Canada's performance during the financial crisis and subsequent recession is rightly a point of pride. Canadians, and the world, have developed a new-found appreciation for the institutional prudence of our banking system and regulatory regime. However, the risk-averse attitudes that helped us avoid taking dangerous financial bets also hold us back from taking the risks necessary to build more competitive companies and a more productive economy.
Neither our relative stability through the financial crisis nor our high standard of living should distract us from the reality that we lag many other countries in terms of productivity, one of the most important long-term drivers of prosperity. The average Australian now generates $2 more per hour than the average Canadian; the average American generates $13 more; the average Norwegian generates $29 more.
Productivity can be significantly influenced by risk appetite. Canada has long been regarded as a risk-averse country, but there has been little evidence to support this – until now. Deloitte conducted interviews about risk tolerance with 450 Canadian and 452 American executives from small, medium and large companies across a broad array of industries and the results have provided valuable insight into the Canadian risk profile.
Canadian and American executives self-reported similar levels of risk tolerance, with Canadian business leaders more optimistic than their U.S. counterparts about the state of the economy. One would expect that this optimism, combined with similar risk tolerance levels, would translate into a greater – or at least equal – propensity for investment among Canadian business leaders.
Surprisingly, this is not the case. In the survey, Canadian executives indicated that they are not planning to invest in the types of activities required to improve productivity. When we look at the actual decisions Canadian business leaders make about activities that bolster productivity, such as investing in R&D and commercializing innovation, Americans are 13 per cent more tolerant of risk than Canadians, according to the Deloitte Executive Risk Behaviour Index.
Canadians may label themselves as equally risk-tolerant to Americans, but when it comes to putting their money where their attitude is, they hesitate. This "action gap" is a key cause of the Canadian productivity conundrum.
It should be noted that this gap does not have an impact on all Canadian business leaders equally. Through their actions, our leading risk takers accept as much risk as their U.S. counterparts. However, with self-identified risk avoiders we see a significant difference. Canadian risk avoiders accept far less risk than their American peers.
Canadian business leaders' aversion to risk is especially important because it underlies other critical contributors to our growing productivity gap, including a lack of risk capital for startups, chronic underinvestment in machinery and equipment, insufficient levels of private sector R&D, and an unwillingness to engage international markets.
We need business leaders to be more willing to undertake intelligent risk by making investments in R&D, launching innovative products, developing improved production techniques, implementing international best practices, integrating state-of-the-art machinery, and expanding into new markets. Combined, these activities would contribute significantly to Canada's productivity and international competitiveness.
Continued economic growth will only be sustained through ongoing, persistent improvements in the productivity of our work force. The courage to lead this transformation must come from within the highest levels of business, government and academia. In particular, business leaders must fundamentally re-examine their attitudes about taking intelligent risks. Canada's strength through the recession has created a finite window during which our productivity trajectory can be reset. To overlook this opportunity is to threaten our country's long-term prosperity.
Bill Currie is vice-chairman of Deloitte Canada, and Deloitte's Americas managing director. Elliot Morris is a senior consultant at Deloitte.