By R. Bruce Striegler

As recent GDP numbers show, the Canadian economy remains highly dependent upon continued U.S. growth. While Canadian business seems content with its historical ride on American coattails, there are increasing signs of structural issues underlying slow Canadian growth and low productivity. In October 2013 the Conference Board of Canada reported that the country remains “near the bottom” of its peer group on innovation, ranking 13th among the 16 countries evaluated.

Innovation has become today’s pervasive business ideology and many say is where Canadian business should be concentrating resources. There exist a multitude of organizations that have climbed aboard the innovation train, so one might expect that Canada or B.C. would be global leaders in new ideas, new products or systems. Nothing could be further from the truth. The Council of Canadian Academies 2013 study, “Paradox Lost: Explaining Canada’s Research Strength and Innovation Weakness” reports that Canadian academic research, overall, is strong and well regarded internationally.

By contrast, the Council says, Canadian business innovation is weak by international standards, and is the primary cause of Canada’s poor productivity growth. This raises two questions: why has our research excellence not translated into more business innovation, and, how has the country’s economy sustained relative prosperity in the face of weak innovation and correspondingly feeble productivity? The Council concludes that Canadian firms have been as innovative as they have needed to be.

Their interpretation is that until the early 2000’s, business and manufacturing competitiveness was supported by an ample labour supply and a favourable exchange rate, which made productivity growth less urgent. Since then, the boom in commodity prices has supported Canadian incomes in the aggregate. But a high-wage country like Canada cannot sustain its prosperity indefinitely without healthy productivity growth and its necessary prerequisite, an aggressively innovative business sector.

Canadian firms struggle to stay relevant globally

Consulting firm PwC reported in its December 2013 Annual Global CEO Survey that Canada’s financial services sector is struggling to keep up with its global counterparts with respect to its level of innovation. The survey says that despite 83 per cent of Canadian financial services corporations seeing innovation as a key driver of success, one-third find it very challenging to build an innovative culture saying they are unable to find the right talent and have trouble measuring return on investment. Only 20 per cent said they have implemented structural support systems for innovation, compared with 44 per cent globally. Ironically, Canadian financial sector CEOs also have greater trust in government and have a more positive view of the impact of regulation than most of their global counterparts.

Forty per cent of Canadian CEOs see their main opportunity for growth coming through new joint ventures, strategic alliances, or mergers and acquisitions, compared to just 20 per cent of CEOs globally. Nearly 70 per cent of Canadian CEOs see the U.S. as the most critical country to their growth prospects, but global comparisons show a very different picture. Globally, 33 per cent of CEO’s see China as the prime growth target, the U.S. at 30 per cent, 17 per cent see Germany as principal market for new growth and 12 per cent are focussing on Brazil.

The 2013 Global Manufacturing Competitiveness Index prepared by the Deloitte Touché Tohmatsu Limited showed that China was again ranked the most competitive manufacturing nation in the world. Following China, Germany ranked second, the U.S. in third spot, India fourth, and South Korea at number five. Taiwan ranked sixth, Canada seventh, with Brazil and Singapore coming in at eighth and ninth respectively.

The Deloitte report predicts that within five years, emerging nations will surge ahead to occupy the top three spots, while China will retain its number one position, and India and Brazil will be moving up to second and third spots respectively. Brazil’s jump from eight to third place is the largest expected over the next five years. The report says that developed nations will continue to slip lower, with Germany dropping from second to fourth, the U.S. from third to fifth, South Korea declining to sixth place, Canada will slide to eight and Japan will drop off the top ten, coming in around 12th place. In order to achieve job creation and opportunity in a highly-competitive world, Canada must aim higher, and not be satisfied with the status quo or incremental progress.