The Way Ahead

Tom Brzustowski

• Publisher: University of Ottawa Press
• Year: 2008
• ISBN:
  9780776618074
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

Canada is a prosperous country, but this prosperity is being stressed by demographics, pressures on the public purse, and low productivity growth. To maintain the nation's high quality of life, prosperity must increase while remaining sustainable. Combining Tom Brzustowski's extensive knowledge of government, industry, and academia, The Way Ahead, articulates a strategy for moving the Canadian economy towards higher-value products based on research and development, describing the practical steps government, industry and academia must take to improve things in the short term and prepare strategically for the long term. He recommends increasing productivity growth by embracing an economy based on innovation, prioritizing research and development, marketing Canadian products internationally, and encouraging entrepreneurial activities in all sectors. Ultimately, increasing prosperity will require a new level of understanding, strategic coherence, and mutual support between the private and public sectors in Canada, a challenge that the author feels Canada is prepared to and absolutely must face.

CHAPTER 1
Canada in the World

In some ways a giant…

What are Canada’s economic prospects in the world of the twenty-first century? To answer this question, this chapter presents a comparison between Canada and the other twenty-two most important economies, using a selection of readily available data. These data were chosen for their relevance to the issues that will shape the country’s future. The chapter then moves on to examine a recent correlation of prosperity with excellence in science and engineering that is relevant to the knowledge-based global economy in which Canada’s prospects must be realized.

How Canada compares with the top economies

Canada is the second-largest country in the world, larger than the United States or China by an area about the size of Germany. Only Russia is larger.

Among the 23 top industrialized countries, Canada is the fifth most prosperous, and has the 13^th largest population and the 11^th largest economy.¹ Table 1.1 lists four important characteristics for 23 of the world’s most industrialized nations. Three are economic: the gross domestic product (GDP) in so-called purchasing power parity² (PPP) dollars for the year 2005,³ the population in the same year, and the GDP per capita for 2005. That last quantity will be referred to as “prosperity.”⁴ The fourth key characteristic is geographic: the area of the country, included to give some indication of its size. The table also includes the average (GDP per capita) for the world, a far less accurate number than those for the group of 23. Nevertheless, this rough value serves to show that Canadian prosperity is about three and a half times the world average.

The numbers in Table 1.1 clearly show that the traditional “ten times larger” ratio of the US to Canada is only a rough approximation. The US population is 9.0 times larger, and the US economy is 11.5 times larger. The fact that the ratio of economies is larger than the ratio of populations is another indicator of the productivity gap that we need to close.

Table 1.2 shows how Canada ranks among the 23 in a number of selected dimensions. The full set of data from which these comparisons were extracted can be found in the appendix.

Canada’s population density is the second lowest in the group, 33 times smaller than the median value, and 200 times smaller than Taiwan’s. Only Australia’s is less. But that is really only part of the story. The recent census⁵ has shown that 80% of Canadians live in cities. That means that over most of our land the population density is even lower, by a factor near five.⁶ Such a low population density over a vast area has very significant implications for the communications and transportation infrastructure required to sustain small remote communities. The high cost of that infrastructure is part of the “operating cost” of Canada.

TABLE 1.1 A gross comparison of 23 industrialized nations

TABLE 1.2 How Canada ranks according to some important parameters

Canada is in the mainstream of the “23” by most measures, except for four of those shown in Table 1.2. Canada is at the high end in the ratio of labour force to population, and in the consumption of electrical energy and oil. It is at the low end in population density and population per unit area of arable land.

Table 1.2 does not compare coastlines, but Canada has by far the longest coastline in the world, more than five times longer than Russia’s and almost seven times longer than Japan’s. On paper, that makes us potentially the leading maritime nation, with huge benefits from off-shore resources and ocean access to the world. In practice, much of our coastline is in the north and the far north, where the challenges are as enormous as the assets.

The median age of Canada’s population is only slightly greater than the median age for the 23, and its age structure is not very different from the median structure. But our population is significantly older than those of our NAFTA partners. Mexicans have a median age of 24.93, and Americans 36.27, compared with Canadians’ 38.54. In Canada, 17.9% of the population is younger than 14. In the US and Mexico, those numbers are 20.6 and 31.1%, respectively. And at the other end of the scale, 13.2% of Canadians are 65 or older, compared with 12.4% of Americans and only 5.6% of Mexicans. Demographics have major implications for the economy, and we will be revisiting them in a later chapter.

The number of people per square kilometre of arable land—call it arable land loading—is a measure of the ability of a country’s agriculture to feed its people. Low values identify the bread baskets of the world, high values the food importers. Canada is a bread basket.

The composition of the GDP reflects the maturity of the economy. Table 1.2 shows that the younger economies depend much more on industry than on services; the opposite is true in the older ones. At first sight, Brazil seems to be an anomaly, but its situation becomes clearer when agriculture (extraordinarily high at 20%) and industry are considered together, leaving 66% of GDP dependent on services. This number is below the median for the group.

The three highest per capita consumers of electric power are Canada, Finland and Sweden, all of them cold northern countries with a long dark winter. Canada and the US are in a league of their own in consuming oil, probably because of a heavy reliance on the automobile for commuting and on trucks for moving goods over long distances. In third place, at about 20% lower per capita consumption, are Norway and the Netherlands. This ranking of the Netherlands is a surprise, given the popular image of thousands of Dutch people commuting by bicycle.

The last two rows of Table 1.2 deal with telecommunications, a subject of great importance to Canada because of the very low population density. Canada has more than the median number of telephone land lines per capita but significantly fewer mobile phones. While we obviously have responded to the great need for keeping in touch over long distances, other countries have been quicker to adopt cell phones for remaining connected in densely populated areas.

Excellence in science and engineering

One important determinant of a nation’s success in the global knowledge-based economy of the twenty-first century was not included in Table 1.2. Excellence in science and engineering deserves a section of its own.

Science has been a global enterprise for centuries. Scholars around the world openly communicate the results of their basic research, and international peer review is the established instrument of quality control. Senior researchers meet at international conferences and workshops, visit each other’s labs, and sit on each other’s advisory committees. Postdoctoral fellows move among the world’s leading research centres to expand their experience, and it is not rare for graduate students to spend time in research laboratories abroad to learn specific techniques or attend specialist summer schools and like institutions. The best scientific journals are international in the make-up of their editorial boards and the affiliations of the authors who publish in them, and the best textbooks are translated into many languages and used around the world.

In the twentieth century, and particularly after World War II, Canadian engineering research developed in the same pattern, but its internationalization was even faster, enhanced by globalization of industry. Today, the biggest companies are multinational. Supply chains are international, and most high- and medium-technology products contain components made in many countries. In addition, foreign direct investment (FDI) moves both capital and knowledge around the world.

In the last decade, the quality of Canadian science and engineering has taken a leap forward. Sustained new investments, led by the federal government and supported by the provinces, have helped university researchers attain excellence in many important fields. But that excellence is not confined to the universities. It becomes diffused across the economy, largely through students who are taught by active university researchers, and then take jobs in industry and in government laboratories. It is also spread through university-industry research partnerships that involve the companies that are active in R&D and through consulting by individual professors. There will be more to say about this diffusion later, but for now it is sufficient to note that excellence in university science and engineering promotes excellence in science and engineering across the economy. And that has an impact on wealth creation and national prosperity.

A useful indicator of a nation’s excellence in science and engineering was proposed by the UK Science Advisor, David King.⁸ King counted the number of research papers published by researchers during a specific four-year period, and took its fraction of the total as a measure of each nation’s activity in science and engineering. He then applied a demanding quality criterion, counting only those papers that were among the 1% most often cited by other researchers. The fraction of that top 1% contributed by a nation was taken to be the indicator of that nation’s excellence in science and engineering. One further step seems reasonable, however. Normalizing the excellence indicator by dividing it by the nation’s population makes it a better indicator of the intensity of top-tier activity.

Canada has about ½ of the world’s population, produces about 2% of the world’s GDP,⁹ and publishes more than 4% of the research papers in science and technology. Where does that put us in the group of 23 top economies?

The answer is shown in Figure 1.1, where the ratio of the nation’s GDP per capita to the world average is plotted against the indicator of excellence in science and engineering described above. The nations are the same ones as in Table 1.1, except for Mexico and Norway. The prosperity data are for 2005. The four-year period for counting published papers is 1997-2001, which gives a reasonable time lag for the diffusion of new knowledge.

The correlation is very strong because globalization means that there is just one international system of science, engineering, technology, and industry. That system rewards excellence, and it particularly rewards growing excellence on the part of those who started far behind. This is shown in the case of the four BRIC nations—Brazil, Russia, India, and China—that have recently been moving up the value chains of established industries. The actual location of each country on this plot is the result of its economic history; the data are what they are. This is very different from the scatter of measurements in a physical experiment.

One way of interpreting this figure is to say that some countries (such as the US, Japan, Taiwan, and Ireland) are better than average at connecting their excellence in science and engineering with wealth creation. And for whatever reasons, others (such as Israel, Sweden, the UK, and the Netherlands) are not as good as most of the rest of the group.¹⁰ The figure also implies some policy directions. Given its upward slope to the right, a nation must always try to climb the curve by improving the science and engineering excellence indicator, and that means competing on the quality of research. The public sector has the major role in that. However, at the same time, nations must try to improve their capacity for connecting excellent research with wealth creation, and they must strive to move up from the group curve as steeply as possible. That is commercialization, and it is the role of the private sector. Successful innovations in commercialization in one country will be copied by the others,¹¹ but even so, nobody can afford to stop trying to break ahead of the pack. The public attention paid to innovation and commercialization policies in the 23 economies is a clear sign that governments understand this ver...