Productivity must be chief economic goal backed by supportive research agenda

Governments play important enabling role

A Washington-based think tank is urging government policymakers to bypass neoclassical and neo-Keynesian approaches to economic growth and instead establish higher productivity as a principal economic and political objective. A new report from the Information Technology Innovation Forum (ITIF) says once productivity is established as central policy thrust, it can be effectively supported with an agenda of policies focused on R&D investments, industry-specific sectoral policies and an organizational structure to move them forward.

Entitled Think Like an Enterprise: Why Nations Need Comprehensive Productivity Strategies, the report says that policies must go beyond information and communications technologies (ICT) which have long been considered the dominant driver of productivity growth.

"For most economies today, the tools that are most effective in raising productivity are information and communications technology-based (but) it appears to be harder to raise productivity now. We may be approaching the top of the current ICT-powered S-curve for technology-driven productivity. Despite the hype, most ICT innovations are less transformative than those of a decade or two ago," states the report.

Compounding the dilemma is the likelihood that new productivity-enhancing technologies such as artificial intelligence (AI) autonomous vehicles, drones, and next-generation robots are years away from mass adoption.

"The single most important step is to establish productivity as the principal economic policy goal, ahead of other factors such as stable prices, low employment, or reduced income inequality. After that, nations need to establish the institutional capacity to conduct sophisticated productivity analysis, including sectoral analysis. Only after such analysis will nations be positioned to identify the right policies for productivity growth."
—Think Like an Enterprise

For policies to be effective in boosting productivity, they must be grounded. "in an understanding of the economy as an integrated, complex enterprise".

"If nations are to effectively drive productivity growth, they need to go beyond conventional advice and embrace an array of policies focused on driving productivity by all organizations (large and small business, non-profit, and governmental), particularly polices focused on remedying market failures at the firm level, supporting R&D into productivity-enhancing technologies, and establishing the right industry sector policies to maximize productivity," the report states.

The report's recommendations stand in stark contrast to the economic policies practiced in Canada for the past decade. While productivity was considered important, the dominant policy thrust was on the macroeconomic environment of keeping taxes low, reducing regulations and removing so-called red tape.

The report refutes the idea of supporting the development of a few high-tech industries. Instead it advocates "firm agnosticism" implicit in an approach where "all economic activities are done in ways that maximize outputs relative to inputs", combined with effective sector-based productivity policies. It recommends eliminating policies favouring small firms over large firms because as a class, small business is less productive.

A productivity-focused Research agenda

For a productivity-based innovation policy to be effective, the report says governments need to support R&D into enabling technologies such as robotics and assist in the widespread deployment of system tools such as ICT-based platforms., longer-lasting (largely nanotechnology-based) materials and new biological innovations.

"Today most platforms are ICT-based and include the smart grid, mobile payments, digital signatures, the Internet of Things, health IT systems, and others," states the report. "Government roles regarding platforms must be based on pragmatic analysis. Often, though, good platform policy involves government being a lead adopter."

"The first step for policymakers seeking to maximize productivity is to embrace an alternative economic doctrine grounded in understanding of the economy as an integrated, complex enterprise. Known by a variety of labels (innovation economics, endogenous growth theory, evolutionary economics, and neo-Schumpeterian economics), this approach is grounded in understanding that productivity is less about markets and more about organizations and systems, in particular about how technology is developed and deployed to drive productivity."
—Think Like an Enterprise

In-depth sectoral analysis is also required as industries differ in terms of their productivity dynamics. Sectoral policies will assist policy makers in assessing industry performance and develop policies to remedy sector-specific problems.

The report recommends a dedicated productivity agency or commission focused on firm incentives and policies for R&D, platforms and sectors.

It also notes that a culture which supports productivity is advantageous for the successful implementation of effective policies. In developing nations, large informal economies and widespread suspicion of productivity result in counter-productive skepticism that must be overcome.

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