Renewing Productivity as an Idea In Public Policy

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

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

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

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

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

6. Canada’s Current Productivity Situation • Declining since 1973 • 1997-2000 and 2005 increases • One of the least productive industrial countries • Lack of uniform measurement system and lower producing business sector

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

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

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

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

11. Aggregate Demand • “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

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

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

14. The Global Economy • Impacts Everyone • Awareness Required • Strategies to Cope

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

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

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

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

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

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

21. Improvement Strategies • 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.

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

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

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

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

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

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

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

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

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

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

32. Thank You!