Canadians can’t afford to lose productivity race
Published On Wed Mar 31 2010. By David Crane, Economics Columnist
MONTREAL–When the Liberals gathered here for their Canada at 150 thinkers’ conference, the most sobering message they heard came from David Dodge, the former governor of the Bank of Canada. Without a much more innovative economy, he warned, we will not be able to sustain a caring society, including universal health care, let alone adopt new programs to fight poverty, fund early childhood development or meet the needs of the fragile elderly.
Pushing current trends into the future, Canadians face the prospect of an actual decline in living standards, Dodge said, stressing that if Canada fails to increase labour productivity from “the miserable 1.2 per cent per year average since the mid-1970s, as a society we simply will not have the economic resources to care adequately for the growing dependent population at the end of the decade – but more particularly in the 2020s and 2030s.” This is why improving productivity growth is the fundamental economic challenge facing Canada.
And compared with other countries, Canada could be a declining society. “Without productivity improvement we will condemn ourselves to a standard of living which is in decline relative to the rest of the world – this decade – and absolute decline next decade,” Dodge said, warning this means “Canadians will have to work ever more hours per year and retire ever later.” And even that may not be enough.
Productivity is a measure of how smart and efficient a society is in using knowledge and ideas to achieve higher levels of value per hour worked. It is through sustained growth in productivity that societies are able to sustain a high and rising standard of living.
Productivity depends on many factors, including the education and skills of people, the ability of businesses to develop new products and services and find better ways to produce and deliver them, the pursuit of new markets, investment in advanced technologies in the workplace, spending on research and development, efficient infrastructure, an open economy where competition is encouraged, low cost of capital for investment, and a smart regulatory environment that achieves regulatory goals without lots of red tape.
As Canada faces an aging society, the other source of economic growth – a growing labour force – will level off sharply so that we will become even more dependent on strong productivity growth. Canada currently ranks 15th among the 30 Organization for Economic Cooperation and Development countries in productivity. Our level of productivity – how much value we produce in an hour of work – is only about 80 per cent of the U.S. level. In 2001-2008, average annual productivity growth in Canada was just over 0.5 per cent, compared with nearly 2 per cent in the U.S.
With Canada’s productivity gap growing, there is increasing concern about the urgent need to respond. Dodge’s successor at the Bank of Canada, Mark Carney, is focusing on the issue, warning that Canadian business leaders are failing the country by their lack of investment in innovation.
Canada’s social agenda, then, is hostage to a more innovative economy. And as several speakers at the Liberal conference pointed out, there remains a huge unfinished social agenda in Canada, with new needs emerging, including care for a growing number of frail and vulnerable elderly.
Sherri Torjman, vice-president of the Caledon Institute for Social Policy, noted that 50 per cent of employed Canadians are poor, that large numbers of Canadians will have inadequate pensions, that Canada is lagging badly in early childhood development and that there is a growing gap between wealthy and low-income Canadians.
Marie-France Raynault, dean of the department of social and preventative medicine at the University of Montreal, said one of the factors in rising health costs came from the fact that people living in poverty or low incomes, with inadequate housing, poor diets and insecure employment opportunities, tend to have poorer health.
Dodge himself pointed to the urgent need to improve care for the elderly. “Perhaps the most pressing problem we will face is how to provide assistance and care for the growing number of `fragile elderly’ – those no longer fully capable of meeting their everyday needs on their own.”
New ways will be needed to provide assisted living and long-term care in an affordable way, including ways to support family caregivers. “Warehousing the fragile elderly in acute care facilities is neither affordable nor humane. Nor is much of our current institutionalized long-term care,” Dodge said. Today there are about 595,00 Canadians 85 or older and by 2026, that number could be about 910,000 and well on the way to passing 1 million.
What this means is that in writing their platform for the next election, Liberals will have to give priority to explaining how they will bring about a more innovative economy if they want to address our unfinished social agenda. As Dodge put it, with improved wealth creation we can have a more caring Canada, but without more wealth creation there’s not much we can do for the vulnerable members of our society. That is the most important message out of the Liberal thinkers’ conference.
< http://www.thestar.com/opinion/article/787829–crane-canadians-can-t-afford-to-lose-productivity-race >