If it were up to Michael Hart, he’d scrap EDC tomorrow. Others are more forgiving; they’d break it up and privatize its different lines of business. “Instead of five major banks promoting export finance, we’ve got one obscure bureaucracy,” says Hart. “How’s that good for the country?” That’s not to say there isn’t a role for an export credit agency, but it should be to fill in the gaps where the private sector won’t go, rather than crowd out the banks altogether. In reconfiguring EDC ’s role, readjusting its guiding principle would also help. Whether the agency is “self-sustaining” is immaterial. The purpose of EDC is not to be profitable, but to get as many companies as possible successfully exporting, and if it can get the banks involved, all the better.
At the same time, EDC should not be another fiefdom unto itself, but part of a one-stop shop that encompasses the gamut of government trade services. What those services should be must also be reconsidered. While some observers have high praise for the trade commissioner service, others, like Hart, question the need for government to provide free market intelligence when the information is readily available in the private sector. “Why should government do that in today’s world?” he asks. “I can see that a hundred years ago, but with today’s communications and transportation, do we need to hold the hand of a potential exporter?”
Jim Sherry, a veteran trade commissioner now working in the private sector, agrees that providing market intelligence is not the way to go. In many cases, he says, the embassies hire local companies to gather market information, removing the bureaucrats from a more intimate involvement with Canadian companies. Many of the embassy commercial officers are local hires with a very narrow understanding of Canada and are little more than “glorified interpreters.” Sherry advocates a much more hands-on approach, especially with notoriously complex countries like China. “If the Canadian government gives a hoot about small and medium-sized companies internationally, then it has to have a completely dedicated trade commissioner service that helps individual companies succeed and prosper internationally,” says Sherry. “It’s those guys who need the trade commissioners holding their hands, because let’s face it, they need the help.”
Kam Rathee, president of the Canada–India Business Council, would go one step further. He argues Ottawa could put Canada’s countless ethnic business associations to good use by hiring some of their members as independent trade advisers to guide neophyte Canadian companies going into new markets. It would help tackle the two biggest weaknesses plaguing the trade commissioner service: that bureaucrats are not businesspeople, and that with only a three-year posting in each country they barely get comfortable before it’s time to leave. An Indo-Canadian adviser would already know the lay of the land in India, says Rathee, and being a businessperson, would have the skills to go beyond collecting business cards to actually clinching a deal. “Companies need to be able to get to the next step, and civil servants do not close deals,” he says. “It’s like driving a car when you have no experience in how to get the best mileage out of it. Business is done by businesspeople.”
Ultimately, just like any company, the government needs to come up with an international business plan that identifies clear goals and strategies and establishes rates for success. For it to work, the underlying rationale should not be to wean Canada off its dependence on the United States, but to broaden the country’s global reach as an end in itself and as a matter of survival for any self-interested country. Canada needs to ask itself, “Where can I get the best bang for the buck?” and then target those markets for promotion and trade-facilitating agreements.
The plan must also be coordinated; that is, don’t tell Canadians to do business with China and then have the embassy in Beijing deny business visas to potential Chinese investors who have been invited to government-sponsored trade fairs. Even worse, don’t encourage them to invest in a corruption-riddled environment without the support of investment-protection agreements. The plan must be consistent, pragmatic and focused on the real barriers to real trade, such as anti-competitive practices, double taxation and exorbitant Japanese tariffs on canola oil. Whatever markets the government targets should be chosen in coordination with the business community, and like any good company the government should promote only its best products, whether they are wood-frame housing or auto parts.
Above all, when it comes to handling trade, Canada must be impressive. Spouting hollow platitudes about Canadian values is not impressive, and neither was Pierre Pettigrew as trade minister. The government cannot afford to name anyone other than the absolute best person to the post; to do otherwise tells the rest of the world that Canada doesn’t take trade seriously. And that goes for ambassadors too: when you hand out plum posts to mps with no qualifications other than loyalty to a political party, it diminishes the entire country. Ambassadors are Canada’s most important calling card internationally, which means they need to be sharp negotiators equipped with a strong business sense. “The commercial activism of American and Japanese diplomats is everywhere — they are always selling,” says European trade consultant Boris Rousseff. “Canadian diplomats in Europe talk about everything but trade. You need more people with corporate experience.”
Diplomats should also be evaluated on their social skills and entertaining prowess. Throwing a great party is infinitely more critical to boosting trade relations than is the ability to inundate your potential business partners with bureaucratic paperwork signed in triplicate. All too often, Canadian ambassadors are unbearably dull, distant and not tapped into local communities. In India, for example, the High Commission invites the same hundred people to every function, says Pradeep Sood, former president of the Indo-Canada Chamber of Commerce. Perhaps that’s why, when Paul Martin visited New Delhi in 2005, hardly anyone attended the press conference (including Sood and Kam Rathee, both of whom were in town but failed to receive an invitation).
Networking needs to be the new modus operandi, and everyone from ambassadors to trade commissioners should focus on cultivating influence and access to the real power players. It might help if the federal government tapped into the country’s rich multicultural resource when it comes to appointing ambassadors. As Richard Liu, an entrepreneur who has worked closely with the government, notes, while countries like Mexico, Malaysia and Mauritius all have ethnic-Chinese ambassadors to China, Canada has never named a Chinese Canadian to the post. “Everybody knows that when Chinese deal with Chinese, you gain,” says Liu. Instead the Beijing embassy and federal bureaucrats seem more concerned with whether embassy staff speak French rather than Mandarin.
If Ottawa were truly tapped in, it would replace the government lobbyists and representatives from Atomic Energy of Canada who normally crowd the junkets to China with members of the Chinese Canadian community who have serious contacts on the mainland and are doing a lot of business below the radar. “Our trade marketing efforts aren’t very sophisticated,” says David Pecaut, senior partner with the Boston Consulting Group in Toronto. “We need to be much more adept at getting ourselves connected to these markets at the level of the people who are the real movers and shakers. Our trade policy model is still back in the 1960s and 1970s — we haven’t moved into the world of networks, connectivity and government and the private sector working together.”
INVEST IN A ROLODEX
The good news is that Canada already has a network of worldwide contacts; it just needs a Rolodex to store them in. There are an estimated 2.7 million Canadians living abroad, representing 8.8 per cent of the population and on a per capita basis one of the largest expat communities worldwide.136 Although the majority reside in the United States, 644,000 are in Asia. While many have returned to their country of origin because they felt professionally stunted in Canada, they would be powerful allies in attracting investment and boosting commercial ties. Harvard professor Michael Szonyi argues the émigrés should be treated as a “net overseas asset.” He observes, “Now that they have gone back, we have to ask ourselves, ho
w can this be good for Canada? Rather than think of this as a failed policy, we’ve dispatched Canada boosters to countries around the world where there is lots of mobile investment capital.”
One way to keep émigrés in the Canadian fold is to remove the tax on worldwide income that Ottawa currently levies on Canadian residents or Canadians living overseas with assets in Canada. Like so much of Canadian policy that has the reverse effect of its desired intent, the tax actually encourages émigrés and expats to cut all ties to Canada. To avoid paying tax, Canadian citizens living abroad must close their bank accounts and sell their assets and can no longer pay into registered retirement savings plans (RRSPS). Forced to choose between living tax-free or cutting up their Royal Bank credit cards, it’s a no-brainer and only Canada ends up losing out. Instead, Ottawa should follow the American lead, which taxes income above a certain threshold regardless of where a U.S. citizen resides. In that way, overseas money would continue to flow back home and Canada would get something back for giving out its passport like lollipops on Halloween.
The government should also come up with a database to track Canadian émigrés as well as all foreigners who come to study at Canadian universities. David Pecaut suggests making the students part of a global “Friends of Canada” network and treating them like alumni, even bringing them back to Canada occasionally for specific events. “You’d be amazed,” he says, “once it got going, how much affinity there really is and how much benefit you’d get from influencing them for very modest amounts of money.”
As for the immigrants who are already here or on their way, the government should pre-approve their professional credentials before they arrive in Canada, and their qualifications should be accepted across the country. The government should also raise public awareness of the potential benefits of hiring immigrants to break into international markets. It could spread the message through television commercials and make the campaign part of its one-stop trade-promotion shop. *
EMBRACE YOUR INNER ENTREPRENEUR
“Foster a culture of entrepreneurship” was one of the most common recommendations made to government by individuals interviewed for this book. That’s a touchy one, considering that many of the people elected to Parliament have generated much of the anti-corporate vitriol that has become gospel in Canadian society. William Lyon Mackenzie King, Canada’s longest-serving prime minister, who racked up twenty-one years in power, believed that capitalism spawned wars and debased society. He wrote that industry was “a monster so demonical as to breed a terror unparalleled in human thought.”137 Not surprisingly, “there isn’t a businessman in government,” says Alvin Segal, chief executive of Montreal clothing manufacturer Peerless Clothing. “You should hear the questions they ask. They don’t have a clue.” Adds Avrim Lazar: “They’re almost innocent of business, as if it exists in a different universe and it’s not their problem.”
Which leads to the obvious question, How do you devise industrial strategy, trade policy or a tax regime when you don’t understand how business works? From the results gleaned to date, the answer would seem to be, not very well. If the government wants to encourage Canadians to be more entrepreneurial, it’s first going to have to add a few entrepreneurs to its own ranks. Businesspeople should be encouraged to enter government, as they are in the United States and France, says John Hancock. “You see it everywhere in the U.S. government. Of course you get the bagmen and the cronies, but you also get Larry Summers and Robert Rubin, the best of the best,” he says. “Bureaucrats have no interest or sensibility for what business is looking for because they’ve never done it. In the U.S., it’s part of their dna.”
If there’s any hope of coming up with a strategy, business and government are also going to have to work together. “We need a greater partnership between the Canadian government and Canadian business,” says Neil Tate of BMO. “A strategy can’t just be devised by the government; it must be done together with business. There needs to be a joint commitment.” In Australia and New Zealand, notes Tate, senior business executives volunteered a year or two of their time to take a leadership role in developing an Asia strategy for their countries and in some cases were seconded to specific government ministries. “By the time you’ve become a senior executive of a large or medium-sized corporation, you’re committed to this country and you want to give back. We need to create a forum where we can develop a plan that will keep Canada open for business.”
A number of executives suggested starting off with a two- or three-day brainstorming session with the prime minister and business representatives. Derek Burney, a long-time bureaucrat who has also worked for Bell Canada and aviation manufacturer cae, recommended creating sectoral advisory groups like those established to negotiate NAFTA. An overarching business committee would provide the link to government. “In Finland,” notes Avrim Lazar, “government and industry got together, and they were shameless about it.”
Dollars to doughnuts, one of the first things businesspeople would tell government is to lower taxes. Successive governments have tried chipping away at the country’s oppressive tax burden, including Stephen Harper’s Tories, who pledged to ratchet down Canada’s taxes on business investment to the lowest among the G8. But that depends, of course, on the minority government staying in power. Meanwhile, as of 2006, Canada had the sixth-highest marginal effective tax rate on business out of thirty-six industrialized countries, and it is the only member of the oecd whose tax rate is now higher than it was in 1982.138 Some governments, like Quebec’s, try to offset the burden by offering huge tax breaks to entice companies like French video game giant Ubisoft to establish its North American beachhead in Montreal. They’ve been promised two thousand jobs out of the deal, but it’s like biting off your nose to spite your face. How does it help all the would-be Quebec entrepreneurs who opt to join the province’s swelling union ranks rather than pay exorbitantly high taxes to start their own company?
The high taxes, whether on business or personal income, mean there is little incentive to work longer hours or to take a risk when an individual would do just as well working nine to five as a bus driver. Why would people from Newfoundland get a full-time job, never mind start their own business, when they can work for two months and then qualify for welfare for the rest of the year? “We’re a society where the government says ‘We’ll look after the risk for you,’” says Michael Hart. “In the end, it dulls your entrepreneurial capacity.” Adds one long-time bureaucrat: “‘The government will provide’ is our mantra. But the point was to provide a safety net — it’s not supposed to be a hammock.”
Many of the people snoozing in that hammock are the 3.2 million, or roughly 20 per cent, of the Canadian workforce employed in the public sector. There are a lot of places where government needs to bolster its ranks; Ottawa definitely needs more trade negotiators, and as Beijing consultant John Gruetzner suggested, mps should have foreign-policy advisers just as U.S. members of Congress do. But during the three years I spent researching this book — whether speaking to Deszö Horváth, the Hungarian-born, Swedish-raised dean of York University’s Schulich School of Business, or Francesco Bellini, the Italian-born pharmaceutical entrepreneur— I rarely came across a native-born Canadian with the kinetic drive that distinguishes the globally minded. I became convinced that all the homegrown Canadians must be working in obscure government departments tasting new varieties of cheese to see whether they competed with cheddar.
Imagine if all these people were creating wealth instead of trying to leash it. Canada would have more entrepreneurs than it would know what to do with!
GIVE POWER TO THE PEOPLE
Quick: what is Canada’s most important asset? If you said oil or natural gas, you’d be wrong. It’s people. So why is it that we put so little stock in them? Canada boasts one of the most educated populations in the world, but educated for what? The oecd notes that an “usually high” number of Canada’s post-secondary students attend community college and trade school, which is
good for the automotive industry. But while we seem to focus on churning out workers, what about leaders?
Only 30 per cent of Canadian managers have university degrees, compared with 46 per cent of Americans. Headhunters routinely recommend that Canadian companies recruit senior-level executives from the United States. The Americans not only invest close to double, per capita, on post-secondary education, but churn out 87 per cent more business graduates on a weighted basis than do Canadians.139 As a consequence, Canadian CEOS are less well trained, says Rotman’s Roger Martin, and are “not as capable as they should be in setting strategies that will enable their firms to compete as effectively as they could.”140
Part of the problem, he argues, is that there are not enough spaces available for business education. Martin notes that business undergrads and mba students face among the longest waiting lists and lowest acceptance levels in the Canadian university system. He also points out that of the two thousand research chairs Ottawa aims to create, fewer than ten will be dedicated to business scholars. The reason, says Alan Middleton, executive director at the Schulich Executive Education Centre in Toronto, is that business and commerce are treated as specialty majors on the margin rather than as an integral part of a comprehensive education. As an example he points to Queen’s University School of Policy Studies, Canada’s premier training ground for future public administrators. The school doesn’t offer a single commerce or management course, instead focusing on economic policy and analysis, and “brand is like a foreign word,” says Middleton. “There’s a point where you have to turn policy into plans and plans into actions — and that’s where there is a lot of slippage,” he says.
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