Productivity Gap is New Brunswick’s Challenge

By Peter Lindfield, published in the Telegraph-Journal 19th June 2012

Fewer than three decades ago, New Brunswick seemed ready to keep pace with the rapidly changing global economy. More recent years have been a disappointment. On the face of it, some regions of New Brunswick appear relatively wealthy, socially progressive and entrepreneurially exciting.

But far from matching its competitors and overtaking them, New Brunswick is finding that the economic cracks in the facade may be widening. A Herculean effort is now needed not merely to realize New Brunswick’s full potential but to ensure that an aging population will not overwhelm what the province has already achieved. The consequences of failure would be the relegation of its most vulnerable citizens to financial and social isolation.

Many New Brunswickers believe that merely matching aggregate Canadian growth rates is a sufficiently aggressive goal. Unhelpful discussion persists about New Brunswick receiving its “fair share” from the federal government.

There is also an inadequate understanding of the causes of New Brunswick’s poor performance, with the key factor being the high cost of government. Others mistakenly lay the blame at the machinations of the federal government – since Confederation – for endangering their standard of living.

The real problem is the consistently large per capita output gap between New Brunswick and its competitor jurisdictions in Canada and the U.S. That gap is primarily a consequence of New Brunswick’s poor productivity performance over the last 30 years. Some industries, primarily forestry, oil and gas and value-added food production have bucked this trend.

But the competitive productivity performance of these industries, dominated by a very small number of firms such as J.D. Irving, Limited; Irving Oil and McCain Foods have served more to skew productivity data than serve as bellwethers of New Brunswick’s economy. Once these outlier firms are removed from the equation, the harsh reality is that New Brunswick’s productivity trends are worse than statistics suggest.

Compounding the problem, the real productivity gap fails to take into account the impact of New Brunswick’s lower employment levels. They tend to exclude many of the least productive workers operating in seasonal industries such as agriculture, forestry, tourism and the fisheries.

Worse, a substantial portion of New Brunswick’s output does not reflect real economic activity. The public-sector outputs of teachers, law enforcement or government workers, for example, cannot be calculated by market outcomes, which measure the difference between the value of goods and services sold and their respective inputs.

Keeping pace with Canadian growth rates will be insufficient to the task of ensuring New Brunswick’s long-term prosperity. Instead, the province must seize a labour productivity imperative to formulate a workable strategy to accelerate growth.

Dramatically improved productivity in New Brunswick is a matter of urgency not only to revitalize the economy but also because of the impending demographic transformation that looms ahead. Without radical intervention, New Brunswick will become poorer as it ages. Productivity growth is critically necessary to ensure that pension incomes do not mean inordinately high taxes for New Brunswickers as a whole. The scale of the challenge cannot be overestimated. Although New Brunswick badly trails its competitors in output per capita and labour productivity, it can still catch up.

There are many reasons for the gap, but a lack of intense competition lies at the heart of all of them.

Actively mobilizing the weight of export markets within which New Brunswick companies can compete will be a significant step forward. But New Brunswick must develop new and better strategies before it can move forward confidently. Another critical step was taken recently when the provincial government announced its intent to focus support on a small number of key strategic industries.

Finally, without devaluing the importance of New Brunswick’s distinct social cultures, striving for the means to associate the whole province’s business sector with a consistent set of values and experiences should be a key objective.


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