Productivity views from across the pond

• Lagging productivity has plagued the Canadian economy for generations.
• Over the last 50 years, Canada has slipped from being the sixth-most productive country in the OECD to the 18th.
• The Bank of Canada has described the national productivity decline as an emergency.
• Mark Carney recently warned that diminished productivity is lowering living standards, straining government finances, and “starting to put at risk the social programs on which Canadians rely.”
• The implication often seems to be that Canadian workers are lazy, that we’ve had it too good for too long, that we enjoy too many vacation days and hold too many rights.
• But when economists and policy wonks bemoan Canada’s productivity, they’re generally not talking about labour discipline.
• The Bank of Canada is explicit:
  • Productivity hinges on a skilled workforce using cutting-edge technology.
  • A lack of productivity in the private sector indicates that businesses have failed to adopt, develop, or deploy the tools and training necessary for workers to generate maximum value.
• For the technocrats, the situation is clear:
  • While Canadian workers push themselves to burnout, businesses are failing to hold up their end of the bargain.
  • CEOs across the country have refused to modernise infrastructure, invest in R&D, or properly train their employees.
  • Our sclerotic executive class is killing productivity in pursuit of short-term profits.
• This isn’t a radical view – it has been the stance of some of the most pro-business analysts for decades, including Carney himself.
• Back in 2010, when Carney was Governor of the Bank of Canada, he laid the blame for Canada’s weak productivity squarely at the feet of the C-suites.
• He noted that Canadian businesses “under-invest in machinery and equipment, training, and innovation — in fact, all of the underlying drivers of productivity.”
• Carney also pointed to “inadequate competition” in key sectors of the Canadian economy — including telecommunications, electricity, and retail — where a small number of firms dominate.
• It makes sense – in a captured market, there’s little incentive to improve service or innovate.
• 15 years later, the problems Carney identified have only worsened.
• The list of industries under the yoke of oligopoly now includes airlines, groceries, banking, and media.

• Solutions to our productivity problem tend to fall into two broad camps.
  1. Strong government intervention – nationalising essential industries, creating public sector firms to set competitive baselines for price and quality, and breaking up monopolies.
  2. Double down on free-market ideology – deregulating the economy, lowering barriers to entry for international conglomerates, and forcing Canadian oligopolies to compete with foreign ones.
• Given Carney’s aversion to large-scale government intervention, and his belief that Canada is hobbled by “small firms that are significantly less productive than large firms”, it’s safe to assume he leans toward this latter strategy.

But that’s not the whole picture

• The torpor of Canada’s largest businesses is only one part of the productivity puzzle.
• Most of our economic activity takes place outside of big business, and much of it doesn’t happen in the private sector at all.
• By some measures, the public sector accounts for over 40% of the Canadian economy.
• But measuring productivity in the public sector is notoriously difficult.
• That’s because productivity isn’t about counting how many surgeries are completed or children are educated — it’s about counting the dollars changing hands.
• As a 2022 RBC report put it: “it is […] notoriously difficult to measure productivity in the public sector, where there are often no market transactions”
• Lacking good tools, economists end up measuring what they can.
• That usually means public sector productivity gets gauged by government spending, with little attention paid to the actual value created for citizens.

• Take health care:
  • In Canada, a successful open-heart surgery is measured by the cost to deliver it.
  • In the US, not only is the cost counted, but so is the exorbitant fee charged by the clinic.
• Unsurprisingly, this leads to a vast underestimation of Canadian public sector productivity.
• RBC found that “public sector education and healthcare industries are much less productive than in the US — by 70% and 50%, respectively”—and that these differences account for a fifth of the productivity gap between Canada and the US.
• According to standard productivity metrics, our more effective health care system — a system with longer life expectancy, fewer preventable deaths, and far less medical bankruptcy — is a drag on the economy.

What even is ‘productivity’?

• When economists claim Canadian teachers are 70% less productive than their American counterparts, it’s worth questioning how their tools are calibrated.
• The Bank of Canada defines productivity as “the number of dollars of value produced for a single hour of work.”
  • One method of calculating this is to divide the nation’s GDP by the total number of hours worked in a year.
  • The result?
  • A dollar amount per hour of labour.
  • In other words, productivity isn’t about what you produce — it’s about how much money moves.
• This raises obvious concerns.
  • First, this framework ignores unpaid but essential labour:
    • Caring for elderly parents or raising children — some of the most important work in society — is invisible to productivity metrics.
    • According to this logic, reading to your child and scrolling your phone with a beer in hand are equally unproductive.
  • Even when money is involved, the metric can’t distinguish between real work and grift:
    • Fraudulent enterprises boosted productivity this way.
    • As long as money changes hands, it’s “productive.”

A less ‘productive’ economy is a better one

• Canada’s faltering productivity is largely the result of our commitment to protecting oligopolies and our refusal to commodify essential public goods like health care and education.
• Knowing this, we could boost productivity quickly:
  • Privatise everything
  • Deregulate markets
  • Open the floodgates for international conglomerates to compete with domestic monopolies.
• These policies are deeply unpopular, but when framed in the sanitised language of productivity, and presented under the guise of economic expertise, they gain traction.
• Maybe it’s time to stop judging our society by this flawed metric.
• Instead of declaring emergencies over distorted productivity metrics, we should focus on creating an economy that delivers comfort, dignity, and security for all Canadians.