Debra Steger

Embrace change or suffer the consequences

By Dr Debra Steger

Canadians don’t have to look very far to see where their foreign investment is coming from. Just turn south: Almost 60% of outside investment in Canada is American. We are good partners — they have a large stake in our success, and we have one in theirs. The US accounts for 85% of Canadian exports and supplies 59% of our imports. And while there are definite difficulties in how we get along — softwood lumber being a key example — things, by and large, run smoothly.

There is, then, a natural tendency to think that the reconfiguration of the world’s economic order won’t affect us or our standard of living. But this is currently occurring as the once-isolated but now "emerging" econo-mies of China, India and Russia integrate with the rest of the world while others, like Brazil and Southeast Asia, also become powerhouses. We have our American cousins to trade with. We have each other to invest in. We’ll take advantage of the inexpensive retail goods coming out of India and China and keep banking on our knowledge economy — and our relationship with the Americans — to keep the true north strong in the 21st century.

If only it were that simple. The reality is that in the 21st century, the old rules no longer apply. For one thing, the world’s labour pool has doubled in size — to about three billion workers — creating both challenges to maintain our productivity and prosperity as well as opportunities to increase it. Suddenly, there is a glut of cheap labour. But just as suddenly, there are billions more potential customers.

OUTSOURCING HAS ONLY JUST BEGUN

India and China not only have an enormous supply of cheap labour for manufacturing operations, they also have been turning out overwhelming numbers of highly educated graduates in the sciences, engineering, management and technology fields. Outsourcing is no longer simply about multinationals seeking to carry out manufacturing and assembly or data processing operations abroad in lower wage countries. Now major software and high technology companies, such as Microsoft and IBM, are hiring top flight talent from universities and technical institutes in India, and setting up operations there.

Even small- and medium-sized enterprises are being encouraged to look beyond their borders. Promod Haque, the venture capitalist who in 2004 was named the world’s No. 1 dealmaker by Forbes magazine, says that outsourcing abroad is just beginning and is an absolutely crucial step for even the smallest companies hoping to grow. Outsource everything you can, he told the Ottawa Business Journal this month, including product development, manufacturing and anything else moveable.

China and India have a rapacious need for resources and raw materials to fuel their rapid industrialization. China is now the second largest consumer of oil in the world, after the United States, which explains why prices for oil and other natural resources are on the rise. This is benefiting our energy sector. Meanwhile, India is seeking $150 billion in infrastructure investment. The opportunities for Canadian business are enormous.

The impacts are being felt across Canada. Last year, we imported around $29 billion from China — up from $1.4 billion in 1990 — proving that cheap retail goods are attractive to consumers. The Port of Vancouver is straining to accommodate shipments to and from China, which now constitute 40% of container traffic. In Ontario, Stelco’s post-bankruptcy-protection rebirth as Canada’s biggest steelmaker seems assured, given China’s voracious appetite as the world’s largest consumer of steel. Inco is well-positioned: China, already the largest consumer of coal, copper and aluminum, wants all the nickel it can get to unseat Japan as the world’s No. 1 producer of stainless steel.

THE CHALLENGE TO CANADA

Where does Canada stand in this transformation of the global economic landscape?

We are playing catch up. Canada has been slow to recognize the magnitude and significance of these changes, and to develop strategic responses to the challenges and opportunities these emerging economies bring to the international marketplace. Canadian investment in China and India is small as compared to that of the United States, Australia and Japan. We have been complacent, assuming that our reliance on the US market for most of our export sales will shield us from this competition.

Last year, the House of Commons Standing Committee on Foreign Affairs and International Trade issued a report warning that Canada’s economic activity is too dependent on the United States. It recommended that we work harder at building trade and investment relationships with China, India and Brazil, as well as Russia, the Arabian Peninsula and Southeast Asia.

This spring, the new EDGE Network was established under the federal Networks of Centres of Excellence program to bring together leading researchers, think tanks, businesses and governments to help Canada meet the challenge of the emerging, dynamic global economies.

These are good first steps. In order to help Canadian business compete effectively, we need to learn new skills and forge new partnerships. The old international institutional architecture must be redesigned to reflect the major new geopolitical realignments. We need to anticipate change and develop innovative policies that position Canada to succeed. The challenges are unlike any that Canada has faced in the past. Canadian productivity and prosperity at home, as well as our competitiveness and influence globally, will be determined by how well — or how poorly — we respond to these new and changing realities.

Canada has a history of providing leadership in establishing many of the major international institutions in the world today, including the United Nations, the International Criminal Court and the World Trade Organization. Now we need to step up to the plate and play a leadership role in guiding the world into the 21st century, a world in which China, India, Brazil and other emerging economies will be major players.

We are at a turning point. We can either embrace change and rise to the challenge, or fear it and suffer the consequences.

Debra Steger is professor of Law at the University of Ottawa and director of the new EDGE Network on the Emerging, Dynamic, Global Economies (Please see related article on page 5).