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After hundreds of hours carefully analyzing Canada's record of economic efficiency, some of the country's top business minds believe they have uncovered the real reason our nation lags the U.S. – we don't spend enough on research and development.
The study, done by Deloitte, was summarized thusly by The Economist:
"A report out this week by Deloitte, a business consultancy, offers a novel explanation that may be relevant to other poor performers in the productivity stakes: More than one third of Canadian companies don't realise they are not making the necessary investments in research, machinery, equipment and technology to keep up with more competitive firms because they lack access to the kind of information they need."
Hold on while I bang my head on the desk for a bit.
That's better.
We might start by wondering whether corporate America – an entity so productive that it has rendered unemployed a sizeable portion of the populace that might have considered buying the products they make - is the kind of utopia we want to emulate.
Secondly, Here's a list of the biggest 15 companies in the TSX: Royal Bank, TD Bank, BNS, Suncor, CN Rail, BMO, Enbridge, Potash, BCE, Imperial Oil, TransCanada, CNQ, CIBC, Manulife and Thompson Reuters. Notice a pattern? Nine of them are part of oligopies or duopolies protected from competition. (At least with respect to the financials, we learned during the financial crisis that it can be a good thing.) In those industries, the real competition is among each other, not with the firms in the U.S. and elsewhere to which our corporate titans are endlessly compared.
These criticisms rarely take into account Canada's singular geographic challenges. A quick glance at a map shows the serious geographical impediments faced by domestic businesses. Any Canadian company of scale has to freight their products across the prairies and other desolate regions between reasonable-sized markets. Fuel costs make this expensive and less efficient. And that's not to mention another elephantine problem with comparing productivity levels in the U.S. and Canada: the domestic auto sector, which accounts for 10-12 per cent of our GDP, is dominated by American-owned firms that don't publish results here.
Of course we need to spend more on R&D, as well as to implement some of the sensible policy prescriptions regarding R&D tax credits and the like which are buried in the Deloitte report's Appendix B. But Canadian CEOs are not ignorant hillbillies. Most of them went to business school where they studied hundreds of business cases. If they felt the pressure to become more competitive, they would for the most part be perfectly capable.
Canada is not the United States. I'd be happy to support policies that help companies be more globally competitive but right now, Canadian companies are as competitive as they need to be given the constraints they face.
Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here to read more of his Insights , and follow Scott on Twitter at @SBarlow_ROB .
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Scott Barlow