Canadian industry 'faces extinction'
Manufacturers, exporters burdened by taxes, regulation, weak dollar, trade group says Report targets 'productivity agenda'
Eric Beauchesne and Joanne LauciusThe Ottawa Citizen
Canada's exporters and manufacturers, burdened by high taxes, over-regulation and a weak dollar, will perish unless their sector becomes more internationally competitive, an industry report warns.
"Canadian industry is at a crossroads," the report from Canadian Manufacturers and Exporters says. Its members represent 75 per cent of Canada's manufacturing output and 90 per cent of merchandise exports.
"It must improve its competitiveness or face extinction."
The report -- The Business Case for Innovation -- is a clear attempt by industry to influence the direction of the innovation strategy being prepared by Industry Canada as part of the federal government's productivity agenda to be launched this fall.
The report says Canadian manufacturers are only 62 per cent as efficient as the peak efficiency found among manufacturers of G7 nations.
It would take 15 years of as much concerted effort as it took to get a man on the moon to close the gross domestic product gap between Canada and the U.S., Canadian Manufacturers and Exporters president and chief executive Perrin Beatty said yesterday.
Equipment in Canadian factories, for example, is older than equipment in U.S. factories, he said. Much equipment is imported, but it costs more because it is being purchased with devalued dollars, he said.
"In terms of competitiveness with trading partners, we're falling further behind. We need a jump start."
The manufacturers and exporters recommend a national innovation summit for academics, researchers, businesses and government to discuss issues such as the newest management techniques, education, training, immigration and taxation.
The summit Mr. Beatty proposes is similar to one held in Australia in February 2000 that attracted 500 government, business and academic leaders. But first, he would hold smaller meetings in each province to gauge regional concerns.
"The process of involving people is more important than any recommendations."
Most Canadian manufacturers have between 30 and 40 employees.
Many of those manufacturers aren't looking for a world-leading process, just ways to innovate in their own plants, Mr. Beatty added.
Innovation is defined in the report as the "successful development of new forms of knowledge -- new ideas, business practices, skills and technologies -- to create greater value for customers."
"A national innovation strategy, broad enough to respond to the problems of both small and large companies, that focuses on improving the innovative capacity of manufacturers and exporters, could help close that gap," the report says.
"Innovation can mean the difference between success and failure for Canadian businesses competing for customers at home and abroad in today's rapidly changing and increasingly global marketplace."
Not surprisingly, the report also argues that lower taxes, including more generous tax breaks for business, and less regulation are needed to allow and encourage industry to be innovative.
Last fall, the Canadian Manufacturers and Exporters called for more aggressive tax and debt cuts in an appeal to Finance Minister Paul Martin. Canada's productivity is constrained by an exodus of skilled workers seeking higher incomes and higher returns on investments.
The report, to be released today, says high personal income tax levels, the uncompetitive tax treatment of capital, regulations that impede the introduction of new products, processes, technologies and business organization, and onerous customs and immigration procedures at the Canada-U.S. border are of particular concern.
Finance Minister Paul Martin, however, has argued that his five-year tax cut package will leave Canada with a tax system that is competitive will other major industrial countries, including the U.S.
An international report released earlier this week projected that Canada would have the fifth most business-friendly tax system over the next five years out of 60 countries surveyed, including all the major industrial countries.
But the report said domestic manufacturers face challenges that are specific to Canada, including a weak dollar that has added to the cost of innovation and a small domestic marketplace where real per-capita incomes have fallen over the past decade.
"Most importantly, they must contend with a lack of awareness among Canadians and their governments of the economic importance of manufacturing and exporting," it said. "Governments do not always appreciate the impact of their policies on these sectors, and young people are often not aware of the career opportunities they offer."
Manufacturing accounts for 22 per cent of Canada's gross domestic product directly, and 2.2 million jobs, the report says.
But the challenge of becoming more innovative and in turn more competitive, is not for governments alone, it admitted.
A national innovation strategy should also include actions by business leaders to make innovation an integral part of all their company operations, transforming their firms into learning organizations where workers are continuously upgrading their skills and knowledge.
Academic and research groups also have a role to play, it said, including "improving basic education" and encouraging students and researchers to focus more on the challenges facing industry.
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