Debate offers divergent prescriptions for making Canada more productive

Canada would do well to avoid scraping "the bottom of the free-market barrel" and employ a more interventionist, sectoral approach to stimulating innovation, productivity and global competitiveness. That's the view of Canadian Auto Workers economist Jim Stanford, who was one of four participants at a Canada 20-20 panel discussion in Ottawa last week. Held to coincide with the launch of the non-partisan think tank's book, The Canada We Want in 2020, the event highlighted the divergent views that are emerging as Canada grapples with plunging productivity (relative to the US), low business R&D performance and weak competitiveness.

Stanford's views stood in contrast to those of the other panel members — Kevin Lynch, vice chair, BMO Financial Group, Peter Nicholson, former CEO, Council of Canadian Academies (CCA) and most pointedly with the recommendations of Lawson Hunter, head of Anti-trust/Competition at the law firm Stikeman Elliot. They examined the challenges from more of a status quo position (what Stanford called the rationalist approach), calling for Canada's remaining protected industry sectors to be opened up to competition and a streamlined regulatory regime. Lynch also recommended the adoption of more direct support for business innovation in line with the recommendations of the Jenkins report on federal support for business R&D.

For Stanford, however, continuing to pursue policies in line with with a near 30-year focus on free market prescriptions for enhancing Canadian productivity is a dead end. He noted that those policies coincided with a slide in Canada's productivity relative to the US from 90% in the mid 1980s to just over 70% today. Instead of implementing the few remaining free market policies that haven't already been instituted, he argued that Canada should look to models employed by highly innovative nations that are far more pro-active in terms of policy direction and government programs.

"The relationship between productivity and living standards has been severed," said Stanford. "We need a pro-active sector strategy to develop innovation-intensive industries, manage exchange rates, build domestic-based firms and pick winners and back them."

Nicholson's view of weak Canadian productivity focused on Canada's poor performance on measures contributing to multi-factor productivity, a concept explored in some detail in the landmark 2007 CCA report — Innovation and Business Strategy: Why Canada Falls Short. His central message was that Canada could significantly improve its productivity and competitive position by making the public sector at all levels more innovative. He also offered his views on business innovation, arguing that "Canadian business has been able to succeed without being particularly innovative" due to bountiful natural resources and the prevalent business practice of acquiring innovative products and services rather than creating them on their own.

"Canada is good on the shop floor but not innovative at the core of business strategy," he said. "We're living in a cultural time warp and everything is speeding up."

Lynch, who as a senior federal bureaucrat was responsible for many of the current R&D programs in place today, steered close to the recommendations of the Jenkins panel and the Canadian Competition Review Panel (the Wilson Report). In addition to advocating for more open competition and greater use of direct measures to increase business R&D and innovation, he called for the creation of a Productivity and Innovation Council, new trade agreements with China, Brazil, India, Korea and Japan and better leadership to inspire innovation.

Perhaps the greatest expression of open competition came from Hunter, who argued that Canadian business remains heavily over-regulated. He called for a major overhaul and reduction of regulations over transportation, agriculture, energy and telecommunications. By making regulations standards-based and seeking out alternative regulations that boost innovation and productivity, firms will be better equipped to achieve global scale. Lawson said the forthcoming Budget should be used to launch the process of streamlining the regulatory framework — a process that could take 10 years.

Canada 2020 is an outgrowth of the Bluesky Strategy Group, an Ottawa-based public affairs consulting firm. Its book is available at canada2020.ca.

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