Canada needs to throw off the yoke of economic complacency to play in the big leagues

Canada, and Prime Minister Justin Trudeau, will soon host G7 leaders in Charlevoix, Que., with members are poised to descend on the region from June 8-9. Much has changed since members first got together in 1975 at the Château de Rambouillet, situated outside of Paris. Back then, the G6—minus Canada, which was not yet part of the club—met to discuss the global economy, following the oil-price volatility and subsequent financial shocks. Decades later, contemporary G7 summits have morphed into broader discussions, and at the same time, the traditional “leading industrial countries” do not have the same ability, or sphere of influence to shape the global economy today, as compared to the 1970s. G7 membership does not reflect all of the world’s largest economies, with China, India, and Brazil absent. That’s despite the fact that those countries command higher GDP values than Canada, according to the International Monetary Fund. Factors that have led to an international paradigm shift in power include the rapid growth and importance of China, and to a lesser extent, India, innovations in communications and technology, the emergence of social media, and the power of private corporations. (Those interested in this topic should consider Moisés Naím’s 2013 bestseller The End of Power, which explores these and other factors in detail.) Nowhere is the sheer magnitude and power of corporations, especially south of the border, on display than in the stock market. And nowhere, broadly speaking, is Canada’s economy—especially its lack of productivity, competitiveness, and innovation—more clear than in the lacklustre performance of its own stock market. In the last 10 years, for example, the flagship U.S. S&P 500 has roughly doubled in value, while Canada’s leading S&P/TSX Index is up a measly eight percentage points—in 10 years. In the last five years, the former is up about 64 per cent, while the latter only 28 per cent. Looking at the last 12 months, Canada lags again (15 per cent versus five per cent). It’s not just against the U.S. that Canada performs poorly: over the last two years, Canada has had the worst performing stock market in the G7 by far. A look at Canada’s largest non-financial companies, by market capitalization, paints an uninspiring, and in many cases, a money-losing picture. The energy sector, which makes up one-fifth of the S&P/TSX Index, includes some of the largest Canadian companies, such as Enbridge and TransCanada, which have been dead money for years. Even the recent rally in oil prices has done little to lift their stock prices in the face of political headwinds and regulatory uncertainty. This poor performance affects millions of Canadians. According to the Investment Funds Institute of Canada, $1.5 trillion of Canadians’ investments are held in mutual funds, representing almost one-third of Canadians’ financial wealth. It should be noted, to be fair, that unlike the U.S. and Europe, Canada did not experience a severe banking and financial crisis in 2007-2008, which led to massive central-bank intervention and the growth of “cheap money” through quantitative easing programs that has inflated many asset prices. But there is more to Canada’s economic melancholy than this. Following a distinguished career in the federal public service that culminated as clerk of the Privy Council Office, Kevin Lynch, who is now the vice-chair at BMO Financial Group, began writing about the connection between and importance of productivity and innovation. In a 2011 Policy Options report co-authored by Munir Sheikh, Lynch wrote about the “made-in-Canada challenge” and outlined a number of points to tackle the problem, including “policy changes to increase market competition” and “redirecting ... tax expenditures” to support corporate innovation in Canada. The authors added at the end of their report, “Most importantly, we should avoid any tendency toward national complacency.” Years later, however, Canada continues to perform poorly in key areas: the World Economic Forum’s Global Competitiveness Index puts Canada 24th for “innovation and sophistication factors,” while the Organization for Economic Co-operation and Development placed Canada second last among G7 countries for labour productivity. Anecdotally, Canada also ranked second last in 2017 among G7 countries for the number of companies listed in the Fortune Global 500 list that measures the largest companies by revenue (Canada’s highest entry, Manulife Financial, comes in at 250th). In Budget 2017, Finance Minister Bill Morneau identified six sectors for federal funding where “Canada will lead the way,” namely: digital, clean technology, agri-food, advanced manufacturing, bio-sciences, and clean resources. Admittedly, these initiatives take time to scale and succeed (if they ever), but where are Canada’s new, cutting-edge companies leading the world? Although their stories did not end well, there was a time when Canadian-based Nortel Networks and Research In Motion (now BlackBerry) were looked at with economic envy. Perhaps the most recent example of a successful Canadian technology startup is Ottawa-based Shopify, which went public in 2015. The company now has a market capitalization of approximately $17 billion, but it’s only one company. There are two few Canadian companies making the leap from startup to global player. The year before last, for example, was “the worst year for Canadian IPO activity in nearly 20 years,” according to a recent report from PricewaterhouseCoopers Canada. When Trudeau welcomes his counterparts to Quebec, he will do so from a position of economic weakness. A dismal performance in the stock market, a country with relatively few internationally influential corporations, and a business and investment environment that is arguably at the door, if not in, a state of national complacency. As the smallest G7 member, Canada needs to tackle these issues with urgency. Evan Sotiropoulos is a Toronto-based writer. You can reach him at esotiropoulos@gmail.com. The Hill Times

Canada needs to throw off the yoke of economic complacency to play in the big leagues

Economic indicators suggest that Canada's performance among G7 nations is middling, thanks to a dismal performance in the stock market, among other factors, says columnist Evan Sotiropoulos.

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Canada needs to throw off the yoke of economic complacency to play in the big leagues

Economic indicators suggest that Canada's performance among G7 nations is middling, thanks to a dismal performance in the stock market, among other factors, says columnist Evan Sotiropoulos.

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