Canada and Asia Rising

Thinking About New Strategies for Sustainable Prosperity

Good politics and good public policy comes when there is a fit between leadership teams and the national projects that are the "great priorities" of the day.   Bad politics comes about (among other reasons) when there is no such fit.  

In Canada, the task of providing a competitiveness framework for a post-Free Trade environment and a series of national initiatives for a post-Meech Lake environment made the Martin coalition of 1990 a good fit for the times, the times being 1990.   The Mulroney agenda of 1984 was to provide an economic rationale for Canadian federalism.   Environments change, agenda priorities change and the Canadian political process is still catching up.   

In 2006 the immediate national agenda is:
 (a)  fixing the economics of fiscal federalism and recasting the "fiscal imbalance" debate as one about ensuring that intergovernmental transfers of revenue enhance productive investment; 
(b) establishing the credibility of the national government as a manager; 
(c)  restoring the credibility of the federal government in Quebec and representing innovative wealth-creating western Canadian interests in national economic decision-making.  

 If the Harper coalition successfully addresses these "great priorities" of 2006, he will be judged a successful Prime Minister and Canadians will be better off.  

Until this agenda is addressed successfully, other agendas will and should remain on the backburner.   The disappointment of the last decade has been the attempt of many often well-intentioned politicians to put various carts before the horse.         No Canadian government can fix health care unless it understands that access to health care and universality are not the same thing in a world where outside of emergency rooms there are many different approaches and tiers to health care.    The agenda must fit the time.  The strategy must fit the capacities.

           In this environment, Liberals in Canada must establish their own credibility on the next generation of "great priorities".     In effect, they need to hope that a grateful public will turn to them   saying that we have, in effect, new priorities now and Harper's team is not the right team for those priorities.   That is healthy politics.

This means that Liberals have to assume that the Harper coalition will be successful on its agenda.  Any other strategy is both irresponsible and certain to fail in electoral terms as a popular Harper deflects the demands for sovereignty in Quebec and brings western Canadian growth economics into national decision-making.  

            Liberals need to think about the next generation of issues and develop a better answer to the question: "what can we do better than the Conservatives" than we have offered to date.      One of the possible themes that a new Liberal coalition could articulate that is a post-Harper agenda is one that tries to prepare Canada for the new global economy, where India and China    drive global growth and transform the characteristics of global competitiveness.

This agenda that can only be implemented after Harper succeeds in renewing Canadian political institutions.   The faster he succeeds, the more quickly impatient Liberals will get a chance to show that they know how to govern effectively and innovatively this time.   Canada has to be prepared for an era in which the United States will no longer be the major engine of global economic growth and in which civil activity will no longer be one-dimensional, but will combine all the complex allegiances of living in an interconnected world.  

PREPARING FOR ASIA RISING:  AN AGENDA FOR THE NEXT GENERATION OF PRIORITIES

In the past year, India and China competed for ownership of a Calgary-based oil company which had commercialized Kazakhstan 's petroleum resources.   No Canadians bid on the assets, even though the company had been created by Canadian entrepreneurial and financial skills.

In the past three weeks, Malaysia entered into a Gulf Venture Capital Association to invest the petroleum revenue heritage of the Persian Gulf countries.  No Canadians were involved.
       
The rise of China and India and the new hubs in Asia    has become a commonplace of international economic discussions in the last year, when some kind of   tipping point was apparently reached.   Perhaps future historians will view this as correlating to the period when China started being an exporter of acquisition capital with the attempt to purchase Unocal.     

Canada has been underrepresented in the global economy as these trends became tides. In large part, this is because our approach to the new Asian-driven global economy has been so tentative   in its approach.   At another level it is because of the built-in confusion as to whether Canada is a global player (with global assets and perspectives) or a resource economy satisfied to fulfill its mission of selling assets to foreign investors and subsidizing domestic projects including social programmes.     This tension runs through Canadian political history and the debate about our role in an Asian-led global economy is just a new costume for an old play. 

At one level, the debate about globalization is simply this familiar debate about productivity and competitiveness,    made slightly more urgent by dramatically changing circumstances, which always require a period of self-examination.   In a global economy, those communities which fail to appreciate and cultivate their unique competences and qualities will be destined to decline.      The productivity/competitiveness debate is extraordinarily important, and Canadians are not alone in having neglected it for the last decade.    But the rise of Asia is more than simply another excuse to lecture people about losing weight and getting into shape, in the manner of the U.S. FTA   debate.   The global economy of Asia Rising is a new and different economic environment, with many new issues:   state-backed financial players acting in open capital markets, new centers of innovation and science that are unknown to conventional radar screens,   different patterns of economic production and consumption than the industrial model of Stuttgart and Manchester or the high tech model of Palo Alto and Espoo. 

At this new level, the debate about globalization is about a race to build the best networks, whether they are Dutch Banks or U.S. engineering schools because these will be the cornerstone of the successful strategies in a global economy.  It is in this regard that Canadian institutions have been particularly slow.

  In the U.S. and Europe , the hope is that the old centres of economic growth will become wealth-managers with "creative" industries.  This is one model, which describes aspects of the New York economy and the wealth-creation of Los Angeles , London , Silicon Valley , as well as in Paris , Oslo , Amsterdam and Zurich .   In the smaller economies,    national wealth managers   continue to invest globally and employ highly educated Swiss, Dutch and Norwegians in international development activities (environmental project management financed by governments and international agencies).   This is one possible model for the future, but as Bangalore and Shanghai become both investment centres and centres of creative business,    Chinese and Indian creative talents will develop exportable products.  As they do, this model for competitiveness and full use of national talent may have a limited shelf-life.  But    it is a model and   it reflects some strategic debate within these national boardrooms and cabinets.  As this model for competitiveness declines in practicality, new ones will emerge.   The importance is to focus on how to play the global economic game competitively.

In Canada , we have too often tended to view the new Asia as merely a "selling opportunity", where we can sell more furniture, or bathroom fixtures, or resources.  That too is fine insofar as it goes and it does suggest a strategy of export-led growth which may be relevant to Canada , Finland , northern Italy as a means of staking out a prosperous role in the global economy.     But is requires a finely-tuned, disciplined, specialized and productivity-oriented domestic economy to sustain it.  These policies    have not been at the cornerstone of national-decision making in Canada for the last decade.

In other parts of the world, Asia is viewed   as an investment opportunity. This   requires backing strong national champions with head office capacities, like Nokia and Norsk Hydro or having highly sophisticated international financial actors like the Swiss or Dutch banks.  In Canada , we have not tended to develop our domestic global investing skills.     Our capital markets and financial services sector strategy has conspicuously failed to address the issue of how we develop this kind of investing capability in Calgary , Montreal , Vancouver or Toronto .

The next generation of Canadian decision-makers and deal-makers are the ones thinking about Canada-China , Canada - India , and, almost as importantly, Canada -the new hubs.  (In smaller rapid-growth markets, e.g. South Korea , Singapore , Malaysia , Dubai Canadians have some advantages of positioning).   This next generation of entrepreneurial Canadians   will define this new pattern of investment with or without the backing of established institutions.  But they will be strengthened if they can mobilize the boardrooms of banks, and the federal and provincial bureaucracies.  Canada will muddle through on the global stage   as a petrocurrency and an energy superpower, whose natural resources insure that we cannot be completed ignored.    This is not an adequate strategy for the kind of society and economy most Canadians want to build.

Why has our foreign policy proven to be so non-strategic in embracing globalization?  Why aren't we involved in the future areas of wealth management in a more direct manner?  Why isn't every high school in Canada satellite linked to a high school in India, China and one of the new hub companies so that a couple of hours a day can be involved in strategic networking (Winnipeg-Nanjing, Winnipeg-Penang, Winnipeg-Hyderabad), so that Canadians start their careers and adventures with a competitive advantage?   Why are we not building a UBC-McGill-UofT network to rival Stanford or MIT in organizing its Asia-based alumni?   There are many reasons for this, but in part it is because Canada has  so few international thinkers who understand business, and , in parallel, because of the continental imperative of business in the last three decades, comparatively few high-quality business people who really understand international politics.    The characteristics of the new oil patch and the multilingual new Canadian entrepreneurs who are coming of age now give us a dramatic opportunity to change this.

That is the longterm, an image of Canada as the nucleus of many networks designed to achieve global innovation, connected to deal-makers and people creating new sources of value around the world.    It is an image which is, of course, not uniquely Canadian.  At Norsk Hydro and at Nestle, in the government of Slovenia and the municipal government of Rio , the desire to be connected globally is part of the next wave of competitiveness and aspirations of the post-Yahoo generation of global citizens.   That is why there is a global race to build the best networks and to use them most effectively.
 
While we are waiting for the next generation of Canadians educated in that Winnipeg high school to assume leadership, we need to make sure that we are doing several things:

1. We are organizing our strategic knowledge of China and India through pooling of talent.  We cannot create an instant Canadian Intel, but our knowledge-base can provide a framework to develop specific strategies, like helping Chinese entrepreneurs commercialize their knowledge of Chinese medicine or new Chinese energy technologies.
2. The global economy is about deals, not strategies, and we need to ensure that we have a network of dealmakers connected to the new sources of deals.  It is essential to have a Canadian presence in Malaysia , Dubai , Bangalore , where the structure of a new democratic capital market investment pattern MAY be taking place.
3. In approaching China and India as markets or as sources as investment, Canada 's competitive advantage is as good as the quality of its networks.  Networks provide access to deal-flow; networks provide information and validation of the partners that we are dealing with.
4. Canada 's core advantage in Asian markets is that we can contribute to their aspirations of the Indian, Chinese markets to develop a democratic capitalism without being a serious rival as the United States is, or a country with colonial histories as the Europeans are.
   
5. Canada also builds on the many informal networks in the current global economy, where remittances from workers in Canada are more important than government foreign aid and where the knowledge base about Vietnam among Vietnamese-Canadians, for example, is itself a core strategic asset of Canadian businesses.

From these advantages, a Canadian strategy can emerge.   Above all, we need to realize that this is a new and different business environment.   We cannot presume that our prosperity will consist primarily of building high-quality coffee and doughnut restaurants to serve autoworkers in southwest Ontario .   Nor can we assume that a public economy that recycles petrodollars and resource rents into less efficient manufacturing companies provides an economic framework for 21st Century Canadian prosperity.   By approaching the Indian and Chinese markets as complex "networks" of regional interests and 21st Century economic models, Canadians can assure themselves of a stake in a new global prosperity.   It is also a new way of forcing us to think through our economic strengths and compensate for our past deficiencies of strategy.

At the end of the day, Canada 's prosperity will depend on our capacity to be a wealthy knowledge-based economy with unique intellectual capital.   The immediate "great priorities" are to fix our broken national institutions, so that we can emerge from the dry dock ready to go wherever we want to go.  The next "great priorities" will be the productivity agenda (*).   With a disciplined domestic productivity agenda met, we will be ready to assume a larger economic role in the global economy, one which gives our children's generation greater control of their destiny. 

 (*)  A cornerstone of this productivity agenda will be the race to become the first country with a post-internet view of education, which understands that there is more knowledge to be organized than there is knowledge which needs to be generated.   Our educational system needs to be revolutionized for the internet age, where knowledge needs to be validated and diffused, something quite different from the self-appointed roles of so-called "research" universities.  (See Kelvin Ogilvie's excellent report and suggestion for an innovative proposal for Atlantic Canadian universities on this point.)  Canada needs to have incentives that encourage speed for the commercialization of our knowledge-base and emphasizes the kind of productivity that defines a knowledge economy, a capacity to move people quickly to new areas of economic activity, a confidence that comes from an economy in which we can share a prosperity and close down inefficient sectors rapidly, and above all, an appreciation of entrepreneurship, both in terms of the incentives of the tax system and in terms of the culture and value-system we articulate .