NATIONAL

LAGGING BEHIND

Canada needs to be more competitive, but what strategy will the Tories pick?

JOHN GEDDES May 15 2006
NATIONAL

LAGGING BEHIND

Canada needs to be more competitive, but what strategy will the Tories pick?

JOHN GEDDES May 15 2006

LAGGING BEHIND

NATIONAL

Canada needs to be more competitive, but what strategy will the Tories pick?

JOHN GEDDES

The day after his Jan. 23 election victory, everybody wanted Stephen Harper’s attention. Few got it. But one document that did make its way into Harper’s briefing pile on his very first day on the job was a prepublication copy of “From Bronze to Gold,” an Olympics-themed pitch from the Canadian Council of Chief Executives to make the country’s economy a world-beater. In a way, it’s surprising the CCCE got their paper in front of the new Prime Minister so soon; Harper has few ties to the bosses of Canada’s biggest corporations or their lobby group. But Derek Burney, who was heading Harper’s transition team, is a former CCCE vice-chairman. And the CEOs were worried that Harper—who had campaigned on narrowly focused promises like cutting the GST and paying parents $1,200 a year for every kid under 6—didn’t seem to care much about their big-picture concern that Canada is in danger of losing ground in a tough global economy. They wanted to get to him fast.

Last week’s federal budget signalled that the message got through, at least to a point.

Finance Minister Jim Flaherty even echoed the CCCE report’s medal-podium tide image, saying in his budget speech, “Canadian companies have already shown they can compete with the best—now we have to let them go for the gold.” That’s just rhetoric, though, and pretty threadbare rhetoric at that. While the budget was firm when it came to delivering on the Tories’ focused election pledges, when Flaherty turned to building “a more competitive, productive Canada,” he was far less precise. He said that “over the coming year” the Tories will develop their strategy. That

THE BUDGET SAID COMPANIES HAVE TO ‘GO FOR THE GOLD/ BUT WAS VAGUE ABOUT HOW TO DO THAT

sounds a bit vague, yet some insiders point to it as the budget’s big underrated theme. There’s at least one reason to take it seriously: Kevin Lynch, Harper’s hand-picked choice as clerk of the Privy Council, the new top bureaucrat, is a powerful voice for the so-called competitiveness agenda.

But exactly what that agenda should encompass is a matter for debate. Going back at least as far as the late 1980s, federal and provincial governments have regularly spewed out schemes to spur innovation, high-tech, the knowledge economy, competitiveness,

productivity—pick your label. But for all the attention, many of the underlying concerns have remained the same. In his previous post as Canada’s executive director at the International Monetary Fund in Washington, Lynch wrote about the trouble spots in a paper for the Institute for Research on Public Policy, flagging all-too-familiar statistics like Canada’s slower productivity growth than that of the U.S., and lower private-sector research and development spending than other rich industrial nations.

He was more precise in sketching the signs of weakness than proposing solutions. Sounding like the veteran bureaucrat he is, Lynch called for “a prioritized list to concentrate public policy discussion,” particularly on closing the gap where the U.S. has the advantage. “We need also to be careful to avoid the increasingly sterile distinctions,” he added, “between economic and social policy, between domestic and international policy.” In other words, he sees competitiveness as a file without boundaries. It’s not just, say, tax and trade policy—it’s immigration, education, and income-support programs, too. Lucky he soon landed the one public service post that gives him that kind of scope. The Privy Council clerk is the mandarin of man-

darins, top dog among the deputy ministers who oversee the separate departments.

Lynch previously served as DM of both Finance and Industry, so he knows the core economic portfolios from the inside. Getting the same sort of intimate feel for the Conservatives, his new political masters, might be more of a challenge. Harper came to power by promising bite-sized measures that he could reasonably expect to serve up in the life of a minority government. When Paul Martin tackled the competitiveness question, saying Canada had to adapt to an aging population at home and the rise of Asian economic might abroad, his bid to position himself as the leader who grasped the big picture fell flat. But it’s not just that Harper has lately made a political virtue of platform restraint. On his side of the ideological spectrum, skepticism runs deep when it comes to government strategies—beyond tax cuts—for stimulating innovative industry.

Modern industrial policy in Ottawa started in the early 1960s, and has usually involved subsidizing manufacturing and trying to spur corporate R & D. It’s been tainted by the suspicion that it boils down to what critics call “picking winners”—a phrase that brings to mind taxpayers subsidizing dreams of gull-winged sports cars rolling off a New Brunswick assembly line. But David Pecaut, a senior partner of Boston Consulting Group in Toronto and a long-time advocate of policies to spur innovation, argues that criticism is long out of date. “Picking companies as winners was always a bad idea, and it’s dead,” Pecaut says. “Now we’re talking about deciding where you’re going to put R & D money in universities, how you’re going to invest in training and education, where you’re going to make broad-based tax credits available. But that still means choices. If you invest in biotech or advanced materials, you might not have as much money someplace else.”

Pecaut is co-chair of a group called the Leaders’ Roundtable on Commercialization, made up of about 50 business executives, university presidents, and deputy ministers. After a meeting in Toronto just five days before Flaherty tabled his budget, the round table released a report calling for governments to select promising niches for special attention—from health technology to mining equipment to biotech. These sectors would then be the targets of new programs with goals like fostering closer links between companies and universities, and stimulating early investment through a new tax credit. Ontario Premier Dalton McGuinty attended the round table’s summit, and is reportedly enthusiastic about its approach. Members of the group hope he will persuade other premiers, especially B.C.’s Gordon Campbell

and Quebec’s Jean Charest, to press their ideas at the top level, ultimately to Harper.

But it’s far from clear whether the Tories— or Lynch—will be open to that selective, sectoral approach. The budget is preoccupied with broader tax reform and eliminating provincial barriers to an efficient economy. While the Liberals also cut taxes after balancing the books, the Tories sound more

ERASING LINES BETWEEN LEVELS AND BRANCHES OF GOVERNMENT MAY BE A RECIPE FOR TURF WARS

ambitious about giving Canadian companies an edge. “On business taxes, Liberals defined competitive as staying in the same ballpark as the U.S.,” says CCCE executive vice-president David Stewart-Patterson. “The Tories define it as a meaningful advantage.” On running the economy, the budget signals that premiers hoping to get more federal money in coming negotiations on the so-

called fiscal imbalance might have to give up something in return. Flaherty raised again, for instance, the notion of a national securities regulator to replace a patchwork of provincial stock market regimes.

Lower business taxes and streamlined national regulations would only look like a start to many policy wonks. But their proposals carry political risks. A sectoral strategy like the round table’s is bound to rankle the sectors left: out. Others propose promoting major cities as economic drivers—a hard sell in smaller communities and rural areas. To address the looming problem of an aging workforce, Conference Board of Canada president Anne Golden urges nudging the average retirement age up—not likely to be popular with younger voters entering the workforce. The CCCE’s strategy calls for employment insurance reforms that would force individuals to move to where they can get steady work—a hot button in Atlantic Canada and Quebec. Lynch emphasizes education—but any thrust in that direction risks drawing Ottawa deeper into a provincial jurisdiction, something Harper has pledged to avoid.

Lumping these ideas together tends to create a wish list of at best loosely related prescriptions. Lynch’s call for tackling the competitiveness file by erasing lines between branches and levels of government sounds enlightened, but might also be a recipe for overreaching and turf wars. So far, Harper has looked like a politician determined not to get drawn into processes he can’t control. But now that the budget has put the topic on the table, the question is whether the partnership of a disciplined PM and an ambitious top mandarin will generate a real strategy, or another round of open-ended debate. M