Productivity

In a report originally published in the Huffington Post and republished, online, by Yahoo-Finance, Daniel Tencer, who is the business editor of the Huffington Post, writes that “Canada has fallen out of the top 10 in a ranking of the world’s most competitive economies, a sign that Canadians may have a harder time succeeding financially in the coming years … [and] … The 2019 edition of the IMD (International 9618c9fa31fd8a1e5111bc1c8227a2bbInstitute for Management DevelopmentWorld Competitiveness Ranking places Canada 13th out of 63 countries, the worst performance in the annual survey’s history, which goes back to 1997 … [further, Mr Tencer explains that] … The country is being beaten by both aggressive free-market economies like Singapore and the U.S. (first and third, respectively) and by progressive countries known for their labour protections and high wages (Denmark, the Netherlands, Norway and Sweden).

Through the 1990s and early 2000s,” Daniel Tencer says, “Canada consistently ranked among the top 10 most competitive economies, but the country began a slow descent around 2015, when oil prices collapsed ― though that is only a small part of the reason for the decline … [but, he adds] … this problem can’t be pinned on Trudeau’s Liberals or any one previous government ― it’s a long-term trend in Canada’s economy.” To explain that he adds another chart that I have marked up a bit:

competitiveness.jpg

Canada (in red on the chart) was, when Jean Chrétien retired, right up there, near the USA and Singapore and above Switzerland; then we fell away, suddenly and sharply, but Prime Minister Harper got us back on track, during the 2008 financial crisis, and, by 2015, we were, once again, in the top tier. Then, under Justin Trudeau Canada fell precipitously in the rankings.

Part of Canada’s competitive advantage has long been, but especially since Conservative PM Brian Mulroney negotiated NAFTA, with the USA, based on our proximity to and close trading relations with the United States. The election of Donald Trump, in 2016, coupled with Justin Trudeau’s general weakness on trade and commerce issues, contributed to our recent, sharp decline. Mr Tencer alludes to the fact that Canada, despite having robust manufacturing and service/finance sectors, remains a resource economy and the oil-price shocks did, also contribute to our decline in the rankings but so, too, I think did Prime Minister Justin Trudeau’s obvious hostility towards Canada’s important petroleum industry.

Daniel Tencer explains, and I agree, that “A competitiveness index isn’t exactly a measure of how competitive a country is against other countries; rather, it’s a measure of how productive a country is. Productivity can be defined simply as “how much you get back for the effort you put in.” The more you get back for your work, the more “productive” an economy … [and] … “Productivity is important because it has been found to be the main factor driving growth and income levels,” the World Economic Foundation says. “And income levels are very closely linked to human welfare. So understanding the factors that allow for this chain of events to occur is very important.”

A lot of long-term problems in Canada’s economy seem to be finally catching up to us,” he writes, “and one major issue that expert after expert cites is Canada’s relative lack of innovation and creativity … [because] … The country’s business leaders have a reputation for being cautious, and following the crowd rather than taking risks on new ideas. That means Canada has fewer opportunities to create new businesses, and it makes the country uninteresting for foreign investors (except those looking to park cash in our housing market, that is).

Craig Alexander, chief economist at Deloitte Canada and co-author of the consultancy’s Canadian competitiveness scorecard is quoted as saying that ““We’ve seen less money coming into Canada, it’s not attracting its fair share of foreign capital” … [and, he says] … Canada has a problem “scaling up” new businesses: We’re pretty good at launching new small enterprises, but it’s unusually difficult to turn a successful small business into a large one … [plus there are] … a number of smaller issues that are hurting Canada’s competitiveness today, including the fact the country is falling behind others in building infrastructure, and the U.S. tax cuts a Republican-dominated Congress passed in 2017, which means that Canadian businesses are seeing higher tax rates than U.S. ones for the first time in years.” One does not need to be a Donald Trump supporter, and heaven knows I am not, to understand that the USA remains our biggest and “best” trading partner and we need to remain competitive with them on things like tax rates.

“It isn’t necessarily that things are getting more difficult in Canada, it might be other countries are making more progress,”” Mr Alexander says, but, he reminds us 2945e78c3bb6d6611fdee4c9519f7001that “human resources are Canada’s real strength ― our ability to attract among the most skilled and talented people from around the world. The IMD report backs this up, showing that Canada ranks sixth in the world when it comes to talent.” This takes me back to immigration policy:

  • First, we need a selfish, ‘Canada First‘ immigration policy that actively recruits the kinds of people we need for our future and, concomitantly, discourages some others from trying to come to Canada ~ the people we need are readily available (see the immigration policy link just above) from some countries and we should welcome them; we may want similar immigrants from all over the world but we must recognize, as good global citizens, that some countries need their accountants, engineers and physicians more than Toronto needs new taxi drivers; and
  • Second, we need to thank US President Trump for actually driving some of the best and brightest immigrants away from America and, conveniently, towards Canada.

But even on this metric, things are starting to look shaky,” the report says, because “Canada has been experiencing a historic labour shortage over the past few years, and without the right people, businesses can’t expand. The shortage is now beginning to hold the economy back.” We can do better at integrating immigrants, and facilitating training and, carefully, recognizing some foreign qualifications, as many experts and Andrew Scheer suggest, but Mr Alexander says, and I agree, that the real problem is that ““We need to promote entrepreneurialism in the country. We need Canadian business leaders to take risks a bit more.”

How to do that?

  • First, lower corporate taxes … a lot. While a promise to tax, “wealthy and greedy” corporations is, understandably, popular amongst most Canadians it is also self-defeating. Most corporations are neither wealthy nor especially greedy; they are, in the main, small to medium enterprises that create more good jobs in Canada than do e.g. SNC-Lavalin or the JD Irving conglomerate. Further, corporate “income taxes” are, when you look at them, just inefficiently administered sales taxes because corporations, large and small, consider taxes to be a business expense and they must pass on all such costs to the customers, you and me;
  • Second, increase the right sort of carefully targetted immigration ~ aim to grow the workforce year after year after year so that we always have enough working people to pay for our social safety net; and
  • Third, make labour mobility and skill training more accessible to more Canadians ~ new and old, and less of a burden on small to medium enterprises.

Mr Tencer is correct: the real problem is productivity rather than our rank on a competitiveness index, and I also agree with him Canadian entrepreneurs are overly cautious. That is, I believe, in part, because of governments, local, provincial and national, that are, regularly, trying to appease jealous (anti-business) voters, by adding new rules and burdens that make innovation and entrepreneurship more and more difficult.

Promising to lower corporate taxes or to raise immigration levels are not big vote-getters but promises to make it easier for small business and even medium-sized ones to create more and better jobs might be an attractive plank in a Conservative platform.

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