Canada lags, productivity ranking says

Canada is sliding in global stature, partly because of sagging productivity and because governments are doing little but talk about improvements, the Conference Board of Canada says in its annual report on the country.

"Our story is that we're kind of snoozing," said Anne Golden, president of the Conference Board. "In this world, snoozers are losers."

The board ranks Canada and other industrialized countries for their performance in economy, innovation, environment, education, health and society. While Canada has gained in environment and education, it has slid in the other areas.

In the economy area, Canada has dropped from third place in 2003, to sixth in 2004, and now 12th. Canada's economic position is deteriorating because of its lagging productivity, a lack of investment and because other countries are improving.

"Canada's relative size and status in the global economy is slipping. With an aging population and our economic growth potential slowing, Canada will find it hard to avoid falling farther in the global rankings," warns the Conference Board report, to be released today.

Canada's productivity has stagnated, while U.S. productivity grew by 3.6 per cent in 2004 -- triple the Canadian rate. That translated into an income gap of more than $8,000 (U.S.) a person, the Conference Board says.

Other countries, especially in Scandinavia, are surpassing both Canada and the United States in productivity growth.

Productivity has wormed its way to the top of Ottawa's political agenda, with Finance Minister Ralph Goodale promising to deliver a "productivity budget" this winter. All government departments have been told to frame their budget requests with an eye to how their proposals will improve productivity.

For example, International Trade Canada has been asking for more cash to market Canada abroad and help businesses find new foreign opportunities, arguing this would boost productivity -- with 40 per cent of Canada's GDP linked to trade, which in turn pays for health care.

Some measures could be proposed as soon as in the coming weeks, if the federal government decides to turn its annual fall economic update into a pre-election document laden with spending and tax cuts.

While Ottawa is making all the right noises, the Conference Board says it has heard them all before, and seen few results, especially when it comes to harmonizing the country's 13 stock exchanges, refining equalization, cutting capital taxes, removing interprovincial trade barriers and taxing the working poor.

To make matters worse, Canada has not been able to attract as much investment into the country -- a costly problem because integrated global supply chains are becoming the main way thriving companies do business.

Canada takes top scores for openness to foreign ideas, technological co-operation, entrepreneurship and the tax treatment of research and development. But R&D as a proportion of the economy in Canada has been decreasing slightly, while other countries are on the rise.

While Canadian politicians and business leaders have long been aware of these problems, Ms. Golden said, they are hobbled by regulations and "endless turf issues" that pit provinces against the federal government, and lead to inaction.

Ottawa's plan to "dribble away the surplus" by giving out cheques to taxpayers rather than investing in a productivity agenda is foolhardy, she said.

Rather, governments need to spend more on education and infrastructure, and should remove tax and trade barriers to innovation and commercialization, Ms. Golden said.

Companies should be investing more in natural resources, where Canada has a big competitive advantage, she added.

While the report stresses that Canada is one of the best places in the world to live, and is a better place to live now than a decade ago, "Canada is not living up to its brand as a wealthy, environmentally responsible, socially conscious, healthy society."

But conventional measures of the Canadian economy may not be showing how strong the country truly is, said Ted Carmichael, chief economist at J. P. Morgan Securities Canada Inc.

A new indicator of national income being developed by the Organization for Economic Co-operation and Development, called "command GDP," takes into account the purchasing power of households and the effects of having an improvement in a country's terms of trade.

Because Canada is a highly open economy whose terms of trade have soared, command GDP shows growth averaging more than 4 per cent a year for the past three years, while conventional measures show an average of 2.6 per cent.

The new measure explains why Canada's domestic demand has been so strong, why the job market is thriving, and why living standards have not been hurt by lagging productivity, Mr. Carmichael said.

Indeed, Canada's living standards have improved both absolutely and compared with the United States and other industrialized countries, when measured by command GDP, Mr. Carmichael said. That's because improving terms of trade means more money in the country. And the appreciating Canadian dollar means an improvement in purchasing power.

Canada's sliding stature

The Conference Board of Canada ranks industrialized countries for their performance in various economic categories.

SOURCE: CONFERENCE BOARD OF CANADA