Listen to the extended interview:
- As global trends continue to influence the direction of Canada’s future economy, we will need to have infrastructure that will allow us to grow our economy.
- As huge markets like the US look to pursue friend-shoring, Canada needs to create the right conditions for the private sector and private capital to grow our industries.
- Capital, corporations and government policy need to coordinate to ensure that Canada has an industrial policy that moves in the right direction.
The Canadian government must act now to get an infrastructure and industrial policy in place, which it must then implement with haste. Investors need to pursue good risk-adjusted opportunities at home instead of exporting capital abroad and industry needs to focus more on long-term business development.
What are the forces or trends that make it necessary for Canada to accelerate its industrial policy and infrastructure building?
Infrastructure is incredibly important to create a long-term, productive economy. If we are going to grow our economy and productivity in Canada, we will need to have infrastructure that will allow us to do that. One example is transportation: it is hard to produce goods if we do not have a way of getting them to market by rail, airports or roads.
Given that background, what are the two trends? Why are we at an inflection point today? The first trend is the transition economy. There is a movement around the world to transition from high-carbon energy production to low-carbon or no-carbon energy production. That changes a lot.
“A critical type of infrastructure that is needed to fuel the economy is energy infrastructure.”
Energy is incredibly important to the modern economy. As its importance grows, we are also consuming more of it. It is equally important around the world that energy be made from sources that produce less in terms of greenhouse gas emissions. A critical type of infrastructure that is needed to fuel the economy is energy infrastructure. Things are changing quite quickly and dramatically. We need to upgrade and transition to a lower carbon set of energy infrastructure for the country.
The second trend is driven by geopolitics. This trend revolves around bringing supply chains closer to home. Gina Raimondo, the US Commerce Secretary talked about friend-shoring. In our own country, we saw during the COVID-19 pandemic how many issues came about because we did not produce Personal Protective Equipment (PPE) or vaccines in Canada. Canada requires the infrastructure to help us bring critical productive capacity onshore and pursue friend-shoring. We need the infrastructure to allow us to do that. The opportunity is not just to produce for ourselves, but also to produce for our friends, not least of which is the United States.
What are the foundational elements that the government must build to enable Canada’s key industries to grow?
One of the elements is to have a green grid. However, we have been very slow in Canada on this. Partially, that is due to jurisdictional issues between the federal and provincial governments. But, we must also be looking at encouraging research and development in the private sector and then providing subsidies for those endeavours. If you look at our neighbours to the south, you will see that they have acted very quickly and recently with legislation like the Chips Act, which is used to subsidize and encourage private sector investment in semiconductor manufacturing in the United States, and the Inflation Reduction Act, which has given a big advantage American hydrogen projects as opposed to Canadian ones.
“Canada needs to create the right conditions for the private sector and private capital to build the critical elements that will grow our industries.”
Europe has also done the same. Canada needs to create the right conditions for the private sector and private capital to build the critical elements that will grow our industries. We need to both build the foundation and create the economic conditions, including issues around permits as well as subsidizations for the private sector. If we do those things, they will have a multiplier effect on the economy.
What is the importance of the relationship between Canadian corporations and financial institutions? What does each group have to do to capitalize on the opportunity of infrastructure?
There are three pieces to the puzzle. There is capital, corporations and government. Let us start with the capital piece. We have a great advantage in Canada as we have built up an investment community through our pension funds. I have been involved in the so-called Maple Eight and have seen that we are incredibly professional, global investors. Beyond that, we have also built up expertise in our insurance companies and banking sector. We also have private organizations that are large-scale investors, such as Brookfield Asset Management. We have disproportionate strength, globally, in terms of being providers of capital. Today, Canada exports a lot of the capital that we have and so the challenge is to get more of that capital to stay here.
“Canadian corporations and the private sector need to be the first through the door in terms of innovation.”
Secondly, Canadian corporations and the private sector need to be the first through the door in terms of innovation. We need to be building out capacity in opportunities surrounding the energy transition in Canada. We can throw a party with a bunch of capital, but if no one is there with an investable project, there will be nowhere for the money to go. We need more large Canadian companies as well as Canadian entrepreneurs to develop domestic capacity in the areas we talked about.
The third component is government policy. This includes everything from tax policy to subsidies for certain types, from permitting, which is incredibly important, to the government’s own procurement policies.
All three of those pieces of the triangle need to work and if any one of them is missing, it just will not work. Capital, corporations and government policy need to coordinate to ensure that Canada has an industrial policy that moves in the right direction.
What should coordination between capital, corporations and government policy look like?
A lot of our policy happens 60,000 feet above the ground. This means our policies will not have an effect where they are needed. We have got to get down to the ground, tackling areas such as permitting and becoming more competitive.
“Canada needs to be in a position where we are winning at least our fair share of American corporate productive capacity.”
Let us go back to the chip example. All semiconductor manufacturing is not going to take place in the United States. The policy they want to pursue is friend-shoring. While they want productive capacity in the United States, they also want productive capacity in and among their friends. Well, who are the friends of the United States? Canada is certainly among them, but so is Germany, France, Italy, Singapore, Japan and more. Canada needs to be in a position where we are winning at least our fair share of American corporate productive capacity.
We do not need another trade mission. People know who Canada is. We do not need to go and wave a flag, hand out maple leaf pins at some event somewhere or give people miniature bottles of maple syrup while they listen to yet another speech by some politician. We need to get shit done. We need to get a policy in place. We should not just be conducting events, placing ads in newspapers and handing out pins. Canada has to go and compete for business day in and day out and create the national foundational infrastructure that we require.
If you want to see the evidence of us not getting shit done, you can look at the growing productivity gap between Canada and the United States. That productivity graph has grown over the last 30 years has continued to grow.
That is not surprising if we look at what the US has done with things like the Chips Act or the not-so-aptly-named Inflation Reduction Act. There are so many subsidies going into encouraging the building of green hydrogen capacity in the US. No green hydrogen will get built in Canada as it makes more economic sense, with the US’ Inflation Reduction Act and other policies, to build that capacity in the US. So, those corporations and capital in the hydrogen space are going to go to the US.
What are your calls-to-action for different stakeholders to accelerate investment in Canada’s key sectors?
The government needs to get things done. The Canadian government needs to stop fussing with policy and start fussing with implementation.
Investors need to focus on good risk-adjusted opportunities at home as well as abroad.
Industry needs to spend on R&D and focus on long-term business development. We are way too short-term in the way that our corporations operate.
Finally, the Canadian public needs to demand more from all three of those critical stakeholders. We cannot be complacent, but Canadians are complacent. We live well in a fantastic country. It is very easy to be comfortable. In many respects, we are a country that epitomizes the proverbial frog in the pot. We have to understand that the water is getting hotter around us and it is time to just jump.