Todd Hirsch is not your typical chief economist. Working for ATB Financial means you might find him in Medicine Hat giving a talk on current economic conditions, or tapping out analysis and articles on his laptop while shuttling between Calgary and Edmonton on the Red Arrow.
He’s fundamentally optimistic about the economy moving forward while still being cautious about a potential labour crunch and the possible rollercoaster of fear-driven oil prices.
We caught up with Todd over breakfast at the Westin Hotel in downtown Edmonton before he headed to Killam for a lunchtime talk to local business leaders and ATB Financial clients.
PA: Why do economists worry about productivity?
TH: Productivity is one of these things – I call it the Holy Grail for economists – because we chase it and chase it and try to figure out why Canadian productivity is so low. Traditionally it is always lower than it is in the US.
I attend these conferences of economists and no one is in agreement, no one really knows why we can’t get a handle on productivity.
PA: Any thoughts on Alberta’s level of productivity? TH: One theory is that we put so much effort, cost and labour into these early stage oilsands projects that that affects the [provincial productivity] numbers. A lot of these projects aren’t producing anything yet but there is a lot of upfront investment. So you spend all this money and you have all of these labour costs and nothing is coming out of the ground yet so that drives output per worker down. We understand that when that oil starts flowing, output will increase, but in the early years of some of these projects productivity is going to be pushed, at least temporarily, lower. If you look at Alberta’s economy, that is an even bigger driver of productivity numbers than nationally.
PA: Do Alberta businesses invest enough in machinery and equipment? TH: Economists are always saying “Well, Canadian businesses need to invest more.”
They’re starting to now, especially with the Canadian dollar above par, but it seems like traditionally it’s been cheaper for companies in Alberta to just add more workers to increase output, rather than buying new equipment or machinery.
There are two traditional ways of really increasing your output - you can add more workers or you can buy better equipment and it seems like we’ve been slow in the latter.
We’ve wanted to add labour because labour costs are relatively less expensive than adding that new machinery. There isn’t as much commitment. You could bring a contract worker on for six months and if demand doesn’t stay up you can get rid of them.
There is evidence that Canadian investment in machinery and equipment is starting to pick up, but often there is a lag between when the equipment arrives and getting the productivity out of it. Workers need to get used to the equipment and there are new processes to develop, so the productivity gain isn’t instantaneous.
I’m still hopeful that we’re going to see those productivity boosts coming.
PA: What are the challenges in raising productivity awareness?
TH: It seems to be one of those topics that resonates with certain people. But the average farmer in Killam, Alberta isn’t really interested in productivity measures; he’s more interested in wheat or fuel prices. Productivity is an important concept but it’s a little esoteric, a little nebulous. Even economists can’t really understand it all that well.”
PA: What kind of solutions do you prefer to increase productivity?
TH: Tax credits and accelerated tax write offs are interesting. Economists are always fans of that, reducing a tax bill. It’s an incentive for companies who are sitting on the fence.
But I just read a book recently by Greg Ip, called The Little Book of Economics, in which he tries to demystify certain economic issues and he talks about productivity. While you need machinery and equipment and physical things there is another part of it: the part that’s often ignored is ideas. You need an idea in order to use a piece of equipment more effectively or to draw up some new process. You need to be able to put thought into doing things more efficiently with fewer resources. Ideas are the key piece of it. You can buy all the fancy new equipment you want if it’s not being used to its full potential you’re not going to boost your productivity.
I was learning how to use a word processor a long time ago and there was an elderly gentleman in the class. Deeper into this our instructor asks us to open our files that we’ve saved and the older man goes “Saved?”
It turns out he would just print off the letter and keep it in a folder. When he wanted to change it he would just retype it all and make the changes. Here’s an example of a fantastic productivity tool, the word processor, being used incorrectly. He was losing all of the productivity-boosting features. Now, that might be an extreme example but it’s probably not all that uncommon.
PA: How important is education in improving productivity?
TH: Education around productivity is a real investment. The smarter you are and the more educated you are the better you will be able to solve problems and effectively deploy people and machinery.
PA: Is the solution to raising productivity more holistic?
I’d say it is. Economists tend to focus only on tax credits for new machinery or similar schemes, and while that’s a piece of it but you have to approach it, as you said, holistically. You have to consider education, creative ideas and innovation. Innovation is a word that gets thrown around all the time although I don’t think anyone really knows what it means. Innovation is in every company’s mission statement and vision. It’s not a science lab with people in lab coats. It’s real people solving real problems.
