The new frontier

Developing economies must push frontiers to arise from the current productivity slump

Canadian innovation: RIM's Blackberry

A productivity slump has been gradually building up steam in developed nations around the world, with the output generated by workers falling in relation to the hours they supposedly put in. This may reflect a trend where workers are set in their ways in what have, until recently, been successfully run industries. But, as I look at in the forthcoming issue of World Finance, this trend is not just confined to developed nations, but emerging economies too, albeit at a slower rate.

Global productivity over the last decade is estimated to have declined by 1.8 percent, according to research institute The Conference Board, reflecting a worrying trend that shows countries may not be fulfilling their economic potential, even if they are comparatively prosperous.

This was shown recently in Canada, where a report showed that despite the country being in the top five nations for prosperity, its workers produced less per hour worked compared to a number of other developed nations. Even more surprising is the fact that Canada is often held up as an example of an efficiently run economy, whereas countries like France and Italy, both more productive than Canada according to the report, are criticised for the way they have run themselves in recent years.

Experts suggest that the best way out of this productivity slump is through innovation.  The Jenkins report on Canadian innovation from 2010 showed that the country needed to do more to stimulate their workers to work smarter. It said: “Studies have repeatedly documented that business innovation in Canada lags behind other highly developed countries. This gap is of vital concern because innovation is the ultimate source of the long-term competitiveness of business and the quality of life of Canadians.

A more recent study by the country’s Institute for Competitiveness and Prosperity revealed similar concerns: “For each hour we work in Canada, we generate less value from our efforts than our counterparts in the United States. This prosperity gap is a productivity gap, and the productivity gap is an innovation gap. We are laggards in creating economic value per hour worked.”

Canadian businesses have reportedly been slowing down on their R&D spending, and so the country is heavily reliant on innovation being developed by its universities. In 2009 the country’s R&D was valued at around $30bn, with almost half of that coming from the public sector.

Other developed nations are also suffering from this slump, with the UK in particular facing a situation where employment is rising but the economy is contracting. Since 2008, productivity in the UK has remained relatively stable, but output has plummeted.

What is evidently needed from these countries is increased investment in innovative new industries that can drive growth, as well as a new approach to how people work and what they do with their working days.

A different approach to work was outlined by a UK Department for Work and Pensions study from 2009 that showed that small and medium-sized companies saw an increase of 58 percent productivity from implementing flexible working hour schemes. Moving much of a company’s back-end towards a remotely accessible cloud, freeing workers from their desks could therefore be argued to improve that businesses output.

As well as the freedom that flexible working allows, it would not be surprising to find an added consequence was that employees developed better and more creative ideas for their businesses. Ultimately, this again comes down to regulations and investment in a digital infrastructure that would allow this flexibility to flourish. If governments are serious about getting more out of their citizens, then creating an environment and infrastructure that encourages more creativity is surely the place to start.

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