Productivity Puzzle: China Replaces Canada as Largest Exporter to US

As the fiscal stimulus unwinds, the role of government in sparking growth is going to diminish and the private sector is going to have to pick up the slack in helping our economy grow, even though we face significant competitive risk. This is according to Tiff Macklen, Senior Deputy Governor of the Bank of Canada, who spoke to Productivity Alberta on February 2, 2011 on the topic of the erosion of Canada's competitiveness.

Canada is losing the import/export battle with many more products entering the country than we are producing for foreign markets. In fact, China has replaced Canada as the largest exporter to the U.S. Our labour costs have risen sharply ñ the OECD (Organization for Economic Cooperation and Development) calculates an increase of 17% since 2005.

And, although the strong Canadian dollar is a large part of this change, sluggish productivity is a key player as well. As Mr. Macklen points out, "a cheap currency is not a business strategyî.

There is another risk as well. While household spending has been instrumental in supporting the economy during the recession, cash-strapped Canadian consumers cannot be expected to continue spending faster than they are earning.

What should be done and by whom? The government has established a stable foundation for business growth, Mr. Macklen noted. But, it is now up to the private sector to step up to the plate. Research indicates that productive businesses focus on:

• Investment in machinery and equipment (especially technology)
• Research and development and innovation
• Well-educated workers
• Competition in foreign markets (Asia and Latin America are suggested)

Canada has a well-educated workforce but companies could add value by seeking employees with post-graduate education. In the other areas, this country has fallen behind and improvement is needed in order to be able to compete in the global marketplace. In closing, Mr. Macklen urged Canadian businesses to invest in their companies in order to raise competitiveness through greater productivity.

Click here to read the entire speech.

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