Press Responses - April 7, 1999
Why productivity suddenly got sexy Figures furnished an excuse to push for lower taxes
Linda McQuaig
National Post
It's no accident that, for decades, the subject of productivity was raised only in situations involving consenting adults. The subject was correctly considered too boring and complicated to impose upon anyone who hadn't specifically requested a briefing. So its recent emergence as a top-rung media issue and cocktail-party ice-breaker is striking. Could it be that the debate over productivity has suddenly become more interesting and understandable, and therefore presentable to the public? Let's listen in here for a moment to test that theory. "Caution should be exercised," says a recent report, "in the interpretation of capital productivity trends [and hence total factor productivity trends] between Canada and the United States because of use of different methodologies in the construction of the time series [e.g. different service lives, depreciation functions and deflators]." Oh, baby, don't stop now . . . Perhaps it's just a question of understanding some of the terminology. Maybe this will help: "Total factor productivity is the weighted average of labour and productivity growth where the weights are the income shares of labour and capital." Whew, thank goodness that's cleared up. It seems the current productivity fad has a lot to do with those on the right thinking the issue can be milked to advantage. Certainly, the recent OECD report on productivity must have seemed like a godsend. Just as the deficit issue ran dry and the brain drain was failing to materialize, along came the OECD with numbers showing Canada's productivity growth well behind that of the U.S, suggesting Canadians are less efficient at producing things. And from there it would seem a quick hop-skip-and-a-jump to making the case that Canada's high income taxes were to blame. A slam-dunk seemed in the offing. Ahh, but nations have been sucked into wars in the Balkans on scenarios as apparently simple as that. In fact, the productivity issue is a complex morass -- a fact that became evident when, earlier this month, Statistics Canada released numbers that suggested Canada's productivity growth wasn't as bad as the OECD suggested. Now the Ottawa-based Centre for the Study of Living Standards has come up with a more detailed analysis, to be released this week, showing that the much-discussed productivity growth gap in manufacturing is confined to two sectors -- industrial machinery and electronic equipment. When these sectors are left out of the equation, Canada's productivity growth was actually superior to that of the U.S. Surprisingly, Canada did better in 15 out of 19 industries. With such troublesome data floating around, the right is having to shift ground to make its case. In a Post editorial, Terence Corcoran conceded that Canada's productivity growth may have picked up in recent years, but insisted that our productivity levels are still much lower. This is a valid point, but it actually weakens the key argument of the right -- that high taxes are responsible for our low productivity. If our productivity has been improving in recent years -- at the same time our taxes have risen -- it's unlikely that high taxes are the source of the problem. It's much more likely that lack of adequate government investment in education, and in research and development are to blame. Certainly, it's hard to imagine how income tax cuts would do much for productivity. Even if Canadians were to invest all their tax savings in stocks, there's no way to ensure where that money would end up. It may just drive up share prices, find its way into executive pay increases, or be moved into ventures outside the country. We could always keep our fingers crossed, but there would be nothing to guarantee the money would be invested in things that would improve productivity.
TOBIN TAX SILENCE
For those wondering what happened to the Parliamentary vote on the Tobin tax, mentioned here two weeks ago: It sailed through the House of Commons, 164-83, even winning the vote of the finance minister. I suspect that the strong support for this controversial measure, which is aimed at curbing international currency speculation, reflects the same public distrust of big financial players that lay behind the widespread opposition to the bank mergers. Interestingly, despite the surprising result, the media all but ignored the Tobin tax vote. The Post found space to write a massive editorial against the tax before the vote, but neglected to report that the measure passed. No doubt, the reason for this omission was that the vote doesn't actually change anything; it's nothing more than a signal that Canada could start trying to push the issue onto the international agenda -- as it did with the landmines campaign. And, of course, the media never covers anything that hasn't already become a reality. That's why it's so difficult to find coverage of things like the campaign to unite the right. Linda McQuaig is an author and journalist. Her column appears here bi-weekly.
