a) lower investment by businesses in “machinery, equipment, and software, which are critical drivers of productivity and innovation”, b) lower spending on education, c) all levels of government (federal, provincial, municipal) shifting “their spending more towards areas that consume current prosperity, such as health care and social services, and away from investment in education and infrastructure, d) under investment in integrating immigrants “even though their qualifications and skills give us an advantage over our peer group”, e) under investment in “cities where the prosperity gap with the peer group is highest”, f) higher taxes – although the statutory corporate tax rate is lower in Ontario then the US, the US States allow bigger deductions for depreciation, charge lower capital taxes, and provide other tax breaks that reduce the marginal effective rate of taxation.
The point has already been made that Canada has always depended very heavily on investment from abroad. (Indeed, so did the US. In the 19th century many US railroads were built with European, mostly British, money.) And, as above stated, there is currently more investment capital outflow than inflow.
That said, given that Canada has a national branch-banking system dominated by 5 big banks now largely centred in Toronto (Royal Bank of Canada, Bank of Montreal, CIBC, Bank of Nova Scotia, Toronto-Dominion Bank) there are two further points can usefully be highlighted here:
1) Australia (in its 1997 Wallis Report) has identified Regional Banks as important for regional development and for competition generally.
“Regional banks have been an increasingly important competitive force in recent years. In particular, along with credit unions and building societies, they have led the way on service, innovation and pricing on some products. Because consumers, including small businesses, are more likely to see regional banks, rather than credit unions and building societies, as acceptable substitutes to major banks, it is the former which have arguably imposed the greatest competitive pressure” (p. 455).
While it can be said that Canada tried regional banks in the 1980s and that the experiment was unsuccessful (Canadian Commercial Bank and Northland Bank failed in 1985), it might rightly be said that the issue could bear re-examination.
2) Britain (in its 2000 Cruickshank Report) has noted that there is a lack of risk capital and bank loans are not at all a substitute.
“Fast growing small and medium sized enterprises have the potential to contribute to UK output and productivity growth. But to do so, they need access to external finance, since revenue growth often lags behind their investment demands. Achieving fast growth is a risky undertaking and many enterprises will fail in the attempt.
So these SMEs primarily need access to risk capital at the key stages in their development. This chain of financing is only as strong as its weakest links. In the UK, the weaknesses appear to be:
• There is inadequate supply of early stage risk capital for start up and young companies, for whom traditional bank loans would be an inappropriate form of finance. This market failure in turn holds back the development of a group of enterprises which would then graduate onto larger scale venture capital;
• Public equity markets for smaller companies have been insufficiently vibrant to provide business angel and venture capital investors with timely liquidity when they wish to exit, which allows the proceeds to be recycled into earlier stage investments.
“Following on from this, the Government should examine all of its current and proposed policy interventions that are inappropriately focused on debt, such as bank finance for knowledge based businesses, with a view to redirecting the resources to equity support for SMEs” (pp. 178–9).
It could be argued that this analysis and recommendation should apply to Canada as well (perhaps more so) because of the dominant role in the financial system (including the capital markets) played here by the big banks.
RESEARCH–BASED Three early national research–based initiatives were establishing the Royal Society of Canada, the National Research Council, and the Experimental Farms.
In a nutshell – (i) the Experimental Farms developed Marquis wheat; (ii) Marquis wheat helped create the “Wheat Boom” on the Prairies; (iii) the “Wheat Boom” was the critical factor in opening up settlement and in making the National Policy work.
The Wheat Boom 1896 – 1913 (National Economic Expansion & Integration) “For twenty–five years [after 1867] the new nation [of Canada] had languished and even the most sanguine were troubled by forebodings about the success of Confederation. Then a fortuitous conjuncture of world circumstances brought with a rush the fulfillment of hopes long deferred. Life began to stir in the frame erected years earlier for a transcontinental economy. Directed by national policies of all–Canadian railways, western settlement and protective tariffs, it grew with a rapidity surpassing all expectations. A vast and sudden transformation was wrought by the magic of wheat.
The wheat boom brought a flood of settlers into the West and created two new and flourishing provinces [Saskatchewan and Alberta]. It precipitated a new era of railway development and spurred on the industrialization of Central Canada. Immense capital expenditures were necessary to equip the West and the growing urban and metropolitan areas of the East. Wheat worked a new integration of economic life and linked together the fortunes of the different regions … “The ‘fortuitous combination of world circumstances’ contained several elements particularly favourable to Canada: prices of raw materials rising more quickly than those of manufactured goods;
the ready availability of capital at low interest; … the phenomenal decline in ocean freight rates; and the relative cheapness of the costs of production in terms of selling prices. The Federal Government responded to these beneficent conditions by a more successful pursuit of national policies than had been possible in the previous years of world economic dislocations. With the end of the railroad land grants in 1896 the Federal Government made 60 million acres in the West available for free homesteads and along with the railway companies proceeded vigorously to attract settlers, so that by 1913 the arable lands in that region were almost totally occupied”.
The Development of Marquis Wheat “It [Marquis Wheat] was first sown in a pure state in 1904 [at the Central Experimental Farm at Ottawa] …[After baking tests in 1907 it was sent for trials in Saskatchewan.] its success in the prairie country was phenomenal. The year 1907 was quite unfavourable for most varieties owing to the prevalence of rust and of cool, wet weather. The early–ripening habit of Marquis and its power of resisting rust (to a certain extent) gave it an immense advantage … Taking the average of the past five years (1907 – 1911 inclusive) Marquis has given 50 per cent more crop than Red Fife, on the uniform trial plots at Indian Head [Experimental farm]…In addition to its productiveness, the chief points in favour of Marquis, for the provinces of Saskatchewan, Manitoba and Alberta, are its earliness in ripening (generally from six to ten days earlier than Red Fife), strength of straw and comparative freedom from rust, heavy weight per bushel and fine appearance of the grain, and the excellent colour and baking strength of the flour produced from it”.
While the aim here is not to go into an analysis of “economic clusters”, nevertheless, it is useful to highlight several points:
• Despite many of the opportunities of the “Global Village” (discussed later), many like and related industries tend to “cluster” together geographically.
• There is usually a university or research facility in that “cluster”.
Ottawa, Canada’s capital, for example, sees itself as the centre of at least 4 clusters:
a) Telecom – networking, transmission, satellite/microwave, communication interfaces.
b) Photonics – image sensing, multimedia, laser, light waves.
c) Health Tech – bio–tech, medical, health–related.
d) Microelectronics – component suppliers.
EDUCATION–BASED One of the first reforms effected in Canada as it gained its independence bit–by–bit from Britain, was not only in many ways to adopt the Scottish model above, but to break the religious monopoly on schools and to insist on universal, free public education – starting at the elementary level, then extending to secondary schools.
Despite a policy starting in the 1960s that made university education even more widely available than it had hitherto been, through grants and loans, years of austerity in university funding (most of which has in Canada come from government) have changed this. This austerity was generated by the need to curtail government deficits and address, among other things, the growing expenses associated with other pressing priorities, especially health care. Accordingly, two themes – both supposedly “markets” based – have emerged:
(i) “user–pay” more along the American university model (for example, Law Schools in 1974 charged $500 per year; now some charge $16,000 to $20,000);
(ii) what universities “produce” should be more directly relevant to business.
SHIFT FROM AGRICULTURE TO INDUSTRY At one point – especially during the Wheat Boom as earlier described – Canada was very heavily dependent on agriculture, with much of its population living on farms or in small towns. Technol ogy, among other things, changed this. Canada’s agricultural productivity is high, but it is driven by mechanization. And very few people now live in rural areas.
After the Second World War, in particular, Canada saw, with the rise of Industry: the rise of a well-paid, industrial (often unionized) workforce, the so-called “blue collar” middle class, usually hourlyrated, rather than salaried (as were the “white collar” office workers). But, recently the status quo has been shifting again: (a) with a rise is the “service” sector - including “knowledge workers” (discussed below); and (ii) with free-er trade and globalization, the growth of competing industry overseas. (Ross Perot in the US a few years ago called this a “Sucking Sound” of jobs going south to low-wage Mexico.) The Post Second World War era in Canada also saw the “norm” as employment for life in a large organization (Alcan, CIL, Dupont, Abitibi, or a bank, a university, the army …).
Suffice it to say that that “norm” no longer obtains for a growing number of Canadians.
SHIFT FROM INDUSTRY TO “KNOWLEDGE WORK” Briefly, Peter Drucker has advanced the case that more and more work will be (in what used to be called the “service” sector) “knowledge work”. And that necessarily places emphasis on how it is to be organized, and nurtured, and improved upon. More of this below (see the section on creativity and innovation in particular).
In short, this change of the centre of balance to knowledge work is happening, fast.
SHIFT FROM RURAL TO URBAN Canada is not only now an urban, “cities–based” society, but it is concentrating in several major urban locations of in the order of at least 1 million each, especially: Vancouver, Edmonton, Calgary, Saskatoon, Winnipeg, Toronto, Ottawa, Montreal, Quebec City, Halifax.
The general implication is clear – a new Cities-Based approach needs to be developed.
Canada’s in-coming (on December 12th ) Prime Minister, Paul Martin, has stressed this.
In his speech “Towards a New Deal for Cities” www.paulmartintimes.ca he stated:
“I want to confirm unequivocally that … I remain firmly committed to forging a New Deal for Canadian municipalities, both large and small. Our cities are the engines of our nation’s growth.
Our cities are our signature to the world. It is clear that if Canada wishes to have a stronger voice on the global commons, then that voice will come from our cities, the places where the ideas of our nation coalesce around a thousand different ambitions – from sports to science, from manufacturing to music, from commerce to cuisine.
“It is clear that as the issues in Canada and around the world become more complex, the ingenuity to address them will come from places where people gather together in common cause.
“Indeed it is no coincidence that many of the world’s most successful cities are home to one of the 20th century’s most productive developments: “Clusters,” places where a concentration of talent creates a virtuous cycle of innovation and opportunity. Places where universities, companies, skilled labour, capital and governments converge to advance new breakthroughs … “in a world without walls – where the best and the brightest can live anywhere they want – it is evident that a country’s success depends on the degree to which it becomes a magnet, attracting the best and brightest, whether home-grown or from beyond its shores.
“And the fact is that a country’s strength as a magnet, is equal to the strength of its cities, [which in turn depend on] first, the ability to draw vastly different kinds of people together to dream and to innovate …[And, secondly] the quality of life it provides …” 4.7. Shifts from Region to Region A Bank of Canada “Technical Report” in 1989 on “Regional Disparities in Wage and Unemployment Rates in Canada” makes a number of relevant points respecting regional growth and movements and differences between regions:
“Simple multi-region economic models predict that in equilibrium, regional disparities in wage rates and unemployment rates will not exist. Yet this seems never to have been the case in Canada; the existence of regional income disparities since about has been well documented. The puzzle of why regional disparities exist and what to do about them has given rise to a large theoretical and empirical literature both in Canada and in other countries” (p. 1).
Under the heading “A survey of the causes of regional disparities” the Report surveys two types of theories – static and dynamic: