Building a Powerful Economy Through Innovation

Jo-Ann McArthur, President, Molson Sports and Entertainment, and Director, The Empire Club of Canada; Esther Rosenthal, Grade 12 Student, North Toronto Collegiate Institute; Grant Kerr, Pastoral Staff, St. Paul's United Church, Brampton; John C. Koopman, Vice-President, Spencer Stuart, and Past President, The Empire Club of Canada; Beverly Topping, President and CEO, The Institute of Corporate Directors (ICD) and The ICD Corporate Governance College; Professor Daniel Trefler, J. Douglas and Ruth Grant Canada Research Chair in Competitiveness and Prosperity, Joseph L. Rotman School of Management, University of Toronto; Lisa Baiton, Vice-President, Government Relations, Environics Communications Inc., and Director, The Empire Club of Canada; Michael Grimaldi, Vice-President, General Motors, and President and General Manager, General Motors of Canada Limited; Dominic D'Alessandro, President and CEO, Manulife Financial; and Kenneth W. Smith, Managing Partner and Head, Canadian Corporate Practice, SECOR.

Introduction by William Whittaker

Minister Emerson is the first speaker in our luncheon series entitled "Canadian Industry in a Global Economy" which will discuss the challenges Canadian business faces today in a rapidly changing world. The sponsor of this series is Secor Consulting/Secor Conseil, the largest independent strategy-consulting firm in Canada, which is celebrating its 30th anniversary this year.

Mr. Emerson will address us today on some of the generic issues facing Canadian business and what the federal government and Industry Canada is doing to resolve them. Future speakers such as Michael Sabia of BCE Inc. and Scott Hand of Inco Ltd. will speak on the challenges facing their particular businesses and industries.

Given the launch of our series today, I wanted my introductory remarks to be inciteful and relevant. However, when I googled some of the key words in our notice respecting Mr. Emerson's speech for insight--words such as competition, innovation, technology and research and development--the files were in the hundreds of millions. When I Canadianized my search, the files were still in the millions. So much for the Internet.

However, watching my two-year-old granddaughter interact with her playmates and mother, it appears that competition and innovation are two traits acquired or learned at an early age!

Although Canada is rich in natural resources, which has given us an historic comparative advantage, our nation is a vast land with widely separated population clusters and, subject to the economic influence of the United States, one would think a difficult nation to develop an industrial policy for. However, Michael Porter, in his seminal book, "The Comparative Advantage of Nations," shows how the traditional comparative advantages of a nation such as natural resources and pools of labour have been superceded as sources of prosperity by clusters or groups of interconnected firms, suppliers, related industries and institutions that arise in particular locations, citing, among other examples, Switzerland with its small population and lack of natural resources. The Ontario auto industry is an excellent example of Porter's cluster concept.

Canada is an expensive country to govern and our social policies are a key component of who we are. However, I can't resist mentioning the just-released C.D. Howe Institute Report on corporate taxation in Canada, which notes that Canada has the second-highest tax rates in 2005 on capital for large and medium-sized corporations among 36 industrialized nations. While we can't expect Minister Emerson to comment today on this report, as he is not yet the Minister of Finance, no doubt other speakers in our series will.

The market constantly introduces change and no business, as the speakers in our series will indicate, can rest on its laurels. Indeed, the only constant today is change. To see the effects of change firsthand, one has only to look at the current Fortune 500 List of Companies which contains only a few of the companies on the list 20 years ago.

David Emerson is well-qualified to speak to us today on contemporary challenges to Canadian business from a public-policy viewpoint as his career to date has been a mixture of private and public-sector experience.

Educated as an economist at the University of Alberta, he received his PhD in Economics from Queen's University in 1972, following which he worked for the Economic Council of Canada. In 1975, Mr. Emerson joined the B.C. public service, becoming Deputy Minister of Finance in 1984.

In 1986, he became President and CEO of the Western and Pacific Bank of Canada, now the Western Canadian Bank. He returned to the B.C. civil service in 1990 becoming Deputy Minister to the Premier and then President of the B.C. Trade Development Corporation.

Mr. Emerson was appointed to head the newly created Vancouver International Airport Authority in 1992 and in 1998 became President and CEO of Canfor Corporation, British Columbia's largest forestry company, leading it through one of the forest industry's most difficult periods.

On June 28, 2004, Mr. Emerson was elected Member of Parliament for Vancouver Kingsway and was appointed Minister of Industry shortly thereafter.

Mr. Emerson.

David Emerson

Thank you very much for that kind welcome. It is great to be back in Toronto--the historic epicentre of Canadian wealth creation.

I don't know how many investor road shows I did in Toronto, but I do know that every time I came, my arguments and financial assessments were skeptically discounted by 50 per cent. Now that I am a politician, I have to learn what it's like to have my arguments, claims and promises discounted 100 per cent.

When I agreed to enter public life, I felt great trepidation that I was entering a swampy quagmire in which attempts at energetic change would simply get me deeper in the mire and perhaps fatally so. I think I was right!

But I'm in up to my neck and I'm going to carry on until the swamp swallows me whole.

You might say: "What's your problem? Things in Canada have never been better."

After all, consider the impressive economic and fiscal performance that we Canadians have enjoyed for the past decade:

Fourteen years of uninterrupted economic growth;

Growth in employment and living standards that leads the G-7; and

A debt burden that is the lowest among the G-7 nations, and continues to decline.

The problem is the world has changed. Today's and yesterday's success is no guarantee of tomorrow's success.

What do you mean by that, Dr. Doom? Well, I have a number of concerns.

I worry that the strong commodity markets, which have contributed to our excellent performance, will weaken; they always do.

I worry about the twin U.S. deficits, and the potential economic fallout for the world economy. U.S. interest rates are creeping up and protectionism is growing ever-deeper roots. Think of beef and softwood lumber.

I worry that we are not as prepared as we should be to deal with the opportunities and threats presented by emerging powerhouses such as China and India.

I worry about our aging demographics, and the limited potential for growth in our work force.

I also worry--we all need to worry--about the effects of climate change. Canada is a northern country and we are already seeing serious symptoms--warming waters, thinning permafrost, disappearing icebergs, receding glaciers, declining salmon runs and unprecedented scourges like the mountain pine beetle in B.C.

Today, these are clouds on the horizon. But Katrina should remind us that today's clouds can be tomorrow's disaster.

We need to be ready and being ready means being able to withstand the inevitable shocks and pressures coming at us with greater frequency and potentially greater severity.

Canada is a small trading economy. We are the most trade-dependent country in the G-7. Our standard of living and our quality of life are shaped by our ability to thrive and compete in an increasingly competitive global economy.

If we can't compete, we are vulnerable; vulnerable economically and socially. Harsh but true: health care, pensions, the environment, education and childcare all require a powerful economic engine to carry the freight.

And let's be clear: the investment and employment opportunities that future generations of young Canadians are counting on are on the line. Other countries want them and are competing for them with growing intensity.

It's how well we anticipate threats and opportunities and it's the proactive actions we take today that will determine whether our children will have the opportunities and the quality of life that we have enjoyed. If we falter, the spoils go to the kids growing up in India, China and the United States, among others.

So, where do we go from here?

Where not to go:

Low wage/poor working conditions--it's not a race to the bottom.

Economy at the expense of environmental degradation.

To me there is only one way to go. We have to build an environmentally sustainable economic engine with extraordinary power. That power must be derived from a deeply embedded capacity for innovation and use of technology. We need to drive science, technology and innovation deep into every corner of every region and every sector--manufacturing, natural resources, services, both public and private.

That is my obsession as Industry Minister, and I want it to emerge as an obsession of the Government of Canada.

"Innovation" means finding smarter, better, more creative ways of doing things. Innovation also means seeking out the best ideas, the best technologies and the best practices from around the world. And it means embedding them into our businesses, into government and into our homes.

Productivity is not really about doing harder and faster what we've always done. It's about creating value in new and innovative ways and being able to do it on a sustainable basis.

As a good Canadian, I would say this. If we could make "innovation" as closely identified with Canada as "medicare," we would have the world's most powerful economy.

Doing it won't be easy! It will require focused engagement by millions of Canadians, each adapting knowledge and technology to their own unique circumstances.

There is no silver bullet that the government can fire and the problem is gone. But there is an array of actions that will empower Canadians to go where we have to go.

We know we have to provide people with the necessary tools, with a supportive working and living environment, and with the critical infrastructure of a successful modern economy.

We need to equip people with the knowledge and the skills required to tap into the global knowledge pool.

And, while Canada has one of the most educated work forces in the world, and we are making much progress in attracting world-class researchers, we fall short in critical areas.

We do not, for example, produce nearly as many postgraduates in mathematics, the sciences, engineering and business as does the U.S., and these skills will be essential to our future economic success.

We need to produce and educate more of our own math and science grads. And we need better, more efficient integration of trained and skilled immigrants into the economic mainstream of Canada.

The U.S., meanwhile, is increasingly threatened by the dramatic growth of the math/sciences/engineering talent pool in India and China. If they have a hill to climb, we have a mountain.

For the good of our future Canadian prosperity, we need to focus on this weakness and we need to fix it.

We also need to encourage entrepreneurs and equip people with the management skills, that will enable them to become innovators; innovators who consistently find new ways of turning knowledge into wealth.

We need to continue to grow our critical mass of Canadian research capacity; we need to be among the best at pushing the frontiers of scientific exploration.

Another challenge in spite of a variety of research and development incentives here in Canada is the R&D performance of private-sector companies, which is mediocre by international standards. Actually, it's beyond mediocre; it's terrible.

Recognizing this weakness, I appointed a six-member Expert Panel on Commercialization chaired by Joseph Rotman and including Mike Lazaridus. I asked them to take a critical look at the commercialization system here in Canada and come up with a robust strategy for becoming a nation of innovators, for improving the talent pool, for enhancing research capacity, for stimulating the investment environment and for the diffusion of technology throughout the economy.

The work of the panel is pressing and urgent, and I look forward to recommendations this fall. In the meantime we will press ahead.

Telecommunications and broadband technology are the most transformative technologies of our generation. It is the infrastructure that connects us with the global information economy. Canadians without high-speed access to the Internet will be increasingly out of the game in terms of economic opportunities, education and even health care.

We must also ensure that the physical infrastructure of our cities is of the highest standard. In today's global economy, our urban centres must compete with cities and communities around the world; compete for skilled people and for investment dollars--they go together.

The family of organizations associated with Industry Canada also has a lot of work to do.

Industry Canada and the government's research organizations and granting agencies have invested some $13 billion into research at post-secondary educational institutions since 1997. We've attracted and retained world-class researchers, supported graduate students and provided essential research infrastructure.

We set out to make Canada a research leader, and in the area of research at institutions of higher education, we are now a world leader. The challenge is to build on this success. We cannot lose momentum, and we have to continually improve our approaches and priorities.

Let's go back to information and communications technologies. Here in Canada and in other countries, ICT-related investments are estimated to account for 75 per cent of recent productivity improvements. But evidence shows we're still falling short of the U.S.

Here we have appointed the Telecom Policy Review Panel to report by year-end on changes to the way the sector is regulated. We have to ensure our regulatory framework supports competition, supports technological transformation, and supports global competitiveness.

Industry Canada is also developing a sector strategy for ICTs, which aims to strengthen competitive position of our ICT companies. More importantly, it will encourage the broader adoption and diffusion of this general-purpose technology throughout the economy.

We've also been a leader in supporting and providing the electronic infrastructure that connects Canadians to the global information economy.

We've extended broadband to hundreds of communities and we've supported super broadband connectivity among schools, universities and research organizations in Canada and internationally.

Unfortunately, our high international ranking has begun to slip.

I cannot say this enough. It is absolutely essential that broadband access be extended further into remote and isolated communities. Without Internet access today, people and communities are simply not in the game. They're not able to join the economic mainstream, or even to fully access opportunities for health care and education. We need to finish the job, here in Ontario and across the country.

Beyond ICT, a number of other sector strategies are underway: aerospace and defence, the automotive sector, the forestry sector, the hydrogen fuel technology cluster, biotechnology and shipbuilding and repair. Some sectors--nanotechnology, ICT, environmental technologies-- have applications across the economy. Our goal is to ensure that competitive strengths in these areas provide cascading competitive benefits across the economy.

Our fundamental goal is not about picking winners and propping them up. Our goal is to help industry identify where and how they can be globally competitive, and clear the path for them to get there over the next five to 10 years.

In at least two sectors, automotive and steel, we are extending our competitive/strategic thinking to all of North America. In fact, under the trilateral security and prosperity partnership, Canada, the U.S. and Mexico are pursuing hundreds of concrete initiatives focused on improving our competitiveness, our collective security and our standard of living.

Finally, it is important to ensure the marketplace is competitive and efficient. Competition policy, bankruptcy rules, and patent and copyright laws are the shock absorbers of a vibrant, changing economy. Industry Canada is moving forward in all these areas.

Technology commercialization programs in Industry Canada also need some work. Technology Partnerships Canada was designed to share technology risk and encourage innovation by Canadian companies. It's had some great successes, but it's in need of an overhaul. I announced yesterday changes to create a more transparent, more accountable, more accessible, and more effective program for stimulating research and technology adoption.

Innovation always comes down to a very simple truth--it's one person deciding to make a difference, by doing things differently, by showing leadership. People like John Evans and the work he is doing to support research clusters in the Toronto area. People like Mike Lazaridus and his passion for advanced research in math and physics. These people are powerful agents of change in their communities and in Canada more generally.

We are a nation carved out of vast forests and forbidding mountain ranges. We are a nation that owes its very existence to people going against the flow, people taking the path less travelled.

It took courage and innovation to build the railways and highways that bind us together. Modern pioneers are still at it, laying a telecommunications network over millions of square kilometres.

Every generation of Canadians has embraced the challenge of blazing trails through adversity and uncertainty.

We're rich in people and rich in natural resources. We have the potential to be an economy driven by the power of innovation.

There is no escape from dramatic new sources and forms of competition, no escape from adversity and uncertainty.

Competition won't destroy us; it will make us stronger. It will force us to create wealth in new and creative ways.

We can invest in our people. We can provide critical tools for success. We can foster a culture of discovery, of research, of creativity and of adaptability.

Now is the time to build a powerful economy driven by a deeply embedded capacity for innovation.

We can do it here in Toronto and in Ontario, and we can do it across Canada.

Let's get focused and get the job done.

Thank you.

The appreciation of the meeting was expressed by Lisa Baiton, Vice-President, Government Relations, Environics Communications Inc., and Director, The Empire Club of Canada.