Which way Canada?

Over the weekend Canada’s PM remarked, “Canada will not slip back the way so many other developed countries are slipping back.” That’s good to hear. Unfortunately the numbers don’t back him up.

Sure we’re buoyed by a strong resource sector, and a well-capitalized, well-regulated financial sector. However the major elements of future growth and competitiveness, i.e. the foundations of becoming (in the PM’s words) one of the “next generation of economic powers” aren’t going to found in traditional sectors but rather in the next generation of innovative processes and products. And on those measures, we’re not doing as well as one might think.

Here are a couple of examples that I cover in my research.

Using the UNIDO Competitive Industrial Performance (CIP) Index, Canada ranks dead last in growth amongst the top 60 global industrial economies having seen a 11% decline in its CIP score over the 2005-2009 period. UNIDO’s Competitive Industrial Performance (CIP) index is calculated on the basis of the following components: industrial capacity, manufactured export capacity, impact on world manufacturing value add, impact on world manufactures trade, industrialization intensity, and export quality (high-tech intensity). To be fair, other advanced industrial economies haven’t fared well either. The UK dropped nearly 7%, New Zealand -6%, Japan and the United States -4%. And while one might equate the drop in the growing share of resources in the Canadian economy, the relative comparison between Canada and the US – both of whom have enjoyed the benefits of increasing resource dividends (shale gas in the US/oil sands in Canada) – leads one to question whether this isn’t a much deeper issue in Canada.

The 2012 Global Innovation Index adds some data regarding those deeper issues. It’s recently published report (co-authored by INSEAD and WIPO) saw Canada drop out of the top 10, falling to 12th of the global index from 8th the previous year. The GII aggregates 84 different measures related to innovation – including education, research funding, infrastructure, capital and credit access – to come up with its rankings. And while, Canada is still ranked far ahead of high-performing industrial economies such as Germany (15th)  , evidence that we’re doing some things right, one might (and I will) question where the sources of competitiveness and future growth will come from given Canada’s 25th place ranking in human capital and research. In particular, our 49th place ranking in per capita spending on education, 46th place in the percentage of science and engineering students, and 20th place in access to ICTs are glaring weaknesses for an economy like Canada’s.

Moreover, while Canada dropped 4 spots (and the US dropped 3), the similarly-endowed UK moved up 5 spots. It’s evident that policy plays a role here. The UK’s advantage in the ranking may partially be explained due to its significantly higher score on ICT infrastructure (7th to Canada’s 20th place) and slightly higher per capita funding of education (38th to Canada’s 49th). The result is a much more significant role of knowledge-based output in the economy (11th to Canada’s 38th).

And while Canada’s current government has recently sought to address some of these weaknesses with some much needed reforms to research funding in its 2012 Budget, largely as a response to the Jenkins Commission, it comes after several years of neglect of research and the sciences through funding reductions. As I wrote in January 2010, these cuts would prove to be shortsighted in the face of funding increases by our competitors in the US, UK and beyond. Recent numbers might provide some evidence that this is now showing true.

So what are we to do:

  1. Double up on education, we should lead the OECD in per capita investment, not lag behind the average.
  2. Double up on infrastructure, both enabling physical infrastructure and ICT specific infrastructure. As it stands only 8 cents of every tax dollar flows to cities, one of the major reasons cities across Canada face an infrastructure deficit of over $100 billion. Either we flow more money directly through to cities or we channel more dollars through national/regional initiatives to address metropolitan grid lock, ICT access and modern transportation.
  3. And finally, ensure that we remain a competitive market for highly-skilled immigrants. Immigration drives innovation. Every bit of research out there shows the significant dividends we enjoy as a result of the attraction of the brightest from elsewhere. If they want to leave their homes, we should be positioned as the number one destination.

All this costs money. And we’re short of money you say.

That’s true. But if we want to compete in the future we need to start investing in it. Cutting the GST was a ludicrous move panned by every economist in the country. It’s a consumption tax – and with the right exceptions on food/rent it properly targets those who can pay a bit more . We should bring the two points back meaning approximately $12 billion in annual revenue could be allocated to the above. Shoot me for saying we should. I want my kids to be on a level playing field when they’re competing with a global labour force.

And yes, I understand that no one votes for governments who raise taxes. Fine – find me another well thought out solution that doesn’t indiscriminately cut public spending but rather finds real opportunities for readjustment. I’m listening. I’ve worked in the public sector, I’ve seen some waste and inefficiency, but I’ve also seen a lot of people who do really good work that provides significant value.

Ultimately, the current’ governments’ focus on flexibility – be it employee rights/benefits or environmental regulation – doesn’t address the real driver’s of long-term economic growth – skilled and educated people. Supplement a renewed focus on education and skills with a massive push for modern infrastructure and we’ll have a fighting chance.

DH.

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Why we ignored inequality prior to the crisis

Issues related to domestic income inequality and its ties to real wage movements, while popular now , were largely relegated to the sidelines in public and academic circles prior to the onset of economic crisis in 2008/2009.

In this peer-reviewed paper just published in the International Journal of Social Economics, I seek to understand why this was the case, drawing on the work of the great Hungarian (though he lived in Pickering, ON) political economist Karl Polanyi. If you’ve never read Polanyi’s The Great Transformation, and you’re interested in the ties between markets and society, you must. It’s a foundational book that, building on Gramsci, highlights the embedded nature of markets in society and the relationship that ebbs and flows between both. Or just read this paper to get the Coles notes.

This paper wasn’t meant as a normative attack on the forces of capital (though some will certainly read it that way), but rather an exploration of how social change happens and is legitimized by the very people it may harm.

Enjoy/critique/comment/forward.

From: Dan Herman, (2012) “The missing movement: a Polanyian analysis of pre-crisis America”, International Journal of Social Economics, Vol. 39 Iss: 8, pp.624 – 641

As the global economy lurches along the vagaries of concomitant economic crises in the USA and Europe, a backlash against Anglo-American capitalism has taken shape. Since the first wave of this economic crisis hit in August 2009, the front pages of newspapers from around the world have hosted headlines decrying bankers for their greed and urging political leaders to reform a system of financialization that has made many rich but has placed the global financial system at risk[1].

One explicit symptom has been the development of the occupy movement and its rapid sweep from Wall Street to over 600 communities across the USA, and near a 100 cities beyond it. The subsequent (and ongoing) near-failure of economic union in Europe has only served to further the voices of this growing critique. The result is the development of a deep critique of an economic and financial system that has helped create depression-era income inequality, stagnant wages for the vast majority of the working class population and increasingly long-term, structural unemployment. These issues, however, were not borne of the crisis. While the crisis may have accelerated their direction, it served primarily to bring them to the public’s attention. For each of the aforementioned trends have been growing steadily since the 1970s, yet gone largely unnoticed in public circles.

This paper asks why, and seeks to understand why little attention was paid to reversing the negative domestic externalities that have accompanied the post-1970s shift in economic ideology and policy. At the heart of this analysis is the work of Karl Polanyi. Polanyi argued that economic liberalism was bound to cause significant social dislocations that only a countermovement could cure. Applying his thoughts to the post-1970 period of economic growth and upheaval in the USA, however, yields an interesting result. For despite the increasing social and economic dislocations that accompanied financialization and the globalization of US production, a broad, populist countermovement against the worst effects of economic liberalization, as argued by Polanyi as the inevitable next stage, was absent. Was Polanyi’s belief in the natural cyclical forces of movement and countermovement in the market economy wrong? Or had the forces of post-1970 economic ideology successfully disabled its rival
countermovement? Read the rest of this entry »