Published On Mon May 3 2010
By David Crane Economics Columnist
WATERLOO
There’s a huge reason to worry that Canadians are not ready for a much more disruptive world economy. It’s called complacency — and it’s easy to be complacent when things appear to be going quite well, but also extraordinarily dangerous. This is why the University of Waterloo’s department of engineering recently organized an invitation-only symposium on the theme that Canada has a big problem and we have to do something about it.
We are moving into a much more competitive world as we approach the next decade of the 21st century — technology is moving faster than ever before while new competitors are emerging all over the world (not just China and India). Canada, the symposium concluded, was at risk because we are not creating the new knowledge-based companies we need for the tough global market, and of those we do launch, far too few grow to big-league size. A recent Bloomberg Businessweek listing of the world’s 50 most innovative companies showed just one from Canada (Research in Motion) but three from South Korea and five from China.
The symposium couldn’t have been better timed, given Bank of Canada Governor Mark Carney’s grim forecast of our economic future. While Canada’s economy is rebounding this year, looking further ahead Canada is in for depressingly slow growth. We face a possible future of diminished expectations and decline relative to other faster-moving societies.
A key reason is our lack of innovation and poor productivity, which is holding us back. From 2000 to 2007, Canadian productivity grew at an annual average rate of 0.8 per cent a year, compared with 2.3 per cent a year in the United States. Productivity growth sets the speed limit for economic growth. Innovation drives productivity and creates the wealth for a successful society.
Canada, though, is reverting to a raw material economy in which oil, coal, natural gas, potash, aluminum, nickel and canola exports are in surplus, while trade in knowledge-based products, from computers and software to pharmaceuticals and specialty chemicals, are in deficit. Our knowledge-based sector is simply not big enough — we are not creating enough $1 billion-plus companies. But raw materials are not going to give us the kind of productivity growth we need to sustain a high and rising standard of living.
Canada has to grow more knowledge-based companies like Research in Motion, the Waterloo-based company that created the BlackBerry, companies that generate well above $1 billion a year in sales and can, as a result, afford to invest strongly in research and development, act as receptors for new ideas and small companies, and mentor new businesses. A recent listing of Canada’s top 250 tech companies by Branham Group showed 238 had revenues of less than $1 billion, 211 had revenues of less than $150 million, and 169 had revenues of less than $50 million. RIM had sales of $11.6 billion last year.
Savvas Chamberlain, chair and founder of Dalsa Corp., one of Waterloo’s most successful knowledge-based companies, warned that time was running out for Canada. “Canadians live in a very civilized society, but we are losing ground,” he said, warning that if Canada fails to embrace a cultural shift to champion innovation and set a big goal, namely to be the most successful country in the world, we will be in serious trouble 10 to 15 years from now.
Tom Jenkins, chair of Open Text — another Waterloo high-tech company — predicted that “if we don’t innovate we are toast.” Canadians are too happy, he said, warning that we are lagging in creating the businesses of the future. “If we fall behind we will soon reach a point where we can no longer keep up.” According to the Centre for the Study of Living Standards, Canadian per capita GDP, a measure of what we produce, in 2008 was 80.3 per cent of the U.S. level, compared with 88 per cent in 1980. Likewise, per-capita net national income, a measure of our spending power, was 86 per cent of the U.S. level in 2008, compared with 88.7 per cent in 1980.
And Tom Brzustowski, former president of the Natural Sciences and Engineering Council, stressed that as Canadians we are “trying to live within our means but we are accumulating many unmet needs.” He listed the many things Canadians would like to do to create a better society, such as investing in early childhood development, improving our infrastructure, strengthening our cities, and eliminating poverty, but argued we cannot afford them. “Canada is prosperous but not prosperous enough,” he said.
We have to create many more “5/95″ companies, he said — knowledge-based companies that get 5 per cent of their sales in Canada and 95 per cent in the rest of the world. Only by boosting innovation and productivity will we be able to afford the kind of country we would like.
Participants in the symposium included not only entrepreneurs and university experts but former industry minister John Manley, who now heads the Canadian Council of Chief Executives, and Preston Manning, former leader of the Reform party and now a strong advocate for innovation and science.
The organizers of the Waterloo symposium are now preparing their Waterloo Manifesto, which will set out the kinds of things Canada must do if it is to be a successful society in the future. Their recommendations are likely to include sector strategies to back our winners, creation of a competitiveness council to lead the debate on innovation, broader education for engineers to enable more to become entrepreneurs, improved business-university linkages and promotion of a culture shift in Canada to embrace innovation and entrepreneurship.
Our ability to achieve big goals at the Vancouver Olympics shows we can aspire to do much better, Dalsa’s Chamberlain said. That was based on a strategic plan. Now we need the same approach for our future economy. We need more business golds, like RIM, and more research Nobel golds for scientific excellence.
crane@interlog.com
