Category Archives: Productivity

What’s an SLA?

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Claiming that they were scammed by Indian multinational outsourcing firms and “dazzled” by their sales pitches, some executives of Canadian companies deny accountability for poor job performance, work delays and outright project errors. Apparently, these executives prefer being characterized as incompetent managers, unaware of basic contractual countermeasures such as service level agreements (SLAs), rather than admit they made decisions to outsource work to offshore locations. This line of reasoning also extends the definition of “plausible deniability” to include practices that are intrinsic to executive decision-making. The changes introduced by the federal government will do nothing to change the fundamental problem associated with the purported skills gap.

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Filed under Labor force management, Productivity, Unemployment

Lack of Competition Hinders Provincial Economy

By Peter Lindfield, published in the Telegraph-Journal 22nd June 2012

Conventional wisdom blames New Brunswick’s underperformance on the limited educational attainment and low skill level of its workforce. They are the scale penalties of operating in a relatively small market and the capital market pressures that make companies reluctant to invest in long-term productivity-enhancing technologies.

Undoubtedly, these factors play a role, but the real cause of New Brunswick’s low productivity can be traced to the lack of competition and innovation in product markets.

Competition is the key mechanism that assists more productive and efficient companies to expand and take market share from less productive ones, which then either exit the business or become more efficient. Consumers benefit from this dynamic because companies offer better products at lower prices.

What can be done to encourage companies to improve their productivity and competitiveness? There are a number of key ways that the provincial government can help close the output gap and assist New Brunswick against the coming demographic tempest. Without intense competition, all other strategies, policies and measures are ineffective.

But first, there must exist a consensus about New Brunswick’s defining industries. This means placing a spotlight on where New Brunswick firms possess or can possess a competitive advantage.

The provincial government has already announced that it intends to focus its support on a number of key strategic industries. Additional inputs from sector associations and other industry groups need to coalesce around these industries. A challenge for government will be that support for industries will not necessarily mean support for every firm in those industries. In addition, government subsidies, inducements and other investments may still apply to other industries.

Second, government should negotiate reforms to harmonize tariff and non-tariff barriers as well as rationalizing regulations and standards within Canada and the United States. Larger markets could assist smaller New Brunswick companies to become more competitive. Sufficient scale and the presence of competitive markets are needed for the unleashing of Joseph Schumpeter’s forces of creative destruction and entrepreneurial innovation.

The key goals of economic deregulation should be to simplify markets and encourage competition. While some regulations were put in place for legitimate reasons, their current economic cost is frequently overlooked. Similar social or economic objectives can often be achieved at significantly lower cost by using targeted fiscal-based policies instead of market-distorting regulations.

Third, government reform will mean managing government expenditures in health care, education and social transfers, coupled with changing the way government delivers services to the public.

The debt and deficit are clear targets for reductions, but some of the resources that are currently tied up in traditional government consumption must be redirected to New Brunswick’s future. Improvements in post-secondary education will be critical to underpinning socially inclusive growth. A greater integration of technical, business and industry training into post-secondary school programs will make valuable contributions to innovation and the improvement of students’ skills.

The coming demographic shift will place greater pressures on taxpayers to support the increasing future costs of health care, education and pensions. More ominously, a steepening fiscal cliff is placing greater pressure to find solutions to New Brunswick’s growing economic challenges. In the absence of the unexpected, such as longer working hours or greater immigration, the only way to improve living conditions in New Brunswick will be either to drive productivity improvements as quickly as possible or to raise taxes to unprecedented levels.

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Filed under New Brunswick, Productivity

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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Filed under New Brunswick, Productivity