Diana Carney

Opinion: What Canada should take from the WEF Competitiveness Report

September 13, 2012

This year, Canada slipped from 12 to 14 in the World Economic Forum’s Global Competitiveness Rankings, having dropped two places the previous year and one in 2009-10. So in three years we have gone down five places, from 9 to 14. The countries that have pulled ahead of us are: Taiwan, Qatar, the United Kingdom, Hong Kong and the Netherlands (which now stands at number 5, up from number 10). Over the same period, the US has also dropped five spots, from 2 to 7.

In analyzing Canada’s decline, the report highlights: a less favorable assessment of the quality of our research institutions and weaknesses in the contribution of government procurement practices to promoting innovation (a key concern of the Jenkins panel review of Federal Support to Research and Development). While we remain strong on human capital factors and, somewhat surprisingly, on labour market efficiency, the report also points to lower enrollment in higher education and some relative weakness in workplace training. It is not news to us that we have a skills problem in Canada: what is a little surprising is that it has not pulled us down further.

It is interesting to look in greater detail at Canada’s profile and see where we stand out, both positively and negatively. The index is a composite ranking of weighted factors in three broad areas: basic requirements, efficiency enhancers and innovation and sophistication factors. Within these three areas, there are 12 `pillars of competitiveness’ which, in turn, are comprised of between two (for market size) and twenty one (for institutions) separate indicators. So there are a lot of data and a lot of rankings to muse upon.

The good news is that we come top of the pile (no. 1 ranking) in 4 areas: malaria cases/1,000 population and business impact of malaria (phew…obviously none of our top business execs are vacationing in the Dominican Republic) as well as annual change in inflation rate and, again somewhat surprisingly, the number of procedures required to start a business. Less surprising is that we are top-ranked in soundness of banks. This really is an advantage on which we should be able to capitalize as we reach out to increase economic links between Canada and Asian countries, in particular.

Our really bad scores (where we rank below 100 out of 144 nations) are in mobile telephone subscriptions (111: could that be the cost?), government budget balance as a % of GDP (104), general government debt (129) and imports as a % of GDP (112). In none of these areas have we improved our rankings since 2011-2.

Another interesting outlier is in ‘business costs of terrorism’ where we came in at number 82, happily an improvement of our 93rd place the previous year. I assume this ranking still has to do with restrictions placed on US border crossings in the aftermath of 9/11.

A fascinating, but less well-reported, section of the report deals with ‘the most problematic factors for doing business’. These are derived from the WEF’s executive opinion survey. Respondents are asked to select from a list of 16 factors those five that they deem to be the most problematic for doing business, and then to rank them. Given that this is a ranking process, it does not pay to attribute too much import to the actual scores for each factor, but it is interesting to see what Canadian executives are worried about and how their concerns stack up relative to their counterparts in other countries.

The good news first. Once again, ‘crime and theft’ was not selected by any Canadian respondent as a major constraint to business (good to know that we have all those prisons in waiting, though…). We were not so lucky on corruption this year, no perfect zero. At least one executive must have had a bad experience, pushing us up to a score of 0.3.

But what about the top ranked concerns? The top five worries of Canada’s executives are, in order: (i) inefficient government bureaucracy; (ii) insufficient capacity to innovate; (iii) access to financing; (iv) inadequately educated workforce and (v) tax rates.

It seems a bit of a stretch that tax rates are still in the top five, given that corporate tax rates are at an all time low, though not, of course, nearly at the level of our low-tax competitors such as Qatar (10%), Singapore (17%) and Taiwan (17%). Tax rates are the top-ranked concern in four of the countries that are above us in the overall global competitiveness rankings (Sweden, Finland, the UK and Japan). They come a close second in the US. The actual rates are, according to KPMG figures, similar in Canada, Sweden, Finland and the UK, so I guess we are complaining relatively less than our peers about tax.

The other four factors that are important here in Canada are also important in most of our immediate competitor countries. Ten of the 14 most competitive countries rank government bureaucracy amongst their top five problems (along with us, only the US gives it top billing: is it a worse problem in north America or are we less tolerant of bureaucracy than the Europeans and Asians?). Eight countries see problems with capacity to innovate (Germany, the US, Japan, Qatar, Denmark and Taiwan are fortunate in that they do not rate this as a top five problem) and 11 of the top 14 countries’ executives experience problems with financing, again, unsurprising in the current climate. In four countries (the Netherlands, the UK, Qatar and Denmark) this is seen as the top problem.

So what does all this tell us? For me, it points to the need for effective policy and well-targeted government action. Innovation in the public service is, as Canada 2020 author Peter Nicholson suggested, a key concern. That should help businesses, as would the related issue of doing better on promoting innovation through government procurement.

Skills of different types are also a key factor in our competitiveness. There has been a good deal of commentary, of late, on the relative value of university education versus technical training. Both are critical, as is the need to ensure that we are matching skills training and our university enrollment with workplace needs. Employers also need to take responsibility here for on-the-job training.

I suspect we have much to learn here from the Swiss. In the indicator rankings they score top marks overall (no 1 ranking out of 144 countries) for both the quality of their educational system and the extent of staff training. But Swiss executives still rank an inadequately educated workforce as the most problematic factor for doing business. They know this is the key issue for the future. We still have a lot to learn.

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