Opportunities ahead
In a presentation to the Canadian Club last week, Bill Currie, Deloitte Canada’s vice-chair and Americas managing director; and John Ruffolo, CEO of OMERS Ventures, highlighted the key obstacles to Canada’s improved productivity, including: a culture of complacency, a lack of Canadian investment capital, a disconnect between entrepreneurs and global markets, and more. They subsequently spoke with the Financial Post’s Dan Ovsey about some of the opportunities for Canada to improve its productivity in 2013. Following is an edited transcript of their conversation.
BC The opportunity with the $400million is to lever it up and create joint partnerships where private money will come in on top of it and you protect some of that private money. While that may seem challenging, it’s actually good policy because it drives extra benefit because we create those gazelles (growth businesses) we’ve talked about. Unless you do that, money will stay on the sidelines. Money will not come into this space unless they can get a return. But we haven’t seen the government’s response. You kind of worry that that’s taking so long.
JR The fundamental question is the sustainability of limited partner investors over the long haul. This is really pension funds, corporates, financial institutions, coming back into the ecosystem and the real question is: can this stimulus be used to help resurrect it; to create a long-term track record of success. If it’s unable to do that, it really is just a one-time shot in the arm, and then you kind of go right back down again. That’s the anxiety that I have. But, I think the federal government’s response is extremely welcome and they’re taking it very seriously.
Q We’re going to have a new premier for Ontario by the spring. From your perspective, what is the most important public-policy change that could be made to spur productivity in Ontario?
JR A year ago on the Liberal platform, they introduced angel tax credits and a corporate venture capital tax credit that was extremely well received. It leverages pure market forces. The government doesn’t select. It really becomes an incentive. It was a very innovative idea. Ultimately, it got passed on largely due to the deficit situation. But those are two examples of something innovative that hopefully the next premier can resurrect.
Q During your presentation, you mentioned Canada’s culture of risk aversion. Do you believe this can be changed?
BC When you get to post-secondary education, our educational systems are built on a 150-year-old model that’s not set up for today. We reward tenure, not innovation. Our faculties are strong political silos, and what we need are students graduating who have diverse backgrounds. Business people who have a fine arts background are more innovative and creative and take more risk. The challenge is it takes a generation. So, first you have to get change in our university system, which is challenging. Second, you have to give it time to catch. You can’t change culture overnight.
JR To me it’s the embracing of failure that is a big difference I see, particularly in Silicon Valley where entrepreneurs use failure as a badge of honour, and in Canada we don’t really do that. We view that as something you do not disclose or something that you’re ashamed of. I would have a far higher propensity to invest in an individual after three failures as opposed to seeing zero failures, because I now know that when that individual is going to be working on their next opportunity they’ll know where to pivot around. They move much faster and are able to get to the same point they were at the previous opportunity within a fraction of the time. So, when the company starts to scale; when the problems become far more complex, somebody who has dealt with failure, I believe, is able to navigate and pivot around those and not completely panic at a situation.
Q What do you believe the future looks like for manufacturing in Canada? What does the manufacturing sector need to do to ensure it has a bright future?
BC Manufacturers have a choice. They can either pretend we still have a 65¢ dollar and under-invest in their businesses, or they can invest in their businesses to be world class. The world of offshoring is changing. Onshoring is going to become the new norm. The input into many manufactured products today of labour as a component of cost is going from two-thirds to 20%. Twenty per cent of high-quality, close-market, no transportation costs of a highly paid Canadian or American worker is actually a small part of the overall cost and it can be globally competitive. We’re seeing organizations like GE bringing stuff home. And, they’re bringing it home to an environment where there is no longer a high degree of conflict between organized labour and business. What we see is innovation on the assembly lines and more productivity, and the potential to bring manufacturing back again. But the manufacturers have to step up; they have to be innovative.
Q The union model is a servicebased model that tends to reward tenure more than performance. Given that performance is going to be so much more critical to the success of business and spur innovation and productivity, can businesses afford to operate servicebased models in North America?
BC There are choices. Unions have choices. You can have Caterpillar in London, Ont. It was unionized in a very aggressive union. They went on strike and Caterpillar moved it. We’re in a world where people can move things. So, I think enlightened organized labour has learned to collaborate, and when they do that, they learn certain things.
The first thing is that highly productive businesses can afford to pay well and are willing to pay well if they have a constant supply chain without disruption. Unionized labour can be as effective as non-unionized labour or even more effective.
It just has to have the view that it’s going to be part of the process rather than fight the process.