Regional Competitiveness: Overview of Recent Research
Introduction
According to the OECD, competitiveness is defined as "the degree to which a
country can, under free and fair market conditions, produce goods and services
that meet the test of international markets while simultaneously maintaining
and expanding the real incomes of its people over the long term".
Competitiveness is the strategic element that attracts investment. It is
influenced by social, human, technical, financial and institutional factors,
as well as traditional economic indicators.
During the past year, ACOA commissioned four separate studies by recognized
experts to identify and measure the factors and indicators that underlie and
determine competitiveness in Atlantic Canada. This is the first undertaking
of its kind to regionalize national and international competitiveness models.
The objectives were to:
- show Atlantic Canada in a North American and global perspective, using
internationally recognized standards of measurement;
- demonstrate that Atlantic Canada has a real basis for competitiveness
and growth, particularly vis-à-vis the United States;
- identify the region's strengths as a basis for opportunity promotion
and investment attraction;
- identify specific areas of weakness requiring policy and program
initiatives; and
- respond to the myth that Atlantic Canada is not a competitive location
for investments.
The studies, copies of which are attached, utilized four distinct measures
of competitiveness. The first study to be released was prepared by KPMG and
BDI and focussed on site location-sensitive cost factors and quality of life
indicators. Through a comparison of investment costs in 16 Atlantic Canadian
communities with 12 communities in the U.S., the study showed Atlantic Canada
as a region to have a 7 per cent after tax cost advantage over the U.S. The
second study released was carried out by Informetrica and used the United
Nations Human Development Index to compare the socio-economic status of
Atlantic Canada with G-7 nations. This study ranked the region second only
to Canada but went on to identify several competitiveness challenges such as
a low rate of industrialization, high unemployment and low investment effort.
More recently, the North American Policy Group at Dalhousie University
completed comparative analyses of Atlantic Canada with the 50 States and the
48 leading economies of the world using two well-established competitiveness
models. The 50 States comparison ranked Atlantic Canada 33rd among the 50
states and on a relatively equal footing with our neighbour states of New
England. The world comparison, based on the World Competitiveness Report,
ranked the region 27th compared with 49 leading world economies. The next
section provides more detail on the approach and findings from each study.
Investment Cost Comparison - KPMG / BDI . . .
The KPMG / BDI study compares the financial and non-financial costs of
establishing and operating a business in selected Atlantic Canadian and U.S.
cities. It builds upon similar work KPMG carried out for the Department of
Foreign Affairs and International Trade in 1994 and 1995. That project
compared investment costs for seven illustrative industries in eight Canadian
and seven U.S. cities. The results were ranked by city and showed that costs
were consistently lower for the Canadian cities studies. The new study
expanded the analysis to cover sixteen Atlantic Canadian cities and twelve
cities of varying size in the U.S., with particular emphasis on providing a
comparison with the eastern U.S. Seven industries profiled were selected to
be representative of Atlantic Canada's economic potential. They include
frozen foods, medical devices, software, telecommunications, plastics
manufacturing, metal fabrication and electronics and instrumentation. Key
findings of the study include:
- for every industry examined, investment costs are lower in Atlantic
Canada, and that cost advantage holds over a range of exchange rates
- construction and labour costs are major sources of advantage
- our health and benefits systems provide cost advantages to business
- quality of life factors contribute positively in Atlantic Canada although
we demonstrate somewhat lower education levels
With respect to the issue of education levels in Atlantic Canada, it must
be pointed out that this latter observation must be balanced with
education-related findings in the other studies. The region has an excellent
education infrastructure and comparatively high spending in education
generally. We do have an available supply of highly-skilled, educated
workers. At the same time, however, regional demand for these skilled workers
has not matched the supply resulting in a net loss or "brain drain" of
skilled workers from the region. Further, education levels tend to be lower
among the older and rural elements of the labour force. The issue then becomes
one of whether and how to reconcile these contradictory observations.
United Nations Human Development Index - Informetrica Limited . . .
Recognizing that regional competitiveness is not solely determined by
direct financial cost factors, ACOA initiated a study focussing primarily
on the socio-economic aspects of competitiveness. Informetrica conducted
the study using the U.N.'s Human Development Index (HDI) methodology. First
published in 1990, the Human Development Report highlights the importance of
integrating economic growth and human development to asses the overall
development of a country. The HDI has gained widesprad acceptance among
social scientists as an alternative to standard measures such as Gross Domestic
Product and has become the most widely reported index of the Human Development
Reports published annually.
Informetrica's research included a report on on the HDI, the analysis of
which indicates that if Atlantic Canada had been integrated into the 1995
UN HDI rankings, the region would have placed second only to Canada. Key
findings include:
Major Strengths:
- health, long life expectancy
- strong commitment to education
- more equitable distribution of income
- low inflation performance
- above-average economic growth and strong earnings per employee growth
Major Challenges:
- low rate of industrialization
- high unemployment rates, especially among youth
- decelerating population growth
- low investment effort
- few scientists and technicians and low tertiary science enrolment
- high rate of energy use per capita
Atlantic Canada and the 50 States: A Development Comparison - NAPG . . .
The first of two comparative studies undertaken by NAPG, this study was
based on a U.S. model called the Development Report Card for the States
published annually in Washington. It measures and compares the economic
performance and development potential of the states on a broad set of economic
and social indicators. NAPG replicated this comparison by inserting Atlantic
Canada into the model and comparing it to each of the states. As mentioned
earlier, the study indicated that Atlantic Canada would rank 33rd among the
states using this model. Particular areas of strength for the region include
our health and social systems, environment, existing business base and
entrepreneurial energy, infrastructure and the banking system. Areas of
weakness identified include technology resources, high unemployment and low
employment growth, lack of diversity within the traded sector and lower
educational attainment among a large proportion of the workforce. The study
also pointed out factors which limit the region's capability to advance to
higher rankings against various criteria. These include:
- low innovation and adoption of technology
- weak management capabilities underlying the small size of the SME sector
- a labour force which has need of measures to strengthen its skill set
- a narrow base of traded products and services leading to slow growth in
the region's exports
Atlantic Canada and the World: A Development Comparison - NAPG . . .
The second study carried out by NAPG provided a comparison of Atlantic
Canada's competitiveness with the world's leading economies. The model
used for this analysis was the World Competitiveness Report published annually
by the World Economic Forum and the International Institute for Management
Development in Switzerland. This report, which is widely recognized as the
most authoritative assessment of international competitiveness, measures and
ranks economic competitiveness for the world's 48 industrial countries,
including all OECD member nations. The report utlilizes a diverse set of
378 economic and social indicators which are ultimately grouped into eight
main categories. These are domestic economic strength, management, finance,
people, government, infrastructure, internationalization and science and
technology.
The model provides a means of both ranking the various countries and
analyzing the factors which determine their relative performance. It also
gives insight into how countries can improve their competitive position and
can be instructive to the development of appropriate economic policies. When
NAPG inserted Atlantic Canada into the World Competitiveness Report's
framework, the region ranked 27th out of 49 economies, with the U.S. 1st,
Canada 12th and Britain 18th. Atlantic Canada ranked just ahead of Spain,
Aregentina, Italy and Egypt and just below Korea, Iceland and Thailand.
Key findings of the study include:
Weaknesses or "Liabilities":
- lack of international orientation and export diversification
- low R&D, innovation and technology adoption
- deficient management skills
- weak credit capacity and local capital market
- low rankings for employment and unemployment
- a brain drain which reduces the number of skilled young people
Strengths or "Assets":
- strong physical and human infrastructure
- general education capacity
- government, financial systems
- stable economic environment
The report notes that the assets we possess are a key factor in
differentiating our ranking from those of many countries in the rankings
which are deficient in basic competitive factors. NAPG argues that Atlantic
Canada's weaknesses are in areas which can be addressed by effective economic
policies. These areas include entrepreneurship, trade, science and technology
and management and labour skills. The next section of this paper attempts to
provide a more integrated analysis of the findings of the four studies.
Comparative Analysis of Findings . . ..
The international comparisons provided by the four studies place Atlantic
Canada's competitiveness on economic and social factors in the mid-range of
industrial countries. Our competitive position clearly benefits from sharing
Canada's social and financial systems and our fundamental social and human
factors compare with most advanced countries. The region's economic foundations
are generally strong but there are factors which limit our capability to
advance our ranking.
This section reviews the key findings of the four studies by grouping them
under seven key factors. This provides some interesting contrasts between our
various strengths and weaknesses and may serve to help focus discussion on the
broader value of the findings and an identification of appropriate remedial
measures.
Technology: Atlantic Canada does have some excellent S&T resources
and infrastructure and the study findings argue that we possess a tax treatment
regime for R&D expenditures that compares favourably with the regime that
exists, for example, in the U.S. However, the studies also point out that
we have several fundamental technology-related challenges facing us, from our
relatively small number of scientists and technicians and low tertiary science
enrollment to a low private sector investment in R&D expenditures and personnel
and an overall low rating in technology management.
Capital: Access to the strong domestic financial system and
availability of debt capital are seen as assets of the region. Some have
argued, however, that our regional economy is over-leveraged on debt and we
suffer from the absence of an organized equity capital market. Our lack of
venture capital, or put another way, failure to attract venture capital is
viewed as a key weakness, one that is perhaps further compromised by a business
culture which does not appear to encourage going public. There is likely more
to this problem than business culture. Atlantic Canada lacks well-established
equity markets and related exit mechanisms and investors and entrepreneurs are
faced with four distinct securities regimes in the region.
Education: The region is blessed with a high per capita supply of
institutions of higher learning, a commitment to higher education, high
enrollment per capita in our schools, colleges and universities and, in turn,
an available supply of high-skilled workers. However, we are faced with an
apparent, fundamental disconnect between these assets and value system and the
reality in the workplace. We find ourselves possessed of somewhat lower
education levels, for example, than is the case in the U.S. Notably, the
older and rural elements of the labour force tend to be less well educated.
Further, we as a region have long suffered a brain drain. Either our economy
is simply not generating enough employment opportunities to keep our educated
youth in the region or there is a fundamental disconnect between the needs of
the region's business community and the curricula of our universities. The
latter has been suggested in other research with respect to university research
and business needs and opportunities. As well, findings suggest the region
does not have enough competent senior managers or generally individuals
possessed of good management skills. Too many of our businesses seem unwilling
to provide training opportunities to their employees.
Human resources: Among the key positive attributes of the region's
economy are the comparatively lower wage costs and a workforce characterized
by positive work attitudes and ethics. However, there is also the finding that
we have a relatively lower quality workforce in the region compared with competing
jurisdictions, a finding that is supported by the other findings regarding management
skills, employee training, the brain drain and a deceleration in our population growth.
We also have an unacceptably high rate of unemployment, especially among the younger
members of our society. But our potential to make sustainable progress toward alleviating
this situation may be underscored by the indications that we as a region rate favourably
with our competitors in terms of job creation by new business.
Trading patterns: Despite enjoying a competitive trade advantage through NAFTA
and and relatively free domestic trade, we are told that we still lack diversity in our
export industries and that we have a low growth rate in the volume of our merchandise
exports. The resource and manufacturing sectors remain the dominant engines of export in
the region but these are typically larger enterprises which are not a vibrant source of job
growth. Improved export preparedness by the Region's SMEs, comprised of greater diversity
in products and services exported and in the external markets served, will be integral to
Atlantic Canada's overall competitiveness and sustainable export-based job growth.
Business investment: Atlantic Canada, comparatively speaking, has a small
business base to grow from, coupled with a relatively low investment effort and low
rate of industrialization. In the face of these characteristics, however, we are told
that we can be competitive as a place to invest . . . we have lower costs for industrial
land, construction and labour than are found in the U.S., competitive costs for electricity,
transportation and interest, and an overall cost advantage on location-sensitive capital
and operating costs in the seven key industry sectors studied. This may in part explain
another finding that we are experiencing above-average economic growth, including strong
earnings-per-employee growth, and a high rate of manufacturing investment.
Quality of life: Clearly evident in the findings of these studies is the
competitive advantage inherent in the quality of life we enjoy in the region. Against
a broad set of benchmarks, Atlantic Canada rates very well with our competitors. These
characteristics should not be discounted. They are a significant consideration for
potential investors and we have already seen many examples of how we can use these
characteristics effectively in investment promotion. Many of these are derived from
being part of the Canadian federation, notably our ability to control inflation and in
factors related to health. We rate highly in areas such as our comprehensive health
system, health indicators and life expectancy. We also benefit from a clean environment
and abundant renewable water resources. Finally, we live in a region which has a lower
crime rate and fewer violent crimes than most of our competitors.
Conclusions . . .
- A comparative analysis of the competitiveness studies shows that Atlantic Canada has
strengths which can be capitalized on to attract investment. As KPMG and NAPG have
commented, Atlantic Canada is not well known in the United States, and investors who do
not currently view the region as a location to do business may be surprised.
- Many of the positive factors working in Atlantic Canada's favour are characteristics
and assets that require a long time to build up. These differentiate the region from many
of its competitors and can be a strong springboard for future competitive economic growth.
- Some negative factors are structural in nature such as a lack of diversity in exports
and lower education levels in rural and older elements of the workforce. However, some
negatives are symptoms or results of the structural factors. For example, the region's
brain drain would be a lesser problem with faster job creation. Atlantic Canada's small,
local population and market size are less of a problem with increasing export market orientation.
- The findings point to a need for a broad strategy that targets key structural issues
and which will bring about effective actions to address identified structural weaknesses
such as trade diversification, management skills, R&D and innovation, business investment
and local capital markets and related gaps.
|
