Renewing Productivity Renewing Productivity as an Idea In Public as an Idea In Public

PolicyPolicy

Chase McGrathChase McGrath

MPA Candidate, 2008MPA Candidate, 2008

OutlineOutline

ProductivityProductivity The Importance of ProductivityThe Importance of Productivity Canada’s Current Productivity StateCanada’s Current Productivity State Influences on ProductivityInfluences on Productivity Canada vs. CompetitorsCanada vs. Competitors Improvement StrategiesImprovement Strategies Current Productivity OpportunitiesCurrent Productivity Opportunities ConclusionConclusion

ProductivityProductivity

DefinitionDefinition– ““the efficiency with which a the efficiency with which a

country’s resources are combined to country’s resources are combined to produce a specific output” produce a specific output” 11

Measurement Style Measurement Style – Total Factor Productivity Total Factor Productivity – Labor ProductivityLabor Productivity

11 Salgado, R. (1999). Salgado, R. (1999). Productivity Growth in Canada and the United States. Productivity Growth in Canada and the United States. Ottawa: Ontario. Ottawa: Ontario.

The Importance of The Importance of ProductivityProductivity

““Productivity is an economic Productivity is an economic destiny”destiny”22

1% increase, 70 years; 2%, 30 1% increase, 70 years; 2%, 30 years; 3%, 24 yearsyears; 3%, 24 years

Rising health and pension costs Rising health and pension costs fade awayfade away

22 Sharpe, A. (2005). Sharpe, A. (2005). Six Policies to Improve Productivity Growth in Canada. Six Policies to Improve Productivity Growth in Canada. Ottawa: Ontario. Ottawa: Ontario.

The Importance of The Importance of ProductivityProductivity

Perspective requiredPerspective required ““Productivity is certainly Productivity is certainly

important, it is not everything”important, it is not everything”33

Quality of life and Canada’s Quality of life and Canada’s economic well-being trump economic well-being trump productivityproductivity

33 Sharpe, A. (2005). Sharpe, A. (2005). Six Policies to Improve Productivity Growth in Canada. Six Policies to Improve Productivity Growth in Canada. Ottawa: Ontario. Ottawa: Ontario.

Canada’s Current Canada’s Current Productivity SituationProductivity Situation

Declining since 1973Declining since 1973 1997-2000 and 2005 increases1997-2000 and 2005 increases One of the least productive One of the least productive

industrial countriesindustrial countries Lack of uniform measurement Lack of uniform measurement

system and lower producing system and lower producing business sectorbusiness sector

Who is Responsible?Who is Responsible?

GovernmentGovernment Business SectorBusiness Sector

– Trade-oriented vs. domestic oriented Trade-oriented vs. domestic oriented sectorssectors

– Trade-oriented increases offset by Trade-oriented increases offset by domestic-oriented decreasesdomestic-oriented decreases

CitizensCitizens Need for a collaborative approach Need for a collaborative approach

among allamong all

Influences on Influences on ProductivityProductivity

Five Key Influences:Five Key Influences:– Information & Communications sectorInformation & Communications sector– Machinery & Equipment investing Machinery & Equipment investing

activitiesactivities– Aggregate DemandAggregate Demand– Business Environment and Policy Business Environment and Policy

FrameworkFramework– The Global Economy The Global Economy

Information & Information & CommunicationCommunication

Drastic declines – 11% to 7%Drastic declines – 11% to 7% 4.5 % of business sector 4.5 % of business sector

employmentemployment Many recent hardshipsMany recent hardships New manufacturing methods New manufacturing methods

requiredrequired

Machinery & Machinery & EquipmentEquipment Very low as a result of rising costsVery low as a result of rising costs Increase maintenance budgetsIncrease maintenance budgets Lack of financial resourcesLack of financial resources Since 2003, rising M&E Since 2003, rising M&E

investmentsinvestments By 2006, increase M&E By 2006, increase M&E

investments by 20%investments by 20%

Aggregate DemandAggregate Demand

““The quantity of all good and The quantity of all good and services demanded in an economy, services demanded in an economy,

at various price levels, during a at various price levels, during a specified time period”.specified time period”.44

4 4 Sayre, J., and Morris, A. (2001). Sayre, J., and Morris, A. (2001). Principles of Macro Economics Principles of Macro Economics (3rd ed.) Montreal: (3rd ed.) Montreal: McGraw-Hill Ryerson. Pg. 194McGraw-Hill Ryerson. Pg. 194

Aggregate DemandAggregate Demand

Declining Declining Two “boom periods” since 2000Two “boom periods” since 2000 Capacity utilization rates fallingCapacity utilization rates falling Overhead costsOverhead costs Shifting output and labor Shifting output and labor

resources to the public sectorresources to the public sector Capital growth relative to labor Capital growth relative to labor

force growthforce growth

Business Environment Business Environment & Framework& Framework

Openness to trade and Openness to trade and investmentinvestment

CompetitionCompetition Regulatory regime Regulatory regime Resource allocationResource allocation

The Global EconomyThe Global Economy

Impacts EveryoneImpacts Everyone Awareness RequiredAwareness Required Strategies to CopeStrategies to Cope

Canada vs. Canada vs. CompetitorsCompetitors

The U.S.The U.S.– Widest gap with Canada (approx. Widest gap with Canada (approx.

15%)15%)– 2003 – The U.S up 8%; Canada down 2003 – The U.S up 8%; Canada down

7%7% Rapid GrowthRapid Growth

– Fast-paced technological changesFast-paced technological changes– ICT advancementsICT advancements

Canada vs. Canada vs. CompetitorsCompetitors France and other European France and other European

countriescountries– Canada well behindCanada well behind

Changing workforceChanging workforce– Matching person and jobMatching person and job

Less working timeLess working time– More productiveMore productive

Canada vs. Canada vs. CompetitorsCompetitors

AustraliaAustralia– Out-performed CanadaOut-performed Canada– Similar economic structureSimilar economic structure– Comparable statistical systemComparable statistical system

Capital-labor ratioCapital-labor ratio Workforce compositionWorkforce composition Input efficiencyInput efficiency

Improvement Improvement StrategiesStrategies

InnovationInnovation– Process – Research & Development Process – Research & Development

(R&D) funds for enhancing and (R&D) funds for enhancing and reformingreforming

– Product – R&D funds for “eureka” Product – R&D funds for “eureka” momentsmoments

Lagging business R&D expendituresLagging business R&D expenditures Financial risksFinancial risks

Improvement Improvement StrategiesStrategies Efficient AllocationEfficient Allocation

– Maximum utility from available Maximum utility from available resourcesresources

Three Critical ElementsThree Critical Elements– Legal FrameworkLegal Framework– Resource TransfersResource Transfers– InfrastructureInfrastructure

Improvement Improvement StrategiesStrategies

Public Infrastructure DeficitPublic Infrastructure Deficit– Private infrastructure development Private infrastructure development

Ie. The Canadian Railway)Ie. The Canadian Railway)

– Public-Private Partnerships (PPPs) Public-Private Partnerships (PPPs) Ie. Confederation BridgeIe. Confederation Bridge

Timely and expensiveTimely and expensive No proper infrastructure creation No proper infrastructure creation

methodmethod

Improvement Improvement StrategiesStrategies

EducationEducation– Shrinking poolShrinking pool– Investments in research Investments in research

development and teachingdevelopment and teaching– High school drop outs (31% in NS High school drop outs (31% in NS

alone)alone)– Take advantage Take advantage

High investing in the U.S. High investing in the U.S.

Improvement Improvement StrategiesStrategies

Trade BarriersTrade Barriers– Conference Board of Canada (CBoC) Conference Board of Canada (CBoC)

“Competition Project”“Competition Project” R&D CostsR&D Costs

– .75 percent of GDP in Canada; 2% in .75 percent of GDP in Canada; 2% in the U.S.the U.S.

Improvement Improvement StrategiesStrategies Demographic ChangesDemographic Changes

– Shrinking populationShrinking population– Declining employment ratesDeclining employment rates– Increased costs of tradeIncreased costs of trade

Competitive MarketsCompetitive Markets– Increased response rates and Increased response rates and

efficiencyefficiency– New government policies New government policies

Improvement Improvement StrategiesStrategies Work TimeWork Time

– ReducedReduced– More productive, More productive, – cost-effectivecost-effective

Full EmploymentFull Employment– No slack in economyNo slack in economy– Every willing person has employmentEvery willing person has employment– Learning by doing, economies of scale, Learning by doing, economies of scale,

eliminates operating inefficiencieseliminates operating inefficiencies

Improvement Improvement StrategiesStrategies Government InvolvementGovernment Involvement

– Provincial vs. Federal governmentsProvincial vs. Federal governments– Tax RefundsTax Refunds– Promote infrastructure, reduce trade Promote infrastructure, reduce trade

barriersbarriers– Tap into natural resourcesTap into natural resources– Prioritize initiativesPrioritize initiatives

Improvement Improvement StrategiesStrategies Productivity BudgetProductivity Budget

– High-End Firms incentivesHigh-End Firms incentives– Funding for basic science Funding for basic science – Reduce R&D BarriersReduce R&D Barriers– Focus on InnovationFocus on Innovation– Department and Agency budgets Department and Agency budgets

must promote productivitymust promote productivity

Current Canadian Current Canadian OpportunitiesOpportunities

Three Opportunities:Three Opportunities:– Increasing government commitment Increasing government commitment – Private Sector long-term investingPrivate Sector long-term investing– InfrastructureInfrastructure

Productivity Increases through:Productivity Increases through:– Higher levels of resource allocationHigher levels of resource allocation– Leading-edge technologyLeading-edge technology

Productivity Status: Productivity Status: 20062006 2005, increase of 2.1 %2005, increase of 2.1 % 2006, first three quarters, decline 2006, first three quarters, decline

of approx. 1%of approx. 1%

Closing RemarksClosing Remarks

Collaborative attention to Collaborative attention to Innovation, Allocation, Education, Innovation, Allocation, Education, R&D and Government R&D and Government involvementinvolvement

Optimistic Future Optimistic Future – Increasing standard of livingIncreasing standard of living– Continuation of productivity gapContinuation of productivity gap

Closing RemarksClosing Remarks

Presence in emerging marketsPresence in emerging markets Strengthening ties outside of the Strengthening ties outside of the

U.S.U.S. Inward and outward investingInward and outward investing Exploit natural resourcesExploit natural resources Restructure current legislationRestructure current legislation

Closing RemarksClosing Remarks

Not in a state of crisisNot in a state of crisis Governments and businesses Governments and businesses

start “doing” rather than “talking”start “doing” rather than “talking” CollaborationCollaboration is key to success; is key to success;

requires improvement and requires improvement and dedication from alldedication from all

Thank You!Thank You!