A Solid Base Upon Which We Can Build for the Future

TheFutureEconomy.ca: What is your perspective on Canada’s competitiveness as a predominantly resource-based economy in an increasingly knowledge-based world?

John Manley: I think Canada is in a good position because it has both natural resources and all of the elements of a knowledge-based economy. We have everything that the world needs: food, water, energy, and every mineral that you could possibly think of. We have it all from a natural resource point of view. We also have one of the best-educated populations in the world, so we have the capacity to be players in the knowledge economy as well.

The way I look at it, roughly 30% of Canadian GDP comes directly from natural resources. That is how we pay the rent, that is how we keep our shelter and ourselves fed. After that, it is all extra. So we have the luxury that other countries do not have of having a solid base upon which we can build for the future, so I think we are in a good position.

“Canada is in a good position because it has both natural resources and all of the elements of a knowledge-based economy.”

It has been said that Canada suffers from Dutch disease in its dependence on natural resources, and that the country is well behind in terms of innovation. Do you agree with that?

No, I do not. And this is one of the things that I really consider a bit of a pet peeve. We Canadians put ourselves down on innovation all the time but I think we are way better than we give ourselves credit for. By some measures the statistical base upon which people make these judgements is faulty. Innovation occurs because people are entrepreneurial, because they have ideas and they find ways to implement them and solve problems. Innovation is not just research and development, it is not just technology; it is thinking of new ways to get things done. Somebody said research is turning money into ideas and innovation is turning ideas into money, and I think Canadians are actually not that bad at it.

Innovation is a central aspect of the current government’s strategy, together with infrastructure and trade. Do you believe focusing on these areas is the right economic strategy?

Yes, and if you talk to Mr Bains, the Federal Minister of Innovation, Science and Economic Development, he will break that innovation component down into people, technology and further subdivide it. I do think those are good points but I always worry – and remember I was in that job for seven years as Industry Minister before it was called “Innovation”. I wrote a paper in 1995 called “Building a More Innovative Economy”, so we have been talking about this topic for a long time. I worry because I increasingly see that governments are much better at stifling innovation than they are at stimulating it, and the factors causing this are often immigration policy, tax policy or regulatory policy. You would come up with lots of examples of how innovations in healthcare do not get implemented in Canada because we are stifled by a regulatory environment that makes approvals very slow. We have a structural environment in our Canadian healthcare system, and other sectors, where innovation is sometimes not adopted quickly because we have different pressures on our system, such as regulatory hurdles impeding investment.

“Governments are much better at stifling innovation than they are at stimulating it, and the factors causing this are often immigration policy, tax policy or regulatory policy.”

How is the current government doing on this front?

I think there is a risk of getting the narrative right but getting the actions less than optimal. For example, if personal income tax rates are increased to over 50%, I will always believe – and I was Minister of Finance – that once you take more than half of what somebody makes, you disincent them. We are seeing potential change to the US tax system that could be generationally important. It would be good for Canada to keep an eye on that because, for example, if a change is made to the tax treatment for capital gains and options for early stage companies, that could just drive those companies to the United States. So all of the programs that Minister Bains can think of could be just obliterated by poor tax policy.

In terms of immigration, I think the federal government has done a very good job on opening Canada up and the new program that will make it easier for companies to bring in talent is very important.

However, other regulatory areas that need improvement include our ability to get major projects built. Right now it takes companies a long time and a lot of investment to potentially get a ‘no’ as an answer. That is not the case in other countries. So I think there are some issues around the tax and regulatory environment that could actually be disincenting innovation.

“We always have to keep an eye on competitiveness, so if we are going to put a price on carbon, we must be very clear about how we maintain competitiveness in other ways.”

Prime Minister Trudeau was recently at an international oil conference in Houston and he was applauded for being a champion of responsible resource development. Is the strategy of trying to brand Canada as a responsible resource developer the right one in light of the US pivot away from environmental regulations?

I think it is the right strategy and it has done wonders for Canada’s global brand. We need to be seen as the pristine, clean country that we think of ourselves as being. It needs to be part of our image and quite frankly, we were taking a beating on our attitude towards measures on climate change. So I think that it is the right thing to do.

We always have to keep an eye on competitiveness, so if we are going to put a price on carbon, we must be very clear about how we maintain competitiveness in other ways. The Business Council of Canada, which has endorsed carbon pricing since 2007, would argue that such a levy should be taken off other taxes. It should be made truly revenue neutral and the money should be given back to people. I still think that is the ideal way to implement such a measure or a means to neutralize the carbon pricing on exports must be found. We must find some way to deal with the discrepancy because we border the United States and a lot of our energy products are exported there. Due to a lack of export capacity – and we recently have seen progress on that front with the approval of the Trans Mountain pipeline from Alberta to the West Coast – Western Canadian crude has been subject to a price discount that has ranged from US$10 to $40 a barrel. If the price of Canadian oil is made even more uncompetitive, that discount does not get imposed upon the ultimate consumer, it actually has to be swallowed by the Canadian producer. So we have to do some very careful thinking about how we put these measures in place in the context of the kinds of products that we are exporting and the pricing they are subject to.

“There is this incredible desire from Asia to import almost everything Canada produces.”

What opportunities for Canada exist in Asia? And what are the key priorities to access them and realize their potential?

For our natural resource sector, there is this incredible desire from Asia to import almost everything Canada produces, and that is where much of our country’s trade with Asia has been built. In terms of opportunities, I would first point to agriculture and the agri-food industry. Canada’s reputation for good quality, cleanliness and other positive factors precedes us and I think we are realizing huge opportunities in that area in Asia, where there are a lot of people to feed who want our products, and Canada is capable of feeding many of them.

Canada could do even better in this industry if we found a way to evolve our supply management system, particularly in dairy to make us able to service those markets. For example, New Zealand has the population of Toronto but it sends a considerable amount of dairy products into China whereas Canada sends none because of our supply management system. So if we focus on building these capacities that could be a huge growth area for Canada.

A second area of opportunity is in the whole area of services in a range of sectors such as healthcare, education and financial services. Canada is very strong in those areas. We already have quite a large presence in insurance in Asia – Manulife and Sun Life are both very active there, as well as some of our banking institutions. I believe we undersell our educational system and bringing students from abroad has a number of positive effects for Canada. Firstly, it brings in much-needed revenue to our universities and colleges. Secondly, it creates graduates who have networks and relationships back home who have become acclimatized to Canada. They essentially become ambassadors for Canada when they go abroad. If you look at some of the statistics, the US and Australia considerably outperform Canada in terms of attracting foreign students. Canada has a good educational system and we should be doing better on this front.

“We are trying to help our members understand the importance of being ahead of the factors that will disrupt their businesses.”

What is the Business Council of Canada prioritizing right now?

Our main priority right now is in the broad area of innovation. We are trying to help our members understand the importance of being ahead of the factors that will disrupt their businesses. What I would say about our member CEOs is that there are two things they think about a lot. One is talent: where do they get it from, how do they develop it within their organizations, how do they retain it? The second is who is out there that is going to try to “Uberize” them, who can disrupt their business model whether it is technology or business strategies? All of them are conscious of the fact that this is a very rapidly changing world, so we are trying to put a focus on that. No business is safe.