COVER

TRADE BLOCKADE

Canada’s inability to get its house in order holds dire economic consequences

DEIRDRE McMURDY July 1 1994
COVER

TRADE BLOCKADE

Canada’s inability to get its house in order holds dire economic consequences

DEIRDRE McMURDY July 1 1994

TRADE BLOCKADE

Canada’s inability to get its house in order holds dire economic consequences

Art Mauro has earned the right to be cynical about Canada. For the past year, the retired chairman and chief executive officer of the Winnipeg-based Investors Group has crisscrossed the country in a crusade to dismantle the barriers that obstruct trade between individual provinces and territories. There are about 500 regulations blocking the interprovincial flow of products and people, from wine to construction workers. And even as Mauro has struggled to build consensus and co-operation in his role as chief negotiator in the domestic trade talks, Canada managed to achieve on an international scale what it has never been able to accomplish at home: free trade. In 1993, Canada concluded a North American Free Trade Agreement (NAFTA) with the United States and Mexico and signed on to the successful resolution of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). Still, Mauro remains optimistic about the “tremendous progress” made over the past 12 months. “We are attempting to reassess practices that have become encrusted over 127 years of Canadian history,” said Mauro.

‘We are not an economically homogenous nation. The different needs of every province have to be taken into account.”

As Canadians take stock of their country on Canada Day, it is worth noting that such pronounced regional economic diversity has characterized the nation and shaped its policy since its formation in 1867. Just four years after Confederation, the federal government, concerned about the tenuous ties across the continent-wide frontier, began construction of a national railway. The Canadian Pacific Railway was intended to transform Canada from a legal entity into a nation with economic, political and emotional bonds. At the same time, it had the purely pragmatic objective of forging stronger domestic markets in the face of competition from an economic force to the south.

In 1994, many of the same internal and external threats to Canadian unity and prosperity still plague the country. But the cost of internal economic disorder and political imbalance has never been higher. In an age of

rapid technological change and highly competitive global markets, the ability to respond swiftly and smoothly to shifting conditions is imperative to the long-term survival of corporations and countries alike. Michael Hart, adjunct professor at the Norman Patterson

School of International Affairs at Carleton University in Ottawa, notes that at a time when new trade rules are being established to govern global markets, “our ability to participate in the process depends on speaking with one voice, in a coherent and credible manner.”

As these global markets mature, they are profoundly altering the way that companies conduct their business. In the past, multinational enterprises have maintained national headquarters and cloned miniature, subsidiary versions of their main operations in other countries. Increasingly, however, they are decentralizing their traditional structure, contracting out work around the world and using computer technology to bind their scattered divisions together. That push to globalization is echoed in the framework of many new trade agreements. According to Hart, pacts like the NAFTA and the GATT are starting

to address policy areas such as agriculture and environmental and labor standards that have traditionally been the exclusive preserve of sovereign states. And for those countries without a cohesive national vision, such encroachment is potentially overwhelming. Says Mauro: “We’ve failed twice to strengthen our political union. That means that we must at least achieve a strong economic union to hold our own.”

In Canada’s case, the consequences of domestic disarray are already clear. The equipment now used by currency traders around the world instantly translates every shiver of uncertainty into a domestic financial crisis. Over the past year, foreign creditors’ recurring bouts of anxiety about two domestic sore spots—Quebec’s future in Confederation and the bloated federal government deficit—have sent Canada’s markets careering. The volatile Canadian dollar and jittery interest rates have made it considerably more difficult for individuals and executives to plot their course. Says Adam Zimmerman, chairman of Confederation Life Insurance Co. and a corporate director: “You pay a price for being a Canadian. _ Part of that is the challenge I of developing a national g business—despite the disI advantages.”

□ Certainly the existence of

I entrenched interprovincial s trade barriers is high on the list of the self-inflicted disadvantage s that affect Canada’s economic performance. The intricate web of obstacles has impeded the development of efficient, large-scale operations because goods and labor cannot move freely between jurisdictions. Equally destructive, the artificial barriers have encouraged Canadian companies to make decisions based upon small, sheltered markets rather than learning to develop broader business plans that could be adapted to global markets. “The fact is, we will either remove our domestic barriers in an orderly fashion, or the reality of a world economy will compel us to do it,” says Mauro.

The pressure on Canada to conclude a domestic trade agreement and to optimize international competitiveness, is heightened by the emergence of the knowledgeand information-based New Economy. While the so-called Old Economy was based upon natural resources, manufacturing and manpower, the New Economy is based upon technology and the instantaneous transmission of data through globally linked systems.’With technology networks, the world has become a smaller, more efficient place,” notes Bill Etherington, president of IBM Canada Inc.

For those poised to take advantage of that heightened flexibility, the rewards can be rich. The government of New Brunswick, for one, has raced to improve its telecommunications infrastructure and has aggressively worked to upgrade the education level of its bilingual workforce. As a result, the province has successfully convinced many companies, including FedEx Canada Ltd. and Canadian Pacific Ltd., to relocate their data processing and other technology-based functions from relatively expensive centres in Toronto and Montreal to lower-cost areas like Moncton.

That new ability to decentralize, while linking corporate operations over a wide distance, means that countries—as well as provinces—must now compete to attract and to keep businesses and jobs. In a global market, governments must, among other things, provide a stable political climate, favorable tax rates and an educated workforce. “Capital flows to where it feels best,” says Jim Pattison, Vancouver-based entrepreneur and chairman of the Jim Pattison Group, an international conglomerate. “Companies that are flexible and entrepreneurial—like ours—can always pick up and move.”

For the Canadian subsidiaries of competitive multinational companies—which have long been a core part of the domestic economic scene—that new mobility presents special challenges for survival. “We fight hard within the company to secure global mandates for Canadian-made products,” says Etherington. One selling point within the company, he adds, is that IBM’s Canadian subsidiary is very much smaller than its cumbersome U.S. parent operation. And it is therefore able to respond more quickly to changing trends and circumstances.

Still, the country’s economic diversity and its tradition of slow consensus-building might eventually give Canada a stronger presence in the global market, according to some theories. Says Joseph D’Cruz, an associate professor of business policy at the University of Toronto’s faculty of management: “A monoculture is very effective in the short term and produces big yields initially. Over the long run, though, there is much more strength in diversity.” For his part, Pattison claims that he is dedicated to keeping his company in Canada—even as he invests elsewhere. “I’ve elected to spend my life on airplanes rather than move away,” he says. “There is no better place to live.” But if Canada is going to stay that way, its house must first be in order.

DEIRDRE McMURDY