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Ottawa, January 17, 2001
2001-007

Winning the World Over

Speech by the Honourable Paul Martin, Minister of Finance for Canada, to the Canadian Society of New York

Related document: 

• Canada Equipped to Compete, Says Finance Minister in New York (News Release 2001-006).

New York
January 17, 2001

Delivered text is official version.

Introduction

Good afternoon.

For more than 100 years the Canadian Society of New York has made an outstanding contribution to fostering understanding between Canadians and Americans. It is therefore a great privilege to speak to you today, and I want to thank Kenneth Patterson and the other members of the board for inviting me.

It is always exciting to come to New York. No matter what the economic conditions, the mood in Manhattan is energizing, the beat of business electric, and the perspective global.

Today, however, I would like to talk to you about a place not too far from here where there is an equal buzz of excitement and where the energy level is equally contagious. A place on the leading edge of globalization, where the knowledge economy is robust and opportunity beckons. That place is Canada.

A Robust Canadian Economy

How are we doing? Well, we have just completed our 21st consecutive quarter of growth – the longest such period since the mid-1960s, and the consensus of international forecasters is that Canada will lead the Group of Seven (G-7) in growth this year. Our unemployment rate is at a 25-year low. Our inflation rate has averaged 1.7 per cent over the last five years – well below that of the U.S. Our current account surplus is at an all-time high.

These numbers tell a strong story, but we are not under any illusions. The business cycle has not been abolished, and no country is immune to the ups and downs of the global economy. Today there is obviously considerable uncertainty about the short-term prospects for the U.S., and this uncertainty has implications for Canada. Clearly, caution is warranted.

That being said, a healthy mix of strong fundamentals – fiscal surpluses, low inflation, tax cuts and forward-looking policies – means that Canada is better positioned than it has been in decades to manage economic turbulence.

The Fiscal Turnaround

This was certainly not the case the first time I spoke to the Canadian Society in 1994. At that time a pattern of rising deficits, of annual spending far exceeding revenues, of borrowing money to make ends meet, was well entrenched, and corrective action was imperative. That action was taken, such that by 1998, four years later, Canada announced that it had eradicated its deficit from the national fiscal landscape. In fact, we were the first G-7 country to do so.

Since then we are one of the few nations to have begun paying down its debt. And we have done so having already moved to put our national retirement system on a sound financial footing. In 1995 our debt-to-GDP (gross domestic product) ratio peaked at 71  per cent. Today it has fallen to 54 per cent. Within five years it will drop to 40 per cent. In 1993 our foreign indebtedness was 45 per cent of GDP. Today it is 31 per cent and falling. All in all, this represents a remarkable fiscal turnaround.

These results didn't just happen by accident. Rather, they are the consequence of a national consensus, a focused and determined effort on the part of a nation to strengthen a once ailing economy and better prepare itself for today's global reality. A consensus that did not end with the cleanup of our national balance sheet, but rather began with a revolution in the structure of our economy and in the mindset of our people. This change in mindset and in the structure of our economy is what I would like to talk to you about today.

Embracing Globalization and the Knowledge Economy

The real Canadian story is not simply that we have cleaned up the nation's finances, it is about the extent to which we have embraced globalization and the knowledge economy. In the parlance of industry, we have re-engineered and we have retooled.

Up until the 1990s many Canadian businesses did well importing technology from abroad, leaving the risks and costs of innovation to others. Indeed, at one time, that worked. It even made sense, when technology cycles were longer, when markets weren't as global, and when the world was confronted with only one technological revolution at a time.

But today, with technology changing so rapidly, with product cycles shortening dramatically and in a world without frontiers, Canadians know they cannot afford to rely only on the innovation of others. In short, we know we have to be ahead of the curve.

The volatility of the dot.com craze notwithstanding, the spread and impact of technological change will continue to drive economic growth in all sectors. Let me be clear: this is where the true new economy is to be found – not in short-lived speculative trends, but in enduring change, and in the transformative cascade of new technologies.

This is producing a shift that is adding value and momentum to a wide range of existing industries, from mining to oil and gas, from agriculture to traditional manufacturing. At the same time, it is giving rise to whole new fields of industrial endeavour – information technology and biotechnology today, fuel cells, nanotechnology and genomics tomorrow. It is to this latter category that I particularly want to draw your attention.

New technologies create new industries. New industries bring new rules, and rule number one is don't be second. To the first mover go the prime opportunities – to hit the ground running, to corner untapped markets and to become the standard that future rivals will have to displace. In Canada we have moved to take advantage of this new reality. In so doing, we understand that these opportunities are not going to be handed to us. Rather, we must aggressively seize them.

Recipe for Success in the Knowledge-Based Economy

What does this mean?

• It means a highly skilled and educated workforce.

• It means an entrepreneurial private sector prepared to take on the world.

• It means a sophisticated high-tech infrastructure that provides the backbone of the knowledge economy.

• It means a focus on basic and applied research.

• And it means a globally competitive tax system that fosters entrepreneurship.

Let me give you some examples of how Canada measures up. We have the highest percentage of our population online of any country in the world. Canada was the first to connect all of its schools and libraries to the Internet. We have the highest per capita ownership of home computers and the widest access to cable systems in the world. We have built the world's fastest and most advanced optical Internet, which is revolutionizing telecommunications technology. Canadian universities are home to 8 of the top 20 electrical engineering programs in North America, and 7 of the top 20 computer engineering schools – not bad for a country one-tenth the size of the U.S.! Our labour force has the highest proportion of people with post-secondary education in the world – the United States is second.

At the same time, we have fundamentally changed the Government's role in the economy. The federal government once owned Canada's largest airline, a major oil company, a major railroad – and the list went on. This is no longer the case. What we have done is refocus our energy on those areas where the Government's role is essential. For example, we have just made the most significant investment ever in our publicly funded health care system.

Looking ahead to the demands of the knowledge economy, and despite having one of the most attractive R & D tax credit regimes in the world, we identified R & D as an area in which Canada needed to play catch-up:

• Three years ago we created the Canada Foundation for Innovation – one of the largest of its kind in the world – to boost the research infrastructure in our universities, colleges and research hospitals.

• In the last year we established 2,000 new research chairs in Canadian universities to attract and retain the best researchers in the world.

• This year we launched 13 new world-leading institutes in areas such as cancer, aging and children's health to maximize the advantage Canada enjoys in medical research.

• And to better develop the remarkable promise that lies in biotechnology and genetics, we have launched Genome Canada, which is building five world-leading centres of genomic research across our country.

We also needed to take action in terms of our tax system, and that is happening. Less than three weeks ago we implemented a $100-billion tax cut package – the largest in Canada's history – lowering taxes on individuals, entrepreneurs and corporations. Personal income taxes have been cut at all income levels. On average, they have dropped by 21 per cent, even more for middle-income Canadians with children.

Moreover, we have decided to create a distinct Canadian advantage in the crucial areas of capital investment and global competitiveness.

• The capital gains tax rate in Canada, averaging 23 per cent, is now lower than it is in the United States.

• Canada's taxation of stock options is now more generous and flexible than it is here.

• And finally, the average corporate tax rate for business in Canada is falling to 32 per cent – almost 5 percentage points lower than U.S. rates.

Canada – Equipped to Succeed in the Knowledge Economy

The net effect of all this is a Canada prepared to succeed and poised to surprise. In short, the Canada of today is at the leading edge of the economy of tomorrow.

This reality differs substantially from how some people may perceive our country. Indeed, our vast geography, scenic vistas and rich natural environment have helped to perpetuate the notion that our economy is overwhelmingly based on resource and commodity production. But today that view of Canada is as outdated as saying that New York's economy is based on the garment industry, or the economy of Chicago is based on the railway.

Our trade numbers tell an important part of the story. Commodities as a share of exports have fallen from almost 60 per cent in 1980 to about 30 per cent in 1999. Last year more than two-thirds of Canada's exports were machinery, equipment and other high value-added products. Furthermore, knowledge-based services represent one of the fastest-growing areas in our export mix.

Put simply, new-economy industries are powering Canada's strong economic performance. Since 1995 they have expanded at almost four times the rate of the economy as a whole, and they contributed about 40 per cent of Canada's growth last year. Clearly, this is good news for Canadians. It is good news for investors as well.

Technology Clusters

Today's Canada is perhaps best illustrated by the emergence of technology clusters – cities and regions that have achieved critical mass and explosive growth in the knowledge economy. These Canadian clusters are anchored by strong research universities and labs, and are host to a whole spectrum of thriving, innovative and entrepreneurial companies – with the people, infrastructure and capital to match. You know about Silicon Valley, Boston, Raleigh-Durham and Dallas. But do you know about the comparable clusters in Montréal, Toronto, Vancouver and Ottawa?

Montréal

Montréal's aerospace industry has 27 per cent of the global corporate aircraft market; more than 40 per cent of the world production of commercial helicopters; more than 70  per cent of the market for commercial flight simulators; and 60 per cent of the world market for landing gear. Indeed, only the cities of Seattle and Toulouse have more aerospace jobs than Montréal. Why? A key factor is that Montréal has four major research universities with more than 26,000 students in engineering and sciences. This is also why Montréal is one of the leading biotech and pharmaceutical centres in North America, with close to 200 companies and the largest specialized biotech research centre in the world.

Toronto/Kitchener-Waterloo

Toronto is Canada's largest city. It is one of North America's largest financial and investment centres. It is a major hub in the North American market – with 60 per cent of the U.S. population within a two-hour flight. It has almost 100 hospitals and research institutions – making it the fourth largest medical community in North America. Building on this, it now has one of the largest life-sciences clusters in North America.

Toronto and nearby Kitchener-Waterloo together form a technology cluster that is home to six world-class research universities. The University of Toronto's electrical engineering program is ranked fourth in North America, and its computer engineering program is ranked fifth. The University of Waterloo alone graduates among the largest number of information technology professionals in North America. Drawing on this talent pool, the Toronto/Kitchener-Waterloo cluster has developed into a major information and communications technology centre, with more than 2,000 companies employing more than 100,000 people.

Vancouver

Vancouver, again based on world-class universities, as well as a network of community colleges and specialized post-secondary training institutions, is well known as the world leader in fuel-cell technology. But it doesn't stop there.

Vancouver's cluster of more than 7,000 high-tech firms is growing at a phenomenal rate. Ten years ago the combined market capitalization of British Columbia's largest technology companies was $1 billion. Today the figure stands at more than $70 billion.

Ottawa

Ottawa, better known as Canada's capital, is also the world's capital of optical telecommunications. It is home to more than 1,000 advanced technology firms.

Impressive as these facts are, they are far from the whole story. Right across Canada, in community after community, innovative companies are teaming up with universities and research institutions to advance the frontiers of new technology. This change is as all-encompassing as it is dramatic.

Take Atlantic Canada, for instance.

You would know about Halifax, but another example is to be found in Fredericton – a city of only 50,000 people, but home to a major university. More than 180 information technology companies, all tied to that university, have sprung up and are now exporting down the eastern seaboard and right around the world. In the West as well – in Calgary, where the natural resource base is powering a high-tech revolution, and Saskatoon, in every region of our country – the story is the same.

I mentioned at the beginning of these remarks that this was the real story in Canada – the fundamental change in the structure of our economy and in the mindset of our people. A mindset rooted in the knowledge economy and reflecting a vision that is unlimited by distance or borders. The world is their market. This is the new wave of Canadians, and this is what Canada is all about today.

Conclusion

In summary, then, all of us in this room are clearly concerned about the short-term direction of the global economy. But we understand as well that the business cycle exists, that there will be periods of strong growth and there will be periods of weakness. Therefore, what is important to the well-being of our people is the strength of the foundation upon which their economy rests, so that they can take advantage of the growth and ride through the downturns.

I have set out today the direction on which Canada has embarked. Clearly, that direction is important for the Canadian people.

It is equally important, however, for the economic partnership between our two countries. The United States continues to loom large for Canadians. That much hasn't changed.

But what has changed is Canada. The fact is, our industrial base has been transformed and revitalized. Our nation is energized and focused.

We believe it's time once again for you to follow your compasses north to invest in Canadian entrepreneurship. As you explore the possibilities that Canada holds, bear in mind that this does not mean tapping into a market of only 30 million. It is a platform from which many of the most skilled and entrepreneurial people living anywhere are looking for global partners who share their enthusiasm for the present and their ambitions for the future to sell to the world. In short, your neighbour to the north is on the move, and my message today is quite simple: Join us, as Canada sets forth to win the world over. Come aboard.

Thank you.