Canada’s productivity ’emergency’ and what’s to blame

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When Bank of Canada senior deputy governor Carolyn Rogers called Canada’s weak productivity growth an “emergency” earlier this year, her words rang out with all the loud clarity of a fire alarm. We can all smell the (metaphorical) smoke and feel the rising temperature. Running away and hoping someone else puts the fire out won’t work.

The first step is for us to clearly define Canada’s productivity problem. Yes, we have a shrinking rate of economic output compared to our inputs, especially relative to our key global competitors. Declining national productivity ultimately means a lower standard of living for everyone, and less funding for the social programs that we currently enjoy.

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The main culprit behind Canada’s lagging productivity is our sluggish rate of adoption of productivity-boosting innovations— the kind that emerge from the companies created by technology-savvy entrepreneurs. As an economy, we need to become better at identifying and operationally integrating innovative developments in software, robotics, artificial intelligence, advanced manufacturing and processing equipment, among other technologies.

These innovations accomplish two things: they either help increase the value of the goods or services that we produce, or they help us to decrease their respective costs of production. In an ideal situation, adopting innovations in your business could increase both the top line and bottom line and one’s competitiveness.

We will always need human labour, but tomorrow’s economic “winners” will be those countries today trying to usefully augment human labour with innovation. To make meaningful headway on Canada’s productivity and stay in the game, we need our private sector and public sector to unite around their complementary strengths, allowing for a true “Team Canada” approach on this vital matter to take shape.

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Let me use a crop farming analogy here, because in a general sense, crop farmers and innovation-minded entrepreneurs share much in common. Both begin with seeds — whether the entrepreneur’s seed of a disruptive new idea, or the farmer’s physical seeds. Both will individually determine the best piece of land, or sector of the economy, to plant those seeds. Both will pull together the various resources required to grow those seeds into mature harvestable crops, shaping their unit economics accordingly.

And both will look to government for help with key obstacles that neither can effectively deal with solely on their own, such as access to global markets or keeping invasive species at bay.

In this analogy, the government does not micro-manage anyone’s day-to-day operations. Rather, it enacts broadly useful policies that provide for equality of opportunity, rather than pursuing the illusion of equality of outcome.

This way, the entire economic pie can grow larger for everyone. What we must avoid is having an economic pie that doesn’t grow, leading to depressing scenarios where competing interest groups fight over shattered crusts and crumbs.

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Let me be clear — I am not a techno-libertarian. I appreciate the government-created guardrails that restrain predatory business practices, or that punish pollution of our precious natural environment. But for Canada’s productivity to improve, we need our various levels of government to realize their responsibility to “do no harm” to the prospects of entrepreneurs with innovative ideas.

Government should, for starters, be reducing red tape holding back our entrepreneurs and reviewing relevant best practices around the world for inspiration. To further help support productivity gains in Canada and support our innovative entrepreneurs, our public policy-related efforts can be focused on three areas: Access to capital, access to talent, and access to customers and markets.

When it comes to attracting private investment in innovative companies, government policy can be a help, or a hindrance. Ottawa’s controversial plan to raise capital gains taxes is already inhibiting risk capital, before it’s even enacted. On the positive side of the ledger, a timely commitment of government support (like backing from Export Development Canada), when the risk of investment is unacceptably high for private capital, can subsequently help channel private funding to innovative firms by mitigating that uncertainty.

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On the talent front, public policy can be used to attract, retain and reward individuals with globally-scarce skills and qualifications. Today, Canada continues to strongly benefit from its long-standing openness to talented newcomers — especially those who possess in-demand skills in innovative industries, or in the trades. That said, we need to align our talent policies with our infrastructure policies — otherwise, housing deficits and woeful public transportation will give some newcomers second-thoughts about Canada.

And lastly, on the customers and markets front, government could help keep playing fields level in regulated industries, and in those spaces dominated by a few large global players with high data or intellectual property barriers, so our innovation-minded start-ups and early-stage companies have a chance to compete fairly. Governments could enable access to global markets through bilateral trade agreements, standard setting and alignment of data/intellectual property regimes.

And easiest of all, our three levels of government could use a modest portion of the billions spent annually through procurement outlays to support our Canadian domestic enterprises’ innovative ideas and products/services, where feasible.

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I truly believe that by harnessing the full power of the private sector and embracing the right public policy choices, we can make Canada’s economy into a genuine global productivity leader.

We have the means. Do we have the will?

A 30-year veteran of Canada’s tech investment scene, John Ruffolo is founder of Maverix Private Equity and co-founder of the Council of Canadian Innovators. 

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