On September 17, 2006, Don Drummond, the chief economist at TD Bank, stood in front of the annual general meeting of the Canadian Chamber of Commerce in Saskatoon and gave them his analysis of Canada’s chief economic ailment: Lousy productivity. Drummond, a former Finance Canada mandarin, is an excellent analyst of federal economic and fiscal policies. In his speech, he outlined eight elements of a productivity agenda and, shortly after he finished the speech, he wrote up his notes and published them at TD’s Web site.
Drummond’s speech and subsequent article attracted significant attention within Industry Canada, according to documents I received this week through an Access to Information Request.
“Both the diagnosis and the recommendations put forward by Mr. Drummond are consistent with [Industry Canada]’s policy research and analysis,” wrote Jean McCardle, an Industry Canada economist, in a briefing note from October, 2006 reviewed and approved by Renée St-Jacques, Industry Canada’s Chief Economist, and other senior department officials. McCardle’s note was also reviewed by then-Industry Minister Maxime Bernier though it’s not clear what, if any, action Bernier took or how it may have influenced his thinking as he approached certain policy matters. Bernier has since been moved to Foreign Affairs and Jim Prentice is now the Industry Minister.
Drummond’s report, titled “The Economists’ Manifesto for Curing Ailing Canadian Productivity”, (PDF) was given high marks by Industry Canada’s economists. “[It is] a good summary of what is already known to be a range of interventions the federal and provincial governments could adopt to boost productivity in Canada. Both the diagnosis and the recommendations are generally consistent with [Industry Canada]’s policy research and analysis,” McCardle wrote.
For example, Drummond suggested that an overhaul of Canada’s immigration policy could be a signficant driver of productivity growth. McCardle comments: “Research at Industry Canada revealed that in 2001, 53 percent of recent immigrants aged 25 to 44 had a university education compared to 23 percent of Canadian-born. The recommendation of Mr. Drummond to tailor immigration policy to match job shortages in Canada may not be as much of an issue as updating accreditation standards to allow new immigrants to work in Canada.”
One of the biggest issues to bedevil policy makers is how to get private sector firms in Canada to spend more on research and development, another key driver of productivity growth. Drummond has no concrete suggestions in his report and McCardle, in reviewing Drummond’s work, notes how problematic this area is:
Research at Industry Canada came to the same conclusion. Despite a generous fiscal incentive, the Scientific Research & Experimental Development (SR&ED) Tax Credit Program, Canada ranks 12th in the OECD in terms of gross expenditures on R&D as a percent of GDP. The incentives to industry to invest more capital in training and R&D are readily available if and when the private sector recognizes financial benefit to increase investment.