Bernard Courtois

ICT strategy would help boost productivity

By Bernard Courtois

Canada needs a wake-up call – and productivity and competitiveness are at the core of what this wake-up call should be about. The Information Technology Association of Canada (ITAC) has produced a paper entitled: “The Issue: ICT and Productivity” that points to numerous studies showing productivity in today’s economy is driven by investment in, and particularly use of, information and communications technology (ICT).

They range from work by the US Federal Reserve Board, to the Conference Board of Canada, to Peter Nicholson, policy advisor to Paul Martin, to Andrew Sharpe and the Center for the Study of Living Standards.

One of the strongest affirmations of the link between innovation, ICT adoption and productivity appears in the Budget Plan of 2004. “… Improved productivity in several countries since the mid 1990s, including the US, has been associated with higher ICT investment. Similarly, in Canada, productivity growth is faster and has increased more rapidly since 1997 in ICT-intensive sectors, most notably in services.”

More recently, published work from key departments underscores the link between ICT investment and growth in productivity and competitiveness. Economists with Finance Canada declare, “The increase in ICT investment in Canada was followed by an acceleration in labour productivity growth in the latter part of the 1990s,” and conclude “…. Our analysis contributes cross-sectional evidence for Canada that computer use, university education and computer skills development are associated with higher productivity.”

Another article (Surendra Gera and Walong Gu) examining organizational innovation and ICT adoption concludes: “We find that the firms that implement organizational changes and introduce ICT have a higher incidence of productivity improvement, and also of sales and profit increase and product and process innovation.”

And an Industry Canada study of four of Canada’s economic clusters stresses: “The importance of ICT as an enabler of broad economic development has surpassed that of ICT as an economic sector in its own right …. In this regard, it is important to facilitate ICT technology development and lever ICT skills capacity at the interface between the ICT sector and other sectors of the economy.”

At the same time, studies show a significant productivity gap, resulting in a significant prosperity gap between Canada and the US. Andrew Sharpe published a paper in 2003 that analyzed factors contributing to this gap. He estimated that the lower capital intensity of economic activity in Canada was a key contributor to the gap.

The Institute for Competitiveness and Prosperity, led by University of Toronto’s Roger Martin, has done a lot of work on this. Its 2005 report, Realizing Canada’s Prosperity Potential, states: “Canadians have built one of the world’s most competitive and prosperous economies. But we cannot stand still. Our trading partners in both the developed and developing worlds continue to advance... Strengthening productivity is the most significant challenge facing Canadians.”

The global economy is undergoing a major shift, not just in manufacturing, but now in services and knowledge work. The ICT industry is at the heart of this too, both because its services make it possible and because it is on the front lines of living this shift in its own operations.

This global shift can be a win-win for both developing countries like China and India, and developed countries like Canada, provided we strategize and adjust accordingly. This is no time for complacency when it comes to productivity.

ENCOURAGING MORE SMBS TO ADOPT ICT

ITAC is particularly concerned about the relatively low rate of adoption of ICTs within Canada’s small- and medium-sized business (SMB) sector. Ninety-nine per cent of all Canadians are employed by firms of fewer than 500 people. In 2002/2003, small and medium business created 36 per cent of net new jobs.

Yet data from the Canadian e-Business initiative suggest that this vital sector is seriously under utilizing ICTs. CeBI’s report “Fast Forward 5.0” noted that while Canadian SMBs were generally comfortable with the adoption of basic tools like simple web sites, adoption of the more sophisticated electronic business solutions was problematic. The report noted “advanced e-business applications such as e-procurement, supply chain management, accounting, finance management and human resource management are not being used.”

Industry minister David Emerson has highlighted this as a challenge to Canada’s competitiveness and productivity. In a speech last September, he said: “… too many Canadians firms, mostly in the small- and medium-sized enterprise sector, have been slow to adopt powerful new technologies… We need to assess how we can accelerate technological adaptation by the growing number of firms in the SME category.”

ITAC has seized this idea as a challenge. In March, we announced the creation of an “eTeam” composed of senior executives in our industry working together to address the low adoption rate of SMBs. Our hope is that by working in partnership with key sectoral associations, we will develop effective projects to demonstrate the value of ICTs to SMBs and accelerate adoption.

But other public policy initiatives may be required as well. The Industry minister has mused publicly about tax incentives to spur adoption. We believe the time is right to give this idea fuller study, particularly since countries we compete with have already established measures to accelerate adoption.

For example, Japan now offers either a tax credit of 10% or a 50% accelerated depreciation of cost to acquire ICT equipment. And the UK 2004 Budget has introduced a 50% first-year allowance of ICT assets by small- and medium sized companies.

The Institute for Competitiveness and Prosperity recommends “an action plan that encourages business, governments and individuals to work together over the next few years to realize Canada’s prosperity potential for generations to come”. At ITAC, we agree. It is time to convene Canadians to develop such a strategy.

Bernard Courtois is president/CEO of the Information Technology Association of Canada (ITAC). This column is an edited transcript of ITAC’s May 11 presentation to the Standing Senate Committee on Banking, Trade and Commerce.