Liberal plan runs counter to productivity

November 29, 2005

Federal Finance Minister Ralph Goodale recently launched the Liberals’ election campaign with the release of a mini-budget and a refurbished policy platform. The "plan for growth and prosperity" presents the Liberals’ agenda to increase productivity, which is supposed to lead to prosperity for all Canadians.

Increased productivity means a more efficient economy that produces more with fewer costs/resources. If the benefits are distributed fairly, this could contribute to a shorter work week, provide more resources for social programs, and decrease the strain on the environment.

Governments can contribute to productivity by investing in such things as a well-educated workforce, research and development, and an efficient infrastructure for economic activity and personal well-being. Businesses need to invest in the research and development of new technologies, training and upgrading the skills of their workers, and in new equipment that enables workers to increase efficiency.

Sounds like pretty basic stuff, but we have a problem. For more than a decade, governments and industries in Canada have failed to make the investments needed to develop an innovative and productive economy. Public policy has focused on cutting expenditures, thereby decreasing governments’ capacity to play an effective role in supporting economic development.

Governments have also engaged in deregulation, allowing industry a free rein over the economy. Businesses have responded by focusing on short-term profits rather than long-term investments. The result: productivity is increasing in Canada at a slower rate than in other industrialized countries.

Sure, profits have reached record-high levels, but we don’t produce nearly as efficiently as we could. What productivity and growth we do have mainly comes from the extraction of raw materials like minerals, trees and oil and gas and from the automotive industry. Businesses have simply not been providing workers with the training and equipment that are a prerequisite to a more productive workforce. Governments and industry have not been fulfilling their responsibilities.

It is clear that a "rethink" of our economic policies is in order. The string of surpluses posted by the federal government and high corporate profits provide an opportunity for Canadians to take bold steps to increase productivity. Unfortunately, the federal government’s productivity plan seems like more of the same absence of direction that has contributed to the low rates of productivity growth we are currently facing.

The finance minister’s plan allocates $7 billion over five years to post-secondary education, research, and on-the-job training programs. But this is minor compared to the centrepiece of the plan. The plan focuses on the creation of the "right investment environment," through corporate and personal tax cuts totalling more than $35 billion over the next five years.

The federal government has confirmed its commitment to the standard business agenda of further tax cuts and further deregulation. Tax cuts curtail the government’s ability to invest in research and development and in infrastructure, such as transportation, that support economic efficiency.

While corporate tax cuts can play an important role in encouraging investment, cost-effective tax cuts need to be carefully targeted to provide incentives for companies to re-invest their profits in new technologies and research. Instead, the federal Liberals are providing a general tax cut that, in effect, simply rewards businesses for their inefficient operations. The plan enables companies to increase profits without making the investments that increase productivity and enable businesses to increase wages.

Another problem with the plan is that it assumes that increased productivity equals increased prosperity for all Canadians. The experience of workers over the past decade paints a different picture. While economic growth, profits, and productivity increased, workers’ earnings stagnated.  A strong role for workers and their organizations is therefore crucial to ensuring that workers and communities benefit from increased productivity.

Not all Canadians are able to participate in the labour force. Those left out need supports such as affordable housing and social assistance. The Liberals’ reliance on tax cuts undermines the government’s ability to provide crucial social programs. The plan also needs to be accompanied by incentives and regulations that ensure a productive economy is an environmentally sustainable economy.

We need a productivity agenda, but the plan on offer is far too timid and far too dependent on industries freely changing the way they operate.

A version of this article appeared in the Chronicle Herald.  John Jacobs is director of the Nova Scotia office of the Canadian Centre for Policy Alternatives (, an independent public policy research institute.