Daniel Muzyka is chief executive officer and Glen Hodgson is senior vice-president and chief economist of the Conference Board of Canada.
With the federal election campaign in full swing, the Conference Board of Canada has prepared a series of primers for Globe readers on the top economic and social issues our next federal government must address.
Canada's economic growth will slow in the years ahead as a result of the country's aging population. One critical way to offset the impact of aging demographics is through faster productivity growth, supported by enhanced innovation. But Canada's track record on productivity is dismal.
Productivity (at its simplest, output measured in dollars per hour worked) is about working smarter, not working harder. Canadian productivity growth has lagged the United States and many other major industrial countries for nearly three decades. As a result, there is a significant income gap between Canadians and Americans – estimated at $7,000 per capita, and rising.
Slow productivity growth limits our ability to fund health and social programs, particularly as our aging population increases demand for services, such as health care.
Productivity is complex and its importance can be difficult to communicate to an electorate. So let's focus on concrete ways to increase productivity, by:
- Directing our work efforts toward products and services that can be sold at a premium and have widespread markets;
- Ensuring that workplaces are well organized and managed, and that the equipment, technology and processes we use are going to make us most effective;
- Developing the appropriate skills and knowledge for the jobs we undertake, and focusing those skills on delivering results for customers and clients.
Canadian policy makers who are serious about improving productivity realize that greater innovation must be at the centre of the conversation. Innovation is linked to productivity because constantly increasing the value of products and services, and improving processes, are keys to boosting productivity growth. Without a greater commitment to innovation, we should not expect serious improvement in Canadian productivity.
How is Canada doing on innovation? Not as well as it could or should. The Conference Board of Canada's recent report card on innovation, How Canada Performs, gives the country a C over all on innovation – we ranked ninth out of 16 peer countries. This ranking is better than in previous years, but still below what is necessary to be a highly innovative economy.
Innovation, too, is complex, and as the report card shows, our results are mixed. Thanks to the efforts of successive federal governments, we get good results on public spending on research and development, and on scientific articles generated (particularly by researchers in our postsecondary institutions). Because in part to injections of funding from federal and provincial governments, we also get much-improved results in venture capital investment. In addition, it is clear that Canadians have the entrepreneurial ambition to be innovative, as we get an A in this category.
Despite these bright spots, Canada remains weak in key areas that boost innovation. There is not enough business investment in R&D. Moreover, not enough of the research being done at our postsecondary institutions is being commercialized in existing businesses or growth-oriented entrepreneurial enterprises, or supported by business R&D investment. And Canada needs more investment in connectivity and information and communications technology.
The key policy levers for improving productivity and strengthening Canada's innovation include:
- Education: Invest in skills and life-long learning and renewal.
- Well-functioning markets: Foster the free flow of capital, goods, labour, skills and knowledge within the country and across borders (through free-trade agreements, foreign direct investment and the elimination of interprovincial barriers).
- Infrastructure: Ramp up public investment in necessary infrastructure, particularly in cities.
- Strategy: Pursue a comprehensive pan-Canadian innovation strategy that promotes business investment and the business and entrepreneurial commercialization of our ideas.
- Flexibility: Eliminate unnecessary barriers and streamline regulatory and labour practices that impose needless costs and reduce operating flexibility.
- Tax reform: Simplify and clarify the tax system to improve incentives and cut compliance costs and investment delays because of uncertainty.
Productivity and innovation are critical to Canada's future economic prosperity. Although both are complex, they should be major topics for all candidates during the election.