Canada in the 21st Century - Triumph or Tragedy

by David Kilgour, MP Edmonton Southeast
Canadian Social Studies
May 1996

It must be clear to everyone who reads newspapers that we are heading toward a society that will be barely recognizable in a decade. The globalization of markets, rapid technological change, and shift from a resource-based to a knowledge-based society are increasingly defining the environment in which many Canadians live. In an age where a single personal computer is more powerful than the mainframes of ten years ago, the role that information technologies play in changing our society is clear. Telecommunications. Robotics. Computer-aided design and manufacturing. These fields of endeavour are transforming the economy of our nation and the entire world.

Whether Canadians can expect to maintain our number one position in the world for quality of life will depend in large measure on our ability to develop a more innovative, knowledge-based economy. The challenge is considerable. Trade liberalization and growing economies elsewhere are opening our industries to intense competition. More than ever before, capital flows to the nations that offer the best conditions for innovation; the best minds and the best infrastructure.

Educators vs. Resources

In his eloquent analysis of the global economic order, Lester Thurow, recognized throughout the world as a leading expert on economic issues, provides a simple recipe for countries aspiring to succeed in a highly competitive environment of the near future: "the education and skills of the work force will end up being the dominant competitive weapon." (Head to Head, L.Thurow)

At the threshold of the 21st century no longer are countries blessed with natural resources considered vital players in the competitive race. Due to the minerals-science revolution, contribution to GNP of natural resources has diminished. Steel and energy consumption per person as an indicator of an economic advancement has dropped with the application of new information technologies and/or sophistication and efficiency of manufacturing processes. Secondly, as the Japanese example illustrates, a lack of natural resources does not seem to inhibit a country’s economic development. Japanese boast the world’s best steel industry although they have neither iron ore nor coal. They buy these products available worldwide, wherever quality and price are best. If necessary, they invest in foreign mining developments provided all local conditions and regulations suit their economic objectives.

In 1870, the resource rich countries - Argentina, Chile and New Zealand, belonged to the elite circle of the world’s twenty richest countries. A century later, in 1988, they fell off the list while others, whose natural resources were not known in 1870 joined the select club - The United Arab Emirates and Kuwait. However, as Thurow documents, in 118 years there is only one success story - Japan. It was the only industrial country that made a spectacular leap from non-existence on the 1870 list to 13th position in 1988 survey.

Every economic history of Canada emphasizes the wealth of this country’s natural resources as a source of economic development. Although those resources indeed contribute to Canada’s prosperity, they have probably become a major disincentive to moving toward a higher stage of technological development. As the University of Toronto professor , Alan Rugman, put it: "Canada is the only country in the world that could screw up on various economic things because it could rely on its resource base to bail it out. But the reality of the global market as it is developing is that we simply can’t rely anymore on commodity-driver resource industries."

Capital Not Competitive Factor

In short, being national resource rich does not give any country a competitive edge anymore. Neither, it seems is capital that in the past was a good indicator of a country’s affluence. Having more capital per person usually led to higher productivity and to higher wages. Recent advances in telecommunications and computers facilitated greater mobility of capital and its accessibility. Transitional corporations which locate their facilities in developing countries, transfer funds from country to country at will; they bring capital availability with them. The United Nations, which tracks the movement of these corporations, reports that the 600 largest trans-nationals now account for fully one quarter of the world’s total output. Also, the deregulation of financial markets and electronic financial transactions in practice increased the mobility of the world’s capital markets.

Indeed, "we are living thrrugh a transformation that will rearrange the politics and economics of the coming century. There will be no national products or technologies, no national corporations, no national industries. There will be no national economies, at least as we have come to understand that concept. All that will remain rooted within national borders are the people who comprise a nation. Each nation’s primary political task will be to cope with the centrifugal forces of the global economy which tear at the ties binding citizens together - bestowing even greater wealth on the most skilled and insightful, while consigning the less skilled to a declining standard of living." (The Work of Nations: Preparing Ourselves for 21st-Century Capitalism, Robert Reich, emphasis mine).

Although it has long been conventional wisdom that the level of one’s skills and education is closely linked with one’s wealth and/or social standing, until recently few researchers studied the issue by examining data that follow the same individuals from different income groups for many years. A spate of new academic studies of the upward mobility in the US illustrates an alarming trend.

According to a Business Week report (Feb. 26, 1996), "unlike past decades, when opportunities for advancement existed at all levels, America today is cleaving into economic camps divided by education." In other words, workers who find themselves at the bottom of economic ladder are less likely to move up in their lifetimes. At the same time, for those who have an access and motivation to complete some form of post-secondary institution, upward mobility is increasing. An old image of America as the land of opportunity for all, especially for Europeans fleeing stratified societies, is dramatically changing.

Education and Earnings

The new statistics are a powerful eye-opener. For instance, "in 1970s, the 10-year earnings of high school dropouts and graduates progressed at 45% and 42% respectively...In the 1980s, however...dropouts’ 10-year average crept along at only 14%, high school grads at 20%, while college grads continued to advance at a 55% pace." In fact, five European countries have surpassed the US in terms of economic mobility in the 1980s. In the Netherlands, the share of the poor who left poverty within a year was 44%; in Sweden, 37%; France, 28%; Germany 26%, while the figures for the white population in the US were 17%, and 8% for the blacks. The 1990s do not provide any grounds for optimism as the figures through 1994 indicate the same inequality patterns of the 80s.

In Canada, for instance, the 1991 Survey of Consumer Finance showed that post-secondary graduates made about $500,000 more in their lifetime than those without post-secondary education.

According to Thurow, seven key industries are commonly believed to dominate the economic scene of the next few decades: microelectronics, biotechnology, the new materials industries, civilian aviation, telecommunications, robots plus machine tools, and computers plus software. "All are brain power industries. Each would be located anywhere on the face of the globe. Where they will be located depends upon who can organize the brainpower to capture them. In the century ahead comparative advantage will be man-made."

Microelectronics - A Strategic Industry

In a world being swept by information technologies, the microelectronics industry (design and manufacturing) is the core element underlying the competitiveness of a growing number of economic sectors. Semiconductors devices are incorporated not only in traditional electronics equipment, but also in ever-increasing numbers in a wide range of applications, from simple consumer products to sophisticated industrial systems. In the early 1980s, the number of electronic components in a car, an office or a home was negligible. According to some estimates, by the year 2000 an average office or an automobile will be equipped with 30 to 50 electronic systems and an average home will boast as many as 250, considering the present trend towards "smart homes" whose environment will be fully controlled by electronic devices. The new fast-developing markets include personal communication devices, personal information appliances, CD-ROM, video conferencing and information highways.

A well developed microelectronics capability enhances an economy’s traditional industrial strength and drives development in emerging technologies. For these reasons, the microelectronics industry is of strategic importance to most governments.

A glance at the American microelectronics provides a good example of dire consequences of underestimating the importance of this industry. Microelectronics, with all the great scientific inventions permitting and accelerating its development, began in the US. Leading companies, IBM, Apple, Xerox. Digital have become known worldwide as leaders in the field. Yet, in less than a decade, America’s leadership in microelectronics has been snatched from its hands and the world market has been swamped by semiconductors produced by Japanese firms (NEC, Toshiba and Hitachi). One of the reasons of the rapid fall of the American microelectronics industry was insufficient R&D investment in times of the diminishing world market demand. While American companies quit investing to maintain their profit margins, Japanese firms continued to build solid industrial capacity which responded with prompt deliveries once the market was on the upswing again. American producers desperately tried to catch up, but it was often too late.

The Canadian microelectronics industry is growing at the rate of 10% per year. It is a steady growth, which far exceeds the average performance of other sectors. By the year 2000 our microelectronics industry will probably grow to $1.2 billion in annual sales from $400 million in 1980. According to some experts, for every dollar of microelectronics growth there is a growth of 3 to 10 dollars in the demand for electronic equipment. In other words, in today’s worldwide technological race, the countries that fail to maintain the growth rate would increasingly become dependent on imports of electronic components at constantly spiraling prices.

Although there are a number of constrains to growth inherent in the structure of the Canadian microelectronics, it would only be logical that the government prioritizes an industry that provides so much added value. The decline of microelectronics in the US and its boom in the European countries, Japan and other Pacific Rim countries where the industry was "jump-started" by consistent, long-term government planning and financial involvement, suggests only one solution: invest or lose the wealth creation opportunities.

R&D Dilemma

Canadians need to correct our poor record of investment in R&D aimed specifically at wealth creation as only this approach is capable of providing sustained growth, the only solution to our present economic problems, especially debt reduction and unemployment. Since advanced technology will dominate every aspect of our economy in the near future, research and development become critical. In 1991, Canada invested only 1.5% of GDP in R&D expenditure versus about 2.5% - 3% by our major 6-7 competitors (Germany, USA, Japan). In terms of the share of government-financed R&D expenditure of businesses, in 1993 Canada lagged behind all major developed countries. Our governments seem to realize that industry-based product research is the major player in today’s competitive economies and thus strongly emphasize the need for government and industry alliances in order to achieve the greatest possible growth from limited R&D funds.

If Canada, which appears to go in the opposite direction, does not improve without delay its relationship with leading industries, our competitors would move so far ahead into the knowledge society that capitalizing on the tremendous opportunities opening up becomes impossible.

Education - Blind Alley

Given the new patterns of production and trade and the new emphasis on a knowledge based economy/society, it is crucial that Canada manage its most precious asset - its human resources better. In this context, our educational system plays a pivotal role in producing a highly-skilled work force capable of adapting to changing technologies. In his book, Thurow delivers a harsh warning to American educators: "The part of American work force that does not go to college is not world-class, and that part of the American work force that does not graduate from high school (29%) is positively Third World when it comes to educational skills. Education has to improve if Americans want to win."

This warning applies equally to Canadian education system, which as of now still appears to meet inadequately the challenges of the complex modern world. In 1992, the Economic Council of Canada reported that nearly one quarter of young Canadians were functionally illiterate and predicted that, without change, one million more handicapped in this way could be leaving school for the work force by the year 2000. If those young people think that they could get jobs flipping hamburgers in fast-food restaurants or driving trucks they are most probably mistaken. The service sector has entered the business of automation and looks for technicians and other skilled workers who can keep sophisticated electronic systems running. For example, in one of the American fast-food chains, a high-speed laser cooker system was operated by a young man from Germany and a woman from Japan, at an hourly wage of $29.50 (1989). Neither of them spoke English nor had any post-secondary education in the US. They got the job because none of the local candidates could match their skills in managing modern technology.

Similarly, driving a truck could no longer be considered an easy job option. The Canadian Trucking Association identifies computer literacy as one of the five basic skills (not to mention reading and some mathematics) needed by truck drivers. Those from Quebec (and Mexico) are also required to be fully bilingual.

The executives of many Canadian high-tech companies express deep concerns about shortages of skilled employees. These concerns are backed up by a recent report released by the Software Human Resources Council, a body comprised of technology, government and education representatives, whose findings raise troubling issues about Canadian education. About 10,000 software workers positions were unfilled last year (1995) and this number will likely sour as the Canadian software industry continues to grow by 20% annually. This means 10,000 lost job opportunities in times of spiraling unemployment and mounting frustration among young Canadians and amounts to a strong indictment of our post-secondary education institutions. To partially remedy the situation in the Ottawa area, for instance, several technology companies decided to team up with secondary and elementary schools to improve future employment opportunities for young people. They teach skills that are demanded by high-tech businesses realizing that by not helping schools they will continue to face dwindling resources of highly skilled technological workers.

High Tech Skills

It is estimated that the employment in Canadian electronic equipment industries would increase 40% between 1991 and 2001. If a similar trend occurs in our microelectronics sector, some significant revisions on all levels of our educational system might be inescapable. Already, Canada has fewer engineers per capita than the US or Japan and their number diminishes as the most energetic and knowledgeable specialists search for employment south of the border. The terms of the Free Trade Agreement and growing disparity in salary levels encourage the outflow. In addition, today’s trend of funding cuts for Canadian universities might seriously damage engineering programs causing a dramatic shortage of professionals for Canadian electronics and microelectronics industries in the near future.

The number of scientists and engineers will not increase until high-school science and mathematics is improved as there are indications that these disciplines are not dealt with adequately in Canadian Schools. The 1992 international comparison of student achievement in science and mathematics (Economic Council of Canada) showed that Canadian children at age 10 compared favorably with those of most other industrialized countries; however by the time they completed secondary school they had fallen behind. A root cause of this mediocre rating is the lack of specialist teachers; only 31% of the Canadian schools had teachers specializing in mathematics. In Japan, where primary schools students have performed well in science and mathematics, the teachers are drawn from university graduates with high achievement levels in these specialties.

Canada’s universities are increasingly constrained by severe financial pressures. Insufficient funding appears to contribute to lack of achievement in the sciences. There are no funds for modern equipment and laboratory courses, classrooms are overcrowded, student supervision has been curtailed; the physical plant is deteriorating. Past investment in higher education built a network of excellent universities across the country. They are still an invaluable resource as Canada confronts the challenges of knowledge based society, but they are a resource very much in need of renewal.

Therefore, the most recent attack on our colleges and universities in a form of declining federal and provincial funding is most reprehensible. The consequences of this onslaught to the system that is already reeling from chronic underfunding, will be devastating - the system cannot absorb more cuts without drastic reductions in the number of students or the quality of education or both. Higher tuition and more aggressive fund-raising among non-government sources have, in general, been of only marginal help in making up the universities’ financial losses because governments account for a large share of university budgets. If no immediate steps are taken to remedy the quality, process and funding of our education future historians will record that the 21st century never belonged to Canadians.