Much has been made of late about the need to boost productivity in Canada, particularly in Atlantic Canada. International studies of productivity consistently show Canada falling short of the productivity gains being realized in other developed countries. An analysis by the OECD shows that between 1995 and 2006 Canada’s labour productivity grew at an average rate of 1.6 per cent, compared to the OECD average of 1.9 per cent. And while Canada trails on the international scale, the Atlantic provinces—with the exception of Newfound and Labrador and its booming energy sector—lag behind the rest of the country. While the region’s productivity increases have kept pace with the national average in recent years, it hasn’t been enough to close the existing gap.
Atlantic Canada is also facing a looming labour shortage. While the problem is not unique to the region, the demographic changes behind the shortfall of workers are taking place more rapidly in Atlantic Canada than in the rest of the country. An aging population, low immigration levels and a steady exodus of young people have all contributed to a new reality in the region: where people once struggled to find jobs, employers are now struggling to find people.
The region’s productivity struggles are made more complex by the high levels of public sector spending in our economies. A large public sector takes resources out of the economy; it robs the private sector of much-needed workers and diverts important capital from more productive pursuits there.
While these trends are grim, small businesses in the region are not giving up. New research from the Canadian Federation of Independent Business (CFIB) shows that many Atlantic small businesses want to become more efficient. CFIB’s recent report, Building Prosperity for the Future, explains that many of the region’s small firms have been focused on increasing the efficiency of their firms and are planning future investments in capital assets, technology and people—the key drivers of productivity growth.
Around half of small business owners in Atlantic Canada plan to make investments in machinery, equipment and technology. Whether the focus is on replacing outdated equipment or diversifying operations, capital investments are a key factor in speeding up production, improving processes and making the best use of a firm’s resources.
But capital assets and technology are only part of the picture. Of critical importance to any small firm is having the right people with the right skills. CFIB surveys show that employers across the country are facing shortages of skills, labour, or a combination of both. In Atlantic Canada, entrepreneurs find it increasingly difficult to fill vacancies in their businesses. Many small business owners hire under-qualified employees, shift responsibilities within the firm, or hire temporary help. Training is essential in helping these employees transition into new roles. Given the current labour environment in the region, it is not surprising that half of business owners plan to upgrade their own skills and the skills of their employees by investing in training and education.
These types of investments are aimed to help businesses—and the region as a whole—do more with less. And, productivity growth is the key to success, not only to more profitable businesses, but to prosperous communities.
But small businesses can’t improve productivity on their own; they need a partner in government to help them achieve this goal. Unfortunately, only one in six Atlantic business owners currently say the region’s small business environment encourages investment. While governments offer a number of different programs focused on encouraging innovation and investment, very few small businesses are accessing government programs. Barriers to accessing these programs can range from smaller firms struggling to meet the eligibility requirements of the programs to simply being unaware that such programs exist. Either way, small business owners generally do not see them as beneficial.
While targeted programs do little for small businesses, government is not without effective public policy tools that can help small firms boost productivity and make investments. Profits and savings in the business are often reinvested into their operations and employees. As a result, the cumulative burden of taxes from all levels of government can seriously diminish a firm’s ability to make these investments. Rather than targeted investment programs, Atlantic Canadian entrepreneurs say providing broad based tax relief is the best way to encourage investment and positively impact all businesses.
Reducing the burden of government regulations and red tape is another way to encourage productivity growth. In 2008, Atlantic Canadian businesses spent $1.8 billion complying with regulations across all levels of government. Reducing that burden would allow business owners to invest that time and money into their own operations. In a similar vein, governments should also work together to remove regulatory barriers to the flow of people and business activities between provinces to ensure that our economies and workers can move and collaborate as efficiently as possible.
Encouraging and rewarding workplace training is another could help small businesses boost productivity. Although it is not easily recognized by governments, informal, on-the-job training is extremely important and common in smaller businesses. This type of training can be intensely valuable for the recipient of the training, particularly younger workers, as they gain experience and skills in their particular field.
The challenges facing Atlantic Canada are significant and should not be understated. That being said, opportunities remain and the region has tremendous advantage in its committed and forward-thinking small business community. If a proactive approach is taken now, governments can help the Atlantic small business community address the looming demographic shift and ensure long-term prosperity for Atlantic Canada.
To read the report Building Prosperity for the Future visit: www.cfib-fcei.ca/cfib-documents/rr3207.pdf
As Canada’s largest association of small- and medium-sized businesses, CFIB is Powered by Entrepreneurs™. Established in 1971, CFIB takes direction from more than 107,000 members in every sector nationwide, giving independent business a strong and influential voice at all levels of government and helping to grow the economy.