Suggested Top 10 Barriers to Canadian Competitiveness

As promised in my last article, London (Canadian) Businesses Struggle to Compete Nov. 1st 2011, I said I would follow up by identifying those things that may be preventing us from being truly competitive. At the recent Canadian Chamber of Commerce Policy Conference in St. John’s, we discussed and debated what the barriers to our competitiveness may be. These are what we agreed on.

1. Getting qualified workers to meet the needs of employers
Canada trails many other nations in the number of graduate degrees awarded, and Canadian firms lag in the employment of post-graduates, including those with PhDs, especially in sciences, engineering, and business. Yet, investment in higher education has among the highest pay-off of any investment government can make. Post-secondary graduates are key in building a competitive economy—they provide talent, skills, knowledge and creativity. A highly skilled and educated workforce is also crucial to attracting foreign direct investment.

2. Designing better policies to help people find and keep jobs
To enhance Canada’s competitiveness, it is imperative that we improve our labour market policies, particularly those that would help youths find their first job and the long-term unemployed re-enter the workforce. An assessment of minimum wage laws and employment insurance benefits is sorely needed. Additionally, we must undertake reforms to ensure Canada’s labour market policies and programs provide Canadians with the incentive to work and help to reduce voluntary unemployment.

3. Delivering a better tax system
Most OECD countries rely less than Canada on income and profit taxes and more on less economically-damaging consumption taxes, like the GST. Canada’s tax system over-relies on high-cost sources of tax revenue causing the Canadian economy to grow at a lower rate than might be possible with a more efficient tax system. Switching the tax mix towards consumption-based taxes would encourage both work and capital formation and, thus, stimulate productivity and economic growth.

4. Abolishing interprovincial barriers
Interprovincial trade barriers discourage small businesses from operating across Canada and cost large companies time and money, hampering productivity and ultimately the competitiveness of the Canadian economy. In an era of increasing globalization, internal trade barriers artificially raise prices and significantly increase the cost of doing business, keeping firms from growing to a size large enough to compete effectively in foreign markets.

5. Implementing regulations that make things easier for business
Although high regulatory standards, such as environmental policies or health and safety regulations, can enhance Canada’s reputation globally, how they are applied and administered can be the difference between success and failure for business. If Canada’s regulatory regime remains inefficient, it will undermine our international competitiveness as well as our attractiveness to entrepreneurs, knowledge workers and domestic and international investors.

6. Facilitating foreign investment in Canadian businesses
Canada can benefit greatly from openness to the world. Foreign direct investment can convey great advantages by bringing to Canada knowledge, technology, efficiencies and economies of scale, all of which are critical to competitiveness. As an enduring policy, Canada should embrace foreign direct investment and reduce barriers to it. Canada is one of only a few countries (Australia being another) with a formal investment review process for foreign acquisitions that exceed prescribed monetary thresholds.

7. Stimulating the need for research, innovation & development of new products & tools
Innovation boosts productivity growth and is a competitive advantage for businesses. Yet, Canada ranks low among OECD countries when it comes to business sector R&D spending and innovation.
R&D in Canada can be stimulated by adopting a strong intellectual property regime, fostering collaboration among educational institutions, developing robust innovation clusters and investing in the education and skills of our people. Canada must strengthen its laws in protecting its intellectual assets.

8. Encouraging investment in new technologies and equipment to boost productivity
Canadian businesses are well behind other countries, including the U.S., the UK and Germany, in investing in machinery and equipment, particularly in information and communication technologies (ICT). Between 1987 and 2009, Canadian businesses invested 23% less per worker in machinery and equipment compared to their American counterparts; 41% less per worker in information and communication technologies.

9. Investing made easier for the launch and growth of Canadian businesses
Venture capital is often associated with scientific research, innovation, entrepreneurial start-ups and successful technology companies. Yet, Canada’s Venture Capital and Private Equity Association reports that “fundraising continues to be the major challenge facing the venture capital industry.” New commitments to venture capital funds in Canada fell 24% in 2010 (year-over-year) to their lowest level in 16 years. The lack of availability of start-up capital in Canada has real repercussions for Canada’s ability to develop global leading enterprises and competitive Canadian brands.

10.Creating reliable funding for investment in infrastructure
Modernization and refurbishment of physical capital is a critical factor in broad economic competitiveness and is a goal that is shared across the economy. Canada has pursued an inconsistent approach to infrastructure financing over the last two decades, often allowing programs to wind down, only to be re-announced in a different form. A more strategic approach to infrastructure investment that includes funding models that take into account the broad range of challenges and opportunities in communities across Canada is needed. A consistent and reliable funding mechanism will not only simplify the planning of federal, provincial and municipal investments, it will also leverage significant private sector investment.


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