Employee work on the car assembly line at the General Motors of Canada Ltd. Oshawa Assembly plant in Oshawa, Ont., August, 2006.Deborah Baic/The Globe and Mail
Canada will enhance its innovation and productivity by greater engagement with the BRIC countries and other emerging economies - or so a paper from the Institute for Competitiveness and Prosperity persuasively argues.
The well-founded worries about the lack of productivity growth in Canada, and about the relative shortage of innovation - by comparison with otherwise similarly developed economies - are not a response to any fatally unproductive or uninventive flaw in the Canadian national character.
The ICP's paper, titled "Trade, innovation and prosperity," relies in large measure on the work of Daniel Trefler, an economist at the University of Toronto, who, in studies published in 2004 and 2010, found that the claims made in advance for the Canada-U.S. free-trade agreement of 1989 were confirmed by experience. It led to overall productivity gains of 13 per cent, of which eight percentage points came from the growth of the most productive Canadian firms, and five points from increases of productivity in the typical Canadian factory.
The unnamed writers of the paper make a good case that expanded, liberalized trade with other large (and not so large) economies will bring about similar benefits to Canada. This goes beyond the 193-year-old comparative-advantage theory of David Ricardo; not only there is mutual gain from specialization, but also mutual stimulus to innovation.
They apply this reasoning specifically to trade with China, although they make it very clear that the Chinese have not yet reached what they call the "innovation tipping point": the decisive metamorphosis from a low-wage economy to one that is innovation-based. That point is approaching, however.
Essentially, the ICP paper shows that Canada ought to build relationships - through trade agreements, increasing number of trade offices, and more frequent visits back and forth of leading (and even local) politicians - with the emerging economies of China, India, Brazil, Russia and other countries, in order to be ready to make another great leap forward into productivity growth and an abundance of new patents. Of course, in the end, it will be up to Canadian business firms themselves. The evidence of history is that they will meet the challenge.