ITAC: Canadian ICT investment half that of U.S.

TORONTO – The Information Technology Association of Canada is asking the government to consider accelerating the depreciation of enterprise IT equipment and other economic incentives to help close what it calls a gap between Canadian and U.S. technology investment.

In a sprawling, 120-page report the industry association released Monday, ITAC said Canadian firms on average spend only 45.1 per cent on information and communications technologies (ICT) per employee of what firms in the U.S. spend. Besides examining the relationship between technology adoption and its impact on national productivity, the report also highlights the challenge in measuring ICT investment in certain industries and creating an accurate picture of Canadian spending on computers and software.

Some industries, such as arts, entertainment and recreation, actually spent more per worker on ICT than their U.S. counterparts, according to the report. The gap is particularly acute in communication equipment, where no Canadian industry invested more on such technology per worker than the U.S. The business sector average level of ICT investment in Canada was $1,468 per worker, the report added, compared with $3,253 per worker in the U.S. last year.

“I was shocked by some of these numbers,” said Dr. Andrew Sharpe, executive director of the Ottawa-based Centre for the Study of Living Standards (CSLS), which put the study together on ITAC’s behalf. “There was massive variation across industries – you look at food services, and they’re spending $98 per worker. In utilities, it’s more than $8,000.”

Sharpe offered a number of possible explanations for the discrepancy, including Canada’s industrial structure as well as the size and distribution of its employment. Canada’s large base of small and medium-sized businesses, for example, tend to be more cautious about investing in and deploying ICT. Labour compensation costs are also 20 per cent lower here than in the U.S., which he said may make Canadian firms reluctant to substitute capital for ICT.

Besides looking at technology spending per worker, the report also looks at investment per share of gross domestic product (GDP), which also helps account for some of the perceived weakness in Canada, the report said. “A country might have a low level of ICT investment in GDP, because it fails to invest in all types of investment goods, or because it devotes a lower proportion of its total investment to ICT,” it says.

ITAC president Bernard Courtois said that while there was an industry-wide slowdown following the Y2K spending peak of the 1990s and the subsequent dot-com crash, U.S. productivity has continued to climb while Canada’s has stagnated. Though Canada’s natural resources may have insulated us from the short-term effects of that problem, he said it would be dangerous to ignore the long-term implications of the spending differences. 

“We need incentives that provide a wake-up,” he said. “The benefits are clear, not just to GDP but to the revenues of government itself.”

ITAC has been making regular submissions about the ICT investment issue to Industry Canada and the Department of Finance, though Courtois said it was difficult to tell whether the association could count on candidates taking up its cause amid the federal election.

“Parties come up with all kinds of strategies to do all kinds of things when there’s an election going on,” he said. “They may not get into the fundamental changes we need to see as an industry.”

Sharpe said there were major gaps in how Statistics Canada pulls together the raw data around ICT investment. A survey used to identify investments in the oil and gas industry, for example, does not break out ICT spending, and no such survey exists for construction or fishing, which may mean some of the adoption levels are underestimated.

“We need to start looking at the network effects — how once many people are online, it benefits others to go online,” he said. “It makes a difference when everyone becomes part of the conversation.”

Other reasons for the spending gap cited in the report include a lower proportion of Canadian managers with university education. Sharpe noted that companies have to complement their investment in ICT with additional spending around training and education to make the investments successful. The complete report is available on the CSLS Web site. 

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