No greater threat to the Canadian dream today than our misguided complacency

TORONTO—In a recent edition of Britain’s Financial Times, a columnist asked what had happened to Canada. “The country’s geography suggests it could be a powerhouse, but few talk about it in such terms,” columnist Tej Parikh wrote. “Canada rarely makes the global news” and “it underwhelms on the international economic stage, relative to its vast potential.” Our poor productivity is at the heart of Canada’s growth challenges, he argues. None of this is really new to Canadians who worry about that is happening to the country, and why we consistently underperform. What makes the column interesting is that others outside of Canada may be coming to a similar view. The Canadian business sector output gap with the United States has been falling steadily since the mid-1980s: from 92 per cent of the U.S. level then to just more than 75 per cent now. Our productivity level is one of the lowest among advanced economies, while some countries—such as Austria, Sweden, Switzerland, and Denmark—produce more per hour worked than the U.S. The most recent data from Statistics Canada show that productivity in the business sector fell in the second quarter, marking the fifth successive quarter in which our productivity fell. This is a longstanding issue. In 1991, Harvard business competitiveness guru Michael Porter published a devastating report: Canada at the Crossroads. Canada, his report said, was too dependent on the export of relatively unprocessed natural resources produced with imported technologies, lacked an innovation mindset, was especially weak in the design and production of machinery and equipment, had too few companies looking to markets beyond the U.S., suffered from too few Canadian multinationals and too many foreign branch plants, had too few supplier industries for advanced parts and components, and had an abysmal productivity performance. Much of that report could still be written today, more than 30 years later. At the time, Fraser Mustard and the Canadian Institute for Advanced Research were working to change economic thinking in Canada, bringing in Paul Romer—who went on to win the Nobel Prize in economics—as a research fellow. Romer is a leading figure in endogenous growth theory which links economic progress to investment in ideas and innovation, including the critical role of non-rival ideas. “The most important job for economic policy,” he wrote, “is to create an institutional environment that supports technological change.” Moreover, “nations that can sustain a policy stance that tolerates, or perhaps even fosters, the process of creative destruction can count on sustained economic growth,” adding that “those that are most successful in creating institutions that foster discovery and innovation will be the worldwide technological leaders.” But not enough people were paying attention. There is more pressure from our business leadership and business lobbies in Canada even today to grow fossil-fuel production—despite its major contribution to climate change and a long-term future of declining use—and to rely on branch-plant investments rather than build the next economy based on Canadian ideas and digital innovation. In 2009, the Council of Canadian Academies published a detailed report, Innovation and Business Strategy: Why Canada Falls Short, on why our business sector was lagging in innovation and productivity. It concluded that the Canadian business sector didn’t innovate more because it didn’t feel it had to. Life was reasonably comfortable and only fear would drive it to change. While there are exciting examples of highly innovative Canadians building businesses that are globally competitive, there are too few. We still depend too much on exporting unprocessed natural resources and branch-plant manufacturing. In 2012, Marcel Côté, founder the consultancy Secor, and Roger Miller, a consulting partner at Secor and business professor at the Université de Montreal, published an important book, Innovation Reinvented: Six Games that Drive Growth. In it, they stressed that while public policies can either help or hinder innovation-led productivity, the key innovation decisions must be made by businesses. This was and is Canada’s greatest weakness: with some exceptions, a business community that is still too comfortable. Closing the productivity gap between Canadian and American businesses, Côté and Miller contended, depends on “the willingness of Canadian business at large to adopt superior solutions to their market.” Since most business innovations stem from corporate decisions, governments have limited leverage and need to know where best to use it. We have government programs to stimulate innovation, and while we spend billions of dollars each year to subsidize innovation, we don’t know how well they work—if at all. As Côté and Miller wrote, “Canada’s public policies on innovation need a much more fundamental review if they are to impact innovation in a significant way.” We are still waiting for such a review—indeed, with massive changes underway in technology, demographics and geoeconomics, we need it more than ever. The challenges we face are huge, and many nations around the world will be competing hard to generate wealth and jobs for their populations. It will also be a world where there will be strong headwinds making future success more difficult with both productivity growth from innovation and global economic growth rates facing declining prospects between now and 2030. In Canada, you might not know this. The federal Conservative Party, at its recent policy conference in Québec City, produced a 51-page list of proposed policy resolutions. While Conservatives were hyped up to defund the CBC, curtail MAID, get rid of carbon pricing and goose-up fossil fuel production, denounce any form of wokism, abolish the capital gains tax on Canadian assets, and balance the budget while boosting defence spending, ideas on the really serious issues facing the nation were nowhere to be found. This is the Canadian dilemma. We are still not focused on what really matters for a livable future. There is no greater threat to the Canadian dream today than misguided complacency. The world has about eight billion people—and most of them are not going to worry about the fate of just 40 million Canadians. That is our responsibility alone. It’s time to grow up. David Crane can be reached at crane@interlog.com. The Hill Times

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No greater threat to the Canadian dream today than our misguided complacency

Statistics Canada's recent data shows that productivity in the business sector fell in the second quarter, marking the fifth successive quarter in which our productivity fell.

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