April 14, 2016

Economic diversity beyond the sound bite: The best strategy will horrify liberals AND conservatives

Bryan KapitzaRebel Blogger

Economic diversity: It's the two-word sound bite all political parties use to claim their commitment to Canada's prosperity and quality of life. If only these politicians would take their own words to heart.

Canada ranks 39th on the Center for International Development’s list for economic complexity. Furthermore, according to the World Bank, our research and development spending as percent of GDP lands us 20th place.

With such bleak numbers, and without focused societal action, our future appears mediocre at best.

How can we improve our standing?
To rely solely on the private sector would be an error. The capital required to start and maintain an edge in emerging technologies is often beyond the capacity of capital markets. Government support is required.

The integrated chip industry and the myriad of businesses that populate Silicon Valley are a direct outcome of decades of US Defense Department spending. The US government endorsed those expenditures to maintain its post world war military advantage.

The Japanese economic miracle made possible through the policy of heavy industrialization was also realized only through government, industry, and labor cooperation. Even Korean popular music, or K-Pop, for better or worse, has become an international phenomenon as the result of direct government initiatives to diversify the Korean economy into the entertainment industry.

For Canada to rise to its potential and secure its future, it needs a national strategy to transform our economy. But what would that strategy look like?

First, it would entail (much to the horror of many social liberals) a shift in government spending from public benefit programs to research and development. In the case of Canada, this would mean almost doubling our investment of 1.6% GDP to at least 3.0% GDP thereby moving us into the global top ten. Increasing taxes to finance research and development is not an option as it is ultimately self-defeating. Tax increases tend to reduce GDP and our goal is to increase GDP. The social inclined amongst us must accept short-term pain for long-term gain. Interestingly, the nations that spend the most on R&D are also able to spend more on social welfare.

Second, it would require (much to the horror of free market conservatives) government involvement in selecting technologies in which to invest tax dollars. Given that government is not known for innovation, but rather for maintaining the status quo, reasons for pessimism are legitimate. But a national effort to develop new industries would not be without precedent. Canadian National Railways was precisely such an undertaking.

Provincial precedents also exist. The Alberta Energy Corporation was created by the province to kick start oil sands development. Saskatchewan created the Potash Corporation in 1975.  All these corporations, once they had matured, were sold to private investors. They are success stories of government investment.

Similarly, the privatization of government owned Telcos and power companies has, in general, resulted in lower costs, better service, and innovation. We should, however, not be overly optimistic. With every success there is bound to be a failure. The Alberta government’s venture with NovaTel stands out. But such is the nature of investment. There will be winners and there will be losers. That is part of the game.

What should we invest in?
Certain industries are simply not worth pursuing. The assembly of most consumer goods and electronics is now done by less expensive overseas labour. We simply can’t compete.

Nor is there much promise in pursuing services or technologies that are already well developed in other nations. Entering the arena of, say, global financial services is beyond our reach. Indeed, even competing in relatively new technologies such as wind and solar will be challenging.

The Europeans have invested heavily in these technologies and their substantial knowledge and manufacturing base far exceeds ours.

To move ahead we need to pursue what few undeveloped areas of expertise we do have, and we need put aside the uninformed, ideologically hysteria that has that have hindered their development. Our broad agricultural base and climate gives us an advantage to experiment with genetically modified foods to feed a growing world population.

We have access to three oceans and the third largest reserve of fresh water on the planet, but our aquaculture is virtually non-existent. Our nuclear energy industry should pursue the development breeder and thorium reactors to combat global warming as well as growing our medical isotope production.

The size of our nation and the remoteness of our communities necessitates a cost effective solution for the transportation of goods, but we fail to invest in non-tradition cargo carriers such as airships. Scalable water purification and treatment systems, which we proudly send overseas with out DART team, are, for some reason, unavailable to our remote communities.

Economic diversity will secure our future. That diversity however requires commitment from both the private sector and government. Our leaders need only have the will to act.

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commented 2016-04-14 22:24:26 -0400
Except the government has no money. All they have is what they take from me. Thus my money gets invested in companies in the name of the government. But I get no stocks nor returns on it. Progress means little, to me since all my favourite thing existed 50 years ago.

The free market prevents my money going to projects unrelated to my interests or benefit.