DOMINIC BARTON | Canada has a historic opportunity to thrive, but faces hard choices
Date: Thursday October 13, 2016
Canada’s growth adviser tells PPF gathering he sees a huge opportunity in agri-food and in 2.4-billion more middle class Asians and Africans, but says the country will have to make some difficult decisions in order to fix its infrastructure deficit
By Carl Meyer
The chair of Canada’s influential growth council painted a picture Wednesday of a country on the edge of a long technological and economic shift and outlined what its biggest opportunities are to thrive in a time of change.
Dominic Barton, chair of the Advisory Council on Economic Growth and global managing partner of McKinsey & Company, spoke for 45 minutes in his trademark calm and measured tone to an audience of more than 600 at the Public Policy Forum’s Growth Summit in Ottawa. He delivered the Forum’s annual Gordon Osbaldeston Lecture.
Canada must learn how to successfully deal with the compounding forces of computing power, connectedness, big data and artificial intelligence, he said, even as it works through its own demographic and economic shifts.
Automation will double the rate of job dislocation for the middle class over the next decade, he said. Without proper retraining, that will have ramifications for more and more people. “People being displaced are not very happy, and rightly so,” he quipped.
The ultimate prize at the end of the tunnel: 2.4 billion new middle class consumers in Asia and parts of Africa over the next decades. But in order to get there, the country will have to make some hard choices.
‘It’s time to start thinking of agriculture not as the old world but the new world’
Barton’s position is that Canada has both “strengths and weaknesses” as it begins to ride out this shift.
The country’s education system, he said, is “world class,” and its natural resources, agriculture and healthcare sectors are flourishing or hold great potential. Agriculture in particular, he said, was a potential bonanza if Canada played its cards right.
“It’s time to start thinking of agriculture not as the old world but the new world,” he said.
The world is facing the daunting task of producing the equivalent of 10,000 years of food production over the next 40 years, and Canada has the land and the water to contribute mightily to this.
The country’s relative political stability is also “something we should not just take for granted,” he said, and the name Canada is generally seen to carry a stellar reputation around the world.
Meanwhile, the economy is facing strong headwinds. Chief among these, he argued, is demographics; Canada is the fastest-aging OECD country.
“We all know that a key driver of productivity is the size of the workforce, and we can see the curve” that would roughly slice the average GDP in half without a demographic shift, he said.
“I would argue — and it’s probably not a very popular thing to say — [that] I think it’s too late for Japan. Japan is past the curve.”
His message: Canada should act now before it too passes the point of no return.
The headwinds are already having an effect. The share of Canadian companies that are in the top 25 in their sector have dropped from 19 in 1990 to five today, he said, while Canada’s share of global trade has dropped.
The country is also facing a $500 billion infrastructure gap, an estimate he figured was on the low end, and a third of municipal infrastructure has been graded poorly. There is low R&D investment compared to the OECD average.
Barton also turned his guns on the public service. Canada needs “huge innovation” in this area, he said.
Risk-taking and experimentation is “actually punished” as opposed to celebrated as it might be in a private firm, while “efficiency is actually not well rewarded.”
While the private sector has embraced flattening its organizations sometimes by as much as 50 per cent, the public service is “quite a layered organization.” The service needs to do better to aggressively re-allocate people and capital, he said.
Growth council report likely to be released in ‘waves’
In elaborating on his global forecast, Barton revealed some significant details about the advisory council’s much-anticipated strategy expected to be released later this year.
The strategy, which the Trudeau government has promised would be delivered by the end of 2016, will likely be released in “waves,” he said, as opposed to a large report all at once. The reasoning is that this “fits the digestive system” of government better than a single large report.
Barton said the council has been looking at four themes — infrastructure and capital, competitiveness and markets, labour markets and innovation — and has tried to come up with a list of industry sectors with natural links to those themes.
‘W’e probably shouldn’t have 75 ideas. We should have fewer, less than 20, and those ideas should be ambitious.’
“What we wanted to focus on is the idea that, how do we make sure we’re going to come up with some ideas — not necessarily new ideas, but bold ideas that will actually jolt the system?” he said.
“The perspective was, we probably shouldn’t have 75 ideas. We should have fewer, less than 20, and those ideas should be ambitious.”
One of those is some sort of a national infrastructure funding vehicle that would mix together public and private funding. The concept was raised consistently throughout the PPF’s day-long summit.
“What we’re trying to do is look for those infrastructure projects that will actually improve productivity in the country,” he said.
He listed transportation, electricity, information technology and pipelines as examples. “We need to attract capital, not just domestic capital but foreign capital.”
The Trudeau government has told the council not to “worry about the politics” of their recommendations, said Barton. Even so, he was careful to mention several times that his comments were coming from himself, and not on behalf of the council.
One area where this political sensitivity might come into play is Canada’s system of supply management for dairy, poultry and eggs, which has divided businesses along sharp political lines and fueled significant lobbying on both sides. Barton raised the topic, saying it was something the country will have to deal with.
Another possible area is free trade. Anti-trade sentiment has been rising, to the point where both major United States presidential candidates have rejected the trans-Pacific trade pact TPP, and one has even said he would renegotiate NAFTA.
But Barton said the reason Canada’s NAFTA partner Mexico has attracted more of the auto sector was not cheap labour, as is commonly thought, but the business environment created by Mexico’s multitude of trade deals.
Canada’s several regulated industries, like telecommunications, is also something that will need to be addressed, he said. The previous Harper government had mixed success in trying to induce more players into joining the Canadian telecom market.
He said the country’s immigration system may need to be changed to make it easier to bring in business people. And he raised the idea of clustering, or bringing together universities, governments of all levels and the private sector to allow for collaboration.
The council has been having intense collaboration with both the public service and Cabinet, he said, and “there’s been serious debates.”
He lauded this process, saying the discussions have been open, “not passive aggressive,” and he also heaped praise on the government’s series of stakeholder roundtables.