Canada can raise productivity through innovation: Report

Canada can close the productivity gap with the United States through managerial innovation, according to a recent Conference Board of Canada report.

Measured across all industries, Canada’s real per capita GDP was at 84 per cent that of the U.S. in 2003. This productivity gap accounted for an income gap of $6,078 per person, states the report, Performance and Potential 2004-2005: How Can Canada Prosper in Tomorrow’s World?

The report compares for the first time productivity levels between the two countries in 29 industries in the business sector. It notes a bigger gap in the service sectors, where competitive pressures aren’t as great as they are in export-oriented industries that go head to head against global players.

The good news is Canada is more productive than the United States in 10 sectors: primary metals, non-metallic mineral products, wood products, construction, some transportation equipment, printing and publishing, paper, chemicals, transportation and motor vehicles.

The bad news is this list of successes only accounts for 27 per cent of Canada’s business-sector GDP. The remaining 19 industries, those with productivity levels below their U.S. counterparts, make up 73 per cent of Canada’s business-sector GDP.

Of these, it’s the service industries that contribute the most to the productivity gap. That’s because they account for a larger share of hours worked in the business sector. As measured by the share of hours, these larger industries include: finance, insurance and real estate (55 per cent of U.S. productivity), wholesale trade (69 per cent), retail trade (86 per cent), business services (86 per cent) and other services (90 per cent).

Given the U.S.’s technological advantage over Canada, Canadian businesses would be hard-pressed to close the gap by capital investment alone, observes the report. The solution may lie in coupling capital investment with managerial innovation, the report adds. In industries that are exposed to global competition, businesses are under greater pressure to adopt best practices and innovative processes, thus improving productivity levels. In that vein, Canada should pursue policies that further open up borders to foreign investment, states the report.

The report also notes Canadian successes in terms of innovation and education and skills.

The report ranks 24 Organisation for Economic Co-operation and Development countries in six categories and finds Canada among only four countries to place on the top 12 countries in all six categories.

In four categories — environment, education, health and society — Canada pulls ahead of the United States.

In the category of innovation, Canada places fourth, behind the United States, Sweden and Finland. Despite low spending on research and development and a weakness in commercializing discoveries, Canada scores high for fostering an innovative environment. This means having the right conditions for innovation, including culture, brand recognition, risk tolerance, governance, regulatory environment, taxation, infrastructure, global market forces and availability of skilled workers.

Canada has also improved in the category of education and skills, where the country ranks fourth behind Finland, Norway and Sweden. High school and post-secondary school completion is relatively high in Canada, as is the number of science, math, computing and engineering graduates entering the labour force. And although Canada scores low for the share of the population that takes advantage of job-related training and continuing education opportunities, the country gets high marks for the amount of hours spent in training by those who do participate in continuing education.

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