Is there a productivity crisis in Canada?

From Stephen Gordon, how about this?:

…an increase in business sector MFP [multi-factor productivity] of just over 10% in the span of almost 50 years is still not particularly impressive. And business sector MFP has fallen over the past ten years.

Yet the real story is more complicated and Gordon in fact prefers to dispense with the MFP metric.  Let’s look at a stunning graph:

You can see that Mining and Extraction TFP takes a long plunge, even though Canada today prospers through selling natural resources.  So what’s up?  One of Gordon’s arguments against TFP is his claim that this graph implies earlier mining technologies were better than current mining technologies (unlikely), but that is a misunderstanding of what TFP measures.  Think of TFP as trying to pick “the stuff we get for free through innovation.”  Falling TFP in mining reflects Canada’s move from “suck it up with a straw” oil to complex, high cost extraction tar sands projects and the like.  They have moved down this curve a long, long way.

Yet Canada still prospers: someone is willing to pay for all the time and trouble they put into extraction, because the other natural resource options are costlier at the relevant margin.  Another way to make the point is that this graph, and the embedded story of productivity, is very bad news for someone, just not Canada, at least not so far.

You will see plenty of talk about the problem cases in the world economy, for instance Greece or Portugal.  But arguably it is the success stories — Canada and Australia — which are scarier and more indicative of the true long-run problem.


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