Canada's economy is increasingly at the mercy of a risk-averse, inept corporate elite addicted to government tax breaks. They are enabled by an ideologically addled government that is incompetent.
It is a deadly combination -- a dumb and dumber team dragging us backwards at a time when the world is hoping there won't be another economic collapse.
Recent media reports reinforce what we have known for decades about the Canadian corporate elite. One highlighted Canada's dismal performance when it comes to research and development, the other our pathetic efforts at broadening our markets for exports. More and more evidence piles up that we are de-industrializing -- reminding me of the Star Trek episode where the whole crew starts devolving. Captain Picard is destined to become a pygmy marmoset. I wonder what the end point for Canada might be?
Passed by Taiwan, Brazil, India
An OECD study reported in the Globe shows that Canada has dropped out of the top ten in research and development spending and now ranks 12th. While we de-industrialize and fall back on raw resource exports, previously underdeveloped countries -- Taiwan, India and Brazil -- are now outspending us as they industrialize.
We continue to decline in the World Economic Forum's World Competitiveness Index as well. For 2014-2015 we rank 15th.
Even worse, in the category of "innovation and sophistication factors" we rank 25th.
In 1998 our overall rank was sixth. Some of the countries that now beat us: the United Arab Emirates, Taiwan, Hong Kong and Singapore.
Canada's dramatic decline in research and development has a continuing negative impact on labour productivity as well. According to OECD figures for the year 2012, we stood at 73 per cent of the U.S. benchmark of 100. This failure to increase labour productivity through investment in new machinery and innovation has had a huge impact on our standard of living and the domestic economy: as wages stagnate and personal debt increases, domestic consumption starts to flatline -- and that further suppresses investment.
The other media report that reveals the pathetic level of government and corporate leadership on the economy focused on our complete failure to look to India as a potent export market. It is the fastest growing economy on the planet yet Canadian corporations and their government partners seem asleep at the switch. Kevin Carmichael in the Globe and Mail quotes the president of Canada-India Business Council: "We've got to get in here fast or we're going to miss the boat. You've seen a rush to the gates [from other nations]. We seem to be taking a slow walk." Currently exports to India account for a minuscule 0.63 per cent of Canadian exports -- and just under half of that is raw materials.*
Canada scarcely does better in other emerging nations. Our top three destinations for goods are: the U.S. at 74.5 per cent, China at 4.3 per cent and the U.K. at 4.1 per cent. Australia, a Pacific nation we compete with, is far more diversified: China 29.5 per cent, Japan 19.3 per cent, South Korea 8 per cent, India 4.9 per cent.
For decades, alarms about lagging productivity
Where I live, in Powell River, B.C., the evidence of our race to the bottom is stark. An endless stream of huge log booms go by my window, most headed to China, which not too many years ago bought one of the local mill's paper machines, packed it up and sent it home -- to process our trees.
The more things change the more they stay the same -- especially when it comes to corporate leadership. Two studies on Canadian competitiveness by Harvard Business School's Michael Porter, one in 1991 and one in 2001, concluded: "The absence of intense local rivalry combined with customers who were not demanding produced weak pressures for firm productivity and upgrading.... Research uncovered key weaknesses in the sophistication of company operations and strategy."
Canadian firms that did "compete" internationally took the easy way out -- exporting almost exclusively to the U.S. and relying on "natural resource advantages or lower labour costs than other G7 competitors instead of sophisticated products and processes."
Is it even possible to change corporate culture or at least engage in a little behaviour modification? Do we -- that is the government -- have to treat our (ridiculously over-compensated) CEOs as adolescents to get them to deliver?
After all we have given them literally everything they have asked for starting with the original free trade deal with the U.S., deliberately suppressed wages, a shredded safety net, and the gutting of regulations.
None of it has had any impact. Their performance has been getting worse for almost two decades.
What's Harper got against manufacturers?
So what does Stephen Harper do? He rewards corporate ineptness and irresponsibility by providing one of the lowest corporate tax rates in the 34-nation OECD. It doesn't matter that all this free money just goes into the cash reserves of the country's largest companies (now totalling over $600 billion). Why doesn't it matter? Because Stephen Harper doesn't actually care if they invest in anything. The point of his tax cuts was never to stimulate investment -- it was to jettison government revenue in aid of dismantling the activist state and making it impossible for future governments to act.
The only sector Harper even thinks about is oil and gas. If that seems a bit over the top have a look at the Carol Goar's Toronto Star story on the phantom $200-million fund to stimulate Ontario manufacturing. The money, formally announced a year ago, was slated for something called the Advanced Manufacturing Fund and it was first mentioned in February last year. The goals were laudable, including: "To support transformative technologies and foster collaboration between universities and the private sector."
The problem, says Goar (using information dug up by the NDP's Peggy Nash) is that "To date, not a single project has been approved. Not one dollar has been released. Not one job has been created."
Two-hundred million might sound like a lot of money to promote manufacturing in one province, but the fact is that given Canadian corporations' appalling record of investment in innovation and "sophistication of company operations and strategy," government engagement is absolutely critical. The manufacturing and high tech sectors are in desperate need of the kind of guidance that can only come from a smart industrial strategy. Otherwise Canada faces a continued decline in its value-added sectors and export markets. Ontario has lost 300,000 manufacturing jobs in the last ten years -- that's more than one in four.
If the goal is to create "transformative technologies" (the word green comes to mind) then $200 million is just lunch money. But the Harper government is so opposed to government intervention it can't even bring itself to spend the money it actually allocated.
Everything oil wants
Imagine if even 10 per cent of the largesse and free passes showered on the oil and gas sector was used to create what the Advanced Manufacturing Fund was established to do. According to the IMF, Canadian subsidies to the oil sector, in real dollars and avoided externality costs, amount to $34 billion a year.
If you have been taken in by the spin that this sector creates thousands of jobs in other provinces, then think again. The entire resource sector accounts for only 7 per cent of the economy and is one of the worst job creators we have. Two reports, one by the IMF and another by the Canadian Energy Research Institute in 2011 revealed just how little the oil and gas sector contributes to jobs and GDP growth.
Commenting on the reports, Frances Russell highlighted the fact that "Canada's energy sector created only 1.7 per cent of all new jobs in Canada from 2007 to 2012." That was just 13,000 jobs. Compare that to the 22,000 jobs created in a single month, December 2013, in health care and social assistance. "The energy sector accounts for only 0.1 percentage point of the average 2.25 per cent annual GDP growth over the last decade," according to the IMF. As for the alleged benefits accruing to other provinces, a dollar invested in the tarsands boosts manufacturing in the rest of Canada by three cents and GDP in Ontario by four cents. And if none of the pipelines from the tarsands were built? The economy would grow 0.5 per cent less by 2020.
The potential for Canada to be leading in many new areas of innovative green growth has been squandered for years and continues to be ignored.
Instead Canadian governments shower the oil and gas sector with obscenely large subsidies and allow risk-averse and timid added-value sectors to languish in the ferocious competition for global markets.
To add insult to injury we hand over billions in tax cuts that could be used to become genuinely competitive. Dumb and Dumber was a bad movie. But this one's worse.
*Percentage error corrected Dec. 1 at 8:40 a.m.