Corruption stunts Canadian productivity

Ali Khamsa
Accountants charge governments have been bad for business image
Eric Beauchesne, CanWest News Service

Published: Wednesday, May 23, 2007

OTTAWA -- Government corruption, specifically the Liberal government sponsorship scandal, is among the reasons Canada's economic productivity has lagged behind other major industrial countries like the United States this decade, a national organization of accountants charges in a report being released today. "Institutional corruption and inefficiency, particularly within government, has had a decidedly negative impact on productivity and competitiveness," concludes the study by the Certified General Accountants Association of Canada, the first to cite government corruption in Canada as a cause. Increases in productivity, commonly measured as the value of economic production per hour worked, are seen as a key ingredient in raising living standards.

However, the 82-page report notes that Canada's annual productivity growth has fallen to an average of 1.1 per cent this decade from 2.85 per cent over the second half of the 1990s. The report cites the sponsorship scandal -- along with excessive business regulation, as well as declines in investment in education, skills training, machinery and equipment -- for Canada's drop to 16th place in the Global Competitiveness Index in 2006 from ninth spot only four years earlier.

"When scandal erupts within the public sector, a number of side effects occur that negatively impact productivity and competitiveness," it says. "Firstly, public perception of the government is damaged, both domestically and internationally," the report says, adding this results in public demands for changes which in turn is followed by an increase in staff turnover and the related costs of recruiting and training new officials.
"Secondly, a large number of resources are reallocated to less productive activities in the event of a scandal," the accountants group says, noting in the wake of the sponsorship scandal, millions of taxpayers dollars were diverted to its investigation, which was on top of the millions that were already lost in misappropriated revenues to advertising companies.

"The many hours and dollars lost to investigating and indicting government officials translate to lost productivity growth, a situation that could have been avoided through greater transparency and accountability within government." "In addition to the loss of millions of dollars, the federal government has also lost a considerable amount of approval, even within its own echelons."

Also, following the sponsorship scandal the government suffered "bouts of paralysis and anxiety" resulting in, among other things, the abandonment by the new Conservative government of some of the former Liberal government's productivity enhancing initiatives, which significantly restrained overall growth of the Canadian economy, the report says.

Liberal finance critic John McCallum said he wanted to see the full report before making any comment. On the positive side, it says, there has been a move within the government to increase accountability and transparency, pointing to the introduction of the Federal Accountability Act, and measures to reduce inefficiency and waste in government spending.

Andrew Sharpe, economist and productivity expert at the Centre for the Study of Living Standards, hadn't seen the report but was "skeptical" that the sponsorship scandal has had a major impact on productivity. "Obviously, I don't think it was positive but ... I don't think you can find quantitative evidence that would link the sponsorship scandal directly to the business sector productivity performance," Sharpe said. "Maybe government is less focussed on productivity but I'm not sure of that." Sharpe said. "Even if that is the case ... government doesn't necessarily have that much impact on the overall business sector productivity performance."
That's something.


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