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Shock therapy

How the recession is helping fix Canada’s competitiveness woes


 

Shock therapy

Canadians might find it hard to see any silver lining to the current global recession, or the looming $85 billion in deficits Ottawa plans to spend to get the country out of it. But those concerned about Canada’s competitiveness are seeing some good news. The prospect of economic catastrophe appears to have sparked movement on several contentious issues, and if the trend continues, Canada’s economy could actually emerge from the financial rubble in better shape than ever.

“To see the amount of progress that has been made in the last 90 days on competitiveness issues is actually breathtaking,” says Tom Jenkins, executive chairman of the Waterloo, Ont.-based high-tech firm Open Text. Jenkins was a member of the federally appointed Competition Policy Review Panel which reported last summer on how to improve the country’s economy. Despite his worries about the massive increase in federal debt over the next five years, Jenkins is heartened by the sense of urgency shown by Ottawa and the provinces to implement his panel’s recommendations.

One of the most surprising developments is the sudden acceptance of a comprehensive national labour mobility agreement. In January, all provinces agreed to accept job certifications from across the country, eliminating the need for chiropractors, crane operators or accountants to re-qualify whenever they move. While British Columbia and Alberta signed their own bilateral agreement in 2006, most other provinces found reasons to dislike the policy, since barriers of this kind protect jobs for residents. The new deal will pave the way for a noticeably smoother internal economic union. And it even includes financial penalties for non-compliance—a once-sticky issue.

Another venerable competitiveness issue that appears to have benefited from the crisis is GST harmonization. Quebec and the Atlantic provinces have already abandoned their provincial sales taxes in favour of a harmonized GST administered by Ottawa. This provides clear benefits for businesses and works to encourage new investment. However, it can lead to higher costs on some consumer items, and Ontario and most western provinces have resisted on these grounds.

Last week Premier Dalton McGuinty gave the idea new hope by reversing his previously intractable position, vowing to take a “long, hard look” at harmonization. While it sounds like a vague promise, proponents of a productivity agenda are overjoyed. “I’m absolutely delighted to hear Ontario is more receptive to sales tax reform,” says Finn Poschmann, director of research at the C.D. Howe Institute. “The retail sales tax is an archaic beast that retards growth.” Ontario’s acceptance could prove to be the domino that brings the whole country in line.

The same incremental process might also bring the country a national securities regulator after decades of failure. A single institution to replace the current series of provincial securities bodies would simplify life for businesses raising capital, and improve investor confidence. It would also bring Canada in line with every other Western country. But the provinces have worried they’ll lose prestige. The 2009 budget commits Ottawa to a new tactic on this front—signing up those provinces willing to proceed now in hopes of creating further momentum over time. It’s the same strategy that’s paying dividends in GST harmonization and labour mobility.

In good times, politicians can afford to fight petty turf battles while ignoring the larger benefits of economic reform. But no one wants to appear obstinate in the middle of an emergency, and that’s meant real progress on some important, and once intractable, competition issues. “I guess it takes a crisis to bring out the best in Canadian governments,” says Jenkins.


 

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