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Local Economy

Busting Harper's Favourite Myth: He's Been Hell on Canada's Economy

Canada got less competitive under Tories. And more tough truths from Mel Hurtig's new book. First excerpt in a series.

Mel Hurtig 8 Jun

Vancouver-based Mel Hurtig is the bookseller, publisher and creator of The Canadian Encyclopedia who became a political activist and published many bestselling books, including The Betrayal of Canada. His latest book is The Arrogant Autocrat: Stephen Harper's Takeover of Canada, excerpted five times this week in The Tyee with the author's permission. To read the entire series, go here.

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‘The Arrogant Autocrat’: Under Prime Minister Stephen Harper’s watch, Canada’s productivity and competitiveness have slid down the global list of top rival economies. Image by Donkey Hotey, Creative Commons licensed.

[Editor’s note: This is the first of five excerpts this week from 'The Arrogant Autocrat: Stephen Harper’s Takeover of Canada' by noted Canadian nationalist Mel Hurtig. Today The Tyee also publishes an interview with Hurtig about his just published book.]

Contrary to what Stephen Harper and his cohorts would have you believe, it is possible to have a thriving economy, a healthy environment and a compassionate society. In fact, it is the only sustainable way forward.

But as I will detail in this week's series drawn from my new book, Harper's policies have harmed Canada's economic well-being and prospects.

Today, let's examine the critical slide in Canada's competitiveness.

The World Economic Forum (WEF) ranked Canada 15th out of 144 countries in its Global Competitiveness Report for 2014-15. It was a drop of one notch from Canada's 14th place finish the year before, which might not have been alarming but for the fact that this latest score was Canada's lowest since Harper took power in 2006.

Global competitiveness is a key indicator of our economic future as a nation and a forecast of our future prosperity. The WEF's index measures 12 factors that influence a country's global competitiveness, including financial market development, labour market efficiency, technological readiness, innovation and business sophistication -- all of which impact productivity and our ability to compete in the global economy. The Conference Board of Canada is a partner in producing these annual competitiveness reports, and the numbers are usually presented at the World Economic Forum's annual meetings.

According to the WEF and the Conference Board, Canada is performing well below the highest ranked countries on key economic indicators such as productivity and innovation. Switzerland was at the top of the 2014–15 list for the second year in a row, followed by Singapore. The United States moved up two positions to third place, with Finland, Germany and Japan close behind.

"As recently as 2009, Canada was ranked 9th in the WEF's annual ratings, as its financial-system stability and relative economic health gave it a considerable competitive advantage over many of its badly wobbling global peers," wrote David Parkinson in the Globe and Mail. "But as the world's economy and financial system has recovered, Canada's position in the rankings has eroded."

A year earlier, the Science, Technology and Innovation Council (an 18-member panel established by the Harper government to replace various other science advisory bodies) had highlighted one of the reasons for Canada's lacklustre showing. Globe science reporter Ivan Semeniuk cited the Council's findings that "without more support for industry and investment in research and development, Canada will be hard pressed to keep up with international competition and will risk an erosion of its economic well-being."

R&D is crucial

The Council identified a number of R&D-related factors that show where Canada is falling behind: "the number of doctorates awarded in science and technology relative to the total population; the fraction of Canadians working in science and technology; support for research in academic institutions; R&D investment by the private sector; and spending on information and communication technology in support of innovation."

The Council found that Canada had slipped from 16th to 23rd among industrialized countries in overall expenditures on research and development relative to gross domestic product, and it recommended more direct government support for industry-driven research rather than "indirect support in the form of tax credits." Howard Alper, the chair of the Council and a chemistry professor at the University of Ottawa, said, "We continue to face challenges as an innovation nation. This has to change if we are to compete well internationally and secure a strong future."

Although the terms "research and development" (R&D), "innovation" and "productivity" are often used interchangeably in discussions of global competitiveness, it is research and development that drives new technology and innovation. These in turn drive productivity and determine our global competitiveness. Canada's failure to adequately invest in R&D is a major contributor to our decline in productivity and competitiveness in the global economy.

For years, I've pointed out that Canada's business community isn't spending as much as it should on R&D as a percentage of GDP. In fact, Canadian businesses commit proportionately less to R&D than their peers in most other developed countries. According to the OECD's 2012 economic survey of Canada, the business sector "devotes only about one per cent of GDP to R&D, compared with two per cent in the U.S. and more than 2.5 per cent in Japan, Korea and some of the Nordic countries. Canada remains a low performer on business investment in R&D, even when the large share of natural resource production is taken into account."

Canada ranks in the bottom third of OECD countries in terms of business spending on R&D, and our productivity growth rate is less than half the OECD average. Inflation-adjusted R&D, in constant dollars, has fallen for the last six consecutive years for which data is available.

A 2012 Conference Board of Canada assessment concurs: we're in 13th place when we measure our innovation performance against a group of 16 peer countries, and rate no more than a "D" grade on innovation, on business R&D spending, and on patents.

Patents are a useful barometer of innovation, a measure of how well a nation transforms knowledge into usable inventions. The more patents a country has, the more likely it is to develop new technology, to "derive above-average economic gain from its intellectual property," in the words of the OECD. That organization records another less than stellar performance in the patent category. In the OECD Factbook 2014, we rank 18th amongst OECD countries in terms of triad patent applications (those patents submitted for the same invention to patent offices in the U.S., the EU and Japan) per population, behind Japan, Switzerland, Sweden, Germany, Finland, the Netherlands, Denmark and the United States, amongst others.

Yes, government can make a difference

Canada has one of the lowest rates of direct government funding of business R&D within the OECD. Good economic governance demands government involvement to provide incentives for Canadian businesses to invest in our economic future. We have decades of evidence to show that simply offering lower corporate tax rates is not the answer -- it has produced precisely the opposite result. Clearly this has to change.

Don Drummond is a former associate deputy minister of Finance and former chief economist at TD Financial Group. In 2011, he wrote that low productivity had been a concern of Canadian economists in recent decades: "In the 1950s and 1960s, Canada had the third highest level of productivity amongst the original 24 OECD countries.... Since 1980 only three of the OECD countries have had a worse productivity growth rate than Canada."

Analysts continue to warn of the risks unless R&D spending and innovation are increased. Even David Dodge, former governor of the Bank of Canada, says, "Without a much more innovative economy, we Canadians will not be able to sustain a caring society including universal healthcare." His prediction: "We face the dangers of declining standards of living."

While investment in R&D is key to productivity, investment in human capital is of equally vital importance. Skills training and higher education must be priorities, as must be equality of opportunity and fair compensation. A workforce that sees company profits diverted to enriching those at the top cannot be expected to demonstrate the same loyalty or work ethic as those employed by companies who reward good performance with increased salaries, benefits and bonuses. We simply have to ensure that every Canadian worker feels a vested interest in the development and growth of our national economy.

The government's own procurement of advanced technology can be a significant driver of technological innovation, but according to the World Economic Forum, Canada was 48th amongst its member countries in this category. Is it any wonder, when you look at the government's mismanagement of the processes necessary to upgrade our military equipment?

The Harper government's plan to replace aging CF-18 fighter jets with Lockheed Martin's F-35 jets has turned into a saga of unproven technology, questionable delays, disturbing malfunctions, and huge cost overruns. While the government claimed the F-35 fleet purchase -- opposed by many Canadians as inappropriate and criticized by both the auditor general and the parliamentary budget officer as ill-planned -- would cost $16 to $18 billion, the price estimate eventually ballooned to as high as $45 billion.

Blind to renewable energy boom

Another serious obstacle to innovation development in Canada is the Harper government's excessive focus on tarsands oil production and pipelines at the expense of other areas of the economy. As the recent collapse of oil prices has demonstrated all too clearly, this strategy is a recipe for fiscal calamity. The OECD put it politely in 2012: "Canada is blessed with abundant natural resources, but it needs to do more to develop other sectors of the economy if it is to maintain a high-level of employment and equitable distribution of the fruits of growth."

And at a moment when much of the industrialized world is working to reduce its reliance on fossil fuels, where is the investment in technology to find cleaner energy alternatives? This blind pursuit of oil's fortunes reveals a regime that is completely out of touch with national and international realities. It's time for it to go.

One more key factor behind our flagging R&D and innovation is foreign ownership. Yet we continue to allow the take-over of our home-grown success stories by wealthy foreign companies. Noted economist Jim Stanford points out that "extensive foreign ownership in Canada undermines innovative activity since most multinationals do their research and development at home near their head office."

He adds, "It's clear that there is a failure of Canadian companies to pro-actively embrace innovation as a key business strategy, while contenting themselves instead to raking in the profits from commodities" -- with the blessing of the Harper government.

More on the Harper government's indifference to the brutal sell-off of Canadian-owned companies tomorrow.  [Tyee]

Read more: Local Economy, Politics

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