Crawl Across the Ocean

Monday, December 05, 2005

Rorschach Watch: Episode 2

Note: Previous posts in this series here, here, and here.

Just to show that the Rorschach watch is a non-partisan affair, today's guest on Rorschach Watch is labour economist and occasional Globe and Mail columnist Jim Stanford:

Roll the tape:
"Productivity: This big-picture economic challenge has attracted wads of expert prognostications over the past couple of years. But it won't resonate in an election campaign: The issue is too abstract, and has been interpreted (so far) as just another call for more business tax cuts. That will never get popular traction. Since 2001, business taxes have already been cut deeply, yet Canada's productivity growth has stalled entirely. Despite that, the Liberals promise more corporate tax cuts, and the Conservatives egg them on. To their credit, the Liberals have taken other measures that will more meaningfully boost productivity growth -- substantially expanding public R&D, and leveraging high-tech private-sector investments."

Full marks to Jim for observing that if corporate tax cuts were the key to productivity, our record should have been better the last few years, and bonus points for noticing that the Liberals and Conservatives haven't let reality prick their productivity bubble even a little bit.

But then, Jim stares at the inkblot and sees the true road to productivity gains - expanding public R&D and leveraging high-tech private-sector investments. Only problem is, Canada has already significantly ramped up its public R&D spending (I can't comment on leveraging high-tech private sector investments because I have no idea what that means - throwing money at RIM, Ballard Power and Bombardier?) in the last decade as well, only to see it's productivity flatline.

The fact that only one paragraph earlier Jim was applying the test of reality to productivity solutions and now he is blithely making his own recommendations which fail the exact same test is kind of sad.

But wait, there's more. No, not from Jim, he's done, but elsewhere in the Globe we find the headline: Blame Canadians: More evidence of Canadian unproductiveness landed Monday in a report from Statistics Canada.

This little piece says so much about the spread of information in Canada.

First, Statscan does a study (summary here) on productivity which comes to the common sense conclusion that multinational companies drive more productivity growth than purely domestic ones. I say common-sense because, setting aside any economies of scale (which are probably significant in their own right) it is only logical that it is the well-run, efficient, innovative companies that get big and rich enough to become multinationals. For example, last time I was in Mexico I noticed lots of Wal-Marts, but few Zellers.

Anyway, this is what statisticians (and social scientists in general) tend to do when faced with mysterious questions, do studies that come to obvious conclusions.

What the media likes to do, on the other hand, is turn boring studies with uncontroversial, mildly interesting conclusions into startling and disturbing headlines (without ever linking to the actual study of course). So the innocuous Statscan study suddenly becomes: Blame Canadians, and the Globe (Tavia Grant) admonishes us:
"Canada's productivity, defined as output as a percentage of hours, has been a source of embarrassment in recent years. On average, Canada's productivity growth has hovered just above zero since 2000. The U.S., on the other hand, has seen productivity grow by an average of 3.8 per cent since the start of the decade.

'Foreign-controlled plants are more productive than domestic-controlled plants in general,' Statscan said. 'This is because foreign-controlled plants and firms are also more innovative, more technologically advanced, and more likely to perform research and development.'

A little later, the Globe admits that most of their article up to that point was misleading:
"Not all Canadian-controlled plants were less productive or less innovative, however. The study found there was little difference between foreign-controlled plants and domestic-controlled plants whose parent had an international orientation."

In fact, the summary of the Statscan report says,
"The study showed that domestic producers with foreign operations (referred to as domestic multinational enterprises) were equally productive and had a slightly better performance than foreign-controlled plants with respect to research and development and innovation."

Sorry, who are we blaming again - are we blaming domestic companies for not being multinational companies? Isn't any country going to have a mix of domestic and international business? Is there any evidence that something about our domestic industry is different from that in other countries? Apparently not - according to the study,
"A growing number of studies in other countries have also used micro-level data to compare the performance of foreign-controlled and domestic-controlled plants. Theses studies find that foreign-controlled plants are more productive."
So blame everybody?

All that's left now is for the readers to chime in in the comments section on the Globe website, and while I don't want to give the wrong impression - many of the comments are quite sharp and add some real insight - there are also a lot of people staring at the inkblot and before you know it, explanations abound:

"Again we see that Canadian companies tend to be short sighted when it comes to long-term internal investment. They want already trained staff to come to them instead of training the staff themselves. They want to buy or copy new technology from someone else rather than create it themselves. ... Government taxation contributes to part of this lack of long-term investment, but company managers need to take responsibility as well."

"We must wake up and create a takeover policy that stops this self-destructive madness"
[ed. the study generally points to the benefits foreign owned companies bring to Canada, in terms of their own efficiency and in the pressure to improve they put on domestic companies and in the imitation of their efficient practices by local companies]

"Canada will never be competitive with the current school curriculum. The current education system is pathetic, however, this will not change since decision makers are also educated in Canada and they do not know any better."
[ed. Actually on most tests our education system ranks pretty well]

"The perceived shortcomings of the educational system have nothing to do with national productivity (the US system is even worse in many ways) and everything to do with the impact of a decade of artificially-low currency exchange that restricted Canadian companies from importing productivity-enhancing technology"

"If the banking system were set up to help smaller companies develop, I think these numbers would change."

"The issue is risk aversion, on the part of Canadians in general and on the part of Canadian financial system in general. This is at the root of Canadian short-sightedness when it comes to long term investment."

"It is not surprising that multinational companies would be outperforming others. Canada prefers to put itself in a box by defining bilingualism as English/French."

"Maybe Canadian productivity is as high as it can be. When I look around me, that seems a likely possibility.
" [ed. this is original at least]

When it comes to productivity, everyone's an armchair quarterback. Yet we still don't seem to be marching down the field. Must be that darn 3-down Canadian game.


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