

Improve Institutional Efficiency in Government

  • Increase transparency and accountability in government.

Reduce the Burden of Regulatory Requirements

  • Regulations surrounding public-private partnerships need to be reduced, streamlined and simplified as they serve as a fertile environment for the evolution of utility patents in Canada and allow for new inventions to be brought more easily to market.
  • The federal government should substantially reduce foreign ownership restrictions with the goal of eliminating them completely over the next five to ten years.

For more information, contact:

Taylore Ashlie
Director, Communications, CGA-Canada
Phone: 604-605-5055
Cell: 604-307-0212
Email: tashlie@cga-canada.org

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CGA-Canada | Last Updated: May 23, 2007

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