A Better Canadian Growth Strategy: Both Inclusive and Effective

Canada is struggling to find a viable export-led growth strategy. So far we are surviving the global financial crisis due to our conservative regulatory framework. But there was no superior Harper-Flaherty economic wisdom or even Bank of Canada Governor Carney wizardry. With the U.S. still wobbly and Europe deep in its economic doldrums, we remain very vulnerable.

The next 20 years will only get tougher. Consumer growth will be fastest in the Emerging Economies, with countries such as China and Brazil also capturing a dominant share in global markets in manufactures from steel to electronic to garments. What they don’t scoop up as their factories move up the value chain will likely be produced by countries such as Indonesia, Thailand, Turkey and Vietnam, rather than traditional U.S. or Canadian manufacturers.

‘We need new empathy and energy in carrying principles of partnership into the tougher world of global trade and investment.’

We have important competitive assets in our rich natural resources, minerals, oil and water—and maybe most crucially for the longer term, our well-educated and culturally diverse population. But is today’s Canadian strategy as effective as possible? Would a more ethically-based, less self-centred approach—one that fully embraces the South—be more geo-politically sustainable?

Canada was once a strong believer in multilateral approaches, but in recent years the Harper government has seen the answer in free trade and investment protection agreements with anybody who would sign, irrespective of their economic significance and their government’s approach on political inclusiveness or environmental protection. We boast about numbers of agreements, irrespective of their content. This is clearly sub-optimal.

A free trade arrangement with a Honduras or Jordan is not going to increase our capacity to be globally competitive. At best it is a minor sideshow that allows our trade negotiators—bureaucrats as much as politicians—to claim token successes and avoid the harder challenges. We should be looking rather at where the growth in global markets lies, and at positioning our global politics, just as much as investments in technology and human capital, in ways that will help our access to those markets.

Denmark and Switzerland are relevant models. Their industrialists (and also their farmers) have become globally competitive through decades of focus and investment to produce what their customers want. They don’t seek enclave privileges in tiny free-trade deals or government handouts.

In contrast, Canada has avoided hard choices for too long, preferring the easy comforts of selling to the enormous U.S. market. However, with the right competitive products and some indirect facilitation by government, we can start to engage in sustainable commercial partnerships.

These new markets lie in the developing world: mostly Emerging Economies such as China and India, but also such as Indonesia and South Africa (all with annual growth rates even today over 5%). We have ignored them for decades: first as too poor, then as too culturally and institutionally different. The Harper government is just starting to recognise the costs of dismissing, even publically shunning, these countries.

It’s not too late, but there is a lot of catch-up. Trade can be about geo-politics and trust as much as prices or managerial savvy. Our sometimes selective principles on the Middle East (not to mention China) probably lose us effective trade access as well as friends.

Emerging Economies seek sustained, not fickle, engagement in potential partners. Their version of a level playing field involves their being open to Canadian investment that seeks to share in their development, not to exploit their vulnerabilities. Except for some corrupt elites, they want honest pricing and bidding, monitored through mechanisms such as the Extractive Industries’ Transparency Initiative (EITI). They also want such business ethics to be enforced under still-absent Canadian laws. Some of them even have large foreign exchange surpluses to invest that can speed up our own competitive transformation.

Our current stance poses real reputational risks for Canada. Emerging economies want open access, not sham protectionism against their strong public sector companies. They want respect for their chosen development model, just as we demand market transparency in their treatment of ours. They do not appreciate our insisting that their ‘capitalists’ are acceptable only if they behave like the giant private U.S. companies who have exploited Canada’s markets for decades.

All this represents a new geo-political and diplomatic challenge. We need new empathy and energy in carrying principles of partnership into the tougher world of global trade and investment. For decades, Canada has had strong networks with developing countries that gave us a privileged credibility; but we have frittered this away by neglect, or sometimes more deliberately by arrogant words or aid cuts. It is somewhat bizarre that China has come to replace Canada and other DAC donors as the leader in aid to Africa (and now exploits these relationships politically for its broader commercial interests).

Australia’s partnership approach has led to enhanced credibility, especially in developing Asia. In contrast, despite sitting with the major emerging nations at the G20 table, Canada has failed to build these relationships into viable partnerships for trade and development. We used to pride ourselves on being a bridge to the Global South, but now leave others to lead. Today we plead to be included in the still-nascent Trans-Pacific Pact while ignoring developing Asian concerns that by deliberately excluding China, the pact risks tearing apart ASEAN solidarity.

Redirecting Canadian efforts to strong longer-term partnerships with the Global South will not be an easy path, especially politically. Still, it is safer than just depending on the U.S. or EU, let alone markets such as Honduras and Jordan. Can Canada and competitive Canadian companies be bold enough to take that more demanding route?

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