There are favourable macro-economic conditions in Canada and executives are far more optimistic about the current and future state of the country’s economy than their peers in the United States. However, Canadian business leaders are not planning to invest in the types of activities that are required to improve productivity, according to a report by Deloitte Canada.
“Our study substantiates for the first time that it’s true – not a hypothesis – that Canadians are indeed more risk-averse than Americans, despite our current positive economic climate,” said Bill Currie, Deloitte Canada’s vice-chair and Americas managing director of consulting.
Despite self-reporting similar risk tolerances to Americans and being more optimistic about the economy, Canadian business leaders are, on average, 13 per cent less tolerant of risk than their American counterparts. This gap widens to 18 per cent when adjusted for the more negative economic state and future outlook of Americans, found The future of productivity — An eight-step game plan for Canada, based on a survey of 450 Canadian and 452 American executives.
Canada is at a productivity crossroads because of promising economic conditions, according to Deloitte.
“Canada’s strength through the recession has created a unique – but likely finite – window during which our productivity trajectory can be reset. The conditions are effectively aligned to make us or break us,” said Larry Scott, vice-chair of Deloitte in Canada and chief strategy officer for Canada as well as the global organization.
In addition to risk aversion, there are five key issues identified by the report as driving Canada’s productivity woes: chronic under-investment in machinery and equipment; sheltering of the Canadian economy; increasing competition for human capital; inefficient and insufficient support for innovation; and lack of risk capital for start-up companies.
The courage to lead: An eight-step game plan for Canada
From 2001-2009, Canada’s annualized productivity growth of 0.7 per cent was in the bottom quartile of the members of the Organisation for economic co-operation and development (OECD), far below traditional comparators such as Australia (1.1 per cent), as well as small economies such as Austria (1.4 per cent) and Israel (1.3 per cent), said Scott.
“The time to act is now,” he said. “We are calling on the highest levels of business, government and academia to have the courage to lead in order to foster accelerated growth and close the increasing gap between Canadian productivity and that of other advanced economies.”
Deloitte’s report lays out an eight-step plan to create the right people and the right environment – the foundation for a new competitiveness and continued high standard of living:
Educate: Ensure the education system fosters entrepreneurship and innovation at all levels
The shaping of Canadian attitudes towards innovation, risk and the value of learning itself begins in the primary and secondary education system. Deloitte recommends the development of new content to equip the next generation.
Populate: Re-tool the immigration system to attract and fully utilize skilled immigrants
Deloitte recommends the Canadian government work with professional associations and licensing bodies to identify more effective mechanisms for determining foreign credential acceptance.
Innovate: Improve the effectiveness of research and development
To increase private sector R&D, Deloitte believes Canadian governments should align R&D incentive programs with the needs of different innovation life-cycle stages. The level and quality of communication and collaboration between business and academia must be improved by reducing bureaucracy.
Incubate: Bolster the pool of risk capital
Deloitte recommends the creation of angel tax credits at both the provincial and the federal level similar to those instituted by the province of British Columbia. Studies of the B.C. credit show it has increased angel investment by 50 to 70 per cent and for every dollar spent on the credit an average of $1.98 in new tax revenue is created.
Co-locate: Create a national clustering strategy
Deloitte believes a national clustering strategy is necessary to capture gains but this strategy should be a regional effort, supported by provincial and federal governments, rather than a top-down initiative. Local businesses, municipal governments and nearby universities have the strongest grasp of local strengths and should be encouraged to develop local cluster associations and strategies.
Update: Invest in machinery and equipment
Conditions for Canadian businesses to invest in machinery and equipment are extremely favourable. U.S. price levels remain depressed and the Canadian dollar is above parity. However, these favourable conditions could dissipate quickly.
Accommodate: Ease the flow of foreign direct investment
Deloitte believes the net benefit test should be made more transparent, with more information provided on the metrics used to measure each component and on their relative weightings.
Facilitate: Reduce trade barriers and pursue new markets
Canadian businesses need to reframe their point of reference beyond North America to the global economy, while our government must foster conditions for them to compete with greater agility around the world. New trade agreements with emerging economies should be created, and the backlog of pending trade agreements finalized.
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