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Christopher Sands, one of the leading thinkers on Canada in the United States, admires Canada, but he thinks the country is underperforming.

Courtesy of Christopher Sands

The world loves us. Canada regularly ranks atop surveys of liveable places and admirable societies.

We've held down the No. 1 spot in the Reputation Institute's ranking of major economies for two consecutive years, ahead of Australia in 2012 and Sweden in 2011. We were second the previous two years.

The Reputation Institute, a consultancy, comes up with its list by polling thousands of consumers in the Group of Eight countries: the United States, Japan, Germany, Britain, France, Italy, Canada and Russia. The firm argues that reputation matters: there is a strong correlation between the way a country is perceived and tourist visits and foreign direct investment.

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But what does it mean to be so likeble, really? Notably absent from the Reputation Institute's Top 10 countries are the truly dominant economies, such as the United States, Germany and China. One can't help but wonder if a lower score on the likeability scale might translate into more street credibility in the rough-and-tumble global economy?

Christopher Sands, one of the leading thinkers on Canada in the United States, admires Canada, but he thinks the country is underperforming. Mr. Sands, an American, is on leave from his job as a lecturer in Canadian Studies at the Johns Hopkins School of Advanced International Studies in Washington, D.C. to serve as a visiting professor of Canada-U.S. business and economic relations at Western Washington University in Bellingham, Wash.

"Canada has done remarkably well, but it can do better," he said in an interview this week from Bellingham.

When Washington thinks about Canada, or the Canadian economy, what comes to mind?

Recent Canadian economic performance underscores some of Canada's strengths, particularly in commodities, like energy, agriculture, softwood lumber. And for many Americans, they think that is great for Canada and responsible for Canada's good fiscal position, as well, and for the strong Canadian dollar. What they don't think is this is something the U.S. can replicate necessarily. The other thing that jumps out at many Americans is Canada's economic performance is contingent, as an exporting country on what happens, among other places, in the United States. So there is vulnerability to Canada's competitiveness if the U.S. doesn't recover.

You've described the impression people have of Canada. Is it a fair one?

The vulnerability, the fact that Canada is an exporting nation, a trading nation, is fair. There is a close tie between Canada and the international economy. And even though Canada is doing very well, it can't do very well by itself. If the rest of the world economy doesn't recover, Canada is going to suffer, too.

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What is your sense of Canada as an innovation economy? Does it do more than churn out resources?

Canada has got a tremendous innovation potential in that it has a highly educated work force. It has a tremendous industrial and technological and technical capacity. Where Canada has struggled is in the area of venture capital. It's traditionally looked for venture capital abroad, especially the United States, because investors and sometimes the big banks and others have been less enthusiastic about taking a big risk on someone who is really at the cutting edge. That's the problem with big risks: They don't always pay off. So Canada is seen by many countries around the world as the place you go to shop for talent, bringing those talented innovators to places like Silicon Valley or the greater Boston area or Europe. The talent is there, but the structure for innovation isn't always there.

How much of the innovation gap between Canada and the U.S. is cultural, and how much of it relates to the structural factors you mentioned?

It's definitely a little bit of both. Culturally, you have in the United States not only people who are risk takers and more comfortable with that, but also consumers who are early adapters who glom onto the latest technology long before it's proven itself, from people trying out new apps for their iPhones to people trying out new gadgets for their cars. That creates a fertile place for innovators to throw things out there and see what works. Canada's consumers are more apt to look at a new product or a new service and say, 'Well, let's see how that goes. Let's see what the track record is.' So innovation often begins in the United States and then makes its way to Canada.

The U.S. has a dynamic where you can spend years on research and not necessarily succeed and people don't hold that against you. You have a couple of bankruptcies as you try to make your way in the world, you can still end up being Bill Gates or Steve Jobs at the end of the day because people will give you multiple second chances. In some parts of Canada, there is a conservatism, and an attitude towards failure that makes it a little bit harder to get back into the market to get a second chance at venture capital or investment, which is an issue.

You're a fan of Canada and there are few people here in Washington who think about the country more than you do. Is Canada meeting its economic potential?

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Canada has done remarkably well but it can do better. It's tricky because, what I'm saying is, Canada could push the envelope and take more risk. When you say that, whether it is to an individual or to a country, what you also are saying is, 'Accept risk and you could fail. You could lose a lot.' That's a tough thing, especially in a shaky global economy.

Our reputation doesn't seem to translate into international clout. Does this notion of Canada as simply a "nice place" hurt its economic prospects in some ways?

Canada's reputation is that of a place that is reasonably well governed and doing fine. That's true. There's nothing wrong with being happy. That's good. The flip side is, I think that we in the U.S. don't see the potential.

We rely on Canada's good nature, and the good nature of Canadians who step up and say, 'We have an idea.' Then they have to persuade us to listen carefully to make it work. It shouldn't be that way. I know the Americans always say, 'Canada, we want you to do this.' I think the United States needs to be thinking about the challenge of governance in North America. American prosperity in a global economy is reliant on cross-border transactions.

The Bank of Canada says at every opportunity that competitiveness issues are holding back the economy. What's your best advice to policy makers and business leaders on how to turn things around?

One of the biggest dynamics of the global economy now is the speed at which conditions change. We know from almost a century of economic analysis that when things change, those factors of production – whether it's labour or capital – that can adapt quickly tend to get the most benefits. And those that can't adapt tend to suffer the most.

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The challenge for Canada, I think, is to promote that agility and that adaptability across the Canadian economy. That means in terms of capital flows, Canada needs to have access to good venture capital and adequate capital for investment for retooling, for investing in machinery and equipment to keep pace with what your competitors are doing.

Canada needs companies and investors that have a tolerance for risk. They shouldn't be imprudent. But they need to understand that you may be the market leader in a particular area, but you need to challenge the firm to also be able to adapt in other areas and see opportunities. What looks like a very good market today, for example in energy, might challenge you as Canada to move up the value chain. Why just produce oil? Why not refine more oil? Why not more oil byproducts, everything from asphalt to plastic. What are the things that can be done to more fully develop on the strengths you've had, and develop some areas you haven't had in the past. That's all about promoting an appetite for risk."

Join the conversation on Canada's competitiveness by following Canada Competes on Twitter:@CanadaCompetes

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