15, March 2023

The real driver of growth and productivity.


Canada has a serious growth and productivity problem. It is the worst performing of 38 advanced countries for 2020-2030 and also for 2030-2060 according to the OECD. We have spent billions of dollars on innovation but the situation has not improved.  What are we missing?

Earlier in my career I worked for a large chemical company in Canada. They had two large plants, that I will call plant A and Plant B. I had the opportunity to visit each plant and analyze their histories. Plant A operated at its nameplate capacity for many years. Plant B had increased its capacity by almost half since it started up. When I inquired why the difference, I found that plant A had been run by a manager keen on reducing costs, so he kept staff to the minimum. Plant B had been run by a manager looking to improve his performance, so he hired a couple of process engineers whose sole job was to look for ways to improve the process. Not surprisingly this plant significantly outperformed Plant A because of  a continuous stream of minor improvements to the manufacturing process.

This is not an isolated case. As Dan Breznitz1, a professor at the University of Toronto,  observed about the automobile: “The true impact of innovation is represented by the continuous stream of implementation of large and small inventions to make the car a better and cheaper product…”

Take the transistor. The diagram below shows Moore’s law, that reflects continuous incremental improvement to the transistor manufacturing process since the 1960’s.

Or take solar cells:

Or take wind turbines:

Learning curve.

Each of these cases – Moore’s law, solar cells and wind turbines – is an example of a learning curve. It has been recognized for many years that as you produce more and more of anything the cost declines, typically reducing by 20% for every doubling of production. The reason the cost declines is that people find numerous small ways to improve the process and the cumulative effect shows as the learning curve.

So what does this mean?

The strong focus on tech startups, venture capital and Unicorns has been useful, but it is incomplete. By itself it has not generated economic growth and productivity. If it had our OECD numbers would be much better.

The real source of economic growth and prosperity lies in the continuous stream of small improvements that build on each of these inventions. This means providing much more support to existing firms that want to grow. As they grow they will make numerous small improvements to their production process. Their cumulative effect will lower their costs create economic growth, productivity and prosperity.

Peter Josty


  1. “Innovation in Real Places” by Dan Breznitz, Oxford University Press, 2021.