Q&A: Curing Our Productivity Paralysis Will Require Incentives, Innovation and IP

A Q&A with Alex Greco, Senior Director, Manufacturing & Value Chains, on the topic of productivity, innovation and Canada’s manufacturing sector.

Why does productivity matter to Canadians?

Productivity is closely linked to a country’s prosperity and long-term standard of living — when productivity rises, wages improve and prices lower. There’s also the increase in tax revenue that comes when businesses do well that supports the public services Canadians rely on.

What is responsible for Canada’s poor productivity?

There are a lot of factors that contribute to Canada’s declining productivity rates. Among them, lack of competition, regulatory complexity, skilled labour shortages and a nationally weak investment environment. You can learn more about these factors in our Policy Matters on productivity.

What’s the fix for our productivity problem?

Just as a lot of factors caused the problem, a lot of factors need to come together to fix it. But a good place for the government to start is with Canada’s manufacturing sector. Representing more than 10% of Canada’s total GDP and over 68% of all physical goods sold to other countries, the manufacturing industry is an economic powerhouse, but lately it’s been contracting. At least part of the industry’s decline is because business investment per worker hasn’t grown in a decade, which mirrors Canada’s overall weak investment environment. Encouraging innovation in the sector by implementing a patent box regime would not only help Canada compete in the economy of ideas but also contribute to economic growth, create more job opportunities and provide more value for customers.

How will more innovation in the manufacturing sector improve Canada’s productivity?

Intellectual property (IP) rights are a measure of innovation, which is linked to productivity since innovation is the significant improvement of a product, system, or process. And improving productivity includes producing better, higher-quality outputs, not just more outputs.

A patent box regime is a novel approach to corporate taxes used by some governments to encourage manufacturers to invest in and retain more IP. A Canadian version of patent box could provide a lower tax rate on income made off certain types of IP — not only rewarding innovation but encouraging a secondary income for Canadian manufacturers in the form of new patent rights and licensing arrangements.

With a patent box regime in place, there would be more reason for businesses of all sizes to conduct research and development, adopt new technology, register intellectual property and commercialize products.

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Read “What a ‘patent box’ is and why it can help solve Canada’s productivity problem,” our new op-ed in The Globe and Mail, for more information on the patent box regime and how it can be used to bolster innovation in the manufacturing sector.