Wednesday, July 28, 2010

The long term Canadian problem, falling productivity rates

In Canada we spent a generation dealing with the lack of investment in productivity improvements through a falling Canadian dollar.   There was no need for Widget Maker XYZ to improve their productivity if their export costs could be counted on to be lower through a falling dollar.

This era has ended, the macro economic discipline of Paul Martin as finance minister has caught up with things and Canada is being rewarded with low interest rates and a high value dollar.   These two factors make it cheaper than ever for companies to buy equipment to improve production.   With the HST in BC and Ontario, there is another 7-8% reward for buying new equipment.

A generation of limited interest in improving productivity means that many Canadians do not even think about the issue at all.  Everywhere in the world business is constantly trying to improve through managing to do more with fewer resources, any companies that are not doing so are in danger of no longer managing to compete.

Why has WestJet done well?   Because they have figured out that routes are only worth offering if you have enough passengers and at the same time the newest planes cost a lot less per passenger mile to operate.

In BC, the coastal forest industry did not reinvest in new equipment and now it is serious trouble and effectively gone as a manufacturer from many communities.   At the same time the forest industry in the interior invested in everything that would reduce production costs and raise the value of the timber.   As a consequence the forest industry in the interior is the most productive in the world and can compete with anyone anywhere.   They are the model we should be looking to.

We need to actively support companies that invest in productivity improvements, we need to make Canadian business leaders change their thinking paradigm to one in which they adopt constant innovation as their business model.

We are not going to see a low Canadian dollar anytime soon because we manage our finances so well when compared to the rest of the G8.   We also have a large influx of currency due to our rising natural resource exports.  If Canadian businesses do not innovate, if government does not support productively gains, we are looking at a potential case of Dutch Disease in Canada for the next ten to twenty years
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