- The Empire Club of Canada Addresses (Toronto, Canada), 29 May 1992, p. 11-22
- Wilson, The Hon. Michael, Speaker
- Media Type
- Item Type
- A joint meeting of The Empire Club of Canada and The Canadian Club of Toronto.
A reminder of some of Canada's achievements. Canada's standard of living in a global context. The government's current Prosperity Initiative: some plans and details. Two goals for the Prosperity Initiative: to seek advice, from Canadians, about what government can do to improve the competitive environment in Canada; to prompt Canadians to think about what they can do for themselves—to encourage individuals and companies to do a critical self-examination—so they can enhance their own competitive positions. A review of some of Canada's problems with regard to competition, particularly productivity performance. Quality and quantity of our investments. Focusing on four themes to secure Canada's future and challenges and choices confronting Canadians and Canadian firms: the National Investment Challenge; Making Quality Investments; Seeking Foreign Investment; and Canadian Firms In Global Markets. A discussion of these themes and the message the speaker hopes to convey to Canadians of a National Investment Challenge.
- Date of Original
- 29 May 1992
- Language of Item
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- The Hon. Michael Wilson, Minister of Industry, Science and Technology, Minister for International Trade and Minister Responsible for Investment Canada
INVESTING IN CANADA'S FUTURE
Chairman: Isabel Bassett
President, The Canadian Club of Toronto
It is both a privilege and a pleasure to be invited to speak once again before The Canadian Club of Toronto and The Empire Club of Canada. A privilege, given the men and women who have preceded me on this platform over the years, and a personal pleasure, since it gives me the opportunity to see many old friends and colleagues.
Most, if not all of us here today, will be familiar with the famous aphorism of Sir Wilfrid Laurier that the 20th Century would belong to Canada Fewer may know that Sir Wilfrid first made that prophecy in a 1904 Canadian Club address in Ottawa.
It was a bold statement, to say the least. Downright un-Canadian, given our tendency to downplay our accomplishments. And if you measure greatness in terms of global dominance, the statement rings hollow nine decades later. But if you measure greatness in terms of social justice, peace and prosperity, Sir Wilfrid was surely not far off the mark. It is worth reminding ourselves of Canada's achievements:
• Despite our self-image as a drawer of water and hewer of wood, we have, in fact, evolved into an advanced manufacturing and services economy. We are the seventh largest industrial economy in the world and have the second highest standard of living after the United States--all of this from a country that ranks 31st in terms of population.
• Over the past 30 years we have recorded the second highest rate of economic growth amongst the G7 countries; and the fastest rate of job creation.
• According to the United Nations' Human Development Index, Canada was ranked as the best place to live among OECD countries in 1991.
• We have the third highest overall level of labour productivity in the world, behind only the U.S. and the Netherlands.
This last accomplishment is one that few Canadians seem to comprehend. They don't realize that our living standard is 25-per-cent better than that of the Japanese because our level of productivity is some 25-per-cent higher. For it is productivity that is the ultimate determinant of Canada's relative standard of living. I will say more about growth, or lack thereof, in productivity later.
But I am not here to glorify our past accomplishments, nor to minimize our current problems. Nor am I here to "do a Laurier" and predict that the next century will belong to Canada.
But I will say this.
The 21st Century can belong to Canada if, and only if, we are prepared to invest in our future.
Investment in our future was one of the important considerations behind the launch of our current Prosperity Initiative--an initiative designed to increase public awareness of the challenges and choices before us; to generate practical advice from Canadians; and to build a national plan of action to secure our future together.
The Initiative is our response to some undeniable facts of modem Canadian life.
• The fact, proven so ably by the Japanese, that national prosperity can't be built on short-sighted, short-term actions, whether taken by executives focused on the next quarter, or politicians focused on the next election.
• The fact that any long-term strategy in a democratic society requires broad public support, which in turn requires broad public awareness of the choices before us.
• And the fact that, in this fast-paced and complex world, many of the solutions to our national problems rest less and less with the state and more and more with individuals and firms.
That is why we launched our Initiative with not one, but two goals in mind.
The first was to ask Canadians what the country could do for them--to seek advice about what government can do to improve the competitive environment in Canada.
And the second goal, of even greater importance, was to prompt Canadians to think about what they can do for themselves--to encourage individuals and companies to do a critical self-examination--so they can enhance their own competitive positions.
This emphasis on private sector initiative is not to say that there is no role for government. Of course there is. Rather, it is to say that in the end, our collective future won't be determined by state action, but by the countless, daily decisions taken by thousands of Canadians.
The importance of private sector decision-making is perhaps best seen in our recent manufacturing performance. According to estimates by the Economic Council of Canada, the competitive position of Canada's manufacturing sector slipped badly during the 1980s. And this slippage cannot be blamed on a so-called high dollar. For, while the appreciation of the Canadian dollar since 1986 has proven troublesome for exporters, the Canada-U.S. exchange rate was virtually the same at the end of the decade as at the end of the 1970s. Something else must have been afoot.
The stark reality is that unit labour costs in the manufacturing sector became seriously out of line with those of our major competitors during the 1980s. Where unit labour costs in Canada increased by more than 50 per cent during the decade, unit labour costs increased barely at all in the United States. The much slower growth in productivity in Canada during the past decade, and a more rapid rate of inflation, were the major factors behind this troubling development. While our level of productivity is high, it is our poor productivity growth record that has allowed our competitors to catch up.
Fortunately, there are signs that Canadians are addressing this challenge. We all know our economy is undergoing an extensive restructuring to adjust to the new demands and realities of globalization--that is, the growing integration of world economies. The United States experienced a similar degree of restructuring in the early 1980s, and it is now benefitting from a markedly stronger trade performance. And there is mounting evidence that Canada's restructuring, difficult as it has been, is beginning to generate similar benefits.
As reported recently by Statistics Canada, manufacturing exports as a share of total exports have increased steadily in recent years--from 32 per cent in 1980 to 47 per cent in 1990--evidence which belies the myth that Canada is de-industrializing. And we saw recently that exports are reaching record levels, particularly into the U.S.--evidence that the long-term benefits of the FTA are beginning to emerge.
Rising manufacturing exports amidst rising exports are good signs. But we are far from out of the woods. So today I would like to outline the next step in the Prosperity Initiative--our plan to focus public attention on the National
Investment Challenge before Canadians--the challenge of increasing both the quantity, and the quality, of our investments in tomorrow.
It has been said that economics is a paradox: to have national prosperity we must spend; but to have individual prosperity we must save. It is a clever quip. And, on first reaction, the expression rings true, given the important role played by consumer spending in a modem economy.
But, on second thought, I believe that even the Keynesians among us would agree that there really is no paradox to economics. Because it is simply not true that sustained prosperity can be secured through spending at least if by spending we mean consuming for today. Rather, future prosperity can only be created through investing for tomorrow--through investing in people, in machinery and equipment, in new technologies, in infrastructure and in trade promotion.
Such business and public investment may not be a panacea for improving Canada's productivity performance, but they are definitely essential conditions for keeping up with international competition and improving our standard of living.
Now we don't know the precise magnitude of the savings and investment challenge before us, for it very much depends upon the relationship to productivity, and how determnined we are as a nation to invest in our future. But we do know we will have to save more, invest more and invest more intelligently in the future than we have done in the recent past.
Take, for example, our savings performance over the past two decades. Unfortunately, the record shows that the quantity of our collective national savings has been inadequate. If we compare ourselves only with the Americans, we look like big savers. But if we raise our sights and compare ourselves to the Europeans and Japanese, the picture is not so rosy.
There's no comfort in saving twice as much as the Americans when we save less than half as much as the Japanese. And that is exactly what has happened, with a 20year net national savings rate of six per cent in the United States, 11 per cent in Canada and 23 per cent in Japan.
As a result of our propensity to spend rather than to save, we have created a problem for ourselves. A manageable problem, but a problem nonetheless. By relying on foreign savings rather than our own to finance our way of life, we have collectively built up a foreign debt of over $260 billion--a burden which we must now carry into the future.
In some respects this is a chicken and egg situation. We need the use of foreign savings today, but it is in our long-run interest to work towards eliminating this debt.
One of the ways to manage our foreign obligations is to differentiate between foreign portfolio and direct investment. For while foreign portfolio investment can be moved, often at a moment's notice, foreign direct investment can strengthen Canada's competitive position through technology transfers to domestic firms, the provision of international management expertise and product innovation and by providing access to new international markets. And we should also remember it is usually investment in the long run.
If our past savings effort has been below average, how have we fared in terms of investment?
First, let's talk quantity.
The facts are that the quantity of our past investment has been around the OECD average, but well below Japan and Germany. Above average in terms of investment in education. Below average in terms of investment in research and development. And average in terms of physical investment per worker.
But that performance raises a very important question. Given that we live in a vast country with a small population, a cold climate and many capital-intensive industries, is an average amount of investment per worker really good enough?
I would suggest that "not bad" is not good enough, since it is only logical that we should have more investment per worker in Canada than in small countries with denser populations, warmer climates and fewer resource industries.
And I'm not talking about Japan, with its extraordinary investment performance. I'm talking about matching countries like Belgium, Holland and Denmark. After all, those countries don't have to build and maintain 4,000-mile-long roads and railways. They don't have tarsand plants and nickel mines and paper plants. And they don't need buildings which can keep out Arctic winds or fleets of snow removal machines or all the other large public investments which must be borne by our small population. Nor do they have a record of the strongest job creation in the G7, which puts added pressure on how much Canada needs to invest.
These realities of Canada are one reason why we need more investment per worker to keep pace. Here's another. Even if our current investment performance were satisfactory, it is clear we will require even more in the future with an aging population needing income security, a large environmental bill still to be paid, and an aging system of roads, sewers and the like.
In fact, some economists say we will have to raise the quantity of our investment towards Japanese levels--from the 20s, to the high 20s, or even 30 per cent of our gross domestic product. As David Slater, former Chairman of the Economic Council of Canada, has pointed out in his study for Investment Canada, this will be manageable, but it will not be easy, since gross investment as a per cent of GDP averaged just over 24 per cent only once for any five-year period since 1950.
But I would suggest that we not only can do it. We have to do it, if we wish to keep pace. Take, for example, the Japanese challenge. In terms of quantity of investment, it is way ahead of Canada and the U.S. Ken Courtis, Chief Economist of the Deutsche Bank in Tokyo, estimates that Japan now invests 20 per cent of its gross national product in new plant and equipment--about twice the U.S. percentage and one-third higher than that of Canada.
He suggests that, between 1986 and 1991, private-sector plant and equipment investment in Japan's domestic economy exceeded $3 trillion, with another $500 billion in research and development.
Impressive numbers, to say the least, numbers which can only be matched in relative terms through a collective effort led by the private sector; other players in the economy simply cannot supply the required effort.
So we face the challenge of increasing the quantity of our investments. What about their quality?
A close examination reveals some disturbing facts about the quality of our past investments. For our overall average performance, in terms of quantity, masks the fact that Canada is second in investment in residential construction, but 21st in investment in machinery and equipment. Furthermore, qualitative analysis found in the World Competitiveness Report suggests that Canada may be lagging in other more intangible areas of investment.
For example, Canadian managers rank behind other industrialized countries in adopting critical competitive practices and new business strategies, such as quality management and international orientation.
There are also concerns about whether Canada's sectoral investment has been well placed to secure best future return. While it is easier to second-guess private-sector performance than to actually be in the corporate "driver's seat," we must begin to question whether some of our sectoral decisions have been the right ones and whether they were made on the' basis of sound information about the future. Because, as we know, investments in physical capital are largely irreversible. A pulp and paper mill cannot be turned into an auto plant and a machine tool cannot be turned into a computer.
So the answer to the question I posed earlier is surely that a "not bad" level of investment is simply not good enough if we wish to secure our future prosperity.
That is the message which we plan to carry to Canadians during the month of June--a message which complements the ongoing work of the Prosperity Steering Group. And the importance of this investment challenge is why I am designating June as Investment Month. Through five Forums in Vancouver, Winnipeg, Montreal, Halifax and Toronto, we want to hear from informed Canadians about how we can improve the quantity and quality of investment in the country and whether the investment climate in this country is conducive to making these changes.
And through the publicity generated by such events, we hope to spread the news of the critical role investment plays in securing our future and the challenges and choices confronting Canadians and Canadian firms.
Through focusing on four themes:
• the National Investment Challenge, • Making Quality Investments, • Seeking Foreign Investment; and • Canadian Firms in Global Markets,
we hope to generate practical recommendations from participants, to identify investment priorities, and to foster greater awareness in the general public of the investment challenge before us.
I am confident in this process because it has worked well in the past. Last November we sponsored the first ever National Services Month to highlight the important contribution of service industries to the overall competitiveness of the Canadian economy.
At the National Services Conference here in Toronto I invited input from the private sector and have since received excellent advice. We are moving to react. We will again be designating November as National Services Month and will be offering a range of activities designed to help service firms identify market opportunities, adopt new technology, and embark on an ongoing process of continuous improvement and total quality.
What are the investment messages that I hope will be sent and received during the coming weeks?
The fundamental message is that Canada faces a National Investment Challenge. All Canadians must participate in responding to these issues. And for some, this will require making a fundamental change in the way stakeholders interact in the economy.
We hope more Canadians learn from the success of the Japanese--that there is a clear link between savings, investment and prosperity. People who save and invest, prosper.
We want more Canadians to understand that it's not just how much we save and invest, but how, and where. Simply put, we need to secure the best returns in the most productive areas.
Management must be willing to work with labour to help accommodate required adjustment in the labour force. And labour must be willing to adopt investments in innovation and technology. The point is straightforward but difficult to realize. Management and labour must work together to secure and create good jobs.
Governments must do better in controlling their deficits. One of the most important ways of increasing investment is to reduce government deficits so that individual savings can go to private investment in plant, equipment and new technologies and not to paying the current deficits of governments.
We want to promote further understanding about the business opportunities available to Canadian firms when they reach out and join with international partners to form strategic partnerships.
And finally, we want to spread the word that, in today's world, investment means not only investment in physical capital and buying new plant and equipment. It means investment in human and intellectual capital as well. It means investment in training people. It means investment in technology and research, and it means investment to foster trade--whether in the form of market research to understand the needs of a potential customer or direct investment abroad to get closer to the customer or to access business inputs.
Can we meet the savings and investment challenge and secure our prosperity into the 21st Century? Yes we can. There's no doubting our ability to do so.
Will we meet the challenge? Will we be able to forge a common vision of the Canada of tomorrow and work together to realize that vision? That's a tougher question. Because it is not a question of ability. It is a question of attitude. But I, for one, believe we will.
I believe we will because the process of securing our future prosperity is well under way, with many of the necessary policy reforms already in place. Policies like sales tax reform, freer trade, a low inflation monetary policy and deficit reduction may mean short-term political pain, but they also mean long-term national gains. And we should take heart that Canadians are beginning to address how we can invest our scarce public resources more wisely, whether through healthcare reforms, or changes in our educational and training systems.
I believe we will because Canadian firms are already making the necessary changes which will allow our firms to survive and thrive.
I believe that more and more Canadian businesses are becoming aware of the need to "act globally" and are looking to joint ventures and other forms of strategic alliances to seize opportunities in the international marketplace.
But, even more importantly, I believe we will secure our future because more and more individual Canadians want to make such changes.
Based on what I see around me, and what I've heard during the Prosperity consultations, I know that more and more Canadians recognize that how much they consume does not determine the quality of their lives. Canadians are realizing that we have the opportunity to enjoy an even higher quality of life if we consume less, save more, invest more and spend our money more wisely.
And I believe the current Prosperity Initiative can make a difference. For by broadening and deepening public understanding of the challenges before us, and by taking the time to forge a consensus on what we must do to meet these challenges, I believe the Government of Canada can help Canadians shape a prosperous future for themselves, and for our country.
I hope you do too. And I look forward to your participation in meeting the challenge before us during Investment Month and beyond.
The appreciation of the meeting was expressed by Robert L. Brooks, President, The Empire Club of Canada.