Canada better start playing the long game, now

TORONTO—This is our most serious problem: we have an investment gap with our peer counties. We are underinvesting not only in advanced technologies to produce goods and services for the world marketplace, but also in research and development, intellectual property, in-house software, and other intangible assets that are the basis for good jobs, wealth creation, and productivity. This is putting our future at serious risk. As the public policy group in the law firm Bennett Jones has just reminded us, over the next five years and longer, “Canada must ramp up investment to better equip workers, to adapt and grow our economy in a period of population aging, climate change, and rapid technological innovation, and to compete globally,” it says in its latest economic outlook, Playing the Long Game. “Yet progress remains elusive and prospects uncertain.” The report is important because it is led by former senior public policy officials with compelling experience, including David Dodge, former deputy minister of Finance and governor of the Bank of Canada; and Serge Dupont, former deputy minster of Natural Resources Canada and a former senior official in Finance. The investment gap, they contend, “is holding back Canada’s productivity, competitiveness, and growth potential.” Raising our growth potential is our biggest economic challenge. They quote C.D. Howe Institute research showing that Canadian workers began 2022 with less capital to work with than they had in 2015. Even though the Trudeau government has committed much more public funding for business investment to generate more investment—the massive subsides for the automotive and related battery industries are one example—Canada may “still lag global peers, fall behind in global competitiveness, and experience a slow erosion of living standards,” the report warns. “The bottom line is that Canada needs to raise the investment share of GDP—both to accelerate productivity growth by equipping workers with more and better tangible and intangible capital, and to position Canada to compete globally on the path to a clean economy.” Investment is needed, not just in tangible assets such as machinery and equipment, but also in intangible assets such as software, research and development, intellectual property, branding and marketing and in new forms of business organization. Companies that invest in and are rich in intangibles are also much more competitive and successful. But Canada, relative to its competitors, is lagging in both tangible and intangible investments. This investment gap, they argue, is “a critical handicap for Canada at a time when, like its peers, it must address population aging, transform the energy system, accelerate innovation and digitalization, and raise productivity growth.” Their solution, first of all, is to get framework policies right—such as taxation, competition policy, capital markets and regulation. “There must be an economy-wide effort to stimulate investment, innovation and the deployment of digital technology,” the authors write. “Competition, business frameworks for the digital economy and a tax structure that incentivizes investment relative to consumption will be the critical levers.” But framework policies are not enough. For example, they argue, there must be a strong effort to achieve high levels of Canadian content in major projects. Electric vehicles and batteries would be one example. “Economic dividends will be maximized where projects or parts thereof involve the development of new Canadian technology that is commercialized in Canada and internationally. Canada’s balance sheet includes tangible but also intangible (intellectual property) assets, and large public and private investments should be utilized to the greatest extent to expand both types of assets.” If our firms develop expertise and intellectual property in hydrogen, carbon capture and storage, small modular reactors, electric vehicles and batteries or critical minerals and rare earths, then “they will be able to extract extra value in global markets.” This depends on both making this a priority on projects where there are public subsidies (as the United States does on its increasingly demanding 'Buy America' requirements), and also on scaling up Canadian-owned and controlled companies, including better safeguards against foreign takeovers. The report does not say this, but if we are to succeed, we need more globally competitive and Canadian-owned and controlled firms headquartered here. This does mean, as the Bennett Jones report points out, there’s a need to reassess foreign investment rules. Large multinationals can and do reduce competition and innovation. “This is particularly true in the digital space where tech giants leverage network economics and deploy aggressive strategies to suppress or acquire firms that constitute a competitive threat.” Multinationals scour the world to buy potential competitors and acquire their intellectual property and talent, and this is especially the case in Canada. But we need to go further than the Bennett Jones report. We need a much better public understanding of the future. For example, as I have argued a number of times, we need some kind of economic council of some of our best minds—not another advisory body, but a council of experts who can, with the future in mind, analyze policy issues; better frame public understanding of the issues, challenges and opportunities; look at what currently works and doesn’t work; and outline policy directions for the future. Artificial intelligence is a big example with its great potential for productivity, great questions on what it means for the future of work, and significant concerns on the down sides—from growing corporate concentration and control, and threats to democracy, to military and national security implications. We cannot plan for the future without a much better understanding of where AI is headed, and how we best capture its advantages while curbing its disadvantages. The Bennett Jones report makes passing reference to AI, but it will have to have a place on the centre stage of public policy. We have to do better if we want a better future. David Crane can be reached at crane@interlog.com. The Hill Times

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Canada better start playing the long game, now

We need an economic council of some of our best minds who can, with the future in mind, analyze policy issues, better frame public understanding of the issues, look at what currently works and doesn’t work, and outline policy directions for the future.

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