We're losing our edge
National Post
Saturday, November 20, 2004
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It is easy to understand why Canadians would view the recent rise in our dollar, our strong economic performance this year and the massive federal budget surplus announced Tuesday as proof our country is on a sound economic footing. And it is -- for now. But buried beneath this blizzard of good news is a dangerous trap: Our national productivity performance is woeful.
Ottawa's budget surplus -- along with all the new social spending it is encouraging -- is dependent on economic growth, and that growth is in turn dependent on the competitiveness of our goods in the U.S. market. But that competitiveness has been owed largely to a dollar that the Liberals consciously devalued as a means to lower the prices on our exports south of the border. Now that our dollar is on the rise, we may be about to see just how short-sighted this low-dollar policy has been, and how unwise it is to plan big expenditure increases trusting that the competitive advantage it gives us will continue.
Just how vulnerable our economy is to a surging dollar was made obvious in July, when Statistics Canada revealed that our economy grew in real terms by only 1.7% in 2003, compared to 3.7% in 2002. According to Statscan, "SARS, mad cow disease, the power blackout in Ontario and the forest fires [in British Columbia]" all played "a minor role" in that decline next to the rising dollar.
The way to overcome a further slowdown would be to improve productivity -- increasing output more rapidly than the number of hours worked. But that would require massive retooling in most industries. In October, the Conference Board of Canada reported that of 29 private-sector industry groups, 19 lagged behind the United States in productivity -- some, such as real estate, insurance and financial services, by 40 percentage points or more. Since those 19 industries represent 73% of our GDP, that means nearly three quarters of our economy is less productive than that of the largest market in which we are trying to compete.
Given that StatsCan reports that our "productivity has been virtually flat for five consecutive quarters, going on six," its finding that Americans enjoy "a significant advantage" over us in goods produced per hour worked is hardly surprising. In 2003, the U.S. productivity advantage grew by more than four percentage points. Since 1999, it has expanded by an average of 2.5 percentage points per year. And since the Liberals commenced their low-dollar policy, the advantage has cumulatively widened to more than 33%.
Rather than plotting with the premiers to dump an additional $41-billion into the black hole of public health care, or $5-billion over the next five years into child care, Paul Martin should be looking for ways to return the $8.9-billion surplus announced this week to Canadians -- especially entrepreneurs -- so they can buy the tools, computers and machinery needed to close the productivity gap with the United States and keep our goods competitive.
This need became even more urgent with this month's re-election of George W. Bush as U.S. President. Mr. Bush has already announced that one of his top two second-term domestic policy goals will be a reform of the tax code -- meaning simpler tax filing, as well as flatter and lower taxes. That will not only encourage American investment to further exacerbate the productivity gap between their country and ours; it could also further broaden the disposable income gap, now currently at about 30%. If the American economy produces even more opportunities than it does now and the chances to become successful south of the line become even greater, ignoring our national productivity will result in the Canadians we most need to lift our economy leaving for the greener, lower-taxed pastures of the United States
We're losing our edge
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...Continued
It's fine for the Liberals to dream big on social programs. But if they neglect industries and workers who generate the growth that funds those programs, Canada will some day find itself without the economic strength to pay for its safety net. |
