All of these initiatives were intended to minimize the cost of business inputs, help the business sector become more competitive and improve overall productivity. Essentially, the focus was on putting forth a set of so-called "market-friendly" policies that would provide the incentive for firms to operate in a leaner manner and to increase output.
After over a decade of considering productivity mainly a microeconomic problem and putting forth these "market-friendly" policies, it's safe to say that this approach to boosting productivity has been a failure. And there is even evidence that the route taken by policymakers has been ill-advised. Take, for instance, this excerpt from the 2007 OECD Employment Outlook, which offers a skeptical view on the effectiveness of these types of policies on productivity growth:
It has been claimed by some that only countries which emphasise market-oriented policies (characterised by limited welfare benefits and light regulation) may enjoy both successful employment performance and strong labour productivity growth simultaneously, unambiguously improving GDP per capita. This claim is not supported by the evidence in this chapter, however. (2007) (emphasis added)Contrary to the microeconomic/market approach, my take is that productivity is very much a macroeconomic issue. In this regard, I side with post-Keynesian economists Nicholas Kaldor and Robert Eisner, both of whom argued that the level of employment and the degree of competition in labour markets have an incidence on productivity and overall growth. James Galbraith summarizes this point succinctly when he argues that
...full employment production foments ample competition in product markets, high rates of technical change, and declining costs, as business seek ways to save on scarce and expensive labor. In other words, productivity growth accelerates because of full employment itself. (emphasis added)Now, it's important to recognize that employment growth irrespective of the type of employment probably won't do much to increase productivity. As highlighted in the OECD report cited above (and implied in the quote by Galbraith), the type of employment growth is a critical factor impacting on productivity. For this reason, it is best if policymakers seek to prioritize employment growth in the manufacturing sector, the sector that is most amenable to improvements in productivity (see here for more on why manufacturing matters for productivity growth).
Furthermore, in the case of Canada, there is now evidence that the slowdown in productivity during the last decade – of which half originated in the manufacturing sector – was mostly caused by lower levels of capacity utilization (Baldwin et al., 2011). From an exports standpoint, this means that growth in productivity could be achieved by increasing the external demand for Canadian products via a more competitive exchange rate.
- Baldwin et al., Export Growth, Capacity Utilization and Productivity Growth: Evidence from Canadian Manufacturing Plants, Statistics Canada, Economic Analysis and Research Series, December 2011
- Galbraith, J.K. Fed Ache, Washington Monthly, July/August 2004
- OECD, More jobs but less productive? The impact of labour market policies on productivity, Employment Outlook, Chapter 2, 2007