Tuesday, October 14, 2014

Productivity and innovation: A Canadian Perspective

In mid-thought about why government needs to pursue a cloud-based IT development strategy, an idea about government’s v. the private sector’s role (and shortcomings) in Canadian productivity unfolded.

I pondered: what does government do well and badly? why does it fiddle with various levers and dials at the periphery to affect players’ activities? are there other things it could do? is business doing all/what it can do?

Here’s the notion, admittedly with the blinkered view of someone with a narrow answer to a broad question: I think that business probably hasn’t done what it could have or should have to invest in productivity gain; governments play with levers like taxation and “industry supporting” investment, through credits, grants, and so on, and they probably could do better.

1. Canadian business could be more productive

It is soooo Canadian to overuse assets, scraping the plate right to the porcelain well past the asset’s ability to provide productive value. That reduces investment demand. In my experience, Canadian businesses are at the very least less prone than our American counterparts to spend money for efficiency or capability gains. That makes the argument supporting business not having done as much as it could to close the productivity gap more likely on point.

2. The metrics are misleading

Far be it from me to challenge anyone who studies and understands the intricacies of what goes into performance metrics of any sort including productivity. Whether branch plant economics are at play here or the measures are simply different between Canadian and American firms, I wouldn’t begin to dispute. That said, it seems to me the proof is in the pudding (or the discrepancy in how much power Canadians have to purchase pudding relative to Americans as measured longitudinally over past decades). It’s hard, though not impossible, to argue that our productivity has been anything but foreshortened relatively speaking.

3. Governments aren’t doing the right things

This is the core of the thoughts I thunk. Standing outside a mega-centre store waiting for my wife and daughter, it seemed to me that all efforts at manipulating economic levers to move the private sector in “better” ways have been failures of greater or lesser degrees. There are obvious short-term successes (that Canada’s New Government points out ceaselessly) and many failures. The bottom line is that the private sector quickly learns how to game government largesse to its advantage, and that doesn’t usually lead to increasing the national good.

More than that, governments get nothing from their investments supporting specific industries and innovations. Directed funding to support private sector firms seeking markets for their innovations obviously gives those firms more capital to work with but does nothing of direct value for government. The hope is that the investment will be paid back—its ROI positive—through general economic gain and taxes levied on those businesses.

My reverie shifted to grand societal projects such as the CNR, the postal service, Kennedy’s moon mission, the creation of the Internet (Darpanet) and the GPS satellite system, radio-based telephony, and even skip/ramjets. Unlike simple investing in private sector business activities—as they search for commercial markets—these projects actually generated value for the governments that ran them.

This is fairly critical, I think. In all of these cases, and so many more, government spent a lot of money. Much of that money went directly into the pockets of contractors. And that’s OK because the last thing we want is socialized business. But more importantly, what was developed and built was directly useful to the government for some reason. In the case of CNR and postal service and Truman’s interstate, the reason was knitting together a nation. In the case of GPS, radio telephony, and jets/rockets, the purpose was defense.  Darpanet was not conceived and created to help you sell your trash to people across the country. In the case of the moon mission, the goal was to… impress Marilyn Monroe. But whatever.

There are two undeniable points in this:

(1) Each of these projects ultimately became a successful platform for private sector innovation and wealth development for a long time over a rich, evolutionary life-cycle, and
(2) Each was done to satisfy a nation’s needs as identified and pursued by its government, not to bet on private sector, market-based objectives.

Creating sustainable platforms for long-term growth is just not something that private sector firms can or will do, full stop. That falls to government. Government can ideologically abdicate responsibility and turn it back onto the private sector through investment credits, tax breaks, and the other candies it has in its bag. It hasn’t, doesn’t, and won’t work. Business, for its part, needs to stop pretending it can and will take on such grand infrastructure, and stop bleeding society for those credits for “innovations” that do nothing but create short-term rents for itself. Short-term rents are business’s wheelhouse, and best it should be compelled to stick to that space.

Today, I think that by shifting itself to cloud computing, government could make tremendous productivity gains in IT spending and operations. Those gains alone could release to government the resources to do something selfish and create something for itself (which is for Canada or British Columbia or Vancouver, after all). That, in turn, could first increase productivity and expose platforms for unsupported private sector innovation that can’t even be imagined today.

I have more, specific thoughts and ideas about cloud computing—with some clear examples of how productivity improvements open up opportunities for innovation that can be enormous in terms of wealth creation...

About the Author

Timothy Grayson, is the Author of "The Spaces In Between" and Director of Digital Product Development at the Canada Post Corp Management. He blogs at blog.timothygrayson.com and can be reached at @graysonicles.

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