In addressing globalization, I’m mindful of the Will Rogers quip: ”œEven if you are on the right track, if you just sit there, you will get run over.”
In a rapidly flattening global vil- lage, that is precisely our challenge " resisting the temptation to rest on our sterling economic performance under the false assumption that nothing more needs to be done.
The question we should be asking is whether we have the capacity and the will " politically, socially and econom- ically " to turn the challenge of global- ization into opportunity. That will be the litmus test, I believe, for political leadership in the years ahead. And that is what I want to speak to you about.
Globalization arouses a debate, often more delusional than profound. It is not a theory to support or con- demn. It is a reality you either turn to your advantage or you ”œget run over.” Governments and parliamentarians, in my view, need to decide whether to embrace globalization or resist it. Ignoring globalization is not an option. There is nothing less stable in the modern world than the status quo. Embracing globalization means giving Canadians the best chance to prosper in a globalized world. Resistance means creating tax, trade, foreign investment or other barriers (or leav- ing current ones in place).
What does the Canadian record on globalization show? A mixed picture.
Externally, Canada embraced glob- alization with the Canada-US Free Trade Agreement and then, subsequently, NAFTA. Remember the great free trade debate of 20 years ago when Canadians from all walks of life anguished over whether Canada should protect its bor- ders from imports or open them up? Ironically, today, the government is more often criticized for lagging behind others in signing new free trade deals.
Internally, we transformed the restrictive Foreign Investment Review Act into Investment Canada and declared to the world that Canada was open for business.
But there remains stubborn resist- ance in Canada to globalization. Pop fiction (masquerading as analysis) offers conspiracy theories about secret cabals plotting to rob us of our sovereignty and identity, hoodwinking politicians and voters, and handing over our birthright to faceless forces that mean us harm. In a word, this is ”œglobaloney” or, if you prefer, global baloney!
There remains a belief in some quarters that Canada can have a dynamic, high-growth, risk-free, export-driven, import-averse economy where the government picks the win- ners, looks after the losers and subsi- dizes both with large dollops of the taxpayers’ money. That has been tried many times " and not only in Canada " and the predictable result has been low growth and high unemployment.
But the allure of ”œpreservation” is powerful for politicians and the appetite for policy change is rarely ravenous.
Canada needs more open global markets yet small, but influential, protec- tionist interests can succeed in blocking free trade deals for years. The recently announced agreement with the EFTA (European Free Trade Assocaition) coun- tries " not yet sanctioned by Parliament " took almost 10 years to conclude. Compare that with the 12 months it took to negotiate NAFTA (in 1991-92.)
In the World Trade Organization’s Doha round of multilateral negotia- tions, which potentially affect the whole of the Canadian economy, Parliament’s highest priority seems to be to protect our antiquated system of supply management. Why not take a lesson from the Australians, who have shown how to achieve a world-compet- itive dairy industry " one that is now exporting to China " by gradually removing import protection rather than defending supply management to the last cow (or chicken)?
Internally, the Canadian common market remains far from common. Internal barriers to trade, anachronis- tic impediments to labour mobility among our provinces, obsolete or over- lapping regulations " the ”œiron rice bowls” of politicians and bureaucrats " cost us dearly. British Columbia’s Gordon Campbell, one premier at least who thinks more than provincially, observed recently that it was ”œtime for us to decide if we are a country”! (Shades of Lucien Bouchard.)
We talk endlessly about the need for internal free trade but little happens. When I am asked whether a customs union with the US should be part of our future, my answer is, Let’s first complete the customs union here at home. And yes, with a national securities regulator.
I was encouraged by the statement in the Speech from the Throne that the government intends to use its trade and commerce power to strengthen our eco- nomic union. Now that would be bold! As Andrew Coyne commented in the National Post, ”œNo other provision of the Speech is so freighted with potential; not only to improve the free flow of goods and services within our economy but also to alter the constitutional balance of powers.”
The problem is that all the good economic news these days " robust growth, low unemployment and our solid fiscal position " masks the reality that Canada has a serious produc- tivity problem. We lag well behind our competitors " 1 percent improvement per year between 2001 and 2005 com- pared to with 3 percent annually over the same period in the US.
I know the term ”œproductivity” is likely to prompt heavy yawns with any audience but the reality is that our ability to compete in a dynamic global economy is waning. And that is a serious problem. Incidentally, it is not surprising that the most produc- tive companies in Canada are those involved in trade. The trouble is that only 50 companies are responsible for half our trade.
We have coasted for years with a relatively weak dollar " a crutch of con- venience that shielded us from the investments and innovation needed to keep pace. (We are a bit like the fellow who finds himself on third base and thinks he hit a triple!) That crutch has gone and dramatically so. Our manufac- turing sector is beset now by the twin pressures of a huge increase in the value of our dollar and diminishing demand for some of its traditional products.
We have little choice but to improve all facets of our economic per- formance through a combined effort by governments, the private sector and labour in Canada. Many seem to think that better productivity means working harder. It really means working smarter.
As globalization and integration accelerate, parliamentarians should, I believe, debate the growing productivity gap between Canada and our major com- petitors, offering not what voters want to hear but what they need to hear. Above all, we need to foster an economy that embraces risk by hacking away at policies and attitudes that are holding us back.
It is really a matter of leadership and partnership. Where to start?
Well, as Roger Martin of the Rotman Business School observed suc- cinctly, we need to be more intelligent about taxation. ”œCurrently,” he added, ”œour taxation IQ is double digit " in a word, pathetic.”
This year’s Halloween message from our finance minister is a welcome step toward a more competitive business tax regime in Canada, especially versus that of the US. Not with more tweaks or gim- micks, so popular at budget time, but rather a broad-based package of genuine tax relief for individuals, businesses and families. Long-overdue reductions of rates across the board that will make Canada a better destination for domestic and foreign investors.
But more is needed, particularly at the provincial level and, most notably, in Ontario, which, as economist Jack Mintz has pointed out, imposes the highest effec- tive corporate tax burden in the country. This should be a no-brainer. Rather than calling on the federal government to bring the loonie down by lowering interest rates " a sure recipe for inflation " Ontario should be urgently lowering corporate taxes to provide the kind of business and investment climate that will enable its economy to weather the storm and look confidently to the future. Ontario should also lead efforts toward a harmonized sales tax across all of Canada, and the Economic Statement sets out a path to get there.
We need to take a hard look, too, at our policies on inward for- eign investment. Foreign investment brings Canadian firms access to mar- kets for exports, access to valuable sources of imports, access to technolo- gy and, most critically, participation in global value chains.
Yet Canada has the highest level of explicit restrictions on foreign equity ownership in the G7, primari- ly in the financial and telecommuni- cations sectors, the growth engines of today and tomorrow.
Restrictions on foreign investment in Canada are essentially the product of a bygone age. They reflect the out- dated view that the nationality of a corporation is more important than its contribution to economic growth.
As Industry Minister Jim Prentice pointed out recently, the issue is not so much the ownership of the foreign capi- tal in Canada, but rather the behaviour of that capital in our marketplace. It is not really a question of who owns significant assets but what they do to ensure growth and long-term benefit for Canada.
According to the most recent Stats Canada report, the ”œhollowing out” concerns are just that " hollow. Nonetheless, the ”œnet benefit test,” the centrepiece of the Investment Canada Act, needs a thorough updating in at least three ways.
First, it needs to allow us to review, automatically, acquisitions of Canadian companies by state-controlled entities and ensure that, if accepted, they will operate according to market principles, following the same standards of trans- parency and good governance as any other Canadian commercial enterprise.
Second, it needs to provide for a review of acquisitions by foreign enter- prises, whether publicly or privately owned, if the same enterprises are pro- tected from acquisition by Canadian firms. We should also ensure that such acquisitions, particularly when they are backed by their home government’s soft credit, do not tilt the playing field away from market principles and dis- tort rational investment decisions.
Third, it needs to incorporate a national security test, at a minimum, to put Canada on an even footing with virtually every industrialized country in the world, including the bastion of free enterprise on our southern border.
The goal should be a more favourable climate for investment in Canada " more transparency, creating greater fairness, more balance or reci- procity, along with more certainty and stability for capital markets.
Beyond tax and investment policy reform, we have a serious deficit in infrastructure, human capital and inno- vation. For too long, we have let the national infrastructure deteriorate. If the road to hell is paved with good inten- tions, ours may soon not be paved at all.
The signs are everywhere " aging ports, clogged transportation in our big cities, crumbling bridges, roads and buildings, not to mention hospitals and schools. (In fact, some roads in Ottawa today are almost as rough as those in Montreal!)
We have also underinvested in edu- cation and in research and development. We may see ourselves as an energy ”œsuperpower” but we may in fact, more accurately, be an energy ”œsuper supplier.” As we move to tweak royalty regimes, why not also look more creatively at ways to induce innovation and new technologies for energy in Canada?
When Bill Gates visited Canada in February he posed a critical question: ”œWhat is our edge? What is our unique thing?” (See Policy Options, Verbatim, April 2007.) His answer in essence was investing in education, changing the way we teach, changing the way we evaluate the performance of students and teachers, and involving the business community directly to drive interest and innovation in educa- tion. Gates concluded that those economies that make serious break- throughs in education will succeed in an era when the world is indeed flat and the pace of global change is unprecedented.
Instead of debating what types of schools should be publicly funded, why not tackle the more basic issue of whether the quality of our public edu- cation system and the skills training being provided are sufficient for the needs of the 21st century?
The Canada Millennium Scholarship Foundation has been a huge success in supporting advanced education and research. It should be replenished after a thorough assessment of which grants have worked and which have not. We need a similar program to reinforce the ability of community colleges to train the technical personnel needed by industries ranging from construction to high-tech. As many of you know, it is almost as dif- ficult to get an electrician these days in Ottawa as it is to get a doctor!
There is understandable concern about the unprecedented rise in the value of our loonie " in part the result of heavy global demand for our resources but stemming primarily from the sagging value of the American greenback, a symptom in turn of under- lying concerns about the US economy.
I understand that the government needs to show that it is sensitive to the pain that the loonie’s rapid rise is causing businesses and people who risk losing their jobs. Those are real-time problems. But the volatile loonie is not a ”œmade in Canada” prob- lem. It reflects global turbulence from which Canada, among others, is not immune.
Fiscal profligacy or overindulgence by the United States, along with the subprime mortgage fiasco, is generating heartburn for many countries, and Nicolas Sarkozy was right when he told the US Congress that ”œthe dollar cannot remain someone else’s problem.”
Because of the severe impact this is having on Canada, we should propose a meeting of the G7 finance ministers and central bankers. After all, the rea- son that forum exists is to provide sen- sible coordination of monetary policies to correct imbalances and ensure greater stability for the global economy.
On a purely bilateral basis, the US border with Canada is steadily thicken- ing. The requirement for passports, the introduction of new inspection proce- dures and new fees are all being done in the name of security (or health) but the impact is purely protectionist. As the Europeans move steadily to reduce barriers at their borders affecting the entry of people, goods and services, North America, namely the US, is mov- ing in the opposite direction.
When so much of what we trade with one another is what we make together, where is the sense in this? We need to find a better balance between legitimate security (or health) concerns and border procedures which facilitate, not block, trade. The efforts undertaken under the Security and Prosperity Partnership on the security/trade nexus may be laudable but I would like to see more urgency and cre- ativity in finding practical solutions, including possibly new institutions.
I realize that our own minority gov- ernment situation, along with political gridlock in the US, diminishes the will for bold measures in the short term. But we need to have a clear idea about what makes sense for Canada and what we are prepared to do to make that happen.
History suggests that Canada only acts boldly when all other alternatives are found wanting.
After all, that is how we originally came together on this continent, against the threat of annexation by a powerful southern neighbour whose unity had been forged first through a revolution and then a violent civil war.
When our democratic freedoms were challenged beyond our shores, we responded vigorously, more than once, as part of allied efforts to bring about a more stable world. When faced with a serious threat of US protectionism, we embarked on free trade and bolstered our own competitiveness. When our fiscal situation was about to hit a wall, we moved to put government spending in order (so much so that revenues are now rolling in almost faster than gov- ernments can count or spend them!).
The greatest risk to a bright Canadian future lies in complacency. The former chairman of the US Federal Reserve, Alan Greenspan, said earlier this spring, ”œSerious trouble does not develop from problems that people worry about but from situations that nobody worries about.”
The pace of globalization will make mincemeat of complacency. Gone are the days when we can wait until crisis is upon us before acting. The problem is that, when faced with a problem, govern- ments and Parliament often resemble Stephen Leacock’s famous character Lord Ronald, who ”œflung himself on his horse and rode madly off in all directions.”
We need a sharper sense of direc- tion and not just from government. Leadership, yes, but real, not rhetori- cal, partnerships, too, involving the private sector and labour along with government. Canadians need the poli- cy tools, the skills and the opportuni- ties to adjust, adapt and advance. In short, an A effort from our A team.
Some suggest that nation-states them- selves are becoming obsolete. I think the opposite is true. Certainly the nation- al experiment called Canada is changing dramatically. But the more the pace of change accelerates, the more we need to think and act coherently as a country. We have obligations and responsibilities as citizens, not simply entitlements. We need to understand our history better to realize what and who we are and our place in the world. We need to emphasize more clearly what brings us together, what we celebrate together, what we achieve together, rather than look for more ways to accentuate our diversity.
Excerpted from a speech to the Canadian Association of Former Parliamentarians at the Canadian War Museum in Ottawa, November 14, 2007.