We are concerned that the productivity debate could become counterproductive just as the R&D debate has. The problem with the R&D debate is that our politicians are scolding Canadian industry for not doing enough R&D even though our incentives for doing it are about the most generous in the world. They do not seem to understand that we have a Canadian industry that does not need much R&D. In the productivity debate, the politicians are telling Canadian industry that it must run a little faster on the treadmill and use more technology in their production facilities. We do not believe that will do the trick because we have a Canadian industry that has been mandated to do things that have low sales per employee.
Who is doing that mandating? It is the multinational enterprises (MNEs) that own most of our production facilities –over 60%, whether in terms of assets or sales.
It is not a sinister plot but rather the product of globalization. Virtually every production facility in Canada is for sale at any point in time and buyers are free to reconfigure them for maximum return on their investments. Unfortunately, there is not a direct relationship between that reconfiguration and productivity. To illustrate, take the case of a Canadian-owned high technology company supplying products or services to the world market. It is an integrated facility with its own senior management, its own R&D department, its own sales and marketing, and its own production facilities. Its sales per employee will typically be about $200,000 per employee. When that company gets taken over by an MNE, the only facilities that are likely to remain are the production facility or the R&D facility, depending on the strategic objective of the acquisition.
If its role is limited to R&D for example, it will likely sell its services to the parent company at a selling price that is much less than $200,000 per person – probably about $70,000, which is the going rate for such services in the local marker. The rest of the facility will either be dismantled or integrated into the parent company.
There are many types of productivity as well to be concerned about. There is capital productivity, there is labour productivity, and then there is multifactor productivity (MFP) which typically arises from innovation and cant be described as simply adding more capital or labour alone. Canada’s record in MFP is particularly poor, which does not say much about innovation and technology adoption in Canada.