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Ottawa, February 15, 2001
2001-015
Speech by the Honourable Paul Martin, at a Luncheon Event Co-Sponsored by the Canada Club, the Association of Canadian Investment Dealers and the Canada-United Kingdom Chamber of Commerce
London, United Kingdom
February 15, 2001
Delivered text is official version.
Introduction
Good afternoon.
Allow me first to thank the Canada Club, the Association of Canadian Investment Dealers and the Canada-United Kingdom Chamber of Commerce for inviting me to speak to you today.
I am absolutely delighted to be in London. This is one of the great financial and investment centres not only of Europe, but the world. You can feel the dynamic beat of business throughout the city, a city with a perspective and reach that are unmistakably global.
Today, however, I would like to talk to you about another place where there is an equal buzz of excitement, 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.
The 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) 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 the average for G-7 countries. And our current account surplus is at an all-time high.
Now, these numbers tell a strong story, but we are not under any illusions. We know that the business cycle has not been abolished and that no country is immune to the ups and downs of the global economy.
Today there is considerable concern about the slowdown in the U.S. economy. It has been deeper and more significant than expected only a few short months ago. Given the size of our trading relationship with the U.S., this obviously has implications for Canada and, as a result, we are not taking anything for granted.
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. In short, as a recent International Monetary Fund report pointed out, and I quote: "The strong policy framework in place has positioned the real and financial economy to cope with any new major economic shock, including a slowdown in U.S. growth."
The Fiscal Turnaround
This was certainly not the case in the early 1990s. 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 needed. That action was taken. By 1998 Canada was able to announce that it had eradicated its deficit from the national 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 in absolute terms. 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 – clearly, the most dramatic turnaround among G-7 countries.
Now, this didn’t just happen by accident. Rather, it is the result 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 began with a revolution in the structure of our economy and in the mindset of our people. And that is what I would like to focus on 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 the knowledge economy and globalization. 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 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, product cycles shortening dramatically, and in a world without frontiers, Canadians know they cannot afford to rely 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, 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 traditional manufacturing to agriculture, from mining to oil and gas. Let me give you just one example. The exploitation of the oil sands in Alberta is due to unparalleled technological advances generated by a pioneering industry. Incidentally, what a lot of people don’t know is that the reserves in the Alberta oil sands are greater than those of Saudi Arabia.
At the same time, as you have seen here in the UK and elsewhere in the European Union, the knowledge economy is giving rise to whole new fields of industrial endeavour – information technology and biotechnology today, fuel cells, nanotechnology and genomics tomorrow. And, indeed, 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 on a silver platter; 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. Canadian universities are home to 8 of the top 20 electrical engineering programs and 7 of the top 20 computer engineering schools in North America. 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. Finally, the Economist Intelligence Unit now ranks Canada best in the G-7 in terms of business costs.
At the same time, we have fundamentally changed the Government’s role in the economy. For instance, the Government of Canada once owned our country’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 to 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, despite having one of the most attractive R & D tax credit systems in the world, we identified R & D as an area in which we, as a country, needed to play catch-up:
- Therefore, 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 committed funding for 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 too is happening. As of January 1st of this year, 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 decided to create a distinct Canadian advantage in the crucial areas of capital investment and global competitiveness. As a result:
- The capital gains tax rate in Canada, averaging 23 per cent, is now lower than it is in the United States and generally lower than in the UK.
- Canada’s taxation of stock options is now more generous and flexible than it is in the United States and the UK.
- 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 and competitive with the UK rate of 30 per cent.
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. The hitch in this, however, is that this reality differs substantially from how some people may perceive our country. Indeed, our vast geography and rich natural environment have helped to perpetuate the notion that our economy is overwhelmingly based on resource and commodity production. But that view of Canada is as outdated as saying that the coal industry is the backbone of the UK economy.
Our trade numbers tell the real story. Commodities as a share of exports have fallen from almost 60 per cent in 1980 to about 30 per cent in 1999. Our natural resources are very valuable and very important. However, 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. And that is the message I would bring to you today as you contemplate North America.
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. Now, I’m sure you’re familiar with Silicon Valley in the U.S., the Glasgow-Edinburg, Thames Valley and Ipswich corridors here in the UK, but do you know that comparable clusters exist 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 alone. 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 a 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 that 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 few examples 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.
In Atlantic Canada, you may know about Halifax. But Fredericton, for instance, a city of only 50,000 people, is home to a major university and other specialized institutions. More than 180 information technology companies have sprung up there and are now exporting down the eastern seaboard of North America and right around the world. In the West, in Calgary, where its natural resource base is powering one high-tech breakthrough after another, in Saskatoon, in Winnipeg, in fact, in every region of our country, the tale is the same.
As I mentioned at the beginning of these remarks, this is the real story of Canada – fundamental change in the structure of our economy and a mindset rooted in the knowledge revolution. A vision of enterprise that is limited neither by distance nor borders. This is the new wave of Canadians, and this is what Canada is all about today.
Just look around the UK and you will encounter this new spirit of global enterprise in leading Canadian firms that have established operations here – firms such as Nortel, JDS Uniphase, Celestica and Bombardier, to name only a few. Right here in London – and indeed in this room – you can find hundreds of young Canadian professionals who see the world as their market. They’re doing business and making deals in The City. They’re building networks of excellence that will stand the test of time and multiply investment and trade links between Canada and Europe. We hope many of them will eventually return home. When they do they will carry with them first-hand knowledge of European business and a keen awareness of the community of interests that binds Canada to Europe and especially the United Kingdom.
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 fact is, the United Kingdom is Canada’s fastest growing market for manufactured goods and services in Europe, our second largest source of foreign direct investment, and nothing less than a preferred platform for hundreds of Canadian firms that are eager to expand their activities on the Continent. The United Kingdom has always been an extremely important trade and investment partner for Canada. 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 for you to rediscover Canada – to invest in Canadian entrepreneurship. As you explore the possibilities that Canada holds, bear in mind that this does not just mean tapping into a market of 30 million people. It is a platform from which many of the most skilled and entrepreneurial people anywhere are looking for global partners who share their enthusiasm for the present and their ambitions for the future to sell to the world. For UK companies looking to invest in North America, there is simply no smarter place to go than Canada. In short, our economy is on the move, and my message today is quite simple: Join us, as Canada sets forth to win the world over.
Thank you.
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| Last Updated: 2002-11-26 |
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