First Creativity, Now Productivity

Ottawa has finally admitted that Canada has fallen far behind the United States in productivity and thus living standards. If you produce less, your living standard is lower.

This has been obvious for years. But, until last week, Ottawa was in a state of denial about our weak productivity growth. It’s bunk, the Prime Minister said repeatedly.

Now in a blinding flash of light, Ottawa has had a revelation about our productivity problem, and claims to be ready to fix it. Imagine someone who’s never understood Beethoven, but decides one afternoon to become a classical composer and hire an orchestra to play the new tunes. Ottawa wants to spend a bunch of our money to hire an orchestra of policy instruments to play its productivity tune.

Business and individuals have little role in this. Rather than tax cuts, Ottawa will take money out of business people’s hands and spend it on their behalf to improve their productivity. This is likely to have all the success of Ottawa’s multitude of job creation and economic development programs in Atlantic Canada.

The key reason our productivity has fallen behind is our onerous tax burden. When a business makes a successful investment, the government takes the lion’s share of the return. When the investment is unsuccessful, the business gets stuck with the bill or goes bankrupt. Our taxes discourage productivity-enhancing investment.

Businesses also have fewer resources to put into investment. The taxman taketh first. The fact that Ottawa is launching a government-directed productivity program, rather than business tax cuts, shows how poorly equipped Ottawa is to advance productivity.

The United States leads the world in productivity. It’s true the United States spends more on basic research than we do. But, aside from that, the United States has no big productivity program.

That’s one reason for the US productivity growth. Businesses, which best know their own needs, make their own productivity-enhancing decisions, pay for the investment themselves, and collect the lion’s share of the gains.

This may be good for increasing productivity, but it’s not great for bureaucrats and politicians who want to enhance their power and prestige.

They don’t have powerful business leaders coming to them as supplicants. They don’t have bags of money to reward friends and gain new friends. They can’t make large “investments” in politically important constituencies. They don’t get invited to ribbon-cutting ceremonies, attended by a praising press and hundreds of grateful workers and managers. And, they don’t get to take credit for everything that works, while ducking blame for all the failures – a maneuver well known in Atlantic Canada.

An indication that Canada’s productivity program is likely to focus more on political gains than productivity gains can be seen in the ministers in charge. Jane Stewart, minister of Human Resources, made her name in the billion-dollar boondoggle, otherwise known as a jobs program. Her department violated its own rules in handing out money. Potential corruption has lead to a dozen or so police probes. The Prime Minister’s riding got an extraordinary amount of money.

Industry Minister Brian Tobin is the other lead minister. He’s planning to run for the leadership of the Liberal Party. Friends, favours, and influence will be particularly important for Tobin over the coming months.

Productivity is not something government builds. It’s something individuals and businesses build. They should be allowed to make their own decisions with their own money.

That’s better than taxing the money from business, laundering it through government, where a bunch of it gets absorbed in the bureaucracy, and then handing it back to business – often to the best politically connected businesses rather than the best businesses. Bad policy has retarded our productivity growth. More bad policy will make things worse.