With half the technology, how will we compete?

What are we going to do about creating good jobs and bringing down our too-high unemployment rate?

What are we going to do about creating good jobs and bringing down our too-high unemployment rate?

The grim warning from Finance Minister Jim Flaherty’s economist advisers that we continue to be stuck with high unemployment despite the economic stimulus underlines the need for better answers.

The Bank of Canada has it right. For some time, Bank of Canada governor Mark Carney has been pointing to the need for business to do its share.

This has now been underlined in a blunt speech by Tiff Macklem, who was appointed to the No. 2 position in the bank a year ago. Canadian businesses are delaying needed investment because they are too risk averse, he says.

But “our competitors are not waiting,” he warns. “They are raising their game. So while investment is not without risk, failure to invest will almost certainly doom Canadian business to a continuing loss of competitiveness and a shrinking share of global markets.” And, he could have added, the good jobs that Canadians need.

Now, as Macklem says, “it is time for business to step up and deliver.”

It has been a tough recession but it’s not as though our businesses are in rough shape. They have benefited from several years of federal and provincial tax cuts. Their profits and cash reserves are high. Successive budgets have contained incentives for investment. The strong Canadian dollar makes imports of productivity-enhancing technology cheaper.

Over the past decade, governments have delivered on a long list of business demands. Business has failed to adequately respond.

There are, to be sure, exceptions. But in the aggregate business has failed Canadians, raising the question of whether a further tax cut will make any difference. There’s no evidence it will.

As Macklem says, there are four things that businesses need to do:

• invest more in machinery and equipment;

• spend more on research and development, and innovation;

• employ workers with higher skills and education;

• get out and compete in foreign markets.

Canadian workers operate with about half as much technology as American workers.

Meanwhile, around the world, businesses are gearing up for a new wave of innovation and competition. This is certainly evident in the U.S. today, where the Obama administration and industrial leaders are collaborating in innovation and competitiveness. In Britain, Germany and France, the same is happening.

Asia is the emerging hot spot, creating competitive threats but also opportunities. In a recent report, Sean Darby, senior strategist with Nomura International (HK) Ltd., estimates that China’s next Five-Year Plan, when it is unveiled in March, will include massive government investment in research and development totalling RMB5.1 trillion (C$763.5 billion) in 2011-2015 — not including the value of tax incentives.

For its part, China Business News reports that RMB1.5 trillion (C$1.5 billion) will be invested in that period in seven strategic industries. These are: Advanced manufacturing technologies; energy efficiency and environmental protection; next generation information technologies; biotechnology; new energy; new materials; and clean-energy motor vehicles.

In some respects, what China is doing is much like the approach taken earlier by South Korean corporations such as Samsung and LG, which started life by manufacturing house-brand products for major U.S. retail chains, then moved to their own technologies and product lines.

Today, Samsung and LG, along with Hyundai, are major global brands and major investors in research and development, design and manufacturing technologies.

Samsung alone plans to invest nearly $40 billion this year alone in research and development and in new or expanded factories, with $10.8 billion for research and development (total R&D spending in Canada last year by the entire business sector was just $14.8 billion, according to Statistics Canada).

Some businesses may be hoping that things will improve when the U.S. recovery gathers strength.

But as Macklem indicates, Canadian companies must compete in the U.S. against stronger competition from China, Mexico and elsewhere. Canadian exporters have lost significant U.S. market share, despite free trade. In 2000-2010 China’s share of U.S. imports rose from 8 per cent to 19 per cent while Canada’s share fell from 20 per cent to 14 per cent.

It is time for Prime Minister Stephen Harper to summon our top business leadership to Ottawa, in a spirit of partnership, to tell them the country cannot afford their excessive risk aversion any longer. Business has been given what it wanted. Now it has to respond by investing for future Canadian prosperity and jobs.

Economist David Crane is a syndicated Toronto Star columnist. He can be reached at crane@interlog.com.