the productivity race

A substantial amount of productivity growth will come from product and process innovation, improvements in management practices and the application of technology throughout the value chain.

We are in a race to determine who can keep up with the withering pace of transformation taking place in the global economy. Emerging markets such as China, India and Brazil are at the forefront of this marathon. They are sprinting along at record productivity-led GDP growth rates supported by large and young working populations. In the West, producing more with fewer workers is the best hope for creating prosperity over the coming years. But a shrinking labor force means that even relatively small GDP increases will require enormous gains in productivity.

To achieve broad-based income and employment growth, government, industry and citizens will need to unite to a common cause and harness themselves to the productivity engine. To ensure substantial gains across every sector and industry, we will need to radically alter our practices in three important ways. This effort will not come without dislocation and sacrifice.

First, the public needs to recognize that we are in transition to a global, knowledge-based economy. Not only in the IT or telecommunications industries, the new knowledge-based economy includes forestry, mining, aquaculture and agriculture. This transformation is taking place across all industries where employees increasingly require knowledge skills to analyze information, solve problems and adapt to new processes. Estimates are that almost three quarters of all market value created since 1980 has been the consequence of applying knowledge to industry. The importance of knowledge to our competitiveness means that we need to determine if we are making sufficient investments to improve the education and training of workers.



Sophisticated machines and advanced assembly lines are recent additions to many Chinese factories and increasingly are state-of-the-art.

Second, government needs to focus on the importance of establishing the efficient infrastructure that will encourage firms to become more risk-taking and export-focused rather than complacently parochial in their market outlook. The federal and provincial governments can help by moving to dismantle the barriers to trade, products and labor mobility across Canada. Government can provide sustained support for export market-driven activities and develop less complicated one-stop business service centers. In conjunction with industry, government can help create an institutional response to the problem of the lack of access to capital for entrepreneurs. Industry and sector associations should focus their advocacy on these and other policy amendments that will have short- and long-term impact on industry’s competitiveness. These are among the issues that should figure prominently among politicians in the current election campaign.

Third, history shows that breakthrough innovation created by the private sector will provide most of the productivity expansion. Much of this growth will come from product and process innovation, improvements in management practices and the application of technology throughout the value chain. This innovation has already been disruptive in many industries as investment has moved from traditional business models to those that may not even have a physical supply chain. Entrepreneurship, in startups and established firms, is a key factor underpinning innovative capacity. Reciprocally, complacency is the great enemy as we run the risk of relying too long on obsolete methods, practices and ways of working.

Canada lags behind its competitors in productivity improvements, investment in R&D, export orientation and support for innovation policies. Our poor performance is not an indicator of our isolation from global forces. It is instead a consequence of a belief among many Canadians that globalization will not have an impact here any time soon or that we can somehow circumvent the trend to global integration. This flies in the face of the mounting evidence across the country that the effects of globalization have already arrived and are here to stay.

For more information about this research theme, contact us at research@carlisleinstitute.org.