Canada’s Resource Pigeon-Hole is Killing our Productivity

How about those productivity numbers that StatsCan released last week?  Wow: another nail in the coffin of Jim Flaherty’s claim that Canada’s economic fundamentals are in “great shape.”  There’s not much more fundamental in economics than how efficiently people produce stuff (except, of course, for what we do with what we produce – that’s even more fundamental).  And by that measure, Canada’s fundamentals are in trouble.

 

Output per hour fell by 0.3% in the first quarter (which is when real GDP was also shrinking 0.3%).  That follows a 0.7% decline in the last quarter of 2007 (when real GDP was still growing, slowly).  Productivity growth in the previous two years ranged from ho-hum to non-existent.

 

Curiously, then, output per hour is now lower today than it was in the first quarter of 2006 (when Flaherty and the rest of his crew were installed in office with a pledge to liberate the productive power of private enterprise).  The Harper government may yet prove to be the longest-lasting minority government in Canadian history.  But it may also be the first government in history (at least, since StatsCan began collecting this data) to leave national productivity lower than they found it.

 

My own view is that the miserable productivity performance is closely related to the resource-led restructuring of Canada’s economy that I’ve been railing on about for years now:

 

• high-productivity manufacturing jobs are disappearing by the bucketful
• productivity is plunging in the resource sector (as super-profitable companies trample over each other, incurring cost overruns that make Ottawa look like a hotbed of fiscal prudence, to extract increasingly costly and marginal deposits … Ricardo lives!)
• most damaging, a large share of our labour and output is being transferred to the non-tradable services sector by an overvalued exchange rate and the surprising disengagement of our economy from world markets

 

See my fuller Globe and Mail discussion of this relationship, including some shocking long-run productivity numbers published by Andrew Sharpe’s CSLS, here:

 

http://www.theglobeandmail.com/servlet/story/RTGAM.20080616.wcomment0616/BNStory/specialComment/home

 

PS: That column (which ran only on the Globe’s web page, not in the print edition) sparked 100 comments … far more than my usual print columns.  Why’s that?  Self-selection bias maybe … only web-surfing nerds get to read it, and they are more likely to comment?