|
Improving
Productivity for keeping the living space of Canadians
Frank Mar 12
2017 in Waterloo, Ontario, Canada
In 1897,
German geographer and ethnographer Mr. Friedrich Ratzel who coined the term of
living space, which theorized as the natural expansion of strong states into
areas controlled by weaker states.
In the Era of market economy, the living
space has turned to market space from geographic space; people compete for
living space by competitive products and high quality manufacturing.
However, low productivity has been in
destroying manufacturing of Canada, without competitive products, the living
space of Canadians has been in destructing.
Mar 12, 2017, the article Improving Productivity for the Prosperity of Canada inspired
me to think of many shocking reports about extreme low productivity of
Canada.
July 31, 2012, Brains alone can't boost productivity: Canada
has suffered from chronically slow productivity growth for nearly three
decades. Between 1985 and 2010, labour productivity growth in Canada fell to
less than half the growth of the 1962 to 1984 period.
1968 –1984, it was Dr. Pierre Trudeau served as the 15th Prime
Minister.
Aug. 13, 2012, 'Big data' could help solve Canada's productivity problem: Canada has
not only lagged behind the major economies of the world in raising
productivity, but also are grappling with a “D” in innovation and a
competitiveness ranking of 12th out of 17 industrialized nations.
Aug. 07, 2012, Future success of manufacturing will require government
support: Manufacturing accounted for less than 13% of national
GDP last year, down from 19% in 2000. More than 500,000 manufacturing jobs,
delivering above-average wages and productivity, evaporated in that time. From
a balanced trade position in manufactures, we now incur a $90-billion annual
deficit in international manufacturing exports and imports. That’s the main
factor behind the emergence of a large and chronic balance of payments deficit
in recent years.
For the improvement of productivity, there
have been many comprehensive studies with convincing solutions, however, the
productivity growth continues to slow in Canada; why?
The reason was simple and obvious: the
solutions were not proper targeted. The disease was on head, they acupunctured
on the acu-points for treating the diseases on foot.
In the comment followed Oct. 1, 2012
article Canada’s productivity lags U.S. in ‘virtually every
instance: Deloitte, a German immigrant revealed the pathogenic
source of Canada’s low productivity.
Bernard comment in 2 years ago: “being an
immigrant from Germany I can tell you my perspective of lacking productivity in
Canada: looking around in the office I see people dropping in sometimes between
9 and 10 am. Not much later they are off for a coffee break. Then there is
lunch break and another coffee break. Leaving around 4pm, because there is some
important fishing or hunting or other outdoor stuff on the agenda.”
“Any more questions about productivity?”
“I mean, I really appreciate work-life
balance. But what I experience is overdone.”
After read above comment, I think of a few
years ago in Toronto, in a government agency; there a lot of people were
waiting in line. From the perspective of the number of idle office chairs,
there should be a lot of people who were work there, but only there two staff
were servicing for the customers. Finally, there are other two staff came in,
the people who were waiting in line were pleased for that was able to speed up.
However, the two came-in staff has not sat down yet; the original two in
working immediately got up and left away.
Long time waiting in the government agencies seems
a common matter in Canada, which is not due to short in manpower, but only due
to the poor work ethic.
Above problems were not fatal, if Canada was
really rich enough, to feed some lazy were not a problem at all; the fatal
problem of low productivity is in killing manufacturing, is in killing the main
pillar of real economy, is in killing the foundation for Canadians survival…
The cause of poor work ethic was from poor
social governance, which was that electorate kidnapped legislators of
democratic players dared not perform strict governance.
Under such unchangeable malfunctioned social
governance, we have to explore some roundabout ways to make a better life for
hard working Canadians.
Feb. 9, 2017, I summarized an article Germany's trade surplus hits new record high again and again.
Why?
May 28, 2012, in the article The DNA of the Success of German Manufacturing, I
have indicated the secret, now excerpt as follow:
Germany may be one of the few rich countries
relying on the hard working rather than that of natural resources, which has
attracted many international dignitaries to explore the secrets of its success.
However, most of them were focused on the macro policy with ignoring the micro
details.
The significant one of being ignored is the
legislated management on rationalization proposals (RP) in German Companies.
Their RP is not only pointing out the existing problems, also proposing
appropriate solutions and company extracts bonus to proposals
provider according to the net cost savings after implementation of RP in
the first year.
Since Mr. Alfred
Krupp of German ThyssenKrupp AG firstly coined the
management concept of RP in 1872, German companies have begun the practices of
management on RP. Currently, it not only is an important component of human
resource management but also is one of the main features of corporate culture
of German Enterprises.
As human nature, as common sense, no matter
which race and which nationality, including myself, when we heard advice from
others, the first feeling is to be despised; the uncomfortable reaction may
show on the face, or even verbal unfriendly. Maybe, it was the reason that
German government enforces the management of rationalization proposals by
legislation.
In such a corporate atmosphere, German
business leaders have been emphasizing people-oriented, and taking the staff as
working-capital. They encourage more employees to involve in optimizing the
corporate management by exploring and exerting every potential to promote the
development of enterprises. China saying goes, three ordinary brains are better
than one unordinary one. I think that, the more eyes observed, the more
problems would be found, and the more brains devoted, the more wisdoms would be
produced.
In such a corporate atmosphere, the sense of
responsibility of employees is largely increased. The enthusiasm of employees
for the work is large upsurge. The spirit of tacit cooperation is cultivated.
Every employee could work positively, initiatively, creatively and actively.
The product quality is largely improved, the production efficiency is greatly
increased, and the upgrade of the products is speeded up. Thereby, the
enterprises are always full of vitality with high competitive ability in hot
competing market.
They have established a sound management
system of RP with corresponding incentive policies and accumulated a lot of
valuable experiences. Such as, set up specialized department and specialized
personnel to manage RP, the employees can easily input and query the contents
and the implemented results of RP through corporate network system.
As the saying goes, if we hope horse running
faster, we must feed it with grass. If we hope hen laying more eggs, we must
feed it with grains. In the same way, the activity of RP can continue to
develop in German enterprises; the reward in bonuses or materials plays a key
role.
The award criteria for RP are basically same
in different German companies. It is according to the net cost savings after
implementation of RP in the first year. It divided into several grades,
specifically, the annual net cost savings within the ? 2,500, according to the
following standard bonuses:
Annual net cost savings |
Bonus |
250 Euros |
20 Euros |
251-750 Euros |
75 Euros |
751-1750 Euros |
150 Euros |
1751-2500 Euros |
250 Euros |
Annual cost savings are more than 2500 euros,
then, the bonus is 25% of the actual amount of net cost savings. For example,
net cost savings is 5000 EUR, and then the prize money amounted to ? 1,250.
Some RP cannot estimate the direct economic
benefits, but can play an important role in improving safety, preventing
accidents, protecting environment, improving product quality and enhancing
corporate-image, and thus can make indirect economic benefits, then, according
to the grade of lowest, low, medium and high respectively give 20, 75, 150 and
250 Euros or material reward. In accordance with "Personal Income Tax
Law" of Germany, material reward is tax-free. The taxes of bonuses are paid
by enterprises.
If Canada can learn from the rational
practice of Germany, Canadians can certainly make miracle as Germans.
For this concern, in recent years, I
wrote many articles to discuss how to improve productivity.
How to save Canada’s manufacturing
from disappearing
How to rescue Bombardier from the
road-dust of failed RIM
Poor Canadian corporate culture
destroys the life of Canadians
Set economic zones to avoid the harm
of speculative real estate
Authorize non-partisan Super
leadership to assist social governance
The feasible steps for improving
Canada's health care system radically
……
Follow is the reproduced article.
Improving Productivity for the
Prosperity of Canada
Creig
Lamb September 2015
University of Toronto School of Public Policy
and Governance
IRPP/University of Toronto Canadian
Priorities Agenda
Award-winning student paper
http://irpp.org/wp-content/uploads/2013/09/cpa-lamb.pdf
The IRPP’s Canadian Priorities Agenda project
is the inspiration for the capstone seminar in the master’s in public policy
program of the School of Public Policy and Governance at the University of
Toronto. The course is offered in an intensive format as a core requirement in
the final semester of the two-year program. A Canadian Priorities Agenda:
Policy Choices to Improve Economic and Social Well-Being is the basic text for
the course. It is supplemented by readings chosen by the instructors and guest
presenters. The students take the role of judges, and for their final
assignment they write a 5,000-word paper modelled on the judges’ reports in the
original project, in which they have to make the case for an agenda comprising
five policies selected from options presented in the course. Every year the
instructor selects the best student paper, and the IRPP posts it on its
website.
“Productivity isn’t
everything, but in the long run it is almost everything. A country’s ability to
improve its standard of living over time depends almost entirely on its ability
to raise its output per worker.”
— Paul Krugman, The Age of Diminished Expectations,
1990
Introduction
In the long run, productivity1 is the most important driver of a
country’s economic growth, prosperity and overall living standards.2 Despite
its significance, productivity has been declining in Canada relative to
international comparators. According to the OECD, from 1995 to 2012, Canada’s
average annual productivity growth rate ranked 26th of 35 countries.3 This
trend is even more pronounced when comparing Canada’s productivity to its
closest trading partner — the United States. Between 1985 and 2000, business
sector productivity growth in Canada lagged behind that of the United States by
an average of 0.8% per year. Between 2001 and 2011, this productivity gap
doubled to 1.6%.4
Addressing Canada’s poor productivity performance will become
increasingly important in the near future. Currently, Canada faces a number of
economic challenges that will inhibit future growth. To overcome these
challenges, the country will need to raise its productive capacity to maintain
real wages and income.5 This proposed policy agenda is designed to
cost-effectively improve Canada’s productivity to ensure the country can
continue to thrive and prosper in the long run.
In the near term, Canada has relatively favourable economic
prospects.6 However, the two main contributors to Canada’s recent economic
success — rising commodity prices and strong employment growth, are in
decline.7,8 First, it is unlikely that commodity prices will experience the
300% growth that occurred during the 2000s.9 The recent decline in global oil
prices, which saw the price of a barrel of oil drop 60% in 2014-15, is a clear
indication of this.10 Second, Canada’s population is rapidly aging. This has
resulted much slower labour force growth.11 According to Statistics Canada
projections, the labour force participation rate is expected to drop from 67%
in 2010 to between 59.7% and 62.6% in 2031. This would be the lowest
participation rate since the 1970s.12
Based solely on labour market projections, if Canada’s
productivity fails to increase, real GDP growth will “slow to less than
two-thirds its historical pace over the 2017–2050 period.”13 In this scenario,
per capita income would be $24,900 or 30% lower than it otherwise would be
without population aging.14 Slower GDP growth also means a shrinking revenue
base for governments at all levels.15
The opportunity costs of not addressing Canada’s productivity are
high. Using data from two separate models, closing the average annual
productivity gap between Canada and the United States would:16 ?
Raise per capita income by 28% or $18,900, by the year 2050,17 ?
Increase annual real GDP by $399 billion by the year 2030,18 ? Generate an
additional $65.3 billion in revenue for the federal government, $91 billion for
provincial governments, and $18.7 billion for municipal governments by the year
2030.
Selection Criteria
The goal of this policy agenda is to improve Canada’s productivity
to ensure the long-run economic prosperity of the country. The primary
selection criteria used were:
(1) Fiscal Sustainability: The policies chosen should
cost-effectively improve Canada’s productivity. They should also generate
revenue and create short- and long-term economic impacts.
(2) Efficiency: The policies should address market failures and
distortions to allow for a more efficient allocation of scarce resources.
(3) Appropriate Role for Government: The policies should not
exceed the appropriate scope of government action or intervention.
Policy Proposals
Option 1: Pass provincial legislation to allow municipalities to
opt into a 1% sales tax increase dedicated to transit and infrastructure.
Background Canada is increasingly becoming an urban
society. The country’s urban population has expanded at an astounding rate —
growing 114% from 1961 to 2011. This compared to the 14% growth in the rural
population during the same period.20 Canada’s urban population is also highly
concentrated in a few key areas. In 2013, 35.2% of Canadians lived in one of
the country’s three largest census metropolitan areas (CMAs) (Toronto, Montreal
and Vancouver).21
Beyond population expansion, cities in Canada are also growing in
economic significance. In 2009, approximately half of Canada’s GDP was produced
in the country’s six largest CMAs.22 When people and economic activity are
concentrated, urban areas become hubs of productivity growth and innovation.
Studies show that this agglomeration allows for businesses to take advantage of
labour market pooling, talent, knowledge spill-over and market access.23 This results
in greater productivity and increasing rates of return for businesses in larger
cities.24,25
At the same time, however, cities in Canada also suffer from aging
infrastructure, inefficient transit and substantial congestion issues, and
these problems will significantly inhibit the productive capacity of Canada’s
cities in the future. The current municipal infrastructure deficit in Canada is
an estimated $123 billion.26 To appropriately address this growing deficit, it
has been recommended that public infrastructure investments be increased by
62%.27 Studies show that over the next 50 years, infrastructure underinvestment
could lower Canada’s real GDP growth by 1.1% per year. This would cost the
average Canadian anywhere between $9,000 and $51,000 annually.28 In the Greater
Toronto and Hamilton Area (GTHA) alone, congestion is estimated to cost the
region $6 billion annually in lost productivity and wages.29
To explain how this happened, it is important to understand broad
trends in infrastructure financing. Over the past 50 years, the primary
responsibility for financing infrastructure has slowly shifted from the federal
government to municipalities. From 1955 to 2003, the federal government’s share
of total capital investments dropped from 34% to 13%, while the municipal share
increased from 27% to 48%.30 This has resulted in a funding structure where the
level of government least equipped to make large capital investments is charged
with building and maintaining the largest portion of the country’s infrastructure.31
Municipalities currently own “52 percent of public infrastructure, but collect
just eight cents of every tax dollar.”32
Solution To address this issue, it is recommended that provincial
governments pass legislation to allow municipalities to opt into a 1% sales tax
increase dedicated to transit and infrastructure. Under this option, the
provinces would be responsible for developing the new legislation, which would
likely specify the size and capacity requirements for municipalities to qualify
for this program. The onus would then be on the municipalities to propose and
vote on the policy. For efficiency purposes, the tax should be added onto
existing provincial sales tax receipts. The revenue generated would then be
transferred to municipalities and earmarked for transit and infrastructure
projects.
Impact Infrastructure investments can have significant
positive impacts on productivity. A recent study showed that, between 1962 and
2008, half of Canada’s total-factor productivity could be attributed to
investments in infrastructure.33 Another study found that infrastructure
spending in Ontario between 2006 and 2014 increased the province’s productivity
by 2.1%.34
Infrastructure investments can also have substantial economic
multipliers. The Conference Board of Canada discovered that, for every $100
million invested in infrastructure, real GDP is increased by $114 million. This
investment also generates roughly 1,670 person-years of employment. The study
also found that the federal and provincial governments recouped roughly 31% of
infrastructure investments through increased tax revenue.
Revenue According to KPMG, a 1% increase in sales tax in the GTHA
would generate $1.3 billion in revenue ($197.7 per capita) annually.36,37 Using
these estimates, if this program were universally adopted by all the
municipalities in Canada’s six largest CMAs (Toronto, Montreal, Vancouver,
Calgary, Edmonton, Ottawa-Gatineau), it would generate $3.28 billion annually
in additional revenue for transit and infrastructure.38 This is $1.08 billion
more per year than the federal government’s 10-year municipal infrastructure
commitment through the Gas Tax Fund.39 Based on Conference Board of Canada
estimates, this investment would boost real GDP in Canada by $3.74 billion
annually.
Evaluation This proposal would increase municipalities’ ability to
address growing infrastructure and transit needs. It would require no major
expenses, but could significantly improve the productive capacity of Canada’s
major urban centres.
Increasing municipal tax revenue for transit and infrastructure is
also becoming increasingly prevalent in Canada’s policy discourse. This may
improve the political feasibility of this option. Metrolinx has formally
recommended a 1% increase in the HST in the GTHA to generate revenue for its
second phase of transportation projects.40 In Vancouver in 2015, a referendum
took place to vote on the proposed Metro Vancouver Transit Tax, which would
have led to a 0.5% increase in provincial sales tax receipts in the
region.41
Other jurisdictions have already taken a number of strides to
broaden municipal revenue bases. Municipalities in France, Japan, Korea and the
United States receive over 20% of their revenue from sales taxes. In the
Netherlands, over 50% of municipal revenue comes from sales
taxation.42
While increasing taxation presents political challenges, from an
international perspective, Canada has a very low tax burden. When compared to
other OECD countries, Canada’s total tax revenue as a percentage of GDP ranked
21st overall in 2013.43 Consumption taxes are also one of the most efficient
forms of taxation since they are easy to administer and do not distort
decisions related to savings and investment.44 They have also been found to
impact productivity and economic growth much less than taxes on
income.45
However, there are risks associated with this option. First,
consumption taxes are regressive since they disproportionately impact people
with lower income.46 Second, an increase in regional sales taxes can have small
impacts on the competitiveness of the region by marginally reducing consumption
and comparatively increasing the costs of goods and services.
Option 2: Create an Industrial Research and Innovation Council
(IRIC) with a clear business innovation mandate.
Background Innovation is one of the most significant determinants
of productivity growth.48 Not suprisingly, Canada has a relatively weak
innovation climate. The Conference Board of Canada recently ranked Canada 13th
out of 16 countries in terms of innovation performance.49 Studies also show
that Canada’s weak business innovation is largely responsible for the country’s
low productivity performance.50
Investments in research and development (R&D) are important
for developing business innovation.51 Canada, however, also lags behind many
international competitors in terms business investments in R&D, new
technology and equipment.52 In 2013, Canada’s annual business expenditure on
research and development (BERD) as a percentage of GDP ranked 20th out of all
OECD countries.53 This annual expenditure is also heavily weighted to a small
number of large firms. In Canada, 25 firms make up roughly one-third of all
BERD.54
The current federal support for R&D in Canada is highly
fragmented. Besides the well- regarded Scientific Research and Experimental
Development (SR&ED) tax credit and the Industrial Research Assistance
Program (IRAP), there are 60 federal R&D programs dispersed throughout a
variety of government departments.55 A recent poll found that many of these
federal funding programs experience low take-up rates from Canadian firms.56
The most commonly cited reason was a general lack of awareness of federal
support for R&D.
Solution
To address Canada’s business innovation problem, the federal
government should create an Industrial Research and Innovation Council (IRIC).
This agency would provide funding and consolidate all federal support for
businesses accessing R&D grants or taking an idea or product to
market.58
This agency would have three primary functions. First, it would
administer the existing IRAP, which is considered to be the federal governments
strongest program for providing direct support and commercialization services for
businesses.59 The IRIC would also deliver the federal government’s pilot
voucher program. This three-year pilot program was introduced in 2014 to help
facilitate the movement of ideas to the marketplace by promoting industry
collaboration and connecting businesses to established providers of
commercialization services.60
Second, the IRIC would establish a “concierge service” and web
portal to serve as a single access point for businesses seeking federal R&D
support. As a common platform, the agency would provide advice and assistance
for businesses looking to navigate the complex federal R&D landscape. The
IRIC would also work to generate public awareness to improve the overall uptake
of public R&D programs.61
Third, the agency would work in collaboration with provincial and
territorial governments to develop an innovation and talent strategy. This
strategy would help businesses to attract and retain highly qualified and
skilled personnel to help drive innovation.62
Evaluation and impact The costs of this agency are expected to be
relatively small. Initially, the IRIC would require some overhead expenses.
However, these costs can be offset through the shifting of personnel from
current federal programs.63 A significant portion of revenue could come from the
reallocation of existing funds. This includes the $5 billion in annual revenue
dedicated to federal R&D support.64 It would also involve the reallocation
of the additional $110 million committed annually to the IRAP and the $20
million allocated to the pilot voucher program over three years.65
The costs associated with the IRIC would likely be offset by
expected increases in economic activity. Studies suggest that a 1% increase in
business R&D (as a percentage of GDP) would raise the per capita GDP of Canada
by 12%.
Option 3: Use the Trans-Pacific Partnership (TPP) negotiations to
update NAFTA and diversify Canada’s trade with Asia.
Background As a small open economy, Canada is highly dependent on
trade. In 2013, Canada’s total two-way merchandise trade was worth $947.58
billion — approximately 55.6% of GDP.67,68 However, unlike many other small
open economies, Canada’s international trading relationships are highly
concentrated in a few select markets. In 2013, 85% of Canadian exports were
sent to the United States, Mexico and Western Europe. Only 11% of Canadian
exports were sent to the Asia-Pacific region.69
This current trade focus is problematic since growth in major
advanced economies is much slower than thatin the developing world. Real GDP
growth in the United States declined from 2.8% in 2012 to 1.9% in 2013.70 Real
GDP growth in the Eurozone (France, Germany, Italy, Spain) was -0.5% in 2013.
Meanwhile, the real GDP of developing Asia (China, India, Indonesia, Malaysia)
grew by 6.5% in 2013. Real GDP growth in China was an astounding 7.7% in
2013.71
Canada can no longer afford to focus its trade efforts on
slow-growing economies. Over the past decade, Canada’s position as a global
exporter has been steadily declining. Between 2000 and 2010, Canada’s export
growth was 5% slower than the global average. During the same period, Canada’s
share of the global export market declined from 4.5% to 2.5%. This decline made
Canada the second-worst performer in the G20.72
Solution To help improve Canada’s trade prospects in developing
economies, Canada should leverage the existing Trans-Pacific Partnership (TPP)
negotiations to update NAFTA to diversify trade with Asia.
Entering into the TPP negotiations would provide Canada with its
first major access to high- growth, emerging Asian economies. The TPP would
help to remove trade barriers to ensure a free flow of goods and services
between Canada and many dynamic Asian countries.73 The combined GDP of the
countries currently involved in the TPP negotiations exceeds $27 trillion. This
represents almost 35% of global GDP.
The TPP negotiations would also present Canada with a new platform
to make necessary updates to NAFTA. NAFTA requires updating since the
negotiations took place before the rise of e-commerce, digital media and
third-party logistics.75 Since all other NAFTA signatories are involved in the
TPP negotiations, any TPP commitments that exceed those made under NAFTA would
take precedent. Therefore, Canada can use the TPP negotiations to
simultaneously make improvements to NAFTA and diversify trade with
Asia.76
Impact Entering the TPP would have significant impacts on Canada’s
economic prosperity. In a 2012 study, it was estimated that the TPP would
increase Canada’s GDP by $9.9 billion and boost exports by $15.7
billion.77
There are also significant productivity benefits associated with
trade. According to Statistics Canada, manufacturing firms that exported
experienced 0.6% higher labour productivity growth than firms that did not.78
These productivity increases are associated with exposure to international
competition, product specialization and increased investments in R&D and
training.79 Trade diversification can also have significant impacts on
productivity. Export variety is estimated to account for over 10% of provincial
productivity variation in Canada.80
Evaluation Entering into the TPP negotiations would be
cost-effective and administratively feasible. Most of the costly trade reforms
the United States will be looking for under the TPP have already been
established by Canada as a part of NAFTA.81
However, there are risks associated with this option. The TPP may
require Canada to make significant supply management concessions in certain
agricultural sectors.82 Many of Canada’s agricultural industries would resist
since they would face increased competition and are often not equipped to trade
internationally.83 Canada may need to compensate these industries for any
concessions that are made, as was the case for Canada’s domestic cheese
industry during the Comprehensive Economic and Trade Agreement negotiations.84
The current presence of Japan in the TPP negotiations may alleviate some of
these concerns, since Japan has significant domestic rice protection
policies.85 However, even Japan has made concessions on three out of five
protected agricultural industries.86
Option 4: Fix the Investment Canada Act (ICA).
Background For the past 40 years, there has been a dramatic rise
in global foreign direct investment (FDI).87 From 1970 to 2013, global inward
FDI rose from US$13.3 billion to US$1.5 trillion.88 As a small open economy,
Canada has been no stranger to these trends. Canada’s stock of inward FDI grew
from US$5.8 billion in 1980 to US$67.6 billion in 2013.89 This represents
roughly 4% of Canada’s GDP.90
At the same time, Canada’s relative attractiveness for large
foreign investments has declined. Canada’s inward stock of FDI as a percentage
of global inward FDI dropped from 15.7% in 1970 to 3.4% in 2007.91 One
explanation for these trends is Canada’s restrictiveness toward FDI. In 2013,
Canada ranked third highest out of all OECD countries in the Regulatory
Restrictiveness Index.92,93 A recent study suggested that if Canada were to
reduce these barriers, the inward stock of FDI would increase
significantly.94
Currently the Investment Canada Act (ICA) governs all FDI in
Canada. The act requires that foreign investments over a certain threshold
prove the investment will be a net benefit for Canada.95 The test is, in
theory, an effective and standardized assessment tool to ensure that Canada
reaps the rewards of global capital movements. However, in practice, it has
been criticized for its lack of transparency, ambiguity and reliance on
subjective discretionary powers.96,97,98 The current structure also places the
burden on the potential investors to prove that the transaction would be a net
benefit to Canada, which can be a costly and uncertain exercise.99
Recent history In 2008 and 2010, Canada issued its first FDI
rejections under the ICA — the rejections of MacDonald Dettwiler and BHP
Billiton, respectively.100 During these rejections, the phrase “strategic
asset” was used by a number of key officials as a basis for rejecting foreign
ownership.101 The phrase is not mentioned in the ICA and its consideration has
been denied by the federal government.102 However, the term continues to drive
uncertainty, especially since Industry Canada also failed to publicly provide
sufficient information regarding the basis for the decisions.103,104
In 2009, the federal government introduced a national security
review to the ICA. This provides the legal framework to allow Industry Canada
to solicit information from investors that may pose a national security risk.
However, this provision fails to clearly define what constitutes a national
security risk, further contributing to the ambiguity of Canada’s FDI review
process.105
The rise of FDI from State-Owned Enterprises (SOEs) has added more
complications to Canada’s already complex FDI regulations. In 2007, Industry
Canada released guidelines to ensure that SOEs attract additional scrutiny when
applying the net benefits test.106 Following the 2012 acquisition of Nexen by a
Chinese SOE, these guidelines were revised.107 Industry Canada then announced
that foreign state control of Canadian oil sands corporations would pass the
net benefits test only on an “exceptional basis,” but provided no further
clarification about what was meant by the phrase “exceptional basis.”
Solution To ensure that Canada continues to benefit from inward
FDI, it is recommended that amendments be made to the ICA. First and foremost,
the net benefits test should be revised to increase transparency. Based on best
practices in Australia, the ICA should publish the specific factors that are
taken into account when assessing FDI. The minister should then publicize the
justifications for the decision.109 Second, Canada can also make the process
more attractive to potential investors by shifting the burden of proof for the
net benefits test away from the investor toward Industry Canada.110
Third, the federal government should further clarify that
“strategic assets” are not part of the review process. Canada can assure
investors that FDI assessments are based entirely on the potential for
long-lasting benefits for the country.111 Fourth, based on best practices in
the United States, Canada should provide guidance to potential investors on
what might be considered in the national security review.112 Fifth, the federal
government should make explicit the specific review process for SOEs as well as
the meaning of “exceptional circumstances” regarding SOEs’ acquisition of oil
sands corporations. It is recommended that this should not result in a
universal prohibition of SOEs in the oil sands, given their increasing role in
the development of Canada’s resource sectors.113
Impact Inward FDI can have significant impacts on
productivity. Studies show that inward FDI helps to decrease production costs
and raise productivity in most Canadian industries.114 Foreign-controlled firms
have been found to be generally more productive and have significant
performance advantages over domestic firms in Canada.115 These firms also
innovate and conduct R&D more in all sectors, which can lead to significant
R&D spillover benefits for domestic firms.116,117
A study published by the Conference Board of Canada revealed a
positive and statistically significant relationship between the inward stock of
FDI and labour productivity in Canada.118 Baldwin and Gu (2005) discovered that
foreign-controlled plants contributed 65% of labour productivity growth in
Canada’s manufacturing industries between 1980 and 1999.119
Canada’s restrictions toward SOEs may also significantly inhibit
growth in Canada’s resource sectors. Chinese SOEs alone saw their assets grow
from $US 360 billion in 2002 to $US 2.9 trillion in 2010.120 These enterprises
are often attracted to large-scale natural resource investments in countries
like Australia and Canada.121 The Heritage Foundation’s Investment Tracker
ranked Canada as China’s third top destination for investments.122 At current
levels, China could provide 40% of the funds necessary to optimally develop
Canada’s oil sands.123 Any restrictions placed on these organizations may
dissuade them from continued investments in Canada’s resource sectors, which
could slow growth considerably.
Evaluation Making the necessary adjustments to the ICA is a
cost-effective solution to improve Canada’s productivity performance. However,
there are a number of associated risks. Shifting the burden of proof of the net
benefits test would require additional administrative capacity. There is also
considerable public concern regarding FDI and its potential to “hollow out”
Canada’s industries. Many believe that by increasing FDI, Canada may become a
branch economy, with high-paying jobs and profits going to foreign
countries.124 While this sentiment is widespread, it is not evidence-based.
Foreign-controlled firms have a long track record of developing high-paying,
head office jobs in Canada.125 These concerns can be partially mitigated by
effectively communicating the benefits of FDI to the Canadian public.
Option 5: Increase the intake of immigrants to Canada to 1% of the
population.
Background As natural increase slows, immigration’s role in
maintaining Canada’s labour supply will become increasingly important.126 In
2006, immigration was responsible for two-thirds of Canada’s population growth.
By 2030, it may be Canada’s only source of growth.127 While immigration alone
cannot fully address the issues associated with Canada’s shrinking labour
supply, a growing immigrant workforce can help to mitigate the impacts of
significant labour shortages.128
As immigrants continue to grow as a portion of the labour supply,
Canada must also make concerted efforts to improve the labour market outcomes
of recent immigrants. Studies show that recent immigrants to Canada face a
number of hurdles in the job market. In 1980, income-earning recent immigrants
(men) earned just 85 cents for each dollar earned by their Canadian-born
counterparts. By 2005, this figure had declined to 63 cents to the dollar.129
During the same time period, the proportion of recent immigrants in poverty
increased from 24.6% to 36%.130 Immigrants in Canada are also finding it
increasingly difficult to land highly skilled jobs, regardless of their skill
level. In 2009, Canada ranked 25th of 29 OECD countries in terms of immigrants’
skills matching.131,132
Solution To address these issues, it is recommended that Canada
increase the annual intake of immigrants to 1% of the Canadian population. It
is also recommended that this increase come primarily from the Provincial
Nominee Program (PNP). Based on 2014 immigration targets and the 2014 Canadian
population, this increase would result in approximately 100,000 new immigrants
each year.133,134
To explain the potential impact of this option, it important to
provide some background information on the PNP. The PNP was introduced in 1988
to provide provinces with the tools to respond to local labour demands and
skills shortages. The program allows participating provinces to nominate
immigrants based on identified local needs.135
While the PNP is growing, other immigration streams remain much
larger. Between 2005 and 2009, the Federal Skilled Worker (FSW) program
accounted for 76.2% of all economic immigrants to Canada. The PNP accounted for
only 17%.136 Despite the smaller numbers, provincial nominees have much better
labour market outcomes. Between 1999 and 2012, the mean income of principal FSW
applicants remained stagnant at $23,000. Meanwhile, the mean income of
principal PNP applicants more than doubled from $15,200 in 1999 to $39,000 in
2012.137 The vast majority (90%) of provincial nominees found employment in the
first year. Three years after landing, between 91% and 97% of provincial
nominees declared employment.138 Over 70% of provincial nominees believe their
job matches their skills.139
The PNP also allows for better dispersion of skilled immigrants
throughout Canada. In 2011, 94.8% of immigrants settled in Ontario, Quebec,
British Columbia and Alberta. Most of them landed in large urban areas.
Toronto, Montreal and Vancouver combined accounted for 63.4% of the country’s
total immigrant population and 62.5% of all recent immigrant arrivals.140 While
these trends can have positive benefits, studies also show that immigrants who
live in large cities earn less and face greater hurdles in terms of locating
adequate work and housing than immigrants living outside of Canada’s three main
urban centres.141 The existing FSW program largely contributes to this
concentration of immigrants: 95% of FSW were found to settle in Ontario,
British Columbia or Alberta. In contrast, only 36% of provincial nominees ended
up in those provinces.142
Impact Increasing immigrant intake and improving labour market
outcomes can significantly increase Canada’s productivity. Dungan et al. (2013)
discovered that, by increasing immigration by 100,000 (to 1% of the population)
and closing the wage gap between new immigrants and domestic workers, we could
raise productivity growth 0.6% above the base case by 2021.143,144 In this
scenario, government balances would also be $22 billion higher by 2021.145
Evaluation Increasing immigration with a focus on provincial
nominees once again presents a cost- effective solution to improve Canada’s
productivity and long-run economic growth. However, there are risks associated
with this option. Increased immigration may result in added fiscal pressures
should these immigrants fail to integrate properly into the labour market. The
federal and provincial governments may also be reluctant to increase the
provincial role in immigration. This may decrease the political feasibility of
the option.
Assessing the Options
In the past it was possible to for Canada to prosper despite its
low productive capacity. In the near future, however, Canada must address its
poor productivity performance to ensure continued economic growth and high
living standards. Using the selection criteria of efficiency, fiscal
sustainability and the appropriate role for government, each of the policies
were selected to help increase Canada’s productivity for as low a cost as
possible. This policy agenda rejects the notion that significant impacts require
large government expenditures. Those policies that do require additional
resources were selected based on their ability to stimulate economic activity,
generate revenue, and create a net benefit for the country as a
whole.
This policy package addresses a number of key priority areas that
will be necessary to raise the country’s productive capacity. The first option
focuses on enhancing the capacity of Canada’s urban centres to become hubs of
productivity and innovation, The second option will provide Canadian businesses
with better, more efficient access to R&D support to improve business
innovation. The third and fourth options will help ensure that Canada benefits
from the productivity gains associated with trade. The final policy option will
help the country to build a more productive workforce by simultaneously
increasing its immigrant labour supply, while also improving the labour market
outcomes of recent immigrants.
法律申明|用户条约|隐私声明|小黑屋|手机版|联系我们|www.kwcg.ca
GMT-5, 2024-5-20 10:51 , Processed in 0.024653 second(s), 18 queries , Gzip On.
Powered by Discuz! X3.4
© 2001-2021 Comsenz Inc.