When the Canadian dollar was low in the 1990s, companies could mask their poor productivity – it made exports more competitive. But that’s no longer possible with a dollar that many economists believe could stay at or near par for years.
A key reason for Canada’s lagging productivity is that government regulation shields companies in some industries from global competition, Open Text Corp. chairman Tom Jenkins argued in a recent paper for the Institute for Research in Public Policy. The result is that Canadian cable providers, phone companies and airlines have little incentive to become more efficient because they can generate better returns simply by charging customer more, rather than becoming better at what they do. And those costs are passed along to Canadians.
“We can’t have it both ways,” he wrote. “We either protect or we compete.”
Mr. Jenkins, who recently chaired a federal panel investigating federal R&D incentives, applied a similar logic in recommending an overhaul of the generous tax breaks that Ottawa offers companies to do research. Offering billions of dollars in cash rebates to small companies that aren’t profitable may create jobs for scientists, but it doesn’t necessarily drive innovation or create wealth, he pointed out in a recent interview.
“The closer we can get to rewarding the outcome instead of the input, the better,” he said.
That means rewarding companies that generate profits from their R&D and then offsetting part of their tax burden with credits. “Creating profits, that’s what we want to encourage,” he said.
