VERBATIM Derek H. Burney Meeting the challenge of globalization: sharpening the Canadian focus

In a keynote address Canada’s former ambassador to Washington suggests “embracing globalization means giving Canadians the best chance to prosper in a globalized world.” But he says Canada needs a sharper policy focus and a greater commitment to public policy by the private sector as well as government.

« Profiter de la mondialisation, c’est donner aux Canadiens toutes les chances de réussir dans une économie mondialisée », affirme l’ancien ambassadeur du Canada à Washington dans ce discours. Pour ce faire, le Canada doit mieux cibler ses orientations et obtenir du secteur privé tout comme du gouvernement même un engagement plus ferme en faveur des politiques publiques.

n addressing globalization, I’m investment or other barriers (or leav- export-driven, import-averse economy mindful of the Will Rogers quip: ing current ones in place). where the government picks the win- I “Even if you are on the right track, if What does the Canadian record on ners, looks after the losers and subsi- you just sit there, you will get run over.” globalization show? A mixed picture. dizes both with large dollops of the In a rapidly flattening global vil- Externally, Canada embraced glob- taxpayers’ money. That has been tried lage, that is precisely our challenge — alization with the Canada-US Free Trade many times — and not only in Canada resisting the temptation to rest on our Agreement and then, subsequently, — and the predictable result has been sterling economic performance under NAFTA. Remember the great free trade low growth and high unemployment. the false assumption that nothing debate of 20 years ago when Canadians But the allure of “preservation” is more needs to be done. from all walks of life anguished over powerful for politicians and the appetite The question we should be asking whether Canada should protect its bor- for policy change is rarely ravenous. is whether we have the capacity and the ders from imports or open them up? Canada needs more open global will — politically, socially and econom- Ironically, today, the government is markets yet small, but influential, protec- ically — to turn the challenge of global- more often criticized for lagging behind tionist interests can succeed in blocking ization into opportunity. That will be others in signing new free trade deals. free trade deals for years. The recently the litmus test, I believe, for political Internally, we transformed the announced agreement with the EFTA leadership in the years ahead. And that restrictive Foreign Investment Review Act (European Free Trade Assocaition) coun- is what I want to speak to you about. into Investment Canada and declared tries — not yet sanctioned by Parliament Globalization arouses a debate, to the world that Canada was open for — took almost 10 years to conclude. often more delusional than profound. business. Compare that with the 12 months it took It is not a theory to support or con- But there remains stubborn resist- to negotiate NAFTA (in 1991-92.) demn. It is a reality you either turn to ance in Canada to globalization. Pop In the World Trade Organization’s your advantage or you “get run over.” fiction (masquerading as analysis) offers Doha round of multilateral negotia- Governments and parliamentarians, in conspiracy theories about secret cabals tions, which potentially affect the my view, need to decide whether to plotting to rob us of our sovereignty whole of the Canadian economy, embrace globalization or resist it. and identity, hoodwinking politicians Parliament’s highest priority seems to Ignoring globalization is not an and voters, and handing over our be to protect our antiquated system of option. There is nothing less stable in birthright to faceless forces that mean supply management. Why not take a the modern world than the status quo. us harm. In a word, this is “globaloney” lesson from the Australians, who have Embracing globalization means giving or, if you prefer, global baloney! shown how to achieve a world-compet- Canadians the best chance to prosper There remains a belief in some itive dairy industry — one that is now in a globalized world. Resistance quarters that Canada can have a exporting to China — by gradually means creating tax, trade, foreign dynamic, high-growth, risk-free, removing import protection rather

6 OPTIONS POLITIQUES DÉCEMBRE 2007-JANVIER 2008 Meeting the challenge of globalization: sharpening the Canadian focus VERBATIM than defending supply management to only 50 companies are responsible for Canada a better destination for domestic the last cow (or chicken)? half our trade. and foreign investors. Internally, the Canadian common We have coasted for years with a But more is needed, particularly at the market remains far from common. relatively weak dollar — a crutch of con- provincial level and, most notably, in Internal barriers to trade, anachronis- venience that shielded us from the Ontario, which, as economist Jack Mintz tic impediments to labour mobility investments and innovation needed to has pointed out, imposes the highest effec- among our provinces, obsolete or over- keep pace. (We are a bit like the fellow tive corporate tax burden in the country. lapping regulations — the “iron rice who finds himself on third base and This should be a no-brainer. Rather than bowls” of politicians and bureaucrats thinks he hit a triple!) That crutch has calling on the federal government to bring — cost us dearly. British Columbia’s gone and dramatically so. Our manufac- the loonie down by lowering interest rates Gordon Campbell, one premier at least turing sector is beset now by the twin — a sure recipe for inflation — Ontario who thinks more than provincially, pressures of a huge increase in the value should be urgently lowering corporate observed recently that it was “time for of our dollar and diminishing demand taxes to provide the kind of business and us to decide if we are a country”! for some of its traditional products. investment climate that will enable its (Shades of Lucien Bouchard.) We have little choice but to economy to weather the storm and look We talk endlessly about the need improve all facets of our economic per- confidently to the future. Ontario should for internal free trade but little happens. formance through a combined effort by also lead efforts toward a harmonized sales When I am asked whether a customs governments, the private sector and tax across all of Canada, and the Economic union with the US should be part of our labour in Canada. Many seem to think Statement sets out a path to get there. future, my answer is, Let’s first complete that better productivity means working the customs union here at home. And harder. It really means working smarter. e need to take a hard look, too, yes, with a national securities regulator. As globalization and integration W at our policies on inward for- I was encouraged by the statement accelerate, parliamentarians should, I eign investment. Foreign investment in the Speech from the Throne that the believe, debate the growing productivity brings Canadian firms access to mar- government intends to use its trade and gap between Canada and our major com- kets for exports, access to valuable commerce power to strengthen our eco- petitors, offering not what voters want to sources of imports, access to technolo- nomic union. Now that would be bold! hear but what they need to hear. Above gy and, most critically, participation in As Andrew Coyne commented in the all, we need to foster an economy that global value chains. National Post, “No other provision of the embraces risk by hacking away at policies Yet Canada has the highest level Speech is so freighted with potential; and attitudes that are holding us back. of explicit restrictions on foreign not only to improve the free There is nothing less stable in the modern world than the flow of goods and services within our economy but also status quo. Embracing globalization means giving Canadians to alter the constitutional the best chance to prosper in a globalized world. Resistance balance of powers.” means creating tax, trade, foreign investment or other barriers (or leaving current ones in place). he problem is that all T the good economic news these days It is really a matter of leadership equity ownership in the G7, primari- — robust growth, low unemployment and partnership. Where to start? ly in the financial and telecommuni- and our solid fiscal position — masks the Well, as Roger Martin of the cations sectors, the growth engines of reality that Canada has a serious produc- Rotman Business School observed suc- today and tomorrow. tivity problem. We lag well behind our cinctly, we need to be more intelligent Restrictions on foreign investment competitors — 1 percent improvement about taxation. “Currently,” he added, in Canada are essentially the product per year between 2001 and 2005 com- “our taxation IQ is double digit — in a of a bygone age. They reflect the out- pared to with 3 percent annually over word, pathetic.” dated view that the nationality of a the same period in the US. This year’s Halloween message from corporation is more important than its I know the term “productivity” is our finance minister is a welcome step contribution to economic growth. likely to prompt heavy yawns with toward a more competitive business tax As Industry Minister Jim Prentice any audience but the reality is that regime in Canada, especially versus that pointed out recently, the issue is not so our ability to compete in a dynamic of the US. Not with more tweaks or gim- much the ownership of the foreign capi- global economy is waning. And that micks, so popular at budget time, but tal in Canada, but rather the behaviour of is a serious problem. Incidentally, it is rather a broad-based package of genuine that capital in our marketplace. It is not not surprising that the most produc- tax relief for individuals, businesses and really a question of who owns significant tive companies in Canada are those families. Long-overdue reductions of assets but what they do to ensure growth involved in trade. The trouble is that rates across the board that will make and long-term benefit for Canada.

POLICY OPTIONS 7 DECEMBER 2007-JANUARY 2008 Derek H. Burney VERBATIM ccording to the most recent Stats The signs are everywhere — aging thorough assessment of which grants A Canada report, the “hollowing ports, clogged transportation in our have worked and which have not. We out” concerns are just that — hollow. big cities, crumbling bridges, roads and need a similar program to reinforce the Nonetheless, the “net benefit test,” the buildings, not to mention hospitals ability of community colleges to train the centrepiece of the Investment Canada and schools. (In fact, some roads in technical personnel needed by industries Act, needs a thorough updating in at Ottawa today are almost as rough as ranging from construction to high-tech. least three ways. those in Montreal!) As many of you know, it is almost as dif- First, it needs to allow us to review, We have also underinvested in edu- ficult to get an electrician these days in automatically, acquisitions of Canadian cation and in research and development. Ottawa as it is to get a doctor! companies by state-controlled entities We may see ourselves as an energy There is understandable concern and ensure that, if accepted, they will “superpower” but we may in fact, more about the unprecedented rise in the value of our loonie — in part There remains a belief in some quarters that Canada can have the result of heavy global a dynamic, high-growth, risk-free, export-driven, import- demand for our resources averse economy where the government picks the winners, but stemming primarily from the sagging value of looks after the losers and subsidizes both with large dollops of the American greenback, a the taxpayers’ money. That has been tried many times — and symptom in turn of under- not only in Canada — and the predictable result has been low lying concerns about the US growth and high unemployment. economy. I understand that the operate according to market principles, accurately, be an energy “super supplier.” government needs to show that it is following the same standards of trans- As we move to tweak royalty regimes, sensitive to the pain that the loonie’s parency and good governance as any why not also look more creatively at rapid rise is causing businesses and other Canadian commercial enterprise. ways to induce innovation and new people who risk losing their jobs. Those Second, it needs to provide for a technologies for energy in Canada? are real-time problems. But the volatile review of acquisitions by foreign enter- loonie is not a “made in Canada” prob- prises, whether publicly or privately hen Bill Gates visited Canada in lem. It reflects global turbulence from owned, if the same enterprises are pro- W February he posed a critical which Canada, among others, is not tected from acquisition by Canadian question: “What is our edge? What is immune. firms. We should also ensure that such our unique thing?” (See Policy Options, Fiscal profligacy or overindulgence acquisitions, particularly when they are Verbatim, April 2007.) His answer in by the United States, along with the backed by their home government’s essence was investing in education, subprime mortgage fiasco, is generating soft credit, do not tilt the playing field changing the way we teach, changing heartburn for many countries, and away from market principles and dis- the way we evaluate the performance of Nicolas Sarkozy was right when he told tort rational investment decisions. students and teachers, and involving the US Congress that “the dollar cannot Third, it needs to incorporate a the business community directly to remain someone else’s problem.” national security test, at a minimum, drive interest and innovation in educa- Because of the severe impact this is to put Canada on an even footing with tion. Gates concluded that those having on Canada, we should propose a virtually every industrialized country economies that make serious break- meeting of the G7 finance ministers in the world, including the bastion of throughs in education will succeed in and central bankers. After all, the rea- free enterprise on our southern border. an era when the world is indeed flat and son that forum exists is to provide sen- The goal should be a more the pace of global change is unprece- sible coordination of monetary policies favourable climate for investment in dented. to correct imbalances and ensure Canada — more transparency, creating Instead of debating what types of greater stability for the global economy. greater fairness, more balance or reci- schools should be publicly funded, On a purely bilateral basis, the US procity, along with more certainty and why not tackle the more basic issue of border with Canada is steadily thicken- stability for capital markets. whether the quality of our public edu- ing. The requirement for passports, the Beyond tax and investment policy cation system and the skills training introduction of new inspection proce- reform, we have a serious deficit in being provided are sufficient for the dures and new fees are all being done infrastructure, human capital and inno- needs of the 21st century? in the name of security (or health) but vation. For too long, we have let the The Canada Millennium Scholarship the impact is purely protectionist. As national infrastructure deteriorate. If the Foundation has been a huge success in the Europeans move steadily to reduce road to hell is paved with good inten- supporting advanced education and barriers at their borders affecting the tions, ours may soon not be paved at all. research. It should be replenished after a entry of people, goods and services,

8 OPTIONS POLITIQUES DÉCEMBRE 2007-JANVIER 2008 Meeting the challenge of globalization: sharpening the Canadian focus VERBATIM North America, namely the US, is mov- ing in the opposite direction.

hen so much of what we trade W with one another is what we make together, where is the sense in this? We need to find a better balance between legitimate security (or health) concerns and border procedures which facilitate, not block, trade. The efforts undertaken under the Security and Prosperity Partnership on the security/trade nexus may be laudable but I would like to see more urgency and cre- ativity in finding practical solutions, including possibly new institutions. I realize that our own minority gov- ernment situation, along with political gridlock in the US, diminishes the will for bold measures in the short term. But we need to have a clear idea about what makes sense for Canada and what we are prepared to do to make that happen. History suggests that Canada only acts boldly when all other alternatives are found wanting. After all, that is how we originally came together on this continent, Photo: Katie DeRosa against the threat of annexation by a Derek Burney, former Canadian ambassador to the US and one of the architects of the powerful southern neighbour whose Free Trade Agreement, says we can’t compete globally in an economy where “govern- ment picks the winners, looks after the losers and subsidizes both with large dollops of unity had been forged first through a taxpayers’ money.” revolution and then a violent civil war. When our democratic freedoms were challenged beyond our shores, we the days when we can wait until crisis is change accelerates, the more we need to responded vigorously, more than once, upon us before acting. The problem is think and act coherently as a country. We as part of allied efforts to bring about a that, when faced with a problem, govern- have obligations and responsibilities as more stable world. When faced with a ments and Parliament often resemble citizens, not simply entitlements. We serious threat of US protectionism, we Stephen Leacock’s famous character Lord need to understand our history better to embarked on free trade and bolstered Ronald, who “flung himself on his horse realize what and who we are and our our own competitiveness. When our and rode madly off in all directions.” place in the world. We need to emphasize fiscal situation was about to hit a wall, We need a sharper sense of direc- more clearly what brings us together, we moved to put government spending tion and not just from government. what we celebrate together, what we in order (so much so that revenues are Leadership, yes, but real, not rhetori- achieve together, rather than look for now rolling in almost faster than gov- cal, partnerships, too, involving the more ways to accentuate our diversity. ernments can count or spend them!). private sector and labour along with The greatest risk to a bright government. Canadians need the poli- Derek H. Burney, former Canadian ambas- Canadian future lies in complacency. cy tools, the skills and the opportuni- sador to the United States, is chairman of The former chairman of the US Federal ties to adjust, adapt and advance. In Canwest Global Corp., senior adviser to Reserve, Alan Greenspan, said earlier short, an A effort from our A team. Ogilvy Renault LLP and Distinguished this spring, “Serious trouble does not Fellow at the Norman Paterson School of develop from problems that people ome suggest that nation-states them- International Affairs, Carleton University. worry about but from situations that S selves are becoming obsolete. I think Excerpted from a speech to the Canadian nobody worries about.” the opposite is true. Certainly the nation- Association of Former Parliamentarians at The pace of globalization will make al experiment called Canada is changing the Canadian War Museum in Ottawa, mincemeat of complacency. Gone are dramatically. But the more the pace of November 14, 2007.

POLICY OPTIONS 9 DECEMBER 2007-JANUARY 2008