Corporations stash cash but take no risks
TheStar.com – Opinion – To improve productivity Ottawa should take back tax cuts and spend the money on innovation
Published On Mon Apr 05 2010. Murray Dobbin
Bank of Canada Governor Mark Carney should be congratulated for informing Canada that the emperor has no clothes. The emperor, in this case, is the Canadian corporate elite.
Carney had the nerve to say what everyone on Bay Street knows: The largest Canadian corporations are doing a terrible job at increasing productivity and, therefore, at raising Canadian living standards and competing internationally. He noted that productivity had actually declined through this recession when during every other recession it has gone up.
He left no doubt who was responsible: “In general, while there is always more to do, governments have put in place conditions for a productivity revival. Business, thus far, has disappointed.”
Governments since Brian Mulroney’s have given Bay Street virtually everything it has asked for: the lowest corporate taxes in the developed world; 20 years of “labour flexibility” that has flatlined wages since 1980; massive deregulation; a plethora of free-trade agreements; huge cuts to EI – the whole corporate wish list.
None of it has made one iota of difference except that Canadian corporations have a tonne of cash sitting in their coffers, cash they were supposed to spend on innovation, technology, training and – god forbid – taking risks.
But as study after study has shown, Canadian corporations are among the most risk-averse anywhere. Doug Porter, when he was BMO Nesbitt Burns deputy chief economist, pointed out that free trade had not lived up to its promises. “The main reason for pushing for the FTA in the ’80s was very similar reasoning and, of course, we have seen Canadian productivity still lag well behind that of the U.S.”
Porter attributed the problem to two very different business cultures: “The U.S. is just much more entrepreneurial.” Two studies on competitiveness (1991 and 2001) by Harvard Business School’s Michael E. Porter agreed: “The absence of intense local rivalry combined with customers who were not demanding produced weak pressures for firm productivity and upgrading … Research uncovered key weaknesses in the sophistication of company operations and strategy.” Canadian firms that did “compete” internationally took the easy way out – exporting almost exclusively to the U.S. and relying on “natural resource advantages or lower labour costs than other G7 competitors instead of sophisticated products and processes.”
And it’s actually become worse since corporations got all those tax cuts. In 1998, the World Economic Forum’s Global Competitiveness Report ranked Canada sixth in the world but that dipped to 12th by 2004. While we have managed to get back to ninth in 2009-2010 (the U.S. ranks second) it had little to do with Canadian companies taking on the world. We still lag badly in terms of investment in new equipment, technology and sophisticated training.
The almost exclusive focus on the U.S. market – when it is the emerging markets that show almost all the growth – suggests that Canadian business is incapable on its own of adapting to a new world.
Even former World Bank president Jim Wolfensohn expressed surprise that Canada sent just 6 per cent of its exports in 2005 to the huge and growing markets like China, India, Brazil and South Africa.
Carney’s broadside apparently reflects the government’s concern about anemic future economic growth. But it is the Harper government that has the most radical “get out of the way of business” approach to the economy.
Its deliberate gutting of federal revenues through huge tax cuts to both the wealthy and corporations will have a major long-term impact on productivity and competitiveness.
The deterioration of infrastructure, the fading of pure science that feeds technology, the lack of incentives for the alternative energy sector – all of these problems are exacerbated by Conservative policy.
Canadian corporate culture is not going to change overnight. That fact alone dictates that the government has to reinstate a robust industrial policy that kick-starts a new economy focused on alternative energy technology, innovation and trade with growing economies. That means taking back the tax cuts and using the money to guide the economy.
Murray Dobbin is a Vancouver writer.
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