A panel of distinguished speakers, all contributors to Canada 2020’s book, examined a range of health care issues and discussed the implications of the federal government’s recent announcement of a funding deal for provinces.

In December 2011, Finance Minister Jim Flaherty surprised Canadians with the news that the provinces will receive continued 6% annual increases in transfers until 2017, after which transfers will be set at the rate of nominal GDP growth with a guaranteed base of 3% per year.

At last night’s event, Paying for the Healthcare We Want, a crowd of 300 listened to expert opinions about the challenges facing Canada’s complex health care system. There was debate about whether the recent health care deal means the federal government has abandoned its role.

Mark Stabile, Director of the School of Public Policy and Governance at the University of Toronto, said it was a “pretty generous deal on the table” but he said the government has backed off its responsibility to some extent.

“I would not want this to be a long-term role for the federal government. But there can be an ongoing back and forth. In the long run, I hope there will be a much larger role for the federal government.”

He said it has opened up a national conversation about the issue.

Francesca Grosso, Principal at the consulting firm Grosso McCarthy and a former Director of Policy to the Ontario Minister of Health and Long Term Care, said she did not think the federal government has abandoned its responsibilities, citing the many national health care agencies.

“I think the federal government has a tremendous role in health care.”

She also spoke about one of the major problems facing provinces such as Ontario: the vast amount of money going into complex groups of organizations, leading to duplication of services. She said it is not always the best use of dollars, pointing out that some patients leaving hospital and receiving homecare are assessed as many as three different times.

The Canada 2020 event was a timely one, coming just days after Ontario’s Health Minister announced it is cutting a number of doctors’ fees. The announcement led to debate, both in the media and at the event last night, about the medical fee structure and the self-employed status of doctors in Canada.

Michael Decter, a Harvard-trained economist and leading Canadian expert on health systems, spoke about the history and context surrounding the health care debate. He talked about the focus on wait times in the 2004 health care accord, a deal designed to be a 10-year road map, and how the provinces and the federal government “had their direction shaped more by public opinion.” He said the emphasis on wait times led to some reductions but “it masked the larger issue that we really hadn’t come to terms with, which we now have to face.”

That issue: Canada has built a system based on dealing with acute care yet, with an ageing population, we are facing more chronic diseases. Decter, who served as Deputy Minister of Health for Ontario and is the Founding Chair of the Health Council of Canada, argued Canada needs to focus on homecare and chronic disease, as well as more community and patient-centred care.

Decter and Grosso, who worked together on the Health Council of Canada and co-authored the 2006 book Navigating Canada’s Health Care: A User Guide to the Canadian Health Care System, were in agreement that the federal government will lead in very narrow areas. Decter referred to the mental health commission started by the Harper government.

Decter described the Canada Health Act as “a wonderful shield and sword” and spoke about how he would like to see more variations in care. He talked about how in the Northwest Territories many nurse practitioners do the same work as doctors, yet there is resistance to this alternative arrangement in other parts of the country.

There are going to be some difficult conversations going forward, especially as the population ages, noted Decter. Canada has a universal system but, he said, many people feel that should mean we all get the same services. “A universal system should be based on need. So you should get the service you need, not the same service as everyone else.”

The discussion delved into whether the new funding formula will push the provinces to become more innovative.

Philippe Couillard, who practiced medicine for 17 years and is Strategic Advisor at SECOR Group, said there needs to be more sharing of innovative ideas across the country. Couillard, also a former Minister of Health in Quebec and chair of the Health Research Foundation of Canada, said provinces are slow to share best practices and he suggested the federal government could play a role in this area.

There was discussion about the private delivery of publicly-funded services and the risks – both in terms of cost and quality – in expanding into areas beyond simple medical procedures.

The panel also took questions from the audience and through Twitter. One question dealt with the ongoing challenge of doctor shortages, while another focussed on the dismal state of health among the aboriginal community (panel members suggested the bigger underlying problems are the lack of education and job prospects among young people, as well as the poor housing – and that this is where the money should be directed). The issue of a national pharmacare plan also came up in discussion, as well in a question from the audience. There were no quick solutions offered on this subject.

Susan Smith, Co-founder of Canada 2020, encouraged the audience to participate in the health care debate by going to the Canada 2020 website to share comments and views.

Last night’s event was the fifth discussion based on the Canada 2020 book. Each panel discussion covered a different issue.

Smith also announced that Canada 2020’s next event will be on September 26. The guest speaker will be Dr. Eric Topol, a renowned professor of genomics in California who Smith noted has been named one of the “12 rock stars of science.” His much anticipated talk will be titled “The Digital Revolution: How it will create better healthcare.”

Provincial premiers and health care stakeholders had been gearing up for a noisy battle with the Conservative government around renewal of the 2004 Health Accord.

Confounding expectations, in December 2011, Finance Minister Jim Flaherty announced a unilateral renewal of federal health funding. The “deal” provides six per cent annually for the next five years, and after that no less than three per cent per year. This unanticipated federal generosity leaves the provinces with the ability to manage federal health care dollars as they choose.

It also deprives them of the federal government as a convenient scapegoat.

It places full responsibility on the provinces for shaping the future of health care delivery within the universalist and public principles of the Canada Health Act.

The Ontario government is committed to holding spending growth in health care to 2.1 per cent per year, down dramatically from a historic, eight-year growth rate of 7.4 per cent. To meet its target, Ontario will need to find $2 billion of annual savings. The recent Ontario Health Action Plan highlights aggressive bargaining with doctors and health care unions as well as lowered drug costs as key cost-saving strategies. However, even if real zeros can be achieved in these areas, such strategies will yield only about half the required savings.

What other cost-cutting measures might the provinces consider that could improve patient care?

Fewer health organizations

Ontario’s Drummond Commission questioned whether the 2,500 separate governance bodies in the Ontario health care system actually result in effective governance. His answer: probably not.

More importantly, we should ask whether more governance means better health care.

Individual governance bodies are largely concerned with the quality of the care in their own institutions. Transitions of care are not governed by anyone; no single organization is responsible for the patient journey across many health care settings. The one per cent of patients with multiple conditions who account for 49 per cent of total health care costs, are under-managed. Many simply fall between the cracks.

Reform is therefore required not only for cost-saving reasons, but also to improve quality of care.

Get rid of processes that are unnecessary orredundant

In Saskatchewan, Premier Brad Wall is implementing the Toyota Corporation “lean” philosophy as a way of removing unnecessary and inefficient processes from health care delivery. Significant savings are being achieved.

At the same time, Ontario patients being discharged from hospitals may undergo as many as three home-care assessments, all before a single home-care visit takes place (one by the hospital to determine if home care is needed; one by the Community Care Access Centre to determine the appropriate kind and number of visits; and another by the actual home-care provider).

We are spending a disproportionate number of public dollars in the management and assessment of need rather than on the care itself. The government should cut out duplication, streamline administrative layers and put the money into front-line care and home-care visits.

Reduce unnecessary readmissions to hospitals

Unplanned readmissions to hospitals are significant and, according to various studies, often avoidable. Shortened hospital stays mean that patients may be discharged quicker but sicker. In Ontario, the readmission rate is around 15 per cent. This is high. Many different problems can emerge for patients post-discharge. However, a study conducted by the University of Toronto found discharged patients were about 28 per cent less likely to be readmitted to hospital within seven to 30 days if they had a home-care visit within one day of discharge. That statistic alone merits action.

Use health care professionals more effectively

In Ontario we operate on the assumption that each medical emergency call means an ambulance dispatch to the ER. In Nova Scotia, calls are triaged and dispatched by paramedics through one centralized system. A medical communications officer determines the right service for each patient, whether it is ground or air ambulance or an extended care paramedic (ECP). ECPs have advanced training in geriatric care and can treat elderly patients for things such as stitches, replacing catheters, etc. in their place of residence. One year into the program, more than 70 per cent of callers avoided a trip to the ER.

Move services out of hospitals

Today, about 80 per cent of all hospital surgery is conducted as day surgery on an outpatient basis. This represents a vast cost improvement for the hospitals. However, we are still conducting surgeries in the most expensive setting — one constructed to house infrastructures required for complex care and in which labour costs and staffing levels are very high. There are more than 700 Independent Health Facilities licensed in Ontario. Some of these facilities could provide uncomplicated procedures with higher efficiency and volumes.

It is also well known that volumes lead to better outcomes — practice does make perfect. At the Kensington Eye Clinic, for example, the volume of cataract surgery has led to economies as well as greater access.

Innovative change can curb health care cost growth while improving outcomes and patient safety. The challenge is to make innovation work for patients and for taxpayers.

Francesca Grosso is a principal at Grosso McCarthy and former director of policy for the Ontario minister of health. Michael Decter is founding chair of the Health Council of Canada and former deputy minister of health for Ontario. The authors are contributors to Canada 2020’s project ‘The Canada We Want in 2020: Towards a strategic policy roadmap for the federal government.’ They will be presenting at the Canada 2020 event, Securing our Health Care System for the Future, in Ottawa on Thursday. Watch live at canada2020.ca/live at 5:30 p.m. or join the discussion during a live chat with the authors Thursday at noon at ottawacitizen.com.

The Ottawa Citizen, May 10, 2012.

In December 2011 Minister Flaherty announced a surprise new funding ‘deal’ for the provinces. They will receive continued 6% annual increases in federal transfers until 2017, after which transfers will be pegged at the rate of nominal GDP growth with a guaranteed base of 3% a year. Payments will be per capita based with no provision to differentiate according to population characteristics (age, etc.).

This unilateral announcement has significantly curtailed debate about healthcare funding and the federal role. The focus is now on the provinces and how they can rein in their own spending and make their health systems more effective.

Some facts

• Health spending accounted for 11.4% of GDP in Canada in 2009, almost two percentage points higher than the OECD average of 9.5%. The US spends over 17% of GDP.
• Canadian provinces currently spend an average of about 40% of their total budgets on healthcare (range between about 33% – Quebec and NFL – and 45% – Alberta and Manitoba)
• Approximately 70% of healthcare costs in Canada are publicly-funded. This is low compared to most countries (22^ndin the OECD) largely because there is no national pharmacare program and only a limited focus on meeting chronic care needs.
• Despite the relatively high level of health expenditure in Canada, there are fewer physicians per capita than in most other OECD countries, although numbers have been growing in recent years. We also have less equipment (8 MRI machines per million people as opposed to OECD average of 12, and 14 CT scanners vs. OECD average of 22).
• Canadian physicians’ salaries are the third highest in the OECD.

Key issues

• How do the provinces stand on the unilateral federal funding announcement? They get more money than they thought they might and less interference, but they also have nobody to blame but themselves as they move forward.
• Are the provinces capable of working together to address issues of common concern? What are the main constraints to reform of the various provincial health systems? Will federal withdrawal spawn a culture of leadership, innovation (and mutual learning) at provincial level that could be highly beneficial?
• What are the implications for the Canadian health system of the federal withdrawal? Does care become more uneven across the country? Do continued challenges to the Canada Health Act eventually weaken this beyond recognition? Is the federal government giving up an important opportunity to `buy change’ or exercise leadership (or was this never possible anyway)?
• Financing problems have not gone away. No developed country has succeeded in keeping healthcare spending in check. We are therefore likely to require new sources of funding for health at either federal or provincial level over the next decade. Where will the money come from?
• What of the crisis in aboriginal health? We have had few indications of how the federal government expects to move in this area. The National Aboriginal Health Organization is being cut, but ostensibly for governance reasons. Devolving aboriginal healthcare away from the federal govt. may well be the best solution. How does this happen?
• Does this deal signify the end of any meaningful federal role in health or are future governments likely to try to reverse the withdrawal?

In December 2011 the federal finance minister unexpectedly – and unilaterally – announced a surprisingly generous new offer to the provinces: continued 6% annual increases in federal transfers for three years after the current health accord ends, after which transfers will be pegged at the rate of nominal GDP growth with a guaranteed base of 3% a year.

This money comes with no strings attached. The federal government seems to have abandoned the semblance of a policy role in healthcare, beyond its fiduciary responsibilities to aboriginal health (enshrined in the Constitution), its responsibility for military healthcare, its funding of health research, and its role in drug approvals.

What does this mean for us, the consumers – and ultimate financers – of healthcare in Canada?

The healthcare authors in our book, The Canada We Want in 2020, writing before the December 2011 announcement, all agreed that the there was an important leadership role for the federal government in healthcare. In particular, they suggested that an active federal government, acting in a sensitive and collaborative mode, could help address many of the core challenges that our system faces. These include:

• addressing the disparity in care across provinces/communities (developing, en route a meaningful set of common indicators);
• stimulating a process of modernization so that our healthcare system better addresses current needs (such as chronic rather than acute care and addressing the high cost of outpatient drugs/the need for a national pharmacare programme);
• ensuring better and more consistent evaluation of which procedures should be funded (evidence-based not media-driven decision-making);
• institutionalizing a culture of innovation in healthcare;
• placing a clear focus on healthcare outcomes, within a systems approach, rather than concentrating on inputs and procedures;
• helping to forge a societal consensus on paying for healthcare and providing leadership on diversified revenue sources.

This pro-federal leadership viewpoint is also espoused in a March 2012 Senate report entitled, Time for Transformative Change: A Review of the 2004 Health Accord. This largely unpublicized report notes: “…..there is a need for federal leadership in promoting healthcare reform across jurisdictions.” (p. 83).

Apparently, the federal government disagrees. All these deep and difficult challenges will now be left to the provinces. It has therefore provided a swift answer to the question posed in our volume by Philippe Couillard, physician and former Quebec Minister of Health: Does [the federal government] want 2014 to be a low-profile rubber stamping event or does it wasn’t renewal of our health system to be part of its legacy?

For if renewal does take place – and that is a big if – it must be the provinces that take the lead (and thus the glory). Whether they will be capable, or willing, to do this remains to be seen. The challenge is all the greater since many of the problems of healthcare, such as inter-provincial disparities, may actually be exacerbated by the new federal stance. Under the new arrangements, federal funding will be allocated on a strict per capita basis across the country. (At present it is a mixture of per capita payments and tax points which means that certain provinces, notably Alberta, receive much less per capita than others). The new arrangements could have a negative impact on those provinces with a higher proportion of older – more expensive in healthcare terms – Canadians.

Though Canada’s health system scores well on important indicators (for example, we are above average on life expectancy at birth and at age 65, though dismally below average for the aboriginal population), ours remains one of the most expensive systems in the world. Health spending accounts for 11.4% of GDP, almost 2% above the OECD average.

Sadly, the problem of financing healthcare has not miraculously disappeared with this announcement. Increasing amounts of money still need to be found and if new sources of revenue are not identified (for example, the type of social insurance premium that our author, Mark Stabile talked about in his piece), healthcare financing will continue to squeeze other priorities in both federal and provincial budgets.

Neither have the severe problems around First Nations’ healthcare been resolved. The federal government has recently announced that its National Aboriginal Health Organization will cease to operate by June 30, 2012. It is not year clear what path has been chosen for moving forward in this area.

Maybe, though, the provinces will surprise us. Now that their energies need no longer be wasted on battling the federal government on healthcare, perhaps they will be put to better use innovating, modernizing and refocusing.  Time will tell. Polls suggest that most Canadians still want a federal role in health. But, regardless of who is taking the decisions, our contention at Canada 2020 is that the policy issues around healthcare for all Canadians must remain firmly in the spotlight.

The panel led a timely discussion on Canada’s relationship with Asia, generating debate and questions about why Canada has not yet seized on the tremendous opportunities in China and other Asian countries.

The event, held at the Chateau Laurier last night, attracted the largest ever number of registrants to a Canada 2020 event. Organizers had to move the event to one of the hotel’s biggest rooms to accommodate the crowd of more than 300 people.

Diana Carney, VP of Special Projects at Canada 2020, introduced the speakers and noted Canada has been a “laggard” when it comes to Asia. For Canada, there are threats and opportunities and what remains to be seen is whether the threats or the challenges triumph, she told the crowd.

Last night’s panel included distinguished experts on Asia, three of whom authored articles in the Canada 2020 book The Canada We Want in 2020: Towards a Strategic Policy Roadmap for the Federal Government. The event was the fourth of five panels based on the book.

Dominic Barton, a Canadian who is the Global Managing Director at McKinsey & Co., worked in Asia from 2000-2009. He is frustrated by Canada’s lack of progress in Asia: “We are way far behind most countries in the world and I think it is actually embarrassing. There is a huge opportunity, as we all know, but we are way behind.”

When he worked in Shanghai and Korea, he watched many Canadian firms arrive in Asia, but noted that few invested.

He spoke about agri-food being an area of tremendous opportunity and said Canada should take on a greater role in research and development in clean technology (so that we can offer an `energy package’ to Asian customers).  Education and tourism are other areas of opportunity.

Also on the panel was Yuen Pau Woo, President and CEO of the Asia Pacific Foundation of Canada. He said Asia is clearly on Canada’s radar – Prime Minister Stephen Harper has made two trips in the past three months and the 2012 federal budget underscores the focus on Asia. However, he noted that he was astonished that we have not responded more enthusiastically to China’s recent and unprecedented offer to negotiate a free trade deal with our country.

In his view, Canada’s latest efforts in Asia are little more than a “catch-up strategy” when what the country needs is a “leap-frog strategy” that capitalizes on our assets, primarily the strong personal ties between China and Canada, and our energy resources.

“I believe we have the longest, deepest and most profound ties that China has with any Western country,” said Mr. Woo.

On energy, he said, Canada is a unique position. “The way in which the geo-politics of energy are shaping up suggest that Asia, in its long-term quest for energy security, can find a long-term partner in Canada.”

Mr. Woo also argued that it is not just about China, and not just about oil. He noted growing opportunities to export liquefied natural gas (LNG) to Asia, especially Japan,  which is moving away from nuclear energy after the Fukushima disaster.

Rana Sarkar, President and Chief Executive Officer of the Canada-India Business Council, spoke about the importance of intra-Asian relations, noting that the relationship between India and China will be “one of the greatest transforming relationships in the 21^st century.”

He added that Canada’s mindset in terms of Asia is stuck in the past. “We are running 20^th century software for a 21^st century problem and that is fundamentally the issue.”

He said Canada should not take its eye off India. The last time a Canadian Prime Minister visited India was in 2009, he pointed out.

The Canada 2020 event also heard from guest speaker Peter Wilkinson, Senior Vice-President of Government Relations at Manulife Financial and a former chief of staff to the Ontario Premier and Minister of Finance.  He detailed his firm’s longstanding relationship with Asia: Manulife has been doing business in Asia for more than a century.

His advice: Companies should look to government for help and support but, ultimately, the private sector should not wait for government to pave the way for international expansion.

Mr. Wilkinson said it is worth the effort required to do well in Asia. “Whether you are promoting Canada in Asia or Asia to Canadian business, the bottom line is this: you are investing in your success and Canada’s future.”

After a lively debate and discussion, the panel took a number of questions from the audience and through Twitter, from those watching the livestream coverage. Questions focussed on the barriers to investing in China, how to balance human rights issues with economic benefits, about political stability in China, whether government action will spur on companies, and why the Canadian government has become more receptive to doing business in China in recent years.

One of the biggest questions of the night: why is Canada so far behind other countries in embracing Asia? Panellists speculated it is easier to do business with America, which is so close by, that Canadians are reluctant to take risks, and that Canadian companies have difficulty closing deals in Asia and are not prepared to put in the time and energy to understand the vastly different business culture.

Mr. Woo said, surprisingly, there is also limited support for an Asian strategy among Canadians. People in this country see the opportunities in Asia but are both nervous and ambivalent and reluctant to invest in learning about Asia languages and culture.

The event closed with an invitation from the organizers to stay engaged in the debate, through attending future events and visiting the Canada 2020 website.

Canada 2020’s next panel discussion, on May 10, will focus on the federal role in healthcare.

The recent federal budget underscores this leaning towards Asia, with its focus on trade and investment negotiations across the region. Canada is now in various stages of bilateral free trade talks with five Asian countries, and is making the case for entry into the Trans Pacific Partnership (TPP), a grouping of nine Asia Pacific economies.

If the government seems to be in a bit of hurry on Asia, there is good reason. Canada’s market share in Asia is below potential, we have no full trade agreements with Asian countries, and Ottawa has not been invited to regional clubs such as the East Asian Summit.

Entry into the TPP is by no means assured.  Ironically, one of the main obstacles is our closest ally and trading partner, as was evident in the remarks by President Obama at the recent Canada-US-Mexico Summit. Obama suggested that Canada’s supply management system for dairy and poultry products could be a deal breaker. This issue was known to be problematic, but it is telling that the US President would draw attention to it rather than to the importance of bilateral economic ties and the proven success of NAFTA.  Even though the US has clearly made a policy “pivot” towards Asia, there little indication to date that Washington DC considers Canada as playing a useful supporting role for American objectives in the region.

Canada is playing catch-up in Asia, which explains the frenetic pace that this government has set for itself on trade agreements.  In my paper for Canada 2020, I outlined the elements of a “catch-up” strategy on Asia and am pleased to see that many of these ideas are now being implemented.  If the current policy tilt to Asia is sustained, there is every reason to believe that we can indeed catch-up.

But there are no prizes for simply entering the race. To recognize that China and India are global powers and that Asia is vital for Canada’s future prosperity is simply to be on the same page as every other major industrialized country.

In addition to a catch-up strategy, Canada needs a leap-frog strategy.  The goal should be no less than for Canada to be the most Asia-engaged country in the western world.

Leap-frogging our competitors will require a commitment at the federal and provincial levels, as well as by business and civil society, to make sure that Canadians have the knowledge and skills to be effective in an increasingly Asia-centric world. If future generations of Canadian leaders are to become more Asia-engaged, there will have to be substantially more teaching about Asia and Asian languages in the education system, including at the elementary and high school levels.

In one key area, Canada can already lay claim to be the most Asia-connected country in the industrialized world. In relative terms, human ties between China and Canada are longer and deeper than for any western country, and in Vancouver we have arguably the most Asian city outside of Asia. These are assets in the Canada-Asia relationship that are grossly underutilized; they offer the potential to leverage diplomatic, commercial and civil-society ties with Asian countries that other western countries can only regard with envy.

The federal government’s Asia Pacific Gateway and Corridors Initiative (APGCI), for example, has set the stage for Vancouver to become not simply the preferred entry point for Asian shipments to North America, but the premier hub for government, business, cultural, and research linkages connecting the two sides of the Pacific. A gateway is valuable in part because of what passes through it, but more so because of the value-added activity that happens within and around it. The next phase of the APGCI should therefore focus on the “gateway economy”, which would include activities such as the development of business and professional services for global Asian firms and the attraction of Asian head offices for their North American operations.

In the near-term, the most important game-changer in the Canada-Asia relationship is energy exports. Current debate around oil sands and shale gas development in western Canada, and the construction of the Northern Gateway pipeline to the coast, focuses largely on the impact on Canadians, especially First Nations. The bigger story, however, is that the coming energy glut in North America could lead to the creation of a trans-Pacific energy market. In addition to significant economic benefits for Canada, energy trade across the Pacific could lead to increased energy security in Asia, superior environmental outcomes in the region, a more balanced trade relationship, and stronger diplomatic ties with Asian countries.

As global economic and political weight continues to shift towards Asia, Canada has to work harder just to be noticed. Our ability to put in place the infrastructure and regulatory framework for energy exports – and to foster cooperation on energy issues more broadly, including on renewables – will be watched closely in Asia.

It is in some ways a major test for Canada-Asia relations: success will mean a significant new platform for trans-Pacific ties in an area that matters hugely to Asia.  Failure, on the other hand, will signal that Canada cannot muster the political will to diversify its economy, even where the opportunity and potential is so clearly evident.

This, in turn, raises a scenario that I would rather not contemplate: that we neither catch-up, nor leap-frog, but instead fall further behind in our ties with the most economically dynamic region in the world.

Yuen Pau Woo is President and CEO of the Asia Pacific Foundation of Canada.

Ottawa Citizen, April 11 2012

This budget, like many others over the past fifteen years, spills a lot of ink on Canada’s well- documented innovation deficit.  There is a whole chapter on “supporting entrepreneurs, innovators and world class research”.  The government claims that its approach to innovation policy, as outlined in the Budget, will, over time, transform Canada’s economy, making it much more innovative and globally competitive. This, in turn, will secure our prosperity.

Does the substance in Budget 2012 line up with that claim?

For at least fifteen years, successive governments – Liberal and Conservative – have tried to improve the Canadian business sector’s woeful innovation performance, primarily through spending and tax measures of various kinds. These are aimed at stimulating private and public sector research and development, and the commercialization of that research. Spending on R&D is effectively considered, in government circles, to be a rough proxy for innovation. As a result, we have seen a litany of tax and spending measures over the years, and the creation of all kinds of new entities to deliver that agenda.  And yet Canada has barely moved the needle at all on innovation and productivity performance.

Budget 2012 devotes a total of $1.1 billion over five years to improving Canada’s innovation performance.  To some, that might sound like a lot of money, especially in the context of an austerity-focused government.  It isn’t: it is trivial.  It amounts to one tenth of one percent of total federal spending.  It is a drop in the ocean in a $1.75 trillion economy.  It is considerably less innovation-related expenditure than most governments – including previous Conservative governments – have apportioned in recent budgets.

So how can the government seriously claim that Budget 2012 is all about the economy’s long-term prosperity, which it acknowledges is bound up with improving Canada’s innovation performance?

Here’s how.

Budget 2012 basically throws in the towel on the traditional federal approach to improving innovation performance through government spending and tax incentives.  The government seems to have concluded that this standard remedy isn’t working after many years of considerable federal effort.  The evidence suggests they are right.

The government also seems to have concluded that the most significant thing they can do to improve Canada’s innovation performance is to expose the Canadian business sector to the full forces of global business competition.  This is the Harper government’s new innovation agenda for Canada.

Budget 2012 is unique, and quite bold, among recent federal budgets in one respect.  It devotes 10 pages to outlining how the government is “expanding trade and opening new markets for Canadian business”.  This globalization agenda has been emerging piecemeal over the past 18 months, and is now laid bare for all to see in the Budget.  The Harper government is embarking upon the most significant international trade agenda in memory – opening up free trade talks with the EU, India, Japan and the Trans Pacific Partnership (a multi-lateral free trade agreement centered in Asia), and beginning exploratory free trade discussions with Thailand and Mercosur (a customs union involving four large south American countries).  In addition, the government recently signed a foreign investment protection agreement with China – which was 18 years in the making – and is now finally taking a serious interest in Chinese trade and investment.

Exposing Canadian business to the full forces of global market competition, and prying open foreign markets for Canadian exports, is also a textbook way to drive innovation performance in the business sector.  And it doesn’t cost a penny pinching (and penny eliminating) government any money at all to do so.

That is why Budget 2012—“the small change budget”—could actually do as the government says, and significantly improve Canada’s innovation performance in a way no previous government has been able to.  The only remaining question is this:  Are Canadian businesses and workers prepared to meet the gale winds of global competition?

Asia’s growing importance is undisputed. It is not only in economic, but also in cultural and political/security spheres, that the region is rising. China, in particular, is playing an increasing role in the definition of the global architecture. For all these reasons, Canada needs to up the ante in Asia.

Having been missing in action for several years, Canada – and the federal government in particular – has now rekindled its interest in Asia and appears to be acting with some urgency.  The current emphasis seems to be very much on bilateral trade agreements, with some efforts to enter multilateral bodies such as the Trans Pacific Partnership. Energy exports are being dangled as the main prize and there is a flurry of activity around the Northern Gateway pipeline.

It is, however, not yet clear that Canada has a broader, unifying strategy for the region. Such a strategy will be an important element in persuading Canadian companies and educational establishments of the merits of refocusing their efforts on the growth economies of Asia and in achieving success in this highly competitive area.

Current status

Canada’s trade with Asia has been growing rapidly but still accounts for only about 15% of total trade. Exports are dominated by natural resources (around 60% of our exports to China). Lumber products (wood, pulp and paper) account for about 25% of our exports to both India and China.

Trade talks are currently ongoing with: China, India, Japan, Singapore, Korea, Philippines, Thailand and Vietnam.

Cultural and educational links with Asia are generally ad hoc and institution-dependent.

Key issues

• We need to find a way to bring Canada to the top of the Asia mind. We are entering a very competitive sphere: what are the key elements of an effective Asia strategy? Are different strategies required for the different countries?
• To what extent should we prioritize Asia as a trading partner? Will better relations with Asia jeopardize our relations with the US? If so, is it worth it?
• Many of our trade deals with Asia are stalled due to protectionist lobbies at home (auto, agricultural) and/or concerns about human rights. Can a path between conflicting interests and values be found? How much compromise should we accept?
• Everyone agrees that an effective Asia strategy will need to go beyond conventional trade agreements. But how broad should it be? Are all elements equally important?
• How important are energy exports (and resource exports, more generally) to our relationship with Asia? How can we ensure that we maximize the value we gain from our finite resources and use them to deepen and extend our overall relationships with Asian countries? Would the establishment of a sovereign wealth fund help? Should we be doing more processing in Canada to capture greater value?
• There are enormous sensitivities around foreign investment in strategic resources. Chinese investment is viewed with particular concern. Is this merited?
• What is Canada’s international narrative? How do we bring Canadian public opinion along?

The economic links between Canada and the US are broad as well as deep.  There is a deep web of ‘connective tissue’ that binds the two countries, not just economically, but also socially, culturally, and politically. Asia, on the other hand, feels geographically and culturally distant. Links are sparse and Canadian businesses lag their rivals in terms of Asian penetration: only half of the 20 largest Canadian companies have operations in Asia – 100% of the top 20 American companies do.

Canada has a significant mountain to climb. Recent McKinsey research found that not only did many Chinese consumers not know where Canada was, but that the only reference they had for the country was that it was the “place to go for clean air”.

The re-orientation of Canada’s economy towards Asia is unlikely to happen organically – and certainly not at the speed required. The kind of strategic thinking, action and coordination required to achieve this will be a challenge in Canada’s decentralized system of governance.  But previous challenges have brought Canada’s government, business and civil society communities together to act jointly to address major issues. We must do it again. For without such strategic action, Canada’s future prosperity and political power and relevance are at risk.

A first step is for the Prime Minister to appoint a Minister for Asia and establish an Asia Advisory Council made up of 15-20 influential Asia-based politicians and business people. The Minister for Asia would be a key contact point for Canadian businesses, civil society and Asian governments.

Second, we should seek to build on our strong base of human ties with Asia. Increasing the number of Asian students studying in Canada has benefits beyond the pure economics; it also extends personal links that will bear fruit into the future. At the same time we should increase Asian content in our own education system.

Governments in Asia are very strategic about supporting their own companies. We should take a leaf out of their book, identifying and actively supporting strategic sectors. There are many good candidates, including infrastructure, agri-food, aerospace and financial services.

Canada has some of the most admired infrastructure in the world and China has a huge infrastructure need: by 2025 more than 220 Chinese cities will have over 1 million inhabitants. Our financial system came through the 2008 crisis in stronger shape than those of other developed economies and our regulatory system and banks are globally recognized for effective governance and risk management. Aerospace presents another opportunity. China and other Asian countries are keen to develop aerospace industries.  Bombardier is the third largest civil aircraft manufacturer in the world and we also have many successful suppliers to the industry.

Growing Asian interest in both consuming and owning Canadian resources is inevitable. This presents opportunities and risks for Canada. Overseas investment could help bring down the cost of development, expand and modernize our resource infrastructure and create more jobs for Canadians. To take full advantage of this opportunity Canada must proactively invest in its resource infrastructure. We cannot build an energy link to Asia, nor become an energy superpower, unless pipelines to the West Coast are built and the necessary export facilities and shipping lanes authorized.

At the same time, it is imperative that Canada has in place an effective long-term plan for managing its own resources. Our current policy on foreign ownership is unclear to many. We must also ensure that we are not simply spending the wealth of future generations. The Government of Canada should consider working with resource rich provinces to establish an investment fund, like Norway’s, to ensure that future generations of Canadians benefit as much as Canadians of today.

The world is re-balancing towards Asia; Canada must re-balance with it. This will not happen without strong federal government leadership. Canada’s own Asia century must start now.

Dominic Barton is global managing director at McKinsey and Company.

Ottawa Citizen, November 24, 2011

On Tuesday the Liberal government tabled its long-awaited budget to wrestle the province’s eye-watering deficit to the ground and avert a fiscal meltdown in Ontario. The budget sets out a path to deficit elimination within five years. Predictably, it is already being assailed by the right as too little too late, and by the left — embodied to a large degree in the public sector unions — as draconian and regressive.

In fact, as austerity budgets go, this is among the most progressive we’ve seen in this country — meaning the fiscal tightening falls mostly on those who can afford to take a financial hit, rather than those who cannot. This ensures the budget will pass the legislature with help from the NDP, even though their public service union supporters are rejecting it outright.

What are some of the budget’s progressive features?

For starters, the government is refraining from following through with its much trumpeted corporate tax cuts. This will save $1.5 billion over the next three years.

Even more significantly, the government is not cutting benefits to the lowest-income, most vulnerable Ontarians, opting instead to merely slow the growth of these transfers (The Ontario Child Benefit, Ontario’s signature anti-poverty measure, will continue to grow through 2014 but at a slower rate). Some social assistance benefits will be frozen but there are no planned cuts, though this is a favourite target of previous governments.

This approach to the disadvantaged is not only progressive but politically courageous. Low-income people — who exhibit chronic low-voter turnout syndrome — cannot be counted on to vote in large numbers and return the premier to office at the next election, nor will they be advancing a spirited defence of his progressive impulses in the op-ed pages and on the talk shows.

Another progressive-minded reform in this budget is its requirement that relatively well-off seniors — those who have an income of $100,000 per year or more or couples with incomes of $160,000 or more — pay higher deductibles for their prescription drugs. Income testing social benefits is about as progressive as one can get and has been a hallmark of Canadian social policy at the federal and provincial level for two decades now. It is long overdue in this case.

The biggest cuts in the McGuinty budget are in respect to the salaries, pensions and other benefits in the broad public sector — including teachers, doctors and nurses — who have seen their wages and benefits rise significantly in recent years, and who, frankly, can afford to contribute something to help the province solve its fiscal problems. Doctors’ salaries, for example, have increased more than $5 billion over the past eight years, and now account for 23 per cent of total health costs.

Basically, the government plans to cap the wage and benefits bill of the broad public sector at its current level, once collective agreements run out, and keep it that way for a few years to flatten the compensation cost curve. This move does not add up to draconian, regressive austerity, as the public sector unions are implying. Anyone who thinks it does should consider that the federal government, which has a far less serious fiscal situation than Queen’s Park, is about to “surplus” 20,000 to 30,000 public servants in the name of austerity.