Canada’s productivity problem isn’t that big if we exclude oil

[chuckChuck]

Canada’s productivity problem isn’t that big if we exclude oil

[url]https://www.theglobeandmail.com/business/commentary/article-canadas-productivity-problem-isnt-that-big-if-we-exclude-oil/[/url]

Pau S. Pujolas and Oliver Loertscher
Special to The Globe and Mail
Published August 12, 2024

Pau S. Pujolas is an economics professor at McMaster University, where Oliver Loertscher is a doctoral student. The following draws from their research published in the Canadian Journal of Economics.

We are witnessing a surge in interest regarding Canadian productivity ([url]https://thehub.ca/2024/07/11/trevor-tombe-canadas-resource-sector-is-its-productivity-powerhouse/[/url]). This is great news, and the conversation should continue.

But there’s one issue we haven’t talked about much: since 2001, Canadian productivity has grown at the same rate as in the U.S. once the oil sector is excluded from the calculations of productivity. Including the oil sector shows no growth in Canadian productivity.

Why is this the case?

First, we must appreciate that people use the term “productivity” to mean different things.

A common preference is to use labour productivity ([url]https://thehub.ca/2024/07/11/trevor-tombe-canadas-resource-sector-is-its-productivity-powerhouse/[/url]), which is output divided by hours worked, ignoring capital. By this definition, oil is the most productive industry. The oil sector uses far less labour to produce the same output as others.

But this definition can be misleading. For instance, comparing the productivity of Jacques Villeneuve and Donovan Bailey in travelling 100 metres would unfairly favour Mr. Villeneuve due to his Formula One car. Similarly, comparing labour productivity between the oil sector and the rest of the economy is flawed because this definition would be artificially inflating its labour productivity.

“Productivity” should refer to total-factor productivity (TFP), which measures output relative to the inputs used (labour and capital). TFP is consistent with national accounts, vastly used in modern macroeconomic theory, and provides a useful benchmark: In healthy economies it grows at 2 per cent per year.

This increase in total-factor productivity has happened with other sectors in Canada’s economy, but not with oil.

Since the late 1990s, the proportion of Canadian capital invested in the oil sector has increased to more than 30 per cent, up from 15 per cent, coinciding with an oil price boom and the commercialization of oil sands technology.

However, the oil sands are less productive than traditional oil sources. As a result, we have more capital to produce increasingly less oil (the share of oil in Canada’s economy has not moved at nearly the same pace), and this reduces productivity.

In terms of absolute levels, Canadian productivity has consistently been lower than that of the U.S. This indicates that there is a need to consider measures to close the productivity gap. Effective strategies include fostering more competition and providing the necessary means for knowledge creation and transfer to flourish.

But given that the two countries’ growth rate for productivity is similar if oil is excluded, this indicates that there is no immediate need for drastic action.

Some people have described the oil sector as a boon for the Canadian economy. In a way, that’s true. But that has nothing to do with productivity.

The oil sector, like any extractive industry, is akin to selling family heirlooms. Having cash on hand (income) is better than keeping old silver in a drawer, but it doesn’t mean you’re more productive.

[blackpowder]

Any plans for replacing that sector of GDP?

[chuckChuck]

Diversification. As demand for oil declines over time, the over priced drain on capital that is the oil sands are on a path to becoming a stranded asset.

Even Steve Harper the economist said we would stop burning fossil fuels as an energy source by 2100.

[AlbertaFarmer5]

Diversification into what?
We've been through this before, and you avoided any real answers.

[chuckChuck]

Even Saudia Arabia is diversifying their economy.

But its oil or nothing, so goes the argument.

Norway took more than trillion resource dollars and diversified into many investments. Its hard to argue against saving one time resource money!

[cropgrower]

Diversification into what?
We've been through this before, and you avoided any real answers.

Diversification into a third world country , thats where canada is heading if people dont wake up , their wont be much oil needed then

[AlbertaFarmer5]

That is a deflection. What industry in Canada do you see scaling up to fill the void left by fossil fuel and their derivatives exports?

I'll just repeat some stats I posted in the previous thread you started on this:

Here are the most recent stats for balance of trade for Ontario and Quebec:
In April 2024 Ontario exported C$21.4B and imported C$39.2B, resulting in a negative trade balance of C$17.8B

In April 2024 Quebec exported C$9.46B and imported C$8.97B, resulting in a positive trade balance of C$486M.

Source: [url]https://oec.world/en/profile/subnational_can/quebec[/url]

Together, Ontario and Quebec a net negative of $17.314 Billion

Alberta: In April 2024 Alberta exported C$15.6B and imported C$3.61B, resulting in a positive trade balance of C$12B.

Chuck, if every month on your farm, you buy $100 worth of Ertl toys, and only sell $50 worth of carpet lint, do you have more or less currency at the end of the month?

[AlbertaFarmer5]

More from the previous thread, and Chuck wants the industries which have a huge net negative balance of trade to fill the revenue hole left by ruining the oil and gas industry:

The energy industry is directly responsible for 33% of Canada's gross exports.
But Canada ran a trade deficit last year and is on track to have a balance of trade deficit of $20 billion this year. While oil and gas energy had a NET trade surplus of $180 billion last year. Agricultural, mining, forestry all also had trade surpluses. Virtually
EVERY OTHER INDUSTRY had a net negative balance of trade. The only industries bringing actual foreign currency into Canada are the above mentioned resource extraction industries. And all the other industries are so inefficient they still managed to overwhelm that massive trade surplus created by the resource sectors and turn it into a deficit.

[blackpowder]

Replacement will happen in its own good time.
If not we become a banana country.
A lack of credible discussions indicates our future.

[shtferbrains]

Liberal Propaganda.
If they can kill western energy industry they can maintain the power in eastern Canada.
If not Alberta, Sask, and Northern BC will continue dominate economic productivity and naturally gain more influence.

[shtferbrains]

Doomberg just happened to touch on this subject this am.

[AlbertaFarmer5]

What a great example Chuck brought up with norway. 68% of their exports are petroleum and petroleum products.
Second biggest export is fish. Seems to me we used to be diversified into the fish industry until the federal government banned fishing.
Norway exports number of other commodities. Everything else is a rounding error.
Tell us again about diversification.
Like the advice I gave to agStar the other day, why not do some research before you make an ass of yourself posting nonsense.

https://trendeconomy.com/data/h2/Norway/TOTAL

[blackpowder]

Even Saudia Arabia is diversifying their economy.

But its oil or nothing, so goes the argument.

Norway took more than trillion resource dollars and diversified into many investments. Its hard to argue against saving one time resource money!

I can see where one gets the feeling the conversation is oil or nothing. And we have done a poor job.
Comparisons to other countries usually don't take into account fundamental differences.
Canada would look quite different if a king was in charge and the penalty for questions was death.
Or if it were the size of Newfoundland with only one set of interests residing within.
The chip on your shoulder hinders you from being part of the solution. It merely creates harder push back.
To actually create money you have to trade for something with value. Always open to suggestions.

[blackpowder]

Here's a scenario. (I'm in eating lunch).
If AB and SK built enough nuclear capacity to be a able to export enough power to heavily subsidize our own use.
Thoughts?

[blackpowder]

With wind and solar you don't own the factory. Socialist utopia sure. But you're buying the panels and turbines from the cheapest supplier. Not us. Same with batteries. Best you can do is mine the minerals.
New patents from research?
Wind and solar are as free as everything else we consume in our living standard.
Nuclear very expensive startup.
But if we're truly concerned about where we are in 50 years?
City states I can see happening.
Like Norway. But you will still have to have affordable energy and food. And the ability to pay for your standard of living. Most countries envy our situation for now.
Unicorn farts are as yet, worthless.