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The keys to competitiveness? Innovation and productivity

In a knowledge economy, talent and innovation are creators of competitive advantage and drivers of success.

Ryan McVay/Getty Images/Ryan McVay/Getty Images

If there were such a thing as a global competitiveness lottery, Canada's current numbers don't appear to be paying off. Our dollar is at parity; average business productivity levels are just 72 per cent of those in the United States; spending by business on research and development is 50 per cent of what businesses in the U.S. spend; and economic growth of our biggest trading partner is a sluggish 1.6 per cent.

So what is the message in these numbers? They are a strong motivator to rethink what it takes to be competitive in today's global and increasingly knowledge-based economy.

As London School of Economics professor Danny Quah has noted, the global economy's centre of gravity moved from the mid-Atlantic in 1980 to east of Helsinki and Bucharest by 2008 and is projected to sit between India and China by 2050. Market opportunities are shifting, moving away from the mature Western economies and toward the dynamic emerging economies of Asia and South America. Seventy-five per cent of Canadian exports go to the United States, while just over 3 per cent reach China, and less than 1 per cent each head to South Korea, Brazil, India, Taiwan, South Africa and Russia, to name a few – all of which are growing at a pace that is multiples of the U.S. economy.

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For Canada, competitiveness, trade and growth have to go hand-in-glove, and Canada's trade markets are "overweighted" in slower growing economies, many with structural fiscal problems and demographic challenges. China, India and Brazil alone account for almost 40 per cent of the world's population, have a rapidly growing middle class larger than the population of North America, and constitute markets not only for our commodities but also value-added foodstuffs, housing materials, education services, health care, technology and much more.

In a knowledge economy, talent and innovation are creators of competitive advantage and drivers of success. Canadian firms don't want to be competing on cost for homogeneous, highly standardized goods and services in the global marketplace. Rather, they want to be offering more "unique" goods and services, where price reflects innovative features, brand elements and fewer competitors, and this requires a capacity to continually innovate. Innovation drives productivity, it drives competitiveness, it drives living standards. Here the underperformance of Canadian business in investing in research and development and innovation (we are ranked 15th among OECD countries), constrains our competitiveness despite world-class basic research in our universities.

In this era of a new global competitiveness, how well we train and attract and employ talent is key. As Finance Minister Jim Flaherty recently noted: "Our greatest renewable resource is our grey matter." We need to better base our competitiveness strategies on capitalizing on our well-educated and pluralistic population and, in our education systems and in our firms, encourage creativity, entrepreneurship, and a global business perspective.

We enter this global competitiveness race with real strengths: world-class macroeconomic fundamentals, and a national consensus to maintain them; enormous natural resources, and a secure, market-based system to develop them; a multicultural society, one that reflects the emerging global economy in which we need to trade and prosper; and strong institutions and effective social safety nets in a world where trust is declining and income disparities are rising in a number of countries.

But unless we increase our productivity and innovation performance, we will underperform our potential.

Competitiveness is not just about heading in the right direction but also the pace and sense of urgency relative to our competitors. Competitiveness in the knowledge-based economy is not about the lowest cost but the highest creativity, and this applies to all sectors, from agriculture to forestry to energy to communications to retail. Competitiveness today is about seizing the opportunities in the dynamic emerging economies, with the new products and services that consumers are seeking, and do so more nimbly and more quickly than our global competitors.

Being average is just not good enough, and the excellent examples we have in Canada of innovative firms serving global markets is still too often the exception rather than the rule.

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Kevin Lynch is the vice-chair of Bank of Montreal.

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