What Can We Do About This: Building Successful New Economies

By Evelyn Jacks, President, The Knowledge Bureau

Provincial budgets coming down in difficult times make the job of Finance Minister even more interesting. The question of how to build successful new economies is often the most difficult one moving forward. The federal government posted a paper on the issue before the financial crisis. Entitled Advantage Canada [1] the paper boldly pronounced that the modern world economy has changed and that from Canada's perspective, the new ground rules for success can be summarized in three core, fundamental truths:

• People and capital are mobile.

• Talented, creative people are the most critical asset to a successful national economy.

• A favourable business environment is essential to retaining, attracting and growing high-quality, innovative enterprises and encouraging them to compete with the very best.

According to this document, the fundamental determinants of long-term economic growth in developed countries are:

• A skilled and highly educated workforce.

• High rates of private and public investment in research and innovation.

• Modern infrastructure.

• High rates of business investment in machinery and equipment.

In turn, private investments in these key determinants of growth are encouraged by:

• Low public debt and low and stable inflation.

• Low taxes on work, savings and business investment.

• A high-quality and accessible education system.

• A competitive business environment, including effective regulation and competition policies.

• Stability and efficiency in the financial system.

• Openness to trade and investment.

• Flexible labour markets.

Finally, the paper suggests that there are barriers and challenges to address if we are to improve our quality of life and become a world leader for today and future generations. These barriers and challenges include:

• High taxes that are discouraging investment and initiative. Income taxes on individuals and businesses in Canada remain high by international standards. Personal and corporate income taxes as a percentage of GDP are higher in Canada than in all other G7 countries.

• Business investment in equipment, innovation and training. Businesses in other OECD countries are investing on average more in research and development, and machinery and equipment than do our businesses. Participation in workplace training is also higher in other leading OECD countries.

• The need for skilled labour. There are shortages of skilled labour in a number of provinces and territories. These shortages are particularly acute in Alberta and Saskatchewan, where more than one-quarter of manufacturers report that labour scarcity is limiting operations.