Ontario must boost productivity study
People, firms, government told to invest Province’s GDP lagging, report says
Toronto Star
By Sharda Prashad
Ontario’s tendency to spend too much and invest too little is catching up with it, a new study warns.
The province’s productivity is falling and, if unchecked, the trend will lead to less personal income, according to the fourth annual report of the Task Force on Competitiveness, Productivity and Economic Progress.
“Each family would gain $8,300 in disposable after-tax income every year if the gap were closed,” said Roger Martin, chair of the task force and dean of the University of Toronto’s Rotman School of Management. “As recently as 15 years ago we were in the upper half of our peer group.”
The report found Ontario’s 2004 gross domestic product per capita was $6,000, or 12.6 per cent, lower than the GDP median of its “peers”, which include Quebec and 14 U.S. states. Ontario had the second-lowest GDP in the group, above only Quebec. The province’s prosperity gap has nearly doubled since 2003 when GDP was $3,100 less than the median.
Closing this productivity gap will require individuals to upgrade their education; businesses to invest in all areas, including staff training and capital assets; and government to spend more on infrastructure and post-secondary education.
There are costs. A worker might forgo leisure activities to complete a university course; a business could spend money on employee training rather than giving bonuses; and the provincial government could invest money in attracting business to a region, instead of issuing transfer payments to it.
Increasing productivity doesn’t require longer working hours, emphasized Martin. Instead, it means working more effectively and using a more highly skilled workforce. More educated people are more productive, innovative and earn higher salaries. A task force study found on average someone with a bachelor’s degree earns 38 per cent more than an individual with a high-school education.
Martin said government must intervene to integrate highly skilled immigrants who are under-employed into the workforce. “People may think of the cabbie with the PhD but the great majority of people have found education to have a huge positive impact.”
Businesses also need to start appreciating the advantages an educated workforce can offer in terms of making better strategic decisions that will increase productivity, he added.
“There is a tricky equilibrium. Relatively uneducated business managers don’t see the need for a highly educated workforce.”
The problem should be resolved as retirees are replaced by more educated workers and as Ontario companies compete globally and entrepreneurs interact with adept European and U.S. business leaders who generally hold advanced degrees, Martin said.
As global competition continues, he said, Ontarians will also have to accept that foreign investment isn’t necessarily a bad thing.
“What will happen to Dofasco (if this week’s $4.4 billion takeover bid by Europe’s Arcelor SA is successful) is a national company will come away with the mindset of a big global company,” said Martin.
“People get mad when we take jobs offshore ... and love those (companies) that are strictly Canadian.”
Those attitudes, combined with a history of government policies that protect Canadian companies, have hindered and not helped the country’s global competitiveness, Martin said.
The task force identified just 72 companies in Canada that are globally competitive in a separate study released last year.
“Calls for Canadian business to pull up their socks are not helpful,” said John McHale, professor of business economics at Queen’s University.
Instead, he echoed the report’s recommendations by saying government needs to intervene with public policy that is more conducive to improving productivity.
One way is to introduce tax policies that encourage businesses to invest in staff and capital assets. Ontario’s current tax system doesn’t encourage such investment so Martin calls for the government to look at alternative models of “smarter taxation.”
He cited as an example Ireland’s low taxation model that helped spawn its “Celtic tiger” period of economic growth.
