Canada’s economic priority must be innovation

On Monday, February 23rd, 2015 in Articles by Elizabeth, News

Green economic principles are pragmatic. Thanks to the influence of Green parties around the world, these core principles have been tested. They work.

Central to our policies is understanding that there is no conflict between environment and economy.

A smart economy is one that is resilient. A smart economy is diversified, less vulnerable to global shifts. A smart economy enriches localized value chains, producing more goods and employing more Canadians. According to numerous studies, notably Michael Porter’s work at Harvard, the more ambitious environmental standards and regulations are adopted, the more competitive and productive is your economy.

Most Canadians enjoy one of the highest qualities of life of any people in the world. We are blessed with abundant resources and a skilled and educated workforce.

While thanks to a regulated banking system we endured the 2008 financial melt-down better than many other countries, our economic indicators are flat-lining. Our employment picture is relatively stagnant. Youth unemployment is particularly worrying, as double the national level.
We face a serious crisis of lack of productivity. Productivity is a measure of innovation and investment in research and development. We are falling far behind the United States for the first time since productivity was measured.

Since the 1970s, our economy has shifted from a majority of our exports being manufactured goods to our current majority of exports being unprocessed raw materials. With this shift we have lost Canadian jobs in “value-added” but we have also lost ground in productivity. Raw resource production as a sector invests far less in Research and Development (R and D) and innovation than manufacturing. The Harper Conservatives have increasingly skewed our economy towards the export of fossil fuels. Putting all our eggs in the bitumen basket was never good economic policy. The dropping price for a barrel of oil makes this more transparent, but even if oil prices rebound, the threat to Canada’s productivity remains a real drag on our economic health.

As Paul Krugman, Nobel Prize winning economist has said, “Productivity may not be everything, but in the long run, it is almost everything.”

According to the Conference Board of Canada, Canada has slipped in productivity to 13th out of 16 countries studied. So while we are still ahead of Belgium in productivity, we have fallen behind Switzerland, Sweden, the U.S., Germany, Finland, Japan and more. R and D is not kicking in, despite a broad suite of policy changes aimed at stimulating such investments from the private sector. Corporate tax cuts have not resulted in improvements in productivity. Nor have the so-called “job creators,” the spin used to explain dropping Canada’s tax rate on its largest and most profitable corporations, re-invested its avoided tax windfall into job creation. Mark Carney, former Governor of the Bank of Canada, has derided the corporate sector for allowing huge amounts of cash to build up in their bank accounts. Carney labeled it the “dead money.” It is now over $630 billion – amounting to approximately 35% of our GDP.

Surely, we can adjust the corporate tax rate, now half that of the US. And we can direct funds to innovators and R and D. One winner for investment is Sustainable Development Technology Canada. SDTC has leveraged significant investment in clean tech R and D. This is one of the fastest growing sectors globally. Canada has huge room to grow jobs and wealth in this sector, while also improving our overall productivity.

It is essential that we become far more creative in reducing our unbalanced dependence on trade with U.S., and that we significantly invest in a National Clean Tech/Energy program to remain price competitive and sanction-free. And finally that we conserve natural resources and invest more in long-term education and re-training.

This generation has the potential to capitalize on the single biggest business opportunity in human history – the shift to a post-fossil fuel economy. Whether this is driven by the need to end the recession through economic stimulus, high energy extraction costs or collapsing oil prices, strategic geopolitical threats to foreign oil, the climate crisis or all of them combined, the country that mobilizes resources to develop and commercialize smarter technologies (e.g. alternate fuels, renewable energy, and energy efficiency) will survive and thrive.

Canada should be that country.

Originally published in the Hill Times.

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