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A bigger bang from our buck


May 13, 2010
by Joe Terrett

About 10 years ago when the loonie was paddling about with the US buck in a 64-cent pond, experienced and successful plant executives announced collective dissatisfaction with the trade punditry’s admonishments concerning Canadian manufacturers’ lax investment in new, productivity boosting technology.

It doesn’t make sense to invest all that money in capital when the dollar is so low, they said. Better to hire the labour you need and adjust accordingly.

Fast-forward to today as the dollar flirts with parity, many manufacturers have continued to “adjust accordingly” through good times and bad, rather than make any significant capital investments in technology, machinery or equipment.

This is not a sustainable strategy.

Canada does not impress with its labour productivity, which is proving to be an ongoing drag on our standard of living. Organisation for Economic Co-operation and Development (OECD) statistics show our purchasing power modestly trails other developed nations, and this poor performance should be of particular concern to manufacturers who face huge challenges in post-recession, hyper-competitive world markets.

If you go to the Conference Board of Canada’s web site (www.conferenceboard.ca) and search productivity, you will see some very nice diagrams showing countries that make higher investments in machinery and equipment enjoy higher productivity growth. You will also see that Canada’s investments are among the lowest compared to its peers.

Yes, we saw a bit of a productivity boost in the final quarter of 2009. Business turned in a 1.4% improvement while manufacturing was up 2.1%, which was pretty good considering Canada lost ground in 2008 with a -0.9% performance.

But the big picture shows we have advanced a paltry 0.7% over the past decade, half the rate of the US, our chief rival and biggest customer. Indeed, the US has been tooting along very nicely since the mid-1990s when manufacturers made massive investments in machinery, equipment and information and communication (IC) technologies.

Bank of Canada governor Mark Carney has warned that if our pokey productivity improvements continue, we are going to have a problem over the longer term. Manufacturers will find it even more difficult to compete, and over the next decade Canadians will be short $30,000 in real income.

It’s not going to be easy to catch up to the US. The Conference Board notes if US productivity grows at its 2000 to 2008 rate of 1.67%, Canada’s growth will have to be 3.22 per cent.