If there was no winner in Monday’s English-language leaders’ debate, it’s not hard to identify the night’s biggest loser. The economy barely got mentioned during the two-hour slugfest.
Unlike in previous years, this debate had no segment devoted to a discussion of economic policy. It was replaced by one on “affordability” that had the leaders outbidding each other to bribe voters with their own money, promising relief to a middle class that’s feeling pinched.
The debate topics were apparently “chosen by voters,” one assumes, according to what most matters to them. The problem with this approach, however, is that there is no way to make life more affordable for Canadians without a strategy to make our economy more productive.
No party appears to know how to do that. Our economy remains tethered to housing and non-renewable resource extraction, with a manufacturing sector doing its best to hang on. But we’re a minor player in the “intangibles economy” that drives 21st-century wealth creation.
The intangibles economy is “one that favours intellectual property over physical assets,” as Sean Speer and Robert Asselin note in an April Public Policy Forum study. “To the victors go tremendous spoils since the advantages conferred by IP and data tend to a) create dominant market positions and b) feature near-zero marginal costs for each additional customer.”
Mr. Speer was an economic adviser to the government of Conservative prime minister Stephen Harper, which overhauled Canada’s research and development tax credits to largely unfavourable reviews. Canadian-based companies continue to spend far less on R&D than most of their competitors in other developed countries.
Mr. Asselin was an adviser to Liberal Finance Minister Bill Morneau when the latter tabled his 2017 budget. It was in that document, which contained the word “innovation” no fewer than 212 times, that Mr. Morneau announced $950-million in funding for five regional “superclusters” to encourage a concentration of research-focused firms in artificial intelligence in Quebec, ocean-based industries in Atlantic Canada, advanced manufacturing in Ontario, agri-food businesses on the Prairies and firms in digital technology in British Columbia.
The stated goal of the supercluster initiative is to “create more than 50,000 middle-class jobs and grow Canada’s economy by $50-billion over the next 10 years.” But there is little to suggest the supercluster strategy will deliver transformative economic change.
“Frequent talk of innovation by the federal government over the past four years did not result in a national innovation strategy – a road map of policies to see Canada prosper in knowledge-based and data-driven economies,” wrote former Research in Motion chairman Jim Balsillie in a recent Globe and Mail essay. “An ad hoc set of programs was introduced to appease the domestic tech sector, but a strategic approach to commercializing Canadian intellectual property (IP) and data was pushed aside in favour of a feverish pursuit of jobs, establishing Canada as a prominent hub of highly skilled but cheap tech branch plants.”
Canada is hardly alone in rolling out the welcome mat for foreign tech giants. But the danger in relying on the Googles, Amazons, Facebooks or Apples of this world to create jobs here is that it not only surrenders control over technology created in this country to a foreign entity, it gives the GAFAs increasing leverage to dictate our economic and tax policies.
Over the past four years, the Liberals repeatedly rejected calls to tax the GAFAs. With an election campaign under way, the party is now promising to “make sure multinational tech giants pay corporate tax on the revenue they generate in Canada” and oblige them to collect sales taxes in the country.
The Liberal platform projects the new taxes on foreign tech giants will generate $540-million next year and $730-million by the 2023-24 fiscal year. That’s not a particularly impressive chunk of change and the Parliamentary Budget Office attaches “high uncertainty” to the numbers given the difficulty in “accurately estimating the tax base.”
That, however, may not be the biggest obstacle the next federal government faces in attempting to make the GAFAs “pay their fair share.” French President Emmanuel Macron has run up against the wrath of U.S. President Donald Trump with his vow to slap a 3-per-cent tax on GAFA revenues in his country. While Mr. Macron claims to have reached a deal with Mr. Trump at August’s Group of Seven summit, he has provided no details on what it contains.
The GAFAs didn’t become so omnipotent by playing nice with foreign governments – nor their own, for that matter. After Democratic presidential candidate Elizabeth Warren vowed to break up the behemoths of Silicon Valley if she is elected, Facebook chief executive officer Mark Zuckerberg did not mince words. “At the end of the day, if someone’s going to try to threaten something that existential, you go to the mat and you fight.”
Canada’s days as a cheap labour haven for foreign tech giants are not likely to end any time soon. Let’s hope the next federal government at least starts to seriously think about the problem.