So, after 30 years and four major reports loaded with ideas aimed at improving Canada’s productivity growth, why is Canada still grappling with the same problem?Sean Kilpatrick/The Canadian Press
Eugene Lang is an assistant professor in the School of Policy Studies at Queen’s University. He is a former Finance Canada official.
Paul Krugman, the Nobel Laureate economist, once said: “Productivity isn’t everything, but in the long-run it is almost everything.” Which helps explain the March comment by Carolyn Rogers, senior deputy governor of the Bank of Canada: “You’ve seen those signs that say, ‘in emergency, break glass.’ Well, it’s time to break the glass.”
Ms. Rogers was reflecting on Canada’s abysmal productivity growth, leading to five quarters of declining real per-capita gross domestic product (GDP) in the six quarters before her speech. Numbers like these led the Organization for Economic Co-operation and Development (OECD) to project Canada will turn in the worst growth performance of any advanced economy over the next decade and beyond.
But Canada’s weak productivity growth (in absolute terms, relative to the past and compared with peer countries) is not new. It is age-old and has been well-documented in Ottawa policy circles for a generation. While the federal government has never taken the dramatic step of “breaking glass,” successive governments going back three decades have sounded the alarm through several reports on the “innovation” performance of Canadian business – innovation being seen as the key factor in productivity growth.
So, after 30 years and four major reports loaded with ideas aimed at improving Canada’s productivity growth, why is this country still grappling with the same problem?
Ottawa’s innovation journey began with the publication of Building a More Innovative Economy (1994), the so-called “orange book.” The orange book did a good job of describing Canada’s productivity challenge, but its proposals were necessarily low-budget and small scale, because the priority in Ottawa then was reducing a deficit of nearly 7 per cent of GDP. There just wasn’t any money for meaningful innovation policy in the mid-1990s regardless of the severity of the problem.
Eight years later, with budget surpluses now piling up, another federal report was published. Titled Canada’s Innovation Strategy, it was the product of a year of internal bureaucratic wrangling, with 30-odd departments and agencies advancing “innovation” policy proposals for consideration. I had worked on it at the time. In the end, the report produced no meaningful policy change, had no impact on the innovation performance of the Canadian economy, and was soon forgotten.
Then Ottawa got a new idea. Why not put a successful business executive, rather than bureaucrats, in charge of developing innovation policy recommendations? Hence the appointment of Open Text’s Tom Jenkins to lead an expert advisory panel. The fruit of which was Innovation Canada: A Call to Action (2011). It contained a couple of big ideas; namely, a recommendation to utilize the billions of dollars in federal procurement spending to drive business innovation; and a call to de-emphasize the long-standing tax-credit approach to incentivizing private-sector research and development (R&D), in favour of more direct program spending aimed at small and medium-sized firms. Mr. Jenkins’s main recommendations went nowhere.
Enter Justin Trudeau’s first finance minister, Bill Morneau, and his appointment of the Advisory Council on Economic Growth, a group of business leaders and academic gurus set up to advise the government on growth-related policy. The council produced six reports, one of which was titled Unlocking Scale to Drive Innovation and Growth (2017). Like its predecessors, the report’s core recommendations were ignored.
Three reasons spring to mind for why Canada has done so little on the productivity front.
First, federal policy change is often driven less by the importance of the issue and more by a sense of urgency – it’s the classic dilemma: urgent crowds out the important. Unfortunately, long-run economic decline is never seen as a matter of urgency in government. It is the quintessential boiling-frog problem.
Second, persistent productivity weakness suggests deep-seated structural problems in the Canadian economy. You can’t meaningfully get at that without paradigm-shifting policy change. That entails risk, and all governments are masters of risk aversion. The irony here is that over the years the federal government has routinely chided Canadian business for insufficient investment in R&D, inadequate pursuit of foreign markets and weak entrepreneurialism, all of which boils down to risk-taking.
Third, when governments do get down to discussing innovation, the regional political imperative rears its head. Meaning innovation policies, especially spending programs, are usually designed to confer benefits on all regions of the country, seriously diluting their impact.
All previous federal innovation reports have tripped over some or all of these three hurdles. And this will likely continue. When the next government comes along, expect either indifference to Canada’s productivity crisis, or yet another study and report into the problem, which will be largely ignored. Then turn the heat up one more notch on the frog in the pot.
Editor’s note: An earlier version of this article incorrectly referred to Tom Jenkins as the founder of OpenText. This version has been corrected