Time to focus on the economy
By Globe and Mail
The federal Liberals have done a good job of managing Canada’s fiscal and economic affairs. Canada’s steady growth rates and its widening budget and trade surpluses are the envy of other major developed countries. Canada has racked up budget surpluses for seven consecutive years, while other G7 countries continue to struggle with deficits. Inflation has remained well in check; the debt-to-GDP ratio, a key measure of financial health, has steadily improved; interest rates are low; and fears that the rising dollar would put a severe dent in exports have so far proved groundless. But for all these successes, Canada still faces significant economic challenges.
The latest annual report on global competitiveness compiled by the World Economic Forum ranks Canada 15th among the world’s economies, down from 12th last year and sixth in 1998. In terms of growth prospects, Canada moved up a notch to 15th from 16th. Such rankings must be taken with a large grain of salt, particularly when they bear little correlation to what has been happening in the real world. Can anyone honestly compare the growth prospects of tiny Iceland (10th place) with those of such major diversified economies as Britain, Germany and Canada, which are lower on the list?
But that does not mean we should be complacent about Canada’s identified competitive weaknesses, including a widening productivity gap, a lack of pressure on businesses to invest in better processes and products, a need for better-educated managers and too much protectionism in such key sectors as banking, transportation and communications. Harvard Business School professor Michael Porter, who designed the competitiveness index, has long argued that intense domestic rivalry and extremely demanding customers are the best incubator for innovation and global success. Canada falls short on both counts.
With easy access to the vast U.S. market, low-cost raw materials and relatively cheap labour thanks to a weaker currency, Canadian businesses have felt little pressure to sharpen their performance and become more innovative or productive. Companies and the people who run them instinctively do only what is necessary and requires the least amount of capital.
Free trade was the key public policy tool available to intensify competition. But there are others yet to be implemented, which are vital for the future. The Speech from the Throne briefly addressed the need for new strategies to tackle “pervasive global competition.” These include increased aid for such technologically advanced industries as autos, aerospace and biotech, faster recognition of the credentials of highly skilled immigrants and the encouragement of business to do a better job of commercializing first-rate research done by government and universities.
“In order to make progress, there is simply going to have to be more attention paid to the competitiveness of this country, rather than, say, fixing the health care system—which is important obviously,” declared Roger Martin, dean of the University of Toronto’s Rotman School of Management and chair of the U of T’s Institute for Competitiveness and Prosperity.
Having devoted so much attention—and money—to the long-term health needs of Canadians, it’s time for the federal and provincial governments to expend a little more effort ensuring the long-term health of the economy.
