A good diagnosis and a useful prescription

Jack Mintz,  is a highly regarded economist who is the President’s Fellow at the University of Calgary’s School of Public Policy and who also serves on the boards of Imperial Oil Limited and Morneau Shepell (Liberal Finance Minister Bill Morneau’s family firm) and is the National Policy Advisor for Ernst & Young.

He has written an excellent article for the Financial Post in which he explains some of the origins of what he and I both see as one of Canada’s most serious problems: low productivity. He says, and I agree fully that “Our low wages … [relative, especially, to our close neighbour, the USA] … are a cost advantage but that should not be the aim of public policy. It is far better to have robust labour productivity and a wage cost disadvantage instead. We do have some industries that have much higher levels of GDP per working hour compared to the industrial average. In 2012 constant dollars, oil and gas extraction produces $644 in GDP per working hour, mining $214, utilities $201, telecommunications $169, brewery manufacturing $120, and real estate $133. The lowest are in personal $18 and food $20 services … [and] … Canada’s highest incomes come from capital-intensive industries where GDP per working hour is greatest. Surprisingly, incomes are disappointingly low from scientific research and development or computer design services (about $50 per hour).

But, Jack Mintz says, Canadian government favour unproductive industries, for partisan, parochial reasons, and Canadian business leaders often favour cheap and easy over hard but productive, which is not at all surprising, really.

Professor Mintz has a prescription. He offers five fairly easy and common sense, to conservatives, steps to make Canada more productive:

  • The first,” he writes, “is to stop killing our high-wage resource sector with high-cost regulations. Our regulatory system, now made much worse by the federal government’s Bill C-69, is costing billions in GDP.  Instead, we should be looking for new approaches to regulation to balance with environment and social concerns such as Australia’s use of pre-approved corridors to enable faster reviews of pipelines, train, highways and other transportation networks;
  • The second is to remove protections, especially for low-productivity businesses that cannot otherwise continue. Keeping resources engaged in poor performing businesses ultimately hurts other sectors of the economy competing for resources as well as paying more taxes to make up for losers. A recent example is SNC-Lavalin, which, in its past quarterly report, cannot make enough money to cover its wages and other current costs, never mind capital depreciation and interest expense. Its shares are now trading, at time of writing, at slightly over $17, well below the $60 level they were at over a year ago. Trying to maintain jobs by protecting SNC-Lavalin, whether from criminal prosecution or competition, is not in the public interest. There are other more profitable engineering firms that can take up the slack;
  • The third [step] is to open up competition through internal and external free trade. On the plus side, Canada has opened up trade agreements with a number of countries in Europe and Asia. However, trade tariffs are 1.6 per cent on imported goods. Numerous non-tariff barriers exist, limiting competition in telecommunications, banking, dairy, egg and poultry farming, just to name a few. We also have weak internal trade as provinces inhibit the free flow of goods, services and labour to protect their own industries;
  • Fourth,” he continues, “we should make sure our public services are provided effectively and efficiently. Education is especially important to economic growth — Canada has recently slipped in science and mathematics in OECD PISA tests although we still rank well internationally. On the other hand, Commonwealth Fund studies rank Canada’s health-care system as 10th out of 11 countries despite our being one the highest per capita spenders (don’t tell Elizabeth Warren and Bernie Sanders!); and
  • Lastly, our tax system needs reform in several ways. We over rely on the most inefficient tax sources — income taxes — rather than consumption taxes. Many of our taxes are flawed with politically driven exemptions. Even the GST is riddled with special treatments, resulting in a mediocre consumption tax. Our carbon policies are a mishmash with differential explicit or implicit regulatory prices on oil, natural gas and coal products, impeding the private sector from finding the most effective and lowest-cost technologies. Our corporate tax should also be reviewed — Swiss and Irish growth rates have in part resulted from much more competitive corporate tax rates.

Professor Mintz’s solutions apply, in the main, to government and public policy rather than to corporations, and I have dealt, sometimes only peripherally, with several of these issues, including:

I find Professor Jack Mintz’ diagnosis and prescription to be highly reasonable and I hope that Andrew Scheer will incorporate all five of his ideas into the Conservative platform and, more importantly, into his government’s plan to rescue Canada from the fiscal mess he will inherit from the Trudeaus, père et fils.

2 thoughts on “A good diagnosis and a useful prescription

  1. I would also mandate national standards so a teacher, Lawyer, engineer or other professional does not have to jump through massive hoops when moving from one province to another.

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