Bylo Selhi wrote:
The Conference Board has issued a stinging indictment on how little Canadian firms invest in making themselves more productive.
From the press release you linked to:
Those circumstances have come full circle, he adds, and he believes businesses will alter their behaviour as well.
"We've seen some evidence of a change, but it's early days. You change a tax policy and it's going to take a while before you see any consequence in terms of investment behaviour."
That's very important, in my opinion. Some popular recent analyses look at corporate behaviour since 2008. Since not all of the data are available for 2010 yet, that's a two-year period. WADR, we can't tell anything from that.
The mystery of low Canadian productivity has been examined by economists for almost twenty years now, and there is still no good answer. Here is the latest high-level conventional wisdom
. It's put together by a large team of CEOs and such, and so can be expected to have a lot of motherhood statements. However, here is one of the many factors that they identify:
Many studies over the years have pointed to a relatively high rate of business taxation in Canada, particularly as it affects the after-tax cost of M&E investment. This reduced the incentive for firms to accumulate M&E and, because of the strong linkages among M&E, R&D and innovation generally, would explain some part of Canada’s weak productivity performance. According to estimates by the C.D. Howe Institute, Canada’s marginal effective tax rate (METR) for medium and large companies was the highest in the OECD in 2005 and 2006, though the comparable rate in the United States was only slightly lower. The federal government has meanwhile been steadily reducing corporate tax rates of various kinds, and in Budget 2009 committed to continue with measures projected to give Canada the G7’s lowest overall tax rate on new investment by 2010.
I have seen studies that suggest that productivity growth in Canada is particularly low in small companies, and that since Canada has many more small companies than the U.S., it is to be expected that our over all productivity growth will be lower. Other studies suggest that foreign subsidiaries do better than all-Canadian companies -- but that may be because the foreign subsidiaries have access to their parents' technologies and processes, etc.
Given these two hypotheses, perhaps we should be more cautious in giving special tax and other incentives to small Canadian companies in preference to other companies here.
The plural of anecdote is NOT data.
In God we trust, all others bring data (William Edwards Deming)