Canada in the Global Economy

Over the past few years, Canada's economy has done comparatively well and has demonstrated some resilience to the fluctuating global economy. However, Canada remains to be relatively less competitive with respect to other developed countries. In this paper I will attempt to take a closer look at Canada's position in the global economy today and examine the relevant issues.

Competition is an important driver of innovation and productivity growth. Looking at the domestic Canadian economy, perhaps one of the most significant barriers to a strong domestic economy is the lack of intense competition among domestic firms. There are many reasons for this. First of all, the size of the Canadian economy is too small to support the development of large corporations. The US on the other hand, has about a ten times larger population, and therefore, a much larger market and demand are in place for larger multinational companies to build. As a result of the lack of sufficient domestic demand in Canada, only a small number of larger firms are developed in each industry. Furthermore, Canadian firms seldom treat research and development as a priority. Unlike in the US, innovation is not a corporate culture in Canada. This can be partly due to the lack of intense domestic competition, causing firms to spend resources on other areas instead of R&D because there is no real urge to innovate and maintain competitiveness.

The government also plays a major role in determining the level of domestic competition. In the past, the Canadian government had not been supportive to introduce rivalries in its domestic industries. There had not been any clear and well defined competition policies; there were however, numerous policies enforcing tariffs for imported products that had been protecting domestic firms from competition from abroad. Although some can argue that such protectionism was necessary in the starting phase of an industry, but Canada has still been maintaining some of these protection policies even today for well developed industries such as the cable and electricity industries. These protective policies do not promote domestic rivalries and therefore lead to a lack of productivity gain that can be achieved through competition. Although many of these protective policies are now non-existent anymore, what these policies had done already impacted and shaped the Canadian economy today to a certain degree.

An interesting observation from the absence of strong domestic economies is that most of Canada's corporations are in fact merely branch plant operations of multinational companies with headquarters based in the US or in other countries. This is in part due to the fact that the Canadian economy fails to support the development of domestic giants because of the reasons discussed above. As a result, value-added activities, for example R&D, are not performed in Canada. The branch plant operations simply carry out non-strategic and non-value-added operations that do not give the county any competitive advantages or innovative drives. Furthermore, re-investment is limited in the Canadian operations because the majority of the resources are allocated to build the companies' competitiveness, which is often done elsewhere.

Besides a relatively non-competitive business environment, Canada's labour force also lacks the competitive mindset. Structural employment remains high, which is partly due to the existence of social assistance and unemployment insurance systems. Work incentives are low under the protection of the employment insurance program, which indirectly contributes in a higher than the desirable unemployment rate. Furthermore, unions and other similar groups do not promote many incentives for workers to stay competitive in the workplace by continuously learning and improving productivity. Countries that have been most successful in cutting unemployment are those that have improved incentives to work.

Canadian's immigration policies are one of the country's strategies to boost its human capital. The potential economic benefits include the filling of domestic skill shortages and bringing in foreign competition from foreign labour market. However, recently the economic performance of immigrants has deteriorated, largely due to the ineffective integration of these immigrants into the domestic labour force. This is in turn because of the immigrants' credentials are not fully recognized, as well as because of their lower proficiency in English and French.

The Canadian working environment, when compared to that in the US, may not be attractive enough to highly skilled workers. This is primarily because of the large income gap between the Canadian and US labour market. Workers with the skills and competitiveness are better off working in the US because they are able to earn a better income and have more opportunities for career development with larger and more competitive companies. Higher living standards and lower tax levels are some more examples of why working in the US is more attractive than working in Canada.

Trade is another important issue to discuss when assessing Canada's competitive position in the global economy. Free trade brings in competition from elsewhere into the domestic market, where local competition is relatively little. In addition, it forces Canadian firms to become more productive in traded goods and services if they are to compete with other areas' local vendors. Thus, free trade is a good way to introduce competition and to drive domestic productivity gains.

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