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Getting More Productive
A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

Something Ventured:
August 8th, 2002


By Brent Holliday
Greenstone Venture Partners

“I don't want to work
I want to bang on the drum all day” – Todd Rundgren, Bang On The Drum All Day

We have a small problem.  According to everyone east of Cranbrook in our fair country, we live in Lotusland.  We drive recycled aluminum cars that run on soybean oil.  We wear sandals.  We elect the most bizarre political characters in the country, moving from scandal to election to scandal.  We all play the guitar, have long curly hair, many parts of us are pierced and we smoke a LOT of weed while floating in sea kayaks.  But most relevant to today’s discussion… we only work a few hours a day because we are a) more interested in the things listed above or b) unionized.

Somehow, this stereotype has leaked south.  The number one reason for not getting excited about BC’s technology industry given by US VCs, tech executives and type A Canadians who left to join them in the Silicon Valley is… work ethic.  In a nutshell, we are viewed as less committed to the company, slightly lazier, somewhat flippant and definitely less productive than our American cousins.  The lack of “appropriate” work ethic leads to less exciting opportunities and innovation on the whole.  Now this blanket generalization is just that… a generalization.  Obviously we have our successes and will continue to have them.  But, I am not kidding here.  This Lotusland thing seems to have gone a bit far.  Is there anything to this notion that we don’t work hard?

How productive are we?  Are we less so than the US or elsewhere?  Why?  What can we do to a) catch up and b) get rid of the stereotype?  Glad you asked.  It just so happens that this is being studied to death right now by those always exciting people to meet at a party: the economists. 

{Quick economist joke: A man is flying a hot air balloon around the world but gets caught in a fog.  He descends to see if visibility is better near the ground.  He spots a man walking and yells to him.  “Excuse me sir”, he says, “Can you tell me where I am?”  The man ponders the question from the balloonist for a minute and then responds, “Well… you are in a balloon.”  The balloonist, without missing a beat says, “You must be an economist.”  The man on the ground looks surprised and says, “Yes, yes I am.  How did you know?”  The balloonist said, “Well, you are absolutely accurate, but completely useless.”}

The only reliable measure that we have to see what we can do with our time spent working is the measure of productivity that Stats Canada and the Bureau of Labor Statistics in the US defines as the unit of worker output per hour worked.  The economists chew on these numbers when they are releases to see how effective an economy is at using its workers.  There is also a direct link between productivity and standard of living, so this means far more than just how sexy our tech industry is.

So if the hours worked in a given month go up and the dollar value of the goods shipped (or served as in a service business) remains the same, then productivity will drop. Therefore, if the hours remains the same and the amount of goods shipped goes up, you get productivity increases.  This happens when workers get more efficient.  And they get more efficient in a bunch of ways, but better management, more experience, better use of IT and shorter lunch breaks all contribute to increased productivity.  This is a good thing for the economy because if we make more with less, we can reap either more profit for shareholders or more time off to do other things (aha!  Keep this little point in mind for later).

When the exchange rates and other complicated assumptions are factored in, you can compare productivity between two regions or two economies.  Based on an average hours worked per week of 34 hours in both the US and Canada (across all industries), worker productivity in Canada is about 10-12 percent less than in the US in 2002.  Worse, the gap between the US and Canada has been steadily rising since 1994, with one minor improvement for Canada in 2001.  The most recent productivity change numbers were released today in the US and they shot up 5.7% in the second quarter (meaning that US workers are putting out a lot more per worker per hour than in the first quarter).  Canada’s productivity dropped 0.2 percent in the first quarter as the exchange rate affected output and our economy slowed its growth.

So, based on overall ability to make stuff with fewer hours worked, the perception that we are not as productive as US workers over the past decade appears to be true. 

More economic data points:  a unit labour cost is a measure of how much you have to pay to a given amount of output.  So, like golf, you want to see this number trending down.  The most recent data shows the US and Canada going in opposite directions.  The US unit labour cost dropped in the second quarter for the first time in a year and a half.  The Canadian unit labour cost shot up by 7% in the first quarter (damn exchange rate, but also too many workers and not enough output).  Oh-oh.

What’s really interesting about the productivity gap between the US and Canada is the reasons for it.  Andrew Sharpe just published a paper for the Centre For The Study Of Living Standards (http://www.csls.ca) on his reasons for Canada being behind.  Four of the following commonly discussed reasons for the US being ahead of Canada are what Dr. Sharpe concluded make up the biggest part of the gap.  The other four are not significant factors in explaining this gap.  Go ahead and guess which four and remember, we are talking about why US workers appear to be more efficient than ours –

1) Tax rate differences

2) Lower R&D spending

3) Over regulation of business in Canada

4) Under developed high tech sector

5) Over unionization

6) Fewer university and PhD graduates

7) Limited scale of businesses in Canada

8) Socialist leaning policies in Canada

Ok, you peeked and looked down here. His main reasons included 2, 4, 6 and 7 and not the others.  Not taxes, not unions, not social policies and not over regulation.  Hmmmm.  Think he’s nuts?  Well, six countries with higher tax rates, more social programs and larger percentage of unionized workers have kicked our little red and white butts in productivity over the past decade along with the US.

Let’s get back to the “work ethic” label.  If you read Dr. Sharpe and think about his lucid conclusions, he is saying that we don’t transfer the most efficient best practices to our workers from abroad because our companies don’t have the scale and the lower R&D spending doesn’t encourage home grown innovations in efficiency.  He argues that the high tech boom in the US in the late 90’s showed how a country and its workforce as a whole benefited from a hyper-efficient telecom and high tech sectors.  You can’t conclude, however, that their high-tech workers are more efficient or harder working or more productive than our high-tech workers.  That study hasn’t been done.  But their mix of industries (more high tech as a percentage) led them to higher productivity.

So, yes we are less productive than the US and need to improve this immediately. We want to do more with less as an economy so that we can choose whether to work until midnight to make more profits or go enjoy our lives after an eight hour day forcing companies to hire more of us working eight hour days in order to make more profits. The economists recommend that high tech needs to be more important and R&D spending and university graduates need to increase.  I’m all for that to improve productivity.

What about this work ethic then?  I think it partly comes from a mis-informed understanding of the productivity gap issue.  I think it is fed by a lifestyle that we all choose to live here in this incredibly beautiful patch of the world.  I also think that people can work hard and reach their milestones better in BC, because they don’t want to be in the office on the weekend missing a chance to enjoy this place.

Here in Lotusland, in the tech industry, it’s a perception thing that we don’t work as hard.  I think a study of productivity in the high tech industry would show that we get the job done in the hours that we need.  Then we could use that study to counter the mis-perceptions and show them that an efficient workforce can wear sandals, play the guitar and find the time enjoy the kayak.

Random Thoughts –

- Premier’s Tech Council Gets Real – I am very pleased that the PTC is being headed up by Jim Mutter, founder of Jalaam and former Fasken Martineau lawyer for tech companies in town.  Jim is a good listener, a great relationship builder and stands a very good chance of getting the right information about the industry and its needs in front of the policy makers in Victoria.  I also think that Jim has his eyes wide-open as to the realities of the political process.  We need some of the folks that have been in the background, quietly observing and experiencing the growth of the technology industry to approach Jim with their ideas instead of the windbags like myself who everyone has heard already.

What Do You Think? Talk Back To Brent Holliday

 



Something Ventured
is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks).

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