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(The Globe and Mail, iSTOCK)
(The Globe and Mail, iSTOCK)

Canada's innovation window of opportunity Add to ...

“It’s fair enough for people to talk about all these things,” Mr. Wilson said. “But you’ve got to get some political initiative here. That’s the groundswell that’s still not there.”

The lead federal minister on the file – Industry Minister Christian Paradis – has promised to take a fresh look at the report. “We will continue to look to the panel report for inspiration in bringing forward further proposals,” spokesman Pascal Boulay said.

What the campaign has going for it is a rare window of opportunity to complete an ambitious agenda. Canada’s fiscal position is relatively sound and its economy is healthier than most in the industrialized world. And for the first time in seven years, the country has a government stable enough to carry out even unpopular policies.

“It’s one of those rare times that Canada starts out with a policy advantage compared to most countries,” remarked former Liberal cabinet minister John Manley, who speaks for the heads of the country’s largest companies as president the Canadian Council of Chief Executives.

“The whole dynamic in Ottawa has changed. The [Harper government]no longer has to negotiate, item by item, with three opposition parties. They government is carrying the ball. They initiate and they can complete.”

Pushing ahead with deregulation and trade need not cost much. Indeed, in an environment of fiscal restraint, policies that come with small price tags are more likely to get done, Mr. Manley explained.

“The whole challenge at a time like this is to do the things that are going to pay off, that are going to create economic activity and jobs,” he said.

The flurry of talk about competitiveness and innovation is carefully timed to coincide with the government’s preparations for its first budget with a secure majority, expected as early as February.

And a majority government’s first budget is traditionally the time to launch big and potentially controversial ideas.

“There’s pent-up demand,” agreed David Stewart-Patterson, vice-president of public policy at the Conference Board of Canada, an independent think tank. “For six years, there was no opportunity to explore long-term strategic thinking at the federal level. That’s the political window.”

The cost of poor productivity

There’s a lot of work to do and a compelling reason to do it. Poor productivity is not just a theoretical problems. It saps government tax revenues and destroys wealth. The University of Toronto’s Institute for Competitiveness and Prosperity has estimated that low productivity costs Ottawa $112-billion a year in lost tax revenue. That’s money that isn’t available for health care, highways, tax cuts or investing in R&D.

Poor productivity is also eroding Canadians’ prosperity. Per capita gross domestic product is a measure of the value created by workers and companies, and Canada has been steadily losing ground to its closest trading partner, the United States. In 2010, GDP per capita was $47,500 in Canada and $57,000 in the U.S. – a gap of $9,500. Three decades ago the gap was less than $3,000.

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.

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