The problems and promise of Canadian industry

[kool maudit]

In the provincial economies thread, I recently made an unflattering comparison between Canadian and Swedish industry, noting that this small country has a much more impressive array of top-tier global industrial firms than does Canada.

I stand by this. Not only does Sweden have IKEA, Volvo, Ericsson, Electrolux, and Scania, but its air force is built around Swedish fighters, AWACs aircraft, and transports. Its Navy uses Swedish submarines, Corvettes, patrol boats and fast attack craft.

But it's not all doom and gloom for Canada. U of T, McGill and UBC all rank ahead of Sweden's top school, Karolinska, in the global rankings. Moreover, Canada's industrial sector is 28.2%, not that far behind Sweden's 33% and well ahead given our GDP is three times that of Sweden (they are ahead per capita, however).

So our underperformance is hardly catastrophic. The problem, however, is that our performance is not highly visible. All Swedes are proud of their high visibility in demanding spheres given their small population; in Canada, it can sometimes seem as though we are resigned to the status of a "small country" despite our growing size and very impressive economy.

I propose that it is what I called a "back-office mentality" that holds us back, but will of course allow that having Rome itself as a neighbour can distort the view.

Canada recently came very close to having one of the crowning achievements of any industrial nation: a large, advanced civilian airliner. Airbus and the Americans fucked us out of the CSeries and now it is the A220; this is not dissimilar to the Avro Arrow in terms of its outcome. But Bombardier is a world-leading manufacturer of trains and airplanes, and can be discussed in the same breath as something like Scania any day of the week.

The RCAF uses US airframes exclusively, but Manitoba-based Bristol's CRV7 remains in use on our CF-18s and remains one of the best air-to-ground rockets in the world, which is doubly impressive considering that it is over 40 years old.

Moreover, Bristol is owned by Toronto-based Magellan, which produces components for, among others, the 787 and A380 -- two of the most advanced civilian aircraft out there. It also produces parts for the F-35.

There is no problem with what Canadians at Canadian firms can do. The problem comes in around the term "Canadian" -- it doesn't seem to carry much weight.

Look at Magna: this firm supplies GM, Tesla, VW, Mercedes-Benz, and others. Their technicians can compete with anyone. But the lack of a "Canadian car" means that ordinary people do not often participate in this success story. Here, you buy Volvo or you explain why not. At home, we call Buicks domestic despite nobody south of our border considering them as such. Yes, it's all getting global; a Buick Regal is just an Opel Insignia. But optics matter. For Swedes, the many high-visibility and advanced Swedish products reminds them of who they are and what they can do, despite their small size. This could be useful for Canada.

I am told that we are not a nation-state, not a conventional country, an adjunct to our neighbour. But just as I am being told this, the NHL thread demonstrates an enormous, forceful and quite new (in decades-long terms) consensus in favour of our immigration programme. It wouldn't be inaccurate to compare this "New Ellis Island" consensus to the existing one about healthcare.

So why not industry?

Petty nationalism that divides people by ancestry or ideology is not what Canada needs, but strong support of broad national programmes like healthcare or immigration is a notable characteristic of our country. In light of Remembrance Day, it's worth noting that such support is what built us the world's fourth-largest army in the '40s, when we were the size that Sweden is today.

tl;dr? Sweden is a more productive country than Canada per capita, and the idea that they can always "do for self" looms larger here than it does at home. But when you look at the fundamentals, we're right there. We're working at the highest levels. It's somehow just not always... Canadian. And I think it should be more so.

[kool maudit]

Side note: wouldn't you like to see something like this built in and docked at Halifax, and flying the Maple Leaf? This is the Visby corvette, the world's first fully stealth attack ship, built right here in Malmö.

I am increasingly of the view that these things matter.



We did the Halifax frigates in the '70s, but that was quite a while ago now.

[drew]

I think the result of sending RFPs out for tender and picking the "lowest bidder" precludes Canada from ever competing for it's own work. Home grown industry is great, but it is $$ and people (politicians) would need to be willing to pay more for this.

I wonder if there are also provisions within our current international agreements (NAFTA, etc) that make it difficult, if not impossible to sole source these sorts of military and government contracts to Canadian firms (and the necessary government support (subsidies) to prop up these industries).

[Nouvellecosse]

I agree that a lot of the lack of distinctly Canadian-branded achievements is due to the presence of the US. Not so much in that we have a "back office mentality" but that the US actively opposes and sabotages any perceived competition so close to its homeland. Sweden and Scandinavia may be very small compared to the rest of Europe in a similar way that Canada is to the US, but the rest of Europe isn't a single unified block. If you had Scandinavia competing and interacting with a unified UK, France, Germany, Spain, Low Countries, etc, since the first moment of its existence with (with a big part of its existence as basically a colonial possession of some place else) I'm sure you'd see similar struggles.

[hipster duck]

Originally Posted by Nouvellecosse

I agree that a lot of the lack of distinctly Canadian-branded achievements is due to the presence of the US. Not so much in that we have a "back office mentality" but that the US actively opposes and sabotages any perceived competition so close to its homeland. Sweden and Scandinavia may be very small compared to the rest of Europe in a similar way that Canada is to the US, but the rest of Europe isn't a single unified block. If you had Scandinavia competing and interacting with a unified UK, France, Germany, Spain, Low Countries, etc, since the first moment of its existence with (with a big part of its existence as basically a colonial possession of some place else) I'm sure you'd see similar struggles.

This. We could have been even more backward. The US, for much of its post civil war history pursued a ruthless economic colonialism such that basically any country to its south - including the much-larger-than-us Mexico - basically turned into a client state and deliberate economic backwater to the US. Being part of the British Empire until 1931 probably saved our ass.

It’s kind of like what China is doing to countries across the Global South right now through its Belt Road initiative.

[hipster duck]

The countries whose economic and industrial sovereignty I admire are all surrounded by much larger enemies: Israel, Estonia, Taiwan...

[misher]

What your ignoring are the bureaucratic and other government hurdles to industry and business in Canada that Sweden has abolished. Much of Sweden's success is due to de-regulation. Canada's left is pro-regulation which is why they have not promoted growth the way Sweden has. In the end things like gun control, regulation, or religion do not necessarily belong to either side, the carbon tax is a capitalist policy that should probably be on the Conservative side. In Sweden the left wing party pushed deregulation while in Canada its the right wing party that pushes it. Also just like the US, the Swedish left are very pro-business as they promote low tax rates. They are also pro-wealth having eliminated their wealth and inheritance taxes. Much of what we praise Sweden for exists on Canada's right not its left. If the Liberals had promoted business and wealth the way Sweden's left had they'd be a lot more successful and the West would be very happy. Saying because Sweden's government was successful and left means our left government will be successful is plain wrong. Our left wing government wants to go a completely different way than Sweden's.

Sweden’s reforms were a response to a financial crisis in the 1990s, when GDP growth sank, unemployment spiked, and the government, in an effort to avoid devaluation of its currency, raised interest rates to 500 percent. To jump-start economic growth, the government deregulated industries including taxis, electricity, telecommunications, railways, and domestic air travel to increase competition, according to Persson. Deregulation helped lower prices in industries such as telecommunications, which attracted more customers. Some public services such as elder care and primary education were outsourced to private firms. So-called “product market reforms” made it easier to license new companies, and helped force inefficient legacy firms out of the market, Persson said. A new Competition Act in 1993 sought to block big mergers and anti-competitive practices. “The general lesson is that if you make it more difficult for monopolies to dominate the market, then you will have new firms entering the market,” according to Pontus Braunerhjelm, a professor of economics at Sweden’s Royal Institute of Technology.

Sweden also gives some credence to the controversial idea that cutting corporate tax rates can help stimulate entrepreneurship. The reforms of 1991 lowered corporate income taxes from 52 percent to 30 percent. (Sweden’s corporate tax rate today, at 22 percent, is much lower than the U.S.’s 39 percent, though few companies actually pay a rate that high.) Before the reforms of the 1990s, Sweden favored established companies over individuals who wanted to start a business in a number of ways: Individuals in Sweden had to pay taxes on their firm’s income and their own income from the business, while established businesses had a number of ways to reduce this double taxation.

The reforms “considerably” leveled the playing field, Persson said. “Until 1991, the Swedish tax system disfavored new, small, and less capital-intensive firms while favoring large firms and institutional ownership,” Persson wrote in a paper last year. In the 2000s, Sweden also got rid of its inheritance tax and a tax on wealthy people, which further incentivized people to earn large sums of money and, often, invest it back into the economy. “There was more capital available, so angel investors started to appear,” Braunerhjelm said. Today, there are significant tax breaks for starting and owning a business; for example, entrepreneurs can now have a larger share of their income taxed as capital income, which has a lower tax rate.

https://www.theatlantic.com/business...artups/541413/

[Acajack]

Originally Posted by kool maudit

Side note: wouldn't you like to see something like this built in and docked at Halifax, and flying the Maple Leaf? This is the Visby corvette, the world's first fully stealth attack ship, built right here in Malmö.

I am increasingly of the view that these things matter.
.

I tend to be of the same view but my distinct impression is that the vast majority of Canadians are not.

It's kind of like if a guy from Sudbury lives in Milan for five years. Then he goes back home and finds that everyone back home dresses like slobs and tries to convince them to dress more stylishly. (I've literally been that guy, though not on the topic of Italian fashions.)

It's a battle that's lost even before it begins.

More broadly, I suspect the main reason that Canadian industry is the way it is (relative to, say, Swedish industry) is because it's fairly easy as the US' backstore to attain equivalent or even superior material gains to what are generally achieved in places like Sweden, while taking on far less risk and even dare I say putting in less effort.

[esquire]

It sounds like what kool is getting at has more to do with marketing and the visibility of recognizable brands than with actual industrial policy. Because industry itself is clearly not lacking in this lightly populated country that happens to be part of the G7.

Personally I don't derive any sense of pride when I go to Europe and see the ubiquitous McCain frozen potato products on store shelves, Canada Goose coats in upscale store windows or Bombardier transit equipment on the town. I doubt I'd feel any better if I saw Canadian cars on the streets or Canadian computers on desks. I can live with Canada manufacturing parts for US companies... I don't see the lack of visibility as an issue.

[wave46]

Originally Posted by Acajack

It's kind of like if a guy from Sudbury lives in Milan for five years. Then he goes back home and finds that everyone back home dresses like slobs and tries to convince them to dress more stylishly. (I've literally been that guy, though not on the topic of Italian fashions.)

It's a battle that's lost even before it begins.

How dare you insult the chic fashion sense of Sudbury.

[Acajack]

Originally Posted by wave46

How dare you insult the chic fashion sense of Sudbury.

Shit... sorry.

[WhipperSnapper]

Yeah, I couldn't care less about the number of globally recognized names. That said, Canadian manufacturing was annihilated in the early 1990s and we wrote it off. Investment went elsewhere instead of in modernization and innovation.

[whatnext]

Volvo is a Chinese car company now (owned by Geely). One reason I wouldn't even look at the S90 despite it being exactly the kind of sedan I like, the long wheelbase version brought to North America is made in China.

Does IKEA actually make anything in Sweden?

[misher]

Originally Posted by whatnext

Volvo is a Chinese car company now (owned by Geely). One reason I wouldn't even look at the S90 despite it being exactly the kind of sedan I like, the long wheelbase version brought to North America is made in China.

Does IKEA actually make anything in Sweden?

The XC90 is pretty nice but all Volvos are pricey for what you get.
And dude almost everything is made in China these days. Even if it says made here likely many of the components come from Asia. Most stuff thats made in China that isn't in the dollar store tends to be pretty decent. Meanwhile I got an old Caddy that needs 20+ sensors replaced and requires you to disassemble the back seat to get at the battery.

https://troymedia.com/politicslaw/sl...s-canadas/amp/

Sluggish investment threatens Canada’s prosperity
safety net, and the well-being of the never-defined “middle class.” One subject that was ignored by both the media and those seeking office was productivity.

That’s unfortunate and somewhat puzzling.

After all, in the long term the only way to raise living standards and incomes for Canadians is by building a more productive economy. Yet it seems that most of the country’s political class would prefer to talk about almost anything else.

Even as the election unfolded, there was fresh evidence that Canada is struggling to remain in the top tier among the advanced economies.

The World Economic Forum’s latest global competitiveness report finds that Canada has fallen two notches since 2018 and now sits in 14th place overall. Since 2017, we’ve dropped four spots among the 140 countries tracked by the forum.

Canada continues to trail the U.S. and other leading economies in several key areas that affect competitiveness, including the burden of taxation, the state of innovation, the regulatory environment for business, the speed at which new technologies are diffused across the economy and – relative to the U.S. – aggregate market size.

MORE ON CANADA’S DISMAL BUSINESS INVESTMENT RECORD

Perhaps the greatest threat to Canada’s future living standards is the weakness of business investment. The C.D. Howe Institute periodically benchmarks business investment in Canada relative to other affluent jurisdictions by determining how much companies spend every year on various types of capital, measured on a per employee basis. Investment in housing is excluded, since this form of capital spending does nothing to lift productivity or spur innovation. For Canadian policy-makers, the assessment is not at all comforting.

Capital investment boosts the economy in two ways: first, when businesses undertake the investment; and second, as companies and their employees become more productive by being able to work with more and better equipment, machinery, advanced technology products, factories and buildings, engineering infrastructure, and intellectual property.

Looking at the data for Canada and other industrial countries, the C.D. Howe Institute researchers estimate that Canadian businesses collectively are investing about $15,000 per worker per year. The average amount for all of the industrial economies is $21,000 per worker. In the U.S., businesses are investing the equivalent of $26,000 per worker annually in machinery, equipment, buildings and other things that help to raise productivity. Canada has lost ground compared to most other advanced economies since 2015.

Comparing Canada and the U.S., for every dollar that American companies allocate to expand and improve the private sector’s stock of productive capital, Canadian businesses spend just 57 cents.

If it persists, over time this investment gap will show up in the form of slower growth in real wages for Canadian workers vis-à-vis their U.S. counterparts, lost global market share for Canadian industries, proportionately fewer large Canadian-based companies, and a lower overall standard of living in Canada relative to jurisdictions that are more successful in attracting investment.

What explains Canada’s decidedly mediocre performance?

Referring back to the World Economic Forum’s report, energy infrastructure bottlenecks, an outdated tax system, an increasingly complex legal and regulatory environment for business, and Canada’s fragmented internal market are among the factors inhibiting investment and slowing capital formation.

If the members of Parliament elected on Oct. 21 want to see a more prosperous Canada, they should turn their attention to these issues and leave behind the sound bites and often simplistic narratives that dominated the recent campaign.

Jock Finlayson is executive vice-president of the Business Council of British Columbia.

[Architype]

Originally Posted by kool maudit

...

I stand by this. Not only does Sweden have IKEA, Volvo, Ericsson, Electrolux, and Scania, but its air force is built around Swedish fighters, AWACs aircraft, and transports. Its Navy uses Swedish submarines, Corvettes, patrol boats and fast attack craft.

....

So, some of what you are saying amounts to brand recognition, and what do we have, Tim Horton's, Lululemon? Sweden also didn't have to compete with the giant USA as a neighbour, only Russia, which surely would make them feel more confident and technologically superior. Being European gives them a better competitive edge.

On the other hand we still have Neil Young (desperately seeking Uncle Sam), and they only have ABBA.

[Acajack]

Originally Posted by Architype

So, some of what you are saying amounts to brand recognition, and what do we have, Tim Horton's, Lululemon? Sweden also didn't have to compete with the giant USA as a neighbour, only Russia, which surely would make them feel more confident and technologically superior. Being European gives them a better competitive edge.

On the other had we still have Neil Young, and they only have ABBA.

Other considerations aside, which of the two do you think has bigger name recognition globally?

[wave46]

I think there's several reasons why we don't set it on fire from an industrial standpoint.

We're right next to the largest economy in the world and our economy is fairly open. If we come close to success, one of their behemoths comes in and stomps us simply due to size. Modern economics and open markets mean that unless your firm can maintain some sort of durable advantage - extremely hard to do without very deep pockets - the big guys will get you.

Canada suffers doubly because our market isn't that much different than that of the United States - a company doesn't have to adapt much to take a share of our market. The cultural 'moat' that protects somewhere like Sweden, France or Switzerland is nowhere near as effective here.

Google and Apple crushed Blackberry/RIM - they could throw billions at the smartphone market using the best worldwide talent. We just can't compete with that kind of investment potential. IMO Blackberry should have partnered with Microsoft before they got stomped - Blackberry had good hardware and Microsoft wanted a platform for their software. Ships that pass in the night, I guess.

Boeing stomped the CSeries - arguably one of the best commercial airliners released in the past decade. Canada/Bombardier simply didn't have the leverage to withstand the tariff fight - and Airbus smelled blood in the water and got a screaming deal for $1. I'm not too sad to see Boeing get its comeuppance though - there's some serious culture rot in that company.

There's also an element of Canadian mentality - we're just not terribly competitive and nationalistic about our own companies, except for maybe Tim Hortons. People in this country will happily shit all over Bombardier despite its accomplishments in producing modern aircraft. We are so excited about sticking it to each other and cutting each others' throat that we don't care that someone else is walking off with our wallets. But hey, we get all wet for Costco, IKEA or shit like that.

The mentality of "We'll just cover that by selling more of our non-renewable resources" is strong too. Uh, yeah, until there's nothing left. The scariest day for the Saudi royal leadership will come when they realize they're pumping the last barrels of oil out of the desert and they have absolutely nothing else. I imagine many of them will be hopping a plane to Switzerland while the country riots.

[someone123]

In the software development industry the impact of the US is very apparent. If you have a decent business plan you can raise a lot more money in the US, and most of the time you have to compete directly against those who take that investment (maybe selling at a loss for many years). Shrewd but smaller Canadian investors have a hard time engaging in this sort of environment and to be honest I'm not sure any investors are actually doing that well. There is just a huge supply of capital relative to the modest average wealth-creating potential of these businesses.

I think this type of environment could turn any country into a permanent economic backwater, and no malice or special coordination is needed to explain what's happening.

[whatnext]

Originally Posted by Architype

So, some of what you are saying amounts to brand recognition, and what do we have, Tim Horton's, Lululemon? Sweden also didn't have to compete with the giant USA as a neighbour, only Russia, which surely would make them feel more confident and technologically superior. Being European gives them a better competitive edge.

On the other hand we still have Neil Young (desperately seeking Uncle Sam), and they only have ABBA.

Indeed. Whenever Canadians start moaning about how bad they have it, they should look at Russia. A country of similar size and geographic issues - it is a total basket case. Appalling life expectancy, rife with corruption, pathetic industry..one could go on and on.

[WhipperSnapper]

Originally Posted by misher

What your ignoring are the bureaucratic and other government hurdles to industry and business in Canada that Sweden has abolished. Much of Sweden's success is due to de-regulation. Canada's left is pro-regulation which is why they have not promoted growth the way Sweden has. In the end things like gun control, regulation, or religion do not necessarily belong to either side, the carbon tax is a capitalist policy that should probably be on the Conservative side. In Sweden the left wing party pushed deregulation while in Canada its the right wing party that pushes it. Also just like the US, the Swedish left are very pro-business as they promote low tax rates. They are also pro-wealth having eliminated their wealth and inheritance taxes. Much of what we praise Sweden for exists on Canada's right not its left. If the Liberals had promoted business and wealth the way Sweden's left had they'd be a lot more successful and the West would be very happy. Saying because Sweden's government was successful and left means our left government will be successful is plain wrong. Our left wing government wants to go a completely different way than Sweden's.


https://www.theatlantic.com/business...artups/541413/

Wealth is hard to define and any sort of tax on it is therefore pretty nonspecific and usually ineffective applying to those the tax was first created. It's just a dumb thing to try and tax.