Business Divided on Industrial Policy?

Challenges Facing the Canadian Manufacturing Sector – Interim Report of the House of Commons Standing Committee on Industry, Science and Technology

http://cmte.parl.gc.ca/cmte/CommitteePublication.aspx?COM=10476&Lang=1&SourceId=149639

This short report briefly analyzes some of the dynamics behind the manufacturing crisis, and summarizes policy recommendations presented to date (mainly by business associations.) It reveals some interesting tensions within the “business community.”

The key factors behind the crisis are – broadly correctly – judged to be the rapid appreciation of the Canadian dollar; increasing energy costs; and competition from emerging economies. Umbrella business organizations pointed to the “regulatory environment” but this theme was taken up to a much lesser extent by sector associations. Unsurprisingly, business submissions have not highlighted a major underlying problem – chronic business under-investment in new plant, machinery and equipment, innovation, and skills.

The short section on trade issues points to increased Asian import penetration of the Canadian market, but not to increased displacement of Canadian by Asian goods in the all-important US market. With about two-thirds of Canadian manufactured production being exported, it is loss of market share in the US and other markets which is most critical to Canadian production and jobs.

The report highlights the role of energy input costs, which doubled between 2000 and 2005, impacting severely upon sectors like pulp and paper and primary metals. At the same time, several presenters– notably the plastics industry – have taken up the idea of a national energy policy which would ensure adequate raw material feed-stocks for value-added production. However, no-one to date seems to have taken up the strong potential for manufacturing job creation which would result from a serious Canadian commitment to alternative energy, energy conservation, and other policies to deal with pressing environmental challenges.

Interestingly, a shortage of skilled workers was cited as a serious problem by a range of industry groups, despite ongoing, serious job losses. Several underlined the need for enhanced training incentives, and there was general recognition of the importance of recognition of skills and credentials of recent immigrants.

Also of interest is the fact that the large, umbrella business organizations – the Canadian Council of Chief Executives and Chamber of Commerce – have favoured broad “market friendly” policies like across the board corporate tax cuts, free trade and deregulation, while sectoral business groups often took up much more “interventionist” positions.

For example, they tend to favour tax measures which directly support new capital investment, such as accelerated depreciation for new equipment. Several clearly support continuation of existing industrial programs. The report makes it clear that direct government support for new investment and research and development has, in the view of the affected industries, been very important to the auto and aerospace sectors, and new industrial support programs are proposed by the clothing and textile industries.

When it comes to trade, several important sectoral organizations speak to the need for more regulated trade, with the auto industry pressing for safeguards in any new deal with Korea, and the clothing and textile industries pointing to the need for trade policy changes.

In short, the business voice as heard by this Committee to date is much more nuanced than that of the big business lobby groups.