Putting productivity into perspective
I read yet another column in the Globe and Mail that states that productivity improvement is the key to the future. This productivity improvement was also the key for lower wage earners and the sustainability of a middle class. That may be true depending on where the productivity improvement comes from. If there is an increase in productivity from existing companies it could result in an increase in revenue and profits from sales to new customers. It could also result in no new revenue and increased profits from reducing the need for people. The former could help or sustain the middle class and low income earner while the latter will further erode them.
If we get productivity improvements from new companies that hire people then that is definitely a potential lifeline for middle and low income earners. But first we have to start these new companies. In that regard new enterprise creation is by far more important than productivity improvements.
The benefit that new enterprises have over existing ones is the absence of legacy infrastructure and corporate culture. There is an opportunity to build in cost structures that enable them to compete on a global basis. They can utilize technology and business model innovation with specific cost structure targets in mind based on the need to compete. But there is also a need to have products or services that the world wants.
We need to lever Canada’s natural advantages and one of them is natural resources. But we need to innovate around these to make more from value added production and the creation of new technologies and services. There are other sectors besides resources where we can start to build enterprises around existing strengths and experiences. This need was discussed in an earlier post.
The point I am making here is that a knee jerk comment that we need more productivity has no merit on its own. But we do need to wake up and start looking for opportunities where we can build competitive new enterprises that have the appropriate cost structure built in. That is the key to a sustainable future for Canada all of its people.