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Lecture

ECON 2K03 Lecture Notes - Jdsu, Nortel, Gross Domestic Product


Department
Economics
Course Code
ECON 2K03
Professor
Jack Leach

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Why do Canadians as individuals outperform Canadian firms in the global economy? Roger Martin
(Dean of Rotman Commerce) Article needed Topic 3 & Midterm Prep.
James Cameron, director of the world's top-grossing movie of all time; Alanis Morissette, creator of
the top-selling album in the United States in the past decade; John Polanyi, winner of the 1986 Nobel
Prize for chemistry; Jeffrey Skoll, co-founder of eBay, the world's largest auction site; Bob Young,
founder of the world's premier Linux supplier. The list of individual Canadians who can be counted
among the world's outstanding leaders in their chosen endeavours goes on and on.
But what about Canadian companies leading the world in their chosen endeavours? Very few come to
mind: McCain in frozen French fries; CAE in flight simulators; Bombardier in regional jets.
What is it about Canada that enables us to consistently produce outstanding individuals who
confidently take their place as leaders on the world stage, while only sporadically producing firms that
lead in the global economy? What can be done to enhance the success of our firms?
Like most things, this perplexing outcome did not take shape overnight, but is a culmination of a
century of choices that have shaped the environment in which our firms grow and develop.
In many ways, the seminal choice was that of Sir John A. Macdonald, who launched the National Policy
in 1879, ushering in a hundred years of Canadian protectionism. Macdonald hoped to broaden the
base of the economy by protecting Canadian manufacturers with high tariffs. Rather than providing
them with the pressure to continuously upgrade their capabilities, the National Policy encouraged
Canadian firms to operate behind the tariff wall, creating an environment that was increasingly surreal
and out of step with the world economy.
Later, in 1904, a hopeful Sir Wilfrid Laurier predicted that the 20th century would belong to Canada.
He cited an abundance of natural resources and Canada's position as an emerging liberal democracy
within the British Empire as competitive advantages in the new world economy. But while an
abundance of natural resources helped to underpin Canada's prosperity, it also helped reinforce the
problematic aspects of the National Policy. Able to export effectively and finance our imports by
harvesting our plentiful and cheap natural resources, we tended not to build internationally
competitive firms in the manufacturing and service sectors, or even globally oriented firms in the
resource sector.
With tariff policies relieving the pressure of international competition, and with abundant natural
resources driving export revenue, what could possibly compel our firms to innovate? Perhaps
demanding customers. Unfortunately, a combination of our legendary Canadian politeness and the
absence of choice due to tariff barriers caused Canadians to be less demanding consumers. Too
often, we have accepted inferior quality rather than complain and push our local firms to innovate and
improve.
Further, Canada sought to keep together an uneasy coalition of provinces by encouraging regional
diversification, subsidizing the spreading of industries across the country. This created an environment
that did little to encourage the growth of reinforcing clusters of firms supported by specialized
infrastructure and educational institutions. Isolated in their own worlds, firms such as Algoma Steel
and Cape Breton Steel lacked a supportive environment in which to upgrade and innovate.
Paradoxically, Canada made choices in other areas that enabled us to create the exemplary culture
from which so many exceptional and globally successful individuals have sprung. Like the United
States, Canada opened itself to a wave of settlers who brought with them the entrepreneurial zeal of
people so committed to creating a better life they left their home countries behind. Throughout the
20th century, Canada was a leader in educational spending, giving its citizens the thinking tools
required to succeed. Canada also pursued policies aimed at encouraging a tolerant and multicultural
environment.
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