Canada West Foundation Blog

Canada West Foundation has released a new report on the green economy and its potential to diversify the Western Canadian economy. The Green Grail: Economic Diversification and the Green Economy in Western Canada, by Robert Roach, Senior Economist, focuses on the connection between the green economy and its potential to contribute to the diversification of the western Canadian economy.

Eight representatives from western Canadian companies active in the green economy were interviewed to address challenges and prospects. These include:

• The hurdle of commercialization and the lack of venture capital at this critical point in the business development process;
• A domestic market that tends to shy away from home grown options in favour of what can be imported from Europe, the US or Asian and the tendency among Canadians to see early adoption as too risky;
• The preference for large and capital-intensive energy (especially electricity) projects over facilitating small-scale additions to the grid; and
• Politically inconsistent environmental mandates in jurisdictions where green companies are operating.

While the emerging green economy in western Canada faces a variety of challenges, growing cultural consciousness and the desire for government to create a positive framework around which green businesses can develop and flourish are promising.

To download the full report, The Green Grail: Economic Diversification and the Green Economy in Western Canada, click here.

A new paper released through the Canada West Foundation’s Going for Gold project examines western Canada’s current trade relationship with Asia-Pacific and explains how these markets offer tremendous opportunities for economic growth and prosperity in the West, now, and in the years to come.

Through the Gateway: Unlocking Western Canada’s Potential for Economic Diversification by Expanding Trade with Asia-Pacific by author Michael Holden, Senior Economist provides the background and the numbers that show the importance of this region to western Canada’s economic prosperity. With Asia-Pacific being home to over half the world’s population and exports from the four western provinces to the region accounting for two-thirds of Canada’s total exports (totalling 9.6 Billion in 2009,) Asia-Pacific is second most important, only to the U.S.

“The research shows the importance of Asia-Pacific, not only to western Canada’s economic prosperity, but for Canada.” Canada West Foundation’s President and CEO, Dr. Roger Gibbins explains. “Considerable opportunities exist for western Canada if we take advantage of them and successfully reduce the barriers to trade and investment.”

The report describes two ways in which trade with Asia-Pacific countries promote economic diversification in western Canada 1) export market diversification and 2) export product diversification.

This publication was released at the Through the Gateway event, which was sponsored by the Vancouver Board of Trade on February 22, 2011.

All in attendance received a summary copy of the report. To download the summary report, click here.

To download the full report of Through the Gateway: Unlocking Western Canada’s Potential for Economic Diversification by Expanding Trade with Asia-Pacific, click here.

As noted by the Canada West Foundation CEO, Roger Gibbins, “(Prime Minister) Stephen Harper has floated the notion of Canada as a clean-energy super-power. That has a nice ring to it, but it implies there is a policy to get us there, but we don’t have that policy!”

Why don’t we have such a policy? Getting public policy just right is a tricky task at the best of times and with climate change it is particularly challenging.  Policy makers need the right tools and good information to help them tackle the issues and develop good policies that will realistically work.  Trying to formulate good policy without good research is like trying to build a house without a hammer.

Finding the Right Tools

On Tuesday, I had the opportunity to attend a panel discussion that took a closer look at climate change policy.  An event co-hosted by the Canada West Foundation (CWF), the Institute for Research on Public Policy (IRPP) and the Haskayne School of Business entitled: “The Economic Impact of Reducing CO2 Emissions: Regional Disparities and How To Mitigate Them”.  Reports were presented from the Pembina Institute, Canada West Foundation and IRPP on the issue of climate change and then the floor was opened up for Q&A.

I was encouraged to learn that there is good research going on to find the right tools that will help build climate change policy that might work for all regions in Canada.   In particular IRPP report by Tracy Snodden and Randall Wigle, “Clearing the Air on Federal and Provincial Climate Change Policy in Canada,” starts a good discussion of how a regional beneficial climate change policy could work.

Nuts and Bolts

The IRPP report considers that: a) in Canada both the federal and provincial governments share a responsibility for the environment but that current system of climate change in Canada is fragmented; b) while the environmental impact of each unit of reduced emissions is the same everywhere, the economic impact per unit is not consistent and; c) the US and its policies are an influencing factor.

Their proposal is a federal carbon tax with provincial revenue sharing of that tax revenue as an incentive to mitigate and offset the economic impact.

The idea has some merit, a federal carbon tax is:

• easily implementable;
• generates revenue which could go back to the provinces to reduce burden-sharing concerns tied to emissions reduction;
• increases efficiency; and
• is NOT off-putting to the US, helping Canadian industry to avoid border adjustments while having the ability to co-exist with a US cap and trade system.

Real World Planning

I believe the value in this report is twofold.  First, it presents a real plan to reduce emissions while considering the regional economic AND political impacts on the West.   It addresses issues of inequity which are often overlooked and makes a real attempt at mitigating potential disproportional harm.  It also takes into consideration the influence of our neighbour to the south and offers way which allows us to step up to the plate while not shooting ourselves in the foot in the process.  And second, this piece demonstrates good policy research.

If our policy-makers are going to develop good policy, they need nuanced research like this to help guide them.

Posted By: Candice Powley

NOTE: This is the fourth installment of a series of posts on reinvigorating western Canada’s drive toward increased international economic competitiveness. The recession distracted us from this task but it is time to return to sharpening our competitive edge.

“There may be a limit to the number of good factory jobs in the world, but there is no limit to the number of idea-generated jobs in the world.” —Thomas Friedman, The World is Flat: A Brief History of the Twenty-First Century

It is no secret that manufacturing that relies on low wages is not a comparative advantage of advanced economies like western Canada and it is no secret that most (though not all) of the “good” jobs (i.e., well-paying and stimulating) are not found on the floor of sweat shops, call centres, or chicken packaging factories.

Robots have not yet entirely taken over these jobs as Jeremy Rifkin predicted in his prophetic bestseller The End of Work (human labour is still cheaper), but they are clearly not the jobs that will propel and keep western Canada at the leading edge of economic growth, (good) job creation, and international competitiveness over the long-term.

What kind of jobs will keep the West at the forefront of the global economy? The answer lies in the much-used concept of “value-added,” but not in the way it is traditionally applied in western Canada. We often think of value-added as turning a tree into lumber, bitumen into synthetic crude, or wheat into pasta. While these are all laudable forms of value-added manufacturing, the real growth potential lies in capturing more of the activity that takes place further along the value chain.

It is not about cutting costs and a race to the bottom; it is about who has the brightest minds and who can put them to the best use. It is not enough to build more factories for secondary manufacturing: “Adding value to our resources is not likely to come from labour intensive, assembly line production facilities. It is most likely to come from the intellectual resources of the West: our minds. We may not build the chairs, but we will design them. We may not make the pasta, but we will research and engineer higher protein-yielding grains” (Coming Up Next by Todd Hirsch – page 108.)

The idea is to think big and not settle for outdated definitions of economic diversification, but embrace the upper end of the value chain rooted in the knowledge economy. We will still hew wood and draw water (and hopefully shape the wood and make the water into beer), but we can also sell our professional and creative services at a high price in the global marketplace.

Just as our athletes at the Olympics know that you have to “go for it” if you want to win, it is time for western Canadians to embrace the opportunities presented by the knowledge economy. If we hold back, other countries will scoop up these jobs.

In a previous post, I stressed the need to shake off the doldrums of the recession and get back to engineering an economy that can keep pace with, and pass, our international competitors. Just like every other region and country in the world, the West must be constantly improving its economic game—from education and transportation infrastructure to business acumen and profitability—if it wants to increase, or even just maintain, its prosperity.

The forces that sharpen or dull an economy’s competitive edge are relatively straightforward and have not changed as a result of the recession. These “pillars” of economic success include stable government and the rule of law, modern infrastructure, a healthy and educated workforce, competition and the ability to innovate.

Given the unique context of western Canada, eight key drivers of economic success have been identified by the Canada West Foundation:

• tax policy;
• transportation infrastructure;
• human capital;
• cities and the importance of place;
• green economy;
• innovation;
• moving up the value chain; and
• intergovernmental cooperation.

Tax Policy
Although tax policy is only one tool for fostering economic growth and enhanced competitiveness, it arguably has the most immediate impact on output, incomes and the attraction of domestic and foreign investment. Hence, tax policy is an essential element of any government competitiveness strategy.

At present, governments are frozen in the headlights of current and future deficits and Canadians are leery of tax increases, but there is much that can be done to reform the tax system without raising taxes.

Governments should:

• continually review their tax regimes with the goal of keeping them as simple as possible; simplicity lowers compliance costs for businesses, collection costs for government and increases transparency and accountability;
• pursue broad-based tax reductions as opposed to targeted tax relief, thereby better positioning the entire economy and enhancing simplicity; targeted tax incentives and credits divert investment from its most productive use toward favoured ends to the detriment of the wider market that is the source of economic growth;
• shift taxation away from taxing income and investment and toward more consumption taxes; and
• reduce corporate tax rates in order to increase investment and growth.

At a time when there are fewer tax dollars than needed to cover government spending, it may seem a bit insane to suggest cutting corporate tax rates, but at least one study shows that this can be done without reducing government revenue over the long-term (see Ken McKenzie, Business Taxation in Western Canada: Settling for a Personal Best?).

The prime mover of the region’s economic success is the individuals and businesses that take the risks in the free market. Governments, however, have a significant role to play and tax policy is one of the main tools they have at their disposal.

Future posts will discuss the importance of the other key drivers.

Posted By: Robert Roach

As we emerge from the recession, Canadians, Canadian business and Canadian governments need to avoid being overly cautious when it comes to the economy. Now is not the time to play it safe.

Imagine if Canadian Olympic speed skater Clara Hughes had injured herself over the summer. It would have been wise for her to take care of the injury and not push herself too hard on the track. However, once the injury was healed, she would get back out there and push herself as hard as she could. She would do this because she would be acutely aware that this is what is needed to win a medal at the Olympics. Holding back would be the surest way to come in last.

The same logic applies to the Canadian economy. The economy was injured by the recession and it made sense to pull back and deal with the injury. But, contrary to the heartfelt wishes of the world’s remaining communists, capitalism has survived and it is time to put the recession behind us. It is time to get back to figuring out what we need to be doing if we are going to win in the global economy of tomorrow.

The temptation is to bemoan the pain we are still feeling but, as with the speed skating example, that is the fast track to doing poorly. If we spend the next five years immobilized by even the mention of the word “deficit,” our international competitors will race ahead of us.

Now is not the time to lick our wounds but to put more resources into everything from education to venture capital. Governments are in a frenzy to look responsible by cutting anything and everything in sight. Investors are shy about taking risks, businesses are still tentative and individuals are wondering if that donation to their alma mater or local homeless shelter can wait until next year.

We need to shake off these doldrums, continue to invest public dollars in innovation and education, take risks, go after new business and not just maintain but increase what we give to support our civic infrastructure though donations and volunteering.

Prior to the recession, Canada West Foundation was examining how western Canada can increase its competitive edge in the global economic arena. Inspired by the forthcoming Winter Olympics in Vancouver, the Going for Gold Project sponsored a series of research papers, a public opinion survey and a survey of economic experts—all focused on the question of how to increase the West’s economic competitiveness.

It is perhaps a good time to review the results of this project and return our economic thinking to the “the relentless pursuit of excellence” that inspires our Olympic athletes.

Learn more about the Going for Gold Project and check back here as we highlight some of the findings.

Posted By: Robert Roach