Transcript Productivity as a New Idea In Public Policy

Renewing Productivity as
an Idea In Public Policy
Chase McGrath
MPA Candidate, 2008
Outline








Productivity
The Importance of Productivity
Canada’s Current Productivity State
Influences on Productivity
Canada vs. Competitors
Improvement Strategies
Current Productivity Opportunities
Conclusion
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.
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
2 Sharpe, A. (2005). Six Policies to Improve Productivity Growth in Canada. Ottawa: Ontario.
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
3 Sharpe, A. (2005). Six Policies to Improve Productivity Growth in Canada. Ottawa: Ontario.
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
Who is Responsible?


Government
Business Sector
– Trade-oriented vs. domestic oriented sectors
– Trade-oriented increases offset by domesticoriented decreases


Citizens
Need for a collaborative approach among all
Influences on
Productivity

Five Key Influences:
– Information & Communications sector
– Machinery & Equipment investing
activities
– Aggregate Demand
– Business Environment and Policy
Framework
– The Global Economy
Information &
Communication




Drastic declines – 11% to 7%
4.5 % of business sector employment
Many recent hardships
New manufacturing methods required
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%
Aggregate Demand

4
“The quantity of all good and services
demanded in an economy, at various
price levels, during a specified time
period”.4
Sayre, J., and Morris, A. (2001). Principles of Macro Economics (3rd ed.) Montreal: McGrawHill Ryerson. Pg. 194
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
Business Environment &
Framework




Openness to trade and investment
Competition
Regulatory regime
Resource allocation
The Global Economy



Impacts Everyone
Awareness Required
Strategies to Cope
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
Canada vs. Competitors

France and other European countries
– Canada well behind

Changing workforce
– Matching person and job

Less working time
– More productive
Canada vs. Competitors

Australia
– Out-performed Canada
– Similar economic structure
– Comparable statistical system



Capital-labor ratio
Workforce composition
Input efficiency
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
Improvement Strategies

Efficient Allocation
– Maximum utility from available resources

Three Critical Elements
– Legal Framework
– Resource Transfers
– Infrastructure
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
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.
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.
Improvement Strategies

Demographic Changes
– Shrinking population
– Declining employment rates
– Increased costs of trade

Competitive Markets
– Increased response rates and efficiency
– New government policies
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
Improvement Strategies

Government Involvement
– Provincial vs. Federal governments
– Tax Refunds
– Promote infrastructure, reduce trade
barriers
– Tap into natural resources
– Prioritize initiatives
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
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
Productivity Status: 2006


2005, increase of 2.1 %
2006, first three quarters, decline of
approx. 1%
Closing Remarks


Collaborative attention to Innovation,
Allocation, Education, R&D and
Government involvement
Optimistic Future
– Increasing standard of living
– Continuation of productivity gap
Closing Remarks





Presence in emerging markets
Strengthening ties outside of the U.S.
Inward and outward investing
Exploit natural resources
Restructure current legislation
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
Thank You!