Canada must step up its productivity game

It’s been a while now since we’ve heard from the Liberals on the issue of innovation. Acute threats to the Canadian economy — from a budding trade war with the United States to ongoing doubts about the future of NAFTA — have forced the Liberals to step away from their original promise to create an “innovation economy,” and it’s entirely possible that the superclusters initiative announced last February will be the last we ever hear on the topic, at least before the next federal election.

Given the challenges the Trudeau government is currently facing with President Donald Trump, it’s hard to blame the Liberals for losing track of their original interest in this area. But it’s unfortunate nonetheless, as a new study by the Brookings Institution and the University of Toronto suggests that Canada still has a steep hill to climb in terms of making our economy more globally competitive in innovation, technology and productivity.

I’ve been whining about how unproductive Canada is for a while, and the Brookings report does little to assuage my concerns.

A joint initiative by the Martin Prosperity Institute at U of T and the U.S.-based Brookings Institution, the report examines the state of Canada’s “advanced industries” — defined here as auto and aerospace production, oil and gas extraction, and IT. As the report suggests, these industries matter for the simple reason that they generate a disproportionate share of an economy’s productivity. (If you doubt this, consider that Ottawa’s very own tech park in Kanata North has been estimated to be worth around $7.8 billion, or roughly 15 per cent of Ottawa’s GDP.)

Admittedly, the report cites some impressive figures. Advanced-industry workers, for instance, number about 11 per cent of Canada’s workforce, yet contribute 17 per cent to the country’s GDP.

The fact that advanced-industry workers are so productive means that they earn about twice as much as the average Canadian worker. (If this last fact doesn’t convince school boards across the country to make technical literacy a requirement for all students, then I have no idea what will.)

The bad news is that Canada’s advanced industry sectors are terribly uncompetitive when viewed in a broader North American context. In general, advanced sector productivity is lower in Canadian cities than in American ones, and this trend appears to be getting worse.

Between 1996 and 2015, for instance, the productivity gap (the relative difference in productivity) between Canadian and American advanced-sector workers grew from 17 per cent to a staggering 100 per cent.

Surprisingly, the gap for U.S. and Canadian workers in non-advanced sectors stayed the same during this period, which means that the growing productivity gap among advanced sector workers has actually brought down the overall productivity level of the average Canadian worker. To put it bluntly, the relative lack of productivity in Canada’s advanced sectors is dragging down the Canadian economy as a whole.

Of course, no one would conclude from this that we should demolish our advanced industries or burn down the Kanata tech park. Quite the contrary.

These numbers give substance to what tech executives such as Jim Balsillie have been complaining about for years, which is that Canada needs to seriously step up its game in terms of providing the infrastructure for advanced economy sectors to thrive.

The Brookings report seems to agree with him, and echoes the former RIM executive in suggesting that Canada needs to focus more on scaling up homegrown firms than on attracting domestic branches of foreign ones (like, ahem, Amazon). Another suggestion the report offers should be a no-brainer for any federal government that wants to kick-start innovation: Increase competition by deregulating sheltered industries such as finance and telecommunications.

Sadly, the Brookings report is not the first indication we’ve had that Canada’s economy is falling behind in the areas of innovation and productivity. Until we admit we have a problem, it’s unlikely much progress will be made in this area, regardless of how interested our federal government claims to be in fostering an innovation-centric economy.

Mischa Kaplan is a consultant, writer, and economic development advocate.