Renewing Productivity as an Idea In Public Policy Chase McGrath MPA Candidate, 2008

Outline Productivity Productivity The Importance of Productivity The Importance of Productivity Canada’s Current Productivity State Canada’s Current Productivity State Influences on Productivity Influences on Productivity Canada vs. Competitors Canada vs. Competitors Improvement Strategies Improvement Strategies Current Productivity Opportunities Current Productivity Opportunities Conclusion Conclusion

Productivity Definition Definition –“the efficiency with which a country’s resources are combined to produce a specific output” 1 Measurement Style Measurement Style –Total Factor Productivity –Labor Productivity 1 Salgado, R. (1999). Productivity Growth in Canada and the United States. Ottawa: Ontario.

The Importance of Productivity “Productivity is an economic destiny” 2 “Productivity is an economic destiny” 2 1% increase, 70 years; 2%, 30 years; 3%, 24 years 1% increase, 70 years; 2%, 30 years; 3%, 24 years Rising health and pension costs fade away Rising health and pension costs fade away 2 Sharpe, A. (2005). Six Policies to Improve Productivity Growth in Canada. Ottawa: Ontario.

The Importance of Productivity Perspective required Perspective required “Productivity is certainly important, it is not everything” 3 “Productivity is certainly important, it is not everything” 3 Quality of life and Canada’s economic well-being trump productivity Quality of life and Canada’s economic well-being trump productivity 3 Sharpe, A. (2005). Six Policies to Improve Productivity Growth in Canada. Ottawa: Ontario. 3 Sharpe, A. (2005). Six Policies to Improve Productivity Growth in Canada. Ottawa: Ontario.

Canada’s Current Productivity Situation Declining since 1973 Declining since and 2005 increases and 2005 increases One of the least productive industrial countries One of the least productive industrial countries Lack of uniform measurement system and lower producing business sector Lack of uniform measurement system and lower producing business sector

Who is Responsible? Government Government Business Sector Business Sector –Trade-oriented vs. domestic oriented sectors –Trade-oriented increases offset by domestic- oriented decreases Citizens Citizens Need for a collaborative approach among all Need for a collaborative approach among all

Influences on Productivity Five Key Influences: Five Key Influences: –Information & Communications sector –Machinery & Equipment investing activities –Aggregate Demand –Business Environment and Policy Framework –The Global Economy

Information & Communication Drastic declines – 11% to 7% Drastic declines – 11% to 7% 4.5 % of business sector employment 4.5 % of business sector employment Many recent hardships Many recent hardships New manufacturing methods required New manufacturing methods required

Machinery & Equipment Very low as a result of rising costs Very low as a result of rising costs Increase maintenance budgets Increase maintenance budgets Lack of financial resources Lack of financial resources Since 2003, rising M&E investments Since 2003, rising M&E investments By 2006, increase M&E investments by 20% By 2006, increase M&E investments by 20%

Aggregate Demand “The quantity of all good and services demanded in an economy, at various price levels, during a specified time period”. 4 “The quantity of all good and services demanded in an economy, at various price levels, during a specified time period”. 4 4 Sayre, J., and Morris, A. (2001). Principles of Macro Economics (3rd ed.) Montreal: McGraw-Hill Ryerson. Pg. 194

Aggregate Demand Declining Declining Two “boom periods” since 2000 Two “boom periods” since 2000 Capacity utilization rates falling Capacity utilization rates falling Overhead costs Overhead costs Shifting output and labor resources to the public sector Shifting output and labor resources to the public sector Capital growth relative to labor force growth Capital growth relative to labor force growth

Business Environment & Framework Openness to trade and investment Openness to trade and investment Competition Competition Regulatory regime Regulatory regime Resource allocation Resource allocation

The Global Economy Impacts Everyone Impacts Everyone Awareness Required Awareness Required Strategies to Cope Strategies to Cope

Canada vs. Competitors The U.S. The U.S. –Widest gap with Canada (approx. 15%) –2003 – The U.S up 8%; Canada down 7% Rapid Growth Rapid Growth –Fast-paced technological changes –ICT advancements

Canada vs. Competitors France and other European countries France and other European countries –Canada well behind Changing workforce Changing workforce –Matching person and job Less working time Less working time –More productive

Canada vs. Competitors Australia Australia –Out-performed Canada –Similar economic structure –Comparable statistical system Capital-labor ratio Capital-labor ratio Workforce composition Workforce composition Input efficiency Input efficiency

Improvement Strategies Innovation Innovation –Process – Research & Development (R&D) funds for enhancing and reforming –Product – R&D funds for “eureka” moments Lagging business R&D expenditures Lagging business R&D expenditures Financial risks Financial risks

Improvement Strategies Efficient Allocation Efficient Allocation –Maximum utility from available resources Three Critical Elements Three Critical Elements –Legal Framework –Resource Transfers –Infrastructure

Improvement Strategies Public Infrastructure Deficit Public Infrastructure Deficit –Private infrastructure development Ie. The Canadian Railway) Ie. The Canadian Railway) –Public-Private Partnerships (PPPs) Ie. Confederation Bridge Ie. Confederation Bridge Timely and expensive Timely and expensive No proper infrastructure creation method No proper infrastructure creation method

Improvement Strategies Education Education –Shrinking pool –Investments in research development and teaching –High school drop outs (31% in NS alone) –Take advantage High investing in the U.S. High investing in the U.S.

Improvement Strategies Trade Barriers Trade Barriers –Conference Board of Canada (CBoC) “Competition Project” R&D Costs R&D Costs –.75 percent of GDP in Canada; 2% in the U.S.

Improvement Strategies Demographic Changes Demographic Changes –Shrinking population –Declining employment rates –Increased costs of trade Competitive Markets Competitive Markets –Increased response rates and efficiency –New government policies

Improvement Strategies Work Time Work Time –Reduced –More productive, –cost-effective Full Employment Full Employment –No slack in economy –Every willing person has employment –Learning by doing, economies of scale, eliminates operating inefficiencies

Improvement Strategies Government Involvement Government Involvement –Provincial vs. Federal governments –Tax Refunds –Promote infrastructure, reduce trade barriers –Tap into natural resources –Prioritize initiatives

Improvement Strategies Productivity Budget Productivity Budget –High-End Firms incentives –Funding for basic science –Reduce R&D Barriers –Focus on Innovation –Department and Agency budgets must promote productivity

Current Canadian Opportunities Three Opportunities: Three Opportunities: –Increasing government commitment –Private Sector long-term investing –Infrastructure Productivity Increases through: Productivity Increases through: –Higher levels of resource allocation –Leading-edge technology

Productivity Status: , increase of 2.1 % 2005, increase of 2.1 % 2006, first three quarters, decline of approx. 1% 2006, first three quarters, decline of approx. 1%

Closing Remarks Collaborative attention to Innovation, Allocation, Education, R&D and Government involvement Collaborative attention to Innovation, Allocation, Education, R&D and Government involvement Optimistic Future Optimistic Future –Increasing standard of living –Continuation of productivity gap

Closing Remarks Presence in emerging markets Presence in emerging markets Strengthening ties outside of the U.S. Strengthening ties outside of the U.S. Inward and outward investing Inward and outward investing Exploit natural resources Exploit natural resources Restructure current legislation Restructure current legislation

Closing Remarks Not in a state of crisis Not in a state of crisis Governments and businesses start “doing” rather than “talking” Governments and businesses start “doing” rather than “talking” Collaboration is key to success; requires improvement and dedication from all Collaboration is key to success; requires improvement and dedication from all

Thank You!