Key Takeaways
- Canada is facing a productivity crisis, with its productivity performance deteriorating over the past two decades.
- The government sector is the largest employer in the country, accounting for over one-fifth of all Canadian employment, and its productivity is assumed to be a statistical constant due to an opaque methodological assumption.
- Measuring government productivity is crucial to understanding how efficiently tax dollars are used and how effectively services are provided, but the Canadian government has rejected measuring public sector productivity.
- Other countries, such as Britain, the United States, Australia, Finland, and New Zealand, have found ways to calculate productivity measures for some government services, and Canada could do the same.
- Establishing an independent "Expert Panel on Public Sector Productivity" could help propose methodologies for directly measuring productivity in government activities.
Introduction to Canada’s Productivity Crisis
Canada is facing a productivity crisis, with its productivity performance deteriorating over the past two decades. This has been particularly anemic in recent years, with the country falling further behind the United States, its main export market. The cumulative consequences of this are being felt daily by Canadian households, businesses, and workers. The Bank of Canada has declared that Canada is in a productivity crisis, and Prime Minister Mark Carney’s mandate letter to his new cabinet positioned weak productivity as one of the "generational challenges" facing Canada. Mario Draghi, the former European central banker, has also warned that unless productivity is addressed, Canada will become less prosperous, less equal, less secure, and less free to choose its future.
The Government Sector’s Productivity
The government sector is the largest employer in the country, accounting for over one-fifth of all Canadian employment. Despite global crises, technological revolutions, supply chain disruptions, and massive swings in spending, the government sector has maintained relatively constant productivity. However, this is not due to miraculous management, but rather an opaque methodological assumption that assumes any increase in inputs to government operations is matched by an equal and proportionate rise in government outputs. This makes government productivity more or less a statistical constant. If government productivity had actually declined or increased over recent decades, the extent of Canada’s productivity problem may have been impacted, but this is unknown due to the lack of measurement.
The Importance of Measuring Government Productivity
Measuring government productivity is crucial to understanding how efficiently tax dollars are used and how effectively services are provided. The total government sector accounts for more than 40% of GDP, and the tax-to-GDP take of governments is around 35%. Governments are also major suppliers of core services to businesses and individuals. Without directly measuring government productivity, it is impossible to answer questions about how efficiently government uses tax dollars, how effectively it provides services, and how well it manages its large workforce. Other countries, such as Britain, the United States, Australia, Finland, and New Zealand, have found ways to calculate productivity measures for some government services, and Canada could do the same.
The Need for an Independent Expert Panel
In order to address the issue of government productivity, an independent "Expert Panel on Public Sector Productivity" could be established to propose methodologies for directly measuring productivity in government activities. This panel could be staffed by national and international experts with a clear mandate to improve understanding of how the government sector affects national productivity and how to better allocate and manage resources. The Carney government recently released the recommendations of a "Working Group on Public Service Productivity," which advanced a number of recommendations for building more productive operations, including developing measures of public sector productivity. However, the government flatly rejected measuring public sector productivity, stating it did not align with government priorities.
The Conundrum of Not Measuring Productivity
The government’s response to the recommendations presents an obvious conundrum: if the government does not measure its own productivity, how will it know whether the public sector is becoming more efficient and effective? While the government has stated its belief that productivity matters greatly for rebuilding growth in the Canadian economy and rebooting the efficiency of the federal public sector, it seems to miss the point that it’s difficult to manage what you do not measure. The government’s rejection of measuring public sector productivity is surprising, given its stated priorities, and highlights the need for a more nuanced approach to addressing Canada’s productivity crisis. By establishing an independent expert panel and developing measures of public sector productivity, Canada can begin to address its productivity crisis and improve the efficiency and effectiveness of its government sector.